is computed under paragraph 40(2)(b) or (c). 4. Under subparagraph 40(2)(g)(iii), a loss on a disposition of personal-use property, other than listed personal property, is deemed to be nil. [...] This part of the bulletin indicates that a gain might be considered a capital gain - not income. However, you don't get to book a loss as a capital loss. This is the first hint that your book sale - which is actually an exempt capital loss - shouldn't go on your tax return unless it's one of the \"\"listed\"\" items: LISTED PERSONAL PROPERTY 7. Listed personal property is defined in paragraph 54(e) to mean personal-use property that is all or any portion of, or any interest in or right to, any (a) print, etching, drawing, painting, sculpture, or other similar work of art, (b) jewellery, (c) rare folio, rare manuscript, or rare book, (d) stamp, or (e) coin. So unless you're selling rare books, the disposition (sale) of them is essentially exempt as income, regardless of whether you sold it at a profit or at a loss. If it is rare, then you might be able to consider it a capital loss, which doesn't help you much unless you had other capital gains, but you can carry over capital losses to future years. There's also a newer IT related to hobbies and \"\"collecting\"\" items, IT-334R2. This one says: 11. In order for any activity or pursuit to be regarded as a source of income, there must be a reasonable expectation of profit. Where such an expectation does not exist (as is the case with most hobbies), neither amounts received nor expenses incurred are included in the income computation for tax purposes and any excess of expenses over receipts is a personal or living expense, the deduction of which is denied by paragraph 18(1)(h). On the other hand, if the hobby or pastime results in receipts of revenue in excess of expenses, that fact is a strong indication that the hobby is a venture with an expectation of profit; if so, the net income may be taxable as income from a business. The current version of IT-504, Visual Artists and Writers, discusses the concept of \"\"a reasonable expectation of profit\"\" in greater detail. Where a hobby consists of collecting personal-use property or listed personal property, dispositions should be accounted for as described in the current version of IT-332, Personal-Use Property. (emphasis mine) In other words, if it's not the type of thing where you'd make a tax deduction when you bought it in the first place, then you clearly don't need to report it as income when you sell it. Just to be absolutely clear here: The fact that you are selling them at a loss is not actually what's important here. What's important is that, if the books aren't collectibles, then you would have had no expectation of profit. If you did have that expectation then you could have made a tax deduction when you first purchased them. So in this case, it is probably not necessary for you to report the income; however, for the benefit of other readers, in some cases you might need to report it under \"\"other income\"\" or book it as a capital gain/loss, depending on what those personal items are and whether or not you made a net profit.\"","\"You can exclude up to $250000 ($500000 for married filing jointly) of capital gains on property which was your primary residence for at least 2 years within the 5 years preceding the sale. This is called \"\"Section 121 exclusion\"\". See the IRS publication 523 for more details. Gains is the difference between your cost basis (money you paid for the property) and the proceeds (money you got when you sold it). Note that the amounts you deducted for depreciation (or were allowed to deduct during the period the condo was a rental, even if you chose not to) will be taxed at a special rate of 25% - this is called \"\"depreciation recapture\"\", and is discussed in the IRS publication 544.\"","Your question is best asked of a tax expert, not random people on the internet. Such an expert will help you ask the right questions. For example you did not point out the country or state in which you live. That matters. First point is that you will not pay tax on 60K, its expensive to transact real estate, so your net proceeds will be closer to 40K. Also you can probably the deduct the costs of improvements. You implied that you really like this rental property. If that is the case, why would you sell...ever? This home could be a central part of your financial independence plan. So keep it until you die. IIRC when it passes to your heirs, a new cost basis is formed thereby not passing the tax burden onto them. (Assuming the property is located in the US.)","No, it's not all long-term capital gain. Depending on the facts of your situation, it will be either ordinary income or partially short-term capital gain. You should consider consulting a tax lawyer if you have this issue. This is sort of a weird little corner of the tax law. IRC §§1221-1223 don't go into it, nor do the attendant Regs. It also somewhat stumped the people on TaxAlmanac years ago (they mostly punted and just declared it self-employment income, avoiding the holding period issue). But I did manage to find it in BNA Portfolio 562, buried in there. That cited to a court case Comm'r v. Williams, 256 F.2d 152 (5th Cir. 1958) and to Revenue Ruling 75-524 (and to another Rev. Rul.). Rev Rul 75-524 cites Fred Draper, 32 T.C. 545 (1959) for the proposition that assets are acquired progressively as they are built. Note also that land and improvements on it are treated as separate assets for purposes of depreciation (Pub 946). So between Williams (which says something similar but about the shipbuilding industry) and 75-524, as well as some related rulings and cases, you may be looking at an analysis of how long your property has been built and how built it was. You may be able to apportion some of the building as long-term and some as short-term. Whether the apportionment should be as to cost expended before 1 year or value created before 1 year is explicitly left open in Williams. It may be simpler to account for costs, since you'll have expenditure records with dates. However, if this is properly ordinary income because this is really business inventory and not merely investment property, then you have fully ordinary income and holding period is irrelevant. Your quick turnaround sale tends to suggest this may have been done as a business, not as an investment. A proper advisor with access to these materials could help you formulate a tax strategy and return position. This may be complex and law-driven enough that you'd need a tax lawyer rather than a CPA or preparer. They can sort through the precedent and if you have the money may even provide a formal tax opinion. Experienced real estate lawyers may be able to help, if you screen them appropriately (i.e. those who help prepare real estate tax returns or otherwise have strong tax crossover knowledge).","If the items you sold are items you previously bought for a higher price, the money you get selling them is not income, as you are taking a loss. However, you cannot deduct such losses. If you sell anything for more than what you paid for, the difference is a gain and is taxable. See this IRS web site for the explanation: https://www.irs.gov/businesses/small-businesses-self-employed/tax-tips-for-online-auction-sellers","\"Yes, you're correct and yes they will. Note that it will be considered as \"\"sale\"\" with gains being taxable income to you.\"","The money you will be bringing to the US will be classified as your own money, and will not be taxable. The proceeds from the sale are taxable to you, probably as capital gains. The fact that you kept the proceeds out of the US is irrelevant for that purpose (it is relevant for FBAR/FATCA etc). Since you had no basis in the property, all the proceeds are taxable to you at the time of the sale and should be reported on your tax return.","For case 1, there is no tax due as you sold the book for less than your cost basis. If you had sold for more than $100, then you would have had a profit. For case 2, that depends on the value of the gift card with respect to the value of your fare. Most likely that gift card is less than the cost of the fare. And in that case it would generally be treated as a reduction in the purchase price. The same way that rebates and cash back on credit card are treated. Note if for some reason a 1099 was generated that would change the situation and you would need to consult a tax professional. Since that would indicate that the other party to the transaction had a different view of the situation.","\"I doubt it. In the States you would only owe tax if you sold such an item at a profit. \"\"garage sales\"\" aren't taxable as they are nearly always common household items and sale is more about clearing out one's attic/garage than about profit. Keep in mind, if I pay for a book, and immediately sell it for the same price, there's no tax due, why would tax be due if I sell for a loss?\"","\"In general, insurance payouts you receive in compensation for damage to your vehicle are not taxable income (see for instance this Nolo page). However, I don't see how that is related to your three bullet points about how your sister should buy her car. You can transfer the money to her in any way that's convenient to both of you. Whether the dealership will accept cash is something you'll have to ask them about, but my impression is most dealers are eager to accept cash. As long as the car you are getting from her is not worth substantially more than the $8500 you're giving her, I don't see that you'll be in trouble income-tax-wise. As mentioned in the question you linked to, you can give each other up to $14k per year tax-free. So if you give her a $8500 and she gives you a car worth roughly the same amount, no problem. If you actually do it as a sale, even better, since then the only amount that will count as a gift to either of you is whatever one party gets above and beyond the fair value of the car. (That is, if the car is worth $10000 but she sells it to you for $8500, she effectively gave you a gift of $1500 in car value. If it's worth $7000 but she sells it to you for $8500, you gave her a gift of $1500 in cash.) As Rocky pointed out in a comment, if you do a sale it may be subject to sales tax depending on what state you're in. In practice it is very common for people to not deal with sales tax in informal transactions like this between family members, but you do owe it if your state's laws require it, and the state could theoretically come after you for it. Another edit: I see from your comment you are in Michigan. According to this page from the Michigan Secretary of State, \"\"no tax is due if you purchase a vehicle from an immediate family member\"\". So you would not owe sales tax if you do it as a sale.\"","You cannot do a like-kind (Sec. 1031) exchange for personal property, only for business/investment property. Since you said that you traded in your personal car - no like-kind exchange is possible. Also, since the new car doesn't belong to you - you didn't actually perform any exchange. You sold your old car, but you didn't buy a new one. If Turbo-Tax suggests you to fill the exchange form - you must have entered something wrong to make it think there was an exchange. Check your entries again, specifically - check if you entered that you purchased a new car instead of the old one, since you didn't. See an example of where to start looking here.","When you sell your primary residence, you are required to capitalize any loss or gain at that point; you do not carry over your loss or gain (as you might in an investment property). As such, the timing of the purchase of the next house is not relevant in this discussion: you gained however much you gained already. This changed from the other (rollover) method in 1997 (see this bankrate article for more details.) However, as discussed in IRS Tax Topic 701, you can exclude up to $250,000 (single or filing separately) or $500,000 (married filing jointly) of gain if it is your primary residence and meets a few requirements (mostly, that you owned it for at least 2 years in the past 5 years, and similarly used it as your main home for at least 2 years of the past 5 years). So given you reported 25% gain, as long as your house is under a million dollars or so, you're fine (and if it's over a million dollars, you probably should be paying a CPA for this stuff). For California state tax, it looks like it is the same (see this Turbotax forum answer for a good explanation and links to this California Franchise Tax Board guide which confirms it: For sale or exchanges after May 6, 1997, federal law allows an exclusion of gain on the sale of a personal residence in the amount of $250,000 ($500,000 if married filing jointly). The taxpayer must have owned and occupied the residence as a principal residence for at least 2 of the 5 years before the sale. California conforms to this provision. However, California taxpayers who served in the Peace Corps during the 5 year period ending on the date of the sale may reduce the 2 year period by the period of service, not to exceed 18 months.","\"Short Answer: You're going to end up paying taxes on it. Despite the home being your primary residence, you don't meet the ownership test, and it isn't noted that you have had a change in employment, health, or other unforeseen circumstances that are \"\"forcing\"\" you to sell. Otherwise, you could qualify for a reduced maximum exclusion that might allow you to walk away without owing taxes, or with a reduced tax bill. You can't even do a 1031 exchange to re-invest into a new primary residence. You should check with a tax professional to see what adjustments you can make to the cost basis of the property to minimize your reported net profits. During the 5-year period prior to the sale, you must have: These periods do not necessarily have to coincide (You don't to live in it as your main house for 2 consecutive years, just 2 years worth of time of the last 5).\"","What you are looking for is a 1031 exchange. https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031 Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. You may also sell your house for bitcoin and record the sales price on the deed with an equal or lesser amount that you bought it for.","\"If you sell an asset for more than you paid for it, the excess amount realized is called a capital gain and is generally considered a form of income for tax purposes. Generally, one pays income tax on realized capital gains, unless the sale is exempt—such as the sale of one's principal residence. Capital gains tax can also be avoided or deferred by holding assets in a tax-advantaged investment account like a TFSA or RRSP. When taxable, the effective income tax rate on capital gains income is half the normal rate due to the capital gains inclusion rate. Capital gains income is generally not considered to be employment, \"\"earned\"\", or \"\"working\"\" income. However, individuals who, say, trade stocks frequently and earn a substantial portion of their income that way may have their gains considered employment income and subject to regular income tax instead of the better rate. I suggest you contact Service Canada and ask them about the impact of a one-time sale of personal property that would result in a realized capital gain. While you would owe income tax on the capital gain, it might not have any impact on your disability benefits, because it would not be earned or employment income. You should also check with your private insurer; they may also consider the sale a capital gain and not employment income, however, only they would be able to tell you for sure whether it would have any possible effect on your benefits.\"","Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.","If you are in the United States, Real Estate gains are taxed as capital gains 15% currently but will go up in 2011. You may be able to exclude $250,000 filing single (500k married filing jointly) if you have lived in the condo 2 out of the last 5 years. See IRS Publication 523 for more information. You are only taxed on the profit from the sale. If you paid $100,000 and you sell it for $125,000 you would owe capital gains tax on $25,000 if you don't meet the conditions in IRS Publication 523.","Using US tax code, given that your profits are less than 250K, given that you lived in that home over two years, then yes the 150K is tax free. That is your money in the US. Note: I won't get into all of the specifics but basically you need to live somewhere 2 years. You get 250K per person, up to 500K. Most enhancements count as money towards the home. So most/all of your 12k should be discounted. However there is a lot of fine print in this and a lot of interpretation on what is normal upkeep and what is an enhancement.","You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.","Your capital gain is about $40K, which (assuming your total income is under $250K) is taxed at 15% long term capital gains rate. Additional depreciation recapture of approximately $5K is taxed at 25%. So this gives us rough estimate of $7250 tax. This is Federal tax, AZ rates are somewhere between 2% and 4%, so you'll be looking at some $1.6K additional tax to AZ. If you have accumulated rental losses or other expenses, it will lower the total amount of your gain (and, accordingly, the taxes). This is all very rough estimates, and you shouldn't rely on this but verify on your own or with a professional. I suggest using professional services because while being costly, they will probably save you more in taxes than you'll have to pay them because of the knowledge of what exactly of your expenses can be deducted and how to calculate the cost basis correctly. (edit from JoeT - the home exclusion requires occupancy for 2 of prior 5 years. For the OP, the prorated $125k exclusion 'might' cover the gain, it depends when the increase in value occurred, if the gain was during the time rented, it's taxable, I believe.)","How much Federal Capital Gains, NYS Income tax and local tax should I expect to pay? You're going to net about 2.4 millions of dollars. Federal long term capital gains tax is 20% (plus 3.8% medicare), NYS is 8.82%. Does it make sense to investigate the tax benefits of financing the sale for the buyer? Yes. Have your tax adviser check the options for you (financing, instalment, etc), especially if you have no other US-sourced income. Tax treaties are also something your tax adviser should be looking at. Be sure your tax adviser is properly licensed in New York as either EA, CPA or Attorney. Don't do anything without a proper tax advice.","It doesn't go on Schedule E at all, it goes on form 4797. The fridge should have been depreciated, over 5 years. If you sold it after 5 years, all the proceeds are taxable income taxed as depreciation recapture (25% rate) up to the allowable depreciation (your original cost basis), above which it is taxable capital gain. Whether you actually have depreciated it or not, it is really your problem, IRS doesn't care. So if 5 years of ownership passed - just write it all as taxable income on the form 4797. Otherwise, allowable depreciation prorated (and you can still amend forms 3 years back to get at least part of it). The new fridge should also be depreciated over the 5 years of its expected useful life. See form 4562. Talk to a licensed tax professional (EA/CPA licensed in your state) for details.","You bought a rental property in 2001. Hopefully you paid fair value else other issues come into play. Say you paid $120K. You said you have been taking depreciation, which for residential real estate is taken over 27.5 years, so you are about halfway through. Since you don't depreciate land, you may have taken a total $50K so far. With no improvements, and no transaction costs, you have $50K in depreciation recapture, taxed at a maximum 25% (or your lower, marginal rate) and a cap gain of the 5-10K you mentioned. Either can be offset by losses you've been carrying forward if you suffered large stock losses at some point.","AS PER IRS PUBLICATION: Question: Is money received from the sale of inherited property considered taxable income? Answer: To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following: For information on the FMV of inherited property on the date of the decedent’s death, contact the executor of the decedent’s estate. Also, note that in 2015, Congress passed a new law that, under certain circumstances, requires an executor to provide a statement identifying the FMV of certain inherited property to the individual receiving that property. Check IRS.gov for updates on final rules being promulgated to implement the new law. If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets. Report the sale on Schedule D (Form 1040), Capital Gains and Losses, and on Form 8949, Sales and Other Dispositions of Capital Assets: Under the new law passed by Congress in 2015, an accuracy-related penalty may apply if an individual reporting the sale of certain inherited property uses a basis in excess of that property’s final value for federal estate tax purposes. Again, check IRS.gov for updates on final rules being promulgated to implement the new law. For estates of decedents who died in 2010, basis is generally determined as described above. However, the executor of a decedent who died in 2010 may elect out of the estate tax rules for 2010 and use the modified carryover of basis rules. Under this special election, the basis of property inherited from a decedent who died during 2010 is generally the lesser of: Under this special election for estates of decedents who died in 2010, the executor of the decedent’s estate may increase the basis of certain property that beneficiaries acquire from a decedent by up to $1.3 million (plus certain unused built-in losses and loss carryovers, if applicable), but the increased basis cannot exceed the FMV of the property at the date of the decedent’s death. The executor may also increase the basis of certain property that the surviving spouse acquires from a decedent by up to an additional $3 million, but the increased basis cannot exceed the FMV of the property at the date of the decedent’s death. The executor of the decedent’s estate is required to provide a statement to all heirs listing the decedent’s basis in the property, the FMV of the property on the date of the decedent’s death, and the additional basis allocated to the property. Contact the executor to determine what the basis of the asset is. Report the sale on Schedule D (Form 1040) and on Form 8949, as described above. Additional Information:","This is taxed as ordinary income. See the IRC Sec 988(a)(1). The exclusion you're talking about (the $200) is in the IRC Sec 988(e)(2), but you'll have to read the Treasury Regulations on this section to see if and how it can apply to you. Since you do this regularly and for profit (i.e.: not a personal transaction), I'd argue that it doesn't apply.","Ditto Rocky. Also: Break the sale up over several tax years so that you don't have a spike in your income pushing you into a higher tax bracket. Don't sell it until you retire, when you're probably in a lower tax bracket. (If you're 20, this may be impractical.) Get some other deductions, like medical expenses, charity, etc. Failing that, maybe a couple of other ideas that neither of us thought of, I think the real answer is: suck it up and pay the taxes. If there was a way to reduce your taxes just by checking the right box on a tax form or some such, everybody would do it and the government wouldn't collect any taxes.","\"And my CPA is saying no way, it will cost me many thousands in taxes and doesn't make any sense. I'd think so too. It looks like it converts from capitol gains at 14% to something else at about 35% Can be, if your gain under the Sec.1231 rules is classified as depreciation recapture. But, perhaps the buyers will be saving this way? Not your problem even if they were, which they aren't. I would not do something my CPA says \"\"no-way\"\" about. I sometimes prefer not doing some things my CPA says \"\"it may fly\"\" because I'm defensive when it comes to taxes, but if your CPA is not willing to sign something off - don't do it. Ever.\"","Selling one fund and buying another will incur capital gains tax on the sale for the amount of the gain. I'm not aware of any sort of exemption available due to you moving out of the country. However, long-term capital gains for low-tax-bracket taxpayers is 0%. As long as your total income including the gains fits within the 15% regular tax bracket, you don't pay any long-term capital gains. Options for you that I see to avoid taxes are: Note that even if you do sell it all, it's only the amount of gains that would take your income over the 15% normal tax bracket that would be taxed at the long-term rate of 15%, which may not end up being that much of a tax hit. It may be worth calculating just how bad it would be based on your actual income. Also note that all I'm saying here is for US federal income taxes. The state you most recently lived in may still charge taxes if you're still considered a resident there in some fashion, and I don't know if your new home's government may try to take a cut as well.","Don't let the tax tail wag the investment dog. There is risk in exchanging this (known) property for another (unknown) property. That risk may be more than $9000 worth of risk. Tax considerations are important, but most important is that your investments make money. If you intend to continue as a landlord, you had better be sure you are finding a better deal elsewhere if you are going to trade this property up. I should also mention that you have a 5 year window in which you need to have lived in the home for 2 years. You have time and might be able to sell for a higher price if you wait a little longer.","This will be a complex issue and you will need to sit down with a professional to work through the issues: When the house was put up for rent the initial year tax forms should have required that the value of the house/property be calculated. This number was then used for depreciation of the house. This was made more complex based on any capital improvements. If the house wasn't the first he owned, then capital gains might have been rolled over from previous houses which adds a layer of complexity. Any capital improvements while the house was a rental will also have to be resolved because those were also depreciated since they were placed in service. The deprecation will be recaptured and will be a part of the calculation. You have nowhere near enough info to make a calculation at this time.","\"Please Note: Before taking any steps towards a transaction involving possible capital gains tax exclusions, please consult your CPA, attorney or tax advisor. I am not a CPA or Tax Advisor. Since you have only lived in it 11 months, you don't meet the \"\"use test\"\" for full exclusion. However, even if you haven't lived in it that long, you may be able to exclude some of the gains due to a \"\"unforeseen circumstance\"\", not just because you wanted to move. You say you are \"\"ready for a change\"\" and so that means it's an arbitrary decision, not a forced one. To calculate the partial exclusion, take the number of months you lived there before the sale and divide it by 24. (11/24 = 0.45). So for an unmarried person, you can exclude up to $250,000. Multiply that by .45 and you get $112,500. If your profit after everything is taken out is only $35,000 then you can exclude that from capital gains because it is less than $112,500. All that being said, you will need documentation in case you get audited. For more information, see IRS Publication 551, Basis of Assets, and look for the section on real property. See also this IRS Tax Topic on Sale of Your Home\"","First the good news: based on the time involved, and the amount of potential profits; you will not owe any tax on the sale of the house no matter which option you pick. Now the details. When determining if there are any capital gains the IRS cares about the difference between the sale price and the purchase price. The amount of the loan, the final balance of the loan, or the lack of loan don't factor into the calculation. To complicate matters the government does factor into the equation any improvements you have made to the house (like a new deck) and the cost of buying and selling the house (real estate agents). If a single person has less than 250K in capital gains and has used the house as their main residence for 2 of the the previous 5 years their tax is zero. For a couple the tax free gain is $500K. For your situation since the sale price is less than $250K, the capital gains will also be less than $250K. You do have one potential area of concern. If the house is worth significantly more than $150K, the government could claim that the difference between what you charged your parents and what you could have charged was a gift. Assuming that there are no other factors that you didn't include in the original question it would appear that you will not face any taxes. Regarding your two options, neither will impact the taxes. Though draining your savings or investments could make it difficult to meet an emergency during the time between the sending of the $95K to the mortgage company and the closing on the deal with your parents. If the money came from retirement account it could have an even greater impact on your taxes and retirement situation.","\"I would suggest reading through page 1 of the Arizona Nonresident form instructions at the web address below: https://www.azdor.gov/Portals/0/ADOR-forms/TY2015/10100/10177_inst.pdf To quote: \"\"You are subject to Arizona income tax on all income derived from Arizona sources. If you are in this state for a temporary or transitory purpose or did not live in Arizona but received income from sources within Arizona during 2015, you are subject to Arizona tax. Income from Arizona sources includes the following: ...the sale of Arizona real estate...\"\"\"","\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \"\"otherwise\"\" is substantial and far-ranging.\"","\"I'm going to look just at purchase price. Essentially, you can't always claim the whole of the purchase price (or 95% your case) in the year (the accounting period) of purchase, but you get a percentage of the value of the car each year, called writing down allowance, which is a capital allowance. It is similar to depreciation, but based on HRMC's own formula. In fact, it seems you probably can claim 95% of the purchase price, because the value is less than £1000. The logic is a bit involved, but I hope you can understand it. You could also claim simplified expenses instead, which is just based on a rate per mile, but you can't claim both. Note, by year I mean whatever your account period is. This could be the normal financial year, but you would probably have a better idea about this. See The HMRC webpage on this for more details. The big idea is that you record the value of any assets you are claiming writing down allowance on in one of a number of pools, that attract the same rate of writing down allowance, so you don't need to record the value of each asset separately. They are similar to accounts in accounting, so they have an opening balance, and closing balance. If you use an asset for personal use, it needs a pool to itself. HRMC call that a single asset pool. So, to start with, look at the Business Cars section, and look at the Rates for Cars section, to determine the rate you can claim. Each one links to a further article, which gives more detail if you need it. Your car is almost certainly in the special rate category. Special rate is 8% a year, main rate is 18%, and First year allowance is essentially 100%. Then, you look at the Work out what you can claim article. That talks you through the steps. I'll go through your example. You would have a pool for your car, which would end the account period before you bought the vehicle at zero (step 1). You then add the value of the car in the period you bought it (Step 2). You would reduce the value of the pool if you dispose of it in the same year (Step 3). Because the car is worth less than £1,000 (see the section on \"\"If you have £1,000 or less in your pool\"\"), you would normally be able to claim the whole value of the pool (the value of the car) in the first accounting period, and reduce the value of the pool to zero. As you use the car for personal use, you only claim 95% of the value, but still reduce the pool to zero. See the section on \"\"Items you use outside your business\"\". This £1000 is adjusted if your accounting period lasts more or less than 12 months. Once the pool is down to zero that it you don't need to think about it any more for tax purposes, apart from if you are claiming other motoring expenses, or if you sell it. It gets more complicated if the car is more expensive. I'll go through an example for a car worth £2,000. Then, after Step 3, on the year of purchase, you would reduce the value of the pool by 8%, and claim 95% of the reduction. This would be a 160 reduction, and 95%*160 = 152 claim, leaving the value of 1860 in the pool. You then follow the same steps for the next year, start with 1840 in the pool, reduce the value by 8%, then claim 95% of the reduction. This continues until you sell or dispose of the car (Step 3), or the value of the pool is 1000 or less, then you claim all of it in that year. Selling the car, or disposing of the car is discussed in the Capital allowances when you sell an asset article. The basic idea is that if you have already reduced the value of the pool to zero, the price you sell the car for is added you your profits for that year (See \"\"If you originally claimed 100% of the item\"\"), if you still have anything in the pool, you reduce the value of the pool by the sale value, and if it reduces to below zero (to -£200, say), you add that amount (£200, in this case), to your profits. If the value is above zero, you keep applying writing down allowances. In your case, that seems to just means if you sell the car in the same year you buy it, you claim the difference (or 95% of it) as writing down allowance, and if you do it later, you claim the purchase price in the year of purchase, and add 95% of the sale price to your profits in the year you sell it. I'm a bit unclear about starting \"\"to use it outside your business\"\", which doesn't seem to apply if you use it outside the business to start with. You can claim simplified expenses for vehicles, if you are a sole trader or partner, but not if you claim capital allowances (such as writing down allowances) on them, or you include a separate expense in your accounts for motoring expenses. It's a flat rate of 45p a mile for the first 10,000 miles, and 25p per mile after that, for cars, and 24p a mile for motorcycles. See the HRMC page on Simplifed Mileage expenses for details. For any vehicle you decide to either claim capital allowances claim running costs separately, or claim simplified mileage expenses, and \"\"Once you use the flat rates for a vehicle, you must continue to do so as long as you use that vehicle for your business.you have to stick with that decision for that vehicle\"\". In your case, it seems you can claim 95% of the purchase price in the accounting period you buy it, and if you sell it you add 95% of the sale price to your profits in that accounting period. It gets more complicated if you have a car worth more than £1000, adjusted for the length of the accounting period. Also, if you change how you use it, consult the page on selling selling an asset, as you may have disposed of it. You can also use simplified mileage expenses, but then you can't claim capital allowances, or claim running costs separately for that car. I hope that makes sense, please comment if not, and I'll try to adjust the explanation.\"","Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.","\"If it's fully expensed, it has zero basis. Any sale is taxable, 100%. To the ordinary income / cap gain issue raised in comment - It's a cap gain, but I believe, as with real estate, special rates apply. This is where I am out of my area of expertise, and as they say - \"\"Consult a professional.\"\"\"","If significant amounts are involved, that would be a good time to consult a tax professional (EA/CPA licensed in your state). Generally, sale of a business is an ordinary income and you can only deduct tangible expenses, as Joe said. That would be laptops, bills, expenses per receipt, of course they must all be directly attributable to the business. You will need to be able to show that the laptops has only been used in business, recapture depreciation, etc. Same with all the rest of the expenses. If you're incorporated (i.e.: you hold this software under an S-Corp), then you're selling stocks, not business, and the tax treatment may be different, but I'm guessing this is not the case for you.","(All for US.) Yes you (will) have a realized long-term capital gain, which is taxable. Long-term gains (including those distributed by a mutual fund or other RIC, and also 'qualified' dividends, both not relevant here) are taxed at lower rates than 'ordinary' income but are still bracketed almost (not quite) like ordinary income, not always 15%. Specifically if your ordinary taxable income (after deductions and exemptions, equivalent to line 43 minus LTCG/QD) 'ends' in the 25% to 33% brackets, your LTCG/QD income is taxed at 15% unless the total of ordinary+preferred reaches the top of those brackets, then any remainder at 20%. These brackets depend on your filing status and are adjusted yearly for inflation, for 2016 they are: * single 37,650 to 413,350 * married-joint or widow(er) 75,300 to 413,350 * head-of-household 50,400 to 441,000 (special) * married-separate 37,650 to 206,675 which I'd guess covers at least the middle three quintiles of the earning/taxpaying population. OTOH if your ordinary income ends below the 25% bracket, your LTCG/QD income that 'fits' in the lower bracket(s) is taxed at 0% (not at all) and only the portion that would be in the ordinary 25%-and-up brackets is taxed at 15%. IF your ordinary taxable income this year was below those brackets, or you expect next year it will be (possibly due to status/exemption/deduction changes as well as income change), then if all else is equal you are better off realizing the stock gain in the year(s) where some (or more) of it fits in the 0% bracket. If you're over about $400k a similar calculation applies, but you can afford more reliable advice than potential dogs on the Internet. (update) Near dupe found: see also How are long-term capital gains taxed if the gain pushes income into a new tax bracket? Also, a warning on estimated payments: in general you are required to pay most of your income tax liability during the year (not wait until April 15); if you underpay by more than 10% or $1000 (whichever is larger) you usually owe a penalty, computed on Form 2210 whose name(?) is frequently and roundly cursed. For most people, whose income is (mostly) from a job, this is handled by payroll withholding which normally comes out close enough to your liability. If you have other income, like investments (as here) or self-employment or pension/retirement/disability/etc, you are supposed to either make estimated payments each 'quarter' (the IRS' quarters are shifted slightly from everyone else's), or increase your withholding, or a combination. For a large income 'lump' in December that wasn't planned in advance, it won't be practical to adjust withholding. However, if this is the only year increased, there is a safe harbor: if your withholding this year (2016) is enough to pay last year's tax (2015) -- which for most people it is, unless you got a pay cut this year, or a (filed) status change like marrying or having a child -- you get until next April 15 (or next business day -- in 2017 it is actually April 18) to pay the additional amount of this year's tax (2016) without underpayment penalty. However, if you split the gain so that both 2016 and 2017 have income and (thus) taxes higher than normal for you, you will need to make estimated payment(s) and/or increase withholding for 2017. PS: congratulations on your gain -- and on the patience to hold anything for 10 years!","Yes you need to pay Capital Gains tax in India. Further transfer of money out of India from Ordinary account requires some formalities / paperwork. A CA should be able to guide you.","You need a lawyer and a tax accountant for a sale like this. They will be able to tell you if the proceeds are taxed as income (most likely) or capital gains and will help you structure the deal. How you spend the proceeds will not make a difference, although if it's a large amount and you plan to donate some to charity, you may be able to save on your total tax liability by creating a donor advised fund. Keep in mind the broker is mostly interested in his commission and not about making the best deal for you. Get an attorney with experience in business sales.","Kentucky property tax is assessed as of the owner on January 1 of each calendar year. In April you should be notified of what KY considers you to owe them, and you have a two week period in May to appeal those decisions (though it appears that you can only appeal Real property tax assessments). The final tax bill is then sent to you in the fall, by October, and you have until the end of the year to pay the bill. See Kentucky Property Tax Calendar Overview for more details. Thus, if you owned the car on Jan 1 2016, then you should owe personal property tax on it for 2016 due in the fall. You may not have owed the tax paid in November, if it was indeed personal property tax, unless the seller was asking you to recompense them for the tax they paid in 2015. Note that property tax is separate and distinct from usage tax, the 6% tax for vehicles paid at purchase date (once and only once).","Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.","The transaction will be taxable in India. You will have to pay Capital Gains tax. I am assuming that you purchased the house while you were Indian Resident for tax purposes. As such its needs more paper work to get the money back to US. Consult a CA in India who will help with the paperwork. You haven't mentioned your tax status in US, one you update it, someone will post a US tax aspects of the transaction.","I realize this is a dated question, but for anyone interested in this subject please be aware of the availability of IRC § 1235 and capital gain treatment for the sale of patents. When the holder of a patent transfers all substantial rights to an unrelated person, it can qualify for long-term capital gain treatment. That can be a meaningful tax savings relative to ordinary income treatment. There are a number of specific provisions and requirements to access § 1235. The holder must be the creator or someone unrelated (and not the creator's employer) who purchased the patent from the creator. The holder must transfer all substantial rights to the patent (not a licensing), or sell an undivided portion of all substantial rights (partial sale, again not a license). The benefit of § 1235 is that long-term treatment will apply even for patents with holding periods under 1 year. Other rules and permutations of course also apply. Those who fail § 1235 may still qualify their assets as capital under § 1221 or § 1231. A patent held by its creator will often qualify as a capital asset. It may not make any sense to sell your business as a whole, particularly if all a purchaser wants is a patent or group of patents. Of course, if the patent was held by its creator in a single-member LLC or other disregarded entity sold to a buyer, then the tax treatment is still treated as the sale of a long-term capital asset.","\"You uncle is liable to pay \"\"Capital-Gains\"\" tax. Essentially the sale price less of cost would be treated as gains. The gains are taxed at 10% without indexation and 20% with Indexation. The capital gains tax can be avoided if your uncle invests the gains into specified \"\"Infrastructure bonds\"\" or buys another property within a period of 3 years. The funds need to be kept in a separate \"\"Capital Gains\"\" account and not a regular savings account till you buy another property within 3 years.\"","To focus on your question.. pay it off then trade in. The reason is because say you just have 14k laying around and buy a car for 14k, you must pay 14k plus tax. If you are in one of the states that allows the tax break, then trading the 14k valued vehicle in for a 14k vehicle will nullify your sales tax. As per your question, if you traded the car in at 7k, you would then owe 7k plus tax. You only have 7k..so how would you pay for the tax and why would you want to? Pay off the car and you'll have 14k of tax free off any car.","The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would be any different for the person that created the account initially, except that the basis starts at $0 making the entire sale price taxable. How you figure the value of the account before the initial sale would be more difficult, but fortunately you may not ever need to know the value (for tax purposes) until you actually sell it.","Residents of Canada must pay Canadian income tax on their worldwide income (source: Wikipedia). However, there is a tax treaty between the U.S. and Canada; I haven't read it, but my guess is that it will allow you to claim a tax credit in Canada for the capital gains tax you have paid to the U.S.","Is the remaining amount tax free? As in, if the amount shown (which I can sell) on etrade is $5000 then if I sell the entire shares will my bank account be increased by $5000? The stocks they sell are withholding. So let's say you had $7000 of stock and they sold $2000 for taxes. That leaves you with $5000. But the actual taxes paid might be more or less than $2000. They go in the same bucket as the rest of your withholding. If too much is withheld, you get a refund. Too little and you owe them. Way too little and you have to pay penalties. At the end of the year, you will show $7000 as income and $2000 as withheld for taxes from that transaction. You may also have a capital gain if the stock increases in price. They do not generally withhold on stock sales, as they don't necessarily know what was your gain and what was your loss. You usually have to handle that yourself. The main point that I wanted to make is that the sale is not tax free. It's just that you already had tax withheld. It may or may not be enough.","An update for anyone looking this up, I am still working through all the details but I can answer the question as far as Stack Exchange will go. In this situation the answer and processes involved greatly differs based on the personal circumstances of the person asking the question. Best to seek qualified tax advice than relying only on a forum as they are able to be more accurate and descriptive than any reply that you might receive.","\"Payment gateways such as Square do not normally withhold tax. It is up to you to pay the appropriate tax at tax time. That having been said, Square does report your payments to the IRS on a form 1099-K if your payments are large enough. According to Square, you'll get a 1099-K from them if your total payments for the year add up to $20,000 AND more than 200 transactions. Whether or not they report on a 1099-K, you are required to pay the appropriate taxes on your income. So now the question becomes, \"\"Do I have to pay income tax on the proceeds from my garage sale?\"\" And the answer to that question is usually not. When you sell something that you previously purchased, if you sell it for more than you paid for it, you have a capital gain and need to pay tax on that. However, generally you sell things in a garage sale at a loss, meaning that there is no tax due. If you make more than $20,000 at your garage sale and the IRS gets a 1099-K, the IRS might be curious as to how you did that with no capital gain. So if you sell any big ticket items (a bulldozer, for example), you should keep a record of what you paid for it, so you can show the loss to the IRS in the event of an audit.\"","If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you have $166 loss. You report all these items on your Schedule D. Make sure to calculate the tax correctly, since the tax is not capital gains tax but rather ordinary income at marginal rates. Changes in foreign exchange between a transaction and the conversion of the proceeds to USD are generally not considered as income (i.e.: You sold a property in Mexico, but since the money took a couple of days to clear, the exchange rate changed and you got $2K more/less than you would based on the exchange rate on the day of the transaction - this is not a taxable income/loss). This is covered by the IRC Sec. 988. There are additional rules for contracts on foreign currency, TTM rules, etc. Better talk to a licensed tax adviser (EA/CPA licensed in your State) for anything other than trivial.","\"In simple terms, it is a business operation when it becomes a profit-making enterprise. It is a grey area, but there is a difference between selling occasional personal items on eBay and selling for profit. I would imagine the sort of considerations HM Revenue & Customs would take into account are the size of your turnover, the extent to which you are both buying and selling, and whether you are clearly specialising in one particular commodity as opposed of disposing of unwanted presents or clearing the loft. http://www.ebay.co.uk/gds/When-does-eBay-selling-become-taxable-/10000000004494855/g.html I don't believe that you selling your personal camera gear will be taxable, but as the link says, it is a grey area. They also recommend to do this It's far better than having to deal with an investigation a few years down the line. When it comes to completing your tax return, there is a section which is headed \"\"other income\"\", and it is here where you will enter the net earnings from the web business. \"\"Net\"\" here means your additional income, less all expenses associated with it. If you are still worried I would always encourage people to take a cautious approach and discuss their position with HMRC via its helpline on 08454 915 4515.\"","It will definitely be added to your AGI, but not necessarily bump your ordinary income tax bracket. You will have to use the Capital Gains Computation worksheet (that uses the general Tax Computation Worksheet) to figure out your tax liability. You might also be subject to the AMT. See the instructions to form 1040, line 44 (page 38) and line 45.","IRS Pub 561 says you have to use fair market value. You cannot simply use a depreciated value. You should attempt to determine what people normally pay for comparable items, and be prepared to defend your determination with evidence in the event of an audit.","Consult a professional CA. For shares sold outside the Indian Stock Exchanges, these will be treated as normal Long Term Capital Gains if held more than one year. The rate would be 10% without Indexation and 20% with Indexation. If the stocks are held for less than 1 years, it will be short term gains and taxed according you to tax bracket.","Assuming that taxes were withheld when you received the options, you would now only owe tax on the profit from the sale of the stock. The cost basis would be whatever you bought the stock for (the strike price of the options in this case), and the profit will be the total amount received from the sale minus the total cost of those shares. Since you bought the stock more than one year ago, you will get taxed at the long-term capital gains rate of 15% (unless you are in the 39.6% tax bracket, in which case the rate is 20%). As with all tax advice on this site, you need to check with a tax specialist when you actually file, but that should give you a rough indication of what your tax liability is.","I'm assuming you're in the United States for this. I highly recommend getting a CPA to help you navigate the tax implications. Likely, you'll pay taxes as a sole proprietor, on top of any other income you made. Hopefully you kept good records because you'll be essentially paying for the profits, but you'll need to show the revenue and expenditures that you had. If you have any capital expenditures you may be able ton amortize them. But again, definitely hire a professional to help you, it will be well worth the cost.","\"Believe it or not, unless you directly contact an accountant with experience in this field or a lawyer, you may have a tough time getting a direct answer from a reputable source. The reason is two fold. First, legally defining in-game assets is exceptionally difficult from a legal/taxation stand point. Who really owns this data? You or the company that has built the MMO and manages the servers containing all of the data? You can buy-and-sell what is effectively \"\"data\"\" on their servers but the truth is, they own the code, the servers, the data, your access rights, etc. and at any point in time could terminate everything within their systems. This would render the value of your accounts worthless! As such, most countries have overwhelmingly avoided the taxation of in-game \"\"inventory\"\" because it's not really definable. Instead, in game goods are only taxed when they are exchanged for local currency. This is considered a general sale. There may be tax codes in your region for the sale of \"\"digital goods\"\". Otherwise, it should be taxed as sale a standard good with no special stipulations. The bottom line is that you shouldn't expect to find much reliable information on this topic, on the internet. Law's haven't been welled defined, regarding in-game content worth and taxing of sales and if you want to know how you should pay your taxes on these transactions, you need to talk to a good accountant, a lawyer or both.\"","\"Property sold at profit is taxed at capital gains rate (if you held it for more than a year, which you have based on your previous question). Thus deferring salary won't change the taxable amount or the tax rate on the property. It may save you the 3% difference on the salary, but I don't know how significant can that be. The 25% depreciation recapture rate (or whatever the current percentage is) is preset by your depreciation and cannot be changed, so you'll have to pay that first. Whatever is left above it is capital gains and will be taxed at discounted rates (20% IIRC). You need to make sure that you deduct everything, and capitalize everything else (all the non-deductible expenses and losses with regards to the property). For example, if you remodeled - its added to your basis (reduces the gains). If you did significant improvements and changes - the same. If you installed new appliances and carpets - they're depreciated faster (you can appropriate part of the sale proceeds to these and thus reduce the actual property related gain). Also, you need to see what gain you have on the land - the land cannot be depreciated, so all the gain on it is capital gain. Your CPA will help you investigating these, and maybe other ways to reduce your tax bill. Do make sure to have proper documentation and proofs for all your claims, don't make things up and don't allow your CPA \"\"cut corners\"\". It may cost you dearly on audit.\"","The sentence you quoted does not apply in the case where you sell the stock at a loss. In that case, you recognize zero ordinary income, and a capital loss (opposite of a gain) for the loss. Reference: http://efs.fidelity.com/support/sps/article/article2.html","As Victor says, you pay tax on net profit. If this is a significant source of income for you, you should file quarterly estimated tax payments or you're going to get hit with a penalty at the end of the year.","\"The $100,000 is taxed separately as \"\"ordinary income\"\". The $350,000 is taxed at long-term capital gains of 15%. Capital gains is not taxed at 20% until $415,050. Even though $100,000 + 350,000 = $450,000, only $350,000 can be taxed at capital gains. The total ordinary income tax burden will be $31,986 if single, in California. Caveat: By creating a holdings corporation (C-corp), you can section 351 that $100,000 into the C-corp for tax deferment, which won't be taxed until you take money from the corporation. Since you will hold 100% of the voting stock, all distributions will be considered pro rata. Additionally, you can issue yourself a dividend under the rules of 26 USC §§243-246 (a greather-than-80% shareholder who receives a dividend can write-off 100% of said dividend). As long as that dividend doesn't trigger §§1.243-246 of The Regulations by keeping the distribution just under 10% of E&P i.e. $10,000. Wages are deductible against basis so pay yourself $35,000 and keep $55,000 in the corporation and you can decrease the total liabilities down to $22,000 from $31,000, which includes the CA franchise tax. You don't have to pay yourself any money out a corporation to use the money.\"","Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.","\"Is this legal? Why not? But you might have trouble deducting losses on your taxes, especially if you sell to someone related to you in some way (which is indeed what you're doing). See the added portion below regarding dealing with \"\"related person\"\" (which a sibling is). The state of Maryland has a transfer/recordation tax of 1.5% for each, the buyer and seller. Would this be computed on the appraised or sale value? You should check with the State. In California property taxes are assessed based on sale value, but if the sale value is bogus the assessors have the right to recalculate. Since you're selling to family, the assessors will likely to intervene and set a more close to \"\"fair market\"\" value on the transaction, but again - check the local law. Will this pose any problem if the buyer needs financing? Likely, banks will be suspicious.Since you're giving a discount to your sibling, it will likely not cause a problem for financing. If it was an unrelated person getting such a discount, it would likely to have raised some questions. Would I be able to deduct a capital loss on my tax return? As I said - it may be a problem. If the transaction is between related people - likely not. Otherwise - not sure. Check with a professional tax adviser (EA or CPA licensed in Maryland). You mentioned in the comment that the buyer is a sibling. IRS Publication 544 has a list of what is considered \"\"related person\"\", and that includes siblings. So the short answer is NO, you will not be able to deduct the loss. The tax treatment is not trivial in this case, and I suggest to have a professional tax adviser guide you on how to proceed. Here's the definition of \"\"related person\"\" from the IRS pub. 544: Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.). An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership.\"","It would be better for you to sell yourself and pay capital gains tax than to transfer to your parents and pay the gift tax. Also, sham transfer (you transfer to your mother only so that she could sell and transfer back to you without you paying taxes) will be probably categorized as tax evasion, which is a criminal offense that could lead to your deportation. What the US should or should not claim you can take to your congressman, but the fact is that the US does claim tax on capital gains even if you bought the asset before becoming US tax resident, and that's the current law.","1) You parents will have to pay tax on the gain as it wasn't their primary home. You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply: As I look at it, it is your parents are the ones who own the property and they will have to pay on £60000. But as you say you pay part of the mortgage, I would go to a tax advisor/accountant to confirm if they will only pay on the £15000. I couldn't find any guidance on that matter on gov.uk 2) Inheritance tax will not be levied on it as it is below £325000, but tax will be levied on £325000, less £3000 annual gift allowance. Two articles for further information - GOV.UK's Tax when you sell your home Money.co.UK's Gifting money to your children: FAQs","Note the above is only for shares. There are different rules for other assets like House, Jewellery, Mutual Funds, Debt Funds. Refer to the Income Tax guide for more details.","\"http://www.nadaguides.com/ and http://www.kbb.com/ and http://www.edmunds.com/ are the leading sites to check vehicle values. Also, great how to at: http://www.ehow.com/how_2003079_sell-used-car-california.html Where to sell? You could sell it in your local newspaper classified, small auto newsprint mags/publications, Craigslist, ebay, or just put a sign in the window. The advertising method is up to you. You could also trade the car in to a dealer if you purchase another vehicle from a dealer if they offer that option. (Trade-In's generally bring in less money than private sales as a general rule). Some car places will do consignment requests to help you sell your car. However, they will normally take a percentage of the sale as payment for this service. What paperwork? If you own your car, you should have the title in hand. There are instructions on title on how to sign it over to another person. If you have a loan through a bank, the bank would have this title and you would need to express your interest in selling the property to the bank and work out the details with them. You do not hand over a title to anyone until full payment is made and the property will become theirs. Beyond the title, you will need to fill out a release of liability or report of sale form for the state. Titles have a portion you can mail in or you can fill it out online. This is to report the sale to the state to release liability from your name. You will also need to create a \"\"bill of sale\"\" between you and the buyer. There are many examples online or you can just create your own. You really need just a statement saying I release all interest of the vehicle and no warranty implied to this person with the VIN of the car, model, make, year, the buyers name and signature, and the sellers name and signature. This is your contract with the seller and they use this when they go to register the car in their name. Maintenance Disclosure? This is completely up to the seller on what they want to disclose. You are selling a used car and the buyer should know that. Vehicles with detailed records sell for more money and buyers are more interested in cars that have history records. This is where buyers should be the most careful, so the more records and history you can show, the better they will feel about the purchase. I believe you should share everything you know and any information about the history of the car. The more positive information you can prove/share, the more money or chance of sale you could have. Most money? First, clean the car out. I am amazed at the amount of people that try to sell a car and don't even bother to clean it out. A detail job would be great to get. You are trying to sell it, so you want it to look the best. Next, I would fix anything minor and cheap to fix. The less things wrong can mean more money. Back to your maintenance question, you will want to show how you have maintained the car. People might also ask for a carfax report to prove its clean history. Irresponsible and deceiving people tend to leave out important details in a car history like accidents, flood damage, or having re-built titles. You want to give the most information you can. Do not lie about any detail. Though, this can be a little tough when you are a 2nd or 3rd owner of a car and do not know about the original owners.\"","\"I'm not 100% certain on boats, since they aren't typically sold for a gain, but the tax base of an asset is typically the cost of the asset plus the cost of any improvements, so your $15,000 gain looks right (check with a CPA to be certain, though, if you can). Your \"\"cost basis\"\" would be $50,000 + $25,000 = $75,000, and your net gain would be $90,000 - $75,000 = $15,000. The result is the same, but the arithmetic is organized a little differently. I am fairly confident you cannot include your time in the \"\"cost of improvements\"\". If you incorporated and \"\"paid yourself\"\" for the time, then the payment would be considered income (and taxed), if it was even allowed. Depending on your tax bracket that may be a WORSE option for you. You can look at it this way - you only pay the tax on the $15k gain versus paying someone else $15k to do the labor.\"","Gold is classified as a collectible so the gain rates are as follows: So you'd report a gain of $100 or $1,000 , depending on which coin you sold.","\"This is what this sounds like to me: https://www.thebalance.com/having-a-garage-sale-or-yard-sale-what-to-do-first-399030 also: http://blogs.hrblock.com/2012/07/25/garage-sale-money-does-the-irs-need-to-know/ Selling a personal item at a loss is generally not a taxable event. You cannot report it as a loss, and the IRS can't tax a transaction like that. If you really want to include these as sales as part of your LLC, you'll probably have to pay tax if you list it as income. I'm just confused as to why you'd want to do that, if you know that you're selling these particular items at a loss, and you also know that you have no documentation for them. I just wouldn't report anything you sold at a loss and treat it as \"\"garage sale items\"\" separate from your business.\"","Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity.","No Tax would have been deducted at the time of purchase/sale of shares. You would yourself be required to compute your tax liability and then pay taxes to the govt. In case the shares sold were held for less than 1 year - 15% tax on capital gains would be levied. In case the shares sold were held for more than 1 year - No Tax would be levied and the income earned would be tax free. PS: No Tax is levied at the time of purchase of shares and Tax is only applicable at the time of sale of shares.","You are correct. She cannot claim the initial loss of $1,000 on her taxes, she can only report the $500 profit. However, the IRS does allow her to add the $1,000 loss to the basis cost of her replacement shares. e.g.","You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.","You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.","Assuming that you have capital gains, you can expect to have to pay taxes on them. It might be short term, or long term capital gains. If you specify exactly which shares to sell, it is possible to sell mostly losers, thus reducing or eliminating capital gains. There are separate rules for 401K and other retirement programs regarding down payments for a house. This leads to many other issues such as the hit your retirement will take.","You're asking whether the shares you sold while being a US tax resident are taxable in the US. The answer is yes, they are. How you acquired them or what were the circumstances of the sale is irrelevant. When you acquired them is relevant to the determination of the tax treatment - short or long term capital gains. You report this transaction on your Schedule D, follow the instructions. Make sure you can substantiate the cost basis properly based on how much you paid for the shares you sold (the taxable income recognized to you at vest).","As your is a very specific case, please get an advice of CA. It should not cost you much and make it easier. The sale of agriculture land is taxable in certain conditions and exempt from tax in other cases. Sale of agricultural land is subject to capital gains tax. But there are certain exemptions under Section 54B, subject to conditions, which are as follows: If deemed taxable, you can avail indexation, ie the price at which you grandfather got [the date when he inherited it as per indexation] and pay 10% on the difference. If the price is not known, you can take the govt prescribed rate. As there is a large deposit in your fathers account, there can be tax queries and need to be answered. Technically there is no tax liable even if your grandfather gifts the money to your father. More details at http://www.telegraphindia.com/1130401/jsp/business/story_16733007.jsp and http://www.incometaxindia.gov.in/publications/4_compute_your_capital_gains/chapter2.asp","The loss for B can be used to write off the gain for A. You will fill out a schedule 3 with cost base and proceeds of disposition. This will give you a $0 capital gain for the year and an amount of $5 (50% of the $10 loss) you can carry forward to offset future capital gains. You can also file a T1-a and carry the losses back up to 3 years if you're so inclined. It can't be used to offset other income (unless you die). Your C and D trades can't be on income account except for very unusual circumstances. It's not generally acceptable to the CRA for you to use 2 separate accounting methods. There are some intricacies but you should probably just use capital gains. There is one caveat that if you do short sales of Canadian listed securities, they will be on income account unless you fill out form T-123 and elect to have them all treated as capital gains. I just remembered one wrinkle in carrying forward capital losses. They don't reduce your capital gains anymore, but they reduce your taxable income. This means your net income won't be reduced and any benefits that are calculated from that (line 236), will not get an increase.","\"In short Yes, your father needs to pay tax. Please consult a CA so that he can advice you better. In your father's case at the time of purchase it was agricultural land. However at the time of sale, it seems it was Urban, N.A. Land. A C.A. would advice you the exact exemptions and gains. If it was agricultural land at the time of selling, the Section 54B: \"\"Exemption from Capital Gains on transfer of Agricultural Lands in certain cases\"\" would be applicable if your Dad was doing agricultural activity on this land, and after selling has purchased a similar land.\"","That seems to indicate that you can in fact depreciate a vehicle given to you? Section 1015 discusses the calculation of basis for gifted property, it says nothing about depreciation. Personal property cannot be depreciated for tax purposes unless it is used for business purposes. So unless you drive your car as part of your sole-proprietor business, you cannot depreciate it, be it a gift or a car you purchased yourself. If you can depreciate the car, then sec. 1015 is used to calculate the basis for the depreciation.","You are in business for yourself. You file Schedule C with your income tax return, and can deduct the business expenses and the cost of goods sold from the gross receipts of your business. If you have inventory (things bought but not yet sold by the end of the year of purchase), then there are other calculations that need to be done. You will have to pay income tax as well as Social Security and Medicare taxes (both the employee's share and the employer's share) on the net profits from this business activity.","As someone who's currently shopping for some winter wheels and has the raised blood pressure to go with that, I've got a few suggestions as to what would make me pick up the phone and call your or email you if you're advertising a vehicle. Keep in mind that if you're willing to deal with the additional hassle, you'll normally get the most money for a used car if you sell it privately. If it is worth the additional effort though is both a matter of judgement and if you're willing to put up with strange people like me :). Depending on the value of the vehicle and its rarity/desirability, you're looking at newspaper ads (probably won't get you much of a response these days), craigslist, Autotrader and similar, and last but not least, ebay. If you're trying to sell something that's easy to find because there are five at every street corner (think beige minivan), skip ebay. If it's worth below 5k-6k, I wouldn't bother with places where you have to pay to advertise, which leaves CL for the cheap stuff - that said, I'd still stick it on CL if it's advertised in other places. Heck, it's free after all. The figure out what sort of money you're asking for. Check the resources like KBB.com and have a look at your local CL for similar vehicles. Out here, certain types of vehicles (for example, Jeeps) sell quickly and often above even KBB.com. A little market research will help you come up with a good price. Just don't do things like asking a massively inflated price for a vehicle because you paid $x five years ago. All this shows that you have no idea what your vehicle is worth. Oh, and I'd always work out what the minimum I'd take is - leave yourself some haggle room but don't undersell the vehicle. Once you know where you advertise and for how much, pull together the basic facts for your vehicles and the points that would make it stand out. Basic facts about the car should include engine size, type of transmission, if it's AWD (where applicable), mileage. Color I can see on the pictures, but it's nice to include that, too. If you have service records, recently replaced a big ticket item (think transmission or similar) or had a very recent service, especially a big one where you had a timing belt and waterpump changed, mention it. Don't say the vehicle has a new engine if that was put in 100k miles ago, that's nice to mention but it's not new. If nobody's ever smoked in it, mention it. If it's got other outstanding features (super low mileage, summer only use etc) make sure to mention it that, too. Next, if it's got any faults that you know of - especially obvious ones - disclose them. People like me will most likely find the leaking shock absorber and the rust holes in the floor anyway, and it makes a much better impression if you do tell us about them beforehand. Trying to tell someone that your banana-shaped car that looks like the Blue Man Group used it for practise is actually pristine and accident-free isn't going to go down very well. Next, pull together the paperwork - make sure you've got the title (if there is a lien on the title, check with the lienholder before advertising the car so you know their procedure for releasing the title), any maintenance records you have, manuals, receipts etc. If the vehicle has a salvage title, try to find out why and mention it in the ad. I've just had a comedian phone me while I was driving to see his vehicle and leave a message that he didn't have a title and didn't seem to be willing to bother to get one, either. Obviously that put me in the right frame of mind, given that it was a 200 mile round trip. So don't do it - if you can't get a title, the schmuck you sold it to will have even less of a chance of getting one. And given that you are in California, a lot of people (including myself) react really badly to three years' worth of back registration, missing smog, expired registrations on something I'd expect to test drive etc. Essentially anything that would stop a potential cash buyer to drive it away on the spot. Next, clean the car - you know, the five years' of accumulated McD wrappers and inch thick layer of dirt (I'm only partially kidding, I've seem some pretty horrible stuff recently). Spend the two hours it takes to clean it or pay to have it valeted or detailed. Clean, shiny cars sell a lot better than a rolling recycling container. Oh, and last - make the effort take some decent photos. The more the merrier, shot in daylight (no photographing a black car after sunset) and if there is any damage, an additional photo or two showing the damage would be nice. Stick the on photobucket or similar and put the links in your craigslist ad so you don't restrict yourself to the microscopic photos that you normally get on there. As to payment, I'd either take cash, meet the buyer at his bank where he draws out a cashiers check in front of your eyes, or, well, cash. No Kauri shells, deeds on bridges in Brooklyn or anything else. Be prepared to take a deposit - a lot of buyers aren't willing to wander around with ten large ones in the back pocket to go look at a car - and spell out exactly how long the deposit is good for. I also tend to make them non-refundable (buyer doesn't pick up the car within the negotiated timeframe, you keep the deposit as 'damages' for not being able to sell it to another cash buyer). Check your DMV's website as to what exactly you need to do once you sold the car. Here in Nevada it's the buyer's problem on how to move it as you keep the plates, but I know in California the regular plates (not personal ones IIRC) stay with the vehicle and I think you need to inform the DMV that you sold the vehicle. I'd also keep a record of who I sold a vehicle to (name, address from his drivers license, license number etc) just in case they run a few red lights and accumulate a few grands' worth of parking tickets.","If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.","Yes. This income would be reported on schedule SE. Normally, you will not owe any tax if the amount is less than $400. Practically, $100 in a garage sale is not why the IRS created the form SE. I wouldn't lose sleep over keeping track of small cash sales over the course of a year. However, if you have the information I'm not going to tell you not to report it."],"string":"[\n \"I don't think there's much you can do. Losses from the sale of personal-use automobiles (used for pleasure, commuting, etc) are not deductible as capital losses. See IRS Tax Topic 409, end of the first paragraph. The expenses you incurred in owning and operating the car (insurance, fuel, maintenance, service plans, etc) are not deductible either. If you used it partly for business, then some of your expenses might be deductible; see IRS Tax Topic 510. This includes depreciation (decline in value), but only according to a standard schedule; you don't generally just get to deduct the difference between your buying and selling price. Also, you'd need to have records to verify your business use. But anyway, these deductions would apply (or not) regardless of whether you sell the car. You don't get your sales tax refunded when you resell the vehicle. That's why it's a sales tax, not a value-added tax. Note, however, that if you do sell it, the sales tax on this new transaction will be the buyer's responsibility, not yours. You do have the option on your federal income tax return to deduct the state sales tax you paid when you bought the car; in fact, you can deduct all the sales taxes you paid in that year. (If you have already filed your taxes for that year, you can go back and amend them.) However, this takes the place of your state income tax deduction for the year; you can't deduct both. See Tax Topic 503. So this is only useful if your sales taxes for that year exceeded the state income tax you paid in that year. Also, note that state taxes are not deductible on your state income tax return. Again, this deduction applies whether you sell the car or not.\",\n \"You continue with this form. The fact that the trade in value is less than market value doesn't mean that you don't have taxable income from the sale. Since you depreciated the car before selling it, you need to compare the trade in value not to the market value, but to your cost basis, which may be lower.\",\n \"\\\"While you'd need to pay tax if you realized a capital gain on the sale of your car, you generally can't deduct any loss arising from the sale of \\\"\\\"personal use property\\\"\\\". Cars are personal use property. Refer to Canada Revenue Agency – Personal-use property losses. Quote: [...] if you have a capital loss, you usually cannot deduct that loss when you calculate your income for the year. In addition, you cannot use the loss to decrease capital gains on other personal-use property. This is because if a property depreciates through personal use, the resulting loss on its disposition is a personal expense. There are some exceptions. Read up at the source links.\\\"\",\n \"If the income is more than the value on the 1099-MISC - then yes. Depending on how long you've held the car, the difference would be short term/long term capital gain. You cannot deduct loss, though, since it is a personal property and not investment.\",\n \"That's tricky, actually. First, as the section 1015 that you've referred to in your other question says - you take the lowest of the fair market value or the actual donor basis. Why is it important? Consider these examples: So, if the relative bought you a brand new car and you're the first title holder (i.e.: the relative paid, but the car was registered directly to you) - you can argue that the basis is the actual money paid. In essence you got a money gift that you used to purchase the car. If however the relative bought the car, took the title, and then drove it 5 miles to your house and signed the title over to you - the IRS can argue that the car basis is the FMV, which is lower because it is now a used car that you got. You're the second owner. That may be a significant difference, just by driving off the lot, the car can lose 10-15% of its value. If you got a car that's used, and the donor gives it to you - your basis is the fair market value (unless its higher than the donor's basis - in which case you get the donor's basis). You always get the lowest basis for losses (and depreciation is akin to a loss). Now consider the situation when your relative is a business owner and used the car for business. He didn't take the depreciation, but he was entitled to. IRS can argue that the fact that he didn't take is irrelevant and reduce the donor's basis by the allowable depreciation. That may bring your loss basis to below the FMV. I suggest you take it to a tax professional licensed in your state who will check all the facts and circumstances of your situation. Your relative might be slapped with a gift tax as well, if the car FMV is above certain amount (currently the exemption is $14000).\",\n \"Sorry, no, any time you sell for a profit you owe tax.\",\n \"The tax is only payable on the gain you make i.e the difference between the price you paid and the price you sold at. In your cse no tax is payable if you sell at the same price you bought at\",\n \"How would I go about doing this? Are there any tax laws I should be worried about? Just report it as a regular sale of asset on your form 8949 (or form 4797 if used for trade/business/rental). It will flow to your Schedule D for capital gains tax. Use form 1116 to calculate the foreign tax credit for the taxes on the gains you'd pay in India (if any).\",\n \"You normally only pay taxes on the difference between the sale price and the cost basis of the asset. In your example, you would probably pay taxes on the $10 difference, not the full sale price of $110. If you paid a commission, however, you would be taxed on your gain minus the commission you paid. Since you held the asset for less than a year, you wouldn't pay the long-term capital gains rate of 20%; you'd be taxed on the capital gain as if it were ordinary income, which depends on your federal income tax bracket. Also, littleadv makes a good point about the implications of buying the asset with after-tax funds too, so that's another part of the equation to consider as well.\",\n \"\\\"-Alain Wertheimer I'm a hobbyist... Most (probably all) of those older items were sold both prior to my establishing the LLC This is a hobby of yours, this is not your business. You purchased all of these goods for your pleasure, not for their future profit. The later items that you bought after your LLC was establish served both purposes (perks of doing what you love). How should I go about reporting this income for the items I don't have records for how much I purchased them for? There's nothing you can do. As noted above, these items (if you were to testify in court against the IRS). \\\"\\\"Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.\\\"\\\" Source Do I need to indicate 100% of the income because I can't prove that I sold it at a loss? Yes, if you do not have previous records you must claim a 100% capital gain. Source Addition: As JoeTaxpayer has mentioned in the comments, the second source I posted is for stocks and bonds. So at year begin of 2016, I started selling what I didn't need on eBay and on various forums [January - September]. Because you are not in the business of doing this, you do not need to explain the cost; but you do need to report the income as Gross Income on your 1040. Yes, if you bought a TV three years ago for a $100 and sold it for $50, the IRS would recognize you earning $50. As these are all personal items, they can not be deducted; regardless of gain or loss. Source Later in the year 2016 (October), I started an LLC (October - December) If these are items that you did not record early in the process of your LLC, then it is reported as a 100% gain as you can not prove any business expenses or costs to acquire associated with it. Source Refer to above answer. Refer to above answer. Conclusion Again, this is a income tax question that is split between business and personal use items. This is not a question of other's assessment of the value of the asset. It is solely based on the instruments of the IRS and their assessment of gains and losses from businesses. As OP does not have the necessary documents to prove otherwise, a cost basis of $0 must be assumed; thus you have a 100% gain on sale.\\\"\",\n \"You receive a 1099-misc for the value of the car. You claim that as income (even though you received goods rather than cash). When you sell the car, it would be much like selling any posession, and would cause no tax consequence unless the sale price was much different than the value... When you sell the car, you may have received more or less than the value of the car (likely less). If you sold it for more, then you might need to claim the additional money as income (perhaps short term capital gains). If you sold it for less, but to a friend or relative, then you might think you could claim a loss, but the tax collector would just claim that you had given them a gift, and attempt to collect the tax from them. Contest winners often have the frustration that they are taxed at the full value of the item(s) won, even though they would not value the item at that amount. And contest prizes often do not sell for the full value stated on the 1099, and often for much less. Marginal tax rates were higher prior to Reagan, and when a contest winner would sell an item for 80% of the value, they often paid most of the proceeds to taxes.\",\n \"Tax questions require that you specify a jurisdiction. Assuming that this is the US, you owe Federal income tax (at the special long-term capital gains tax rate) on the net long-term capital gains (total long-term capital gains minus total long-term capital losses) and so, yes, if these two were your only transactions involving long-term holdings, you would pay long-term capital gains tax on $3000-$50 = $2950. Many States in the US don't tax long-term capital gains at special rates the way the Federal Government does, but you still pay taxes on the net long-term capital gains. I suspect that other countries have similar rules.\",\n \"\\\"Books would be considered Personal-Use Property according to Canada's income tax laws. The most detailed IT I was able to find is IT-332R, which says: GAINS AND LOSSES 3. A gain on the disposition of personal-use property is normally a capital gain within the meaning of paragraph 39(1)(a). Where the property is a principal residence, the gain > is computed under paragraph 40(2)(b) or (c). 4. Under subparagraph 40(2)(g)(iii), a loss on a disposition of personal-use property, other than listed personal property, is deemed to be nil. [...] This part of the bulletin indicates that a gain might be considered a capital gain - not income. However, you don't get to book a loss as a capital loss. This is the first hint that your book sale - which is actually an exempt capital loss - shouldn't go on your tax return unless it's one of the \\\"\\\"listed\\\"\\\" items: LISTED PERSONAL PROPERTY 7. Listed personal property is defined in paragraph 54(e) to mean personal-use property that is all or any portion of, or any interest in or right to, any (a) print, etching, drawing, painting, sculpture, or other similar work of art, (b) jewellery, (c) rare folio, rare manuscript, or rare book, (d) stamp, or (e) coin. So unless you're selling rare books, the disposition (sale) of them is essentially exempt as income, regardless of whether you sold it at a profit or at a loss. If it is rare, then you might be able to consider it a capital loss, which doesn't help you much unless you had other capital gains, but you can carry over capital losses to future years. There's also a newer IT related to hobbies and \\\"\\\"collecting\\\"\\\" items, IT-334R2. This one says: 11. In order for any activity or pursuit to be regarded as a source of income, there must be a reasonable expectation of profit. Where such an expectation does not exist (as is the case with most hobbies), neither amounts received nor expenses incurred are included in the income computation for tax purposes and any excess of expenses over receipts is a personal or living expense, the deduction of which is denied by paragraph 18(1)(h). On the other hand, if the hobby or pastime results in receipts of revenue in excess of expenses, that fact is a strong indication that the hobby is a venture with an expectation of profit; if so, the net income may be taxable as income from a business. The current version of IT-504, Visual Artists and Writers, discusses the concept of \\\"\\\"a reasonable expectation of profit\\\"\\\" in greater detail. Where a hobby consists of collecting personal-use property or listed personal property, dispositions should be accounted for as described in the current version of IT-332, Personal-Use Property. (emphasis mine) In other words, if it's not the type of thing where you'd make a tax deduction when you bought it in the first place, then you clearly don't need to report it as income when you sell it. Just to be absolutely clear here: The fact that you are selling them at a loss is not actually what's important here. What's important is that, if the books aren't collectibles, then you would have had no expectation of profit. If you did have that expectation then you could have made a tax deduction when you first purchased them. So in this case, it is probably not necessary for you to report the income; however, for the benefit of other readers, in some cases you might need to report it under \\\"\\\"other income\\\"\\\" or book it as a capital gain/loss, depending on what those personal items are and whether or not you made a net profit.\\\"\",\n \"\\\"You can exclude up to $250000 ($500000 for married filing jointly) of capital gains on property which was your primary residence for at least 2 years within the 5 years preceding the sale. This is called \\\"\\\"Section 121 exclusion\\\"\\\". See the IRS publication 523 for more details. Gains is the difference between your cost basis (money you paid for the property) and the proceeds (money you got when you sold it). Note that the amounts you deducted for depreciation (or were allowed to deduct during the period the condo was a rental, even if you chose not to) will be taxed at a special rate of 25% - this is called \\\"\\\"depreciation recapture\\\"\\\", and is discussed in the IRS publication 544.\\\"\",\n \"Your question is best asked of a tax expert, not random people on the internet. Such an expert will help you ask the right questions. For example you did not point out the country or state in which you live. That matters. First point is that you will not pay tax on 60K, its expensive to transact real estate, so your net proceeds will be closer to 40K. Also you can probably the deduct the costs of improvements. You implied that you really like this rental property. If that is the case, why would you sell...ever? This home could be a central part of your financial independence plan. So keep it until you die. IIRC when it passes to your heirs, a new cost basis is formed thereby not passing the tax burden onto them. (Assuming the property is located in the US.)\",\n \"No, it's not all long-term capital gain. Depending on the facts of your situation, it will be either ordinary income or partially short-term capital gain. You should consider consulting a tax lawyer if you have this issue. This is sort of a weird little corner of the tax law. IRC §§1221-1223 don't go into it, nor do the attendant Regs. It also somewhat stumped the people on TaxAlmanac years ago (they mostly punted and just declared it self-employment income, avoiding the holding period issue). But I did manage to find it in BNA Portfolio 562, buried in there. That cited to a court case Comm'r v. Williams, 256 F.2d 152 (5th Cir. 1958) and to Revenue Ruling 75-524 (and to another Rev. Rul.). Rev Rul 75-524 cites Fred Draper, 32 T.C. 545 (1959) for the proposition that assets are acquired progressively as they are built. Note also that land and improvements on it are treated as separate assets for purposes of depreciation (Pub 946). So between Williams (which says something similar but about the shipbuilding industry) and 75-524, as well as some related rulings and cases, you may be looking at an analysis of how long your property has been built and how built it was. You may be able to apportion some of the building as long-term and some as short-term. Whether the apportionment should be as to cost expended before 1 year or value created before 1 year is explicitly left open in Williams. It may be simpler to account for costs, since you'll have expenditure records with dates. However, if this is properly ordinary income because this is really business inventory and not merely investment property, then you have fully ordinary income and holding period is irrelevant. Your quick turnaround sale tends to suggest this may have been done as a business, not as an investment. A proper advisor with access to these materials could help you formulate a tax strategy and return position. This may be complex and law-driven enough that you'd need a tax lawyer rather than a CPA or preparer. They can sort through the precedent and if you have the money may even provide a formal tax opinion. Experienced real estate lawyers may be able to help, if you screen them appropriately (i.e. those who help prepare real estate tax returns or otherwise have strong tax crossover knowledge).\",\n \"If the items you sold are items you previously bought for a higher price, the money you get selling them is not income, as you are taking a loss. However, you cannot deduct such losses. If you sell anything for more than what you paid for, the difference is a gain and is taxable. See this IRS web site for the explanation: https://www.irs.gov/businesses/small-businesses-self-employed/tax-tips-for-online-auction-sellers\",\n \"\\\"Yes, you're correct and yes they will. Note that it will be considered as \\\"\\\"sale\\\"\\\" with gains being taxable income to you.\\\"\",\n \"The money you will be bringing to the US will be classified as your own money, and will not be taxable. The proceeds from the sale are taxable to you, probably as capital gains. The fact that you kept the proceeds out of the US is irrelevant for that purpose (it is relevant for FBAR/FATCA etc). Since you had no basis in the property, all the proceeds are taxable to you at the time of the sale and should be reported on your tax return.\",\n \"For case 1, there is no tax due as you sold the book for less than your cost basis. If you had sold for more than $100, then you would have had a profit. For case 2, that depends on the value of the gift card with respect to the value of your fare. Most likely that gift card is less than the cost of the fare. And in that case it would generally be treated as a reduction in the purchase price. The same way that rebates and cash back on credit card are treated. Note if for some reason a 1099 was generated that would change the situation and you would need to consult a tax professional. Since that would indicate that the other party to the transaction had a different view of the situation.\",\n \"\\\"I doubt it. In the States you would only owe tax if you sold such an item at a profit. \\\"\\\"garage sales\\\"\\\" aren't taxable as they are nearly always common household items and sale is more about clearing out one's attic/garage than about profit. Keep in mind, if I pay for a book, and immediately sell it for the same price, there's no tax due, why would tax be due if I sell for a loss?\\\"\",\n \"\\\"In general, insurance payouts you receive in compensation for damage to your vehicle are not taxable income (see for instance this Nolo page). However, I don't see how that is related to your three bullet points about how your sister should buy her car. You can transfer the money to her in any way that's convenient to both of you. Whether the dealership will accept cash is something you'll have to ask them about, but my impression is most dealers are eager to accept cash. As long as the car you are getting from her is not worth substantially more than the $8500 you're giving her, I don't see that you'll be in trouble income-tax-wise. As mentioned in the question you linked to, you can give each other up to $14k per year tax-free. So if you give her a $8500 and she gives you a car worth roughly the same amount, no problem. If you actually do it as a sale, even better, since then the only amount that will count as a gift to either of you is whatever one party gets above and beyond the fair value of the car. (That is, if the car is worth $10000 but she sells it to you for $8500, she effectively gave you a gift of $1500 in car value. If it's worth $7000 but she sells it to you for $8500, you gave her a gift of $1500 in cash.) As Rocky pointed out in a comment, if you do a sale it may be subject to sales tax depending on what state you're in. In practice it is very common for people to not deal with sales tax in informal transactions like this between family members, but you do owe it if your state's laws require it, and the state could theoretically come after you for it. Another edit: I see from your comment you are in Michigan. According to this page from the Michigan Secretary of State, \\\"\\\"no tax is due if you purchase a vehicle from an immediate family member\\\"\\\". So you would not owe sales tax if you do it as a sale.\\\"\",\n \"You cannot do a like-kind (Sec. 1031) exchange for personal property, only for business/investment property. Since you said that you traded in your personal car - no like-kind exchange is possible. Also, since the new car doesn't belong to you - you didn't actually perform any exchange. You sold your old car, but you didn't buy a new one. If Turbo-Tax suggests you to fill the exchange form - you must have entered something wrong to make it think there was an exchange. Check your entries again, specifically - check if you entered that you purchased a new car instead of the old one, since you didn't. See an example of where to start looking here.\",\n \"When you sell your primary residence, you are required to capitalize any loss or gain at that point; you do not carry over your loss or gain (as you might in an investment property). As such, the timing of the purchase of the next house is not relevant in this discussion: you gained however much you gained already. This changed from the other (rollover) method in 1997 (see this bankrate article for more details.) However, as discussed in IRS Tax Topic 701, you can exclude up to $250,000 (single or filing separately) or $500,000 (married filing jointly) of gain if it is your primary residence and meets a few requirements (mostly, that you owned it for at least 2 years in the past 5 years, and similarly used it as your main home for at least 2 years of the past 5 years). So given you reported 25% gain, as long as your house is under a million dollars or so, you're fine (and if it's over a million dollars, you probably should be paying a CPA for this stuff). For California state tax, it looks like it is the same (see this Turbotax forum answer for a good explanation and links to this California Franchise Tax Board guide which confirms it: For sale or exchanges after May 6, 1997, federal law allows an exclusion of gain on the sale of a personal residence in the amount of $250,000 ($500,000 if married filing jointly). The taxpayer must have owned and occupied the residence as a principal residence for at least 2 of the 5 years before the sale. California conforms to this provision. However, California taxpayers who served in the Peace Corps during the 5 year period ending on the date of the sale may reduce the 2 year period by the period of service, not to exceed 18 months.\",\n \"\\\"Short Answer: You're going to end up paying taxes on it. Despite the home being your primary residence, you don't meet the ownership test, and it isn't noted that you have had a change in employment, health, or other unforeseen circumstances that are \\\"\\\"forcing\\\"\\\" you to sell. Otherwise, you could qualify for a reduced maximum exclusion that might allow you to walk away without owing taxes, or with a reduced tax bill. You can't even do a 1031 exchange to re-invest into a new primary residence. You should check with a tax professional to see what adjustments you can make to the cost basis of the property to minimize your reported net profits. During the 5-year period prior to the sale, you must have: These periods do not necessarily have to coincide (You don't to live in it as your main house for 2 consecutive years, just 2 years worth of time of the last 5).\\\"\",\n \"What you are looking for is a 1031 exchange. https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031 Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. You may also sell your house for bitcoin and record the sales price on the deed with an equal or lesser amount that you bought it for.\",\n \"\\\"If you sell an asset for more than you paid for it, the excess amount realized is called a capital gain and is generally considered a form of income for tax purposes. Generally, one pays income tax on realized capital gains, unless the sale is exempt—such as the sale of one's principal residence. Capital gains tax can also be avoided or deferred by holding assets in a tax-advantaged investment account like a TFSA or RRSP. When taxable, the effective income tax rate on capital gains income is half the normal rate due to the capital gains inclusion rate. Capital gains income is generally not considered to be employment, \\\"\\\"earned\\\"\\\", or \\\"\\\"working\\\"\\\" income. However, individuals who, say, trade stocks frequently and earn a substantial portion of their income that way may have their gains considered employment income and subject to regular income tax instead of the better rate. I suggest you contact Service Canada and ask them about the impact of a one-time sale of personal property that would result in a realized capital gain. While you would owe income tax on the capital gain, it might not have any impact on your disability benefits, because it would not be earned or employment income. You should also check with your private insurer; they may also consider the sale a capital gain and not employment income, however, only they would be able to tell you for sure whether it would have any possible effect on your benefits.\\\"\",\n \"Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.\",\n \"If you are in the United States, Real Estate gains are taxed as capital gains 15% currently but will go up in 2011. You may be able to exclude $250,000 filing single (500k married filing jointly) if you have lived in the condo 2 out of the last 5 years. See IRS Publication 523 for more information. You are only taxed on the profit from the sale. If you paid $100,000 and you sell it for $125,000 you would owe capital gains tax on $25,000 if you don't meet the conditions in IRS Publication 523.\",\n \"Using US tax code, given that your profits are less than 250K, given that you lived in that home over two years, then yes the 150K is tax free. That is your money in the US. Note: I won't get into all of the specifics but basically you need to live somewhere 2 years. You get 250K per person, up to 500K. Most enhancements count as money towards the home. So most/all of your 12k should be discounted. However there is a lot of fine print in this and a lot of interpretation on what is normal upkeep and what is an enhancement.\",\n \"You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.\",\n \"Your capital gain is about $40K, which (assuming your total income is under $250K) is taxed at 15% long term capital gains rate. Additional depreciation recapture of approximately $5K is taxed at 25%. So this gives us rough estimate of $7250 tax. This is Federal tax, AZ rates are somewhere between 2% and 4%, so you'll be looking at some $1.6K additional tax to AZ. If you have accumulated rental losses or other expenses, it will lower the total amount of your gain (and, accordingly, the taxes). This is all very rough estimates, and you shouldn't rely on this but verify on your own or with a professional. I suggest using professional services because while being costly, they will probably save you more in taxes than you'll have to pay them because of the knowledge of what exactly of your expenses can be deducted and how to calculate the cost basis correctly. (edit from JoeT - the home exclusion requires occupancy for 2 of prior 5 years. For the OP, the prorated $125k exclusion 'might' cover the gain, it depends when the increase in value occurred, if the gain was during the time rented, it's taxable, I believe.)\",\n \"How much Federal Capital Gains, NYS Income tax and local tax should I expect to pay? You're going to net about 2.4 millions of dollars. Federal long term capital gains tax is 20% (plus 3.8% medicare), NYS is 8.82%. Does it make sense to investigate the tax benefits of financing the sale for the buyer? Yes. Have your tax adviser check the options for you (financing, instalment, etc), especially if you have no other US-sourced income. Tax treaties are also something your tax adviser should be looking at. Be sure your tax adviser is properly licensed in New York as either EA, CPA or Attorney. Don't do anything without a proper tax advice.\",\n \"It doesn't go on Schedule E at all, it goes on form 4797. The fridge should have been depreciated, over 5 years. If you sold it after 5 years, all the proceeds are taxable income taxed as depreciation recapture (25% rate) up to the allowable depreciation (your original cost basis), above which it is taxable capital gain. Whether you actually have depreciated it or not, it is really your problem, IRS doesn't care. So if 5 years of ownership passed - just write it all as taxable income on the form 4797. Otherwise, allowable depreciation prorated (and you can still amend forms 3 years back to get at least part of it). The new fridge should also be depreciated over the 5 years of its expected useful life. See form 4562. Talk to a licensed tax professional (EA/CPA licensed in your state) for details.\",\n \"You bought a rental property in 2001. Hopefully you paid fair value else other issues come into play. Say you paid $120K. You said you have been taking depreciation, which for residential real estate is taken over 27.5 years, so you are about halfway through. Since you don't depreciate land, you may have taken a total $50K so far. With no improvements, and no transaction costs, you have $50K in depreciation recapture, taxed at a maximum 25% (or your lower, marginal rate) and a cap gain of the 5-10K you mentioned. Either can be offset by losses you've been carrying forward if you suffered large stock losses at some point.\",\n \"AS PER IRS PUBLICATION: Question: Is money received from the sale of inherited property considered taxable income? Answer: To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following: For information on the FMV of inherited property on the date of the decedent’s death, contact the executor of the decedent’s estate. Also, note that in 2015, Congress passed a new law that, under certain circumstances, requires an executor to provide a statement identifying the FMV of certain inherited property to the individual receiving that property. Check IRS.gov for updates on final rules being promulgated to implement the new law. If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets. Report the sale on Schedule D (Form 1040), Capital Gains and Losses, and on Form 8949, Sales and Other Dispositions of Capital Assets: Under the new law passed by Congress in 2015, an accuracy-related penalty may apply if an individual reporting the sale of certain inherited property uses a basis in excess of that property’s final value for federal estate tax purposes. Again, check IRS.gov for updates on final rules being promulgated to implement the new law. For estates of decedents who died in 2010, basis is generally determined as described above. However, the executor of a decedent who died in 2010 may elect out of the estate tax rules for 2010 and use the modified carryover of basis rules. Under this special election, the basis of property inherited from a decedent who died during 2010 is generally the lesser of: Under this special election for estates of decedents who died in 2010, the executor of the decedent’s estate may increase the basis of certain property that beneficiaries acquire from a decedent by up to $1.3 million (plus certain unused built-in losses and loss carryovers, if applicable), but the increased basis cannot exceed the FMV of the property at the date of the decedent’s death. The executor may also increase the basis of certain property that the surviving spouse acquires from a decedent by up to an additional $3 million, but the increased basis cannot exceed the FMV of the property at the date of the decedent’s death. The executor of the decedent’s estate is required to provide a statement to all heirs listing the decedent’s basis in the property, the FMV of the property on the date of the decedent’s death, and the additional basis allocated to the property. Contact the executor to determine what the basis of the asset is. Report the sale on Schedule D (Form 1040) and on Form 8949, as described above. Additional Information:\",\n \"This is taxed as ordinary income. See the IRC Sec 988(a)(1). The exclusion you're talking about (the $200) is in the IRC Sec 988(e)(2), but you'll have to read the Treasury Regulations on this section to see if and how it can apply to you. Since you do this regularly and for profit (i.e.: not a personal transaction), I'd argue that it doesn't apply.\",\n \"Ditto Rocky. Also: Break the sale up over several tax years so that you don't have a spike in your income pushing you into a higher tax bracket. Don't sell it until you retire, when you're probably in a lower tax bracket. (If you're 20, this may be impractical.) Get some other deductions, like medical expenses, charity, etc. Failing that, maybe a couple of other ideas that neither of us thought of, I think the real answer is: suck it up and pay the taxes. If there was a way to reduce your taxes just by checking the right box on a tax form or some such, everybody would do it and the government wouldn't collect any taxes.\",\n \"\\\"And my CPA is saying no way, it will cost me many thousands in taxes and doesn't make any sense. I'd think so too. It looks like it converts from capitol gains at 14% to something else at about 35% Can be, if your gain under the Sec.1231 rules is classified as depreciation recapture. But, perhaps the buyers will be saving this way? Not your problem even if they were, which they aren't. I would not do something my CPA says \\\"\\\"no-way\\\"\\\" about. I sometimes prefer not doing some things my CPA says \\\"\\\"it may fly\\\"\\\" because I'm defensive when it comes to taxes, but if your CPA is not willing to sign something off - don't do it. Ever.\\\"\",\n \"Selling one fund and buying another will incur capital gains tax on the sale for the amount of the gain. I'm not aware of any sort of exemption available due to you moving out of the country. However, long-term capital gains for low-tax-bracket taxpayers is 0%. As long as your total income including the gains fits within the 15% regular tax bracket, you don't pay any long-term capital gains. Options for you that I see to avoid taxes are: Note that even if you do sell it all, it's only the amount of gains that would take your income over the 15% normal tax bracket that would be taxed at the long-term rate of 15%, which may not end up being that much of a tax hit. It may be worth calculating just how bad it would be based on your actual income. Also note that all I'm saying here is for US federal income taxes. The state you most recently lived in may still charge taxes if you're still considered a resident there in some fashion, and I don't know if your new home's government may try to take a cut as well.\",\n \"Don't let the tax tail wag the investment dog. There is risk in exchanging this (known) property for another (unknown) property. That risk may be more than $9000 worth of risk. Tax considerations are important, but most important is that your investments make money. If you intend to continue as a landlord, you had better be sure you are finding a better deal elsewhere if you are going to trade this property up. I should also mention that you have a 5 year window in which you need to have lived in the home for 2 years. You have time and might be able to sell for a higher price if you wait a little longer.\",\n \"This will be a complex issue and you will need to sit down with a professional to work through the issues: When the house was put up for rent the initial year tax forms should have required that the value of the house/property be calculated. This number was then used for depreciation of the house. This was made more complex based on any capital improvements. If the house wasn't the first he owned, then capital gains might have been rolled over from previous houses which adds a layer of complexity. Any capital improvements while the house was a rental will also have to be resolved because those were also depreciated since they were placed in service. The deprecation will be recaptured and will be a part of the calculation. You have nowhere near enough info to make a calculation at this time.\",\n \"\\\"Please Note: Before taking any steps towards a transaction involving possible capital gains tax exclusions, please consult your CPA, attorney or tax advisor. I am not a CPA or Tax Advisor. Since you have only lived in it 11 months, you don't meet the \\\"\\\"use test\\\"\\\" for full exclusion. However, even if you haven't lived in it that long, you may be able to exclude some of the gains due to a \\\"\\\"unforeseen circumstance\\\"\\\", not just because you wanted to move. You say you are \\\"\\\"ready for a change\\\"\\\" and so that means it's an arbitrary decision, not a forced one. To calculate the partial exclusion, take the number of months you lived there before the sale and divide it by 24. (11/24 = 0.45). So for an unmarried person, you can exclude up to $250,000. Multiply that by .45 and you get $112,500. If your profit after everything is taken out is only $35,000 then you can exclude that from capital gains because it is less than $112,500. All that being said, you will need documentation in case you get audited. For more information, see IRS Publication 551, Basis of Assets, and look for the section on real property. See also this IRS Tax Topic on Sale of Your Home\\\"\",\n \"First the good news: based on the time involved, and the amount of potential profits; you will not owe any tax on the sale of the house no matter which option you pick. Now the details. When determining if there are any capital gains the IRS cares about the difference between the sale price and the purchase price. The amount of the loan, the final balance of the loan, or the lack of loan don't factor into the calculation. To complicate matters the government does factor into the equation any improvements you have made to the house (like a new deck) and the cost of buying and selling the house (real estate agents). If a single person has less than 250K in capital gains and has used the house as their main residence for 2 of the the previous 5 years their tax is zero. For a couple the tax free gain is $500K. For your situation since the sale price is less than $250K, the capital gains will also be less than $250K. You do have one potential area of concern. If the house is worth significantly more than $150K, the government could claim that the difference between what you charged your parents and what you could have charged was a gift. Assuming that there are no other factors that you didn't include in the original question it would appear that you will not face any taxes. Regarding your two options, neither will impact the taxes. Though draining your savings or investments could make it difficult to meet an emergency during the time between the sending of the $95K to the mortgage company and the closing on the deal with your parents. If the money came from retirement account it could have an even greater impact on your taxes and retirement situation.\",\n \"\\\"I would suggest reading through page 1 of the Arizona Nonresident form instructions at the web address below: https://www.azdor.gov/Portals/0/ADOR-forms/TY2015/10100/10177_inst.pdf To quote: \\\"\\\"You are subject to Arizona income tax on all income derived from Arizona sources. If you are in this state for a temporary or transitory purpose or did not live in Arizona but received income from sources within Arizona during 2015, you are subject to Arizona tax. Income from Arizona sources includes the following: ...the sale of Arizona real estate...\\\"\\\"\\\"\",\n \"\\\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \\\"\\\"otherwise\\\"\\\" is substantial and far-ranging.\\\"\",\n \"\\\"I'm going to look just at purchase price. Essentially, you can't always claim the whole of the purchase price (or 95% your case) in the year (the accounting period) of purchase, but you get a percentage of the value of the car each year, called writing down allowance, which is a capital allowance. It is similar to depreciation, but based on HRMC's own formula. In fact, it seems you probably can claim 95% of the purchase price, because the value is less than £1000. The logic is a bit involved, but I hope you can understand it. You could also claim simplified expenses instead, which is just based on a rate per mile, but you can't claim both. Note, by year I mean whatever your account period is. This could be the normal financial year, but you would probably have a better idea about this. See The HMRC webpage on this for more details. The big idea is that you record the value of any assets you are claiming writing down allowance on in one of a number of pools, that attract the same rate of writing down allowance, so you don't need to record the value of each asset separately. They are similar to accounts in accounting, so they have an opening balance, and closing balance. If you use an asset for personal use, it needs a pool to itself. HRMC call that a single asset pool. So, to start with, look at the Business Cars section, and look at the Rates for Cars section, to determine the rate you can claim. Each one links to a further article, which gives more detail if you need it. Your car is almost certainly in the special rate category. Special rate is 8% a year, main rate is 18%, and First year allowance is essentially 100%. Then, you look at the Work out what you can claim article. That talks you through the steps. I'll go through your example. You would have a pool for your car, which would end the account period before you bought the vehicle at zero (step 1). You then add the value of the car in the period you bought it (Step 2). You would reduce the value of the pool if you dispose of it in the same year (Step 3). Because the car is worth less than £1,000 (see the section on \\\"\\\"If you have £1,000 or less in your pool\\\"\\\"), you would normally be able to claim the whole value of the pool (the value of the car) in the first accounting period, and reduce the value of the pool to zero. As you use the car for personal use, you only claim 95% of the value, but still reduce the pool to zero. See the section on \\\"\\\"Items you use outside your business\\\"\\\". This £1000 is adjusted if your accounting period lasts more or less than 12 months. Once the pool is down to zero that it you don't need to think about it any more for tax purposes, apart from if you are claiming other motoring expenses, or if you sell it. It gets more complicated if the car is more expensive. I'll go through an example for a car worth £2,000. Then, after Step 3, on the year of purchase, you would reduce the value of the pool by 8%, and claim 95% of the reduction. This would be a 160 reduction, and 95%*160 = 152 claim, leaving the value of 1860 in the pool. You then follow the same steps for the next year, start with 1840 in the pool, reduce the value by 8%, then claim 95% of the reduction. This continues until you sell or dispose of the car (Step 3), or the value of the pool is 1000 or less, then you claim all of it in that year. Selling the car, or disposing of the car is discussed in the Capital allowances when you sell an asset article. The basic idea is that if you have already reduced the value of the pool to zero, the price you sell the car for is added you your profits for that year (See \\\"\\\"If you originally claimed 100% of the item\\\"\\\"), if you still have anything in the pool, you reduce the value of the pool by the sale value, and if it reduces to below zero (to -£200, say), you add that amount (£200, in this case), to your profits. If the value is above zero, you keep applying writing down allowances. In your case, that seems to just means if you sell the car in the same year you buy it, you claim the difference (or 95% of it) as writing down allowance, and if you do it later, you claim the purchase price in the year of purchase, and add 95% of the sale price to your profits in the year you sell it. I'm a bit unclear about starting \\\"\\\"to use it outside your business\\\"\\\", which doesn't seem to apply if you use it outside the business to start with. You can claim simplified expenses for vehicles, if you are a sole trader or partner, but not if you claim capital allowances (such as writing down allowances) on them, or you include a separate expense in your accounts for motoring expenses. It's a flat rate of 45p a mile for the first 10,000 miles, and 25p per mile after that, for cars, and 24p a mile for motorcycles. See the HRMC page on Simplifed Mileage expenses for details. For any vehicle you decide to either claim capital allowances claim running costs separately, or claim simplified mileage expenses, and \\\"\\\"Once you use the flat rates for a vehicle, you must continue to do so as long as you use that vehicle for your business.you have to stick with that decision for that vehicle\\\"\\\". In your case, it seems you can claim 95% of the purchase price in the accounting period you buy it, and if you sell it you add 95% of the sale price to your profits in that accounting period. It gets more complicated if you have a car worth more than £1000, adjusted for the length of the accounting period. Also, if you change how you use it, consult the page on selling selling an asset, as you may have disposed of it. You can also use simplified mileage expenses, but then you can't claim capital allowances, or claim running costs separately for that car. I hope that makes sense, please comment if not, and I'll try to adjust the explanation.\\\"\",\n \"Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.\",\n \"\\\"If it's fully expensed, it has zero basis. Any sale is taxable, 100%. To the ordinary income / cap gain issue raised in comment - It's a cap gain, but I believe, as with real estate, special rates apply. This is where I am out of my area of expertise, and as they say - \\\"\\\"Consult a professional.\\\"\\\"\\\"\",\n \"If significant amounts are involved, that would be a good time to consult a tax professional (EA/CPA licensed in your state). Generally, sale of a business is an ordinary income and you can only deduct tangible expenses, as Joe said. That would be laptops, bills, expenses per receipt, of course they must all be directly attributable to the business. You will need to be able to show that the laptops has only been used in business, recapture depreciation, etc. Same with all the rest of the expenses. If you're incorporated (i.e.: you hold this software under an S-Corp), then you're selling stocks, not business, and the tax treatment may be different, but I'm guessing this is not the case for you.\",\n \"(All for US.) Yes you (will) have a realized long-term capital gain, which is taxable. Long-term gains (including those distributed by a mutual fund or other RIC, and also 'qualified' dividends, both not relevant here) are taxed at lower rates than 'ordinary' income but are still bracketed almost (not quite) like ordinary income, not always 15%. Specifically if your ordinary taxable income (after deductions and exemptions, equivalent to line 43 minus LTCG/QD) 'ends' in the 25% to 33% brackets, your LTCG/QD income is taxed at 15% unless the total of ordinary+preferred reaches the top of those brackets, then any remainder at 20%. These brackets depend on your filing status and are adjusted yearly for inflation, for 2016 they are: * single 37,650 to 413,350 * married-joint or widow(er) 75,300 to 413,350 * head-of-household 50,400 to 441,000 (special) * married-separate 37,650 to 206,675 which I'd guess covers at least the middle three quintiles of the earning/taxpaying population. OTOH if your ordinary income ends below the 25% bracket, your LTCG/QD income that 'fits' in the lower bracket(s) is taxed at 0% (not at all) and only the portion that would be in the ordinary 25%-and-up brackets is taxed at 15%. IF your ordinary taxable income this year was below those brackets, or you expect next year it will be (possibly due to status/exemption/deduction changes as well as income change), then if all else is equal you are better off realizing the stock gain in the year(s) where some (or more) of it fits in the 0% bracket. If you're over about $400k a similar calculation applies, but you can afford more reliable advice than potential dogs on the Internet. (update) Near dupe found: see also How are long-term capital gains taxed if the gain pushes income into a new tax bracket? Also, a warning on estimated payments: in general you are required to pay most of your income tax liability during the year (not wait until April 15); if you underpay by more than 10% or $1000 (whichever is larger) you usually owe a penalty, computed on Form 2210 whose name(?) is frequently and roundly cursed. For most people, whose income is (mostly) from a job, this is handled by payroll withholding which normally comes out close enough to your liability. If you have other income, like investments (as here) or self-employment or pension/retirement/disability/etc, you are supposed to either make estimated payments each 'quarter' (the IRS' quarters are shifted slightly from everyone else's), or increase your withholding, or a combination. For a large income 'lump' in December that wasn't planned in advance, it won't be practical to adjust withholding. However, if this is the only year increased, there is a safe harbor: if your withholding this year (2016) is enough to pay last year's tax (2015) -- which for most people it is, unless you got a pay cut this year, or a (filed) status change like marrying or having a child -- you get until next April 15 (or next business day -- in 2017 it is actually April 18) to pay the additional amount of this year's tax (2016) without underpayment penalty. However, if you split the gain so that both 2016 and 2017 have income and (thus) taxes higher than normal for you, you will need to make estimated payment(s) and/or increase withholding for 2017. PS: congratulations on your gain -- and on the patience to hold anything for 10 years!\",\n \"Yes you need to pay Capital Gains tax in India. Further transfer of money out of India from Ordinary account requires some formalities / paperwork. A CA should be able to guide you.\",\n \"You need a lawyer and a tax accountant for a sale like this. They will be able to tell you if the proceeds are taxed as income (most likely) or capital gains and will help you structure the deal. How you spend the proceeds will not make a difference, although if it's a large amount and you plan to donate some to charity, you may be able to save on your total tax liability by creating a donor advised fund. Keep in mind the broker is mostly interested in his commission and not about making the best deal for you. Get an attorney with experience in business sales.\",\n \"Kentucky property tax is assessed as of the owner on January 1 of each calendar year. In April you should be notified of what KY considers you to owe them, and you have a two week period in May to appeal those decisions (though it appears that you can only appeal Real property tax assessments). The final tax bill is then sent to you in the fall, by October, and you have until the end of the year to pay the bill. See Kentucky Property Tax Calendar Overview for more details. Thus, if you owned the car on Jan 1 2016, then you should owe personal property tax on it for 2016 due in the fall. You may not have owed the tax paid in November, if it was indeed personal property tax, unless the seller was asking you to recompense them for the tax they paid in 2015. Note that property tax is separate and distinct from usage tax, the 6% tax for vehicles paid at purchase date (once and only once).\",\n \"Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.\",\n \"The transaction will be taxable in India. You will have to pay Capital Gains tax. I am assuming that you purchased the house while you were Indian Resident for tax purposes. As such its needs more paper work to get the money back to US. Consult a CA in India who will help with the paperwork. You haven't mentioned your tax status in US, one you update it, someone will post a US tax aspects of the transaction.\",\n \"I realize this is a dated question, but for anyone interested in this subject please be aware of the availability of IRC § 1235 and capital gain treatment for the sale of patents. When the holder of a patent transfers all substantial rights to an unrelated person, it can qualify for long-term capital gain treatment. That can be a meaningful tax savings relative to ordinary income treatment. There are a number of specific provisions and requirements to access § 1235. The holder must be the creator or someone unrelated (and not the creator's employer) who purchased the patent from the creator. The holder must transfer all substantial rights to the patent (not a licensing), or sell an undivided portion of all substantial rights (partial sale, again not a license). The benefit of § 1235 is that long-term treatment will apply even for patents with holding periods under 1 year. Other rules and permutations of course also apply. Those who fail § 1235 may still qualify their assets as capital under § 1221 or § 1231. A patent held by its creator will often qualify as a capital asset. It may not make any sense to sell your business as a whole, particularly if all a purchaser wants is a patent or group of patents. Of course, if the patent was held by its creator in a single-member LLC or other disregarded entity sold to a buyer, then the tax treatment is still treated as the sale of a long-term capital asset.\",\n \"\\\"You uncle is liable to pay \\\"\\\"Capital-Gains\\\"\\\" tax. Essentially the sale price less of cost would be treated as gains. The gains are taxed at 10% without indexation and 20% with Indexation. The capital gains tax can be avoided if your uncle invests the gains into specified \\\"\\\"Infrastructure bonds\\\"\\\" or buys another property within a period of 3 years. The funds need to be kept in a separate \\\"\\\"Capital Gains\\\"\\\" account and not a regular savings account till you buy another property within 3 years.\\\"\",\n \"To focus on your question.. pay it off then trade in. The reason is because say you just have 14k laying around and buy a car for 14k, you must pay 14k plus tax. If you are in one of the states that allows the tax break, then trading the 14k valued vehicle in for a 14k vehicle will nullify your sales tax. As per your question, if you traded the car in at 7k, you would then owe 7k plus tax. You only have 7k..so how would you pay for the tax and why would you want to? Pay off the car and you'll have 14k of tax free off any car.\",\n \"The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would be any different for the person that created the account initially, except that the basis starts at $0 making the entire sale price taxable. How you figure the value of the account before the initial sale would be more difficult, but fortunately you may not ever need to know the value (for tax purposes) until you actually sell it.\",\n \"Residents of Canada must pay Canadian income tax on their worldwide income (source: Wikipedia). However, there is a tax treaty between the U.S. and Canada; I haven't read it, but my guess is that it will allow you to claim a tax credit in Canada for the capital gains tax you have paid to the U.S.\",\n \"Is the remaining amount tax free? As in, if the amount shown (which I can sell) on etrade is $5000 then if I sell the entire shares will my bank account be increased by $5000? The stocks they sell are withholding. So let's say you had $7000 of stock and they sold $2000 for taxes. That leaves you with $5000. But the actual taxes paid might be more or less than $2000. They go in the same bucket as the rest of your withholding. If too much is withheld, you get a refund. Too little and you owe them. Way too little and you have to pay penalties. At the end of the year, you will show $7000 as income and $2000 as withheld for taxes from that transaction. You may also have a capital gain if the stock increases in price. They do not generally withhold on stock sales, as they don't necessarily know what was your gain and what was your loss. You usually have to handle that yourself. The main point that I wanted to make is that the sale is not tax free. It's just that you already had tax withheld. It may or may not be enough.\",\n \"An update for anyone looking this up, I am still working through all the details but I can answer the question as far as Stack Exchange will go. In this situation the answer and processes involved greatly differs based on the personal circumstances of the person asking the question. Best to seek qualified tax advice than relying only on a forum as they are able to be more accurate and descriptive than any reply that you might receive.\",\n \"\\\"Payment gateways such as Square do not normally withhold tax. It is up to you to pay the appropriate tax at tax time. That having been said, Square does report your payments to the IRS on a form 1099-K if your payments are large enough. According to Square, you'll get a 1099-K from them if your total payments for the year add up to $20,000 AND more than 200 transactions. Whether or not they report on a 1099-K, you are required to pay the appropriate taxes on your income. So now the question becomes, \\\"\\\"Do I have to pay income tax on the proceeds from my garage sale?\\\"\\\" And the answer to that question is usually not. When you sell something that you previously purchased, if you sell it for more than you paid for it, you have a capital gain and need to pay tax on that. However, generally you sell things in a garage sale at a loss, meaning that there is no tax due. If you make more than $20,000 at your garage sale and the IRS gets a 1099-K, the IRS might be curious as to how you did that with no capital gain. So if you sell any big ticket items (a bulldozer, for example), you should keep a record of what you paid for it, so you can show the loss to the IRS in the event of an audit.\\\"\",\n \"If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you have $166 loss. You report all these items on your Schedule D. Make sure to calculate the tax correctly, since the tax is not capital gains tax but rather ordinary income at marginal rates. Changes in foreign exchange between a transaction and the conversion of the proceeds to USD are generally not considered as income (i.e.: You sold a property in Mexico, but since the money took a couple of days to clear, the exchange rate changed and you got $2K more/less than you would based on the exchange rate on the day of the transaction - this is not a taxable income/loss). This is covered by the IRC Sec. 988. There are additional rules for contracts on foreign currency, TTM rules, etc. Better talk to a licensed tax adviser (EA/CPA licensed in your State) for anything other than trivial.\",\n \"\\\"In simple terms, it is a business operation when it becomes a profit-making enterprise. It is a grey area, but there is a difference between selling occasional personal items on eBay and selling for profit. I would imagine the sort of considerations HM Revenue & Customs would take into account are the size of your turnover, the extent to which you are both buying and selling, and whether you are clearly specialising in one particular commodity as opposed of disposing of unwanted presents or clearing the loft. http://www.ebay.co.uk/gds/When-does-eBay-selling-become-taxable-/10000000004494855/g.html I don't believe that you selling your personal camera gear will be taxable, but as the link says, it is a grey area. They also recommend to do this It's far better than having to deal with an investigation a few years down the line. When it comes to completing your tax return, there is a section which is headed \\\"\\\"other income\\\"\\\", and it is here where you will enter the net earnings from the web business. \\\"\\\"Net\\\"\\\" here means your additional income, less all expenses associated with it. If you are still worried I would always encourage people to take a cautious approach and discuss their position with HMRC via its helpline on 08454 915 4515.\\\"\",\n \"It will definitely be added to your AGI, but not necessarily bump your ordinary income tax bracket. You will have to use the Capital Gains Computation worksheet (that uses the general Tax Computation Worksheet) to figure out your tax liability. You might also be subject to the AMT. See the instructions to form 1040, line 44 (page 38) and line 45.\",\n \"IRS Pub 561 says you have to use fair market value. You cannot simply use a depreciated value. You should attempt to determine what people normally pay for comparable items, and be prepared to defend your determination with evidence in the event of an audit.\",\n \"Consult a professional CA. For shares sold outside the Indian Stock Exchanges, these will be treated as normal Long Term Capital Gains if held more than one year. The rate would be 10% without Indexation and 20% with Indexation. If the stocks are held for less than 1 years, it will be short term gains and taxed according you to tax bracket.\",\n \"Assuming that taxes were withheld when you received the options, you would now only owe tax on the profit from the sale of the stock. The cost basis would be whatever you bought the stock for (the strike price of the options in this case), and the profit will be the total amount received from the sale minus the total cost of those shares. Since you bought the stock more than one year ago, you will get taxed at the long-term capital gains rate of 15% (unless you are in the 39.6% tax bracket, in which case the rate is 20%). As with all tax advice on this site, you need to check with a tax specialist when you actually file, but that should give you a rough indication of what your tax liability is.\",\n \"I'm assuming you're in the United States for this. I highly recommend getting a CPA to help you navigate the tax implications. Likely, you'll pay taxes as a sole proprietor, on top of any other income you made. Hopefully you kept good records because you'll be essentially paying for the profits, but you'll need to show the revenue and expenditures that you had. If you have any capital expenditures you may be able ton amortize them. But again, definitely hire a professional to help you, it will be well worth the cost.\",\n \"\\\"Believe it or not, unless you directly contact an accountant with experience in this field or a lawyer, you may have a tough time getting a direct answer from a reputable source. The reason is two fold. First, legally defining in-game assets is exceptionally difficult from a legal/taxation stand point. Who really owns this data? You or the company that has built the MMO and manages the servers containing all of the data? You can buy-and-sell what is effectively \\\"\\\"data\\\"\\\" on their servers but the truth is, they own the code, the servers, the data, your access rights, etc. and at any point in time could terminate everything within their systems. This would render the value of your accounts worthless! As such, most countries have overwhelmingly avoided the taxation of in-game \\\"\\\"inventory\\\"\\\" because it's not really definable. Instead, in game goods are only taxed when they are exchanged for local currency. This is considered a general sale. There may be tax codes in your region for the sale of \\\"\\\"digital goods\\\"\\\". Otherwise, it should be taxed as sale a standard good with no special stipulations. The bottom line is that you shouldn't expect to find much reliable information on this topic, on the internet. Law's haven't been welled defined, regarding in-game content worth and taxing of sales and if you want to know how you should pay your taxes on these transactions, you need to talk to a good accountant, a lawyer or both.\\\"\",\n \"\\\"Property sold at profit is taxed at capital gains rate (if you held it for more than a year, which you have based on your previous question). Thus deferring salary won't change the taxable amount or the tax rate on the property. It may save you the 3% difference on the salary, but I don't know how significant can that be. The 25% depreciation recapture rate (or whatever the current percentage is) is preset by your depreciation and cannot be changed, so you'll have to pay that first. Whatever is left above it is capital gains and will be taxed at discounted rates (20% IIRC). You need to make sure that you deduct everything, and capitalize everything else (all the non-deductible expenses and losses with regards to the property). For example, if you remodeled - its added to your basis (reduces the gains). If you did significant improvements and changes - the same. If you installed new appliances and carpets - they're depreciated faster (you can appropriate part of the sale proceeds to these and thus reduce the actual property related gain). Also, you need to see what gain you have on the land - the land cannot be depreciated, so all the gain on it is capital gain. Your CPA will help you investigating these, and maybe other ways to reduce your tax bill. Do make sure to have proper documentation and proofs for all your claims, don't make things up and don't allow your CPA \\\"\\\"cut corners\\\"\\\". It may cost you dearly on audit.\\\"\",\n \"The sentence you quoted does not apply in the case where you sell the stock at a loss. In that case, you recognize zero ordinary income, and a capital loss (opposite of a gain) for the loss. Reference: http://efs.fidelity.com/support/sps/article/article2.html\",\n \"As Victor says, you pay tax on net profit. If this is a significant source of income for you, you should file quarterly estimated tax payments or you're going to get hit with a penalty at the end of the year.\",\n \"\\\"The $100,000 is taxed separately as \\\"\\\"ordinary income\\\"\\\". The $350,000 is taxed at long-term capital gains of 15%. Capital gains is not taxed at 20% until $415,050. Even though $100,000 + 350,000 = $450,000, only $350,000 can be taxed at capital gains. The total ordinary income tax burden will be $31,986 if single, in California. Caveat: By creating a holdings corporation (C-corp), you can section 351 that $100,000 into the C-corp for tax deferment, which won't be taxed until you take money from the corporation. Since you will hold 100% of the voting stock, all distributions will be considered pro rata. Additionally, you can issue yourself a dividend under the rules of 26 USC §§243-246 (a greather-than-80% shareholder who receives a dividend can write-off 100% of said dividend). As long as that dividend doesn't trigger §§1.243-246 of The Regulations by keeping the distribution just under 10% of E&P i.e. $10,000. Wages are deductible against basis so pay yourself $35,000 and keep $55,000 in the corporation and you can decrease the total liabilities down to $22,000 from $31,000, which includes the CA franchise tax. You don't have to pay yourself any money out a corporation to use the money.\\\"\",\n \"Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.\",\n \"\\\"Is this legal? Why not? But you might have trouble deducting losses on your taxes, especially if you sell to someone related to you in some way (which is indeed what you're doing). See the added portion below regarding dealing with \\\"\\\"related person\\\"\\\" (which a sibling is). The state of Maryland has a transfer/recordation tax of 1.5% for each, the buyer and seller. Would this be computed on the appraised or sale value? You should check with the State. In California property taxes are assessed based on sale value, but if the sale value is bogus the assessors have the right to recalculate. Since you're selling to family, the assessors will likely to intervene and set a more close to \\\"\\\"fair market\\\"\\\" value on the transaction, but again - check the local law. Will this pose any problem if the buyer needs financing? Likely, banks will be suspicious.Since you're giving a discount to your sibling, it will likely not cause a problem for financing. If it was an unrelated person getting such a discount, it would likely to have raised some questions. Would I be able to deduct a capital loss on my tax return? As I said - it may be a problem. If the transaction is between related people - likely not. Otherwise - not sure. Check with a professional tax adviser (EA or CPA licensed in Maryland). You mentioned in the comment that the buyer is a sibling. IRS Publication 544 has a list of what is considered \\\"\\\"related person\\\"\\\", and that includes siblings. So the short answer is NO, you will not be able to deduct the loss. The tax treatment is not trivial in this case, and I suggest to have a professional tax adviser guide you on how to proceed. Here's the definition of \\\"\\\"related person\\\"\\\" from the IRS pub. 544: Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.). An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership.\\\"\",\n \"It would be better for you to sell yourself and pay capital gains tax than to transfer to your parents and pay the gift tax. Also, sham transfer (you transfer to your mother only so that she could sell and transfer back to you without you paying taxes) will be probably categorized as tax evasion, which is a criminal offense that could lead to your deportation. What the US should or should not claim you can take to your congressman, but the fact is that the US does claim tax on capital gains even if you bought the asset before becoming US tax resident, and that's the current law.\",\n \"1) You parents will have to pay tax on the gain as it wasn't their primary home. You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply: As I look at it, it is your parents are the ones who own the property and they will have to pay on £60000. But as you say you pay part of the mortgage, I would go to a tax advisor/accountant to confirm if they will only pay on the £15000. I couldn't find any guidance on that matter on gov.uk 2) Inheritance tax will not be levied on it as it is below £325000, but tax will be levied on £325000, less £3000 annual gift allowance. Two articles for further information - GOV.UK's Tax when you sell your home Money.co.UK's Gifting money to your children: FAQs\",\n \"Note the above is only for shares. There are different rules for other assets like House, Jewellery, Mutual Funds, Debt Funds. Refer to the Income Tax guide for more details.\",\n \"\\\"http://www.nadaguides.com/ and http://www.kbb.com/ and http://www.edmunds.com/ are the leading sites to check vehicle values. Also, great how to at: http://www.ehow.com/how_2003079_sell-used-car-california.html Where to sell? You could sell it in your local newspaper classified, small auto newsprint mags/publications, Craigslist, ebay, or just put a sign in the window. The advertising method is up to you. You could also trade the car in to a dealer if you purchase another vehicle from a dealer if they offer that option. (Trade-In's generally bring in less money than private sales as a general rule). Some car places will do consignment requests to help you sell your car. However, they will normally take a percentage of the sale as payment for this service. What paperwork? If you own your car, you should have the title in hand. There are instructions on title on how to sign it over to another person. If you have a loan through a bank, the bank would have this title and you would need to express your interest in selling the property to the bank and work out the details with them. You do not hand over a title to anyone until full payment is made and the property will become theirs. Beyond the title, you will need to fill out a release of liability or report of sale form for the state. Titles have a portion you can mail in or you can fill it out online. This is to report the sale to the state to release liability from your name. You will also need to create a \\\"\\\"bill of sale\\\"\\\" between you and the buyer. There are many examples online or you can just create your own. You really need just a statement saying I release all interest of the vehicle and no warranty implied to this person with the VIN of the car, model, make, year, the buyers name and signature, and the sellers name and signature. This is your contract with the seller and they use this when they go to register the car in their name. Maintenance Disclosure? This is completely up to the seller on what they want to disclose. You are selling a used car and the buyer should know that. Vehicles with detailed records sell for more money and buyers are more interested in cars that have history records. This is where buyers should be the most careful, so the more records and history you can show, the better they will feel about the purchase. I believe you should share everything you know and any information about the history of the car. The more positive information you can prove/share, the more money or chance of sale you could have. Most money? First, clean the car out. I am amazed at the amount of people that try to sell a car and don't even bother to clean it out. A detail job would be great to get. You are trying to sell it, so you want it to look the best. Next, I would fix anything minor and cheap to fix. The less things wrong can mean more money. Back to your maintenance question, you will want to show how you have maintained the car. People might also ask for a carfax report to prove its clean history. Irresponsible and deceiving people tend to leave out important details in a car history like accidents, flood damage, or having re-built titles. You want to give the most information you can. Do not lie about any detail. Though, this can be a little tough when you are a 2nd or 3rd owner of a car and do not know about the original owners.\\\"\",\n \"\\\"I'm not 100% certain on boats, since they aren't typically sold for a gain, but the tax base of an asset is typically the cost of the asset plus the cost of any improvements, so your $15,000 gain looks right (check with a CPA to be certain, though, if you can). Your \\\"\\\"cost basis\\\"\\\" would be $50,000 + $25,000 = $75,000, and your net gain would be $90,000 - $75,000 = $15,000. The result is the same, but the arithmetic is organized a little differently. I am fairly confident you cannot include your time in the \\\"\\\"cost of improvements\\\"\\\". If you incorporated and \\\"\\\"paid yourself\\\"\\\" for the time, then the payment would be considered income (and taxed), if it was even allowed. Depending on your tax bracket that may be a WORSE option for you. You can look at it this way - you only pay the tax on the $15k gain versus paying someone else $15k to do the labor.\\\"\",\n \"Gold is classified as a collectible so the gain rates are as follows: So you'd report a gain of $100 or $1,000 , depending on which coin you sold.\",\n \"\\\"This is what this sounds like to me: https://www.thebalance.com/having-a-garage-sale-or-yard-sale-what-to-do-first-399030 also: http://blogs.hrblock.com/2012/07/25/garage-sale-money-does-the-irs-need-to-know/ Selling a personal item at a loss is generally not a taxable event. You cannot report it as a loss, and the IRS can't tax a transaction like that. If you really want to include these as sales as part of your LLC, you'll probably have to pay tax if you list it as income. I'm just confused as to why you'd want to do that, if you know that you're selling these particular items at a loss, and you also know that you have no documentation for them. I just wouldn't report anything you sold at a loss and treat it as \\\"\\\"garage sale items\\\"\\\" separate from your business.\\\"\",\n \"Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity.\",\n \"No Tax would have been deducted at the time of purchase/sale of shares. You would yourself be required to compute your tax liability and then pay taxes to the govt. In case the shares sold were held for less than 1 year - 15% tax on capital gains would be levied. In case the shares sold were held for more than 1 year - No Tax would be levied and the income earned would be tax free. PS: No Tax is levied at the time of purchase of shares and Tax is only applicable at the time of sale of shares.\",\n \"You are correct. She cannot claim the initial loss of $1,000 on her taxes, she can only report the $500 profit. However, the IRS does allow her to add the $1,000 loss to the basis cost of her replacement shares. e.g.\",\n \"You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.\",\n \"You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.\",\n \"Assuming that you have capital gains, you can expect to have to pay taxes on them. It might be short term, or long term capital gains. If you specify exactly which shares to sell, it is possible to sell mostly losers, thus reducing or eliminating capital gains. There are separate rules for 401K and other retirement programs regarding down payments for a house. This leads to many other issues such as the hit your retirement will take.\",\n \"You're asking whether the shares you sold while being a US tax resident are taxable in the US. The answer is yes, they are. How you acquired them or what were the circumstances of the sale is irrelevant. When you acquired them is relevant to the determination of the tax treatment - short or long term capital gains. You report this transaction on your Schedule D, follow the instructions. Make sure you can substantiate the cost basis properly based on how much you paid for the shares you sold (the taxable income recognized to you at vest).\",\n \"As your is a very specific case, please get an advice of CA. It should not cost you much and make it easier. The sale of agriculture land is taxable in certain conditions and exempt from tax in other cases. Sale of agricultural land is subject to capital gains tax. But there are certain exemptions under Section 54B, subject to conditions, which are as follows: If deemed taxable, you can avail indexation, ie the price at which you grandfather got [the date when he inherited it as per indexation] and pay 10% on the difference. If the price is not known, you can take the govt prescribed rate. As there is a large deposit in your fathers account, there can be tax queries and need to be answered. Technically there is no tax liable even if your grandfather gifts the money to your father. More details at http://www.telegraphindia.com/1130401/jsp/business/story_16733007.jsp and http://www.incometaxindia.gov.in/publications/4_compute_your_capital_gains/chapter2.asp\",\n \"The loss for B can be used to write off the gain for A. You will fill out a schedule 3 with cost base and proceeds of disposition. This will give you a $0 capital gain for the year and an amount of $5 (50% of the $10 loss) you can carry forward to offset future capital gains. You can also file a T1-a and carry the losses back up to 3 years if you're so inclined. It can't be used to offset other income (unless you die). Your C and D trades can't be on income account except for very unusual circumstances. It's not generally acceptable to the CRA for you to use 2 separate accounting methods. There are some intricacies but you should probably just use capital gains. There is one caveat that if you do short sales of Canadian listed securities, they will be on income account unless you fill out form T-123 and elect to have them all treated as capital gains. I just remembered one wrinkle in carrying forward capital losses. They don't reduce your capital gains anymore, but they reduce your taxable income. This means your net income won't be reduced and any benefits that are calculated from that (line 236), will not get an increase.\",\n \"\\\"In short Yes, your father needs to pay tax. Please consult a CA so that he can advice you better. In your father's case at the time of purchase it was agricultural land. However at the time of sale, it seems it was Urban, N.A. Land. A C.A. would advice you the exact exemptions and gains. If it was agricultural land at the time of selling, the Section 54B: \\\"\\\"Exemption from Capital Gains on transfer of Agricultural Lands in certain cases\\\"\\\" would be applicable if your Dad was doing agricultural activity on this land, and after selling has purchased a similar land.\\\"\",\n \"That seems to indicate that you can in fact depreciate a vehicle given to you? Section 1015 discusses the calculation of basis for gifted property, it says nothing about depreciation. Personal property cannot be depreciated for tax purposes unless it is used for business purposes. So unless you drive your car as part of your sole-proprietor business, you cannot depreciate it, be it a gift or a car you purchased yourself. If you can depreciate the car, then sec. 1015 is used to calculate the basis for the depreciation.\",\n \"You are in business for yourself. You file Schedule C with your income tax return, and can deduct the business expenses and the cost of goods sold from the gross receipts of your business. If you have inventory (things bought but not yet sold by the end of the year of purchase), then there are other calculations that need to be done. You will have to pay income tax as well as Social Security and Medicare taxes (both the employee's share and the employer's share) on the net profits from this business activity.\",\n \"As someone who's currently shopping for some winter wheels and has the raised blood pressure to go with that, I've got a few suggestions as to what would make me pick up the phone and call your or email you if you're advertising a vehicle. Keep in mind that if you're willing to deal with the additional hassle, you'll normally get the most money for a used car if you sell it privately. If it is worth the additional effort though is both a matter of judgement and if you're willing to put up with strange people like me :). Depending on the value of the vehicle and its rarity/desirability, you're looking at newspaper ads (probably won't get you much of a response these days), craigslist, Autotrader and similar, and last but not least, ebay. If you're trying to sell something that's easy to find because there are five at every street corner (think beige minivan), skip ebay. If it's worth below 5k-6k, I wouldn't bother with places where you have to pay to advertise, which leaves CL for the cheap stuff - that said, I'd still stick it on CL if it's advertised in other places. Heck, it's free after all. The figure out what sort of money you're asking for. Check the resources like KBB.com and have a look at your local CL for similar vehicles. Out here, certain types of vehicles (for example, Jeeps) sell quickly and often above even KBB.com. A little market research will help you come up with a good price. Just don't do things like asking a massively inflated price for a vehicle because you paid $x five years ago. All this shows that you have no idea what your vehicle is worth. Oh, and I'd always work out what the minimum I'd take is - leave yourself some haggle room but don't undersell the vehicle. Once you know where you advertise and for how much, pull together the basic facts for your vehicles and the points that would make it stand out. Basic facts about the car should include engine size, type of transmission, if it's AWD (where applicable), mileage. Color I can see on the pictures, but it's nice to include that, too. If you have service records, recently replaced a big ticket item (think transmission or similar) or had a very recent service, especially a big one where you had a timing belt and waterpump changed, mention it. Don't say the vehicle has a new engine if that was put in 100k miles ago, that's nice to mention but it's not new. If nobody's ever smoked in it, mention it. If it's got other outstanding features (super low mileage, summer only use etc) make sure to mention it that, too. Next, if it's got any faults that you know of - especially obvious ones - disclose them. People like me will most likely find the leaking shock absorber and the rust holes in the floor anyway, and it makes a much better impression if you do tell us about them beforehand. Trying to tell someone that your banana-shaped car that looks like the Blue Man Group used it for practise is actually pristine and accident-free isn't going to go down very well. Next, pull together the paperwork - make sure you've got the title (if there is a lien on the title, check with the lienholder before advertising the car so you know their procedure for releasing the title), any maintenance records you have, manuals, receipts etc. If the vehicle has a salvage title, try to find out why and mention it in the ad. I've just had a comedian phone me while I was driving to see his vehicle and leave a message that he didn't have a title and didn't seem to be willing to bother to get one, either. Obviously that put me in the right frame of mind, given that it was a 200 mile round trip. So don't do it - if you can't get a title, the schmuck you sold it to will have even less of a chance of getting one. And given that you are in California, a lot of people (including myself) react really badly to three years' worth of back registration, missing smog, expired registrations on something I'd expect to test drive etc. Essentially anything that would stop a potential cash buyer to drive it away on the spot. Next, clean the car - you know, the five years' of accumulated McD wrappers and inch thick layer of dirt (I'm only partially kidding, I've seem some pretty horrible stuff recently). Spend the two hours it takes to clean it or pay to have it valeted or detailed. Clean, shiny cars sell a lot better than a rolling recycling container. Oh, and last - make the effort take some decent photos. The more the merrier, shot in daylight (no photographing a black car after sunset) and if there is any damage, an additional photo or two showing the damage would be nice. Stick the on photobucket or similar and put the links in your craigslist ad so you don't restrict yourself to the microscopic photos that you normally get on there. As to payment, I'd either take cash, meet the buyer at his bank where he draws out a cashiers check in front of your eyes, or, well, cash. No Kauri shells, deeds on bridges in Brooklyn or anything else. Be prepared to take a deposit - a lot of buyers aren't willing to wander around with ten large ones in the back pocket to go look at a car - and spell out exactly how long the deposit is good for. I also tend to make them non-refundable (buyer doesn't pick up the car within the negotiated timeframe, you keep the deposit as 'damages' for not being able to sell it to another cash buyer). Check your DMV's website as to what exactly you need to do once you sold the car. Here in Nevada it's the buyer's problem on how to move it as you keep the plates, but I know in California the regular plates (not personal ones IIRC) stay with the vehicle and I think you need to inform the DMV that you sold the vehicle. I'd also keep a record of who I sold a vehicle to (name, address from his drivers license, license number etc) just in case they run a few red lights and accumulate a few grands' worth of parking tickets.\",\n \"If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.\",\n \"Yes. This income would be reported on schedule SE. Normally, you will not owe any tax if the amount is less than $400. Practically, $100 in a garage sale is not why the IRS created the form SE. I wouldn't lose sleep over keeping track of small cash sales over the course of a year. However, if you have the information I'm not going to tell you not to report it.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["I don't think there's much you can do. Losses from the sale of personal-use automobiles (used for pleasure, commuting, etc) are not deductible as capital losses. See IRS Tax Topic 409, end of the first paragraph. The expenses you incurred in owning and operating the car (insurance, fuel, maintenance, service plans, etc) are not deductible either. If you used it partly for business, then some of your expenses might be deductible; see IRS Tax Topic 510. This includes depreciation (decline in value), but only according to a standard schedule; you don't generally just get to deduct the difference between your buying and selling price. Also, you'd need to have records to verify your business use. But anyway, these deductions would apply (or not) regardless of whether you sell the car. You don't get your sales tax refunded when you resell the vehicle. That's why it's a sales tax, not a value-added tax. Note, however, that if you do sell it, the sales tax on this new transaction will be the buyer's responsibility, not yours. You do have the option on your federal income tax return to deduct the state sales tax you paid when you bought the car; in fact, you can deduct all the sales taxes you paid in that year. (If you have already filed your taxes for that year, you can go back and amend them.) However, this takes the place of your state income tax deduction for the year; you can't deduct both. See Tax Topic 503. So this is only useful if your sales taxes for that year exceeded the state income tax you paid in that year. Also, note that state taxes are not deductible on your state income tax return. Again, this deduction applies whether you sell the car or not."],"string":"[\n \"I don't think there's much you can do. Losses from the sale of personal-use automobiles (used for pleasure, commuting, etc) are not deductible as capital losses. See IRS Tax Topic 409, end of the first paragraph. The expenses you incurred in owning and operating the car (insurance, fuel, maintenance, service plans, etc) are not deductible either. If you used it partly for business, then some of your expenses might be deductible; see IRS Tax Topic 510. This includes depreciation (decline in value), but only according to a standard schedule; you don't generally just get to deduct the difference between your buying and selling price. Also, you'd need to have records to verify your business use. But anyway, these deductions would apply (or not) regardless of whether you sell the car. You don't get your sales tax refunded when you resell the vehicle. That's why it's a sales tax, not a value-added tax. Note, however, that if you do sell it, the sales tax on this new transaction will be the buyer's responsibility, not yours. You do have the option on your federal income tax return to deduct the state sales tax you paid when you bought the car; in fact, you can deduct all the sales taxes you paid in that year. (If you have already filed your taxes for that year, you can go back and amend them.) However, this takes the place of your state income tax deduction for the year; you can't deduct both. See Tax Topic 503. So this is only useful if your sales taxes for that year exceeded the state income tax you paid in that year. Also, note that state taxes are not deductible on your state income tax return. Again, this deduction applies whether you sell the car or not.\"\n]","isConversational":false}}},{"rowIdx":256,"cells":{"_id":{"kind":"string","value":"1284"},"query":{"kind":"string","value":"Tax consequences when foreign currency changes in value"},"gt_ids":{"kind":"list like","value":["342411"],"string":"[\n \"342411\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["342411","481601","11122","342903","385310","30654","221760","403948","8200","390252","424352","251385","442489","426960","465106","222694","30403","396323","475170","259602","211122","9353","207316","6543","549272","273209","169245","586455","185983","42942","465135","261101","557647","276408","152657","131382","125568","212312","17460","123287","322456","538843","192295","180581","526714","75410","43508","215437","42521","149305","44955","106024","367562","162467","292065","272944","5347","180500","496820","359405","83758","306800","407259","474512","183506","36341","382505","392313","454563","307477","459096","66039","522578","506368","173133","430868","98510","256261","540292","199785","239876","415309","568064","34139","589377","400631","128322","386941","303287","134794","437907","572523","154912","514970","451180","276334","163836","182374","443354","310326"],"string":"[\n \"342411\",\n \"481601\",\n \"11122\",\n \"342903\",\n \"385310\",\n \"30654\",\n \"221760\",\n \"403948\",\n \"8200\",\n \"390252\",\n \"424352\",\n \"251385\",\n \"442489\",\n \"426960\",\n \"465106\",\n \"222694\",\n \"30403\",\n \"396323\",\n \"475170\",\n \"259602\",\n \"211122\",\n \"9353\",\n \"207316\",\n \"6543\",\n \"549272\",\n \"273209\",\n \"169245\",\n \"586455\",\n \"185983\",\n \"42942\",\n \"465135\",\n \"261101\",\n \"557647\",\n \"276408\",\n \"152657\",\n \"131382\",\n \"125568\",\n \"212312\",\n \"17460\",\n \"123287\",\n \"322456\",\n \"538843\",\n \"192295\",\n \"180581\",\n \"526714\",\n \"75410\",\n \"43508\",\n \"215437\",\n \"42521\",\n \"149305\",\n \"44955\",\n \"106024\",\n \"367562\",\n \"162467\",\n \"292065\",\n \"272944\",\n \"5347\",\n \"180500\",\n \"496820\",\n \"359405\",\n \"83758\",\n \"306800\",\n \"407259\",\n \"474512\",\n \"183506\",\n \"36341\",\n \"382505\",\n \"392313\",\n \"454563\",\n \"307477\",\n \"459096\",\n \"66039\",\n \"522578\",\n \"506368\",\n \"173133\",\n \"430868\",\n \"98510\",\n \"256261\",\n \"540292\",\n \"199785\",\n \"239876\",\n \"415309\",\n \"568064\",\n \"34139\",\n \"589377\",\n \"400631\",\n \"128322\",\n \"386941\",\n \"303287\",\n \"134794\",\n \"437907\",\n \"572523\",\n \"154912\",\n \"514970\",\n \"451180\",\n \"276334\",\n \"163836\",\n \"182374\",\n \"443354\",\n \"310326\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you have $166 loss. You report all these items on your Schedule D. Make sure to calculate the tax correctly, since the tax is not capital gains tax but rather ordinary income at marginal rates. Changes in foreign exchange between a transaction and the conversion of the proceeds to USD are generally not considered as income (i.e.: You sold a property in Mexico, but since the money took a couple of days to clear, the exchange rate changed and you got $2K more/less than you would based on the exchange rate on the day of the transaction - this is not a taxable income/loss). This is covered by the IRC Sec. 988. There are additional rules for contracts on foreign currency, TTM rules, etc. Better talk to a licensed tax adviser (EA/CPA licensed in your State) for anything other than trivial.","In theory, when you obtained ownership of your USD cash as a Canadian resident [*resident for tax purposes, which is generally a quicker timeline than being resident for immigration purposes], it is considered to have been obtained by you for the CAD equivalent on that date. For example if you immigrated on Dec 31, 2016 and carried $10k USD with you, when the rate was ~1.35, then Canada deems you to have arrived with $13.5k CAD. If you converted that CAD to USD when the rate was 1.39, you would have received 13.9k CAD, [a gain of $400 to show as income on your tax return]. Receiving the foreign inheritances is a little more complex; those items when received may or may not have been taxable on that day. However whether or not they were taxable, you would calculate a further gain as above, if the fx rate gave you more CAD when you ultimately converted it. If the rate went the other way and you lost CAD-value, you may or may not be able to claim a loss. If it was a small loss, I wouldn't bother trying to claim it due to hassle. If it's a large loss, I would be very sure to research thoroughly before claiming, because something like that probably has a high chance of being audited.","\"Disclaimer: I am neither a lawyer nor a tax-expert This page on the HMRC site lists several pages that appear to be relevant, starting with CG78401 - Foreign currency: delayed remittances and on to CG78408 - Foreign currency: example which seems pertinent to your case [paraphrased]: A property bought in 1983 is sold for a [taxable] gain in one tax-year (1986/87) but the proceeds cannot be released/remitted to the UK until later (1991/92), by which time currency fluctuations have created a second [taxable] gain. The size of the first gain (selling the property) is determined by the exchange rate in effect at the time of the sale but because of local restrictions, this can be deferred. The size of the second gain (currency movement) is determined by the change in exchange-rate between the time of the sale and the time of conversion. In your case, the first \"\"gain\"\" was actually a loss, so I believe you should be able to use this to offset any tax due second gain. This page states that losses can be claimed up to four years after the end of the tax-year in which they were incurred, so you are probably still OK. (The example makes application under TCGA92/S279 to defer the gain made on the original sale [because of the inability to transfer funds], but as I understand it, this is primarily to avoid a tax liability in that year. Since you made a loss on the sale, there wouldn't have been a tax liability, so there would be no need to defer it).\"","Here is the technical guidance from the accounting standard FRS 23 (IAS 21) 'The Effects of Changes in Foreign Exchange Rates' which states: Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise. An example: You agree to sell a product for $100 to a customer at a certain date. You would record the sale of this product on that date at $100, converted at the current FX rate (lets say £1:$1 for ease) in your profit loss account as £100. The customer then pays you several $100 days later, at which point the FX rate has fallen to £0.5:$1 and you only receive £50. You would then have a realised loss of £50 due to exchange differences, and this is charged to your profit and loss account as a cost. Due to double entry bookkeeping the profit/loss on the FX difference is needed to balance the journals of the transaction. I think there is a little confusion as to what constitutes a (realised) profit/loss on exchange difference. In the example in your question, you are not making any loss when you convert the bitcoins to dollars, as there is no difference in the exchange rate between the point you convert them. Therefore you have not made either a profit or a loss. In terms of how this effects your tax position; you only pay tax on your profit and loss account. The example I give above is an instance where an exchange difference is recorded to the P&L. In your example, the value of your cash held is reflected in your balance sheet, as an asset, whatever its value is at the balance sheet date. Unfortunately, the value of the asset can rise/fall, but the only time where you will record a profit/loss on this (and therefore have an impact on tax) is if you sell the asset.","Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.","Huh. It appears it's only currencies in sterling that are fully exempt. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12602 Government manuals are more detailed than .gov but still not perfect as it's HMRCs interpretation of legislation and has been overturned in the past. There is also another (old) article here about foreign currency transactions. https://www.taxation.co.uk/articles/2010/10/27/21191/currency-gains I have never come across forex capital gains in practice but I've learnt something today! Something to look out for in the UK as well I guess.","If you are exchanging money for travel then you should not have to pay any capital gains on any exchange that is in your favour. Exchanging currency for travel is different from trading currencies for an attempt at making profits.","If you hold this money in USD and spend it in the US as USD, then there is no tax liability or reporting requirement at all. You are not subject to any tax on foreign exchange gains and losses because you have not performed any foreign exchange. CRA says a foreign exchange gain or loss happens when the fx transaction occurs—not as the currency’s value fluctuates while on deposit - and since you are never performing an fx transaction, no such issues will arise. The CRA is not interested in how you spend your money, only the money that you earn. The only possible tax liability that would arise in the circumstances that you describe would be the tax liability arising from interest earned while the cash in on deposit. If this interest exceeds the threshold of reportability, then your bank will issue you with a T-slip to be included in your tax return.","Capital is an Asset. Decreasing value of capital is the decreasing value of an asset. When you buy the forex asset * DR Forex Asset * CR Cash When you sell * DR Cash * CR Forex Asset The difference is now accounted for Here is how: Gains (and losses) are modifications to your financial position (Balance sheet). At the end of the period you take your financial performance (Profit and Loss) and put it into your balance sheet under equity. Meaning that afterwards your balance sheet is better or worse off (Because you made more money = more cash or lost it, whatever). You are wanting to make an income account to reflect the forex revaluation so at the end of the period it is reflected in profit then pushed into your balance sheet. Capital gains directly affect your balance sheet because they increase/decrease your cash and your asset in the journal entry itself (When you buy and sell it). If making money this way is actually how you make you make an income it is possible to make an account for it. If you do this you periodically revalue the asset and write off the changes to the revaluation account. You would do something like *DR Asset *CR Forex Revaluation account; depending on the method you take. Businesses mostly do this because if the capital gains are their line of business they will be taxed on it like it is income. For simplicity just account for it when you buy and sell the assets (Because you as an individual will only recognise a profit/loss when you enter and exit). Its easier to think about income and expenses are extensions of equity. Income increases your equity, expenses decrease it. This is how they relate to the accounting formula (Assets = Liabilities + Owners Equity)","I'll break it down into steps. Total gain/ loss for the whole thing is 5 CAD. You only have to worry about these calculations if you keep some USD and convert it at your leisure. Or if you have a US dollar in your wallet from your last vacation. Don't forget to subtract commissions (converted to CAD of course). *Some people just use an average exchange rate for the whole year, which you can also get from the BoC. ^There's $200 of tax free gains allowed for pure currency transactions. This allows small gains to be ignored.","If you make money in currency speculation (as in your example), that is a capital gain. A more complicated example is if you were to buy and then sell stocks on the mexican stock exchange. Your capital gain (or loss) would be the difference in value in US dollars of your stocks accounting for varying exchange rates. It's possible for the stocks to go down and for you to still have a capital gain, and vice versa.","\"If your friend is loaning you KRW which you are then converting to USD, then there are tax implications. This would be a Section 988 transaction so \"\"gains\"\" or \"\"losses\"\" made during repayment (partial or complete) due to fluctuations in exchange rate would be treated as ordinary gains or losses. For example, imagine you borrow 100,000 KRW and, at the time you borrow it, this is worth exactly 100,000 USD. At some future point, you repay 20,000 KRW. If the exchange rate at that point is such that 20,000 KRW is worth 15,000 USD, then the IRS sees that you have \"\"gained\"\" 5,000 USD in ordinary income. This is a particular concern if the loan is a mortgage and you refinance the mortgage at a moment in time with a more \"\"favorable\"\" exchange rate than the exchange rate when you first got the mortgage. See http://www.investopedia.com/terms/s/section-988.asp for some additional discussion.\"","Now, I have kept this money and after interval of 6 month or year whenever the USD price go up, I do exchange with Indian currency and deposit in my account. Now do I have to pay Tax on this money? No you are not required to pay any tax as the income was accrued when your were NRI for tax purposes. The Foreign currency upto USD 2000 can be held by an individual without any time limit. i.e. you can convert then whenever you want. There is nothing that needs to be declared in Tax Returns.","\"Since you did not treat the house as a QBU, you have to use USD as your functional currency. To calculate capital gains, you need to calculate the USD value at the time of purchase using the exchange rate at the time of purchase and the USD value at the time of sale using the exchange rate at the time of sale. The capital gain / loss is then the difference between the two. This link describes it in more detail and provides some references: http://www.maximadvisors.com/2013/06/foreign-residence/ That link also discusses additional potential complications if you have a mortgage on the house. This link gives more detail on the court case referenced in the above link: http://www.uniset.ca/other/cs5/93F3d26.html The court cases references Rev. Rul 54-105. This link from the IRS has some details from that (https://www.irs.gov/pub/irs-wd/0303021.pdf): Rev. Rul. 54-105, 1954-1 C.B. 12, states that for purposes of determining gain, the basis and selling price of property acquired by a U.S. citizen living in a foreign country should be expressed in United States dollars at the rates of exchange prevailing as of the dates of purchase and sale of the property, respectively. The text of this implies it is for U.S. citizen is living in a foreign country, but the court case makes it clear that it also applies in your scenario (house purchased while living abroad but now residing in the US): Appellants agree that the 453,374 pounds received for their residence should be translated into U.S. dollars at the $1.82 exchange rate prevailing at the date of sale. They argue, however, that the 343,147 pound adjusted cost basis of the residence, consisting of the 297,500 pound purchase price and the 45,647 pounds paid for capital improvements, likewise should be expressed in U.S. dollar terms as of the date of the sale. Appellants correctly state that, viewed “in the foreign currency in which it was transacted,” the purchase generated a 110,227 pound gain as of the date of the sale, which translates to approximately $200,000 at the $1.82 per pound exchange rate. ... However fair and reasonable their argument may be, it amounts to an untenable attempt to convert their “functional currency” from the U.S. dollar to the pound sterling. ... Under I.R.C. § 985(b)(1), use of a functional currency other than the U.S. dollar is restricted to qualified business units (\"\"QBU\"\"s). ... appellants correctly assert that their residence was purchased “for a pound-denominated value” while they were “living and working in a pound-denominated economy,” ... And since appellants concede that the purchase and sale of their residence was not carried out by a QBU, the district court properly rejected their plea to treat the pound as their functional currency.\"","Yes, you still need to pay income tax on your capital gain regardless of whether you converted your USD proceeds back into CAD. When you calculate your gains for tax purposes, you'll need to convert all of your gains to Canadian dollars. Generally speaking, CRA will expect you to use a historical USD to CAD exchange rate published by the Bank of Canada. At that page, notice the remark at right: Are the Exchange Rates Shown Here Accepted by Canada Revenue Agency? Yes. The Agency accepts Bank of Canada exchange rates as the basis for calculations involving income and expenses that are denominated in foreign currencies.","No it's not, not until a disposition. Keep track of the CAD value on the day you receive the inheritance and get an average cost. Then every time you go to the US and spend some money, record the CAD value on the day you spend it. The difference is your profit or loss. There is no capital gain as long as you don't spend it. Now this may seem ridiculous, especially since none of this is reported to the CRA. They realize this and say the first $200 profit or loss is not taxable.","According to the answers to this question, you generally aren't taxed on gains until you sell the asset in question. None of those answered specifically for the U.K., so perhaps someone else will be able to weigh in on that. To apply those ideas to your question, yes your gains and losses are taxable. If you originally traded something worth $100 for the bitcoins, then when you converted back to dollars you received $200, you would have a $100 gain, simply on the foreign exchange trade. That is, this $100 of income is in addition to any income you made from your business (selling goods).","Would I have to pay some kind of capital gains tax? And if so, when? Converting Tax paid USD into CAD is not a taxable event. A taxable even will occur if you convert back the CAD into USD. If you receive interest on the CAD then the interest is also a taxable event. Also, is there any reason this is a terrible idea? That will only be known in future. Its like predicting that in future this will turn out to be advantageous, however it may turn out the other way.","\"No, not really. This depends on the situation and the taxing jurisdiction. Different countries have different laws, and some countries have different laws for different situations. For example, in the US, some investments will be taxed as you described, others will be taxed as \"\"mark to market\"\", i.e.: based on the FMV difference between the end of the year and the beginning of the year, and without you actually making any transactions. Depends on the situation.\"","I can't give you a specific answer because I'm not a tax accountant, so you should seek advice from a tax professional with experience relevant to your situation. This could be a complicated situation. That being said, one place you could start is the Canada Revenue Agency's statement on investment income, which contains this paragraph: Interest, foreign interest and dividend income, foreign income, foreign non-business income, and certain other income are all amounts you report on your return. They are usually shown on the following slips: T5, T3, T5013, T5013A To avoid double taxation, Canada and the US almost certainly have a foreign tax treaty that ensures you are only taxed in your country of residence. I'm assuming you're a resident of Canada. Also, this page states that: If you received foreign interest or dividend income, you have to report it in Canadian dollars. Use the Bank of Canada exchange rate that was in effect on the day you received the income. If you received the income at different times during the year, use the average annual exchange rate. You should consult a tax professional. I'm not a tax professional, let alone one who specializes in the Canadian tax system. A professional is the only one you should trust to answer your question with 100% accuracy.","In addition to the expatriation case already mentioned by Ben Miller, traders/investors are required to use mark-to-market accounting on certain investments. These go by Section 1256 contracts due to the part of the law that defines them. Mark-to-market is also required on straddles (combination of a long and and a short position in equities that are expected to vary inversely to each other). Mark-to-market means that you have to treat the positions as if you closed them at their end-of-year market value (even if you still have the position across the new year).","How would I go about doing this? Are there any tax laws I should be worried about? Just report it as a regular sale of asset on your form 8949 (or form 4797 if used for trade/business/rental). It will flow to your Schedule D for capital gains tax. Use form 1116 to calculate the foreign tax credit for the taxes on the gains you'd pay in India (if any).","Just a thought because this is a really good question: Would the buying and selling of blockchain based digital currency, using other blockchain based digital currencies, be subject to like kind treatment and exempt from capital gains until exchanged for a non-blockchain based good or service (or national currency) Suppose someone sells 1 bitcoin to buy 100 monero. Monero's price and bitcoin's price then change to where the 100 monero are 3 bitcoins. The person gets their bitcoin back and has 66.67 monero remaining. This scenario could be: Suppose someone sells 1 bitcoin at $1000 to buy 100 monero at $10. Bitcoin crashes 80% to $200 while monero crashes to only $6 per monero. $6 times 100 is $600 and if the person gets their bitcoin back (at $200 per bitcoi), they still lost money when measured in US Dollars if they move that bitcoin back to US dollars. In reading the IRS on bitcoin, they only care about the US dollar value of bitcoin or monero and in this example, the US dollar value is less. The person may have more bitcoins, but they still lost money if they sell.","Simply transferring money you own from overseas to Canada will not mean you need to pay tax on it. However if you sell property at a profit - I.e. sell it for more than you paid for it - you may have to pay tax on any gains. This is true whether or not you transfer the money to Canada. Calculating the amount is quite complicated. You might consider getting a tax expert.","The money you will be bringing to the US will be classified as your own money, and will not be taxable. The proceeds from the sale are taxable to you, probably as capital gains. The fact that you kept the proceeds out of the US is irrelevant for that purpose (it is relevant for FBAR/FATCA etc). Since you had no basis in the property, all the proceeds are taxable to you at the time of the sale and should be reported on your tax return.","There is a fourth option - pay those taxes. Depending on the amounts, it might be the easiest way - if you make 34.49 in interest, and pay 6 $ in taxes on it, and be done, that might not be worth any other effort. If the expected taxable amount is significant, moving (most of it) to index funds or other simply switching existing investments to ‘reinvest’ instead of ‘pay out in cash’ would be the best approach. Again, some smaller amounts in savings or checkings accounts are probably not worth any effort. Transferring the money to the US doesn’t save you taxes, as any interest would still be taxable. You have a risk to lose on the conversion back and forth (and a potential to gain - the exchange rate could go either way!), so if you are sure you go back, it’s not a good idea to move the money.","This loss would be unrealized and, assuming you're a cash-basis tax-payer, you would not be able to take a loss on your 2014 tax return. This is similar to if you held a stock that lost 50% of its value. You wouldn't be able to claim this loss until you finally sold it. The link that User58220 posted may come into play if you converted your UAH back to USD.","I don't think so in your case. Unless the account generates so much interest income that it became reportable (I don't know the exact limit, but I think it's in the hundreds if not thousands of dollars, you might get a 1099 form if it generates over $10 of interest income, but you don't have to file taxes if your overall income is too low anyways). The US does not typically tax assets, only income. There are some states (Florida is the only one I can think of) that has odd tax treatment of intangible assets, but I doubt that would apply in your case. If this were a large enough amount, usually over $10,000, it might trigger some reporting requirements (possibly by your home country).","Here's what the GnuCash documentation, 10.5 Tracking Currency Investments (How-To) has to say about bookkeeping for currency exchanges. Essentially, treat all currency conversions in a similar way to investment transactions. In addition to asset accounts to represent holdings in Currency A and Currency B, have an foreign exchange expenses account and a capital gains/losses account (for each currency, I would imagine). Represent each foreign exchange purchase as a three-way split: source currency debit, foreign exchange fee debit, and destination currency credit. Represent each foreign exchange sale as a five-way split: in addition to the receiving currency asset and the exchange fee expense, list the transaction profit in a capital gains account and have two splits against the asset account of the transaction being sold. My problems with this are: I don't know how the profit on a currency sale is calculated (since the amount need not be related to any counterpart currency purchase), and it seems asymmetrical. I'd welcome an answer that clarifies what the GnuCash documentation is trying to say in section 10.5.","\"What about the escudo balance in my checking account in Cabo Verde? Are the escudos that I held for months or years, before eventually deciding to change to dollars, considered an investment? Don't know. You tell us. Investment defined as an activity taken to produce income. Did you put the money in the checking account with a full expectation of profits to be made from that? Or you only decided that it is an investment in retrospective, after the result is known, because it provides you more tax benefit? To me it sounds like you have two operating currencies and you're converting between them. Doesn't sound like an investment. Generally, from my experience, bank accounts are not considered investments (even savings accounts aren't). Once you deposit into a CD or bond or money market - you get a cash-equivalent which can be treated as an investment. But that's my personal understanding, if there are large amounts involved, I'd suggest talking to a US-licensed CPA/EA specializing on expats in your area. Pub 54 is really a reference for only the most trivial of the questions an expat may have. It doesn't even begin to describe the complexity of the monstrosity that is called \"\"The US Tax Code for Expats and Foreigners\"\".\"","\"After more searching for how the US might treat such an attempt to \"\"rollover\"\" the funds, I found this: https://www.irs.gov/pub/irs-utl/am2008009.pdf So, it seems it is impossible to do without US tax consequences.\"","It's not necessary to convert it back for the changes to affect value. Lets say you have a euro account with 1000 euro and a gbp account with 920 gbp (the accounts are equal in value given current exchange rates). You could exchange either account for ~$1180 usd. If you exchange the euro account for USD, and say the euro gets stronger against the pound and dollar (and subsequently the pound and dollar are weaker against the euro); then if you would've kept the 1000 euro it would now be worth more than 920 gbp and more than 1180 usd, and you would've been better off exchanging the gbp account for usd. Barring some cataclysmic economic event; exchange rates between well established currencies don't radically change over a few weeks trip, so I wouldn't really worry about it one way or the other.","Depending on what software you use. It has to be reported as a foreign income and you can claim foreign tax paid as a foreign tax credit.","Please consult a tax advisor. You may be voilating the FEMA [Foreign Exchange Management Act] and can land into trouble. Further what you are doing can land up into various other acts as illegal including AML. Further if there is income generated by Indian citizen in India, he is still liable to pay tax, irrespective of whether you get the funds back into India. Edit: AML is Anti Money Laundering. Your transaction is sure to raise AML triggers as it looks like converting Black Money to White in round about way. Once the triggers are raised, RBI division will investigate further to verify what you are doing. If you are able to prove that this is a valid transaction, you would be OK on AML front. How will Income Tax Know? - If they don't know does not mean you are not liable for tax. - Any suspicious transactions would get investigated and sooner or later Income Tax would know about it and can cause a serious problem. - It is irrelevant where you have kept the money, if you have earned something, its taxable. For it not to be taxable you need to conduct this business differently. Please consult a tax adviser who will advice you on the tax-ability of this type of transaction.","It depends on the asset and the magnitude of the exchange rate change relative to the inflation rate. If it is a production asset, the prices can be expected to change relative to the changes in exchange rate regardless of magnitude, ceteris paribus. If it is a consumption asset, the prices of those assets will change with the net of the exchange rate change and inflation rate, but it can be a slow process since all of the possessions of the country becoming relatively poorer cannot immediately be shipped out and the need to exchange wants for goods will be resisted as long as possible.","If you move money - you don't need to pay any taxes. If the money was not there before and magically appeared at some point and now you want to move it - you'll have to explain a thing or two to the IRS and FinCEN. Generally, if you're a green card holder - you pay taxes on your worldwide income. So if you have a foreign account that earns interest - that interest is taxable to you in the US. In the year you earned it, not in the year you moved the money to the US. There are also reporting requirements (FBAR notably, and others). If you haven't filed FBAR with regards to the accounts which you now want to move, and especially if that also includes unreported income (interest and other) - you may find yourself in a very deep s#!t. Sorry, very deep troubles. Talk to a tax adviser (EA/CPA licensed in your State). A proper consultation is warranted, if you haven't had one already. You might need a tax attorney.","\"No, there are neither advantages nor disadvantages. I'll take on this question from an accounting standpoint. Financial statements, the tools at which the market determines (amongst other things) the value of a stock, are converted at year end to the home currency (see 1.1.3).If Company A has revenue of 100,000 USD and the conversion to EUR is .89, revenue in the European market will be reported as 89,000 EUR. These valuations, along with ratios, analysis, and \"\"expert\"\" opinions determine if a person should own shares in Company A. Now, if we're talking about comparing markets this is a entirely different question. Example: Should I buy stock of Company A, who is in the American market (as an European)? Should I buy stock of Company B, who is in the European market (as an American)? I would recommend this as additional level of diversification of your portfolio to inlcude possible large inflation of either the currency. The possible gains of this foreign exchange may be greater if one or the other currency becomes weak.\"","Generally speaking, if a business loses money for whatever reason, then that reduces the profits of the business which reduces the tax payable. However if you were holding the assets on a personal basis prior to incorporating the business, the position may become more complicated. For that kind of money some professional advice may be worthwhile.","The value of a foreign stock is subject to fluctuations in the foreign currency value; this is not the case for domestic stocks.","This is taxed as ordinary income. See the IRC Sec 988(a)(1). The exclusion you're talking about (the $200) is in the IRC Sec 988(e)(2), but you'll have to read the Treasury Regulations on this section to see if and how it can apply to you. Since you do this regularly and for profit (i.e.: not a personal transaction), I'd argue that it doesn't apply.","\"No. This is too much for most individuals, even some small to medium businesses. When you sell that investment, and take the cheque into the foreign bank and wire it back to the USA in US dollars, you will definitely obtain the final value of the investment, converted to US$. Thats what you wanted, right? You'll get that. If you also hedge, unless you have a situation where it is a perfect hedge, then you are gambling on what the currencies will do. A perfect hedge is unusual for what most individuals are involved in. It looks something like this: you know ForeignCorp is going to pay you 10 million quatloos on Dec 31. So you go to a bank (probably a foreign bank, I've found they have lower limits for this kind of transaction and more customizable than what you might create trading futures contracts), and tell them, \"\"I have this contract for a 10 million quatloo receivable on Dec 31, I'd like to arrange a FX forward contract and lock in a rate for this in US$/quatloo.\"\" They may have a credit check or a deposit for such an arrangement, because as the rates change either the bank will owe you money or you will owe the bank money. If they quote you 0.05 US$/quatloo, then you know that when you hand the cheque over to the bank your contract payment will be worth US$500,000. The forward rate may differ from the current rate, thats how the bank accounts for risk and includes a profit. Even with a perfect hedge, you should be able to see the potential for trouble. If the bank doesnt quite trust you, and hey, banks arent known for trust, then as the quatloo strengthens relative to the US$, they may suspect that you will walk away from the deal. This risk can be reduced by including terms in the contract requiring you to pay the bank some quatloos as that happens. If the quatloo falls you would get this money credited back to your account. This is also how futures contracts work; there it is called \"\"mark to market accounting\"\". Trouble lurks here. Some people, seeing how they are down money on the hedge, cancel it. It is a classic mistake because it undoes the protection that one was trying to achieve. Often the rate will move back, and the hedger is left with less money than they would have had doing nothing, even though they bought a perfect hedge.\"","What you are doing is barter trade. Most countries [if not all] would tax this on assumed fair value. There are instances where countries may relax this norm in border areas for a small amount. Barter is not just for gold – one can virtually do this for any goods, i.e. sell garments in exchange for oil, sell electronic chips in exchange for consumer goods, etc. Quite a few business would flourish doing this and not exchange currency at all, hence the need for government to tax on the [assumed / calculated / arrived/ derived] fair value. A word of caution: at times this may not be fair at all and may actually cost more than had one done a transaction using currency.","\"Yes, you effectively need to \"\"double count\"\" when shifting balances between foreign accounts.\"","Essentially imported goods from the country (in this case the US) that is improving against your local currency will become more expensive. For the most part, that is the only practical effect on you on an individual financial level.","An update for anyone looking this up, I am still working through all the details but I can answer the question as far as Stack Exchange will go. In this situation the answer and processes involved greatly differs based on the personal circumstances of the person asking the question. Best to seek qualified tax advice than relying only on a forum as they are able to be more accurate and descriptive than any reply that you might receive.","To your first question: YES. Capital gains and losses on real-estate are treated differently than income. Note here for exact IRS standards. The IRS will not care about percentage change but historical (recorded) amounts. To your second question: NO Are you taxed when buying a new stock? No. But be sure to record the price paid for the house. Note here for more questions. *Always consult a CPA for tax advice on federal tax returns.","\"The examples you provide in the question are completely irrelevant. It doesn't matter where the brokerage is or where is the company you own stocks in. For a fairly standard case of an non-resident alien international student living full time in the US - your capital gains are US sourced. Let me quote the following text a couple of paragraphs down the line you quoted on the same page: Gain or loss from the sale or exchange of personal property generally has its source in the United States if the alien has a tax home in the United States. The key factor in determining if an individual is a U.S. resident for purposes of the sourcing of capital gains is whether the alien's \"\"tax home\"\" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’s U.S. source capital gains would be treated as foreign-source and thus nontaxable. In general, under the \"\"tax home\"\" rules, a person who is away (or who intends to be away) from his tax home for longer than 1 year has shifted tax homes to his new location upon his arrival in that new location. See Chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses I'll assume you've read this and just want an explanation on what it means. What it means is that if you move to the US for a significant period of time (expected length of 1 year or more), your tax home is assumed to have shifted to the US and the capital gains are sourced to the US from the start of your move. For example: you are a foreign diplomat, and your 4-year assignment started in May. Year-end - you're not US tax resident (diplomats exempt), but you've stayed in the US for more than 183 days, and since your assignment is longer than 1 year - your tax home is now in the US. You'll pay the 30% flat tax. Another example: You're a foreign airline pilot, coming to the US every other day flying the airline aircraft. You end up staying in the US 184 days, but your tax home hasn't shifted, nor you're a US tax resident - you don't pay the flat tax. Keep in mind, that tax treaties may alter the situation since in many cases they also cover the capital gains situation for non-residents.\"","This is taxable in India. You need to declare the income and pay taxes accordingly","\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \"\"otherwise\"\" is substantial and far-ranging.\"","\"Appreciation of a Capital Asset is a Capital Gain. In the United States, Capital Gains get favorable tax treatment after being held for 12 months. From the IRS newsroom: Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%. The IRS defines a Capital Asset as \"\"most property you own\"\" with a list of exclusions found in Schedule D Instructions. None of the exclusions listed relate to Bond ETFs.\"","Transferring money you own from one place to another pretty much never has tax implications. It might have other implications, including requirement to report it. Being a US citizen has tax implications, including the requirement to file US tax forms for the rest of eternity.","As the funds are Gift received from your parents, and your tax residency is US, as per US gift tax, there is no tax due from you for these funds.","I can only answer about the U.S. For question 2, I believe the answer is no. If you are a non-resident alien for tax purposes, then only income connected to the U.S. is reported as income on the tax return. Unless there were any non-deductible contributions to your pre-tax IRAs, when you convert to Roth IRA, the entire amount of the conversion is added to your income. So the tax consequence is the same as if you had that much additional U.S. income. If you are a non-resident alien with no other income in the U.S., then the income you have to report on your U.S. tax return will basically consist of the conversion. Non-resident aliens do not have a standard deduction. However, all people have a personal exemption. If we take 2013 as an example, the exemption is $3900 per person. We will assume that you will file as single or married filing separately (non-resident aliens cannot file as married filing jointly). The first $3900 of income is covered by the exemption, and is not counted in taxable income. For single and MFS, the next $8925 of income is taxed at 10%, then next $27325 of income is taxed at 15%, and so on. So if you convert less than the personal exemption amount every year ($3900 in 2013), then in theory you do not pay any taxes. If you convert a little bit more, then some of the conversion will be taxed at 10%, etc.","Canadian departure tax is implemented as a deemed sale gains proceeds taxation. Check here for details. What it means is that you're taxed on the difference between your FMV on the date of terminating residency and your Canadian cost basis (FMV when you acquired residency, or regular cost basis if you acquired the assets while being resident of Canada). It doesn't matter if you actually withdraw the money or not, it has no significance. You'll have to pay the tax either way.","The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would be any different for the person that created the account initially, except that the basis starts at $0 making the entire sale price taxable. How you figure the value of the account before the initial sale would be more difficult, but fortunately you may not ever need to know the value (for tax purposes) until you actually sell it.","\"Although there are occasional cases where simply moving money between countries results in a tax liability - for example a \"\"non-domiciled\"\" UK resident using the \"\"remittance basis\"\" - this is not the case in your situation. In general it would be extremely rare for non-residents of a country to be taxed on bringing money into that country, as it would be bad for tourism which most countries want to encourage. The requirement to declare large sums of money on entry is primarily so that the authorities can detect money laundering, rather than tax. Note that you will have to pay US tax on any interest you earn on that US bank account.\"","If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.","Is this money taxable in US? From what you described you're likely to have been a US tax resident. As such, you're taxed on your worldwide income. Foreign tax deferral schemes are not considered qualified under the US law (unless a treaty says otherwise), so you're liable for taxes on them now. Get a new tax adviser.","When you invest (say $1000) in (say 100 shares) of a mutual fund at $10 per share, and the price of the shares changes, you do not have a capital gain or loss, and you do not have to declare anything to the IRS or make any entry on any line on Form 1040 or tell anyone else about it either. You can brag about it at parties if the share price has gone up, or weep bitter tears into your cocktail if the price has gone down, but the IRS not only does not care, but it will not let you deduct the paper loss or pay taxes on the paper gain. What you put down on Form 1040 Schedules B and D is precisely what the mutual fund will tell you on Form 1099-DIV (and Form 1099-B), no more, no less. If you did not report any of these amounts on your previous tax returns, you need to file amended tax returns, both Federal as well as State, A stock mutual fund invests in stocks and the fund manager may buy and sell some stocks during the course of the year. If he makes a profit, that money will be distributed to the share holders of the mutual fund. That money can be re-invested in more shares of the same mutual fund or taken as cash (and possibly invested in some other fund). This capital gain distribution is reported to you on Form 1099-DIV and you have to report sit on your tax return even if you re-invested in more share of the same mutual fund, and the amount of the distribution is taxable income to you. Similarly, if the stocks owned by the mutual fund pay dividends, those will be passed on to you as a dividend distribution and all the above still applies. You can choose to reinvest, etc, the amount will be reported to you on Form 1099-DIV, and you need to report it to the IRS and include it in your taxable income. If the mutual fund manager loses money in the buying and selling he will not tell you that he lost money but it will be visible as a reduction in the price of the shares. The loss will not be reported to you on Form 1099-DIV and you cannot do anything about it. Especially important, you cannot declare to the IRS that you have a loss and you cannot deduct the loss on your income tax returns that year. When you finally sell your shares in the mutual fund, you will have a gain or loss that you can pay taxes on or deduct. Say the mutual fund paid a dividend of $33 one year and you re-invested the money into the mutual fund, buying 3 shares at the then cost of $11 per share. You declare the $33 on your tax return that year and pay taxes on it. Two years later, you sell all 103 shares that you own for $10.50 per share. Your total investment was $1000 + $33 = $1033. You get $1081.50 from the fund, and you will owe taxes on $1081.50 - $1033 = $48.50. You have a profit of $50 on the 100 shares originally bought and a loss of $1.50 on the 3 shares bought for $11: the net result is a gain of $48.50. You do not pay taxes on $81.50 as the profit from your original $1000 investment; you pay taxes only on $48.50 (remember that you already paid taxes on the $33). The mutual fund will report on Form 1099-B that you sold 103 shares for $1081.50 and that you bought the 103 shares for an average price of $1033/103 = $10.029 per share. The difference is taxable income to you. If you sell the 103 shares for $9 per share (say), then you get $927 out of an investment of $1033 for a capital loss of $106. This will be reported to you on Form 1099-B and you will enter the amounts on Schedule D of Form 1040 as a capital loss. What you actually pay taxes on is the net capital gain, if any, after combining all your capital gains and losses for the year. If the net is a loss, you can deduct up to $3000 in a year, and carry the rest forward to later years to offset capital gains in later years. But, your unrealized capital gains or losses (those that occur because the mutual fund share price goes up and down like a yoyo while you grin or grit your teeth and hang on to your shares) are not reported or deducted or taxed anywhere. It is more complicated when you don't sell all the shares you own in the mutual fund or if you sell shares within one year of buying them, but let's stick to simple cases.","> Hence all businesses in the US, no matter what currency they make money in, have to buy USD to pay their taxes. So that means that means other currencies are valueless since X government doesn't see Y currency as a means of payment? Also, you don't buy so much as trade but potatoes potatos.","If you are a US resident (not necessarily citizen) then yes, you do have to pay capital gains taxes on any capital gains, including interest from assets oversees (like interest from a savings account). Additionally you have to report all your foreign bank accounts according to FATCA (https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca).","If you are a non resident Indian, the income you earn and transfer to India is tax free in India. You can hold the funds in USD or convert then into INR, there is no tax implication.","\"You might find some of the answers here helpful; the question is different, but has some similar concerns, such as a changing economic environment. What approach should I take to best protect my wealth against currency devaluation & poor growth prospects. I want to avoid selling off any more of my local index funds in a panic as I want to hold long term. Does my portfolio balance make sense? Good question; I can't even get US banks to answer questions like this, such as \"\"What happens if they try to nationalize all bank accounts like in the Soviet Union?\"\" Response: it'll never happen. The question was what if! I think that your portfolio carries a lot of risk, but also offsets what you're worried about. Outside of government confiscation of foreign accounts (if your foreign investments are held through a local brokerage), you should be good. What to do about government confiscation? Even the US government (in 1933) confiscated physical gold (and they made it illegal to own) - so even physical resources can be confiscated during hard times. Quite a large portion of my foreign investments have been bought at an expensive time when our currency is already around historic lows, which does concern me in the event that it strengthens in future. What strategy should I take in the future if/when my local currency starts the strengthen...do I hold my foreign investments through it and just trust in cost averaging long term, or try sell them off to avoid the devaluation? Are these foreign investments a hedge? If so, then you shouldn't worry if your currency does strengthen; they serve the purpose of hedging the local environment. If these investments are not a hedge, then timing will matter and you'll want to sell and buy your currency before it does strengthen. The risk on this latter point is that your timing will be wrong.\"","\"In the US, and in most other countries, dividends are considered income when paid, and capital gains/losses are considered income/loss when realized. This is called, in accounting, \"\"recognition\"\". We recognize income when cash reaches our pocket, for tax purposes. So for dividends - it is when they're paid, and for gains - when you actually sell. Assuming the price of that fund never changes, you have this math do to when you sell: Of course, the capital loss/gain may change by the time you actually sell and realize it, but assuming the only price change is due to the dividends payout - it's a wash.\"","Generally it is a taxable transaction. Basic principle of taxation everywhere is that the mean of payment doesn't matter. If the income is taxable - it is taxable regardless of the unit of currency you used. It can be a strawberry, a bitcoin, a gold nugget, or a dollar, it doesn't change a thing about how it is taxed. If you look at the United States tax code definition of taxable income, for example, you will find no mention whatsoever of any currency. Similarly with other tax laws I'm familiar with. I'm sure there's no such limitation in Australia.","The purpose of the transfer determines the taxability. If this is happening to frequent, it is advisable to keep proper records of the transaction so that if there is an enquiry from Tax authorities you can explain. Unless you explain the why the transfer is being made, I have put out some broad categories.","You can calculate your exposure intuitively, by calculating your 'fx sensitivity'. Take your total USD assets, let's assume $50k. Convert to EUR at the current rate, let's assume 1 EUR : 1.1 USD, resulting in 45.5k EUR . If the USD strengthens by 1%, this moves to a rate of ~1.09, resulting in 46k EUR value for the same 50k of USD investments. From this you can see that for every 1% the USD strengthens, you gain 500 EUR. For every 1% the USD weakens, you lose 500 EUR. The simplest way to reduce your exchange rate risk exposure, is to simply eliminate your foreign currency investments. ie: if you do not want to be exposed to fluctuations in the USD, invest in EUR only. This will align your assets with the currency of your future expenses [assuming you intend to continue living in Europe].This is not possible of course, if you would like to maintain investments in US assets. One relatively simple method available to invest in the US, without gaining an exposure to the USD, is to invest in USD assets only with money borrowed in USD. ie: if you borrow $50k USD, and invest $50k in the US stock market, then your new investments will be in the same currency as your debt. Therefore if the USD strengthens, your assets increase in relative EUR value, and your debt becomes more expensive. These two impacts wash out, leaving you with no net exposure to the value of the USD. There is a risk to this option - you are investing with a higher 'financial leverage' ratio. Using borrowed money to invest increases your risk; if your investments fall in value, you still need to make the periodic interest payments. Many people view this increased risk as a reason to never invest with borrowed money. You are compensated for that risk, by increased returns [because you have the ability to earn investment income without contributing any additional money of your own]. Whether the risk is worth it to you will depend on many factors - you should search this site and others on the topic to learn more about what those risks mean.","non-resident aliens to the US do not pay capital gains on US products. You pay tax in your home country if you have done a taxable event in your country. http://www.investopedia.com/ask/answers/06/nonusresidenttax.asp#axzz1mQDut9Ru but if you hold dividends, you are subject to US dividend tax. The UK-US treaty should touch on that though.","If you are tax-resident in the US, then you must report income from sources within and without the United States. Your foreign income generally must be reported to the IRS. You will generally be eligible for a credit for foreign income taxes paid, via Form 1116. The question of the stock transfer is more complicated, but revolves around the beneficial owner. If the stocks are yours but held by your brother, it is possible that you are the beneficial owner and you will have to report any income. There is no tax for bringing the money into the US. As a US tax resident, you are already subject to income tax on the gain from the sale in India. However, if the investment is held by a separate entity in India, which is not a US domestic entity or tax resident, then there is a separate analysis. Paying a dividend to you of the sale proceeds (or part of the proceeds) would be taxable. Your sale of the entity containing the investments would be taxable. There are look-through provisions if the entity is insufficiently foreign (de facto US, such as a Subpart-F CFC). There are ways to structure that transaction that are not taxable, such as making it a bona fide loan (which is enforceable and you must pay back on reasonable terms). But if you are holding property directly, not through a foreign separate entity, then the sale triggers US tax; the transfer into the US is not meaningful for your taxes, except for reporting foreign accounts. Please review Publication 519 for general information on taxation of resident aliens.","Thanks for your reply! I presume then if I don't convert back (say I spend everything) then it's much the same. So my main consideration should be whether I think the currency will increase or decrease in my time away if I'm converting back","How can I correctly account for having money in different currencies, without currency transfers or currency fluctuations ending up as gains or losses? In my view, your spreadsheet should be in multiple currencies. i.e. if you have gained some in specific currency, make a note of it in that specific currency. If you have spent something in a specific currency, then make a note accordingly. You can use an additional column for reporting this in a neutral currency say GBP. If you are transferring the money from account of one currency to account of another; change the balances as appropriate with the actual conversion rate. If you need this record keeping for tax purposes, then get a proper advise from accountant.","The US will let you keep as much money as you want to within its borders regardless of your citizenship. You'll owe capital gains tax in the US unless you're subject to a tax treaty (which you would probably make as an election in the year of the transaction). I don't know if India has any rules about how it governs its citizens' foreign assets, but the US requires citizens to file a form annually declaring foreign accounts over $10,000. You may be subject to additional Indian taxes if India taxes global income like the US does.","Assuming your tax status in India is Non-Resident. The funds are deposited in an NRE account, there is nothing that needs to be done. If you have any income in India, then you would need to file a tax return.","I believe I have to pay taxes in US since it is a US broker. No, not at all. The fact that the broker is a US broker has nothing to do with your tax liabilities. You should update the banks and the broker with your change of status submitting form W8-BEN to them. Consult a tax professional proficient with Indo-US tax treaty as to what you should put in part II. The broker might withhold some of your income and remit it as taxes to the IRS based on what you put in W8-BEN and the type of income, but you can have it refunded (if it exceeds your liability) by submitting a tax return (form 1040-NR). You do have to pay tax in India, based on the Indian tax law, for your profits in the US. Consult with an Indian tax accountant on that. If I'm not mistaken, there are also currency transfer restrictions in India that you should be aware of.","Tax questions require that you specify a jurisdiction. Assuming that this is the US, you owe Federal income tax (at the special long-term capital gains tax rate) on the net long-term capital gains (total long-term capital gains minus total long-term capital losses) and so, yes, if these two were your only transactions involving long-term holdings, you would pay long-term capital gains tax on $3000-$50 = $2950. Many States in the US don't tax long-term capital gains at special rates the way the Federal Government does, but you still pay taxes on the net long-term capital gains. I suspect that other countries have similar rules.","If the brokerage account holds US assets, such as the stock of US companies, then it may be taxable under some conditions. The rules are complex and depend on the nationality of the individuals, because the results may be affected by tax treaties between the United States and whatever country the person is from.","There's a possibility to lose money in exchange rate shifts, but just as much chance to gain money (Efficient Market Hypothesis and all that). If you're worried about it, you should buy a stock in Canada and short sell the US version at the same time. Then journal the Canadian stock over to the US stock exchange and use it to settle your short sell. Or you can use derivatives to accomplish the same thing.","And directly from IRS notice 2014-21 FAQ: Q-1: How is virtual currency treated for federal tax purposes? A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property? A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.… Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.","Is this possible and will it have the intended effect? From the US tax perspective, it most definitely is and will. Is my plan not very similar to Wash Sale? Yes, except that wash sale rules apply for losses, not gains. In any case, since you're not a US tax resident, the US wash sale rules won't apply to you.","Government's tax citizens and businesses in their currency. Earnings (even earnings in cryptocurrencies) are taxable income.","You are trying to predict the future currency fluctuations that can't be predicted. If you know for sure you are moving, convert it directly into Euros in near future rather than take a complicated route.","FBAR should be filed if total balance of all your foreign accounts is more than $10000 any time during the year (even if only for one day). My TurboTax handled that well last year, including filling the FBAR for me. Shouldn't be an issue, just don't forget to file it (not with your IRS package, it goes to a different place), if you need to. On the tax forms (1040 Schedule B, Part III) you should check a checkbox that you have a foreign bank account.","\"As long as the IRS treats bitcoin as property, then whenever you use bitcoin to buy anything you are supposed to consider the capital gain or capital loss. There is no \"\"until it's converted to fiat\"\". You are paying local sales tax and capital gains, or paying local sales tax and reporting capital loss. As long as you are consistent, you can use either the total cost basis, or individual lot purchases. The same as other property like stocks (except without stock specific regulations like wash-sale rules :D ). There are a lot of perks or unintentional loopholes for speculators, with the property designation. There are a lot of disadvantages for consumers trying to use it like a currency. Someone mixing investment and spending funds across addresses is going to have complicated tax issues, but fortunately the exchanges have records of purchase times and prices, which you can compare with the addresses you control. Do note, after that IRS guideline, another federal agency designated Bitcoin as a commodity, which is a subset of \"\"property\"\" with its own more favorable but different tax guidelines.\"","Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity.","It would depend on whether it's considered capital gains or not. A brief Google search suggests that it is; this means you're only required to pay tax on it once it's traded for actual currency, goods, or services. It also means you get some nice tax advantages as long as you hold it for longer than a year.","\"Be mindful of your reporting requirements. Besides checking the box on Schedule B of your 1040 that you have a foreign bank account, you also need to file a TD F 90-22.1 FBAR report for any year that the total of all foreign bank accounts reaches a value of $10,000 at any time during the year. This is filed separately from your 1040 by June 30 of the following year. Penalties for violating this reporting requirement are draconian, in some cases exceeding the amount of money in the foreign bank account. This penalty has been levied on people who have been reporting and paying tax on the interest on their foreign bank accounts, and merely neglected this separate report filing. Article on the \"\"shoot the jaywalker\"\" punitive enforcement policy. http://www.rothcpa.com/archives/006866.php Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law. EDITED TO ADD\"","Now i want to get this money in my new UK bank account, does this mean that gov will take taxes from this money as well. Yes that is income and you have to pay tax on that. But it might be a bit complicated than that, so I would ask you to call up HMRC or visit an accountant or maybe ask the finance people of your employer. Also one of my family members send us money every few months and will send to this bank from now on, does taxes also apply on this? See the HMRC page about capital gains tax on gifts: You won't have to pay Capital Gains Tax when you give a gift to your husband, wife or civil partner - as long as both of the following apply: It's useful to keep a note of what the asset cost you. Your spouse or civil partner may need this to work out their Capital Gains Tax when they dispose of the asset. Example: Mr B lives with his wife and gives her an antique table that he bought for £12,000 in 2003. Mrs B spends £500 restoring the table, eventually selling it for £20,000. Her total costs are £12,500 (£500 plus Mr B's original cost £12,000). Mrs B's gain is £7,500 (£20,000 less £12,500). When you make a gift to a family member or other person you're connected with, you'll need to work out the gain or loss. This doesn't apply to gifts you make to your spouse or civil partner. This also applies if you dispose of an asset to them in any other way - for example, you sell it to them for a low price. A 'connected person' in this context is someone such as your brother, sister, child, parent, grandparent, mother-in-law or business partner. Follow the link below for more information about connected people and Capital Gains Tax. You must get a valuation of the asset at the time you made the gift. Use this value in place of any amount you received for the asset to work out your gain or loss. If you gave the asset away, then of course the amount you received for it will be nothing. If you make a loss you can only deduct the loss from gains you make on gifts or other disposals to the same person.","To answer my own question, at least to the extent of my understanding. Here the IRS says that all income for a foreign person from a US-based company is taxable with 30%. Here the IRS says that this tax should be withhold at source by whomever pays you. In case there is a tax treaty with the country, the tax can even be waived in the US. Of course, if you don't declare it in your home country, the US bank could probably give information requested by the home country authorities. For the other two cases (when there's no US party involved) I can't find anything on the IRS website, which kind of make sense. If I am using an account in the US just to receive and send money shouldn't imply any tax. Thanks to @litteadv for pointing me into the right direction.","Where you earn your money makes no difference to the IRS. Citizen/permanent resident means you pay income tax. To make matters worse given your situation it's virtually certain you have unreported foreign bank accounts--something that's also an important issue.","I spoke to HMRC and they said #1 is not allowable but #2 is. They suggested using either their published exchange rates or I could use another source. I suggested the Bank of England spot rates and that was deemed reasonable and allowable.","The dividend tax credit is not applicable to foreign dividend income, so you would be taxed fully on every dollar of that income. When you sell a stock, there will be a capital gain or capital loss depending on if it gained or lost value, after accounting for the Adjusted Cost Base. You only pay income tax on half of the amount earned through capital gains, and if you have losses, you can use them to offset other investments that had capital gains (or carry forward to offset gains in the future). The dividends from US stocks are subject to a 15% withholding tax that gets paid to the IRS automatically when the dividends are issued. If the stocks are held in an RRSP, they are exempt from the withholding tax. If held in a non-registered account, you can be reimbursed for the tax by claiming the foreign tax credit that you linked to. If held in a TFSA or RESP, the withholding tax cannot be recovered. Also, if you are not directly holding the stocks, and instead buy a mutual fund or ETF that directly holds the stocks, then the RRSP exemption no longer applies, but the foreign tax credit is still claimable for a non-registered account. If the mutual fund or ETF does not directly hold stocks, and instead holds one or more ETFs, there is no way to recover the withholding tax in any type of account.","well, probably taxed a little. and taxed when they spend it, and taxed again when it is spent again. like fikirte said, this is foreign money. if the americans want access to it they have to make it easy. they've done it in the past http://law-journals-books.vlex.com/vid/the-portfolio-interest-exemption-53348889 sorry there is a lack of sources in real english.","Depends on the countries and their rules about moving money across the border, but in this case that appears entirely reasonable. Of course it would be a gamble unless you can predict the future values of currency better than most folks; there is no guarantee that the exchange rate will move in any particular direction. I have no idea whether any tax is due on profit from currency arbitrage.","You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.","From India Tax point of view: Some one else may give the US tax treatment. Refer to this similar question what taxes I need to pay in India Capital Gains. My accountant never asked or reported the bought property in taxes- should he reported in taxes?Did he do wrong not reporting should I report the property in my next year taxes? If you mean in IT Returns, yes it should be declared. Can i bring the money back if needed? By Back if you mean repatriate to US, The capital portion would be Ease if the loan property was purchased or loan repaid from NRE. Else there is limit on the amount and paperwork. Consult a CA. If I rent the property instead of selling, do I have to report the income and what income? should I be filling taxes on the rental income in India or just in USA or both You are taxable for the rent and have to report it as income and pay taxes in India.","You only have to pay taxes when you convert to dollars. Most exchanges I think have to track their users and provide them with reports for tax purposes. Just holding bitcoin and watching it go up in value does not trigger a taxable event.","Outside of a tax sheltered IRA or 401(k) type of account your transactions may trigger tax liability. However, transactions are not taxed immediately at the time of the transaction; and up to a certain limits capital gains can be offset by capital losses which can mitigate your liability at tax time. Also, remember that dividend receipts are taxable income as well. As others have said, this has nothing to do with whether or not money has been moved out of the account.","If you're a non resident then you owe no capital gains tax to Canada. Most banks won't let you make trades if you're a non-resident. They may not have your correct address on file so they don't realize this. This is not tax law but just OSC (or equivalent) regulations. You do have to fill out paperwork for withholding tax on OAS/CPP payments. This is something you probably already do but here's a link . It's complicated and depends on the country you live in. Of course you may owe tax in Thailand, I don't know their laws.","Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.","\"The short answer is that the exchange of the stock in exchange for the elimination of a debt is a taxable exchange, and gains or losses are possible for the stock investor as well as the bank. The somewhat longer answer is best summarized as noting that banks don't usually accept stocks as collateral, mostly because stock values are volatile and most banks are not equipped to monitor the risk involved but it is very much part of the business of stock brokers. In the USA, as a practical matter I only know of stock brokerages offering loans against stock as part of the standard services of a \"\"margin account\"\". You can get a margin account at any US stock broker. The stockholder can deposit their shares in the margin account and then borrow around 50% of the value, though that is a bit much to borrow and a lower amount would be safer from sudden demands for repayment in the form of margin calls. In a brokerage account I can not imagine a need to repay a margin loan if the stocks dividends plus capital appreciation rises in value faster than the margin loan rate creates interest charges... Trouble begins as the stock value goes down. When the value of the loan exceeds a certain percentage of the stock value, which can depend on the stock and the broker's policy but is also subject to federal rules like Regulation T, the broker can call in the loan and/or take initiative to sell the stock to repay the loan. Notice that this may result in a capital gain or loss, depending on the investor's tax basis which is usually the original cost of the stock. Of course, this sale affects the taxes of the investor irregardless of who gets the money.\""],"string":"[\n \"If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you have $166 loss. You report all these items on your Schedule D. Make sure to calculate the tax correctly, since the tax is not capital gains tax but rather ordinary income at marginal rates. Changes in foreign exchange between a transaction and the conversion of the proceeds to USD are generally not considered as income (i.e.: You sold a property in Mexico, but since the money took a couple of days to clear, the exchange rate changed and you got $2K more/less than you would based on the exchange rate on the day of the transaction - this is not a taxable income/loss). This is covered by the IRC Sec. 988. There are additional rules for contracts on foreign currency, TTM rules, etc. Better talk to a licensed tax adviser (EA/CPA licensed in your State) for anything other than trivial.\",\n \"In theory, when you obtained ownership of your USD cash as a Canadian resident [*resident for tax purposes, which is generally a quicker timeline than being resident for immigration purposes], it is considered to have been obtained by you for the CAD equivalent on that date. For example if you immigrated on Dec 31, 2016 and carried $10k USD with you, when the rate was ~1.35, then Canada deems you to have arrived with $13.5k CAD. If you converted that CAD to USD when the rate was 1.39, you would have received 13.9k CAD, [a gain of $400 to show as income on your tax return]. Receiving the foreign inheritances is a little more complex; those items when received may or may not have been taxable on that day. However whether or not they were taxable, you would calculate a further gain as above, if the fx rate gave you more CAD when you ultimately converted it. If the rate went the other way and you lost CAD-value, you may or may not be able to claim a loss. If it was a small loss, I wouldn't bother trying to claim it due to hassle. If it's a large loss, I would be very sure to research thoroughly before claiming, because something like that probably has a high chance of being audited.\",\n \"\\\"Disclaimer: I am neither a lawyer nor a tax-expert This page on the HMRC site lists several pages that appear to be relevant, starting with CG78401 - Foreign currency: delayed remittances and on to CG78408 - Foreign currency: example which seems pertinent to your case [paraphrased]: A property bought in 1983 is sold for a [taxable] gain in one tax-year (1986/87) but the proceeds cannot be released/remitted to the UK until later (1991/92), by which time currency fluctuations have created a second [taxable] gain. The size of the first gain (selling the property) is determined by the exchange rate in effect at the time of the sale but because of local restrictions, this can be deferred. The size of the second gain (currency movement) is determined by the change in exchange-rate between the time of the sale and the time of conversion. In your case, the first \\\"\\\"gain\\\"\\\" was actually a loss, so I believe you should be able to use this to offset any tax due second gain. This page states that losses can be claimed up to four years after the end of the tax-year in which they were incurred, so you are probably still OK. (The example makes application under TCGA92/S279 to defer the gain made on the original sale [because of the inability to transfer funds], but as I understand it, this is primarily to avoid a tax liability in that year. Since you made a loss on the sale, there wouldn't have been a tax liability, so there would be no need to defer it).\\\"\",\n \"Here is the technical guidance from the accounting standard FRS 23 (IAS 21) 'The Effects of Changes in Foreign Exchange Rates' which states: Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise. An example: You agree to sell a product for $100 to a customer at a certain date. You would record the sale of this product on that date at $100, converted at the current FX rate (lets say £1:$1 for ease) in your profit loss account as £100. The customer then pays you several $100 days later, at which point the FX rate has fallen to £0.5:$1 and you only receive £50. You would then have a realised loss of £50 due to exchange differences, and this is charged to your profit and loss account as a cost. Due to double entry bookkeeping the profit/loss on the FX difference is needed to balance the journals of the transaction. I think there is a little confusion as to what constitutes a (realised) profit/loss on exchange difference. In the example in your question, you are not making any loss when you convert the bitcoins to dollars, as there is no difference in the exchange rate between the point you convert them. Therefore you have not made either a profit or a loss. In terms of how this effects your tax position; you only pay tax on your profit and loss account. The example I give above is an instance where an exchange difference is recorded to the P&L. In your example, the value of your cash held is reflected in your balance sheet, as an asset, whatever its value is at the balance sheet date. Unfortunately, the value of the asset can rise/fall, but the only time where you will record a profit/loss on this (and therefore have an impact on tax) is if you sell the asset.\",\n \"Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.\",\n \"Huh. It appears it's only currencies in sterling that are fully exempt. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12602 Government manuals are more detailed than .gov but still not perfect as it's HMRCs interpretation of legislation and has been overturned in the past. There is also another (old) article here about foreign currency transactions. https://www.taxation.co.uk/articles/2010/10/27/21191/currency-gains I have never come across forex capital gains in practice but I've learnt something today! Something to look out for in the UK as well I guess.\",\n \"If you are exchanging money for travel then you should not have to pay any capital gains on any exchange that is in your favour. Exchanging currency for travel is different from trading currencies for an attempt at making profits.\",\n \"If you hold this money in USD and spend it in the US as USD, then there is no tax liability or reporting requirement at all. You are not subject to any tax on foreign exchange gains and losses because you have not performed any foreign exchange. CRA says a foreign exchange gain or loss happens when the fx transaction occurs—not as the currency’s value fluctuates while on deposit - and since you are never performing an fx transaction, no such issues will arise. The CRA is not interested in how you spend your money, only the money that you earn. The only possible tax liability that would arise in the circumstances that you describe would be the tax liability arising from interest earned while the cash in on deposit. If this interest exceeds the threshold of reportability, then your bank will issue you with a T-slip to be included in your tax return.\",\n \"Capital is an Asset. Decreasing value of capital is the decreasing value of an asset. When you buy the forex asset * DR Forex Asset * CR Cash When you sell * DR Cash * CR Forex Asset The difference is now accounted for Here is how: Gains (and losses) are modifications to your financial position (Balance sheet). At the end of the period you take your financial performance (Profit and Loss) and put it into your balance sheet under equity. Meaning that afterwards your balance sheet is better or worse off (Because you made more money = more cash or lost it, whatever). You are wanting to make an income account to reflect the forex revaluation so at the end of the period it is reflected in profit then pushed into your balance sheet. Capital gains directly affect your balance sheet because they increase/decrease your cash and your asset in the journal entry itself (When you buy and sell it). If making money this way is actually how you make you make an income it is possible to make an account for it. If you do this you periodically revalue the asset and write off the changes to the revaluation account. You would do something like *DR Asset *CR Forex Revaluation account; depending on the method you take. Businesses mostly do this because if the capital gains are their line of business they will be taxed on it like it is income. For simplicity just account for it when you buy and sell the assets (Because you as an individual will only recognise a profit/loss when you enter and exit). Its easier to think about income and expenses are extensions of equity. Income increases your equity, expenses decrease it. This is how they relate to the accounting formula (Assets = Liabilities + Owners Equity)\",\n \"I'll break it down into steps. Total gain/ loss for the whole thing is 5 CAD. You only have to worry about these calculations if you keep some USD and convert it at your leisure. Or if you have a US dollar in your wallet from your last vacation. Don't forget to subtract commissions (converted to CAD of course). *Some people just use an average exchange rate for the whole year, which you can also get from the BoC. ^There's $200 of tax free gains allowed for pure currency transactions. This allows small gains to be ignored.\",\n \"If you make money in currency speculation (as in your example), that is a capital gain. A more complicated example is if you were to buy and then sell stocks on the mexican stock exchange. Your capital gain (or loss) would be the difference in value in US dollars of your stocks accounting for varying exchange rates. It's possible for the stocks to go down and for you to still have a capital gain, and vice versa.\",\n \"\\\"If your friend is loaning you KRW which you are then converting to USD, then there are tax implications. This would be a Section 988 transaction so \\\"\\\"gains\\\"\\\" or \\\"\\\"losses\\\"\\\" made during repayment (partial or complete) due to fluctuations in exchange rate would be treated as ordinary gains or losses. For example, imagine you borrow 100,000 KRW and, at the time you borrow it, this is worth exactly 100,000 USD. At some future point, you repay 20,000 KRW. If the exchange rate at that point is such that 20,000 KRW is worth 15,000 USD, then the IRS sees that you have \\\"\\\"gained\\\"\\\" 5,000 USD in ordinary income. This is a particular concern if the loan is a mortgage and you refinance the mortgage at a moment in time with a more \\\"\\\"favorable\\\"\\\" exchange rate than the exchange rate when you first got the mortgage. See http://www.investopedia.com/terms/s/section-988.asp for some additional discussion.\\\"\",\n \"Now, I have kept this money and after interval of 6 month or year whenever the USD price go up, I do exchange with Indian currency and deposit in my account. Now do I have to pay Tax on this money? No you are not required to pay any tax as the income was accrued when your were NRI for tax purposes. The Foreign currency upto USD 2000 can be held by an individual without any time limit. i.e. you can convert then whenever you want. There is nothing that needs to be declared in Tax Returns.\",\n \"\\\"Since you did not treat the house as a QBU, you have to use USD as your functional currency. To calculate capital gains, you need to calculate the USD value at the time of purchase using the exchange rate at the time of purchase and the USD value at the time of sale using the exchange rate at the time of sale. The capital gain / loss is then the difference between the two. This link describes it in more detail and provides some references: http://www.maximadvisors.com/2013/06/foreign-residence/ That link also discusses additional potential complications if you have a mortgage on the house. This link gives more detail on the court case referenced in the above link: http://www.uniset.ca/other/cs5/93F3d26.html The court cases references Rev. Rul 54-105. This link from the IRS has some details from that (https://www.irs.gov/pub/irs-wd/0303021.pdf): Rev. Rul. 54-105, 1954-1 C.B. 12, states that for purposes of determining gain, the basis and selling price of property acquired by a U.S. citizen living in a foreign country should be expressed in United States dollars at the rates of exchange prevailing as of the dates of purchase and sale of the property, respectively. The text of this implies it is for U.S. citizen is living in a foreign country, but the court case makes it clear that it also applies in your scenario (house purchased while living abroad but now residing in the US): Appellants agree that the 453,374 pounds received for their residence should be translated into U.S. dollars at the $1.82 exchange rate prevailing at the date of sale. They argue, however, that the 343,147 pound adjusted cost basis of the residence, consisting of the 297,500 pound purchase price and the 45,647 pounds paid for capital improvements, likewise should be expressed in U.S. dollar terms as of the date of the sale. Appellants correctly state that, viewed “in the foreign currency in which it was transacted,” the purchase generated a 110,227 pound gain as of the date of the sale, which translates to approximately $200,000 at the $1.82 per pound exchange rate. ... However fair and reasonable their argument may be, it amounts to an untenable attempt to convert their “functional currency” from the U.S. dollar to the pound sterling. ... Under I.R.C. § 985(b)(1), use of a functional currency other than the U.S. dollar is restricted to qualified business units (\\\"\\\"QBU\\\"\\\"s). ... appellants correctly assert that their residence was purchased “for a pound-denominated value” while they were “living and working in a pound-denominated economy,” ... And since appellants concede that the purchase and sale of their residence was not carried out by a QBU, the district court properly rejected their plea to treat the pound as their functional currency.\\\"\",\n \"Yes, you still need to pay income tax on your capital gain regardless of whether you converted your USD proceeds back into CAD. When you calculate your gains for tax purposes, you'll need to convert all of your gains to Canadian dollars. Generally speaking, CRA will expect you to use a historical USD to CAD exchange rate published by the Bank of Canada. At that page, notice the remark at right: Are the Exchange Rates Shown Here Accepted by Canada Revenue Agency? Yes. The Agency accepts Bank of Canada exchange rates as the basis for calculations involving income and expenses that are denominated in foreign currencies.\",\n \"No it's not, not until a disposition. Keep track of the CAD value on the day you receive the inheritance and get an average cost. Then every time you go to the US and spend some money, record the CAD value on the day you spend it. The difference is your profit or loss. There is no capital gain as long as you don't spend it. Now this may seem ridiculous, especially since none of this is reported to the CRA. They realize this and say the first $200 profit or loss is not taxable.\",\n \"According to the answers to this question, you generally aren't taxed on gains until you sell the asset in question. None of those answered specifically for the U.K., so perhaps someone else will be able to weigh in on that. To apply those ideas to your question, yes your gains and losses are taxable. If you originally traded something worth $100 for the bitcoins, then when you converted back to dollars you received $200, you would have a $100 gain, simply on the foreign exchange trade. That is, this $100 of income is in addition to any income you made from your business (selling goods).\",\n \"Would I have to pay some kind of capital gains tax? And if so, when? Converting Tax paid USD into CAD is not a taxable event. A taxable even will occur if you convert back the CAD into USD. If you receive interest on the CAD then the interest is also a taxable event. Also, is there any reason this is a terrible idea? That will only be known in future. Its like predicting that in future this will turn out to be advantageous, however it may turn out the other way.\",\n \"\\\"No, not really. This depends on the situation and the taxing jurisdiction. Different countries have different laws, and some countries have different laws for different situations. For example, in the US, some investments will be taxed as you described, others will be taxed as \\\"\\\"mark to market\\\"\\\", i.e.: based on the FMV difference between the end of the year and the beginning of the year, and without you actually making any transactions. Depends on the situation.\\\"\",\n \"I can't give you a specific answer because I'm not a tax accountant, so you should seek advice from a tax professional with experience relevant to your situation. This could be a complicated situation. That being said, one place you could start is the Canada Revenue Agency's statement on investment income, which contains this paragraph: Interest, foreign interest and dividend income, foreign income, foreign non-business income, and certain other income are all amounts you report on your return. They are usually shown on the following slips: T5, T3, T5013, T5013A To avoid double taxation, Canada and the US almost certainly have a foreign tax treaty that ensures you are only taxed in your country of residence. I'm assuming you're a resident of Canada. Also, this page states that: If you received foreign interest or dividend income, you have to report it in Canadian dollars. Use the Bank of Canada exchange rate that was in effect on the day you received the income. If you received the income at different times during the year, use the average annual exchange rate. You should consult a tax professional. I'm not a tax professional, let alone one who specializes in the Canadian tax system. A professional is the only one you should trust to answer your question with 100% accuracy.\",\n \"In addition to the expatriation case already mentioned by Ben Miller, traders/investors are required to use mark-to-market accounting on certain investments. These go by Section 1256 contracts due to the part of the law that defines them. Mark-to-market is also required on straddles (combination of a long and and a short position in equities that are expected to vary inversely to each other). Mark-to-market means that you have to treat the positions as if you closed them at their end-of-year market value (even if you still have the position across the new year).\",\n \"How would I go about doing this? Are there any tax laws I should be worried about? Just report it as a regular sale of asset on your form 8949 (or form 4797 if used for trade/business/rental). It will flow to your Schedule D for capital gains tax. Use form 1116 to calculate the foreign tax credit for the taxes on the gains you'd pay in India (if any).\",\n \"Just a thought because this is a really good question: Would the buying and selling of blockchain based digital currency, using other blockchain based digital currencies, be subject to like kind treatment and exempt from capital gains until exchanged for a non-blockchain based good or service (or national currency) Suppose someone sells 1 bitcoin to buy 100 monero. Monero's price and bitcoin's price then change to where the 100 monero are 3 bitcoins. The person gets their bitcoin back and has 66.67 monero remaining. This scenario could be: Suppose someone sells 1 bitcoin at $1000 to buy 100 monero at $10. Bitcoin crashes 80% to $200 while monero crashes to only $6 per monero. $6 times 100 is $600 and if the person gets their bitcoin back (at $200 per bitcoi), they still lost money when measured in US Dollars if they move that bitcoin back to US dollars. In reading the IRS on bitcoin, they only care about the US dollar value of bitcoin or monero and in this example, the US dollar value is less. The person may have more bitcoins, but they still lost money if they sell.\",\n \"Simply transferring money you own from overseas to Canada will not mean you need to pay tax on it. However if you sell property at a profit - I.e. sell it for more than you paid for it - you may have to pay tax on any gains. This is true whether or not you transfer the money to Canada. Calculating the amount is quite complicated. You might consider getting a tax expert.\",\n \"The money you will be bringing to the US will be classified as your own money, and will not be taxable. The proceeds from the sale are taxable to you, probably as capital gains. The fact that you kept the proceeds out of the US is irrelevant for that purpose (it is relevant for FBAR/FATCA etc). Since you had no basis in the property, all the proceeds are taxable to you at the time of the sale and should be reported on your tax return.\",\n \"There is a fourth option - pay those taxes. Depending on the amounts, it might be the easiest way - if you make 34.49 in interest, and pay 6 $ in taxes on it, and be done, that might not be worth any other effort. If the expected taxable amount is significant, moving (most of it) to index funds or other simply switching existing investments to ‘reinvest’ instead of ‘pay out in cash’ would be the best approach. Again, some smaller amounts in savings or checkings accounts are probably not worth any effort. Transferring the money to the US doesn’t save you taxes, as any interest would still be taxable. You have a risk to lose on the conversion back and forth (and a potential to gain - the exchange rate could go either way!), so if you are sure you go back, it’s not a good idea to move the money.\",\n \"This loss would be unrealized and, assuming you're a cash-basis tax-payer, you would not be able to take a loss on your 2014 tax return. This is similar to if you held a stock that lost 50% of its value. You wouldn't be able to claim this loss until you finally sold it. The link that User58220 posted may come into play if you converted your UAH back to USD.\",\n \"I don't think so in your case. Unless the account generates so much interest income that it became reportable (I don't know the exact limit, but I think it's in the hundreds if not thousands of dollars, you might get a 1099 form if it generates over $10 of interest income, but you don't have to file taxes if your overall income is too low anyways). The US does not typically tax assets, only income. There are some states (Florida is the only one I can think of) that has odd tax treatment of intangible assets, but I doubt that would apply in your case. If this were a large enough amount, usually over $10,000, it might trigger some reporting requirements (possibly by your home country).\",\n \"Here's what the GnuCash documentation, 10.5 Tracking Currency Investments (How-To) has to say about bookkeeping for currency exchanges. Essentially, treat all currency conversions in a similar way to investment transactions. In addition to asset accounts to represent holdings in Currency A and Currency B, have an foreign exchange expenses account and a capital gains/losses account (for each currency, I would imagine). Represent each foreign exchange purchase as a three-way split: source currency debit, foreign exchange fee debit, and destination currency credit. Represent each foreign exchange sale as a five-way split: in addition to the receiving currency asset and the exchange fee expense, list the transaction profit in a capital gains account and have two splits against the asset account of the transaction being sold. My problems with this are: I don't know how the profit on a currency sale is calculated (since the amount need not be related to any counterpart currency purchase), and it seems asymmetrical. I'd welcome an answer that clarifies what the GnuCash documentation is trying to say in section 10.5.\",\n \"\\\"What about the escudo balance in my checking account in Cabo Verde? Are the escudos that I held for months or years, before eventually deciding to change to dollars, considered an investment? Don't know. You tell us. Investment defined as an activity taken to produce income. Did you put the money in the checking account with a full expectation of profits to be made from that? Or you only decided that it is an investment in retrospective, after the result is known, because it provides you more tax benefit? To me it sounds like you have two operating currencies and you're converting between them. Doesn't sound like an investment. Generally, from my experience, bank accounts are not considered investments (even savings accounts aren't). Once you deposit into a CD or bond or money market - you get a cash-equivalent which can be treated as an investment. But that's my personal understanding, if there are large amounts involved, I'd suggest talking to a US-licensed CPA/EA specializing on expats in your area. Pub 54 is really a reference for only the most trivial of the questions an expat may have. It doesn't even begin to describe the complexity of the monstrosity that is called \\\"\\\"The US Tax Code for Expats and Foreigners\\\"\\\".\\\"\",\n \"\\\"After more searching for how the US might treat such an attempt to \\\"\\\"rollover\\\"\\\" the funds, I found this: https://www.irs.gov/pub/irs-utl/am2008009.pdf So, it seems it is impossible to do without US tax consequences.\\\"\",\n \"It's not necessary to convert it back for the changes to affect value. Lets say you have a euro account with 1000 euro and a gbp account with 920 gbp (the accounts are equal in value given current exchange rates). You could exchange either account for ~$1180 usd. If you exchange the euro account for USD, and say the euro gets stronger against the pound and dollar (and subsequently the pound and dollar are weaker against the euro); then if you would've kept the 1000 euro it would now be worth more than 920 gbp and more than 1180 usd, and you would've been better off exchanging the gbp account for usd. Barring some cataclysmic economic event; exchange rates between well established currencies don't radically change over a few weeks trip, so I wouldn't really worry about it one way or the other.\",\n \"Depending on what software you use. It has to be reported as a foreign income and you can claim foreign tax paid as a foreign tax credit.\",\n \"Please consult a tax advisor. You may be voilating the FEMA [Foreign Exchange Management Act] and can land into trouble. Further what you are doing can land up into various other acts as illegal including AML. Further if there is income generated by Indian citizen in India, he is still liable to pay tax, irrespective of whether you get the funds back into India. Edit: AML is Anti Money Laundering. Your transaction is sure to raise AML triggers as it looks like converting Black Money to White in round about way. Once the triggers are raised, RBI division will investigate further to verify what you are doing. If you are able to prove that this is a valid transaction, you would be OK on AML front. How will Income Tax Know? - If they don't know does not mean you are not liable for tax. - Any suspicious transactions would get investigated and sooner or later Income Tax would know about it and can cause a serious problem. - It is irrelevant where you have kept the money, if you have earned something, its taxable. For it not to be taxable you need to conduct this business differently. Please consult a tax adviser who will advice you on the tax-ability of this type of transaction.\",\n \"It depends on the asset and the magnitude of the exchange rate change relative to the inflation rate. If it is a production asset, the prices can be expected to change relative to the changes in exchange rate regardless of magnitude, ceteris paribus. If it is a consumption asset, the prices of those assets will change with the net of the exchange rate change and inflation rate, but it can be a slow process since all of the possessions of the country becoming relatively poorer cannot immediately be shipped out and the need to exchange wants for goods will be resisted as long as possible.\",\n \"If you move money - you don't need to pay any taxes. If the money was not there before and magically appeared at some point and now you want to move it - you'll have to explain a thing or two to the IRS and FinCEN. Generally, if you're a green card holder - you pay taxes on your worldwide income. So if you have a foreign account that earns interest - that interest is taxable to you in the US. In the year you earned it, not in the year you moved the money to the US. There are also reporting requirements (FBAR notably, and others). If you haven't filed FBAR with regards to the accounts which you now want to move, and especially if that also includes unreported income (interest and other) - you may find yourself in a very deep s#!t. Sorry, very deep troubles. Talk to a tax adviser (EA/CPA licensed in your State). A proper consultation is warranted, if you haven't had one already. You might need a tax attorney.\",\n \"\\\"No, there are neither advantages nor disadvantages. I'll take on this question from an accounting standpoint. Financial statements, the tools at which the market determines (amongst other things) the value of a stock, are converted at year end to the home currency (see 1.1.3).If Company A has revenue of 100,000 USD and the conversion to EUR is .89, revenue in the European market will be reported as 89,000 EUR. These valuations, along with ratios, analysis, and \\\"\\\"expert\\\"\\\" opinions determine if a person should own shares in Company A. Now, if we're talking about comparing markets this is a entirely different question. Example: Should I buy stock of Company A, who is in the American market (as an European)? Should I buy stock of Company B, who is in the European market (as an American)? I would recommend this as additional level of diversification of your portfolio to inlcude possible large inflation of either the currency. The possible gains of this foreign exchange may be greater if one or the other currency becomes weak.\\\"\",\n \"Generally speaking, if a business loses money for whatever reason, then that reduces the profits of the business which reduces the tax payable. However if you were holding the assets on a personal basis prior to incorporating the business, the position may become more complicated. For that kind of money some professional advice may be worthwhile.\",\n \"The value of a foreign stock is subject to fluctuations in the foreign currency value; this is not the case for domestic stocks.\",\n \"This is taxed as ordinary income. See the IRC Sec 988(a)(1). The exclusion you're talking about (the $200) is in the IRC Sec 988(e)(2), but you'll have to read the Treasury Regulations on this section to see if and how it can apply to you. Since you do this regularly and for profit (i.e.: not a personal transaction), I'd argue that it doesn't apply.\",\n \"\\\"No. This is too much for most individuals, even some small to medium businesses. When you sell that investment, and take the cheque into the foreign bank and wire it back to the USA in US dollars, you will definitely obtain the final value of the investment, converted to US$. Thats what you wanted, right? You'll get that. If you also hedge, unless you have a situation where it is a perfect hedge, then you are gambling on what the currencies will do. A perfect hedge is unusual for what most individuals are involved in. It looks something like this: you know ForeignCorp is going to pay you 10 million quatloos on Dec 31. So you go to a bank (probably a foreign bank, I've found they have lower limits for this kind of transaction and more customizable than what you might create trading futures contracts), and tell them, \\\"\\\"I have this contract for a 10 million quatloo receivable on Dec 31, I'd like to arrange a FX forward contract and lock in a rate for this in US$/quatloo.\\\"\\\" They may have a credit check or a deposit for such an arrangement, because as the rates change either the bank will owe you money or you will owe the bank money. If they quote you 0.05 US$/quatloo, then you know that when you hand the cheque over to the bank your contract payment will be worth US$500,000. The forward rate may differ from the current rate, thats how the bank accounts for risk and includes a profit. Even with a perfect hedge, you should be able to see the potential for trouble. If the bank doesnt quite trust you, and hey, banks arent known for trust, then as the quatloo strengthens relative to the US$, they may suspect that you will walk away from the deal. This risk can be reduced by including terms in the contract requiring you to pay the bank some quatloos as that happens. If the quatloo falls you would get this money credited back to your account. This is also how futures contracts work; there it is called \\\"\\\"mark to market accounting\\\"\\\". Trouble lurks here. Some people, seeing how they are down money on the hedge, cancel it. It is a classic mistake because it undoes the protection that one was trying to achieve. Often the rate will move back, and the hedger is left with less money than they would have had doing nothing, even though they bought a perfect hedge.\\\"\",\n \"What you are doing is barter trade. Most countries [if not all] would tax this on assumed fair value. There are instances where countries may relax this norm in border areas for a small amount. Barter is not just for gold – one can virtually do this for any goods, i.e. sell garments in exchange for oil, sell electronic chips in exchange for consumer goods, etc. Quite a few business would flourish doing this and not exchange currency at all, hence the need for government to tax on the [assumed / calculated / arrived/ derived] fair value. A word of caution: at times this may not be fair at all and may actually cost more than had one done a transaction using currency.\",\n \"\\\"Yes, you effectively need to \\\"\\\"double count\\\"\\\" when shifting balances between foreign accounts.\\\"\",\n \"Essentially imported goods from the country (in this case the US) that is improving against your local currency will become more expensive. For the most part, that is the only practical effect on you on an individual financial level.\",\n \"An update for anyone looking this up, I am still working through all the details but I can answer the question as far as Stack Exchange will go. In this situation the answer and processes involved greatly differs based on the personal circumstances of the person asking the question. Best to seek qualified tax advice than relying only on a forum as they are able to be more accurate and descriptive than any reply that you might receive.\",\n \"To your first question: YES. Capital gains and losses on real-estate are treated differently than income. Note here for exact IRS standards. The IRS will not care about percentage change but historical (recorded) amounts. To your second question: NO Are you taxed when buying a new stock? No. But be sure to record the price paid for the house. Note here for more questions. *Always consult a CPA for tax advice on federal tax returns.\",\n \"\\\"The examples you provide in the question are completely irrelevant. It doesn't matter where the brokerage is or where is the company you own stocks in. For a fairly standard case of an non-resident alien international student living full time in the US - your capital gains are US sourced. Let me quote the following text a couple of paragraphs down the line you quoted on the same page: Gain or loss from the sale or exchange of personal property generally has its source in the United States if the alien has a tax home in the United States. The key factor in determining if an individual is a U.S. resident for purposes of the sourcing of capital gains is whether the alien's \\\"\\\"tax home\\\"\\\" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’s U.S. source capital gains would be treated as foreign-source and thus nontaxable. In general, under the \\\"\\\"tax home\\\"\\\" rules, a person who is away (or who intends to be away) from his tax home for longer than 1 year has shifted tax homes to his new location upon his arrival in that new location. See Chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses I'll assume you've read this and just want an explanation on what it means. What it means is that if you move to the US for a significant period of time (expected length of 1 year or more), your tax home is assumed to have shifted to the US and the capital gains are sourced to the US from the start of your move. For example: you are a foreign diplomat, and your 4-year assignment started in May. Year-end - you're not US tax resident (diplomats exempt), but you've stayed in the US for more than 183 days, and since your assignment is longer than 1 year - your tax home is now in the US. You'll pay the 30% flat tax. Another example: You're a foreign airline pilot, coming to the US every other day flying the airline aircraft. You end up staying in the US 184 days, but your tax home hasn't shifted, nor you're a US tax resident - you don't pay the flat tax. Keep in mind, that tax treaties may alter the situation since in many cases they also cover the capital gains situation for non-residents.\\\"\",\n \"This is taxable in India. You need to declare the income and pay taxes accordingly\",\n \"\\\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \\\"\\\"otherwise\\\"\\\" is substantial and far-ranging.\\\"\",\n \"\\\"Appreciation of a Capital Asset is a Capital Gain. In the United States, Capital Gains get favorable tax treatment after being held for 12 months. From the IRS newsroom: Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%. The IRS defines a Capital Asset as \\\"\\\"most property you own\\\"\\\" with a list of exclusions found in Schedule D Instructions. None of the exclusions listed relate to Bond ETFs.\\\"\",\n \"Transferring money you own from one place to another pretty much never has tax implications. It might have other implications, including requirement to report it. Being a US citizen has tax implications, including the requirement to file US tax forms for the rest of eternity.\",\n \"As the funds are Gift received from your parents, and your tax residency is US, as per US gift tax, there is no tax due from you for these funds.\",\n \"I can only answer about the U.S. For question 2, I believe the answer is no. If you are a non-resident alien for tax purposes, then only income connected to the U.S. is reported as income on the tax return. Unless there were any non-deductible contributions to your pre-tax IRAs, when you convert to Roth IRA, the entire amount of the conversion is added to your income. So the tax consequence is the same as if you had that much additional U.S. income. If you are a non-resident alien with no other income in the U.S., then the income you have to report on your U.S. tax return will basically consist of the conversion. Non-resident aliens do not have a standard deduction. However, all people have a personal exemption. If we take 2013 as an example, the exemption is $3900 per person. We will assume that you will file as single or married filing separately (non-resident aliens cannot file as married filing jointly). The first $3900 of income is covered by the exemption, and is not counted in taxable income. For single and MFS, the next $8925 of income is taxed at 10%, then next $27325 of income is taxed at 15%, and so on. So if you convert less than the personal exemption amount every year ($3900 in 2013), then in theory you do not pay any taxes. If you convert a little bit more, then some of the conversion will be taxed at 10%, etc.\",\n \"Canadian departure tax is implemented as a deemed sale gains proceeds taxation. Check here for details. What it means is that you're taxed on the difference between your FMV on the date of terminating residency and your Canadian cost basis (FMV when you acquired residency, or regular cost basis if you acquired the assets while being resident of Canada). It doesn't matter if you actually withdraw the money or not, it has no significance. You'll have to pay the tax either way.\",\n \"The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would be any different for the person that created the account initially, except that the basis starts at $0 making the entire sale price taxable. How you figure the value of the account before the initial sale would be more difficult, but fortunately you may not ever need to know the value (for tax purposes) until you actually sell it.\",\n \"\\\"Although there are occasional cases where simply moving money between countries results in a tax liability - for example a \\\"\\\"non-domiciled\\\"\\\" UK resident using the \\\"\\\"remittance basis\\\"\\\" - this is not the case in your situation. In general it would be extremely rare for non-residents of a country to be taxed on bringing money into that country, as it would be bad for tourism which most countries want to encourage. The requirement to declare large sums of money on entry is primarily so that the authorities can detect money laundering, rather than tax. Note that you will have to pay US tax on any interest you earn on that US bank account.\\\"\",\n \"If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.\",\n \"Is this money taxable in US? From what you described you're likely to have been a US tax resident. As such, you're taxed on your worldwide income. Foreign tax deferral schemes are not considered qualified under the US law (unless a treaty says otherwise), so you're liable for taxes on them now. Get a new tax adviser.\",\n \"When you invest (say $1000) in (say 100 shares) of a mutual fund at $10 per share, and the price of the shares changes, you do not have a capital gain or loss, and you do not have to declare anything to the IRS or make any entry on any line on Form 1040 or tell anyone else about it either. You can brag about it at parties if the share price has gone up, or weep bitter tears into your cocktail if the price has gone down, but the IRS not only does not care, but it will not let you deduct the paper loss or pay taxes on the paper gain. What you put down on Form 1040 Schedules B and D is precisely what the mutual fund will tell you on Form 1099-DIV (and Form 1099-B), no more, no less. If you did not report any of these amounts on your previous tax returns, you need to file amended tax returns, both Federal as well as State, A stock mutual fund invests in stocks and the fund manager may buy and sell some stocks during the course of the year. If he makes a profit, that money will be distributed to the share holders of the mutual fund. That money can be re-invested in more shares of the same mutual fund or taken as cash (and possibly invested in some other fund). This capital gain distribution is reported to you on Form 1099-DIV and you have to report sit on your tax return even if you re-invested in more share of the same mutual fund, and the amount of the distribution is taxable income to you. Similarly, if the stocks owned by the mutual fund pay dividends, those will be passed on to you as a dividend distribution and all the above still applies. You can choose to reinvest, etc, the amount will be reported to you on Form 1099-DIV, and you need to report it to the IRS and include it in your taxable income. If the mutual fund manager loses money in the buying and selling he will not tell you that he lost money but it will be visible as a reduction in the price of the shares. The loss will not be reported to you on Form 1099-DIV and you cannot do anything about it. Especially important, you cannot declare to the IRS that you have a loss and you cannot deduct the loss on your income tax returns that year. When you finally sell your shares in the mutual fund, you will have a gain or loss that you can pay taxes on or deduct. Say the mutual fund paid a dividend of $33 one year and you re-invested the money into the mutual fund, buying 3 shares at the then cost of $11 per share. You declare the $33 on your tax return that year and pay taxes on it. Two years later, you sell all 103 shares that you own for $10.50 per share. Your total investment was $1000 + $33 = $1033. You get $1081.50 from the fund, and you will owe taxes on $1081.50 - $1033 = $48.50. You have a profit of $50 on the 100 shares originally bought and a loss of $1.50 on the 3 shares bought for $11: the net result is a gain of $48.50. You do not pay taxes on $81.50 as the profit from your original $1000 investment; you pay taxes only on $48.50 (remember that you already paid taxes on the $33). The mutual fund will report on Form 1099-B that you sold 103 shares for $1081.50 and that you bought the 103 shares for an average price of $1033/103 = $10.029 per share. The difference is taxable income to you. If you sell the 103 shares for $9 per share (say), then you get $927 out of an investment of $1033 for a capital loss of $106. This will be reported to you on Form 1099-B and you will enter the amounts on Schedule D of Form 1040 as a capital loss. What you actually pay taxes on is the net capital gain, if any, after combining all your capital gains and losses for the year. If the net is a loss, you can deduct up to $3000 in a year, and carry the rest forward to later years to offset capital gains in later years. But, your unrealized capital gains or losses (those that occur because the mutual fund share price goes up and down like a yoyo while you grin or grit your teeth and hang on to your shares) are not reported or deducted or taxed anywhere. It is more complicated when you don't sell all the shares you own in the mutual fund or if you sell shares within one year of buying them, but let's stick to simple cases.\",\n \"> Hence all businesses in the US, no matter what currency they make money in, have to buy USD to pay their taxes. So that means that means other currencies are valueless since X government doesn't see Y currency as a means of payment? Also, you don't buy so much as trade but potatoes potatos.\",\n \"If you are a US resident (not necessarily citizen) then yes, you do have to pay capital gains taxes on any capital gains, including interest from assets oversees (like interest from a savings account). Additionally you have to report all your foreign bank accounts according to FATCA (https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca).\",\n \"If you are a non resident Indian, the income you earn and transfer to India is tax free in India. You can hold the funds in USD or convert then into INR, there is no tax implication.\",\n \"\\\"You might find some of the answers here helpful; the question is different, but has some similar concerns, such as a changing economic environment. What approach should I take to best protect my wealth against currency devaluation & poor growth prospects. I want to avoid selling off any more of my local index funds in a panic as I want to hold long term. Does my portfolio balance make sense? Good question; I can't even get US banks to answer questions like this, such as \\\"\\\"What happens if they try to nationalize all bank accounts like in the Soviet Union?\\\"\\\" Response: it'll never happen. The question was what if! I think that your portfolio carries a lot of risk, but also offsets what you're worried about. Outside of government confiscation of foreign accounts (if your foreign investments are held through a local brokerage), you should be good. What to do about government confiscation? Even the US government (in 1933) confiscated physical gold (and they made it illegal to own) - so even physical resources can be confiscated during hard times. Quite a large portion of my foreign investments have been bought at an expensive time when our currency is already around historic lows, which does concern me in the event that it strengthens in future. What strategy should I take in the future if/when my local currency starts the strengthen...do I hold my foreign investments through it and just trust in cost averaging long term, or try sell them off to avoid the devaluation? Are these foreign investments a hedge? If so, then you shouldn't worry if your currency does strengthen; they serve the purpose of hedging the local environment. If these investments are not a hedge, then timing will matter and you'll want to sell and buy your currency before it does strengthen. The risk on this latter point is that your timing will be wrong.\\\"\",\n \"\\\"In the US, and in most other countries, dividends are considered income when paid, and capital gains/losses are considered income/loss when realized. This is called, in accounting, \\\"\\\"recognition\\\"\\\". We recognize income when cash reaches our pocket, for tax purposes. So for dividends - it is when they're paid, and for gains - when you actually sell. Assuming the price of that fund never changes, you have this math do to when you sell: Of course, the capital loss/gain may change by the time you actually sell and realize it, but assuming the only price change is due to the dividends payout - it's a wash.\\\"\",\n \"Generally it is a taxable transaction. Basic principle of taxation everywhere is that the mean of payment doesn't matter. If the income is taxable - it is taxable regardless of the unit of currency you used. It can be a strawberry, a bitcoin, a gold nugget, or a dollar, it doesn't change a thing about how it is taxed. If you look at the United States tax code definition of taxable income, for example, you will find no mention whatsoever of any currency. Similarly with other tax laws I'm familiar with. I'm sure there's no such limitation in Australia.\",\n \"The purpose of the transfer determines the taxability. If this is happening to frequent, it is advisable to keep proper records of the transaction so that if there is an enquiry from Tax authorities you can explain. Unless you explain the why the transfer is being made, I have put out some broad categories.\",\n \"You can calculate your exposure intuitively, by calculating your 'fx sensitivity'. Take your total USD assets, let's assume $50k. Convert to EUR at the current rate, let's assume 1 EUR : 1.1 USD, resulting in 45.5k EUR . If the USD strengthens by 1%, this moves to a rate of ~1.09, resulting in 46k EUR value for the same 50k of USD investments. From this you can see that for every 1% the USD strengthens, you gain 500 EUR. For every 1% the USD weakens, you lose 500 EUR. The simplest way to reduce your exchange rate risk exposure, is to simply eliminate your foreign currency investments. ie: if you do not want to be exposed to fluctuations in the USD, invest in EUR only. This will align your assets with the currency of your future expenses [assuming you intend to continue living in Europe].This is not possible of course, if you would like to maintain investments in US assets. One relatively simple method available to invest in the US, without gaining an exposure to the USD, is to invest in USD assets only with money borrowed in USD. ie: if you borrow $50k USD, and invest $50k in the US stock market, then your new investments will be in the same currency as your debt. Therefore if the USD strengthens, your assets increase in relative EUR value, and your debt becomes more expensive. These two impacts wash out, leaving you with no net exposure to the value of the USD. There is a risk to this option - you are investing with a higher 'financial leverage' ratio. Using borrowed money to invest increases your risk; if your investments fall in value, you still need to make the periodic interest payments. Many people view this increased risk as a reason to never invest with borrowed money. You are compensated for that risk, by increased returns [because you have the ability to earn investment income without contributing any additional money of your own]. Whether the risk is worth it to you will depend on many factors - you should search this site and others on the topic to learn more about what those risks mean.\",\n \"non-resident aliens to the US do not pay capital gains on US products. You pay tax in your home country if you have done a taxable event in your country. http://www.investopedia.com/ask/answers/06/nonusresidenttax.asp#axzz1mQDut9Ru but if you hold dividends, you are subject to US dividend tax. The UK-US treaty should touch on that though.\",\n \"If you are tax-resident in the US, then you must report income from sources within and without the United States. Your foreign income generally must be reported to the IRS. You will generally be eligible for a credit for foreign income taxes paid, via Form 1116. The question of the stock transfer is more complicated, but revolves around the beneficial owner. If the stocks are yours but held by your brother, it is possible that you are the beneficial owner and you will have to report any income. There is no tax for bringing the money into the US. As a US tax resident, you are already subject to income tax on the gain from the sale in India. However, if the investment is held by a separate entity in India, which is not a US domestic entity or tax resident, then there is a separate analysis. Paying a dividend to you of the sale proceeds (or part of the proceeds) would be taxable. Your sale of the entity containing the investments would be taxable. There are look-through provisions if the entity is insufficiently foreign (de facto US, such as a Subpart-F CFC). There are ways to structure that transaction that are not taxable, such as making it a bona fide loan (which is enforceable and you must pay back on reasonable terms). But if you are holding property directly, not through a foreign separate entity, then the sale triggers US tax; the transfer into the US is not meaningful for your taxes, except for reporting foreign accounts. Please review Publication 519 for general information on taxation of resident aliens.\",\n \"Thanks for your reply! I presume then if I don't convert back (say I spend everything) then it's much the same. So my main consideration should be whether I think the currency will increase or decrease in my time away if I'm converting back\",\n \"How can I correctly account for having money in different currencies, without currency transfers or currency fluctuations ending up as gains or losses? In my view, your spreadsheet should be in multiple currencies. i.e. if you have gained some in specific currency, make a note of it in that specific currency. If you have spent something in a specific currency, then make a note accordingly. You can use an additional column for reporting this in a neutral currency say GBP. If you are transferring the money from account of one currency to account of another; change the balances as appropriate with the actual conversion rate. If you need this record keeping for tax purposes, then get a proper advise from accountant.\",\n \"The US will let you keep as much money as you want to within its borders regardless of your citizenship. You'll owe capital gains tax in the US unless you're subject to a tax treaty (which you would probably make as an election in the year of the transaction). I don't know if India has any rules about how it governs its citizens' foreign assets, but the US requires citizens to file a form annually declaring foreign accounts over $10,000. You may be subject to additional Indian taxes if India taxes global income like the US does.\",\n \"Assuming your tax status in India is Non-Resident. The funds are deposited in an NRE account, there is nothing that needs to be done. If you have any income in India, then you would need to file a tax return.\",\n \"I believe I have to pay taxes in US since it is a US broker. No, not at all. The fact that the broker is a US broker has nothing to do with your tax liabilities. You should update the banks and the broker with your change of status submitting form W8-BEN to them. Consult a tax professional proficient with Indo-US tax treaty as to what you should put in part II. The broker might withhold some of your income and remit it as taxes to the IRS based on what you put in W8-BEN and the type of income, but you can have it refunded (if it exceeds your liability) by submitting a tax return (form 1040-NR). You do have to pay tax in India, based on the Indian tax law, for your profits in the US. Consult with an Indian tax accountant on that. If I'm not mistaken, there are also currency transfer restrictions in India that you should be aware of.\",\n \"Tax questions require that you specify a jurisdiction. Assuming that this is the US, you owe Federal income tax (at the special long-term capital gains tax rate) on the net long-term capital gains (total long-term capital gains minus total long-term capital losses) and so, yes, if these two were your only transactions involving long-term holdings, you would pay long-term capital gains tax on $3000-$50 = $2950. Many States in the US don't tax long-term capital gains at special rates the way the Federal Government does, but you still pay taxes on the net long-term capital gains. I suspect that other countries have similar rules.\",\n \"If the brokerage account holds US assets, such as the stock of US companies, then it may be taxable under some conditions. The rules are complex and depend on the nationality of the individuals, because the results may be affected by tax treaties between the United States and whatever country the person is from.\",\n \"There's a possibility to lose money in exchange rate shifts, but just as much chance to gain money (Efficient Market Hypothesis and all that). If you're worried about it, you should buy a stock in Canada and short sell the US version at the same time. Then journal the Canadian stock over to the US stock exchange and use it to settle your short sell. Or you can use derivatives to accomplish the same thing.\",\n \"And directly from IRS notice 2014-21 FAQ: Q-1: How is virtual currency treated for federal tax purposes? A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property? A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.… Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.\",\n \"Is this possible and will it have the intended effect? From the US tax perspective, it most definitely is and will. Is my plan not very similar to Wash Sale? Yes, except that wash sale rules apply for losses, not gains. In any case, since you're not a US tax resident, the US wash sale rules won't apply to you.\",\n \"Government's tax citizens and businesses in their currency. Earnings (even earnings in cryptocurrencies) are taxable income.\",\n \"You are trying to predict the future currency fluctuations that can't be predicted. If you know for sure you are moving, convert it directly into Euros in near future rather than take a complicated route.\",\n \"FBAR should be filed if total balance of all your foreign accounts is more than $10000 any time during the year (even if only for one day). My TurboTax handled that well last year, including filling the FBAR for me. Shouldn't be an issue, just don't forget to file it (not with your IRS package, it goes to a different place), if you need to. On the tax forms (1040 Schedule B, Part III) you should check a checkbox that you have a foreign bank account.\",\n \"\\\"As long as the IRS treats bitcoin as property, then whenever you use bitcoin to buy anything you are supposed to consider the capital gain or capital loss. There is no \\\"\\\"until it's converted to fiat\\\"\\\". You are paying local sales tax and capital gains, or paying local sales tax and reporting capital loss. As long as you are consistent, you can use either the total cost basis, or individual lot purchases. The same as other property like stocks (except without stock specific regulations like wash-sale rules :D ). There are a lot of perks or unintentional loopholes for speculators, with the property designation. There are a lot of disadvantages for consumers trying to use it like a currency. Someone mixing investment and spending funds across addresses is going to have complicated tax issues, but fortunately the exchanges have records of purchase times and prices, which you can compare with the addresses you control. Do note, after that IRS guideline, another federal agency designated Bitcoin as a commodity, which is a subset of \\\"\\\"property\\\"\\\" with its own more favorable but different tax guidelines.\\\"\",\n \"Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity.\",\n \"It would depend on whether it's considered capital gains or not. A brief Google search suggests that it is; this means you're only required to pay tax on it once it's traded for actual currency, goods, or services. It also means you get some nice tax advantages as long as you hold it for longer than a year.\",\n \"\\\"Be mindful of your reporting requirements. Besides checking the box on Schedule B of your 1040 that you have a foreign bank account, you also need to file a TD F 90-22.1 FBAR report for any year that the total of all foreign bank accounts reaches a value of $10,000 at any time during the year. This is filed separately from your 1040 by June 30 of the following year. Penalties for violating this reporting requirement are draconian, in some cases exceeding the amount of money in the foreign bank account. This penalty has been levied on people who have been reporting and paying tax on the interest on their foreign bank accounts, and merely neglected this separate report filing. Article on the \\\"\\\"shoot the jaywalker\\\"\\\" punitive enforcement policy. http://www.rothcpa.com/archives/006866.php Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law. EDITED TO ADD\\\"\",\n \"Now i want to get this money in my new UK bank account, does this mean that gov will take taxes from this money as well. Yes that is income and you have to pay tax on that. But it might be a bit complicated than that, so I would ask you to call up HMRC or visit an accountant or maybe ask the finance people of your employer. Also one of my family members send us money every few months and will send to this bank from now on, does taxes also apply on this? See the HMRC page about capital gains tax on gifts: You won't have to pay Capital Gains Tax when you give a gift to your husband, wife or civil partner - as long as both of the following apply: It's useful to keep a note of what the asset cost you. Your spouse or civil partner may need this to work out their Capital Gains Tax when they dispose of the asset. Example: Mr B lives with his wife and gives her an antique table that he bought for £12,000 in 2003. Mrs B spends £500 restoring the table, eventually selling it for £20,000. Her total costs are £12,500 (£500 plus Mr B's original cost £12,000). Mrs B's gain is £7,500 (£20,000 less £12,500). When you make a gift to a family member or other person you're connected with, you'll need to work out the gain or loss. This doesn't apply to gifts you make to your spouse or civil partner. This also applies if you dispose of an asset to them in any other way - for example, you sell it to them for a low price. A 'connected person' in this context is someone such as your brother, sister, child, parent, grandparent, mother-in-law or business partner. Follow the link below for more information about connected people and Capital Gains Tax. You must get a valuation of the asset at the time you made the gift. Use this value in place of any amount you received for the asset to work out your gain or loss. If you gave the asset away, then of course the amount you received for it will be nothing. If you make a loss you can only deduct the loss from gains you make on gifts or other disposals to the same person.\",\n \"To answer my own question, at least to the extent of my understanding. Here the IRS says that all income for a foreign person from a US-based company is taxable with 30%. Here the IRS says that this tax should be withhold at source by whomever pays you. In case there is a tax treaty with the country, the tax can even be waived in the US. Of course, if you don't declare it in your home country, the US bank could probably give information requested by the home country authorities. For the other two cases (when there's no US party involved) I can't find anything on the IRS website, which kind of make sense. If I am using an account in the US just to receive and send money shouldn't imply any tax. Thanks to @litteadv for pointing me into the right direction.\",\n \"Where you earn your money makes no difference to the IRS. Citizen/permanent resident means you pay income tax. To make matters worse given your situation it's virtually certain you have unreported foreign bank accounts--something that's also an important issue.\",\n \"I spoke to HMRC and they said #1 is not allowable but #2 is. They suggested using either their published exchange rates or I could use another source. I suggested the Bank of England spot rates and that was deemed reasonable and allowable.\",\n \"The dividend tax credit is not applicable to foreign dividend income, so you would be taxed fully on every dollar of that income. When you sell a stock, there will be a capital gain or capital loss depending on if it gained or lost value, after accounting for the Adjusted Cost Base. You only pay income tax on half of the amount earned through capital gains, and if you have losses, you can use them to offset other investments that had capital gains (or carry forward to offset gains in the future). The dividends from US stocks are subject to a 15% withholding tax that gets paid to the IRS automatically when the dividends are issued. If the stocks are held in an RRSP, they are exempt from the withholding tax. If held in a non-registered account, you can be reimbursed for the tax by claiming the foreign tax credit that you linked to. If held in a TFSA or RESP, the withholding tax cannot be recovered. Also, if you are not directly holding the stocks, and instead buy a mutual fund or ETF that directly holds the stocks, then the RRSP exemption no longer applies, but the foreign tax credit is still claimable for a non-registered account. If the mutual fund or ETF does not directly hold stocks, and instead holds one or more ETFs, there is no way to recover the withholding tax in any type of account.\",\n \"well, probably taxed a little. and taxed when they spend it, and taxed again when it is spent again. like fikirte said, this is foreign money. if the americans want access to it they have to make it easy. they've done it in the past http://law-journals-books.vlex.com/vid/the-portfolio-interest-exemption-53348889 sorry there is a lack of sources in real english.\",\n \"Depends on the countries and their rules about moving money across the border, but in this case that appears entirely reasonable. Of course it would be a gamble unless you can predict the future values of currency better than most folks; there is no guarantee that the exchange rate will move in any particular direction. I have no idea whether any tax is due on profit from currency arbitrage.\",\n \"You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.\",\n \"From India Tax point of view: Some one else may give the US tax treatment. Refer to this similar question what taxes I need to pay in India Capital Gains. My accountant never asked or reported the bought property in taxes- should he reported in taxes?Did he do wrong not reporting should I report the property in my next year taxes? If you mean in IT Returns, yes it should be declared. Can i bring the money back if needed? By Back if you mean repatriate to US, The capital portion would be Ease if the loan property was purchased or loan repaid from NRE. Else there is limit on the amount and paperwork. Consult a CA. If I rent the property instead of selling, do I have to report the income and what income? should I be filling taxes on the rental income in India or just in USA or both You are taxable for the rent and have to report it as income and pay taxes in India.\",\n \"You only have to pay taxes when you convert to dollars. Most exchanges I think have to track their users and provide them with reports for tax purposes. Just holding bitcoin and watching it go up in value does not trigger a taxable event.\",\n \"Outside of a tax sheltered IRA or 401(k) type of account your transactions may trigger tax liability. However, transactions are not taxed immediately at the time of the transaction; and up to a certain limits capital gains can be offset by capital losses which can mitigate your liability at tax time. Also, remember that dividend receipts are taxable income as well. As others have said, this has nothing to do with whether or not money has been moved out of the account.\",\n \"If you're a non resident then you owe no capital gains tax to Canada. Most banks won't let you make trades if you're a non-resident. They may not have your correct address on file so they don't realize this. This is not tax law but just OSC (or equivalent) regulations. You do have to fill out paperwork for withholding tax on OAS/CPP payments. This is something you probably already do but here's a link . It's complicated and depends on the country you live in. Of course you may owe tax in Thailand, I don't know their laws.\",\n \"Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.\",\n \"\\\"The short answer is that the exchange of the stock in exchange for the elimination of a debt is a taxable exchange, and gains or losses are possible for the stock investor as well as the bank. The somewhat longer answer is best summarized as noting that banks don't usually accept stocks as collateral, mostly because stock values are volatile and most banks are not equipped to monitor the risk involved but it is very much part of the business of stock brokers. In the USA, as a practical matter I only know of stock brokerages offering loans against stock as part of the standard services of a \\\"\\\"margin account\\\"\\\". You can get a margin account at any US stock broker. The stockholder can deposit their shares in the margin account and then borrow around 50% of the value, though that is a bit much to borrow and a lower amount would be safer from sudden demands for repayment in the form of margin calls. In a brokerage account I can not imagine a need to repay a margin loan if the stocks dividends plus capital appreciation rises in value faster than the margin loan rate creates interest charges... Trouble begins as the stock value goes down. When the value of the loan exceeds a certain percentage of the stock value, which can depend on the stock and the broker's policy but is also subject to federal rules like Regulation T, the broker can call in the loan and/or take initiative to sell the stock to repay the loan. Notice that this may result in a capital gain or loss, depending on the investor's tax basis which is usually the original cost of the stock. Of course, this sale affects the taxes of the investor irregardless of who gets the money.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you have $166 loss. You report all these items on your Schedule D. Make sure to calculate the tax correctly, since the tax is not capital gains tax but rather ordinary income at marginal rates. Changes in foreign exchange between a transaction and the conversion of the proceeds to USD are generally not considered as income (i.e.: You sold a property in Mexico, but since the money took a couple of days to clear, the exchange rate changed and you got $2K more/less than you would based on the exchange rate on the day of the transaction - this is not a taxable income/loss). This is covered by the IRC Sec. 988. There are additional rules for contracts on foreign currency, TTM rules, etc. Better talk to a licensed tax adviser (EA/CPA licensed in your State) for anything other than trivial."],"string":"[\n \"If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you have $166 loss. You report all these items on your Schedule D. Make sure to calculate the tax correctly, since the tax is not capital gains tax but rather ordinary income at marginal rates. Changes in foreign exchange between a transaction and the conversion of the proceeds to USD are generally not considered as income (i.e.: You sold a property in Mexico, but since the money took a couple of days to clear, the exchange rate changed and you got $2K more/less than you would based on the exchange rate on the day of the transaction - this is not a taxable income/loss). This is covered by the IRC Sec. 988. There are additional rules for contracts on foreign currency, TTM rules, etc. Better talk to a licensed tax adviser (EA/CPA licensed in your State) for anything other than trivial.\"\n]","isConversational":false}}},{"rowIdx":257,"cells":{"_id":{"kind":"string","value":"6262"},"query":{"kind":"string","value":"Help required on estimating SSA benefit amounts"},"gt_ids":{"kind":"list like","value":["34538","26799","390877"],"string":"[\n \"34538\",\n \"26799\",\n \"390877\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["390877","34538","498444","83338","451005","2648","511313","372847","298563","403514","5673","574386","136862","141464","143591","450765","450808","156499","260795","107520","26487","192585","3047","311442","532318","11274","491028","552303","506604","59843","578798","11192","480128","217222","107963","298427","435932","35188","341930","210130","230724","101180","391583","525053","430407","44448","295384","304479","357934","582864","127974","246453","42599","489376","332153","410395","12119","398078","370472","592680","241416","550642","20054","320362","28172","418871","463881","31019","502875","481475","95188","208989","302049","281495","358776","304153","16895","507917","495383","14111","194363","553480","84171","529927","131044","383102","81343","312405","543345","40821","214476","431504","538353","336950","554833","138487","125171","465283","186602","163946"],"string":"[\n \"390877\",\n \"34538\",\n \"498444\",\n \"83338\",\n \"451005\",\n \"2648\",\n \"511313\",\n \"372847\",\n \"298563\",\n \"403514\",\n \"5673\",\n \"574386\",\n \"136862\",\n \"141464\",\n \"143591\",\n \"450765\",\n \"450808\",\n \"156499\",\n \"260795\",\n \"107520\",\n \"26487\",\n \"192585\",\n \"3047\",\n \"311442\",\n \"532318\",\n \"11274\",\n \"491028\",\n \"552303\",\n \"506604\",\n \"59843\",\n \"578798\",\n \"11192\",\n \"480128\",\n \"217222\",\n \"107963\",\n \"298427\",\n \"435932\",\n \"35188\",\n \"341930\",\n \"210130\",\n \"230724\",\n \"101180\",\n \"391583\",\n \"525053\",\n \"430407\",\n \"44448\",\n \"295384\",\n \"304479\",\n \"357934\",\n \"582864\",\n \"127974\",\n \"246453\",\n \"42599\",\n \"489376\",\n \"332153\",\n \"410395\",\n \"12119\",\n \"398078\",\n \"370472\",\n \"592680\",\n \"241416\",\n \"550642\",\n \"20054\",\n \"320362\",\n \"28172\",\n \"418871\",\n \"463881\",\n \"31019\",\n \"502875\",\n \"481475\",\n \"95188\",\n \"208989\",\n \"302049\",\n \"281495\",\n \"358776\",\n \"304153\",\n \"16895\",\n \"507917\",\n \"495383\",\n \"14111\",\n \"194363\",\n \"553480\",\n \"84171\",\n \"529927\",\n \"131044\",\n \"383102\",\n \"81343\",\n \"312405\",\n \"543345\",\n \"40821\",\n \"214476\",\n \"431504\",\n \"538353\",\n \"336950\",\n \"554833\",\n \"138487\",\n \"125171\",\n \"465283\",\n \"186602\",\n \"163946\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["The social security administration has a webpage to get your Social Security estimate. It replaces the yearly estimate they used to mail everybody. It shows the amount you paid for social security and medicare and what they estimate you will receive at your retirement age. They also discuss disability benefits. Everybody should do this every year. Though it does take a few months to get the previous years numbers updated into the system. If you notice a problem with the money they think you paid into the system in a particular year, you can send them an old W-2 and get the numbers corrected.","\"Some details in case you are interested: Being a defined benefit kind of pension plan, the formula for your Social Security benefits isn't tied directly to FICA contributions, and I'm not aware of any calculator that performs an ROI based on FICA contributions. Rather, how much you'll get in retirement is based on your average indexed monthly earnings. Here's some information on the Social Security calculation from the Social Security Administration - Primary Insurance Amount (PIA): For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his/her PIA will be the sum of: (a) 90 percent of the first $791 of his/her average indexed monthly earnings, plus (b) 32 percent of his/her average indexed monthly earnings over $791 and through $4,768, plus (c) 15 percent of his/her average indexed monthly earnings over $4,768. Here's an example. Of course, to calculate a benefit in the future, you'll need to calculate projected average indexed monthly earnings; more details here. You'll also need to make assumptions about what those bend points might be in the future. The average wage indexing values for calculating the AIME are available from the Social Security Administration's site, but future indexing values will also need to be projected based on an assumption about their inflation. You'll also need to project the Contribution and Benefit Base which limits the earnings used to calculate contributions and benefits. Also, the PIA calculation assumes benefits are taken at the normal retirement age. Calculating an early or late retirement factor is required to adjust benefits for another age. Then, whatever benefits you get will increase each year, because the benefit is increased based on annual changes in the cost of living. Performing the series of calculations by hand isn't my idea of fun, but implementing it as a spreadsheet (or a web page) and adding in some \"\"ROI based on FICA contributions\"\" calculations might be an interesting exercise if you are so inclined? For completeness sake, I'll mention that the SSA also provides source code for a Social Security Benefit Calculator.\"","There are two steps. First you take the age at retirement and annual benefit. Say it's $10,000/yr. You can easily look up the present value of a $10k/yr annuity starting at age X. (I used age 62, male, at Immediate Annuity. It calculates to be $147K. You then need to look at your current age and with a finance calculator calculate the annual deposits required to get to $147K by that age. What I can't tell you is what value to use as a cost of money until retiring. 4%? 6%? That's the larger unknown.","\"From the Social Security site, In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. And for a delay past normal retirement age, there's an 8% per year increase in benefit for each year you delay. I believe the \"\"return it all\"\" option was discontinued. There's far too little information in your question for anyone to give a comprehensive answer. In general, one needs to look at a number of variables including their taxable income with and without the social security benefit as well as their health to determine the optimal SS start date.\"","The IRS has a calculator for this purpose.","I am in the process of writing an article about how to maximize one's Social Security benefits, or at least, how to start the analysis. This chart, from my friends at the Social Security office shows the advantage of waiting to take your benefit. In your case, you are getting $1525 at age 62. Now, if you wait 4 years, the benefit jumps to $2033 or $508/mo more. You would get no benefit for 4 years and draw down savings by $73,200, but would get $6,096/yr more from 64 on. Put it off until 70, and you'd have $2684/mo. At some point, your husband should apply for a spousal benefit (age 66 for him is what I suggest) and collect that for 4 years before moving to his own benefit if it's higher than that. Keep in mind, your generous pensions are likely to push you into having your social security benefit taxed, and my plan, above will give you time to draw down the 401(k) to help avoid or at least reduce this.","There are three numbers that matter in that calculation: 1) How much do you expect per month from in pension/social security/or other retirement programs? 2) At what age will each of you retire? 3) How long will each of you live? 4) What will your annual expenses be when you retire? Unfortunately #3 is the most important of the three and the hardest to know with any certainty.","For estimating your take home salary, I suggest using one of the many free salary calculators available over the Internet. I personally use PaycheckCity.com, but there are plenty of others available. To calculate your allowances for the US Federal tax, you can use the worksheet attached to the form W-4. Similar form (with a similar worksheet) is available for state taxes, on the Illinois Department of Revenue web site.","Answering this question is a great way to gauge how you're doing towards saving for retirement now. But of course what matters more than this snapshot in time is how much you contribute down the line. It may be wise to try to estimate how much you will want saved by the time you retire. Then try to calculate how much you would need to save in order to hit that mark.","\"How will contribution limits rise? Contribution limits are raised based on COLA. COLA (Cost of Living Adjustment) is a number based on CPI (Consumer Price Index) which is published by the Bureau of Labor Statistics. The IRS publishes these limits annually and a simple search term to find them each year is \"\"415 limits\"\" because section 415 lists how much the various qualified plans can set aside each year. CPI is a heavily managed and very political number. It is the number that is cited when the media talks about \"\"inflation.\"\" Since it drives increases in salaries, deductions, Social Security and pension payments, there is very heavy pressure to keep the number smaller than it really is. My next step was to calculate how long that money will last One traditional rule-of-thumb is to withdraw 4% of your balance each year. Another alternative is to purchase annuities. While younger people think that annuities are horrible investments, they appeal to older people because they protect the annuitant from excessive risk of losing your capital. When you are 30, and another 2008 comes along wiping out half your savings, you have time to re-earn that money. When you are 60, and another 2008 comes along wiping out half your savings, you have very few years to recover that money. So an annuity pushes that risk onto insurance companies. If you think you will die in your 90s, then an annuity is going to be a good investment (the insurance company will be betting that you won't be living that long). I have a simple spreadsheet that I use to calculate estimated projected balances and compare them to actual performance. Don't forget that when you reach 50, the amount you can contribute goes up due to \"\"catch up contributions.\"\" There are 2 views of the same tab in this picture. There are 3 growth rates: pessimistic, nominal and optimistic. You can change the numbers to suit your own projections of future growth. Other tabs on this spreadsheet include measurements of actual performance by my 401k and IRA accounts. At the end of the year, I replace the numbers in columns F, G & H with the actual end-of-year dollar amounts. This way, future estimates do not get too far unhinged from reality. If you need more sophisticated planning, such as Monte Carlo analysis to attempt to cope with inflation, I recommend the book Engineering Your Retirement. The book is aimed at younger engineers, so there is a bit more math than the average person would want.\"","\"I wrote a spreadsheet (<< it may not be obvious - this is a link to pull down the spreadsheet) a while back that might help you. You can start by putting your current salary next to your age, adjust the percent of income saved (14% for you) and put in the current total. The sheet basically shows that if one saves 15% from day one of working and averages an 8% return, they are on track to save over 20X their final income, and at the 4% withdrawal rate, will replace 80% of their income. (Remember, if they save 15% and at retirement the 7.65% FICA /medicare goes away, so it's 100% of what they had anyway.) For what it's worth, a 10% average return drops what you need to save down to 9%. I say to a young person - try to start at 15%. Better that when you're 40, you realize you're well ahead of schedule and can relax a bit, than to assume that 8-9% is enough to save and find you need a large increase to catch up. To answer specifically here - there are those who concluded that 4% is a safe withdrawal rate, so by targeting 20X your final income as retirement savings, you'll be able to retire well. Retirement spending needs are not the same for everyone. When I cite an 80% replacement rate, it's a guess, a rule of thumb that many point out is flawed. The 'real' number is your true spending need, which of course can be far higher or lower. The younger investor is going to have a far tougher time guessing this number than someone a decade away from retiring. The 80% is just a target to get started, it should shift to the real number in your 40s or 50s as that number becomes clear. Next, I see my original answer didn't address Social Security benefits. The benefit isn't linear, a lower wage earner can see a benefit of as much as 50% of what they earned each year while a very high earner would see far less as the benefit has a maximum. A $90k earner will see 30% or less. The social security site does a great job of giving you your projected benefit, and you can adjust target savings accordingly. 2016 update - the prior 20 years returned 8.18% CAGR. Considering there were 2 crashes one of which was called a mini-depression, 8.18% is pretty remarkable. For what it's worth, my adult investing life started in 1984, and I've seen a CAGR of 10.90%. For forecasting purposes, I think 8% long term is a conservative number. To answer member \"\"doobop\"\" comment - the 10 years from 2006-2015 had a CAGR of 7.29%. Time has a way of averaging that lost decade, the 00's, to a more reasonable number.\"","As Dilip commented, the Social Security web site is pretty comprehensive. Understanding Supplemental Security Income SSI Income has the details you are looking for. It's a convoluted equation. You lose SSI at a pretty fast rate as earned income rises. The system is not kind to those who qualify for SSI but try to earn some money to cover their needs.","\"One common rule of thumb: you can probably get 4% or better returns on your investments ('\"\"typical market rate of return is 8%, derate to allow for inflation and off years). Figure out what kind of income you will want in retirement and divide by 0.04 to get the savings you need to accumulate to support that. This doesn't allow for the fact that your needs are also going to increase with inflation; you can make a guess at that and use an inflated needs estimate. Not sophisticated, not precise, but it's a quick and dirty ballpark estimate. And sometimes it's surprisingly close to what a proper model would say.\"","\"I'd encourage you to use rules of thumb and back-of-the-envelope. Here are some ideas that could be useful: The problem with any kind of detailed calculations is the number of unknowns: There are some really complex calculators out there, for example see ESPlanner (http://www.esplanner.com/) (caution: horrible user interface, but seemed to work), that will include all kinds of factors and run monte carlo and the whole thing. But in my opinion, it's just as good or better to say save at least 15% of income until you have 25x what you spend, or some other such rule of thumb. Here's my little blog post on savings and investing fwiw: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ Another note, there's sort of an \"\"ideology of how to live\"\" embedded in any retirement recommendation, and you might want to take the time to reflect on that and consciously choose. A book on this topic is Your Money or Your Life by Robin & Dominguez, http://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0143115766 which is a sort of radical \"\"you should save everything possible to achieve financial independence as early as possible\"\" argument. I didn't go for their plan, but I think it's thought-provoking. A newer book that may be more appealing is called The Number and it's about your question exactly. It's more designed to get you thinking, while Your Money or Your Life has a particular answer in mind. Both have some math and some rules of thumb, though they aren't focused on that. A kind of general takeaway from these books might be: first think about your expenses. What are you trying to accomplish in life, how would you like to spend your time? And then ask how much money you absolutely need to accomplish that, and focus on accomplishing your goals, spending your time (as much as you can) on what you'd like to spend it on. I'm contrasting this with a generic recommendation to save enough to spend 80% of your income in retirement, which embeds this idea that you should spend as much as possible every year, before and after you retire. Lots of people do like that idea, but it's not a law of the universe or something, it's just one popular approach.\"","There's a bit of working backwards that's required. This is a summary of a spreadsheet I wrote which helps to get to the answer. What you see here is that at age 25, one might have saved about a half year's salary, assuming they worked 5 years. The numbers grow exponentially to at 65, about 15 years salary saved. This will allow a withdrawal of about 60% final income each year using the 4% guideline. More will come from Social Security in the States to get closer to 100%. The sheet start with assumptions, a 10% per year rate of saving, and an 8% annual return. Salary is assumed to rise 3% per year. One can choose their age, enter their current numbers and their own assumptions. I had to include some numbers and at the time, 8% seemed reasonable. Not so sure today. What I do like is the concept of viewing savings in terms of 'years salary' as this leads to replacement rate. Will $1M be enough for you? Only you can answer that. But the goal of 80-100% replacement income is reasonable and this sheet can be used to understand the goals along the way. (note, the uploaded sheet had 15% saving rate, not the 10 I thought. I used 15 to show a 10% saving along with a 5% match to one's 401(k). Those interested are welcome to enter their own numbers. The one objection I've seen is the increase to salary. Increases tend to be higher in the first 20 than the second, or so I'm told.)","...funds received for the month of death and later must be returned. If the estate is bankrupt, as near as I can tell, the SSA is out of luck. (This applies to payment apart from that covered above.) If you need advice on something other than retirement insurance, a comprehensive list of applicable statutes and rulings is here.","\"One way to do these sorts of calculations is to use the spreadsheet version of IRS form 1040 available here. This is provided by a private individual and is not an official IRS tool, but in practice it is usually accurate enough for these purposes. You may have to spend some time figuring out where to enter the info. However, if you enter your self-employment income on Schedule C, this spreadsheet will calculate the self-employment tax as well as the income tax. An advantage is that it is the full 1040, so you can also select the standard deduction and the number of exemptions you are entitled to, enter ordinary W-2 income, even capital gains, etc. Of course you can also make use of other tax software to do this, but in my experience the \"\"Excel 1040\"\" is more convenient, as most websites and tax-prep software tend to be structured in a linear fashion and are more cumbersome to update in an ad-hoc way for purposes like tax estimation. You can do whatever works for you, but I would recommend taking a look at the Excel 1040. It is a surprisingly useful tool.\"","There are a few methods you can use to estimate your taxes. On the results screen, the app will show you your estimated tax burden, your estimated withholding for the year, and your estimated overpayment/refund or shortfall/tax due. It may also have recommendations for you on how to adjust your W-4 (although, this late in the year, I think it only tells you to come back next year to reevaluate). Your state might also have income tax, and if you are curious about that, you can find the state tax form and estimate your state income tax as well. My guess is that you will be getting a refund this year, as you have only worked half of the year. But that is only a guess.","Whether you're self-employed or not, knowing exactly how much tax you will pay is not always an easy task. Various actions you can take (e.g., charitable donations, IRA contributions, selling stocks) may increase or reduce your tax liability. One tool I've found useful for estimating federal taxes is the Excel 1040 spreadsheet. This is a spreadsheet version of the income tax return form. It is not official and is not created by the IRS, but is maintained as a labor of love by a private individual. In practice, however, it is pretty much an accurate implementation of the tax calculation algorithms encoded in the tax forms and instructions. The nice thing about it is that it's a spreadsheet. You can plug numbers into various slots in the spreadsheet and see how they affect your federal tax liability. (You may also owe state taxes depending on what state you live in.) Of course, the estimates you get by doing this are only (at most) as accurate as your estimates of the various numbers you plug in. Still, I think it's a free and useful way to get a ballpark estimate of your tax liability based on numbers that you can more easily estimate (e.g., how much money you expect to earn).","Interesting. The answer can be as convoluted/complex as one wishes to make it, or back-of-envelope. My claim is that if one starts at 21, and deposits 10% of their income each year, they will likely hit a good retirement nest egg. At an 8% return each year (Keep in mind, the last 40 years produced 10%, even with the lost decade) the 10% saver has just over 15X their final income as a retirement account. At 4% withdrawal, this replaces 60% of their income, with social security the rest, to get to nearly 100% or so replacement. Note - I wrote an article about Social Security Benefits, showing the benefit as a percent of final income. At $50K it's 42%, it's a higher replacement rate for lower income, but the replacement rate drops as income rises. So, the $5000 question. For an individual earning $50K or less, this amount is enough to fund their retirement. For those earning more, it will be one of the components, but not the full savings needed. (By the way, a single person has a standard deduction and exemption totaling $10150 in 2014. I refer to this as the 'zero bracket.' The next $8800 is taxed at 10%. Why go 100% Roth and miss the opportunity to fund these low or no tax withdrawals?)","If you set a savings amount now and leave it totally fixed you're likely to massively undershoot or overshoot. What is more likely is that you will adjust either your savings or your retirement expectations as things go along. If it turns out you have $10M (2010 dollars) at age 50 perhaps you'll retire early, and if you have $10k perhaps you'll buckle down and work much longer or save much more. So I think what you are looking for is an assurance that if you budget to save x% of your salary over n years, and you get an after-inflation after-tax return of y% pa, you will eventually be able to retire on an income equivalent to z% of your working income. It's pretty easy to calculate that through a future-value formula. For instance, one set of values that works is saving 20% of income, 5% real return, 30 years = final income of 66% of working income. Or save half your income and within 14 years you can retire and keep spending the amount you were previously spending. Resist the temptation to crank up the assumed return until you get the value you want. I think it would be great hubris to try to make this very precise. Yes, probably you will get raises, of course there are taxes to take into account (probably higher while you're saving), inflation and returns will vary from year to year, et. You can guess at them. But they'll change, and there are bigger things that are unpredictable: your personal life, your health, the economic future of your career or industry. I reckon this simple formula is about as good as you will get.","\"By \"\"basic public pension\"\" I assume you mean Social Security, which is pretty much the only quasi-universal pension-like thing in the USA. If she has any other sort of pension (e.g., from a job) you'd need to get more specific info about that. As for Social Security, as described here: While you are working, your earnings will reduce your benefit amount only until you reach your full retirement age. According to the calculator on that site, if she is 65 now, her full retirement age would be 66, so if she retires after that age her SS benefit won't be reduced due to extra income. As described here, if she has considerable income apart from SS, she may have to pay taxes on her SS income. This would not reduce her income, but means the benefit of her extra blog income would be reduced. This page describes how to calculate your \"\"provisional income\"\" to determine whether SS benefits will be taxed. According to that page: If your provisional income is less than $25,000 for single or head-of-household returns, or $32,000 for joint returns, then your Social Security benefits will not be taxed. Based on the numbers you gave, this suggests she would not incur an SS tax. However, she should probably take a look at the Social Security retirement estimator and other tools on that site, if she hasn't already done so, to get a sense of what sort of income SS will be providing her. I'd suggest that she talk to a retirement planner and/or CPA to get a handle on what her finances would be like. At the least, she should find someone knowledgeable about Social Security policies and tax issues in the USA. As you say, you are unfamiliar with the way these matters work in the USA, so your ability to help her make financial decisions is limited.\"","I use paycheckcity.com and first punch in my paycheck and make sure it calculates within a few pennies the value of my actual paycheck. Then I fiddle with withholding values, etc. to see the effect of change. It has been very effective for me over the years.","The simplest way is just to compute how much money you'd have to have invested elsewhere to provide a comparable return. For example, if you assume a safe interest rate of 2.3% per year, you would need to have about $520,000 to get $1,000/month.","I read an amazing article on whenyou should take early and when you should wait. It really depends on your situation, but this article prodives information as well as examples. Hope it helps! http://customsites.yahoo.com/financiallyfit/finance/article-108227-3275-5-boost-your-social-security-benefits","\"I am in a similar situation and have recently found a planner who says a pension that pays $100/month is worth $18k in savings at retirement. I know that doesn't answer your question directly, but could could use a simple interest savings calculator (bank rate has one) to see how much of your income you would need to save over x period of time and deduct that from you the offer at your prospective employer to compare \"\"apples to apples\"\" However, I actually think the value of a pension at retirement is greater than listed above. To illustrate: So in this example my pension would seem to be valued at about $14,000 in salary for those 10 years.\"","\"One option is to look at the IRS Witholding Calculator - As George Marian notes, this is by no means a perfect way to \"\"estimate\"\" how much you'll owe. Other key questions for you to answer: There's no silver bullet here. The best you can do is to understand the key inputs into how your taxes are calculated, and then identify the most important tax deductions that you might take. Then pray that you haven't missed some nuance and use a tax program early in January to check your assumptions so you're not completely surprised when April rolls around. A final suggestion: do your own taxes using a website like TurboTax. Take the time to \"\"itemize\"\" your tax deductions just to learn what is tax deductible. You can figure out how the big parts of tax law works by just looking at what you could deduct in the future.\"","There's no magic. Usually these models set out to replace 60-65% of your gross income in retirement. For example, if you: You'll retire with about $850k. That will let you generate an income stream of around 55k for your expected lifespan. Is 15% the right answer for you? No idea -- it depends on what you want, how you invest, and what you can afford.","\"@duffbeer and @JoeTaxpayer give great answers, and you should probably accept one or the other, but I would like to recommend trying some of the online tools for Monte Carlo analysis. A Monte Carlo analysis is essentially plugging in a range of possible values (a probability function) for yearly values of pretty much anything involved in your financial life: salary growth, investment rate of return, expected life span, etc, etc, etc....and then running thousands of simulations on those values to give you the probability that your money will last until you die. It is basically a really souped up version of a \"\"what-if\"\" spreadsheet. A google search for \"\"monte carlo retirement planning\"\" may sound like a hilariously bad idea, but it lists some free tools that you might find interesting or useful. I myself have only used the product from Financial Engines quite a bit, but I believe that is only available through your employer. (If they offer it.)\"","If you have a relatively stable income and deductions you can get a fairly good estimate using last year's tax bill. Suppose you paid $12000 of actual taxes last year and you are paid once a month. If you plan to make a similar amount of money with similar deductions, you need each monthly paycheck to have $1000 of federal income taxes withheld. I go to a paycheck calculator and find the withholding required to make sure I have that amount withheld every paycheck.","All of your 401k income is taxable and no more than 85% of your SS income. You can use the worksheets in IRS: Publication 915 to determine what percentage of your SS is taxable. Just as with ordinary income, deductions/exemptions apply and not all that is taxable will be taxed. When you begin drawing SS you'll have the option to have taxes withheld at various rates, more convenient than quarterly estimated payments in my opinion.","Look at the left column. If you are disabled at age 62 or older and have worked for at least 10 years they you qualify for full disability benefits (which are generally less than retirement benefits). Outside of disability, one is only eligible for social security benefits at age 67 (unless you were born before 1960, in which case different rules apply), but you must have worked for at least 10 years to get full retirement benefits.","The Finance functions in spreadsheet software will calculate this for you. The basic functions are for Rate, Payment, PV (present value), FV (Future value), and NPER, the number of periods. The single calculation faces a couple issues, dealing with inflation, and with a changing deposit. If you plan to save for 30 years, and today are saving $500/mo, for example, in ten years I hope the deposits have risen as well. I suggest you use a spreadsheet, a full sheet, to let you adjust for this. Last, there's a strange effect that happens. Precision without accuracy. See the results for 30-40 years of compounding today's deposit given a return of 6%, 7%, up to 10% or so. Your forecast will be as weak as the variable with the greatest range. And there's more than one, return, inflation, percent you'll increase deposits, all unknown, and really unknowable. The best advice I can offer is to save till it hurts, plan for the return to be at the lower end of the range, and every so often, re-evaluate where you stand. Better to turn 40, and see you are on track to retire early, than to plan on too high a return, and at 60 realize you missed it, badly. As far as the spreadsheet goes, this is for the Google Sheets - Type this into a cell =nper(0.01,-100,0,1000,0) It represents 1% interest per month, a payment (deposit) of $100, a starting value of $0, a goal of $1000, and interest added at month end. For whatever reason, a starting balance must be entered as a negative number, for example - =nper(0.01,-100,-500,1000,0) Will return 4.675, the number of months to get you from $500 to $1000 with a $100/mo deposit and 1%/mo return. Someone smarter than I (Chris Degnen comes to mind) can explain why the starting balance needs to be entered this way. But it does show the correct result. As confirmed by my TI BA-35 financial calculator, which doesn't need $500 to be negative.","The equation is the same one used for mortgage amortization. You first want to calculate the PV (present value) for a stream of $50K payments over 20 years at a10% rate. Then that value is the FV (future value) that you want to save for, and you are looking to solve the payment stream needed to create that future value. Good luck achieving the 10% return, and in knowing your mortality down to the exact year. Unless this is a homework assignment, which need not reflect real life. Edit - as indicated above, the first step is to get that value in 20 years: The image is the user-friendly entry screen for the PV calculation. It walks you though the need to enter rate as per period, therefore I enter .1/12 as the rate. The payment you desire is $50K/yr, and since it's a payment, it's a negative number. The equation in excel that results is: =PV(0.1/12,240,-50000/12,0) and the sum calculated is $431,769 Next you wish to know the payments to make to arrive at this number: In this case, you start at zero PV with a known FV calculated above, and known rate. This solves for the payment needed to get this number, $568.59 The excel equation is: =PMT(0.1/12,240,0,431769) Most people have access to excel or a public domain spreadsheet application (e.g. Openoffice). If you are often needing to perform such calculations, a business finance calculator is recommended. TI used to make a model BA-35 finance calculator, no longer in production, still on eBay, used. One more update- these equations whether in excel or a calculator are geared toward per period interest, i.e. when you state 10%, they assume a monthly 10/12%. With that said, you required a 20 year deposit period and 20 year withdrawal period. We know you wish to take out $4166.67 per month. The equation to calculate deposit required becomes - 4166.67/(1.00833333)^240= 568.59 HA! Exact same answer, far less work. To be clear, this works only because you required 240 deposits to produce 240 withdrawals in the future.","\"This is the best tl;dr I could make, [original](https://www.aier.org/blog/social-security-cost-living-adjustment-likely-largest-2011) reduced by 81%. (I'm a bot) ***** > With inflation ticking upward in 2017, retirees are likely to see the largest cost-of-living adjustment in their Social Security benefits since 2011. > Our forecasted increase for the cost-of-living adjustment would add between $23 and $29 to the average Social Security beneficiary&#039;s monthly check, higher than any adjustment since 2011 but still below the average annual adjustment since 2011 of 2.3 percent. > The Social Security Administration calculates the cost-of-living adjustment using the Consumer Price Index for Urban Wage Earners and Clerical Workers. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/75k0hx/social_security_cost_of_living_adjustment_likely/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~225800 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **adjustment**^#1 **percent**^#2 **year**^#3 **CPI-W**^#4 **average**^#5\"","$3,679,163.80 I made these assumptions that you did not state: Then using Excel, we find that with a starting point of $3,679,163.80, we can achieve your goal. The formula for Yearly Budget is =G$1*((1.035)^(A3-2012)) and the formula for Money left at year end is =(D4/1.05)+C4 For 2067, enter $0 leftover, and for 2066, enter $397,988.47 leftover. G$1 is $60,000 G$2 is 0.05","\"I wrote Retirement Savings Ratio some time ago and 15% seemed the sweet spot. The 15% is 10% saved and 5% match, in my mind. The reason I link is to show a spreadsheet that shares my approach to the analysis. You list a huge number of things to think about, all great. I'm near Duff's view although I shoot for 20X final income so 4% of that is an 80% replacement. There's nothing magic about 80. If social security exists, it actually drops the required 80 from you to the 60 or so Duff lists, so we align. The 'problems' with my sheet - no one gets exact 3% raises for 43 years, so one can go in and change that, maybe higher early on, then slow it down. Returns are 8% every year, so one must go to the sheet or their own plan and reassess how they are doing each year. Disclosure - we are now at 14X our income with a goal of 25 to replace 100%. So we need a cumulative 80% growth (as in S&P at 2500) or the years of deposits to get there. I am nearing 50. Let me pick one of your questions - \"\"Your expenses go down at retirement, stay the same, or go up?\"\" - this is the $64K question. the 80% is an average guess. The general assumption is in this range. If we downsized right after the kid goes to college, we could retire on far less. So, to wrap up, online calculators and spreadsheets only go so far. Your questions are dead on. A planner should ask every one of these questions before assuming any ratio. Edit - on re-read I am blown away by the list of questions you have here. It's great. And it shows how there's risk no matter what.\"","There are online tax prep sites, H&R Block among them. You'll be able to enter your projected details, and do a 'what-if' type scenario by adding things that impact the return. You don't mention any Schedule A deductions. No mortgage? Planning to have money taken off the top to a 401(k)?","This is a present value calculation, which excel or any financial calculator can handle. N = 300 (months) %i = 5/12 or .05/12 depending on the program/calculator PMT = $5000 (the monthly payment) FV = 0 (you want to end at zero balance) This calculates a PV (present value of $855,300) Chad had it right, but used a calculator that didn't offer the PV function, so he guessed and changed numbers til the answer was clear. user379 makes a good point, but why start inflation calculations at 65, and not now? You look like you're in your 30's, so there's 30 years of inflation, and $60K/yr in today's value will need to be closer to $150K/yr, given about 30 years of 3% inflation.","The metric I prefer is net worth, minus the value of your home, then divide by your annual expenses. The house is subtracted because you need to live somewhere, so its worth isn't part of retirement savings. I divide by expenses to create result that really answers how close one is to being able to retire. The target is to have 25X your required spending gap. Note, as you close in on retirement, and social security is still in place, you can use it in your planning. If I were in my 20s or 30s today, I wouldn't use it in my numbers.","Probably the most accurate way is to just fill out your tax forms using numbers extrapolated from your current paycheck. If you don't typically itemize your deductions, you should be able to get pretty close.","Let's assume you have total year income I. The inflation rate is R and the growth rate is E every year. The contributed rate deducting 1.8% will be C = 0.982. So, for your account you'll have every year Let's assume you have annual income in 1000, then for years So, you'll deposit 40 000 and got at the end 129 023.60. But be careful, economic calculation for so long period could be very incaccurate because of the variation of the inflation rate, growth rate and various risks. The spreadsheet could be very useful. More accurate formula which assume that annual deposit grows only the half of the year. Thus, the result for 40 years will be 124 576.91.","Retirement calculation, in general, should be based on the amount of money needed per year/month and the expected life expectancy. Life expectancy, if calculated to 90 years (let's say) indicates that post retirement age (60 yrs.) your accumulated/invested money should generate adequate income to cover your expenses till 90 years. The problem in general is not how long you shall live but what would be your expected spending from retirement to end of life expectancy. The idea is at the minimum your investments should generate income that is inflation adjusted. One way to do this is to consider your monthly expense now i.e. the expense that is absolute minimum for carrying on (food, electricity, water, medicines, household consumables, car petrol, insurance, servicing, entertainment, newspaper etc.) this does not contain the amortizable liabilities (home loan, child's education, other debts). It is better to take this amount per family rather than per person and yearly rather than monthly (as we tend to miss a lot of yearly expenses). This amount that you need today will increase at a Compounded Annual Growth Rate (CAGR) of the average inflation. For example, if today you spend 100 per year in 7 years you will need to spend appx. 200 at 10% inflation. Now, your investments will not increase post your retirement, so your current investment needs to do two things (1) give you your yearly requirement (2) grow by a fixed amount so that next year it can give you CAGR adjusted returns. In general, this kind of investment grows by high net amounts initially and slowly the growth decrease. The above can be calculated by Net Present value (NPV) formulae (http://en.wikipedia.org/wiki/Net_present_value). The key is to remember that the money that is invested when you retire should be able to give you inflation adjusted returns to cover your yearly expenses. How much money you need depends on your life style/expectation and how much return is received depends on the instruments that you invest on. As for your question above on the difference between the age of you and your spouse, it better to go with the consolidated family requirement and get an idea of how much investment is necessary and provision the same as soon as possible from your as well as your spouse's income. Hope this helps.- thanks","If you want to predict the, the easiest solution is to get hold of a copy of last year's tax forms and fill them in with estimated numbers. Odds are that none of the more complicated deductions will apply to you this first time around, so I'd suggest just using the federal 1040EZ, and your state's equivalent, for this purpose. If it turns out that you can claim anything more than the standard deduction, that would reduce your taxes, so this is leaning toward the safe side.","I am by no means an expert in this, but I did a little research and came across this page on the SSA site -- Can You Be Entitled To Benefits Retroactively? You may be entitled to monthly benefits retroactively for months before the month you filed an application for benefits. For example, full retirement age claims and survivor claims may be paid for up to six months retroactively. In certain cases, benefits involving disability up to 12 months may be paid retroactively. (This is not true of the special age 72 payments (see §§346-348), black lung benefits (see Chapter 22), medical insurance (see Chapter 24), or SSI (see Chapter 21).) SSA Handbook (emphasis mine) Based on this, it sounds like he may be mistaken. I recommend speaking to a SSA rep to get a solid answer on this though. Not everything on the internet is true.","http://www.socialsecurity.gov/retire2/agereduction.htm As a general rule of thumb on average you'll gain a similar amount of total money over time whether you start withdrawing early or not. Yes you get less money on each check, but you're also going to get more checks a whole since it's based on how long you live. I personally don't try and adjust how I manage my money based on what decisions the government MIGHT make, but I also am fairly young so don't quite have the heightened concerns regarding social security others might have. I've pretty much always lived and invested assuming it wasn't going to be there at all by the time I retire.","\"It depends on what kind of pension you get and your anticipated retirement income. If you have one of those nice defined benefit plans that pays 90% of your last 5 years' average salary annually, you might not want to bother with a separate RRSP and put your money into other use instead. While most Canadians should worry about not having enough to retire on, some might end up with too much and costing them in the form current purchases and entitlements to government retirement benefits. Figuring out how much you need for retirement is not trivial either. A lot of people talks about planning for needing 70% of what you made now as a way to preserve your lifestyle. Well, my opinion is that those type of generalization might work for the people in the middle of the income band and is too little for those in the low-income and possibly too much for those with high income. My own approach is estimate your retirement income requirement by listing out your anticipated expenses as if you were doing budget. I would agree that's not the best approach either (back to my comment about no one size fits all), but it's one that I feel most comfortable with. Once you have that figure, factor in what you think you will get from the government (OAS, CPP and etc) and you will have the amount of money you need for retirement. I will warn against using \"\"average life expectancy\"\" to forecast your retirement needs, 'cos 50% of the people will end up with extra money (not a bad problem) and the other 50% will run out of money (bad but very true problem) if you use that approach. Instead of going on and write an essay on this topic, I will simply say this - everyone's situation is different and, just like solving any other complex problems, you need to start with \"\"end\"\" in mind and work things backward, with a ton of different scenario to be able to cope with whatever curveballs life might throw at you. If you spend enough time in the library/bookstore looking through books on the topic of \"\"estate planning\"\" and \"\"retirement planning\"\", you will find people arguing back and fro on these topics - this is a sign that this is complex and no one has the one \"\"good\"\" answer for. Do a bit of reading by yourself and, if still unsure or just want to be sure, go spend the money and review your plan with a fee-only advisor. They will be able to provide another opinion on your situation after thoroughly studying your situation.\"","You may be able to find the answers to your question on the IRS web site: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Specifically, using this form to estimate taxes for salary: http://www.irs.gov/pub/irs-pdf/f1120w.pdf and this form to estimate taxes for dividends: http://www.irs.gov/pub/irs-pdf/f1040es.pdf","I've found the systems that seem to work. Firstly, you need to find how much money is required to pay for the withdrawals after retirement, while still accruing interest. I couldn't seem to do this with an equation, but this bit of javascript worked: yearsToLast: Number of years of yearly withdrawals yearlyWithdrawal: Amount to withdraw each year interest: Decimal form of yearly compounding interest Now that we have how much is required at the beginning of the retirement, to figure out how much to add yearly to hit this mark, you'd use: amount: Previously found required amount to reach interest: Decimal form of yearly compounding interest yearsSaving: Number of years saving till amount needs to be hit I hope this helps some other poor soul, because I could find squat on how to do this. Max","\"There are a couple of things that are missing from your estimate. In addition to your standard deduction, you also have a personal exemption of $4050. So \"\"D\"\" in your calculation should be $6300 + $4050 = $10,350. As a self-employed individual, you need to pay both the employee and employer side of the Social Security and Medicare taxes. Instead of 6.2% + 1.45%, you need to pay (6.2% + 1.45%) * 2 = 15.3% self-employment tax. In addition, there are some problems with your calculation. Q1i (Quarter 1 estimated income) should be your adjusted annual income divided by 4, not 3 (A/4). Likewise, you should estimate your quarterly tax by estimating your income for the whole year, then dividing by 4. So Aft (Annual estimated federal tax) should be: Quarterly estimated federal tax would be: Qft = Aft / 4 Annual estimated self-employment tax is: Ase = 15.3% * A with the quarterly self-employment tax being one-fourth of that: Qse = Ase / 4 Self employment tax gets added on to your federal income tax. So when you send in your quarterly payment using Form 1040-ES, you should send in Qft + Qse. The Form 1040-ES instructions (PDF) comes with the \"\"2016 Estimated Tax Worksheet\"\" that walks you through these calculations.\"","There is a shortcut you can use when calculating federal estimated taxes. Some states may allow the same type of estimation, but I know at least one (my own--Illinois) that does not. The shortcut: you can completely base your estimated taxes for this year on last year's tax return and avoid any underpayment penalty. A quick summary can be found here (emphasis mine): If your prior year Adjusted Gross Income was $150,000 or less, then you can avoid a penalty if you pay either 90 percent of this year's income tax liability or 100 percent of your income tax liability from last year (dividing what you paid last year into four quarterly payments). This rule helps if you have a big spike in income one year, say, because you sell an investment for a huge gain or win the lottery. If wage withholding for the year equals the amount of tax you owed in the previous year, then you wouldn't need to pay estimated taxes, no matter how much extra tax you owe on your windfall. Note that this does not mean you will not owe money when you file your return next April; this shortcut ensures that you pay at least the minimum allowed to avoid penalty. You can see this for yourself by filling out the worksheet on form 1040ES. Line 14a is what your expected tax this year will be, based on your estimated income. Line 14b is your total tax from last year, possibly with some other modifications. Line 14c then asks you to take the lesser of the two numbers. So even if your expected tax this year is one million dollars, you can still base your estimated payments on last year's tax.","\"J - Approaching the answer from the W4 perspective (for calculation purposes) may be more trouble that it's worth. I'd strongly suggest you use tax software, whether it's the 2016 SW or a current year one, on line, to get an estimate of your total tax bill for the year. You can then look at your current run rate of tax paid in to see if you are on track. If you have a large shortfall, you can easily adjust your withholdings. If you are on track to get a large refund, make the adjustment so next year will track better. Note, a withholding allowance is equal to a personal exemption. Some think that \"\"4\"\" means 4 people in the house, but it actually means \"\"don't tax 4 x $4050\"\" as I have $16200 in combined people or tax deductions.\"","\"Note that mutual funds' quarterly/annual reports usually have this number. I generally just let my home-accounting software project my future net worth; its numbers agree well enough with those I've gotten from more \"\"professional\"\" sources such as monte-carlo modelling. (They'd agree better if I fed in all the details of my paycheck, but I don't feel like doing the work to keep that up to date.) I'm using Quicken, but I assume MS Money and other competitors have the same capability if you buy the appropriate version.\"","Your contributions that you've already made are made and done, and will not disappear. What the Windfall Elimination Provision does is make sure that people do not collect the subsidized low-income payments while also collecting a full pension. People who did not pay anything into SS are able to collect money - less, but still something - from the system. Prior to this provision, people on full pensions who were exempt from SS contributions (such as teachers in many places) were able to still collect those amounts (which were never earned through contributions) even though they had quite significant pensions; that led to subsidies being given to people that didn't have as much need for them, as opposed to the indigent people who did need them. In your case, earning for 20+ years and then presumably only earning a small pension, you may be affected by this, but not necessarily severely. First of all, you are limited in how much your total reduction is to the lesser of a bit over $400 ($413 in 2015) or half your pension amount per month; so if you earn a $200 in pension monthly, your SS benefits are reduced by $100 monthly at most. Second, your percentage (and total cap) is reduced if you have over 20 years of credited work at 62 by 10% per credited year, and if you hit 30 years it's eliminated. So if you have 25 years right now, your total reduction is more like $200 at most. You also have an option to keep earning via credited work. Do some part-time work or summer work, for example. Sell things online. Whatever you need to do in order to get more years of credited work such that you end up with 30 years at 62. That will then increase your benefits back to the full amount. This article published on Nasdaq's website explains how this works in detail, including tables of benefit reductions. And, log in to ssa.gov to check how many years of creditable coverage you have and to see if you can get to 30 years and avoid any issues with this at all.","“For example,” says the report, “75-year solvency could be achieved by raising taxes or reducing benefits for new recipients by about one-fifth if we started today. However, if policy makers wait until 2034, payroll taxes would have to be increased by nearly one third and it would be impossible to achieve solvency solely from reducing benefits for new beneficiaries.” Social Security was enacted in 1935. Medicare was enacted in 1965. Life expectancy at those times was 61 and 70, respectively. Today, average life expectancy is 80. Pushing the receipt age for these benefits makes the most sense and results in a two-fold savings, 1) benefits put into the system through additional payroll deduction and, 2) benefits are not taken out of the system.","If I get a prepaid debit card for the money I make do I have to report my earnings? How do I go about doing this? Yes you must report this. It doesn't matter if they put it in your bank account, or on a debit card, or cash under the table. You have to report the income. You can count on your employer reporting the income to the IRS. What is the limit I can make when it comes to working while on social security? The Social Security Administration has all sort of info regarding working and receiving benefits. The exact answer depends on the type of benefit (retirement, disability, survivor) and your age (pre-full retirement age, the year you reach retirement age, post retirement age) I would look at their website: http://www.ssa.gov/retire2/whileworking.htm for examples: You can work while you receive Social Security retirement (or survivors) benefits. When you do, it could mean a higher benefit for you in the future. Each year we review the records for all working Social Security recipients. If your earnings for the prior year are higher than one of the years we used to compute your retirement benefit, we will recalculate your benefit amount. We pay the increase retroactive to January the year after you earned the money","\"I think the math is wrong. Note that in Scenario #1, you are only out of pocket $1000, while in Scenario #2, you are out of pocket $1250; the contribution and the tax you paid with respect to it. A better concept than tax rate is \"\"Retention Rate\"\". This is the fraction of your money that the Feds let you keep. And Growth Factor is the how much the investment grows. So In Scenario #1, you multiply $1000 by the investment Growth Factor and then by the retirement Retention Rate. And in Scenario #2, you multiply the same $1000 by the current Retention Rate and then by the Growth Factor. Since in your approximation, the two GFs are the same, there is no saving...\"","This is what I'm planning on. Retirement would be difficult, if not impossible, without the expected SS payments. In terms of current retirement planning, it's the difference between putting 20% of my income aside for retirement, and 35% of my income aside. It's one thing to keep the wealthy happy and tax free, it's another to deny 80% of the population something that they will have to have at some point.","According to this site: You can apply for German benefits at any U.S. Social Security office by completing application form SSA-2490. So have a look at this form and collect everything you need. But this site also says that you need to have at least 5 years of pay. Worker-Male or female-Benefits payable at: age 65 with 5 years of coverage... I have found the info of 5 years minimum also elsewhere. So I guess you do not get any money from the Rentenversicherung (i.e. from the normal job) and I doubt that they will change that in the future. You may receive some money from your time as a Beamter and after 5 years as a Beamter it would be quite some money. But on some other site it has the 5 year figure also for the Pension: Die Pension wird für Beamte und Richter nur dann gezahlt, wenn diese mindestens fünf Jahre im Dienst aktiv tätig waren. They have also numbers to call on the first site, so you may ask them.","I'll offer another answer, using different figures. Let's assume 6% is the rate of return you can expect. You are age 25, and plan to retire at age 65. If you have $0 and want $1M at retirement, you will need to put away $524.20/month, or $6,290.40/year, which is 15% of $41,936. So $41,936 is what you'd need to make per year in order to get to your target. You can calculate your own figures with a financial calculator: 480 months as your term (or, adjust this to your time horizon in months), .486755% as your interest (or, take your assumed interest rate + 1 to the 1/12th power and subtract 1 to convert to a monthly interest rate), 0 as your PV, and $1M as your FV; then solve for PMT.","You might like https://planwise.com/index.htm","If annualized rate of return is what you are looking for, using a tool would make it a lot easier. In the post I've also explained how to use the spreadsheet. Hope this helps.","See the Mortgage Professor's calculators (#3). Go to bankrate and look up rates so you know what to punch in to those calculators.","\"You'd need to talk with an attorney familiar with Social Security, or an appropriately qualified SSA representative to be sure - but all signs point to the idea that unfortunately Social Security does not work the way your father was told it would. And if he doesn't file to receive benefits the reality is actually much worse than \"\"throwing away free money\"\"! However, this is not due to a complete misunderstanding of the system! Social Security does work the way he thinks in some instances, just that the rules don't apply to his exact situation! First of all, retroactive benefits come in a few forms: File and suspend to get a lump only if you really need it - BEFORE the age of 70 only! In this method you apply for retirement, but you tell the SSA to suspend/delay your benefits. You are entitled to full lump sum of the payments you deferred...but at a cost of getting lower monthly benefits permanently (and that also lowers spousal and dependent children's benefits, too - if those could apply to your dad). But note that at the age of 70, Social Security will stop deferring the payments and start paying you the full maximum retirement benefit monthly, with no lump sum. This is a kind of emergency insurance policy for those who want to try to defer retirement benefits, but who want the opportunity to cash out and get the money they would have been getting \"\"just in case\"\". You can get up to 6 months of retroactive benefits, such as if you wait past your exact retirement age to apply for benefits. But no more: \"\"we cannot pay retroactive benefits for any month before you reached full retirement age or more than 6 months in the past\"\". As for after-death benefits, an estate can only get benefits that were already due to be paid, which generally means a person died and did not get their benefits for that month, so SSA can re-issue a check to the estate following these rules. But as a person cannot be due a lump sum payment after age 70 (for more than 6 months at most), the estate will only be able to get at most 1-6 months of payments (and 6 months is doubtful - you'll need to ask a lawyer if that much would even be possible). If your father was below 70 and wanted to file-and-suspend, the question of lump on death would be more complex and I don't know that answer - but once you are past 70 this doesn't matter any more as you aren't due a lump anymore. Given the above, we've established pretty clearly that if you don't claim your benefits within 6 months after age 70, any months of payment you would have gotten are just forfeited to the system. But if you claim the benefits and stick them in the bank, can they be taken? Well, if a lawsuit is really a worry, then yes these accumulated funds can required to pay a debt - but this potential for loss can be protected against without forfeiting the benefits entirely! This is not very common, but if your father doesn't need the money now he may be able to deposit some of the money into a special partially-lawsuit protected format of the Roth IRA (which has no age limits) as detailed here. If he never gets sued, that's OK - it's still his money! If he passes away, the value goes to his estate and does not disappear. And he doesn't forfeit any of his earned retirement benefits. Finally, I would like to share one last thing with you and your father. These benefits aren't free - he has been paying a portion of his paycheck for decades into Social Security, and now he is eligible for the maximum amount of benefits per month that he will qualify for - and if he wants to keep working he loses no benefit and the amount could potentially even go up. That's up to him. But not filing for benefits now will mean that all this money he's been paying in for decades will just be lost - they'll basically just be a tax he's paid out to other retirees. His estate (which means you kids) won't get any of it, either. That'd just be a waste for everyone involved. If you have continued doubts or questions, I wouldn't hesitate to consult a specialist lawyer or talk with the SSA directly to make sure this is all correct. It's his money, and he has earned his benefits for many years. I very much hope he gets to enjoy as much of them as he can!\"","You have made a good start because you are looking at your options. Because you know that if you do nothing you will have a big tax bill in April 2017, you want to make sure that you avoid the underpayment penalty. One way to avoid it is to make estimated payments. But even if you do that you could still make a mistake and overpay or underpay. I think the easiest way to handle it is to reach the safe harbor. If your withholding from your regular jobs and any estimated taxes you pay in 2016 equal or exceed your total taxes for 2015, then even if you owe a lot in April 2017 you can avoid the underpayment penalty. If you AGI is over 150K you have to make sure your withholding is 110% of your 2015 taxes. Then set aside what you think you will owe in your bank account until you have to pay your taxes in April 2017. You only have to adjust your withholding to make the safe harbor. You can make sure easily enough once your file this years taxes. You only have to make sure that you reach the 100% or 110% threshold. From IRS PUB 17 Who Must Pay Estimated Tax If you owe additional tax for 2015, you may have to pay estimated tax for 2016. You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments. General rule. In most cases, you must pay estimated tax for 2016 if both of the following apply. You expect to owe at least $1,000 in tax for 2016, after subtracting your withholding and refundable credits. You expect your withholding plus your refundable credits to be less than the smaller of: a. 90% of the tax to be shown on your 2016 tax return, or b. 100% of the tax shown on your 2015 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers , later). Your 2015 tax return must cover all 12 months. Reminders Estimated tax safe harbor for higher income taxpayers. If your 2015 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2016 or 110% of the tax shown on your 2015 return to avoid an estimated tax penalty.","\"You can simply use the previous year's tax liability as your basis for payments. Take the amount of tax you owed the previous year, divide by four, and use that amount for your estimated payments. As long as you're paying 100% of what you owed last year, you won't have any penalty. Except if your AGI is above a certain limit ($150k for married filing jointly in 2011), then you have to pay 110%. See IRS Pub 505 for details (general rule, special rule, under \"\"Higher Income Taxpayers\"\"). (H/T to @Dilip Sarwate for pointing out the 110% exception in a comment below.)\"","\"Does your spouse work? That's one factor that can put your income into a higher bracket. The one difference to note is you will pay 2x the social security portion, so even though not \"\"federal\"\" tax, its right off the top nearly 13%. I'm not familiar with your states tax. It's really worth dropping the $75 on a copy of the software and running your own exact numbers.\"","Fairly straightforward to match the result from the calculator soup link. There is a formula to calculate n from the future value s (using natural logs) In Excel This was derived as shown To calculate n from the inflation-adjusted future value si requires using a solver since an algebraic formula cannot be formulated. As demonstrated Calculations done using Mathematica 7.","Your calculations look correct in that they will be withholding taxes at the full year income rate even though you will only have 1/3 of that income which will put you in a lower tax bracket. There are online sites where you can fill out a return for free. You can estimate your return by filling out a return using the numbers on your paystub (you will have to add in your last paystub manually). In regards to when you will get your refund check? I believe it comes within a month or so of filing.","I have had pension programs with two companies. The first told you what your benefit would be if you retired at age X with Y years of service. Each year of service got you a percentage of your final years salary. There was a different formula for early retirement, and there was an offset for social security. They were responsible for putting enough money away each year to meet their obligations. Just before I left they did add a new feature. You could get the funds in the account in a lump sum when you left. If you left early you got the money in the account. If you left at retirement age you got the money that was needed to produce the benefit you were promised. Which was based on current interest rates. The second company had a plan where they published the funding formula. You knew with every quarterly statement how much was in your account, and what interest it had earned, and what benefit they estimated you would receive if you stayed until retirement age. This fund felt almost like a defined contribution, because the formula was published. If most people took the lump sum that was the only part that mattered. Both pension plans had a different set of formulas based on marriage status and survivor rules. The interest rates are important because they are used to determine how much money is needed to produce the promised monthly benefit. They are also used to determine how much they need to allocate each year to cover their obligations. If you can't make the math work you need to keep contacting HR. You need to understand how much should be flowing into the account each month.","The Windfall Elimination Provision will possibly reduce your benefits from Social Security depending on how much money you receive as a pension from the TRS. Money that is earned toward your TRS pension will not have payroll taxes withheld, so it will certainly not count toward the calculation of your Social Security retirement numbers. Beyond that, this page from the Social Security Administration will help you calculate the impact on what you'll receive.","\"It's not possible to determine whether you can \"\"expect a refund\"\" or whether you are claiming the right number of exemptions from the information given. If your wife were not working and you did not do independent contracting, then the answer would be much simpler. However, in this case, we must also factor in how much your contracting brings in (since you must pay income tax on that, as well as Medicare and, probably, Social Security), whether you are filing jointly or separately, and your wife's income from her business. There are also other factors such as whether you'll be claiming certain child care expenses, and certain tax credits which may phase out depending on your income. If you can accurately estimate your total household income for the year, and separate that into income from wages, contracting, and your wife's business, as well as your expenses for things like state and local income and property taxes, then you can make a very reasonable estimate about your total tax burden (including the self-employment taxes on your non-wage income) and then determine whether you are having enough tax withheld from your paycheck. Some people may find that they should have additional tax withheld to compensate for these expenses (see IRS W-4 Line #6).\"","\"I assume your employer does standard withholding? Then what you need to do is figure what bracket that puts you in after you've done all your normal deductions. Let's say it's 25%. Then multiply your freelance income after business expenses, and that's your estimated tax, approximately. (Unless the income causes you to jump a bracket.) To that you have to add approximately 12-13% Social Security/Medicare for income between the $90K and $118,500. Filling out Form 1040SSE will give you a better estimate. But there is a \"\"safe harbor\"\" provision, in that if what you pay in estimated tax (and withholding) this year is at least as much as you owed last year, there's no penalty. I've always done mine this way, dividing last year's tax by 4, since my income is quite variable, and I've never been able to make sense of the worksheets on the 1040-ES.\"","Line one shows your 1M, a return with a given rate, and year end withdrawal starting at 25,000. So Line 2 starts with that balance, applies the rate again, and shows the higher withdrawal, by 3%/yr. In Column one, I show the cumulative effect of the 3% inflation, and the last number in this column is the final balance (903K) but divided by the cumulative inflation. To summarize - if you simply get the return of inflation, and start by spending just that amount, you'll find that after 20 years, you have half your real value. The 1.029 is a trial and error method, as I don't know how a finance calculator would handle such a payment flow. I can load the sheet somewhere if you'd like. Note: This is not exactly what the OP was looking for. If the concept is useful, I'll let it stand. If not, downvotes are welcome and I'll delete.","If you are just starting out, my tactic would be to go way high and then consider any different play money. So guess $90 and when it comes in at $60, buy a new shirt or go on a date.","I wrote one to check against the N3 to N6 bonds: http://capitalmind.in/2011/03/sbi-bond-yield-calculator/ Things to note:","\"The translation scheme is detailed in IRS Publication 15, \"\"Employer's Tax Guide\"\". For the 2010 version, the information is in Section 16 on Page 37. There are two ways that employers can calculate the withheld tax amount: wage bracket and percentage. Alternatively, they can also use one of the methods defined in IRS Publication 15-A. I'll assume the person making $60k/yr with 10 allowances is paid monthly ($5000/period) and married. Using the wage bracket method, the amount withheld for federal taxes would be $83 per pay period. Using the percentage method, it would be $81.23 per pay period. I don't recommend that you use this information to determine how to fill out your W-4. The IRS provides a special online calculator for that purpose, which I have always found quite accurate. Note: \"\"allowances\"\" are not the same as \"\"dependents\"\"; \"\"allowances\"\" are a more realistic estimation of your tax deductions, taking into consideration much more than just your dependents.\"","\"As best as I can understand, your payout is based on your AIME, which is also capped at that same $118,500, so Trump's payout should also be equivalently small, exactly proportional to this cap Not sure what you want from Bernie here, but that is correct. Is it accurate to say that Trump will be paid by social security as though his actual income was $118,500, rather than his full income? Assuming Trump does pay that much (depends on how much of his income is actually subject to the FICA/SE tax), yes, it is accurate. However I believe what confuses you is the point Bernie Sanders made about people getting the same benefit while being rich. Bernie's point was that Trump and the likes don't need the social security income, while they're still getting it. Social Security is designed (at least theoretically) to be the safety net for people of age who cannot provide for themselves, thus it is not supposed to be \"\"you get what you paid\"\" system. This is a political discussion though. Social Security system, by definition, is based on a major principle of any socialist society: we as a group should support those who cannot support themselves. Thus, Bernie's point is that we shouldn't support Trump (and the likes) at all since they don't need that money. But they should still pay the tax to allow supporting those who do need, but cannot pay in.\"","These are the steps I'd follow: $200 today times (1.04)^10 = Cost in year 10. The 6 deposits of $20 will be one time value calculation with a resulting year 7 final value. You then must apply 10% for 3 years (1.1)^3 to get the 10th year result. You now have the shortfall. Divide that by the same (1.1)^3 to shift the present value to start of year 7. (this step might confuse you?) You are left with a problem needing 3 same deposits, a known rate, and desired FV. Solve from there. (Also, welcome from quant.SE. This site doesn't support LATEX, so I edited the image above.)","If you've already used TurboTax on your 2015 taxes, you can use the numbers TurboTax gave you as your reasonable estimate. Line 4 is your estimate of total tax liability for 2015. This would be line 63 of form 1040. This is Federal income tax only, not Social Security tax. Line 5 is the total of tax payments you made last year. You should be able to read this off your W-2 forms, Box 2. It corresponds to line 74 on the 1040. Line 6 is the difference between lines 4 and 5. You can't claim a refund on the extension, so if line 5 is more than line 4, enter 0. Otherwise, subtract line 5 from line 4, and enter it in line 6. This is the amount you should send in with the form to minimize any penalty due with your taxes later. The TurboTax software can generate this extension form automatically, I believe. Also, don't forget to give a copy of this extension form to your tax preparer. He will need to know the amount you sent in.","You can't get there from here. This isn't the right data. Consider the following five-year history: 2%, 16%, 32%, 14%, 1%. That would give a 13% average annual return. Now compare to -37%, 26%, 15%, 2%, 16%. That would give a 4% average annual return. Notice anything about those numbers? Two of them are in both series. This isn't an accident. The first set of five numbers are actual stock market returns from the last five years while the latter five start three years earlier. The critical thing is that five years of returns aren't enough. You'd need to know not just how you can handle a bull market but how you do in a bear market as well. Because there will be bear markets. Also consider whether average annual returns are what you want. Consider what actually happens in the second set of numbers: But if you had had a steady 4% return, you would have had a total return of 21%, not the 8% that would have really happened. The point being that calculating from averages gives misleading results. This gets even worse if you remove money from your principal for living expenses every year. The usual way to compensate for that is to do a 70% stock/30% bond mix (or 75%/25%) with five years of expenses in cash-equivalent savings. With cash-equivalents, you won't even keep up with inflation. The stock/bond mix might give you a 7% return after inflation. So the five years of expenses are more and more problematic as your nest egg shrinks. It's better to live off the interest if you can. You don't know how long you'll live or how the market will do. From there, it's just about how much risk you want to take. A current nest egg of twenty times expenses might be enough, but thirty times would be better. Since the 1970s, the stock market hasn't had a long bad patch relative to inflation. Maybe you could squeak through with ten. But if the 2020s are like the 1970s, you'd be in trouble.","\"There's a loophole that could enable you to have it both ways. Start taking it out as soon as you are eligible. e.g. at age 62. If you decide you want more, starting at age 65, you can \"\"start fresh\"\" (at a higher level) by repaying what you took out between ages 62-64 at face value. Essentially, you can take out an interest-free loan for those years. Or so the experts at Agora Financial have told me.\"","If you can still work or have income to support yourself, I would wait. contrary to some media reports, Social Security has enough money to cover full benefits for a number of years to come, and there are solutions that don't involve cutting payouts. And as mentioned before it is likely you'll be grandfathered in if there are cuts.","\"Your SSA payments are not IRA contributions, but they're actually a tax that is earmarked to the Social Security Trust Fund. As such, no, you don't have any \"\"contributions\"\" that can be refunded: you paid a tax, and in exchange for having paid that tax you will possibly later have a benefit. However, some foreign nationals are able to convey that benefit into their national savings plan. The Social Security Administration has a FAQ page on this particular subject. Unfortunately for you, Pakistan does not have a bilateral agreement according to their list, so you may be out of luck.\"","I found one such tool here: Point-to-Point Returns tool","\"I am pretty sure you could find a number of financial planners whom you could pay to give you a very accurate number, but the rule of thumb I like best is Save a dime of every dollar. 10% (Savings means save for retirement, not vacations.) Here is a nice article from radio personality Clark Howard with some adjustments based on your age: Saving for retirement later in life? If you're getting started saving for retirement later in life, the dime out of every dollar rule won't cut it for you. So for you, The Baltimore Sun has crunched the following numbers: Jayraj has a particularly good and just as simple bit of math. https://money.stackexchange.com/a/30751/91 Your retirement and financial planning should not end with a flat percentage. In fact, the chances that any simple math formula is adequate are very low. My percentages (or Jayraj's simple math) are only starting places. If you are at the point where you are asking \"\"where do I start\"\", starting with this super easy no-brainer approach is great because the key is starting and doing it.\"","\"I disagree with the selected answer. There's no one rule of thumb and certainly not simple ones like \"\"20 cents of every dollar if you're 35\"\". You've made a good start by making a budget of your expected expenses. If you read the Mr. Money Mustache blogpost titled The Shockingly Simple Math Behind Early Retirement, you will understand that it is usually a mistake to think of your expenses as a fixed percentage of your income. In most cases, it makes more sense to keep your expenses as low as possible, regardless of your actual income. In the financial independence community, it is a common principle that one typically needs 25-30 times one's annual spending to have enough money to sustain oneself forever off the investment returns that those savings generate (this is based on the assumption of a 7% average annual return, 4% after inflation). So the real answer to your question is this: UPDATE Keats brought to my attention that this formula doesn't work that well when the savings rates are low (20% range). This is because it assumes that money you save earns no returns for the entire period that you are saving. This is obviously not true; investment returns should also count toward your 25-times annual spending goal. For that reason, it's probably better to refer to the blog post that I linked to in the answer above for precise calculations. That's where I got the \"\"37 years at 20% savings rate\"\" figure from. Depending on how large and small x and y are, you could have enough saved up to retire in 7 years (at a 75% savings rate), 17 years (at a 50% savings rate), or 37 years! (at the suggested 20% savings rate for 35-year olds). As you go through life, your expenses may increase (eg. starting a family, starting a new business, unexpected health event etc) or decrease (kid wins full scholarship to college). So could your income. However, in general, you should negotiate the highest salary possible (if you are salaried), use the 25x rule, and consider your life and career goals to decide how much you want to save. And stop thinking of expenses as a percentage of income.\"","I also prefer to crunch the numbers myself. Here are some resources:","I thought it was such a useful suggestion that I went ahead and created them. I'm sure you're not the only one who could derive some benefit from them, I know I will. http://www.investy.com/tools When I have some additional time, I will add the option for grace-periods, but for now I wanted to get them up so you could use the calculations as-is from the article. Enjoy. (Disclosure: I'm the founder of the site they are hosted on and I wrote the code for the calculators)","\"I'm afraid you have missed a few of the outcomes commonly faced by millions of Americans, so I would like to take a moment to discuss a wider range of outcomes that are common in the United States today. Most importantly, some of these happen before retirement is ever reached, and have grave consequences - yet are often very closely linked to financial health and savings. Not planning ahead long-term - 10-20+ years - is generally associated with not planning ahead even for the next few months, so I'll start there. The most common thing that happens is the loss of a job, or illness/injury that put someone out of work. 6 in 10 adults in the US have less than $500 in savings, so desperation can set in very quickly, as the very next paycheck will be short or missing. Many of these Americans have no other source of saved money, either, so it's not like they can draw on retirement savings, as they don't have that either. Even if they are able to get another job or recover enough to get back to work in a few weeks, this can set off a desperate cycle. Those who have lost their jobs to technical obsolescence, major economic downturns, or large economic changes are often more severely affected. People once making excellent, middle-class (or above) wages with full benefits find they cannot find work that pays even vaguely similarly. In the past this was especially common in heavy labor jobs like manufacturing, meat-packing, and so on, but more recently this has happened in financial sectors and real estate/construction during the 2008 economic events. The more resilient people had padding, switched careers, and found other options - the less resilient, didn't. Especially during the 1970s and 1980s, many people affected by large losses of earning potential became sufficiently desperate that they fell heavily (or lost their functioning status) into substance abuse, including alcohol and drugs (cocaine and heroine being especially popular in this segment of the population). Life disruption - made even more major by a lack of savings - is a key trigger to many people who are already at risk of issues like substance addiction, mental health, or any ongoing legal issues. Another common issue is something more simple, like loss of transportation that threatens their ability to hold their job, and a lack of alternatives available through support networks, savings, family, and public transit. If their credit is bad, or their income is new, they may find even disreputable companies turn them away, or even worse - the most disreputable companies welcome them in with high interest and hair-trigger repossession policies. The most common cycle of desperation I have seen usually starts with banking over-drafts, and its associated fees. People who are afraid and desperate start to make increasingly desperate, short-sighted choices, as tunnel-vision sets in and they are unable to consider longer-term strategy as they focus on holding on to what they have and survival. Many industries have found this set of people quite profitable, including high-interest \"\"check cashing\"\", payday loans, and title loans (aka legal loan sharks), and it is not rare that desperate people are encouraged to get on increasing cycles of loan amounts and fees that worsen their financial situation in exchange for short-term relief. As fees, penalties, and interest add up, they lose more and more of their already strained income to stay afloat. Banks that are otherwise reputable and fair may soon blacklist them and turn them away, and suddenly only the least reputable and most predatory places offer to help at all - usually with a big smile at first, and almost always with awful strings attached. Drugs and alcohol are often readily available nearby and their use can easily turn from recreational to addictive given the allure of the escapism it offers, especially for those made vulnerable by increasing stress, desperation, loss of hope, isolation, and fear. Those who have not been within the system of poverty and desperation often do not see just how many people actively work to encourage bad decision making, with big budgets, charm, charisma, and talent. The voices of reason, trying to act as beacons to call people to take care of themselves and their future, are all too easily drowned out in the roar of a smooth and enticing operation. I personally think this is one of the greatest contributions of the movement to build personal financial health and awareness, as so many great people find ever more effective ways of pointing out the myriad ways people try to bleed your money out of you with no real concern for your welfare. Looking out for your own well-being and not being taking in by the wide array of cons and bad deals is all too often fighting against a strong societal current - as I'm sure most of our regular contributors are all too aware! With increasing desperation often comes illegal maneuvers, often quite petty in nature. Those with substance abuse issues often start reselling drugs to others to try to cover lost income or \"\"get ahead\"\", with often debilitating results on long-term earning potential if they get caught (which can include cost barriers to higher education, even if they do turn their life around). I think most people are surprised by how little and petty things can quickly cycle out of control. This can include things like not paying minor parking or traffic tickets, which can snowball from the $10-70 range into thousands of dollars (due to non-payment often escalating and adding additional penalties, triggering traffic stops for no other reason, etc.), arrest, and more. The elderly are not exempt from this system, and many of America's elderly spend their latter years in prison. While not all are tied to financial desperation as I've outlined above, a deeper look at poverty, crime, and the elderly will be deeply disturbing. Some of these people enter the system while young, but some only later in life. Rather than homelessness being something that only happens after people hit retirement, it often comes considerably earlier than that. If this occurs, the outcome is generally quite a bit more extreme than living off social security - some just die. The average life expectancy of adults who are living on the street is only about 64 years of age - only 2 years into early retirement age, and before full retirement age (which could of course be increased in the next 10-20 years, even if life expectancy and health of those without savings don't improve). Most have extremely restricted access to healthcare (often being emergency only), and have no comforts of home to rest and recuperate when they become ill or injured. There are many people dedicated to helping, yet the help is far less than the problem generally, and being able to take advantage of most of the help (scheduling where to go for food, who to talk to about other services, etc) heavily depends on the person not already suffering from conditions that limit their ability to care for themselves (mental conditions, mobility impairments, etc). There is also a shockingly higher risk of physical assault, injury, and death, depending on where the person goes - but it is far higher in almost every case, regardless. One of the chief problems in considering only retirement savings, is it assumes that you'll only have need for the savings and good financial health once you reach approximately the age of 62 (if it is not raised before you get there, which it has been multiple times to-date). As noted above, if homelessness occurs and becomes longstanding before that, the result is generally shortened lifespan and premature death. The other major issue of health is that preventative care - from simple dentistry to basic self-care, adequate sleep and rest, a safe place to rejuvenate - is often sacrificed in the scrambling to survive and limited budget. Those who develop chronic conditions which need regular care are more severely affected. Diabetic and injury-related limb loss, as one example, are far more likely for those without regular support resources - homeless, destitute, or otherwise. Other posters have done a great job in pointing out a number of the lesser-known governmental programs, so I won't list them again. I only note the important proviso that this may be quite a bit less in total than you think. Social Security on average pays retired workers $1300 a month. It was designed to avoid an all-too-common occurrence of simple starvation, rampant homelessness, and abject poverty among a large number of elderly. No guarantee is made that you won't have to leave your home, move away from your friends and family if you live in an expensive part of the country, etc. Some people get a bit more, some people get quite a bit less. And the loss of family and friend networks - especially to such at-risk groups - can be incredibly damaging. Note also that those financially desperate will be generally pushed to take retirement at the minimum age, even though benefits would be larger and more livable if they delayed their retirement. This is an additional cost of not having other sources of savings, which is not considered by many. Well, yes, many cannot retire whether they want to or not. I cannot find statistics on this specifically, but many are indeed just unable to financially retire without considerable loss. Social Security and other government plans help avoid the most desperate scenarios, but so many aspects of aging is not covered by insurance or affordable on the limited income that aging can be a cruel and lonely process for those with no other financial means. Those with no savings are not likely to be able to afford to regularly visit children and grandchildren, give gifts on holidays, go on cruises, enjoy the best assistive care, or afford new technological devices to assist their aging (especially those too new and experimental to be covered by the insurance plans they have). What's worse - but most people do not plan for either - is that diminished mental and physical capacity can render many people unable to navigate the system successfully. As we've seen here, many questions are from adult children trying to help their elderly parents in retirement, and include aging parents who do not understand their own access to social security, medicaid/medicare, assistive resources, or community help organizations. What happens to those aging without children or younger friend networks to step in and help? Well, we don't really have a replacement for that. I am not aware of any research that quantifies just how many in the US don't take advantage of the resources they are fully qualified to make use of and enjoy, due to a lack of education, social issues (feeling embarrassed and afraid), or inability to organize and communicate effectively. A resource being available is not very much help for those who don't have enough supportive resources to make use of it - which is very hard to effectively plan for, yet is exceedingly common. Without one's own independent resources, the natural aging and end of life process can be especially harsh. Elderly who are economically and food insecure experience far heightened incidence of depression, asthma, heart attack, and heart failure, and a host of other maladies. They are at greater risk for elder-abuse, accidental death, life-quality threatening conditions developing or worsening, and more. Scare-tactics aren't always persuasive, and they do little to improve the lives of many because the people who need to know it most generally just don't believe it. But my hope here is that the rather highly educated and sophisticated audience here will see a little more of the harsher world that their own good decisions, good fortune, culture, and position in society shields them from experiencing. There is a downside to good outcomes, which is that it can cause us to be blind to just how extremely different is the experience of others. Not all experience such terrible outcomes - but many hundreds of thousands in the US alone - do, and sometimes worse. It is not helpful to be unrealistic about this: life is not inherently kind. However, none of this suggests that being co-dependent or giving up your own financial well-being is necessary or advised to help others. Share your budgeting strategies, your plans for the future, your gentle concerns, and give of your time and resources as generously as you can - within your own set budgets and ensuring your own financial well-being. And most of all - do not so easily give up on your family and friends, and count them as life-long hopeless ne'er-do-wells. Let's all strive to be good, kind, honest, and offer non-judgmental support and advice to the best of our ability to the people we care about. It is ultimately their choice - restricted by their own experiences and abilities - but need not be fate. People regularly disappoint, but sometimes they surprise and delight. Take care of yourself, and give others the best chance you can, too.\"","\"Interesting question. How is social security funded? The social security system works by using current payroll taxes as funding to pay benefits to retirees. Historically there was always more money coming in then what was being paid out in benefits. This changed at the beginning of March, 2010 when social security started paying out more than it was taking in (this article estimates the exact date to be around March 3 or March 4 - the chart below has the approximate date highlighted with the red circle). Due to the baby boomer generation it is estimated that social security will now be perpetually in the red unless changes are made. The recent reduction in payroll taxes will not help social security solvency. What was done with all the extra money social security collected over the last three decades? The Social Security Trust Fund (SSTF) was required to purchase special-issue US government bonds with the excess funds. The SSTF was essentially purchasing US government debt with the excess funds. This allowed congress to spend the excess funds. The special-issue funds are different then normal US treasuries in that the SSTF can redeem special-issue bonds at face value at any time (even before maturity). The SSTF is currently holding $2.5 Trillion of these special-issue bonds as assets. What next? Hell if I know. The SSTF was a major purchaser of US debt over the last few decades (to the tune of $2.5 trillion). That changed in 2010. The SSTF is no longer purchasing US debt at the same time the US government is issuing record amounts of debt. The SSTF could begin redeeming its bonds to meet payment obligations. When it redeems the bonds the US treasury must cough up the funds. Where is it the US government going to get the money especially when it is currently borrowing money at record levels? I read many articles that say that we don't have to count SSTF bond holdings as debt since we owe it to ourselves. That always makes me chuckle. The US government owes the SSTF $2.5 Trillion. I'm not the US government so don't count me in the \"\"we\"\" part of \"\"we owe it to ourselves\"\". I'm also fairly certain I will never see a dime of social security so don't count me in the \"\"ourselves\"\" portion either. Charts were obtained from here.\"","When you enter your expected gross income into the worksheet - just enter $360000 and leave everything else as is. That should give you the right numbers. Same for State (form DE-4).","How much debt do you have? Do you have a mortgage? Car loans? At the very least depending on your state 25k will be subtracted So you're left with 75k Let me know so we can make that money work for you","The usual, but controversial, answer to this question is a 4% withdrawal rate. This means a net worth of ($5000 * 12 months ) / 4%, i.e., $1,500,000 If you want to play with the numbers, based on historical data, you can use the FIRECalc simulator.","Pete, 25 years of inflation looks like 100% to me with back of napkin math. $220K will feel like $110K. In today's dollars, can you live on $110K? (Plus whatever Social Security you'll get)? My concern from what you wrote, if I'm reading it correctly, is that you have this great income, but relatively low savings until now. From the recent question Building financial independence I offered a guide to savings as it compares to income. Even shifted 5 years for a later start, and scaled for a 70-75% replacement ratio, you should be at 2X (or $440K) by now. That's not a criticism, but an observation that you've been spending at a nice clip so far. The result is less saving, of course, but also a need for a higher replacement ratio. Last, a 10% return for the next 25 years may be optimistic. I'm not forecasting doom or gloom, just a more reasonable rate of return, and wouldn't plan to see higher than 7-8% for purposes of planning. If I am wrong, (and if so, we can both laugh all the way to the bank) you can always scale back savings in 10-15 years. Or retire earlier. Note: Pete's question asks about a 40 year old working till 65, but the comment below has him 48 and planning to work until 62. 14 years of $45K deposits total less than $700K. Even at 10%, it wouldn't grow to much more than $2M, let alone $5M.","Well i dont know of any calculator but you can do the following 1) Google S&P 500 chart 2) Find out whats the S&P index points (P1) on the first date 3) Find out whats the S&P index points (P2) on the second date 4) P1 - P2 = result","Until you find a job, I would recommend doing nothing more than a bank checking account or a checking and savings account. Some alternatives, such as savings bonds, would be okay if you were perfectly sure you did not need the money in the next six months. Consider working for a place such as McDonald's in the meantime. Once you have stable employment, there are two paths you could take. The first is a bond fund. It would provide fair market returns for the time between now and the collection of social security. The second would be a traditional annuity. You have to be careful with them. If it sounds much better than what others are offering, it is probably a scam. Your interest in an annuity is that it will pay you money for as long as you live. If you live to be 105 you will still be getting payments. A bond fund would have run out of money long ago by that time. The biggest thing for you right now is getting to when Medicare takes over from private health. Looking for any job is important right now to preserve cash. Although I do not normally recommend annuities, I do with smaller amounts of cash. It is unlikely you will ever recover this sum again and the time remaining to save is very short. The greatest challenge with an annuity is regret. You can't get the money back once you have turned it into an income stream. On the other hand, it will last as long as you live. The only important caveat is that if you are in poor health, then the bond fund would be better for you because you may not live to be very old.","After some thought, I follow Dave Ramsey's advice because it's simple and I can do the math in my head - no online calculator needed. :) You need Life Insurance if someone depends on your income. You can replace your income with a single lump sum of 8-10 times your current income where those who need your income, can get roughly your salary each year from the life insurance proceeds.","Via www.socialsecurity.gov: As a result of changes to Social Security enacted in 1983, benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted. These estimates reflect the intermediate assumptions of the Social Security Board of Trustees in their 2009 Annual Trustees Report. The Congressional Budget Office (CBO) has been making similar estimates for several years that tend to be somewhat more optimistic than the trustees' estimates principally because CBO assumes faster growth in labor productivity and real earnings levels for the future. Doesn't seem too optimistic from the program itself. Also, it is true that recessions end, but in our current state of being trillions of dollars in debt, does it look like things are on the upswing?","Good news! It will be enough if you make the most important decision after retirement; that is, the decision to live within your means. With $220,000 per year in 2015 resources, will you live in the same size home in the same location as you do now? Or will you downsize a bit and move to a town with more reasonably priced homes and lower taxes? Apply the same thinking to all of your expenses. In my opinion, making the decision to live within your means is the biggest decision you can make going into retirement."],"string":"[\n \"The social security administration has a webpage to get your Social Security estimate. It replaces the yearly estimate they used to mail everybody. It shows the amount you paid for social security and medicare and what they estimate you will receive at your retirement age. They also discuss disability benefits. Everybody should do this every year. Though it does take a few months to get the previous years numbers updated into the system. If you notice a problem with the money they think you paid into the system in a particular year, you can send them an old W-2 and get the numbers corrected.\",\n \"\\\"Some details in case you are interested: Being a defined benefit kind of pension plan, the formula for your Social Security benefits isn't tied directly to FICA contributions, and I'm not aware of any calculator that performs an ROI based on FICA contributions. Rather, how much you'll get in retirement is based on your average indexed monthly earnings. Here's some information on the Social Security calculation from the Social Security Administration - Primary Insurance Amount (PIA): For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his/her PIA will be the sum of: (a) 90 percent of the first $791 of his/her average indexed monthly earnings, plus (b) 32 percent of his/her average indexed monthly earnings over $791 and through $4,768, plus (c) 15 percent of his/her average indexed monthly earnings over $4,768. Here's an example. Of course, to calculate a benefit in the future, you'll need to calculate projected average indexed monthly earnings; more details here. You'll also need to make assumptions about what those bend points might be in the future. The average wage indexing values for calculating the AIME are available from the Social Security Administration's site, but future indexing values will also need to be projected based on an assumption about their inflation. You'll also need to project the Contribution and Benefit Base which limits the earnings used to calculate contributions and benefits. Also, the PIA calculation assumes benefits are taken at the normal retirement age. Calculating an early or late retirement factor is required to adjust benefits for another age. Then, whatever benefits you get will increase each year, because the benefit is increased based on annual changes in the cost of living. Performing the series of calculations by hand isn't my idea of fun, but implementing it as a spreadsheet (or a web page) and adding in some \\\"\\\"ROI based on FICA contributions\\\"\\\" calculations might be an interesting exercise if you are so inclined? For completeness sake, I'll mention that the SSA also provides source code for a Social Security Benefit Calculator.\\\"\",\n \"There are two steps. First you take the age at retirement and annual benefit. Say it's $10,000/yr. You can easily look up the present value of a $10k/yr annuity starting at age X. (I used age 62, male, at Immediate Annuity. It calculates to be $147K. You then need to look at your current age and with a finance calculator calculate the annual deposits required to get to $147K by that age. What I can't tell you is what value to use as a cost of money until retiring. 4%? 6%? That's the larger unknown.\",\n \"\\\"From the Social Security site, In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. And for a delay past normal retirement age, there's an 8% per year increase in benefit for each year you delay. I believe the \\\"\\\"return it all\\\"\\\" option was discontinued. There's far too little information in your question for anyone to give a comprehensive answer. In general, one needs to look at a number of variables including their taxable income with and without the social security benefit as well as their health to determine the optimal SS start date.\\\"\",\n \"The IRS has a calculator for this purpose.\",\n \"I am in the process of writing an article about how to maximize one's Social Security benefits, or at least, how to start the analysis. This chart, from my friends at the Social Security office shows the advantage of waiting to take your benefit. In your case, you are getting $1525 at age 62. Now, if you wait 4 years, the benefit jumps to $2033 or $508/mo more. You would get no benefit for 4 years and draw down savings by $73,200, but would get $6,096/yr more from 64 on. Put it off until 70, and you'd have $2684/mo. At some point, your husband should apply for a spousal benefit (age 66 for him is what I suggest) and collect that for 4 years before moving to his own benefit if it's higher than that. Keep in mind, your generous pensions are likely to push you into having your social security benefit taxed, and my plan, above will give you time to draw down the 401(k) to help avoid or at least reduce this.\",\n \"There are three numbers that matter in that calculation: 1) How much do you expect per month from in pension/social security/or other retirement programs? 2) At what age will each of you retire? 3) How long will each of you live? 4) What will your annual expenses be when you retire? Unfortunately #3 is the most important of the three and the hardest to know with any certainty.\",\n \"For estimating your take home salary, I suggest using one of the many free salary calculators available over the Internet. I personally use PaycheckCity.com, but there are plenty of others available. To calculate your allowances for the US Federal tax, you can use the worksheet attached to the form W-4. Similar form (with a similar worksheet) is available for state taxes, on the Illinois Department of Revenue web site.\",\n \"Answering this question is a great way to gauge how you're doing towards saving for retirement now. But of course what matters more than this snapshot in time is how much you contribute down the line. It may be wise to try to estimate how much you will want saved by the time you retire. Then try to calculate how much you would need to save in order to hit that mark.\",\n \"\\\"How will contribution limits rise? Contribution limits are raised based on COLA. COLA (Cost of Living Adjustment) is a number based on CPI (Consumer Price Index) which is published by the Bureau of Labor Statistics. The IRS publishes these limits annually and a simple search term to find them each year is \\\"\\\"415 limits\\\"\\\" because section 415 lists how much the various qualified plans can set aside each year. CPI is a heavily managed and very political number. It is the number that is cited when the media talks about \\\"\\\"inflation.\\\"\\\" Since it drives increases in salaries, deductions, Social Security and pension payments, there is very heavy pressure to keep the number smaller than it really is. My next step was to calculate how long that money will last One traditional rule-of-thumb is to withdraw 4% of your balance each year. Another alternative is to purchase annuities. While younger people think that annuities are horrible investments, they appeal to older people because they protect the annuitant from excessive risk of losing your capital. When you are 30, and another 2008 comes along wiping out half your savings, you have time to re-earn that money. When you are 60, and another 2008 comes along wiping out half your savings, you have very few years to recover that money. So an annuity pushes that risk onto insurance companies. If you think you will die in your 90s, then an annuity is going to be a good investment (the insurance company will be betting that you won't be living that long). I have a simple spreadsheet that I use to calculate estimated projected balances and compare them to actual performance. Don't forget that when you reach 50, the amount you can contribute goes up due to \\\"\\\"catch up contributions.\\\"\\\" There are 2 views of the same tab in this picture. There are 3 growth rates: pessimistic, nominal and optimistic. You can change the numbers to suit your own projections of future growth. Other tabs on this spreadsheet include measurements of actual performance by my 401k and IRA accounts. At the end of the year, I replace the numbers in columns F, G & H with the actual end-of-year dollar amounts. This way, future estimates do not get too far unhinged from reality. If you need more sophisticated planning, such as Monte Carlo analysis to attempt to cope with inflation, I recommend the book Engineering Your Retirement. The book is aimed at younger engineers, so there is a bit more math than the average person would want.\\\"\",\n \"\\\"I wrote a spreadsheet (<< it may not be obvious - this is a link to pull down the spreadsheet) a while back that might help you. You can start by putting your current salary next to your age, adjust the percent of income saved (14% for you) and put in the current total. The sheet basically shows that if one saves 15% from day one of working and averages an 8% return, they are on track to save over 20X their final income, and at the 4% withdrawal rate, will replace 80% of their income. (Remember, if they save 15% and at retirement the 7.65% FICA /medicare goes away, so it's 100% of what they had anyway.) For what it's worth, a 10% average return drops what you need to save down to 9%. I say to a young person - try to start at 15%. Better that when you're 40, you realize you're well ahead of schedule and can relax a bit, than to assume that 8-9% is enough to save and find you need a large increase to catch up. To answer specifically here - there are those who concluded that 4% is a safe withdrawal rate, so by targeting 20X your final income as retirement savings, you'll be able to retire well. Retirement spending needs are not the same for everyone. When I cite an 80% replacement rate, it's a guess, a rule of thumb that many point out is flawed. The 'real' number is your true spending need, which of course can be far higher or lower. The younger investor is going to have a far tougher time guessing this number than someone a decade away from retiring. The 80% is just a target to get started, it should shift to the real number in your 40s or 50s as that number becomes clear. Next, I see my original answer didn't address Social Security benefits. The benefit isn't linear, a lower wage earner can see a benefit of as much as 50% of what they earned each year while a very high earner would see far less as the benefit has a maximum. A $90k earner will see 30% or less. The social security site does a great job of giving you your projected benefit, and you can adjust target savings accordingly. 2016 update - the prior 20 years returned 8.18% CAGR. Considering there were 2 crashes one of which was called a mini-depression, 8.18% is pretty remarkable. For what it's worth, my adult investing life started in 1984, and I've seen a CAGR of 10.90%. For forecasting purposes, I think 8% long term is a conservative number. To answer member \\\"\\\"doobop\\\"\\\" comment - the 10 years from 2006-2015 had a CAGR of 7.29%. Time has a way of averaging that lost decade, the 00's, to a more reasonable number.\\\"\",\n \"As Dilip commented, the Social Security web site is pretty comprehensive. Understanding Supplemental Security Income SSI Income has the details you are looking for. It's a convoluted equation. You lose SSI at a pretty fast rate as earned income rises. The system is not kind to those who qualify for SSI but try to earn some money to cover their needs.\",\n \"\\\"One common rule of thumb: you can probably get 4% or better returns on your investments ('\\\"\\\"typical market rate of return is 8%, derate to allow for inflation and off years). Figure out what kind of income you will want in retirement and divide by 0.04 to get the savings you need to accumulate to support that. This doesn't allow for the fact that your needs are also going to increase with inflation; you can make a guess at that and use an inflated needs estimate. Not sophisticated, not precise, but it's a quick and dirty ballpark estimate. And sometimes it's surprisingly close to what a proper model would say.\\\"\",\n \"\\\"I'd encourage you to use rules of thumb and back-of-the-envelope. Here are some ideas that could be useful: The problem with any kind of detailed calculations is the number of unknowns: There are some really complex calculators out there, for example see ESPlanner (http://www.esplanner.com/) (caution: horrible user interface, but seemed to work), that will include all kinds of factors and run monte carlo and the whole thing. But in my opinion, it's just as good or better to say save at least 15% of income until you have 25x what you spend, or some other such rule of thumb. Here's my little blog post on savings and investing fwiw: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ Another note, there's sort of an \\\"\\\"ideology of how to live\\\"\\\" embedded in any retirement recommendation, and you might want to take the time to reflect on that and consciously choose. A book on this topic is Your Money or Your Life by Robin & Dominguez, http://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0143115766 which is a sort of radical \\\"\\\"you should save everything possible to achieve financial independence as early as possible\\\"\\\" argument. I didn't go for their plan, but I think it's thought-provoking. A newer book that may be more appealing is called The Number and it's about your question exactly. It's more designed to get you thinking, while Your Money or Your Life has a particular answer in mind. Both have some math and some rules of thumb, though they aren't focused on that. A kind of general takeaway from these books might be: first think about your expenses. What are you trying to accomplish in life, how would you like to spend your time? And then ask how much money you absolutely need to accomplish that, and focus on accomplishing your goals, spending your time (as much as you can) on what you'd like to spend it on. I'm contrasting this with a generic recommendation to save enough to spend 80% of your income in retirement, which embeds this idea that you should spend as much as possible every year, before and after you retire. Lots of people do like that idea, but it's not a law of the universe or something, it's just one popular approach.\\\"\",\n \"There's a bit of working backwards that's required. This is a summary of a spreadsheet I wrote which helps to get to the answer. What you see here is that at age 25, one might have saved about a half year's salary, assuming they worked 5 years. The numbers grow exponentially to at 65, about 15 years salary saved. This will allow a withdrawal of about 60% final income each year using the 4% guideline. More will come from Social Security in the States to get closer to 100%. The sheet start with assumptions, a 10% per year rate of saving, and an 8% annual return. Salary is assumed to rise 3% per year. One can choose their age, enter their current numbers and their own assumptions. I had to include some numbers and at the time, 8% seemed reasonable. Not so sure today. What I do like is the concept of viewing savings in terms of 'years salary' as this leads to replacement rate. Will $1M be enough for you? Only you can answer that. But the goal of 80-100% replacement income is reasonable and this sheet can be used to understand the goals along the way. (note, the uploaded sheet had 15% saving rate, not the 10 I thought. I used 15 to show a 10% saving along with a 5% match to one's 401(k). Those interested are welcome to enter their own numbers. The one objection I've seen is the increase to salary. Increases tend to be higher in the first 20 than the second, or so I'm told.)\",\n \"...funds received for the month of death and later must be returned. If the estate is bankrupt, as near as I can tell, the SSA is out of luck. (This applies to payment apart from that covered above.) If you need advice on something other than retirement insurance, a comprehensive list of applicable statutes and rulings is here.\",\n \"\\\"One way to do these sorts of calculations is to use the spreadsheet version of IRS form 1040 available here. This is provided by a private individual and is not an official IRS tool, but in practice it is usually accurate enough for these purposes. You may have to spend some time figuring out where to enter the info. However, if you enter your self-employment income on Schedule C, this spreadsheet will calculate the self-employment tax as well as the income tax. An advantage is that it is the full 1040, so you can also select the standard deduction and the number of exemptions you are entitled to, enter ordinary W-2 income, even capital gains, etc. Of course you can also make use of other tax software to do this, but in my experience the \\\"\\\"Excel 1040\\\"\\\" is more convenient, as most websites and tax-prep software tend to be structured in a linear fashion and are more cumbersome to update in an ad-hoc way for purposes like tax estimation. You can do whatever works for you, but I would recommend taking a look at the Excel 1040. It is a surprisingly useful tool.\\\"\",\n \"There are a few methods you can use to estimate your taxes. On the results screen, the app will show you your estimated tax burden, your estimated withholding for the year, and your estimated overpayment/refund or shortfall/tax due. It may also have recommendations for you on how to adjust your W-4 (although, this late in the year, I think it only tells you to come back next year to reevaluate). Your state might also have income tax, and if you are curious about that, you can find the state tax form and estimate your state income tax as well. My guess is that you will be getting a refund this year, as you have only worked half of the year. But that is only a guess.\",\n \"Whether you're self-employed or not, knowing exactly how much tax you will pay is not always an easy task. Various actions you can take (e.g., charitable donations, IRA contributions, selling stocks) may increase or reduce your tax liability. One tool I've found useful for estimating federal taxes is the Excel 1040 spreadsheet. This is a spreadsheet version of the income tax return form. It is not official and is not created by the IRS, but is maintained as a labor of love by a private individual. In practice, however, it is pretty much an accurate implementation of the tax calculation algorithms encoded in the tax forms and instructions. The nice thing about it is that it's a spreadsheet. You can plug numbers into various slots in the spreadsheet and see how they affect your federal tax liability. (You may also owe state taxes depending on what state you live in.) Of course, the estimates you get by doing this are only (at most) as accurate as your estimates of the various numbers you plug in. Still, I think it's a free and useful way to get a ballpark estimate of your tax liability based on numbers that you can more easily estimate (e.g., how much money you expect to earn).\",\n \"Interesting. The answer can be as convoluted/complex as one wishes to make it, or back-of-envelope. My claim is that if one starts at 21, and deposits 10% of their income each year, they will likely hit a good retirement nest egg. At an 8% return each year (Keep in mind, the last 40 years produced 10%, even with the lost decade) the 10% saver has just over 15X their final income as a retirement account. At 4% withdrawal, this replaces 60% of their income, with social security the rest, to get to nearly 100% or so replacement. Note - I wrote an article about Social Security Benefits, showing the benefit as a percent of final income. At $50K it's 42%, it's a higher replacement rate for lower income, but the replacement rate drops as income rises. So, the $5000 question. For an individual earning $50K or less, this amount is enough to fund their retirement. For those earning more, it will be one of the components, but not the full savings needed. (By the way, a single person has a standard deduction and exemption totaling $10150 in 2014. I refer to this as the 'zero bracket.' The next $8800 is taxed at 10%. Why go 100% Roth and miss the opportunity to fund these low or no tax withdrawals?)\",\n \"If you set a savings amount now and leave it totally fixed you're likely to massively undershoot or overshoot. What is more likely is that you will adjust either your savings or your retirement expectations as things go along. If it turns out you have $10M (2010 dollars) at age 50 perhaps you'll retire early, and if you have $10k perhaps you'll buckle down and work much longer or save much more. So I think what you are looking for is an assurance that if you budget to save x% of your salary over n years, and you get an after-inflation after-tax return of y% pa, you will eventually be able to retire on an income equivalent to z% of your working income. It's pretty easy to calculate that through a future-value formula. For instance, one set of values that works is saving 20% of income, 5% real return, 30 years = final income of 66% of working income. Or save half your income and within 14 years you can retire and keep spending the amount you were previously spending. Resist the temptation to crank up the assumed return until you get the value you want. I think it would be great hubris to try to make this very precise. Yes, probably you will get raises, of course there are taxes to take into account (probably higher while you're saving), inflation and returns will vary from year to year, et. You can guess at them. But they'll change, and there are bigger things that are unpredictable: your personal life, your health, the economic future of your career or industry. I reckon this simple formula is about as good as you will get.\",\n \"\\\"By \\\"\\\"basic public pension\\\"\\\" I assume you mean Social Security, which is pretty much the only quasi-universal pension-like thing in the USA. If she has any other sort of pension (e.g., from a job) you'd need to get more specific info about that. As for Social Security, as described here: While you are working, your earnings will reduce your benefit amount only until you reach your full retirement age. According to the calculator on that site, if she is 65 now, her full retirement age would be 66, so if she retires after that age her SS benefit won't be reduced due to extra income. As described here, if she has considerable income apart from SS, she may have to pay taxes on her SS income. This would not reduce her income, but means the benefit of her extra blog income would be reduced. This page describes how to calculate your \\\"\\\"provisional income\\\"\\\" to determine whether SS benefits will be taxed. According to that page: If your provisional income is less than $25,000 for single or head-of-household returns, or $32,000 for joint returns, then your Social Security benefits will not be taxed. Based on the numbers you gave, this suggests she would not incur an SS tax. However, she should probably take a look at the Social Security retirement estimator and other tools on that site, if she hasn't already done so, to get a sense of what sort of income SS will be providing her. I'd suggest that she talk to a retirement planner and/or CPA to get a handle on what her finances would be like. At the least, she should find someone knowledgeable about Social Security policies and tax issues in the USA. As you say, you are unfamiliar with the way these matters work in the USA, so your ability to help her make financial decisions is limited.\\\"\",\n \"I use paycheckcity.com and first punch in my paycheck and make sure it calculates within a few pennies the value of my actual paycheck. Then I fiddle with withholding values, etc. to see the effect of change. It has been very effective for me over the years.\",\n \"The simplest way is just to compute how much money you'd have to have invested elsewhere to provide a comparable return. For example, if you assume a safe interest rate of 2.3% per year, you would need to have about $520,000 to get $1,000/month.\",\n \"I read an amazing article on whenyou should take early and when you should wait. It really depends on your situation, but this article prodives information as well as examples. Hope it helps! http://customsites.yahoo.com/financiallyfit/finance/article-108227-3275-5-boost-your-social-security-benefits\",\n \"\\\"I am in a similar situation and have recently found a planner who says a pension that pays $100/month is worth $18k in savings at retirement. I know that doesn't answer your question directly, but could could use a simple interest savings calculator (bank rate has one) to see how much of your income you would need to save over x period of time and deduct that from you the offer at your prospective employer to compare \\\"\\\"apples to apples\\\"\\\" However, I actually think the value of a pension at retirement is greater than listed above. To illustrate: So in this example my pension would seem to be valued at about $14,000 in salary for those 10 years.\\\"\",\n \"\\\"One option is to look at the IRS Witholding Calculator - As George Marian notes, this is by no means a perfect way to \\\"\\\"estimate\\\"\\\" how much you'll owe. Other key questions for you to answer: There's no silver bullet here. The best you can do is to understand the key inputs into how your taxes are calculated, and then identify the most important tax deductions that you might take. Then pray that you haven't missed some nuance and use a tax program early in January to check your assumptions so you're not completely surprised when April rolls around. A final suggestion: do your own taxes using a website like TurboTax. Take the time to \\\"\\\"itemize\\\"\\\" your tax deductions just to learn what is tax deductible. You can figure out how the big parts of tax law works by just looking at what you could deduct in the future.\\\"\",\n \"There's no magic. Usually these models set out to replace 60-65% of your gross income in retirement. For example, if you: You'll retire with about $850k. That will let you generate an income stream of around 55k for your expected lifespan. Is 15% the right answer for you? No idea -- it depends on what you want, how you invest, and what you can afford.\",\n \"\\\"@duffbeer and @JoeTaxpayer give great answers, and you should probably accept one or the other, but I would like to recommend trying some of the online tools for Monte Carlo analysis. A Monte Carlo analysis is essentially plugging in a range of possible values (a probability function) for yearly values of pretty much anything involved in your financial life: salary growth, investment rate of return, expected life span, etc, etc, etc....and then running thousands of simulations on those values to give you the probability that your money will last until you die. It is basically a really souped up version of a \\\"\\\"what-if\\\"\\\" spreadsheet. A google search for \\\"\\\"monte carlo retirement planning\\\"\\\" may sound like a hilariously bad idea, but it lists some free tools that you might find interesting or useful. I myself have only used the product from Financial Engines quite a bit, but I believe that is only available through your employer. (If they offer it.)\\\"\",\n \"If you have a relatively stable income and deductions you can get a fairly good estimate using last year's tax bill. Suppose you paid $12000 of actual taxes last year and you are paid once a month. If you plan to make a similar amount of money with similar deductions, you need each monthly paycheck to have $1000 of federal income taxes withheld. I go to a paycheck calculator and find the withholding required to make sure I have that amount withheld every paycheck.\",\n \"All of your 401k income is taxable and no more than 85% of your SS income. You can use the worksheets in IRS: Publication 915 to determine what percentage of your SS is taxable. Just as with ordinary income, deductions/exemptions apply and not all that is taxable will be taxed. When you begin drawing SS you'll have the option to have taxes withheld at various rates, more convenient than quarterly estimated payments in my opinion.\",\n \"Look at the left column. If you are disabled at age 62 or older and have worked for at least 10 years they you qualify for full disability benefits (which are generally less than retirement benefits). Outside of disability, one is only eligible for social security benefits at age 67 (unless you were born before 1960, in which case different rules apply), but you must have worked for at least 10 years to get full retirement benefits.\",\n \"The Finance functions in spreadsheet software will calculate this for you. The basic functions are for Rate, Payment, PV (present value), FV (Future value), and NPER, the number of periods. The single calculation faces a couple issues, dealing with inflation, and with a changing deposit. If you plan to save for 30 years, and today are saving $500/mo, for example, in ten years I hope the deposits have risen as well. I suggest you use a spreadsheet, a full sheet, to let you adjust for this. Last, there's a strange effect that happens. Precision without accuracy. See the results for 30-40 years of compounding today's deposit given a return of 6%, 7%, up to 10% or so. Your forecast will be as weak as the variable with the greatest range. And there's more than one, return, inflation, percent you'll increase deposits, all unknown, and really unknowable. The best advice I can offer is to save till it hurts, plan for the return to be at the lower end of the range, and every so often, re-evaluate where you stand. Better to turn 40, and see you are on track to retire early, than to plan on too high a return, and at 60 realize you missed it, badly. As far as the spreadsheet goes, this is for the Google Sheets - Type this into a cell =nper(0.01,-100,0,1000,0) It represents 1% interest per month, a payment (deposit) of $100, a starting value of $0, a goal of $1000, and interest added at month end. For whatever reason, a starting balance must be entered as a negative number, for example - =nper(0.01,-100,-500,1000,0) Will return 4.675, the number of months to get you from $500 to $1000 with a $100/mo deposit and 1%/mo return. Someone smarter than I (Chris Degnen comes to mind) can explain why the starting balance needs to be entered this way. But it does show the correct result. As confirmed by my TI BA-35 financial calculator, which doesn't need $500 to be negative.\",\n \"The equation is the same one used for mortgage amortization. You first want to calculate the PV (present value) for a stream of $50K payments over 20 years at a10% rate. Then that value is the FV (future value) that you want to save for, and you are looking to solve the payment stream needed to create that future value. Good luck achieving the 10% return, and in knowing your mortality down to the exact year. Unless this is a homework assignment, which need not reflect real life. Edit - as indicated above, the first step is to get that value in 20 years: The image is the user-friendly entry screen for the PV calculation. It walks you though the need to enter rate as per period, therefore I enter .1/12 as the rate. The payment you desire is $50K/yr, and since it's a payment, it's a negative number. The equation in excel that results is: =PV(0.1/12,240,-50000/12,0) and the sum calculated is $431,769 Next you wish to know the payments to make to arrive at this number: In this case, you start at zero PV with a known FV calculated above, and known rate. This solves for the payment needed to get this number, $568.59 The excel equation is: =PMT(0.1/12,240,0,431769) Most people have access to excel or a public domain spreadsheet application (e.g. Openoffice). If you are often needing to perform such calculations, a business finance calculator is recommended. TI used to make a model BA-35 finance calculator, no longer in production, still on eBay, used. One more update- these equations whether in excel or a calculator are geared toward per period interest, i.e. when you state 10%, they assume a monthly 10/12%. With that said, you required a 20 year deposit period and 20 year withdrawal period. We know you wish to take out $4166.67 per month. The equation to calculate deposit required becomes - 4166.67/(1.00833333)^240= 568.59 HA! Exact same answer, far less work. To be clear, this works only because you required 240 deposits to produce 240 withdrawals in the future.\",\n \"\\\"This is the best tl;dr I could make, [original](https://www.aier.org/blog/social-security-cost-living-adjustment-likely-largest-2011) reduced by 81%. (I'm a bot) ***** > With inflation ticking upward in 2017, retirees are likely to see the largest cost-of-living adjustment in their Social Security benefits since 2011. > Our forecasted increase for the cost-of-living adjustment would add between $23 and $29 to the average Social Security beneficiary&#039;s monthly check, higher than any adjustment since 2011 but still below the average annual adjustment since 2011 of 2.3 percent. > The Social Security Administration calculates the cost-of-living adjustment using the Consumer Price Index for Urban Wage Earners and Clerical Workers. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/75k0hx/social_security_cost_of_living_adjustment_likely/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~225800 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **adjustment**^#1 **percent**^#2 **year**^#3 **CPI-W**^#4 **average**^#5\\\"\",\n \"$3,679,163.80 I made these assumptions that you did not state: Then using Excel, we find that with a starting point of $3,679,163.80, we can achieve your goal. The formula for Yearly Budget is =G$1*((1.035)^(A3-2012)) and the formula for Money left at year end is =(D4/1.05)+C4 For 2067, enter $0 leftover, and for 2066, enter $397,988.47 leftover. G$1 is $60,000 G$2 is 0.05\",\n \"\\\"I wrote Retirement Savings Ratio some time ago and 15% seemed the sweet spot. The 15% is 10% saved and 5% match, in my mind. The reason I link is to show a spreadsheet that shares my approach to the analysis. You list a huge number of things to think about, all great. I'm near Duff's view although I shoot for 20X final income so 4% of that is an 80% replacement. There's nothing magic about 80. If social security exists, it actually drops the required 80 from you to the 60 or so Duff lists, so we align. The 'problems' with my sheet - no one gets exact 3% raises for 43 years, so one can go in and change that, maybe higher early on, then slow it down. Returns are 8% every year, so one must go to the sheet or their own plan and reassess how they are doing each year. Disclosure - we are now at 14X our income with a goal of 25 to replace 100%. So we need a cumulative 80% growth (as in S&P at 2500) or the years of deposits to get there. I am nearing 50. Let me pick one of your questions - \\\"\\\"Your expenses go down at retirement, stay the same, or go up?\\\"\\\" - this is the $64K question. the 80% is an average guess. The general assumption is in this range. If we downsized right after the kid goes to college, we could retire on far less. So, to wrap up, online calculators and spreadsheets only go so far. Your questions are dead on. A planner should ask every one of these questions before assuming any ratio. Edit - on re-read I am blown away by the list of questions you have here. It's great. And it shows how there's risk no matter what.\\\"\",\n \"There are online tax prep sites, H&R Block among them. You'll be able to enter your projected details, and do a 'what-if' type scenario by adding things that impact the return. You don't mention any Schedule A deductions. No mortgage? Planning to have money taken off the top to a 401(k)?\",\n \"This is a present value calculation, which excel or any financial calculator can handle. N = 300 (months) %i = 5/12 or .05/12 depending on the program/calculator PMT = $5000 (the monthly payment) FV = 0 (you want to end at zero balance) This calculates a PV (present value of $855,300) Chad had it right, but used a calculator that didn't offer the PV function, so he guessed and changed numbers til the answer was clear. user379 makes a good point, but why start inflation calculations at 65, and not now? You look like you're in your 30's, so there's 30 years of inflation, and $60K/yr in today's value will need to be closer to $150K/yr, given about 30 years of 3% inflation.\",\n \"The metric I prefer is net worth, minus the value of your home, then divide by your annual expenses. The house is subtracted because you need to live somewhere, so its worth isn't part of retirement savings. I divide by expenses to create result that really answers how close one is to being able to retire. The target is to have 25X your required spending gap. Note, as you close in on retirement, and social security is still in place, you can use it in your planning. If I were in my 20s or 30s today, I wouldn't use it in my numbers.\",\n \"Probably the most accurate way is to just fill out your tax forms using numbers extrapolated from your current paycheck. If you don't typically itemize your deductions, you should be able to get pretty close.\",\n \"Let's assume you have total year income I. The inflation rate is R and the growth rate is E every year. The contributed rate deducting 1.8% will be C = 0.982. So, for your account you'll have every year Let's assume you have annual income in 1000, then for years So, you'll deposit 40 000 and got at the end 129 023.60. But be careful, economic calculation for so long period could be very incaccurate because of the variation of the inflation rate, growth rate and various risks. The spreadsheet could be very useful. More accurate formula which assume that annual deposit grows only the half of the year. Thus, the result for 40 years will be 124 576.91.\",\n \"Retirement calculation, in general, should be based on the amount of money needed per year/month and the expected life expectancy. Life expectancy, if calculated to 90 years (let's say) indicates that post retirement age (60 yrs.) your accumulated/invested money should generate adequate income to cover your expenses till 90 years. The problem in general is not how long you shall live but what would be your expected spending from retirement to end of life expectancy. The idea is at the minimum your investments should generate income that is inflation adjusted. One way to do this is to consider your monthly expense now i.e. the expense that is absolute minimum for carrying on (food, electricity, water, medicines, household consumables, car petrol, insurance, servicing, entertainment, newspaper etc.) this does not contain the amortizable liabilities (home loan, child's education, other debts). It is better to take this amount per family rather than per person and yearly rather than monthly (as we tend to miss a lot of yearly expenses). This amount that you need today will increase at a Compounded Annual Growth Rate (CAGR) of the average inflation. For example, if today you spend 100 per year in 7 years you will need to spend appx. 200 at 10% inflation. Now, your investments will not increase post your retirement, so your current investment needs to do two things (1) give you your yearly requirement (2) grow by a fixed amount so that next year it can give you CAGR adjusted returns. In general, this kind of investment grows by high net amounts initially and slowly the growth decrease. The above can be calculated by Net Present value (NPV) formulae (http://en.wikipedia.org/wiki/Net_present_value). The key is to remember that the money that is invested when you retire should be able to give you inflation adjusted returns to cover your yearly expenses. How much money you need depends on your life style/expectation and how much return is received depends on the instruments that you invest on. As for your question above on the difference between the age of you and your spouse, it better to go with the consolidated family requirement and get an idea of how much investment is necessary and provision the same as soon as possible from your as well as your spouse's income. Hope this helps.- thanks\",\n \"If you want to predict the, the easiest solution is to get hold of a copy of last year's tax forms and fill them in with estimated numbers. Odds are that none of the more complicated deductions will apply to you this first time around, so I'd suggest just using the federal 1040EZ, and your state's equivalent, for this purpose. If it turns out that you can claim anything more than the standard deduction, that would reduce your taxes, so this is leaning toward the safe side.\",\n \"I am by no means an expert in this, but I did a little research and came across this page on the SSA site -- Can You Be Entitled To Benefits Retroactively? You may be entitled to monthly benefits retroactively for months before the month you filed an application for benefits. For example, full retirement age claims and survivor claims may be paid for up to six months retroactively. In certain cases, benefits involving disability up to 12 months may be paid retroactively. (This is not true of the special age 72 payments (see §§346-348), black lung benefits (see Chapter 22), medical insurance (see Chapter 24), or SSI (see Chapter 21).) SSA Handbook (emphasis mine) Based on this, it sounds like he may be mistaken. I recommend speaking to a SSA rep to get a solid answer on this though. Not everything on the internet is true.\",\n \"http://www.socialsecurity.gov/retire2/agereduction.htm As a general rule of thumb on average you'll gain a similar amount of total money over time whether you start withdrawing early or not. Yes you get less money on each check, but you're also going to get more checks a whole since it's based on how long you live. I personally don't try and adjust how I manage my money based on what decisions the government MIGHT make, but I also am fairly young so don't quite have the heightened concerns regarding social security others might have. I've pretty much always lived and invested assuming it wasn't going to be there at all by the time I retire.\",\n \"\\\"It depends on what kind of pension you get and your anticipated retirement income. If you have one of those nice defined benefit plans that pays 90% of your last 5 years' average salary annually, you might not want to bother with a separate RRSP and put your money into other use instead. While most Canadians should worry about not having enough to retire on, some might end up with too much and costing them in the form current purchases and entitlements to government retirement benefits. Figuring out how much you need for retirement is not trivial either. A lot of people talks about planning for needing 70% of what you made now as a way to preserve your lifestyle. Well, my opinion is that those type of generalization might work for the people in the middle of the income band and is too little for those in the low-income and possibly too much for those with high income. My own approach is estimate your retirement income requirement by listing out your anticipated expenses as if you were doing budget. I would agree that's not the best approach either (back to my comment about no one size fits all), but it's one that I feel most comfortable with. Once you have that figure, factor in what you think you will get from the government (OAS, CPP and etc) and you will have the amount of money you need for retirement. I will warn against using \\\"\\\"average life expectancy\\\"\\\" to forecast your retirement needs, 'cos 50% of the people will end up with extra money (not a bad problem) and the other 50% will run out of money (bad but very true problem) if you use that approach. Instead of going on and write an essay on this topic, I will simply say this - everyone's situation is different and, just like solving any other complex problems, you need to start with \\\"\\\"end\\\"\\\" in mind and work things backward, with a ton of different scenario to be able to cope with whatever curveballs life might throw at you. If you spend enough time in the library/bookstore looking through books on the topic of \\\"\\\"estate planning\\\"\\\" and \\\"\\\"retirement planning\\\"\\\", you will find people arguing back and fro on these topics - this is a sign that this is complex and no one has the one \\\"\\\"good\\\"\\\" answer for. Do a bit of reading by yourself and, if still unsure or just want to be sure, go spend the money and review your plan with a fee-only advisor. They will be able to provide another opinion on your situation after thoroughly studying your situation.\\\"\",\n \"You may be able to find the answers to your question on the IRS web site: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Specifically, using this form to estimate taxes for salary: http://www.irs.gov/pub/irs-pdf/f1120w.pdf and this form to estimate taxes for dividends: http://www.irs.gov/pub/irs-pdf/f1040es.pdf\",\n \"I've found the systems that seem to work. Firstly, you need to find how much money is required to pay for the withdrawals after retirement, while still accruing interest. I couldn't seem to do this with an equation, but this bit of javascript worked: yearsToLast: Number of years of yearly withdrawals yearlyWithdrawal: Amount to withdraw each year interest: Decimal form of yearly compounding interest Now that we have how much is required at the beginning of the retirement, to figure out how much to add yearly to hit this mark, you'd use: amount: Previously found required amount to reach interest: Decimal form of yearly compounding interest yearsSaving: Number of years saving till amount needs to be hit I hope this helps some other poor soul, because I could find squat on how to do this. Max\",\n \"\\\"There are a couple of things that are missing from your estimate. In addition to your standard deduction, you also have a personal exemption of $4050. So \\\"\\\"D\\\"\\\" in your calculation should be $6300 + $4050 = $10,350. As a self-employed individual, you need to pay both the employee and employer side of the Social Security and Medicare taxes. Instead of 6.2% + 1.45%, you need to pay (6.2% + 1.45%) * 2 = 15.3% self-employment tax. In addition, there are some problems with your calculation. Q1i (Quarter 1 estimated income) should be your adjusted annual income divided by 4, not 3 (A/4). Likewise, you should estimate your quarterly tax by estimating your income for the whole year, then dividing by 4. So Aft (Annual estimated federal tax) should be: Quarterly estimated federal tax would be: Qft = Aft / 4 Annual estimated self-employment tax is: Ase = 15.3% * A with the quarterly self-employment tax being one-fourth of that: Qse = Ase / 4 Self employment tax gets added on to your federal income tax. So when you send in your quarterly payment using Form 1040-ES, you should send in Qft + Qse. The Form 1040-ES instructions (PDF) comes with the \\\"\\\"2016 Estimated Tax Worksheet\\\"\\\" that walks you through these calculations.\\\"\",\n \"There is a shortcut you can use when calculating federal estimated taxes. Some states may allow the same type of estimation, but I know at least one (my own--Illinois) that does not. The shortcut: you can completely base your estimated taxes for this year on last year's tax return and avoid any underpayment penalty. A quick summary can be found here (emphasis mine): If your prior year Adjusted Gross Income was $150,000 or less, then you can avoid a penalty if you pay either 90 percent of this year's income tax liability or 100 percent of your income tax liability from last year (dividing what you paid last year into four quarterly payments). This rule helps if you have a big spike in income one year, say, because you sell an investment for a huge gain or win the lottery. If wage withholding for the year equals the amount of tax you owed in the previous year, then you wouldn't need to pay estimated taxes, no matter how much extra tax you owe on your windfall. Note that this does not mean you will not owe money when you file your return next April; this shortcut ensures that you pay at least the minimum allowed to avoid penalty. You can see this for yourself by filling out the worksheet on form 1040ES. Line 14a is what your expected tax this year will be, based on your estimated income. Line 14b is your total tax from last year, possibly with some other modifications. Line 14c then asks you to take the lesser of the two numbers. So even if your expected tax this year is one million dollars, you can still base your estimated payments on last year's tax.\",\n \"\\\"J - Approaching the answer from the W4 perspective (for calculation purposes) may be more trouble that it's worth. I'd strongly suggest you use tax software, whether it's the 2016 SW or a current year one, on line, to get an estimate of your total tax bill for the year. You can then look at your current run rate of tax paid in to see if you are on track. If you have a large shortfall, you can easily adjust your withholdings. If you are on track to get a large refund, make the adjustment so next year will track better. Note, a withholding allowance is equal to a personal exemption. Some think that \\\"\\\"4\\\"\\\" means 4 people in the house, but it actually means \\\"\\\"don't tax 4 x $4050\\\"\\\" as I have $16200 in combined people or tax deductions.\\\"\",\n \"\\\"Note that mutual funds' quarterly/annual reports usually have this number. I generally just let my home-accounting software project my future net worth; its numbers agree well enough with those I've gotten from more \\\"\\\"professional\\\"\\\" sources such as monte-carlo modelling. (They'd agree better if I fed in all the details of my paycheck, but I don't feel like doing the work to keep that up to date.) I'm using Quicken, but I assume MS Money and other competitors have the same capability if you buy the appropriate version.\\\"\",\n \"Your contributions that you've already made are made and done, and will not disappear. What the Windfall Elimination Provision does is make sure that people do not collect the subsidized low-income payments while also collecting a full pension. People who did not pay anything into SS are able to collect money - less, but still something - from the system. Prior to this provision, people on full pensions who were exempt from SS contributions (such as teachers in many places) were able to still collect those amounts (which were never earned through contributions) even though they had quite significant pensions; that led to subsidies being given to people that didn't have as much need for them, as opposed to the indigent people who did need them. In your case, earning for 20+ years and then presumably only earning a small pension, you may be affected by this, but not necessarily severely. First of all, you are limited in how much your total reduction is to the lesser of a bit over $400 ($413 in 2015) or half your pension amount per month; so if you earn a $200 in pension monthly, your SS benefits are reduced by $100 monthly at most. Second, your percentage (and total cap) is reduced if you have over 20 years of credited work at 62 by 10% per credited year, and if you hit 30 years it's eliminated. So if you have 25 years right now, your total reduction is more like $200 at most. You also have an option to keep earning via credited work. Do some part-time work or summer work, for example. Sell things online. Whatever you need to do in order to get more years of credited work such that you end up with 30 years at 62. That will then increase your benefits back to the full amount. This article published on Nasdaq's website explains how this works in detail, including tables of benefit reductions. And, log in to ssa.gov to check how many years of creditable coverage you have and to see if you can get to 30 years and avoid any issues with this at all.\",\n \"“For example,” says the report, “75-year solvency could be achieved by raising taxes or reducing benefits for new recipients by about one-fifth if we started today. However, if policy makers wait until 2034, payroll taxes would have to be increased by nearly one third and it would be impossible to achieve solvency solely from reducing benefits for new beneficiaries.” Social Security was enacted in 1935. Medicare was enacted in 1965. Life expectancy at those times was 61 and 70, respectively. Today, average life expectancy is 80. Pushing the receipt age for these benefits makes the most sense and results in a two-fold savings, 1) benefits put into the system through additional payroll deduction and, 2) benefits are not taken out of the system.\",\n \"If I get a prepaid debit card for the money I make do I have to report my earnings? How do I go about doing this? Yes you must report this. It doesn't matter if they put it in your bank account, or on a debit card, or cash under the table. You have to report the income. You can count on your employer reporting the income to the IRS. What is the limit I can make when it comes to working while on social security? The Social Security Administration has all sort of info regarding working and receiving benefits. The exact answer depends on the type of benefit (retirement, disability, survivor) and your age (pre-full retirement age, the year you reach retirement age, post retirement age) I would look at their website: http://www.ssa.gov/retire2/whileworking.htm for examples: You can work while you receive Social Security retirement (or survivors) benefits. When you do, it could mean a higher benefit for you in the future. Each year we review the records for all working Social Security recipients. If your earnings for the prior year are higher than one of the years we used to compute your retirement benefit, we will recalculate your benefit amount. We pay the increase retroactive to January the year after you earned the money\",\n \"\\\"I think the math is wrong. Note that in Scenario #1, you are only out of pocket $1000, while in Scenario #2, you are out of pocket $1250; the contribution and the tax you paid with respect to it. A better concept than tax rate is \\\"\\\"Retention Rate\\\"\\\". This is the fraction of your money that the Feds let you keep. And Growth Factor is the how much the investment grows. So In Scenario #1, you multiply $1000 by the investment Growth Factor and then by the retirement Retention Rate. And in Scenario #2, you multiply the same $1000 by the current Retention Rate and then by the Growth Factor. Since in your approximation, the two GFs are the same, there is no saving...\\\"\",\n \"This is what I'm planning on. Retirement would be difficult, if not impossible, without the expected SS payments. In terms of current retirement planning, it's the difference between putting 20% of my income aside for retirement, and 35% of my income aside. It's one thing to keep the wealthy happy and tax free, it's another to deny 80% of the population something that they will have to have at some point.\",\n \"According to this site: You can apply for German benefits at any U.S. Social Security office by completing application form SSA-2490. So have a look at this form and collect everything you need. But this site also says that you need to have at least 5 years of pay. Worker-Male or female-Benefits payable at: age 65 with 5 years of coverage... I have found the info of 5 years minimum also elsewhere. So I guess you do not get any money from the Rentenversicherung (i.e. from the normal job) and I doubt that they will change that in the future. You may receive some money from your time as a Beamter and after 5 years as a Beamter it would be quite some money. But on some other site it has the 5 year figure also for the Pension: Die Pension wird für Beamte und Richter nur dann gezahlt, wenn diese mindestens fünf Jahre im Dienst aktiv tätig waren. They have also numbers to call on the first site, so you may ask them.\",\n \"I'll offer another answer, using different figures. Let's assume 6% is the rate of return you can expect. You are age 25, and plan to retire at age 65. If you have $0 and want $1M at retirement, you will need to put away $524.20/month, or $6,290.40/year, which is 15% of $41,936. So $41,936 is what you'd need to make per year in order to get to your target. You can calculate your own figures with a financial calculator: 480 months as your term (or, adjust this to your time horizon in months), .486755% as your interest (or, take your assumed interest rate + 1 to the 1/12th power and subtract 1 to convert to a monthly interest rate), 0 as your PV, and $1M as your FV; then solve for PMT.\",\n \"You might like https://planwise.com/index.htm\",\n \"If annualized rate of return is what you are looking for, using a tool would make it a lot easier. In the post I've also explained how to use the spreadsheet. Hope this helps.\",\n \"See the Mortgage Professor's calculators (#3). Go to bankrate and look up rates so you know what to punch in to those calculators.\",\n \"\\\"You'd need to talk with an attorney familiar with Social Security, or an appropriately qualified SSA representative to be sure - but all signs point to the idea that unfortunately Social Security does not work the way your father was told it would. And if he doesn't file to receive benefits the reality is actually much worse than \\\"\\\"throwing away free money\\\"\\\"! However, this is not due to a complete misunderstanding of the system! Social Security does work the way he thinks in some instances, just that the rules don't apply to his exact situation! First of all, retroactive benefits come in a few forms: File and suspend to get a lump only if you really need it - BEFORE the age of 70 only! In this method you apply for retirement, but you tell the SSA to suspend/delay your benefits. You are entitled to full lump sum of the payments you deferred...but at a cost of getting lower monthly benefits permanently (and that also lowers spousal and dependent children's benefits, too - if those could apply to your dad). But note that at the age of 70, Social Security will stop deferring the payments and start paying you the full maximum retirement benefit monthly, with no lump sum. This is a kind of emergency insurance policy for those who want to try to defer retirement benefits, but who want the opportunity to cash out and get the money they would have been getting \\\"\\\"just in case\\\"\\\". You can get up to 6 months of retroactive benefits, such as if you wait past your exact retirement age to apply for benefits. But no more: \\\"\\\"we cannot pay retroactive benefits for any month before you reached full retirement age or more than 6 months in the past\\\"\\\". As for after-death benefits, an estate can only get benefits that were already due to be paid, which generally means a person died and did not get their benefits for that month, so SSA can re-issue a check to the estate following these rules. But as a person cannot be due a lump sum payment after age 70 (for more than 6 months at most), the estate will only be able to get at most 1-6 months of payments (and 6 months is doubtful - you'll need to ask a lawyer if that much would even be possible). If your father was below 70 and wanted to file-and-suspend, the question of lump on death would be more complex and I don't know that answer - but once you are past 70 this doesn't matter any more as you aren't due a lump anymore. Given the above, we've established pretty clearly that if you don't claim your benefits within 6 months after age 70, any months of payment you would have gotten are just forfeited to the system. But if you claim the benefits and stick them in the bank, can they be taken? Well, if a lawsuit is really a worry, then yes these accumulated funds can required to pay a debt - but this potential for loss can be protected against without forfeiting the benefits entirely! This is not very common, but if your father doesn't need the money now he may be able to deposit some of the money into a special partially-lawsuit protected format of the Roth IRA (which has no age limits) as detailed here. If he never gets sued, that's OK - it's still his money! If he passes away, the value goes to his estate and does not disappear. And he doesn't forfeit any of his earned retirement benefits. Finally, I would like to share one last thing with you and your father. These benefits aren't free - he has been paying a portion of his paycheck for decades into Social Security, and now he is eligible for the maximum amount of benefits per month that he will qualify for - and if he wants to keep working he loses no benefit and the amount could potentially even go up. That's up to him. But not filing for benefits now will mean that all this money he's been paying in for decades will just be lost - they'll basically just be a tax he's paid out to other retirees. His estate (which means you kids) won't get any of it, either. That'd just be a waste for everyone involved. If you have continued doubts or questions, I wouldn't hesitate to consult a specialist lawyer or talk with the SSA directly to make sure this is all correct. It's his money, and he has earned his benefits for many years. I very much hope he gets to enjoy as much of them as he can!\\\"\",\n \"You have made a good start because you are looking at your options. Because you know that if you do nothing you will have a big tax bill in April 2017, you want to make sure that you avoid the underpayment penalty. One way to avoid it is to make estimated payments. But even if you do that you could still make a mistake and overpay or underpay. I think the easiest way to handle it is to reach the safe harbor. If your withholding from your regular jobs and any estimated taxes you pay in 2016 equal or exceed your total taxes for 2015, then even if you owe a lot in April 2017 you can avoid the underpayment penalty. If you AGI is over 150K you have to make sure your withholding is 110% of your 2015 taxes. Then set aside what you think you will owe in your bank account until you have to pay your taxes in April 2017. You only have to adjust your withholding to make the safe harbor. You can make sure easily enough once your file this years taxes. You only have to make sure that you reach the 100% or 110% threshold. From IRS PUB 17 Who Must Pay Estimated Tax If you owe additional tax for 2015, you may have to pay estimated tax for 2016. You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments. General rule. In most cases, you must pay estimated tax for 2016 if both of the following apply. You expect to owe at least $1,000 in tax for 2016, after subtracting your withholding and refundable credits. You expect your withholding plus your refundable credits to be less than the smaller of: a. 90% of the tax to be shown on your 2016 tax return, or b. 100% of the tax shown on your 2015 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers , later). Your 2015 tax return must cover all 12 months. Reminders Estimated tax safe harbor for higher income taxpayers. If your 2015 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2016 or 110% of the tax shown on your 2015 return to avoid an estimated tax penalty.\",\n \"\\\"You can simply use the previous year's tax liability as your basis for payments. Take the amount of tax you owed the previous year, divide by four, and use that amount for your estimated payments. As long as you're paying 100% of what you owed last year, you won't have any penalty. Except if your AGI is above a certain limit ($150k for married filing jointly in 2011), then you have to pay 110%. See IRS Pub 505 for details (general rule, special rule, under \\\"\\\"Higher Income Taxpayers\\\"\\\"). (H/T to @Dilip Sarwate for pointing out the 110% exception in a comment below.)\\\"\",\n \"\\\"Does your spouse work? That's one factor that can put your income into a higher bracket. The one difference to note is you will pay 2x the social security portion, so even though not \\\"\\\"federal\\\"\\\" tax, its right off the top nearly 13%. I'm not familiar with your states tax. It's really worth dropping the $75 on a copy of the software and running your own exact numbers.\\\"\",\n \"Fairly straightforward to match the result from the calculator soup link. There is a formula to calculate n from the future value s (using natural logs) In Excel This was derived as shown To calculate n from the inflation-adjusted future value si requires using a solver since an algebraic formula cannot be formulated. As demonstrated Calculations done using Mathematica 7.\",\n \"Your calculations look correct in that they will be withholding taxes at the full year income rate even though you will only have 1/3 of that income which will put you in a lower tax bracket. There are online sites where you can fill out a return for free. You can estimate your return by filling out a return using the numbers on your paystub (you will have to add in your last paystub manually). In regards to when you will get your refund check? I believe it comes within a month or so of filing.\",\n \"I have had pension programs with two companies. The first told you what your benefit would be if you retired at age X with Y years of service. Each year of service got you a percentage of your final years salary. There was a different formula for early retirement, and there was an offset for social security. They were responsible for putting enough money away each year to meet their obligations. Just before I left they did add a new feature. You could get the funds in the account in a lump sum when you left. If you left early you got the money in the account. If you left at retirement age you got the money that was needed to produce the benefit you were promised. Which was based on current interest rates. The second company had a plan where they published the funding formula. You knew with every quarterly statement how much was in your account, and what interest it had earned, and what benefit they estimated you would receive if you stayed until retirement age. This fund felt almost like a defined contribution, because the formula was published. If most people took the lump sum that was the only part that mattered. Both pension plans had a different set of formulas based on marriage status and survivor rules. The interest rates are important because they are used to determine how much money is needed to produce the promised monthly benefit. They are also used to determine how much they need to allocate each year to cover their obligations. If you can't make the math work you need to keep contacting HR. You need to understand how much should be flowing into the account each month.\",\n \"The Windfall Elimination Provision will possibly reduce your benefits from Social Security depending on how much money you receive as a pension from the TRS. Money that is earned toward your TRS pension will not have payroll taxes withheld, so it will certainly not count toward the calculation of your Social Security retirement numbers. Beyond that, this page from the Social Security Administration will help you calculate the impact on what you'll receive.\",\n \"\\\"It's not possible to determine whether you can \\\"\\\"expect a refund\\\"\\\" or whether you are claiming the right number of exemptions from the information given. If your wife were not working and you did not do independent contracting, then the answer would be much simpler. However, in this case, we must also factor in how much your contracting brings in (since you must pay income tax on that, as well as Medicare and, probably, Social Security), whether you are filing jointly or separately, and your wife's income from her business. There are also other factors such as whether you'll be claiming certain child care expenses, and certain tax credits which may phase out depending on your income. If you can accurately estimate your total household income for the year, and separate that into income from wages, contracting, and your wife's business, as well as your expenses for things like state and local income and property taxes, then you can make a very reasonable estimate about your total tax burden (including the self-employment taxes on your non-wage income) and then determine whether you are having enough tax withheld from your paycheck. Some people may find that they should have additional tax withheld to compensate for these expenses (see IRS W-4 Line #6).\\\"\",\n \"\\\"I assume your employer does standard withholding? Then what you need to do is figure what bracket that puts you in after you've done all your normal deductions. Let's say it's 25%. Then multiply your freelance income after business expenses, and that's your estimated tax, approximately. (Unless the income causes you to jump a bracket.) To that you have to add approximately 12-13% Social Security/Medicare for income between the $90K and $118,500. Filling out Form 1040SSE will give you a better estimate. But there is a \\\"\\\"safe harbor\\\"\\\" provision, in that if what you pay in estimated tax (and withholding) this year is at least as much as you owed last year, there's no penalty. I've always done mine this way, dividing last year's tax by 4, since my income is quite variable, and I've never been able to make sense of the worksheets on the 1040-ES.\\\"\",\n \"Line one shows your 1M, a return with a given rate, and year end withdrawal starting at 25,000. So Line 2 starts with that balance, applies the rate again, and shows the higher withdrawal, by 3%/yr. In Column one, I show the cumulative effect of the 3% inflation, and the last number in this column is the final balance (903K) but divided by the cumulative inflation. To summarize - if you simply get the return of inflation, and start by spending just that amount, you'll find that after 20 years, you have half your real value. The 1.029 is a trial and error method, as I don't know how a finance calculator would handle such a payment flow. I can load the sheet somewhere if you'd like. Note: This is not exactly what the OP was looking for. If the concept is useful, I'll let it stand. If not, downvotes are welcome and I'll delete.\",\n \"If you are just starting out, my tactic would be to go way high and then consider any different play money. So guess $90 and when it comes in at $60, buy a new shirt or go on a date.\",\n \"I wrote one to check against the N3 to N6 bonds: http://capitalmind.in/2011/03/sbi-bond-yield-calculator/ Things to note:\",\n \"\\\"The translation scheme is detailed in IRS Publication 15, \\\"\\\"Employer's Tax Guide\\\"\\\". For the 2010 version, the information is in Section 16 on Page 37. There are two ways that employers can calculate the withheld tax amount: wage bracket and percentage. Alternatively, they can also use one of the methods defined in IRS Publication 15-A. I'll assume the person making $60k/yr with 10 allowances is paid monthly ($5000/period) and married. Using the wage bracket method, the amount withheld for federal taxes would be $83 per pay period. Using the percentage method, it would be $81.23 per pay period. I don't recommend that you use this information to determine how to fill out your W-4. The IRS provides a special online calculator for that purpose, which I have always found quite accurate. Note: \\\"\\\"allowances\\\"\\\" are not the same as \\\"\\\"dependents\\\"\\\"; \\\"\\\"allowances\\\"\\\" are a more realistic estimation of your tax deductions, taking into consideration much more than just your dependents.\\\"\",\n \"\\\"As best as I can understand, your payout is based on your AIME, which is also capped at that same $118,500, so Trump's payout should also be equivalently small, exactly proportional to this cap Not sure what you want from Bernie here, but that is correct. Is it accurate to say that Trump will be paid by social security as though his actual income was $118,500, rather than his full income? Assuming Trump does pay that much (depends on how much of his income is actually subject to the FICA/SE tax), yes, it is accurate. However I believe what confuses you is the point Bernie Sanders made about people getting the same benefit while being rich. Bernie's point was that Trump and the likes don't need the social security income, while they're still getting it. Social Security is designed (at least theoretically) to be the safety net for people of age who cannot provide for themselves, thus it is not supposed to be \\\"\\\"you get what you paid\\\"\\\" system. This is a political discussion though. Social Security system, by definition, is based on a major principle of any socialist society: we as a group should support those who cannot support themselves. Thus, Bernie's point is that we shouldn't support Trump (and the likes) at all since they don't need that money. But they should still pay the tax to allow supporting those who do need, but cannot pay in.\\\"\",\n \"These are the steps I'd follow: $200 today times (1.04)^10 = Cost in year 10. The 6 deposits of $20 will be one time value calculation with a resulting year 7 final value. You then must apply 10% for 3 years (1.1)^3 to get the 10th year result. You now have the shortfall. Divide that by the same (1.1)^3 to shift the present value to start of year 7. (this step might confuse you?) You are left with a problem needing 3 same deposits, a known rate, and desired FV. Solve from there. (Also, welcome from quant.SE. This site doesn't support LATEX, so I edited the image above.)\",\n \"If you've already used TurboTax on your 2015 taxes, you can use the numbers TurboTax gave you as your reasonable estimate. Line 4 is your estimate of total tax liability for 2015. This would be line 63 of form 1040. This is Federal income tax only, not Social Security tax. Line 5 is the total of tax payments you made last year. You should be able to read this off your W-2 forms, Box 2. It corresponds to line 74 on the 1040. Line 6 is the difference between lines 4 and 5. You can't claim a refund on the extension, so if line 5 is more than line 4, enter 0. Otherwise, subtract line 5 from line 4, and enter it in line 6. This is the amount you should send in with the form to minimize any penalty due with your taxes later. The TurboTax software can generate this extension form automatically, I believe. Also, don't forget to give a copy of this extension form to your tax preparer. He will need to know the amount you sent in.\",\n \"You can't get there from here. This isn't the right data. Consider the following five-year history: 2%, 16%, 32%, 14%, 1%. That would give a 13% average annual return. Now compare to -37%, 26%, 15%, 2%, 16%. That would give a 4% average annual return. Notice anything about those numbers? Two of them are in both series. This isn't an accident. The first set of five numbers are actual stock market returns from the last five years while the latter five start three years earlier. The critical thing is that five years of returns aren't enough. You'd need to know not just how you can handle a bull market but how you do in a bear market as well. Because there will be bear markets. Also consider whether average annual returns are what you want. Consider what actually happens in the second set of numbers: But if you had had a steady 4% return, you would have had a total return of 21%, not the 8% that would have really happened. The point being that calculating from averages gives misleading results. This gets even worse if you remove money from your principal for living expenses every year. The usual way to compensate for that is to do a 70% stock/30% bond mix (or 75%/25%) with five years of expenses in cash-equivalent savings. With cash-equivalents, you won't even keep up with inflation. The stock/bond mix might give you a 7% return after inflation. So the five years of expenses are more and more problematic as your nest egg shrinks. It's better to live off the interest if you can. You don't know how long you'll live or how the market will do. From there, it's just about how much risk you want to take. A current nest egg of twenty times expenses might be enough, but thirty times would be better. Since the 1970s, the stock market hasn't had a long bad patch relative to inflation. Maybe you could squeak through with ten. But if the 2020s are like the 1970s, you'd be in trouble.\",\n \"\\\"There's a loophole that could enable you to have it both ways. Start taking it out as soon as you are eligible. e.g. at age 62. If you decide you want more, starting at age 65, you can \\\"\\\"start fresh\\\"\\\" (at a higher level) by repaying what you took out between ages 62-64 at face value. Essentially, you can take out an interest-free loan for those years. Or so the experts at Agora Financial have told me.\\\"\",\n \"If you can still work or have income to support yourself, I would wait. contrary to some media reports, Social Security has enough money to cover full benefits for a number of years to come, and there are solutions that don't involve cutting payouts. And as mentioned before it is likely you'll be grandfathered in if there are cuts.\",\n \"\\\"Your SSA payments are not IRA contributions, but they're actually a tax that is earmarked to the Social Security Trust Fund. As such, no, you don't have any \\\"\\\"contributions\\\"\\\" that can be refunded: you paid a tax, and in exchange for having paid that tax you will possibly later have a benefit. However, some foreign nationals are able to convey that benefit into their national savings plan. The Social Security Administration has a FAQ page on this particular subject. Unfortunately for you, Pakistan does not have a bilateral agreement according to their list, so you may be out of luck.\\\"\",\n \"I found one such tool here: Point-to-Point Returns tool\",\n \"\\\"I am pretty sure you could find a number of financial planners whom you could pay to give you a very accurate number, but the rule of thumb I like best is Save a dime of every dollar. 10% (Savings means save for retirement, not vacations.) Here is a nice article from radio personality Clark Howard with some adjustments based on your age: Saving for retirement later in life? If you're getting started saving for retirement later in life, the dime out of every dollar rule won't cut it for you. So for you, The Baltimore Sun has crunched the following numbers: Jayraj has a particularly good and just as simple bit of math. https://money.stackexchange.com/a/30751/91 Your retirement and financial planning should not end with a flat percentage. In fact, the chances that any simple math formula is adequate are very low. My percentages (or Jayraj's simple math) are only starting places. If you are at the point where you are asking \\\"\\\"where do I start\\\"\\\", starting with this super easy no-brainer approach is great because the key is starting and doing it.\\\"\",\n \"\\\"I disagree with the selected answer. There's no one rule of thumb and certainly not simple ones like \\\"\\\"20 cents of every dollar if you're 35\\\"\\\". You've made a good start by making a budget of your expected expenses. If you read the Mr. Money Mustache blogpost titled The Shockingly Simple Math Behind Early Retirement, you will understand that it is usually a mistake to think of your expenses as a fixed percentage of your income. In most cases, it makes more sense to keep your expenses as low as possible, regardless of your actual income. In the financial independence community, it is a common principle that one typically needs 25-30 times one's annual spending to have enough money to sustain oneself forever off the investment returns that those savings generate (this is based on the assumption of a 7% average annual return, 4% after inflation). So the real answer to your question is this: UPDATE Keats brought to my attention that this formula doesn't work that well when the savings rates are low (20% range). This is because it assumes that money you save earns no returns for the entire period that you are saving. This is obviously not true; investment returns should also count toward your 25-times annual spending goal. For that reason, it's probably better to refer to the blog post that I linked to in the answer above for precise calculations. That's where I got the \\\"\\\"37 years at 20% savings rate\\\"\\\" figure from. Depending on how large and small x and y are, you could have enough saved up to retire in 7 years (at a 75% savings rate), 17 years (at a 50% savings rate), or 37 years! (at the suggested 20% savings rate for 35-year olds). As you go through life, your expenses may increase (eg. starting a family, starting a new business, unexpected health event etc) or decrease (kid wins full scholarship to college). So could your income. However, in general, you should negotiate the highest salary possible (if you are salaried), use the 25x rule, and consider your life and career goals to decide how much you want to save. And stop thinking of expenses as a percentage of income.\\\"\",\n \"I also prefer to crunch the numbers myself. Here are some resources:\",\n \"I thought it was such a useful suggestion that I went ahead and created them. I'm sure you're not the only one who could derive some benefit from them, I know I will. http://www.investy.com/tools When I have some additional time, I will add the option for grace-periods, but for now I wanted to get them up so you could use the calculations as-is from the article. Enjoy. (Disclosure: I'm the founder of the site they are hosted on and I wrote the code for the calculators)\",\n \"\\\"I'm afraid you have missed a few of the outcomes commonly faced by millions of Americans, so I would like to take a moment to discuss a wider range of outcomes that are common in the United States today. Most importantly, some of these happen before retirement is ever reached, and have grave consequences - yet are often very closely linked to financial health and savings. Not planning ahead long-term - 10-20+ years - is generally associated with not planning ahead even for the next few months, so I'll start there. The most common thing that happens is the loss of a job, or illness/injury that put someone out of work. 6 in 10 adults in the US have less than $500 in savings, so desperation can set in very quickly, as the very next paycheck will be short or missing. Many of these Americans have no other source of saved money, either, so it's not like they can draw on retirement savings, as they don't have that either. Even if they are able to get another job or recover enough to get back to work in a few weeks, this can set off a desperate cycle. Those who have lost their jobs to technical obsolescence, major economic downturns, or large economic changes are often more severely affected. People once making excellent, middle-class (or above) wages with full benefits find they cannot find work that pays even vaguely similarly. In the past this was especially common in heavy labor jobs like manufacturing, meat-packing, and so on, but more recently this has happened in financial sectors and real estate/construction during the 2008 economic events. The more resilient people had padding, switched careers, and found other options - the less resilient, didn't. Especially during the 1970s and 1980s, many people affected by large losses of earning potential became sufficiently desperate that they fell heavily (or lost their functioning status) into substance abuse, including alcohol and drugs (cocaine and heroine being especially popular in this segment of the population). Life disruption - made even more major by a lack of savings - is a key trigger to many people who are already at risk of issues like substance addiction, mental health, or any ongoing legal issues. Another common issue is something more simple, like loss of transportation that threatens their ability to hold their job, and a lack of alternatives available through support networks, savings, family, and public transit. If their credit is bad, or their income is new, they may find even disreputable companies turn them away, or even worse - the most disreputable companies welcome them in with high interest and hair-trigger repossession policies. The most common cycle of desperation I have seen usually starts with banking over-drafts, and its associated fees. People who are afraid and desperate start to make increasingly desperate, short-sighted choices, as tunnel-vision sets in and they are unable to consider longer-term strategy as they focus on holding on to what they have and survival. Many industries have found this set of people quite profitable, including high-interest \\\"\\\"check cashing\\\"\\\", payday loans, and title loans (aka legal loan sharks), and it is not rare that desperate people are encouraged to get on increasing cycles of loan amounts and fees that worsen their financial situation in exchange for short-term relief. As fees, penalties, and interest add up, they lose more and more of their already strained income to stay afloat. Banks that are otherwise reputable and fair may soon blacklist them and turn them away, and suddenly only the least reputable and most predatory places offer to help at all - usually with a big smile at first, and almost always with awful strings attached. Drugs and alcohol are often readily available nearby and their use can easily turn from recreational to addictive given the allure of the escapism it offers, especially for those made vulnerable by increasing stress, desperation, loss of hope, isolation, and fear. Those who have not been within the system of poverty and desperation often do not see just how many people actively work to encourage bad decision making, with big budgets, charm, charisma, and talent. The voices of reason, trying to act as beacons to call people to take care of themselves and their future, are all too easily drowned out in the roar of a smooth and enticing operation. I personally think this is one of the greatest contributions of the movement to build personal financial health and awareness, as so many great people find ever more effective ways of pointing out the myriad ways people try to bleed your money out of you with no real concern for your welfare. Looking out for your own well-being and not being taking in by the wide array of cons and bad deals is all too often fighting against a strong societal current - as I'm sure most of our regular contributors are all too aware! With increasing desperation often comes illegal maneuvers, often quite petty in nature. Those with substance abuse issues often start reselling drugs to others to try to cover lost income or \\\"\\\"get ahead\\\"\\\", with often debilitating results on long-term earning potential if they get caught (which can include cost barriers to higher education, even if they do turn their life around). I think most people are surprised by how little and petty things can quickly cycle out of control. This can include things like not paying minor parking or traffic tickets, which can snowball from the $10-70 range into thousands of dollars (due to non-payment often escalating and adding additional penalties, triggering traffic stops for no other reason, etc.), arrest, and more. The elderly are not exempt from this system, and many of America's elderly spend their latter years in prison. While not all are tied to financial desperation as I've outlined above, a deeper look at poverty, crime, and the elderly will be deeply disturbing. Some of these people enter the system while young, but some only later in life. Rather than homelessness being something that only happens after people hit retirement, it often comes considerably earlier than that. If this occurs, the outcome is generally quite a bit more extreme than living off social security - some just die. The average life expectancy of adults who are living on the street is only about 64 years of age - only 2 years into early retirement age, and before full retirement age (which could of course be increased in the next 10-20 years, even if life expectancy and health of those without savings don't improve). Most have extremely restricted access to healthcare (often being emergency only), and have no comforts of home to rest and recuperate when they become ill or injured. There are many people dedicated to helping, yet the help is far less than the problem generally, and being able to take advantage of most of the help (scheduling where to go for food, who to talk to about other services, etc) heavily depends on the person not already suffering from conditions that limit their ability to care for themselves (mental conditions, mobility impairments, etc). There is also a shockingly higher risk of physical assault, injury, and death, depending on where the person goes - but it is far higher in almost every case, regardless. One of the chief problems in considering only retirement savings, is it assumes that you'll only have need for the savings and good financial health once you reach approximately the age of 62 (if it is not raised before you get there, which it has been multiple times to-date). As noted above, if homelessness occurs and becomes longstanding before that, the result is generally shortened lifespan and premature death. The other major issue of health is that preventative care - from simple dentistry to basic self-care, adequate sleep and rest, a safe place to rejuvenate - is often sacrificed in the scrambling to survive and limited budget. Those who develop chronic conditions which need regular care are more severely affected. Diabetic and injury-related limb loss, as one example, are far more likely for those without regular support resources - homeless, destitute, or otherwise. Other posters have done a great job in pointing out a number of the lesser-known governmental programs, so I won't list them again. I only note the important proviso that this may be quite a bit less in total than you think. Social Security on average pays retired workers $1300 a month. It was designed to avoid an all-too-common occurrence of simple starvation, rampant homelessness, and abject poverty among a large number of elderly. No guarantee is made that you won't have to leave your home, move away from your friends and family if you live in an expensive part of the country, etc. Some people get a bit more, some people get quite a bit less. And the loss of family and friend networks - especially to such at-risk groups - can be incredibly damaging. Note also that those financially desperate will be generally pushed to take retirement at the minimum age, even though benefits would be larger and more livable if they delayed their retirement. This is an additional cost of not having other sources of savings, which is not considered by many. Well, yes, many cannot retire whether they want to or not. I cannot find statistics on this specifically, but many are indeed just unable to financially retire without considerable loss. Social Security and other government plans help avoid the most desperate scenarios, but so many aspects of aging is not covered by insurance or affordable on the limited income that aging can be a cruel and lonely process for those with no other financial means. Those with no savings are not likely to be able to afford to regularly visit children and grandchildren, give gifts on holidays, go on cruises, enjoy the best assistive care, or afford new technological devices to assist their aging (especially those too new and experimental to be covered by the insurance plans they have). What's worse - but most people do not plan for either - is that diminished mental and physical capacity can render many people unable to navigate the system successfully. As we've seen here, many questions are from adult children trying to help their elderly parents in retirement, and include aging parents who do not understand their own access to social security, medicaid/medicare, assistive resources, or community help organizations. What happens to those aging without children or younger friend networks to step in and help? Well, we don't really have a replacement for that. I am not aware of any research that quantifies just how many in the US don't take advantage of the resources they are fully qualified to make use of and enjoy, due to a lack of education, social issues (feeling embarrassed and afraid), or inability to organize and communicate effectively. A resource being available is not very much help for those who don't have enough supportive resources to make use of it - which is very hard to effectively plan for, yet is exceedingly common. Without one's own independent resources, the natural aging and end of life process can be especially harsh. Elderly who are economically and food insecure experience far heightened incidence of depression, asthma, heart attack, and heart failure, and a host of other maladies. They are at greater risk for elder-abuse, accidental death, life-quality threatening conditions developing or worsening, and more. Scare-tactics aren't always persuasive, and they do little to improve the lives of many because the people who need to know it most generally just don't believe it. But my hope here is that the rather highly educated and sophisticated audience here will see a little more of the harsher world that their own good decisions, good fortune, culture, and position in society shields them from experiencing. There is a downside to good outcomes, which is that it can cause us to be blind to just how extremely different is the experience of others. Not all experience such terrible outcomes - but many hundreds of thousands in the US alone - do, and sometimes worse. It is not helpful to be unrealistic about this: life is not inherently kind. However, none of this suggests that being co-dependent or giving up your own financial well-being is necessary or advised to help others. Share your budgeting strategies, your plans for the future, your gentle concerns, and give of your time and resources as generously as you can - within your own set budgets and ensuring your own financial well-being. And most of all - do not so easily give up on your family and friends, and count them as life-long hopeless ne'er-do-wells. Let's all strive to be good, kind, honest, and offer non-judgmental support and advice to the best of our ability to the people we care about. It is ultimately their choice - restricted by their own experiences and abilities - but need not be fate. People regularly disappoint, but sometimes they surprise and delight. Take care of yourself, and give others the best chance you can, too.\\\"\",\n \"\\\"Interesting question. How is social security funded? The social security system works by using current payroll taxes as funding to pay benefits to retirees. Historically there was always more money coming in then what was being paid out in benefits. This changed at the beginning of March, 2010 when social security started paying out more than it was taking in (this article estimates the exact date to be around March 3 or March 4 - the chart below has the approximate date highlighted with the red circle). Due to the baby boomer generation it is estimated that social security will now be perpetually in the red unless changes are made. The recent reduction in payroll taxes will not help social security solvency. What was done with all the extra money social security collected over the last three decades? The Social Security Trust Fund (SSTF) was required to purchase special-issue US government bonds with the excess funds. The SSTF was essentially purchasing US government debt with the excess funds. This allowed congress to spend the excess funds. The special-issue funds are different then normal US treasuries in that the SSTF can redeem special-issue bonds at face value at any time (even before maturity). The SSTF is currently holding $2.5 Trillion of these special-issue bonds as assets. What next? Hell if I know. The SSTF was a major purchaser of US debt over the last few decades (to the tune of $2.5 trillion). That changed in 2010. The SSTF is no longer purchasing US debt at the same time the US government is issuing record amounts of debt. The SSTF could begin redeeming its bonds to meet payment obligations. When it redeems the bonds the US treasury must cough up the funds. Where is it the US government going to get the money especially when it is currently borrowing money at record levels? I read many articles that say that we don't have to count SSTF bond holdings as debt since we owe it to ourselves. That always makes me chuckle. The US government owes the SSTF $2.5 Trillion. I'm not the US government so don't count me in the \\\"\\\"we\\\"\\\" part of \\\"\\\"we owe it to ourselves\\\"\\\". I'm also fairly certain I will never see a dime of social security so don't count me in the \\\"\\\"ourselves\\\"\\\" portion either. Charts were obtained from here.\\\"\",\n \"When you enter your expected gross income into the worksheet - just enter $360000 and leave everything else as is. That should give you the right numbers. Same for State (form DE-4).\",\n \"How much debt do you have? Do you have a mortgage? Car loans? At the very least depending on your state 25k will be subtracted So you're left with 75k Let me know so we can make that money work for you\",\n \"The usual, but controversial, answer to this question is a 4% withdrawal rate. This means a net worth of ($5000 * 12 months ) / 4%, i.e., $1,500,000 If you want to play with the numbers, based on historical data, you can use the FIRECalc simulator.\",\n \"Pete, 25 years of inflation looks like 100% to me with back of napkin math. $220K will feel like $110K. In today's dollars, can you live on $110K? (Plus whatever Social Security you'll get)? My concern from what you wrote, if I'm reading it correctly, is that you have this great income, but relatively low savings until now. From the recent question Building financial independence I offered a guide to savings as it compares to income. Even shifted 5 years for a later start, and scaled for a 70-75% replacement ratio, you should be at 2X (or $440K) by now. That's not a criticism, but an observation that you've been spending at a nice clip so far. The result is less saving, of course, but also a need for a higher replacement ratio. Last, a 10% return for the next 25 years may be optimistic. I'm not forecasting doom or gloom, just a more reasonable rate of return, and wouldn't plan to see higher than 7-8% for purposes of planning. If I am wrong, (and if so, we can both laugh all the way to the bank) you can always scale back savings in 10-15 years. Or retire earlier. Note: Pete's question asks about a 40 year old working till 65, but the comment below has him 48 and planning to work until 62. 14 years of $45K deposits total less than $700K. Even at 10%, it wouldn't grow to much more than $2M, let alone $5M.\",\n \"Well i dont know of any calculator but you can do the following 1) Google S&P 500 chart 2) Find out whats the S&P index points (P1) on the first date 3) Find out whats the S&P index points (P2) on the second date 4) P1 - P2 = result\",\n \"Until you find a job, I would recommend doing nothing more than a bank checking account or a checking and savings account. Some alternatives, such as savings bonds, would be okay if you were perfectly sure you did not need the money in the next six months. Consider working for a place such as McDonald's in the meantime. Once you have stable employment, there are two paths you could take. The first is a bond fund. It would provide fair market returns for the time between now and the collection of social security. The second would be a traditional annuity. You have to be careful with them. If it sounds much better than what others are offering, it is probably a scam. Your interest in an annuity is that it will pay you money for as long as you live. If you live to be 105 you will still be getting payments. A bond fund would have run out of money long ago by that time. The biggest thing for you right now is getting to when Medicare takes over from private health. Looking for any job is important right now to preserve cash. Although I do not normally recommend annuities, I do with smaller amounts of cash. It is unlikely you will ever recover this sum again and the time remaining to save is very short. The greatest challenge with an annuity is regret. You can't get the money back once you have turned it into an income stream. On the other hand, it will last as long as you live. The only important caveat is that if you are in poor health, then the bond fund would be better for you because you may not live to be very old.\",\n \"After some thought, I follow Dave Ramsey's advice because it's simple and I can do the math in my head - no online calculator needed. :) You need Life Insurance if someone depends on your income. You can replace your income with a single lump sum of 8-10 times your current income where those who need your income, can get roughly your salary each year from the life insurance proceeds.\",\n \"Via www.socialsecurity.gov: As a result of changes to Social Security enacted in 1983, benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted. These estimates reflect the intermediate assumptions of the Social Security Board of Trustees in their 2009 Annual Trustees Report. The Congressional Budget Office (CBO) has been making similar estimates for several years that tend to be somewhat more optimistic than the trustees' estimates principally because CBO assumes faster growth in labor productivity and real earnings levels for the future. Doesn't seem too optimistic from the program itself. Also, it is true that recessions end, but in our current state of being trillions of dollars in debt, does it look like things are on the upswing?\",\n \"Good news! It will be enough if you make the most important decision after retirement; that is, the decision to live within your means. With $220,000 per year in 2015 resources, will you live in the same size home in the same location as you do now? Or will you downsize a bit and move to a town with more reasonably priced homes and lower taxes? Apply the same thinking to all of your expenses. In my opinion, making the decision to live within your means is the biggest decision you can make going into retirement.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Some details in case you are interested: Being a defined benefit kind of pension plan, the formula for your Social Security benefits isn't tied directly to FICA contributions, and I'm not aware of any calculator that performs an ROI based on FICA contributions. Rather, how much you'll get in retirement is based on your average indexed monthly earnings. Here's some information on the Social Security calculation from the Social Security Administration - Primary Insurance Amount (PIA): For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his/her PIA will be the sum of: (a) 90 percent of the first $791 of his/her average indexed monthly earnings, plus (b) 32 percent of his/her average indexed monthly earnings over $791 and through $4,768, plus (c) 15 percent of his/her average indexed monthly earnings over $4,768. Here's an example. Of course, to calculate a benefit in the future, you'll need to calculate projected average indexed monthly earnings; more details here. You'll also need to make assumptions about what those bend points might be in the future. The average wage indexing values for calculating the AIME are available from the Social Security Administration's site, but future indexing values will also need to be projected based on an assumption about their inflation. You'll also need to project the Contribution and Benefit Base which limits the earnings used to calculate contributions and benefits. Also, the PIA calculation assumes benefits are taken at the normal retirement age. Calculating an early or late retirement factor is required to adjust benefits for another age. Then, whatever benefits you get will increase each year, because the benefit is increased based on annual changes in the cost of living. Performing the series of calculations by hand isn't my idea of fun, but implementing it as a spreadsheet (or a web page) and adding in some \"\"ROI based on FICA contributions\"\" calculations might be an interesting exercise if you are so inclined? For completeness sake, I'll mention that the SSA also provides source code for a Social Security Benefit Calculator.\"","There has been an abundance of articles in recent years which make it fairly clear that many participants in the Social Security system-- especially those who have started contributing recently, and going forward from that-- will experience negative rates of return. In other words, they will put in more than they will get out. Some examples of such articles: Time Magazine: But it is now official: Social Security is a lousy investment for the average worker. People retiring today will be among the first generation of workers to pay more in Social Security taxes than they receive in benefits over the course of their lives, according to a new analysis by the Associated Press. That AP piece, referenced by Time: People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It's a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press. A piece which appeared in DailyFinance (includes a helpful graphic summary): 10 Myths About Social Security: Myth 4: Social Security Is a Good Deal for Today’s WorkersEven if there were no reduction in benefits or increase in taxes—an impossibility given Social Security’s looming financing shortfalls—Social Security is an extremely bad investment for most young workers. In fact, according to a study by the nonpartisan Tax Foundation, most young workers will actually receive a negative return on their Social Security taxes— they will get less in benefits than they paid in taxes. Some studies indicate that a 30- year-old two-earner couple with average income will lose as much as $173,500. That actual loss does not even consider the opportunity cost, what workers might have earned if they had been able to invest their taxes in real assets that yield a positive return. In fact, a study by financial analyst William Shipman demonstrates that, if a 25-year-old worker were able to privately invest the money he or she currently pays in Social Security taxes, the worker would receive retirement benefits three to six times higher than under Social Security. Has that answered your question?","The social security administration has a webpage to get your Social Security estimate. It replaces the yearly estimate they used to mail everybody. It shows the amount you paid for social security and medicare and what they estimate you will receive at your retirement age. They also discuss disability benefits. Everybody should do this every year. Though it does take a few months to get the previous years numbers updated into the system. If you notice a problem with the money they think you paid into the system in a particular year, you can send them an old W-2 and get the numbers corrected."],"string":"[\n \"\\\"Some details in case you are interested: Being a defined benefit kind of pension plan, the formula for your Social Security benefits isn't tied directly to FICA contributions, and I'm not aware of any calculator that performs an ROI based on FICA contributions. Rather, how much you'll get in retirement is based on your average indexed monthly earnings. Here's some information on the Social Security calculation from the Social Security Administration - Primary Insurance Amount (PIA): For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his/her PIA will be the sum of: (a) 90 percent of the first $791 of his/her average indexed monthly earnings, plus (b) 32 percent of his/her average indexed monthly earnings over $791 and through $4,768, plus (c) 15 percent of his/her average indexed monthly earnings over $4,768. Here's an example. Of course, to calculate a benefit in the future, you'll need to calculate projected average indexed monthly earnings; more details here. You'll also need to make assumptions about what those bend points might be in the future. The average wage indexing values for calculating the AIME are available from the Social Security Administration's site, but future indexing values will also need to be projected based on an assumption about their inflation. You'll also need to project the Contribution and Benefit Base which limits the earnings used to calculate contributions and benefits. Also, the PIA calculation assumes benefits are taken at the normal retirement age. Calculating an early or late retirement factor is required to adjust benefits for another age. Then, whatever benefits you get will increase each year, because the benefit is increased based on annual changes in the cost of living. Performing the series of calculations by hand isn't my idea of fun, but implementing it as a spreadsheet (or a web page) and adding in some \\\"\\\"ROI based on FICA contributions\\\"\\\" calculations might be an interesting exercise if you are so inclined? For completeness sake, I'll mention that the SSA also provides source code for a Social Security Benefit Calculator.\\\"\",\n \"There has been an abundance of articles in recent years which make it fairly clear that many participants in the Social Security system-- especially those who have started contributing recently, and going forward from that-- will experience negative rates of return. In other words, they will put in more than they will get out. Some examples of such articles: Time Magazine: But it is now official: Social Security is a lousy investment for the average worker. People retiring today will be among the first generation of workers to pay more in Social Security taxes than they receive in benefits over the course of their lives, according to a new analysis by the Associated Press. That AP piece, referenced by Time: People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It's a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press. A piece which appeared in DailyFinance (includes a helpful graphic summary): 10 Myths About Social Security: Myth 4: Social Security Is a Good Deal for Today’s WorkersEven if there were no reduction in benefits or increase in taxes—an impossibility given Social Security’s looming financing shortfalls—Social Security is an extremely bad investment for most young workers. In fact, according to a study by the nonpartisan Tax Foundation, most young workers will actually receive a negative return on their Social Security taxes— they will get less in benefits than they paid in taxes. Some studies indicate that a 30- year-old two-earner couple with average income will lose as much as $173,500. That actual loss does not even consider the opportunity cost, what workers might have earned if they had been able to invest their taxes in real assets that yield a positive return. In fact, a study by financial analyst William Shipman demonstrates that, if a 25-year-old worker were able to privately invest the money he or she currently pays in Social Security taxes, the worker would receive retirement benefits three to six times higher than under Social Security. Has that answered your question?\",\n \"The social security administration has a webpage to get your Social Security estimate. It replaces the yearly estimate they used to mail everybody. It shows the amount you paid for social security and medicare and what they estimate you will receive at your retirement age. They also discuss disability benefits. Everybody should do this every year. Though it does take a few months to get the previous years numbers updated into the system. If you notice a problem with the money they think you paid into the system in a particular year, you can send them an old W-2 and get the numbers corrected.\"\n]","isConversational":false}}},{"rowIdx":258,"cells":{"_id":{"kind":"string","value":"3254"},"query":{"kind":"string","value":"Why do people buy US dollars on the black market?"},"gt_ids":{"kind":"list like","value":["484891","443511","475756"],"string":"[\n \"484891\",\n \"443511\",\n \"475756\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["443511","475756","484891","177264","190347","161727","171228","227300","525056","255769","68975","124862","359405","254876","491225","575359","136860","254405","526270","97059","506818","183149","148454","345725","351805","402006","417509","76909","44492","176975","3366","372374","235322","42951","373853","292714","273478","395246","247542","447447","240996","310250","572523","117010","300948","248817","160625","508766","215708","14875","241631","90845","201183","166870","19618","595642","399234","138892","110360","478065","409403","362974","549773","76907","486418","482590","592251","313706","180972","343913","116921","232870","146478","42463","37662","26479","386909","106421","490113","324546","317667","393249","540451","435230","575495","167589","564828","499875","505763","52643","549556","389005","182195","202570","557550","568730","322456","183331","443683","506780"],"string":"[\n \"443511\",\n \"475756\",\n \"484891\",\n \"177264\",\n \"190347\",\n \"161727\",\n \"171228\",\n \"227300\",\n \"525056\",\n \"255769\",\n \"68975\",\n \"124862\",\n \"359405\",\n \"254876\",\n \"491225\",\n \"575359\",\n \"136860\",\n \"254405\",\n \"526270\",\n \"97059\",\n \"506818\",\n \"183149\",\n \"148454\",\n \"345725\",\n \"351805\",\n \"402006\",\n \"417509\",\n \"76909\",\n \"44492\",\n \"176975\",\n \"3366\",\n \"372374\",\n \"235322\",\n \"42951\",\n \"373853\",\n \"292714\",\n \"273478\",\n \"395246\",\n \"247542\",\n \"447447\",\n \"240996\",\n \"310250\",\n \"572523\",\n \"117010\",\n \"300948\",\n \"248817\",\n \"160625\",\n \"508766\",\n \"215708\",\n \"14875\",\n \"241631\",\n \"90845\",\n \"201183\",\n \"166870\",\n \"19618\",\n \"595642\",\n \"399234\",\n \"138892\",\n \"110360\",\n \"478065\",\n \"409403\",\n \"362974\",\n \"549773\",\n \"76907\",\n \"486418\",\n \"482590\",\n \"592251\",\n \"313706\",\n \"180972\",\n \"343913\",\n \"116921\",\n \"232870\",\n \"146478\",\n \"42463\",\n \"37662\",\n \"26479\",\n \"386909\",\n \"106421\",\n \"490113\",\n \"324546\",\n \"317667\",\n \"393249\",\n \"540451\",\n \"435230\",\n \"575495\",\n \"167589\",\n \"564828\",\n \"499875\",\n \"505763\",\n \"52643\",\n \"549556\",\n \"389005\",\n \"182195\",\n \"202570\",\n \"557550\",\n \"568730\",\n \"322456\",\n \"183331\",\n \"443683\",\n \"506780\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as whether or not the person is studying at a foreign university. If the citizen wants to exchange more dollars than legally allowed, that person must buy or sell at the \"\"black\"\" market rate, rather than through the official/government market.\"","\"As a Venezuelan who used to buy USD, I believe there is not better explanation than the one given to someone who actually lives and works here in Venezuela. Back in 1998 when Hugo Chavez took the presidency, we had a good economy. Fast forward 10 years laters and you could see how poor management, corruption and communist measurements had wreaked havoc in our Economy. It was because most of the money (USD) coming in Venezuela were not invested here but instead, given away to \"\"pimp countries\"\" like Cuba. Remember, communism lasts while you have money. Back then we had an Oil Barrel going over 100$ and crazy amounts of money were coming in the country. However, little to no money was invested in the country itself. That is why some of the richest people with bank account in Swiss are Venezuelans who stole huge amounts of Oil Money. I know this is a lot to take in, but all of this led to Venezuelan economy being the worst in The American Continent and because there is not enough money inside the country to satisfy the inner market, people would pay overprice to have anything that is bought abroad. You have to consider that only a very small amount of people can actually buy USD here in Venezuela. Back in 2013 I was doing it, I could buy about 80 usd/month with my monthly income. However, nowdays that's nearly impossible for about 99% of Venezuelans. To Illustrate. Minimum wage = 10.000 bolivares / month Black market exchange rate (As of January 2016) = 900bs per 1usd 10.000/900 = 11,11 usd. <<< that is what about 50% of Venezuelans earn every month. That's why this happens: http://i.imgur.com/dPOC2e3.jpg The guy is holding a huge stack of money of the highest Venezuelan note, which he got from exchanging only 100 usd. I am a computer science engineer, the monthly income for someone like me is about 30.000 bolivares --- so that is about 34$ a month. oh dear! So finally, answering your question Q: Why do people buy USD even at this unfavorable rate? A: There are many reasons but being the main 2 the following 1.- Inflation in Venezuela is crazy high. The inflation from 2014-2015 was 241%. Which means that having The Venezuelan currency (Bolivares) in your bank account makes no sense... in two weeks you won't be able to buy half of the things you used to with the same amount of money. 2.- A huge amount of Venezuelans dream with living abroad (me included) why, you ask? well sir, it is certain that life in this country is not the best: I hope you can understand better why people in 3rd world countries and crappy economies buy USD even at an unfavorable rate. The last question was: Q: Why would Venezuela want to block the sale of dollars? A: Centralized currency management is an Economic Measure that should last 6 months tops. (This was Argentina's case in 2013) but at this point, reverting that would take quite a few years. However, Turukawa's wikipedia link explains that very well. Regards.\"","\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (such as nationalising businesses) or general instability / scarcity. The governments act to manage that uncertainty by limiting the availability of foreign exchange and pegging the exchange rate. Since there is an inadequate supply of trusted foreign currency people turn to informal exchanges in order to hedge their currency risk. This creates a negative feedback loop. People in government who have access to foreign exchange start to trade on informal markets, pocketing the difference in the official and unofficial rates. The increasing gap between the two rates drives increasing informal market exchange and can result in speculative bubbles. Driving instability (or economic contradiction) is that the massive and increasing difference between the official and market exchange rates becomes a powerful form of rent for government officials. This drives further state-led rent-seeking behaviour and causes the economy to become even more unstable. If you're interested in a more formal academic study of how such parallel markets in currency arise, \"\"Zimbabwe’s Black Market for Foreign Exchange\"\" by Albert Makochekanwa at the University of Pretoria is a useful source.\"","\"I suspect that to \"\"make money\"\" it isn't enough to know the current value (\"\"high currency\"\"): to make money you'd need to know/guess/predict/bet on the future change in value: will the currency value go higher in the future? Or will it come down again? Or will it stay the same? Everybody knows the current value, so that by itself isn't enough knowledge to make money from. That said, if you know you're going to need American dollars in the future (if you have future expenses which need to be paid in American dollars), then now might be a good time to buy those dollars.\"","\"Well there are a couple reasons that people from various countries use specific currencies: 1. Government courts will recognize the settlement of contracts if they are paid with their local currency. So even if you wanted to be paid in Swiss Francs, your contracting partner can choose to pay you in USD instead. This artificially inflates the value of the local currency by increasing demand for it. 2. You're only allowed to pay your taxes in the local currency. This also artificially increases the demand for it, and it's the \"\"root value\"\" of the currency - people clamor for bits of green paper because if they don't have enough of it to pay off the tax man, they'll go to jail.\"","Well, sure, why else would you buy them? Is it illegal now to accept money *from* PDVSA? Because I know my company does business with them, and if we are going to ship what we built for them, we need to see the money.","Weather events and aging infrastructure. Cash will buy gasoline, food and water when there is no power or telephone connectivity to process ATMs and credit cards.","Typically, the higher interest rates in local currency cover about the potential gain from the currency exchange rate change - if not, people would make money out of it. However, you only know this after the fact, so either way you are taking a risk. Depending on where the local economy goes, it is more secure to go with US$, or more risky. Your guess is as good as anyone. If you see a chance for a serious meltdown of the local economy, with 100+% inflation ratios and possibly new money, you are probably better off with US$. On the other hand, if the economy develops better than expected, you might have lost some percentage of gain. Generally, investing in a more stable currency gets you slightly less, but for less risk.","Devaluation is a relative term, so if you want to protect yourself against devaluation of your currency against dollars - just buy dollars. Inflation is something you cannot protect yourself against because it is something that describes the purchasing power of the money. You will still need to purchase, and usually with money. A side effect of inflation is usually devaluation against other currencies. So one of the ways to deal with inflation is not to keep the money in your currency over time, and only convert from a more stable currency when you need to make purchases. Another way is to invest in something tangible that can easily be sold (for example, jewelery and precious metals, but it has other risks). Re whats legal and illegal in your country - we don't really know because you didn't tell what country that is to begin with, but the usual channels like travelers' checks or bank transfer should work. Carrying large amounts of cash are usually either illegal or strictly regulated.","Transfer your savings to a dollar-based CD. Or even better, buy some gold on them.","Just because pricing isn't tracked, doesn't mean the dollar price is not backed up by oil (they are others factors involved, of course). But the very fact that OPEC, the worlds largest oil cartel, currently only trade in dollars, effectively means that everyone who wants oil needs dollars to buy it. Therefore, to function in modern global economy, dollars are always needed regardless of exchange rates or interest rates on bonds. In reality the amount debt the US has backed up against its currency wouldn't hold for any other country, apart from US, with its petrodollar status.","\"To speak to this a little more broadly: apart from groups like hedge funds and other investors investing for purely speculative purposes, one of the major purposes of forwards (and, for that matter, futures) for companies in the \"\"real economy\"\" is to \"\"lock in\"\" a particular price in advance (or to reduce the risk of some kind of investment or transaction). Investopedia defines a currency forward as follows (with a few key points emphasized): [A currency forward is] a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment. The other major benefit of a currency forward is that it can be tailored to a particular amount and delivery period, unlike standardized currency futures. This can be a major advantage for planning and risk management purposes. For example, if I know I'm going to have to pay $1 million USD in the future and most of my revenue is in Euros, the actual amount I'll have to pay will vary based on the exchange rate between Euros and dollars. Thus, it's very worthwhile for me to be able to \"\"lock in\"\" a particular exchange rate so that I know exactly how much I'm going to pay relative to my projected revenue. The goal isn't necessarily to make money off the transaction (maybe they do, maybe they don't) as much as to reduce risk and improve planning ability. The fact that it doesn't involve an up-front payment is also a major advantage. It's usually a bad practice to \"\"sit on\"\" cash for a year if you can avoid it. Another key point: savings accounts pay less interest than inflation. If inflation is 3% and your savings account pays 1%, that looks remarkably like a guaranteed 2% loss to me.\"","> Hence all businesses in the US, no matter what currency they make money in, have to buy USD to pay their taxes. So that means that means other currencies are valueless since X government doesn't see Y currency as a means of payment? Also, you don't buy so much as trade but potatoes potatos.","It's already gone through a big correction, but another crash is a possibility. But if the US economy keeps eroding it's going to become more of a safe haven. Also Goldman Sachs sees it as an investment option, so that's a sign financial houses are interested (and not a good sign for the dollar).","You need wealth in order to have a sovereign wealth fund. The countries that do it are usually petro states such as Norway and Saudi Arabia. Since petrol is in dollars, they sell oil and get dollars. They need a way to then spend this money, hence the wealth fund.","First question: Any, probably all, of the above. Second question: The risk is that the currency will become worth less, or even worthless. Most will resort to the printing press (inflation) which will tank the currency's purchasing power. A different currency will have the same problem, but possibly less so than yours. Real estate is a good deal. So are eggs, if you were to ask a Weimar Germany farmer. People will always need food and shelter.","\"Generally speaking, so-called \"\"hard assets\"\" (namely gold or foreign currency), durable goods, or property that produces income is valuable in a situation where a nation's money supply is threatened. Gold is the universal hard asset. If you have access to a decent market, you can buy gold as bullion, coins and jewelry. Small amounts are valuable and easy to conceal. The problem with gold is that it is often marked up alot... I'm not sure how practical it is in a poor developing nation. A substitute would be a \"\"harder\"\" currency. The best choice depends on where you live. Candidates would be the US Dollar, Euro, Australian Dollar, Yen, etc. The right choice depends on you, the law in your jurisdiction, your means and other factors.\"","\"That oil is traded in USD makes for extra demand and thus a stronger dollar with more purchasing power. It's not really economics that are the issue though - many might argue a weakened dollar might help the US economy (cheaper exports). The real issue is power. These gold backed securities make it so that certain countries can get around US sanctions. Not to mention that controlling the currency that oil is traded in means the US can devalue their currency to gain an advantage in the event of a shortage. Also, because petroleum is traded in dollars, this means treasury bonds are a natural place to store wealth for oil producers. High demand for these bonds makes it cheap for the US government to borrow and easier to make interest payments thus making T-Bonds a \"\"safe\"\" asset.\"",">And a lot of people that have communist party wealth are afraid that there will be an uprising against them so they are preparing escape plans. My guess would be more along these lines (albeit maybe a bit less dramatic). There were a lot of dubious things that Party members did over the past hundred years to stash away cash for themselves. Siphoning off public resources, investing with them, and as long as the investments made money, keeping the results, for example, played a significant role in some of the complaints that farmers had about local officials. If they keep money in China, and there's some sort of fallout or charges that go through, my guess is that it's a lot easier to seize a corrupt official's resources. On the other hand, if you just bought a bunch of land in the US...that's a lot less easily-seizable and harder to immediately get ahold of for Chinese officials. There's also the more legit possibility that China quite arguably has a real estate bubble in investable real estate, and the result is that if you want to invest in land and reduce your risk to a bubble deflating, you want to do so overseas.","The dollar is the reserve currency of choice because the full faith and credit of the US is big, liquid, and stable compared to any currently-available alternative. The Euro and Yuan are big enough to displace the dollar (and maybe the Yen), but any fears about the dollar being subject to fickle whims of politics and policy are significantly worse with those options.","\"You are violating the Uncovered Interest Rate Parity. If Country A has interest rate of 4% and Country B has interest rate of 1%, Country B's expected exchange rate must appreciate by 3% compared to spot. The \"\"persistent pressure to further depreciate\"\" doesn't magically occur by decree of the supreme leader. If there is room for risk free profit, the entire Country B would deposit their money at Country A, since Country A has higher interest rate and \"\"appreciates\"\" as you said. The entire Country A will also borrow their money at Country B. The exception is Capital Control. Certain people are given the opportunity to get the risk free profit, and the others are prohibited from making those transactions, making UIP to not hold.\"","> Trade with who? Intra asia trade. China is worlds largest trading partner. (why would anybody in asia pay middle man, american banks, just to trade with themselves? Using Yuan is instant 1.5% saving.) Dollar is mainly for financial and trade with US based countries. Even euro is less hassle than using dollar by now for asian country.","Venezuela is a command economy, and one that isn't doing terribly well right now, with rampant inflation in the several hundred percent range. As such, they've tried to limit or eliminate exchanges between their currency and foreign currencies. Currently, they allow a limited amount of exchange at fixed rates (according to a Bloomberg article, those vary between 6.3, 13.5, and 200) for certain purchases, and then otherwise disallow exchange between the currencies. However, there is a black market (illegal in Venezuela, but legal in the US) which allows the price to float, and is much higher - 800 or so according to that article from last year. A recent Valuewalk article lists the black market rate at closer to 900, and slightly different official rates. It's worth a read as it explains the different official rates in detail: Currently there are four exchange rates: First is the official one, called CENCOEX, and which charges 6.30 bolivars to the dollar. It is only intended for the importation of food and medicine. The next two exchange rates are SICAD I (12 bolivars per dollar) and SICAD 2 (50 bolivars per dollar); they assign dollars to enterprises that import all other types of goods. Because of the fact that US dollars are limited, coupons are auctioned only sporadically; usually weekly in the case of SICAD 1 and daily for SICAD 2. However, due to the economic crisis, no dollars have been allocated for these foreign exchange transactions and there hasn’t been an auction since August 18, 2015. As of November 2015, the Venezuelan government held only $16 billion in foreign exchange reserves, the lowest level in over ten years, and an amount that will dry up completely in four years time at the current rate of depletion. The last and newest exchange rate is the SIMADI, currently at 200 bolivars per dollar. This rate is reserved for the purchase and sale of foreign currency to individuals and businesses.","\"Wikipedia has a list of countries which ban foreign exchange use by its citizens. It's actually quite short but does include India and China. Sometimes economic collapse limits enforcement. For example, after the collapse of the Zimbabwean dollar (and its government running out of sufficient foreign exchange to buy the paper necessary to print more), the state turned a blind eye as the US dollar and South African rand became de facto exchange. Practicality will limit the availability of foreign exchange even in free-market economies. The average business can't afford to have a wide range of alternative currencies sitting around. Businesses which cater to large numbers of addled tourists sometimes offer one or two alternative currencies in the hopes of charging usurous rates of exchange. Even bureaux de change sometimes require you to order your \"\"rarer\"\" foreign exchange in advance. So, while it may be legal, it isn't always feasible.\"","\"They acquired the debt from the VZ Central Bank. Providing the Central Bank with dollars will help them control inflation. The argument against the deal is colossally stupid, and basically rests on the idea that the world community just needs to let VZ get as shitty and miserable as possible so the people will overthrow the government. Anything that eases the pain, like injecting US Dollars into the central bank, is therefore seen as \"\"propping up the government\"\"\"","I can see that dollars are more useful than Yuan (after all, in my example, Russia may wish to buy from countries other than China). What proportion of, say, international trade by Japan with countries other than the US is conducted in dollars?","\"No. Suppose you have 100 Canadian dollars and the exchange rate is 2 CAD = 1 USD. You use your 100 CAD to purchase 50 USD (in your bank account that is in USD). Some time later the Canadian dollar grows stronger, so that now 1 CAD = 1 USD. If you now withdraw your 50 USD and get Canadian dollars, you will receive 50 CAD. You have lost half your money. If you want to make money on currency exchange rates (which is a risky plan), you should buy the currency that is cheap (i.e., \"\"weak\"\"). If, say, oil is very cheap, you don't make money by selling oil; you buy it and sell it later when the price goes up. Likewise, if the Canadian dollar isn't worth much and the US dollar is, you should buy Canadian dollars, not US dollars, hoping to sell them later when the exchange rate is more favorable. See also this similar question.\"","I don't get the big deal. Someone has to buy it. And with Europe scaring people there's not much choice out there. Unless Americans start buying more or they restrict sales to citizens, this is going to keep going. At least someone wants them","Bitcoins are very liquid. They can be sold or spent very easily. And you don't depend on the banks being solvent to keep your Bitcoin funds, since you can keep them yourself in an offline wallet. I'm not sure what's the legality of Bitcoin in Russia, though.","\"Large multinationals who do business in multiple locales hedge even \"\"stable\"\" currencies like the Euro, Yen and Pound - because a 5-10% adverse move in an exchange rate is highly consequential to the bottom line. I doubt any of them are going to be doing significant amounts of business accepting a currency with a 400% annual range. And why should they? It's nothing more than another unit of payment - one with its own problems.\"","The best would be to spend the money in US dollars. Order something from eBay/Amazon, even for resale, or pay someone in the US for services that you don't care where they're coming from, etc.","\"More to the point, once you've gone through the trouble to accumulate a hoard of dollar balances, what *else* are you going to do with it? If you're not going to buy goods and services for sale in dollars, you may as well shift some of those dollar balances into an interest-bearing account, which is what \"\"buying US debt\"\" is.\"","Best thing to do is convert your money into something that will retain value. Currency is a symbol of wealth, and can be significantly devalued with inflation. Something such as Gold or Silver might not allow you to see huge benefit, but its perhaps the safest bet (gold in particular, as silver is more volatile), as mentioned above, yes you do pay a little above spot price and receive a little below spot when and if you sell, but current projections for both gold and silver suggest that you won't lose money at least. Safe bet. Suggesting it is a bad idea at this time is just silly, and goes against the majority of advisers out there.","Currency speculation is a very risky investment strategy. But when you are looking for which currency to denote your savings in, looking at the unit value is quite pointless. What is important is how stable the currency is in the long term. You certainly don't want a currency which is prone to inflation, because it means any savings denoted in that currency constantly lose purchasing power. Rather look for a currency which has a very low inflation rate or is even deflating. Another important consideration is how easy it is to exchange between your local currency and the currency you want to own. A fortune in some exotic currency is worth nothing when no local bank will exchange it into your local currency. The big reserve currencies like US Dollar, Euro, Pound Sterling and Japanes yen are usually safe bets, but there are regional differences which can be easily converted and which can't. When the political relations between your country and the countries which manage these currencies is unstable, this might change over night. To avoid these problems, rather invest into a diverse portfolio of commodities and/or stocks. The value of these kinds of investments will automatically adjust to inflation rate, so you won't need to worry about currency fluctuation.","This is bullshit. The US government requires taxes to be paid in USD. There's your intrinsic value. If you want to be compliant with the federal law, your business and you as an individual are required to convert assets or labor into USD to pay them.","Yes, if all my savings were in Euro, I would absolutely be converting everything to US dollars, and possibly some gold. You probably don't want to sit around with lots of Euros while watching the shit hit fan. Talk to your bank, possibly they can open a US dollar bank account in your own country for you. Definitely any bank that has an international presence, like HSBC, should be able to do this for you. And if not US dollars, British Pounds would also be another option.","The current FED's spend is to encourage spends by putting in more liquidity, SOME of this funds [directly or indirectly] reach emerging markets and get invested in stocks ... so without these forex inflows, the Balance of Payments would be under pressure ... so these forex are artificially keeping the Exchange rate down. For example the USD vs INR rate was in the range of 1 USD to around INR 50 for nearly 4-5 years. In the period the inflation in India was around 10-15%, so ideally the rate should have slowly moved towards INR 60, however it took a news of FED cut-back to more the rates in the range of INR 65 before stabilizing to Rs 60","Basically, all the same reasons you might not want to keep piles of your own country's cash, plus or minus the exchange rate question. Banks exist for good reasons. You probably want to use them unless you are explicitly playing the exchange rate game -- And if that's what you want, there are probably better ways to do it. If you need help not touching the money, CDs or other term accounts might give you enough disincentive. Or might not.","This is exactly what they are doing. Examples would be the BRICS trading bloc and the ASEAN equivalent. Along with the trade agreements that many countries have made with Iran, all of which completely bypass the American Dollar. America needs to recognize that for many countries in the world, dumping their excess reserves in US Treasury Bonds is not in their best interest any longer. Especially considering the fiscal situation in the US, and the policies that are used to manipulate bond rates. (These policies are cross aisle, this is not a political statement) American Imperial might is finite. Americans ignore this at their own peril. Edit: I would also add the regulatory and legal uncertainty in the US is also a problem. By that I mean things like MF Global, Peregrine Financial, Knight Capital among others.","\">However, they must be willing to accept it. If you attempt to pay them in USD, however, they can't refuse. And this is precisely the problem. People should be allowed to contract in whatever money they want to. If someone changes his mind and says \"\"oh I want the dollar-equivalent instead of Francs\"\", that change shouldn't be honored. Forcing people to accept dollars creates an artificial demand for dollars. >So why not start attempting to pay for things in semiconducters? If people voluntarily choose to, what's the problem?\"","If you want to use that money and maybe don't have the time to wait a few years if things should go bad, than you will definitely want to hold a good bunch of your money in the currency you buy most stuff with (so in most cases the currency of the country you live in) even if it is more volatile.","Legal tender laws and capital gains tax mean that other commodities are at an unfair legal disadvantage to local fiat currency. In other words, governments are using taxes and regulations to manipulate the market and create artificial demand for the currency their central bank has a monopoly on the creation of.","well, probably taxed a little. and taxed when they spend it, and taxed again when it is spent again. like fikirte said, this is foreign money. if the americans want access to it they have to make it easy. they've done it in the past http://law-journals-books.vlex.com/vid/the-portfolio-interest-exemption-53348889 sorry there is a lack of sources in real english.","\">Because selling gold and buying dollars has an effect on the market: it reduces the value of gold, and increases the value of dollars. Ah, but with all the business you'd do in gold, you'd constantly be increasing the value of gold. Think of it! I'm pretty sure that most people want to be paid in dollars not simply because of the fact that their taxes have to be paid in it, but because of it's universality. Not everyone has a use for a sack of barley, or a fish, or some gold dust. But you can buy whatever you want with an amount of dollars. >As the value of gold increases over time, the government taxes the increased value as \"\"capital gains tax\"\". It's only taxed at a 15.5% rate, IIRC. You'd probably come out ahead.\"","A lot of Chinese are buying U.S. property for the sake of diversifying. A lot of Chinese still have a the grass is greener on the other side mentality when it comes to the U.S. They know very little about how many people on the U.S. are on food stamps. And a lot of people that have communist party wealth are afraid that there will be an uprising against them so they are preparing escape plans. edit: I think it's likely that the elite here in the U.S. also have escape plans.","$USD, electronic or otherwise, are not created/destroyed during international transactions. If India wants to buy an F-16s, at cost $34M USD, they'll have to actually acquire $34M USD, or else convince the seller to agree to a different currency. They would acquire that $34M USD in a few possible ways. One of which is to exchange INR (India Rupees) at whatever the current exchange rate is, to whomever will agree to the opposite - i.e., someone who has USD and wants INR, or at least is willing to be the middleman. Another would be to sell some goods or services in the US (for USD), or to someone else for USD. Indian companies undoubtedly do this all the time. Think of all of those H1B workers that are in the news right now; they're all earning USD and then converting those to INRs. So the Indian government can just buy their USD for INR, directly or more likely indirectly (through a currency exchange market). A third method would be to use some of their currency stores. Most countries have significant reserves of various foreign currencies on hand, for two reasons: one to simplify transactions like this one, and also to stabilize the value of their own currency. A less stable currency can be stabilized simply by the central bank of that country owning USD, EUR, Pounds Sterling, or similar stable-value currencies. The process for an individual would be essentially the same, though the third method would be less likely available (most individuals don't have millions in cash on hand from different currencies - although certainly some would). No government gets involved (except for taxes or whatnot), it's just a matter of buying USD in exchange for INRs or for goods or services.","I always find this funny. How can government bonds be in attractive and currency be attractive? With monetary policy America guarantees that it can't default on debt. The only thing that can happen which breaks this is if the government prints itself out of debt. In which case not only will you bonds be worthless but so will your cash. So to all the investors with boats of cash, you are trading one problem for the same problem. The only difference is you can hold the second problem in your hands. Fools.","You can, and people do. More a Japanese thing than a US thing but I guess they've had super low interest rates for longer. Its called 'the carry trade' and is the reason the NZD is artificially high (which as an NZ exporter I find kinda annoying). Particularly popular with the so called 'japanese housewife' investor. It also causes the NZD to plunge every time the US stock market dips - because the NZD is held mostly as a moderately risky investment, not for trade purposes. Presumably in a down market hedge funds need to cash in their carry trades to cover margins or something? As another person said the primary risk is currency fluctuations. Unfortunately such currencies are highly volatile and tied to stock market volatility. tl;dr It'd be nice if you all quit treating my national currency as an investment opportunity - then i could get on with my business as an New Zealand exporter ;-)","I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies.","You should be able to convert this officially. As per RBI regulation an individual can hold upto USD 2000 eq for an unlimited period of time. See the point 14 on RBI FAQ's for Fx.","\"Lmao so the fact that the government \"\"could possibly switch currency\"\" negates the current demand they create? The government creates a demand for USD. That alone is enough to say dollars have intrinsic value. Add to that the fact that there are trillions of dollars in outstanding government bonds that are required to be paid out in USD when they mature. Changing the currency would be considered a form of default by many and could have massive negative consequence far outweighing the benefits of the rapid adoption of blockchain. Even if they stopped issuing bonds today they would still have ones maturing until 2047. It's like saying bananas don't have monetary value because people might decide to stop buying them. Yeah, it's true they would lose value if that happened but as of today it's just not true\"","I don't see countries switching to the USD, I see countries moving away from it. The US has the largest peace time debt ever, is not being even close to fiscally responsible (approving ~4 trillion budget!) and is faced with 100 trillion in future commitments (social security, medicare) with a workforce (tax base) that is decreasing as the baby boomers retire. When the US cannot meet those obligations (and most experts agree there is no hope of that anymore) they will have to print money and devalue the currency.","Yes. But the question is do you want to have gold? If you are going to buy gold anyway, and if you can get a good conversion rate between USD:gold, then why not? If you are looking to use your earnings on things that you cannot buy using gold, then I'd recommend you take USD instead. Have fun!","\"US currency, today, can be used for useful things like selling a car, but there's nothing stopping you for trading it for something else. On edit; I've been thinking about this, and I think that the problem is that currency exists as a. edium to pay taxes. The usefulness of it for non-governmental transactions is a secondary benefit. However, without them full faith and credit ofma government somewhere the currency would be worthless. For example, see Zimbbwean currency or any non-convertible currency. *extra edit--altogether too many \"\"m's.\"\"\"","It depends on the currency pair since it is much harder to move a liquid market like Fiber (EURUSD) or Cable (GBPUSD) than it is to move illiquid markets such as USDTRY, however, it will mostly be big banks and big hedge funds adjusting their positions or speculating (not just on the currency or market making but also speculating in foreign instruments). I once was involved in a one-off USD 56 million FX trade without which the hedge fund could not trade as its subscriptions were in a different currency to the fund currency. Although it was big by their standards it was small compared with the volumes we expected from other clients. Governments and big companies who need to pay costs in a foreign currency or receive income in one will also do this but less frequently and will almost always do this through a nominated bank (in the case of large firms). Because they need the foreign currency immediately; if you've ever tried to pay a bill in the US denominated in Dollars using Euros you'll know that they aren't widely accepted. So if I need to pay a large bill to a supplier in Dollars and all I have is Euros I may move the market. Similarly if I am trying to buy a large number of shares in a US company and all I have is Euros I'll lose the opportunity.","It's called carry-trade. They can borrow from governments that have 0% int rates, exchange it for dollars, and then buy u.s. treasuries. Japan would never ever raise their interest rates as their economy runs on keynesian fumes.","The other obvious suggestion I guess is to buy cheap stocks and bonds (maybe in a dollar denominated fund). If the US dollar rises you'd then get both the fund's US gains plus currency gains. However, no guarantee the US dollar will rise or when. Perhaps a more prudent approach is to simply diversify. Buy both domestic and foreign stocks and bonds. Rebalance regularly.","Mainly because I have it and you don't, I can make you do stuff for it because more of us perceive its value than bother about the paper you are holding. Picture if you will a moment in time, when the paper you are holding, represented the amount of gold you had at home, as time went by you spent all your gold and the amount the paper represented, became less and less and the amount of lunch you could buy with it became less and less. Today the day has arrived, that you have no gold left and what your paper represents is an empty coffer . . Move along . .people who can pay for their lunch are waiting and look, the paper they hold represents gold they have.","Less than 2 1/2% of all US currency actually exists. The rest is digital entries. In a financial crisis you'll need lots of rare cash. Twenty dollar bills are the best choice. Stash as many as you can afford to. Best to stash in a anchored security safe. And for goodness sakes, don't tell anyone.","Either way you'll be converting to US Dollars somewhere along the line. You are seeking something that is very redundant","Moronic question I'm sure. Listening to the Bloomberg Surveillance podcast and they mentioned that the vast majority of financial transactions in China and even North Korea are denominated in US dollars. They go on to say that this means they HAVE to go through US banks giving the US tremendous leverage. Can someone explain this whole idea to me. 1. Why do transactions done in US dollars have to go through US banks? 2. Does that leverage the US has just come from our ability to prevent transactions from occurring if they are run through our banks?","Arguably, the only reason the US can print dollar without massive repercussions on devaluing it is because of it is the world's reserve currency, backed by oil. This has allowed to US to build the world's biggest and most powerful army because they can easily borrow money to fund it. Everyone needs oil for their economy, therefore everyone needs dollars...","Would it be a reasonable idea to open a savings account in an overseas bank? For the risks you mention, this may not be a good idea for individual. Note HNI / Companies routinely keep funds in various overseas account. For individual the amount of paperwork [reporting in US etc] and fees etc would be high. Plus in adverse conditions, access to this funds would still be stringent and restricted. Some of the other options you can try are Generally for the risks you mention, there is very little an individual can do except to take it if & when it comes.","One option is buying physical gold. I don't know about Irish law -- but from an economic standpoint, putting funds in foreign currencies would also be an option. You could look into buying shares in an ETF tracking foreign currency as an alternative to direct money exchange.","\"I still don't understand this \"\"analysis.\"\" Even when the US became the world's largest economy in 1880, the British Pound remained the reserve currency of choice until the 1950s, some seventy years later! Investors prefer stability and property rights and the US has both, especially when considering the alternatives, i.e. Euro tax takings on bank deposits in Cyprus. What about the yuan? China may have recently surpassed US economic power, but it is very likely in the midst of a massive credit bubble. China has also been fudging some of their numbers and in many cases, chooses not to keep economic records at all. The fact that many Chinese elites themselves are buying property in Vancouver and the US as a safe harbor also does not bode well for their systemic problems IMO. I'm sticking with the dollar for now.\"","Currencies don't have intrinsic value. Just because you have to pay taxes in USD does not mean it has intrinsic value. The government could theoretically switch currency every second, not that that will ever happen. But yes the USD is supported by the US government and that's like a safety net for the value of the USD. Bitcoin doesn't have a government accepting bitcoin in taxes (except maybe liberland or something) so BTC doesn't have that safenet. But with such a liquid market and millions of buyorders bitcoin doesn't really need a safenet. There will always be demand. I prefer a scarce currency with growing demand than an inflationary currency backed by a corrupt government that loses value over time.","Use other currencies, if available. I'm not familiar with the banking system in South Africa; if they haven't placed any currency freezes or restrictions, you might want to do this sooner than later. In full crises, like Russian and Ukraine, once the crisis worsened, they started limiting purchases of foreign currencies. PayPal might allow currency swaps (it implies that it does at the bottom of this page); if not, I know Uphold does. Short the currency Brokerage in the US allow us to short the US Dollar. If banks allow you to short the ZAR, you can always use that for protection. I looked at the interest rates in the ZAR to see how the central bank is offsetting this currency crisis - WOW - I'd be running, not walking toward the nearest exit. A USA analogy during the late 70s/early 80s would be Paul Volcker holding interest rates at 2.5%, thinking that would contain 10% inflation. Bitcoin Comes with significant risks itself, but if you use it as a temporary medium of exchange for swaps - like Uphold or with some bitcoin exchanges like BTC-e - you can get other currencies by converting to bitcoin then swapping for other assets. Bitcoin's strength is remitting and swapping; holding on to it is high risk. Commodities I think these are higher risk right now as part of the ZAR's problem is that it's heavily reliant on commodities. I looked at your stock market to see how well it's done, and I also see that it's done poorly too and I think the commodity bloodbath has something to do with that. If you know of any commodity that can stay stable during uncertainty, like food that doesn't expire, you can at least buy without worrying about costs rising in the future. I always joke that if hyperinflation happened in the United States, everyone would wish they lived in Utah.","Currently many countries (and non-government bodies) hold dollars to facilitate trade. If the dollar is no longer used in their trade, then they no longer have a reason to hold those dollars. If every other country starts to dump their dollar holdings into the world currency markets, the number of dollars floating around in those market would shoot up. The massive supply increase of dollars (we're assuming these other countries are holding massive amounts of dollars) would lead to a large drop in value of the dollar - lots more dollars chasing the same amount of goods. Every purchase will become much more expensive for anyone still buying with dollars, including the American government trying to buy expensive military equipment - unless the US government also switches to using something else to purchase military supplies.","Yeah, I heard about that! That's virtually the same thing (in a different form) as a new currency as it's backed solely by the state's ability to uphold its value, but yes, given that it's trading for pennies on the dollar it's no surprise the USD is the primary currency there. It will be very interesting to see the policies that Mugabe's successor (his ex-wife or #2) puts in place. Either way I bet they fail, but hope they don't and actually make the necessary reforms to help the country succeed.","It could be a a way to preserve the value of your money, but depends upon various factors. If a country defaults, and it leads to hyper-inflation, by definition that means that money loses its purchasing power. In even simpler terms, it cannot buy as much tomorrow as I could today. Therefore people can be incented to either hoard physical goods, or other non-perishable items. Real-estate may well be such an item. If you are resident in the country, you have to live somewhere. It is possible that a landlord might try to raise rent beyond what your job is willing to pay. Of course, in a house, you might have a similar situation with utilities like electricity... Assuming some kind of re-stabilization of the economy and currency, even with several more zeros on the end, it is conceivable that the house would subsequently sell for an appropriately inflation adjusted amount, as other in-demand physical goods may. Lots of variables. Good Luck.","Because we need energy in the form of oil. If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves. Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?","\"Iraq is a US vassal/puppet state. I'm not sure what 500 South Vietnamese Dong were worth in 1972, but today the paper currency is worth $10 in mint condition. I'd suggest blackjack or craps as an alternate \"\"investment\"\".\"","Quite a lot of reasons but mostly supply and demand. Some areas of Africa are extremely remote and just don't have things there that some of the population now want. I would guess it won't be like this for much longer but right now it is and i have met plenty of people taking advantage of that fact.","The idea being that if / when the CAD recovers I could see a gain of ~30%. That is the big if, maybe the USD and CAD will return to their previous exchange rates, maybe the CAD will fall further, you just don't know. You should try to keep a diversified pool of investments, that may include some cash in various currencies but unless you think you will need the money in the next few years it should probablly be mostly in other things. If you do think you will need the money in the next few years it should probablly be in a currency that is stable relative to the things you are likely to need it for.","Traveller's cheques. That's exactly what they were intended for. Their usage has dropped a lot since everyone can use ATMs in foreign countries, but they still exist.","Perhaps the world does not like a Global economy dominated by a Fucking Moron, Perhaps the world does not see a future in a Jew dominated Fed that can print whatever it thinks sounds like fun and then lend it to the US treasury in an insurmountable mountain of debt. Gosh . . .isn't the FED supposed to be pretending to unwind all that 0 market valuation crap from 2008 ? I wonder if there are even any houses after a decade","I'm in Argentina and they limit the daily withdrawals to 1000 pesos a day (about $220). The gov't just put limits on withdrawing dollars here, which is how Argentines have typically saved their money. The people are NOT happy.","Further evidence that the love of money is the root of all evil. Money is useless if not transformed into something material. Apparently Americans are duped by the wealth effect. If their portfolio has high numbers they feel rich and impoverish themselves by spending more of their income even though it is just ink and paper unless transformed into something tangible. Fools. The hoarders of money must be afraid they would run out, expose they have no usefull skills and have to do actual work for a living.","\"The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are \"\"weak\"\" and some \"\"strong\"\". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona.\"","At any instant, three currencies will have exchange rates so if I know the rate between A and B, and B to C, the A to C rate is easily calculated. You need X pounds, so at that moment, you are subject to the exchange rate right then. It's not a deal or bargain, although it may look better in hindsight if the currencies move after some time has passed. But if a currency is going to depreciate, and you have the foresight to know such things, you'd already be wealthy and not visiting here.","Sure thing - Treasuries Bonds/Bills are what the US Gov uses to borrow. However it's slightly different than taking out a loan. It's basically an agreement to give (repay) a set sum of money at a certain time in the future in exchange for a sum of funding that's determined by market forces (supply & demand). The difference between today's price and the payment in the future is the interest. For example (completely made up numbers): - Today is 08/05/2017 - The government issues a bond that say it will pay who ever owns this bond $105 on 08/05/**2018** - The market decides that $105 from the US government paid a year from now is worth $100 today. In other words the US Government is borrowing for one year at a rate of 5% (105 - 100) / 100 = .05 = 5% Now consider Saudi Arabia's petroleum company, Aramco. Because petroleum is traded in dollars, when Aramco makes a sale, its paid in USD. Some of that is going to be reinvested into the company, some paid out in dividends to share holders but inevitably some of that will be saved someplace where it can make interest. Because treasuries are traded/issued in dollars and because Aramco's businesses deals primarily in dollars, treasuries are the natural place to store that savings, especially because the market considers them extremely safe. If they exchange the USD into the Saudi currency to store the money in Saudi assets, Aramco is subject to *exchange rate risk*. If the riyal depreciates relative to the dollar, Aramco will lose wealth on the exchange back to dollars when they go to move those funds back into their business. It's in their interest to deal with assets denominated in USD (i.e. T-Bonds) in order to avoid this. So now because the Saudis want T-Bonds as well, the additional demand pushes the market price of our bond from $100 to $102. And the effective one year borrowing rate for the Government goes from 5% to 2.9%. (105 - 102)/102 = .029411 = 2.9% And there you have it, cheaper borrowing. It's also worth noting how this encourages business around the world to deal in dollars which are directly controlled by the federal reserve. This makes the US's position extremely powerful.","Considering the historical political instability of your nation, real property may have higher risk than normal. In times of political strife, real estate plummets, precisely when the money's needed. At worst, the property may be seized by the next government. Also, keeping the money within the country is even more risky because bank accounts are normally looted by either the entering gov't or exiting one. The safest long run strategy with the most potential for your family is to get the money out into various stable nations with good history of protecting foreign investors such as Switzerland, the United States, and Hong Kong. Once out, the highest expected return can be expected from internationally diversified equities; however, it should be known that the value will be very variant year to year.","\"Money is money because people believe it is money. By \"\"believe it is money\"\", I mean that they expect they will be able to turn it into useful goods or services (food, rent, houses, truckloads full of iron ore, mining equipment, massages at the spa, helicopter rides, iPads, greenhouses, income streams to support your future retirement, etc). Foreign exchange rates change because people's ideas about how much useful goods or services they can get with various currencies change. For example: if the Zimbabwe government suddenly printed 10 times as much money as used to exist, you probably couldn't use that money to buy as much food at the Zimbabwe-Mart, so you wouldn't be willing to give people as many US-dollars (which can buy food at the US-Mart) for a Zimbabwe-dollar as you used to be able to. (It's not exactly that easy, because - for instance - food in the US is more useful to me than food in Zimbabwe. But people still move around all sorts of things, like oil, or agricultural products, or minerals, or electronics components.) The two main things that affect the value of a currency are the size of the economy that it's tied to (how much stuff there is to get), and how much of the currency there is / how fast it's moving around the economy (which tells you how much money there is to get it with). So most exchange rate shifts reflect a change in people's expectations for a regional economy, or the size of a money supply. (Also, Zimbabwe is doing much better now that it's ditched their own currency - they kept printing trillions of dollars' worth - and just trade in US dollars. Their economy still needs some work, but... better.)\"","Not really practical... The real problem is getting the money into a form where you *can* invest it in something. It's not like E\\*Trade will let you FedEx them a briefcase of sequentially numbered hundreds and just credit your account, no questions asked. That **is** the hard part.","Money, like anything else, is subject to the demands of people. There are times when money is in high demand. This drives up its value. People in Japan want cash because they have an immediate need to buy emergency supplies as well as rebuild and replace damaged items. This is why the yen strengthened. This is probably why the market plummeted as people liquidated some of their stocks to get cash. The Bank Of Japan (BOJ) will not stand for a rising yen, however. It is pulling a Bernanke and printing yen in an effort to keep it weak.","Public debt and risk of currency devaluation are two very, very different things. Until the BRICS are able to buy commodities on a significant scale using a market basket of their own currencies, the USD will remain one of the (if not the) safest currencies in the world.","Dollars are bits you don't control. The banking system has your bits and they can charge you more bits to move your bits around. At any point, they could freeze your accounts and suddenly you have no bits. It's all designed to make it so you can't function in society without them controlling your bits.","Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.)","Because people trade currency in exchange for goods and services. They can easily prevent competition by violent means or by having control of the market through market share. Price can be controlled by the threat of super low prices in order to drive out competing businesses.","> it makes US investments even better because the rate of return gets boosted higher. Except it doesn't. Do they really teach this? Does anyone have a link to textbook thinking on this subject, because that's a blatant lie and might explain why so many people understand the dynamics at work here completely wrong.","Petrodollars are specifically dollars earned from oil revenue. They are not synonymous with the US dollar. It should be clear that the US dollar is not backed by oil since we just recently witnessed the priced in US dollars drop precipitously while the US dollar gained against a basket of currencies.","This crisis just shows why the dollar has no chance in my lifetime of loding it's dominance. Russia is a major world player, were taking what seemed right steps to move forward economically, socially, politically. Yet this crisis shows the truth. Media controlled by the kremlin. Taking actions in other countries. No fear of economic hardships due to political issues. Who else could supplant the US dollar? China is in the same boat as Russia. Still not a free society. SO what's left? The Euro. But it's got a long way to go to show it can remain stable. Give it 50 years and get back to me.","why should i have to make something with my cash? i'll fuking hold it and face losing a few percentage of purchasing power. i'd rather have liquity in these peril times. besides, people that held cash in 2008 had a once in a life time buying opportunity when all assets fell 60-90%.","I think you are asking quite a few questions here; If you have Rs 10000, its better you get it converted in India before you leave. Most Banks and Exchange houses like Western Union would take Rupees and Give you USD. What do they do with USD, there are other who give them USD and need Rupees. They make a spread in this process. If you are getting a salary in USD in US, whenever you want to transfer money to India, the Banks or Remittance services like Western Union would take USD from your US Account and Transfter equivalent Money into your Bank Account in India in Rupees. They will tell the exchange rate applicable. Depending on why visa type & the duration you are going, your company should be able to tell you your tax liabilities in the US. Read similar questions here to get a general idea.","First, currencies are not an investment; they are a medium of exchange; that is, you use currency to buy goods and services and/or investments. The goods and services you intend to buy in your retirement are presumably going to be bought in your country; to buy these you will need your country's currency. The investments you intend to buy now require the currency of whatever country they are located in. If you want to buy shares in Microsoft you need USD; if you want shares in BHP-Billiton you need AUD or GBP (It is traded on two exchanges), if you want property in Kuwait you need KWD and if you want bonds in your country you need IDR. When you sell these later to buy the goods and services you were saving for you need to convert from whatever currency you get for selling them into whatever currency you need to buy. When you invest you are taking on risk for which you expect to be compensated for - the higher the risk you take the better the returns had better be because there is always the chance that they will be negative, right down to losing it all if you are unlucky. There is no 100% safe investment; if you want to make sure you get full value for your money spend it all right now! If you invest overseas then, in addition to all the other investment risks, you are adding currency risk as well. That is, the risk that when you redeem your investments the overseas currency will have fallen relative you your currency. One of the best ways of mitigating risk is diversification; which allows the same return at a lower risk (or a higher return at the same risk). A pure equity portfolio is not diversified across asset classes (hopefully it is diversified across the equities). Equities are a high risk-high yield class; particularly in a developing economy like Indonesia. If you are very young with a decades long investment horizon this may be OK but even then, a diversified portfolio will probably offer better rewards at the same risk. Diversifying into local cash, bonds and property with a little foreign equities, bonds and property will serve you better than worrying about the strength of the IDR. Oh, and pay a professional for some real advice rather than listening to strangers on the internet.",">We collectively agree that a dollar has a certain value. That's it. We believe in money. Welcome to the collective delusion of fiat currency. You mean 12 richest families in charge of FED make you think it has value? Once you realize this, you'll soon understand how is US's everlasting involvement in (provoking) wars across the globe financed, where from, and most importantly why. Once other nations exclude US dollar as a valid currency (India, Russia and China have already), US dollar is going to be less and less valuable until it's worth nothing (as it actually is all along as it has no leverage). Maybe we better rebel against an inevitable doom of US economy now when you can actually use it to buy other commodities than wait to use them as firestarters 10-20 years down the road.","\"No. This is too much for most individuals, even some small to medium businesses. When you sell that investment, and take the cheque into the foreign bank and wire it back to the USA in US dollars, you will definitely obtain the final value of the investment, converted to US$. Thats what you wanted, right? You'll get that. If you also hedge, unless you have a situation where it is a perfect hedge, then you are gambling on what the currencies will do. A perfect hedge is unusual for what most individuals are involved in. It looks something like this: you know ForeignCorp is going to pay you 10 million quatloos on Dec 31. So you go to a bank (probably a foreign bank, I've found they have lower limits for this kind of transaction and more customizable than what you might create trading futures contracts), and tell them, \"\"I have this contract for a 10 million quatloo receivable on Dec 31, I'd like to arrange a FX forward contract and lock in a rate for this in US$/quatloo.\"\" They may have a credit check or a deposit for such an arrangement, because as the rates change either the bank will owe you money or you will owe the bank money. If they quote you 0.05 US$/quatloo, then you know that when you hand the cheque over to the bank your contract payment will be worth US$500,000. The forward rate may differ from the current rate, thats how the bank accounts for risk and includes a profit. Even with a perfect hedge, you should be able to see the potential for trouble. If the bank doesnt quite trust you, and hey, banks arent known for trust, then as the quatloo strengthens relative to the US$, they may suspect that you will walk away from the deal. This risk can be reduced by including terms in the contract requiring you to pay the bank some quatloos as that happens. If the quatloo falls you would get this money credited back to your account. This is also how futures contracts work; there it is called \"\"mark to market accounting\"\". Trouble lurks here. Some people, seeing how they are down money on the hedge, cancel it. It is a classic mistake because it undoes the protection that one was trying to achieve. Often the rate will move back, and the hedger is left with less money than they would have had doing nothing, even though they bought a perfect hedge.\"","\"Economics is not hard science. Economics is really just a study of what people do and why. The best book to read to understand why people protect their wealth when the government threatens it is \"\"[Human Action](http://mises.org/document/3250)\"\" by Ludwig von Mises. Check it out. It will answer all of your questions with a lot more logic than research. Economic research on macro subjects can prove any preconceived theorem, therefore it is worse than logic because it purports to \"\"prove\"\" what are, in the end, only opinions.\"","By the way, be nice to Mexicans. You might have to sneak into Mexico as illegal immigrant when dollar crashes and revolution follows an hyper inflation :) Don't be mad at me, be mad at your idiot and puppet politicians who are killing the American dream.","They wont let it collapse, they will devalue it over time to some effect via bailouts and borrowing. Invest in commodities so your cash retains its value, physical gold is always strong. Other currencies are an option but this is more of a gamble."],"string":"[\n \"\\\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as whether or not the person is studying at a foreign university. If the citizen wants to exchange more dollars than legally allowed, that person must buy or sell at the \\\"\\\"black\\\"\\\" market rate, rather than through the official/government market.\\\"\",\n \"\\\"As a Venezuelan who used to buy USD, I believe there is not better explanation than the one given to someone who actually lives and works here in Venezuela. Back in 1998 when Hugo Chavez took the presidency, we had a good economy. Fast forward 10 years laters and you could see how poor management, corruption and communist measurements had wreaked havoc in our Economy. It was because most of the money (USD) coming in Venezuela were not invested here but instead, given away to \\\"\\\"pimp countries\\\"\\\" like Cuba. Remember, communism lasts while you have money. Back then we had an Oil Barrel going over 100$ and crazy amounts of money were coming in the country. However, little to no money was invested in the country itself. That is why some of the richest people with bank account in Swiss are Venezuelans who stole huge amounts of Oil Money. I know this is a lot to take in, but all of this led to Venezuelan economy being the worst in The American Continent and because there is not enough money inside the country to satisfy the inner market, people would pay overprice to have anything that is bought abroad. You have to consider that only a very small amount of people can actually buy USD here in Venezuela. Back in 2013 I was doing it, I could buy about 80 usd/month with my monthly income. However, nowdays that's nearly impossible for about 99% of Venezuelans. To Illustrate. Minimum wage = 10.000 bolivares / month Black market exchange rate (As of January 2016) = 900bs per 1usd 10.000/900 = 11,11 usd. <<< that is what about 50% of Venezuelans earn every month. That's why this happens: http://i.imgur.com/dPOC2e3.jpg The guy is holding a huge stack of money of the highest Venezuelan note, which he got from exchanging only 100 usd. I am a computer science engineer, the monthly income for someone like me is about 30.000 bolivares --- so that is about 34$ a month. oh dear! So finally, answering your question Q: Why do people buy USD even at this unfavorable rate? A: There are many reasons but being the main 2 the following 1.- Inflation in Venezuela is crazy high. The inflation from 2014-2015 was 241%. Which means that having The Venezuelan currency (Bolivares) in your bank account makes no sense... in two weeks you won't be able to buy half of the things you used to with the same amount of money. 2.- A huge amount of Venezuelans dream with living abroad (me included) why, you ask? well sir, it is certain that life in this country is not the best: I hope you can understand better why people in 3rd world countries and crappy economies buy USD even at an unfavorable rate. The last question was: Q: Why would Venezuela want to block the sale of dollars? A: Centralized currency management is an Economic Measure that should last 6 months tops. (This was Argentina's case in 2013) but at this point, reverting that would take quite a few years. However, Turukawa's wikipedia link explains that very well. Regards.\\\"\",\n \"\\\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (such as nationalising businesses) or general instability / scarcity. The governments act to manage that uncertainty by limiting the availability of foreign exchange and pegging the exchange rate. Since there is an inadequate supply of trusted foreign currency people turn to informal exchanges in order to hedge their currency risk. This creates a negative feedback loop. People in government who have access to foreign exchange start to trade on informal markets, pocketing the difference in the official and unofficial rates. The increasing gap between the two rates drives increasing informal market exchange and can result in speculative bubbles. Driving instability (or economic contradiction) is that the massive and increasing difference between the official and market exchange rates becomes a powerful form of rent for government officials. This drives further state-led rent-seeking behaviour and causes the economy to become even more unstable. If you're interested in a more formal academic study of how such parallel markets in currency arise, \\\"\\\"Zimbabwe’s Black Market for Foreign Exchange\\\"\\\" by Albert Makochekanwa at the University of Pretoria is a useful source.\\\"\",\n \"\\\"I suspect that to \\\"\\\"make money\\\"\\\" it isn't enough to know the current value (\\\"\\\"high currency\\\"\\\"): to make money you'd need to know/guess/predict/bet on the future change in value: will the currency value go higher in the future? Or will it come down again? Or will it stay the same? Everybody knows the current value, so that by itself isn't enough knowledge to make money from. That said, if you know you're going to need American dollars in the future (if you have future expenses which need to be paid in American dollars), then now might be a good time to buy those dollars.\\\"\",\n \"\\\"Well there are a couple reasons that people from various countries use specific currencies: 1. Government courts will recognize the settlement of contracts if they are paid with their local currency. So even if you wanted to be paid in Swiss Francs, your contracting partner can choose to pay you in USD instead. This artificially inflates the value of the local currency by increasing demand for it. 2. You're only allowed to pay your taxes in the local currency. This also artificially increases the demand for it, and it's the \\\"\\\"root value\\\"\\\" of the currency - people clamor for bits of green paper because if they don't have enough of it to pay off the tax man, they'll go to jail.\\\"\",\n \"Well, sure, why else would you buy them? Is it illegal now to accept money *from* PDVSA? Because I know my company does business with them, and if we are going to ship what we built for them, we need to see the money.\",\n \"Weather events and aging infrastructure. Cash will buy gasoline, food and water when there is no power or telephone connectivity to process ATMs and credit cards.\",\n \"Typically, the higher interest rates in local currency cover about the potential gain from the currency exchange rate change - if not, people would make money out of it. However, you only know this after the fact, so either way you are taking a risk. Depending on where the local economy goes, it is more secure to go with US$, or more risky. Your guess is as good as anyone. If you see a chance for a serious meltdown of the local economy, with 100+% inflation ratios and possibly new money, you are probably better off with US$. On the other hand, if the economy develops better than expected, you might have lost some percentage of gain. Generally, investing in a more stable currency gets you slightly less, but for less risk.\",\n \"Devaluation is a relative term, so if you want to protect yourself against devaluation of your currency against dollars - just buy dollars. Inflation is something you cannot protect yourself against because it is something that describes the purchasing power of the money. You will still need to purchase, and usually with money. A side effect of inflation is usually devaluation against other currencies. So one of the ways to deal with inflation is not to keep the money in your currency over time, and only convert from a more stable currency when you need to make purchases. Another way is to invest in something tangible that can easily be sold (for example, jewelery and precious metals, but it has other risks). Re whats legal and illegal in your country - we don't really know because you didn't tell what country that is to begin with, but the usual channels like travelers' checks or bank transfer should work. Carrying large amounts of cash are usually either illegal or strictly regulated.\",\n \"Transfer your savings to a dollar-based CD. Or even better, buy some gold on them.\",\n \"Just because pricing isn't tracked, doesn't mean the dollar price is not backed up by oil (they are others factors involved, of course). But the very fact that OPEC, the worlds largest oil cartel, currently only trade in dollars, effectively means that everyone who wants oil needs dollars to buy it. Therefore, to function in modern global economy, dollars are always needed regardless of exchange rates or interest rates on bonds. In reality the amount debt the US has backed up against its currency wouldn't hold for any other country, apart from US, with its petrodollar status.\",\n \"\\\"To speak to this a little more broadly: apart from groups like hedge funds and other investors investing for purely speculative purposes, one of the major purposes of forwards (and, for that matter, futures) for companies in the \\\"\\\"real economy\\\"\\\" is to \\\"\\\"lock in\\\"\\\" a particular price in advance (or to reduce the risk of some kind of investment or transaction). Investopedia defines a currency forward as follows (with a few key points emphasized): [A currency forward is] a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment. The other major benefit of a currency forward is that it can be tailored to a particular amount and delivery period, unlike standardized currency futures. This can be a major advantage for planning and risk management purposes. For example, if I know I'm going to have to pay $1 million USD in the future and most of my revenue is in Euros, the actual amount I'll have to pay will vary based on the exchange rate between Euros and dollars. Thus, it's very worthwhile for me to be able to \\\"\\\"lock in\\\"\\\" a particular exchange rate so that I know exactly how much I'm going to pay relative to my projected revenue. The goal isn't necessarily to make money off the transaction (maybe they do, maybe they don't) as much as to reduce risk and improve planning ability. The fact that it doesn't involve an up-front payment is also a major advantage. It's usually a bad practice to \\\"\\\"sit on\\\"\\\" cash for a year if you can avoid it. Another key point: savings accounts pay less interest than inflation. If inflation is 3% and your savings account pays 1%, that looks remarkably like a guaranteed 2% loss to me.\\\"\",\n \"> Hence all businesses in the US, no matter what currency they make money in, have to buy USD to pay their taxes. So that means that means other currencies are valueless since X government doesn't see Y currency as a means of payment? Also, you don't buy so much as trade but potatoes potatos.\",\n \"It's already gone through a big correction, but another crash is a possibility. But if the US economy keeps eroding it's going to become more of a safe haven. Also Goldman Sachs sees it as an investment option, so that's a sign financial houses are interested (and not a good sign for the dollar).\",\n \"You need wealth in order to have a sovereign wealth fund. The countries that do it are usually petro states such as Norway and Saudi Arabia. Since petrol is in dollars, they sell oil and get dollars. They need a way to then spend this money, hence the wealth fund.\",\n \"First question: Any, probably all, of the above. Second question: The risk is that the currency will become worth less, or even worthless. Most will resort to the printing press (inflation) which will tank the currency's purchasing power. A different currency will have the same problem, but possibly less so than yours. Real estate is a good deal. So are eggs, if you were to ask a Weimar Germany farmer. People will always need food and shelter.\",\n \"\\\"Generally speaking, so-called \\\"\\\"hard assets\\\"\\\" (namely gold or foreign currency), durable goods, or property that produces income is valuable in a situation where a nation's money supply is threatened. Gold is the universal hard asset. If you have access to a decent market, you can buy gold as bullion, coins and jewelry. Small amounts are valuable and easy to conceal. The problem with gold is that it is often marked up alot... I'm not sure how practical it is in a poor developing nation. A substitute would be a \\\"\\\"harder\\\"\\\" currency. The best choice depends on where you live. Candidates would be the US Dollar, Euro, Australian Dollar, Yen, etc. The right choice depends on you, the law in your jurisdiction, your means and other factors.\\\"\",\n \"\\\"That oil is traded in USD makes for extra demand and thus a stronger dollar with more purchasing power. It's not really economics that are the issue though - many might argue a weakened dollar might help the US economy (cheaper exports). The real issue is power. These gold backed securities make it so that certain countries can get around US sanctions. Not to mention that controlling the currency that oil is traded in means the US can devalue their currency to gain an advantage in the event of a shortage. Also, because petroleum is traded in dollars, this means treasury bonds are a natural place to store wealth for oil producers. High demand for these bonds makes it cheap for the US government to borrow and easier to make interest payments thus making T-Bonds a \\\"\\\"safe\\\"\\\" asset.\\\"\",\n \">And a lot of people that have communist party wealth are afraid that there will be an uprising against them so they are preparing escape plans. My guess would be more along these lines (albeit maybe a bit less dramatic). There were a lot of dubious things that Party members did over the past hundred years to stash away cash for themselves. Siphoning off public resources, investing with them, and as long as the investments made money, keeping the results, for example, played a significant role in some of the complaints that farmers had about local officials. If they keep money in China, and there's some sort of fallout or charges that go through, my guess is that it's a lot easier to seize a corrupt official's resources. On the other hand, if you just bought a bunch of land in the US...that's a lot less easily-seizable and harder to immediately get ahold of for Chinese officials. There's also the more legit possibility that China quite arguably has a real estate bubble in investable real estate, and the result is that if you want to invest in land and reduce your risk to a bubble deflating, you want to do so overseas.\",\n \"The dollar is the reserve currency of choice because the full faith and credit of the US is big, liquid, and stable compared to any currently-available alternative. The Euro and Yuan are big enough to displace the dollar (and maybe the Yen), but any fears about the dollar being subject to fickle whims of politics and policy are significantly worse with those options.\",\n \"\\\"You are violating the Uncovered Interest Rate Parity. If Country A has interest rate of 4% and Country B has interest rate of 1%, Country B's expected exchange rate must appreciate by 3% compared to spot. The \\\"\\\"persistent pressure to further depreciate\\\"\\\" doesn't magically occur by decree of the supreme leader. If there is room for risk free profit, the entire Country B would deposit their money at Country A, since Country A has higher interest rate and \\\"\\\"appreciates\\\"\\\" as you said. The entire Country A will also borrow their money at Country B. The exception is Capital Control. Certain people are given the opportunity to get the risk free profit, and the others are prohibited from making those transactions, making UIP to not hold.\\\"\",\n \"> Trade with who? Intra asia trade. China is worlds largest trading partner. (why would anybody in asia pay middle man, american banks, just to trade with themselves? Using Yuan is instant 1.5% saving.) Dollar is mainly for financial and trade with US based countries. Even euro is less hassle than using dollar by now for asian country.\",\n \"Venezuela is a command economy, and one that isn't doing terribly well right now, with rampant inflation in the several hundred percent range. As such, they've tried to limit or eliminate exchanges between their currency and foreign currencies. Currently, they allow a limited amount of exchange at fixed rates (according to a Bloomberg article, those vary between 6.3, 13.5, and 200) for certain purchases, and then otherwise disallow exchange between the currencies. However, there is a black market (illegal in Venezuela, but legal in the US) which allows the price to float, and is much higher - 800 or so according to that article from last year. A recent Valuewalk article lists the black market rate at closer to 900, and slightly different official rates. It's worth a read as it explains the different official rates in detail: Currently there are four exchange rates: First is the official one, called CENCOEX, and which charges 6.30 bolivars to the dollar. It is only intended for the importation of food and medicine. The next two exchange rates are SICAD I (12 bolivars per dollar) and SICAD 2 (50 bolivars per dollar); they assign dollars to enterprises that import all other types of goods. Because of the fact that US dollars are limited, coupons are auctioned only sporadically; usually weekly in the case of SICAD 1 and daily for SICAD 2. However, due to the economic crisis, no dollars have been allocated for these foreign exchange transactions and there hasn’t been an auction since August 18, 2015. As of November 2015, the Venezuelan government held only $16 billion in foreign exchange reserves, the lowest level in over ten years, and an amount that will dry up completely in four years time at the current rate of depletion. The last and newest exchange rate is the SIMADI, currently at 200 bolivars per dollar. This rate is reserved for the purchase and sale of foreign currency to individuals and businesses.\",\n \"\\\"Wikipedia has a list of countries which ban foreign exchange use by its citizens. It's actually quite short but does include India and China. Sometimes economic collapse limits enforcement. For example, after the collapse of the Zimbabwean dollar (and its government running out of sufficient foreign exchange to buy the paper necessary to print more), the state turned a blind eye as the US dollar and South African rand became de facto exchange. Practicality will limit the availability of foreign exchange even in free-market economies. The average business can't afford to have a wide range of alternative currencies sitting around. Businesses which cater to large numbers of addled tourists sometimes offer one or two alternative currencies in the hopes of charging usurous rates of exchange. Even bureaux de change sometimes require you to order your \\\"\\\"rarer\\\"\\\" foreign exchange in advance. So, while it may be legal, it isn't always feasible.\\\"\",\n \"\\\"They acquired the debt from the VZ Central Bank. Providing the Central Bank with dollars will help them control inflation. The argument against the deal is colossally stupid, and basically rests on the idea that the world community just needs to let VZ get as shitty and miserable as possible so the people will overthrow the government. Anything that eases the pain, like injecting US Dollars into the central bank, is therefore seen as \\\"\\\"propping up the government\\\"\\\"\\\"\",\n \"I can see that dollars are more useful than Yuan (after all, in my example, Russia may wish to buy from countries other than China). What proportion of, say, international trade by Japan with countries other than the US is conducted in dollars?\",\n \"\\\"No. Suppose you have 100 Canadian dollars and the exchange rate is 2 CAD = 1 USD. You use your 100 CAD to purchase 50 USD (in your bank account that is in USD). Some time later the Canadian dollar grows stronger, so that now 1 CAD = 1 USD. If you now withdraw your 50 USD and get Canadian dollars, you will receive 50 CAD. You have lost half your money. If you want to make money on currency exchange rates (which is a risky plan), you should buy the currency that is cheap (i.e., \\\"\\\"weak\\\"\\\"). If, say, oil is very cheap, you don't make money by selling oil; you buy it and sell it later when the price goes up. Likewise, if the Canadian dollar isn't worth much and the US dollar is, you should buy Canadian dollars, not US dollars, hoping to sell them later when the exchange rate is more favorable. See also this similar question.\\\"\",\n \"I don't get the big deal. Someone has to buy it. And with Europe scaring people there's not much choice out there. Unless Americans start buying more or they restrict sales to citizens, this is going to keep going. At least someone wants them\",\n \"Bitcoins are very liquid. They can be sold or spent very easily. And you don't depend on the banks being solvent to keep your Bitcoin funds, since you can keep them yourself in an offline wallet. I'm not sure what's the legality of Bitcoin in Russia, though.\",\n \"\\\"Large multinationals who do business in multiple locales hedge even \\\"\\\"stable\\\"\\\" currencies like the Euro, Yen and Pound - because a 5-10% adverse move in an exchange rate is highly consequential to the bottom line. I doubt any of them are going to be doing significant amounts of business accepting a currency with a 400% annual range. And why should they? It's nothing more than another unit of payment - one with its own problems.\\\"\",\n \"The best would be to spend the money in US dollars. Order something from eBay/Amazon, even for resale, or pay someone in the US for services that you don't care where they're coming from, etc.\",\n \"\\\"More to the point, once you've gone through the trouble to accumulate a hoard of dollar balances, what *else* are you going to do with it? If you're not going to buy goods and services for sale in dollars, you may as well shift some of those dollar balances into an interest-bearing account, which is what \\\"\\\"buying US debt\\\"\\\" is.\\\"\",\n \"Best thing to do is convert your money into something that will retain value. Currency is a symbol of wealth, and can be significantly devalued with inflation. Something such as Gold or Silver might not allow you to see huge benefit, but its perhaps the safest bet (gold in particular, as silver is more volatile), as mentioned above, yes you do pay a little above spot price and receive a little below spot when and if you sell, but current projections for both gold and silver suggest that you won't lose money at least. Safe bet. Suggesting it is a bad idea at this time is just silly, and goes against the majority of advisers out there.\",\n \"Currency speculation is a very risky investment strategy. But when you are looking for which currency to denote your savings in, looking at the unit value is quite pointless. What is important is how stable the currency is in the long term. You certainly don't want a currency which is prone to inflation, because it means any savings denoted in that currency constantly lose purchasing power. Rather look for a currency which has a very low inflation rate or is even deflating. Another important consideration is how easy it is to exchange between your local currency and the currency you want to own. A fortune in some exotic currency is worth nothing when no local bank will exchange it into your local currency. The big reserve currencies like US Dollar, Euro, Pound Sterling and Japanes yen are usually safe bets, but there are regional differences which can be easily converted and which can't. When the political relations between your country and the countries which manage these currencies is unstable, this might change over night. To avoid these problems, rather invest into a diverse portfolio of commodities and/or stocks. The value of these kinds of investments will automatically adjust to inflation rate, so you won't need to worry about currency fluctuation.\",\n \"This is bullshit. The US government requires taxes to be paid in USD. There's your intrinsic value. If you want to be compliant with the federal law, your business and you as an individual are required to convert assets or labor into USD to pay them.\",\n \"Yes, if all my savings were in Euro, I would absolutely be converting everything to US dollars, and possibly some gold. You probably don't want to sit around with lots of Euros while watching the shit hit fan. Talk to your bank, possibly they can open a US dollar bank account in your own country for you. Definitely any bank that has an international presence, like HSBC, should be able to do this for you. And if not US dollars, British Pounds would also be another option.\",\n \"The current FED's spend is to encourage spends by putting in more liquidity, SOME of this funds [directly or indirectly] reach emerging markets and get invested in stocks ... so without these forex inflows, the Balance of Payments would be under pressure ... so these forex are artificially keeping the Exchange rate down. For example the USD vs INR rate was in the range of 1 USD to around INR 50 for nearly 4-5 years. In the period the inflation in India was around 10-15%, so ideally the rate should have slowly moved towards INR 60, however it took a news of FED cut-back to more the rates in the range of INR 65 before stabilizing to Rs 60\",\n \"Basically, all the same reasons you might not want to keep piles of your own country's cash, plus or minus the exchange rate question. Banks exist for good reasons. You probably want to use them unless you are explicitly playing the exchange rate game -- And if that's what you want, there are probably better ways to do it. If you need help not touching the money, CDs or other term accounts might give you enough disincentive. Or might not.\",\n \"This is exactly what they are doing. Examples would be the BRICS trading bloc and the ASEAN equivalent. Along with the trade agreements that many countries have made with Iran, all of which completely bypass the American Dollar. America needs to recognize that for many countries in the world, dumping their excess reserves in US Treasury Bonds is not in their best interest any longer. Especially considering the fiscal situation in the US, and the policies that are used to manipulate bond rates. (These policies are cross aisle, this is not a political statement) American Imperial might is finite. Americans ignore this at their own peril. Edit: I would also add the regulatory and legal uncertainty in the US is also a problem. By that I mean things like MF Global, Peregrine Financial, Knight Capital among others.\",\n \"\\\">However, they must be willing to accept it. If you attempt to pay them in USD, however, they can't refuse. And this is precisely the problem. People should be allowed to contract in whatever money they want to. If someone changes his mind and says \\\"\\\"oh I want the dollar-equivalent instead of Francs\\\"\\\", that change shouldn't be honored. Forcing people to accept dollars creates an artificial demand for dollars. >So why not start attempting to pay for things in semiconducters? If people voluntarily choose to, what's the problem?\\\"\",\n \"If you want to use that money and maybe don't have the time to wait a few years if things should go bad, than you will definitely want to hold a good bunch of your money in the currency you buy most stuff with (so in most cases the currency of the country you live in) even if it is more volatile.\",\n \"Legal tender laws and capital gains tax mean that other commodities are at an unfair legal disadvantage to local fiat currency. In other words, governments are using taxes and regulations to manipulate the market and create artificial demand for the currency their central bank has a monopoly on the creation of.\",\n \"well, probably taxed a little. and taxed when they spend it, and taxed again when it is spent again. like fikirte said, this is foreign money. if the americans want access to it they have to make it easy. they've done it in the past http://law-journals-books.vlex.com/vid/the-portfolio-interest-exemption-53348889 sorry there is a lack of sources in real english.\",\n \"\\\">Because selling gold and buying dollars has an effect on the market: it reduces the value of gold, and increases the value of dollars. Ah, but with all the business you'd do in gold, you'd constantly be increasing the value of gold. Think of it! I'm pretty sure that most people want to be paid in dollars not simply because of the fact that their taxes have to be paid in it, but because of it's universality. Not everyone has a use for a sack of barley, or a fish, or some gold dust. But you can buy whatever you want with an amount of dollars. >As the value of gold increases over time, the government taxes the increased value as \\\"\\\"capital gains tax\\\"\\\". It's only taxed at a 15.5% rate, IIRC. You'd probably come out ahead.\\\"\",\n \"A lot of Chinese are buying U.S. property for the sake of diversifying. A lot of Chinese still have a the grass is greener on the other side mentality when it comes to the U.S. They know very little about how many people on the U.S. are on food stamps. And a lot of people that have communist party wealth are afraid that there will be an uprising against them so they are preparing escape plans. edit: I think it's likely that the elite here in the U.S. also have escape plans.\",\n \"$USD, electronic or otherwise, are not created/destroyed during international transactions. If India wants to buy an F-16s, at cost $34M USD, they'll have to actually acquire $34M USD, or else convince the seller to agree to a different currency. They would acquire that $34M USD in a few possible ways. One of which is to exchange INR (India Rupees) at whatever the current exchange rate is, to whomever will agree to the opposite - i.e., someone who has USD and wants INR, or at least is willing to be the middleman. Another would be to sell some goods or services in the US (for USD), or to someone else for USD. Indian companies undoubtedly do this all the time. Think of all of those H1B workers that are in the news right now; they're all earning USD and then converting those to INRs. So the Indian government can just buy their USD for INR, directly or more likely indirectly (through a currency exchange market). A third method would be to use some of their currency stores. Most countries have significant reserves of various foreign currencies on hand, for two reasons: one to simplify transactions like this one, and also to stabilize the value of their own currency. A less stable currency can be stabilized simply by the central bank of that country owning USD, EUR, Pounds Sterling, or similar stable-value currencies. The process for an individual would be essentially the same, though the third method would be less likely available (most individuals don't have millions in cash on hand from different currencies - although certainly some would). No government gets involved (except for taxes or whatnot), it's just a matter of buying USD in exchange for INRs or for goods or services.\",\n \"I always find this funny. How can government bonds be in attractive and currency be attractive? With monetary policy America guarantees that it can't default on debt. The only thing that can happen which breaks this is if the government prints itself out of debt. In which case not only will you bonds be worthless but so will your cash. So to all the investors with boats of cash, you are trading one problem for the same problem. The only difference is you can hold the second problem in your hands. Fools.\",\n \"You can, and people do. More a Japanese thing than a US thing but I guess they've had super low interest rates for longer. Its called 'the carry trade' and is the reason the NZD is artificially high (which as an NZ exporter I find kinda annoying). Particularly popular with the so called 'japanese housewife' investor. It also causes the NZD to plunge every time the US stock market dips - because the NZD is held mostly as a moderately risky investment, not for trade purposes. Presumably in a down market hedge funds need to cash in their carry trades to cover margins or something? As another person said the primary risk is currency fluctuations. Unfortunately such currencies are highly volatile and tied to stock market volatility. tl;dr It'd be nice if you all quit treating my national currency as an investment opportunity - then i could get on with my business as an New Zealand exporter ;-)\",\n \"I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies.\",\n \"You should be able to convert this officially. As per RBI regulation an individual can hold upto USD 2000 eq for an unlimited period of time. See the point 14 on RBI FAQ's for Fx.\",\n \"\\\"Lmao so the fact that the government \\\"\\\"could possibly switch currency\\\"\\\" negates the current demand they create? The government creates a demand for USD. That alone is enough to say dollars have intrinsic value. Add to that the fact that there are trillions of dollars in outstanding government bonds that are required to be paid out in USD when they mature. Changing the currency would be considered a form of default by many and could have massive negative consequence far outweighing the benefits of the rapid adoption of blockchain. Even if they stopped issuing bonds today they would still have ones maturing until 2047. It's like saying bananas don't have monetary value because people might decide to stop buying them. Yeah, it's true they would lose value if that happened but as of today it's just not true\\\"\",\n \"I don't see countries switching to the USD, I see countries moving away from it. The US has the largest peace time debt ever, is not being even close to fiscally responsible (approving ~4 trillion budget!) and is faced with 100 trillion in future commitments (social security, medicare) with a workforce (tax base) that is decreasing as the baby boomers retire. When the US cannot meet those obligations (and most experts agree there is no hope of that anymore) they will have to print money and devalue the currency.\",\n \"Yes. But the question is do you want to have gold? If you are going to buy gold anyway, and if you can get a good conversion rate between USD:gold, then why not? If you are looking to use your earnings on things that you cannot buy using gold, then I'd recommend you take USD instead. Have fun!\",\n \"\\\"US currency, today, can be used for useful things like selling a car, but there's nothing stopping you for trading it for something else. On edit; I've been thinking about this, and I think that the problem is that currency exists as a. edium to pay taxes. The usefulness of it for non-governmental transactions is a secondary benefit. However, without them full faith and credit ofma government somewhere the currency would be worthless. For example, see Zimbbwean currency or any non-convertible currency. *extra edit--altogether too many \\\"\\\"m's.\\\"\\\"\\\"\",\n \"It depends on the currency pair since it is much harder to move a liquid market like Fiber (EURUSD) or Cable (GBPUSD) than it is to move illiquid markets such as USDTRY, however, it will mostly be big banks and big hedge funds adjusting their positions or speculating (not just on the currency or market making but also speculating in foreign instruments). I once was involved in a one-off USD 56 million FX trade without which the hedge fund could not trade as its subscriptions were in a different currency to the fund currency. Although it was big by their standards it was small compared with the volumes we expected from other clients. Governments and big companies who need to pay costs in a foreign currency or receive income in one will also do this but less frequently and will almost always do this through a nominated bank (in the case of large firms). Because they need the foreign currency immediately; if you've ever tried to pay a bill in the US denominated in Dollars using Euros you'll know that they aren't widely accepted. So if I need to pay a large bill to a supplier in Dollars and all I have is Euros I may move the market. Similarly if I am trying to buy a large number of shares in a US company and all I have is Euros I'll lose the opportunity.\",\n \"It's called carry-trade. They can borrow from governments that have 0% int rates, exchange it for dollars, and then buy u.s. treasuries. Japan would never ever raise their interest rates as their economy runs on keynesian fumes.\",\n \"The other obvious suggestion I guess is to buy cheap stocks and bonds (maybe in a dollar denominated fund). If the US dollar rises you'd then get both the fund's US gains plus currency gains. However, no guarantee the US dollar will rise or when. Perhaps a more prudent approach is to simply diversify. Buy both domestic and foreign stocks and bonds. Rebalance regularly.\",\n \"Mainly because I have it and you don't, I can make you do stuff for it because more of us perceive its value than bother about the paper you are holding. Picture if you will a moment in time, when the paper you are holding, represented the amount of gold you had at home, as time went by you spent all your gold and the amount the paper represented, became less and less and the amount of lunch you could buy with it became less and less. Today the day has arrived, that you have no gold left and what your paper represents is an empty coffer . . Move along . .people who can pay for their lunch are waiting and look, the paper they hold represents gold they have.\",\n \"Less than 2 1/2% of all US currency actually exists. The rest is digital entries. In a financial crisis you'll need lots of rare cash. Twenty dollar bills are the best choice. Stash as many as you can afford to. Best to stash in a anchored security safe. And for goodness sakes, don't tell anyone.\",\n \"Either way you'll be converting to US Dollars somewhere along the line. You are seeking something that is very redundant\",\n \"Moronic question I'm sure. Listening to the Bloomberg Surveillance podcast and they mentioned that the vast majority of financial transactions in China and even North Korea are denominated in US dollars. They go on to say that this means they HAVE to go through US banks giving the US tremendous leverage. Can someone explain this whole idea to me. 1. Why do transactions done in US dollars have to go through US banks? 2. Does that leverage the US has just come from our ability to prevent transactions from occurring if they are run through our banks?\",\n \"Arguably, the only reason the US can print dollar without massive repercussions on devaluing it is because of it is the world's reserve currency, backed by oil. This has allowed to US to build the world's biggest and most powerful army because they can easily borrow money to fund it. Everyone needs oil for their economy, therefore everyone needs dollars...\",\n \"Would it be a reasonable idea to open a savings account in an overseas bank? For the risks you mention, this may not be a good idea for individual. Note HNI / Companies routinely keep funds in various overseas account. For individual the amount of paperwork [reporting in US etc] and fees etc would be high. Plus in adverse conditions, access to this funds would still be stringent and restricted. Some of the other options you can try are Generally for the risks you mention, there is very little an individual can do except to take it if & when it comes.\",\n \"One option is buying physical gold. I don't know about Irish law -- but from an economic standpoint, putting funds in foreign currencies would also be an option. You could look into buying shares in an ETF tracking foreign currency as an alternative to direct money exchange.\",\n \"\\\"I still don't understand this \\\"\\\"analysis.\\\"\\\" Even when the US became the world's largest economy in 1880, the British Pound remained the reserve currency of choice until the 1950s, some seventy years later! Investors prefer stability and property rights and the US has both, especially when considering the alternatives, i.e. Euro tax takings on bank deposits in Cyprus. What about the yuan? China may have recently surpassed US economic power, but it is very likely in the midst of a massive credit bubble. China has also been fudging some of their numbers and in many cases, chooses not to keep economic records at all. The fact that many Chinese elites themselves are buying property in Vancouver and the US as a safe harbor also does not bode well for their systemic problems IMO. I'm sticking with the dollar for now.\\\"\",\n \"Currencies don't have intrinsic value. Just because you have to pay taxes in USD does not mean it has intrinsic value. The government could theoretically switch currency every second, not that that will ever happen. But yes the USD is supported by the US government and that's like a safety net for the value of the USD. Bitcoin doesn't have a government accepting bitcoin in taxes (except maybe liberland or something) so BTC doesn't have that safenet. But with such a liquid market and millions of buyorders bitcoin doesn't really need a safenet. There will always be demand. I prefer a scarce currency with growing demand than an inflationary currency backed by a corrupt government that loses value over time.\",\n \"Use other currencies, if available. I'm not familiar with the banking system in South Africa; if they haven't placed any currency freezes or restrictions, you might want to do this sooner than later. In full crises, like Russian and Ukraine, once the crisis worsened, they started limiting purchases of foreign currencies. PayPal might allow currency swaps (it implies that it does at the bottom of this page); if not, I know Uphold does. Short the currency Brokerage in the US allow us to short the US Dollar. If banks allow you to short the ZAR, you can always use that for protection. I looked at the interest rates in the ZAR to see how the central bank is offsetting this currency crisis - WOW - I'd be running, not walking toward the nearest exit. A USA analogy during the late 70s/early 80s would be Paul Volcker holding interest rates at 2.5%, thinking that would contain 10% inflation. Bitcoin Comes with significant risks itself, but if you use it as a temporary medium of exchange for swaps - like Uphold or with some bitcoin exchanges like BTC-e - you can get other currencies by converting to bitcoin then swapping for other assets. Bitcoin's strength is remitting and swapping; holding on to it is high risk. Commodities I think these are higher risk right now as part of the ZAR's problem is that it's heavily reliant on commodities. I looked at your stock market to see how well it's done, and I also see that it's done poorly too and I think the commodity bloodbath has something to do with that. If you know of any commodity that can stay stable during uncertainty, like food that doesn't expire, you can at least buy without worrying about costs rising in the future. I always joke that if hyperinflation happened in the United States, everyone would wish they lived in Utah.\",\n \"Currently many countries (and non-government bodies) hold dollars to facilitate trade. If the dollar is no longer used in their trade, then they no longer have a reason to hold those dollars. If every other country starts to dump their dollar holdings into the world currency markets, the number of dollars floating around in those market would shoot up. The massive supply increase of dollars (we're assuming these other countries are holding massive amounts of dollars) would lead to a large drop in value of the dollar - lots more dollars chasing the same amount of goods. Every purchase will become much more expensive for anyone still buying with dollars, including the American government trying to buy expensive military equipment - unless the US government also switches to using something else to purchase military supplies.\",\n \"Yeah, I heard about that! That's virtually the same thing (in a different form) as a new currency as it's backed solely by the state's ability to uphold its value, but yes, given that it's trading for pennies on the dollar it's no surprise the USD is the primary currency there. It will be very interesting to see the policies that Mugabe's successor (his ex-wife or #2) puts in place. Either way I bet they fail, but hope they don't and actually make the necessary reforms to help the country succeed.\",\n \"It could be a a way to preserve the value of your money, but depends upon various factors. If a country defaults, and it leads to hyper-inflation, by definition that means that money loses its purchasing power. In even simpler terms, it cannot buy as much tomorrow as I could today. Therefore people can be incented to either hoard physical goods, or other non-perishable items. Real-estate may well be such an item. If you are resident in the country, you have to live somewhere. It is possible that a landlord might try to raise rent beyond what your job is willing to pay. Of course, in a house, you might have a similar situation with utilities like electricity... Assuming some kind of re-stabilization of the economy and currency, even with several more zeros on the end, it is conceivable that the house would subsequently sell for an appropriately inflation adjusted amount, as other in-demand physical goods may. Lots of variables. Good Luck.\",\n \"Because we need energy in the form of oil. If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves. Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?\",\n \"\\\"Iraq is a US vassal/puppet state. I'm not sure what 500 South Vietnamese Dong were worth in 1972, but today the paper currency is worth $10 in mint condition. I'd suggest blackjack or craps as an alternate \\\"\\\"investment\\\"\\\".\\\"\",\n \"Quite a lot of reasons but mostly supply and demand. Some areas of Africa are extremely remote and just don't have things there that some of the population now want. I would guess it won't be like this for much longer but right now it is and i have met plenty of people taking advantage of that fact.\",\n \"The idea being that if / when the CAD recovers I could see a gain of ~30%. That is the big if, maybe the USD and CAD will return to their previous exchange rates, maybe the CAD will fall further, you just don't know. You should try to keep a diversified pool of investments, that may include some cash in various currencies but unless you think you will need the money in the next few years it should probablly be mostly in other things. If you do think you will need the money in the next few years it should probablly be in a currency that is stable relative to the things you are likely to need it for.\",\n \"Traveller's cheques. That's exactly what they were intended for. Their usage has dropped a lot since everyone can use ATMs in foreign countries, but they still exist.\",\n \"Perhaps the world does not like a Global economy dominated by a Fucking Moron, Perhaps the world does not see a future in a Jew dominated Fed that can print whatever it thinks sounds like fun and then lend it to the US treasury in an insurmountable mountain of debt. Gosh . . .isn't the FED supposed to be pretending to unwind all that 0 market valuation crap from 2008 ? I wonder if there are even any houses after a decade\",\n \"I'm in Argentina and they limit the daily withdrawals to 1000 pesos a day (about $220). The gov't just put limits on withdrawing dollars here, which is how Argentines have typically saved their money. The people are NOT happy.\",\n \"Further evidence that the love of money is the root of all evil. Money is useless if not transformed into something material. Apparently Americans are duped by the wealth effect. If their portfolio has high numbers they feel rich and impoverish themselves by spending more of their income even though it is just ink and paper unless transformed into something tangible. Fools. The hoarders of money must be afraid they would run out, expose they have no usefull skills and have to do actual work for a living.\",\n \"\\\"The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are \\\"\\\"weak\\\"\\\" and some \\\"\\\"strong\\\"\\\". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona.\\\"\",\n \"At any instant, three currencies will have exchange rates so if I know the rate between A and B, and B to C, the A to C rate is easily calculated. You need X pounds, so at that moment, you are subject to the exchange rate right then. It's not a deal or bargain, although it may look better in hindsight if the currencies move after some time has passed. But if a currency is going to depreciate, and you have the foresight to know such things, you'd already be wealthy and not visiting here.\",\n \"Sure thing - Treasuries Bonds/Bills are what the US Gov uses to borrow. However it's slightly different than taking out a loan. It's basically an agreement to give (repay) a set sum of money at a certain time in the future in exchange for a sum of funding that's determined by market forces (supply & demand). The difference between today's price and the payment in the future is the interest. For example (completely made up numbers): - Today is 08/05/2017 - The government issues a bond that say it will pay who ever owns this bond $105 on 08/05/**2018** - The market decides that $105 from the US government paid a year from now is worth $100 today. In other words the US Government is borrowing for one year at a rate of 5% (105 - 100) / 100 = .05 = 5% Now consider Saudi Arabia's petroleum company, Aramco. Because petroleum is traded in dollars, when Aramco makes a sale, its paid in USD. Some of that is going to be reinvested into the company, some paid out in dividends to share holders but inevitably some of that will be saved someplace where it can make interest. Because treasuries are traded/issued in dollars and because Aramco's businesses deals primarily in dollars, treasuries are the natural place to store that savings, especially because the market considers them extremely safe. If they exchange the USD into the Saudi currency to store the money in Saudi assets, Aramco is subject to *exchange rate risk*. If the riyal depreciates relative to the dollar, Aramco will lose wealth on the exchange back to dollars when they go to move those funds back into their business. It's in their interest to deal with assets denominated in USD (i.e. T-Bonds) in order to avoid this. So now because the Saudis want T-Bonds as well, the additional demand pushes the market price of our bond from $100 to $102. And the effective one year borrowing rate for the Government goes from 5% to 2.9%. (105 - 102)/102 = .029411 = 2.9% And there you have it, cheaper borrowing. It's also worth noting how this encourages business around the world to deal in dollars which are directly controlled by the federal reserve. This makes the US's position extremely powerful.\",\n \"Considering the historical political instability of your nation, real property may have higher risk than normal. In times of political strife, real estate plummets, precisely when the money's needed. At worst, the property may be seized by the next government. Also, keeping the money within the country is even more risky because bank accounts are normally looted by either the entering gov't or exiting one. The safest long run strategy with the most potential for your family is to get the money out into various stable nations with good history of protecting foreign investors such as Switzerland, the United States, and Hong Kong. Once out, the highest expected return can be expected from internationally diversified equities; however, it should be known that the value will be very variant year to year.\",\n \"\\\"Money is money because people believe it is money. By \\\"\\\"believe it is money\\\"\\\", I mean that they expect they will be able to turn it into useful goods or services (food, rent, houses, truckloads full of iron ore, mining equipment, massages at the spa, helicopter rides, iPads, greenhouses, income streams to support your future retirement, etc). Foreign exchange rates change because people's ideas about how much useful goods or services they can get with various currencies change. For example: if the Zimbabwe government suddenly printed 10 times as much money as used to exist, you probably couldn't use that money to buy as much food at the Zimbabwe-Mart, so you wouldn't be willing to give people as many US-dollars (which can buy food at the US-Mart) for a Zimbabwe-dollar as you used to be able to. (It's not exactly that easy, because - for instance - food in the US is more useful to me than food in Zimbabwe. But people still move around all sorts of things, like oil, or agricultural products, or minerals, or electronics components.) The two main things that affect the value of a currency are the size of the economy that it's tied to (how much stuff there is to get), and how much of the currency there is / how fast it's moving around the economy (which tells you how much money there is to get it with). So most exchange rate shifts reflect a change in people's expectations for a regional economy, or the size of a money supply. (Also, Zimbabwe is doing much better now that it's ditched their own currency - they kept printing trillions of dollars' worth - and just trade in US dollars. Their economy still needs some work, but... better.)\\\"\",\n \"Not really practical... The real problem is getting the money into a form where you *can* invest it in something. It's not like E\\\\*Trade will let you FedEx them a briefcase of sequentially numbered hundreds and just credit your account, no questions asked. That **is** the hard part.\",\n \"Money, like anything else, is subject to the demands of people. There are times when money is in high demand. This drives up its value. People in Japan want cash because they have an immediate need to buy emergency supplies as well as rebuild and replace damaged items. This is why the yen strengthened. This is probably why the market plummeted as people liquidated some of their stocks to get cash. The Bank Of Japan (BOJ) will not stand for a rising yen, however. It is pulling a Bernanke and printing yen in an effort to keep it weak.\",\n \"Public debt and risk of currency devaluation are two very, very different things. Until the BRICS are able to buy commodities on a significant scale using a market basket of their own currencies, the USD will remain one of the (if not the) safest currencies in the world.\",\n \"Dollars are bits you don't control. The banking system has your bits and they can charge you more bits to move your bits around. At any point, they could freeze your accounts and suddenly you have no bits. It's all designed to make it so you can't function in society without them controlling your bits.\",\n \"Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.)\",\n \"Because people trade currency in exchange for goods and services. They can easily prevent competition by violent means or by having control of the market through market share. Price can be controlled by the threat of super low prices in order to drive out competing businesses.\",\n \"> it makes US investments even better because the rate of return gets boosted higher. Except it doesn't. Do they really teach this? Does anyone have a link to textbook thinking on this subject, because that's a blatant lie and might explain why so many people understand the dynamics at work here completely wrong.\",\n \"Petrodollars are specifically dollars earned from oil revenue. They are not synonymous with the US dollar. It should be clear that the US dollar is not backed by oil since we just recently witnessed the priced in US dollars drop precipitously while the US dollar gained against a basket of currencies.\",\n \"This crisis just shows why the dollar has no chance in my lifetime of loding it's dominance. Russia is a major world player, were taking what seemed right steps to move forward economically, socially, politically. Yet this crisis shows the truth. Media controlled by the kremlin. Taking actions in other countries. No fear of economic hardships due to political issues. Who else could supplant the US dollar? China is in the same boat as Russia. Still not a free society. SO what's left? The Euro. But it's got a long way to go to show it can remain stable. Give it 50 years and get back to me.\",\n \"why should i have to make something with my cash? i'll fuking hold it and face losing a few percentage of purchasing power. i'd rather have liquity in these peril times. besides, people that held cash in 2008 had a once in a life time buying opportunity when all assets fell 60-90%.\",\n \"I think you are asking quite a few questions here; If you have Rs 10000, its better you get it converted in India before you leave. Most Banks and Exchange houses like Western Union would take Rupees and Give you USD. What do they do with USD, there are other who give them USD and need Rupees. They make a spread in this process. If you are getting a salary in USD in US, whenever you want to transfer money to India, the Banks or Remittance services like Western Union would take USD from your US Account and Transfter equivalent Money into your Bank Account in India in Rupees. They will tell the exchange rate applicable. Depending on why visa type & the duration you are going, your company should be able to tell you your tax liabilities in the US. Read similar questions here to get a general idea.\",\n \"First, currencies are not an investment; they are a medium of exchange; that is, you use currency to buy goods and services and/or investments. The goods and services you intend to buy in your retirement are presumably going to be bought in your country; to buy these you will need your country's currency. The investments you intend to buy now require the currency of whatever country they are located in. If you want to buy shares in Microsoft you need USD; if you want shares in BHP-Billiton you need AUD or GBP (It is traded on two exchanges), if you want property in Kuwait you need KWD and if you want bonds in your country you need IDR. When you sell these later to buy the goods and services you were saving for you need to convert from whatever currency you get for selling them into whatever currency you need to buy. When you invest you are taking on risk for which you expect to be compensated for - the higher the risk you take the better the returns had better be because there is always the chance that they will be negative, right down to losing it all if you are unlucky. There is no 100% safe investment; if you want to make sure you get full value for your money spend it all right now! If you invest overseas then, in addition to all the other investment risks, you are adding currency risk as well. That is, the risk that when you redeem your investments the overseas currency will have fallen relative you your currency. One of the best ways of mitigating risk is diversification; which allows the same return at a lower risk (or a higher return at the same risk). A pure equity portfolio is not diversified across asset classes (hopefully it is diversified across the equities). Equities are a high risk-high yield class; particularly in a developing economy like Indonesia. If you are very young with a decades long investment horizon this may be OK but even then, a diversified portfolio will probably offer better rewards at the same risk. Diversifying into local cash, bonds and property with a little foreign equities, bonds and property will serve you better than worrying about the strength of the IDR. Oh, and pay a professional for some real advice rather than listening to strangers on the internet.\",\n \">We collectively agree that a dollar has a certain value. That's it. We believe in money. Welcome to the collective delusion of fiat currency. You mean 12 richest families in charge of FED make you think it has value? Once you realize this, you'll soon understand how is US's everlasting involvement in (provoking) wars across the globe financed, where from, and most importantly why. Once other nations exclude US dollar as a valid currency (India, Russia and China have already), US dollar is going to be less and less valuable until it's worth nothing (as it actually is all along as it has no leverage). Maybe we better rebel against an inevitable doom of US economy now when you can actually use it to buy other commodities than wait to use them as firestarters 10-20 years down the road.\",\n \"\\\"No. This is too much for most individuals, even some small to medium businesses. When you sell that investment, and take the cheque into the foreign bank and wire it back to the USA in US dollars, you will definitely obtain the final value of the investment, converted to US$. Thats what you wanted, right? You'll get that. If you also hedge, unless you have a situation where it is a perfect hedge, then you are gambling on what the currencies will do. A perfect hedge is unusual for what most individuals are involved in. It looks something like this: you know ForeignCorp is going to pay you 10 million quatloos on Dec 31. So you go to a bank (probably a foreign bank, I've found they have lower limits for this kind of transaction and more customizable than what you might create trading futures contracts), and tell them, \\\"\\\"I have this contract for a 10 million quatloo receivable on Dec 31, I'd like to arrange a FX forward contract and lock in a rate for this in US$/quatloo.\\\"\\\" They may have a credit check or a deposit for such an arrangement, because as the rates change either the bank will owe you money or you will owe the bank money. If they quote you 0.05 US$/quatloo, then you know that when you hand the cheque over to the bank your contract payment will be worth US$500,000. The forward rate may differ from the current rate, thats how the bank accounts for risk and includes a profit. Even with a perfect hedge, you should be able to see the potential for trouble. If the bank doesnt quite trust you, and hey, banks arent known for trust, then as the quatloo strengthens relative to the US$, they may suspect that you will walk away from the deal. This risk can be reduced by including terms in the contract requiring you to pay the bank some quatloos as that happens. If the quatloo falls you would get this money credited back to your account. This is also how futures contracts work; there it is called \\\"\\\"mark to market accounting\\\"\\\". Trouble lurks here. Some people, seeing how they are down money on the hedge, cancel it. It is a classic mistake because it undoes the protection that one was trying to achieve. Often the rate will move back, and the hedger is left with less money than they would have had doing nothing, even though they bought a perfect hedge.\\\"\",\n \"\\\"Economics is not hard science. Economics is really just a study of what people do and why. The best book to read to understand why people protect their wealth when the government threatens it is \\\"\\\"[Human Action](http://mises.org/document/3250)\\\"\\\" by Ludwig von Mises. Check it out. It will answer all of your questions with a lot more logic than research. Economic research on macro subjects can prove any preconceived theorem, therefore it is worse than logic because it purports to \\\"\\\"prove\\\"\\\" what are, in the end, only opinions.\\\"\",\n \"By the way, be nice to Mexicans. You might have to sneak into Mexico as illegal immigrant when dollar crashes and revolution follows an hyper inflation :) Don't be mad at me, be mad at your idiot and puppet politicians who are killing the American dream.\",\n \"They wont let it collapse, they will devalue it over time to some effect via bailouts and borrowing. Invest in commodities so your cash retains its value, physical gold is always strong. Other currencies are an option but this is more of a gamble.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (such as nationalising businesses) or general instability / scarcity. The governments act to manage that uncertainty by limiting the availability of foreign exchange and pegging the exchange rate. Since there is an inadequate supply of trusted foreign currency people turn to informal exchanges in order to hedge their currency risk. This creates a negative feedback loop. People in government who have access to foreign exchange start to trade on informal markets, pocketing the difference in the official and unofficial rates. The increasing gap between the two rates drives increasing informal market exchange and can result in speculative bubbles. Driving instability (or economic contradiction) is that the massive and increasing difference between the official and market exchange rates becomes a powerful form of rent for government officials. This drives further state-led rent-seeking behaviour and causes the economy to become even more unstable. If you're interested in a more formal academic study of how such parallel markets in currency arise, \"\"Zimbabwe’s Black Market for Foreign Exchange\"\" by Albert Makochekanwa at the University of Pretoria is a useful source.\"","\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as whether or not the person is studying at a foreign university. If the citizen wants to exchange more dollars than legally allowed, that person must buy or sell at the \"\"black\"\" market rate, rather than through the official/government market.\"","\"As a Venezuelan who used to buy USD, I believe there is not better explanation than the one given to someone who actually lives and works here in Venezuela. Back in 1998 when Hugo Chavez took the presidency, we had a good economy. Fast forward 10 years laters and you could see how poor management, corruption and communist measurements had wreaked havoc in our Economy. It was because most of the money (USD) coming in Venezuela were not invested here but instead, given away to \"\"pimp countries\"\" like Cuba. Remember, communism lasts while you have money. Back then we had an Oil Barrel going over 100$ and crazy amounts of money were coming in the country. However, little to no money was invested in the country itself. That is why some of the richest people with bank account in Swiss are Venezuelans who stole huge amounts of Oil Money. I know this is a lot to take in, but all of this led to Venezuelan economy being the worst in The American Continent and because there is not enough money inside the country to satisfy the inner market, people would pay overprice to have anything that is bought abroad. You have to consider that only a very small amount of people can actually buy USD here in Venezuela. Back in 2013 I was doing it, I could buy about 80 usd/month with my monthly income. However, nowdays that's nearly impossible for about 99% of Venezuelans. To Illustrate. Minimum wage = 10.000 bolivares / month Black market exchange rate (As of January 2016) = 900bs per 1usd 10.000/900 = 11,11 usd. <<< that is what about 50% of Venezuelans earn every month. That's why this happens: http://i.imgur.com/dPOC2e3.jpg The guy is holding a huge stack of money of the highest Venezuelan note, which he got from exchanging only 100 usd. I am a computer science engineer, the monthly income for someone like me is about 30.000 bolivares --- so that is about 34$ a month. oh dear! So finally, answering your question Q: Why do people buy USD even at this unfavorable rate? A: There are many reasons but being the main 2 the following 1.- Inflation in Venezuela is crazy high. The inflation from 2014-2015 was 241%. Which means that having The Venezuelan currency (Bolivares) in your bank account makes no sense... in two weeks you won't be able to buy half of the things you used to with the same amount of money. 2.- A huge amount of Venezuelans dream with living abroad (me included) why, you ask? well sir, it is certain that life in this country is not the best: I hope you can understand better why people in 3rd world countries and crappy economies buy USD even at an unfavorable rate. The last question was: Q: Why would Venezuela want to block the sale of dollars? A: Centralized currency management is an Economic Measure that should last 6 months tops. (This was Argentina's case in 2013) but at this point, reverting that would take quite a few years. However, Turukawa's wikipedia link explains that very well. Regards.\""],"string":"[\n \"\\\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (such as nationalising businesses) or general instability / scarcity. The governments act to manage that uncertainty by limiting the availability of foreign exchange and pegging the exchange rate. Since there is an inadequate supply of trusted foreign currency people turn to informal exchanges in order to hedge their currency risk. This creates a negative feedback loop. People in government who have access to foreign exchange start to trade on informal markets, pocketing the difference in the official and unofficial rates. The increasing gap between the two rates drives increasing informal market exchange and can result in speculative bubbles. Driving instability (or economic contradiction) is that the massive and increasing difference between the official and market exchange rates becomes a powerful form of rent for government officials. This drives further state-led rent-seeking behaviour and causes the economy to become even more unstable. If you're interested in a more formal academic study of how such parallel markets in currency arise, \\\"\\\"Zimbabwe’s Black Market for Foreign Exchange\\\"\\\" by Albert Makochekanwa at the University of Pretoria is a useful source.\\\"\",\n \"\\\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as whether or not the person is studying at a foreign university. If the citizen wants to exchange more dollars than legally allowed, that person must buy or sell at the \\\"\\\"black\\\"\\\" market rate, rather than through the official/government market.\\\"\",\n \"\\\"As a Venezuelan who used to buy USD, I believe there is not better explanation than the one given to someone who actually lives and works here in Venezuela. Back in 1998 when Hugo Chavez took the presidency, we had a good economy. Fast forward 10 years laters and you could see how poor management, corruption and communist measurements had wreaked havoc in our Economy. It was because most of the money (USD) coming in Venezuela were not invested here but instead, given away to \\\"\\\"pimp countries\\\"\\\" like Cuba. Remember, communism lasts while you have money. Back then we had an Oil Barrel going over 100$ and crazy amounts of money were coming in the country. However, little to no money was invested in the country itself. That is why some of the richest people with bank account in Swiss are Venezuelans who stole huge amounts of Oil Money. I know this is a lot to take in, but all of this led to Venezuelan economy being the worst in The American Continent and because there is not enough money inside the country to satisfy the inner market, people would pay overprice to have anything that is bought abroad. You have to consider that only a very small amount of people can actually buy USD here in Venezuela. Back in 2013 I was doing it, I could buy about 80 usd/month with my monthly income. However, nowdays that's nearly impossible for about 99% of Venezuelans. To Illustrate. Minimum wage = 10.000 bolivares / month Black market exchange rate (As of January 2016) = 900bs per 1usd 10.000/900 = 11,11 usd. <<< that is what about 50% of Venezuelans earn every month. That's why this happens: http://i.imgur.com/dPOC2e3.jpg The guy is holding a huge stack of money of the highest Venezuelan note, which he got from exchanging only 100 usd. I am a computer science engineer, the monthly income for someone like me is about 30.000 bolivares --- so that is about 34$ a month. oh dear! So finally, answering your question Q: Why do people buy USD even at this unfavorable rate? A: There are many reasons but being the main 2 the following 1.- Inflation in Venezuela is crazy high. The inflation from 2014-2015 was 241%. Which means that having The Venezuelan currency (Bolivares) in your bank account makes no sense... in two weeks you won't be able to buy half of the things you used to with the same amount of money. 2.- A huge amount of Venezuelans dream with living abroad (me included) why, you ask? well sir, it is certain that life in this country is not the best: I hope you can understand better why people in 3rd world countries and crappy economies buy USD even at an unfavorable rate. The last question was: Q: Why would Venezuela want to block the sale of dollars? A: Centralized currency management is an Economic Measure that should last 6 months tops. (This was Argentina's case in 2013) but at this point, reverting that would take quite a few years. However, Turukawa's wikipedia link explains that very well. Regards.\\\"\"\n]","isConversational":false}}},{"rowIdx":259,"cells":{"_id":{"kind":"string","value":"7124"},"query":{"kind":"string","value":"How come we can find stocks with a Price-to-Book ratio less than 1?"},"gt_ids":{"kind":"list like","value":["74615","154725","558617","526110"],"string":"[\n \"74615\",\n \"154725\",\n \"558617\",\n \"526110\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["526110","7170","558617","157597","154725","256818","56405","237344","477426","15650","210268","161323","94591","204209","271001","590980","288551","598184","73995","421248","504243","184303","414940","546969","325669","583708","522040","518860","553450","447509","261415","247021","503740","220772","527230","4290","6369","301547","194319","354236","476859","514375","400620","555915","304918","442324","139654","412584","270573","472500","435125","349567","35500","538750","368738","241175","74615","535043","324377","291220","421371","283421","212988","355554","433905","448428","543606","210581","427726","482464","65235","186849","20335","556688","400614","386225","390817","152097","266672","464769","60495","334162","532171","182057","582313","350095","580920","153212","280111","33357","446877","278582","311345","69506","499269","457485","231677","429196","416732","466430"],"string":"[\n \"526110\",\n \"7170\",\n \"558617\",\n \"157597\",\n \"154725\",\n \"256818\",\n \"56405\",\n \"237344\",\n \"477426\",\n \"15650\",\n \"210268\",\n \"161323\",\n \"94591\",\n \"204209\",\n \"271001\",\n \"590980\",\n \"288551\",\n \"598184\",\n \"73995\",\n \"421248\",\n \"504243\",\n \"184303\",\n \"414940\",\n \"546969\",\n \"325669\",\n \"583708\",\n \"522040\",\n \"518860\",\n \"553450\",\n \"447509\",\n \"261415\",\n \"247021\",\n \"503740\",\n \"220772\",\n \"527230\",\n \"4290\",\n \"6369\",\n \"301547\",\n \"194319\",\n \"354236\",\n \"476859\",\n \"514375\",\n \"400620\",\n \"555915\",\n \"304918\",\n \"442324\",\n \"139654\",\n \"412584\",\n \"270573\",\n \"472500\",\n \"435125\",\n \"349567\",\n \"35500\",\n \"538750\",\n \"368738\",\n \"241175\",\n \"74615\",\n \"535043\",\n \"324377\",\n \"291220\",\n \"421371\",\n \"283421\",\n \"212988\",\n \"355554\",\n \"433905\",\n \"448428\",\n \"543606\",\n \"210581\",\n \"427726\",\n \"482464\",\n \"65235\",\n \"186849\",\n \"20335\",\n \"556688\",\n \"400614\",\n \"386225\",\n \"390817\",\n \"152097\",\n \"266672\",\n \"464769\",\n \"60495\",\n \"334162\",\n \"532171\",\n \"182057\",\n \"582313\",\n \"350095\",\n \"580920\",\n \"153212\",\n \"280111\",\n \"33357\",\n \"446877\",\n \"278582\",\n \"311345\",\n \"69506\",\n \"499269\",\n \"457485\",\n \"231677\",\n \"429196\",\n \"416732\",\n \"466430\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Book value = sell all assets and liquidate company . Then it's the value of company on book. Price = the value at which it's share gets bought or sold between investors. If price to book value is less than one, it shows that an 100$ book value company is being traded at 99$ or below. At cheaper than actually theoretical price. Now say a company has a production plant . Situated at the most costliest real estate . Yet the company's valuation is based upon what it produces, how much orders it has etc while real estate value upon which plant is built stays in book while real investors don't take that into account (to an extend). A construction company might own a huge real estate inventory. However it might not be having enough cash flow to sustain monthly expense. In this scenario , for survival,i the company might have to sell its real estate at discount. And market investors are fox who could smell trouble and bring price way below the book value Hope it helps","\"An answer can be found in my book, \"\"A Modern Approach to Graham and Dodd Investing,\"\" p. 89 http://www.amazon.com/Modern-Approach-Graham-Investing-Finance/dp/0471584150/ref=sr_1_1?s=books&ie=UTF8&qid=1321628992&sr=1-1 \"\"If a company has no sustained cash flow over time, it has no value...If a company has positive cash flow but economic earnings are zero or less, it has a value less than book value and is a wasting asset. There is enough cash to pay interim dividends, bu the net present value of the dividend stream is less than book value.\"\" A company with a stock trading below book value is believed to be \"\"impaired,\"\" perhaps because assets are overstated. Depending on the situation, it may or may not be a bankruptcy candidate.\"","Note that the formula for Price to Book ratio is: Stock Price / {[Total Assets - (Intangible Assets + Liabilities)] / Stock Outstanding} http://www.investopedia.com/terms/p/price-to-bookratio.asp http://www.investopedia.com/articles/fundamental/03/112603.asp There's a number of factors that could lead to a lower than 1. The primary reason, imho, could be the company is in a state of retiring stock with debt. The company is selling penny stocks (only to get people more interested in it's later development) which are inherently undervalued. There may be other reasons, but definitely check out both articles.","Look at Price/book value and there are more than a few stocks that may have a P/B under 1 so this does happen. There are at least a couple of other factors you aren't considering here: Current liabilities - How much money is the company losing each quarter that may cause it to sell repeatedly. If the company is burning through $100 million/quarter that asset is only going to keep the lights on for another 2.5 years so consider what assumptions you make about the company's cash flow here. The asset itself - Is the price really fixed or could it be flexible? Could the asset seen as being worth $1 billion today be worth much less in another year or two? As an example, suppose the asset was a building and then real estate values drop by 40% in that area. Now, what was worth $1 billion may now be worth only $600 million. As something of a final note, you don't state where the $100 million went that the company received as if that was burned for operations, now the company's position on the asset is $900 million as it only holds a 90% stake though I'd argue my 2 previous points are really worth noting. The Following 6 Stocks Are Trading At or Below 0.5 x Book Value–Sep 2013 has a half dozen examples of how this is possible. If the $100 million was used to pay off debt, then the company doesn't have that cash and thus its assets are reduced by the cash that is gone. Depending on what the plant is producing the value may or may not stay where it is. If you want an example to consider, how would you price automobile plants these days? If the company experiences a reduction in demand, the plant may have to be sold off at a reduced price for a cynic's view here.","A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember;","To be fair, the analyst is talking about the book value of the firm. Basically, the value of all the stuff it owns now. There are plenty of companies with negative book value that can justify a positive share price. Ford, for instance, had negative book value but positive future earnings.","\"No, but it is certainly a possibility. the efficient market hypothesis would say that this means that the market perceives the present value of all future earning as negative. These earnings might take the form of a writedown of assets at some point. (Companies carry a goodwill asset that is generally imaginary. They book that asset when they buy companies for more than they are worth.) It would be as if PRUN was a stock tracking my life. If I bought my house in 2006 for $1 million cash. I might have a book value of $1 million. However, PRUN might trade at $500k because the market knows that my asset isn't really worth $1 million and at some point my earnings will take a hit to reflect that. It might also mean that future \"\"real\"\" earnings \"\"ie actual profit and loss on sales\"\" are going to be negative. This would mean bankruptcy is more likely.\"","And the kind folk at Yahoo Finance came to the same conclusion. Keep in mind, book value for a company is like looking at my book value, all assets and liabilities, which is certainly important, but it ignores my earnings. BAC (Bank of America) has a book value of $20, but trades at $8. Some High Tech companies have negative book values, but are turning an ongoing profit, and trade for real money.","\"The key to evaluating book value is return on equity (ROE). That's net profit divided by book value. The \"\"value\"\" of book value is measured by the company's ROE (the higher the better). If the stock is selling below book value, the company's assets aren't earning enough to satisfy most investors. Would you buy a CD that was paying, say two percentage points below the going rate for 100 cents on the dollar? Probably not. You might be willing to buy it only by paying 2% less per year, say 98 cents on the dollar for a one year CD. The two cent discount from \"\"book value\"\" is your compensation for a low \"\"interest\"\" rate.\"","The intrinsic value of a company is based on their profits year on year along with their expect future growth. A company may be posting losses, but if the market determines there's any chance they will turn a profit one day, or be a takeover target, it assigns value to those shares. In normal times, you'll observe a certain P/E range. Price to earning ratio is a simple way to say the I will pay X$ for a dollar's worth of earnings. A company that's in a flat market and not growing may command a P/E of only 10. Another company that's expanding their products and increasing market share may see a 20 P/E. Both P/Es are right for the type of company involved.","A company's stock value is indicative of the market's collective belief of the future of the company. The relationship of between price and book value will vary according to the quality of the company, the category of stock, etc. In extreme cases, say Bank of America, the stock trades at a fraction of book, because BOA's books are a fantasy by most people's reckoning.","\"By definition, a downturn in the business cycle will push some companies into bankruptcy. What's worse, a downturn in the business cycle will trigger \"\"bankruptcy fears\"\" for a LOT of companies, far more than will suffer this fate. So the prices of MANY candidates go down to levels that reflect this fear. This aggregate impact produces the \"\"overreaction\"\" you're talking about. It's called \"\"fallacy of composition\"\"; some of these companies will go under, but not all. Then the prices of the survivors will bounce back strongly during the early stages of an upturn when it becomes clear which companies WON'T go bankrupt.\"","P/E = price per earnings. low P/E (P/E < 4) means stock is undervalued.","There are things that are clearly beyond me as well. Cash per share is $12.61 but the debt looks like $30 or so per share. I look at that, and the $22 negative book value and don't see where the shareholders are able to recoup anything.","Have you looked at what is in that book value? Are the assets easily liquidated to get that value or could there be trouble getting the fair market value as some assets may not be as easy to sell as you may think. The Motley Fool a few weeks ago noted a book value of $10 per share. I could wonder what is behind that which could be mispriced as some things may have fallen in value that aren't in updated financials yet. Another point from that link: After suffering through the last few months of constant cries from naysayers about the company’s impending bankruptcy, shareholders of Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) can finally look toward the future with a little optimism. Thus, I'd be inclined to double check what is on the company books.","\"When presenting negative P/E values, most brokers and equity analysts show them as \"\"n.m.\"\", which stands for not meaningful. I have never seen a P/E ratio of 0.\"","You are omitting how the company made 120 million in the previous year and may be facing a shrinking market and thus have poor future prospects. If the company is shrinking, what will the shares be worth down the road. Remember companies like AOL or Blackberry? There was a time they had big profits before things changed which is the part you aren't considering here. If the company has lost something big on its earnings, e.g. the oil wells it owned have run out of reserves or the patents on its key drugs have expired, then there could be the perception that the company won't be able to compete in the future to continue to deliver earnings. Some companies may well end up going broke as one could look at GM for a company that used to be one of the largest car companies in the world and yet it ended up going broke.","Let's use an example: You buy 10 machines for 100k, and those machines produce products sold for a total of 10k/year in profit (ignoring labor/electricity/sales costs etc). If the typical investor requires a rate of return of 10% on this business, your company would be worth 100k. In investing terms, you would have a PE ratio of 10. The immediately-required return will be lower if substantially greater returns are expected in the future (expected growth), and the immediately required return will be higher if your business is expected to shrink. If at the end of the year you take your 10k and purchase another machine, your valuation will rise to 110k, because you can now produce 11k in earnings per year. If your business has issued 10,000 shares, your share price will rise from $10 to $11. Note that you did not just put cash in the bank, and that you now have a higher share price. At the end of year 2, with 11 machines, lets imagine that customer demand has fallen and you are forced to cut prices. You somehow produce only 10k in profit, instead of the anticipated 11k. Investors believe this 10k in annual profit will continue into the forseable future. The investor who requires 10% return would then only value your company at 100k, and your share price would fall back from $11 to $10. If your earnings had fallen even further to 9k, they might value you at 90k (9k/0.1=$90k). You still have the same machines, but the market has changed in a way that make those machines less valuable. If you've gone from earning 10k in year one with 10 machines to 9k in year two with 11 machines, an investor might assume you'll make even less in year three, potentially only 8k, so the value of your company might even fall to 80k or lower. Once it is assumed that your earnings will continue to shrink, an investor might value your business based on a higher required rate of return (e.g. maybe 20% instead of 10%), which would cause your share price to fall even further.","Well, yes it does, but just because the debt is trading at 80 cents on the dollar doesn't mean that the company can actually legally get away with paying only 80 cents on the dollar. They would have to come to an agreement with the debt holders first. And perhaps they could, but the more conservative approach is to use the book value of the debt. Or what about debt that's trading at a premium to its face value, because, say, interest rates have come down relative to the time the debt was issued? The amount that the conpany owes to the debt holders hasn't suddenly gone up.","Residential Construction at 362x, by the way. I'm going to hazard a guess here - Say XYZ corp trades at $100, and it's showing a normal earnings of $10 the last few years. Its industry falls on hard times, and while it makes enough to keep its doors open, profits fall to $1. The company itself is still sound, but the small earnings result in a high P/E. By the way, its book value is $110, and they have huge cash on the books along with real estate. I offer these details to show why the price doesn't drop like a rock. Now, biotech may be in a period of low reported earnings but with future results expected to justify the price. On one hand it may be an anomaly, with earnings due to rise, or it may be a bit of a bubble. An analyst for this sector should be able to comment if I'm on the right track.","There are books on the subject of valuing stocks. P/E ratio has nothing directly to do with the value of a company. It may be an indication that the stock is undervalued or overvalued, but does not indicate the value itself. The direct value of company is what it would fetch if it was liquidated. For example, if you bought a dry cleaner and sold all of the equipment and receivables, how much would you get? To value a living company, you can treat it like a bond. For example, assume the company generates $1 million in profit every year and has a liquidation value of $2 million. Given the risk profile of the business, let's say we would like to make 8% on average per year, then the value of the business is approximately $1/0.08 + $2 = $14.5 million to us. To someone who expects to make more or less the value might be different. If the company has growth potential, you can adjust this figure by estimating the estimated income at different percentage chances of growth and decline, a growth curve so to speak. The value is then the net area under this curve. Of course, if you do this for NYSE and most NASDAQ stocks you will find that they have a capitalization way over these amounts. That is because they are being used as a store of wealth. People are buying the stocks just as a way to store money, not necessarily make a profit. It's kind of like buying land. Even though the land may never give you a penny of profit, you know you can always sell it and get your money back. Because of this, it is difficult to value high-profile equities. You are dealing with human psychology, not pennies and dollars.","Its not just Citi and BoFA, even Barclays, HSBC and other large Banks are trading below book value in markets they are listed. Are there particular assets that are causing these two banks to be valued lower relative to their book values than the other banks? There no particular assets. Given the current economic situation most Banks are not making good returns, i.e. expected returns of markets are around 10-12% and the returns getting generated are around 4-6%. The overall slow down in various segments as well as regulations in most countries mean that banks have to relook at the business model in short term and generate more revenue. The market believes that Banks may loose money faster and hence the negative outlook and the trading below the book value. Note Book Value is derived in ideal conditions, i.e. when the company is healthy. If any company were to sell the assets in distress, the actual funds raised would be quite a bit less than Book Value. Its also to be noted that typically Banks would not close out and hence Book Value to an extent is just an indicator. Or is it a residual loathing based on their being the biggest losers of 2008 that are still around today? The 2008 has gone past. This is more recent. If you look most of these banks were doing quite well till last year and had recovered substantially after 2008.","NAV is how much is the stuff of the company worth divided by the number of shares. This total is also called book value. The market cap is share price times number of shares. For Amazon today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13. Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22.","\"When you buy a stock, you're really paying for a STREAM of earnings, from now till whenever. The job of an investor is to figure out how large that stream will be in the future. But if the stock price were the same as \"\"earnings\"\" (for one year), it would mean that you would get all future earnings for \"\"free.\"\" That's not likely to happen unless 1) the company is in liquidation,\"\" meaning \"\"no future\"\" and 2) it earned ALL of the money it ever earned in the past year, meaning \"\"no past.\"\" If there are likely to be any earnings in the future, you will have to pay for those future earnings, over and above what was earned in the most recent year.\"","The company's value (which should be reflected in the share price) is not how much money it has in the bank, but something along the lines of 'how much money will it make between now and the end of times' (adjusted for time value of money and risk). So when you purchase a share of a company that has, say, little money in the bank, but expects to make 1M$ profit this year, 2M$ for the following 3 years, and say, nothing after, you are going to pay your fraction of 7M$ (minus some discount because of the risk involved). If now they announce that their profits were only 750k$, then people may think that the 2M$ are more likely to be 1.5M$, so the company's value would go to ~ 5M$. And with that, the market may perceive the company as more risky, because its profits deviated from what was expected, which in turn may reduce the company's value even further.","It might seem like the PE ratio is very useful, but it's actually pretty useless as a measure used to make buy or sell decisions, and taken largely on its own, pretty useless becomes utterly and completely useless. Stocks trade at prices based on future expectations and speculation, so that means if traders expect a company to double its profits next year, the share price could easily double (there are reasons it might not increase so much, and there are reasons it could increase even more than that, but that's not the point). The Price is now double, but the Earnings is still the same, so the PE ratio is double, and this doubling is based on something some traders know, or think they know, but other traders might not know or not believe! Once you understand that, what use is a PE ratio really? The PE ratio of a company might be low because it is in a death spiral, with many traders believing it will report lower and lower profits in years to come, and the lower the PE ratio of a given company gets probably, relatively, the more likely it is to go bust! If you buy a stock with a low PE ratio you must do so because you feel you understand the company, understand why the market is viewing it negatively, believe that the negativity is wrong or over done, and believe that it will turn around. Equally a PE ratio might be high, but be an excellent buy still because it has excellent growth prospects and potential even beyond what is priced in already! Lets face it, SOMEONE has been buying at the price that's put that PE ratio where is is, right? They might be wrong of course, or not! Or they might be justified now but circumstances might change before earnings ever reach the current priced in expectation. You'll know next year probably! To answer your actual question... first you should now understand there is no such thing as a stock that is on sale, just stocks that are priced broadly according to the markets consensus on its value in years to come, the closest thing being a stock that is 'over sold' (but one man's 'over sold' is another man's train crash remember)... so what to actually look for? The only way to (on average) make good buy and sell decisions is to know about investing and trading (buy some books, I have 12), understand the businesses you propose to invest in and understand their market(s) (which may also mean understanding national and international economics somewhat).","\"The company was paying \"\"only\"\" $1 a share in dividends, compared to $10 a share in earnings. That is a so-called payout ratio of 10%, which is low. A more normal payout ratio would be 40%, something like $4 a share. If a $13 stock had a $4 dividend, the dividend yield would be about 30%, which would be \"\"too high,\"\" meaning that the price would go up to drive down the resulting yield. Even $1 a share on a $13 stock is a high dividend of about 7%, allowing for appreciation to say, the $20-$25 range. Graham was a great believer in the theory that management should pay out \"\"most\"\" of its earnings in dividends. He believed that by holding dividends so far below earnings, the company was either being \"\"stingy,\"\" or signalling that the $10 a share of earnings was unsustainable. Either of these would be bad for the stock. For instance, if $1 a share in dividends actually represented a 40% payout ratio, it would signal management's belief that they could normally earn only $2.50 a year instead of $10.\"","One reason that a bond can be significantly less than face value is because people are seeking better investments elsewhere, so for example if a bond doesn't mature for another 10 years, that 20% increase in face value isn't very attractive when compared to say leaving your money in the stock market for 10 years. Another reason could be that the credit-worthiness of the issuer has collapsed and people expect that there is a fairly good chance they are not going to make the payment. This could be what you would see if for example it was a one year time until maturity, but it has a value of 40% of the face value. There is a risk, because they can simply not pay. For example people who bought Greek bonds.","One problem is that P/E ratio only looks at the last announced earnings. Let's take your manufacturing plant with a P/E of 12.5. Then they announce a major problem that will hurt future earnings and the price drops in half. Now the P/E is 6.25. It looks great, but since there aren't any new earnings that reflect the problem, it's very misleading.","\"You are comparing \"\"market caps\"\" and \"\"enterprise value\"\". If the company has four billion dollars cash in the bank, then the value would be four billion plus whatever the business itself is worth as a business. If the business itself is only worth 400 million, then you would have 4.4bn market caps and 400 million enterprise value. The \"\"enterprise value\"\" is basically how much the business would be worth if it had no cash or no debt. These numbers would be a very unusual situation. It could happen for example if a big company has sold 90% of its business for cash. When you buy a share of the company, you get a tiny share of the business and you own a tiny share of the cash. This stock will very likely keep its value, but won't make much money. On the other hand, more common would be a company where the business is worth 4bn, but the company has also 4bn debt. So it is worth exactly zero. Market caps close to zero, but enterprise value $4bn, because you ignore the debt in the enterprise value. Edit: Sorry, got the \"\"enterprise value\"\" totally wrong, read millions instead of billions: Your numbers would mean that you have a huge, huge company with close to 440bn debt. Most likely someone made a mistake here. A \"\"normal\"\" situation would be say a company with a business that is worth $500 million, but they have $100 million debt, so market caps = $400 million but enterprise value = $500 million. PS. Yahoo has the same nonsense numbers on their UK site, and for other companies (I just checked Marks and Spencer's which apparently has an enterprise value of 800 billion pound with a totally ridiculous P/E ratio.\"","Discrepancies between what the book value is reported as and what they'd fetch if sold on the open market. Legal disputes in court.","How is it possible that a publicly traded investment company's net asset value per share is higher than their share price? Wouldn't you (in theory) be able to buy the company and liquidate it to make a profit of (NAV/share - price/share)*number of shares, ignoring transaction costs and such? I realize that since part of their portfolio is in private equity, NAV is hard to calculate and hard to liquidate as well, but it doesn't really seem to make sense to me. Would love some input. The company I'm talking about in this instance is 180 Degree Capital Corp, but this isn't the first time I've seen this.","Stocks represent partial ownership of the company. So, if you owned 51% of the stock of the company (and therefore 51% of the company itself), you could decide to liquidate all the assets of the company, and you would be entitled to 51% of the proceeds from that sale. In the example above, it would have to be Common Stock, as preferred stock does not confer ownership. *In a situation where it is not possible to buy 51% or more of the company (for example, it's not for sale), this is not possible, so the value of the stock could be much less.","\"The following is only an overview and does not contain all of the in-depth reasons why you should look more deeply. When you look at a stock's financials in depth you are looking for warning signs. These may warn of many things but one important thing to look for is ratio and growth rate manipulation. Using several different accounting methods it is possible to make a final report reflect a PE ratio (or any other ratio) that is inconsistent with the realities of the company's position. Earnings manipulation (in the way that Enron in particular manipulated them) is more widespread than you might think as \"\"earnings smoothing\"\" is a common way of keeping earnings in line (or smooth) in a recession or a boom. The reason that PE ratio looks so good could well be because professional investors have avoided the stock as there appear to be \"\"interesting\"\" (but legal) accounting decisions that are of concern. Another issue that you don't consider is growth. earnings may look good in the current reporting period but may have been stagnant or falling when considered over multiple periods. The low price may indicate falling revenues, earnings and market share that you would not be aware of when taking only your criteria into account. Understanding a firm will also give you an insight into how future news might affect the company. If the company has a lot of debt and market interest rates rise or fall how will that effect their debt, if another company brings out a competing product next week how will it effect the company? How will it effect their bottom line? How much do they rely on a single product line? How likely is it that their flagship product will become obsolete? How would that effect the company? Looking deeply into a company's financial statements will allow you to see any issues in their accounting practices and give you a feel for how they are preforming over time, it will also let you look into their cost of capital and investment decisions. Looking deeply into their products, company structure and how news will effect them will give you an understanding of potential issues that could threaten your investment before they occur. When looking for value you shouldn't just look at part of the value of the company; you wouldn't just look at sales of a single T-shirt range at Wallmart when deciding whether to invest in them. It is exactly the same argument for why you should look at the whole of the company's state when choosing to invest rather than a few small metrics.\"","Agree with mjvcaj, it is rare. Larger cap examples include Nokia and NII Holdings (Nextel). If cash exceeds market cap, that means total debt is greater than EV, the value of the operating assets. If the debt is partially repaid / matures, the equity is ok. BUT if management is crap and the cash is spent at an ROIC below the interest rate on the debt, now you have a situation where the net debt exceeds the value of the operating assets, the credit quality suffers, debt trades down, you need to recapitalize in order to avoid bankruptcy. The above assumes debt is greater than cash. Situations where cash exceeds market cap and debt is less than cash (i.e. a negative EV) are exceedingly rare in larger companies and are either a) a wonderfully attractive mispricing or b) market views management as so awful that the cash will get burnt up by the business and the value of that cash will be destroyed.","P/E is the number of years it would take for the company to earn its share price. You take share price divided by annual earnings per share. You can take the current reported quarterly earnings per share times 4, you can take the sum of the past four actual quarters earnings per share or you can take some projected earnings per share. It has little to do with a company's actual finances apart from the earnings per share. It doesn't say much about the health of a company's balance sheet, and is definitely not an indicator for bankruptcy. It's mostly a measure of the market's assumptions of the company's ability to grow earnings or maintain it's current earnings growth. A share price of $40 trading for a P/E ratio of 10 means it will take the company 10 years to earn $40 per share, it means there's current annual earnings per share of $4. A different company may also be earning $4 per share but trade at 100 times earnings for a share price of $400. By this measure alone neither company is more or less healthy than the other. One just commands more faith in the future growth from the market. To circle back to your question regarding a negative P/E, a negative P/E ratio means the company is reporting negative earnings (running at a loss). Again, this may or may not indicate an imminent bankruptcy. Increasing balance sheet debt with decreasing revenue and or earnings and or balance sheet assets will be a better way to assess bankruptcy risk.","Most penny stocks go to zero because most businesses fail. You stated in your original post that you were wondering specifically about companies with no assets. These are exactly the kind that fail and go to zero. There are many holes within the regulatory structure that allow for many accounting tricks in penny stock land. And even in areas that are adequately regulated, there will be few to no remedies for the optimistic penny stock shareholder speculator.","\"To my knowledge, there's no universal equation, so this could vary by individual/company. The equation I use (outside of sentiment measurement) is the below - which carries its own risks: This equations assumes two key points: Anything over 1.2 is considered oversold if those two conditions apply. The reason for the bear market is that that's the time stocks generally go on \"\"sale\"\" and if a company has a solid balance sheet, even in a downturn, while their profit may decrease some, a value over 1.2 could indicate the company is oversold. An example of this is Warren Buffett's investment in Wells Fargo in 2009 (around March) when WFC hit approximately 7-9 a share. Although the banking world was experiencing a crisis, Buffett saw that WFC still had a solid balance sheet, even with a decrease in profit. The missing logic with many investors was a decrease in profits - if you look at the per capita income figures, Americans lost some income, but not near enough to justify the stock falling 50%+ from its high when evaluating its business and balance sheet. The market quickly caught this too - within two months, WFC was almost at $30 a share. As an interesting side note on this, WFC now pays $1.20 dividend a year. A person who bought it at $7 a share is receiving a yield of 17%+ on their $7 a share investment. Still, this equation is not without its risks. A company may have a solid balance sheet, but end up borrowing more money while losing a ton of profit, which the investor finds out about ad-hoc (seen this happen several times). Suddenly, what \"\"appeared\"\" to be a good sale, turns into a person buying a penny with a dollar. This is why, to my knowledge, no universal equation applies, as if one did exist, every hedge fund, mutual fund, etc would be using it. One final note: with robotraders becoming more common, I'm not sure we'll see this type of opportunity again. 2009 offered some great deals, but a robotrader could easily be built with the above equation (or a similar one), meaning that as soon as we had that type of environment, all stocks fitting that scenario would be bought, pushing up their PEs. Some companies might be willing to take an \"\"all risk\"\" if they assess that this equation works for more than n% of companies (especially if that n% returns an m% that outweighs the loss). The only advantage that a small investor might have is that these large companies with robotraders are over-leveraged in bad investments and with a decline, they can't make the good investments until its too late. Remember, the equation ultimately assumes a person/company has free cash to use it (this was also a problem for many large investment firms in 2009 - they were over-leveraged in bad debt).\"","\"Yes, there are situations where a stock is a bad buy in spite of a low PE. PE ratio tells you the current share price divided by the prior 4 quarters earnings per share. It does not consider: Imagine someone walked up to you and said, \"\"Do you want to buy a piece of my business? I'll sell you 1% of it for $1000. Last year the business earned $25000.\"\" A quick calculation shows a PE of 4 [$1000/($25000 *.01)]. Even though this PE is comparatively low, you wouldn't buy in without a lot more info. What kinds of things might you ask? PE is one tiny component of an informed investment decision.\"","\"> What's their performance been like in recent years? IIRC the last time they were able to pay a dividend was in 2000, so I'm gonna go with \"\"not great\"\". Thanks a lot for the effort, I didn't factor in tax at all, it makes more sense then. I still think it's an interesting concept that shares are worth less than what you \"\"get\"\" for them (according to their accountants, who knows what the value actually would be if you tried to sell whatever they own now), and I found basically nothing on google. The whole is usually more than the sum of its parts, not (significantly) less.\"","\"What drives the stock of bankrupt companies? Such stock is typically considered \"\"distressed assets\"\". Technically, what drives it is what drives every stock - supply and demand. A more interesting question is of course, why would there be demand? First, who exerts the buying pressure on the stock? Typically, three types of entities: The largest ones are financial institutions specializing in distressed assets (frequently, alternatives specialists - hedge funds, private equity firms etc...). Usually, they invest in distressed debt or distressed preferred equity; but sometimes distressed equity as well. Why? We will discuss their motivations separately in this answer. Second one are existing equity holders. Why? Short answer, behavioral psychology and behavioral economics. Many investors - especially non-professionals - insist on holding distressed stocks due to variety of investment fallacies (sunk cost etc...); usually constructing elaborate theories of why and how the company and the stock will recover Sometimes, people who buy into penny stock scams, pump and dump schemes etc... Why? \"\"There's a sucker born every minute.\"\" - P.T. Barnum Let's find out why an investment professional would invest in distressed equity? First, the general process is always the same. Company's assets are used to pay off its liabilities; in accordance with applicable law. There are two ways this can be done - either through selling the company; OR through bankruptcy process. The liabilities are paid according to seniority. The seniority priorities rules are covered by 11 U.S. Code § 507 - Priorities A company in bankruptcy can have one of 2 outcomes: Buyout. Some buyer might decide that the company's assets are worth something to them as a whole; and buy the whole enterprise; rather than risk it being destroyed piecemeal in bankruptcy proceedings. In that case, the proceeds from the sale will be used to fund the liabilities as discussed above. This option is one of the possible reasons people might consider investing in distressed equity. For example, if the company is in bankruptcy because it can't get enough financing right now, but is likely to have good profits in the future. The chances are, some buyer will buy it for a premium that includes those future profits; and that sale amount might possibly exceed the liabilities. Bankruptcy. The assets are sold and liabilities are covered according to priorities. In that case, the investors in distressed equity might be hoping that there are un-obvious assets whose value would also put the total assets above claimed liabilities. Additional possible beneficial factor is that unsecured debtors must file with the court in order to be paid; and the claim must be validated. Some might fail on either count; so total amount of liabilities might lessen once the bankruptcy process goes through. Assets Now, here's where things get interesting. Of course, companies have usual assets. Real estate, inventory, plants, cash, etc... These are all able to be sold to cover liabilities, and at first glance are possibly not enough to cover liabilities, leaving equity holders with nothing (and even that's not a certainty - bankruptcy is simply inability to service debt payments; and while it correlates to assetsliquid assets, not full asset valuation). But some assets are less sure, and are thus rarely included in such calculations. These may include: Chances of winning appeals if specific existing liabilities are results of litigation, e.g. tax appeals, court judgement appeals etc... Clawbacks and lawsuits against former executives, especially in cases where the company's financial distress resulted from executive malfeasance. I was personally involved in one such case as an equity holder, where the company assets were valued at $X; had liabilities of $X*2; but had a real possibility of winning about $X*3 in a lawsuit against former CEO accused of various malfeasance including fraud and insider trading. As such, the best case scenario was literally 100% profit on holding that distressed equity.\"","\"Yes, the price of a stock is what investors think the value of a stock is, which is not tied to profits or dividends by any rigid formula. But to say that therefore the price could be high even though the company is doing very poorly is hypothetically true, but unlikely in practice. Consider any other product. There is no fixed formula for the value of a used car, either. If everyone agreed that a rusting, 20-year old car that doesn't run is worth $100,000, then that's what it would sell for. But that's a pretty big \"\"if\"\" at the beginning of that sentence. If the car had been used in some hit TV show 20 years ago, or if it was owned by a celebrity, or some such special case, maybe a rusting old car really would sell for $100,000. Likewise, a stock might have a price higher than what one would predict from its dividends if some rich person wanted to buy that company because the brand name brings back nostalgic memories from his youth and so he drives the price up, etc. But the normal case is that, in the long term, the price of a stock tends to settle on a value proportional to the dividends that it pays. Or rather, and this is a big caveat, the dividends that investors expect it to pay in the future. And then adjusted for all sorts of other factors and special situations, like the value of the company if it was to be liquidated, etc.\"","\"Let's say you see a café. You're looking to buy a café so you walk into one and ask the manager how much profit he makes in a year. He says $N and you walk out and think to yourself, \"\"I'd be willing to pay $500,000 for this café.\"\" You arrange to meet again to discuss purchasing the business (and he's looking for someone to purchase it). You go into the store again the following day and the manager says, \"\"Sorry, I told you we make $N. I've checked the numbers and it's actually only $0.8N (20% lower than what you thought).\"\" Are you still willing to buy the café for $500,000 as well? No, of course you're not. I think that this is a sufficient analogy to public companies.\"","You haven't mentioned how much debt your example company has. Rarely does a company not carry any kind of debt (credit facilities, outstanding bonds or debentures, accounts payable, etc.) Might it owe, for instance, $1B in outstanding loans or bonds? Looking at debt too is critically important if you want to conduct the kind of analysis you're talking about. Consider that the fundamental accounting equation says: or, But in your example you're assuming the assets and equity ought to be equal, discounting the possibility of debt. Debt changes everything. You need to look at the value of the net assets of the company (i.e. subtracting the debt), not just the value of its assets alone. Shareholders are residual claimants on the assets of the company, i.e. after all debt claims have been satisfied. This means the government (taxes owed), the bank (loans to repay), and bondholders are due their payback before determining what is leftover for the shareholders.","If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?","What drives the stock of bankrupt companies? The company's potential residual assets. When a company goes bankrupt it is required to sell its assets to pay off its debts. The funds raised from selling assets go to the following entities: The usual order of debt repayment, in terms of the lender, will be the government, financial institutions, other creditors (i.e. suppliers and utility companies), bondholders, preferred shareholders and, finally, common shareholders. Depending on the amount of debt and the value of a company's assets, the common shareholders may receive some left over from liquidated assets. This would drive the stock price of a bankrupt company.","The value of a company is, simplified, the sum of the value of the equity and the value of the debt. There are some other things to add/subtract to that, but just think about those for now. You could also say the value of a company is the value of its assets, or more precisely the value of the net cash flows those assets will generate in the future. So let's say you want to start a company, so you want to buy some assets. Maybe you want to buy a $200 asset. Well, you only have $100, so you take out a loan (debt) for $100 for the remainder. You buy the asset and start generating income. Let's say after a month you get bored and decide to sell the company. Let's assume the value of the assets hasn't changed. Your equity is worth $100, and you find a buyer who is willing to pay $100 for your company. Great! Right? Well there's still the $100 loan you owe, so you have to pay that back. And suddenly you now have $0. So in fact, you should have negotiated $200 with the buyer, because that's what the assets are actually worth. Then you can pay back the loan and still have the $100 in equity you deserve. (Alternatively, you could have negotiated the buyer to assume responsibility for the loan; same outcome for you.) Did that help?","Would make sense that the higher liquidation cost and Transaction costs are driving the share price down. Higher liq and transaction means higher investors would require higher return, driving down the share price. The other possibilities I can think of off the top of my head, based on looking at the firm for five minutes 1) In transaction costs, did you include tax? Disclaimer: math below done on the back of the envelope in between meetings; So, NAV says they are at ~$75M. Liquidating that entire portfolio means about 22% capital gains tax rate. Which means after tax value is about $60M. Add in any fees you'd incur from trying to sell this stuff, and it's not unreasonable to assume you'll only get about $55M once all is said and done, which is pretty close to the actual market cap. If you have accounted for the above, consider ; 2) Bulk of their investments seem to be in private assets. Which implies that they have some discretion in how they mark the value of those investments. And, there is the chance that the market doesn't have confidence in these guys. What's their performance been like in recent years? Especially with a private asset portfolio, I'd be weary. If I was to invest in them, I'd want a higher return for the opaque portfolio.","What is cheap? A stock may fall from $20 per share to $10 per share, but it may have gone from making a $100M profit last year to a $100M loss this year. So now at $10 per share it may still be considered expensive. You need to be very careful when to consider that a stock is cheap or not, you'll have to look at more than just the share price.","\"Some companies have a steady, reliable, stream of earnings. In that case, a low P/E ratio is likely to indicate a good stock. Other companies have a \"\"feast or famine\"\" pattern, great earnings one year, no earnings or losses the following year. In that case, it is misleading to use a P/E ratio for a good year, when earnings are high and the ratio is low. Instead, you have to figure out what the company's AVERAGE earnings may be for some years, and assign a P/E ratio to that.\"","\"Most companies are taken over. One can reasonably guess that company X will be taken over for a price P, at some future point in time. Then the company has a value today, that is less than price P, by a large enough margin so that the investor will likely \"\"make out\"\" when the company finally is taken over at some unknown point in time. The exception is a company like Microsoft or Apple that basically grow too large to be taken over. But then they eventually start paying dividends when they become \"\"mature.\"\" Again, the trick, during the non-dividend paying period (e.g. ten or fifteen years ago) is to guess what dividends will be paid in some future time, and price the stock low enough today so that it will be worthwhile for the buyer.\"","for buying: High PE, low debt, discount = win. a company with high debt (in relation to revenues and cash on hand) will have to pay interest and pay off the debt, stunting their growth. and just like a normal person, will barely be able to pay their bills and keep borrowing and might go bankrupt determining discount is just looking for a technical retracement to a support level or lower. (but if you dont enter at the support level, you most likely missed the best entry)","In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. Remember your broker has to borrow it from somewhere, other clients or if they hold those specific stocks themselves. So if it isn't possible for them to lend you those stocks, they wouldn't. High P/E stocks would find more sellers than buyers, and if the broker has to deliver them, it would be a nightmare for him to deliver all those stocks, which he had lent you(others) back to whom he had borrowed from, as well as to people who had gone long(buy) when you went short(sell). And if every body is selling there is going to be a dearth of stocks to be borrowed from as everybody around is selling instead of buying.","\"Many people assume that if the price of something is $10 and they have 1,000 of that thing, they should expect to be able to sell them for something around $10,000. Such an assumption may hold much of the time, but it doesn't always. Worse, the cases where it fails to hold are often those where it would be relied upon most heavily. Such an assumption should thus be considered dangerous. In a liquid market, the quantity of a something that people would be willing to buy at something close to the market price will be large relative to the quantity that people would seek to sell in the short term. If at some moment in time one person in the market was willing to immediately buy 500 shares at $9.98 and another was willing to immediately buy 750 at $9.97, someone seeking to sell 1,000 shares could immediately receive $997.50 for them (selling 500 to the first person and 500 to the second, who would then be ready to buy 250 more from the first person who was willing to sell for $9.97). Such behavior would be in line with what many people's assumptions. In an illiquid market, however, the quantity of something that people would be willing to buy near market price could be surprisingly low. This is more often a problem in the marketplace of things like collectibles than of stocks, but the same thing can happen in the stock market. If there's one potential buyer for a stock who thinks it's overpriced but has potential and would be worth $9.50, but that person only has $950 to spend, and nobody else thinks the stock would be worth more than $0.02/share, then until people sold a total of 100 shares the price would be $9.50, but after that the price would drop instantly to $0.02. There would be no \"\"cushioning\"\" of the fall. If the person with 1,000 shares was first in line, he'd get to sell 100 shares for $950 to the aforementioned seller, but would be unable to get more than $18 for the remaining 900. A major danger with markets is that markets which are perceived as liquid attract people to the buying side, while those which are seen as illiquid repel people. The danger in the latter is obvious (having people flee a seemingly-illiquid market will reduce its liquidity further) but the former is just as bad. Having people flock to a market because of its perceived liquidity will increase its liquidity, but can also create a \"\"false price floor\"\", causing demand to appear much stronger than it actually is. Unless real demand increases to match the false price floor, the people who buy at the higher price will never be able to recoup their investment.\"","\"It depends on the definition of earnings. A company could have revenue that nets in excess of expenses, so from that perspective a good cash flow or EBITDA, but have debt servicing costs, taxes, depreciation, amortization, that alters that perspective. So if a company is carrying a large debt load, then the bondholders are in the position to capture any excess revenues through debt service payments and the company is in a negative equity positions (no equity or dividends payable to shareholders) and has not produced earnings. If a company has valuable preferred shares issued and outstanding, then depending on the earnings definition, there may be no earnings (for the common stock) until the preferences are satisfied by the returns. So while the venture itself (revenues minus costs) could be cash flow positive, this may not be sufficient to produce \"\"earnings\"\" for shareholders, whose claim on the company still entitles them to zero current liquidation value (i.e. they get nothing if the company dissolves immediately - all value goes to bondholders or preferred). It could also be that taxes are eating into revenue, or the depreciation of key assets is greater than the excess of revenues over costs (e.g. a bike rental company by the beach makes money on a weekly basis but is rusting out half its stock every 3 months and replacement costs will overwhelm the operating revenues).\"","Can a company not bargain with a dying company for example and buy a falling stock at lower than market value? Of course. If the shareholders agree to it. But why would they, if the market value is higher, agree to sell to someone who offers less? If there's a compelling reason - it can happen. It might happen during a hostile takeover, for example. In the case of buying the company for more than market value, are the stocks bought for significantly more, or slightly more than the current market value? Again, depends on how valuable the shareholders think the company is. If the shareholders think that the company has a potential which has not yet affected the stock price, they'll want a higher premium (and they'd think that, otherwise why would they hold the stock?). How much higher? Depends on the bargaining abilities of the sides.","\"The VDE fund is an energy fund so this is a function of recent price changes in oil (and gas, coal, &c). For example. Lets say last year when oil was $100 per barrel a bunch of companies saw a good return and put $ 100 million into a bunch of leases, boreholes, pumps, &c to return $10 million per year, and the market says yeah, they're all together worth 100M. Now oil is less, maybe $40 per the link. These exploration companies don't have a lot of labor or variable costs; they are operationally profitable, may have \"\"use it or lose it\"\" leases or minimum pumping requirements for contract or engineering reasons. Lets say the cash flow is 7M so the market values them at 70M. They still have about 100M book value so here we are at .7 and I believe the scenario in the question. Nobody would invest in new capacity at this oil price. The well equipment could be repurposed but not the borehole or lease, so the best use is to continue pumping and value it on cash flow. If an individual well runs negative long enough and goes bust, either a different pumper will pay the minimum price that gives profitable cash flow, or that borehole that cost millions to dig is shut off and rendered valueless. The CNBC article says some explorers are playing games with debt to maintain yield, so there is that too. In the ETF, your bet is that the market is wrong and oil will go up, increasing future cash flows (or you like the current yield, taking on the risk that some of these oil explorers could go bust).\"","A private company say has 100 shares with single owner Mr X, now it needs say 10,000/- to run the company, if they can get a price of say 1000 per share, then they just need to issue 10 additional shares, so now the total shares is 110 [100 older plus 10]. So now the owner's share in the company is around 91%. However if they can get a price of only Rs 200 per share, they need to create 50 more shares. So now the total shares is 150 [100 older plus 50]. So now Mr X's equity in his own company is down to 66%. While this may still be OK, if it continues and goes below 50%, there is chances that he [Original owner] will be thrown out","\"Buyouts are usually for more than the ORIGINAL value of a stock. That's because the price \"\"premium\"\" represents an incentive for holders to \"\"tender\"\" their shares to the would-be buyer. Sometimes in these situations, the stock price rises above the proposed buyout price, in anticipation of a higher takeover bid from a SECOND party (that may or may not materialize). To answer the other part of the question, does a bidder have a chance of taking over a dying company for less than the market price? That is a strategy sometimes referred to as a \"\"take under,\"\" and it has not been a notably successful strategy. That's because it goes against \"\"human nature\"\" (of the seller). \"\"Where there is life, there is hope.\"\" They would seldom accept a lower price for \"\"sure\"\" survival, when the market is telling them that they are worth a higher price. Very few people realize that the market may disappear tomorrow. Think of all the homeowners who won't cut their price, but insist on bids that meet recent \"\"comps.\"\" And if the company is really dying, the prospective buyer may be best served by waiting until it does, and then pick up the individual pieces at auction.\"","\"With debts exceeding assets by a billion dollars, this activity likely comes from penny stock speculators and \"\"pump and dump\"\" schemers. There is no rational expectation that the stock is even worth multiple pennies when the company is that far upside-down on its debts. Even if the debts could be restructured in a chapter 11, the equity shares would likely lose all of their value in the bankruptcy proceedings. Shareholders are at the bottom of the totem-pole when debts are being adjusted by the courts.\"","\"It's been said before, but to repeat succinctly, a company's current share price is no more or less than what \"\"the market\"\" thinks that share is worth, as measured by the price at which the shares are being bought and sold. As such, a lot of things can affect that price, some of them material, others ethereal. A common reason to own stock is to share the profits of the company; by owning 1 share out of 1 million shares outstanding, you are entitled to 1/1000000 of that company's quarterly profits (if any). These are paid out as dividends. Two key measurements are based on these dividend payments; the first is \"\"earnings per share\"\", which is the company's stated quarterly profits, divided by outstanding shares, with the second being the \"\"price-earnings ratio\"\" which is the current price of the stock divided by its EPS. Your expected \"\"yield\"\" on this stock is more or less the inverse of this number; if a company has a P/E ratio of 20, then all things being equal, if you invest $100 in this stock you can expect a return of $5, or 5% (1/20). As such, changes in the expected earnings per share can cause the share price to rise or fall to maintain a P/E ratio that the pool of buyers are willing to tolerate. News that a company might miss its profit expectations, due to a decrease in consumer demand, an increase in raw materials costs, labor, financing, or any of a multitude of things that industry analysts watch, can cause the stock price to drop sharply as people look for better investments with higher yields. However, a large P/E ratio is not necessarily a bad thing, especially for a large stable company. That stability means the company is better able to weather economic problems, and thus it is a lower risk. Now, not all companies issue dividends. Apple is probably the most well-known example. The company simply retains all its earnings to reinvest in itself. This is typically the strategy of a smaller start-up; whether they're making good money or not, they typically want to keep what they make so they can keep growing, and the shareholders are usually fine with that. Why? Well, because there's more than one way to value a company, and more than one way to look at a stock. Owning one share of a stock can be seen quite literally as owning a share of that company. The share can then be valued as a fraction of the company's total assets. Sounds simple, but it isn't, because not every asset the company owns has a line in the financial statements. A company's brand name, for instance, has no tangible value, and yet it is probably the most valuable single thing Apple owns. Similarly, intellectual property doesn't have a \"\"book value\"\" on a company's balance sheet, but again, these are huge contributors to the success and profitability of a company like Apple; the company is viewed as a center of innovation, and if it were not doing any innovating, it would very quickly be seen as a middleman for some other company's ideas and products. A company can't sustain that position for long even if it's raking in the money in the meantime. Overall, the value of a company is generally a combination of these two things; by owning a portion of stock, you own a piece of the company's assets, and also claim a piece of their profits. A large company with a lot of material assets and very little debt can be highly valued based solely on the sum of its parts, even if profits are lagging. Conversely, a company more or less operating out of a storage unit can have a patent on the cure for cancer, and be shoveling money into their coffers with bulldozers.\"",">Well, reserve requirements concern, as the name suggests, the reserves, e.g. a position on the balance sheet. Yes, the book value of equity is not affected. However, when the market value experiences a steep decline, you find those that hold deposits begin moving them out of the bank. Investment fear and business fear tend to move together with financial institutions. That directly impacts the reserve requirements. >but sharp price drops in fact can help you to raise equity, simply because your ratios improved (P/E, P/B, in fact any ratio that includes the price part) and the stock became cheaper Not when there is bankruptcy or solvency issues that become present. Obviously an investor wants to buy low and sell high, but if there is a substantial risk of bankruptcy, the common stockholder will demand a premium unattainable by most non-growth firms (i.e. biotech, tech, etc.). That is the issue with France. Liquidity issues stem from systemic risk, but those French banks also possess significant firm risk due to their exposure to sovereign debt. Once those banks mark all of their holdings to market, they will realize substantial losses. BNP recently recorded a nearly $1B write-down.","\"One way to value companies is to use a Dividend discount model. In substance, it consists in estimating future dividends and calculating their present value. So it is a methodology which considers that an equity is similar to a bond and estimates its current value based on future cash flows. A company may not be paying dividends now, but because its future earnings prospects are good may pay some in the future. In that case the DDM model will give a non-zero value to that stock. If on the other hand you think a company won't ever make any profits and therefore never pay any dividends, then it's probably worth 0! Take Microsoft as an example - it currently pays ~3% dividend per annum. The stock has been listed since 1986 and yet it did not pay any dividends until 2003. But the stock has been rising regularly since the beginning because people had \"\"priced in\"\" the fact that there was a high chance that the company would become very profitable - which proved true in the long term (+60,000% including dividends since the IPO!).\"","It just had less cash. That doesn't necessarily mean that the company had a net loss for the year. Just like having more cash doesn't mean the company made a profit. What if a company had revenue of $1 million, expenses of $2 million, and took out a loan of $5 million? They had a net loss of $1 million, but they have $4 million more in cash.","\"Yes, there are non-stock analogs to the Price/Earnings ratio. Rental properties have a Price/Rent ratio, which is analogous to stocks' Price/Revenue ratio. With rental properties, the \"\"Cap Rate\"\" is analogous to the inverse of the Price/Earnings ratio of a company that has no long-term debt. Bonds have an interest rate. Depending on whether you care about current dividends or potential income, the interest rate is analogous to either a stock's dividend rate or the inverse of the Price/Earnings ratio.\"","> Or are there multiple ways of buying a company? Yes, there are, and it would depend on your contextual definition of what it means to buy a business. If you were intending to acquire a company by being its majority shareholder (i.e. >50% equity stake), then you would have to buy over its shares from existing shareholders at a negotiated price (read: not necessarily book value) to attain the desired shareholding. However, buy a business could also refer to an asset purchase, where the target's fixed assets are bought by the acquirer, in which case the target equity might not necessarily be involved in the acquisition.","The satisfaction from gains packs less of an emotional impact than the fear of loss. It's very difficult for many people to overcome this fear, so when prices begin to fall, many investors sell to minimize their potential loss. This causes a further drop, which can lead to more selling as other investors reach their emotional threshold for loss. This emotion-based selling keeps the market inefficient in the short term. If there aren't enough value investors waiting to scoop up the stock at the new discount, it can stay undervalued for a long time.","The price of a shares reflects the expected future returns of that company. If it does not someone will notice and buy until it does. Look at this chart http://www.finanzen.net/chart/Arcandor (click on max), that's a former DAX company, so one of the largest german companys. Now it's bankrupt. Why do you think you are the only one who is going to notice? There are millions of people and even more computers, some a going to be smarter than you. Of course that does not happen to everyone but who knows. Is Volkswagen going to survive the current crisis? Probably. Is it coming back to former glory in the next half year? Who knows? Here comes the obvious solution: Don't buy single stocks, spread it out over many companies, some will shine, some will plument and you get the average. Oh that's an index, how convinent. Now if there were a way to save on all these transaction costs you're incurring...","While on the surface it may seem that the warrant you described is trading below intrinsic value, there are many reasons why that might not be the case. It's more likely that you are lacking information, than having identified a derivative instrument that the market has failed to reasonably price. For instance, might there be a conversion ratio on the warrants other than the 1:1 ratio that you seem to be assuming? Sometimes, warrant terms are such that multiple warrants are required to buy one share of stock. Consider: The conversion ratio is the number of warrants needed in order to buy (or sell) one investment unit. Therefore, if the conversion ratio to buy stock XYZ is 3:1, this means that the holder needs three warrants in order to purchase one share. Usually, if the conversion ratio is high, the price of the share will be low, and vice versa. (source) Conversion ratios are sometimes used so that warrants can be issued on a 1:1 basis to existing stockholders, but where the potential number of new shares to be issued is much less. Conversion ratio is just one such example that could lead to perceived mispricing, and there may be other restrictions on exercise. Warrants are not issued by an options exchange using standardized option contract terms, and so warrant terms vary considerably from issuer to issuer. Even series of warrants from the same issuer may have differing terms. Always look beyond any warrant quote to find a definitive source of the warrant's precise terms — and read those terms carefully before taking any position.","I'll give the credit to @Quid in the comments section of the question. You put out $10k, you got back $20k, that's a cash gain of $10k, how the asset was valued between your purchase and sale isn't relevant. From an accounting perspective, the company is the only party that is realizing the loss (as they have sold the asset for 40K less than par). You the buyer, only get to see the initial buy and sale of such capital asset. Example: A company purchases a car for $20,000 and after depreciation it is worth (book valued at) $2,000. It is then sold to a customer for $3,000. Does the customer realize a loss of $1,000? No. Does the company realize a gain of $1,000? Yes. Your bank analogy is flawed in two ways:","Stephen's answer is the 100% correct one made with the common Economics assumption, that people are rational. A company that never has paid dividends, is still worth something to people because of its potential to start paying dividends later and it is often better to grow now and payoff later. However, the actual answer is much more disapointing, because people are not rational and the stock market is no longer about investing in companies or earning dividends. Most of the value of a stock is for the same reason that gold, stamps, coins and bitcoins, and Australian houses are worth anything, that is, because enough people say it is worth something*. Even stocks that pay dividends, very few people buy it for dividends. They buy it because they believe someone else will be willing to buy it for slightly more, shortly after. Different traders have different timeframes, ranging from seconds to months. *Houses and stock are of course partially valuable due to the fundamentals, but the major reason they are purchased is just to resell at a profit.","Stock prices are set by the market - supply and demand. See Apple for example, which is exactly the company you described: tons of earnings, zero dividends. The stock price goes up and down depending on what happens with the company and how investors feel about it, and it can happen that the total value of the outstanding stock shares will be less than the value of the underlying assets of the company (including the cash resulted from the retained earnings). It can happen, also, that if the investors feel that the stock is not going to appreciate significantly, they will vote to distribute dividends. Its not the company's decision, its the board's. The board is appointed by the shareholders, which is exactly why the voting rights are important.","\"The textbook answer would be \"\"assets-liabilities+present discounted value of all future profit\"\". A&L is usually simple (if a company has an extra $1m in cash, it's worth $1m more; if it has an extra $1m in debt, it's worth $1m less). If a company with ~0 assets and $50k in profit has a $1m valuation, then that implies that whoever makes that valuation (wants to buy at that price) really believes one of two things - either the future profit will be significantly larger than $50k (say, it's rapidly growing); or the true worth of assets is much more - say, there's some IP/code/patents/people that have low book value but some other company would pay $1m just to get that. The point is that valuation is subjective since the key numbers in the calculations are not perfectly known by anyone who doesn't have a time machine, you can make estimates but the knowledge to make the estimates varies (some buyers/sellers have extra information), and they can be influenced by those buyers/sellers; e.g. for strategic acquisitions the value of company is significantly changed simply because someone claims they want to acquire it. And, $1m valuation for a company with $500m in profits isn't appropriate - it's appropriate only if the profits are expected to drop to zero within a couple years; a stagnant but stable company with $500m profits would be worth at least $5m and potentially much more.\"","I didn't mean to imply that bankruptcy is a magical process. I was using that to clarify my use of conservative vs. aggressive. To be fair, I guess it can vary depending on your perspective. If you're taking the perspective of the debt-laden company, then yes, erring on the side of a higher value could be defined as aggressive. If you're taking the perspective of someone looking to acquire business, I would say erring on the side of a higher value is conservative. if the debt is trading at, say, $0.20 on the dollar, then yes, I can agree that the market value of the debt is likely more representative of the book value. I guess I wasn't thinking of that type of extreme example. A more common scenario I'd encounter would be a) the debt trading at maybe $0.95 on the dollar and b) taking the perspective of someone looking to invest in the equity, which is why I'd say that it's more conservative to use the higher value, which is the book value. So I'm persuaded that using market value of the debt can make sense in some cases, but I would still argue that the book value might make more sense in other cases.","You have to look at stocks just like you would look at smaller and more illiquid markets. Stock trade in auction markets. These are analogous to ebay or craigslist, just with more transparency and liquidity. There is no guarantee that a market will form for a particular stock, or that it will sustain. When a stock sells off, and there are no bids left, that means all of the existing bidder's limit orders got filled because someone sold at those prices. There is nothing fishy about that. It is likely that someone else wants to sell even more, but couldn't find any more bidders. If you put a bid you would likely get filled by the shareholder with a massive position looking for liquidity. You could also buy at the ask.","\"What if everyone decided to sell all the shares at a given moment, let's say when the stock is trading at $40? It would fall to the lowest bid price, which could be $0.01 if someone had that bid in place. Here is an example which I happened to find online: Notice there are orders to buy at half the market price and lower... probably all the way down to pennies. If there were enough selling activity to fill all of those bids you see, then the market price would be the lowest bid on the screen. Alternatively, the bid orders could be pulled (cancelled), which would also let the price free-fall to the lowest bid even if there were few actual sellers. Bid-stuffing is what HFT (high frequency trading) algorithms sometimes do, which some say caused the Flash Crash of May 2010. The computers \"\"stuff\"\" bids into the order book, making it look like there is demand in order to trigger a market reaction, then they pull the bids to make the market fall. This sort of thing happens all the time and Nanex documents it http://www.nanex.net/FlashCrash/OngoingResearch.html Quote stuffing defined: http://www.investopedia.com/terms/q/quote-stuffing.asp I remember the day of the Flash Crash very well. I found this video on youtube of CNBC at that time. Watch from the 5:00 min mark on the video as Jim Crammer talks about PG easily not being worth the price of the market at that time. He said \"\"Who cares?\"\", \"\"Its not a real price\"\", \"\"$49.25 bid for 50,000 shares if I were at my hedge fund.\"\" http://www.youtube.com/watch?v=86g4_w4j3jU You can value a stock how you want, but its only actually worth what someone will give you for it. More examples: Anadarko Petroleum, which as we noted in today's EOD post, lost $45 billion in market cap in 45 milliseconds (a collapse rate of $1 billion per millisecond), flash crashing from $90 all the way to an (allegedly illegal) stub quote of $0.01. http://www.zerohedge.com/news/2013-05-17/how-last-second-flash-crash-pushed-sp-500-1667-1666 How 10,000 Contracts Crashed The Market: A Visual Deconstruction Of Last Night's E-Mini Flash Crash http://www.zerohedge.com/news/2012-12-21/how-10000-contracts-crashed-market-visual-deconstruction-last-nights-e-mini-flash-cr Symantec Flash-Crash Destroys Over $1.5 Billion In Less Than A Second http://www.zerohedge.com/news/2013-04-30/symantec-flash-crash-destroys-over-15-billion-less-second This sort of thing happens so often, I don't pay much attention anymore.\"","The worth of a share of stocks may be defined as the present cash value of all future dividends and liquidations associated therewith. Without a crystal ball, such worth may generally only be determined retrospectively, but even though it's generally not possible to know the precise worth of a stock in time for such information to be useful, it has a level of worth which is absolute and not--unlikely market price--is generally unaffected by people buying and selling the stock (except insofar as activities in company stock affect a company's ability to do business). If a particular share of stock is worth $10 by the above measure, but Joe sells it to Larry for $8, that means Joe gives Larry $2. If Larry sells it to Fred $12, Fred gives Larry $2. The only way Fred can come out ahead is if he finds someone else to give him $2 or more. If Fred can sell it to Adam for $13, then Adam will give Fred $3, leaving Fred $1 better off than he would be if he hadn't bought the stock, but Adam will be $3 worse off. The key point is that if you sell something for less than it's worth, or buy something for more that it's worth, you give money away. You might be able to convince other people to give you money in the same way you gave someone else money, but fundamentally the money has been given away, and it's not coming back.","How can they reduce the number of shares I hold? They may have purchased them. You don't say what stock it is, so we can only speculate. Let's say that the stock is called PENNY. So they may have taken your 1600 PENNY shares and renamed them to 1600 PENNYOLD shares. Then they created a new $5 PENNY share and gave you .2357 shares of that in exchange for your 1600 PENNYOLD shares. This suggests that your old shares were worth $1.1785 or less than a tenth of a cent each. As an example, MYLAN did this in 2015 as part of their tax inversion (moved official headquarters from the US to Europe). They did not change the number of shares at that time, but MYLAN is not a penny stock. This is the kind of thing that might happen in a bankruptcy. A reverse split (where they give you one share in exchange for more than one share) is also possible, although you received an odd amount for a reverse split. Usually those produce rounder numbers. A number like .2357 sounds more like a market price, as those can be bizarre.","Without reading the source, from your description it seems that the author believes that this particular company was undervalued in the marketplace. It seems that investors were blinded by a small dividend, without considering the actual value of the company they were owners of. Remember that a shareholder has the right to their proportion of the company's net value, and that amount will be distributed both (a) in the form of dividends and (b) on liquidation of the company. Theoretically, EPS is an indication of how much value an investor's single share has increased by in the year [of course this is not accurate, because accounting income does not directly correlate with company value increase, but it is a good indicator]. This means in this example that each share had a return of $10, of which the investors only received $1. The remainder sat in the company for further investment. Considering that liquidation may never happen, particularly within the time-frame that a particular investor wants to hold a share, some investors may undervalue share return that does not come in the form of a dividend. This may or may not be legitimate, because if the company reinvests its profits in poorer performing projects, the investors would have been better off getting the dividend immediately. However some value does need to be given to the non-dividend ownership of the company. It seems the author believes that investors failing to consider value of the non-dividend part of the corporation's shares in question led to an undervaluation of the company's shares in the market.","No. The above calculation does not hold good. When financial statements are prepared they are prepared on a going concern basis, i.e. a business will run normally in the foreseeable future. Valuation of assets and liabilities is done according to this principle. When a bankruptcy takes places or a business closes down, immediately the valuation method will change. For assets, the realizable value will be more relevant. For example, if you hold 100 computers, in an normal situation, they will depreciated at the normal rate. Every year, some portion of the cost is written off as depreciation. When you actually go to sell these computers you are likely to realize much less than what is shown in the statement. Similarly, for a building, the actual realizable value may be more. For liabilities, they tend to increase in such situation. Hence just a plain computation can give you a very broad idea but the actual figure may be different.","Imagine a stock where the share price equals the earnings per share. You pay say $100 for a share. In the next year, the company makes $100 per share. They can pay a $100 dividend, so now you have your money back, and you still own the share. Next year, they make $100 per share, pay a $100 dividend, so now you have your money back, plus $100 in your pocket, plus you own the share. Wow. What an incredible investment.","Here is an example for you. We have a fictional company. It's called MoneyCorp. Its job is to own money, and that's all. Right now it owns $10,000. It doesn't do anything special with that $10,000 - it stores it in a bank account, and whenever it earns interest gives it to the shareholders as a dividend. Also, it doesn't have any expenses at all, and doesn't pay taxes, and is otherwise magic so that it doesn't have to worry about distractions from its mathematical perfection. There are 10,000 shares of MoneyCorp, each worth exactly $1. However, they may trade for more or less than $1 on the stock market, because it's a free market and people trading stock on the stock market can trade at whatever price two people agree on. Scenario 1. MoneyCorp wants to expand. They sell 90,000 shares for $1 each. The money goes in the same bank account at the same interest rate. Do the original shareholders see a change? No. 100,000 shares, $100,000, still $1/share. No problem. This is the ideal situation. Scenario 2: MoneyCorp sells 90,000 shares for less than the current price, $0.50 each. Do the original shareholders lose out? YES. It now has something like $55,000 and 100,000 shares. Each share is now worth $0.55. The company has given away valuable equity to new shareholders. That's bad. Why didn't they get more money from those guys? Scenario 3: MoneyCorp sells 90,000 shares for more than the current price, $2 each, because there's a lot of hype about its business. MoneyCorp now owns $190,000 in 100,000 shares and each share is worth $1.90. Existing shareholders win big! This is why a company would like to make its share offering at the highest price possible (think, Facebook IPO). Of course, the new shareholders may be disappointed. MoneyCorp is actually a lot like a real business! Actually, if you want to get down to it, MoneyCorp works very much like a money-market fund. The main difference between MoneyCorp and a random company on the stock market is that we know exactly how much money MoneyCorp is worth. You don't know that with a real business: sales may grow, sales may drop, input prices may rise and fall, and there's room for disagreement - that's why stock markets are as unpredictable as they are, so there's room for doubt when a company sells their stock at a price existing shareholders think is too cheap (or buys it at a price that is too expensive). Most companies raising capital will end up doing something close to scenario 1, the fair-prices-for-everyone scenario. Legally, if you own part of a company and they do something a Scenario-2 on you... you may be out of luck. Consider also: the other owners are probably hurt as much as you are. Only the new shareholders win. And unless the management approving the deal is somehow giving themselves a sweetheart deal, it'll be hard to demonstrate any malfeasance. As an individual, you probably won't file a lawsuit either, unless you own a very large stake in the company. Lawsuits are expensive. A big institutional investor or activist investor of some sort may file a suit if millions of dollars are at stake, but it'll be ugly at best. If there's nothing evil going on with the management, this is just one way that a company loses money from bad management. It's probably not the most important one to worry about.","\"An important thing that many people fail to realize is that the number of shares outstanding in a stock, times the current market price of those shares, does not represent anything related to the total value of those shares. If a company has one million shares outstanding and its total value is $10 million, then the real worth of each share is $10. If few people feels like buying or selling, but a few people think the company is worth $50 million and offer $50/share, that could raise the market price to $50/share, but it wouldn't mean that the company became worth five times as much; it would merely mean the stock was overpriced. If, after the price went to $50/share, all the owners of the stock put in stop-loss orders at $45. Note that the real $10/share \"\"real value\"\" of their stock would never have changed. If the people who thought the stock was worth $50 decided to get out of the market, and nobody else was willing to offer more than $10, that would instantly drop the price to $10. The fact that a million shares of stock have stop-loss orders at $45 wouldn't magically generate buyers for those stocks at that price. Indeed, unchecked stop-loss orders would have the reverse effect, since many people who would have been willing if not eager to buy the stock if it had been available for less than $10/share would instead be trying to sell it below that price. It's too bad people think that the number of shares outstanding times the current market price represents some kind of \"\"meaningful quantity\"\". If the present cash value of all future payouts associated with a share of stock is $10, then someone who buys a share of stock for less than that makes money off the seller; someone who pays more loses money to the seller. Many people think they can lose money to the seller and still come out okay if the price goes higher, but what that really means is that they're hoping to find a bigger sucker--a game where it's guaranteed that some people will have losses they don't recoup.\"","\"> If the stock price goes down it wouldn't make sense that ABC had a higher dividend yield, so my argument was you have to make assume the stock price went down because it could have cost less for other reasons, but you don't have to assume the dividend yield which would make it a good investment. I'm not sure I understand your argument. The wording doesn't seem clear to me (\"\"you have to make assume\"\"? make assume? \"\"but you don't have to assume the dividend yield\"\" assume it what?) Dividend yield has a negative correlation with stock price. If price goes down, all else being equal, yield rises.\"","Imagine that I own 10% of a company, and yesterday my portion was valued at $1 Million, therefore the company is valued at $10 Million. Today the company accepts an offer to sell 1% of the company for $500 Thousand: now my portion is worth $5 Million, and company is worth $50 Million. The latest stock price sets the value of the company. If next week the news is all bad and the new investor sells their shares to somebody else for pennies on the dollar, the value of the company will drop accordingly.","\"What will happen if the stock price just continues to decline? Nothing. What would happen if folks just stop trading it? Nothing. What if the company goes private? Then they will have to buy you out based on some agreed upon price, as voted by the board and (potentially) approved by the shareholders. Depending on the corporation charter, the board may not be required to seek the shareholders' approval, but if the price the board agreed upon is unreasonable you can sue and prevent the transaction. How do they decide the fair value of the outstanding stocks? Through a process called \"\"valuation\"\", there are accounting firms which specialize in this area of public accounting.\"","Here are some significant factors affect the company stock price performance: Usually, profitability is known to the public through the financial statements; it won't be 100% accurate and people would also trade the stock with the price not matching to the true value of the firm. Still there are dozens of other various reasons exist. People are just not behaving as rational as what the textbook describes when they are trading and investing.","Why is the stock trading at only $5 per share? The share price is the perceived value of the company by people buying and selling the stock. Not the actual value of the company and all its assets. Generally if the company is not doing well, there is a perceived risk that it will burn out the money fast. There is a difference between its signed conditional sale and will get money and has got money. So in short, it's trading at $5 a share because the market doesn't feel like it's worth $12 per share. Quite a few believe there could be issues faced; i.e. it may not make the $12, or there will be additional obligations, i.e. employees may demand more layoff compensation, etc. or the distribution may take few years due to regulatory and legal hurdles. The only problem is the stock exchange states if the company has no core business, the stock will be suspended soon (hopefully they can release the $12 per share first). What will happen if I hold shares in the company, the stock gets suspended, and its sitting on $12 per share? Can it still distribute it out? Every country and stock markets have laid out procedures for de-listing a company and closing a company. The company can give $10 as say dividends and remaining later; or as part of the closure process, the company will distribute the balance among shareholders. This would be a long drawn process.","\"No. If the share price drops to $0, it's likely that the company is in bankruptcy. Usually, debt holders (especially holders of senior debt) are paid first, and you're entitled to whatever the bankruptcy proceedings decide to give holders of equity after the debt holders are paid off. More often than not, equity holders probably won't get much. To give an example, corporate bankruptcy usually involves one of two options: liquidation or reorganization. In the US, these are called Chapter 7 and Chapter 11 bankruptcy, respectively. Canada and the United Kingdom also have similar procedures for corporations, although in the UK, reorganization is often referred to as administration. Many countries have similar procedures in place. I'll use the US as an example because it's what I'm most familiar with. In Chapter 7 bankruptcy, the company is liquidated to pay its debts. Investopedia's article about bankruptcy states: During Chapter 7 bankruptcy, investors are considered especially low on the ladder. Usually, the stock of a company undergoing Chapter 7 proceedings is usually worthless, and investors lose the money they invested. If you hold a bond, you might receive a fraction of its face value. What you receive depends on the amount of assets available for distribution and where your investment ranks on the priority list on the first page. In Chapter 11 bankruptcy, the company is turned over to a trustee that guides it through a reorganization. The Investopedia article quotes the SEC to describe what happens to stockholders when this happens: \"\"During Chapter 11 bankruptcy, bondholders stop receiving interest and principal payments, and stockholders stop receiving dividends. If you are a bondholder, you may receive new stock in exchange for your bonds, new bonds or a combination of stock and bonds. If you are a stockholder, the trustee may ask you to send back your stock in exchange for shares in the reorganized company. The new shares may be fewer in number and worth less. The reorganization plan spells out your rights as an investor and what you can expect to receive, if anything, from the company.\"\" The exact details will depend on the reorganization plan that's worked out, local laws, court agreements, etc.. For example, in the case of General Motor's bankruptcy, stockholders in the company before reorganization were left with worthless shares and were not granted shares in the new company.\"","This can arise with very thinly traded stocks for large blocks of shares. If the market only has a few thousand dollars available at between 8.37 and 12.5 the price is largely meaningless for people who want to invest in hundreds of thousands/millions of dollars worth, as the quoted price can't get them anywhere near the number of shares they want. How liquid is the stock in question?","How you use the metric is super important. Because it subtracts cash, it does not represent 'value'. It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash. So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0. If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless.","\"Your question asks us to explain why a false statement is true. From the point of view of an investor, a high price to earnings ratio is not necessarily desirable. From the point of view of an investor, a desirable stock is one that is likely to provide future dividends or price increases that more than compensates for the risk of the stock. This information cannot be inferred from the P/E ratio. So what does the P/E ratio tell us? The P/E ratio measures a stock's current price (i.e., the market's belief about its future earnings) divided by its recent past earnings. A high ratio means the market thinks earnings in the future will be higher than they are now and have therefore bid the price up. These can thought of as expensive stocks, and are often called \"\"growth\"\" stocks because their price is driven by the market's belief in future growth. Some individual high P/E stocks do live up to or exceed the market's expectation, but there's no evidence that this happens enough that they are more desirable as a group than low P/E stocks. If anything, the empirical evidence goes the other way.\"","Interestingly, the Staples doesn't own most of the land their stores operate on like its competitors. They opted for leases versus buying land during expansion to focus capex on other parts of the business. However, it leaves the company without a lot of land and therefore low relative book value. The value in Staples lies in their online B2B in a direct business model, though how much growth lies in physical paper and ink in a world of tablets and computers remains to be seen.","Try to find the P/E ratio of the Company and then Multiply it with last E.P.S, this calculation gives the Fundamental Value of the share, anything higher than this Value is not acceptable and Vice versa.","Aside of the other (mostly valid) answers, share price is the most common method of valuating the company. Here is a bogus example that will help you understand the general point: Now, suppose that Company A wants to borrow $20 Million from a bank... Not a chance. Company B? Not a problem. Same situation when trying to raise new funds for the market or when trying to sell the company or to acquire another","\"Check your math... \"\"two stocks, both with a P/E of 2 trading at $40 per share lets say, and one has an EPS of 5 whereas the other has an EPS of 10 is the latter a better purchase?\"\" If a stock has P/E of 2 and price of $40 it has an EPS of $20. Not $10. Not $5.\"","\"The only thing that makes a stock worthless is when the company goes out of business. Note that bankruptcy, by itself, does not mean the company is closing. It could successfully restructure its affairs and come out of bankruptcy with a better outlook. Being a small or unprofitable business may cause a company's to trade in the \"\"penny stock\"\" range, but there is still some value there. Since most dying companies will pass through the penny stock phase, you may be able to track down what you're looking for by finding companies who have been (or are about to be) delisted. Delisting is not death, it's just the point at which the company's shares no longer meet the qualifications to be traded on a particular exchange. If you find old stock certificates in your grandmother's sock drawer, they may be a treasure, or they may be worthless pieces of paper if the company changed its ownership and Grandma didn't know about it.\"","\"As @ApplePie pointed out in their answer, at any given time there is a finite amount of stock available in a company. One subtlety you may be missing is that there is always a price associated with an offer to buy shares. That is, you don't put in an order simply to buy 1 share of ABC, you put in an order to buy 1 share of ABC for $10. If no one is willing to sell a share of ABC for $10, then your order will go unfilled. This happens millions of times a day as traders try to figure the cheapest price they can get for a stock. Practically speaking, there is always a price at which people are willing to sell their shares. You can put in a market order for 1 share of ABC, which says essentially \"\"I want one share of ABC, and I will pay whatever the market deems to be the price\"\". Your broker will find you 1 share, but you may be very unhappy about the price you have to pay! While it's very rare for a market to have nobody willing to sell at any price, it occasionally happens that no one is willing to buy at any price. This causes a market crash, as in the 2007-2008 financial crisis, when suddenly everyone became very suspicious of how much debt the major banks actually held, and for a few days, very few traders were willing to buy bank stocks at any price.\"","Your observation is mostly right, that 1 is a the number around which this varies. You are actually referencing PEG, P/E to Growth ratio, which is a common benchmark to use to evaluate a stock. The article I link to provides more discussion.","This comment makes zero sense. No one values equities from the balance sheet, unless you're trying to justify why you'd invest in sears or something (i.e. b/s vastly understates market value of real estate holdings and you're hoping for a liquidity event). Certainly not a tech company or really anything as a going concern."],"string":"[\n \"Book value = sell all assets and liquidate company . Then it's the value of company on book. Price = the value at which it's share gets bought or sold between investors. If price to book value is less than one, it shows that an 100$ book value company is being traded at 99$ or below. At cheaper than actually theoretical price. Now say a company has a production plant . Situated at the most costliest real estate . Yet the company's valuation is based upon what it produces, how much orders it has etc while real estate value upon which plant is built stays in book while real investors don't take that into account (to an extend). A construction company might own a huge real estate inventory. However it might not be having enough cash flow to sustain monthly expense. In this scenario , for survival,i the company might have to sell its real estate at discount. And market investors are fox who could smell trouble and bring price way below the book value Hope it helps\",\n \"\\\"An answer can be found in my book, \\\"\\\"A Modern Approach to Graham and Dodd Investing,\\\"\\\" p. 89 http://www.amazon.com/Modern-Approach-Graham-Investing-Finance/dp/0471584150/ref=sr_1_1?s=books&ie=UTF8&qid=1321628992&sr=1-1 \\\"\\\"If a company has no sustained cash flow over time, it has no value...If a company has positive cash flow but economic earnings are zero or less, it has a value less than book value and is a wasting asset. There is enough cash to pay interim dividends, bu the net present value of the dividend stream is less than book value.\\\"\\\" A company with a stock trading below book value is believed to be \\\"\\\"impaired,\\\"\\\" perhaps because assets are overstated. Depending on the situation, it may or may not be a bankruptcy candidate.\\\"\",\n \"Note that the formula for Price to Book ratio is: Stock Price / {[Total Assets - (Intangible Assets + Liabilities)] / Stock Outstanding} http://www.investopedia.com/terms/p/price-to-bookratio.asp http://www.investopedia.com/articles/fundamental/03/112603.asp There's a number of factors that could lead to a lower than 1. The primary reason, imho, could be the company is in a state of retiring stock with debt. The company is selling penny stocks (only to get people more interested in it's later development) which are inherently undervalued. There may be other reasons, but definitely check out both articles.\",\n \"Look at Price/book value and there are more than a few stocks that may have a P/B under 1 so this does happen. There are at least a couple of other factors you aren't considering here: Current liabilities - How much money is the company losing each quarter that may cause it to sell repeatedly. If the company is burning through $100 million/quarter that asset is only going to keep the lights on for another 2.5 years so consider what assumptions you make about the company's cash flow here. The asset itself - Is the price really fixed or could it be flexible? Could the asset seen as being worth $1 billion today be worth much less in another year or two? As an example, suppose the asset was a building and then real estate values drop by 40% in that area. Now, what was worth $1 billion may now be worth only $600 million. As something of a final note, you don't state where the $100 million went that the company received as if that was burned for operations, now the company's position on the asset is $900 million as it only holds a 90% stake though I'd argue my 2 previous points are really worth noting. The Following 6 Stocks Are Trading At or Below 0.5 x Book Value–Sep 2013 has a half dozen examples of how this is possible. If the $100 million was used to pay off debt, then the company doesn't have that cash and thus its assets are reduced by the cash that is gone. Depending on what the plant is producing the value may or may not stay where it is. If you want an example to consider, how would you price automobile plants these days? If the company experiences a reduction in demand, the plant may have to be sold off at a reduced price for a cynic's view here.\",\n \"A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember;\",\n \"To be fair, the analyst is talking about the book value of the firm. Basically, the value of all the stuff it owns now. There are plenty of companies with negative book value that can justify a positive share price. Ford, for instance, had negative book value but positive future earnings.\",\n \"\\\"No, but it is certainly a possibility. the efficient market hypothesis would say that this means that the market perceives the present value of all future earning as negative. These earnings might take the form of a writedown of assets at some point. (Companies carry a goodwill asset that is generally imaginary. They book that asset when they buy companies for more than they are worth.) It would be as if PRUN was a stock tracking my life. If I bought my house in 2006 for $1 million cash. I might have a book value of $1 million. However, PRUN might trade at $500k because the market knows that my asset isn't really worth $1 million and at some point my earnings will take a hit to reflect that. It might also mean that future \\\"\\\"real\\\"\\\" earnings \\\"\\\"ie actual profit and loss on sales\\\"\\\" are going to be negative. This would mean bankruptcy is more likely.\\\"\",\n \"And the kind folk at Yahoo Finance came to the same conclusion. Keep in mind, book value for a company is like looking at my book value, all assets and liabilities, which is certainly important, but it ignores my earnings. BAC (Bank of America) has a book value of $20, but trades at $8. Some High Tech companies have negative book values, but are turning an ongoing profit, and trade for real money.\",\n \"\\\"The key to evaluating book value is return on equity (ROE). That's net profit divided by book value. The \\\"\\\"value\\\"\\\" of book value is measured by the company's ROE (the higher the better). If the stock is selling below book value, the company's assets aren't earning enough to satisfy most investors. Would you buy a CD that was paying, say two percentage points below the going rate for 100 cents on the dollar? Probably not. You might be willing to buy it only by paying 2% less per year, say 98 cents on the dollar for a one year CD. The two cent discount from \\\"\\\"book value\\\"\\\" is your compensation for a low \\\"\\\"interest\\\"\\\" rate.\\\"\",\n \"The intrinsic value of a company is based on their profits year on year along with their expect future growth. A company may be posting losses, but if the market determines there's any chance they will turn a profit one day, or be a takeover target, it assigns value to those shares. In normal times, you'll observe a certain P/E range. Price to earning ratio is a simple way to say the I will pay X$ for a dollar's worth of earnings. A company that's in a flat market and not growing may command a P/E of only 10. Another company that's expanding their products and increasing market share may see a 20 P/E. Both P/Es are right for the type of company involved.\",\n \"A company's stock value is indicative of the market's collective belief of the future of the company. The relationship of between price and book value will vary according to the quality of the company, the category of stock, etc. In extreme cases, say Bank of America, the stock trades at a fraction of book, because BOA's books are a fantasy by most people's reckoning.\",\n \"\\\"By definition, a downturn in the business cycle will push some companies into bankruptcy. What's worse, a downturn in the business cycle will trigger \\\"\\\"bankruptcy fears\\\"\\\" for a LOT of companies, far more than will suffer this fate. So the prices of MANY candidates go down to levels that reflect this fear. This aggregate impact produces the \\\"\\\"overreaction\\\"\\\" you're talking about. It's called \\\"\\\"fallacy of composition\\\"\\\"; some of these companies will go under, but not all. Then the prices of the survivors will bounce back strongly during the early stages of an upturn when it becomes clear which companies WON'T go bankrupt.\\\"\",\n \"P/E = price per earnings. low P/E (P/E < 4) means stock is undervalued.\",\n \"There are things that are clearly beyond me as well. Cash per share is $12.61 but the debt looks like $30 or so per share. I look at that, and the $22 negative book value and don't see where the shareholders are able to recoup anything.\",\n \"Have you looked at what is in that book value? Are the assets easily liquidated to get that value or could there be trouble getting the fair market value as some assets may not be as easy to sell as you may think. The Motley Fool a few weeks ago noted a book value of $10 per share. I could wonder what is behind that which could be mispriced as some things may have fallen in value that aren't in updated financials yet. Another point from that link: After suffering through the last few months of constant cries from naysayers about the company’s impending bankruptcy, shareholders of Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) can finally look toward the future with a little optimism. Thus, I'd be inclined to double check what is on the company books.\",\n \"\\\"When presenting negative P/E values, most brokers and equity analysts show them as \\\"\\\"n.m.\\\"\\\", which stands for not meaningful. I have never seen a P/E ratio of 0.\\\"\",\n \"You are omitting how the company made 120 million in the previous year and may be facing a shrinking market and thus have poor future prospects. If the company is shrinking, what will the shares be worth down the road. Remember companies like AOL or Blackberry? There was a time they had big profits before things changed which is the part you aren't considering here. If the company has lost something big on its earnings, e.g. the oil wells it owned have run out of reserves or the patents on its key drugs have expired, then there could be the perception that the company won't be able to compete in the future to continue to deliver earnings. Some companies may well end up going broke as one could look at GM for a company that used to be one of the largest car companies in the world and yet it ended up going broke.\",\n \"Let's use an example: You buy 10 machines for 100k, and those machines produce products sold for a total of 10k/year in profit (ignoring labor/electricity/sales costs etc). If the typical investor requires a rate of return of 10% on this business, your company would be worth 100k. In investing terms, you would have a PE ratio of 10. The immediately-required return will be lower if substantially greater returns are expected in the future (expected growth), and the immediately required return will be higher if your business is expected to shrink. If at the end of the year you take your 10k and purchase another machine, your valuation will rise to 110k, because you can now produce 11k in earnings per year. If your business has issued 10,000 shares, your share price will rise from $10 to $11. Note that you did not just put cash in the bank, and that you now have a higher share price. At the end of year 2, with 11 machines, lets imagine that customer demand has fallen and you are forced to cut prices. You somehow produce only 10k in profit, instead of the anticipated 11k. Investors believe this 10k in annual profit will continue into the forseable future. The investor who requires 10% return would then only value your company at 100k, and your share price would fall back from $11 to $10. If your earnings had fallen even further to 9k, they might value you at 90k (9k/0.1=$90k). You still have the same machines, but the market has changed in a way that make those machines less valuable. If you've gone from earning 10k in year one with 10 machines to 9k in year two with 11 machines, an investor might assume you'll make even less in year three, potentially only 8k, so the value of your company might even fall to 80k or lower. Once it is assumed that your earnings will continue to shrink, an investor might value your business based on a higher required rate of return (e.g. maybe 20% instead of 10%), which would cause your share price to fall even further.\",\n \"Well, yes it does, but just because the debt is trading at 80 cents on the dollar doesn't mean that the company can actually legally get away with paying only 80 cents on the dollar. They would have to come to an agreement with the debt holders first. And perhaps they could, but the more conservative approach is to use the book value of the debt. Or what about debt that's trading at a premium to its face value, because, say, interest rates have come down relative to the time the debt was issued? The amount that the conpany owes to the debt holders hasn't suddenly gone up.\",\n \"Residential Construction at 362x, by the way. I'm going to hazard a guess here - Say XYZ corp trades at $100, and it's showing a normal earnings of $10 the last few years. Its industry falls on hard times, and while it makes enough to keep its doors open, profits fall to $1. The company itself is still sound, but the small earnings result in a high P/E. By the way, its book value is $110, and they have huge cash on the books along with real estate. I offer these details to show why the price doesn't drop like a rock. Now, biotech may be in a period of low reported earnings but with future results expected to justify the price. On one hand it may be an anomaly, with earnings due to rise, or it may be a bit of a bubble. An analyst for this sector should be able to comment if I'm on the right track.\",\n \"There are books on the subject of valuing stocks. P/E ratio has nothing directly to do with the value of a company. It may be an indication that the stock is undervalued or overvalued, but does not indicate the value itself. The direct value of company is what it would fetch if it was liquidated. For example, if you bought a dry cleaner and sold all of the equipment and receivables, how much would you get? To value a living company, you can treat it like a bond. For example, assume the company generates $1 million in profit every year and has a liquidation value of $2 million. Given the risk profile of the business, let's say we would like to make 8% on average per year, then the value of the business is approximately $1/0.08 + $2 = $14.5 million to us. To someone who expects to make more or less the value might be different. If the company has growth potential, you can adjust this figure by estimating the estimated income at different percentage chances of growth and decline, a growth curve so to speak. The value is then the net area under this curve. Of course, if you do this for NYSE and most NASDAQ stocks you will find that they have a capitalization way over these amounts. That is because they are being used as a store of wealth. People are buying the stocks just as a way to store money, not necessarily make a profit. It's kind of like buying land. Even though the land may never give you a penny of profit, you know you can always sell it and get your money back. Because of this, it is difficult to value high-profile equities. You are dealing with human psychology, not pennies and dollars.\",\n \"Its not just Citi and BoFA, even Barclays, HSBC and other large Banks are trading below book value in markets they are listed. Are there particular assets that are causing these two banks to be valued lower relative to their book values than the other banks? There no particular assets. Given the current economic situation most Banks are not making good returns, i.e. expected returns of markets are around 10-12% and the returns getting generated are around 4-6%. The overall slow down in various segments as well as regulations in most countries mean that banks have to relook at the business model in short term and generate more revenue. The market believes that Banks may loose money faster and hence the negative outlook and the trading below the book value. Note Book Value is derived in ideal conditions, i.e. when the company is healthy. If any company were to sell the assets in distress, the actual funds raised would be quite a bit less than Book Value. Its also to be noted that typically Banks would not close out and hence Book Value to an extent is just an indicator. Or is it a residual loathing based on their being the biggest losers of 2008 that are still around today? The 2008 has gone past. This is more recent. If you look most of these banks were doing quite well till last year and had recovered substantially after 2008.\",\n \"NAV is how much is the stuff of the company worth divided by the number of shares. This total is also called book value. The market cap is share price times number of shares. For Amazon today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13. Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22.\",\n \"\\\"When you buy a stock, you're really paying for a STREAM of earnings, from now till whenever. The job of an investor is to figure out how large that stream will be in the future. But if the stock price were the same as \\\"\\\"earnings\\\"\\\" (for one year), it would mean that you would get all future earnings for \\\"\\\"free.\\\"\\\" That's not likely to happen unless 1) the company is in liquidation,\\\"\\\" meaning \\\"\\\"no future\\\"\\\" and 2) it earned ALL of the money it ever earned in the past year, meaning \\\"\\\"no past.\\\"\\\" If there are likely to be any earnings in the future, you will have to pay for those future earnings, over and above what was earned in the most recent year.\\\"\",\n \"The company's value (which should be reflected in the share price) is not how much money it has in the bank, but something along the lines of 'how much money will it make between now and the end of times' (adjusted for time value of money and risk). So when you purchase a share of a company that has, say, little money in the bank, but expects to make 1M$ profit this year, 2M$ for the following 3 years, and say, nothing after, you are going to pay your fraction of 7M$ (minus some discount because of the risk involved). If now they announce that their profits were only 750k$, then people may think that the 2M$ are more likely to be 1.5M$, so the company's value would go to ~ 5M$. And with that, the market may perceive the company as more risky, because its profits deviated from what was expected, which in turn may reduce the company's value even further.\",\n \"It might seem like the PE ratio is very useful, but it's actually pretty useless as a measure used to make buy or sell decisions, and taken largely on its own, pretty useless becomes utterly and completely useless. Stocks trade at prices based on future expectations and speculation, so that means if traders expect a company to double its profits next year, the share price could easily double (there are reasons it might not increase so much, and there are reasons it could increase even more than that, but that's not the point). The Price is now double, but the Earnings is still the same, so the PE ratio is double, and this doubling is based on something some traders know, or think they know, but other traders might not know or not believe! Once you understand that, what use is a PE ratio really? The PE ratio of a company might be low because it is in a death spiral, with many traders believing it will report lower and lower profits in years to come, and the lower the PE ratio of a given company gets probably, relatively, the more likely it is to go bust! If you buy a stock with a low PE ratio you must do so because you feel you understand the company, understand why the market is viewing it negatively, believe that the negativity is wrong or over done, and believe that it will turn around. Equally a PE ratio might be high, but be an excellent buy still because it has excellent growth prospects and potential even beyond what is priced in already! Lets face it, SOMEONE has been buying at the price that's put that PE ratio where is is, right? They might be wrong of course, or not! Or they might be justified now but circumstances might change before earnings ever reach the current priced in expectation. You'll know next year probably! To answer your actual question... first you should now understand there is no such thing as a stock that is on sale, just stocks that are priced broadly according to the markets consensus on its value in years to come, the closest thing being a stock that is 'over sold' (but one man's 'over sold' is another man's train crash remember)... so what to actually look for? The only way to (on average) make good buy and sell decisions is to know about investing and trading (buy some books, I have 12), understand the businesses you propose to invest in and understand their market(s) (which may also mean understanding national and international economics somewhat).\",\n \"\\\"The company was paying \\\"\\\"only\\\"\\\" $1 a share in dividends, compared to $10 a share in earnings. That is a so-called payout ratio of 10%, which is low. A more normal payout ratio would be 40%, something like $4 a share. If a $13 stock had a $4 dividend, the dividend yield would be about 30%, which would be \\\"\\\"too high,\\\"\\\" meaning that the price would go up to drive down the resulting yield. Even $1 a share on a $13 stock is a high dividend of about 7%, allowing for appreciation to say, the $20-$25 range. Graham was a great believer in the theory that management should pay out \\\"\\\"most\\\"\\\" of its earnings in dividends. He believed that by holding dividends so far below earnings, the company was either being \\\"\\\"stingy,\\\"\\\" or signalling that the $10 a share of earnings was unsustainable. Either of these would be bad for the stock. For instance, if $1 a share in dividends actually represented a 40% payout ratio, it would signal management's belief that they could normally earn only $2.50 a year instead of $10.\\\"\",\n \"One reason that a bond can be significantly less than face value is because people are seeking better investments elsewhere, so for example if a bond doesn't mature for another 10 years, that 20% increase in face value isn't very attractive when compared to say leaving your money in the stock market for 10 years. Another reason could be that the credit-worthiness of the issuer has collapsed and people expect that there is a fairly good chance they are not going to make the payment. This could be what you would see if for example it was a one year time until maturity, but it has a value of 40% of the face value. There is a risk, because they can simply not pay. For example people who bought Greek bonds.\",\n \"One problem is that P/E ratio only looks at the last announced earnings. Let's take your manufacturing plant with a P/E of 12.5. Then they announce a major problem that will hurt future earnings and the price drops in half. Now the P/E is 6.25. It looks great, but since there aren't any new earnings that reflect the problem, it's very misleading.\",\n \"\\\"You are comparing \\\"\\\"market caps\\\"\\\" and \\\"\\\"enterprise value\\\"\\\". If the company has four billion dollars cash in the bank, then the value would be four billion plus whatever the business itself is worth as a business. If the business itself is only worth 400 million, then you would have 4.4bn market caps and 400 million enterprise value. The \\\"\\\"enterprise value\\\"\\\" is basically how much the business would be worth if it had no cash or no debt. These numbers would be a very unusual situation. It could happen for example if a big company has sold 90% of its business for cash. When you buy a share of the company, you get a tiny share of the business and you own a tiny share of the cash. This stock will very likely keep its value, but won't make much money. On the other hand, more common would be a company where the business is worth 4bn, but the company has also 4bn debt. So it is worth exactly zero. Market caps close to zero, but enterprise value $4bn, because you ignore the debt in the enterprise value. Edit: Sorry, got the \\\"\\\"enterprise value\\\"\\\" totally wrong, read millions instead of billions: Your numbers would mean that you have a huge, huge company with close to 440bn debt. Most likely someone made a mistake here. A \\\"\\\"normal\\\"\\\" situation would be say a company with a business that is worth $500 million, but they have $100 million debt, so market caps = $400 million but enterprise value = $500 million. PS. Yahoo has the same nonsense numbers on their UK site, and for other companies (I just checked Marks and Spencer's which apparently has an enterprise value of 800 billion pound with a totally ridiculous P/E ratio.\\\"\",\n \"Discrepancies between what the book value is reported as and what they'd fetch if sold on the open market. Legal disputes in court.\",\n \"How is it possible that a publicly traded investment company's net asset value per share is higher than their share price? Wouldn't you (in theory) be able to buy the company and liquidate it to make a profit of (NAV/share - price/share)*number of shares, ignoring transaction costs and such? I realize that since part of their portfolio is in private equity, NAV is hard to calculate and hard to liquidate as well, but it doesn't really seem to make sense to me. Would love some input. The company I'm talking about in this instance is 180 Degree Capital Corp, but this isn't the first time I've seen this.\",\n \"Stocks represent partial ownership of the company. So, if you owned 51% of the stock of the company (and therefore 51% of the company itself), you could decide to liquidate all the assets of the company, and you would be entitled to 51% of the proceeds from that sale. In the example above, it would have to be Common Stock, as preferred stock does not confer ownership. *In a situation where it is not possible to buy 51% or more of the company (for example, it's not for sale), this is not possible, so the value of the stock could be much less.\",\n \"\\\"The following is only an overview and does not contain all of the in-depth reasons why you should look more deeply. When you look at a stock's financials in depth you are looking for warning signs. These may warn of many things but one important thing to look for is ratio and growth rate manipulation. Using several different accounting methods it is possible to make a final report reflect a PE ratio (or any other ratio) that is inconsistent with the realities of the company's position. Earnings manipulation (in the way that Enron in particular manipulated them) is more widespread than you might think as \\\"\\\"earnings smoothing\\\"\\\" is a common way of keeping earnings in line (or smooth) in a recession or a boom. The reason that PE ratio looks so good could well be because professional investors have avoided the stock as there appear to be \\\"\\\"interesting\\\"\\\" (but legal) accounting decisions that are of concern. Another issue that you don't consider is growth. earnings may look good in the current reporting period but may have been stagnant or falling when considered over multiple periods. The low price may indicate falling revenues, earnings and market share that you would not be aware of when taking only your criteria into account. Understanding a firm will also give you an insight into how future news might affect the company. If the company has a lot of debt and market interest rates rise or fall how will that effect their debt, if another company brings out a competing product next week how will it effect the company? How will it effect their bottom line? How much do they rely on a single product line? How likely is it that their flagship product will become obsolete? How would that effect the company? Looking deeply into a company's financial statements will allow you to see any issues in their accounting practices and give you a feel for how they are preforming over time, it will also let you look into their cost of capital and investment decisions. Looking deeply into their products, company structure and how news will effect them will give you an understanding of potential issues that could threaten your investment before they occur. When looking for value you shouldn't just look at part of the value of the company; you wouldn't just look at sales of a single T-shirt range at Wallmart when deciding whether to invest in them. It is exactly the same argument for why you should look at the whole of the company's state when choosing to invest rather than a few small metrics.\\\"\",\n \"Agree with mjvcaj, it is rare. Larger cap examples include Nokia and NII Holdings (Nextel). If cash exceeds market cap, that means total debt is greater than EV, the value of the operating assets. If the debt is partially repaid / matures, the equity is ok. BUT if management is crap and the cash is spent at an ROIC below the interest rate on the debt, now you have a situation where the net debt exceeds the value of the operating assets, the credit quality suffers, debt trades down, you need to recapitalize in order to avoid bankruptcy. The above assumes debt is greater than cash. Situations where cash exceeds market cap and debt is less than cash (i.e. a negative EV) are exceedingly rare in larger companies and are either a) a wonderfully attractive mispricing or b) market views management as so awful that the cash will get burnt up by the business and the value of that cash will be destroyed.\",\n \"P/E is the number of years it would take for the company to earn its share price. You take share price divided by annual earnings per share. You can take the current reported quarterly earnings per share times 4, you can take the sum of the past four actual quarters earnings per share or you can take some projected earnings per share. It has little to do with a company's actual finances apart from the earnings per share. It doesn't say much about the health of a company's balance sheet, and is definitely not an indicator for bankruptcy. It's mostly a measure of the market's assumptions of the company's ability to grow earnings or maintain it's current earnings growth. A share price of $40 trading for a P/E ratio of 10 means it will take the company 10 years to earn $40 per share, it means there's current annual earnings per share of $4. A different company may also be earning $4 per share but trade at 100 times earnings for a share price of $400. By this measure alone neither company is more or less healthy than the other. One just commands more faith in the future growth from the market. To circle back to your question regarding a negative P/E, a negative P/E ratio means the company is reporting negative earnings (running at a loss). Again, this may or may not indicate an imminent bankruptcy. Increasing balance sheet debt with decreasing revenue and or earnings and or balance sheet assets will be a better way to assess bankruptcy risk.\",\n \"Most penny stocks go to zero because most businesses fail. You stated in your original post that you were wondering specifically about companies with no assets. These are exactly the kind that fail and go to zero. There are many holes within the regulatory structure that allow for many accounting tricks in penny stock land. And even in areas that are adequately regulated, there will be few to no remedies for the optimistic penny stock shareholder speculator.\",\n \"\\\"To my knowledge, there's no universal equation, so this could vary by individual/company. The equation I use (outside of sentiment measurement) is the below - which carries its own risks: This equations assumes two key points: Anything over 1.2 is considered oversold if those two conditions apply. The reason for the bear market is that that's the time stocks generally go on \\\"\\\"sale\\\"\\\" and if a company has a solid balance sheet, even in a downturn, while their profit may decrease some, a value over 1.2 could indicate the company is oversold. An example of this is Warren Buffett's investment in Wells Fargo in 2009 (around March) when WFC hit approximately 7-9 a share. Although the banking world was experiencing a crisis, Buffett saw that WFC still had a solid balance sheet, even with a decrease in profit. The missing logic with many investors was a decrease in profits - if you look at the per capita income figures, Americans lost some income, but not near enough to justify the stock falling 50%+ from its high when evaluating its business and balance sheet. The market quickly caught this too - within two months, WFC was almost at $30 a share. As an interesting side note on this, WFC now pays $1.20 dividend a year. A person who bought it at $7 a share is receiving a yield of 17%+ on their $7 a share investment. Still, this equation is not without its risks. A company may have a solid balance sheet, but end up borrowing more money while losing a ton of profit, which the investor finds out about ad-hoc (seen this happen several times). Suddenly, what \\\"\\\"appeared\\\"\\\" to be a good sale, turns into a person buying a penny with a dollar. This is why, to my knowledge, no universal equation applies, as if one did exist, every hedge fund, mutual fund, etc would be using it. One final note: with robotraders becoming more common, I'm not sure we'll see this type of opportunity again. 2009 offered some great deals, but a robotrader could easily be built with the above equation (or a similar one), meaning that as soon as we had that type of environment, all stocks fitting that scenario would be bought, pushing up their PEs. Some companies might be willing to take an \\\"\\\"all risk\\\"\\\" if they assess that this equation works for more than n% of companies (especially if that n% returns an m% that outweighs the loss). The only advantage that a small investor might have is that these large companies with robotraders are over-leveraged in bad investments and with a decline, they can't make the good investments until its too late. Remember, the equation ultimately assumes a person/company has free cash to use it (this was also a problem for many large investment firms in 2009 - they were over-leveraged in bad debt).\\\"\",\n \"\\\"Yes, there are situations where a stock is a bad buy in spite of a low PE. PE ratio tells you the current share price divided by the prior 4 quarters earnings per share. It does not consider: Imagine someone walked up to you and said, \\\"\\\"Do you want to buy a piece of my business? I'll sell you 1% of it for $1000. Last year the business earned $25000.\\\"\\\" A quick calculation shows a PE of 4 [$1000/($25000 *.01)]. Even though this PE is comparatively low, you wouldn't buy in without a lot more info. What kinds of things might you ask? PE is one tiny component of an informed investment decision.\\\"\",\n \"\\\"> What's their performance been like in recent years? IIRC the last time they were able to pay a dividend was in 2000, so I'm gonna go with \\\"\\\"not great\\\"\\\". Thanks a lot for the effort, I didn't factor in tax at all, it makes more sense then. I still think it's an interesting concept that shares are worth less than what you \\\"\\\"get\\\"\\\" for them (according to their accountants, who knows what the value actually would be if you tried to sell whatever they own now), and I found basically nothing on google. The whole is usually more than the sum of its parts, not (significantly) less.\\\"\",\n \"\\\"What drives the stock of bankrupt companies? Such stock is typically considered \\\"\\\"distressed assets\\\"\\\". Technically, what drives it is what drives every stock - supply and demand. A more interesting question is of course, why would there be demand? First, who exerts the buying pressure on the stock? Typically, three types of entities: The largest ones are financial institutions specializing in distressed assets (frequently, alternatives specialists - hedge funds, private equity firms etc...). Usually, they invest in distressed debt or distressed preferred equity; but sometimes distressed equity as well. Why? We will discuss their motivations separately in this answer. Second one are existing equity holders. Why? Short answer, behavioral psychology and behavioral economics. Many investors - especially non-professionals - insist on holding distressed stocks due to variety of investment fallacies (sunk cost etc...); usually constructing elaborate theories of why and how the company and the stock will recover Sometimes, people who buy into penny stock scams, pump and dump schemes etc... Why? \\\"\\\"There's a sucker born every minute.\\\"\\\" - P.T. Barnum Let's find out why an investment professional would invest in distressed equity? First, the general process is always the same. Company's assets are used to pay off its liabilities; in accordance with applicable law. There are two ways this can be done - either through selling the company; OR through bankruptcy process. The liabilities are paid according to seniority. The seniority priorities rules are covered by 11 U.S. Code § 507 - Priorities A company in bankruptcy can have one of 2 outcomes: Buyout. Some buyer might decide that the company's assets are worth something to them as a whole; and buy the whole enterprise; rather than risk it being destroyed piecemeal in bankruptcy proceedings. In that case, the proceeds from the sale will be used to fund the liabilities as discussed above. This option is one of the possible reasons people might consider investing in distressed equity. For example, if the company is in bankruptcy because it can't get enough financing right now, but is likely to have good profits in the future. The chances are, some buyer will buy it for a premium that includes those future profits; and that sale amount might possibly exceed the liabilities. Bankruptcy. The assets are sold and liabilities are covered according to priorities. In that case, the investors in distressed equity might be hoping that there are un-obvious assets whose value would also put the total assets above claimed liabilities. Additional possible beneficial factor is that unsecured debtors must file with the court in order to be paid; and the claim must be validated. Some might fail on either count; so total amount of liabilities might lessen once the bankruptcy process goes through. Assets Now, here's where things get interesting. Of course, companies have usual assets. Real estate, inventory, plants, cash, etc... These are all able to be sold to cover liabilities, and at first glance are possibly not enough to cover liabilities, leaving equity holders with nothing (and even that's not a certainty - bankruptcy is simply inability to service debt payments; and while it correlates to assetsliquid assets, not full asset valuation). But some assets are less sure, and are thus rarely included in such calculations. These may include: Chances of winning appeals if specific existing liabilities are results of litigation, e.g. tax appeals, court judgement appeals etc... Clawbacks and lawsuits against former executives, especially in cases where the company's financial distress resulted from executive malfeasance. I was personally involved in one such case as an equity holder, where the company assets were valued at $X; had liabilities of $X*2; but had a real possibility of winning about $X*3 in a lawsuit against former CEO accused of various malfeasance including fraud and insider trading. As such, the best case scenario was literally 100% profit on holding that distressed equity.\\\"\",\n \"\\\"Yes, the price of a stock is what investors think the value of a stock is, which is not tied to profits or dividends by any rigid formula. But to say that therefore the price could be high even though the company is doing very poorly is hypothetically true, but unlikely in practice. Consider any other product. There is no fixed formula for the value of a used car, either. If everyone agreed that a rusting, 20-year old car that doesn't run is worth $100,000, then that's what it would sell for. But that's a pretty big \\\"\\\"if\\\"\\\" at the beginning of that sentence. If the car had been used in some hit TV show 20 years ago, or if it was owned by a celebrity, or some such special case, maybe a rusting old car really would sell for $100,000. Likewise, a stock might have a price higher than what one would predict from its dividends if some rich person wanted to buy that company because the brand name brings back nostalgic memories from his youth and so he drives the price up, etc. But the normal case is that, in the long term, the price of a stock tends to settle on a value proportional to the dividends that it pays. Or rather, and this is a big caveat, the dividends that investors expect it to pay in the future. And then adjusted for all sorts of other factors and special situations, like the value of the company if it was to be liquidated, etc.\\\"\",\n \"\\\"Let's say you see a café. You're looking to buy a café so you walk into one and ask the manager how much profit he makes in a year. He says $N and you walk out and think to yourself, \\\"\\\"I'd be willing to pay $500,000 for this café.\\\"\\\" You arrange to meet again to discuss purchasing the business (and he's looking for someone to purchase it). You go into the store again the following day and the manager says, \\\"\\\"Sorry, I told you we make $N. I've checked the numbers and it's actually only $0.8N (20% lower than what you thought).\\\"\\\" Are you still willing to buy the café for $500,000 as well? No, of course you're not. I think that this is a sufficient analogy to public companies.\\\"\",\n \"You haven't mentioned how much debt your example company has. Rarely does a company not carry any kind of debt (credit facilities, outstanding bonds or debentures, accounts payable, etc.) Might it owe, for instance, $1B in outstanding loans or bonds? Looking at debt too is critically important if you want to conduct the kind of analysis you're talking about. Consider that the fundamental accounting equation says: or, But in your example you're assuming the assets and equity ought to be equal, discounting the possibility of debt. Debt changes everything. You need to look at the value of the net assets of the company (i.e. subtracting the debt), not just the value of its assets alone. Shareholders are residual claimants on the assets of the company, i.e. after all debt claims have been satisfied. This means the government (taxes owed), the bank (loans to repay), and bondholders are due their payback before determining what is leftover for the shareholders.\",\n \"If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?\",\n \"What drives the stock of bankrupt companies? The company's potential residual assets. When a company goes bankrupt it is required to sell its assets to pay off its debts. The funds raised from selling assets go to the following entities: The usual order of debt repayment, in terms of the lender, will be the government, financial institutions, other creditors (i.e. suppliers and utility companies), bondholders, preferred shareholders and, finally, common shareholders. Depending on the amount of debt and the value of a company's assets, the common shareholders may receive some left over from liquidated assets. This would drive the stock price of a bankrupt company.\",\n \"The value of a company is, simplified, the sum of the value of the equity and the value of the debt. There are some other things to add/subtract to that, but just think about those for now. You could also say the value of a company is the value of its assets, or more precisely the value of the net cash flows those assets will generate in the future. So let's say you want to start a company, so you want to buy some assets. Maybe you want to buy a $200 asset. Well, you only have $100, so you take out a loan (debt) for $100 for the remainder. You buy the asset and start generating income. Let's say after a month you get bored and decide to sell the company. Let's assume the value of the assets hasn't changed. Your equity is worth $100, and you find a buyer who is willing to pay $100 for your company. Great! Right? Well there's still the $100 loan you owe, so you have to pay that back. And suddenly you now have $0. So in fact, you should have negotiated $200 with the buyer, because that's what the assets are actually worth. Then you can pay back the loan and still have the $100 in equity you deserve. (Alternatively, you could have negotiated the buyer to assume responsibility for the loan; same outcome for you.) Did that help?\",\n \"Would make sense that the higher liquidation cost and Transaction costs are driving the share price down. Higher liq and transaction means higher investors would require higher return, driving down the share price. The other possibilities I can think of off the top of my head, based on looking at the firm for five minutes 1) In transaction costs, did you include tax? Disclaimer: math below done on the back of the envelope in between meetings; So, NAV says they are at ~$75M. Liquidating that entire portfolio means about 22% capital gains tax rate. Which means after tax value is about $60M. Add in any fees you'd incur from trying to sell this stuff, and it's not unreasonable to assume you'll only get about $55M once all is said and done, which is pretty close to the actual market cap. If you have accounted for the above, consider ; 2) Bulk of their investments seem to be in private assets. Which implies that they have some discretion in how they mark the value of those investments. And, there is the chance that the market doesn't have confidence in these guys. What's their performance been like in recent years? Especially with a private asset portfolio, I'd be weary. If I was to invest in them, I'd want a higher return for the opaque portfolio.\",\n \"What is cheap? A stock may fall from $20 per share to $10 per share, but it may have gone from making a $100M profit last year to a $100M loss this year. So now at $10 per share it may still be considered expensive. You need to be very careful when to consider that a stock is cheap or not, you'll have to look at more than just the share price.\",\n \"\\\"Some companies have a steady, reliable, stream of earnings. In that case, a low P/E ratio is likely to indicate a good stock. Other companies have a \\\"\\\"feast or famine\\\"\\\" pattern, great earnings one year, no earnings or losses the following year. In that case, it is misleading to use a P/E ratio for a good year, when earnings are high and the ratio is low. Instead, you have to figure out what the company's AVERAGE earnings may be for some years, and assign a P/E ratio to that.\\\"\",\n \"\\\"Most companies are taken over. One can reasonably guess that company X will be taken over for a price P, at some future point in time. Then the company has a value today, that is less than price P, by a large enough margin so that the investor will likely \\\"\\\"make out\\\"\\\" when the company finally is taken over at some unknown point in time. The exception is a company like Microsoft or Apple that basically grow too large to be taken over. But then they eventually start paying dividends when they become \\\"\\\"mature.\\\"\\\" Again, the trick, during the non-dividend paying period (e.g. ten or fifteen years ago) is to guess what dividends will be paid in some future time, and price the stock low enough today so that it will be worthwhile for the buyer.\\\"\",\n \"for buying: High PE, low debt, discount = win. a company with high debt (in relation to revenues and cash on hand) will have to pay interest and pay off the debt, stunting their growth. and just like a normal person, will barely be able to pay their bills and keep borrowing and might go bankrupt determining discount is just looking for a technical retracement to a support level or lower. (but if you dont enter at the support level, you most likely missed the best entry)\",\n \"In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. Remember your broker has to borrow it from somewhere, other clients or if they hold those specific stocks themselves. So if it isn't possible for them to lend you those stocks, they wouldn't. High P/E stocks would find more sellers than buyers, and if the broker has to deliver them, it would be a nightmare for him to deliver all those stocks, which he had lent you(others) back to whom he had borrowed from, as well as to people who had gone long(buy) when you went short(sell). And if every body is selling there is going to be a dearth of stocks to be borrowed from as everybody around is selling instead of buying.\",\n \"\\\"Many people assume that if the price of something is $10 and they have 1,000 of that thing, they should expect to be able to sell them for something around $10,000. Such an assumption may hold much of the time, but it doesn't always. Worse, the cases where it fails to hold are often those where it would be relied upon most heavily. Such an assumption should thus be considered dangerous. In a liquid market, the quantity of a something that people would be willing to buy at something close to the market price will be large relative to the quantity that people would seek to sell in the short term. If at some moment in time one person in the market was willing to immediately buy 500 shares at $9.98 and another was willing to immediately buy 750 at $9.97, someone seeking to sell 1,000 shares could immediately receive $997.50 for them (selling 500 to the first person and 500 to the second, who would then be ready to buy 250 more from the first person who was willing to sell for $9.97). Such behavior would be in line with what many people's assumptions. In an illiquid market, however, the quantity of something that people would be willing to buy near market price could be surprisingly low. This is more often a problem in the marketplace of things like collectibles than of stocks, but the same thing can happen in the stock market. If there's one potential buyer for a stock who thinks it's overpriced but has potential and would be worth $9.50, but that person only has $950 to spend, and nobody else thinks the stock would be worth more than $0.02/share, then until people sold a total of 100 shares the price would be $9.50, but after that the price would drop instantly to $0.02. There would be no \\\"\\\"cushioning\\\"\\\" of the fall. If the person with 1,000 shares was first in line, he'd get to sell 100 shares for $950 to the aforementioned seller, but would be unable to get more than $18 for the remaining 900. A major danger with markets is that markets which are perceived as liquid attract people to the buying side, while those which are seen as illiquid repel people. The danger in the latter is obvious (having people flee a seemingly-illiquid market will reduce its liquidity further) but the former is just as bad. Having people flock to a market because of its perceived liquidity will increase its liquidity, but can also create a \\\"\\\"false price floor\\\"\\\", causing demand to appear much stronger than it actually is. Unless real demand increases to match the false price floor, the people who buy at the higher price will never be able to recoup their investment.\\\"\",\n \"\\\"It depends on the definition of earnings. A company could have revenue that nets in excess of expenses, so from that perspective a good cash flow or EBITDA, but have debt servicing costs, taxes, depreciation, amortization, that alters that perspective. So if a company is carrying a large debt load, then the bondholders are in the position to capture any excess revenues through debt service payments and the company is in a negative equity positions (no equity or dividends payable to shareholders) and has not produced earnings. If a company has valuable preferred shares issued and outstanding, then depending on the earnings definition, there may be no earnings (for the common stock) until the preferences are satisfied by the returns. So while the venture itself (revenues minus costs) could be cash flow positive, this may not be sufficient to produce \\\"\\\"earnings\\\"\\\" for shareholders, whose claim on the company still entitles them to zero current liquidation value (i.e. they get nothing if the company dissolves immediately - all value goes to bondholders or preferred). It could also be that taxes are eating into revenue, or the depreciation of key assets is greater than the excess of revenues over costs (e.g. a bike rental company by the beach makes money on a weekly basis but is rusting out half its stock every 3 months and replacement costs will overwhelm the operating revenues).\\\"\",\n \"Can a company not bargain with a dying company for example and buy a falling stock at lower than market value? Of course. If the shareholders agree to it. But why would they, if the market value is higher, agree to sell to someone who offers less? If there's a compelling reason - it can happen. It might happen during a hostile takeover, for example. In the case of buying the company for more than market value, are the stocks bought for significantly more, or slightly more than the current market value? Again, depends on how valuable the shareholders think the company is. If the shareholders think that the company has a potential which has not yet affected the stock price, they'll want a higher premium (and they'd think that, otherwise why would they hold the stock?). How much higher? Depends on the bargaining abilities of the sides.\",\n \"\\\"The VDE fund is an energy fund so this is a function of recent price changes in oil (and gas, coal, &c). For example. Lets say last year when oil was $100 per barrel a bunch of companies saw a good return and put $ 100 million into a bunch of leases, boreholes, pumps, &c to return $10 million per year, and the market says yeah, they're all together worth 100M. Now oil is less, maybe $40 per the link. These exploration companies don't have a lot of labor or variable costs; they are operationally profitable, may have \\\"\\\"use it or lose it\\\"\\\" leases or minimum pumping requirements for contract or engineering reasons. Lets say the cash flow is 7M so the market values them at 70M. They still have about 100M book value so here we are at .7 and I believe the scenario in the question. Nobody would invest in new capacity at this oil price. The well equipment could be repurposed but not the borehole or lease, so the best use is to continue pumping and value it on cash flow. If an individual well runs negative long enough and goes bust, either a different pumper will pay the minimum price that gives profitable cash flow, or that borehole that cost millions to dig is shut off and rendered valueless. The CNBC article says some explorers are playing games with debt to maintain yield, so there is that too. In the ETF, your bet is that the market is wrong and oil will go up, increasing future cash flows (or you like the current yield, taking on the risk that some of these oil explorers could go bust).\\\"\",\n \"A private company say has 100 shares with single owner Mr X, now it needs say 10,000/- to run the company, if they can get a price of say 1000 per share, then they just need to issue 10 additional shares, so now the total shares is 110 [100 older plus 10]. So now the owner's share in the company is around 91%. However if they can get a price of only Rs 200 per share, they need to create 50 more shares. So now the total shares is 150 [100 older plus 50]. So now Mr X's equity in his own company is down to 66%. While this may still be OK, if it continues and goes below 50%, there is chances that he [Original owner] will be thrown out\",\n \"\\\"Buyouts are usually for more than the ORIGINAL value of a stock. That's because the price \\\"\\\"premium\\\"\\\" represents an incentive for holders to \\\"\\\"tender\\\"\\\" their shares to the would-be buyer. Sometimes in these situations, the stock price rises above the proposed buyout price, in anticipation of a higher takeover bid from a SECOND party (that may or may not materialize). To answer the other part of the question, does a bidder have a chance of taking over a dying company for less than the market price? That is a strategy sometimes referred to as a \\\"\\\"take under,\\\"\\\" and it has not been a notably successful strategy. That's because it goes against \\\"\\\"human nature\\\"\\\" (of the seller). \\\"\\\"Where there is life, there is hope.\\\"\\\" They would seldom accept a lower price for \\\"\\\"sure\\\"\\\" survival, when the market is telling them that they are worth a higher price. Very few people realize that the market may disappear tomorrow. Think of all the homeowners who won't cut their price, but insist on bids that meet recent \\\"\\\"comps.\\\"\\\" And if the company is really dying, the prospective buyer may be best served by waiting until it does, and then pick up the individual pieces at auction.\\\"\",\n \"\\\"With debts exceeding assets by a billion dollars, this activity likely comes from penny stock speculators and \\\"\\\"pump and dump\\\"\\\" schemers. There is no rational expectation that the stock is even worth multiple pennies when the company is that far upside-down on its debts. Even if the debts could be restructured in a chapter 11, the equity shares would likely lose all of their value in the bankruptcy proceedings. Shareholders are at the bottom of the totem-pole when debts are being adjusted by the courts.\\\"\",\n \"\\\"It's been said before, but to repeat succinctly, a company's current share price is no more or less than what \\\"\\\"the market\\\"\\\" thinks that share is worth, as measured by the price at which the shares are being bought and sold. As such, a lot of things can affect that price, some of them material, others ethereal. A common reason to own stock is to share the profits of the company; by owning 1 share out of 1 million shares outstanding, you are entitled to 1/1000000 of that company's quarterly profits (if any). These are paid out as dividends. Two key measurements are based on these dividend payments; the first is \\\"\\\"earnings per share\\\"\\\", which is the company's stated quarterly profits, divided by outstanding shares, with the second being the \\\"\\\"price-earnings ratio\\\"\\\" which is the current price of the stock divided by its EPS. Your expected \\\"\\\"yield\\\"\\\" on this stock is more or less the inverse of this number; if a company has a P/E ratio of 20, then all things being equal, if you invest $100 in this stock you can expect a return of $5, or 5% (1/20). As such, changes in the expected earnings per share can cause the share price to rise or fall to maintain a P/E ratio that the pool of buyers are willing to tolerate. News that a company might miss its profit expectations, due to a decrease in consumer demand, an increase in raw materials costs, labor, financing, or any of a multitude of things that industry analysts watch, can cause the stock price to drop sharply as people look for better investments with higher yields. However, a large P/E ratio is not necessarily a bad thing, especially for a large stable company. That stability means the company is better able to weather economic problems, and thus it is a lower risk. Now, not all companies issue dividends. Apple is probably the most well-known example. The company simply retains all its earnings to reinvest in itself. This is typically the strategy of a smaller start-up; whether they're making good money or not, they typically want to keep what they make so they can keep growing, and the shareholders are usually fine with that. Why? Well, because there's more than one way to value a company, and more than one way to look at a stock. Owning one share of a stock can be seen quite literally as owning a share of that company. The share can then be valued as a fraction of the company's total assets. Sounds simple, but it isn't, because not every asset the company owns has a line in the financial statements. A company's brand name, for instance, has no tangible value, and yet it is probably the most valuable single thing Apple owns. Similarly, intellectual property doesn't have a \\\"\\\"book value\\\"\\\" on a company's balance sheet, but again, these are huge contributors to the success and profitability of a company like Apple; the company is viewed as a center of innovation, and if it were not doing any innovating, it would very quickly be seen as a middleman for some other company's ideas and products. A company can't sustain that position for long even if it's raking in the money in the meantime. Overall, the value of a company is generally a combination of these two things; by owning a portion of stock, you own a piece of the company's assets, and also claim a piece of their profits. A large company with a lot of material assets and very little debt can be highly valued based solely on the sum of its parts, even if profits are lagging. Conversely, a company more or less operating out of a storage unit can have a patent on the cure for cancer, and be shoveling money into their coffers with bulldozers.\\\"\",\n \">Well, reserve requirements concern, as the name suggests, the reserves, e.g. a position on the balance sheet. Yes, the book value of equity is not affected. However, when the market value experiences a steep decline, you find those that hold deposits begin moving them out of the bank. Investment fear and business fear tend to move together with financial institutions. That directly impacts the reserve requirements. >but sharp price drops in fact can help you to raise equity, simply because your ratios improved (P/E, P/B, in fact any ratio that includes the price part) and the stock became cheaper Not when there is bankruptcy or solvency issues that become present. Obviously an investor wants to buy low and sell high, but if there is a substantial risk of bankruptcy, the common stockholder will demand a premium unattainable by most non-growth firms (i.e. biotech, tech, etc.). That is the issue with France. Liquidity issues stem from systemic risk, but those French banks also possess significant firm risk due to their exposure to sovereign debt. Once those banks mark all of their holdings to market, they will realize substantial losses. BNP recently recorded a nearly $1B write-down.\",\n \"\\\"One way to value companies is to use a Dividend discount model. In substance, it consists in estimating future dividends and calculating their present value. So it is a methodology which considers that an equity is similar to a bond and estimates its current value based on future cash flows. A company may not be paying dividends now, but because its future earnings prospects are good may pay some in the future. In that case the DDM model will give a non-zero value to that stock. If on the other hand you think a company won't ever make any profits and therefore never pay any dividends, then it's probably worth 0! Take Microsoft as an example - it currently pays ~3% dividend per annum. The stock has been listed since 1986 and yet it did not pay any dividends until 2003. But the stock has been rising regularly since the beginning because people had \\\"\\\"priced in\\\"\\\" the fact that there was a high chance that the company would become very profitable - which proved true in the long term (+60,000% including dividends since the IPO!).\\\"\",\n \"It just had less cash. That doesn't necessarily mean that the company had a net loss for the year. Just like having more cash doesn't mean the company made a profit. What if a company had revenue of $1 million, expenses of $2 million, and took out a loan of $5 million? They had a net loss of $1 million, but they have $4 million more in cash.\",\n \"\\\"Yes, there are non-stock analogs to the Price/Earnings ratio. Rental properties have a Price/Rent ratio, which is analogous to stocks' Price/Revenue ratio. With rental properties, the \\\"\\\"Cap Rate\\\"\\\" is analogous to the inverse of the Price/Earnings ratio of a company that has no long-term debt. Bonds have an interest rate. Depending on whether you care about current dividends or potential income, the interest rate is analogous to either a stock's dividend rate or the inverse of the Price/Earnings ratio.\\\"\",\n \"> Or are there multiple ways of buying a company? Yes, there are, and it would depend on your contextual definition of what it means to buy a business. If you were intending to acquire a company by being its majority shareholder (i.e. >50% equity stake), then you would have to buy over its shares from existing shareholders at a negotiated price (read: not necessarily book value) to attain the desired shareholding. However, buy a business could also refer to an asset purchase, where the target's fixed assets are bought by the acquirer, in which case the target equity might not necessarily be involved in the acquisition.\",\n \"The satisfaction from gains packs less of an emotional impact than the fear of loss. It's very difficult for many people to overcome this fear, so when prices begin to fall, many investors sell to minimize their potential loss. This causes a further drop, which can lead to more selling as other investors reach their emotional threshold for loss. This emotion-based selling keeps the market inefficient in the short term. If there aren't enough value investors waiting to scoop up the stock at the new discount, it can stay undervalued for a long time.\",\n \"The price of a shares reflects the expected future returns of that company. If it does not someone will notice and buy until it does. Look at this chart http://www.finanzen.net/chart/Arcandor (click on max), that's a former DAX company, so one of the largest german companys. Now it's bankrupt. Why do you think you are the only one who is going to notice? There are millions of people and even more computers, some a going to be smarter than you. Of course that does not happen to everyone but who knows. Is Volkswagen going to survive the current crisis? Probably. Is it coming back to former glory in the next half year? Who knows? Here comes the obvious solution: Don't buy single stocks, spread it out over many companies, some will shine, some will plument and you get the average. Oh that's an index, how convinent. Now if there were a way to save on all these transaction costs you're incurring...\",\n \"While on the surface it may seem that the warrant you described is trading below intrinsic value, there are many reasons why that might not be the case. It's more likely that you are lacking information, than having identified a derivative instrument that the market has failed to reasonably price. For instance, might there be a conversion ratio on the warrants other than the 1:1 ratio that you seem to be assuming? Sometimes, warrant terms are such that multiple warrants are required to buy one share of stock. Consider: The conversion ratio is the number of warrants needed in order to buy (or sell) one investment unit. Therefore, if the conversion ratio to buy stock XYZ is 3:1, this means that the holder needs three warrants in order to purchase one share. Usually, if the conversion ratio is high, the price of the share will be low, and vice versa. (source) Conversion ratios are sometimes used so that warrants can be issued on a 1:1 basis to existing stockholders, but where the potential number of new shares to be issued is much less. Conversion ratio is just one such example that could lead to perceived mispricing, and there may be other restrictions on exercise. Warrants are not issued by an options exchange using standardized option contract terms, and so warrant terms vary considerably from issuer to issuer. Even series of warrants from the same issuer may have differing terms. Always look beyond any warrant quote to find a definitive source of the warrant's precise terms — and read those terms carefully before taking any position.\",\n \"I'll give the credit to @Quid in the comments section of the question. You put out $10k, you got back $20k, that's a cash gain of $10k, how the asset was valued between your purchase and sale isn't relevant. From an accounting perspective, the company is the only party that is realizing the loss (as they have sold the asset for 40K less than par). You the buyer, only get to see the initial buy and sale of such capital asset. Example: A company purchases a car for $20,000 and after depreciation it is worth (book valued at) $2,000. It is then sold to a customer for $3,000. Does the customer realize a loss of $1,000? No. Does the company realize a gain of $1,000? Yes. Your bank analogy is flawed in two ways:\",\n \"Stephen's answer is the 100% correct one made with the common Economics assumption, that people are rational. A company that never has paid dividends, is still worth something to people because of its potential to start paying dividends later and it is often better to grow now and payoff later. However, the actual answer is much more disapointing, because people are not rational and the stock market is no longer about investing in companies or earning dividends. Most of the value of a stock is for the same reason that gold, stamps, coins and bitcoins, and Australian houses are worth anything, that is, because enough people say it is worth something*. Even stocks that pay dividends, very few people buy it for dividends. They buy it because they believe someone else will be willing to buy it for slightly more, shortly after. Different traders have different timeframes, ranging from seconds to months. *Houses and stock are of course partially valuable due to the fundamentals, but the major reason they are purchased is just to resell at a profit.\",\n \"Stock prices are set by the market - supply and demand. See Apple for example, which is exactly the company you described: tons of earnings, zero dividends. The stock price goes up and down depending on what happens with the company and how investors feel about it, and it can happen that the total value of the outstanding stock shares will be less than the value of the underlying assets of the company (including the cash resulted from the retained earnings). It can happen, also, that if the investors feel that the stock is not going to appreciate significantly, they will vote to distribute dividends. Its not the company's decision, its the board's. The board is appointed by the shareholders, which is exactly why the voting rights are important.\",\n \"\\\"The textbook answer would be \\\"\\\"assets-liabilities+present discounted value of all future profit\\\"\\\". A&L is usually simple (if a company has an extra $1m in cash, it's worth $1m more; if it has an extra $1m in debt, it's worth $1m less). If a company with ~0 assets and $50k in profit has a $1m valuation, then that implies that whoever makes that valuation (wants to buy at that price) really believes one of two things - either the future profit will be significantly larger than $50k (say, it's rapidly growing); or the true worth of assets is much more - say, there's some IP/code/patents/people that have low book value but some other company would pay $1m just to get that. The point is that valuation is subjective since the key numbers in the calculations are not perfectly known by anyone who doesn't have a time machine, you can make estimates but the knowledge to make the estimates varies (some buyers/sellers have extra information), and they can be influenced by those buyers/sellers; e.g. for strategic acquisitions the value of company is significantly changed simply because someone claims they want to acquire it. And, $1m valuation for a company with $500m in profits isn't appropriate - it's appropriate only if the profits are expected to drop to zero within a couple years; a stagnant but stable company with $500m profits would be worth at least $5m and potentially much more.\\\"\",\n \"I didn't mean to imply that bankruptcy is a magical process. I was using that to clarify my use of conservative vs. aggressive. To be fair, I guess it can vary depending on your perspective. If you're taking the perspective of the debt-laden company, then yes, erring on the side of a higher value could be defined as aggressive. If you're taking the perspective of someone looking to acquire business, I would say erring on the side of a higher value is conservative. if the debt is trading at, say, $0.20 on the dollar, then yes, I can agree that the market value of the debt is likely more representative of the book value. I guess I wasn't thinking of that type of extreme example. A more common scenario I'd encounter would be a) the debt trading at maybe $0.95 on the dollar and b) taking the perspective of someone looking to invest in the equity, which is why I'd say that it's more conservative to use the higher value, which is the book value. So I'm persuaded that using market value of the debt can make sense in some cases, but I would still argue that the book value might make more sense in other cases.\",\n \"You have to look at stocks just like you would look at smaller and more illiquid markets. Stock trade in auction markets. These are analogous to ebay or craigslist, just with more transparency and liquidity. There is no guarantee that a market will form for a particular stock, or that it will sustain. When a stock sells off, and there are no bids left, that means all of the existing bidder's limit orders got filled because someone sold at those prices. There is nothing fishy about that. It is likely that someone else wants to sell even more, but couldn't find any more bidders. If you put a bid you would likely get filled by the shareholder with a massive position looking for liquidity. You could also buy at the ask.\",\n \"\\\"What if everyone decided to sell all the shares at a given moment, let's say when the stock is trading at $40? It would fall to the lowest bid price, which could be $0.01 if someone had that bid in place. Here is an example which I happened to find online: Notice there are orders to buy at half the market price and lower... probably all the way down to pennies. If there were enough selling activity to fill all of those bids you see, then the market price would be the lowest bid on the screen. Alternatively, the bid orders could be pulled (cancelled), which would also let the price free-fall to the lowest bid even if there were few actual sellers. Bid-stuffing is what HFT (high frequency trading) algorithms sometimes do, which some say caused the Flash Crash of May 2010. The computers \\\"\\\"stuff\\\"\\\" bids into the order book, making it look like there is demand in order to trigger a market reaction, then they pull the bids to make the market fall. This sort of thing happens all the time and Nanex documents it http://www.nanex.net/FlashCrash/OngoingResearch.html Quote stuffing defined: http://www.investopedia.com/terms/q/quote-stuffing.asp I remember the day of the Flash Crash very well. I found this video on youtube of CNBC at that time. Watch from the 5:00 min mark on the video as Jim Crammer talks about PG easily not being worth the price of the market at that time. He said \\\"\\\"Who cares?\\\"\\\", \\\"\\\"Its not a real price\\\"\\\", \\\"\\\"$49.25 bid for 50,000 shares if I were at my hedge fund.\\\"\\\" http://www.youtube.com/watch?v=86g4_w4j3jU You can value a stock how you want, but its only actually worth what someone will give you for it. More examples: Anadarko Petroleum, which as we noted in today's EOD post, lost $45 billion in market cap in 45 milliseconds (a collapse rate of $1 billion per millisecond), flash crashing from $90 all the way to an (allegedly illegal) stub quote of $0.01. http://www.zerohedge.com/news/2013-05-17/how-last-second-flash-crash-pushed-sp-500-1667-1666 How 10,000 Contracts Crashed The Market: A Visual Deconstruction Of Last Night's E-Mini Flash Crash http://www.zerohedge.com/news/2012-12-21/how-10000-contracts-crashed-market-visual-deconstruction-last-nights-e-mini-flash-cr Symantec Flash-Crash Destroys Over $1.5 Billion In Less Than A Second http://www.zerohedge.com/news/2013-04-30/symantec-flash-crash-destroys-over-15-billion-less-second This sort of thing happens so often, I don't pay much attention anymore.\\\"\",\n \"The worth of a share of stocks may be defined as the present cash value of all future dividends and liquidations associated therewith. Without a crystal ball, such worth may generally only be determined retrospectively, but even though it's generally not possible to know the precise worth of a stock in time for such information to be useful, it has a level of worth which is absolute and not--unlikely market price--is generally unaffected by people buying and selling the stock (except insofar as activities in company stock affect a company's ability to do business). If a particular share of stock is worth $10 by the above measure, but Joe sells it to Larry for $8, that means Joe gives Larry $2. If Larry sells it to Fred $12, Fred gives Larry $2. The only way Fred can come out ahead is if he finds someone else to give him $2 or more. If Fred can sell it to Adam for $13, then Adam will give Fred $3, leaving Fred $1 better off than he would be if he hadn't bought the stock, but Adam will be $3 worse off. The key point is that if you sell something for less than it's worth, or buy something for more that it's worth, you give money away. You might be able to convince other people to give you money in the same way you gave someone else money, but fundamentally the money has been given away, and it's not coming back.\",\n \"How can they reduce the number of shares I hold? They may have purchased them. You don't say what stock it is, so we can only speculate. Let's say that the stock is called PENNY. So they may have taken your 1600 PENNY shares and renamed them to 1600 PENNYOLD shares. Then they created a new $5 PENNY share and gave you .2357 shares of that in exchange for your 1600 PENNYOLD shares. This suggests that your old shares were worth $1.1785 or less than a tenth of a cent each. As an example, MYLAN did this in 2015 as part of their tax inversion (moved official headquarters from the US to Europe). They did not change the number of shares at that time, but MYLAN is not a penny stock. This is the kind of thing that might happen in a bankruptcy. A reverse split (where they give you one share in exchange for more than one share) is also possible, although you received an odd amount for a reverse split. Usually those produce rounder numbers. A number like .2357 sounds more like a market price, as those can be bizarre.\",\n \"Without reading the source, from your description it seems that the author believes that this particular company was undervalued in the marketplace. It seems that investors were blinded by a small dividend, without considering the actual value of the company they were owners of. Remember that a shareholder has the right to their proportion of the company's net value, and that amount will be distributed both (a) in the form of dividends and (b) on liquidation of the company. Theoretically, EPS is an indication of how much value an investor's single share has increased by in the year [of course this is not accurate, because accounting income does not directly correlate with company value increase, but it is a good indicator]. This means in this example that each share had a return of $10, of which the investors only received $1. The remainder sat in the company for further investment. Considering that liquidation may never happen, particularly within the time-frame that a particular investor wants to hold a share, some investors may undervalue share return that does not come in the form of a dividend. This may or may not be legitimate, because if the company reinvests its profits in poorer performing projects, the investors would have been better off getting the dividend immediately. However some value does need to be given to the non-dividend ownership of the company. It seems the author believes that investors failing to consider value of the non-dividend part of the corporation's shares in question led to an undervaluation of the company's shares in the market.\",\n \"No. The above calculation does not hold good. When financial statements are prepared they are prepared on a going concern basis, i.e. a business will run normally in the foreseeable future. Valuation of assets and liabilities is done according to this principle. When a bankruptcy takes places or a business closes down, immediately the valuation method will change. For assets, the realizable value will be more relevant. For example, if you hold 100 computers, in an normal situation, they will depreciated at the normal rate. Every year, some portion of the cost is written off as depreciation. When you actually go to sell these computers you are likely to realize much less than what is shown in the statement. Similarly, for a building, the actual realizable value may be more. For liabilities, they tend to increase in such situation. Hence just a plain computation can give you a very broad idea but the actual figure may be different.\",\n \"Imagine a stock where the share price equals the earnings per share. You pay say $100 for a share. In the next year, the company makes $100 per share. They can pay a $100 dividend, so now you have your money back, and you still own the share. Next year, they make $100 per share, pay a $100 dividend, so now you have your money back, plus $100 in your pocket, plus you own the share. Wow. What an incredible investment.\",\n \"Here is an example for you. We have a fictional company. It's called MoneyCorp. Its job is to own money, and that's all. Right now it owns $10,000. It doesn't do anything special with that $10,000 - it stores it in a bank account, and whenever it earns interest gives it to the shareholders as a dividend. Also, it doesn't have any expenses at all, and doesn't pay taxes, and is otherwise magic so that it doesn't have to worry about distractions from its mathematical perfection. There are 10,000 shares of MoneyCorp, each worth exactly $1. However, they may trade for more or less than $1 on the stock market, because it's a free market and people trading stock on the stock market can trade at whatever price two people agree on. Scenario 1. MoneyCorp wants to expand. They sell 90,000 shares for $1 each. The money goes in the same bank account at the same interest rate. Do the original shareholders see a change? No. 100,000 shares, $100,000, still $1/share. No problem. This is the ideal situation. Scenario 2: MoneyCorp sells 90,000 shares for less than the current price, $0.50 each. Do the original shareholders lose out? YES. It now has something like $55,000 and 100,000 shares. Each share is now worth $0.55. The company has given away valuable equity to new shareholders. That's bad. Why didn't they get more money from those guys? Scenario 3: MoneyCorp sells 90,000 shares for more than the current price, $2 each, because there's a lot of hype about its business. MoneyCorp now owns $190,000 in 100,000 shares and each share is worth $1.90. Existing shareholders win big! This is why a company would like to make its share offering at the highest price possible (think, Facebook IPO). Of course, the new shareholders may be disappointed. MoneyCorp is actually a lot like a real business! Actually, if you want to get down to it, MoneyCorp works very much like a money-market fund. The main difference between MoneyCorp and a random company on the stock market is that we know exactly how much money MoneyCorp is worth. You don't know that with a real business: sales may grow, sales may drop, input prices may rise and fall, and there's room for disagreement - that's why stock markets are as unpredictable as they are, so there's room for doubt when a company sells their stock at a price existing shareholders think is too cheap (or buys it at a price that is too expensive). Most companies raising capital will end up doing something close to scenario 1, the fair-prices-for-everyone scenario. Legally, if you own part of a company and they do something a Scenario-2 on you... you may be out of luck. Consider also: the other owners are probably hurt as much as you are. Only the new shareholders win. And unless the management approving the deal is somehow giving themselves a sweetheart deal, it'll be hard to demonstrate any malfeasance. As an individual, you probably won't file a lawsuit either, unless you own a very large stake in the company. Lawsuits are expensive. A big institutional investor or activist investor of some sort may file a suit if millions of dollars are at stake, but it'll be ugly at best. If there's nothing evil going on with the management, this is just one way that a company loses money from bad management. It's probably not the most important one to worry about.\",\n \"\\\"An important thing that many people fail to realize is that the number of shares outstanding in a stock, times the current market price of those shares, does not represent anything related to the total value of those shares. If a company has one million shares outstanding and its total value is $10 million, then the real worth of each share is $10. If few people feels like buying or selling, but a few people think the company is worth $50 million and offer $50/share, that could raise the market price to $50/share, but it wouldn't mean that the company became worth five times as much; it would merely mean the stock was overpriced. If, after the price went to $50/share, all the owners of the stock put in stop-loss orders at $45. Note that the real $10/share \\\"\\\"real value\\\"\\\" of their stock would never have changed. If the people who thought the stock was worth $50 decided to get out of the market, and nobody else was willing to offer more than $10, that would instantly drop the price to $10. The fact that a million shares of stock have stop-loss orders at $45 wouldn't magically generate buyers for those stocks at that price. Indeed, unchecked stop-loss orders would have the reverse effect, since many people who would have been willing if not eager to buy the stock if it had been available for less than $10/share would instead be trying to sell it below that price. It's too bad people think that the number of shares outstanding times the current market price represents some kind of \\\"\\\"meaningful quantity\\\"\\\". If the present cash value of all future payouts associated with a share of stock is $10, then someone who buys a share of stock for less than that makes money off the seller; someone who pays more loses money to the seller. Many people think they can lose money to the seller and still come out okay if the price goes higher, but what that really means is that they're hoping to find a bigger sucker--a game where it's guaranteed that some people will have losses they don't recoup.\\\"\",\n \"\\\"> If the stock price goes down it wouldn't make sense that ABC had a higher dividend yield, so my argument was you have to make assume the stock price went down because it could have cost less for other reasons, but you don't have to assume the dividend yield which would make it a good investment. I'm not sure I understand your argument. The wording doesn't seem clear to me (\\\"\\\"you have to make assume\\\"\\\"? make assume? \\\"\\\"but you don't have to assume the dividend yield\\\"\\\" assume it what?) Dividend yield has a negative correlation with stock price. If price goes down, all else being equal, yield rises.\\\"\",\n \"Imagine that I own 10% of a company, and yesterday my portion was valued at $1 Million, therefore the company is valued at $10 Million. Today the company accepts an offer to sell 1% of the company for $500 Thousand: now my portion is worth $5 Million, and company is worth $50 Million. The latest stock price sets the value of the company. If next week the news is all bad and the new investor sells their shares to somebody else for pennies on the dollar, the value of the company will drop accordingly.\",\n \"\\\"What will happen if the stock price just continues to decline? Nothing. What would happen if folks just stop trading it? Nothing. What if the company goes private? Then they will have to buy you out based on some agreed upon price, as voted by the board and (potentially) approved by the shareholders. Depending on the corporation charter, the board may not be required to seek the shareholders' approval, but if the price the board agreed upon is unreasonable you can sue and prevent the transaction. How do they decide the fair value of the outstanding stocks? Through a process called \\\"\\\"valuation\\\"\\\", there are accounting firms which specialize in this area of public accounting.\\\"\",\n \"Here are some significant factors affect the company stock price performance: Usually, profitability is known to the public through the financial statements; it won't be 100% accurate and people would also trade the stock with the price not matching to the true value of the firm. Still there are dozens of other various reasons exist. People are just not behaving as rational as what the textbook describes when they are trading and investing.\",\n \"Why is the stock trading at only $5 per share? The share price is the perceived value of the company by people buying and selling the stock. Not the actual value of the company and all its assets. Generally if the company is not doing well, there is a perceived risk that it will burn out the money fast. There is a difference between its signed conditional sale and will get money and has got money. So in short, it's trading at $5 a share because the market doesn't feel like it's worth $12 per share. Quite a few believe there could be issues faced; i.e. it may not make the $12, or there will be additional obligations, i.e. employees may demand more layoff compensation, etc. or the distribution may take few years due to regulatory and legal hurdles. The only problem is the stock exchange states if the company has no core business, the stock will be suspended soon (hopefully they can release the $12 per share first). What will happen if I hold shares in the company, the stock gets suspended, and its sitting on $12 per share? Can it still distribute it out? Every country and stock markets have laid out procedures for de-listing a company and closing a company. The company can give $10 as say dividends and remaining later; or as part of the closure process, the company will distribute the balance among shareholders. This would be a long drawn process.\",\n \"\\\"No. If the share price drops to $0, it's likely that the company is in bankruptcy. Usually, debt holders (especially holders of senior debt) are paid first, and you're entitled to whatever the bankruptcy proceedings decide to give holders of equity after the debt holders are paid off. More often than not, equity holders probably won't get much. To give an example, corporate bankruptcy usually involves one of two options: liquidation or reorganization. In the US, these are called Chapter 7 and Chapter 11 bankruptcy, respectively. Canada and the United Kingdom also have similar procedures for corporations, although in the UK, reorganization is often referred to as administration. Many countries have similar procedures in place. I'll use the US as an example because it's what I'm most familiar with. In Chapter 7 bankruptcy, the company is liquidated to pay its debts. Investopedia's article about bankruptcy states: During Chapter 7 bankruptcy, investors are considered especially low on the ladder. Usually, the stock of a company undergoing Chapter 7 proceedings is usually worthless, and investors lose the money they invested. If you hold a bond, you might receive a fraction of its face value. What you receive depends on the amount of assets available for distribution and where your investment ranks on the priority list on the first page. In Chapter 11 bankruptcy, the company is turned over to a trustee that guides it through a reorganization. The Investopedia article quotes the SEC to describe what happens to stockholders when this happens: \\\"\\\"During Chapter 11 bankruptcy, bondholders stop receiving interest and principal payments, and stockholders stop receiving dividends. If you are a bondholder, you may receive new stock in exchange for your bonds, new bonds or a combination of stock and bonds. If you are a stockholder, the trustee may ask you to send back your stock in exchange for shares in the reorganized company. The new shares may be fewer in number and worth less. The reorganization plan spells out your rights as an investor and what you can expect to receive, if anything, from the company.\\\"\\\" The exact details will depend on the reorganization plan that's worked out, local laws, court agreements, etc.. For example, in the case of General Motor's bankruptcy, stockholders in the company before reorganization were left with worthless shares and were not granted shares in the new company.\\\"\",\n \"This can arise with very thinly traded stocks for large blocks of shares. If the market only has a few thousand dollars available at between 8.37 and 12.5 the price is largely meaningless for people who want to invest in hundreds of thousands/millions of dollars worth, as the quoted price can't get them anywhere near the number of shares they want. How liquid is the stock in question?\",\n \"How you use the metric is super important. Because it subtracts cash, it does not represent 'value'. It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash. So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0. If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless.\",\n \"\\\"Your question asks us to explain why a false statement is true. From the point of view of an investor, a high price to earnings ratio is not necessarily desirable. From the point of view of an investor, a desirable stock is one that is likely to provide future dividends or price increases that more than compensates for the risk of the stock. This information cannot be inferred from the P/E ratio. So what does the P/E ratio tell us? The P/E ratio measures a stock's current price (i.e., the market's belief about its future earnings) divided by its recent past earnings. A high ratio means the market thinks earnings in the future will be higher than they are now and have therefore bid the price up. These can thought of as expensive stocks, and are often called \\\"\\\"growth\\\"\\\" stocks because their price is driven by the market's belief in future growth. Some individual high P/E stocks do live up to or exceed the market's expectation, but there's no evidence that this happens enough that they are more desirable as a group than low P/E stocks. If anything, the empirical evidence goes the other way.\\\"\",\n \"Interestingly, the Staples doesn't own most of the land their stores operate on like its competitors. They opted for leases versus buying land during expansion to focus capex on other parts of the business. However, it leaves the company without a lot of land and therefore low relative book value. The value in Staples lies in their online B2B in a direct business model, though how much growth lies in physical paper and ink in a world of tablets and computers remains to be seen.\",\n \"Try to find the P/E ratio of the Company and then Multiply it with last E.P.S, this calculation gives the Fundamental Value of the share, anything higher than this Value is not acceptable and Vice versa.\",\n \"Aside of the other (mostly valid) answers, share price is the most common method of valuating the company. Here is a bogus example that will help you understand the general point: Now, suppose that Company A wants to borrow $20 Million from a bank... Not a chance. Company B? Not a problem. Same situation when trying to raise new funds for the market or when trying to sell the company or to acquire another\",\n \"\\\"Check your math... \\\"\\\"two stocks, both with a P/E of 2 trading at $40 per share lets say, and one has an EPS of 5 whereas the other has an EPS of 10 is the latter a better purchase?\\\"\\\" If a stock has P/E of 2 and price of $40 it has an EPS of $20. Not $10. Not $5.\\\"\",\n \"\\\"The only thing that makes a stock worthless is when the company goes out of business. Note that bankruptcy, by itself, does not mean the company is closing. It could successfully restructure its affairs and come out of bankruptcy with a better outlook. Being a small or unprofitable business may cause a company's to trade in the \\\"\\\"penny stock\\\"\\\" range, but there is still some value there. Since most dying companies will pass through the penny stock phase, you may be able to track down what you're looking for by finding companies who have been (or are about to be) delisted. Delisting is not death, it's just the point at which the company's shares no longer meet the qualifications to be traded on a particular exchange. If you find old stock certificates in your grandmother's sock drawer, they may be a treasure, or they may be worthless pieces of paper if the company changed its ownership and Grandma didn't know about it.\\\"\",\n \"\\\"As @ApplePie pointed out in their answer, at any given time there is a finite amount of stock available in a company. One subtlety you may be missing is that there is always a price associated with an offer to buy shares. That is, you don't put in an order simply to buy 1 share of ABC, you put in an order to buy 1 share of ABC for $10. If no one is willing to sell a share of ABC for $10, then your order will go unfilled. This happens millions of times a day as traders try to figure the cheapest price they can get for a stock. Practically speaking, there is always a price at which people are willing to sell their shares. You can put in a market order for 1 share of ABC, which says essentially \\\"\\\"I want one share of ABC, and I will pay whatever the market deems to be the price\\\"\\\". Your broker will find you 1 share, but you may be very unhappy about the price you have to pay! While it's very rare for a market to have nobody willing to sell at any price, it occasionally happens that no one is willing to buy at any price. This causes a market crash, as in the 2007-2008 financial crisis, when suddenly everyone became very suspicious of how much debt the major banks actually held, and for a few days, very few traders were willing to buy bank stocks at any price.\\\"\",\n \"Your observation is mostly right, that 1 is a the number around which this varies. You are actually referencing PEG, P/E to Growth ratio, which is a common benchmark to use to evaluate a stock. The article I link to provides more discussion.\",\n \"This comment makes zero sense. No one values equities from the balance sheet, unless you're trying to justify why you'd invest in sears or something (i.e. b/s vastly understates market value of real estate holdings and you're hoping for a liquidity event). Certainly not a tech company or really anything as a going concern.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"The VDE fund is an energy fund so this is a function of recent price changes in oil (and gas, coal, &c). For example. Lets say last year when oil was $100 per barrel a bunch of companies saw a good return and put $ 100 million into a bunch of leases, boreholes, pumps, &c to return $10 million per year, and the market says yeah, they're all together worth 100M. Now oil is less, maybe $40 per the link. These exploration companies don't have a lot of labor or variable costs; they are operationally profitable, may have \"\"use it or lose it\"\" leases or minimum pumping requirements for contract or engineering reasons. Lets say the cash flow is 7M so the market values them at 70M. They still have about 100M book value so here we are at .7 and I believe the scenario in the question. Nobody would invest in new capacity at this oil price. The well equipment could be repurposed but not the borehole or lease, so the best use is to continue pumping and value it on cash flow. If an individual well runs negative long enough and goes bust, either a different pumper will pay the minimum price that gives profitable cash flow, or that borehole that cost millions to dig is shut off and rendered valueless. The CNBC article says some explorers are playing games with debt to maintain yield, so there is that too. In the ETF, your bet is that the market is wrong and oil will go up, increasing future cash flows (or you like the current yield, taking on the risk that some of these oil explorers could go bust).\"","A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember;","Note that the formula for Price to Book ratio is: Stock Price / {[Total Assets - (Intangible Assets + Liabilities)] / Stock Outstanding} http://www.investopedia.com/terms/p/price-to-bookratio.asp http://www.investopedia.com/articles/fundamental/03/112603.asp There's a number of factors that could lead to a lower than 1. The primary reason, imho, could be the company is in a state of retiring stock with debt. The company is selling penny stocks (only to get people more interested in it's later development) which are inherently undervalued. There may be other reasons, but definitely check out both articles.","Book value = sell all assets and liquidate company . Then it's the value of company on book. Price = the value at which it's share gets bought or sold between investors. If price to book value is less than one, it shows that an 100$ book value company is being traded at 99$ or below. At cheaper than actually theoretical price. Now say a company has a production plant . Situated at the most costliest real estate . Yet the company's valuation is based upon what it produces, how much orders it has etc while real estate value upon which plant is built stays in book while real investors don't take that into account (to an extend). A construction company might own a huge real estate inventory. However it might not be having enough cash flow to sustain monthly expense. In this scenario , for survival,i the company might have to sell its real estate at discount. And market investors are fox who could smell trouble and bring price way below the book value Hope it helps"],"string":"[\n \"\\\"The VDE fund is an energy fund so this is a function of recent price changes in oil (and gas, coal, &c). For example. Lets say last year when oil was $100 per barrel a bunch of companies saw a good return and put $ 100 million into a bunch of leases, boreholes, pumps, &c to return $10 million per year, and the market says yeah, they're all together worth 100M. Now oil is less, maybe $40 per the link. These exploration companies don't have a lot of labor or variable costs; they are operationally profitable, may have \\\"\\\"use it or lose it\\\"\\\" leases or minimum pumping requirements for contract or engineering reasons. Lets say the cash flow is 7M so the market values them at 70M. They still have about 100M book value so here we are at .7 and I believe the scenario in the question. Nobody would invest in new capacity at this oil price. The well equipment could be repurposed but not the borehole or lease, so the best use is to continue pumping and value it on cash flow. If an individual well runs negative long enough and goes bust, either a different pumper will pay the minimum price that gives profitable cash flow, or that borehole that cost millions to dig is shut off and rendered valueless. The CNBC article says some explorers are playing games with debt to maintain yield, so there is that too. In the ETF, your bet is that the market is wrong and oil will go up, increasing future cash flows (or you like the current yield, taking on the risk that some of these oil explorers could go bust).\\\"\",\n \"A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember;\",\n \"Note that the formula for Price to Book ratio is: Stock Price / {[Total Assets - (Intangible Assets + Liabilities)] / Stock Outstanding} http://www.investopedia.com/terms/p/price-to-bookratio.asp http://www.investopedia.com/articles/fundamental/03/112603.asp There's a number of factors that could lead to a lower than 1. The primary reason, imho, could be the company is in a state of retiring stock with debt. The company is selling penny stocks (only to get people more interested in it's later development) which are inherently undervalued. There may be other reasons, but definitely check out both articles.\",\n \"Book value = sell all assets and liquidate company . Then it's the value of company on book. Price = the value at which it's share gets bought or sold between investors. If price to book value is less than one, it shows that an 100$ book value company is being traded at 99$ or below. At cheaper than actually theoretical price. Now say a company has a production plant . Situated at the most costliest real estate . Yet the company's valuation is based upon what it produces, how much orders it has etc while real estate value upon which plant is built stays in book while real investors don't take that into account (to an extend). A construction company might own a huge real estate inventory. However it might not be having enough cash flow to sustain monthly expense. In this scenario , for survival,i the company might have to sell its real estate at discount. And market investors are fox who could smell trouble and bring price way below the book value Hope it helps\"\n]","isConversational":false}}},{"rowIdx":260,"cells":{"_id":{"kind":"string","value":"8947"},"query":{"kind":"string","value":"Can a Roth IRA be used as a savings account?"},"gt_ids":{"kind":"list like","value":["455398","461592"],"string":"[\n \"455398\",\n \"461592\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["241161","89624","457634","59899","136879","466308","122638","20485","25814","461592","180293","561636","290322","218304","237336","214174","270818","158730","305855","211525","159197","484149","387338","461084","479769","545184","135079","101578","214901","340113","416633","232930","147502","335436","33714","19402","402509","146735","312212","140330","252373","335357","484683","380615","155318","455398","553031","194862","517723","47614","580612","290228","437453","354075","587727","527939","127134","130118","469311","1219","195515","590523","179408","119700","403103","138505","27495","53028","452870","150878","79009","113881","469853","2128","192292","570292","422952","176104","205783","112182","265231","491700","579644","196946","508219","125168","279121","393693","175968","294676","5778","32811","299690","330689","164672","592679","569528","162592","89868","151544"],"string":"[\n \"241161\",\n \"89624\",\n \"457634\",\n \"59899\",\n \"136879\",\n \"466308\",\n \"122638\",\n \"20485\",\n \"25814\",\n \"461592\",\n \"180293\",\n \"561636\",\n \"290322\",\n \"218304\",\n \"237336\",\n \"214174\",\n \"270818\",\n \"158730\",\n \"305855\",\n \"211525\",\n \"159197\",\n \"484149\",\n \"387338\",\n \"461084\",\n \"479769\",\n \"545184\",\n \"135079\",\n \"101578\",\n \"214901\",\n \"340113\",\n \"416633\",\n \"232930\",\n \"147502\",\n \"335436\",\n \"33714\",\n \"19402\",\n \"402509\",\n \"146735\",\n \"312212\",\n \"140330\",\n \"252373\",\n \"335357\",\n \"484683\",\n \"380615\",\n \"155318\",\n \"455398\",\n \"553031\",\n \"194862\",\n \"517723\",\n \"47614\",\n \"580612\",\n \"290228\",\n \"437453\",\n \"354075\",\n \"587727\",\n \"527939\",\n \"127134\",\n \"130118\",\n \"469311\",\n \"1219\",\n \"195515\",\n \"590523\",\n \"179408\",\n \"119700\",\n \"403103\",\n \"138505\",\n \"27495\",\n \"53028\",\n \"452870\",\n \"150878\",\n \"79009\",\n \"113881\",\n \"469853\",\n \"2128\",\n \"192292\",\n \"570292\",\n \"422952\",\n \"176104\",\n \"205783\",\n \"112182\",\n \"265231\",\n \"491700\",\n \"579644\",\n \"196946\",\n \"508219\",\n \"125168\",\n \"279121\",\n \"393693\",\n \"175968\",\n \"294676\",\n \"5778\",\n \"32811\",\n \"299690\",\n \"330689\",\n \"164672\",\n \"592679\",\n \"569528\",\n \"162592\",\n \"89868\",\n \"151544\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["A Roth IRA is intended for retirement. Before age 59.5 (I think), you can only withdraw the amount you deposited without penalty. It's great you're saving in a Roth, but you shouldn't put savings in there that you will need before you reach sufficient age. And since it's long-term, you can invest in things you expect to grow over the long term, like equities. You should keep emergency funds either in federally insured, extremely liquid accounts (bank savings) or money market funds (which aren't insured, but are close enough to zero-risk). Yes, the interest rates are terrible right now. But anything else would potentially leave you with insufficient funds in the event of, you know, an emergency.","It's a little extra hassle come tax-time if you have a distribution to account for, as you'd be required to file Form 8606. If you pay for tax-preparation the extra fees could easily wipe out any interest earned. Roth IRA savings accounts don't seem to earn much interest, so while you could come out slightly ahead with this approach, I don't think it's worth it. I prefer to keep a portion of my emergency fund in an online savings account (0.75% interest), and another portion in CD's (2.10% interest) through the same bank.","Generally, you have 60 days to return funds. If you've been stowing away money in to a Roth IRA and an emergency strikes you pull out contributions sufficient to tackle the emergency while leaving at least the earnings in there. You've never paid taxes on these earnings and the earnings will continue to grow tax free. If you've been stowing away money in a vanilla taxable account and an emergency strikes you pull out whatever amount to tackle the emergency. You've been paying taxes on the earnings all along but there's no paperwork. You can't replace the money in the Roth IRA (outside the 60 day limit except for some specific same year rules that you should iron out with your custodian) but you also haven't lost anything. Either way in the event of an emergency the funds are removed from an account, but in one case you haven't been paying taxes on gains. IF you want to go the route of a Roth IRA wrapper for your emergency fund you shouldn't be touching the funds for small events, tires for your car and the like. If your goal is to juice the tax free nature of the Roth IRA wrapper for as long as you can then repurpose the money for retirement if you never experienced an emergency with the understanding that you may have to gut the account in an emergency, that's fine. If you expect money to routinely come in and out of the account a Roth IRA is a horrible vehicle.","Why are you saving your emergency fund in a Roth-IRA? That type of fund should be for retirement. I know you can pull out your principal but that would mean in a crisis you will be destroying your retirement fund. Remember there is an annual limit, it could take years to replenish it if you have to pay for a big repair, or period of unemployment. The emergency fund should be kept in a very safe account. I would just keep in a high yeild account at a Credit Union","\"Wow. It's clear I'm outnumbered. When I'm approached with the question (and keep in mind, it's usually a couple data points and little else) \"\"I am getting started, with no other money do I fund a retirement or emergency account?\"\" I often suggest they put the funds into a Roth, in a money market fund, and treat it like an emergency account. If there's in fact an emergency, there's no penalty to withdraw the deposit and we're talking peanuts for interest today. With no emergency, two things could happen: A) As the account grows beyond what's needed for emergencies, the excess can be invested long term. B) As the investor earns more money and saves up enough to have a true emergency account separate from the IRA, the Roth can be fully invested long term. The 'Bad idea' stems from the view that one is using their Roth as an emergency account, which of course is bad. The subtle difference is one has no retirement savings and puts their Emergency account into the otherwise unused Roth. As time passes, they've protected more funds to grow tax free. In the end, the most important thing is whether the person is saving and not tapping for simple non-emergency things. I'd rather see a guy with $25K in his Roth and no other funds than to have $5000 in his bank account because every time it gets larger he feels compelled to spend it. My answer to Matt is to treat it for now as you intended, low risk, CD or cash (money market).\"","Why not just roll over part of your IRA to a bank? I don't know about Capital One, but Bank of America seems to offer a bank-based IRA. In broker-based IRAs, the closest that I've seen to a savings account is a money market fund. They often set those as the default investment until money is allocated to more specific funds. It is conceivably possible that a money market could lose money, but it has never happened.","You can use a Roth IRA for retirement and you can still withdraw all of your contributions at any time. You can also withdraw $10,000 worth of the earnings in your Roth IRA for a first-time home purchase. You can also withdraw for unreimbursed medical expenses and qualified education expenses. Full details are available in IRS publication 590. There is a limit of $5,500 for contributions in 2016 ($6,500 if you're over 50) as long as your adjusted gross income is below a certain level. You can still make a contribution for the previous tax year until the filing deadline (usually April 15).","Deposits are contributions. You deposit say, $5000, and over time you have $6000. The $5000 can be withdrawn any time with no issue. It's tracked via form 8606. With this in mind, I wrote an article The Roth Emergency Fund, suggesting that since one can withdraw deposits with no issue, the Roth can be used to hold emergency money.","If you are absolutely sure you will need the money in the next year or so I wouldn't do it just because of the hassle. If you think you might not need to use the money then I would go ahead and fund a Roth IRA for the simple reason that you can get your contributions (NOT earnings on those contributions.) back without paying any penalties if you do end up needing them. A good summary of the rationale can be found at My Money Blog's Roth IRA Contribution vs. Emergency Fund Savings","(To be clear, IRA accounts are just wrappers, and can contain a large variety of investments. I'm restricting myself to the usual setup of investment in the stock market.) So, let's say you have $5000 in savings, as an emergency fund. Of the top of my head, putting some of it into a Roth IRA could backfire in the following ways: The basic principle here is that the stock market is not a good place for storing your emergency cash, which needs to be secured against loss and immediately accessible. Once you're happy with your level of emergency cash, however, tax-advantaged investment accounts are a reasonable next step.","Yes sir, been there did that. Now a Roth account is considered income if you it pull out. It is your money and you have to report if you pull it out. FYI, open a savings account, and put it in that so if you need it this will not happen.","You're misunderstanding the concept of retirement savings. IRA distributions are taxed, in their entirety, as ordinary income. If you withdraw before the retirement age, additional 10% penalty is added. Investment income has preferential treatment - long term capital gains and qualified dividends are taxed at lower rates than ordinary income. However, IRA contributions are tax deductible. I.e.: you don't pay taxes on the amounts contributed to the IRA when you earned the money, only when you withdraw. In the mean time, the money is growing, tax free, based on your investments. Anything inside the IRA is tax free, including dividends, distributions (from funds to your IRA, not from IRA to you), capital gains, etc. This is very powerful, when taking into account the compounding effect of reinvesting your dividends/sale proceeds without taking a chunk out for taxes. Consider you make an investment in a fund that appreciated 100% in half a year. You cash out to reinvest in something less volatile to lock the gains. In a regular account - you pay taxes when you sell, based on your brackets. In the IRA you reinvest all of your sale proceeds. That would be ~25-35% more of the gains to reinvest and continue working for you! However, if you decide to withdraw - you pay ordinary rate taxes on the whole amount. If you would invest in a single fund for 30 years in a regular account - you'd pay 20% capital gains tax (on the appreciation, not the dividends). In the IRA, if you invest in the same fund for the same period - you'll pay your ordinary income rates. However, the benefit of reinvesting dividends tax-free softens the blow somewhat, but that's much harder to quantify. Bottom line: if you want to plan for retirement - plan for retirment. Otherwise - IRA is not an investment vehicle. Also consider Roth IRA/conversions. Roth IRA has the benefit of tax free distributions at retirement. If your current tax bracket is at 20%, for example, contributing $5K to Roth IRA instead of a traditional will cost you $1K of taxes now, but will save you all the taxes during the retirement (for the distributions from the Roth IRA). It may be very much worth your while, especially if you can contribute directly to Roth IRA (there are some income limitations and phaseouts). You can withdraw contributions (but not earnings) from Roth IRA - something you cannot do with a traditional IRA.","It doesn't matter if you aren't maxing out your IRA contributions anyway. If you are maxing out IRA contribution and you still have extra money to deposit then yes you better have all the money inevested, but if you aren't maxing out your contribution then it doesn't really mattter where you stick your emergency savings. But if you fall into money later you will be glad you put your emergency in a roth.","You may withdraw your contributions to a Roth IRA at any time for any reason without penalty. Any gains you withdraw may be subject to tax or penalties though, but there is a $10,000 exclusion (from the 10% penalty, not the taxes) for a first time home purchase.","Whether or not you can deposit to a Roth IRA, you are able to convert those deposits to A Roth account. In effect, you pay the tax going in (as with the regular brokerage account) but no tax on growth when withdrawn. The non-deductible IRA, on its own, holds little appeal, in comparison.","\"A Roth IRA is simply a tax-sheltered account that you deposit funds into, and then invest however you choose (within the limits of the firm you deposit the funds with). For example, you could open a Roth IRA account with Vanguard. You could then invest the $3000 by purchasing shares of VOO, which tracks the S&P 500 index and has a very low expense ratio (0.04 as of last time I checked). Fidelity has a similar option, or Schwab, or whatever brokerage firm you prefer. IRAs are basically just normal investment accounts, except they don't owe taxes until you withdraw them (and Roth don't even owe them then, though you paid taxes on the funds you deposit). They have some limitations regarding options trading and such, but if you're a novice investor just looking to do basic investments, you'll not notice. Then, your IRA would go up or down in value as the market went up or down in value. You do have some restrictions on when you can withdraw the funds; Roth IRA has fewer than a normal IRA, as you can withdraw the capital (the amount you deposited) without penalty, but the profits cannot be withdrawn until you're retirement age (I won't put an actual year, as I suspect that actual year will change by the time you're that old; but think 60s). The reason not to invest in an IRA is if you plan on using the money in the near future - even as an \"\"emergency fund\"\". You should have some money that is not invested aggressively, that is in something very safe and very accessible, for your emergency fund; and if you plan to buy a house or whatever with the funds, don't start an IRA. But if this is truly money you want to save for retirement, that's the best place to start. **Note, this is not investment advice, and you should do your own homework prior to making any investment. You can lose some or all of the value of your account while investing.\"","\"You seem to be treating your Roth IRA as a sort of savings account for use in emergency situations. I would use a savings account for savings as withdrawing money from an IRA will have penalties under various circumstances (more than contributions, Roth IRA less than 5 years old, more than $10k for a down payment). Also, you mention folding your IRA into your 401k so that it will \"\"grow faster\"\". However, this will not have that effect. Imagine you have $30k in an IRA and $100k in a 401k and you are averaging a return of 8% / year on each. This will be identical to having a single 401k with $130k and an 8% / year return. This is not one of your questions, but employer matches are not counted in the 401k contribution limit. If your 22% calculation of your salary includes the match to reach the max contribution, you can still contribute more.\"","This is a great idea and I can't think of any downside. The best part about it is in the future when you have built up your emergency fund beyond the maximum contributions to the Roth IRA, you can then move your Roth funds into a higher yielding investment. I might take it a step further. In addition to this, try to get a line of credit from your bank (with no annual fee). In case of emergency, you can decide if you want to take the money from your Roth or borrow from the line and pay some interest temporarily. Depending on the situation it may actually make sense to pay a little bit of interest and leave the money in the Roth, since over the long run the future earnings of that money could easily make you more than the interest you'll pay for (let's hope) a short amount of time. To really hit home why your idea is fantastic:","I think you're missing several key issues here. First for the facts: IRA contributions are $5500 a year maximum (currently, it changes with inflation), i.e.: you cannot deposit $10K in an IRA account in a single year. IRA withdrawals can only be made if you have something liquid in the IRA. You cannot withdraw from Lending Club IRA unless you manage to sell the notes currently held by you there. Roth IRA is funded with after-tax money, and you can withdraw your deposits in Roth IRA any time for any reason. No 10K limit there, only limited by what you deposited. However the main thing you're missing is this: You can withdraw up to $10K from your IRA for first home purchase without penalty. Pay attention: not without tax but without penalty. So what is the point in depositing $10k into IRA just to withdraw it the next year?","First, a Roth is funded with post tax money. The Roth IRA deposit will not offset any tax obligation you might have. The IRA is not an investment, it's an account with a specific set of tax rules that apply to it. If you don't have a brokerage account, I'd suggest you consider a broker that has an office nearby. Schwab, Fidelity, Vanguard are 3 that I happen to have relationships with. Once the funds are deposited, you need to choose how to invest for the long term. The fact that I'd choose the lowest cost S&P ETF or mutual fund doesn't mean that's the ideal investment for you. You need to continue to do research to find the exact investment that matches your risk profile. By way of example, up until a few years ago, my wife and I were nearly 100% invested in stocks, mostly the S&P 500. When we retired, four years ago, I shifted a bit to be more conservative, closer to 80% stock 20% cash.",">I could be wrong but you will still get tax at 10% This isn't true for Roths. If I put 5k (post tax of course) money into a Roth 401k or a Roth IRA I can withdraw that 5k whenever I want penalty and tax free. Now lets say that 5k has grown to 7k and I take out all 7k the first 5k is penalty and tax free but the extra 2k is taxed (with the extra 10% penalty added on). So as long as you don't touch any growth in your roth accounts you can withdraw the principal amount with the same consequences you would experience if you were to take money out of your checking account at your bank. Also money in and IRA does not have to be invested it could be in a liquid position. Now a pre tax retirement account doesn't have the same luxury. If I stick 5k into a traditional IRA and it grows to 7k and I pull that money out the entire ammount gets taxed AND penalized (even the principal amount is subject the 10% penalty). Now if you do a Roth conversion (pre-tax to post-tax retirment account conversion) the principal ammount (the amount you paid taxes on) is still subject to the 10% penalty for 5 years. After the 5 years you can withdraw the converted ammount tax and penalty free (well you already paid the taxes) it would just be the growth that is subject to the penalty.","mhoran answered the headline question, but you asked - Could someone shed some light on and differentiate between a retirement account and alternative savings plans? Retirement accounts can contain nearly anything that one would consider an investment. (yes, there are exception, not the topic for today). So when one says they have an S&P fund or ETF, and some company issued Bonds, etc, these may or may not be held in a retirement account. In the US, when we say 'retirement account,' it means a bit more than just an account earmarked for that goal. It's an account, 401(k), 403(b), IRA, etc, that has a special tax status. Money can go in pre-tax, and be withdrawn at retirement when you are in a lower tax bracket. The Roth flavor of 401(k) or IRA lets you deposit post-tax money, and 'never' pay tax on it again, if withdrawn under specific conditions. In 2013, a single earner pays 25% federal tax on taxable earnings over $36K. But a retiree with exactly $46K in gross income (who then has $10K in standard deduction plus exemption) has a tax of $4950, less than 11% average rate on that withdrawal. This is the effect of the deductions, 10% and 15% brackets. As with your other question, there's a lot to be said about this topic, no one can answer in one post. That said, the second benefit of the retirement account is the mental partitioning. I have retirement money, not to be touched, emergency money used for the broken down car or appliance replacement, and other funds it doesn't feel bad to tap for spending, vacations, etc. Nothing a good spreadsheet can't handle, but a good way to keep things physically separate as well. (I answered as if you are in US, but the answer works if you rename the retirement accounts, eg, Canada has similar tax structure to the US.)","With a Roth IRA, you can withdraw the contributions at any time without penalty as long as you don't withdraw the earnings/interest. There are some circumstances where you can withdraw the earnings such as disability (and maybe first home). Also, the Roth IRA doesn't need to go through your employer and I wouldn't do it through your employer. I have mine setup through Fidelity though I'm not sure if they have any guaranteed 3% return unless it was a CD. All of mine is in stocks. Your wife could also setup a Roth IRA so over 2 years, you could contribute $20,000. If I was you, I would just max out any 403-b matches (which you surely are at 25% of gross income) and then save my down payment money in a normal money market/savings account. You are doing good contributing almost 25% to the 403-b. There are also some income limitations on Roth IRAs. I believe for a married couple, it is $160k.","Why shouldn't I just keep my money in the savings account and earn the same amount (both accounts have the same APY in this case)? I will assume that you are transferring money from your savings account into a Traditional IRA and deducting the contribution from your income. While you may think that the money that is being transferred is yours already -- it is sitting in your savings account, for Pete's sake! -- you are deducting that amount in getting to your taxable income, and so you are effectively contributing it from current income and not paying taxes on the amount contributed. So, consider the same amount of money sitting in your savings account versus the same amount of money sitting in your Traditional IRA account. While you will earn the same amount of interest in both accounts, you will have to pay taxes each year on the interest earned in the savings account. You might choose, as most people do, to not take money out of the savings account to pay theses taxes but just pay them from ready cash/checking account/current income etc., or these taxes might just reduce the refund that you will getting from the IRS and your State income tax authority, but in either case, you have paid taxes on the interest earned in your non-IRA savings account, and of course, long ago, you also paid taxes on the original amount in the non-IRA savings account. So, if you take any money out of the non-IRA savings account, you don't pay any taxes on the amount withdrawn except possibly for the interest earned from January 1 till the date of withdrawal (which you are paying from ready cash). On the other hand, consider the Traditional IRA. The original deposit was not taxed in the sense that you got a deduction (reduced tax or increased refund) when you made the contribution. The annual interest earned was not taxed each year either. So when you make a qualified withdrawal (after age 59.5 or by meeting one of the other exceptions allowing withdrawal before age 59.5), you are taking money on which you have not paid any taxes at all, and the IRS wants its cut. The money withdrawn is taxable income to you. Furthermore, the money withdrawn is not eligible for any kind of favorable treatment such as having it count as qualified dividends or as long-term capital gains even if your IRA was invested in stocks and the money in the account is all qualified dividends or long-term capital gains. If you make an unqualified withdrawal, you owe a penalty (technically named an excise tax) in addition to income tax on the amount withdrawn. If you are investing in a Roth IRA, you will not be getting a deduction when you make the contribution, and qualified withdrawals are completely tax-free, and so the answer is completely different from the above.","I recommend you consider a Roth IRA. Invest it as others here suggest, safely, CDs, money market,etc. You can put in $5000/yr. When you spend, use this last, there is no penalty to withdraw the deposits. But if you make it through grad school without needing it, you'll have great start on your retirement savings.","As far as I know, there is no direct equivalent. An IRA is subject to many rules. Not only are there early withdrawal penalties, but the ability to deduct contributions to an IRA phases out with one's income level. Qualified withdrawals from an IRA won't have penalties, but they will be taxed as income. Contributions to a Roth IRA can be made post-tax and the resulting gains will be tax free, but they cannot be withdrawn early. Another tax-deductable investment is a 529 plan. These can be withdrawn from at any time, but there is a penalty if the money is not used for educational purposes. A 401K or similar employer-sponsored fund is made with pre-tax dollars unless it is designated as a Roth 401K. These plans also require money to be withdrawn specifically for retirement, with a 10% penalty for early withdrawal. Qualifying withdrawals from a regular retirement plan are taxed as income, those from a Roth plan are not (as with an IRA). Money can be made harder to get at by investing in all of the types of funds you can invest in using an IRA through the same brokers under a different type of account, but the contribution will be made with post-tax, non-deductable dollars and the gains will be taxed.","So you wouldn't really be using the IRA money for building the house, but for padding your savings? I would just leave the money in the IRA. Don't take it out just in the off-chance you need it, especially when you already have money in savings. If you want to replenish your savings do it by putting some of your income in there.","First you need to distinguish between short-term and long-term capital gains. In an IRA you can use investment strategies that incur short-term capital gains without being taxed as ordinary income. As mentioned in a comment above, with a Roth IRA, you can invest now at your low income tax rates and withdraw all gains without incurring any taxes at retirement time. You can also pull out your contributions penalty free before retirement age (59 1/2) if you've had the account for more than 5 years. You only pay taxes and penalties on the earnings. You can also make withdrawals for education expenses and you have one lifetime exclusion of $10,000 for a down-payment on a house.","I would wait, and invest that money in a Roth IRA. Because taxes are paid on the contributions to a Roth IRA, you can withdraw the contributions at any time, tax and penalty-free. In addition, you can withdraw contributions and earning to purchase your first home.","You can withdraw the contributions you made to Roth IRA tax free. Any withdrawals from Roth IRA count first towards the contributions, then conversions, and only then towards the gains which are taxable. You can also withdraw up to $10000 of the taxable portion penalty free (from either the Traditional IRA or the Roth IRA, or the combination of both) if it is applied towards the purchase of your first primary residence (i.e.: you don't own a place yet, and you're buying your first home, which will become your primary residence). That said, however, I cannot see how you can buy a $250K house. You didn't say anything about your income, but just the cash needed for the down-payment will essentially leave you naked and broke. Consider what happens if you have an emergency, out of a job for a couple of months, or something else of that kind. It is generally advised to have enough cash liquid savings to keep you afloat for at least half a year (including mortgage payments, necessities and whatever expenses you need to spend to get back on track - job searching, medical, moving, etc). It doesn't look like you're anywhere near that. Remember, many bankruptcies are happening because of the cash-flow problem, not the actual ability to repay debts on the long run.","\"You could put in in a Money Market Fund. These are designed to always be $1 per share, and not lose money. Of course, it still, very rarely, happens and is called \"\"breaking the buck\"\" when they do. Sounds like the high yield savings is the way to go. The rates will be the same as what you can get from a Money Market Fund, but you also have the added advantage that the account is FDIC insured. BTW, using a Roth as an emergency fund is a terrible idea. It is true that, since you already paid taxes on your contributions, you can withdraw those contributions without incurring penalties. However, you have to file paperwork to do it, and since it's not common, the IRA custodian is likely to screw it up. Plus, you have to keep track of what were contributions, and what was investment returns, to not run afoul of the penalties. And it will take time to do it, which you may not have in an emergency. Considering you're only looking at getting 1% interest anyway, there's no reason to use a Roth account as an emergency fund. You can set those same automatic deposits into a savings account.\"","Couple of factors here to consider: 1) The savings vehicle 2) The investments Savings Vehicle: Roth IRAs allow you the flexibility to save for retirement and/or your house. Each person can save up to $5,500 in a Roth and you can withdraw your principal at anytime without penalty. (There is a special clause for first time home buyers; however, it limits the amount to $10k per person. Given your estimate of $750k and history of putting down 20%. It would require a bit more.) The only thing is that you can't touch the growth or interest. When you do max out your Roth IRA, it may make sense for you to open a brokerage account (401Ks often have multiple steps in order to convert or withdraw money for your down payment) Investments: Given your timeline (5-7 years) your investments would be more conservative. (More fixed income) While you should stay diversified (both fixed income and equity), the conservative portfolio will allow less fluctuation in your portfolio value while allowing some growth potential.","I'll summarize here our discussion in the comments. First thing to remember is that you can only deposit up to $6K/year into the Roth IRA, you cannot seed it with some large amount (unless its a rollover). Second thing to remember is that you can only qualify 10K distribution for the home purchase. With that in mind, it seems that you'll have to have extremly high returns to make use of the maximum tax benefit (15-20% of the 10K). Non-qualified distributions will be taxed at ordinary income rates + 10% penalty, so if you can't qualify the distribution, instead of saving money on taxes, you'll end up paying twice as much as you would have without the IRA. Also, keep in mind that reporting of the distributions and justifying the qualifications might require assistance of a tax preparer, which will also reduce your savings. Bottom line, IMHO, you'll end up with a wash or very insignificant savings (compared to the magnitude of the home purchase costs) at best, which renders the whole thing kindof wastefull.","If I may echo the Roth comment - The Roth is a tax designation, not an end investment, so you still need to research and decide what's appropriate. I recommend the Roth for the long term investments, but keep in mind, even if you feel you may need to tap the Roth sooner than later, all deposits may be withdrawn at any time with no tax or penalty. Roth is great to store the emergency money for many if they aren't 100% sure they have enough cash to save for retirement. As you get further along, and see that you don't need it, change how it's invested to longer term, a mix of stocks (I prefer ETFs that mimic the S&P)","Putting money into a Roth IRA or 401(k) will save you money if your taxes this year will be lower than your taxes in retirement. See also the Wikipedia retirement-savings matrix.","There are no immediate tax-related benefits to putting money into a Roth IRA. You are investing after-tax money in the hope that the rules won't change and you'll be able to take out the money tax-free when you retire. Under current rules, you can take out your contributions at any time without penalties or taxes. You can't take out earnings without penalties until you retire. You said you don't have any debt (great!). So if you have cash that you don't have other uses for, and you don't mind possibly tying it up for a long time, you can put money into a Roth IRA. I'd argue that if you have, say, $25-50/month to put into long term savings, it's a good habit to start. When you move into a job that gives you more disposable income, you can increase this amount. The earlier you start, the lower the monthly amount you'll need to contribute towards a comfortable retirement. Once you get started putting a little bit away, you'll never miss it.","The Roth is the mirror image of the Pre-Tax (traditional) IRA. The latter gives you a tax break now, the deposits go in pre-tax, and are withdrawn at your rate in retirement. The former lets you squirrel that money away now, post-tax, but never pay tax again. For young folk the Roth is a great way to go. My 12 year old has a Roth account, and paid no tax since she has her own exemption. At your level, you are probably in the 10% bracket now. Imagine investing that money and at retirement finding it's grown 100X (very possible), if it were in a Roth, you'd have no tax due. As BST noted, you are always free to withdraw the deposit, so if you decide this wasn't money you could actually put away long term you still have an out.","Your question boils down to saving for a house or saving for retirement. Why not do both? If you invest in a Roth 401k or Roth IRA you can withdraw any contributions that are at least 5 years old without penalty (assuming you're willing to put off purchasing a little longer than your original 2-3 years). If you qualify as a first time home buyer (i.e. you haven't owned a home in at least 2 years) you can withdraw investment earnings as well if your distribution is earmarked towards the down payment and is no more than $10000. Although you won't be penalized for using investment earnings for a down payment you will still have to pay taxes on them. So this may be more appealing to someone that has enough contributions to avoid dipping into the investment earnings. The only other downside is that contributions to a Roth investment are not tax deductible like Traditional IRA and 401k contributions are. Instead, they grow tax free and distributions are tax free when you reach retirement age.","Both of the other posters have some really good points worth remembering about the stability/liquidity of a savings account and the often overlooked fact that you can withdraw any money you put in to a Roth IRA because it's already been taxed. I'm 28 and found myself in a similar situation as you about a year or so ago. I wanted a relatively liquid place that I could store and grow some money. CD's and Savings accounts just weren't getting a high enough rate to make a return work for me, especially with only a little money to start. I would highly suggest checking out a social lending platform like Prosper.com or Lendingclub.com. I use Prosper.com and this platform will give you some really nice benefits: Here's a good article that can explain more about it and get you started: http://www.financialsamurai.com/investing-in-peer-to-peer-lending-with-prosper-com/ just keep in mind that while there is some liquidity here (you can resell the notes you invest in) generally speaking expect to hold on to those notes for at least 3 years (your share of the paid principal gets paid out to you in addition to the interest each month.)","Adding to the excellent answers already given, we typically advise members to contribute as much as needed to get a full employer match in their 401K, but not more. We then redirect any additional savings to a traditional IRA or ROTH IRA (depending on their age, income, and future plans). Only once they've exhausted the $5000 maximum in their IRA will we look at putting more money into the 401K. The ROTH IRA is a beautiful and powerful vehicle for savings. The only reason to consider taking money out of the ROTH is in a case of serious catastrophe.","\"Yes, it is possible to withdraw money from your Roth IRA before retirement (but I wouldn't necessarily advise you to do so.) Here's the good news, and the bad news: The good news: Unlike a traditional IRA, money contributed to a Roth IRA is done so on an after-tax basis, meaning you don't benefit from a tax deduction on contributions. So, the money you withdraw from your Roth IRA will not be taxed entirely as ordinary income. In fact, you are allowed to withdraw the amount of your original contributions (also known as basis) without any taxes or penalties. Let's imagine you originally deposited $9000 of that current $10K total value – then in such a case, $9000 could be withdrawn tax and penalty free. The bad news: When it comes to the investment earnings – the other $1000 in my example – it's a different story: Since you wouldn't be age 59 1/2 at the time of withdrawal, any money taken out beyond your original contributions would be considered a non-qualified withdrawal and subject to both ordinary income taxes plus a 10% early withdrawal penalty. Ouch! Perhaps you might want to restrict your withdrawal to your original contributions. I would imagine if you've had the account for such a short period of time that much or all of your account value is original contributions anyway. A good article about the rules for early IRA withdrawals is About.com's Tax Penalty for Early Distribution of Retirement Funds. Note: If your Roth IRA funds were the result of a rollover from another account type, other rules may apply. See Roth IRA (Wikipedia) for more detail; search for \"\"rollover\"\". Regarding the withdrawal process itself and the timing, you should check with your account custodian on how to proceed.\"","Your question indicates confusion regarding what an Individual Retirement Account (whether Roth or Traditional) is vs. the S&P 500, which is nothing but a list of stocks. IOW, it's perfectly reasonable to open a Roth IRA, put your $3000 in it, and then use that money to buy a mutual fund or ETF which tracks the S&P 500. In fact, it's ridiculously common... :)","You bring up a valid concern. IRAs are good retirement instruments as long as the rules don't change. History has shown that governments can change the rules regarding retirement accounts. As long as you have some of your retirement assets outside of an IRA I think IRAs are good ways to save for retirement. It's not possible to withdraw the money before retirement without penalty. Also, you will be penalized if you do not withdraw enough when you do retire.","401(k) can come in traditional and Roth forms, as can IRAs. Roth IRA money is not locked away for 40 years, only the earnings are locked away, and earnings can also be withdrawn for special cases. You might not be able to invest in an IRA if your income is too high, and if you don't get a match for your 401(k), that might not be the best option either. The biggest advantage of the 401(k) is the match (if it exists) if there's no match, the second biggest advantage is the tax deferral. If you are in a low tax bracket, that isn't as big of an advantage either. I would say that there are plenty of reasons why you might not max out the 401(k) for savings, but it's pretty easy to max out the Roth IRA if that makes more sense, so there aren't a lot of reasons why not.","You are permitted to withdraw the deposits from the Roth with no tax or penalty any time. To Dilip's point, the Roth is a good place to keep the investment, and what you might consider is a 'self-directed' account. This type of IRA or Roth IRA permits a choice of investments that are not typically handled by banks or brokers, including Real Estate and the type of Angel investing you seem to be considering. Note - the rules are tough, you need to be very careful to not be self-dealing, or dealing with certain related parties.","Sounds like a bad idea. The IRA is built on the power of compounding. Removing contributions will hurt your retirement savings, and you will never be able to make that up. Instead, consider tax-free investments. State bonds, Federal bonds, municipal bonds, etc. For example, I invest in California muni bonds fund which gives me ~3-4% annual dividend income - completely tax free. In addition - there's capital appreciation of your fund holdings. There are risks, of course, for example rate changes will affect yields and capital appreciation, so consult with someone knowledgeable in this area (or ask another question here, for the basics). This will give you the same result as you're expecting from your Roth IRA trick, without damaging your retirement savings potential.","Your question seems like you don't understand what a Roth IRA is. A Roth IRA isn't an investment, per se. It is just a type of account that receives special tax treatment. Just like a checking and savings account are different at a bank, a ROTH IRA account is just flagged as such by a brokerage. It isn't an investment type, and there aren't really different ROTH IRA accounts. You can invest in just about anything inside that account so that is what you need to evaluate. One Roth IRA account is as good as any other.As to what to invest your money in inside a ROTH, that is a huge question and off-topic per the rules against specific investing advice.","the $5500 Roth IRA is not restricted to earned income, you can put whatever money you have tax free and gains free.","Roth IRAs divide your withdrawal into 3 categories: Contributions, Conversions, and Earnings. This is significant, because each have different tax consequences and the order of withdrawal is dictated by tax law. You can withdraw your contributions in less than 5 years for any reason (home buyer or not). You cannot withdraw your conversions or earnings without waiting 5 years unless you pay the 10% penalty. The home buyer exemption is only after the 5 years are met. Further detail found on the motley fool: home purchase exemption, distributions, early withdrawals.","If you can afford it, there are very few reasons not to save for retirement. The biggest reason I can think of is that, simply, you are saving in general. The tax advantages of 401k and IRA accounts help increase your wealth, but the most important thing is to start saving at an early age in your career (as you are doing) and making sure to continue contributing throughout your life. Compound interest serves you well. If you are really concerned that saving for retirement in your situation would equate to putting money away for no good reason, you can do a couple of things: Save in a Roth IRA account which does not require minimum distributions when you get past a certain age. Additionally, your contributions only (that is, not your interest earnings) to a Roth can be withdrawn tax and penalty free at any time while you are under the age of 59.5. And once you are older than that you can take distributions as however you need. Save by investing in a balanced portfolio of stocks and bonds. You won't get the tax advantages of a retirement account, but you will still benefit from the time value of money. The bonus here is that you can withdraw your money whenever you want without penalty. Both IRA accounts and mutual fund/brokerage accounts will give you a choice of many securities that you can invest in. In comparison, 401k plans (below) often have limited choices for you. Most people choose to use their company's 401k plan for retirement savings. In general you do not want to be in a position where you have to borrow from your 401k. As such it's not a great option for savings that you think you'd need before you retire. Additionally 401k plans have minimum distributions, so you will have to periodically take some money from the account when you are in retirement. The biggest advantage of 401k plans is that often employers will match contributions to a certain extent, which is basically free money for you. In the end, these are just some suggestions. Probably best to consult with a financial planner to hammer out all the details.","\"1) Indeed, if referring to a Roth as the question is, you are right on. But - You can deposit to an Traditional IRA (TIRA). You just can't deduct it. You are then permitted to convert that to a Roth any time. Now, this would appear to negate income issues, right? Not so fast. When you convert, all TIRA accounts must be considered. In other words, when it comes to the TIRA, you only have One TIRA, the \"\"A\"\" actually standing for Arrangement, not account. That TIRA may then be spread over as many accounts as you have time to set up. So, if there is any pretax money and/or untaxed gain, it will be prorated and taxed based on your conversion amount. If any of this is not 110% clear, please comment and I will update the answer. No 401(k) at work? Note: I edited as my original wording misunderstood the response, and in turn, appeared a bit unkind. Not my intention.\"","\"Chris's answer is a great start. Keep in mind that when you withdraw from a Roth IRA, you \"\"shrink\"\" the size of the IRA (i.e. if the start up flourishes, you can't put the $10k you withdrew back, as you're limited to ~$5k in contributions per year). You may want to consider funding your startup with a credit card (ideally a balance transfer of $10k at 0% interest). If you need to, you can always pay your card off with your Roth balance, but if the startup takes off, your IRA is unharmed. (On a side note, I wouldn't feel comfortable quitting my job to do a startup with only $10k in savings, but to each his own!)\"","Being from the UK, I'd not heard of a Roth IRA, but it sounds very similar to our own ISA (Individual Savings Account). Having just looked it up, I couldn't believe the annual limit was so low: $5500! Still, you have to work within your jurisdiction's legal framework (or agitate for change?). I would definitely agree with Ben Miller's answer: you need different savings buckets for the different savings objectives you'll have throughout the different periods of your life. I, for instance, am now a parent of two young children. I am fortunate to be able to provide for them on multiple levels: I hope that's of some help.","Actually there has been lots of talk around using a TFSA (Tax Free Savings Account) in Canada for just that purpose. A TFSA allows you: This blog makes some good points about exactly that: The bestest thing about the TFSA is its flexibility. You can take money out of your TFSA at any time for any purpose, without losing the contribution room, which makes this account the number one choice for socking away an emergency fund. So even if you take money out in one year, you can put it back the next, without affecting that year’s $5,000 contribution limit.","\"IRAs have huge tax-advantages. You'll pay taxes when you liquidate gold and silver. While volatile, \"\"the stock market has never produced a loss during any rolling 15-year period (1926-2009)\"\" [PDF]. This is perhaps the most convincing article for retirement accounts over at I Will Teach You To Be Rich. An IRA is just a container for your money and you may invest the money however you like (cash, stocks, funds, etc). A typical investment is the purchase of stocks, bonds, and/or funds containing either or both. Stocks may pay dividends and bonds pay yields. Transactions of these things trigger capital gains (or losses). This happens if you sell or if the fund manager sells pieces of the fund to buy something in its place (i.e. transactions happen without your decision and high turnover can result in huge capital gains). In a taxable account you will pay taxes on dividends and capital gains. In an IRA you don't ever pay taxes on dividends and capital gains. Over the life of the IRA (30+ years) this can be a huge ton of savings. A traditional IRA is funded with pre-tax money and you only pay tax on the withdrawal. Therefore you get more money upfront to invest and more money compounds into greater amounts faster. A Roth IRA you fund with after-tax dollars, but your withdrawals are tax free. Traditional versus Roth comparison calculator. Here are a bunch more IRA and 401k calculators. Take a look at the IRA tax savings for various amounts compared to the same money in a taxable account. Compounding over time will make you rich and there's your reason for starting young. Increases in the value of gold and silver will never touch compounded gains. So tax savings are a huge reason to stash your money in an IRA. You trade liquidity (having to wait until age 59.5) for a heck of a lot more money. Though isn't it nice to be assured that you will have money when you retire? If you aren't going to earn it then, you'll have to earn it now. If you are going to earn it now, you may as well put it in a place that earns you even more. A traditional IRA has penalties for withdrawing before retirement age. With a Roth you can withdraw the principal at anytime without penalty as long as the account has been open 5 years. A traditional IRA requires you take out a certain amount once you reach retirement. A Roth doesn't, which means you can leave money in the account to grow even more. A Roth can be passed on to a spouse after death, and after the spouse's death onto another beneficiary. more on IRA Required Minimum Distributions.\"","\"The Roth vs not debate is irrelevant to the question. It doesn't matter where your emergency fund is kept, as long as it is liquid and safe. I said it before in an answer to another question: your emergency fund is not an investment -- it's your safety net This answer also says it well: an \"\"emergency fund\"\" is just that... for emergencies... NOT investment. While it \"\"hurts\"\" not to have your emergency money making more money... its MORE IMPORTANT to have quick access to it. So at TD Ameritrade, just park it in their FDIC deposit account. It will not earn any meaningful interest (at least until rates rise), but you'll be able to have access to it when you need it. Note that I would caution against putting it in a money market mutual fund. They're safer than many other investments, but they're not FDIC insured against loss and there is a potential for temporary loss of liquidity. In late 2008 when the credit markets collapsed, a lot of people suddenly became unemployed -- and needed access to their emergency funds. When Lehman Brothers went bust in September, the Reserve Primary Fund (with billions of dollars in their fund) \"\"broke the buck\"\" -- they lowered the price of shares below $1, meaning investors lost principal. The worst part is that investors were not as liquid as they wanted to be: the fund froze and it was hard to get money out. The lesson to take away from this is that one of the times you're likely to need access to your emergency fund is during a macroeconomic crisis. This is also the time when any investment that isn't guaranteed safe may potentially be (at least temporarily) unavailable or decline in value. Emergency funds should be 100% government insured. When you have your Roth funded to the point where there's extra money beyond the emergency fund, you can start investing in higher-yielding vehicles: stock or bond index ETFs would be a good start. But then that part of your Roth starts to look like a retirement account and not an emergency fund. If it were me, I'd open a Roth at a stable local bank and just keep it in their FDIC insured money market deposit account. Then if I wanted a slight boost, I might put the \"\"upper half\"\" of my emergency fund into short term CDs, but even CDs aren't worth much at the moment.\"","If the time horizon is 5 years, I don't think that playing games with Roth IRAs or investments is really productive. I'd look at an online savings account as a holding place for this money. EDIT: Another option is the US is Savings Bonds. The rates earned right now are poor (as of 04/2011 EE bonds earn 0.6% and I bonds yielded 0.37%), and there is an interest penalty if you redeem them in less than five years. But, they are not state taxable, and you can defer tax payments until you cash them.","I'm afraid you're mistaking 401k as an investment vehicle. It's not. It is a vehicle for retirement. Roth 401k/IRA has the benefit of tax free distributions at retirement, and as long as you're in the low tax bracket - it is for your benefit to take advantage of that. However, that is not the money you would be using to start a business or buy a home (except for maybe up to $10K you can withdraw without penalty for first time home buyers, but I wouldn't bother with $10k, if that's what will help you buying a house - maybe you shouldn't be buying at all). In addition, you should make sure you take advantage of the employer 401k match in full. That is free money added to your Traditional 401k retirement savings (taxed at distribution). Once you took the full advantage of the employer's match, and contributed as much as you consider necessary for your retirement above that (there are various retirement calculators on line that can help you in making that determination), everything else will probably go to taxable (regular) savings/investments.","Just the amount contributed to the Roth 401k that you rolled over, not the conversions from regular 401k/traditional IRA (for those there are holding period limitation of 5 year from conversion), the earning on it or the employer's match (neither of these can be withdrawn without penalty as a non-qualified withdrawal). However, I'd suggest not to withdraw from Roth IRA unless you're sleeping on a bench in a park and beg strangers for a piece of bread. This is the best retirement investment you can make while you're in the lower tax brackets, and withdrawing it would reduce dramatically your tax-free retirement income.","You can contribute to a Traditional IRA instead of a Roth. The main difference is a contribution to a Roth is made with after tax money but at retirement you can withdraw the money tax free. With a Traditional IRA your contribution is tax-deductible but at retirement the withdrawal is not tax free. This is why most people prefer a Roth if they can contribute. You can also contribute to your work's 401k plan assuming they have one. And you can always save for retirement in a regular account.","Comparing retirement savings to ordinary investment is not an apples-to-apples comparison - retirement savings are savings for retirement - if you want to invest in things now and live off of (or reinvest) those earnings, then retirement accounts are not the right vehicle. That said, here are some benefits of the main types of retirement accounts: Benefits of a 401(k): Benefits of a tratitional IRA: Benefits of a ROTH 401(k): Benefits of a ROTH IRA: (the benefits above are not exhaustive, there are other benefits such as using a ROTH IRA for higher ed. expenses, etc. but those are the highlights) If you have a plan for how you hope to use the money now rather than later does it make sense to hold onto it? If your plan is meant to provide income at retirement, and earns returns higher than the returns plus matches and tax benefits you get from retirement accounts, then yes, it may make more sense, but those benefits are generally very hard to beat. Plus, having the money locked away in an account that is painful to tap can be a good thing - you're less tempted to use that money for foolish decisions (which everyone makes at some point).","Lets do the math (assuming a lot of stuff, like your interest rates and that you make the contribution at the beginning of the year, also your tax bracket at the withdrawal time frame.) 1.) Beginning of year 1 Roth Option $5k contribution Non Roth Option $5k contribution 2.) Beginning of year 2 Roth Option $5000 + $150 interest + 5K contribution = $10150 Non Roth Option $5000 + $75 interest + 5K contribution = $10075 3.) End of year 2 Buy a house! yay! Roth Option---before withdrawal account value = 10150+10150*.03=10454.5 after withdrawl (assuming 38% tax on earnings withdrawal (10%penalty + 28% income tax estimate.) = 10327.17 Non Roth Option = 10 226.125 So you are talking about a significant amount of paperwork to either 1.) Net yourself $100 toward the purchase 2.) Cost yourself $226 on the purchase but have $454.50 in your roth ira. I am not sure I would do that, but it might be worth it.","A Roth IRA is just an account wrapper. Inside a Roth IRA you can have a plain 0.1% savings account, or a brokerage account, or an annuity or whatever. There's no rate of return for a Roth IRA. That particular calculator seems to assume you'll be wrapping a brokerage account in a Roth IRA and investing in the stock market. Over a long period 6% is probably a reasonable rate of return considering the S&P 500 has returned about 7% over the last decade.","If you are going to be buying a house in 1-2 years, I would be putting my money into a short term holding area like a high interest (which isn't that high right now) or a CD (also low interest) because of your near-term need. I wouldn't use the Roth option for your down payment money. If you invest in something volatile (and stocks/mutual funds are very volatile in a 1-2 year term) I would consider it too risky for your need and time frame.","The primary advantage of an IRA or 401k is you get taxed effectively one time on the money (when you contribute for Roth, or when you withdraw for Traditional), whereas you get taxed effectively multiple times on some of the money in a taxable account (on all the money when you contribute, plus on the earnings part when you withdraw). Of course, you have to be able to withdraw without penalty for it to be optimally advantageous. And you said you want to retire decades early, so that is probably not retirement age. However, withdrawing early does not necessarily mean you have a penalty. For example: you can withdraw contributions to a Roth IRA at any time without tax or penalty; Roth 401k can be rolled over into Roth IRA; other types of accounts can be converted to Roth IRA and the principal of the conversion can be withdrawn after 5 years without penalty.","Well, a couple things to keep in mind: Even if you have enough to meet the minimum initial amount, you need to have at least that much income in the year you make the contribution. You'll probably be best served saving up in a savings account so that by the time you have an income (and can thus make contributions), you have enough cash to meet the minimum initial contribution.","There are a couple reasons for having a Traditional or Roth IRA in addition to a 401(k) program in general, starting with the Traditional IRA: With regards to the Roth IRA: Also, both the Traditional and Roth IRA allow you to make a $10,000 withdraw as a first time home buyer for the purposes of buying a home. This is much more difficult with the 401(k) and generally you end up having to take a loan against the 401(k) instead. So even if you can't take advantage of the tax deductions from contributions to a Traditional IRA, there are still good reasons to have one around. Unless you plan on staying with the same company for your entire career (and even if you do, they may have other plans) the Traditional IRA tends to be a much better place to park the funds from the 401(k) than just rolling them over to a new employer. Also, don't forget that just because you can't take deductions for the income doesn't mean that you might not need the income that savings now will bring you in retirement. If you use a retirement savings calculator is it saying that you need to be saving more than your current monthly 401(k) contributions? Then odds are pretty good that you also need to be adding additional savings and an IRA is a good location to put those assets because of the other benefits that they confer. Also, some people don't have the fiscal discipline to not use the money when it isn't hard to get to (i.e. regular savings or investment account) and as such it also helps to ensure you aren't going to go and spend the money unless you really need it.","\"With these income levels you cannot deduct any IRA contribution. I.e.: you cannot save pre-tax, as you want. But you still can contribute to IRA (as a non-deductible contribution), and using the \"\"loophole\"\" transfer the contribution to Roth (you are probably over the limit to be able to contribute to Roth directly). For pre-tax contributions - max out your 401k.\"","\"The IRA contribution limit is a limit on the total amount you can contribute to all of your Roth and traditional IRAs. It's not a per-account limit. (See here and here.) Once you've hit the contribution limit on one account, you've hit it on all of them. Even so, supposing you had a reason with try to take money out of one of the accounts, the answer to your question is \"\"sort of\"\". The limit is a limit on your gross contributions, not your net contributions. It is possible to withdraw Roth contributions if you do so before the tax filing deadline for that year, but you must also withdraw (and pay taxes on) any earnings accured during the time the money was in the Roth (see here). In addition, doing this may not be as simple as just taking the money out of your account; you should probably ask your bank about it and let them know you're \"\"undoing\"\" the contribution, since they may otherwise still record the amount as a real contribution and the withdrawal as unqualified early withdrawal (subject to penalties, etc.).\"","No, you cannot. If you withdraw everything from all your Roth IRA's and end up with less than the total basis - you can deduct the difference on your schedule A (at the time of the last withdrawal) as an itemized deduction (as misc. deductions with 2% AGI cap). Regular IRA's are pre-tax, you cannot deduct anything from them.","lol @ savings accounts. I don't use savings accounts. I just use checking for liquidity and invest everything else. Now if you have a job that prohibits trading on your own account that's understandable but if you have the knowledge might as well use it and make some $$$","Your max contribution to your Roth IRA and your traditional IRA share the same cap, so if you are maxing your Roth IRA you cannot have a traditional one as well. I would put the additional into your 401k or perhaps a 529 if you have any kids.","I would not suggest closing out your Roth IRA -- Couple of reasons for that - 1) Since you've been contributing to it for 15 years, your investments have probably grown, seen dividends, etc. If you close it out, you will owe taxes and be slapped with a 10% penalty on the growth (money you didn't contribute). That's quite a waste of hard earned money. 2) While your income may exceed the contribution limit of a Roth, you could do what's called a 'backdoor' Roth - which is really just converting your after tax contributions into an IRA into a Roth IRA. 3) Given the length of your contributions your Roth IRA is seasoned (5 years) This allows you to use up to 10k for your house if you chose. (Usually not an option people use) Other than that, consider paying off the student loans with the highest interest first.","If the IRA is costing you $100 a year, you should almost certainly transfer it to a cheaper provider, regardless of whether you're going to withdraw anything. You can transfer the IRA to another provider that doesn't charge you the fees. Or you can convert it to Roth and combine it with your existing Roth. Either way, you will keep all the money, and save $100 per year in the future. If you want to take money out of your retirement accounts, you should take it out of your Roth IRA, because you can withdraw contributions (i.e., up to the amount you contributed) from the Roth without tax or penalty. Whether you should withdraw anything from your retirement accounts is a different question. If you're already maxing out your Roth IRA, and you have sufficient retirement savings, you could just instead plow that $5500 into your student loans. (If you can afford it, of course, it'd be better to just pay the $7500 from your income and still contribute to the retirement accounts.) There's no reason to withdraw from retirement accounts to pay loans when you could just divert current income for that purpose instead.","The Roth IRA will provide no tax benefit to you if you are contributing after-tax money and then removing it immediately. Also there is more information on tax benefits for parents of disabled children (and a real phone number, I tried calling) at http://www.irs.gov/uac/Tax-Benefits-for-Disabled-Taxpayers","One thing to keep in mind is that with Roth accounts, there are different withdrawal considerations based on your contributions. For example, you can withdraw Roth IRA contributions whenever you want in the future. However this really has nothing to do with your cost basis and purely to do with the contribution amount vs balance.","Five years is too short to be able to safely invest the money in any productive manner. You're saving, not investing. Part of the problem is that you don't have all the money right now, and you'll need to add to it over the next few years until you have enough for a down payment. See the notes under CDs and bonds below for why this is a problem. The universe of options: As for the Roth, as duffbeer703 said, I'm not sure it's worth the hassle and risk that you'll want the money sooner and be forced to wait. (E.g. you end up with enough money in 4.25 years for a house that you want but you have to wait 9 months to be able to tap the Roth.) As noted above, the yields are so low that the losses to taxes aren't really going to amount to much. On $10k you're looking at $150 max earnings, and losing maybe $40 of it to taxes (annually). So avoiding taxes won't shrink your time horizon by any meaningful amount. I'd just open a high yield savings account and start dumping money in. Keep an eye on shorter term (1yr) CD rates and if they go above the savings yield and the timing is right then take advantage of it.","Some banks and credit unions have IRA accounts. They pay interest like a savings account or a CD but they are an IRA. After the 15th you can roll them over into a IRA at one of the big investment companies so you can get invest in an index or Target Retirement Fund. But it is not too late. Opening an account at one of the big companies takes ten minutes (you need to know your social security number and your bank account info) they can pull it out of your bank account. I helped my kid do the same thing this week. We went on-line Tuesday night, and they pulled the money from his account on Thursday morning. Also know which type you want (Roth or regular) before you start. Also make sure you specify that the money is for 2013 not 2014.","\"Yes. I describe the Roth flavor as \"\"denser.\"\" For those with more money they wish to save this factor should be added to the mix. Of course you can save $16500 + 5000 (in an IRA) for $21500 total pretax if you wish (and are within the limits.)\"","\"Investopedia probably should change the wording to \"\"tax free\"\" since all of the gains in a Roth IRA can be withdrawn without any additional taxes at retirement time. Tax deferred should only refer to the gains in a traditional IRA. \"\"Tax advantaged\"\" might be a reasonable term to use in both cases.\"","Yes, it's possible to withdraw money without penalty but you have to do it in a special way. For example you have to withdraw the same amount every year until you retire: Tapping Your IRA Penalty-Free as for unstable economy - you can trade many instruments in your IRA. you can do bonds, mutual funds, stocks, ETFs or just keep it in cash. Some do well in bad economy.","If by exempt, you're just referring to the fact that the income is less than your standard deduction and personal exemption, then yes, that money can be used to fund a Roth. Great time to do it. To be clear, in 2014 the limit for an under 50 year old, is $5500 ($6500 if 50 or older). Only earned income may be used for deposits. No interest, dividends, etc.","You can take out the contributions to your Roth tax and penalty free. That's the good thing. Anything above the amount you contributed that you withdraw early will cost you ordinary income tax (which is higher than capital gains tax) plus a 10 percent penalty on that amount. So if you have $15,000 in the account and $5,000 is gains and you withdraw $11,000, then you owe tax and penalty on $1,000. The penalty is 10% and your taxes (high taxes!) are added to that. Pretty bad deal. If you kept it in a normal account and paid capital gains tax, you just pay 15% (or whatever) on your gains and you get to offset income tax with your losses via tax loss harvesting. So back to your question: your idea works even better than you suggested if you only withdraw up to the amount that you contributed (you pay no tax!). Take out any of the gains and you will be penalized more than you would if you just paid capital gains on them. Leave those in until you are old enough to take them out penalty and tax free. To me, contributing to a Roth, making a bunch of gains on it, and withdrawing only the contribution part whenever you want seems to make good sense.","You do not have to wait 5 years from when a particular dollar was earned to withdraw it. To be a qualified distribution from a Roth IRA, A) the Roth IRA must have been opened for 5 years (which yours was), and B) you must be 59.5 years old, or meet one of the other exceptions (and $10,000 for a first-time home purchase is one of the exceptions). Since it is a qualified distribution, there is no tax or penalty.","\"Basically, the idea of an IRA is that the money is earned by you and would normally be taxed at the individual rate, but the government is allowing you to avoid paying the taxes on it now by instead putting it in the account. This \"\"tax deferral\"\" encourages retirement savings by reducing your current taxable income (providing a short-term \"\"carrot\"\"). However, the government will want their cut; specifically, when you begin withdrawing from that account, the principal which wasn't taxed when you put it in will be taxed at the current individual rate when you take it out. When you think about it, that's only fair; you didn't pay taxes on it when it came out of your paycheck, so you should pay that tax once you're withdrawing it to live on. Here's the rub; the interest is also taxed at the individual rate. At the time, that was a good thing; the capital gains rate in 1976 (when the Regular IRA was established) was 35%, the highest it's ever been. Now, that's not looking so good because the current cap gains rate is only 15%. However, these rates rise and fall, cap gains more than individual rates, and so by contributing to a Traditional IRA you simplify your tax bill; the principal and interest is taxed at the individual rate as if you were still making a paycheck. A Roth IRA is basically the government trying to get money now by giving up money later. You pay the marginal individual rate on the contributions as you earn them (it becomes a \"\"post-tax deduction\"\") but then that money is completely yours, and the kicker is that the government won't tax the interest on it if you don't withdraw it before retirement age. This makes Roths very attractive to retirement investors as a hedge against higher overall tax rates later in life. If you think that, for any reason, you'll be paying more taxes in 30 years than you would be paying for the same money now, you should be investing in a Roth. A normal (non-IRA) investment account, at first, seems to be the worst of both worlds; you pay individual tax on all earned wages that you invest, then capital gains on the money your investment earns (stock gains and dividends, bond interest, etc) whenever you cash out. However, a traditional account has the most flexibility; you can keep your money in and take your money out on a timeline you choose. This means you can react both to market moves AND to tax changes; when a conservative administration slashes tax rates on capital gains, you can cash out, pay that low rate on the money you made from your account, and then the money's yours to spend or to reinvest. You can, if you're market- and tax-savvy, use all three of these instruments to your overall advantage. When tax rates are high now, contribute to a traditional IRA, and then withdraw the money during your retirement in times where individual tax rates are low. When tax rates are low (like right now), max out your Roth contributions, and use that money after retirement when tax rates are high. Use a regular investment account as an overage to Roth contributions when taxes are low; contribute when the individual rate is low, then capitalize and reinvest during times when capital gains taxes are low (perhaps replacing a paycheck deduction in annual contributions to a Roth, or you can simply fold it back into the investment account). This isn't as good as a Roth but is better than a Traditional; by capitalizing at an advantageous time, you turn interest earned into principal invested and pay a low tax on it at that time to avoid a higher tax later. However, the market and the tax structure have to coincide to make ordinary investing pay off; you may have bought in in the early 90s, taking advantage of the lowest individual rates since the Great Depression. While now, capital gains taxes are the lowest they've ever been, if you cash out you may not be realizing much of a gain in the first place.\"","If you have the cash on hand to pay the tax on the amount you are transferring I recommend moving to a Roth IRA An IRA is tax-deferred. You put in pretax contributions in to an IRA, and you are taxed on that money (your contributions and interest earned) when you withdraw it at retirement, age 59 1/2. The idea being that you will be taking less out per year in your retirement years, putting you into a lower tax bracket. The major problem is most people draw out as much or more a year in their retirement years than when they were working. A Roth IRA grows tax free You put after tax contributions into a Roth IRA, you have paid taxes on the contributions, and you are never taxed on the growth. When you draw the money out at retirement you don't pay any income taxes on that money. Let me give you an example: For this example we will use the following information for both scenario: We will invest $400 per month for a total of $4800. The current maximum is $5000 if you are under 50 years old $400 dollars after taxes is $300 Invest $300 a month, at age 65 you have 3,529,432 You owe no taxes on this money, it doesn't matter how much you take out a year. $400 dollars a month is taken pretax out of your paycheck. Invest $400 per month, at age 65 you have $4,705,909 You owe taxes of 25% as you draw that out for at total tax of 1,176,477 4,705,909 - 1,176,477 = 3,529,432 cash in your pocket The problem is if you draw out more than $82,400 (current 2010 filing single) per year you will be pushed to a higher tax bracket and take more of your money away. If you decide to buy a vacation home and you take out $250,000 to pay for it, that's counted as income for that year any you will be in the 33% tax bracket. Even if you can keep yourself to a low income the government forces your hand and makes you draw out more money at age 70, based on their tables, forcing you into a higher tax bracket","From what these people are saying, it is impossible for you to put $5,500 in if it were a Roth though, because the money has to be taxed. You are correct that this is wrong. You can still put $5,500 in a Roth - the tax payment comes when you file, not when you make the investment. This is when the Roth is better than a Traditional IRA, when you can invest the max either way. Yes you get the tax break for the Traditional investment, and if you invest the tax savings you'll be in the same spot, all else being equal. If you only have a certain amount (after taxes) to invest, say $3,000 in a 25% marginal tax bracket, then it works out the same either way. You can either invest $3,000 in a Roth and let it grow tax free, or put $4,000 in a traditional IRA since you can deduct $1,000 (15%) from your taxes when you file. Then your tax-adjusted balance when you withdraw is the same, since you'll have a lot more (33% more in fact) in your traditional IRA but will have to pay tax on the withdrawals.","For the Roth the earnings: interest, dividends, capital gains distributions and capital gains are tax deferred. Which means that as long as the money stays inside of a Roth or is transferred/rolled over to another Roth there are no taxes due. In December many mutual funds distribute their gains. Let's say people invested in S&P500index fund receive a dividend of 1% of their account value. The investor in a non-retirement fund will be paying tax on that dividend in the Spring with their tax form. The Roth and IRA investors will not be paying tax on those dividends. The Roth investor never will, and the regular IRA investor will only pay taxes on it when they pull the money out.","\"In a Roth IRA scenario, this $5,000 would be reduced to $3,750 if we assume a (nice and round) 25% tax rate. For the Traditional IRA, the full $5,000 would be invested. No, that's not how it works. Taxes aren't removed from your Roth account. You'll have $5,000 invested either way. The difference is that you'll have a tax deduction if you invest in a traditional IRA, but not a Roth. So you'll \"\"save\"\" $1,250 in taxes up front if you invest in a traditional IRA versus a Roth. The flip side is when you withdraw the money. Since you've already paid tax on the Roth investment, and it grows tax free, you'll pay no tax when you withdraw it. But you'll pay tax on the investment and the gains when you withdraw from a traditional IRA. Using your numbers, you'd pay tax on $2.2MM from the traditional IRA, but NO TAX on $2.2MM from the Roth. At that point, you've saved over $500,000 in taxes. Now if you invested the tax savings from the traditional IRA and it earned the same amount, then yes, you'd end up in the same place in the end, provided you have the same marginal tax rate. But I suspect that most don't invest that savings, and if you withdraw significant amount, you'll likely move into higher tax brackets. In your example, suppose you only had $3,750 of \"\"discretionary\"\" income that you could put toward retirement. You could put $5,000 in a traditional IRA (since you'll get a $1,250 tax deduction), or $3,750 in a Roth. Then your math works out the same. If you invest the same amount in either, though, the math on the Roth is a no-brainer.\"","If you are earning a salary, go for Roth IRA. You can contribute $5500 (2013 limits) every year . Once you open a account , let say Fidelity or Vanguard, you should invest based on risk appetite into some funds. the advantage is that your money grows tax free and when you are 25- 30 years old and need money for down payment of house, you can pull the money out with out any penalty. The gains you have made will continue to be in that account till the time your retire, growing every year.","IRA is an account. You can open as many as you want. What's limited is the contributions: you cannot deposit to the IRA (all of them combined) more than what you've earned during the year, or $5500 (for 2013), the lowest. There are also limits on how much you can deduct, depending on your income and availability of other retirement programs at your work. You can open as many IRAs as you want in your child's name, but if your child had only earned $500 this year - that's how much you can put in these accounts. Your wife and you share the earned income limit, so if your wife is not working, you can still contribute to the IRA in her name, based on your own earnings (i.e.: if you earned more than $11000 - you can contribute the maximum $5500 for each of you). The limits are for all the IRA combined, doesn't matter how many accounts you have, and how many of them are Roth.","\"No. A deposit to an IRA must be in cash. A conversion from traditional IRA to Roth can be \"\"in kind\"\" i.e. As a stock transfer. Last, any withdrawals can also be in stock or funds. IRS Publication 590, so important, it's now in 2 sections Part A and Part B, addresses IRA issues such as this as well as most others. By the way - now on page 7 - \"\"Contributions, except for rollover contributions, must be in cash.\"\"\"","\"As other people have indicated, traditional IRAs are tax deductable for a particular year. Please note, though, that traditional IRAs are tax deferred (not tax-free) accounts, meaning that you'll have to pay taxes on any money you take out later regardless of why you're making the withdrawal. (A lot of people mistakenly call them tax free, which they're not). There is no such thing as a \"\"tax-free\"\" retirement account. Really, in terms of Roth vs. Traditional IRAs, it's \"\"pay now or pay later.\"\" With the exception of special circumstances like this, I recommend investing exclusively in Roth IRAs for money that you expect to grow much (or that you expect to produce substantial income over time). Just to add a few thoughts on what to actually invest in once you open your IRA, I strongly agree with the advice that you invest mostly in low-cost mutual funds or index funds. The advantage of an open-ended mutual fund is that it's easier to purchase them in odd increments and you may be able to avoid at least some purchase fees, whereas with an ETF you have to buy in multiples of that day's asking price. For example, if you were investing $500 and the ETF costs $200 per share, you could only purchase 2 shares, leaving $100 uninvested (minus whatever fee your broker charged for the purchase). The advantage of an ETF is that it's easy to buy or sell quickly. Usually, when you add money to a mutual fund, it'll take a few days for it to hit your account, and when you want to sell it'll similarly take a few days for you to get your money; when I buy an ETF the transaction can occur almost instantly. The fees can also be lower (if the ETF is just a passive index fund). Also, there's a risk with open-ended mutual funds that if too many people pull money out at once the managers could be forced to sell stocks at an unfavorable price.\"","The biggest problem is what happens when you make a withdrawal if an emergency occurs. If the money was a contribution from a past year, you will not be able to put those funds back into the fund until a later date. Assume the following scenario: The limits regarding maximum annual contribution and windows when you can contribute make this an inefficient way to operate the emergency fund/retirement fund. Retirement and emergency funds are both important. Don't co-mingle them, it leads to double counting the money when you guesstimate where you are regarding your financial goals.","You're young. Build a side business in your spare time. Invest in yourself. Fail a few times when you have some time to recover financially. Use the money that you would have let sit in some account and develop your skills, start up an LLC, and build up the capacity to get some real returns on your money. Be a rainmaker, not a Roth taker.","Yes. Savings accounts and CDs today pay almost nothing. They are not a way to grow your money for the future. They are a place to keep some spare cash for emergencies. I don't have such accounts any more. Personally, I generally keep about $2000 in my checking account for any sudden surprise expenses. Any other spare money I have I put into very safe mutual funds. They don't grow much either, but it's better than what I'd get on a savings account or CD.","Savings accounts with 8% APY? Unheard of these days. You're lucky if you find one at 1%. You should use checking and savings accounts only to hold an emergency fund (6 to 12 months of living expenses), or money that you will need in 2 years or so. The rest, invest in stocks and bonds.","Using the default values for age and retirement and only making the changes you specified in the question. assumed ROR: 6%, current tax rate: 25%, retirement tax rate: 15%, married, have an employer retirement plan. The results from the two calculators are: Traditional IRA: 631,341 IRA before taxes 536,640 IRA after taxes. Roth IRA: 631,341 Roth IRA 450,207 Taxable Savings where: Total taxable savings The total amount you would have accumulated by retirement in a taxable savings account. your question: The (Traditional) IRA After Taxes value is 6.3% higher than the (Roth) Taxable Savings amount. (Both had an equal gross amount.) Does that mean I should put my money in a tIRA instead of a Roth? My percentages don't match your percentages because you didn't specify the numbers you used. In any case the 450K number shows you what you would have if the money was not invested in an IRA or 401K. To decide between a Roth and a traditional IRA ignore the taxable savings number, that only shows what happens if you decide not not use a retirement account.","There are 3 account types your question discusses and each has its good/bad points. The above is a snapshot of these account types. IRAs have income restrictions that may disallow a deduction on the traditional, or any deposit to Roth, etc. If this does not address your question, please comment, and I'll edit for better clarity.","\"One problem with this plan is that the individual must have earned income to contribute to a Roth IRA. If you have an infant, unless she is the new Gerber baby or something like that, there is probably no legitimate way for her to earn income. If you own a business and have kids who are older, you can employ them to do work for you, but they must really do work and earn around the market rate for that work. Otherwise, it is unlikely that they will be able to earn enough to fund an IRA until they are teenagers. When they are old enough to work, you can \"\"match\"\" their earnings by contributing the same amount to a Roth IRA on their behalf, but this will not give you the amount of contributions and growth time that you were counting on.\""],"string":"[\n \"A Roth IRA is intended for retirement. Before age 59.5 (I think), you can only withdraw the amount you deposited without penalty. It's great you're saving in a Roth, but you shouldn't put savings in there that you will need before you reach sufficient age. And since it's long-term, you can invest in things you expect to grow over the long term, like equities. You should keep emergency funds either in federally insured, extremely liquid accounts (bank savings) or money market funds (which aren't insured, but are close enough to zero-risk). Yes, the interest rates are terrible right now. But anything else would potentially leave you with insufficient funds in the event of, you know, an emergency.\",\n \"It's a little extra hassle come tax-time if you have a distribution to account for, as you'd be required to file Form 8606. If you pay for tax-preparation the extra fees could easily wipe out any interest earned. Roth IRA savings accounts don't seem to earn much interest, so while you could come out slightly ahead with this approach, I don't think it's worth it. I prefer to keep a portion of my emergency fund in an online savings account (0.75% interest), and another portion in CD's (2.10% interest) through the same bank.\",\n \"Generally, you have 60 days to return funds. If you've been stowing away money in to a Roth IRA and an emergency strikes you pull out contributions sufficient to tackle the emergency while leaving at least the earnings in there. You've never paid taxes on these earnings and the earnings will continue to grow tax free. If you've been stowing away money in a vanilla taxable account and an emergency strikes you pull out whatever amount to tackle the emergency. You've been paying taxes on the earnings all along but there's no paperwork. You can't replace the money in the Roth IRA (outside the 60 day limit except for some specific same year rules that you should iron out with your custodian) but you also haven't lost anything. Either way in the event of an emergency the funds are removed from an account, but in one case you haven't been paying taxes on gains. IF you want to go the route of a Roth IRA wrapper for your emergency fund you shouldn't be touching the funds for small events, tires for your car and the like. If your goal is to juice the tax free nature of the Roth IRA wrapper for as long as you can then repurpose the money for retirement if you never experienced an emergency with the understanding that you may have to gut the account in an emergency, that's fine. If you expect money to routinely come in and out of the account a Roth IRA is a horrible vehicle.\",\n \"Why are you saving your emergency fund in a Roth-IRA? That type of fund should be for retirement. I know you can pull out your principal but that would mean in a crisis you will be destroying your retirement fund. Remember there is an annual limit, it could take years to replenish it if you have to pay for a big repair, or period of unemployment. The emergency fund should be kept in a very safe account. I would just keep in a high yeild account at a Credit Union\",\n \"\\\"Wow. It's clear I'm outnumbered. When I'm approached with the question (and keep in mind, it's usually a couple data points and little else) \\\"\\\"I am getting started, with no other money do I fund a retirement or emergency account?\\\"\\\" I often suggest they put the funds into a Roth, in a money market fund, and treat it like an emergency account. If there's in fact an emergency, there's no penalty to withdraw the deposit and we're talking peanuts for interest today. With no emergency, two things could happen: A) As the account grows beyond what's needed for emergencies, the excess can be invested long term. B) As the investor earns more money and saves up enough to have a true emergency account separate from the IRA, the Roth can be fully invested long term. The 'Bad idea' stems from the view that one is using their Roth as an emergency account, which of course is bad. The subtle difference is one has no retirement savings and puts their Emergency account into the otherwise unused Roth. As time passes, they've protected more funds to grow tax free. In the end, the most important thing is whether the person is saving and not tapping for simple non-emergency things. I'd rather see a guy with $25K in his Roth and no other funds than to have $5000 in his bank account because every time it gets larger he feels compelled to spend it. My answer to Matt is to treat it for now as you intended, low risk, CD or cash (money market).\\\"\",\n \"Why not just roll over part of your IRA to a bank? I don't know about Capital One, but Bank of America seems to offer a bank-based IRA. In broker-based IRAs, the closest that I've seen to a savings account is a money market fund. They often set those as the default investment until money is allocated to more specific funds. It is conceivably possible that a money market could lose money, but it has never happened.\",\n \"You can use a Roth IRA for retirement and you can still withdraw all of your contributions at any time. You can also withdraw $10,000 worth of the earnings in your Roth IRA for a first-time home purchase. You can also withdraw for unreimbursed medical expenses and qualified education expenses. Full details are available in IRS publication 590. There is a limit of $5,500 for contributions in 2016 ($6,500 if you're over 50) as long as your adjusted gross income is below a certain level. You can still make a contribution for the previous tax year until the filing deadline (usually April 15).\",\n \"Deposits are contributions. You deposit say, $5000, and over time you have $6000. The $5000 can be withdrawn any time with no issue. It's tracked via form 8606. With this in mind, I wrote an article The Roth Emergency Fund, suggesting that since one can withdraw deposits with no issue, the Roth can be used to hold emergency money.\",\n \"If you are absolutely sure you will need the money in the next year or so I wouldn't do it just because of the hassle. If you think you might not need to use the money then I would go ahead and fund a Roth IRA for the simple reason that you can get your contributions (NOT earnings on those contributions.) back without paying any penalties if you do end up needing them. A good summary of the rationale can be found at My Money Blog's Roth IRA Contribution vs. Emergency Fund Savings\",\n \"(To be clear, IRA accounts are just wrappers, and can contain a large variety of investments. I'm restricting myself to the usual setup of investment in the stock market.) So, let's say you have $5000 in savings, as an emergency fund. Of the top of my head, putting some of it into a Roth IRA could backfire in the following ways: The basic principle here is that the stock market is not a good place for storing your emergency cash, which needs to be secured against loss and immediately accessible. Once you're happy with your level of emergency cash, however, tax-advantaged investment accounts are a reasonable next step.\",\n \"Yes sir, been there did that. Now a Roth account is considered income if you it pull out. It is your money and you have to report if you pull it out. FYI, open a savings account, and put it in that so if you need it this will not happen.\",\n \"You're misunderstanding the concept of retirement savings. IRA distributions are taxed, in their entirety, as ordinary income. If you withdraw before the retirement age, additional 10% penalty is added. Investment income has preferential treatment - long term capital gains and qualified dividends are taxed at lower rates than ordinary income. However, IRA contributions are tax deductible. I.e.: you don't pay taxes on the amounts contributed to the IRA when you earned the money, only when you withdraw. In the mean time, the money is growing, tax free, based on your investments. Anything inside the IRA is tax free, including dividends, distributions (from funds to your IRA, not from IRA to you), capital gains, etc. This is very powerful, when taking into account the compounding effect of reinvesting your dividends/sale proceeds without taking a chunk out for taxes. Consider you make an investment in a fund that appreciated 100% in half a year. You cash out to reinvest in something less volatile to lock the gains. In a regular account - you pay taxes when you sell, based on your brackets. In the IRA you reinvest all of your sale proceeds. That would be ~25-35% more of the gains to reinvest and continue working for you! However, if you decide to withdraw - you pay ordinary rate taxes on the whole amount. If you would invest in a single fund for 30 years in a regular account - you'd pay 20% capital gains tax (on the appreciation, not the dividends). In the IRA, if you invest in the same fund for the same period - you'll pay your ordinary income rates. However, the benefit of reinvesting dividends tax-free softens the blow somewhat, but that's much harder to quantify. Bottom line: if you want to plan for retirement - plan for retirment. Otherwise - IRA is not an investment vehicle. Also consider Roth IRA/conversions. Roth IRA has the benefit of tax free distributions at retirement. If your current tax bracket is at 20%, for example, contributing $5K to Roth IRA instead of a traditional will cost you $1K of taxes now, but will save you all the taxes during the retirement (for the distributions from the Roth IRA). It may be very much worth your while, especially if you can contribute directly to Roth IRA (there are some income limitations and phaseouts). You can withdraw contributions (but not earnings) from Roth IRA - something you cannot do with a traditional IRA.\",\n \"It doesn't matter if you aren't maxing out your IRA contributions anyway. If you are maxing out IRA contribution and you still have extra money to deposit then yes you better have all the money inevested, but if you aren't maxing out your contribution then it doesn't really mattter where you stick your emergency savings. But if you fall into money later you will be glad you put your emergency in a roth.\",\n \"You may withdraw your contributions to a Roth IRA at any time for any reason without penalty. Any gains you withdraw may be subject to tax or penalties though, but there is a $10,000 exclusion (from the 10% penalty, not the taxes) for a first time home purchase.\",\n \"Whether or not you can deposit to a Roth IRA, you are able to convert those deposits to A Roth account. In effect, you pay the tax going in (as with the regular brokerage account) but no tax on growth when withdrawn. The non-deductible IRA, on its own, holds little appeal, in comparison.\",\n \"\\\"A Roth IRA is simply a tax-sheltered account that you deposit funds into, and then invest however you choose (within the limits of the firm you deposit the funds with). For example, you could open a Roth IRA account with Vanguard. You could then invest the $3000 by purchasing shares of VOO, which tracks the S&P 500 index and has a very low expense ratio (0.04 as of last time I checked). Fidelity has a similar option, or Schwab, or whatever brokerage firm you prefer. IRAs are basically just normal investment accounts, except they don't owe taxes until you withdraw them (and Roth don't even owe them then, though you paid taxes on the funds you deposit). They have some limitations regarding options trading and such, but if you're a novice investor just looking to do basic investments, you'll not notice. Then, your IRA would go up or down in value as the market went up or down in value. You do have some restrictions on when you can withdraw the funds; Roth IRA has fewer than a normal IRA, as you can withdraw the capital (the amount you deposited) without penalty, but the profits cannot be withdrawn until you're retirement age (I won't put an actual year, as I suspect that actual year will change by the time you're that old; but think 60s). The reason not to invest in an IRA is if you plan on using the money in the near future - even as an \\\"\\\"emergency fund\\\"\\\". You should have some money that is not invested aggressively, that is in something very safe and very accessible, for your emergency fund; and if you plan to buy a house or whatever with the funds, don't start an IRA. But if this is truly money you want to save for retirement, that's the best place to start. **Note, this is not investment advice, and you should do your own homework prior to making any investment. You can lose some or all of the value of your account while investing.\\\"\",\n \"\\\"You seem to be treating your Roth IRA as a sort of savings account for use in emergency situations. I would use a savings account for savings as withdrawing money from an IRA will have penalties under various circumstances (more than contributions, Roth IRA less than 5 years old, more than $10k for a down payment). Also, you mention folding your IRA into your 401k so that it will \\\"\\\"grow faster\\\"\\\". However, this will not have that effect. Imagine you have $30k in an IRA and $100k in a 401k and you are averaging a return of 8% / year on each. This will be identical to having a single 401k with $130k and an 8% / year return. This is not one of your questions, but employer matches are not counted in the 401k contribution limit. If your 22% calculation of your salary includes the match to reach the max contribution, you can still contribute more.\\\"\",\n \"This is a great idea and I can't think of any downside. The best part about it is in the future when you have built up your emergency fund beyond the maximum contributions to the Roth IRA, you can then move your Roth funds into a higher yielding investment. I might take it a step further. In addition to this, try to get a line of credit from your bank (with no annual fee). In case of emergency, you can decide if you want to take the money from your Roth or borrow from the line and pay some interest temporarily. Depending on the situation it may actually make sense to pay a little bit of interest and leave the money in the Roth, since over the long run the future earnings of that money could easily make you more than the interest you'll pay for (let's hope) a short amount of time. To really hit home why your idea is fantastic:\",\n \"I think you're missing several key issues here. First for the facts: IRA contributions are $5500 a year maximum (currently, it changes with inflation), i.e.: you cannot deposit $10K in an IRA account in a single year. IRA withdrawals can only be made if you have something liquid in the IRA. You cannot withdraw from Lending Club IRA unless you manage to sell the notes currently held by you there. Roth IRA is funded with after-tax money, and you can withdraw your deposits in Roth IRA any time for any reason. No 10K limit there, only limited by what you deposited. However the main thing you're missing is this: You can withdraw up to $10K from your IRA for first home purchase without penalty. Pay attention: not without tax but without penalty. So what is the point in depositing $10k into IRA just to withdraw it the next year?\",\n \"First, a Roth is funded with post tax money. The Roth IRA deposit will not offset any tax obligation you might have. The IRA is not an investment, it's an account with a specific set of tax rules that apply to it. If you don't have a brokerage account, I'd suggest you consider a broker that has an office nearby. Schwab, Fidelity, Vanguard are 3 that I happen to have relationships with. Once the funds are deposited, you need to choose how to invest for the long term. The fact that I'd choose the lowest cost S&P ETF or mutual fund doesn't mean that's the ideal investment for you. You need to continue to do research to find the exact investment that matches your risk profile. By way of example, up until a few years ago, my wife and I were nearly 100% invested in stocks, mostly the S&P 500. When we retired, four years ago, I shifted a bit to be more conservative, closer to 80% stock 20% cash.\",\n \">I could be wrong but you will still get tax at 10% This isn't true for Roths. If I put 5k (post tax of course) money into a Roth 401k or a Roth IRA I can withdraw that 5k whenever I want penalty and tax free. Now lets say that 5k has grown to 7k and I take out all 7k the first 5k is penalty and tax free but the extra 2k is taxed (with the extra 10% penalty added on). So as long as you don't touch any growth in your roth accounts you can withdraw the principal amount with the same consequences you would experience if you were to take money out of your checking account at your bank. Also money in and IRA does not have to be invested it could be in a liquid position. Now a pre tax retirement account doesn't have the same luxury. If I stick 5k into a traditional IRA and it grows to 7k and I pull that money out the entire ammount gets taxed AND penalized (even the principal amount is subject the 10% penalty). Now if you do a Roth conversion (pre-tax to post-tax retirment account conversion) the principal ammount (the amount you paid taxes on) is still subject to the 10% penalty for 5 years. After the 5 years you can withdraw the converted ammount tax and penalty free (well you already paid the taxes) it would just be the growth that is subject to the penalty.\",\n \"mhoran answered the headline question, but you asked - Could someone shed some light on and differentiate between a retirement account and alternative savings plans? Retirement accounts can contain nearly anything that one would consider an investment. (yes, there are exception, not the topic for today). So when one says they have an S&P fund or ETF, and some company issued Bonds, etc, these may or may not be held in a retirement account. In the US, when we say 'retirement account,' it means a bit more than just an account earmarked for that goal. It's an account, 401(k), 403(b), IRA, etc, that has a special tax status. Money can go in pre-tax, and be withdrawn at retirement when you are in a lower tax bracket. The Roth flavor of 401(k) or IRA lets you deposit post-tax money, and 'never' pay tax on it again, if withdrawn under specific conditions. In 2013, a single earner pays 25% federal tax on taxable earnings over $36K. But a retiree with exactly $46K in gross income (who then has $10K in standard deduction plus exemption) has a tax of $4950, less than 11% average rate on that withdrawal. This is the effect of the deductions, 10% and 15% brackets. As with your other question, there's a lot to be said about this topic, no one can answer in one post. That said, the second benefit of the retirement account is the mental partitioning. I have retirement money, not to be touched, emergency money used for the broken down car or appliance replacement, and other funds it doesn't feel bad to tap for spending, vacations, etc. Nothing a good spreadsheet can't handle, but a good way to keep things physically separate as well. (I answered as if you are in US, but the answer works if you rename the retirement accounts, eg, Canada has similar tax structure to the US.)\",\n \"With a Roth IRA, you can withdraw the contributions at any time without penalty as long as you don't withdraw the earnings/interest. There are some circumstances where you can withdraw the earnings such as disability (and maybe first home). Also, the Roth IRA doesn't need to go through your employer and I wouldn't do it through your employer. I have mine setup through Fidelity though I'm not sure if they have any guaranteed 3% return unless it was a CD. All of mine is in stocks. Your wife could also setup a Roth IRA so over 2 years, you could contribute $20,000. If I was you, I would just max out any 403-b matches (which you surely are at 25% of gross income) and then save my down payment money in a normal money market/savings account. You are doing good contributing almost 25% to the 403-b. There are also some income limitations on Roth IRAs. I believe for a married couple, it is $160k.\",\n \"Why shouldn't I just keep my money in the savings account and earn the same amount (both accounts have the same APY in this case)? I will assume that you are transferring money from your savings account into a Traditional IRA and deducting the contribution from your income. While you may think that the money that is being transferred is yours already -- it is sitting in your savings account, for Pete's sake! -- you are deducting that amount in getting to your taxable income, and so you are effectively contributing it from current income and not paying taxes on the amount contributed. So, consider the same amount of money sitting in your savings account versus the same amount of money sitting in your Traditional IRA account. While you will earn the same amount of interest in both accounts, you will have to pay taxes each year on the interest earned in the savings account. You might choose, as most people do, to not take money out of the savings account to pay theses taxes but just pay them from ready cash/checking account/current income etc., or these taxes might just reduce the refund that you will getting from the IRS and your State income tax authority, but in either case, you have paid taxes on the interest earned in your non-IRA savings account, and of course, long ago, you also paid taxes on the original amount in the non-IRA savings account. So, if you take any money out of the non-IRA savings account, you don't pay any taxes on the amount withdrawn except possibly for the interest earned from January 1 till the date of withdrawal (which you are paying from ready cash). On the other hand, consider the Traditional IRA. The original deposit was not taxed in the sense that you got a deduction (reduced tax or increased refund) when you made the contribution. The annual interest earned was not taxed each year either. So when you make a qualified withdrawal (after age 59.5 or by meeting one of the other exceptions allowing withdrawal before age 59.5), you are taking money on which you have not paid any taxes at all, and the IRS wants its cut. The money withdrawn is taxable income to you. Furthermore, the money withdrawn is not eligible for any kind of favorable treatment such as having it count as qualified dividends or as long-term capital gains even if your IRA was invested in stocks and the money in the account is all qualified dividends or long-term capital gains. If you make an unqualified withdrawal, you owe a penalty (technically named an excise tax) in addition to income tax on the amount withdrawn. If you are investing in a Roth IRA, you will not be getting a deduction when you make the contribution, and qualified withdrawals are completely tax-free, and so the answer is completely different from the above.\",\n \"I recommend you consider a Roth IRA. Invest it as others here suggest, safely, CDs, money market,etc. You can put in $5000/yr. When you spend, use this last, there is no penalty to withdraw the deposits. But if you make it through grad school without needing it, you'll have great start on your retirement savings.\",\n \"As far as I know, there is no direct equivalent. An IRA is subject to many rules. Not only are there early withdrawal penalties, but the ability to deduct contributions to an IRA phases out with one's income level. Qualified withdrawals from an IRA won't have penalties, but they will be taxed as income. Contributions to a Roth IRA can be made post-tax and the resulting gains will be tax free, but they cannot be withdrawn early. Another tax-deductable investment is a 529 plan. These can be withdrawn from at any time, but there is a penalty if the money is not used for educational purposes. A 401K or similar employer-sponsored fund is made with pre-tax dollars unless it is designated as a Roth 401K. These plans also require money to be withdrawn specifically for retirement, with a 10% penalty for early withdrawal. Qualifying withdrawals from a regular retirement plan are taxed as income, those from a Roth plan are not (as with an IRA). Money can be made harder to get at by investing in all of the types of funds you can invest in using an IRA through the same brokers under a different type of account, but the contribution will be made with post-tax, non-deductable dollars and the gains will be taxed.\",\n \"So you wouldn't really be using the IRA money for building the house, but for padding your savings? I would just leave the money in the IRA. Don't take it out just in the off-chance you need it, especially when you already have money in savings. If you want to replenish your savings do it by putting some of your income in there.\",\n \"First you need to distinguish between short-term and long-term capital gains. In an IRA you can use investment strategies that incur short-term capital gains without being taxed as ordinary income. As mentioned in a comment above, with a Roth IRA, you can invest now at your low income tax rates and withdraw all gains without incurring any taxes at retirement time. You can also pull out your contributions penalty free before retirement age (59 1/2) if you've had the account for more than 5 years. You only pay taxes and penalties on the earnings. You can also make withdrawals for education expenses and you have one lifetime exclusion of $10,000 for a down-payment on a house.\",\n \"I would wait, and invest that money in a Roth IRA. Because taxes are paid on the contributions to a Roth IRA, you can withdraw the contributions at any time, tax and penalty-free. In addition, you can withdraw contributions and earning to purchase your first home.\",\n \"You can withdraw the contributions you made to Roth IRA tax free. Any withdrawals from Roth IRA count first towards the contributions, then conversions, and only then towards the gains which are taxable. You can also withdraw up to $10000 of the taxable portion penalty free (from either the Traditional IRA or the Roth IRA, or the combination of both) if it is applied towards the purchase of your first primary residence (i.e.: you don't own a place yet, and you're buying your first home, which will become your primary residence). That said, however, I cannot see how you can buy a $250K house. You didn't say anything about your income, but just the cash needed for the down-payment will essentially leave you naked and broke. Consider what happens if you have an emergency, out of a job for a couple of months, or something else of that kind. It is generally advised to have enough cash liquid savings to keep you afloat for at least half a year (including mortgage payments, necessities and whatever expenses you need to spend to get back on track - job searching, medical, moving, etc). It doesn't look like you're anywhere near that. Remember, many bankruptcies are happening because of the cash-flow problem, not the actual ability to repay debts on the long run.\",\n \"\\\"You could put in in a Money Market Fund. These are designed to always be $1 per share, and not lose money. Of course, it still, very rarely, happens and is called \\\"\\\"breaking the buck\\\"\\\" when they do. Sounds like the high yield savings is the way to go. The rates will be the same as what you can get from a Money Market Fund, but you also have the added advantage that the account is FDIC insured. BTW, using a Roth as an emergency fund is a terrible idea. It is true that, since you already paid taxes on your contributions, you can withdraw those contributions without incurring penalties. However, you have to file paperwork to do it, and since it's not common, the IRA custodian is likely to screw it up. Plus, you have to keep track of what were contributions, and what was investment returns, to not run afoul of the penalties. And it will take time to do it, which you may not have in an emergency. Considering you're only looking at getting 1% interest anyway, there's no reason to use a Roth account as an emergency fund. You can set those same automatic deposits into a savings account.\\\"\",\n \"Couple of factors here to consider: 1) The savings vehicle 2) The investments Savings Vehicle: Roth IRAs allow you the flexibility to save for retirement and/or your house. Each person can save up to $5,500 in a Roth and you can withdraw your principal at anytime without penalty. (There is a special clause for first time home buyers; however, it limits the amount to $10k per person. Given your estimate of $750k and history of putting down 20%. It would require a bit more.) The only thing is that you can't touch the growth or interest. When you do max out your Roth IRA, it may make sense for you to open a brokerage account (401Ks often have multiple steps in order to convert or withdraw money for your down payment) Investments: Given your timeline (5-7 years) your investments would be more conservative. (More fixed income) While you should stay diversified (both fixed income and equity), the conservative portfolio will allow less fluctuation in your portfolio value while allowing some growth potential.\",\n \"I'll summarize here our discussion in the comments. First thing to remember is that you can only deposit up to $6K/year into the Roth IRA, you cannot seed it with some large amount (unless its a rollover). Second thing to remember is that you can only qualify 10K distribution for the home purchase. With that in mind, it seems that you'll have to have extremly high returns to make use of the maximum tax benefit (15-20% of the 10K). Non-qualified distributions will be taxed at ordinary income rates + 10% penalty, so if you can't qualify the distribution, instead of saving money on taxes, you'll end up paying twice as much as you would have without the IRA. Also, keep in mind that reporting of the distributions and justifying the qualifications might require assistance of a tax preparer, which will also reduce your savings. Bottom line, IMHO, you'll end up with a wash or very insignificant savings (compared to the magnitude of the home purchase costs) at best, which renders the whole thing kindof wastefull.\",\n \"If I may echo the Roth comment - The Roth is a tax designation, not an end investment, so you still need to research and decide what's appropriate. I recommend the Roth for the long term investments, but keep in mind, even if you feel you may need to tap the Roth sooner than later, all deposits may be withdrawn at any time with no tax or penalty. Roth is great to store the emergency money for many if they aren't 100% sure they have enough cash to save for retirement. As you get further along, and see that you don't need it, change how it's invested to longer term, a mix of stocks (I prefer ETFs that mimic the S&P)\",\n \"Putting money into a Roth IRA or 401(k) will save you money if your taxes this year will be lower than your taxes in retirement. See also the Wikipedia retirement-savings matrix.\",\n \"There are no immediate tax-related benefits to putting money into a Roth IRA. You are investing after-tax money in the hope that the rules won't change and you'll be able to take out the money tax-free when you retire. Under current rules, you can take out your contributions at any time without penalties or taxes. You can't take out earnings without penalties until you retire. You said you don't have any debt (great!). So if you have cash that you don't have other uses for, and you don't mind possibly tying it up for a long time, you can put money into a Roth IRA. I'd argue that if you have, say, $25-50/month to put into long term savings, it's a good habit to start. When you move into a job that gives you more disposable income, you can increase this amount. The earlier you start, the lower the monthly amount you'll need to contribute towards a comfortable retirement. Once you get started putting a little bit away, you'll never miss it.\",\n \"The Roth is the mirror image of the Pre-Tax (traditional) IRA. The latter gives you a tax break now, the deposits go in pre-tax, and are withdrawn at your rate in retirement. The former lets you squirrel that money away now, post-tax, but never pay tax again. For young folk the Roth is a great way to go. My 12 year old has a Roth account, and paid no tax since she has her own exemption. At your level, you are probably in the 10% bracket now. Imagine investing that money and at retirement finding it's grown 100X (very possible), if it were in a Roth, you'd have no tax due. As BST noted, you are always free to withdraw the deposit, so if you decide this wasn't money you could actually put away long term you still have an out.\",\n \"Your question boils down to saving for a house or saving for retirement. Why not do both? If you invest in a Roth 401k or Roth IRA you can withdraw any contributions that are at least 5 years old without penalty (assuming you're willing to put off purchasing a little longer than your original 2-3 years). If you qualify as a first time home buyer (i.e. you haven't owned a home in at least 2 years) you can withdraw investment earnings as well if your distribution is earmarked towards the down payment and is no more than $10000. Although you won't be penalized for using investment earnings for a down payment you will still have to pay taxes on them. So this may be more appealing to someone that has enough contributions to avoid dipping into the investment earnings. The only other downside is that contributions to a Roth investment are not tax deductible like Traditional IRA and 401k contributions are. Instead, they grow tax free and distributions are tax free when you reach retirement age.\",\n \"Both of the other posters have some really good points worth remembering about the stability/liquidity of a savings account and the often overlooked fact that you can withdraw any money you put in to a Roth IRA because it's already been taxed. I'm 28 and found myself in a similar situation as you about a year or so ago. I wanted a relatively liquid place that I could store and grow some money. CD's and Savings accounts just weren't getting a high enough rate to make a return work for me, especially with only a little money to start. I would highly suggest checking out a social lending platform like Prosper.com or Lendingclub.com. I use Prosper.com and this platform will give you some really nice benefits: Here's a good article that can explain more about it and get you started: http://www.financialsamurai.com/investing-in-peer-to-peer-lending-with-prosper-com/ just keep in mind that while there is some liquidity here (you can resell the notes you invest in) generally speaking expect to hold on to those notes for at least 3 years (your share of the paid principal gets paid out to you in addition to the interest each month.)\",\n \"Adding to the excellent answers already given, we typically advise members to contribute as much as needed to get a full employer match in their 401K, but not more. We then redirect any additional savings to a traditional IRA or ROTH IRA (depending on their age, income, and future plans). Only once they've exhausted the $5000 maximum in their IRA will we look at putting more money into the 401K. The ROTH IRA is a beautiful and powerful vehicle for savings. The only reason to consider taking money out of the ROTH is in a case of serious catastrophe.\",\n \"\\\"Yes, it is possible to withdraw money from your Roth IRA before retirement (but I wouldn't necessarily advise you to do so.) Here's the good news, and the bad news: The good news: Unlike a traditional IRA, money contributed to a Roth IRA is done so on an after-tax basis, meaning you don't benefit from a tax deduction on contributions. So, the money you withdraw from your Roth IRA will not be taxed entirely as ordinary income. In fact, you are allowed to withdraw the amount of your original contributions (also known as basis) without any taxes or penalties. Let's imagine you originally deposited $9000 of that current $10K total value – then in such a case, $9000 could be withdrawn tax and penalty free. The bad news: When it comes to the investment earnings – the other $1000 in my example – it's a different story: Since you wouldn't be age 59 1/2 at the time of withdrawal, any money taken out beyond your original contributions would be considered a non-qualified withdrawal and subject to both ordinary income taxes plus a 10% early withdrawal penalty. Ouch! Perhaps you might want to restrict your withdrawal to your original contributions. I would imagine if you've had the account for such a short period of time that much or all of your account value is original contributions anyway. A good article about the rules for early IRA withdrawals is About.com's Tax Penalty for Early Distribution of Retirement Funds. Note: If your Roth IRA funds were the result of a rollover from another account type, other rules may apply. See Roth IRA (Wikipedia) for more detail; search for \\\"\\\"rollover\\\"\\\". Regarding the withdrawal process itself and the timing, you should check with your account custodian on how to proceed.\\\"\",\n \"Your question indicates confusion regarding what an Individual Retirement Account (whether Roth or Traditional) is vs. the S&P 500, which is nothing but a list of stocks. IOW, it's perfectly reasonable to open a Roth IRA, put your $3000 in it, and then use that money to buy a mutual fund or ETF which tracks the S&P 500. In fact, it's ridiculously common... :)\",\n \"You bring up a valid concern. IRAs are good retirement instruments as long as the rules don't change. History has shown that governments can change the rules regarding retirement accounts. As long as you have some of your retirement assets outside of an IRA I think IRAs are good ways to save for retirement. It's not possible to withdraw the money before retirement without penalty. Also, you will be penalized if you do not withdraw enough when you do retire.\",\n \"401(k) can come in traditional and Roth forms, as can IRAs. Roth IRA money is not locked away for 40 years, only the earnings are locked away, and earnings can also be withdrawn for special cases. You might not be able to invest in an IRA if your income is too high, and if you don't get a match for your 401(k), that might not be the best option either. The biggest advantage of the 401(k) is the match (if it exists) if there's no match, the second biggest advantage is the tax deferral. If you are in a low tax bracket, that isn't as big of an advantage either. I would say that there are plenty of reasons why you might not max out the 401(k) for savings, but it's pretty easy to max out the Roth IRA if that makes more sense, so there aren't a lot of reasons why not.\",\n \"You are permitted to withdraw the deposits from the Roth with no tax or penalty any time. To Dilip's point, the Roth is a good place to keep the investment, and what you might consider is a 'self-directed' account. This type of IRA or Roth IRA permits a choice of investments that are not typically handled by banks or brokers, including Real Estate and the type of Angel investing you seem to be considering. Note - the rules are tough, you need to be very careful to not be self-dealing, or dealing with certain related parties.\",\n \"Sounds like a bad idea. The IRA is built on the power of compounding. Removing contributions will hurt your retirement savings, and you will never be able to make that up. Instead, consider tax-free investments. State bonds, Federal bonds, municipal bonds, etc. For example, I invest in California muni bonds fund which gives me ~3-4% annual dividend income - completely tax free. In addition - there's capital appreciation of your fund holdings. There are risks, of course, for example rate changes will affect yields and capital appreciation, so consult with someone knowledgeable in this area (or ask another question here, for the basics). This will give you the same result as you're expecting from your Roth IRA trick, without damaging your retirement savings potential.\",\n \"Your question seems like you don't understand what a Roth IRA is. A Roth IRA isn't an investment, per se. It is just a type of account that receives special tax treatment. Just like a checking and savings account are different at a bank, a ROTH IRA account is just flagged as such by a brokerage. It isn't an investment type, and there aren't really different ROTH IRA accounts. You can invest in just about anything inside that account so that is what you need to evaluate. One Roth IRA account is as good as any other.As to what to invest your money in inside a ROTH, that is a huge question and off-topic per the rules against specific investing advice.\",\n \"the $5500 Roth IRA is not restricted to earned income, you can put whatever money you have tax free and gains free.\",\n \"Roth IRAs divide your withdrawal into 3 categories: Contributions, Conversions, and Earnings. This is significant, because each have different tax consequences and the order of withdrawal is dictated by tax law. You can withdraw your contributions in less than 5 years for any reason (home buyer or not). You cannot withdraw your conversions or earnings without waiting 5 years unless you pay the 10% penalty. The home buyer exemption is only after the 5 years are met. Further detail found on the motley fool: home purchase exemption, distributions, early withdrawals.\",\n \"If you can afford it, there are very few reasons not to save for retirement. The biggest reason I can think of is that, simply, you are saving in general. The tax advantages of 401k and IRA accounts help increase your wealth, but the most important thing is to start saving at an early age in your career (as you are doing) and making sure to continue contributing throughout your life. Compound interest serves you well. If you are really concerned that saving for retirement in your situation would equate to putting money away for no good reason, you can do a couple of things: Save in a Roth IRA account which does not require minimum distributions when you get past a certain age. Additionally, your contributions only (that is, not your interest earnings) to a Roth can be withdrawn tax and penalty free at any time while you are under the age of 59.5. And once you are older than that you can take distributions as however you need. Save by investing in a balanced portfolio of stocks and bonds. You won't get the tax advantages of a retirement account, but you will still benefit from the time value of money. The bonus here is that you can withdraw your money whenever you want without penalty. Both IRA accounts and mutual fund/brokerage accounts will give you a choice of many securities that you can invest in. In comparison, 401k plans (below) often have limited choices for you. Most people choose to use their company's 401k plan for retirement savings. In general you do not want to be in a position where you have to borrow from your 401k. As such it's not a great option for savings that you think you'd need before you retire. Additionally 401k plans have minimum distributions, so you will have to periodically take some money from the account when you are in retirement. The biggest advantage of 401k plans is that often employers will match contributions to a certain extent, which is basically free money for you. In the end, these are just some suggestions. Probably best to consult with a financial planner to hammer out all the details.\",\n \"\\\"1) Indeed, if referring to a Roth as the question is, you are right on. But - You can deposit to an Traditional IRA (TIRA). You just can't deduct it. You are then permitted to convert that to a Roth any time. Now, this would appear to negate income issues, right? Not so fast. When you convert, all TIRA accounts must be considered. In other words, when it comes to the TIRA, you only have One TIRA, the \\\"\\\"A\\\"\\\" actually standing for Arrangement, not account. That TIRA may then be spread over as many accounts as you have time to set up. So, if there is any pretax money and/or untaxed gain, it will be prorated and taxed based on your conversion amount. If any of this is not 110% clear, please comment and I will update the answer. No 401(k) at work? Note: I edited as my original wording misunderstood the response, and in turn, appeared a bit unkind. Not my intention.\\\"\",\n \"\\\"Chris's answer is a great start. Keep in mind that when you withdraw from a Roth IRA, you \\\"\\\"shrink\\\"\\\" the size of the IRA (i.e. if the start up flourishes, you can't put the $10k you withdrew back, as you're limited to ~$5k in contributions per year). You may want to consider funding your startup with a credit card (ideally a balance transfer of $10k at 0% interest). If you need to, you can always pay your card off with your Roth balance, but if the startup takes off, your IRA is unharmed. (On a side note, I wouldn't feel comfortable quitting my job to do a startup with only $10k in savings, but to each his own!)\\\"\",\n \"Being from the UK, I'd not heard of a Roth IRA, but it sounds very similar to our own ISA (Individual Savings Account). Having just looked it up, I couldn't believe the annual limit was so low: $5500! Still, you have to work within your jurisdiction's legal framework (or agitate for change?). I would definitely agree with Ben Miller's answer: you need different savings buckets for the different savings objectives you'll have throughout the different periods of your life. I, for instance, am now a parent of two young children. I am fortunate to be able to provide for them on multiple levels: I hope that's of some help.\",\n \"Actually there has been lots of talk around using a TFSA (Tax Free Savings Account) in Canada for just that purpose. A TFSA allows you: This blog makes some good points about exactly that: The bestest thing about the TFSA is its flexibility. You can take money out of your TFSA at any time for any purpose, without losing the contribution room, which makes this account the number one choice for socking away an emergency fund. So even if you take money out in one year, you can put it back the next, without affecting that year’s $5,000 contribution limit.\",\n \"\\\"IRAs have huge tax-advantages. You'll pay taxes when you liquidate gold and silver. While volatile, \\\"\\\"the stock market has never produced a loss during any rolling 15-year period (1926-2009)\\\"\\\" [PDF]. This is perhaps the most convincing article for retirement accounts over at I Will Teach You To Be Rich. An IRA is just a container for your money and you may invest the money however you like (cash, stocks, funds, etc). A typical investment is the purchase of stocks, bonds, and/or funds containing either or both. Stocks may pay dividends and bonds pay yields. Transactions of these things trigger capital gains (or losses). This happens if you sell or if the fund manager sells pieces of the fund to buy something in its place (i.e. transactions happen without your decision and high turnover can result in huge capital gains). In a taxable account you will pay taxes on dividends and capital gains. In an IRA you don't ever pay taxes on dividends and capital gains. Over the life of the IRA (30+ years) this can be a huge ton of savings. A traditional IRA is funded with pre-tax money and you only pay tax on the withdrawal. Therefore you get more money upfront to invest and more money compounds into greater amounts faster. A Roth IRA you fund with after-tax dollars, but your withdrawals are tax free. Traditional versus Roth comparison calculator. Here are a bunch more IRA and 401k calculators. Take a look at the IRA tax savings for various amounts compared to the same money in a taxable account. Compounding over time will make you rich and there's your reason for starting young. Increases in the value of gold and silver will never touch compounded gains. So tax savings are a huge reason to stash your money in an IRA. You trade liquidity (having to wait until age 59.5) for a heck of a lot more money. Though isn't it nice to be assured that you will have money when you retire? If you aren't going to earn it then, you'll have to earn it now. If you are going to earn it now, you may as well put it in a place that earns you even more. A traditional IRA has penalties for withdrawing before retirement age. With a Roth you can withdraw the principal at anytime without penalty as long as the account has been open 5 years. A traditional IRA requires you take out a certain amount once you reach retirement. A Roth doesn't, which means you can leave money in the account to grow even more. A Roth can be passed on to a spouse after death, and after the spouse's death onto another beneficiary. more on IRA Required Minimum Distributions.\\\"\",\n \"\\\"The Roth vs not debate is irrelevant to the question. It doesn't matter where your emergency fund is kept, as long as it is liquid and safe. I said it before in an answer to another question: your emergency fund is not an investment -- it's your safety net This answer also says it well: an \\\"\\\"emergency fund\\\"\\\" is just that... for emergencies... NOT investment. While it \\\"\\\"hurts\\\"\\\" not to have your emergency money making more money... its MORE IMPORTANT to have quick access to it. So at TD Ameritrade, just park it in their FDIC deposit account. It will not earn any meaningful interest (at least until rates rise), but you'll be able to have access to it when you need it. Note that I would caution against putting it in a money market mutual fund. They're safer than many other investments, but they're not FDIC insured against loss and there is a potential for temporary loss of liquidity. In late 2008 when the credit markets collapsed, a lot of people suddenly became unemployed -- and needed access to their emergency funds. When Lehman Brothers went bust in September, the Reserve Primary Fund (with billions of dollars in their fund) \\\"\\\"broke the buck\\\"\\\" -- they lowered the price of shares below $1, meaning investors lost principal. The worst part is that investors were not as liquid as they wanted to be: the fund froze and it was hard to get money out. The lesson to take away from this is that one of the times you're likely to need access to your emergency fund is during a macroeconomic crisis. This is also the time when any investment that isn't guaranteed safe may potentially be (at least temporarily) unavailable or decline in value. Emergency funds should be 100% government insured. When you have your Roth funded to the point where there's extra money beyond the emergency fund, you can start investing in higher-yielding vehicles: stock or bond index ETFs would be a good start. But then that part of your Roth starts to look like a retirement account and not an emergency fund. If it were me, I'd open a Roth at a stable local bank and just keep it in their FDIC insured money market deposit account. Then if I wanted a slight boost, I might put the \\\"\\\"upper half\\\"\\\" of my emergency fund into short term CDs, but even CDs aren't worth much at the moment.\\\"\",\n \"If the time horizon is 5 years, I don't think that playing games with Roth IRAs or investments is really productive. I'd look at an online savings account as a holding place for this money. EDIT: Another option is the US is Savings Bonds. The rates earned right now are poor (as of 04/2011 EE bonds earn 0.6% and I bonds yielded 0.37%), and there is an interest penalty if you redeem them in less than five years. But, they are not state taxable, and you can defer tax payments until you cash them.\",\n \"I'm afraid you're mistaking 401k as an investment vehicle. It's not. It is a vehicle for retirement. Roth 401k/IRA has the benefit of tax free distributions at retirement, and as long as you're in the low tax bracket - it is for your benefit to take advantage of that. However, that is not the money you would be using to start a business or buy a home (except for maybe up to $10K you can withdraw without penalty for first time home buyers, but I wouldn't bother with $10k, if that's what will help you buying a house - maybe you shouldn't be buying at all). In addition, you should make sure you take advantage of the employer 401k match in full. That is free money added to your Traditional 401k retirement savings (taxed at distribution). Once you took the full advantage of the employer's match, and contributed as much as you consider necessary for your retirement above that (there are various retirement calculators on line that can help you in making that determination), everything else will probably go to taxable (regular) savings/investments.\",\n \"Just the amount contributed to the Roth 401k that you rolled over, not the conversions from regular 401k/traditional IRA (for those there are holding period limitation of 5 year from conversion), the earning on it or the employer's match (neither of these can be withdrawn without penalty as a non-qualified withdrawal). However, I'd suggest not to withdraw from Roth IRA unless you're sleeping on a bench in a park and beg strangers for a piece of bread. This is the best retirement investment you can make while you're in the lower tax brackets, and withdrawing it would reduce dramatically your tax-free retirement income.\",\n \"You can contribute to a Traditional IRA instead of a Roth. The main difference is a contribution to a Roth is made with after tax money but at retirement you can withdraw the money tax free. With a Traditional IRA your contribution is tax-deductible but at retirement the withdrawal is not tax free. This is why most people prefer a Roth if they can contribute. You can also contribute to your work's 401k plan assuming they have one. And you can always save for retirement in a regular account.\",\n \"Comparing retirement savings to ordinary investment is not an apples-to-apples comparison - retirement savings are savings for retirement - if you want to invest in things now and live off of (or reinvest) those earnings, then retirement accounts are not the right vehicle. That said, here are some benefits of the main types of retirement accounts: Benefits of a 401(k): Benefits of a tratitional IRA: Benefits of a ROTH 401(k): Benefits of a ROTH IRA: (the benefits above are not exhaustive, there are other benefits such as using a ROTH IRA for higher ed. expenses, etc. but those are the highlights) If you have a plan for how you hope to use the money now rather than later does it make sense to hold onto it? If your plan is meant to provide income at retirement, and earns returns higher than the returns plus matches and tax benefits you get from retirement accounts, then yes, it may make more sense, but those benefits are generally very hard to beat. Plus, having the money locked away in an account that is painful to tap can be a good thing - you're less tempted to use that money for foolish decisions (which everyone makes at some point).\",\n \"Lets do the math (assuming a lot of stuff, like your interest rates and that you make the contribution at the beginning of the year, also your tax bracket at the withdrawal time frame.) 1.) Beginning of year 1 Roth Option $5k contribution Non Roth Option $5k contribution 2.) Beginning of year 2 Roth Option $5000 + $150 interest + 5K contribution = $10150 Non Roth Option $5000 + $75 interest + 5K contribution = $10075 3.) End of year 2 Buy a house! yay! Roth Option---before withdrawal account value = 10150+10150*.03=10454.5 after withdrawl (assuming 38% tax on earnings withdrawal (10%penalty + 28% income tax estimate.) = 10327.17 Non Roth Option = 10 226.125 So you are talking about a significant amount of paperwork to either 1.) Net yourself $100 toward the purchase 2.) Cost yourself $226 on the purchase but have $454.50 in your roth ira. I am not sure I would do that, but it might be worth it.\",\n \"A Roth IRA is just an account wrapper. Inside a Roth IRA you can have a plain 0.1% savings account, or a brokerage account, or an annuity or whatever. There's no rate of return for a Roth IRA. That particular calculator seems to assume you'll be wrapping a brokerage account in a Roth IRA and investing in the stock market. Over a long period 6% is probably a reasonable rate of return considering the S&P 500 has returned about 7% over the last decade.\",\n \"If you are going to be buying a house in 1-2 years, I would be putting my money into a short term holding area like a high interest (which isn't that high right now) or a CD (also low interest) because of your near-term need. I wouldn't use the Roth option for your down payment money. If you invest in something volatile (and stocks/mutual funds are very volatile in a 1-2 year term) I would consider it too risky for your need and time frame.\",\n \"The primary advantage of an IRA or 401k is you get taxed effectively one time on the money (when you contribute for Roth, or when you withdraw for Traditional), whereas you get taxed effectively multiple times on some of the money in a taxable account (on all the money when you contribute, plus on the earnings part when you withdraw). Of course, you have to be able to withdraw without penalty for it to be optimally advantageous. And you said you want to retire decades early, so that is probably not retirement age. However, withdrawing early does not necessarily mean you have a penalty. For example: you can withdraw contributions to a Roth IRA at any time without tax or penalty; Roth 401k can be rolled over into Roth IRA; other types of accounts can be converted to Roth IRA and the principal of the conversion can be withdrawn after 5 years without penalty.\",\n \"Well, a couple things to keep in mind: Even if you have enough to meet the minimum initial amount, you need to have at least that much income in the year you make the contribution. You'll probably be best served saving up in a savings account so that by the time you have an income (and can thus make contributions), you have enough cash to meet the minimum initial contribution.\",\n \"There are a couple reasons for having a Traditional or Roth IRA in addition to a 401(k) program in general, starting with the Traditional IRA: With regards to the Roth IRA: Also, both the Traditional and Roth IRA allow you to make a $10,000 withdraw as a first time home buyer for the purposes of buying a home. This is much more difficult with the 401(k) and generally you end up having to take a loan against the 401(k) instead. So even if you can't take advantage of the tax deductions from contributions to a Traditional IRA, there are still good reasons to have one around. Unless you plan on staying with the same company for your entire career (and even if you do, they may have other plans) the Traditional IRA tends to be a much better place to park the funds from the 401(k) than just rolling them over to a new employer. Also, don't forget that just because you can't take deductions for the income doesn't mean that you might not need the income that savings now will bring you in retirement. If you use a retirement savings calculator is it saying that you need to be saving more than your current monthly 401(k) contributions? Then odds are pretty good that you also need to be adding additional savings and an IRA is a good location to put those assets because of the other benefits that they confer. Also, some people don't have the fiscal discipline to not use the money when it isn't hard to get to (i.e. regular savings or investment account) and as such it also helps to ensure you aren't going to go and spend the money unless you really need it.\",\n \"\\\"With these income levels you cannot deduct any IRA contribution. I.e.: you cannot save pre-tax, as you want. But you still can contribute to IRA (as a non-deductible contribution), and using the \\\"\\\"loophole\\\"\\\" transfer the contribution to Roth (you are probably over the limit to be able to contribute to Roth directly). For pre-tax contributions - max out your 401k.\\\"\",\n \"\\\"The IRA contribution limit is a limit on the total amount you can contribute to all of your Roth and traditional IRAs. It's not a per-account limit. (See here and here.) Once you've hit the contribution limit on one account, you've hit it on all of them. Even so, supposing you had a reason with try to take money out of one of the accounts, the answer to your question is \\\"\\\"sort of\\\"\\\". The limit is a limit on your gross contributions, not your net contributions. It is possible to withdraw Roth contributions if you do so before the tax filing deadline for that year, but you must also withdraw (and pay taxes on) any earnings accured during the time the money was in the Roth (see here). In addition, doing this may not be as simple as just taking the money out of your account; you should probably ask your bank about it and let them know you're \\\"\\\"undoing\\\"\\\" the contribution, since they may otherwise still record the amount as a real contribution and the withdrawal as unqualified early withdrawal (subject to penalties, etc.).\\\"\",\n \"No, you cannot. If you withdraw everything from all your Roth IRA's and end up with less than the total basis - you can deduct the difference on your schedule A (at the time of the last withdrawal) as an itemized deduction (as misc. deductions with 2% AGI cap). Regular IRA's are pre-tax, you cannot deduct anything from them.\",\n \"lol @ savings accounts. I don't use savings accounts. I just use checking for liquidity and invest everything else. Now if you have a job that prohibits trading on your own account that's understandable but if you have the knowledge might as well use it and make some $$$\",\n \"Your max contribution to your Roth IRA and your traditional IRA share the same cap, so if you are maxing your Roth IRA you cannot have a traditional one as well. I would put the additional into your 401k or perhaps a 529 if you have any kids.\",\n \"I would not suggest closing out your Roth IRA -- Couple of reasons for that - 1) Since you've been contributing to it for 15 years, your investments have probably grown, seen dividends, etc. If you close it out, you will owe taxes and be slapped with a 10% penalty on the growth (money you didn't contribute). That's quite a waste of hard earned money. 2) While your income may exceed the contribution limit of a Roth, you could do what's called a 'backdoor' Roth - which is really just converting your after tax contributions into an IRA into a Roth IRA. 3) Given the length of your contributions your Roth IRA is seasoned (5 years) This allows you to use up to 10k for your house if you chose. (Usually not an option people use) Other than that, consider paying off the student loans with the highest interest first.\",\n \"If the IRA is costing you $100 a year, you should almost certainly transfer it to a cheaper provider, regardless of whether you're going to withdraw anything. You can transfer the IRA to another provider that doesn't charge you the fees. Or you can convert it to Roth and combine it with your existing Roth. Either way, you will keep all the money, and save $100 per year in the future. If you want to take money out of your retirement accounts, you should take it out of your Roth IRA, because you can withdraw contributions (i.e., up to the amount you contributed) from the Roth without tax or penalty. Whether you should withdraw anything from your retirement accounts is a different question. If you're already maxing out your Roth IRA, and you have sufficient retirement savings, you could just instead plow that $5500 into your student loans. (If you can afford it, of course, it'd be better to just pay the $7500 from your income and still contribute to the retirement accounts.) There's no reason to withdraw from retirement accounts to pay loans when you could just divert current income for that purpose instead.\",\n \"The Roth IRA will provide no tax benefit to you if you are contributing after-tax money and then removing it immediately. Also there is more information on tax benefits for parents of disabled children (and a real phone number, I tried calling) at http://www.irs.gov/uac/Tax-Benefits-for-Disabled-Taxpayers\",\n \"One thing to keep in mind is that with Roth accounts, there are different withdrawal considerations based on your contributions. For example, you can withdraw Roth IRA contributions whenever you want in the future. However this really has nothing to do with your cost basis and purely to do with the contribution amount vs balance.\",\n \"Five years is too short to be able to safely invest the money in any productive manner. You're saving, not investing. Part of the problem is that you don't have all the money right now, and you'll need to add to it over the next few years until you have enough for a down payment. See the notes under CDs and bonds below for why this is a problem. The universe of options: As for the Roth, as duffbeer703 said, I'm not sure it's worth the hassle and risk that you'll want the money sooner and be forced to wait. (E.g. you end up with enough money in 4.25 years for a house that you want but you have to wait 9 months to be able to tap the Roth.) As noted above, the yields are so low that the losses to taxes aren't really going to amount to much. On $10k you're looking at $150 max earnings, and losing maybe $40 of it to taxes (annually). So avoiding taxes won't shrink your time horizon by any meaningful amount. I'd just open a high yield savings account and start dumping money in. Keep an eye on shorter term (1yr) CD rates and if they go above the savings yield and the timing is right then take advantage of it.\",\n \"Some banks and credit unions have IRA accounts. They pay interest like a savings account or a CD but they are an IRA. After the 15th you can roll them over into a IRA at one of the big investment companies so you can get invest in an index or Target Retirement Fund. But it is not too late. Opening an account at one of the big companies takes ten minutes (you need to know your social security number and your bank account info) they can pull it out of your bank account. I helped my kid do the same thing this week. We went on-line Tuesday night, and they pulled the money from his account on Thursday morning. Also know which type you want (Roth or regular) before you start. Also make sure you specify that the money is for 2013 not 2014.\",\n \"\\\"Yes. I describe the Roth flavor as \\\"\\\"denser.\\\"\\\" For those with more money they wish to save this factor should be added to the mix. Of course you can save $16500 + 5000 (in an IRA) for $21500 total pretax if you wish (and are within the limits.)\\\"\",\n \"\\\"Investopedia probably should change the wording to \\\"\\\"tax free\\\"\\\" since all of the gains in a Roth IRA can be withdrawn without any additional taxes at retirement time. Tax deferred should only refer to the gains in a traditional IRA. \\\"\\\"Tax advantaged\\\"\\\" might be a reasonable term to use in both cases.\\\"\",\n \"Yes, it's possible to withdraw money without penalty but you have to do it in a special way. For example you have to withdraw the same amount every year until you retire: Tapping Your IRA Penalty-Free as for unstable economy - you can trade many instruments in your IRA. you can do bonds, mutual funds, stocks, ETFs or just keep it in cash. Some do well in bad economy.\",\n \"If by exempt, you're just referring to the fact that the income is less than your standard deduction and personal exemption, then yes, that money can be used to fund a Roth. Great time to do it. To be clear, in 2014 the limit for an under 50 year old, is $5500 ($6500 if 50 or older). Only earned income may be used for deposits. No interest, dividends, etc.\",\n \"You can take out the contributions to your Roth tax and penalty free. That's the good thing. Anything above the amount you contributed that you withdraw early will cost you ordinary income tax (which is higher than capital gains tax) plus a 10 percent penalty on that amount. So if you have $15,000 in the account and $5,000 is gains and you withdraw $11,000, then you owe tax and penalty on $1,000. The penalty is 10% and your taxes (high taxes!) are added to that. Pretty bad deal. If you kept it in a normal account and paid capital gains tax, you just pay 15% (or whatever) on your gains and you get to offset income tax with your losses via tax loss harvesting. So back to your question: your idea works even better than you suggested if you only withdraw up to the amount that you contributed (you pay no tax!). Take out any of the gains and you will be penalized more than you would if you just paid capital gains on them. Leave those in until you are old enough to take them out penalty and tax free. To me, contributing to a Roth, making a bunch of gains on it, and withdrawing only the contribution part whenever you want seems to make good sense.\",\n \"You do not have to wait 5 years from when a particular dollar was earned to withdraw it. To be a qualified distribution from a Roth IRA, A) the Roth IRA must have been opened for 5 years (which yours was), and B) you must be 59.5 years old, or meet one of the other exceptions (and $10,000 for a first-time home purchase is one of the exceptions). Since it is a qualified distribution, there is no tax or penalty.\",\n \"\\\"Basically, the idea of an IRA is that the money is earned by you and would normally be taxed at the individual rate, but the government is allowing you to avoid paying the taxes on it now by instead putting it in the account. This \\\"\\\"tax deferral\\\"\\\" encourages retirement savings by reducing your current taxable income (providing a short-term \\\"\\\"carrot\\\"\\\"). However, the government will want their cut; specifically, when you begin withdrawing from that account, the principal which wasn't taxed when you put it in will be taxed at the current individual rate when you take it out. When you think about it, that's only fair; you didn't pay taxes on it when it came out of your paycheck, so you should pay that tax once you're withdrawing it to live on. Here's the rub; the interest is also taxed at the individual rate. At the time, that was a good thing; the capital gains rate in 1976 (when the Regular IRA was established) was 35%, the highest it's ever been. Now, that's not looking so good because the current cap gains rate is only 15%. However, these rates rise and fall, cap gains more than individual rates, and so by contributing to a Traditional IRA you simplify your tax bill; the principal and interest is taxed at the individual rate as if you were still making a paycheck. A Roth IRA is basically the government trying to get money now by giving up money later. You pay the marginal individual rate on the contributions as you earn them (it becomes a \\\"\\\"post-tax deduction\\\"\\\") but then that money is completely yours, and the kicker is that the government won't tax the interest on it if you don't withdraw it before retirement age. This makes Roths very attractive to retirement investors as a hedge against higher overall tax rates later in life. If you think that, for any reason, you'll be paying more taxes in 30 years than you would be paying for the same money now, you should be investing in a Roth. A normal (non-IRA) investment account, at first, seems to be the worst of both worlds; you pay individual tax on all earned wages that you invest, then capital gains on the money your investment earns (stock gains and dividends, bond interest, etc) whenever you cash out. However, a traditional account has the most flexibility; you can keep your money in and take your money out on a timeline you choose. This means you can react both to market moves AND to tax changes; when a conservative administration slashes tax rates on capital gains, you can cash out, pay that low rate on the money you made from your account, and then the money's yours to spend or to reinvest. You can, if you're market- and tax-savvy, use all three of these instruments to your overall advantage. When tax rates are high now, contribute to a traditional IRA, and then withdraw the money during your retirement in times where individual tax rates are low. When tax rates are low (like right now), max out your Roth contributions, and use that money after retirement when tax rates are high. Use a regular investment account as an overage to Roth contributions when taxes are low; contribute when the individual rate is low, then capitalize and reinvest during times when capital gains taxes are low (perhaps replacing a paycheck deduction in annual contributions to a Roth, or you can simply fold it back into the investment account). This isn't as good as a Roth but is better than a Traditional; by capitalizing at an advantageous time, you turn interest earned into principal invested and pay a low tax on it at that time to avoid a higher tax later. However, the market and the tax structure have to coincide to make ordinary investing pay off; you may have bought in in the early 90s, taking advantage of the lowest individual rates since the Great Depression. While now, capital gains taxes are the lowest they've ever been, if you cash out you may not be realizing much of a gain in the first place.\\\"\",\n \"If you have the cash on hand to pay the tax on the amount you are transferring I recommend moving to a Roth IRA An IRA is tax-deferred. You put in pretax contributions in to an IRA, and you are taxed on that money (your contributions and interest earned) when you withdraw it at retirement, age 59 1/2. The idea being that you will be taking less out per year in your retirement years, putting you into a lower tax bracket. The major problem is most people draw out as much or more a year in their retirement years than when they were working. A Roth IRA grows tax free You put after tax contributions into a Roth IRA, you have paid taxes on the contributions, and you are never taxed on the growth. When you draw the money out at retirement you don't pay any income taxes on that money. Let me give you an example: For this example we will use the following information for both scenario: We will invest $400 per month for a total of $4800. The current maximum is $5000 if you are under 50 years old $400 dollars after taxes is $300 Invest $300 a month, at age 65 you have 3,529,432 You owe no taxes on this money, it doesn't matter how much you take out a year. $400 dollars a month is taken pretax out of your paycheck. Invest $400 per month, at age 65 you have $4,705,909 You owe taxes of 25% as you draw that out for at total tax of 1,176,477 4,705,909 - 1,176,477 = 3,529,432 cash in your pocket The problem is if you draw out more than $82,400 (current 2010 filing single) per year you will be pushed to a higher tax bracket and take more of your money away. If you decide to buy a vacation home and you take out $250,000 to pay for it, that's counted as income for that year any you will be in the 33% tax bracket. Even if you can keep yourself to a low income the government forces your hand and makes you draw out more money at age 70, based on their tables, forcing you into a higher tax bracket\",\n \"From what these people are saying, it is impossible for you to put $5,500 in if it were a Roth though, because the money has to be taxed. You are correct that this is wrong. You can still put $5,500 in a Roth - the tax payment comes when you file, not when you make the investment. This is when the Roth is better than a Traditional IRA, when you can invest the max either way. Yes you get the tax break for the Traditional investment, and if you invest the tax savings you'll be in the same spot, all else being equal. If you only have a certain amount (after taxes) to invest, say $3,000 in a 25% marginal tax bracket, then it works out the same either way. You can either invest $3,000 in a Roth and let it grow tax free, or put $4,000 in a traditional IRA since you can deduct $1,000 (15%) from your taxes when you file. Then your tax-adjusted balance when you withdraw is the same, since you'll have a lot more (33% more in fact) in your traditional IRA but will have to pay tax on the withdrawals.\",\n \"For the Roth the earnings: interest, dividends, capital gains distributions and capital gains are tax deferred. Which means that as long as the money stays inside of a Roth or is transferred/rolled over to another Roth there are no taxes due. In December many mutual funds distribute their gains. Let's say people invested in S&P500index fund receive a dividend of 1% of their account value. The investor in a non-retirement fund will be paying tax on that dividend in the Spring with their tax form. The Roth and IRA investors will not be paying tax on those dividends. The Roth investor never will, and the regular IRA investor will only pay taxes on it when they pull the money out.\",\n \"\\\"In a Roth IRA scenario, this $5,000 would be reduced to $3,750 if we assume a (nice and round) 25% tax rate. For the Traditional IRA, the full $5,000 would be invested. No, that's not how it works. Taxes aren't removed from your Roth account. You'll have $5,000 invested either way. The difference is that you'll have a tax deduction if you invest in a traditional IRA, but not a Roth. So you'll \\\"\\\"save\\\"\\\" $1,250 in taxes up front if you invest in a traditional IRA versus a Roth. The flip side is when you withdraw the money. Since you've already paid tax on the Roth investment, and it grows tax free, you'll pay no tax when you withdraw it. But you'll pay tax on the investment and the gains when you withdraw from a traditional IRA. Using your numbers, you'd pay tax on $2.2MM from the traditional IRA, but NO TAX on $2.2MM from the Roth. At that point, you've saved over $500,000 in taxes. Now if you invested the tax savings from the traditional IRA and it earned the same amount, then yes, you'd end up in the same place in the end, provided you have the same marginal tax rate. But I suspect that most don't invest that savings, and if you withdraw significant amount, you'll likely move into higher tax brackets. In your example, suppose you only had $3,750 of \\\"\\\"discretionary\\\"\\\" income that you could put toward retirement. You could put $5,000 in a traditional IRA (since you'll get a $1,250 tax deduction), or $3,750 in a Roth. Then your math works out the same. If you invest the same amount in either, though, the math on the Roth is a no-brainer.\\\"\",\n \"If you are earning a salary, go for Roth IRA. You can contribute $5500 (2013 limits) every year . Once you open a account , let say Fidelity or Vanguard, you should invest based on risk appetite into some funds. the advantage is that your money grows tax free and when you are 25- 30 years old and need money for down payment of house, you can pull the money out with out any penalty. The gains you have made will continue to be in that account till the time your retire, growing every year.\",\n \"IRA is an account. You can open as many as you want. What's limited is the contributions: you cannot deposit to the IRA (all of them combined) more than what you've earned during the year, or $5500 (for 2013), the lowest. There are also limits on how much you can deduct, depending on your income and availability of other retirement programs at your work. You can open as many IRAs as you want in your child's name, but if your child had only earned $500 this year - that's how much you can put in these accounts. Your wife and you share the earned income limit, so if your wife is not working, you can still contribute to the IRA in her name, based on your own earnings (i.e.: if you earned more than $11000 - you can contribute the maximum $5500 for each of you). The limits are for all the IRA combined, doesn't matter how many accounts you have, and how many of them are Roth.\",\n \"\\\"No. A deposit to an IRA must be in cash. A conversion from traditional IRA to Roth can be \\\"\\\"in kind\\\"\\\" i.e. As a stock transfer. Last, any withdrawals can also be in stock or funds. IRS Publication 590, so important, it's now in 2 sections Part A and Part B, addresses IRA issues such as this as well as most others. By the way - now on page 7 - \\\"\\\"Contributions, except for rollover contributions, must be in cash.\\\"\\\"\\\"\",\n \"\\\"As other people have indicated, traditional IRAs are tax deductable for a particular year. Please note, though, that traditional IRAs are tax deferred (not tax-free) accounts, meaning that you'll have to pay taxes on any money you take out later regardless of why you're making the withdrawal. (A lot of people mistakenly call them tax free, which they're not). There is no such thing as a \\\"\\\"tax-free\\\"\\\" retirement account. Really, in terms of Roth vs. Traditional IRAs, it's \\\"\\\"pay now or pay later.\\\"\\\" With the exception of special circumstances like this, I recommend investing exclusively in Roth IRAs for money that you expect to grow much (or that you expect to produce substantial income over time). Just to add a few thoughts on what to actually invest in once you open your IRA, I strongly agree with the advice that you invest mostly in low-cost mutual funds or index funds. The advantage of an open-ended mutual fund is that it's easier to purchase them in odd increments and you may be able to avoid at least some purchase fees, whereas with an ETF you have to buy in multiples of that day's asking price. For example, if you were investing $500 and the ETF costs $200 per share, you could only purchase 2 shares, leaving $100 uninvested (minus whatever fee your broker charged for the purchase). The advantage of an ETF is that it's easy to buy or sell quickly. Usually, when you add money to a mutual fund, it'll take a few days for it to hit your account, and when you want to sell it'll similarly take a few days for you to get your money; when I buy an ETF the transaction can occur almost instantly. The fees can also be lower (if the ETF is just a passive index fund). Also, there's a risk with open-ended mutual funds that if too many people pull money out at once the managers could be forced to sell stocks at an unfavorable price.\\\"\",\n \"The biggest problem is what happens when you make a withdrawal if an emergency occurs. If the money was a contribution from a past year, you will not be able to put those funds back into the fund until a later date. Assume the following scenario: The limits regarding maximum annual contribution and windows when you can contribute make this an inefficient way to operate the emergency fund/retirement fund. Retirement and emergency funds are both important. Don't co-mingle them, it leads to double counting the money when you guesstimate where you are regarding your financial goals.\",\n \"You're young. Build a side business in your spare time. Invest in yourself. Fail a few times when you have some time to recover financially. Use the money that you would have let sit in some account and develop your skills, start up an LLC, and build up the capacity to get some real returns on your money. Be a rainmaker, not a Roth taker.\",\n \"Yes. Savings accounts and CDs today pay almost nothing. They are not a way to grow your money for the future. They are a place to keep some spare cash for emergencies. I don't have such accounts any more. Personally, I generally keep about $2000 in my checking account for any sudden surprise expenses. Any other spare money I have I put into very safe mutual funds. They don't grow much either, but it's better than what I'd get on a savings account or CD.\",\n \"Savings accounts with 8% APY? Unheard of these days. You're lucky if you find one at 1%. You should use checking and savings accounts only to hold an emergency fund (6 to 12 months of living expenses), or money that you will need in 2 years or so. The rest, invest in stocks and bonds.\",\n \"Using the default values for age and retirement and only making the changes you specified in the question. assumed ROR: 6%, current tax rate: 25%, retirement tax rate: 15%, married, have an employer retirement plan. The results from the two calculators are: Traditional IRA: 631,341 IRA before taxes 536,640 IRA after taxes. Roth IRA: 631,341 Roth IRA 450,207 Taxable Savings where: Total taxable savings The total amount you would have accumulated by retirement in a taxable savings account. your question: The (Traditional) IRA After Taxes value is 6.3% higher than the (Roth) Taxable Savings amount. (Both had an equal gross amount.) Does that mean I should put my money in a tIRA instead of a Roth? My percentages don't match your percentages because you didn't specify the numbers you used. In any case the 450K number shows you what you would have if the money was not invested in an IRA or 401K. To decide between a Roth and a traditional IRA ignore the taxable savings number, that only shows what happens if you decide not not use a retirement account.\",\n \"There are 3 account types your question discusses and each has its good/bad points. The above is a snapshot of these account types. IRAs have income restrictions that may disallow a deduction on the traditional, or any deposit to Roth, etc. If this does not address your question, please comment, and I'll edit for better clarity.\",\n \"\\\"One problem with this plan is that the individual must have earned income to contribute to a Roth IRA. If you have an infant, unless she is the new Gerber baby or something like that, there is probably no legitimate way for her to earn income. If you own a business and have kids who are older, you can employ them to do work for you, but they must really do work and earn around the market rate for that work. Otherwise, it is unlikely that they will be able to earn enough to fund an IRA until they are teenagers. When they are old enough to work, you can \\\"\\\"match\\\"\\\" their earnings by contributing the same amount to a Roth IRA on their behalf, but this will not give you the amount of contributions and growth time that you were counting on.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Sounds like a bad idea. The IRA is built on the power of compounding. Removing contributions will hurt your retirement savings, and you will never be able to make that up. Instead, consider tax-free investments. State bonds, Federal bonds, municipal bonds, etc. For example, I invest in California muni bonds fund which gives me ~3-4% annual dividend income - completely tax free. In addition - there's capital appreciation of your fund holdings. There are risks, of course, for example rate changes will affect yields and capital appreciation, so consult with someone knowledgeable in this area (or ask another question here, for the basics). This will give you the same result as you're expecting from your Roth IRA trick, without damaging your retirement savings potential.","(To be clear, IRA accounts are just wrappers, and can contain a large variety of investments. I'm restricting myself to the usual setup of investment in the stock market.) So, let's say you have $5000 in savings, as an emergency fund. Of the top of my head, putting some of it into a Roth IRA could backfire in the following ways: The basic principle here is that the stock market is not a good place for storing your emergency cash, which needs to be secured against loss and immediately accessible. Once you're happy with your level of emergency cash, however, tax-advantaged investment accounts are a reasonable next step."],"string":"[\n \"Sounds like a bad idea. The IRA is built on the power of compounding. Removing contributions will hurt your retirement savings, and you will never be able to make that up. Instead, consider tax-free investments. State bonds, Federal bonds, municipal bonds, etc. For example, I invest in California muni bonds fund which gives me ~3-4% annual dividend income - completely tax free. In addition - there's capital appreciation of your fund holdings. There are risks, of course, for example rate changes will affect yields and capital appreciation, so consult with someone knowledgeable in this area (or ask another question here, for the basics). This will give you the same result as you're expecting from your Roth IRA trick, without damaging your retirement savings potential.\",\n \"(To be clear, IRA accounts are just wrappers, and can contain a large variety of investments. I'm restricting myself to the usual setup of investment in the stock market.) So, let's say you have $5000 in savings, as an emergency fund. Of the top of my head, putting some of it into a Roth IRA could backfire in the following ways: The basic principle here is that the stock market is not a good place for storing your emergency cash, which needs to be secured against loss and immediately accessible. Once you're happy with your level of emergency cash, however, tax-advantaged investment accounts are a reasonable next step.\"\n]","isConversational":false}}},{"rowIdx":261,"cells":{"_id":{"kind":"string","value":"6800"},"query":{"kind":"string","value":"I don't live in America. How can I buy IPO stock of newly listed companies in the United States?"},"gt_ids":{"kind":"list like","value":["35191"],"string":"[\n \"35191\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["35191","99472","551809","478736","231814","47579","253024","113644","209493","460951","566028","540986","539418","117415","234851","288977","396985","177222","107215","409712","347560","406872","591436","15772","529402","94477","34318","51777","451729","253847","89351","322771","569257","239334","123030","522798","281423","553896","313919","48269","340210","319920","18349","480638","243115","447303","458635","57841","94336","433809","589625","433023","535340","480967","258563","144685","12027","526847","82283","68094","44461","404339","287019","411799","365465","77631","413672","311834","75762","410543","110608","531180","455168","564876","152286","464537","5347","229119","99943","468148","386173","508492","358154","361383","182658","102682","497344","241135","380241","27716","173562","461821","495417","410404","297421","581642","12268","28188","369266","149306"],"string":"[\n \"35191\",\n \"99472\",\n \"551809\",\n \"478736\",\n \"231814\",\n \"47579\",\n \"253024\",\n \"113644\",\n \"209493\",\n \"460951\",\n \"566028\",\n \"540986\",\n \"539418\",\n \"117415\",\n \"234851\",\n \"288977\",\n \"396985\",\n \"177222\",\n \"107215\",\n \"409712\",\n \"347560\",\n \"406872\",\n \"591436\",\n \"15772\",\n \"529402\",\n \"94477\",\n \"34318\",\n \"51777\",\n \"451729\",\n \"253847\",\n \"89351\",\n \"322771\",\n \"569257\",\n \"239334\",\n \"123030\",\n \"522798\",\n \"281423\",\n \"553896\",\n \"313919\",\n \"48269\",\n \"340210\",\n \"319920\",\n \"18349\",\n \"480638\",\n \"243115\",\n \"447303\",\n \"458635\",\n \"57841\",\n \"94336\",\n \"433809\",\n \"589625\",\n \"433023\",\n \"535340\",\n \"480967\",\n \"258563\",\n \"144685\",\n \"12027\",\n \"526847\",\n \"82283\",\n \"68094\",\n \"44461\",\n \"404339\",\n \"287019\",\n \"411799\",\n \"365465\",\n \"77631\",\n \"413672\",\n \"311834\",\n \"75762\",\n \"410543\",\n \"110608\",\n \"531180\",\n \"455168\",\n \"564876\",\n \"152286\",\n \"464537\",\n \"5347\",\n \"229119\",\n \"99943\",\n \"468148\",\n \"386173\",\n \"508492\",\n \"358154\",\n \"361383\",\n \"182658\",\n \"102682\",\n \"497344\",\n \"241135\",\n \"380241\",\n \"27716\",\n \"173562\",\n \"461821\",\n \"495417\",\n \"410404\",\n \"297421\",\n \"581642\",\n \"12268\",\n \"28188\",\n \"369266\",\n \"149306\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["First thing to consider is that getting your hands on an IPO is very difficult unless you have some serious clout. This might help a bit in that department (http://www.sec.gov/answers/ipoelig.htm) However, assuming you accept all that risk and requirements, YES - you can buy stocks of any kind in the US even if you are a foreigner. There are no laws prohibiting investment/buying in the US stock market. What you need is to get an online trading account from a registered brokerage house in the US. Once you are registered, you can buy whatever that is offered.","\"Check your broker's IPO list. Adding a new stock to a stock exchange is called \"\"Initial Public Offering\"\" (IPO), and most brokers have a list of upcoming IPO's in which their clients can participate.\"","Any large stockbroker will offer trading in US securities. As a foreign national you will be required to register with the US tax authorities (IRS) by completing and filing a W-8BEN form and pay US withholding taxes on any dividend income you receive. US dividends are paid net of withholding taxes, so you do not need to file a US tax return. Capital gains are not subject to US taxes. Also, each year you are holding US securities, you will receive a form from the IRS which you are required to complete and return. You will also be required to complete and file forms for each of the exchanges you wish to received market price data from. Trading will be restricted to US trading hours, which I believe is 6 hours ahead of Denmark for the New York markets. You will simply submit an order to the desired market using your broker's online trading software or your broker's telephone dealing service. You can expect to pay significantly higher commissions for trading US securities when compared to domestic securities. You will also face potentially large foreign exchange fees when exchaning your funds from EUR to USD. All in all, you will probably be better off using your local market to trade US index or sector ETFs.","There are some brokers in the US who would be happy to open an account for non-US residents, allowing you to trade stocks at NYSE and other US Exchanges. Some of them, along with some facts: DriveWealth Has support in Portuguese Website TD Ameritrade Has support in Portuguese Website Interactive Brokers Account opening is not that straightforward Website","It looks like your best option is to go with an online broker. There are many available. Some of them won't let you open an account online as a foreign national but will allow you to open one through the mail. See more about that http://finance.zacks.com/can-nonus-citizen-trade-us-stocks-9654.html Also keep in mind that you will need to pay taxes on any capital gains made through selling http://www.irs.gov/pub/irs-pdf/p519.pdf","It is more easier if you select a Broker in India that would allow you these services. The reason being the broker in India will follow the required norms by India and allow you to invest without much hassel. Further as the institution would be in India, it would be more easy for resolving any disputes. ICICI Direct an Indian online broker allows one to trade in US stocks. For more details refer to ICIC Direct. Reliance Money also offers limited trading in US stocks. Selecting a Broker in US maybe more difficult as your would have to met their KYC norm's and also operate a Bank account in US. I am not aware of the requirements. For more details visit ICICI Direct website. Refer to http://www.finance-trading-times.com/2007/10/investing-in-us-stocks-and-options.html for a news article. TDAmeritrade or Charlesschwab are good online brokers, however from what I read they are more for US nationals holding Social Security. Further with the recent events and KYC norms becoming more stringent, it would be difficult for an individual [Indian Citizen] to open an account directly with these firms.","Verify if a local bank offers to participate in different stock markets - big companies like apple or facebook often gets traded on different markets - like Xetra (germany) or SIX (Switzerland). That being said I'd recommend you to rethink this strategy and maybe using some products offered by your bank - for 1000$ you will quickly drown in fees (my bank requires 40$ for every trade. If you buy and sell them you already lost nearly 10% of your investment)","OptionsXpress includes India in the list of countries where is possible to open an international account to invest in the US Stock Market. They just merged with Charles Schwab and they have a nice online trading platform. Stocks and ETFs are little bit pricey.. Get in touch with them to get more information.","\"It's easy to own many of the larger UK stocks. Companies like British Petroleum, Glaxo, and Royal Dutch Shell, list what they call ADRs (American Depositary Receipts) on the U.S. stock exchanges. That is, they will deposit local shares with Bank of NY Mellon, JP Morgan Chase, or Citicorp (the three banks that do this type of business), and the banks will turn around and issue ADRs equivalent to the number of shares on deposit. This is not true with \"\"small cap\"\" companies. In those cases, a broker like Schwab may occasionally help you, usually not. But you might have difficulty trading U.S. small cap companies as well.\"","I personally am from Canada and use my local bank to trade stocks. Contact your local bank and they will tell you how to do it, since rules depend on country of residency. If you are not close to a bank, e-mail the major bank in the country of your residence.","As other people have said they should register with a broker in the country they reside in that can deal in US stocks, then fill out a W8-BEN form. I have personally done this as I am from the Uk, it's not a very complicated process. I would assume that most US brokers don't allow foreign customers due to the person having to pay tax where they reside and the US brokers don't want to have to keep approximately 200 different tax codes in track.","Absolutely. It does highly depend on your country, as US brokerages are stricter with or even closed to residents of countries that produce drugs, launder money, finance terror, have traditional difficulty with the US, etc. It also depends on your country's laws. Some countries have currency controls, restrictions on buying foreign/US securities, etc. That said, some brokerages have offices world-wide, so there might be one near you. If your legal situation as described above is fortunate, some brokers will simply allow you to setup online using a procedure not too different from US residents: provide identification, sign tons of documents. You'll have to have a method to deliver your documentation in the ways you'd expect: mail, fax, email. E*Trade is the best starter broker, right now, imo. Just see how far you can go in the sign-up process.","I have done this last year. Just open an account with an online brocker and buy a couple of Apple shares (6 I think, for 190$ each or something like that :) ). If this is just to test how stock exchange works, I think this is a good idea. I am also in Europe (France), and you'r right the charge to buy on NasDaq are quite expensive but still reasonnable. Hope this helps.","Not going to happen for Facebook since there will be too much demand and the order will go to the top clients of the underwriting investment banks. In general though, if you wanted a piece of a smaller IPO you'd just have to get in touch with a broker whose investment banking department is on the underwriting syndicate (say Merrill Lynch or Smith Barney) since IPOs often have a percentage that they allocate to retail clients (i.e. you) as well as institutional (i.e. hedge funds, pension funds, mutual funds etc.). The more in demand the IPO the harder it is to get a piece.","You can use interactive brokers. It allows you to have a single account to trade stocks and currencies from several countries.","Depending on your broker, you can buy these stocks directly at the most liquid local exchanges. For instance, if you are US resident and want to to buy German stocks (like RWE) you can trade these stocks over InteractiveBrokers (or other direct brokers in the US). They offer direct access to German Xetra and other local markets.","The Greek Piraeus Bank offers such services for trading stocks in Athens Stock Exchange (ASE) and in addition 26 other markets including NASDAQ, NYSE and largest European ones (full list, in Greek). Same goes for Eurobank with a list of 17 international markets and the ability to trade bonds. BETA Securities has also an online platform, but I think it's only for ASE. Some other banks (like National Bank of Greece) do have similar online services, but are usually restricted to ASE.","I used to trade on Nasdaq using a US broker from the UK, you need a way to convert your money into US $s and have the cost of international money transfers. I don’t know if there are any laws in Turkey that will stop you using a US broker. You are also on your own if anything goes wrong, as the Turkish police will not be interested, and the US police will be very hard to deal with from Turkey. This all depends on Turkey not unplugging the internet on the day you wish to trade on!!! (I used tdameritrade, but it was a VERY long timer ago, as UK brokers are now as cheap, you should also consider UK based brokers as they will also let you trade outside of the USA.)","According to this page on their website (http://www.kotaksecurities.com/internationaleq/homepage.htm), Kotak Securities is one big-name Indian broker that offers an international equities account to its Indian customers. Presumably, they should be able to answer all your questions. Since this is a competitive market, one can assume that others like ICICI Direct must also be doing so.","You can easily go to somebody like icici ask for the demat section and enable overseas stock trading.","You can invest upto $200K per year abroad, and yes, you can buy Google as a stock. Consider opening an international account with a broker like interactive brokers (www.interactivebrokers.co.in) which allows you to fund the account from your local Indian account, and then on, buy shares of companies listed abroad.","\"I'm posting this because I think I can do a better job of explaining and detailing everything from start to stop. :) A \"\"broker\"\" is just someone who connect buyers and sellers - a middleman of sorts who is easy to deal with. There are many kinds of brokers; the ones you'll most commonly hear about these days are \"\"mortgage broker\"\" (for arranging home loans) and \"\"stockbroker\"\". The stockbroker helps you buy and sell stock. The stockbroker has a connection to one or more stock exchanges (e.g. Nasdaq, NYSE) and will submit your orders to them in order to fulfill it. This way Nasdaq and NYSE don't have to be in the business of managing millions of customer accounts (and submitting tax information about those accounts to the government and what-not) - they just manage relationships with brokerages, which is much easier for them. To invest in a stock, you will need to: In this day and age, most brokers that you care about will be easily accessed via the Internet, the applications will be available on the Internet, and the trading interface will be over the Internet. There may also be paper and/or telephone interfaces to the brokerage, but the Internet interface will work better. Be aware that post-IPO social media stock is risky; don't invest any money if you're not prepared for the possibility of losing every penny of it. Also, don't forget that a variety of alternative things exist that you can buy from a broker, such as an S&P 500 index fund or exchange-traded corporate bond fund; these will earn you some reward over time with significantly less risk. If you do not already have similar holdings through a retirement plan, you should consider purchasing some of these sooner or later.\"","You can purchase stock immediately in the open market on the day of the IPO when market opens. Below link gives you more information. http://finance.zacks.com/buy-ipo-stock-3903.html","You will likely need to open an account in another EU country, like a broker operating out of France, Britain or Germany, to get the best options. If you are comfortable using an english language site and interface, I highly recommend Interactive Brokers as they let you trade in many markets simultaneously, have simple currency conversion, and great tools. But, they are geared toward active traders so you might be better with a more retail oriented broker if you are new to trading stocks. There are many options. Here is a list to start with:","It depends a large part on your broker's relationship with the issuing bank how early you can participate in the IPO round. But the nature of the stock market means the hotter the stock and the closer to the market (away from the issuing bank) you have to buy the higher the price you'll pay. The stock market is a secondary market, meaning the only things for sale are shares already owned by someone. As a result, for a hot stock the individual investor will have to wait for another investor (not the issuing bank) to trade (sell) the stock.","Usually, you can buy ETFs through brokerages. I looked at London to see if there's any familiar brokerage names, and it appears that the address below is to Fidelity Investments Worldwide and their site indicates that you can buy securities. Any brokerage, in theory, should allow you to invest in securities. You could always call and ask if they allow you to invest in ETFs. Some brokerages may also allow you to purchase securities in other countries; for instance, some of the firms in the U.S. allow investors to invest in the ETF HK:2801, which is not a U.S. ETF. Many countries have ETF securities available to local and foreign investors. This site appears to help point people to brokers in London. Also, see this answer on this site (a UK investor who's invested in the U.S. through Barclays).","Any retail equity brokerage will give you access to the NYSE, and thus Facebook shares as they become available. However, it is important to note that you nor any retail investor will be able to purchase FB at the IPO prices ($33-38 IIRC). The only people who will be able to buy in at that price are the underwriting investment banks and major investors who have subscribed to the IPO. You, and all the other retail investors will only be able to buy in as those major investors offer shares on the secondary market. This being Facebook, there will probably be a significant premium over the IPO price, both due to demand and systemic underpricing of IPOs to encourage the opening 'pop'. So, if you're intent on buying in at the IPO, pay close attention as the date approaches. Look at how the recent big IPOs have performed (GRPN, LNKD come to mind). Know how much you're willing to commit and what price you want. However, no one is going to know what the opening market price will be come Friday morning. Be watching your financial data source / analysis of choice and be prepared to make a judgement.","The UK has historically aggressive financial law, inherited from Dutch friendship, influence, and acquisitions by conquest. The law is so open that nearly anyone can invest through the UK without much difficulty, and citizens have nearly no restrictions on where to invest. A UK citizen can either open an account in the US with paperwork hassles or at home with access to all world markets and less paperwork. Here is the UK version of my broker, Interactive Brokers. Their costs are the lowest, but you will be charged a minimum fee if you do not trade enough, and their minimum opening balance can be prohibitively high for some. If you do buy US products, be sure to file your W-8BEN.","Open an account with a US discount online broker, or with a European broker with access to the US market. I think ETRADE allow non-resident accounts, for instance, amongst others. The brokerage will be about $10, and there is no annual fee. (So you're ~1% down out of the gate, but that's not so much.) Brokers may have a minimum transaction value but very few exchanges care about the number of shares anymore, and there is no per-share fee. As lecrank notes, putting all your savings into a single company is not prudent, but having a flutter with fun money on Apple is harmless. Paul is correct that dividend cheques may be a slight problem for non-residents. Apple don't pay dividends so there's no problem in this specific case. More generally your broker will give you a cash account into which the dividends can go. You may have to deal with US tax which is more of an annoyance than a cost.","While most all Canadian brokers allow us access to all the US stocks, the reverse is not true. But some US brokers DO allow trading on foreign exchanges. (e.g. Interactive Brokers at which I have an account). You have to look and be prepared to switch brokers. Americans cannot use Canadian brokers (and vice versa). Trading of shares happens where-ever two people get together - hence the pink sheets. These work well for Americans who want to buy-sell foreign stocks using USD without the hassle of FX conversions. You get the same economic exposure as if the actual stock were bought. But the exchanges are barely policed, and liquidity can dry up, and FX moves are not necessarily arbitraged away by 'the market'. You don't have the same safety as ADRs because there is no bank holding any stash of 'actual' stocks to backstop those traded on the pink sheets.","Interactive Brokers offers many foreign markets (19 countries) for US based investors. You can trade all these local markets within one universal account which is very convenient in my view. IB offering","You can check whether the company whose stock you want to buy is present on an european market. For instance this is the case for Apple at Frankfurt.","You can open an account with HSBC and use InvestDirect - their online share trading service - to trade LSE-traded shares. https://investments.hsbc.co.uk/product/9/sharedealing","\"I have an account with ETrade. Earlier this week I got an offer to participate in the IPO proper (at the IPO price). If Charles Schwab doesn't give you the opportunity, that's a shortcoming of them as a brokerage firm; there are definitely ways for retail investors to invest in it, wise investment or no. (Okay, technically it wasn't an offer to participate, it was a notice that participation was possibly available, various securities-law disclaimers etc withstanding. \"\"This Web site is neither an offer to sell nor a solicitation to buy these securities. The offer is by prospectus only. This Web site contains a preliminary prospectus for each offering.\"\" etc etc).\"","Quite a few stock broker in India offer to trade in US markets via tie-up brokers in US. As an Indian citizen, there are limits as to how much FX you can buy, generally very large, should be an issue. The profits will be taxed in US as well as India [you can claim relief under DTAA]","There are 2 main types of brokers, full service and online (or discount). Basically the full service can provide you with advice in the form of recommendations on what to buy and sell and when, you call them up when you want to put an order in and the commissions are usually higher. Whilst an online broker usually doesn't provide advice (unless you ask for it at a specified fee), you place your orders online through the brokers website or trading platform and the commissions are usually much lower. The best thing to do when starting off is to go to your country's stock exchange, for example, The ASX in Sydney Australia, and they should have a list of available brokers. Some of the online brokers may have a practice or simulation account you can practice on, and they usually provide good educational material to help you get started. If you went with an online broker and wanted to buy Facebook on the secondary market (that is on the stock exchange after the IPO closes), you would log onto your brokers website or platform and go to the orders section. You would place a new order to buy say 100 Facebook shares at a certain price. You can use a market order, meaning the order will be immediately executed at the current market price and you will own the shares, or a limit price order where you select a price below the current market price and wait for the price to come down and hit your limit price before your order is executed and you get your shares. There are other types of orders available with different brokers which you will learn about when you log onto their website. You also need to be careful that you have the funds available to pay for the share at settlement, which is 3 business days after your order was executed. Some brokers may require you to have the funds deposited into an account which is linked to your trading account with them. To sell your shares you do the same thing, except this time you choose a sell order instead of a buy order. It becomes quite simple once you have done it a couple of times. The best thing is to do some research and get started. Good Luck.","\"Take a look at FolioFN - they let you buy small numbers of shares and fractional shares too. There is an annual fee on the order of US$100/year. You can trade with no fees at two \"\"windows\"\" per day, or at any time for a $15 fee. You are better off leaving the stock in broker's name, especially if you live overseas. Otherwise you will receive your dividends in the form of cheques that might be expensive to try to cash. There is also usually a fee charged by the broker to obtain share certificates instead of shares in your account.\"","Some brokers have a number of shares they can offer their customers, but the small guy will get 100, not as many as they'd like. In the Tech bubble of the late 90's I was able to buy in to many IPOs, but the written deal from the broker is that you could not sell for 30 days or you'd be restricted from IPO purchases for the next 90. No matter what the stock opened at, there were a fair number of stocks thay were below IPO issue price after 30 days had passed. I haven't started looking at IPOs since the tech flameout, but had I gotten in to LinkedIn it would have been at that $45 price. Let's see if it stays at these levels after 30 days. Edit - This is the exact cut/paste from my broker's site : Selling IPO Shares: While XXX customers are always free to sell shares purchased in a public offering at any time, short holding periods of less than 31 calendar days will be a factor in determining whether XXX allocates you shares in future public offerings. Accordingly, if you sell IPO shares purchased in a public offering within 30 calendar days of such purchase, you will be restricted from participating in initial and secondary public offerings through XXX for a period of 3 months. (I deleted the broker name) I honestly don't know if I'd have gotten any LI shares. Next interesting one is Pandora.","NASDAQ provides a very good IPO calendar as well for US listings.","\"Yes and no. There are two primary ways to do this. The first is known as \"\"cross listing\"\". Basically, this means that shares are listed in the home country are the primary shares, but are also traded on secondary markets using mechanisms like ADRs or Globally Registered Shares. Examples of this method include Vodafone and Research in Motion. The second is \"\"dual listing\"\". This is when two corporations that function as a single business are listed in multiple places. Examples of this include Royal Dutch Shell and Unilever. Usually companies choose this method for tax purposes when they merge or acquire an international company. Generally speaking, you can safely buy shares in whichever market makes sense to you.\"","You might what to check out Interactive Brokers. If your India stock is NSE listed they might be able to do it since they support trading on that exchange. I would talk to a customer service rep there first. https://www.interactivebrokers.com/en/index.php?f=exchanges&p=asia","Two methods: 1: Become really close friend with Marky. Probably have to take a bullet for him or something. 2: Become a major client of the investment bank that will launch the IPO (most likely Goldman), and the bank will offer you some shares before the IPO. In order to become a major client you probably have to spend several millions per year in transaction fee.","\"(Note: out of my depth here, but in case this helps...) While not a direct answer to your question, I'll point out that in the inverse situation - a U.S. investor who wants to buy individual stocks of companies headquartered outside US - you would buy ADRs, which are $-denominated \"\"wrapper\"\" stocks. They can be listed with one or multiple brokerages. One alternative I'd offer the person in my example would be, \"\"Are you really sure you want to directly buy individual stocks?\"\" One less targeted approach available in the US is to buy ETFs targeted for a given country (or region). Maybe there's something similar there in Asia that would eliminate the (somewhat) higher fees associated with trading foreign stocks.\"","Other than the possibility of minimal entry price being prohibitively high, there's no reason why you couldn't participate in any global trading whatsoever. Most ETFs, and indeed, stockbrokers allows both accounts opening, and trading via the Internet, without regard to physical location. With that said, I'd strongly advice you to do a proper research, and reality check both on your risk/reward profile, and on the vehicles to invest in. As Fools write, money you'll need in the next 6 months have no place on the stockmarket. Be prepared, that you can indeed loose all of your investment, regardless of the chosen vehicle.","Investment banks don't have to buy anything. If they don't think the stock is worth buying - they won't. If they think it is - others on the secondary market will probably think so too. Initial public offering is offering to the public - i.e.: theoretically anyone can participate and purchase stocks. The major investment firms are not buying the stocks for themselves - but for their clients who are participating in this IPO. I, for example, receive email notifications from my brokerage firm each time there's another IPO that they have access to, and I can ask the brokerage to buy stocks from the IPO on my behalf. When that happens - they don't buy the stocks themselves and then sell to me. No, what happens is that I buy a stock, through them, and they charge me a commission for the service. Usually IPO participation commissions are higher than regular trading commissions. Most of the time those who purchase stocks at IPO are institutional investors - i.e.: mutual funds, pension plans, investment banks for their managed accounts, etc. Retail investors would probably not participate in the IPO because of the costs, limited access (not all the brokerage firms have access to all the IPOs), and the uncertainty, and rather purchase the stocks later on a secondary market.","For question #1, at least some US-based online brokers do permit direct purchases of stocks on foreign exchanges. Depending on your circumstances, this might be more cost effective than purchasing US-listed ADRs. One such broker is Interactive Brokers, which allows US citizens to directly purchase shares on many different foreign exchanges using their online platform (including in France). For France, I believe their costs are currently 0.1% of the total trade value with a 4€ minimum. I should warn you that the IB platform is not particularly user-friendly, since they market themselves to traders and the learning curve is steep (although accounts are available to individual investors). IB also won't automatically convert currencies for you, so you also need to use their foreign exchange trading interface to acquire the foreign currency used to purchase a foreign stock, which has plusses and minuses. On the plus side, their F/X spread is very competitive, but the interface is, shall we say, not very intuitive. I can't answer question #2 with specific regards to US/France. At least in the case of IB, though, I believe any dividends from a EUR-denominated stock would continue to accumulate in your account in Euros until you decide to convert them to dollars (or you could reinvest in EUR if you so choose).","\"This page from the CRA website details the types of investments you can hold in a TFSA. You can hold individual shares, including ETFs, traded on any \"\"designated stock exchange\"\" in addition to the other types of investment you have listed. Here is a list of designated stock exchanges provided by the Department of Finance. As you can see, it includes pretty well every major stock exchange in the developed world. If your bank's TFSA only offers \"\"mutual funds, GICs and saving deposits\"\" then you need to open a TFSA with a different bank or a stock broking company with an execution only service that offers TFSA accounts. Almost all of the big banks will do this. I use Scotia iTrade, HSBC Invest Direct, and TD, though my TFSA's are all with HSBC currently. You will simply provide them with details of your bank account in order to facilitate money transfers/TFSA contributions. Since purchasing foreign shares involves changing your Canadian dollars into a foreign currency, one thing to watch out for when purchasing foreign shares is the potential for high foreign exchange spreads. They can be excessive in proportion to the investment being made. My experience is that HSBC offers by far the best spreads on FX, but you need to exchange a minimum of $10,000 in order to obtain a decent spread (typically between 0.25% and 0.5%). You may also wish to note that you can buy unhedged ETFs for the US and European markets on the Toronto exchange. This means you are paying next to nothing on the spread, though you obviously are still carrying the currency risk. For example, an unhedged S&P500 trades under the code ZSP (BMO unhedged) or XUS (iShares unhedged). In addition, it is important to consider that commissions for trades on foreign markets may be much higher than those on a Canadian exchange. This is not always the case. HSBC charge me a flat rate of $6.88 for both Toronto and New York trades, but for London they would charge up to 0.5% depending on the size of the trade. Some foreign exchanges carry additional trading costs. For example, London has a 0.5% stamp duty on purchases. EDIT One final thing worth mentioning is that, in my experience, holding US securities means that you will be required to register with the US tax authorities and with those US exchanges upon which you are trading. This just means fill out a number of different forms which will be provided by your stock broker. Exchange registrations can be done electronically, however US tax authority registration must be submitted in writing. Dividends you receive will be net of US withholding taxes. I am not aware of any capital gains reporting requirements to US authorities.\"","I'm in the US as well, but some basic things are still the same. You need to trade through a broker, but the need for a full service broker is no longer necessary. You may be able to get by with a web based brokerage that charges less fees. If you are nervous, look for a big name, and avoid a fly by night company. Stick with non-exotic investments. don't do options, or futures or Forex. You may even want to skip shares all together and see if UK offers something akin to an index fund which tracks broad markets (like the whole of the FTSE 100 or the S&P 500) as a whole.","\"listed simultaneously in New York, London, and maybe even some Asian markets - is this correct? If the exchanges are not connected, then in primary market the shares are listed. On other exchanges, the \"\"Depository Receipts\"\" are listed. i.e. the Company will keep say 100,000 shares with the primary stock exchange / depository. Based on this it would create new instruments \"\"Depository Receipts\"\". They can be 1:1 or whatever ratio. hypothetically, if I want to buy all of the company's stock Even if it is on one exchange, buying all stocks would trigger various regulatory aspects of Companies Act, or Stock Exchange rules. This is not simple or easy like clicking some buttons and buying everything. That is, let's say that in New York the company has listed 1000 shares, and in London only 10 shares, each worth 10 USD Market capitalization is sum of all outstanding shares into value.\"","You probably bought the cross listed WestJet stock. If you wanted to buy shares on the TSE, I'd suspect you'd have to find a way to open a brokerage account within Canada and then you'd be able to buy the shares. However, this could get complicated to some extent as there could be requirements of Canadian tax stuff like a Social Insurance Number that may require some paperwork. In addition, you'd have to review tax law of both countries to determine how to appropriately report to each country your income as there are various rules around that. TD Waterhouse would be the Canadian subsidiary of TD Ameritrade though I haven't tried to create a Canadian brokerage account.","Yes, However if you live in the USA a lot of companies will refuse to sent you any report and will not let you take part in “right issues” as they don’t wish to come under USA investment law.","Saxo Bank offers direct access to Athens Stock Exchange. Interactive Brokers is your next best bet, and as you probably already noticed, they do not have a free platform. They are open to US and non-US citizens. Although they do not currently have direct exposure to individual companies on the Athens Stock Exchange, the various european exchanges they do provide direct market access for will give a lot of exposure. There are a few Greek companies that trade on non-Greek stock exchanges, if you want exposure. There are also Greek ETFs which bundle several companies together or try to replicate Greek company indices.","\"As user quid states in his answer, all you need to do is open an account with a stock broker in order to gain access to the world's stock markets. If you are currently banking with one of the six big bank, then they will offer stockbroking services. You can shop around for the best commission rates. If you wish to manage your own investments, then you will open a \"\"self-directed\"\" account. You can shelter your investments from all taxation by opening a TFSA account with your stock broker. Currently, you can add $5,500 per year to your TFSA. Unused allowances from previous years can still be used. Thus, if you have not yet made any TFSA contributions, you can add upto $46,500 to your TFSA and enjoy the benefits of tax free investing. Investing in what you are calling \"\"unmanaged index funds\"\" means investing in ETFs (Exchange Traded Funds). Once you have opened your account you can invest in any ETFs traded on the stock markets accessible through your stock broker. Buying shares on foreign markets may carry higher commission rates, but for the US markets commissions are generally the same as they are for Canadian markets. However, in the case of buying foreign shares you will carry the extra cost and risk of selling Canadian dollars and buying foreign currency. There are also issues to do with foreign withholding taxes when you trade foreign shares directly. In the case of the US, you will also need to register with the US tax authorities. Foreign withholding taxes payable are generally treated as a tax credit with respect to Canadian taxation, so you will not be double taxed. In today's market, for most investors there is generally no need to invest directly in foreign market indices since you can do so indirectly on the Toronto stock market. The large Canadian ETF providers offer a wide range of US, European, Asian, and Global ETFs as well as Canadian ETFs. For example, you can track all of the major US indices by trading in Toronto in Canadian dollars. The S&P500, the Dow Jones, and the NASDAQ100 are offered in both \"\"currency hedged\"\" and \"\"unhedged\"\" forms. In addition, there are ETFs on the total US Market, US Small Caps, US sectors such as banks, and more exotic ETFs such as those offering \"\"covered call\"\" strategies and \"\"put write\"\" strategies. Here is a link to the BMO ETF website. Here is a link to the iShares (Canada) ETF website.\"","\"Aganju has mentioned put options, which are one good possibility. I would suggest considering an even easier strategy: short selling. Technically you are borrowing the stock from someone and selling it. At some point you repurchase the stock to return to the lender (\"\"covering your short\"\"). If the stock price has fallen, then when you repurchase it, it will be cheaper and you keep the profit. Short selling sounds complicated but it's actually very easy--your broker takes care of all the details. Just go to your brokerage and click \"\"sell\"\" or \"\"sell short.\"\" You can use a market or limit order just like you were selling something you own. When it sells, you are done. The money gets credited to your account. At some point (after the price falls) you should repurchase it so you don't have a negative position any more, but your brokerage isn't going to hassle you for this unless you bought a lot and the stock price starts rising. There will be limits on how much you can short, depending on how much money is in your account. Some stocks (distressed and small stocks) may sometimes be hard to short, meaning your broker will charge you a kind of interest and/or may not be able to complete your transaction. You will need a margin account (a type of brokerage account) to either use options or short sell. They are easy to come by, though. Note that for a given amount of starting money in your account, puts can give you a much more dramatic gain if the stock price falls. But they can (and often do) expire worthless, causing you to lose all money you have spent on them. If you want to maximize how much you make, use puts. Otherwise I'd short sell. About IPOs, it depends on what you mean. If the IPO has just completed and you want to bet that the share price will fall, either puts or short selling will work. Before an IPO you can't short sell and I doubt you would be able to buy an option either. Foreign stocks? Depends on whether there is an ADR for them that trades on the domestic market and on the details of your brokerage account. Let me put it this way, if you can buy it, you can short sell it.\"","Should do it through a limit auction book. Management and shareholders pre ipo submit sealed limit sell orders. Buyers submit sealed limit buy orders, nobody can see where the price is going. At 9AM, the price is calculated and whomever fills get filled and ta da everyone is trading at 9:30 when the market is open.","One other issue you may face is when the company announces poor financial results and begins to tank, you will not be able to sell until the US market open and could incur a lot of pain.","You don't have to go through an exchange. That wasn't the problem. It was that the people trading on them wouldn't be willing to take your offer. An exchange can't just list a company. They need that company's consent and the company need's the exchange's consent. I don't know if you're aware of this but that was also an entirely new disaster during Facebook's IPO. Computer glitches didn't help. What you're talking about is a called a secondary market, kind of. Stock exchanges offer those too, especially for options. That's the typical stock footage you see of guys on wall street yelling and screaming while throwing paper up in the air.","I had this problem when I finished my job in Canada in Sept 2013. You'll likely have to open the account in person in Canada, at least if you don't already have a relationship with a broker there. DO NOT go to Virtual Brokers. They told me that my US citizenship was no problem, but right before I left Canada to double check. It wasn't until I asked specifically which US states they were licensed in that they realized they were licensed in NO US STATES. They told me that they'd freeze my account when I left. I then moved my (former) pension to a locked-in RRSP at BMO. As of September 2010 BMO could handle residents of most US states, but it took some tooth pulling to get the list out of them. However, after I flew to the USA, BMO called to demand more ID. My account was frozen until I flew back to Canada in person just to show ID. Annoyed, I closed the BMO account and moved it to TD Waterhouse. TD waterhouse can handle accounts for residents of all the US states EXCEPT Virginia, Louisiana, and Nebraska. (I only got the complete list of exceptions when I made my first trade, since the guys at the trading desk are much more knowledgeable about such things than the guys in the branch.) TD was extremely friendly about my USA citizenship/residence. (Many Canadian brokers simply won't accept US residents, at least as of the end of 2013.) Whichever broker you choose, BRING LOTS MORE ID than they require. Insist that they zerox it all. Make sure to include your social security card. You don't want them to demand more ID after you've left the country, like BMO did. They may even make such a move simply to get rid of US customers, because the FATCA is a pain for foreign banks.","I'm not aware of any method to own US stocks, but you can trade them as contract for difference, or CFDs as they are commonly known. Since you're hoping to invest around $1000 this might be a better option since you can use leverage.","Depending on your perspective of it, I can see reasons for and against this idea. Only with the benefit of hindsight can one say how wise or unwise it is to do so. Earlier in my career, I invested and lost it all. Understand if you do buy when would you be able to sell, do you have to have an account with the underwriter, what fees may there be in having such an account, and would there be restrictions on when you could sell.","\"Yes, you could buy a stock on the day of its IPO. I'm a college student, and I wonder if I can buy stock from a company right after it finishes its IPO? Yes, you can. However, unless you are friends or family of an employee, chances are you'll be paying a higher price than you think as there is generally a fair bit of hype on most IPOs that allows some people to \"\"flip them\"\" which means someone is buying at a higher price. If I am not allowed to buy its stocks immediately after they go on sell, how long do I have to wait? Generally I'd wait until the hype dies down as if you look at most historical IPOs the stock could be bought cheaper later but that's just my perspective. And also who are allowed to buy the stocks at the first minute they are on sell? Anyone but keep in mind that while an IPO may be priced at $x, the initial trades may be a few times that value and the stock may come down over time. Facebook could be an example to consider of a company that had an IPO at one price and then came down for a little while on its chart over the past couple of years.\"","I was wondering what relations are between brokerage companies and exchanges? Are brokers representing investors to trade on exchanges? Yes...but a broker may also buy and sell stocks for his own account. This is called broker-delaer firm. For individual investors, what are some cons and pros of trading on the exchanges directly versus indirectly via brokers? Doesn't the former save the investors any costs/expenses paid to the brokers? Yes, but to trade directly on an exchange, you need to register with them. That costs money and only a limited number of people can register I believe. Note that some (or all?) exchanges have their websites where I think trading can be done electronically, such as NASDAQ and BATS? Can almost all stocks be found and traded on almost every exchange? In other words, is it possible that a popular stock can only be found and traded on one exchange, but not found on the other exchange? If needed to be more specific, I am particularly interested in the U.S. case,and for example, Apple's stock. Yes, it is very much possible with smaller companies. Big companies are usually on multiple exchanges. What are your advices for choosing exchange and choosing brokerage companies? What exchanges and brokerage companies do you recommend? For brokerage companies, a beginner can go with discount broker. For sophisticated investors can opt for full service brokers. Usually your bank will have a brokerage firm. For exchanges, it depends...if you are in US, you should send to the US exchanges. IF you wish to send to other exchanges in other countries, you should check with the broker about that.","For $100 you better just hold it in Mexico. The cost of opening an account could eat 10% or more of your capital easily, and that won't be able to buy enough shares of an ETF or similar investment to make it worthwhile.","Selftrade does list them. Not sure if you'll be able to sign up from the US though, particularly given the FATCA issues.","\"Very simple. You open an account with a broker who will do the trades for you. Then you give the broker orders to buy and sell (and the money to pay for the purchases). That's it. In the old days, you would call on the phone (remember, in all the movies, \"\"Sell, sell!!!!\"\"? That's how), now every decent broker has an online trading platform. If you don't want to have \"\"additional value\"\" and just trade - there are many online discount brokers (ETrade, ScotTrade, TD Ameritrade, and others) who offer pretty cheap trades and provide decent services and access to information. For more fees, you can also get advices and professional management where an investment manager will make the decisions for you (if you have several millions to invest, that is). After you open an account and login, you'll find a big green (usually) button which says \"\"BUY\"\". Stocks are traded on exchanges. For example the NYSE and the NASDAQ are the most common US exchanges (there's another one called \"\"pink sheets\"\", but its a different kind of animal), there are also stock exchanges in Europe (notably London, Frankfurt, Paris, Moscow) and Asia (notably Hong Kong, Shanghai, Tokyo). Many trading platforms (ETrade, that I use, for example) allow investing on some of those as well.\"","\"Usually the big institution that \"\"floats\"\" the stock on the market is the one to offer it to you. The IPO company doesn't sell the stock itself, the big investment bank does it for them. IPO's shareholders/employees are generally not allowed to sell their shares at the IPO until some time passes. Then you usually see the sleuth of selling.\"","\"Hmm... Well there are several ways to do that: Go to any bank (or at the very least major ones). They can assist you with buying and/or selling stocks/shares of any company on the financial market. They keep your shares safe at the bank and take care of them. The downside is that they will calculate fees for every single thing they do with your money or shares or whatever. Go to any Financial broker/trader that deals with the stock market. Open an account and tell them to buy shares from company \"\"X\"\" and keep them. Meaning they won't trade with them if this is what you want. Do the same as point 2, but on your own. Find a suitable broker with decent transaction fees, open an account, find the company's stock code and purchase the stocks via the platform the broker uses.\"","Some brokerages will let you withdraw/deposit in multiple jurisdictions. e.g. I used to use Interactive Brokers. I could deposit/withdraw to US and UK bank accounts, in the appropriate currencies. It helps to have a brokerage that provides good rates on forex exchange also, and they were very good on the bid/ask spread. It was possible to get interbank rates plus a very low commission.","\"The fact that your shares are of a Canadian-listed corporation (as indicated in your comment reply) and that you are located in the United States (as indicated in your bio) is highly relevant to answering the question. The restriction for needing to be a \"\"qualified institutional buyer\"\" (QIB) arises from the parent company not having registered the spin-off company rights [options] or shares (yet?) for sale in the United States. Shares sold in the U.S. must either be registered with the SEC or qualify for some exemption. See SEC Fast Answers - Securities Act Rule 144. Quoting: Selling restricted or control securities in the marketplace can be a complicated process. This is because the sales are so close to the interests of the issuing company that the law might require them to be registered. Under Section 5 of the Securities Act of 1933, all offers and sales of securities must be registered with the SEC or qualify for some exemption from the registration requirements. [...] There are regulations to follow and costs involved in such registration. Perhaps the rights [options] themselves won't ever be registered (as they have a very limited lifetime), while the listed shares might be? You could contact investor relations at the parent company for more detail. (If I guessed the company correctly, there's detail in this press release. Search the text for \"\"United States\"\".)\"","As a relatively recent nonimmigrant visa holder (O1), I was able to open an ETrade brokerage account without problems. I have full tax residence in the USA so have an SSN, and a credit history so it was no problem. Later, as a greencard holder, I opened IRA accounts with them, too. Again, there were no issues as I had all the information that the IRS paperwork required at hand.","I don't know where your trade figures are from. ETrade, TD Ameritrade, Fidelity, etc all have trading costs under 10 USD per share, so I'm not sure where your costs are coming from. I doubt currency conversion or anything like that will double the cost. As for your question, the answer is: It depends How much trading will you do? In what types of investments? For example, Schwab charges no commission on ETF purchases, but this is not an advantage if you wont buy ETFs. Consider minimums. Different brokers have different minimum cash balance/deposit requirements, so make sure you can meet those. It's true that you can get real time quotes anywhere, but consider the other services. For example, TD Ameritrade pools research reports for many publicly traded companies which are nice to read about what analysts have to say. Different brokers given different research tools, so read about offerings and see what's most useful to you. You can open different brokerage accounts, but it's much more convenient to have a one-stop place where you can do all you trading. Pick a broker which is low cost and offers a variety of investments as well as good customer support and a straightforward system.","You can look into specific market targeted mutual funds or ETF's. For Norway, for example, look at NORW. If you want to purchase specific stocks, then you'd better be ready to trade on local stock exchanges in local currency. ETrade allows trading on some of the international stock exchanges (in Asia they have Hong Kong and Japan, in Europe they have the UK, Germany and France, and in the Americas they have the US and Canada). Some of the companies you're interested in might be trading there.","\"Yes! What you are describing is an \"\"off-exchange\"\" trade and can be done using stock certificates. Here, you will privately negotiate with the seller on a price and delivery details. That is the old-school way to do it. Many companies (about 20% of the S&P 500) will not issue paper certificates and you may run a hefty printing fee up to $500 (source: Wikipedia, above). Other other type of private-party transactions include a deal negotiated between two parties and settled immediately or based on a future event. For example, Warren Buffet created a deal with Goldman Sachs where Warren would have the choice to purchase GS shares in the future at a certain price. This was to be settled with actual shares (rather than cash-settled). Ignoring that he later canceled this agreement, if it were to go through the transaction would still have been handled by a broker transferring the shares. You can purchase directly from a company using a direct stock purchase plan (SPP). Just pick up the phone, ask for their investor relations and then ask if they offer this option. If not, they will be glad for your interest and look into setting it up for you.\"","\"Yes, you can. You could either go through brokerages like Ameritrade or fund companies like Fidelity or Vanguard. Yes there are minimums depending on the fund where some retail funds may waive a minimum if you sign up for an \"\"Automatic Investment Plan\"\" and some of the lower cost funds may have higher initial investment as Vanguard's Admiral share class is different from Investor for example.\"","I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.","\"Short answer: No. Being connected is very helpful and there is no consequence by securities regulators against the investor by figuring out how to acquire pre-IPO stock. Long answer: Yes, you generally have to be an \"\"Accredited Investor\"\" which basically means you EARN over $200,000/yr yourself (or $300,000 joint) and have been doing so for several years and expect to continue doing so OR have at least 1 million dollars of net worth ( this is joint worth with you and spouse). The Securities Exchange Commission and FINRA have put a lot of effort into keeping most classes of people away from a long list of investments.\"","If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.","Market Watch has an IPO calender with details of upcoming IPOs that should provide most of the information you need.","I'd look into ShareBuilder. You can buy stocks for as low as $2 each, and there is no minimum funding level. You have to be carefull about selling though, as they will charge you $10 each time you want to sell a stock, regardless of how much of it you want to sell.","I'll give it a shot, even though you don't seem to be responding to my comment. SIPC insures against fraud or abuse of its members. If you purchased a stock through a SIPC member broker and it was held in trust by a SIPC member, you're covered by its protection. Where you purchased the stock - doesn't matter. There are however things SIPC doesn't cover. That said, SIPC members are SEC-registred brokers, i.e.: brokers operating in the USA. If you're buying on the UK stock exchange - you need to check that you're still operating through a US SIPC member. As I mentioned in the comment - the specific company that you mentioned has different entities for the US operations and the UK operations. Buying through them on LSE is likely to bind you with their UK entity that is not SIPC member. You'll have to check that directly with them.","It isn't just ETFs, you have normal mutual funds in India which invest internationally. This could be convenient if you don't already have a depository account and a stockbroker. Here's a list of such funds, along with some performance data: Value Research - Equity: International: Long-term Performance. However, you should also be aware that in India, domestic equity and equity fund investing is tax-free in the long-term (longer than one year), but this exemption doesn't apply to international investments. Ref: Invest Around the World.","Call the CBOE, the Chicago Board of Options Exchange I've requested options on several IPOs in the past. You mainly have to convince them that there is a market for them (or they won't be inclined to provide liquidity). The CBOE could talk to the company in question to help convince them, or the CBOE will just tell you when the options will begin trading. Oh yeah, sometimes they'll ask you who you work for, just try to avoid that question, they don't like to talk to individual/retail investors.","\"You can start investing with any amount. You can use the ShareBuilder account to purchase \"\"partial\"\" stocks through their automatic investment plan. Usually brokers don't sell parts of stock, and ShareBuilder is the only one allowing it IMHO using its own tricks. What they do basically is buy a stock and then divide it internally among several investors who bought it, while each of the investors doesn't really own it directly. That's perfect for investing small amounts and making first steps in investing.\"","Consider trying a broker that offers free trading. Robinhood is one such broker.","First of all, you'll need a securities account. Nowadays, most large banks offer this as a standard product for all their customers, though it may require some extra paperwork. Then you need to buy shares in the ETF. This is indeed typically done through the stock market, but there are alternatives. Some banks will sell securities to you directly, but usually only those they create themselves (options and such). Some also offer ETF investment plans that allow you to buy shares for a fixed amount each month through the bank. In any case, the bank's online banking interface should support all these options. However, fees are an important consideration! With some banks, the securities account is free, others charge an annual fee. And the fees on stock market transactions and investment plans also vary considerably, so it could be worth it to consider some alternatives.","\"Are most big US based financial institutions and banks in such a close relationship with USCIS (United States Citizenship And Immigration Services) so they can easily request the information about market traders? Yes. They must be in order to enforce the laws required by the sanctions. What online broker would you suggest that probably won't focus on that dual citizenship matter? \"\"Dual\"\" citizenship isn't actually relevant here. Nearly anyone in the world can invest in US banks except for those few countries that the US has imposed sanctions against. Since you are a citizen of one of those countries, you are ineligible to participate. The fact that you are also a US citizen isn't relevant in this case. I believe the reasoning behind this is that the US doesn't encourage dual citizenship: The U.S. Government does not encourage dual nationality. While recognizing the existence of dual nationality and permitting Americans to have other nationalities, the U.S. Government also recognizes the problems which it may cause. Claims of other countries upon U.S. dual-nationals often place them in situations where their obligations to one country are in conflict with the laws of the other. In addition, their dual nationality may hamper efforts of the U.S. Government to provide consular protection to them when they are abroad, especially when they are in the country of their second nationality. If I had to guess, I'd say the thinking there is that if you (and enough other people that are citizens of that country) want to participate in something in the US that sanctions forbid, you (collectively) could try to persuade that country's government to change its actions so that the sanctions are lifted. Alternatively, you could renounce your citizenship in the other country. Either of those actions would help further the cause that the US perceives to be correct. What it basically boils down to is that even though you are a US citizen, your rights can be limited due to having another citizenship in a country that is not favorable in the current political climate. Thus there are pros and cons to having dual citizenship.\"","\"For equities, buy direct from the transfer agent. You have to buy one full share at a minimum but after that dividend reinvestment is free. There are others like share builder and foliofn that let you buy fractional shares. As the other poster said their roster is limited so you cannot buy every ETF out there. With your example of not wanting to spend $200 I agree with the others that you should invest in a mutual fund. Vanguard will have every index fund you need and can invest as little as $50, as long as you sign up for a systematic investment draft from your bank. Plus vanguard typically has the lowest fees in the industry. The most important thing is to start investing as soon as possible and as regular as possible. \"\"Pay yourself first\"\"\"","Yes, you often can buy stocks directly from the company at little or no transaction cost. Many companies have either a Dividend Reinvestment Plan (DRIP) or a Direct Stock Plan (DSP). With these plans, you purchase shares directly from the company (although, often there is a third party transfer agent that handles the transaction), and the stock is issued in your name. This differs from purchasing stock from a broker, where the stock normally remains in the name of the broker. Generally, in order to begin participating in a DRIP, you need to already be a registered stockholder. This means that you need to purchase your first share of stock outside of the DRIP, and get it in your name. After that, you can register with the DRIP and purchase additional shares directly from the company. If the company has a DSP, you can begin purchasing shares directly without first being a stockholder. With the advent of discount brokers, DRIPs do not save as much money for regular investors as they once did. However, they can still sometimes save money for someone who wants to purchase shares on a regular basis over even a discount broker. If you are interested in DRIPs and DSPs and want to learn more, there is an informative website at dripinvesting.org that has lots of information on which DRIPs are available and how to get started.","You can do this via many online FOREX brokers. All you need to do is set up and fund an account with them and then trade via their online platform. Some examples of brokers that do this are:","If you want direct access trading that is very hard to get. However an active trading broker like interactive brokers, Trade station, or Light speed trading may be what you are looking for. If you have serious cash though value or income investing is better than trading which is pure speculation. I know that active trading can be exciting but it's also basically gambling when compared to research based long term investment. You can't fight the market makers, the guys on the dealer desks have way too many advantages over you. Just give this all some thought and see what you want to do.","One share costs the 202 $. You need to invest 3000 $ total at a minimum, meaning you have to buy some 14.9 shares at minimum. You should not worry about the exact number of shares, they are just to keep track, and you can buy every decimal part of them too. For example, if you invest now 5000 $, you will get 24.7525 shares. Next year, if they are for example worth 220 $ per share, you have a value of 24.7525 * 220 = 5445.55 $ It depends on the offering company, but that (a certain fixed amount per paycheck) is a typical way to invest (and a good way - you implictly take advantage of prices changing a bit - you buy more shares when the price is down and less when it's up). Probably you can make it an automated deduction from your checking account, or you send it every week/month/whenever. Good plan!","Yes many people operate accounts in usa from outside usa. You need a brokerage account opened in the name of your sister and then her username and password. Remember that brokerages may check the location of login and may ask security questions before login. So when your sister opens her account , please get the security questions. Also note that usa markets open ( 7.00 pm or 8.00 pm IST depending on daylight savings in usa). So this means when they close at 4:00 pm ET, it will be 1:30 or 2:30 am in India. This means it will affect your sleeping hours if you intend to day trade. Also understand that there are some day trading restrictions and balances associate. Normally brokerages need 25,000 $ for you to be a day trader. Finally CFA is not a qualification to be a trader and desire to become a trader doesn't make one a trader. TO give an analogy , just because you want to be a cricketer doesn't make you one. It needs a lot of practice and discipline.Also since in bangladesh , you will always convert the usa amount to bangladeshi currency and think of profits and losses in those terms. This might actually be bad.","I am a US citizen by birth only. I left the US aged 6 weeks old and have never lived there. I am also a UK citizen but TD Waterhouse have just followed their policy and asked me to close my account under FATCA. It is a complete nightmare for dual nationals who have little or no US connection. IG.com seem to allow me to transfer my holdings so long as I steer clear of US investments. Furious with the US and would love to renounce citizenship but will have to pay $2500 or thereabouts to follow the US process. So much for Land of the Free!","There are 2 primary ways to bet against a stock if you think it will decline. The first is to short sell shares of that stock the second is to buy put options (I would also add that selling naked call options would also be a bet against but I don't believe that is as common as the other 2 mentioned methods). The problem with short selling an IPO is that you first have to borrow the shares you are going to sell. Since the shares are privately held prior to the IPO that can be problematic. Even after the IPO you may have to wait a bit before shares become available to borrow. The problem with options (either buying puts or seeking naked calls) is similar. Options are traded on a different exchange than the stock and they have their own requirements that a stock must meet to have options traded. Both of these problems eventually correct themselves however, not in time for you to catch the initial fall you seem to be looking for.","If you have an account with a major bank they may trade an over the counter option with you. Just depends how much work you need to go through and how much you are planning on buying.","I am not sure what a Brazilian equivalent is but you could just do an ADR. Keep in mind that when you are investing in a foreign company there are certain currency risks that you may need to consider.","As a permanent resident in the U.S. but not a citizen, I was told by a representative at Scottrade that I am not allowed to open a brokerage account.","\"To trade stocks in India, you need a copy of your pan card, address proof(passport or driving license/electricity bill), income tax return (if you are trading futures & options and currencies), and a cancelled cheque from the bank. You will also need to sign across your recent photographs, and require various other forms from a brokerage house which need to be signed in the brokers presence. If your stock broker trusts you, and you have all these documents, then you CAN open a DEMAT account in India by signing and sending him all these documents. Otherwise you CANNOT, as every single form states that \"\"this particular document was signed in my presence\"\", and the stock broker needs to sign under that clause. Chances are, if you live abroad, no broker will ever trust you with any kind of margin, and therefore cannot make profits from you, so they will not agree to open your account.\"","A stock, bond or ETF is basically a commodity. Where you bought it does not really matter, and it has a value in USD only inasmuch as there is a current market price quoted at an American exchange. But nothing prevents you from turning around and selling it on a European exchange where it is also listed for an equivalent amount of EUR (arbitrage activities of investment banks ensure that the price will be equivalent in regard to the current exchange rate). In fact, this can be used as a cheap form of currency conversion. For blue chips at least this is trivial; exotic securities might not be listed in Europe. All you need is a broker who allows you to trade on European exchanges and hold an account denominated in EUR. If necessary, transfer your securities to a broker who does, which should not cost more than a nominal fee. Mutual funds are a different beast though; it might be possible to sell shares on an exchange anyway, or sell them back to the issuer for EUR. It depends. In any case, however, transferring 7 figure sums internationally can trigger all kinds of tax events and money laundering investigations. You really need to hire a financial advisor who has international investment experience for this kind of thing, not ask a web forum!","This is allowed somewhat infrequently. You can often purchase stocks through DRIPs which might have little or no commission. For example Duke Energy (DUK) runs their plan internally, so you are buying from them directly. There is no setup fee, or reinvestment fee. There is a fee to sell. Other companies might have someone else manage the DRIP but might subsidize some transaction costs giving you low cost to invest. Often DRIPs charge relatively large amounts to sell and they are not very nimble if trading is what you are after. You can also go to work for a company, and often they allow you to buy stock from them at a discount (around 15% discount is common). You can use a discount broker as well. TradeKing, which is not the lowest cost broker, allows buys and sells at 4.95 per trade. If trading 100 shares that is similar in cost to the DUK DRIP."],"string":"[\n \"First thing to consider is that getting your hands on an IPO is very difficult unless you have some serious clout. This might help a bit in that department (http://www.sec.gov/answers/ipoelig.htm) However, assuming you accept all that risk and requirements, YES - you can buy stocks of any kind in the US even if you are a foreigner. There are no laws prohibiting investment/buying in the US stock market. What you need is to get an online trading account from a registered brokerage house in the US. Once you are registered, you can buy whatever that is offered.\",\n \"\\\"Check your broker's IPO list. Adding a new stock to a stock exchange is called \\\"\\\"Initial Public Offering\\\"\\\" (IPO), and most brokers have a list of upcoming IPO's in which their clients can participate.\\\"\",\n \"Any large stockbroker will offer trading in US securities. As a foreign national you will be required to register with the US tax authorities (IRS) by completing and filing a W-8BEN form and pay US withholding taxes on any dividend income you receive. US dividends are paid net of withholding taxes, so you do not need to file a US tax return. Capital gains are not subject to US taxes. Also, each year you are holding US securities, you will receive a form from the IRS which you are required to complete and return. You will also be required to complete and file forms for each of the exchanges you wish to received market price data from. Trading will be restricted to US trading hours, which I believe is 6 hours ahead of Denmark for the New York markets. You will simply submit an order to the desired market using your broker's online trading software or your broker's telephone dealing service. You can expect to pay significantly higher commissions for trading US securities when compared to domestic securities. You will also face potentially large foreign exchange fees when exchaning your funds from EUR to USD. All in all, you will probably be better off using your local market to trade US index or sector ETFs.\",\n \"There are some brokers in the US who would be happy to open an account for non-US residents, allowing you to trade stocks at NYSE and other US Exchanges. Some of them, along with some facts: DriveWealth Has support in Portuguese Website TD Ameritrade Has support in Portuguese Website Interactive Brokers Account opening is not that straightforward Website\",\n \"It looks like your best option is to go with an online broker. There are many available. Some of them won't let you open an account online as a foreign national but will allow you to open one through the mail. See more about that http://finance.zacks.com/can-nonus-citizen-trade-us-stocks-9654.html Also keep in mind that you will need to pay taxes on any capital gains made through selling http://www.irs.gov/pub/irs-pdf/p519.pdf\",\n \"It is more easier if you select a Broker in India that would allow you these services. The reason being the broker in India will follow the required norms by India and allow you to invest without much hassel. Further as the institution would be in India, it would be more easy for resolving any disputes. ICICI Direct an Indian online broker allows one to trade in US stocks. For more details refer to ICIC Direct. Reliance Money also offers limited trading in US stocks. Selecting a Broker in US maybe more difficult as your would have to met their KYC norm's and also operate a Bank account in US. I am not aware of the requirements. For more details visit ICICI Direct website. Refer to http://www.finance-trading-times.com/2007/10/investing-in-us-stocks-and-options.html for a news article. TDAmeritrade or Charlesschwab are good online brokers, however from what I read they are more for US nationals holding Social Security. Further with the recent events and KYC norms becoming more stringent, it would be difficult for an individual [Indian Citizen] to open an account directly with these firms.\",\n \"Verify if a local bank offers to participate in different stock markets - big companies like apple or facebook often gets traded on different markets - like Xetra (germany) or SIX (Switzerland). That being said I'd recommend you to rethink this strategy and maybe using some products offered by your bank - for 1000$ you will quickly drown in fees (my bank requires 40$ for every trade. If you buy and sell them you already lost nearly 10% of your investment)\",\n \"OptionsXpress includes India in the list of countries where is possible to open an international account to invest in the US Stock Market. They just merged with Charles Schwab and they have a nice online trading platform. Stocks and ETFs are little bit pricey.. Get in touch with them to get more information.\",\n \"\\\"It's easy to own many of the larger UK stocks. Companies like British Petroleum, Glaxo, and Royal Dutch Shell, list what they call ADRs (American Depositary Receipts) on the U.S. stock exchanges. That is, they will deposit local shares with Bank of NY Mellon, JP Morgan Chase, or Citicorp (the three banks that do this type of business), and the banks will turn around and issue ADRs equivalent to the number of shares on deposit. This is not true with \\\"\\\"small cap\\\"\\\" companies. In those cases, a broker like Schwab may occasionally help you, usually not. But you might have difficulty trading U.S. small cap companies as well.\\\"\",\n \"I personally am from Canada and use my local bank to trade stocks. Contact your local bank and they will tell you how to do it, since rules depend on country of residency. If you are not close to a bank, e-mail the major bank in the country of your residence.\",\n \"As other people have said they should register with a broker in the country they reside in that can deal in US stocks, then fill out a W8-BEN form. I have personally done this as I am from the Uk, it's not a very complicated process. I would assume that most US brokers don't allow foreign customers due to the person having to pay tax where they reside and the US brokers don't want to have to keep approximately 200 different tax codes in track.\",\n \"Absolutely. It does highly depend on your country, as US brokerages are stricter with or even closed to residents of countries that produce drugs, launder money, finance terror, have traditional difficulty with the US, etc. It also depends on your country's laws. Some countries have currency controls, restrictions on buying foreign/US securities, etc. That said, some brokerages have offices world-wide, so there might be one near you. If your legal situation as described above is fortunate, some brokers will simply allow you to setup online using a procedure not too different from US residents: provide identification, sign tons of documents. You'll have to have a method to deliver your documentation in the ways you'd expect: mail, fax, email. E*Trade is the best starter broker, right now, imo. Just see how far you can go in the sign-up process.\",\n \"I have done this last year. Just open an account with an online brocker and buy a couple of Apple shares (6 I think, for 190$ each or something like that :) ). If this is just to test how stock exchange works, I think this is a good idea. I am also in Europe (France), and you'r right the charge to buy on NasDaq are quite expensive but still reasonnable. Hope this helps.\",\n \"Not going to happen for Facebook since there will be too much demand and the order will go to the top clients of the underwriting investment banks. In general though, if you wanted a piece of a smaller IPO you'd just have to get in touch with a broker whose investment banking department is on the underwriting syndicate (say Merrill Lynch or Smith Barney) since IPOs often have a percentage that they allocate to retail clients (i.e. you) as well as institutional (i.e. hedge funds, pension funds, mutual funds etc.). The more in demand the IPO the harder it is to get a piece.\",\n \"You can use interactive brokers. It allows you to have a single account to trade stocks and currencies from several countries.\",\n \"Depending on your broker, you can buy these stocks directly at the most liquid local exchanges. For instance, if you are US resident and want to to buy German stocks (like RWE) you can trade these stocks over InteractiveBrokers (or other direct brokers in the US). They offer direct access to German Xetra and other local markets.\",\n \"The Greek Piraeus Bank offers such services for trading stocks in Athens Stock Exchange (ASE) and in addition 26 other markets including NASDAQ, NYSE and largest European ones (full list, in Greek). Same goes for Eurobank with a list of 17 international markets and the ability to trade bonds. BETA Securities has also an online platform, but I think it's only for ASE. Some other banks (like National Bank of Greece) do have similar online services, but are usually restricted to ASE.\",\n \"I used to trade on Nasdaq using a US broker from the UK, you need a way to convert your money into US $s and have the cost of international money transfers. I don’t know if there are any laws in Turkey that will stop you using a US broker. You are also on your own if anything goes wrong, as the Turkish police will not be interested, and the US police will be very hard to deal with from Turkey. This all depends on Turkey not unplugging the internet on the day you wish to trade on!!! (I used tdameritrade, but it was a VERY long timer ago, as UK brokers are now as cheap, you should also consider UK based brokers as they will also let you trade outside of the USA.)\",\n \"According to this page on their website (http://www.kotaksecurities.com/internationaleq/homepage.htm), Kotak Securities is one big-name Indian broker that offers an international equities account to its Indian customers. Presumably, they should be able to answer all your questions. Since this is a competitive market, one can assume that others like ICICI Direct must also be doing so.\",\n \"You can easily go to somebody like icici ask for the demat section and enable overseas stock trading.\",\n \"You can invest upto $200K per year abroad, and yes, you can buy Google as a stock. Consider opening an international account with a broker like interactive brokers (www.interactivebrokers.co.in) which allows you to fund the account from your local Indian account, and then on, buy shares of companies listed abroad.\",\n \"\\\"I'm posting this because I think I can do a better job of explaining and detailing everything from start to stop. :) A \\\"\\\"broker\\\"\\\" is just someone who connect buyers and sellers - a middleman of sorts who is easy to deal with. There are many kinds of brokers; the ones you'll most commonly hear about these days are \\\"\\\"mortgage broker\\\"\\\" (for arranging home loans) and \\\"\\\"stockbroker\\\"\\\". The stockbroker helps you buy and sell stock. The stockbroker has a connection to one or more stock exchanges (e.g. Nasdaq, NYSE) and will submit your orders to them in order to fulfill it. This way Nasdaq and NYSE don't have to be in the business of managing millions of customer accounts (and submitting tax information about those accounts to the government and what-not) - they just manage relationships with brokerages, which is much easier for them. To invest in a stock, you will need to: In this day and age, most brokers that you care about will be easily accessed via the Internet, the applications will be available on the Internet, and the trading interface will be over the Internet. There may also be paper and/or telephone interfaces to the brokerage, but the Internet interface will work better. Be aware that post-IPO social media stock is risky; don't invest any money if you're not prepared for the possibility of losing every penny of it. Also, don't forget that a variety of alternative things exist that you can buy from a broker, such as an S&P 500 index fund or exchange-traded corporate bond fund; these will earn you some reward over time with significantly less risk. If you do not already have similar holdings through a retirement plan, you should consider purchasing some of these sooner or later.\\\"\",\n \"You can purchase stock immediately in the open market on the day of the IPO when market opens. Below link gives you more information. http://finance.zacks.com/buy-ipo-stock-3903.html\",\n \"You will likely need to open an account in another EU country, like a broker operating out of France, Britain or Germany, to get the best options. If you are comfortable using an english language site and interface, I highly recommend Interactive Brokers as they let you trade in many markets simultaneously, have simple currency conversion, and great tools. But, they are geared toward active traders so you might be better with a more retail oriented broker if you are new to trading stocks. There are many options. Here is a list to start with:\",\n \"It depends a large part on your broker's relationship with the issuing bank how early you can participate in the IPO round. But the nature of the stock market means the hotter the stock and the closer to the market (away from the issuing bank) you have to buy the higher the price you'll pay. The stock market is a secondary market, meaning the only things for sale are shares already owned by someone. As a result, for a hot stock the individual investor will have to wait for another investor (not the issuing bank) to trade (sell) the stock.\",\n \"Usually, you can buy ETFs through brokerages. I looked at London to see if there's any familiar brokerage names, and it appears that the address below is to Fidelity Investments Worldwide and their site indicates that you can buy securities. Any brokerage, in theory, should allow you to invest in securities. You could always call and ask if they allow you to invest in ETFs. Some brokerages may also allow you to purchase securities in other countries; for instance, some of the firms in the U.S. allow investors to invest in the ETF HK:2801, which is not a U.S. ETF. Many countries have ETF securities available to local and foreign investors. This site appears to help point people to brokers in London. Also, see this answer on this site (a UK investor who's invested in the U.S. through Barclays).\",\n \"Any retail equity brokerage will give you access to the NYSE, and thus Facebook shares as they become available. However, it is important to note that you nor any retail investor will be able to purchase FB at the IPO prices ($33-38 IIRC). The only people who will be able to buy in at that price are the underwriting investment banks and major investors who have subscribed to the IPO. You, and all the other retail investors will only be able to buy in as those major investors offer shares on the secondary market. This being Facebook, there will probably be a significant premium over the IPO price, both due to demand and systemic underpricing of IPOs to encourage the opening 'pop'. So, if you're intent on buying in at the IPO, pay close attention as the date approaches. Look at how the recent big IPOs have performed (GRPN, LNKD come to mind). Know how much you're willing to commit and what price you want. However, no one is going to know what the opening market price will be come Friday morning. Be watching your financial data source / analysis of choice and be prepared to make a judgement.\",\n \"The UK has historically aggressive financial law, inherited from Dutch friendship, influence, and acquisitions by conquest. The law is so open that nearly anyone can invest through the UK without much difficulty, and citizens have nearly no restrictions on where to invest. A UK citizen can either open an account in the US with paperwork hassles or at home with access to all world markets and less paperwork. Here is the UK version of my broker, Interactive Brokers. Their costs are the lowest, but you will be charged a minimum fee if you do not trade enough, and their minimum opening balance can be prohibitively high for some. If you do buy US products, be sure to file your W-8BEN.\",\n \"Open an account with a US discount online broker, or with a European broker with access to the US market. I think ETRADE allow non-resident accounts, for instance, amongst others. The brokerage will be about $10, and there is no annual fee. (So you're ~1% down out of the gate, but that's not so much.) Brokers may have a minimum transaction value but very few exchanges care about the number of shares anymore, and there is no per-share fee. As lecrank notes, putting all your savings into a single company is not prudent, but having a flutter with fun money on Apple is harmless. Paul is correct that dividend cheques may be a slight problem for non-residents. Apple don't pay dividends so there's no problem in this specific case. More generally your broker will give you a cash account into which the dividends can go. You may have to deal with US tax which is more of an annoyance than a cost.\",\n \"While most all Canadian brokers allow us access to all the US stocks, the reverse is not true. But some US brokers DO allow trading on foreign exchanges. (e.g. Interactive Brokers at which I have an account). You have to look and be prepared to switch brokers. Americans cannot use Canadian brokers (and vice versa). Trading of shares happens where-ever two people get together - hence the pink sheets. These work well for Americans who want to buy-sell foreign stocks using USD without the hassle of FX conversions. You get the same economic exposure as if the actual stock were bought. But the exchanges are barely policed, and liquidity can dry up, and FX moves are not necessarily arbitraged away by 'the market'. You don't have the same safety as ADRs because there is no bank holding any stash of 'actual' stocks to backstop those traded on the pink sheets.\",\n \"Interactive Brokers offers many foreign markets (19 countries) for US based investors. You can trade all these local markets within one universal account which is very convenient in my view. IB offering\",\n \"You can check whether the company whose stock you want to buy is present on an european market. For instance this is the case for Apple at Frankfurt.\",\n \"You can open an account with HSBC and use InvestDirect - their online share trading service - to trade LSE-traded shares. https://investments.hsbc.co.uk/product/9/sharedealing\",\n \"\\\"I have an account with ETrade. Earlier this week I got an offer to participate in the IPO proper (at the IPO price). If Charles Schwab doesn't give you the opportunity, that's a shortcoming of them as a brokerage firm; there are definitely ways for retail investors to invest in it, wise investment or no. (Okay, technically it wasn't an offer to participate, it was a notice that participation was possibly available, various securities-law disclaimers etc withstanding. \\\"\\\"This Web site is neither an offer to sell nor a solicitation to buy these securities. The offer is by prospectus only. This Web site contains a preliminary prospectus for each offering.\\\"\\\" etc etc).\\\"\",\n \"Quite a few stock broker in India offer to trade in US markets via tie-up brokers in US. As an Indian citizen, there are limits as to how much FX you can buy, generally very large, should be an issue. The profits will be taxed in US as well as India [you can claim relief under DTAA]\",\n \"There are 2 main types of brokers, full service and online (or discount). Basically the full service can provide you with advice in the form of recommendations on what to buy and sell and when, you call them up when you want to put an order in and the commissions are usually higher. Whilst an online broker usually doesn't provide advice (unless you ask for it at a specified fee), you place your orders online through the brokers website or trading platform and the commissions are usually much lower. The best thing to do when starting off is to go to your country's stock exchange, for example, The ASX in Sydney Australia, and they should have a list of available brokers. Some of the online brokers may have a practice or simulation account you can practice on, and they usually provide good educational material to help you get started. If you went with an online broker and wanted to buy Facebook on the secondary market (that is on the stock exchange after the IPO closes), you would log onto your brokers website or platform and go to the orders section. You would place a new order to buy say 100 Facebook shares at a certain price. You can use a market order, meaning the order will be immediately executed at the current market price and you will own the shares, or a limit price order where you select a price below the current market price and wait for the price to come down and hit your limit price before your order is executed and you get your shares. There are other types of orders available with different brokers which you will learn about when you log onto their website. You also need to be careful that you have the funds available to pay for the share at settlement, which is 3 business days after your order was executed. Some brokers may require you to have the funds deposited into an account which is linked to your trading account with them. To sell your shares you do the same thing, except this time you choose a sell order instead of a buy order. It becomes quite simple once you have done it a couple of times. The best thing is to do some research and get started. Good Luck.\",\n \"\\\"Take a look at FolioFN - they let you buy small numbers of shares and fractional shares too. There is an annual fee on the order of US$100/year. You can trade with no fees at two \\\"\\\"windows\\\"\\\" per day, or at any time for a $15 fee. You are better off leaving the stock in broker's name, especially if you live overseas. Otherwise you will receive your dividends in the form of cheques that might be expensive to try to cash. There is also usually a fee charged by the broker to obtain share certificates instead of shares in your account.\\\"\",\n \"Some brokers have a number of shares they can offer their customers, but the small guy will get 100, not as many as they'd like. In the Tech bubble of the late 90's I was able to buy in to many IPOs, but the written deal from the broker is that you could not sell for 30 days or you'd be restricted from IPO purchases for the next 90. No matter what the stock opened at, there were a fair number of stocks thay were below IPO issue price after 30 days had passed. I haven't started looking at IPOs since the tech flameout, but had I gotten in to LinkedIn it would have been at that $45 price. Let's see if it stays at these levels after 30 days. Edit - This is the exact cut/paste from my broker's site : Selling IPO Shares: While XXX customers are always free to sell shares purchased in a public offering at any time, short holding periods of less than 31 calendar days will be a factor in determining whether XXX allocates you shares in future public offerings. Accordingly, if you sell IPO shares purchased in a public offering within 30 calendar days of such purchase, you will be restricted from participating in initial and secondary public offerings through XXX for a period of 3 months. (I deleted the broker name) I honestly don't know if I'd have gotten any LI shares. Next interesting one is Pandora.\",\n \"NASDAQ provides a very good IPO calendar as well for US listings.\",\n \"\\\"Yes and no. There are two primary ways to do this. The first is known as \\\"\\\"cross listing\\\"\\\". Basically, this means that shares are listed in the home country are the primary shares, but are also traded on secondary markets using mechanisms like ADRs or Globally Registered Shares. Examples of this method include Vodafone and Research in Motion. The second is \\\"\\\"dual listing\\\"\\\". This is when two corporations that function as a single business are listed in multiple places. Examples of this include Royal Dutch Shell and Unilever. Usually companies choose this method for tax purposes when they merge or acquire an international company. Generally speaking, you can safely buy shares in whichever market makes sense to you.\\\"\",\n \"You might what to check out Interactive Brokers. If your India stock is NSE listed they might be able to do it since they support trading on that exchange. I would talk to a customer service rep there first. https://www.interactivebrokers.com/en/index.php?f=exchanges&p=asia\",\n \"Two methods: 1: Become really close friend with Marky. Probably have to take a bullet for him or something. 2: Become a major client of the investment bank that will launch the IPO (most likely Goldman), and the bank will offer you some shares before the IPO. In order to become a major client you probably have to spend several millions per year in transaction fee.\",\n \"\\\"(Note: out of my depth here, but in case this helps...) While not a direct answer to your question, I'll point out that in the inverse situation - a U.S. investor who wants to buy individual stocks of companies headquartered outside US - you would buy ADRs, which are $-denominated \\\"\\\"wrapper\\\"\\\" stocks. They can be listed with one or multiple brokerages. One alternative I'd offer the person in my example would be, \\\"\\\"Are you really sure you want to directly buy individual stocks?\\\"\\\" One less targeted approach available in the US is to buy ETFs targeted for a given country (or region). Maybe there's something similar there in Asia that would eliminate the (somewhat) higher fees associated with trading foreign stocks.\\\"\",\n \"Other than the possibility of minimal entry price being prohibitively high, there's no reason why you couldn't participate in any global trading whatsoever. Most ETFs, and indeed, stockbrokers allows both accounts opening, and trading via the Internet, without regard to physical location. With that said, I'd strongly advice you to do a proper research, and reality check both on your risk/reward profile, and on the vehicles to invest in. As Fools write, money you'll need in the next 6 months have no place on the stockmarket. Be prepared, that you can indeed loose all of your investment, regardless of the chosen vehicle.\",\n \"Investment banks don't have to buy anything. If they don't think the stock is worth buying - they won't. If they think it is - others on the secondary market will probably think so too. Initial public offering is offering to the public - i.e.: theoretically anyone can participate and purchase stocks. The major investment firms are not buying the stocks for themselves - but for their clients who are participating in this IPO. I, for example, receive email notifications from my brokerage firm each time there's another IPO that they have access to, and I can ask the brokerage to buy stocks from the IPO on my behalf. When that happens - they don't buy the stocks themselves and then sell to me. No, what happens is that I buy a stock, through them, and they charge me a commission for the service. Usually IPO participation commissions are higher than regular trading commissions. Most of the time those who purchase stocks at IPO are institutional investors - i.e.: mutual funds, pension plans, investment banks for their managed accounts, etc. Retail investors would probably not participate in the IPO because of the costs, limited access (not all the brokerage firms have access to all the IPOs), and the uncertainty, and rather purchase the stocks later on a secondary market.\",\n \"For question #1, at least some US-based online brokers do permit direct purchases of stocks on foreign exchanges. Depending on your circumstances, this might be more cost effective than purchasing US-listed ADRs. One such broker is Interactive Brokers, which allows US citizens to directly purchase shares on many different foreign exchanges using their online platform (including in France). For France, I believe their costs are currently 0.1% of the total trade value with a 4€ minimum. I should warn you that the IB platform is not particularly user-friendly, since they market themselves to traders and the learning curve is steep (although accounts are available to individual investors). IB also won't automatically convert currencies for you, so you also need to use their foreign exchange trading interface to acquire the foreign currency used to purchase a foreign stock, which has plusses and minuses. On the plus side, their F/X spread is very competitive, but the interface is, shall we say, not very intuitive. I can't answer question #2 with specific regards to US/France. At least in the case of IB, though, I believe any dividends from a EUR-denominated stock would continue to accumulate in your account in Euros until you decide to convert them to dollars (or you could reinvest in EUR if you so choose).\",\n \"\\\"This page from the CRA website details the types of investments you can hold in a TFSA. You can hold individual shares, including ETFs, traded on any \\\"\\\"designated stock exchange\\\"\\\" in addition to the other types of investment you have listed. Here is a list of designated stock exchanges provided by the Department of Finance. As you can see, it includes pretty well every major stock exchange in the developed world. If your bank's TFSA only offers \\\"\\\"mutual funds, GICs and saving deposits\\\"\\\" then you need to open a TFSA with a different bank or a stock broking company with an execution only service that offers TFSA accounts. Almost all of the big banks will do this. I use Scotia iTrade, HSBC Invest Direct, and TD, though my TFSA's are all with HSBC currently. You will simply provide them with details of your bank account in order to facilitate money transfers/TFSA contributions. Since purchasing foreign shares involves changing your Canadian dollars into a foreign currency, one thing to watch out for when purchasing foreign shares is the potential for high foreign exchange spreads. They can be excessive in proportion to the investment being made. My experience is that HSBC offers by far the best spreads on FX, but you need to exchange a minimum of $10,000 in order to obtain a decent spread (typically between 0.25% and 0.5%). You may also wish to note that you can buy unhedged ETFs for the US and European markets on the Toronto exchange. This means you are paying next to nothing on the spread, though you obviously are still carrying the currency risk. For example, an unhedged S&P500 trades under the code ZSP (BMO unhedged) or XUS (iShares unhedged). In addition, it is important to consider that commissions for trades on foreign markets may be much higher than those on a Canadian exchange. This is not always the case. HSBC charge me a flat rate of $6.88 for both Toronto and New York trades, but for London they would charge up to 0.5% depending on the size of the trade. Some foreign exchanges carry additional trading costs. For example, London has a 0.5% stamp duty on purchases. EDIT One final thing worth mentioning is that, in my experience, holding US securities means that you will be required to register with the US tax authorities and with those US exchanges upon which you are trading. This just means fill out a number of different forms which will be provided by your stock broker. Exchange registrations can be done electronically, however US tax authority registration must be submitted in writing. Dividends you receive will be net of US withholding taxes. I am not aware of any capital gains reporting requirements to US authorities.\\\"\",\n \"I'm in the US as well, but some basic things are still the same. You need to trade through a broker, but the need for a full service broker is no longer necessary. You may be able to get by with a web based brokerage that charges less fees. If you are nervous, look for a big name, and avoid a fly by night company. Stick with non-exotic investments. don't do options, or futures or Forex. You may even want to skip shares all together and see if UK offers something akin to an index fund which tracks broad markets (like the whole of the FTSE 100 or the S&P 500) as a whole.\",\n \"\\\"listed simultaneously in New York, London, and maybe even some Asian markets - is this correct? If the exchanges are not connected, then in primary market the shares are listed. On other exchanges, the \\\"\\\"Depository Receipts\\\"\\\" are listed. i.e. the Company will keep say 100,000 shares with the primary stock exchange / depository. Based on this it would create new instruments \\\"\\\"Depository Receipts\\\"\\\". They can be 1:1 or whatever ratio. hypothetically, if I want to buy all of the company's stock Even if it is on one exchange, buying all stocks would trigger various regulatory aspects of Companies Act, or Stock Exchange rules. This is not simple or easy like clicking some buttons and buying everything. That is, let's say that in New York the company has listed 1000 shares, and in London only 10 shares, each worth 10 USD Market capitalization is sum of all outstanding shares into value.\\\"\",\n \"You probably bought the cross listed WestJet stock. If you wanted to buy shares on the TSE, I'd suspect you'd have to find a way to open a brokerage account within Canada and then you'd be able to buy the shares. However, this could get complicated to some extent as there could be requirements of Canadian tax stuff like a Social Insurance Number that may require some paperwork. In addition, you'd have to review tax law of both countries to determine how to appropriately report to each country your income as there are various rules around that. TD Waterhouse would be the Canadian subsidiary of TD Ameritrade though I haven't tried to create a Canadian brokerage account.\",\n \"Yes, However if you live in the USA a lot of companies will refuse to sent you any report and will not let you take part in “right issues” as they don’t wish to come under USA investment law.\",\n \"Saxo Bank offers direct access to Athens Stock Exchange. Interactive Brokers is your next best bet, and as you probably already noticed, they do not have a free platform. They are open to US and non-US citizens. Although they do not currently have direct exposure to individual companies on the Athens Stock Exchange, the various european exchanges they do provide direct market access for will give a lot of exposure. There are a few Greek companies that trade on non-Greek stock exchanges, if you want exposure. There are also Greek ETFs which bundle several companies together or try to replicate Greek company indices.\",\n \"\\\"As user quid states in his answer, all you need to do is open an account with a stock broker in order to gain access to the world's stock markets. If you are currently banking with one of the six big bank, then they will offer stockbroking services. You can shop around for the best commission rates. If you wish to manage your own investments, then you will open a \\\"\\\"self-directed\\\"\\\" account. You can shelter your investments from all taxation by opening a TFSA account with your stock broker. Currently, you can add $5,500 per year to your TFSA. Unused allowances from previous years can still be used. Thus, if you have not yet made any TFSA contributions, you can add upto $46,500 to your TFSA and enjoy the benefits of tax free investing. Investing in what you are calling \\\"\\\"unmanaged index funds\\\"\\\" means investing in ETFs (Exchange Traded Funds). Once you have opened your account you can invest in any ETFs traded on the stock markets accessible through your stock broker. Buying shares on foreign markets may carry higher commission rates, but for the US markets commissions are generally the same as they are for Canadian markets. However, in the case of buying foreign shares you will carry the extra cost and risk of selling Canadian dollars and buying foreign currency. There are also issues to do with foreign withholding taxes when you trade foreign shares directly. In the case of the US, you will also need to register with the US tax authorities. Foreign withholding taxes payable are generally treated as a tax credit with respect to Canadian taxation, so you will not be double taxed. In today's market, for most investors there is generally no need to invest directly in foreign market indices since you can do so indirectly on the Toronto stock market. The large Canadian ETF providers offer a wide range of US, European, Asian, and Global ETFs as well as Canadian ETFs. For example, you can track all of the major US indices by trading in Toronto in Canadian dollars. The S&P500, the Dow Jones, and the NASDAQ100 are offered in both \\\"\\\"currency hedged\\\"\\\" and \\\"\\\"unhedged\\\"\\\" forms. In addition, there are ETFs on the total US Market, US Small Caps, US sectors such as banks, and more exotic ETFs such as those offering \\\"\\\"covered call\\\"\\\" strategies and \\\"\\\"put write\\\"\\\" strategies. Here is a link to the BMO ETF website. Here is a link to the iShares (Canada) ETF website.\\\"\",\n \"\\\"Aganju has mentioned put options, which are one good possibility. I would suggest considering an even easier strategy: short selling. Technically you are borrowing the stock from someone and selling it. At some point you repurchase the stock to return to the lender (\\\"\\\"covering your short\\\"\\\"). If the stock price has fallen, then when you repurchase it, it will be cheaper and you keep the profit. Short selling sounds complicated but it's actually very easy--your broker takes care of all the details. Just go to your brokerage and click \\\"\\\"sell\\\"\\\" or \\\"\\\"sell short.\\\"\\\" You can use a market or limit order just like you were selling something you own. When it sells, you are done. The money gets credited to your account. At some point (after the price falls) you should repurchase it so you don't have a negative position any more, but your brokerage isn't going to hassle you for this unless you bought a lot and the stock price starts rising. There will be limits on how much you can short, depending on how much money is in your account. Some stocks (distressed and small stocks) may sometimes be hard to short, meaning your broker will charge you a kind of interest and/or may not be able to complete your transaction. You will need a margin account (a type of brokerage account) to either use options or short sell. They are easy to come by, though. Note that for a given amount of starting money in your account, puts can give you a much more dramatic gain if the stock price falls. But they can (and often do) expire worthless, causing you to lose all money you have spent on them. If you want to maximize how much you make, use puts. Otherwise I'd short sell. About IPOs, it depends on what you mean. If the IPO has just completed and you want to bet that the share price will fall, either puts or short selling will work. Before an IPO you can't short sell and I doubt you would be able to buy an option either. Foreign stocks? Depends on whether there is an ADR for them that trades on the domestic market and on the details of your brokerage account. Let me put it this way, if you can buy it, you can short sell it.\\\"\",\n \"Should do it through a limit auction book. Management and shareholders pre ipo submit sealed limit sell orders. Buyers submit sealed limit buy orders, nobody can see where the price is going. At 9AM, the price is calculated and whomever fills get filled and ta da everyone is trading at 9:30 when the market is open.\",\n \"One other issue you may face is when the company announces poor financial results and begins to tank, you will not be able to sell until the US market open and could incur a lot of pain.\",\n \"You don't have to go through an exchange. That wasn't the problem. It was that the people trading on them wouldn't be willing to take your offer. An exchange can't just list a company. They need that company's consent and the company need's the exchange's consent. I don't know if you're aware of this but that was also an entirely new disaster during Facebook's IPO. Computer glitches didn't help. What you're talking about is a called a secondary market, kind of. Stock exchanges offer those too, especially for options. That's the typical stock footage you see of guys on wall street yelling and screaming while throwing paper up in the air.\",\n \"I had this problem when I finished my job in Canada in Sept 2013. You'll likely have to open the account in person in Canada, at least if you don't already have a relationship with a broker there. DO NOT go to Virtual Brokers. They told me that my US citizenship was no problem, but right before I left Canada to double check. It wasn't until I asked specifically which US states they were licensed in that they realized they were licensed in NO US STATES. They told me that they'd freeze my account when I left. I then moved my (former) pension to a locked-in RRSP at BMO. As of September 2010 BMO could handle residents of most US states, but it took some tooth pulling to get the list out of them. However, after I flew to the USA, BMO called to demand more ID. My account was frozen until I flew back to Canada in person just to show ID. Annoyed, I closed the BMO account and moved it to TD Waterhouse. TD waterhouse can handle accounts for residents of all the US states EXCEPT Virginia, Louisiana, and Nebraska. (I only got the complete list of exceptions when I made my first trade, since the guys at the trading desk are much more knowledgeable about such things than the guys in the branch.) TD was extremely friendly about my USA citizenship/residence. (Many Canadian brokers simply won't accept US residents, at least as of the end of 2013.) Whichever broker you choose, BRING LOTS MORE ID than they require. Insist that they zerox it all. Make sure to include your social security card. You don't want them to demand more ID after you've left the country, like BMO did. They may even make such a move simply to get rid of US customers, because the FATCA is a pain for foreign banks.\",\n \"I'm not aware of any method to own US stocks, but you can trade them as contract for difference, or CFDs as they are commonly known. Since you're hoping to invest around $1000 this might be a better option since you can use leverage.\",\n \"Depending on your perspective of it, I can see reasons for and against this idea. Only with the benefit of hindsight can one say how wise or unwise it is to do so. Earlier in my career, I invested and lost it all. Understand if you do buy when would you be able to sell, do you have to have an account with the underwriter, what fees may there be in having such an account, and would there be restrictions on when you could sell.\",\n \"\\\"Yes, you could buy a stock on the day of its IPO. I'm a college student, and I wonder if I can buy stock from a company right after it finishes its IPO? Yes, you can. However, unless you are friends or family of an employee, chances are you'll be paying a higher price than you think as there is generally a fair bit of hype on most IPOs that allows some people to \\\"\\\"flip them\\\"\\\" which means someone is buying at a higher price. If I am not allowed to buy its stocks immediately after they go on sell, how long do I have to wait? Generally I'd wait until the hype dies down as if you look at most historical IPOs the stock could be bought cheaper later but that's just my perspective. And also who are allowed to buy the stocks at the first minute they are on sell? Anyone but keep in mind that while an IPO may be priced at $x, the initial trades may be a few times that value and the stock may come down over time. Facebook could be an example to consider of a company that had an IPO at one price and then came down for a little while on its chart over the past couple of years.\\\"\",\n \"I was wondering what relations are between brokerage companies and exchanges? Are brokers representing investors to trade on exchanges? Yes...but a broker may also buy and sell stocks for his own account. This is called broker-delaer firm. For individual investors, what are some cons and pros of trading on the exchanges directly versus indirectly via brokers? Doesn't the former save the investors any costs/expenses paid to the brokers? Yes, but to trade directly on an exchange, you need to register with them. That costs money and only a limited number of people can register I believe. Note that some (or all?) exchanges have their websites where I think trading can be done electronically, such as NASDAQ and BATS? Can almost all stocks be found and traded on almost every exchange? In other words, is it possible that a popular stock can only be found and traded on one exchange, but not found on the other exchange? If needed to be more specific, I am particularly interested in the U.S. case,and for example, Apple's stock. Yes, it is very much possible with smaller companies. Big companies are usually on multiple exchanges. What are your advices for choosing exchange and choosing brokerage companies? What exchanges and brokerage companies do you recommend? For brokerage companies, a beginner can go with discount broker. For sophisticated investors can opt for full service brokers. Usually your bank will have a brokerage firm. For exchanges, it depends...if you are in US, you should send to the US exchanges. IF you wish to send to other exchanges in other countries, you should check with the broker about that.\",\n \"For $100 you better just hold it in Mexico. The cost of opening an account could eat 10% or more of your capital easily, and that won't be able to buy enough shares of an ETF or similar investment to make it worthwhile.\",\n \"Selftrade does list them. Not sure if you'll be able to sign up from the US though, particularly given the FATCA issues.\",\n \"\\\"Very simple. You open an account with a broker who will do the trades for you. Then you give the broker orders to buy and sell (and the money to pay for the purchases). That's it. In the old days, you would call on the phone (remember, in all the movies, \\\"\\\"Sell, sell!!!!\\\"\\\"? That's how), now every decent broker has an online trading platform. If you don't want to have \\\"\\\"additional value\\\"\\\" and just trade - there are many online discount brokers (ETrade, ScotTrade, TD Ameritrade, and others) who offer pretty cheap trades and provide decent services and access to information. For more fees, you can also get advices and professional management where an investment manager will make the decisions for you (if you have several millions to invest, that is). After you open an account and login, you'll find a big green (usually) button which says \\\"\\\"BUY\\\"\\\". Stocks are traded on exchanges. For example the NYSE and the NASDAQ are the most common US exchanges (there's another one called \\\"\\\"pink sheets\\\"\\\", but its a different kind of animal), there are also stock exchanges in Europe (notably London, Frankfurt, Paris, Moscow) and Asia (notably Hong Kong, Shanghai, Tokyo). Many trading platforms (ETrade, that I use, for example) allow investing on some of those as well.\\\"\",\n \"\\\"Usually the big institution that \\\"\\\"floats\\\"\\\" the stock on the market is the one to offer it to you. The IPO company doesn't sell the stock itself, the big investment bank does it for them. IPO's shareholders/employees are generally not allowed to sell their shares at the IPO until some time passes. Then you usually see the sleuth of selling.\\\"\",\n \"\\\"Hmm... Well there are several ways to do that: Go to any bank (or at the very least major ones). They can assist you with buying and/or selling stocks/shares of any company on the financial market. They keep your shares safe at the bank and take care of them. The downside is that they will calculate fees for every single thing they do with your money or shares or whatever. Go to any Financial broker/trader that deals with the stock market. Open an account and tell them to buy shares from company \\\"\\\"X\\\"\\\" and keep them. Meaning they won't trade with them if this is what you want. Do the same as point 2, but on your own. Find a suitable broker with decent transaction fees, open an account, find the company's stock code and purchase the stocks via the platform the broker uses.\\\"\",\n \"Some brokerages will let you withdraw/deposit in multiple jurisdictions. e.g. I used to use Interactive Brokers. I could deposit/withdraw to US and UK bank accounts, in the appropriate currencies. It helps to have a brokerage that provides good rates on forex exchange also, and they were very good on the bid/ask spread. It was possible to get interbank rates plus a very low commission.\",\n \"\\\"The fact that your shares are of a Canadian-listed corporation (as indicated in your comment reply) and that you are located in the United States (as indicated in your bio) is highly relevant to answering the question. The restriction for needing to be a \\\"\\\"qualified institutional buyer\\\"\\\" (QIB) arises from the parent company not having registered the spin-off company rights [options] or shares (yet?) for sale in the United States. Shares sold in the U.S. must either be registered with the SEC or qualify for some exemption. See SEC Fast Answers - Securities Act Rule 144. Quoting: Selling restricted or control securities in the marketplace can be a complicated process. This is because the sales are so close to the interests of the issuing company that the law might require them to be registered. Under Section 5 of the Securities Act of 1933, all offers and sales of securities must be registered with the SEC or qualify for some exemption from the registration requirements. [...] There are regulations to follow and costs involved in such registration. Perhaps the rights [options] themselves won't ever be registered (as they have a very limited lifetime), while the listed shares might be? You could contact investor relations at the parent company for more detail. (If I guessed the company correctly, there's detail in this press release. Search the text for \\\"\\\"United States\\\"\\\".)\\\"\",\n \"As a relatively recent nonimmigrant visa holder (O1), I was able to open an ETrade brokerage account without problems. I have full tax residence in the USA so have an SSN, and a credit history so it was no problem. Later, as a greencard holder, I opened IRA accounts with them, too. Again, there were no issues as I had all the information that the IRS paperwork required at hand.\",\n \"I don't know where your trade figures are from. ETrade, TD Ameritrade, Fidelity, etc all have trading costs under 10 USD per share, so I'm not sure where your costs are coming from. I doubt currency conversion or anything like that will double the cost. As for your question, the answer is: It depends How much trading will you do? In what types of investments? For example, Schwab charges no commission on ETF purchases, but this is not an advantage if you wont buy ETFs. Consider minimums. Different brokers have different minimum cash balance/deposit requirements, so make sure you can meet those. It's true that you can get real time quotes anywhere, but consider the other services. For example, TD Ameritrade pools research reports for many publicly traded companies which are nice to read about what analysts have to say. Different brokers given different research tools, so read about offerings and see what's most useful to you. You can open different brokerage accounts, but it's much more convenient to have a one-stop place where you can do all you trading. Pick a broker which is low cost and offers a variety of investments as well as good customer support and a straightforward system.\",\n \"You can look into specific market targeted mutual funds or ETF's. For Norway, for example, look at NORW. If you want to purchase specific stocks, then you'd better be ready to trade on local stock exchanges in local currency. ETrade allows trading on some of the international stock exchanges (in Asia they have Hong Kong and Japan, in Europe they have the UK, Germany and France, and in the Americas they have the US and Canada). Some of the companies you're interested in might be trading there.\",\n \"\\\"Yes! What you are describing is an \\\"\\\"off-exchange\\\"\\\" trade and can be done using stock certificates. Here, you will privately negotiate with the seller on a price and delivery details. That is the old-school way to do it. Many companies (about 20% of the S&P 500) will not issue paper certificates and you may run a hefty printing fee up to $500 (source: Wikipedia, above). Other other type of private-party transactions include a deal negotiated between two parties and settled immediately or based on a future event. For example, Warren Buffet created a deal with Goldman Sachs where Warren would have the choice to purchase GS shares in the future at a certain price. This was to be settled with actual shares (rather than cash-settled). Ignoring that he later canceled this agreement, if it were to go through the transaction would still have been handled by a broker transferring the shares. You can purchase directly from a company using a direct stock purchase plan (SPP). Just pick up the phone, ask for their investor relations and then ask if they offer this option. If not, they will be glad for your interest and look into setting it up for you.\\\"\",\n \"\\\"Yes, you can. You could either go through brokerages like Ameritrade or fund companies like Fidelity or Vanguard. Yes there are minimums depending on the fund where some retail funds may waive a minimum if you sign up for an \\\"\\\"Automatic Investment Plan\\\"\\\" and some of the lower cost funds may have higher initial investment as Vanguard's Admiral share class is different from Investor for example.\\\"\",\n \"I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.\",\n \"\\\"Short answer: No. Being connected is very helpful and there is no consequence by securities regulators against the investor by figuring out how to acquire pre-IPO stock. Long answer: Yes, you generally have to be an \\\"\\\"Accredited Investor\\\"\\\" which basically means you EARN over $200,000/yr yourself (or $300,000 joint) and have been doing so for several years and expect to continue doing so OR have at least 1 million dollars of net worth ( this is joint worth with you and spouse). The Securities Exchange Commission and FINRA have put a lot of effort into keeping most classes of people away from a long list of investments.\\\"\",\n \"If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.\",\n \"Market Watch has an IPO calender with details of upcoming IPOs that should provide most of the information you need.\",\n \"I'd look into ShareBuilder. You can buy stocks for as low as $2 each, and there is no minimum funding level. You have to be carefull about selling though, as they will charge you $10 each time you want to sell a stock, regardless of how much of it you want to sell.\",\n \"I'll give it a shot, even though you don't seem to be responding to my comment. SIPC insures against fraud or abuse of its members. If you purchased a stock through a SIPC member broker and it was held in trust by a SIPC member, you're covered by its protection. Where you purchased the stock - doesn't matter. There are however things SIPC doesn't cover. That said, SIPC members are SEC-registred brokers, i.e.: brokers operating in the USA. If you're buying on the UK stock exchange - you need to check that you're still operating through a US SIPC member. As I mentioned in the comment - the specific company that you mentioned has different entities for the US operations and the UK operations. Buying through them on LSE is likely to bind you with their UK entity that is not SIPC member. You'll have to check that directly with them.\",\n \"It isn't just ETFs, you have normal mutual funds in India which invest internationally. This could be convenient if you don't already have a depository account and a stockbroker. Here's a list of such funds, along with some performance data: Value Research - Equity: International: Long-term Performance. However, you should also be aware that in India, domestic equity and equity fund investing is tax-free in the long-term (longer than one year), but this exemption doesn't apply to international investments. Ref: Invest Around the World.\",\n \"Call the CBOE, the Chicago Board of Options Exchange I've requested options on several IPOs in the past. You mainly have to convince them that there is a market for them (or they won't be inclined to provide liquidity). The CBOE could talk to the company in question to help convince them, or the CBOE will just tell you when the options will begin trading. Oh yeah, sometimes they'll ask you who you work for, just try to avoid that question, they don't like to talk to individual/retail investors.\",\n \"\\\"You can start investing with any amount. You can use the ShareBuilder account to purchase \\\"\\\"partial\\\"\\\" stocks through their automatic investment plan. Usually brokers don't sell parts of stock, and ShareBuilder is the only one allowing it IMHO using its own tricks. What they do basically is buy a stock and then divide it internally among several investors who bought it, while each of the investors doesn't really own it directly. That's perfect for investing small amounts and making first steps in investing.\\\"\",\n \"Consider trying a broker that offers free trading. Robinhood is one such broker.\",\n \"First of all, you'll need a securities account. Nowadays, most large banks offer this as a standard product for all their customers, though it may require some extra paperwork. Then you need to buy shares in the ETF. This is indeed typically done through the stock market, but there are alternatives. Some banks will sell securities to you directly, but usually only those they create themselves (options and such). Some also offer ETF investment plans that allow you to buy shares for a fixed amount each month through the bank. In any case, the bank's online banking interface should support all these options. However, fees are an important consideration! With some banks, the securities account is free, others charge an annual fee. And the fees on stock market transactions and investment plans also vary considerably, so it could be worth it to consider some alternatives.\",\n \"\\\"Are most big US based financial institutions and banks in such a close relationship with USCIS (United States Citizenship And Immigration Services) so they can easily request the information about market traders? Yes. They must be in order to enforce the laws required by the sanctions. What online broker would you suggest that probably won't focus on that dual citizenship matter? \\\"\\\"Dual\\\"\\\" citizenship isn't actually relevant here. Nearly anyone in the world can invest in US banks except for those few countries that the US has imposed sanctions against. Since you are a citizen of one of those countries, you are ineligible to participate. The fact that you are also a US citizen isn't relevant in this case. I believe the reasoning behind this is that the US doesn't encourage dual citizenship: The U.S. Government does not encourage dual nationality. While recognizing the existence of dual nationality and permitting Americans to have other nationalities, the U.S. Government also recognizes the problems which it may cause. Claims of other countries upon U.S. dual-nationals often place them in situations where their obligations to one country are in conflict with the laws of the other. In addition, their dual nationality may hamper efforts of the U.S. Government to provide consular protection to them when they are abroad, especially when they are in the country of their second nationality. If I had to guess, I'd say the thinking there is that if you (and enough other people that are citizens of that country) want to participate in something in the US that sanctions forbid, you (collectively) could try to persuade that country's government to change its actions so that the sanctions are lifted. Alternatively, you could renounce your citizenship in the other country. Either of those actions would help further the cause that the US perceives to be correct. What it basically boils down to is that even though you are a US citizen, your rights can be limited due to having another citizenship in a country that is not favorable in the current political climate. Thus there are pros and cons to having dual citizenship.\\\"\",\n \"\\\"For equities, buy direct from the transfer agent. You have to buy one full share at a minimum but after that dividend reinvestment is free. There are others like share builder and foliofn that let you buy fractional shares. As the other poster said their roster is limited so you cannot buy every ETF out there. With your example of not wanting to spend $200 I agree with the others that you should invest in a mutual fund. Vanguard will have every index fund you need and can invest as little as $50, as long as you sign up for a systematic investment draft from your bank. Plus vanguard typically has the lowest fees in the industry. The most important thing is to start investing as soon as possible and as regular as possible. \\\"\\\"Pay yourself first\\\"\\\"\\\"\",\n \"Yes, you often can buy stocks directly from the company at little or no transaction cost. Many companies have either a Dividend Reinvestment Plan (DRIP) or a Direct Stock Plan (DSP). With these plans, you purchase shares directly from the company (although, often there is a third party transfer agent that handles the transaction), and the stock is issued in your name. This differs from purchasing stock from a broker, where the stock normally remains in the name of the broker. Generally, in order to begin participating in a DRIP, you need to already be a registered stockholder. This means that you need to purchase your first share of stock outside of the DRIP, and get it in your name. After that, you can register with the DRIP and purchase additional shares directly from the company. If the company has a DSP, you can begin purchasing shares directly without first being a stockholder. With the advent of discount brokers, DRIPs do not save as much money for regular investors as they once did. However, they can still sometimes save money for someone who wants to purchase shares on a regular basis over even a discount broker. If you are interested in DRIPs and DSPs and want to learn more, there is an informative website at dripinvesting.org that has lots of information on which DRIPs are available and how to get started.\",\n \"You can do this via many online FOREX brokers. All you need to do is set up and fund an account with them and then trade via their online platform. Some examples of brokers that do this are:\",\n \"If you want direct access trading that is very hard to get. However an active trading broker like interactive brokers, Trade station, or Light speed trading may be what you are looking for. If you have serious cash though value or income investing is better than trading which is pure speculation. I know that active trading can be exciting but it's also basically gambling when compared to research based long term investment. You can't fight the market makers, the guys on the dealer desks have way too many advantages over you. Just give this all some thought and see what you want to do.\",\n \"One share costs the 202 $. You need to invest 3000 $ total at a minimum, meaning you have to buy some 14.9 shares at minimum. You should not worry about the exact number of shares, they are just to keep track, and you can buy every decimal part of them too. For example, if you invest now 5000 $, you will get 24.7525 shares. Next year, if they are for example worth 220 $ per share, you have a value of 24.7525 * 220 = 5445.55 $ It depends on the offering company, but that (a certain fixed amount per paycheck) is a typical way to invest (and a good way - you implictly take advantage of prices changing a bit - you buy more shares when the price is down and less when it's up). Probably you can make it an automated deduction from your checking account, or you send it every week/month/whenever. Good plan!\",\n \"Yes many people operate accounts in usa from outside usa. You need a brokerage account opened in the name of your sister and then her username and password. Remember that brokerages may check the location of login and may ask security questions before login. So when your sister opens her account , please get the security questions. Also note that usa markets open ( 7.00 pm or 8.00 pm IST depending on daylight savings in usa). So this means when they close at 4:00 pm ET, it will be 1:30 or 2:30 am in India. This means it will affect your sleeping hours if you intend to day trade. Also understand that there are some day trading restrictions and balances associate. Normally brokerages need 25,000 $ for you to be a day trader. Finally CFA is not a qualification to be a trader and desire to become a trader doesn't make one a trader. TO give an analogy , just because you want to be a cricketer doesn't make you one. It needs a lot of practice and discipline.Also since in bangladesh , you will always convert the usa amount to bangladeshi currency and think of profits and losses in those terms. This might actually be bad.\",\n \"I am a US citizen by birth only. I left the US aged 6 weeks old and have never lived there. I am also a UK citizen but TD Waterhouse have just followed their policy and asked me to close my account under FATCA. It is a complete nightmare for dual nationals who have little or no US connection. IG.com seem to allow me to transfer my holdings so long as I steer clear of US investments. Furious with the US and would love to renounce citizenship but will have to pay $2500 or thereabouts to follow the US process. So much for Land of the Free!\",\n \"There are 2 primary ways to bet against a stock if you think it will decline. The first is to short sell shares of that stock the second is to buy put options (I would also add that selling naked call options would also be a bet against but I don't believe that is as common as the other 2 mentioned methods). The problem with short selling an IPO is that you first have to borrow the shares you are going to sell. Since the shares are privately held prior to the IPO that can be problematic. Even after the IPO you may have to wait a bit before shares become available to borrow. The problem with options (either buying puts or seeking naked calls) is similar. Options are traded on a different exchange than the stock and they have their own requirements that a stock must meet to have options traded. Both of these problems eventually correct themselves however, not in time for you to catch the initial fall you seem to be looking for.\",\n \"If you have an account with a major bank they may trade an over the counter option with you. Just depends how much work you need to go through and how much you are planning on buying.\",\n \"I am not sure what a Brazilian equivalent is but you could just do an ADR. Keep in mind that when you are investing in a foreign company there are certain currency risks that you may need to consider.\",\n \"As a permanent resident in the U.S. but not a citizen, I was told by a representative at Scottrade that I am not allowed to open a brokerage account.\",\n \"\\\"To trade stocks in India, you need a copy of your pan card, address proof(passport or driving license/electricity bill), income tax return (if you are trading futures & options and currencies), and a cancelled cheque from the bank. You will also need to sign across your recent photographs, and require various other forms from a brokerage house which need to be signed in the brokers presence. If your stock broker trusts you, and you have all these documents, then you CAN open a DEMAT account in India by signing and sending him all these documents. Otherwise you CANNOT, as every single form states that \\\"\\\"this particular document was signed in my presence\\\"\\\", and the stock broker needs to sign under that clause. Chances are, if you live abroad, no broker will ever trust you with any kind of margin, and therefore cannot make profits from you, so they will not agree to open your account.\\\"\",\n \"A stock, bond or ETF is basically a commodity. Where you bought it does not really matter, and it has a value in USD only inasmuch as there is a current market price quoted at an American exchange. But nothing prevents you from turning around and selling it on a European exchange where it is also listed for an equivalent amount of EUR (arbitrage activities of investment banks ensure that the price will be equivalent in regard to the current exchange rate). In fact, this can be used as a cheap form of currency conversion. For blue chips at least this is trivial; exotic securities might not be listed in Europe. All you need is a broker who allows you to trade on European exchanges and hold an account denominated in EUR. If necessary, transfer your securities to a broker who does, which should not cost more than a nominal fee. Mutual funds are a different beast though; it might be possible to sell shares on an exchange anyway, or sell them back to the issuer for EUR. It depends. In any case, however, transferring 7 figure sums internationally can trigger all kinds of tax events and money laundering investigations. You really need to hire a financial advisor who has international investment experience for this kind of thing, not ask a web forum!\",\n \"This is allowed somewhat infrequently. You can often purchase stocks through DRIPs which might have little or no commission. For example Duke Energy (DUK) runs their plan internally, so you are buying from them directly. There is no setup fee, or reinvestment fee. There is a fee to sell. Other companies might have someone else manage the DRIP but might subsidize some transaction costs giving you low cost to invest. Often DRIPs charge relatively large amounts to sell and they are not very nimble if trading is what you are after. You can also go to work for a company, and often they allow you to buy stock from them at a discount (around 15% discount is common). You can use a discount broker as well. TradeKing, which is not the lowest cost broker, allows buys and sells at 4.95 per trade. If trading 100 shares that is similar in cost to the DUK DRIP.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["First thing to consider is that getting your hands on an IPO is very difficult unless you have some serious clout. This might help a bit in that department (http://www.sec.gov/answers/ipoelig.htm) However, assuming you accept all that risk and requirements, YES - you can buy stocks of any kind in the US even if you are a foreigner. There are no laws prohibiting investment/buying in the US stock market. What you need is to get an online trading account from a registered brokerage house in the US. Once you are registered, you can buy whatever that is offered."],"string":"[\n \"First thing to consider is that getting your hands on an IPO is very difficult unless you have some serious clout. This might help a bit in that department (http://www.sec.gov/answers/ipoelig.htm) However, assuming you accept all that risk and requirements, YES - you can buy stocks of any kind in the US even if you are a foreigner. There are no laws prohibiting investment/buying in the US stock market. What you need is to get an online trading account from a registered brokerage house in the US. Once you are registered, you can buy whatever that is offered.\"\n]","isConversational":false}}},{"rowIdx":262,"cells":{"_id":{"kind":"string","value":"2383"},"query":{"kind":"string","value":"Should I Purchase Health Insurance Through My S-Corp"},"gt_ids":{"kind":"list like","value":["17215","232199"],"string":"[\n \"17215\",\n \"232199\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["17215","232199","524134","532932","476085","41793","490223","209159","223712","306908","423074","54333","338582","327232","290056","214358","507408","154931","533825","110102","194955","457034","80866","458079","415745","98112","125696","396968","205341","121187","117065","150219","222665","133586","526158","19698","281377","422697","102995","207449","10103","56","473959","171576","64598","515233","521933","308255","405356","302560","93426","374722","370542","79129","260385","397262","346374","215920","534277","388704","70315","224406","508078","97033","423191","70452","443062","458431","349348","565614","505091","410226","527620","546634","18889","54400","240997","213185","338796","490865","177074","285493","214690","504317","197846","589398","132738","236334","67135","142645","443960","253492","474816","307397","397920","564344","506685","480472","34887","121145"],"string":"[\n \"17215\",\n \"232199\",\n \"524134\",\n \"532932\",\n \"476085\",\n \"41793\",\n \"490223\",\n \"209159\",\n \"223712\",\n \"306908\",\n \"423074\",\n \"54333\",\n \"338582\",\n \"327232\",\n \"290056\",\n \"214358\",\n \"507408\",\n \"154931\",\n \"533825\",\n \"110102\",\n \"194955\",\n \"457034\",\n \"80866\",\n \"458079\",\n \"415745\",\n \"98112\",\n \"125696\",\n \"396968\",\n \"205341\",\n \"121187\",\n \"117065\",\n \"150219\",\n \"222665\",\n \"133586\",\n \"526158\",\n \"19698\",\n \"281377\",\n \"422697\",\n \"102995\",\n \"207449\",\n \"10103\",\n \"56\",\n \"473959\",\n \"171576\",\n \"64598\",\n \"515233\",\n \"521933\",\n \"308255\",\n \"405356\",\n \"302560\",\n \"93426\",\n \"374722\",\n \"370542\",\n \"79129\",\n \"260385\",\n \"397262\",\n \"346374\",\n \"215920\",\n \"534277\",\n \"388704\",\n \"70315\",\n \"224406\",\n \"508078\",\n \"97033\",\n \"423191\",\n \"70452\",\n \"443062\",\n \"458431\",\n \"349348\",\n \"565614\",\n \"505091\",\n \"410226\",\n \"527620\",\n \"546634\",\n \"18889\",\n \"54400\",\n \"240997\",\n \"213185\",\n \"338796\",\n \"490865\",\n \"177074\",\n \"285493\",\n \"214690\",\n \"504317\",\n \"197846\",\n \"589398\",\n \"132738\",\n \"236334\",\n \"67135\",\n \"142645\",\n \"443960\",\n \"253492\",\n \"474816\",\n \"307397\",\n \"397920\",\n \"564344\",\n \"506685\",\n \"480472\",\n \"34887\",\n \"121145\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.) In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check. Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost.","I'm not sure about reimbursement, you'll have to talk to a tax adviser (CPA/EA licensed in your State). From what I know, if you pay your own insurance premiums - they're not deductible, and I don't think reimbursements change that. But again - not sure, verify. However, since you're a salaried employee, even if your own, you can have your employer cover you by a group plan. Even if the group consists of only you. Then, you'll pay your portion as part of the pre-tax salary deduction, and it will be deductible. The employer's portion is a legitimate business expense. Thus, since both the employee and the employer portions are pre-tax - the whole cost of the insurance will be pre-tax. The catch is this: this option has to be available to all of your employees. So if you're hiring an employee a year from now to help you - that employee will be eligible to exactly the same options you have. You cannot only cover owner-employees. If you don't plan on hiring employees any time soon, this point is moot for you, but it is something to keep in mind down the road as you're building and growing your business.","\"No, not on schedule C, better. Its an \"\"above the line\"\" deduction (line 29 on your 1040). Here's the turbo tax article on it. The instructions for this line set certain limitations that you must take into the account, and yes - it is limited to the net profit from the business. One of the following statements must be true. You were self-employed and had a net profit for the year. You were a partner with net earnings from self-employment. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2. The insurance plan must be established under your business. Your personal services must have been a material income-producing factor in the business. If you are filing Schedule C, C-EZ, or F, the policy can be either in your name or in the name of the business.\"","Unless the amounts involved are very small, it is MUCH better to incorporate. First, incorporation gives you limited liability for your acts as an employee. As an individual, you have unlimited liability. Second, incorporating allows you to deduct (for tax purposes) the costs of doing business, including all of your health insurance, most transportation, and some meals. The exception to the rule is if the amounts you are earning are so small that they don't cover the cost of incorporating, accounting fees, etc. (a few hundred, or at most a few thousand dollars).","The tax incentives for employer sponsored health insurance were designed to incentivize employers to provide the insurance and for employees to purchase the insurance. Since your situation does not meet the requirements to take advantage of this incentive, you can not. In the near future you should be able to take part in the government sponsored exchanges. This may spur changes in how this works.","\"You can deduct what you pay for your own and your family's health insurance regardless of whether it is subsidized by your employer or not, as well as all other medical and dental expenses for your family, as an itemized deduction on Schedule A of Form 1040, but only to the extent that the total exceeds 7.5% of your Adjusted Gross Income (AGI) (10% on tax returns for year 2013 onwards). As pointed out in KeithB's comment, you cannot deduct any health insurance premium (or other medical expense) that was paid for out of pre-tax dollars, nor indeed can you deduct any medical expense to the extent that it was paid for by the insurance company directly to hospital or doctor (or reimbursed to you) for a covered expense; e.g. if the insurance company reimbursed you $72 for a claim for a doctor's visit for which you paid $100 to the doctor, only $28 goes on Schedule A to be added to the amount that you will be comparing to the 7.5% of AGI threshold, and the $72 is not income to you that needs to be reported on Form 1040. Depending on other items on Schedule A, your total itemized deductions might not exceed the standard deduction, in which case you will likely choose to use the standard deduction. In this case, you \"\"lose\"\" the deduction for medical expenses as well as all other expenses deductible on Schedule A. Summary of some of the discussions in the comments Health care insurance premiums cannot be paid for from HSA accounts (IRS Pub 969, page 8, column 2, near the bottom) though there are some exceptions. Nor can health care insurance premiums be paid from an FSA account (IRS Pub 969, page 17, column 1, near the top). If you have a business on the side and file a Schedule C as a self-employed person, you can buy medical insurance for that business's employees (and their families too, if you like) as an employment benefit, and pay for it out of the income of the Schedule C business, (thus saving on taxes). But be aware that if you have employees other than yourself in the side business, they would need to be covered by the same policy too. You can even decide to pay all medical expenses of your employees and their families too (no 7.5% limitation there!) as an employment benefit but again, you cannot discriminate against other employees (if any) of the Schedule C business in this matter. Of course, all this money that reduced your Schedule C income does not go on Schedule A at all. If your employer permits your family to be covered under its health insurance plan (for a cost, of course), check whether you are allowed to pay for the insurance with pre-tax dollars. The private (non-Schedule C) insurance would, of course, be paid for with post-tax dollars. I would doubt that you would be able to save enough money on taxes to make up the difference between $1330/month and $600/month, but it might also be that the private insurance policy covers a lot less than your employer's policy does. As a rule of thumb, group insurance through an employer can be expected to offer better coverage than privately purchased insurance. Whether the added coverage is worth the additional cost is a different matter. But while considering this matter, keep in mind that privately purchased insurance is not always guaranteed to be renewable, and a company might decline to renew a policy if there were a large number of claims. A replacement policy might not cover pre-existing conditions for some time (six months? a year?) or maybe even permanently. So, do consider these aspects as well. Of course, an employer can also change health insurance plans or drop them entirely as an employment benefit (or you might quit and go work for a different company), but as long as the employer's health plan is in existence, you (and continuing members of your family) cannot be discriminated against and denied coverage under the employer's plan.\"","While the OP disses the health insurance coverage offered through his wife's employer as a complete rip-off, one advantage of such coverage is that, if set up right (by the employer), the premiums can be paid for through pre-tax dollars instead of post-tax dollars. On the other hand, Health insurance premiums cannot be deducted on Schedule C by self-employed persons. So the self-employed person has to pay both the employer's share as well as the employee's share of Social Security and Medicare taxes on that money. Health insurance premiums can be deducted on Line 29 of Form 1040 but only for those months during which the Schedule C filer is neither covered nor eligible to be covered by a subsidized health insurance plan maintained by an employer of the self-employed person (whose self-employment might be a sideline) or the self-employed person's spouse. In other words, just having the plan coverage available through the wife's employment, even though one disdains taking it, is sufficient to make a Line 29 deduction impermissible. So, AGI is increased. Health insurance premiums can be deducted on Schedule A but only to the extent that they (together with other medical costs) exceed 10% of AGI. For many people in good health, this means no deduction there either. Thus, when comparing the premiums of health insurance policies, one should pay some attention to the tax issues too. Health insurance through a spouse's employment might not be that bad a deal after all.","I think that mbhunter hit the nail on the head regarding your question. I just want to add that having a policy that isn't sponsored by your employer is a good idea... employer policies are regulated by the federal government via ERISA. Independent policies are state regulated, and usually have better protections. Also, look for a policy that allows you to increase your coverage later without medical qualification so you don't need to overbuy insurance initially.","The answer likely depends a bit on which state you are in, but this should be true for most states. I don't know anything about Pennsylvania specifically unfortunately. The Affordable Care Act created the SHOP marketplace, which allows small businesses to effectively form larger groups for group coverage purposes. SHOP stands for Small Business Health Options Program, and requires only one common-law employee on payroll. This would effectively allow you to offer group coverage without having a group. Talk to your tax accountant for more details, as this is still very new and not necessarily well understood. There are some other options, all of which I would highly suggest talking to a tax accountant about as well. HRAs (health reimbursement accounts) allow the employer to set aside pre-tax funds for the employee to use for approved medical expenses; they're often managed by a benefits company (say, Wageworks, Conexis, etc.). That would allow your employee to potentially pick a higher deductible health plan which offers poorer coverage on the individual marketplace (with after-tax dollars) and then supplement with your HRA. There are also the concept of Employer Payment Plans, where the employer reimburses the employee for their insurance premiums, but those are not compatible with the ACA for the most part - although there seems to be a lot of disagreement as to whether it's possible to have something effectively the same work, see for example this page versus this for example.","As others have pointed out, post-tax dollars are what you'll use. Just as a quick note, as you'll be using post-tax dollars; in the past, I've refused to take contractor plans because they almost always are inferior to what I've been able to get off the private exchange ehealthinsurance. A few people have written excellent articles on Get Rich Slowly here and here about them in detail if you want more information. Generally, contractors (and sometimes employees) are offered a few plans (3-4), and this health exchange gives you a little more freedom to pick your plan, which in your situation may help. It isn't always cheaper, but depending on your needs, you may obtain a better deal. Forgot to add this: this option has also made switching jobs easy as well since I don't have to pay COBRA. While it depends on the situation, this can sometimes come out significantly cheaper. For instance, if I were to take the employer health plan next year, I would lose ~$450 a month, whereas the private exchange option is ~$300. But, if I were to switch jobs, decide to opt for self-employment, or a layoff, the COBRA would be even higher than ~$450.","There are many aspects to consider in deciding what sort of company you want to form. Instead of an S-corporation, you should determine whether it would be better to form a Limited Liability Company (LLC), Limited Partnership (LP) or even a professional company (PC). Littleadv is correct: There is minimal benefit in forming an S-corp with you and your wife as the shareholders, if you will be the only contributor-worker. There are costs associated with an S-corporation, or any corporation, that might outweigh benefits from more favorable tax treatment, or personal protection from liability: Filing fees and disclosure rules vary from state to state. For example, my father was a cardiologist who had no employees, other than my grandmother (she worked for free), in a state with income taxes (NM). He was advised that a PC was best in New Mexico, while an S-Corp was better in Florida (there are no personal income taxes in Florida). The only way to know what to do requires that you consult an accountant, a good one, for guidance.","\"The basic idea is that the average person can't deduct health care costs unless they're really onerous. But a business can, and as a self-employed person, you can deduct those costs from the businesses earnings... as long as the business is really generating enough profit to cover the health insurance costs. That's why most people get their health insurance from their employer, actually. The relevant IRS rules say: \"\"You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are... A self-employed individual with a net profit reported on Schedule C (Form 1040).\"\" For 2010, thanks to the Small Business Jobs Act of 2010, you can even deduct the premium from your income before deducting the self-employment tax (Source). I'm sure that when you get your tax returns and instructions for 2010 this will all be spelled out.\"","Checkout the worksheet on page 20 of Pub 535. Also the text starting in the last half of the third column of page 18 onward. https://www.irs.gov/pub/irs-pdf/p535.pdf The fact that you get a W-2 is irrelevant as far as I can see. Your self-employment business has to meet some criteria (such as being profitable) and the plan needs to be provided through your own business (although if you're sole proprietor filing on Schedule C, it looks like having it in your own name does the trick). Check the publication for all of the rules. There is this exception that would prevent many people with full-time jobs on W-2 from taking the deduction: Other coverage. You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2014, do not use amounts paid for coverage for that month to figure the deduction. (Pages 20-21). Sounds like in your case, though, this doesn't apply. (Although your original question doesn't mention a spouse, which might be relevant to the rule if you have one and he/she works.) The publication should help. If still in doubt, you'll probably need a CPA or other professional to assess your individual situation.","I think you're misunderstanding how S-Corp works. Here are some pointers: I suggest you talk with a EA/CPA licensed in your state and get yourself educated on what you're getting yourself into.","While I can't say how it is in the Philippines, my wife the insurance broker leads me to believe that individual insurance is more expensive than group coverages in the US almost always. So much so that people will go to great extents to form any sort of business just to insure themselves. If however it is cheaper, can't you simply opt out of your employer's plan? If you can opt out, will your employer give you any of the money they aren't paying for your insurance? If you can't opt out, or if you paycheck doesn't grow, I can't see why you would want additional coverage especially at such a young age. Should you lose your job in the near future and you worry about, go get the insurance then. EDIT One big advantage is if you get personal insurance, you might need to get an exam to qualify, and it is likely the younger you are the better you will qualify. But again, you already have insurance that covers you so I would advise keeping the group policy is probably better.","Here is a quote from the IRS website on this topic: You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2011, even if the child was not your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. One of the following statements must be true. You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. For partners, a policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business. For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business. Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Take the deduction on Form 1040, line 29.","Basically a company who provides health insurance for their employees provides it as part of the employee's salary package. This is an expense by the company in its pursuit of making income. In general, tax deductions are available on any expense incurred in deriving income (the exception is when social policy allows deductions for other types of expenses). If you pay for your own health insurance individually, then this expense is not an expense for you to derive your income, and as such is not tax deductible.","The best way to do this is to pay for the entire car, including gas, insurance, and repairs, from S-corp funds, then meticulously track how many miles are used for personal and how many miles for business. If you pay with S-corp funds, you will claim the personal miles as a taxable benefit from the S-corp on your personal return. The S-corp can then claim all the expenses and depreciation on the vehicle, reducing the S-corp's tax liability.","\"Yes, you can. See the instructions for line 29 of form 1040. Self employed health insurance premiums are an \"\"above the line\"\" deduction.\"","http://www.ehow.com/about_4625753_cobra-as-selfemployed-health-insurance.html This link makes it clear... it has to be itemized, and is subject to the > than 7.5% AGI rule.","Do not mix personal accounts and corporate accounts. If you're paid as your self person - this money belongs to you, not the corporation. You can contribute it to the corporation, but it is another tax event and you should understand fully the consequences. Talk to a tax adviser (EA/CPA licensed in your State). If they pay to you personally (1099) - it goes on your Schedule C, and you pay SE taxes on it. If they pay to your corporation, the corporation will pay it to you as salary, and will pay payroll taxes on it. Generally, payroll through corporation will be slightly more expensive than regular schedule C. If you have employees/subcontractors, though, you may earn money which is not from your own performance, in which case S-Corp may be an advantage.","\"Yes, you should budget some amount of your emergency fund for healthcare expenses. How much you budget is really dependent on your particular anticipated costs. Be aware that health insurance likely costs significantly more than your employer charges you for access to its plan. Since healthcare reform mandated guaranteed issue individual coverage you will have the ability to buy individual coverage for you and, if applicable, your family. When buying individual coverage you have essentially two choices, your decision hinges on whether or not you'd qualify for a premium subsidy. If your AGI is below 400% of the poverty line you'll be able to receive subsidized coverage at a state or federal health insurance exchange. If the subsidy is not meaningful to you, or you wouldn't qualify, you can buy an \"\"off exchange\"\" plan offered either directly through a carrier or an insurance agent (some insurance agents are also licensed to sell exchange plans though it's somewhat rare). In order to receive subsidized coverage you must buy through a state or federal exchange, or an agent licensed to sell exchange products specifically. If your employer was large enough to be required to offer its plan via COBRA or you live in a state that extends the COBRA requirement to smaller businesses, you can choose that as well. Bear in mind this option is likely to be expensive relative to individual plans. It's becoming a less relevant solution with the advent of guaranteed issue individual coverage. COBRA is not a special type of insurance, it's a mandate that your employer allow you to remain on its plan but pay the full gross premium plus an up to 2% (10% for calCOBRA) administrative fee. Despide popular vernacular, there is no such thing as Obamacare or ACA coverage. Obamacare reshaped the insurance market. The ACA outlines certain minimum coverage requirements, generally referred to as \"\"Minimum Essential Coverage.\"\" While employers and plans are not \"\"required\"\" to meet all of these coverage requirements there is a penalty associated with non-compliance. The single exception to this is grandfathered plans which can still sidestep a few of the requirements. The penalty is harsh enough that it's not worth the cost of offering a non-compliant plan. Whether you buy coverage through a state or federal exchange, through an insurance agent, or via your employer's COBRA program you will have \"\"ACA\"\" coverage (unless on the off chance your employer's plan doesn't check the \"\"Minimum Essential Coverage\"\" box). So generally all plans available to you will have $0 preventive coverage, pregnancy benefits, cancer treatment benefits etc. Another thing to consider is your entire family doesn't need to be on the same plan. If your family is healthy with the exception of one child, you can purchase $0 deductible coverage for the one child and higher deductible more catastrophic plan for the remainder of your family. In fact you could choose COBRA for one child and purchase individual coverage for the remainder of the family. The things to consider when you face a lay-off: I tried to mitigate my use of \"\"all\"\" and \"\"always\"\" because there are some narrow exceptions to these requirements, such as the \"\"Hobby Lobby\"\" decision allowing closely held organizations with highly religious owners the ability to remove certain contraception benefits. Understand that these exceptions are rare and not available to individual plans.\"","I see a lot of people making the mistake or being given bad advise in structuring a new business. If you have more than one shareholder, then by all means an S Corporation is a better structure for lower taxes; avoid double taxation. If, however, this is a one shareholder S Corp, then you had better 1099 yourself as a consultant or look into sole proprietorship. The tax benefits are much better either way. Dr. Suraiya Shaik Ali","S-Corp income is passed through to owners and is taxed on their 1040 as ordinary income. If you take a wage (pay FICA) and then take additional distributions these are not subject to FICA. A lot of business owners will buy up supplies/ necessary expenses right before the end of the tax year to lower their tax liability.","\"Many answers here have given what look to be useful perspectives on your question. I want to point out an interesting technical issue. If an employer contracts with an insurer, it agrees to cover all employees (or all that fill some pre-specified definition and no one else), and to offer only a limited range of options. If you buy insurance directly, you obviously have a huge range of choices, including the (technically illegal) one of no insurance at all. Your first thought is probably, \"\"Hey, that's great! More options, more chances to pick the plan that's right for me.\"\" Sorry, no. Yes, you have more options, but so does everyone else. If you are working for some large company, you get insurance, period. If you suspect you have an expensive health condition, you cannot buy more insurance; if you believe yourself to be healthy as a horse, you cannot get skimpier insurance and pocket the difference. Healthy people and sick people are all in the same predictable pool. If you buy insurance freely, the insurer knows that the sicker you are, the more likely you are buy insurance, a phenomenon called adverse selection. As a result, the premiums (fees) a person buying his own insurance pays are much higher, because most of his fellow policy-holders are sickly -- even if he himself is just risk-averse. On the other hand, if you are risk-neutral, if you can survive a $10,000 bill if it happens to arise, you can save big by finding the skimpiest imaginable insurance, where all your fellow policy-holders will be hale and healthy people like yourself.\"","\"Like most forms of insurance, health insurance is regulated at the state level. So what is available to you will depend greatly upon which state you live in. You can probably find a list of insurance companies from your state's official website. Many states now provide \"\"insurance of last resort\"\" for individuals who can't get insurance through private insurance companies. You can try looking into professional and trade associations. Some offer group insurance plans comparable with COBRA coverage, meaning you'd get a group discount and benefits but without the benefit of an employer paying 30-80% of your premiums. As a software developer you may qualify for membership in the IEEE or ACM, which both offer several forms of insurance to members. The ASP also offers insurance, though they don't provide much information about it on the public portions of their website. These organization offer other benefits besides insurance so you may want to take that in to consideration. The National Federation of Independent Business also offers insurance to members. You may find other associations in your specific area. Credit Unions, Coops and the local chamber of commerce are all possible avenues of finding lower cost insurance options. If you are religious there are even some faith based non-insurance organizations that provide medical cost sharing services. They depend upon the generosity and sense of fairness and obligation of their members to share the burden of medical expenses so their definitely not for everyone.\"","FICA/SE taxes are not 30%. They are at most ~15%, including the employer portion. Employer also pays FUTA tax, and has additional payroll expenses (like fees and worker compensation insurance). The employee's FICA portion is limited up to a certain level of earnings (110100 this year, IIRC). Above it you only pay medicare taxes, not social security. S-Corp earnings are not taxed at 15%, these are not dividends. They're taxed at your ordinary income rate. You don't pay SE taxes on it, that's the only difference. I hope you're talking about tax treatment decision, because there are entirely different factors to keep in mind when you're organizing a business and making a decision between being it a LLC or a corporation. I believe you should pay some money to get a real advice that would apply to you, from a EA/CPA who would be doing the number-crunching (hopefully correctly). I'm a tax practitioner, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.","Basically, no. You have retirement plan options and can either go with a Roth option, which won't change your current tax burden, or go with a traditional plan, which is tax deductible but won't change your business deductions or self-employment taxes. This article has an explanation of options for setting up SEP or Solo 401k plans. Key quote for all the pre-tax retirement plans: Because pre-tax employer and employee contributions are deducted in the same way, neither one is more tax-efficient than the other. The article goes on to say that if you were an S Corp or LLC that elected to be taxed as an S Corp, a Solo 401(k) plan would allow the business to make an employer contribution to your 401(k) and even then there's no tax advantage to the employer contribution. Conclusion for S-corps: [Employer contributions] would reduce the amount of income from the S-corporation that would be passed through to you as the owner, thereby reducing your income tax. But, because this income is not subject to payroll taxes in the first place, these contributions will not reduce your payroll taxes.","\"Am I on crack, or do the perceived tax savings via S-Corp distributions really not matter at a certain level of business income? You're not on crack. Generally, if all the income is generated by your own personal services - this is the outcome. The benefit of S-Corp is when you have employees who generate your income, and you distribute to yourself profits that come out of other's personal services. In this case your distributions are exempt from FICA since it is not in fact a self-employment income. You'd still have to pay yourself a reasonable salary for your position (as a manager/officer), but it wouldn't have to cover all of the available profits. So if the IRS takes a position against you it would be that your salary should be to include the whole profits, since it is the compensation to you for the personal services that produced the income to the corporation (you). In many cases they might agree that a salary at the SS maximum limit would be reasonable - but that's only a speculation of mine. In that case you might gain some portion of the medicare tax (with the recent law changes at the levels you're talking about you'll pay some medicare anyway). There are a lot of accountants who take more aggressive position saying that not all of the distributions are liable for SE taxes, even if you're the sole employee of the corporation. These cases often end up in the Tax Court, and whatever the outcome, your legal fees become higher than the FICA savings. What is probably missing in your picture is the SS limit of (currently $112K) above which you don't pay social security tax, so whether you get it as a salary or as a distribution - that limit is the same. That is why you don't see a significant difference. I know there are a lot of accountants who'd disagree, but I would argue that for a sole employee of your company, S-Corp doesn't provide significant benefits over the disregarded LLC taxation, but has some additional overhead that adds to your expenses. Here's a link to a lawyer's blog where he suggests (and says many accountants follow) 60/40 division between salary and distributions. I.e.: his take, similarly to mine, is that most of the earnings have to be treated as salary. In your case, when the total is about 300K - you indeed will not get any FICA savings with such a division other than some of the medicare. Unusually low wages when compared to distributions can draw unwanted IRS scrutiny and an audit. An unfavorable audit will likely result in some portion of the distributions being reclassified as earned income for federal income tax purposes, which results in a deficiency assessment (i.e., a tax bill), interest on those unpaid taxes, and IRS penalties. The article also talks about the Watson case (one of the Tax Court cases I referred to), which can be used as the guidelines for determining the \"\"reasonable\"\" compensation. Talk to your tax adviser. I'm neither a tax adviser nor a tax professional. For a tax advice contact a CPA/EA licensed in your state. This is not a tax advice, just my personal opinion.\"","An S-corp doesn't pay income tax -- taxation is pass-through. This being the case, there are no tax deductions it could take for charitable giving. The solution would be for you to make the contribution out of your own pocket and then personally claim the deduction on your own taxes.","It is illegal. Coverage has a lot of minimum requirements. What has really hurt Obamacare is that it groups those that were formerly uninsured, with those that don't have employer insurance. It turns out those that were previously uninsured (often very poor) are very expensive to insure. So that has forced up premiums on everyone else. The link of health insurance to employment in the US is to blame. The sooner everyone is forced to buy their own insurance, and then preferably the government offers medicare buy in for all, the sooner the system can be cleaned up.","\"We will bill our clients periodically and will get paid monthly. Who are \"\"we\"\"? If you're not employed - you're not the one doing the work or billing the client. Would IRS care about this or this should be something written in the policy of our company. For example: \"\"Every two months profits get divided 50/50\"\" They won't. S-Corp is a pass-through entity. We plan to use Schedule K when filing taxes for 2015. I've never filled a schedule K before, will the profit distributions be reflected on this form? Yes, that is what it is for. We might need extra help in 2015, so we plan to hire an additional employee (who will not be a shareholder). Will our tax liability go down by doing this? Down in what sense? Payroll is deductible, if that's what you mean. Are there certain other things that should be kept in mind to reduce the tax liability? Yes. Getting a proper tax adviser (EA/CPA licensed in your State) to explain to you what S-Corp is, how it works, how payroll works, how owner-shareholder is taxed etc etc.\"","Health insurance is tough, as you know, because the offerings vary dramatically by State, and there is the added complication of the Affordable Care Act, which depending on where and who you are has had either a good or bad impact on the available options. If you are a sole proprietor or other business person, I'd advise talking to someone at a local chamber of commerce. Also, professional organizations like the IEEE or ACM (for IT professionals) often offer catastrophic medical or other health plans. Some employer plans give you the option to continue coverage at a higher cost when COBRA lapses as well. If you can't afford a comprehensive plan, make sure to get something to protect you against pre-existing conditions or hospitalization.","I was in your situation a few years ago and I discovered something that worked perfectly for me - a local health insurance broker. I met with her, discussed my needs, reviewed the options with her, then acted. She received a commission from the insurer, so it cost me nothing. I would certainly follow a similar approach again.","For the first four months of the year, when you were an employee, the health insurance premiums were paid for with pre-tax money. When you receive your W-2 at the end of the year, the amount in Box 1 of the W-2 will be reduced by the amount you paid for health insurance. You can't deduct it on your tax return because it has already been deducted for you. Now that you are a 1099 independent contractor, you are self-employed and eligible for the self-employed health insurance deduction. However, as you noted, the COBRA premiums are likely not eligible for this deduction, because the policy is in your old employer's name. See this question for details, but keep in mind that there are conflicting answers on that question.","Why not personal responsibility? Get paid *then* provide the service. It's what small business owners do every day without the help of government or the protection of a large corporation. Individuals comply with safety regulations to protect themselves. If you need a corporation to do it for you, expect to make less. If you can do it yourself, expect to make more as an entrepreneur.","Pre tax insurance is not possible unless the emplyer provides hsa and do a payroll deduction. Obamacare is all post tax and you can do deduction if your expenses exceeds 10%of your income","\"I am very late to this forum and post - but will just respond that I am a sole proprietor, who was just audited by the IRS for 2009, and this is one of the items that they disallowed. My husband lost his job in 2008, I was unable to get health insurance on my own due to pre-existing ( not) conditions and so we had to stay on the Cobra system. None of the cost was funded by the employer and so I took it as a SE HI deduction on Line 29. It was disallowed and unfortunately, due to AGI limits, I get nothing by taking it on Sch. A. The auditor made it very clear that if the plan was not in my name, or the company's name, I could not take the deduction above the line. In his words, \"\"it's not fair, but it is the law!\"\"\"","I think I may have figured this out but if someone could double check my reasoning I'd appreciate it. So if my company makes $75000 and I decide to pay myself a $30000 salary, then the quarterly payment break down would be like this: 1040ES: Would pay income tax on non salary dividend ($45000) 941: Would pay income tax, SS, medicare on salary ($30000) (I'm the only person on payroll) So I think this answers my question in that after switching from filing as LLC to S-corp, I won't have to pay as much on 1040ES because some of it will now be covered on payroll.","\"The biggest problem with this that others seem to have missed is that a corporation must have a profit motive. Meaning at some point after a \"\"startup phase\"\" your company needs to turn a profit to not be considered a hobby. Will your employer be paying your corporation for your salary? Is that the company's business endeavor? If you run profits through the company and treat it like a true business, this may be technically possible, but as others have mentioned probably will cost more than any benefits you'd receive. And at every step you'll be throwing tons of audit flags. Rich Dad Poor Dad advocates a light version of this. Essentially running a business like Real Estate through an LLC, and then using that LLC for \"\"business trips\"\" (vacation with some justifiable business motive) or capital purchases (laptop, etc...) and the like, such that you're paying with \"\"Pre-tax\"\" money instead of \"\"Post tax\"\", but again the business needs a revenue source.\"","\"I don't know what the OP means when he says I want to invest in health insurance from now on so that I can use the policy after I retire. Generally, a health insurance policy covers costs incurred during the current calendar year (or specific period such as July 1 of one year through June 30 of the next year) and does not cover future periods. Indeed, many policies do not guarantee renewal when the current period ends (with exceptions for employer-provided coverage through COBRA in case employment ends). So investing in a health insurance policy meaning that you pay the premiums now, and the insurance company provides the policy in the distant future is something that is new to me. Besides, what will the policy include? If someone had bought such a policy many years ago, say, before CAT scans and MRI were developed, would the policy cover such new developments? Or the policy would cover only those procedures, tests, and medications that are available when the policy is written and the insurance premiums start to be paid? The long-term health of the insurance company is also of some concern. When something is offered to me with a lifetime guarantee, I skeptically ask, \"\"My lifetime or the device's life time or the company's lifetime?\"\"\"","You can never use a health FSA for individual health insurance premiums. Moreover, FSA plan sponsors can limit what they are will to reimburse. While you can't use a health FSA for premiums, you could previously use a 125 cafeteria plan to pay premiums, but it had to be a separate election from the health FSA. However, under N. 2013-54, even using a cafeteria plan to pay for indivdiual premiums is effectively prohibited.","I agree with you 100%! >they've all just taken advantage so that wages haven't kept up and they've essentially pocketed the difference, or passed it on to their customers. Now people have less money to buy health insurance, and those near the bottom will now have to rely on the government to assist with providing health insurance. I think this is exactly what is happening today. > That last part is important, though, I would need to get all the breaks my employer gets for providing myself with health insurance. I believe up until Obamacare, people couldn't. Also, as a general rule a business can claim a tax deduction for the salary, wages, commissions, bonuses, and other compensation it pays to its employees.","\"It's a tough question, because there is society and individual to consider, and the society's effects on the individual. Currently, employers don't have to provide insurance, they do it to compete in the employee marketplace. Employers have an advantage over employees in that regard, because they can procure insurance at a lower cost that employees can, and they get tax breaks for doing so. Employers providing health insurance get a more stable relationship with their employees, because employees always hold great value in having an employee who provides good benefits. The company I work for provides good benefits, but suppose tomorrow they told me \"\"Hey Mutatron, we're not providing benefits anymore, but we'll bump your salary to what your benefits are worth, plus enough to compensate for the tax break we get.\"\" So now, everything is equal to what it was before, but I have to go out and find my own insurance, which is a hassle, but presumably because of the PPACA I can get a good value and carry this insurance with me wherever I go, and never have to mess with changing every time I change jobs. But suppose all the employers do this, so now there are no employer-provided health plans, and ten or twenty years down the line they've all just taken advantage so that wages haven't kept up and they've essentially pocketed the difference, or passed it on to their customers. Now people have less money to buy health insurance, and those near the bottom will now have to rely on the government to assist with providing health insurance. This is the way it works now with the minimum wage. A recent report found that WalMart employees rely on welfare to the tune of [$2.66 billion a year](http://www.dailykos.com/story/2012/10/10/1141724/-Walmart-fuels-inequality-epidemic-taking-advantage-of-our-safety-net), while the company makes $15 billion in profit. So 18% of Walmart's profits are an indirect subsidy from the US taxpayer, which comes to about $48 per US citizen, or about $208 a year for the top 50% of wage earners. Even so, I think I'd prefer to get my whole compensation package in one shot, all else being equal. That last part is important, though, I would need to get all the breaks my employer gets for providing myself with health insurance.\"","When in doubt, you should always seek the advice of a professional tax preparer or your accountant. (Many agents/accountants will gladly review your tax preparations to ensure you haven't missed something. That's quicker and cheaper than paying them to do it all.) Having said that... This Illinois resource has detailed information about S-corps: Of relevance to your situation:","\"In the United States, with an S-Corp, you pay yourself a salary from company earnings. That portion is taxed at an individual rate. The rest of the company earnings are taxed as a corporation, which often have great tax benefits. If you are making over $80K/year, the difference can be substantial. A con is that there is more paperwork and you have to create a \"\"board\"\" of advisors.\"","These are all factually correct claims. S-Corporation is a pass-through entity, so whatever gain you have on the corporate level - is passed to the shareholders. If your S-Corp has capital gains - you'll get your pro-rata share of the capital gains. Interest? The same. Dividends? You get it on your K-1. Earned income? Taxed as such to you. I.e.: whether you earn income as a S-Corp or as a sole proprietor - matters not. That's the answer to your bottom line question. The big issue, however, is this: you cannot have more than 25% passive income in your S-Corp. You pass that limit (three consecutive years, one-off is ok) - your S-Corp automatically converts to C-Corp, and you're taxed at the corporate level at the corporate rates (you then lose the capital gains rates, personal brackets, etc). This means that an S-Corp cannot be an investment company. Most (75%+) of its income has to be earned, not passive. Another problem with S-Corp is that people who work as self-proprietors incorporated as S-Corp try to abuse it and claim that the income they earned by the virtue of their own personal performance shouldn't be taxed as self-employed income. IRS frowns upon such a position, and if considerable amounts are at stake will take you all the way up to the Tax Court to prove you wrong. This has happened before, numerously. You should talk to a licensed tax adviser (EA/CPA/Attorney licensed in your state) to educate you about what S-Corp is and how it is taxed, and whether or not it is appropriate for you.","Let me first start off by saying that you need to be careful with an S-Corp and defined contribution plans. You might want to consider an LLC or some other entity form, depending on your state and other factors. You should read this entire page on the irs site: S-Corp Retirement Plan FAQ, but here is a small clip: Contributions to a Self-Employed Plan You can’t make contributions to a self-employed retirement plan from your S corporation distributions. Although, as an S corporation shareholder, you receive distributions similar to distributions that a partner receives from a partnership, your shareholder distributions aren’t earned income for retirement plan purposes (see IRC section 1402(a)(2)). Therefore, you also can’t establish a self-employed retirement plan for yourself solely based on being an S corporation shareholder. There are also some issues and cases about reasonable compensation in S-Corp. I recommend you read the IRS site's S Corporation Compensation and Medical Insurance Issues page answers as I see them, but I recommend hiring CPA You should be able to do option B. The limitations are in place for the two different types of contributions: Elective deferrals and Employer nonelective contributions. I am going to make a leap and say your talking about a SEP here, therefore you can't setup one were the employee could contribute (post 1997). If your doing self employee 401k, be careful to not make the contributions yourself. If your wife is employed the by company, here calculation is separate and the company could make a separate contribution for her. The limitation for SEP in 2015 are 25% of employee's compensation or $53,000. Since you will be self employed, you need to calculate your net earnings from self-employment which takes into account the eductible part of your self employment tax and contributions business makes to SEP. Good read on SEPs at IRS site. and take a look at chapter 2 of Publication 560. I hope that helps and I recommend hiring a CPA in your area to help.","You could slip and fall in the shower tonight. Or you might never need it. Insurance is a hedge against risk. If the event has already occurred, you're uninsurable. If you and others would suffer if you have a bad accident and can't work, get it now.","If the company pays for Group Term Life Insurance, some of that premium payment may be taxable. If memory serves, that's what's included in W-2 Box C. W-2 Box C has no bearing on Schedule C.","Because collective bargaining by the gov't and your employer is the only way that we've been able to combat some of the increases. An uninsured individual will be billed 4-10x what your insurance company would pay due to collective bargaining. The largest employers (Cisco, EMC, and others) are self-insured and pay health care providers to administer their plan. SMBs get the short end of the stick and pay much higher rates for less coverage because they don't have economies of scale. A public option would allow any uninsured individual to obtain health care at a reasonable, income-based cost.","On topic of Healthcare needs, I think it depend on individual. For example, my employer's dental plan offer PPO $34 per month and DMO $12 per month. I have my favor dentist that I have been going for years. He only accept PPO. I already had most of my dental works done so I only use him for teeth clean. He charge $100 without insurance and free with insurance. I can only use my insurance for teeth clean twice a year so $34x12 = $408 vs $200. If I go with DMO, I won't get to see my doctor and since I get my teeth once a year why not just save that money and go to my favor doctor instead the DMO doctors and if I need major dental works done which isn't immediate. I can go to Taiwan for dental works that is way cheaper than U.S. I think if you're a healthy young man/women. You should put more money toward your retirement and only keep insurance for emergency. You can do a medical tourism mentioned in 60 minutes that can be more cost effective and those doctors are U.S. trained. For older folks, a full Health care insurance is more needed than retirement. Just my two cents.","\"Be careful of the other answers here. Many are wrong or partially wrong. The question implies that you knew this, but for everyone else's benefit, you can keep you LLC organization and still elect to be treated as a S-Corp by the IRS just for tax purposes. You do this by filing Form 2553 with the IRS. (You can also, by the way, elect to be taxed as a \"\"regular\"\" C-Corp if you want, although that's probably not advantageous. See Form 8832.) The advantage of electing to be treated as an S-Corp is that income beyond what constitutes a \"\"reasonable salary\"\" are not subject to social security and medicare taxes as they would when paid was wages or counted as self-employment income on Schedule C. Depending on what you need to pay yourself to meet the \"\"reasonable salary\"\" test, your overall income, and other factors about your business, this could result in tax savings. Contrary to other answers here, making this election will not force you to create a board of directors. You are still an LLC for all purposes except taxes, so whatever requirements you had in organization and governance at the state level will not change. You will have to file a \"\"corporate\"\" tax return on Form 1120S (and likely some corresponding state tax form), so that is additional paperwork, but this \"\"corporate\"\" return does not mean the S-Corp pays taxes itself. With a couple of exceptions, the S-Corp pays no taxes directly (and therefore does not pay at the corporate tax rate). Instead the S-Corp apportions its income, expenses, and deductions to the owner(s) on Schedule K. The owners get their portion reported from the S-Corp on Schedule K1 and then include that on their personal Form 1040 to pay tax at their personal rate. In addition to filing Form 1120S, you will have to handle payroll taxes, which will create some additional administrative work and/or cost. Using a payroll service for this will likely be your best option and not terribly expensive. You've also got the issue of determining your reasonable salary within the rules, which is the subject of other questions on this site and other IRS guidance.\"","If you're creating an S-Corp for consulting services that you personally are going to provide, what would it give her to have 50% of the corporation when you're dead? Not to mention that you can just add it to your will that the corporation stock will go to her, and it will be much better (IMHO, talk to a professional) since she'll be getting stepped-up basis. Why aren't you talking to a professional before making decisions? It doesn't sound like a good way to conduct business.","We don't make enough to really consider it a salary, but I've heard using a draw without a salary is a bad idea. As any other illegal action, not paying yourself a reasonable salary when being a corporate officer is indeed a bad idea. I have no idea what I need to do to actually get some money in our pockets. The answer is simple. You need to earn more money. Since it is S-Corp, it doesn't matter if you keep the profits on the corporate account or distribute - the profits will be taxed to you. You are also, as I said above, required by law to pay yourself a reasonable salary. Reasonable meaning corresponding to market rates. Paying a CPA or a Software Engineer a minimum wage will not be reasonable. That is, of course, if you're profitable, you're not required to pay yourself more money than the corporation actually has. Just to be clear, my answer refers to the question asked, and the confusing answer above that made a claim that has no substantiation in the law. I do not intend to write a thesis about pros and cons of using S-Corp every time a question about reasonable salary is asked.","In addition to stoj's two good points I'll add a couple more reasons: 3) In some situations there are secondary factors involved that can make it a good deal. These normally amount to cases where you can buy the insurance with pre-tax dollars but would have to pay the bills with post-tax dollars. 4) Insurance companies know much better what things should cost and often have negotiated rates. A rich person would generally be well-served to have health insurance for this very reason.","Compared with a Sole Proprietorship, the main disadvantages of an S-Corporation or an LLC are that it adds a lot of management overhead (time, and possibly money if you don't do it all yourself), and there are fees you must pay to incorporate, as well as additional yearly maintenance fees which vary by state. You should be able to weigh the tax savings and liability protection against the extra costs and hassle, and see which way the scales tip. As a rule of thumb, the bigger your business gets or the more income you make, the more attractive incorporating becomes. Note there are some additional taxes that certain jurisdictions impose on business income. For example, IL and CA charge 1.5% tax, NY is less, but NYC is 8.85%! In NYC specifically, you could actually end up paying slightly more tax as an S-Corp than you would as a Sole Proprietorship. In most places though, the nominal local taxes will still be less than the FICA taxes you could potentially save.","An LLC or an S corp will result in the same tax obligations because both are pass-through tax entities. An LLC is more flexible for the situation you describe because the member and manager responsibilities can be detailed in the operating agreement. You really should get a business attorney to help you get your operating agreement in order. There's also a startups beta site on Stack Exchange that may be able to help you with questions about ways to handle your operating agreement.","\"A C-Corp is not a pass-through entity, any applicable taxes would be paid by the Corporation, which is a separate legal entity from yourself. If you use the points to purchase something for yourself, that would constitute \"\"income\"\" to you, and would be taxable on your personal income tax.\"","\"Generally if you're a sole S-Corp employee - it is hard to explain how the S-Corp earned more money than your work is worth. So it is reasonable that all the S-Corp profits would be pouring into your salary. Especially when the amounts are below the FICA SS limits when separating salary and distributions are a clear sign of FICA tax evasion. So while it is hard to say if you're going to be subject to audit, my bet is that if you are - the IRS will claim that you underpaid yourself. One of the more recent cases dealing with this issue is Watson v Commissioner. In this case, Watson (through his S-Corp which he solely owned) received distributions from a company in the amounts of ~400K. He drew 24K as salary, and the rest as distributions. The IRS forced re-characterizing distributions into salary up to 93K (the then-SS portion of the FICA limit), and the courts affirmed. Worth noting, that Watson didn't do all the work himself, and that was the reason that some of the income was allowed to be considered distribution. That wouldn't hold in a case where the sole shareholder was the only revenue producer, and that is exactly my point. I feel that it is important to add another paragraph about Nolo, newspaper articles, and charlatans on the Internet. YOU CANNOT RELY ON THEM. You cannot defend your position against IRS by saying \"\"But the article on Nolo said I can not pay SE taxes on my earnings!\"\", you cannot say \"\"Some guy called littleadv lost an argument with some other guy called Ben Miller because Ben Miller was saying what everyone wants to hear\"\", and you can definitely not say \"\"But I don't want to pay taxes!\"\". There's law, there are legal precedents. When some guy on the Internet tells you exactly what you want to hear - beware. Many times when it is too good to be true - it is in fact not true. Many these articles are written by people who are interested in clients/business. By the time you get to them - you're already in deep trouble and will pay them to fix it. They don't care that their own \"\"advice\"\" got you into that trouble, because it is always written in generic enough terms that they can say \"\"Oh, but it doesn't apply to your specific situation\"\". That's the main problem with these free advice - they are worth exactly what you paid for them. When you actually pay your CPA/Attorney - they'll have to take responsibility over their advice. Then suddenly they become cautious. Suddenly they start mentioning precedents and rulings telling you to not do things. Or not, and try and play the audit roulette, but these types are long gone when you get caught.\"","Despite the ACA offering generous deductions, a lot of small businesses still cannot afford the initial capital involved in offering health insurance plan to their employees... Therefore we cannot take advantage of these deductions... Putting us at a disadvantage for finding low-to-mid skilled workers, to the larger corporations that are now mandated to offer the benefits..","It would depend on the health insurance that was being offered, and if it covers your family or just you. We pay around $500-600 for individual health insurance for our employees (families cost north of 1500 a month). It's extremely expensive. Provide more details on the stock purchase plan as well (it sounds to me like in that case you'd only be getting for free what it would cost to purchase the stock... but that's only $10-15, so negligible in this case.)","\"Yes, you can make the election to file your LLC as an S-Corp, and Turbo Tax Business can help you with the S-Corp business return. You need to make sure you're set up correctly and there are a lot of things to be aware of. For example, the whole \"\"reasonable salary\"\" thing is a can of worms. So while the answer to your question is \"\"yes, it's manageable, you can do it on your own,\"\" it might be worthwhile to have a professional help you the first year, make sure it's set up right, and then you can do it on your own in subsequent years.\"","As a 24 year old, single,your needs for insurance are minimal. Why you might consider it are for these reasons. You are young, so it will be cheaper than buying say at 34. Insurance is always on sale. Two, there is no guarantee that your health will always be good, you may have to pay additional premiums later or even be refused coverage. Ask me, I pay 70% more than others my age for the same coverage. Three, insurance ownership with equity values can grow tax free as you accumulate the monies. Consider it like a bond portfolio offering guaranteed returns on portions of the growth, and a long term return of 5.5% or slighly more. Four, stating sooner versus later means more cash buildup. Just like being in a pension will generate more cash for you by age 65, than if you had started at age 34. Insurance is only one tool in getting a good start. It is not a panacea.","\"These policies are usually called dread disease policies or critical illness insurance, and they normally aren't a good deal. Furthermore, with the passage of the Affordable Care Act, such policies may become less common or disappear entirely. These policies aren't a great deal because of the effects of adverse selection and asymmetric information, two closely related concepts in the economics of insurance. When you purchase an insurance policy, the insurance company charges you a premium based on your average risk level or the average risk level of your risk pool, e.g. you and your fellow employees, if you get insurance through your employer. For health insurance, this average risk level is the average probability that you'll incur healthcare costs. The insurer's actuaries calculate this probability from numerous factors, like your age, sex, current health, socioeconomic status, etc. Asymmetric information exists when you know more about this probability than the insurance company does. For example, you may look like a relatively low-risk individual on paper, but little does the insurance company know, BASE jumping is one of your hobbies. Because you know about your hobby and the insurance company doesn't, you secretly know that your risk of incurring healthcare expenses is much higher than the insurance company expects. If the insurance company knew this, they would like to charge you a much higher premium, if they could. However, they can't, because a) they don't know about your hobby, and b) the premium may be decided for the entire group/risk pool, so they can't increase it simply because a few individuals in the group have higher risk levels. Adverse selection occurs when individuals with higher risk levels are more likely to buy insurance. You may decide that because of your dangerous hobby, you do want to take advantage of your employer's healthcare plan. Unfortunately for the insurance company, they can't adjust their price accordingly. Adverse selection is a major factor in insurance markets, so I didn't go into much detail here (too much detail is probably off-topic anyway). I can point you towards more resources on the topic if you're interested. However, the situation is different when you purchase a dread disease policy. By expressing interest in such a specific policy, e.g. a cancer insurance policy, you signal to the insurance company that you feel you have a higher risk of facing that disease. In your case, you're signaling to the insurance company that your family probably has a history of cancer or that you have habits that make you more susceptible to it, and your premiums will be higher to compensate the insurance company for bearing this additional risk. Since the insurance company already has a rough estimate of your chances of developing that illness, they may already know that you have a higher chance of facing it. However, when you express interest in a disease-specific policy, this signals the existence of asymmetric information (your family history or other habits), and the insurer assumes you know something they don't that elevates your risk level of that specific disease. Since these policies are optional policies often sold as riders to existing policies, the insurance company has more flexibility in pricing them. They can charge you a higher premium because you've signaled to the insurer that you have a significantly above-average risk of contracting a specific disease*. Also, the insurer can do a much better job of estimating the expected costs of insuring you since they need only focus on data surrounding one disease. The policy will be priced accordingly, i.e. in such a way that isn't necessarily beneficial to you. Furthermore, most dread disease policies aren't guaranteed renewable, which means that even if you are willing to keep paying the premiums, the insurance company doesn't have to keep insuring you. As your risk of developing the specific disease grows, e.g. with age, it may pass the point where insuring you is no longer an acceptable risk. The company expects you to develop the illness with the next few renewal cycles, so they decide not to renew your policy. The end result? The insurance company has the premiums you've paid previously, but you no longer have coverage for that illness, and ex post, you've suffered a net loss with no reduction of risk for the foreseeable future. Dread disease policies are changing under the Affordable Care Act. According to healthcare.gov Starting in 2014, ... all new health insurance plans sold to individuals and small businesses, and plans purchased in the new Affordable Insurance Exchanges, must include a range of essential health benefits. The essential health benefits include quite a few areas of coverage; since this applies to policies offered on the state insurance exchanges and those offered outside of it, dread disease policies wouldn't seem to qualify. For more information, you can read the linked page on healthcare.gov or see Section 1302, subsection b), titled \"\"Essential Health Benefits Requirements\"\" in the law itself (p87). I imagine more details will be available on a state-by-state basis through 2014 and into 2015. One legal source (see the discussion on p24) states that: whatever else the ACA does with excepted benefit policies, including specific disease and fixed dollar indemnity policies, it does explicitly provide that such policies do not count as minimum essential coverage for purposes of the ACA This seems pretty straightforward; a dread disease (or \"\"specific disease\"\" policy, as it's referred to in the article), won't count towards the minimum essential requirements. This may not be an issue for you, but for others, it's important to understand that you'll still need to pay the penalty if you only purchase one of these policies. The ACA spells this out in Section 5000(f) (see p316, which states that \"\"excepted benefit policies\"\" are excluded and defines them using the definition in the Public Health Service Act (PHSA). **The PSHA specifically includes \"\"Coverage only for a specified disease or illness\"\" in their definition of \"\"excepted benefit policies\"\" (see section 2791(b), paragraph 3A on p82, so it's probably a safe bet that such policies won't count towards the minimum. Also, as Rick pointed out in the comments, the Affordable Care Act also forbids lifetime limits on most insurance plans, so assuming you find an insurance policy with adequate coverage for the specific disease you're worried about, such a plan should cover the related expenses without a lifetime limit. Deductibles, annual limits, and other factors may complicate this somewhat. In the section about lifetime limits (Sec. 2711, p2), the Affordable Care Act states that: A group health plan and a health insurance issuer offering group or individual health insurance coverage may not establish ... lifetime limits on the dollar value of benefits for any participant or beneficiary. However, the law states in the next paragraph that the preceding statement should not be construed to prevent a group health plan or health insurance coverage from placing annual or lifetime per beneficiary limits on specific covered benefits that are not essential health benefits under section 1302(b) of the Patient Protection and Affordable Care Act, to the extent that such limits are otherwise permitted under Federal or State law The section also contains similarly vague caveats about annual limits, so the actual details and limits may vary once individual states finalize their policies. The law is intentionally vague because the vast majority of the law's implementation is left up to individual states. Furthermore, certain parts of the law specify actions involving the Secretary of Health and Human Services, so these may require further codification in the future too. You should still read the fine print of any insurance policy you buy and evaluate it as you would any contract (see the next section). Since a dread disease policy probably isn't a good idea, you'll probably want to evaluate the healthcare plans offered by your employer or individual plans offered in your area (if your employer doesn't offer coverage). I've tried to include the basic points offered in these articles to give you or future visitors some idea of where to start. These points may change once the Affordable Care Act is implemented, so I'll try to keep them as general as possible. Services - Above and beyond the minimum essential requirements, what services does the plan offer? Are these services a good match for you and/or your family, or do they add unnecessary cost to the premium with little or no benefit? For example, my health insurance plan offers basic dental coverage with a small co-pay, so I don't need a separate dental plan, even though my employer offers one. Choice - What doctors, clinics, hospitals, etc. are preferred providers under your plan? Do you need a referral from your primary care doctor to see a specialist, or can you find one on your own? Are the preferred providers convenient for you? In my first year of college (about five years ago), my student health insurance only covered a few hospitals that were in the suburbs and somewhat difficult for me to reach. This is something to keep in mind, depending on where you live. Costs - This is a major one, obviously. Deductibles, copays, maximum cost limits over a year or your lifetime, out-of-network costs, etc. are all variables to consider. There are other factors, but since I don't have a family, other members of the site can provide more detailed information about what to look for in family policies. In place of a dread disease policy, you're likely better off purchasing a comprehensive health insurance policy, perhaps a catastrophic coverage policy with a high deductible that will kick in once you've exhausted your standard insurance policy. However, this may be a moot point since the passage of the Affordable Care Act may significantly reduce the availability of such policies anyway.\"","\"You probably don't need S-Corp. There's no difference between what you can deduct on your Schedule C and what you can deduct on 1120S, it will just cost you more money. Since you're gambling yourself, you don't need to worry about liability - but if you do, you should probably go LLC route, much cheaper and simpler. The \"\"reasonable salary\"\" trick to avoid FICA won't work. Don't even try. Schedule C for professional gamblers is a very accepted thing, nothing extraordinary about it.\"","Each S-corp is bound by its own plan documents, which typically do not limit or dictate where the investments are held. Your brokerage account has no tie to the company from which the funds come, however, you are still subject to maximum SIMPLE contribution rules and cannot exceed the $12,500 (if under age 50) COMBINED contribution for any and all companies. Be careful about co-mingling from both companies as there are penalties for early withdrawals made within 2-years of participating in the plan. If you started them both at the same time it's not an issue.","\"There are no dividends from S-Corp. There are distributions. Big difference. S-Corps fill form 1120S and schedule K-1 per shareholder. In the schedule all the income of your S-Corp will be assigned to various categories that you will later copy to your personal tax return as your personal income. It is not dividend income. The reason people prefer to take distributions from their S-Corps instead of salary is because you don't pay SE taxes on the distributions. That is also the reason why the IRS forces you to pay yourself a reasonable salary. But the tax rate on the income, all of it, is your regular income tax rate, unless the S-Corp income is categorized in a preferred category. The fact that its an S-Corp income doesn't, by itself, allow any preferential treatment. If you're learning the stuff as you go - you should probably get in touch with a tax professional to advise you. All the S-Corp income must be distributed. Its not a matter of \"\"avoiding paying the tax\"\", its the matter of \"\"you must do it\"\". Not a choice. My answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer (circ 230 disclaimer).\"","\"I'm assuming that when you say \"\"convert to S-Corp tax treatment\"\" you're not talking about actually changing your LLC to a Corporation. There are two distinct pieces of the puzzle here. First, there's your organizational form. Your state, which is where the business is legally formed and recognized, creates the LLC or Corporation. \"\"S-Corp\"\" doesn't come into play here: your company is either an LLC or a Corporation. (There are a handful of other organizational types your state might have, e.g. PLLC, Limited Partnership, etc.; none of these are immediately relevant to this discussion). Second, there's the tax treatment you receive by the IRS. If your company was created by the state as an LLC, note that the IRS doesn't recognize LLCs as a distinct organizational type: you elect to be taxed as an individual (for single member LLCs), a partnership (for multiple member LLCs), or as a corporation. The former two elections are \"\"pass through\"\" -- there's no additional level of taxation on corporate profits, everything just passes through to the owners. The latter election introduces a tax on corporate profits. When you elect pass-through treatment, a single-member LLC files on Schedule C; a multiple-member LLC will prepare a form K-1 which you will include on your 1040. If your company was created by the state as a Corporation (not an LLC), you could still elect pass-through taxation if your company qualifies under the rules in Subchapter S (i.e. \"\"an S-Corp\"\"). States do not recognize \"\"S-Corp\"\" as part of the organizational process -- that's just a tax distinction used by the IRS (and possibly your state's tax authorities). In your case, if you are a single-member LLC (and assuming there are no other reasons to organize as a corporation), talking about \"\"S-Corp tax treatment\"\" doesn't make any sense. You'll just file your schedule C; in my experience it's fairly simple. (Note that this is based on my experience of single- and multiple-member LLCs in just two states. Your state may have different rules that affect state-level taxation; and the rules may change from year to year. I've found that hiring a good CPA to prepare the forms saves a good bit of stress and time that can be better applied to the business.)\"","In all probability, having lower coverage levels will result in higher premiums. As my insurance agent explained to me, the higher your coverages, the lower the insurance company believes your risk to be - because you think about insurance smartly, you're less likely to make spurious claims. I have my coverages run at various levels every 18-24 months, and it is almost always true that higher coverages result in lower premiums. Also, there is no guarantee you'll still be employed by the same company if an injury happens. Or that they'll continue to offer the same plans every year. Insurance is a calculated risk on the part of the insurer, and a means of sharing/deflecting risk (at a cost known as your premium) on the part of the insured. Even if your premiums are slightly higher (on the order of a couple dollars per month, for example), do you really want to save a couple dollars and then be surprised when your health insurance company doesn't want to cover something?","> I would need to get all the breaks my employer gets A large part of the discount an employer gets, is due to the number of policy holders they enroll. Most methods of duplicating that have other problems. So forcing everyone into an individual market will end up raising rates on everyone, by removing group discounts. Eventually to the point where no one gets any discount from insurance.","HSA rules are different in some regards than deductions allowable under Pub 502 which deals with medical expenses deductible in Schedule A of your tax return. Pub 969 governs HSA's and similar reimbursement plans, and the guidelines are as follows: Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for: -Long-term care insurance. -Health care continuation coverage (such as coverage under COBRA). -Health care coverage while receiving unemployment compensation under federal or state law. -Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). Since your wife is still being treated like an employee for health benefits, and you are not on COBRA, thus not eligible for a deduction. You may qualify under the unemployment provision depending on the cause of her disability.","you wouldn't have to pay income taxes on the portion for health insurance. think of high deductible health plans - the employer puts the deductible into a healthcare savings account which is tax free as long as it's for medical care. right now you can also deduct the portion of your overall expenses that are medical over a portion of your income. 2 issues with your idea, though - 1. right now, there are people who can't get health insurance except through an employer. send them out into the marketplace and they will get turned down. obamacare is supposed to fix this, but if Romney is elected, it will continue. 2. healthcare inflation rises much higher than regular inflation, so if your benefits were included as part of wages and you had to buy it on your own, you would face a continually decreasing amount of money over time to purchase healthcare - a spiral. this is the issue that many have with the voucher system the republicans are proposing for medicare - the voucher will rise at inflation, while healthcare rises much higher than inflation - right now I think it's a difference of 1% versus 8-9% off the top of my head. also, for many industries, it's in the best interest of the company to have a healthy workforce.","\"I was in the health insurance game for 10 years and never heard of this until the Affordable Care Act came about. To my knowledge, there is no rule or regulation prohibiting it, however trying to get an insurer underwrite that risk is extremely unlikely. It's the same reason why you don't see AAA offering health insurance. There isn't a contractual relationship between the church and their constituents, so no underwriter worth their salt would put a reasonable price on that risk. Members can easily come and go, and since insurance through your employer is still the dominant distribution channel for health insurance, it would be seen as an adverse risk, meaning that people who couldn't get it through \"\"normal\"\" channels must be getting it through the church, which it would then be assumed that this person applying for coverage is an \"\"adverse risk\"\" or someone who is abnormally unhealthy. There are faith-based healthcare reimbursement programs that are NOT health insurance and do not satisfy the ACA required minimum coverages. From what I've seen and read, it's basically members of the religion or faith that pay money into the system (like paying an insurance premium) and they elect a board that basically evaluates each claim and pays or doesn't pay it, either partially or in full. While this is a nice way to get your bills paid, odds are it won't cover your $300,000 cancer treatment or your $50,000 cesarean section birth.\"","Yes. The S-Corp can deduct up to the amount it actually incurred in expenses. If your actual expenses to build the carport were $1000, then the $1000 would be deductible, and your business should be able to show $1000 in receipts or inventory changes. Note you cannot deduct beyond your actual expenses even if you would normally charge more. For example, suppose you invoiced the non-profit $2000 for the carport, and once the bill was paid you turned around and donated the $2000 back to the non-profit. In that case you would be deducting $1000 for your cost + $2000 donation for a total of $3000. But, you also would have $2000 in income so in the end you would end up with a $1000 loss which is exactly what your expenses were to begin with. It would probably be a good idea to be able to explain why you did this for free. If somehow you personally benefit from it then it could possibly be considered income to you, similar to if you bought a TV for your home with company funds. It would probably be cleaner from an accounting perspective if you followed through as described above- invoice the non-profit and then donate the payment back to them. Though not necessary, it could lesson any doubt about your motives.","I understand that if I have multiple health insurance policies, I can only make claim from only one of them if ever I incur medical expenses (I'm from the Philippines). In the US, you cannot simultaneously submit a claim for payment of a medical bill, or request reimbursement for a bill already paid, to multiple insurance companies, but if you are covered by more than one policy, then any part of a claim not paid by one company can be submitted to another company that is also covering you. In fact, if you have employer-paid or employer-provided coverage, most insurance companies will want your employer-provided insurance company to be billed first, and will cover whatever is not paid by the employer coverage. For example, if the employer coverage pays 80% of your doctor's bill, the private insurance will pay the remaining 20%. But, the private insurance policies are also quite expensive. Some professional groups in the US offer major medical coverage to their US members, and might be offering this to non-US members as well (though I suspect not). These policies have large deductibles so that coverage kicks in only when the total medical expenses in that year (whether wholly or partially reimbursed, or not reimbursed at all) exceed the large deductible. These types of policies actually pay out to only a few people - if you have more than, say, $20,000 of medical expenses in a year, you have been quite ill, and thus the premiums are usually much smaller than full-fledged coverage insurance policies which pay out much more frequently because of much smaller deductibles.","There are several insurance products that I buy for legal reasons: Both of these protect me from lawsuits and fines. Many people buy similar products to protect their business operations. (e.g. medical malpractice insurance) There are some insurance products I buy for tax planning and financial planning purposes: I have a large amount of savings available, so I have several tricks to reduce my insurance costs, and I have several products that I avoid. Several of these reasons are mentioned in other answers, but I thought I would collect them into a single answer to demonstrate that there are reasons other than the rational calculation of what the payout will be for the insurance products vs. the premium paid. If I gain access to a tax advantaged Health savings account, that is a bigger benefit to me than avoiding the premium, especially when my employer is paying the majority of the premium. Perhaps it makes no sense to buy insurance given sufficient savings (like the products I listed that make no sense for me given my finances) but not everyone can self-insure; it does require a certain level of wealth.",">Hey, sole proprietorships called A sole proprietorship could incorporate as a Single Member LLC and elect to be taxed as a corporation. But you would still be subject to both sides of the FICA/Medicare taxes. >and they're going to suck out five percent MORE of my GROSS How exactly does a LLC suck out 5% more of your gross? >your payroll costs go through the roof. Again, payroll expenses are generally tax deductible. I'm just trying to help you here.","\"Yes, it's normal. If you \"\"buy\"\" your own disability insurance with after tax money, any payout you get is non taxable. If your employer \"\"buys\"\" your disability insurance with their own money, any payout you get is taxable. Since the payout is not 100% of your pre-disability income, most folks strongly prefer that the payout be non taxable. To achieve this, I pay the premiums on behalf of my employees (including myself) and then add that premium to their salary as a taxable benefit. In effect I paid it to them, then took it from them and used it to buy the insurance. (It has no impact on my corporate taxes since I can either deduct premiums or salaries, same either way.) This ensures they won't pay tax if they should collect. And I have had people collect, and it was non-taxable to them.\"","\"I know this is a little late but here is my answer. No. You do not \"\"need\"\" to incorporate. In fact, incorporating in your situation will cost you in legal fees, administrative headaches, and a fair bit in taxes. The CRA would probably look at your corporation as a personal services corporation and it would not be allowed to claim a number of tax reductions. The tax rate would end up being over the top range (unless you are in Quebec where it would be just under the top marginal range).\"","\"If you use \"\"a room or other separately identifiable space\"\" within your apartment exclusively for your business, then you might be able to recoup a fraction of your rent for that. Check the rules for home office at the IRS and adopt a consistent and well-documented approach. (I would pay your full rent out of your personal account, and then do an \"\"expense report\"\" for the portion that's legitimately business related, but that's not a unique approach.) Other than that, I agree with the answer by litteadv - You cannot reduce your tax by the full amount of your rent just by having the S Corp pay, and trying to do so is probably playing with fire. Generally speaking, don't comingle business and personal expenses like that.\"","Well you've got to think about the process, but first make sure the thing you want to pay for is actually a qualified dependent care expense. Here is a list of eligible expenses from a national FSA administrator. This process will tie up your money for some amount of time. Your deduction will come out like clockwork. But there is a time-delay of potentially months between your deduction and receipt of a reimbursement. Dependent care plans are money-in money-out. You can only file a reimbursement on funds that have actually been contributed, which is different than a medical FSA. Additionally, you can only file a claim on expenses that have actually been incurred. Dependent care FSA elections can be changed through the year on an as needed basis. This would add an administrivia burden to the person running your payroll, and if there is a payroll vendor in place, likely an actual cost. The administrator in this situation would likely be the company. In the formalities of employee benefits there must always be a named administrator. If your employer currently offers no benefits you should press healthcare first. Paying healthcare premiums pretax would likely save you more money and be less administration than this. Additionally, if your employer is paying for or reimbursing you for your individual health insurance that's currently illegal under the ACA.","Gifts from your parents are not treated as income for tax purposes. You should not include that in your subsidy calculation. If you are here on a student-visa and have been in the US for less than 5 years, then you are considered a non-resident alien, and you are not required to buy a qualified plan through the insurance marketplace. You might be able to get a cheaper student plan through your school, but the subsidy might be enough that it's still worth it when calculated correctly. If you are a resident-alien or you are a citizen of the US, then you are required to get coverage, though you can choose not to purchase coverage and pay the tax for not having creditable coverage. That tax cannot be collected by the IRS unless you have already had federal tax withheld. They can only confiscate your tax return money to recoup that money. I don't have enough information to recommend one way or the other what you should do, but I would bet that if you recalculated your subsidy without including your parents income it would cover the majority of the cost. You should also consider applying for Medicaid if you meet the eligibility requirements in your state.","Having an EIN does not make the LLC a corporation -- your business can have an EIN even when treated like a sole proprietorship. An EIN is required to have a Individual 401(k), for example. But you can still be an LLC, taxed as a sole proprietor, and have a 401(k). You would need to file a Form 2553 with the IRS to elect S Corporation status. If you don't do that, you're still treated as a disregarded LLC. Whether or not you should make the election is another question.","\"I don't think so. There is a provision in ObamaCare called \"\"community rating\"\" that applies starting in 2014. Insurance companies must place individual and small group plans into a pool of people from the same geographical region. The same plan must cost the same for all small businesses from the same region. So having employees who have high costs will not significantly affect the company's cost; it will get factored into the cost for all people in the area; but the effect gets averaged out over all businesses and individuals who have plans.\"","I'll just re-post my comment as an answer as i disagree with Michael Pryor. According to this article (and few others) you may save money by incorporating. These factors don’t change the general payroll tax advantage of an S corporation, however: A S corporation can often save business owners substantial amounts of payroll tax if the business profit greatly exceeds what the business needs to pay owners for their work.","\"This is actually quite a complicated issue. I suggest you talk to a properly licensed tax adviser (EA/CPA licensed in your State). Legal advice (from an attorney licensed in your State) is also highly recommended. There are many issues at hand here. Income - both types of entities are pass-through, so \"\"earnings\"\" are taxed the same. However, for S-Corp there's a \"\"reasonable compensation\"\" requirement, so while B and C don't do any \"\"work\"\" they may be required to draw salary as executives/directors (if they act as such). Equity - for S-Corp you cannot have different classes of shares, all are the same. So you cannot have 2 partners contribute money and third to contribute nothing (work is compensated, you'll be getting salary) and all three have the same stake in the company. You can have that with an LLC. Expansion - S-Corp is limited to X shareholders, all of which have to be Americans. Once you get a foreign partner, or more than 100 partners - you automatically become C-Corp whether you want it or not. Investors - it would be very hard for you to find external investors if you're a LLC. There are many more things to consider. Do not make this decision lightly. Fixing things is usually much more expensive than doing them right at the first place.\"","\"I'm going to take a very crude view of this: Suppose that you have an event that would cost $100,000 if it occurred. If there's a 10% chance that it'll happen to you and the insurance costs less than $10,000, you'll make a profit \"\"on average.\"\" This is, of course, assuming that you could afford a $100,000 loss. If you can't, the actual loss could be much higher (or different). For example, if you couldn't afford surgery because you didn't have health insurance, it could be a lot more \"\"costly\"\" in a way that could be difficult to compare to the $100,000. Obviously, this is a very simplistic view of things. For example, making more than you paid on the premium typically isn't the only reason you'd buy insurance (even if you're high net worth). Just wanted to throw this out there for what it's worth though.\"","I like HSAs. My employer had one for one year, but then took it away. Money you put into an HSA is tax-advantaged, you can invest it however you want, it can be used for healthcare if you need it, and you can stop adding to it at any time. You're healthy now, but it's likely there will be a time when you're not, and then it would be nice to have money already available.","\"It is definitely legal, however none of such expenses will be allowed as a tax deduction for the corporation. Basically, you'll end up paying more to maintain the entity and pay taxes on its income (the rent you're paying to yourself as a corporation) at corporate rates, for no apparent benefit. Being the director/executive in the corporation will make you liable for whatever the corporation is liable, so liability isn't going away. The reason corporation is considered \"\"limited liability\"\" for owners is because shareholders are shielded from the corporate liability. Not directors or executives (which are explicitly not shielded).\"","\"Even though this isn't really personal finance related I still feel like there are some misconceptions here that could be addressed. I don't know where you got the phrase \"\"pass-through\"\" insurance from. What you're describing is a self-funded plan. In a self-funded arrangement an employer contracts a third-party-administrator (TPA), usually one of the big health insurance carriers, to use it's provider network, process and adjudicate claims, etc. In addition to the TPA there will be some sort of stop-loss insurance coverage on each participant. Stop-loss coverage usually provides a maximum amount of risk on a given member and on the entire population for a given month and/or year and/or lifetime. The employer's risk is in between the plan deductible and the stop loss coverage (assuming the stop-loss doesn't have a maximum). Almost all of the claim dollars in a given plan will come from very very few people. These costs typically arise out of very unforeseen diagnoses not chronic issues. A cancer patient can easily cost $1,000,000 in a year. Someone's diabetes maintenance medicine or other chronic maintenance will cost no where near what a botched surgery will in a year. If we take a step back there are really four categories of employer insurance. Small group is tightly regulated. Usually plan premiums are filed with a state authority, there is no negotiating, your group's underwriting performance has zero impact on your premiums. Employers have no way of obtaining any medical/claim information on employees. Mid-market is a pooled arrangement. The overall pool has a total increase, and your particular group performs better or worse than the pool which may impact premiums. Employers get very minor claims data, things like the few highest claims, or number of claims over a certain threshold, but no employee specific information. Large-group is a mostly unpooled arrangement. Generally your group receives it's own rating based on its individual underwriting performance. In general the carrier is offloading some risk to a stop-loss carrier and employer's get a fair amount of insight in to claims, though again, not with employee names. Self-funded is obviously self-contained. The employer sets up a claims checking account. The TPA has draft authority on the account. The employee's typically have no idea the plan is self funded, their ID cards will have the carrier logo, and the carrier deals with them just as it would any other member. Generally when a company is this size it has a separate benefits committee, those few people will have some level of insight in to claims performance and stop-loss activity. This committee will have nothing to do with the hiring process. There are some new partially self-funded arrangements, which is just a really low-threshold (and relatively expensive) stop-loss program, that's becoming somewhat popular in the mid-market group size as employers attempt to reduce medical spend. I think when you start thinking on a micro, single employee level, you really lose sight of the big picture. Why would an employer hire this guy who has this disease/chronic problem that costs $50,000 per year? And logically you can get to the conclusion that with a self-funded plan it literally costs the company the money so the company has an incentive not to hire the person. I understand the logic of the argument, but at the self funded level the plan is typically costing north of half a million dollars each month. So a mid-level HR hiring manager 1. isn't aware of specific plan claims or costs and is not part of the benefits executive committee, 2. won't be instructed to screen for health deficiencies because it's against the law, 3. a company generally won't test the water here because $50,000 per year is less than 1% of the company's annual medical expenses, 4. $50,000 is well below the cost to litigate a discrimination law-suit. Really the flaw in your thought process is that $50,000 in annual medical expense is a lot. A harsh child-birth can run in the $250,000 range, so these companies never hire women? Or never hire men who could add a spouse who's in child bearing years? Or never hire women who might have a female spouse who could be in child bearing years? A leukemia diagnosis will ratchet up $1,000,000 in a year. Spend a bit of time in intensive care for $25,000 per day and you're fired? A few thousand bucks on diabetes meds isn't anything relative to the annual cost of your average self-funded plan. The second flaw is that the hiring managers get insight in to specific claims. They don't. Third, you don't hand over medical records on your resume anyway. I typed this out in one single draft and have no intention of editing anything. I just wanted paint a broad picture, I'm sure things can be nit-picked or focused on.\"","The idea is that the premiums (or costs) associated with the plan are a business expense, you know that already. The distinction here is that employees don't pay premiums, they elect to contribute. The company sponsors a plan, the employees then choose to accept less salary in order to participate in the employer's plan. The idea is that you're foregoing income. Why is the employee not taxed on this cost? One major reason is that the employee has no say in, and often no idea, what the gross costs are (some find out if they ever receive COBRA election paperwork). There are more benefits than strict healthcare that are Section 125 eligible. The government has a vested interest in keeping the population healthy, and when the ERISA laws and Section 125 were written it was (and still is) a pretty low friction way to get health insurance out to more people. At this point, taking away the tax break from the employees would be a huge government take away from most of the population. Try to get a politician to take something away from taxpayers. Why doesn't the deduction exist in kind to people buying individual coverage? Ask your legislators. There are thousands of preferential tax treatment oddities, where some industry will get some sort of benefit or break. I'm not sure what leads you to think there needs to be some supremely logical reason for this oddity to exit.","This probably is a question that belongs on History but here's the basic reason: the or Employee Retirement Income Security Act (ERISA) of 1974 established that health benefits under approved plans were not taxable to the employee. If the employer were to pay for an employees non ERISA approved individual plan, it would be a taxable benefit. The longer story is that many polticians (esp. President Richard Nixon) were concerned that public pressure was going to lead public sentiment toward nationalized health care. This made health insurance more affordable to employees and effectively made it a cheaper way to compensate employees similar to how 401K contributions are worth more (in nominal terms) to the employee than an equivalent amount of cash. While the law was not signed by Richard Nixon due to some other stuff that was going on, it was something proposed and pushed by his administration.","I think you are overcomplicating the scenario by assuming a benefit that doesn't exist. Assume an employee earns 50k, before considering the MSP. The corporation wants to cover the MSP. They have two options: increase the salary to $50,900, or keep the salary the same and pay for the MSP directly. Both options increase the employee's taxable income by $900. Both options decrease the corporation's income by $900. Net tax for each is unchanged. *Note - I couldn't find any specific reference to the MSP in income tax documentation on either BC Finance's or CRA's website. I am assuming that it is treated as a regular cash benefit, though I am not 100% convinced this is the case. If I am wrong in this please provide a comment below.","I heard that a C-Corp being a one person shop (no other employees but the owner) can pay for the full amount 100% of personal rent if the residence is being used as a home office. Sure. Especially if you don't mind being audited. Technically, it doesn't matter how the money gets where it goes as long as the income tax filings accurately describe the tax situation. But the IRS hates it when you make personal expenses from a business account, even if you've paid the required personal income tax (because their computers simply aren't smart enough to keep up with that level of chaos). Also, on a non-tax level, commingling of business and personal funds can reduce the effectiveness of your company's liability protection and you could more easily become personally liable if the company goes bankrupt. From what I understand the 30% would be the expense, and the 70% profit distribution. I recommend you just pay yourself and pay the rent from your personal account and claim the allowed deductions properly like everyone else. Why & when it would make sense to do this? Are there any tax benefits? Never, because, no. You would still have to pay personal income tax on your 70% share of the rent (the 30% you may be able to get deductions for but the rules are quite complicated and you should never just estimate). The only way to get money out of a corporation without paying personal income tax is by having a qualified dividend. That's quite complicated - your accounting has to be clear that the money being issued as a qualified dividend came from an economic profit, not from a paper profit resulting from the fact that you worked hard without paying yourself market value.","Yeah, me too, as I said. Actually what I'd really prefer is single payer, but failing that, getting health insurance separated from employment would be a big step forward. If people really knew how much they are paying for health insurance, things would change. I've never worked for an employer that didn't renegotiate health insurance every year, often changing insurance providers every year. To the extent that HR departments are competent in finding the best value, the current environment is pretty dynamic and competitive. Are individuals going to be as competent and well informed as HR departments? I don't know, but I do know that simply making a market free doesn't guarantee lower prices if consumers are ill-informed and bad at making decisions. As for wages, currently companies are not required to carry health insurance, and many have dropped it already without increasing wages, so I don't see an upward pressure on wages from greater employee mobility. But it's true that if there were a single large pool for insurance to be based off of, large businesses would no longer get the pool advantage of health insurance over small businesses. Hence my preference for single-payer, or single-group/multi-payer.","Another source of insurance can be through the working spouses employment. Some companies do provide free or low cost coverage for spouses without a need for a physical exam. The risk is that it might not be available at the amount you want, and that if the main spouse switches companies it might not be available with the new employer. A plus is that if there is a cost it is only a one year commitment. Term insurance is the way to go. It is simple to purchase, and not complex to understand. Sizing is key. You may need to provide some level of coverage until the youngest child is in high school or college. Of course the youngest child might not have been born yet. The longer the term, the higher the cost to account for the inflation during the period of the insurance. If the term expires, but the need still exists, it is possible to get another policy but the cost of the new term policy will be higher because the insured is older. If there are special needs children involved the amount and length may need to be increased due to the increased costs and duration of need. Don't forget to periodically review the insurance situation to make sure your need haven't changed so much a new level of insurance would be needed.","Of course not. You had another job for which you earned money. What does the corporation have to do with it? Corporation is a separate entity from your person, and since it was in no way involved in the transaction - there's no justification to funnel money through it. Doing so may pierce the corporate veil and expose you to liability which you created the corporation to shield yourself from. Not to mention the tax evasion, which is the reason you are asking the question to begin with....","\"Paying yourself through a corporation requires an analysis of a variety of issues. First, a salary paid to yourself creates RRSP contribution room as well as CPP contributions. Paying yourself a dividend achieves neither of those. By having a corporation, you will have to file a corporate (T2) tax return. The corporation is considered a separate legal entity from you. As an individual, you will still need to file a personal (T1) tax return. Never just \"\"draw\"\" money out of a corporation. This can create messy transactions involving loans to shareholders. Interest is due on these amounts and any amounts not paid within one calendar year are considered as wages by Canada Revenue and would need to be reported as income on your next T1 return. You should never withhold EI premiums as the sole owner of a corporation. You are considered exempt from these costs by CRA. Any amounts that have been remitted to CRA can be reclaimed by submitting a formal request. The decision on whether to take a salary or dividends normally requires some detailed analysis. Your accountant or financial advisor should be able to assist in this matter.\"","Here's a good rule of thumb. In any situation where you are required to purchase insurance (Auto Liability, Property Mortgage Insurance, etc.) you can safely assume that you aren't the primary beneficiary. You are being required to buy that insurance to protect someone else's investment."],"string":"[\n \"The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.) In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check. Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost.\",\n \"I'm not sure about reimbursement, you'll have to talk to a tax adviser (CPA/EA licensed in your State). From what I know, if you pay your own insurance premiums - they're not deductible, and I don't think reimbursements change that. But again - not sure, verify. However, since you're a salaried employee, even if your own, you can have your employer cover you by a group plan. Even if the group consists of only you. Then, you'll pay your portion as part of the pre-tax salary deduction, and it will be deductible. The employer's portion is a legitimate business expense. Thus, since both the employee and the employer portions are pre-tax - the whole cost of the insurance will be pre-tax. The catch is this: this option has to be available to all of your employees. So if you're hiring an employee a year from now to help you - that employee will be eligible to exactly the same options you have. You cannot only cover owner-employees. If you don't plan on hiring employees any time soon, this point is moot for you, but it is something to keep in mind down the road as you're building and growing your business.\",\n \"\\\"No, not on schedule C, better. Its an \\\"\\\"above the line\\\"\\\" deduction (line 29 on your 1040). Here's the turbo tax article on it. The instructions for this line set certain limitations that you must take into the account, and yes - it is limited to the net profit from the business. One of the following statements must be true. You were self-employed and had a net profit for the year. You were a partner with net earnings from self-employment. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2. The insurance plan must be established under your business. Your personal services must have been a material income-producing factor in the business. If you are filing Schedule C, C-EZ, or F, the policy can be either in your name or in the name of the business.\\\"\",\n \"Unless the amounts involved are very small, it is MUCH better to incorporate. First, incorporation gives you limited liability for your acts as an employee. As an individual, you have unlimited liability. Second, incorporating allows you to deduct (for tax purposes) the costs of doing business, including all of your health insurance, most transportation, and some meals. The exception to the rule is if the amounts you are earning are so small that they don't cover the cost of incorporating, accounting fees, etc. (a few hundred, or at most a few thousand dollars).\",\n \"The tax incentives for employer sponsored health insurance were designed to incentivize employers to provide the insurance and for employees to purchase the insurance. Since your situation does not meet the requirements to take advantage of this incentive, you can not. In the near future you should be able to take part in the government sponsored exchanges. This may spur changes in how this works.\",\n \"\\\"You can deduct what you pay for your own and your family's health insurance regardless of whether it is subsidized by your employer or not, as well as all other medical and dental expenses for your family, as an itemized deduction on Schedule A of Form 1040, but only to the extent that the total exceeds 7.5% of your Adjusted Gross Income (AGI) (10% on tax returns for year 2013 onwards). As pointed out in KeithB's comment, you cannot deduct any health insurance premium (or other medical expense) that was paid for out of pre-tax dollars, nor indeed can you deduct any medical expense to the extent that it was paid for by the insurance company directly to hospital or doctor (or reimbursed to you) for a covered expense; e.g. if the insurance company reimbursed you $72 for a claim for a doctor's visit for which you paid $100 to the doctor, only $28 goes on Schedule A to be added to the amount that you will be comparing to the 7.5% of AGI threshold, and the $72 is not income to you that needs to be reported on Form 1040. Depending on other items on Schedule A, your total itemized deductions might not exceed the standard deduction, in which case you will likely choose to use the standard deduction. In this case, you \\\"\\\"lose\\\"\\\" the deduction for medical expenses as well as all other expenses deductible on Schedule A. Summary of some of the discussions in the comments Health care insurance premiums cannot be paid for from HSA accounts (IRS Pub 969, page 8, column 2, near the bottom) though there are some exceptions. Nor can health care insurance premiums be paid from an FSA account (IRS Pub 969, page 17, column 1, near the top). If you have a business on the side and file a Schedule C as a self-employed person, you can buy medical insurance for that business's employees (and their families too, if you like) as an employment benefit, and pay for it out of the income of the Schedule C business, (thus saving on taxes). But be aware that if you have employees other than yourself in the side business, they would need to be covered by the same policy too. You can even decide to pay all medical expenses of your employees and their families too (no 7.5% limitation there!) as an employment benefit but again, you cannot discriminate against other employees (if any) of the Schedule C business in this matter. Of course, all this money that reduced your Schedule C income does not go on Schedule A at all. If your employer permits your family to be covered under its health insurance plan (for a cost, of course), check whether you are allowed to pay for the insurance with pre-tax dollars. The private (non-Schedule C) insurance would, of course, be paid for with post-tax dollars. I would doubt that you would be able to save enough money on taxes to make up the difference between $1330/month and $600/month, but it might also be that the private insurance policy covers a lot less than your employer's policy does. As a rule of thumb, group insurance through an employer can be expected to offer better coverage than privately purchased insurance. Whether the added coverage is worth the additional cost is a different matter. But while considering this matter, keep in mind that privately purchased insurance is not always guaranteed to be renewable, and a company might decline to renew a policy if there were a large number of claims. A replacement policy might not cover pre-existing conditions for some time (six months? a year?) or maybe even permanently. So, do consider these aspects as well. Of course, an employer can also change health insurance plans or drop them entirely as an employment benefit (or you might quit and go work for a different company), but as long as the employer's health plan is in existence, you (and continuing members of your family) cannot be discriminated against and denied coverage under the employer's plan.\\\"\",\n \"While the OP disses the health insurance coverage offered through his wife's employer as a complete rip-off, one advantage of such coverage is that, if set up right (by the employer), the premiums can be paid for through pre-tax dollars instead of post-tax dollars. On the other hand, Health insurance premiums cannot be deducted on Schedule C by self-employed persons. So the self-employed person has to pay both the employer's share as well as the employee's share of Social Security and Medicare taxes on that money. Health insurance premiums can be deducted on Line 29 of Form 1040 but only for those months during which the Schedule C filer is neither covered nor eligible to be covered by a subsidized health insurance plan maintained by an employer of the self-employed person (whose self-employment might be a sideline) or the self-employed person's spouse. In other words, just having the plan coverage available through the wife's employment, even though one disdains taking it, is sufficient to make a Line 29 deduction impermissible. So, AGI is increased. Health insurance premiums can be deducted on Schedule A but only to the extent that they (together with other medical costs) exceed 10% of AGI. For many people in good health, this means no deduction there either. Thus, when comparing the premiums of health insurance policies, one should pay some attention to the tax issues too. Health insurance through a spouse's employment might not be that bad a deal after all.\",\n \"I think that mbhunter hit the nail on the head regarding your question. I just want to add that having a policy that isn't sponsored by your employer is a good idea... employer policies are regulated by the federal government via ERISA. Independent policies are state regulated, and usually have better protections. Also, look for a policy that allows you to increase your coverage later without medical qualification so you don't need to overbuy insurance initially.\",\n \"The answer likely depends a bit on which state you are in, but this should be true for most states. I don't know anything about Pennsylvania specifically unfortunately. The Affordable Care Act created the SHOP marketplace, which allows small businesses to effectively form larger groups for group coverage purposes. SHOP stands for Small Business Health Options Program, and requires only one common-law employee on payroll. This would effectively allow you to offer group coverage without having a group. Talk to your tax accountant for more details, as this is still very new and not necessarily well understood. There are some other options, all of which I would highly suggest talking to a tax accountant about as well. HRAs (health reimbursement accounts) allow the employer to set aside pre-tax funds for the employee to use for approved medical expenses; they're often managed by a benefits company (say, Wageworks, Conexis, etc.). That would allow your employee to potentially pick a higher deductible health plan which offers poorer coverage on the individual marketplace (with after-tax dollars) and then supplement with your HRA. There are also the concept of Employer Payment Plans, where the employer reimburses the employee for their insurance premiums, but those are not compatible with the ACA for the most part - although there seems to be a lot of disagreement as to whether it's possible to have something effectively the same work, see for example this page versus this for example.\",\n \"As others have pointed out, post-tax dollars are what you'll use. Just as a quick note, as you'll be using post-tax dollars; in the past, I've refused to take contractor plans because they almost always are inferior to what I've been able to get off the private exchange ehealthinsurance. A few people have written excellent articles on Get Rich Slowly here and here about them in detail if you want more information. Generally, contractors (and sometimes employees) are offered a few plans (3-4), and this health exchange gives you a little more freedom to pick your plan, which in your situation may help. It isn't always cheaper, but depending on your needs, you may obtain a better deal. Forgot to add this: this option has also made switching jobs easy as well since I don't have to pay COBRA. While it depends on the situation, this can sometimes come out significantly cheaper. For instance, if I were to take the employer health plan next year, I would lose ~$450 a month, whereas the private exchange option is ~$300. But, if I were to switch jobs, decide to opt for self-employment, or a layoff, the COBRA would be even higher than ~$450.\",\n \"There are many aspects to consider in deciding what sort of company you want to form. Instead of an S-corporation, you should determine whether it would be better to form a Limited Liability Company (LLC), Limited Partnership (LP) or even a professional company (PC). Littleadv is correct: There is minimal benefit in forming an S-corp with you and your wife as the shareholders, if you will be the only contributor-worker. There are costs associated with an S-corporation, or any corporation, that might outweigh benefits from more favorable tax treatment, or personal protection from liability: Filing fees and disclosure rules vary from state to state. For example, my father was a cardiologist who had no employees, other than my grandmother (she worked for free), in a state with income taxes (NM). He was advised that a PC was best in New Mexico, while an S-Corp was better in Florida (there are no personal income taxes in Florida). The only way to know what to do requires that you consult an accountant, a good one, for guidance.\",\n \"\\\"The basic idea is that the average person can't deduct health care costs unless they're really onerous. But a business can, and as a self-employed person, you can deduct those costs from the businesses earnings... as long as the business is really generating enough profit to cover the health insurance costs. That's why most people get their health insurance from their employer, actually. The relevant IRS rules say: \\\"\\\"You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are... A self-employed individual with a net profit reported on Schedule C (Form 1040).\\\"\\\" For 2010, thanks to the Small Business Jobs Act of 2010, you can even deduct the premium from your income before deducting the self-employment tax (Source). I'm sure that when you get your tax returns and instructions for 2010 this will all be spelled out.\\\"\",\n \"Checkout the worksheet on page 20 of Pub 535. Also the text starting in the last half of the third column of page 18 onward. https://www.irs.gov/pub/irs-pdf/p535.pdf The fact that you get a W-2 is irrelevant as far as I can see. Your self-employment business has to meet some criteria (such as being profitable) and the plan needs to be provided through your own business (although if you're sole proprietor filing on Schedule C, it looks like having it in your own name does the trick). Check the publication for all of the rules. There is this exception that would prevent many people with full-time jobs on W-2 from taking the deduction: Other coverage. You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2014, do not use amounts paid for coverage for that month to figure the deduction. (Pages 20-21). Sounds like in your case, though, this doesn't apply. (Although your original question doesn't mention a spouse, which might be relevant to the rule if you have one and he/she works.) The publication should help. If still in doubt, you'll probably need a CPA or other professional to assess your individual situation.\",\n \"I think you're misunderstanding how S-Corp works. Here are some pointers: I suggest you talk with a EA/CPA licensed in your state and get yourself educated on what you're getting yourself into.\",\n \"While I can't say how it is in the Philippines, my wife the insurance broker leads me to believe that individual insurance is more expensive than group coverages in the US almost always. So much so that people will go to great extents to form any sort of business just to insure themselves. If however it is cheaper, can't you simply opt out of your employer's plan? If you can opt out, will your employer give you any of the money they aren't paying for your insurance? If you can't opt out, or if you paycheck doesn't grow, I can't see why you would want additional coverage especially at such a young age. Should you lose your job in the near future and you worry about, go get the insurance then. EDIT One big advantage is if you get personal insurance, you might need to get an exam to qualify, and it is likely the younger you are the better you will qualify. But again, you already have insurance that covers you so I would advise keeping the group policy is probably better.\",\n \"Here is a quote from the IRS website on this topic: You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2011, even if the child was not your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. One of the following statements must be true. You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. For partners, a policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business. For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business. Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Take the deduction on Form 1040, line 29.\",\n \"Basically a company who provides health insurance for their employees provides it as part of the employee's salary package. This is an expense by the company in its pursuit of making income. In general, tax deductions are available on any expense incurred in deriving income (the exception is when social policy allows deductions for other types of expenses). If you pay for your own health insurance individually, then this expense is not an expense for you to derive your income, and as such is not tax deductible.\",\n \"The best way to do this is to pay for the entire car, including gas, insurance, and repairs, from S-corp funds, then meticulously track how many miles are used for personal and how many miles for business. If you pay with S-corp funds, you will claim the personal miles as a taxable benefit from the S-corp on your personal return. The S-corp can then claim all the expenses and depreciation on the vehicle, reducing the S-corp's tax liability.\",\n \"\\\"Yes, you can. See the instructions for line 29 of form 1040. Self employed health insurance premiums are an \\\"\\\"above the line\\\"\\\" deduction.\\\"\",\n \"http://www.ehow.com/about_4625753_cobra-as-selfemployed-health-insurance.html This link makes it clear... it has to be itemized, and is subject to the > than 7.5% AGI rule.\",\n \"Do not mix personal accounts and corporate accounts. If you're paid as your self person - this money belongs to you, not the corporation. You can contribute it to the corporation, but it is another tax event and you should understand fully the consequences. Talk to a tax adviser (EA/CPA licensed in your State). If they pay to you personally (1099) - it goes on your Schedule C, and you pay SE taxes on it. If they pay to your corporation, the corporation will pay it to you as salary, and will pay payroll taxes on it. Generally, payroll through corporation will be slightly more expensive than regular schedule C. If you have employees/subcontractors, though, you may earn money which is not from your own performance, in which case S-Corp may be an advantage.\",\n \"\\\"Yes, you should budget some amount of your emergency fund for healthcare expenses. How much you budget is really dependent on your particular anticipated costs. Be aware that health insurance likely costs significantly more than your employer charges you for access to its plan. Since healthcare reform mandated guaranteed issue individual coverage you will have the ability to buy individual coverage for you and, if applicable, your family. When buying individual coverage you have essentially two choices, your decision hinges on whether or not you'd qualify for a premium subsidy. If your AGI is below 400% of the poverty line you'll be able to receive subsidized coverage at a state or federal health insurance exchange. If the subsidy is not meaningful to you, or you wouldn't qualify, you can buy an \\\"\\\"off exchange\\\"\\\" plan offered either directly through a carrier or an insurance agent (some insurance agents are also licensed to sell exchange plans though it's somewhat rare). In order to receive subsidized coverage you must buy through a state or federal exchange, or an agent licensed to sell exchange products specifically. If your employer was large enough to be required to offer its plan via COBRA or you live in a state that extends the COBRA requirement to smaller businesses, you can choose that as well. Bear in mind this option is likely to be expensive relative to individual plans. It's becoming a less relevant solution with the advent of guaranteed issue individual coverage. COBRA is not a special type of insurance, it's a mandate that your employer allow you to remain on its plan but pay the full gross premium plus an up to 2% (10% for calCOBRA) administrative fee. Despide popular vernacular, there is no such thing as Obamacare or ACA coverage. Obamacare reshaped the insurance market. The ACA outlines certain minimum coverage requirements, generally referred to as \\\"\\\"Minimum Essential Coverage.\\\"\\\" While employers and plans are not \\\"\\\"required\\\"\\\" to meet all of these coverage requirements there is a penalty associated with non-compliance. The single exception to this is grandfathered plans which can still sidestep a few of the requirements. The penalty is harsh enough that it's not worth the cost of offering a non-compliant plan. Whether you buy coverage through a state or federal exchange, through an insurance agent, or via your employer's COBRA program you will have \\\"\\\"ACA\\\"\\\" coverage (unless on the off chance your employer's plan doesn't check the \\\"\\\"Minimum Essential Coverage\\\"\\\" box). So generally all plans available to you will have $0 preventive coverage, pregnancy benefits, cancer treatment benefits etc. Another thing to consider is your entire family doesn't need to be on the same plan. If your family is healthy with the exception of one child, you can purchase $0 deductible coverage for the one child and higher deductible more catastrophic plan for the remainder of your family. In fact you could choose COBRA for one child and purchase individual coverage for the remainder of the family. The things to consider when you face a lay-off: I tried to mitigate my use of \\\"\\\"all\\\"\\\" and \\\"\\\"always\\\"\\\" because there are some narrow exceptions to these requirements, such as the \\\"\\\"Hobby Lobby\\\"\\\" decision allowing closely held organizations with highly religious owners the ability to remove certain contraception benefits. Understand that these exceptions are rare and not available to individual plans.\\\"\",\n \"I see a lot of people making the mistake or being given bad advise in structuring a new business. If you have more than one shareholder, then by all means an S Corporation is a better structure for lower taxes; avoid double taxation. If, however, this is a one shareholder S Corp, then you had better 1099 yourself as a consultant or look into sole proprietorship. The tax benefits are much better either way. Dr. Suraiya Shaik Ali\",\n \"S-Corp income is passed through to owners and is taxed on their 1040 as ordinary income. If you take a wage (pay FICA) and then take additional distributions these are not subject to FICA. A lot of business owners will buy up supplies/ necessary expenses right before the end of the tax year to lower their tax liability.\",\n \"\\\"Many answers here have given what look to be useful perspectives on your question. I want to point out an interesting technical issue. If an employer contracts with an insurer, it agrees to cover all employees (or all that fill some pre-specified definition and no one else), and to offer only a limited range of options. If you buy insurance directly, you obviously have a huge range of choices, including the (technically illegal) one of no insurance at all. Your first thought is probably, \\\"\\\"Hey, that's great! More options, more chances to pick the plan that's right for me.\\\"\\\" Sorry, no. Yes, you have more options, but so does everyone else. If you are working for some large company, you get insurance, period. If you suspect you have an expensive health condition, you cannot buy more insurance; if you believe yourself to be healthy as a horse, you cannot get skimpier insurance and pocket the difference. Healthy people and sick people are all in the same predictable pool. If you buy insurance freely, the insurer knows that the sicker you are, the more likely you are buy insurance, a phenomenon called adverse selection. As a result, the premiums (fees) a person buying his own insurance pays are much higher, because most of his fellow policy-holders are sickly -- even if he himself is just risk-averse. On the other hand, if you are risk-neutral, if you can survive a $10,000 bill if it happens to arise, you can save big by finding the skimpiest imaginable insurance, where all your fellow policy-holders will be hale and healthy people like yourself.\\\"\",\n \"\\\"Like most forms of insurance, health insurance is regulated at the state level. So what is available to you will depend greatly upon which state you live in. You can probably find a list of insurance companies from your state's official website. Many states now provide \\\"\\\"insurance of last resort\\\"\\\" for individuals who can't get insurance through private insurance companies. You can try looking into professional and trade associations. Some offer group insurance plans comparable with COBRA coverage, meaning you'd get a group discount and benefits but without the benefit of an employer paying 30-80% of your premiums. As a software developer you may qualify for membership in the IEEE or ACM, which both offer several forms of insurance to members. The ASP also offers insurance, though they don't provide much information about it on the public portions of their website. These organization offer other benefits besides insurance so you may want to take that in to consideration. The National Federation of Independent Business also offers insurance to members. You may find other associations in your specific area. Credit Unions, Coops and the local chamber of commerce are all possible avenues of finding lower cost insurance options. If you are religious there are even some faith based non-insurance organizations that provide medical cost sharing services. They depend upon the generosity and sense of fairness and obligation of their members to share the burden of medical expenses so their definitely not for everyone.\\\"\",\n \"FICA/SE taxes are not 30%. They are at most ~15%, including the employer portion. Employer also pays FUTA tax, and has additional payroll expenses (like fees and worker compensation insurance). The employee's FICA portion is limited up to a certain level of earnings (110100 this year, IIRC). Above it you only pay medicare taxes, not social security. S-Corp earnings are not taxed at 15%, these are not dividends. They're taxed at your ordinary income rate. You don't pay SE taxes on it, that's the only difference. I hope you're talking about tax treatment decision, because there are entirely different factors to keep in mind when you're organizing a business and making a decision between being it a LLC or a corporation. I believe you should pay some money to get a real advice that would apply to you, from a EA/CPA who would be doing the number-crunching (hopefully correctly). I'm a tax practitioner, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.\",\n \"Basically, no. You have retirement plan options and can either go with a Roth option, which won't change your current tax burden, or go with a traditional plan, which is tax deductible but won't change your business deductions or self-employment taxes. This article has an explanation of options for setting up SEP or Solo 401k plans. Key quote for all the pre-tax retirement plans: Because pre-tax employer and employee contributions are deducted in the same way, neither one is more tax-efficient than the other. The article goes on to say that if you were an S Corp or LLC that elected to be taxed as an S Corp, a Solo 401(k) plan would allow the business to make an employer contribution to your 401(k) and even then there's no tax advantage to the employer contribution. Conclusion for S-corps: [Employer contributions] would reduce the amount of income from the S-corporation that would be passed through to you as the owner, thereby reducing your income tax. But, because this income is not subject to payroll taxes in the first place, these contributions will not reduce your payroll taxes.\",\n \"\\\"Am I on crack, or do the perceived tax savings via S-Corp distributions really not matter at a certain level of business income? You're not on crack. Generally, if all the income is generated by your own personal services - this is the outcome. The benefit of S-Corp is when you have employees who generate your income, and you distribute to yourself profits that come out of other's personal services. In this case your distributions are exempt from FICA since it is not in fact a self-employment income. You'd still have to pay yourself a reasonable salary for your position (as a manager/officer), but it wouldn't have to cover all of the available profits. So if the IRS takes a position against you it would be that your salary should be to include the whole profits, since it is the compensation to you for the personal services that produced the income to the corporation (you). In many cases they might agree that a salary at the SS maximum limit would be reasonable - but that's only a speculation of mine. In that case you might gain some portion of the medicare tax (with the recent law changes at the levels you're talking about you'll pay some medicare anyway). There are a lot of accountants who take more aggressive position saying that not all of the distributions are liable for SE taxes, even if you're the sole employee of the corporation. These cases often end up in the Tax Court, and whatever the outcome, your legal fees become higher than the FICA savings. What is probably missing in your picture is the SS limit of (currently $112K) above which you don't pay social security tax, so whether you get it as a salary or as a distribution - that limit is the same. That is why you don't see a significant difference. I know there are a lot of accountants who'd disagree, but I would argue that for a sole employee of your company, S-Corp doesn't provide significant benefits over the disregarded LLC taxation, but has some additional overhead that adds to your expenses. Here's a link to a lawyer's blog where he suggests (and says many accountants follow) 60/40 division between salary and distributions. I.e.: his take, similarly to mine, is that most of the earnings have to be treated as salary. In your case, when the total is about 300K - you indeed will not get any FICA savings with such a division other than some of the medicare. Unusually low wages when compared to distributions can draw unwanted IRS scrutiny and an audit. An unfavorable audit will likely result in some portion of the distributions being reclassified as earned income for federal income tax purposes, which results in a deficiency assessment (i.e., a tax bill), interest on those unpaid taxes, and IRS penalties. The article also talks about the Watson case (one of the Tax Court cases I referred to), which can be used as the guidelines for determining the \\\"\\\"reasonable\\\"\\\" compensation. Talk to your tax adviser. I'm neither a tax adviser nor a tax professional. For a tax advice contact a CPA/EA licensed in your state. This is not a tax advice, just my personal opinion.\\\"\",\n \"An S-corp doesn't pay income tax -- taxation is pass-through. This being the case, there are no tax deductions it could take for charitable giving. The solution would be for you to make the contribution out of your own pocket and then personally claim the deduction on your own taxes.\",\n \"It is illegal. Coverage has a lot of minimum requirements. What has really hurt Obamacare is that it groups those that were formerly uninsured, with those that don't have employer insurance. It turns out those that were previously uninsured (often very poor) are very expensive to insure. So that has forced up premiums on everyone else. The link of health insurance to employment in the US is to blame. The sooner everyone is forced to buy their own insurance, and then preferably the government offers medicare buy in for all, the sooner the system can be cleaned up.\",\n \"\\\"We will bill our clients periodically and will get paid monthly. Who are \\\"\\\"we\\\"\\\"? If you're not employed - you're not the one doing the work or billing the client. Would IRS care about this or this should be something written in the policy of our company. For example: \\\"\\\"Every two months profits get divided 50/50\\\"\\\" They won't. S-Corp is a pass-through entity. We plan to use Schedule K when filing taxes for 2015. I've never filled a schedule K before, will the profit distributions be reflected on this form? Yes, that is what it is for. We might need extra help in 2015, so we plan to hire an additional employee (who will not be a shareholder). Will our tax liability go down by doing this? Down in what sense? Payroll is deductible, if that's what you mean. Are there certain other things that should be kept in mind to reduce the tax liability? Yes. Getting a proper tax adviser (EA/CPA licensed in your State) to explain to you what S-Corp is, how it works, how payroll works, how owner-shareholder is taxed etc etc.\\\"\",\n \"Health insurance is tough, as you know, because the offerings vary dramatically by State, and there is the added complication of the Affordable Care Act, which depending on where and who you are has had either a good or bad impact on the available options. If you are a sole proprietor or other business person, I'd advise talking to someone at a local chamber of commerce. Also, professional organizations like the IEEE or ACM (for IT professionals) often offer catastrophic medical or other health plans. Some employer plans give you the option to continue coverage at a higher cost when COBRA lapses as well. If you can't afford a comprehensive plan, make sure to get something to protect you against pre-existing conditions or hospitalization.\",\n \"I was in your situation a few years ago and I discovered something that worked perfectly for me - a local health insurance broker. I met with her, discussed my needs, reviewed the options with her, then acted. She received a commission from the insurer, so it cost me nothing. I would certainly follow a similar approach again.\",\n \"For the first four months of the year, when you were an employee, the health insurance premiums were paid for with pre-tax money. When you receive your W-2 at the end of the year, the amount in Box 1 of the W-2 will be reduced by the amount you paid for health insurance. You can't deduct it on your tax return because it has already been deducted for you. Now that you are a 1099 independent contractor, you are self-employed and eligible for the self-employed health insurance deduction. However, as you noted, the COBRA premiums are likely not eligible for this deduction, because the policy is in your old employer's name. See this question for details, but keep in mind that there are conflicting answers on that question.\",\n \"Why not personal responsibility? Get paid *then* provide the service. It's what small business owners do every day without the help of government or the protection of a large corporation. Individuals comply with safety regulations to protect themselves. If you need a corporation to do it for you, expect to make less. If you can do it yourself, expect to make more as an entrepreneur.\",\n \"Pre tax insurance is not possible unless the emplyer provides hsa and do a payroll deduction. Obamacare is all post tax and you can do deduction if your expenses exceeds 10%of your income\",\n \"\\\"I am very late to this forum and post - but will just respond that I am a sole proprietor, who was just audited by the IRS for 2009, and this is one of the items that they disallowed. My husband lost his job in 2008, I was unable to get health insurance on my own due to pre-existing ( not) conditions and so we had to stay on the Cobra system. None of the cost was funded by the employer and so I took it as a SE HI deduction on Line 29. It was disallowed and unfortunately, due to AGI limits, I get nothing by taking it on Sch. A. The auditor made it very clear that if the plan was not in my name, or the company's name, I could not take the deduction above the line. In his words, \\\"\\\"it's not fair, but it is the law!\\\"\\\"\\\"\",\n \"I think I may have figured this out but if someone could double check my reasoning I'd appreciate it. So if my company makes $75000 and I decide to pay myself a $30000 salary, then the quarterly payment break down would be like this: 1040ES: Would pay income tax on non salary dividend ($45000) 941: Would pay income tax, SS, medicare on salary ($30000) (I'm the only person on payroll) So I think this answers my question in that after switching from filing as LLC to S-corp, I won't have to pay as much on 1040ES because some of it will now be covered on payroll.\",\n \"\\\"The biggest problem with this that others seem to have missed is that a corporation must have a profit motive. Meaning at some point after a \\\"\\\"startup phase\\\"\\\" your company needs to turn a profit to not be considered a hobby. Will your employer be paying your corporation for your salary? Is that the company's business endeavor? If you run profits through the company and treat it like a true business, this may be technically possible, but as others have mentioned probably will cost more than any benefits you'd receive. And at every step you'll be throwing tons of audit flags. Rich Dad Poor Dad advocates a light version of this. Essentially running a business like Real Estate through an LLC, and then using that LLC for \\\"\\\"business trips\\\"\\\" (vacation with some justifiable business motive) or capital purchases (laptop, etc...) and the like, such that you're paying with \\\"\\\"Pre-tax\\\"\\\" money instead of \\\"\\\"Post tax\\\"\\\", but again the business needs a revenue source.\\\"\",\n \"\\\"I don't know what the OP means when he says I want to invest in health insurance from now on so that I can use the policy after I retire. Generally, a health insurance policy covers costs incurred during the current calendar year (or specific period such as July 1 of one year through June 30 of the next year) and does not cover future periods. Indeed, many policies do not guarantee renewal when the current period ends (with exceptions for employer-provided coverage through COBRA in case employment ends). So investing in a health insurance policy meaning that you pay the premiums now, and the insurance company provides the policy in the distant future is something that is new to me. Besides, what will the policy include? If someone had bought such a policy many years ago, say, before CAT scans and MRI were developed, would the policy cover such new developments? Or the policy would cover only those procedures, tests, and medications that are available when the policy is written and the insurance premiums start to be paid? The long-term health of the insurance company is also of some concern. When something is offered to me with a lifetime guarantee, I skeptically ask, \\\"\\\"My lifetime or the device's life time or the company's lifetime?\\\"\\\"\\\"\",\n \"You can never use a health FSA for individual health insurance premiums. Moreover, FSA plan sponsors can limit what they are will to reimburse. While you can't use a health FSA for premiums, you could previously use a 125 cafeteria plan to pay premiums, but it had to be a separate election from the health FSA. However, under N. 2013-54, even using a cafeteria plan to pay for indivdiual premiums is effectively prohibited.\",\n \"I agree with you 100%! >they've all just taken advantage so that wages haven't kept up and they've essentially pocketed the difference, or passed it on to their customers. Now people have less money to buy health insurance, and those near the bottom will now have to rely on the government to assist with providing health insurance. I think this is exactly what is happening today. > That last part is important, though, I would need to get all the breaks my employer gets for providing myself with health insurance. I believe up until Obamacare, people couldn't. Also, as a general rule a business can claim a tax deduction for the salary, wages, commissions, bonuses, and other compensation it pays to its employees.\",\n \"\\\"It's a tough question, because there is society and individual to consider, and the society's effects on the individual. Currently, employers don't have to provide insurance, they do it to compete in the employee marketplace. Employers have an advantage over employees in that regard, because they can procure insurance at a lower cost that employees can, and they get tax breaks for doing so. Employers providing health insurance get a more stable relationship with their employees, because employees always hold great value in having an employee who provides good benefits. The company I work for provides good benefits, but suppose tomorrow they told me \\\"\\\"Hey Mutatron, we're not providing benefits anymore, but we'll bump your salary to what your benefits are worth, plus enough to compensate for the tax break we get.\\\"\\\" So now, everything is equal to what it was before, but I have to go out and find my own insurance, which is a hassle, but presumably because of the PPACA I can get a good value and carry this insurance with me wherever I go, and never have to mess with changing every time I change jobs. But suppose all the employers do this, so now there are no employer-provided health plans, and ten or twenty years down the line they've all just taken advantage so that wages haven't kept up and they've essentially pocketed the difference, or passed it on to their customers. Now people have less money to buy health insurance, and those near the bottom will now have to rely on the government to assist with providing health insurance. This is the way it works now with the minimum wage. A recent report found that WalMart employees rely on welfare to the tune of [$2.66 billion a year](http://www.dailykos.com/story/2012/10/10/1141724/-Walmart-fuels-inequality-epidemic-taking-advantage-of-our-safety-net), while the company makes $15 billion in profit. So 18% of Walmart's profits are an indirect subsidy from the US taxpayer, which comes to about $48 per US citizen, or about $208 a year for the top 50% of wage earners. Even so, I think I'd prefer to get my whole compensation package in one shot, all else being equal. That last part is important, though, I would need to get all the breaks my employer gets for providing myself with health insurance.\\\"\",\n \"When in doubt, you should always seek the advice of a professional tax preparer or your accountant. (Many agents/accountants will gladly review your tax preparations to ensure you haven't missed something. That's quicker and cheaper than paying them to do it all.) Having said that... This Illinois resource has detailed information about S-corps: Of relevance to your situation:\",\n \"\\\"In the United States, with an S-Corp, you pay yourself a salary from company earnings. That portion is taxed at an individual rate. The rest of the company earnings are taxed as a corporation, which often have great tax benefits. If you are making over $80K/year, the difference can be substantial. A con is that there is more paperwork and you have to create a \\\"\\\"board\\\"\\\" of advisors.\\\"\",\n \"These are all factually correct claims. S-Corporation is a pass-through entity, so whatever gain you have on the corporate level - is passed to the shareholders. If your S-Corp has capital gains - you'll get your pro-rata share of the capital gains. Interest? The same. Dividends? You get it on your K-1. Earned income? Taxed as such to you. I.e.: whether you earn income as a S-Corp or as a sole proprietor - matters not. That's the answer to your bottom line question. The big issue, however, is this: you cannot have more than 25% passive income in your S-Corp. You pass that limit (three consecutive years, one-off is ok) - your S-Corp automatically converts to C-Corp, and you're taxed at the corporate level at the corporate rates (you then lose the capital gains rates, personal brackets, etc). This means that an S-Corp cannot be an investment company. Most (75%+) of its income has to be earned, not passive. Another problem with S-Corp is that people who work as self-proprietors incorporated as S-Corp try to abuse it and claim that the income they earned by the virtue of their own personal performance shouldn't be taxed as self-employed income. IRS frowns upon such a position, and if considerable amounts are at stake will take you all the way up to the Tax Court to prove you wrong. This has happened before, numerously. You should talk to a licensed tax adviser (EA/CPA/Attorney licensed in your state) to educate you about what S-Corp is and how it is taxed, and whether or not it is appropriate for you.\",\n \"Let me first start off by saying that you need to be careful with an S-Corp and defined contribution plans. You might want to consider an LLC or some other entity form, depending on your state and other factors. You should read this entire page on the irs site: S-Corp Retirement Plan FAQ, but here is a small clip: Contributions to a Self-Employed Plan You can’t make contributions to a self-employed retirement plan from your S corporation distributions. Although, as an S corporation shareholder, you receive distributions similar to distributions that a partner receives from a partnership, your shareholder distributions aren’t earned income for retirement plan purposes (see IRC section 1402(a)(2)). Therefore, you also can’t establish a self-employed retirement plan for yourself solely based on being an S corporation shareholder. There are also some issues and cases about reasonable compensation in S-Corp. I recommend you read the IRS site's S Corporation Compensation and Medical Insurance Issues page answers as I see them, but I recommend hiring CPA You should be able to do option B. The limitations are in place for the two different types of contributions: Elective deferrals and Employer nonelective contributions. I am going to make a leap and say your talking about a SEP here, therefore you can't setup one were the employee could contribute (post 1997). If your doing self employee 401k, be careful to not make the contributions yourself. If your wife is employed the by company, here calculation is separate and the company could make a separate contribution for her. The limitation for SEP in 2015 are 25% of employee's compensation or $53,000. Since you will be self employed, you need to calculate your net earnings from self-employment which takes into account the eductible part of your self employment tax and contributions business makes to SEP. Good read on SEPs at IRS site. and take a look at chapter 2 of Publication 560. I hope that helps and I recommend hiring a CPA in your area to help.\",\n \"You could slip and fall in the shower tonight. Or you might never need it. Insurance is a hedge against risk. If the event has already occurred, you're uninsurable. If you and others would suffer if you have a bad accident and can't work, get it now.\",\n \"If the company pays for Group Term Life Insurance, some of that premium payment may be taxable. If memory serves, that's what's included in W-2 Box C. W-2 Box C has no bearing on Schedule C.\",\n \"Because collective bargaining by the gov't and your employer is the only way that we've been able to combat some of the increases. An uninsured individual will be billed 4-10x what your insurance company would pay due to collective bargaining. The largest employers (Cisco, EMC, and others) are self-insured and pay health care providers to administer their plan. SMBs get the short end of the stick and pay much higher rates for less coverage because they don't have economies of scale. A public option would allow any uninsured individual to obtain health care at a reasonable, income-based cost.\",\n \"On topic of Healthcare needs, I think it depend on individual. For example, my employer's dental plan offer PPO $34 per month and DMO $12 per month. I have my favor dentist that I have been going for years. He only accept PPO. I already had most of my dental works done so I only use him for teeth clean. He charge $100 without insurance and free with insurance. I can only use my insurance for teeth clean twice a year so $34x12 = $408 vs $200. If I go with DMO, I won't get to see my doctor and since I get my teeth once a year why not just save that money and go to my favor doctor instead the DMO doctors and if I need major dental works done which isn't immediate. I can go to Taiwan for dental works that is way cheaper than U.S. I think if you're a healthy young man/women. You should put more money toward your retirement and only keep insurance for emergency. You can do a medical tourism mentioned in 60 minutes that can be more cost effective and those doctors are U.S. trained. For older folks, a full Health care insurance is more needed than retirement. Just my two cents.\",\n \"\\\"Be careful of the other answers here. Many are wrong or partially wrong. The question implies that you knew this, but for everyone else's benefit, you can keep you LLC organization and still elect to be treated as a S-Corp by the IRS just for tax purposes. You do this by filing Form 2553 with the IRS. (You can also, by the way, elect to be taxed as a \\\"\\\"regular\\\"\\\" C-Corp if you want, although that's probably not advantageous. See Form 8832.) The advantage of electing to be treated as an S-Corp is that income beyond what constitutes a \\\"\\\"reasonable salary\\\"\\\" are not subject to social security and medicare taxes as they would when paid was wages or counted as self-employment income on Schedule C. Depending on what you need to pay yourself to meet the \\\"\\\"reasonable salary\\\"\\\" test, your overall income, and other factors about your business, this could result in tax savings. Contrary to other answers here, making this election will not force you to create a board of directors. You are still an LLC for all purposes except taxes, so whatever requirements you had in organization and governance at the state level will not change. You will have to file a \\\"\\\"corporate\\\"\\\" tax return on Form 1120S (and likely some corresponding state tax form), so that is additional paperwork, but this \\\"\\\"corporate\\\"\\\" return does not mean the S-Corp pays taxes itself. With a couple of exceptions, the S-Corp pays no taxes directly (and therefore does not pay at the corporate tax rate). Instead the S-Corp apportions its income, expenses, and deductions to the owner(s) on Schedule K. The owners get their portion reported from the S-Corp on Schedule K1 and then include that on their personal Form 1040 to pay tax at their personal rate. In addition to filing Form 1120S, you will have to handle payroll taxes, which will create some additional administrative work and/or cost. Using a payroll service for this will likely be your best option and not terribly expensive. You've also got the issue of determining your reasonable salary within the rules, which is the subject of other questions on this site and other IRS guidance.\\\"\",\n \"If you're creating an S-Corp for consulting services that you personally are going to provide, what would it give her to have 50% of the corporation when you're dead? Not to mention that you can just add it to your will that the corporation stock will go to her, and it will be much better (IMHO, talk to a professional) since she'll be getting stepped-up basis. Why aren't you talking to a professional before making decisions? It doesn't sound like a good way to conduct business.\",\n \"We don't make enough to really consider it a salary, but I've heard using a draw without a salary is a bad idea. As any other illegal action, not paying yourself a reasonable salary when being a corporate officer is indeed a bad idea. I have no idea what I need to do to actually get some money in our pockets. The answer is simple. You need to earn more money. Since it is S-Corp, it doesn't matter if you keep the profits on the corporate account or distribute - the profits will be taxed to you. You are also, as I said above, required by law to pay yourself a reasonable salary. Reasonable meaning corresponding to market rates. Paying a CPA or a Software Engineer a minimum wage will not be reasonable. That is, of course, if you're profitable, you're not required to pay yourself more money than the corporation actually has. Just to be clear, my answer refers to the question asked, and the confusing answer above that made a claim that has no substantiation in the law. I do not intend to write a thesis about pros and cons of using S-Corp every time a question about reasonable salary is asked.\",\n \"In addition to stoj's two good points I'll add a couple more reasons: 3) In some situations there are secondary factors involved that can make it a good deal. These normally amount to cases where you can buy the insurance with pre-tax dollars but would have to pay the bills with post-tax dollars. 4) Insurance companies know much better what things should cost and often have negotiated rates. A rich person would generally be well-served to have health insurance for this very reason.\",\n \"Compared with a Sole Proprietorship, the main disadvantages of an S-Corporation or an LLC are that it adds a lot of management overhead (time, and possibly money if you don't do it all yourself), and there are fees you must pay to incorporate, as well as additional yearly maintenance fees which vary by state. You should be able to weigh the tax savings and liability protection against the extra costs and hassle, and see which way the scales tip. As a rule of thumb, the bigger your business gets or the more income you make, the more attractive incorporating becomes. Note there are some additional taxes that certain jurisdictions impose on business income. For example, IL and CA charge 1.5% tax, NY is less, but NYC is 8.85%! In NYC specifically, you could actually end up paying slightly more tax as an S-Corp than you would as a Sole Proprietorship. In most places though, the nominal local taxes will still be less than the FICA taxes you could potentially save.\",\n \"An LLC or an S corp will result in the same tax obligations because both are pass-through tax entities. An LLC is more flexible for the situation you describe because the member and manager responsibilities can be detailed in the operating agreement. You really should get a business attorney to help you get your operating agreement in order. There's also a startups beta site on Stack Exchange that may be able to help you with questions about ways to handle your operating agreement.\",\n \"\\\"A C-Corp is not a pass-through entity, any applicable taxes would be paid by the Corporation, which is a separate legal entity from yourself. If you use the points to purchase something for yourself, that would constitute \\\"\\\"income\\\"\\\" to you, and would be taxable on your personal income tax.\\\"\",\n \"\\\"Generally if you're a sole S-Corp employee - it is hard to explain how the S-Corp earned more money than your work is worth. So it is reasonable that all the S-Corp profits would be pouring into your salary. Especially when the amounts are below the FICA SS limits when separating salary and distributions are a clear sign of FICA tax evasion. So while it is hard to say if you're going to be subject to audit, my bet is that if you are - the IRS will claim that you underpaid yourself. One of the more recent cases dealing with this issue is Watson v Commissioner. In this case, Watson (through his S-Corp which he solely owned) received distributions from a company in the amounts of ~400K. He drew 24K as salary, and the rest as distributions. The IRS forced re-characterizing distributions into salary up to 93K (the then-SS portion of the FICA limit), and the courts affirmed. Worth noting, that Watson didn't do all the work himself, and that was the reason that some of the income was allowed to be considered distribution. That wouldn't hold in a case where the sole shareholder was the only revenue producer, and that is exactly my point. I feel that it is important to add another paragraph about Nolo, newspaper articles, and charlatans on the Internet. YOU CANNOT RELY ON THEM. You cannot defend your position against IRS by saying \\\"\\\"But the article on Nolo said I can not pay SE taxes on my earnings!\\\"\\\", you cannot say \\\"\\\"Some guy called littleadv lost an argument with some other guy called Ben Miller because Ben Miller was saying what everyone wants to hear\\\"\\\", and you can definitely not say \\\"\\\"But I don't want to pay taxes!\\\"\\\". There's law, there are legal precedents. When some guy on the Internet tells you exactly what you want to hear - beware. Many times when it is too good to be true - it is in fact not true. Many these articles are written by people who are interested in clients/business. By the time you get to them - you're already in deep trouble and will pay them to fix it. They don't care that their own \\\"\\\"advice\\\"\\\" got you into that trouble, because it is always written in generic enough terms that they can say \\\"\\\"Oh, but it doesn't apply to your specific situation\\\"\\\". That's the main problem with these free advice - they are worth exactly what you paid for them. When you actually pay your CPA/Attorney - they'll have to take responsibility over their advice. Then suddenly they become cautious. Suddenly they start mentioning precedents and rulings telling you to not do things. Or not, and try and play the audit roulette, but these types are long gone when you get caught.\\\"\",\n \"Despite the ACA offering generous deductions, a lot of small businesses still cannot afford the initial capital involved in offering health insurance plan to their employees... Therefore we cannot take advantage of these deductions... Putting us at a disadvantage for finding low-to-mid skilled workers, to the larger corporations that are now mandated to offer the benefits..\",\n \"It would depend on the health insurance that was being offered, and if it covers your family or just you. We pay around $500-600 for individual health insurance for our employees (families cost north of 1500 a month). It's extremely expensive. Provide more details on the stock purchase plan as well (it sounds to me like in that case you'd only be getting for free what it would cost to purchase the stock... but that's only $10-15, so negligible in this case.)\",\n \"\\\"Yes, you can make the election to file your LLC as an S-Corp, and Turbo Tax Business can help you with the S-Corp business return. You need to make sure you're set up correctly and there are a lot of things to be aware of. For example, the whole \\\"\\\"reasonable salary\\\"\\\" thing is a can of worms. So while the answer to your question is \\\"\\\"yes, it's manageable, you can do it on your own,\\\"\\\" it might be worthwhile to have a professional help you the first year, make sure it's set up right, and then you can do it on your own in subsequent years.\\\"\",\n \"As a 24 year old, single,your needs for insurance are minimal. Why you might consider it are for these reasons. You are young, so it will be cheaper than buying say at 34. Insurance is always on sale. Two, there is no guarantee that your health will always be good, you may have to pay additional premiums later or even be refused coverage. Ask me, I pay 70% more than others my age for the same coverage. Three, insurance ownership with equity values can grow tax free as you accumulate the monies. Consider it like a bond portfolio offering guaranteed returns on portions of the growth, and a long term return of 5.5% or slighly more. Four, stating sooner versus later means more cash buildup. Just like being in a pension will generate more cash for you by age 65, than if you had started at age 34. Insurance is only one tool in getting a good start. It is not a panacea.\",\n \"\\\"These policies are usually called dread disease policies or critical illness insurance, and they normally aren't a good deal. Furthermore, with the passage of the Affordable Care Act, such policies may become less common or disappear entirely. These policies aren't a great deal because of the effects of adverse selection and asymmetric information, two closely related concepts in the economics of insurance. When you purchase an insurance policy, the insurance company charges you a premium based on your average risk level or the average risk level of your risk pool, e.g. you and your fellow employees, if you get insurance through your employer. For health insurance, this average risk level is the average probability that you'll incur healthcare costs. The insurer's actuaries calculate this probability from numerous factors, like your age, sex, current health, socioeconomic status, etc. Asymmetric information exists when you know more about this probability than the insurance company does. For example, you may look like a relatively low-risk individual on paper, but little does the insurance company know, BASE jumping is one of your hobbies. Because you know about your hobby and the insurance company doesn't, you secretly know that your risk of incurring healthcare expenses is much higher than the insurance company expects. If the insurance company knew this, they would like to charge you a much higher premium, if they could. However, they can't, because a) they don't know about your hobby, and b) the premium may be decided for the entire group/risk pool, so they can't increase it simply because a few individuals in the group have higher risk levels. Adverse selection occurs when individuals with higher risk levels are more likely to buy insurance. You may decide that because of your dangerous hobby, you do want to take advantage of your employer's healthcare plan. Unfortunately for the insurance company, they can't adjust their price accordingly. Adverse selection is a major factor in insurance markets, so I didn't go into much detail here (too much detail is probably off-topic anyway). I can point you towards more resources on the topic if you're interested. However, the situation is different when you purchase a dread disease policy. By expressing interest in such a specific policy, e.g. a cancer insurance policy, you signal to the insurance company that you feel you have a higher risk of facing that disease. In your case, you're signaling to the insurance company that your family probably has a history of cancer or that you have habits that make you more susceptible to it, and your premiums will be higher to compensate the insurance company for bearing this additional risk. Since the insurance company already has a rough estimate of your chances of developing that illness, they may already know that you have a higher chance of facing it. However, when you express interest in a disease-specific policy, this signals the existence of asymmetric information (your family history or other habits), and the insurer assumes you know something they don't that elevates your risk level of that specific disease. Since these policies are optional policies often sold as riders to existing policies, the insurance company has more flexibility in pricing them. They can charge you a higher premium because you've signaled to the insurer that you have a significantly above-average risk of contracting a specific disease*. Also, the insurer can do a much better job of estimating the expected costs of insuring you since they need only focus on data surrounding one disease. The policy will be priced accordingly, i.e. in such a way that isn't necessarily beneficial to you. Furthermore, most dread disease policies aren't guaranteed renewable, which means that even if you are willing to keep paying the premiums, the insurance company doesn't have to keep insuring you. As your risk of developing the specific disease grows, e.g. with age, it may pass the point where insuring you is no longer an acceptable risk. The company expects you to develop the illness with the next few renewal cycles, so they decide not to renew your policy. The end result? The insurance company has the premiums you've paid previously, but you no longer have coverage for that illness, and ex post, you've suffered a net loss with no reduction of risk for the foreseeable future. Dread disease policies are changing under the Affordable Care Act. According to healthcare.gov Starting in 2014, ... all new health insurance plans sold to individuals and small businesses, and plans purchased in the new Affordable Insurance Exchanges, must include a range of essential health benefits. The essential health benefits include quite a few areas of coverage; since this applies to policies offered on the state insurance exchanges and those offered outside of it, dread disease policies wouldn't seem to qualify. For more information, you can read the linked page on healthcare.gov or see Section 1302, subsection b), titled \\\"\\\"Essential Health Benefits Requirements\\\"\\\" in the law itself (p87). I imagine more details will be available on a state-by-state basis through 2014 and into 2015. One legal source (see the discussion on p24) states that: whatever else the ACA does with excepted benefit policies, including specific disease and fixed dollar indemnity policies, it does explicitly provide that such policies do not count as minimum essential coverage for purposes of the ACA This seems pretty straightforward; a dread disease (or \\\"\\\"specific disease\\\"\\\" policy, as it's referred to in the article), won't count towards the minimum essential requirements. This may not be an issue for you, but for others, it's important to understand that you'll still need to pay the penalty if you only purchase one of these policies. The ACA spells this out in Section 5000(f) (see p316, which states that \\\"\\\"excepted benefit policies\\\"\\\" are excluded and defines them using the definition in the Public Health Service Act (PHSA). **The PSHA specifically includes \\\"\\\"Coverage only for a specified disease or illness\\\"\\\" in their definition of \\\"\\\"excepted benefit policies\\\"\\\" (see section 2791(b), paragraph 3A on p82, so it's probably a safe bet that such policies won't count towards the minimum. Also, as Rick pointed out in the comments, the Affordable Care Act also forbids lifetime limits on most insurance plans, so assuming you find an insurance policy with adequate coverage for the specific disease you're worried about, such a plan should cover the related expenses without a lifetime limit. Deductibles, annual limits, and other factors may complicate this somewhat. In the section about lifetime limits (Sec. 2711, p2), the Affordable Care Act states that: A group health plan and a health insurance issuer offering group or individual health insurance coverage may not establish ... lifetime limits on the dollar value of benefits for any participant or beneficiary. However, the law states in the next paragraph that the preceding statement should not be construed to prevent a group health plan or health insurance coverage from placing annual or lifetime per beneficiary limits on specific covered benefits that are not essential health benefits under section 1302(b) of the Patient Protection and Affordable Care Act, to the extent that such limits are otherwise permitted under Federal or State law The section also contains similarly vague caveats about annual limits, so the actual details and limits may vary once individual states finalize their policies. The law is intentionally vague because the vast majority of the law's implementation is left up to individual states. Furthermore, certain parts of the law specify actions involving the Secretary of Health and Human Services, so these may require further codification in the future too. You should still read the fine print of any insurance policy you buy and evaluate it as you would any contract (see the next section). Since a dread disease policy probably isn't a good idea, you'll probably want to evaluate the healthcare plans offered by your employer or individual plans offered in your area (if your employer doesn't offer coverage). I've tried to include the basic points offered in these articles to give you or future visitors some idea of where to start. These points may change once the Affordable Care Act is implemented, so I'll try to keep them as general as possible. Services - Above and beyond the minimum essential requirements, what services does the plan offer? Are these services a good match for you and/or your family, or do they add unnecessary cost to the premium with little or no benefit? For example, my health insurance plan offers basic dental coverage with a small co-pay, so I don't need a separate dental plan, even though my employer offers one. Choice - What doctors, clinics, hospitals, etc. are preferred providers under your plan? Do you need a referral from your primary care doctor to see a specialist, or can you find one on your own? Are the preferred providers convenient for you? In my first year of college (about five years ago), my student health insurance only covered a few hospitals that were in the suburbs and somewhat difficult for me to reach. This is something to keep in mind, depending on where you live. Costs - This is a major one, obviously. Deductibles, copays, maximum cost limits over a year or your lifetime, out-of-network costs, etc. are all variables to consider. There are other factors, but since I don't have a family, other members of the site can provide more detailed information about what to look for in family policies. In place of a dread disease policy, you're likely better off purchasing a comprehensive health insurance policy, perhaps a catastrophic coverage policy with a high deductible that will kick in once you've exhausted your standard insurance policy. However, this may be a moot point since the passage of the Affordable Care Act may significantly reduce the availability of such policies anyway.\\\"\",\n \"\\\"You probably don't need S-Corp. There's no difference between what you can deduct on your Schedule C and what you can deduct on 1120S, it will just cost you more money. Since you're gambling yourself, you don't need to worry about liability - but if you do, you should probably go LLC route, much cheaper and simpler. The \\\"\\\"reasonable salary\\\"\\\" trick to avoid FICA won't work. Don't even try. Schedule C for professional gamblers is a very accepted thing, nothing extraordinary about it.\\\"\",\n \"Each S-corp is bound by its own plan documents, which typically do not limit or dictate where the investments are held. Your brokerage account has no tie to the company from which the funds come, however, you are still subject to maximum SIMPLE contribution rules and cannot exceed the $12,500 (if under age 50) COMBINED contribution for any and all companies. Be careful about co-mingling from both companies as there are penalties for early withdrawals made within 2-years of participating in the plan. If you started them both at the same time it's not an issue.\",\n \"\\\"There are no dividends from S-Corp. There are distributions. Big difference. S-Corps fill form 1120S and schedule K-1 per shareholder. In the schedule all the income of your S-Corp will be assigned to various categories that you will later copy to your personal tax return as your personal income. It is not dividend income. The reason people prefer to take distributions from their S-Corps instead of salary is because you don't pay SE taxes on the distributions. That is also the reason why the IRS forces you to pay yourself a reasonable salary. But the tax rate on the income, all of it, is your regular income tax rate, unless the S-Corp income is categorized in a preferred category. The fact that its an S-Corp income doesn't, by itself, allow any preferential treatment. If you're learning the stuff as you go - you should probably get in touch with a tax professional to advise you. All the S-Corp income must be distributed. Its not a matter of \\\"\\\"avoiding paying the tax\\\"\\\", its the matter of \\\"\\\"you must do it\\\"\\\". Not a choice. My answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer (circ 230 disclaimer).\\\"\",\n \"\\\"I'm assuming that when you say \\\"\\\"convert to S-Corp tax treatment\\\"\\\" you're not talking about actually changing your LLC to a Corporation. There are two distinct pieces of the puzzle here. First, there's your organizational form. Your state, which is where the business is legally formed and recognized, creates the LLC or Corporation. \\\"\\\"S-Corp\\\"\\\" doesn't come into play here: your company is either an LLC or a Corporation. (There are a handful of other organizational types your state might have, e.g. PLLC, Limited Partnership, etc.; none of these are immediately relevant to this discussion). Second, there's the tax treatment you receive by the IRS. If your company was created by the state as an LLC, note that the IRS doesn't recognize LLCs as a distinct organizational type: you elect to be taxed as an individual (for single member LLCs), a partnership (for multiple member LLCs), or as a corporation. The former two elections are \\\"\\\"pass through\\\"\\\" -- there's no additional level of taxation on corporate profits, everything just passes through to the owners. The latter election introduces a tax on corporate profits. When you elect pass-through treatment, a single-member LLC files on Schedule C; a multiple-member LLC will prepare a form K-1 which you will include on your 1040. If your company was created by the state as a Corporation (not an LLC), you could still elect pass-through taxation if your company qualifies under the rules in Subchapter S (i.e. \\\"\\\"an S-Corp\\\"\\\"). States do not recognize \\\"\\\"S-Corp\\\"\\\" as part of the organizational process -- that's just a tax distinction used by the IRS (and possibly your state's tax authorities). In your case, if you are a single-member LLC (and assuming there are no other reasons to organize as a corporation), talking about \\\"\\\"S-Corp tax treatment\\\"\\\" doesn't make any sense. You'll just file your schedule C; in my experience it's fairly simple. (Note that this is based on my experience of single- and multiple-member LLCs in just two states. Your state may have different rules that affect state-level taxation; and the rules may change from year to year. I've found that hiring a good CPA to prepare the forms saves a good bit of stress and time that can be better applied to the business.)\\\"\",\n \"In all probability, having lower coverage levels will result in higher premiums. As my insurance agent explained to me, the higher your coverages, the lower the insurance company believes your risk to be - because you think about insurance smartly, you're less likely to make spurious claims. I have my coverages run at various levels every 18-24 months, and it is almost always true that higher coverages result in lower premiums. Also, there is no guarantee you'll still be employed by the same company if an injury happens. Or that they'll continue to offer the same plans every year. Insurance is a calculated risk on the part of the insurer, and a means of sharing/deflecting risk (at a cost known as your premium) on the part of the insured. Even if your premiums are slightly higher (on the order of a couple dollars per month, for example), do you really want to save a couple dollars and then be surprised when your health insurance company doesn't want to cover something?\",\n \"> I would need to get all the breaks my employer gets A large part of the discount an employer gets, is due to the number of policy holders they enroll. Most methods of duplicating that have other problems. So forcing everyone into an individual market will end up raising rates on everyone, by removing group discounts. Eventually to the point where no one gets any discount from insurance.\",\n \"HSA rules are different in some regards than deductions allowable under Pub 502 which deals with medical expenses deductible in Schedule A of your tax return. Pub 969 governs HSA's and similar reimbursement plans, and the guidelines are as follows: Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for: -Long-term care insurance. -Health care continuation coverage (such as coverage under COBRA). -Health care coverage while receiving unemployment compensation under federal or state law. -Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). Since your wife is still being treated like an employee for health benefits, and you are not on COBRA, thus not eligible for a deduction. You may qualify under the unemployment provision depending on the cause of her disability.\",\n \"you wouldn't have to pay income taxes on the portion for health insurance. think of high deductible health plans - the employer puts the deductible into a healthcare savings account which is tax free as long as it's for medical care. right now you can also deduct the portion of your overall expenses that are medical over a portion of your income. 2 issues with your idea, though - 1. right now, there are people who can't get health insurance except through an employer. send them out into the marketplace and they will get turned down. obamacare is supposed to fix this, but if Romney is elected, it will continue. 2. healthcare inflation rises much higher than regular inflation, so if your benefits were included as part of wages and you had to buy it on your own, you would face a continually decreasing amount of money over time to purchase healthcare - a spiral. this is the issue that many have with the voucher system the republicans are proposing for medicare - the voucher will rise at inflation, while healthcare rises much higher than inflation - right now I think it's a difference of 1% versus 8-9% off the top of my head. also, for many industries, it's in the best interest of the company to have a healthy workforce.\",\n \"\\\"I was in the health insurance game for 10 years and never heard of this until the Affordable Care Act came about. To my knowledge, there is no rule or regulation prohibiting it, however trying to get an insurer underwrite that risk is extremely unlikely. It's the same reason why you don't see AAA offering health insurance. There isn't a contractual relationship between the church and their constituents, so no underwriter worth their salt would put a reasonable price on that risk. Members can easily come and go, and since insurance through your employer is still the dominant distribution channel for health insurance, it would be seen as an adverse risk, meaning that people who couldn't get it through \\\"\\\"normal\\\"\\\" channels must be getting it through the church, which it would then be assumed that this person applying for coverage is an \\\"\\\"adverse risk\\\"\\\" or someone who is abnormally unhealthy. There are faith-based healthcare reimbursement programs that are NOT health insurance and do not satisfy the ACA required minimum coverages. From what I've seen and read, it's basically members of the religion or faith that pay money into the system (like paying an insurance premium) and they elect a board that basically evaluates each claim and pays or doesn't pay it, either partially or in full. While this is a nice way to get your bills paid, odds are it won't cover your $300,000 cancer treatment or your $50,000 cesarean section birth.\\\"\",\n \"Yes. The S-Corp can deduct up to the amount it actually incurred in expenses. If your actual expenses to build the carport were $1000, then the $1000 would be deductible, and your business should be able to show $1000 in receipts or inventory changes. Note you cannot deduct beyond your actual expenses even if you would normally charge more. For example, suppose you invoiced the non-profit $2000 for the carport, and once the bill was paid you turned around and donated the $2000 back to the non-profit. In that case you would be deducting $1000 for your cost + $2000 donation for a total of $3000. But, you also would have $2000 in income so in the end you would end up with a $1000 loss which is exactly what your expenses were to begin with. It would probably be a good idea to be able to explain why you did this for free. If somehow you personally benefit from it then it could possibly be considered income to you, similar to if you bought a TV for your home with company funds. It would probably be cleaner from an accounting perspective if you followed through as described above- invoice the non-profit and then donate the payment back to them. Though not necessary, it could lesson any doubt about your motives.\",\n \"I understand that if I have multiple health insurance policies, I can only make claim from only one of them if ever I incur medical expenses (I'm from the Philippines). In the US, you cannot simultaneously submit a claim for payment of a medical bill, or request reimbursement for a bill already paid, to multiple insurance companies, but if you are covered by more than one policy, then any part of a claim not paid by one company can be submitted to another company that is also covering you. In fact, if you have employer-paid or employer-provided coverage, most insurance companies will want your employer-provided insurance company to be billed first, and will cover whatever is not paid by the employer coverage. For example, if the employer coverage pays 80% of your doctor's bill, the private insurance will pay the remaining 20%. But, the private insurance policies are also quite expensive. Some professional groups in the US offer major medical coverage to their US members, and might be offering this to non-US members as well (though I suspect not). These policies have large deductibles so that coverage kicks in only when the total medical expenses in that year (whether wholly or partially reimbursed, or not reimbursed at all) exceed the large deductible. These types of policies actually pay out to only a few people - if you have more than, say, $20,000 of medical expenses in a year, you have been quite ill, and thus the premiums are usually much smaller than full-fledged coverage insurance policies which pay out much more frequently because of much smaller deductibles.\",\n \"There are several insurance products that I buy for legal reasons: Both of these protect me from lawsuits and fines. Many people buy similar products to protect their business operations. (e.g. medical malpractice insurance) There are some insurance products I buy for tax planning and financial planning purposes: I have a large amount of savings available, so I have several tricks to reduce my insurance costs, and I have several products that I avoid. Several of these reasons are mentioned in other answers, but I thought I would collect them into a single answer to demonstrate that there are reasons other than the rational calculation of what the payout will be for the insurance products vs. the premium paid. If I gain access to a tax advantaged Health savings account, that is a bigger benefit to me than avoiding the premium, especially when my employer is paying the majority of the premium. Perhaps it makes no sense to buy insurance given sufficient savings (like the products I listed that make no sense for me given my finances) but not everyone can self-insure; it does require a certain level of wealth.\",\n \">Hey, sole proprietorships called A sole proprietorship could incorporate as a Single Member LLC and elect to be taxed as a corporation. But you would still be subject to both sides of the FICA/Medicare taxes. >and they're going to suck out five percent MORE of my GROSS How exactly does a LLC suck out 5% more of your gross? >your payroll costs go through the roof. Again, payroll expenses are generally tax deductible. I'm just trying to help you here.\",\n \"\\\"Yes, it's normal. If you \\\"\\\"buy\\\"\\\" your own disability insurance with after tax money, any payout you get is non taxable. If your employer \\\"\\\"buys\\\"\\\" your disability insurance with their own money, any payout you get is taxable. Since the payout is not 100% of your pre-disability income, most folks strongly prefer that the payout be non taxable. To achieve this, I pay the premiums on behalf of my employees (including myself) and then add that premium to their salary as a taxable benefit. In effect I paid it to them, then took it from them and used it to buy the insurance. (It has no impact on my corporate taxes since I can either deduct premiums or salaries, same either way.) This ensures they won't pay tax if they should collect. And I have had people collect, and it was non-taxable to them.\\\"\",\n \"\\\"I know this is a little late but here is my answer. No. You do not \\\"\\\"need\\\"\\\" to incorporate. In fact, incorporating in your situation will cost you in legal fees, administrative headaches, and a fair bit in taxes. The CRA would probably look at your corporation as a personal services corporation and it would not be allowed to claim a number of tax reductions. The tax rate would end up being over the top range (unless you are in Quebec where it would be just under the top marginal range).\\\"\",\n \"\\\"If you use \\\"\\\"a room or other separately identifiable space\\\"\\\" within your apartment exclusively for your business, then you might be able to recoup a fraction of your rent for that. Check the rules for home office at the IRS and adopt a consistent and well-documented approach. (I would pay your full rent out of your personal account, and then do an \\\"\\\"expense report\\\"\\\" for the portion that's legitimately business related, but that's not a unique approach.) Other than that, I agree with the answer by litteadv - You cannot reduce your tax by the full amount of your rent just by having the S Corp pay, and trying to do so is probably playing with fire. Generally speaking, don't comingle business and personal expenses like that.\\\"\",\n \"Well you've got to think about the process, but first make sure the thing you want to pay for is actually a qualified dependent care expense. Here is a list of eligible expenses from a national FSA administrator. This process will tie up your money for some amount of time. Your deduction will come out like clockwork. But there is a time-delay of potentially months between your deduction and receipt of a reimbursement. Dependent care plans are money-in money-out. You can only file a reimbursement on funds that have actually been contributed, which is different than a medical FSA. Additionally, you can only file a claim on expenses that have actually been incurred. Dependent care FSA elections can be changed through the year on an as needed basis. This would add an administrivia burden to the person running your payroll, and if there is a payroll vendor in place, likely an actual cost. The administrator in this situation would likely be the company. In the formalities of employee benefits there must always be a named administrator. If your employer currently offers no benefits you should press healthcare first. Paying healthcare premiums pretax would likely save you more money and be less administration than this. Additionally, if your employer is paying for or reimbursing you for your individual health insurance that's currently illegal under the ACA.\",\n \"Gifts from your parents are not treated as income for tax purposes. You should not include that in your subsidy calculation. If you are here on a student-visa and have been in the US for less than 5 years, then you are considered a non-resident alien, and you are not required to buy a qualified plan through the insurance marketplace. You might be able to get a cheaper student plan through your school, but the subsidy might be enough that it's still worth it when calculated correctly. If you are a resident-alien or you are a citizen of the US, then you are required to get coverage, though you can choose not to purchase coverage and pay the tax for not having creditable coverage. That tax cannot be collected by the IRS unless you have already had federal tax withheld. They can only confiscate your tax return money to recoup that money. I don't have enough information to recommend one way or the other what you should do, but I would bet that if you recalculated your subsidy without including your parents income it would cover the majority of the cost. You should also consider applying for Medicaid if you meet the eligibility requirements in your state.\",\n \"Having an EIN does not make the LLC a corporation -- your business can have an EIN even when treated like a sole proprietorship. An EIN is required to have a Individual 401(k), for example. But you can still be an LLC, taxed as a sole proprietor, and have a 401(k). You would need to file a Form 2553 with the IRS to elect S Corporation status. If you don't do that, you're still treated as a disregarded LLC. Whether or not you should make the election is another question.\",\n \"\\\"I don't think so. There is a provision in ObamaCare called \\\"\\\"community rating\\\"\\\" that applies starting in 2014. Insurance companies must place individual and small group plans into a pool of people from the same geographical region. The same plan must cost the same for all small businesses from the same region. So having employees who have high costs will not significantly affect the company's cost; it will get factored into the cost for all people in the area; but the effect gets averaged out over all businesses and individuals who have plans.\\\"\",\n \"I'll just re-post my comment as an answer as i disagree with Michael Pryor. According to this article (and few others) you may save money by incorporating. These factors don’t change the general payroll tax advantage of an S corporation, however: A S corporation can often save business owners substantial amounts of payroll tax if the business profit greatly exceeds what the business needs to pay owners for their work.\",\n \"\\\"This is actually quite a complicated issue. I suggest you talk to a properly licensed tax adviser (EA/CPA licensed in your State). Legal advice (from an attorney licensed in your State) is also highly recommended. There are many issues at hand here. Income - both types of entities are pass-through, so \\\"\\\"earnings\\\"\\\" are taxed the same. However, for S-Corp there's a \\\"\\\"reasonable compensation\\\"\\\" requirement, so while B and C don't do any \\\"\\\"work\\\"\\\" they may be required to draw salary as executives/directors (if they act as such). Equity - for S-Corp you cannot have different classes of shares, all are the same. So you cannot have 2 partners contribute money and third to contribute nothing (work is compensated, you'll be getting salary) and all three have the same stake in the company. You can have that with an LLC. Expansion - S-Corp is limited to X shareholders, all of which have to be Americans. Once you get a foreign partner, or more than 100 partners - you automatically become C-Corp whether you want it or not. Investors - it would be very hard for you to find external investors if you're a LLC. There are many more things to consider. Do not make this decision lightly. Fixing things is usually much more expensive than doing them right at the first place.\\\"\",\n \"\\\"I'm going to take a very crude view of this: Suppose that you have an event that would cost $100,000 if it occurred. If there's a 10% chance that it'll happen to you and the insurance costs less than $10,000, you'll make a profit \\\"\\\"on average.\\\"\\\" This is, of course, assuming that you could afford a $100,000 loss. If you can't, the actual loss could be much higher (or different). For example, if you couldn't afford surgery because you didn't have health insurance, it could be a lot more \\\"\\\"costly\\\"\\\" in a way that could be difficult to compare to the $100,000. Obviously, this is a very simplistic view of things. For example, making more than you paid on the premium typically isn't the only reason you'd buy insurance (even if you're high net worth). Just wanted to throw this out there for what it's worth though.\\\"\",\n \"I like HSAs. My employer had one for one year, but then took it away. Money you put into an HSA is tax-advantaged, you can invest it however you want, it can be used for healthcare if you need it, and you can stop adding to it at any time. You're healthy now, but it's likely there will be a time when you're not, and then it would be nice to have money already available.\",\n \"\\\"It is definitely legal, however none of such expenses will be allowed as a tax deduction for the corporation. Basically, you'll end up paying more to maintain the entity and pay taxes on its income (the rent you're paying to yourself as a corporation) at corporate rates, for no apparent benefit. Being the director/executive in the corporation will make you liable for whatever the corporation is liable, so liability isn't going away. The reason corporation is considered \\\"\\\"limited liability\\\"\\\" for owners is because shareholders are shielded from the corporate liability. Not directors or executives (which are explicitly not shielded).\\\"\",\n \"\\\"Even though this isn't really personal finance related I still feel like there are some misconceptions here that could be addressed. I don't know where you got the phrase \\\"\\\"pass-through\\\"\\\" insurance from. What you're describing is a self-funded plan. In a self-funded arrangement an employer contracts a third-party-administrator (TPA), usually one of the big health insurance carriers, to use it's provider network, process and adjudicate claims, etc. In addition to the TPA there will be some sort of stop-loss insurance coverage on each participant. Stop-loss coverage usually provides a maximum amount of risk on a given member and on the entire population for a given month and/or year and/or lifetime. The employer's risk is in between the plan deductible and the stop loss coverage (assuming the stop-loss doesn't have a maximum). Almost all of the claim dollars in a given plan will come from very very few people. These costs typically arise out of very unforeseen diagnoses not chronic issues. A cancer patient can easily cost $1,000,000 in a year. Someone's diabetes maintenance medicine or other chronic maintenance will cost no where near what a botched surgery will in a year. If we take a step back there are really four categories of employer insurance. Small group is tightly regulated. Usually plan premiums are filed with a state authority, there is no negotiating, your group's underwriting performance has zero impact on your premiums. Employers have no way of obtaining any medical/claim information on employees. Mid-market is a pooled arrangement. The overall pool has a total increase, and your particular group performs better or worse than the pool which may impact premiums. Employers get very minor claims data, things like the few highest claims, or number of claims over a certain threshold, but no employee specific information. Large-group is a mostly unpooled arrangement. Generally your group receives it's own rating based on its individual underwriting performance. In general the carrier is offloading some risk to a stop-loss carrier and employer's get a fair amount of insight in to claims, though again, not with employee names. Self-funded is obviously self-contained. The employer sets up a claims checking account. The TPA has draft authority on the account. The employee's typically have no idea the plan is self funded, their ID cards will have the carrier logo, and the carrier deals with them just as it would any other member. Generally when a company is this size it has a separate benefits committee, those few people will have some level of insight in to claims performance and stop-loss activity. This committee will have nothing to do with the hiring process. There are some new partially self-funded arrangements, which is just a really low-threshold (and relatively expensive) stop-loss program, that's becoming somewhat popular in the mid-market group size as employers attempt to reduce medical spend. I think when you start thinking on a micro, single employee level, you really lose sight of the big picture. Why would an employer hire this guy who has this disease/chronic problem that costs $50,000 per year? And logically you can get to the conclusion that with a self-funded plan it literally costs the company the money so the company has an incentive not to hire the person. I understand the logic of the argument, but at the self funded level the plan is typically costing north of half a million dollars each month. So a mid-level HR hiring manager 1. isn't aware of specific plan claims or costs and is not part of the benefits executive committee, 2. won't be instructed to screen for health deficiencies because it's against the law, 3. a company generally won't test the water here because $50,000 per year is less than 1% of the company's annual medical expenses, 4. $50,000 is well below the cost to litigate a discrimination law-suit. Really the flaw in your thought process is that $50,000 in annual medical expense is a lot. A harsh child-birth can run in the $250,000 range, so these companies never hire women? Or never hire men who could add a spouse who's in child bearing years? Or never hire women who might have a female spouse who could be in child bearing years? A leukemia diagnosis will ratchet up $1,000,000 in a year. Spend a bit of time in intensive care for $25,000 per day and you're fired? A few thousand bucks on diabetes meds isn't anything relative to the annual cost of your average self-funded plan. The second flaw is that the hiring managers get insight in to specific claims. They don't. Third, you don't hand over medical records on your resume anyway. I typed this out in one single draft and have no intention of editing anything. I just wanted paint a broad picture, I'm sure things can be nit-picked or focused on.\\\"\",\n \"The idea is that the premiums (or costs) associated with the plan are a business expense, you know that already. The distinction here is that employees don't pay premiums, they elect to contribute. The company sponsors a plan, the employees then choose to accept less salary in order to participate in the employer's plan. The idea is that you're foregoing income. Why is the employee not taxed on this cost? One major reason is that the employee has no say in, and often no idea, what the gross costs are (some find out if they ever receive COBRA election paperwork). There are more benefits than strict healthcare that are Section 125 eligible. The government has a vested interest in keeping the population healthy, and when the ERISA laws and Section 125 were written it was (and still is) a pretty low friction way to get health insurance out to more people. At this point, taking away the tax break from the employees would be a huge government take away from most of the population. Try to get a politician to take something away from taxpayers. Why doesn't the deduction exist in kind to people buying individual coverage? Ask your legislators. There are thousands of preferential tax treatment oddities, where some industry will get some sort of benefit or break. I'm not sure what leads you to think there needs to be some supremely logical reason for this oddity to exit.\",\n \"This probably is a question that belongs on History but here's the basic reason: the or Employee Retirement Income Security Act (ERISA) of 1974 established that health benefits under approved plans were not taxable to the employee. If the employer were to pay for an employees non ERISA approved individual plan, it would be a taxable benefit. The longer story is that many polticians (esp. President Richard Nixon) were concerned that public pressure was going to lead public sentiment toward nationalized health care. This made health insurance more affordable to employees and effectively made it a cheaper way to compensate employees similar to how 401K contributions are worth more (in nominal terms) to the employee than an equivalent amount of cash. While the law was not signed by Richard Nixon due to some other stuff that was going on, it was something proposed and pushed by his administration.\",\n \"I think you are overcomplicating the scenario by assuming a benefit that doesn't exist. Assume an employee earns 50k, before considering the MSP. The corporation wants to cover the MSP. They have two options: increase the salary to $50,900, or keep the salary the same and pay for the MSP directly. Both options increase the employee's taxable income by $900. Both options decrease the corporation's income by $900. Net tax for each is unchanged. *Note - I couldn't find any specific reference to the MSP in income tax documentation on either BC Finance's or CRA's website. I am assuming that it is treated as a regular cash benefit, though I am not 100% convinced this is the case. If I am wrong in this please provide a comment below.\",\n \"I heard that a C-Corp being a one person shop (no other employees but the owner) can pay for the full amount 100% of personal rent if the residence is being used as a home office. Sure. Especially if you don't mind being audited. Technically, it doesn't matter how the money gets where it goes as long as the income tax filings accurately describe the tax situation. But the IRS hates it when you make personal expenses from a business account, even if you've paid the required personal income tax (because their computers simply aren't smart enough to keep up with that level of chaos). Also, on a non-tax level, commingling of business and personal funds can reduce the effectiveness of your company's liability protection and you could more easily become personally liable if the company goes bankrupt. From what I understand the 30% would be the expense, and the 70% profit distribution. I recommend you just pay yourself and pay the rent from your personal account and claim the allowed deductions properly like everyone else. Why & when it would make sense to do this? Are there any tax benefits? Never, because, no. You would still have to pay personal income tax on your 70% share of the rent (the 30% you may be able to get deductions for but the rules are quite complicated and you should never just estimate). The only way to get money out of a corporation without paying personal income tax is by having a qualified dividend. That's quite complicated - your accounting has to be clear that the money being issued as a qualified dividend came from an economic profit, not from a paper profit resulting from the fact that you worked hard without paying yourself market value.\",\n \"Yeah, me too, as I said. Actually what I'd really prefer is single payer, but failing that, getting health insurance separated from employment would be a big step forward. If people really knew how much they are paying for health insurance, things would change. I've never worked for an employer that didn't renegotiate health insurance every year, often changing insurance providers every year. To the extent that HR departments are competent in finding the best value, the current environment is pretty dynamic and competitive. Are individuals going to be as competent and well informed as HR departments? I don't know, but I do know that simply making a market free doesn't guarantee lower prices if consumers are ill-informed and bad at making decisions. As for wages, currently companies are not required to carry health insurance, and many have dropped it already without increasing wages, so I don't see an upward pressure on wages from greater employee mobility. But it's true that if there were a single large pool for insurance to be based off of, large businesses would no longer get the pool advantage of health insurance over small businesses. Hence my preference for single-payer, or single-group/multi-payer.\",\n \"Another source of insurance can be through the working spouses employment. Some companies do provide free or low cost coverage for spouses without a need for a physical exam. The risk is that it might not be available at the amount you want, and that if the main spouse switches companies it might not be available with the new employer. A plus is that if there is a cost it is only a one year commitment. Term insurance is the way to go. It is simple to purchase, and not complex to understand. Sizing is key. You may need to provide some level of coverage until the youngest child is in high school or college. Of course the youngest child might not have been born yet. The longer the term, the higher the cost to account for the inflation during the period of the insurance. If the term expires, but the need still exists, it is possible to get another policy but the cost of the new term policy will be higher because the insured is older. If there are special needs children involved the amount and length may need to be increased due to the increased costs and duration of need. Don't forget to periodically review the insurance situation to make sure your need haven't changed so much a new level of insurance would be needed.\",\n \"Of course not. You had another job for which you earned money. What does the corporation have to do with it? Corporation is a separate entity from your person, and since it was in no way involved in the transaction - there's no justification to funnel money through it. Doing so may pierce the corporate veil and expose you to liability which you created the corporation to shield yourself from. Not to mention the tax evasion, which is the reason you are asking the question to begin with....\",\n \"\\\"Paying yourself through a corporation requires an analysis of a variety of issues. First, a salary paid to yourself creates RRSP contribution room as well as CPP contributions. Paying yourself a dividend achieves neither of those. By having a corporation, you will have to file a corporate (T2) tax return. The corporation is considered a separate legal entity from you. As an individual, you will still need to file a personal (T1) tax return. Never just \\\"\\\"draw\\\"\\\" money out of a corporation. This can create messy transactions involving loans to shareholders. Interest is due on these amounts and any amounts not paid within one calendar year are considered as wages by Canada Revenue and would need to be reported as income on your next T1 return. You should never withhold EI premiums as the sole owner of a corporation. You are considered exempt from these costs by CRA. Any amounts that have been remitted to CRA can be reclaimed by submitting a formal request. The decision on whether to take a salary or dividends normally requires some detailed analysis. Your accountant or financial advisor should be able to assist in this matter.\\\"\",\n \"Here's a good rule of thumb. In any situation where you are required to purchase insurance (Auto Liability, Property Mortgage Insurance, etc.) you can safely assume that you aren't the primary beneficiary. You are being required to buy that insurance to protect someone else's investment.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.) In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check. Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost.","I'm not sure about reimbursement, you'll have to talk to a tax adviser (CPA/EA licensed in your State). From what I know, if you pay your own insurance premiums - they're not deductible, and I don't think reimbursements change that. But again - not sure, verify. However, since you're a salaried employee, even if your own, you can have your employer cover you by a group plan. Even if the group consists of only you. Then, you'll pay your portion as part of the pre-tax salary deduction, and it will be deductible. The employer's portion is a legitimate business expense. Thus, since both the employee and the employer portions are pre-tax - the whole cost of the insurance will be pre-tax. The catch is this: this option has to be available to all of your employees. So if you're hiring an employee a year from now to help you - that employee will be eligible to exactly the same options you have. You cannot only cover owner-employees. If you don't plan on hiring employees any time soon, this point is moot for you, but it is something to keep in mind down the road as you're building and growing your business."],"string":"[\n \"The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.) In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check. Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost.\",\n \"I'm not sure about reimbursement, you'll have to talk to a tax adviser (CPA/EA licensed in your State). From what I know, if you pay your own insurance premiums - they're not deductible, and I don't think reimbursements change that. But again - not sure, verify. However, since you're a salaried employee, even if your own, you can have your employer cover you by a group plan. Even if the group consists of only you. Then, you'll pay your portion as part of the pre-tax salary deduction, and it will be deductible. The employer's portion is a legitimate business expense. Thus, since both the employee and the employer portions are pre-tax - the whole cost of the insurance will be pre-tax. The catch is this: this option has to be available to all of your employees. So if you're hiring an employee a year from now to help you - that employee will be eligible to exactly the same options you have. You cannot only cover owner-employees. If you don't plan on hiring employees any time soon, this point is moot for you, but it is something to keep in mind down the road as you're building and growing your business.\"\n]","isConversational":false}}},{"rowIdx":263,"cells":{"_id":{"kind":"string","value":"10808"},"query":{"kind":"string","value":"What are a few sites that make it easy to invest in high interest rate mutual funds?"},"gt_ids":{"kind":"list like","value":["28291","487052","484599"],"string":"[\n \"28291\",\n \"487052\",\n \"484599\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["487052","28291","427842","253614","586851","424131","484599","100341","183497","120133","40227","445322","99266","311690","135596","3279","274987","4666","556519","307082","449124","41577","346398","324012","592636","526346","117875","558042","112223","351088","153670","162873","215049","114520","210470","318873","483168","116614","135405","365675","331553","447552","312359","407663","35971","394748","532672","591909","376485","266239","122679","4153","557201","448890","376148","104724","52589","532179","400196","5323","567079","436120","206298","579292","436020","46986","106620","45970","281865","462612","74554","573239","550783","466472","324244","51331","346474","461948","322725","459596","387980","571218","65006","36679","311527","573213","487890","586029","83230","367014","576688","312591","345954","581712","482955","151394","276805","378427","44594","336218"],"string":"[\n \"487052\",\n \"28291\",\n \"427842\",\n \"253614\",\n \"586851\",\n \"424131\",\n \"484599\",\n \"100341\",\n \"183497\",\n \"120133\",\n \"40227\",\n \"445322\",\n \"99266\",\n \"311690\",\n \"135596\",\n \"3279\",\n \"274987\",\n \"4666\",\n \"556519\",\n \"307082\",\n \"449124\",\n \"41577\",\n \"346398\",\n \"324012\",\n \"592636\",\n \"526346\",\n \"117875\",\n \"558042\",\n \"112223\",\n \"351088\",\n \"153670\",\n \"162873\",\n \"215049\",\n \"114520\",\n \"210470\",\n \"318873\",\n \"483168\",\n \"116614\",\n \"135405\",\n \"365675\",\n \"331553\",\n \"447552\",\n \"312359\",\n \"407663\",\n \"35971\",\n \"394748\",\n \"532672\",\n \"591909\",\n \"376485\",\n \"266239\",\n \"122679\",\n \"4153\",\n \"557201\",\n \"448890\",\n \"376148\",\n \"104724\",\n \"52589\",\n \"532179\",\n \"400196\",\n \"5323\",\n \"567079\",\n \"436120\",\n \"206298\",\n \"579292\",\n \"436020\",\n \"46986\",\n \"106620\",\n \"45970\",\n \"281865\",\n \"462612\",\n \"74554\",\n \"573239\",\n \"550783\",\n \"466472\",\n \"324244\",\n \"51331\",\n \"346474\",\n \"461948\",\n \"322725\",\n \"459596\",\n \"387980\",\n \"571218\",\n \"65006\",\n \"36679\",\n \"311527\",\n \"573213\",\n \"487890\",\n \"586029\",\n \"83230\",\n \"367014\",\n \"576688\",\n \"312591\",\n \"345954\",\n \"581712\",\n \"482955\",\n \"151394\",\n \"276805\",\n \"378427\",\n \"44594\",\n \"336218\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Any investment company or online brokerage makes investing in their products easy. The hard part is choosing which fund(s) will earn you 12% and up.","\"If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskiest stuff. Think \"\"emerging markets\"\". Even funds like Vanguard Emerging Markets (ETF: VWO, mutual fund, VEIEX) or Fidelity Advisor Emerging Markets Income Trust (FAEMX) seem to have yields which only push 11% or so. (But inflation is about nil, so if you're used to normal 2% inflation or so, these yields are like 13% or so. And there's no tax on that last 2%! Yay.) Remember that these investments are very risky. They go up lots because they can go down lots too. Don't put any money in there unless you can afford to have it go missing, because sooner or later you're likely to lose something half your money, and it might not come back for a decade (or ever). Investments like these should only be a small part of your overall portfolio. So, that said... Sites which make investing in these risky markets easy? There are a good number, but you should probably just go with vanguard.com. Their funds have low fees which won't erode your returns. (You can actually get lower expense ratios by using their brokerage account to trade the ETF versions of their funds commission-free, though you'll have to worry more about the actual number of shares you want to buy, instead of just plopping in and out dollar amounts). You can also trade Vanguard ETFs and other ETFs at almost any brokerage, just like stocks, and most brokerages will also offer you access to a variety of mutual funds as well (though often for a hefty fee of $20-$50, which you should avoid). Or you can sign up for another fund providers' account, but remember that the fund fees add up quickly. And the better plan? Just stuff most of your money in something like VTI (Vanguard Total Stock Market Index) instead.\"","There are hundreds of entities which offer mutual funds - too many to adequately address here. If you need to pick one, just go with Vanguard for the low low low fees. Yes, this is important. A typical expense ratio of 1% may not sound like much until you realize that the annualized real rate of return on the stock market - after inflation - is about 4%... so the fund eats a quarter of your earnings. (Vanguard's typical expense ratios are closer to 0.1-0.2%). If your company offers a tax-deferred retirement account such as a 401(k), you'll probably find it advantageous to use whatever funds that plan offers just to get the tax advantage, and roll over the account to a cheaper provider when you change employers. You can also buy mutual funds and exchange-traded funds (ETFs) through most brokerages. E*Trade has a nice mutual fund screener, with over 6700 mutual funds and 1180 ETFs. Charles Schwab has one you can browse without even having an account.","\"Liquid cash (emergency, rainy day fund) should be safe from a loss in value. Mutual funds don't give you this, especially stock funds. You can find \"\"high yield\"\" savings accounts that are now at around .8% to .9% APY which is much better than .05% and will hopefully go up. Barclays US and American Express are two big banks that normally have the highest rates. Most/all Savings and Money Market accounts should be FDIC insured. Mutual funds are not, though the investment IRA, etc. holding them may be.\"","@JoeTaxpayer gave a great response to your first question. Here are some thoughts on the other two... 2) Transaction fees for mutual funds are tied to the class of shares you're buying and will be the same no matter where you buy them. A-shares have a front-end 'load' (the fee charged), and the lowest expenses, and can be liquidated without any fees. B-shares have no up-front load, but come with a 4-7 year period where they will charge you a fee to liquidate (technically called Contingent Deferred Sales Charge, CDSC), and slightly higher management fees, after which they often will convert to A-shares. C-shares have the highest management fees, and usually a 12- to 18-month period where they will charge a small percentage fee if you liquidate. There are lots of other share classes available, but they are tied to special accounts such as managed accounts and 401-K plans. Not all companies offer all share classes. C-shares are intended for shorter timeframes, eg 2-5 years. A and B shares work best for longer times. Use a B share if you're sure you won't need to take the money out until after the fee period ends. Most fund companies will allow you to exchange funds within the same fund family without charging the CDSC. EDIT: No-load funds don't charge a fee in or out (usually). They are a great option if they are available to you. Most self-service brokerages offer them. Few full-service brokerages offer them. The advantage of a brokerage versus personal accounts at each fund is the brokerage gives you a single view of things and a single statement, and buying and selling is easy and convenient. 3) High turnover rates in bond funds... depending on how actively the portfolio is managed, the fund company may deliver returns as a mix of both interest and capital gains, and the management expenses may be high with a lot of churn in the underlying portfolio. Bond values fall as interest rates rise, so (at least in the USA) be prepared to see the share values of the fund fall in the next few years. The biggest risk of a bond fund is that there is no maturity date, so there is no point in time that you have an assurance that your original investment will be returned to you.","You do not need to have 'high net value', and yes, you can invest in it. Typically, fund companies require a minimum investment, that could be 100, it could be a 1000. 5000 should be enough for 99.9 % of all funds for an initial investment. What you need is an investment company that manages the account for you. I cannot name those for your country, but they should be easy to find (companies like IMG, and Fidelity might serve your country). You then open an account with the company of your choice, transfer the money, and tell them which fund it shall go in; all this is possible online. You can also go to see an agent in person, and he will fill the forms for you, and handle all the action, but he might take a fee for it.","Are you looking for something like Morningstar.com? They provide information about lots of mutual funds so you can search based on many factors and find good candidate mutual funds. Use their fund screener to pick funds with long track records of beating the S&P500.","According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.","Buy only 'Direct' Plans, not regular. - Demat providers won't sell Direct plans, that you can do it through https://www.mfuindia.com Make sure expense ratio < 2.5% (With direct plans it will be much lesser) I hope these points will help you to take a better decision.","I quite like the Canadian Couch Potato which provides useful information targeted at investors in Canada. They specifically provide some model portfolios. Canadian Couch Potato generally suggests investing in indexed ETFs or mutual funds made up of four components. One ETF or mutual fund tracking Canadian bonds, another tracking Canadian stocks, a third tracking US stocks, and a fourth tracking international stocks. I personally add a REIT ETF (BMO Equal Weight REITs Index ETF, ZRE), but that may complicate things too much for your liking. Canadian Couch Potato specifically recommends the Tangerine Streetwise Portfolio if you are looking for something particularly easy, though the Management Expense Ratio is rather high for my liking. Anyway, the website provides specific suggestions, whether you are looking for a single mutual fund, multiple mutual funds, or prefer ETFs. From personal experience, Tangerine's offerings are very, very simple and far cheaper than the 2.5% you are quoting. I currently use TD's e-series funds and spend only a few minutes a year rebalancing. There are a number of good ETFs available if you want to lower your overhead further, though Canadians don't get quite the deals available in the U.S. Still, you shouldn't be paying anything remotely close to 2.5%. Also, beware of tax implications; the website has several articles that cover these in detail.","Nothing beats statistics like that found on Morning Star, Yahoo or Google Finance. When you are starting out, there is no need to reinvent the wheel. Pick a couple of mutual funds with good track records and start there. Keep in mind the financial press, to some degree, has a vested interest in having their readership chase the next hot thing. So while sites like Seeking Alpha, Kiplingers, or Money do provide some good advice, there is also an element that placates their advertisers. The only peer-to-peer lending I would consider is Lending Club. However, you are probably better off in the long run investing in mutual funds. One way to get involved in individual stocks without getting burned is to participate in Dividend Reinvestment Plans (DRIPs). Companies that have them tend to be very well established, and they are structured to discourage trading. Buying is easy, dividend reinvestment is easy, dividend payouts are easy; but, starting and selling is kind of a pain. That is a good thing.","I think you can do better than the straight indexes. For instance Vanguard's High Yield Tax Exempt Fund has made 4.19% over the past 5 years. The S&P 500 Index has lost -2.25% in the same period. I think good mutual funds will continue to outperform the markets because you have skilled managers taking care of your money. The index is just a bet on the whole market. That said, whatever you do, you should diversify. List of Vanguard Funds","LendingClub.com I am an investor, 3 years now, and am making ~12%. It takes a little savvy and some research, but I'm getting a far better return than any typical investment today. As always, investors beware. If you dump your money in and don't invest wisely, you'll get taken for a ride.","Most of these blogs/websites that you mention above promote banks that pay a commission and hence you never realize there are better banks out there that offer a higher rate. I went through the same exercise to find the bank that paid the best rate and realized the truth I mention above. I currently bank with Alliant Credit Union, which doesn't pay a commission or have affiliate fees. If you find a bank that pays a higher rate than ACU, let me know, I'd like to switch to that bank as well! To give an example, ACU's regular savings rate is equivalent to EverBank's 2 year CD! See what I mean when I say affiliate and commissions run the show? Disclosure: BTW, I'm a customer of this bank, not an employee. I do have a blog if you wish to read my experience with ACU.","This might be better suited to r/personalfinance but if you're looking to invest I'd say start with an index fund. The MER's (fees) for most other mutual funds take too heavy a chunk of returns to be worth it in a market where actively managed funds are either underperforming of performing at par with passive funds. Additionally if these are your first investments, make sure you're doing it with investment goals in mind. Is this money you're saving for short, medium, or long term? For medium and long term investing make sure you're doing it through a tax efficient instrument like an IRA or 401k.","Most mutual funds underperform the stock market. Of those that over-perform, much of the performance can be attributed to dumb luck. Most mutual funds exist to generate fees from you, rather than make you wealthy. In my opinion, if you want to invest in one, choose a no-load index fund, and you will outperform most other funds. Better still get some good financial education and learn to manage your funds/investments yourself.","I personally like Schwab. Great service, low fees, wide variety of fund are available at no fee. TD Ameritrade is good too.","@sharam - big question. I am going to answer part of it, but not as directly as you might like. You mention 4-6 cents per unit per month, but fail to give a unit price, so it is hard to tell how much return you are really looking for. Given the amount you have to invest, depending on your time horizon, you will do much better outside of mutual funds. Many funds in this category have fees in the 2% range. You actually have enough money to have a diversified portfolio on your own, without recourse to funds. If you want to use a fund-like product, I encourage you to look at well established ETFs (Exchange Traded Funds). They are basically like mutual funds that trade on the open stock market. One good example in this category is iShares XDV Good Luck","Searching for Banks or Credit Unions based on their high interest accounts is likely to be a giant waste of your time. The highest you might find is 1.5% not clearing inflation. For anything less than 100k youre better off putting it in a money market fund until you know what you want to do with it, which you can find anywhere.","I'd have a look at Capital One's Online account too, they've got 1.35% interest rate with 10% bonus if you have over $15k deposited. It is still low like all interest rates, but at least it is on top (or at least close)!","In addition to all the good information that JoeTaxpayer has provided, be aware of this. When you sell mutual fund shares, you can, if you choose to do so, tell the mutual fund company which shares you want to sell (e.g. all shares purchased on xx/yy/2010 plus 10 shares out of 23.147 shares purchased on ss/tt/2011 plus...) and pay taxes on the gains/losses on those specific shares. If you do not specify which shares you want sold, the mutual fund company will tell you the gains/losses based on the average cost basis and you can use this information if you like. Note that some of your gains/losses will be short-term gains or losses if you use the average cost basis. Or, you can use the FIFO method (usually resulting in the largest gain) in which the shares are sold in the order in which they were purchased. This usually results in no short-term gains/losses. Just so that you know, most mutual fund companies will link your checking account in your bank to your account with them (a one-time paperwork deal is necessary in which your bank manager's signature is required on the authorization to be sent to the fund company). After that, the connection is nearly as seamless as with your current system. Tell the fund company you want to invest money in a certain mutual fund and to take the money from your linked checking account, and they will take care of it. Sell some shares and they will deposit the money into your linked bank account, and so on. The mutual fund company will not accept instructions from you (or someone purporting to be you) to sell shares and to send the money to Joe Blow (or to Joe Taxpayer for that matter): the proceeds of redemptions go to your checking account or are used to buy shares in other mutual funds offered by the company (called an exchange and not a redemption). Oh, and most fund companies offer automatic investments (as well as automatic redemptions) at fixed time intervals, just as with your bank.","This is a great forum, mostly focused around mutual funds though: http://www.bogleheads.org/","Do not do investing with a bank. Do investing with a low cost investment company like Vanguard, Fidelity, or Charles Schwab. The lower the expenses of the fund the better. The additional money your account earns because of lower overhead expenses is so dramatic over the course of your investing it is mind boggling to me. The lower the expenses, the more of your money you keep, which feeds the power of compound interest. http://www.fool.com/investing/mutual-funds/2008/09/03/this-fund-charges-what.aspx","Nowhere. To back up a bit, mutual funds are the stock market (and the bond market). That is, when you invest in a mutual fund, your money is ultimately buying stocks on the open market. Some of it might be buying bonds. The exact mix of stocks and bonds depends on the mutual fund. But a mutual fund is just a basket of stocks and/or bonds (and/or other, more exotic investments). At 25, you probably should just be investing your Roth IRA in index stock mutual funds and index bond mutual funds. You probably shouldn't even be doing peer-to-peer lending (unless you're willing to think of any losses as the cost of a hobby); the higher interest rate you're getting is a reflection of the risk that your borrowers will default. I'm not even sure if peer-to-peer lending is allowed in Roth IRA's. Investing in just stocks, bonds, and cast is boring, but these are easy investments to understand. The harder the investment is to understand, the easier it is for it to be a scam (or just a bad investment). There's not necessarily anything wrong with boring.","Go to fidelity.com and open a free brokerage account. Deposit money from your bank account into your fidelity account. (expect a minimum of $2500, FBIDX requires more I believe) Buy free to trade ETF Funds of your liking. I tend to prefer US Bonds to stocks, FBIDX is a decent intermediate US Bond etf, but the euro zone has added a little more volatile lately than I'd like. If you do really want to trade stocks, you may want to go with a large cap fund like FLCSX, but it is more risky especially in this economy. (but buy low sell high right?) I've put my savings into FBIDX and FGMNX (basically the same thing, intermediate bond ETF funds) and made $700 in interest and capitol gains last year. (started with zero initially, have 30k in there now)","One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.","If you are in an economy which has a decent liquid debt market (corporate bonds, etc.), then you may look into investing in AA or AA+ rated bonds. They can provide higher returns than bank deposits and are virtually risk-free. (Though in severe economic downturns, you can see defaults in even very high-rated bonds, leading to partial or complete loss of value however, this is statistically quite rare). You can make this investment through a debt mutual fund but please make sure that you read through the offer document carefully to understand the investment style of the mutual fund and their expense ratio (which directly affect your returns). In any case, it is always recommended to reach out to an investment adviser who is good with local tax laws to minimize taxes and maximize returns.","Yahoo's primary business isn't providing mutual fund performance data. They aim to be convenient, but often leave something to be desired in terms of completeness. Try Morningstar instead. Their mission is investment research. Here's a link to Morningstar's data for the fund you specified. If you scroll down, you'll see:","At what point does my investment benefit from compounded interest? Monthly? Quarter? Yearly? Does it even benefit? I think you are mixing things. There is no concept of interest or compounding in Mutual Funds. When you buy a mutual fund, it either appreciates in value or depreciates in value; both can happen depending on the time period you compare. Now, let's assume at the end of the year I have a 5% return. My $10,000 is now $10,500. The way you need to look at this is Given you started with $10,000 and its now $10,500 the return is 5%. Now if you want to calculate simple return or compounded return, you would have to calculate accordingly. You may potentially want to find a compounded return for ease of comparison with say a Bank FD interest rate or some other reason. So if $10,000 become $10,500 after one year and $11,000 after 2 year. The absolute return is 10%, the simple yearly return is 5%. Or the Simple rate of return for first year is 5% and for second year is 4.9%. Or the Average Year on Year return is 4.775%.","You are not limited in these 3 choices. You can also invest in ETFs, which are similar to mutual funds, but traded like stocks. Usually (at least in Canada), MERs for ETFs are smaller than for mutual funds.","\"I'll try to give you some clues on how to find an answer to your question, rather than answering directly the question asked. Why not answer it directly? Well, I can, but it won't help you (or anyone else) much in two months when the rates change again. Generally, you won't find such in brick-and-mortar banks. You can save some time and only look at online banks. Examples: ING Direct (CapitalOne), CapitalOne, Amex FSB, E*Trade, Ally, etc. There are plenty. Go to their web sites, look for promotions, and compare. Sometimes you can find coupons/promotions which will yield more than the actual savings rate. For example, ING frequently have a $50 promotion for opening a new account. You need to understand that rates change frequently, and the highest rate account today may become barely average in a week. There are plenty of sites that offer various levels of comparison information. One of the most comprehensive ones (IMHO) is Bankrate.com. Another place to look is MoneyRates.com. These sites provide various comparisons, and you can also find some promotions advertised there. There are more similar sites. Also, search the Internet and you can find various blog posts with additional promotions – frequently banks give \"\"referral bonuses\"\" to provide incentive for clients to promote the banks. Do some due diligence on the results that appear promising. Not much. You won't find any savings account that would keep the value (purchasing power) of your money over the long term. Keeping money in savings accounts is a sure way to lose value because the inflation rate is much higher than even high-yield savings accounts. But, savings accounts are safe (insured by FDIC/NCUA up to the limit), and very convenient to keep short term savings – such as an emergency fund – that you cannot afford to lose to investments. Sometimes you'll get slightly better rates by locking up your money in a Certificate of Deposit (CD), but not significantly higher when the CD is short-term.\"","\"In addition to the advice of @karancan, If you wish to stay strictly with GICs, there are better ways to find good GIC rates, than looking at advertising from institutions you are already dealing with. This site, http://www.globeinvestor.com/servlet/Page/document/v5/data/rates?order=d&pageType=gic_long&sort=IR1&page=1&tax_indicator=N (among others) display impartial GIC rates for many institutions and terms of investment, in sortable form. Many of these institutions allow on-line purchases and transfers, requiring only a \"\"regular\"\" bank account as a source/destination for on-line transfers...\"","Vanguard has a lot of mutual fund offerings. (I have an account there.) Within the members' section they give indications of the level of risk/reward for each fund.","\"First, you don't state where you are and this is a rather global site. There are people from Canada, US, and many other countries here so \"\"mutual funds\"\" that mean one thing to you may be a bit different for someone in a foreign country for one point. Thanks for stating that point in a tag. Second, mutual funds are merely a type of investment vehicle, there is something to be said for what is in the fund which could be an investment company, trust or a few other possibilities. Within North America there are money market mutual funds, bond mutual funds, stock mutual funds, mutual funds of other mutual funds and funds that are a combination of any and all of the former choices. Thus, something like a money market mutual fund would be low risk but quite likely low return as well. Short-term bond funds would bring up the risk a tick though this depends on how you handle the volatility of the fund's NAV changing. There is also something to be said for open-end, ETF and closed-end funds that are a few types to consider as well. Third, taxes are something not even mentioned here which could impact which kinds of funds make sense as some funds may invest in instruments with favorable tax-treatment. Aside from funds, I'd look at CDs and Treasuries would be my suggestion. With a rather short time frame, stocks could be quite dangerous to my mind. I'd only suggest stocks if you are investing for at least 5 years. In 2 years there is a lot that can happen with stocks where if you look at history there was a record of stocks going down about 1 in every 4 years on average. Something to consider is what kind of downside would you accept here? Are you OK if what you save gets cut in half? This is what can happen with some growth funds in the short-term which is what a 2 year time horizon looks like. If you do with a stock mutual fund, it would be a gamble to my mind. Don't forget that if the fund goes down 10% and then comes up 10%, you're still down 1% since the down will take more.\"","\"Yes, there is a very good Return vs Risk graph put out at riskgrades.com. Look at it soon, because it will be unavailable after 6-30-11. The RA (return analysis) graph is what I think you are looking for. The first graph shown is an \"\"Average Return\"\", which I was told was for a 3 year period. Three period returns of 3, 6 and 12 months, are also available. You can specify the ticker symbols of funds or stocks you want a display of. For funds, the return includes price and distributions (total return), but only price movement for stocks - per site webmaster. I've used the graphs for a few years, since Forbes identified it as a \"\"Best of the Web\"\" site. Initially, I found numerous problems with some of the data and was able to work with the webmaster to correct them. Lately though, they have NOT been correcting problems that I bring to their attention. For example, try the symbols MUTHX, EDITX, AWSHX and you'll see that the Risk Grades on the graphs are seriously in error, and compress the graph results and cause overwriting and poor readability. If anyone knows of a similar product, I'd like to know about it. Thanks, George\"","One of the things I would suggest looking into is peer-to-peer lending. I do lendingclub.com, but with a lot less money, and have only done it a short period of time. Still my return is about 13%. In your case you would probably have to commit to about 3.5 years to invest your money. Buy 3 year notes, and as they are paid off pull the money out and put into a CD or money market.. They sell notes that are 3 or 5 year and you may not want to tie your money up that long.","\"There is a site that treats you like a fund manager in the real market, Marketoracy, http://marketocracy.com/. Each user is given 1 million in cash. You can have multiple \"\"mutual funds\"\", and the site allows use to choose between two types of strategies, buy/sell, short/cover. Currently, options are not supported. The real value of the site is that users are ranked against each other (of course, you can op out of the rankings). This is really cool because you can determine the real worth of your returns compared to the rest of investors across the site. A couple years back, the top 100 investors were invited to come on as real mutual fund managers - so the competition is legitimate. Take a look at the site, it's definitely worth a try. Were there other great sites you looked at?\"","\"Since this is your emergency fund, you generally want to avoid volatility while keeping pace with inflation. You really shouldn't be looking for aggressive growth (which means taking on some risk). That comes from money outside of the emergency fund. The simplest thing to do would be to shop around for a different savings account. There are some deals out there that are better than ING. Here is a good list. The \"\"traditional\"\" places to keep an emergency fund are Money Market Mutual Funds (not to be confused with Money Market Accounts). They are considered extremely safe investments. However, the returns on such a fund is pretty low these days, often lower than a high-yield online savings account. The next step up would be a bond fund (more volatility, slightly better return). Pick something that relies on Government bonds, not \"\"high-yield\"\" (junk) bonds or anything crazy like that. Fidelity Four in One comes pretty close to your \"\"index of indexes\"\" request, but it isn't the most stable thing. You'd probably do better with a safer investment.\"","In almost every circumstance high expense ratios are a bad idea. I would say every circumstance, but I don't want backlash from anyone. There are many other investment companies out there that offer mutual funds for FAR less than 1.5% ratio. I couldn't even imagine paying a 1% expense ratio for a mutual fund. Vanguard offers mutual funds that are significantly lower, on average, than the industry. Certainly MUCH lower than 1.5%, but then again I'm not sure what mutual funds you have, stock, bonds, etc. Here is a list of all Vanguard's mutual funds. I honestly like the company a lot, many people haven't heard of them because they don't spend nearly as much money on advertisements or a flashy website - but they have extremely low expense ratios. You can buy into many of their mutual funds with a 0.10%-0.20% expense ratio. Some are higher, but certainly not even close to 1.5%. I don't believe any of them are even half of that. Also, if you were referring to ETF's when you mentioned Index Fund (assuming that since you have ETFs in your tag), then 0.20% for ETF's is steep, check out some identical ETFs on Vanguard. I am not a Vanguard employee soliciting their service to you. I'm just trying to pass on good information to another investor. I believe you can buy vanguard funds through other investment companies, like Fidelity, for a good price, but I prefer to go through them.","\"Mutual funds can be relatively low risk and a good starting point. Really it depends on you. What are your goals? This is a pretty open ended question. These can all be low risk and provide some return. Note \"\"Less Knowledge\"\" is never a good qualifier for an investment. Your money is your business and you are entitled to know what your business is up to.\"","Don't invest in regular mutual funds. They are a rip-off. And, most investment professionals will not do much to help your financial future. Here's the advice:","The Vanguard Short-Term Bond Index mutual fund (VBIRX) might fit your need. Apart from 2008, it has only had one single quarter of negative returns, and has always had positive annual returns. If you're looking for an ETF, you might consider iShares Barclays 1-3 Year Credit Bond (CSJ).","There are many considerations before deciding on the best place for your funds: How liquid do you need the funds to be? If this is for an emergency fund I would keep at least some in an account that you have instant access to, What is your risk (volatility) tolerance? Would you be OK with the value dropping by as much as 30% in a year knowing that over time you'll probably earn 8-12% on it? If not, then equity funds or other stock investments are probably not the best move for you. Do you need the funds now or are they for long-term (retirement) savings? Are you eligible to fund an IRA? That would defer your taxes until you withdraw the funds from the account, but there are age restrictions that you must heed to avoid penalties. Are CDs a good idea? They do pay decent interest, but in return for that you lock up your funds for a set period of time. All that to say that there are many facets to determining the best place for your funds. If you provide more specifics you can get a more specific answer.","Returns: Variable, as with all investments. Legitimate: Contact the usual major investment-fund houses.","Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.","The Telegraph had an interesting article recently going back 30 years for Mutual's in the UK that had beaten the market and trackers for both IT and UT http://www.telegraph.co.uk/finance/personalfinance/investing/11489789/The-funds-that-have-returned-more-than-12pc-per-year-for-THIRTY-years.html","Magazines like SmartMoney often have an annual issue that reviews brokers. One broker may have a wider variety of no-fee mutual funds, and if that's your priority, then the stock commissions may be a moot issue for you. In general, you can't go wrong with a Fidelity or Schwab, and to choose investments within the accounts with an eye toward low expenses.","As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.","\"Congratulations on deciding to save money and choosing to invest it. One thing to know about mutual funds including index funds is that they typically require a minimum investment of a few thousand dollars, $3000 being a typical amount, unless the investment is in an IRA in which case $1000 might be a minimum. In some cases, automated monthly investments of $50 or $100 might need to be set up if you are beginning with a small balance. There is nothing wrong with your approach. You now should go and look at the various requirements for specific index funds. The Fidelity and Vanguard families are good choices and both offer very low-cost index funds to choose from, but different funds can have different requirements regarding minimum investments etc. You also have a choice of which index you want to follow, the S&P 500 Index, MidCap Indexes, Small-Cap Indexes, Total Stock Market Indexes etc., but your choice might be limited until you have more money to invest because of minimum investment rules etc. Most important, after you have made your choice, I urge you to not look every day, or even every month, to see how your investment is doing. You will save yourself a lot of anxiety and will save yourself from making wrong decisions. Far too many investors ignore the maxim \"\"Buy Low, Sell High\"\" and pull money out of what should be long-term investments at the first flicker of a downturn and end up buying high and selling low. Finally, the time is approaching when most stock funds will be declaring dividends and capital gains distributions. If you invest now, you may end up with a paper profit on which you will have to pay taxes (in non-tax-advantaged accounts) on your 2012 tax return (this is called \"\"buying a dividend\"\"), and so you might want to spend some time investigating now, but actually make the investment in late December after your chosen fund has made its distributions (the date for this will be on the fund's web site) or in early 2013.\"","If you need the money in the short-term, you want to invest in something fairly safe. These include saving accounts, CDs, and money market funds from someplace like Vanguard. The last two might give you a slightly better return than the local branch of a national bank.","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","Congratulations on being in such good financial state. You have a few investment choices. If you want very low risk, you are talking bonds or CDs. With the prime rate so low, nobody is paying anything useful for very low risk investments. However, my opinion is that given your finances, you should consider taking on a little more risk. A good step is a index fund, which is designed to mirror the performance of a stock index such as the S&P 500. That may be volatile in the short-term, but is likely to be a good investment in the longer term. I am not a fan of non-index mutual funds; in general the management charge makes them a less attractive investment. The next step up is investing in individual stocks, which can provide very big gains or very big losses. The Motley fool site (www.fool.com) has a lot of information about investing overall.","So if someone would invest 14000 credits on 1st April 2016, he'd get monthly dividend = ((14000 ÷ 14) × 0.0451) × (1 - 1.42 ÷ 100) = 44.459 credits, right? One would get ((14000 ÷ 14) × 0.0451) = 45.1 is what you would get. The expenses are not to be factored. Generally if a scheme has less expense ratio, the yield is more. i.e. this has already got factored in 0.0451. If the expense ratio was less, this would have been 0.05 if expense ration would have been more it would have been 0.040. Can I then consider the bank deposit earning a higher income per month than the mutual fund scheme? As the MIP as classified as Hybrid funds as they invest around 30% in equities, there is no tax on the income. More so if there is a lock-in of 3 years. In Bank FD, there would be tax applicable as per tax brackets.","As always with investments, it depends on your risk adversity. I don't want to repeat the content of hundreds of recommendations here, so just the nutshell: (For qualified investments,) the more risk you are willing to take, the more returns you'll get. The upper end is the mutual funds and share market, where you have long-term expectations of 8 - 10 % (and corresponding risks of maybe +/- 50% per year), the lower end is a CD, where you can expect little to no interest, corresponding to little to no risk. Investing in shares/funds is not 'better' than investing in CDs, it is different. Not everybody likes financial roller-coasters, and some people mainly consider the high risk, which gives them sleepless nights; while others just consider the expected high long-term gains as all that counts. Find out what your personal risk adversity is, and then pick accordingly.","Bond aren't necessarily any safer than the stock market. Ultimately, there is no such thing as a low risk mutual fund. You want something that will allow you get at your money relatively quickly. In other words, CDs (since you you can pick a definite time period for your money to be tied up), money market account or just a plain old savings account. Basically, you want to match inflation and have easy access to the money. Any other returns on top of that are gravy, but don't fret too much about it. See also: Where can I park my rainy-day / emergency fund? Savings accounts don’t generate much interest. Where should I park my rainy-day / emergency fund?","\"Books such as \"\"The Pocket Idiot's Guide to Investing in Mutual Funds\"\" claim that money market funds and CDs are the most prudent things to invest in if you need the money within 5 years. More specifically:\"","See if any of the funds they offer are index funds, which will generally have MUCH lower fees and which seem to perform as well as any of the actively managed funds in the same categories.","A CDIC-insured high-interest savings bank account is both safe and liquid (i.e. you can withdraw your money at any time.) At present time, you could earn interest of ~1.35% per year, if you shop around. If you are willing to truly lock in for 2 years minimum, rates go up slightly, but perhaps not enough to warrant loss of liquidity. Look at GIC rates to get an idea. Any other investments – such as mutual funds, stocks, index funds, ETFs, etc. – are generally not consistent with your stated risk objective and time frame. Better returns are generally only possible if you accept the risk of loss of capital, or lock in for longer time periods.","Almost all major no-load mutual fund families allow you to do the kind of thing you are talking about, however you may need an initial investment of between $1000 to $3000 depending on the fund. Once you have it however, annual fee's are usually very little, and the fees to buy that companies funds are usually zero if it's a no-load company (Vanguard, TRowPrice, etc) With the larger companies that means you have a pretty large selection of funds, but generally EACH fund has a minimum initial purchase, once that's met then you can buy additional amounts in small quantities without a problem. For someone on a smaller budget, many low cost brokers (ETrade as mentioned by Litteadv, Scottrade as mentioned by myself in another similar question today) allow you to start with smaller initial balances and have a small selection of funds or ETF's that you can trade from without commission. In the case of Scottrade, they have like 15 ETF's that you can trade comission free. Check with the various low cost brokerages such as ETrade, Scottrade, and TDAmeritrade, to see what their policies are, and what if any funds/ETF's they allow you to trade in without commissions. Keep in mind that for Mutual funds, there may still be a fund minimum initial investment that applies, be sure to check if that is the case or not. The lack of any minimum investment makes ETF's a slightly more attractive option for someone who doesn't have the 'buy in' that many funds require.","Since returning of capital is the most important, I would go to bankrate.com and find either an online bank savings account or MMA account. By going to bankrate.com, you can find higher rates. Sometimes you can find rates that are higher than a CD and are still FDIC insured. I've found ally bank's raise your rate 2 year CD to always have the best rate. In addition, if rates go up, you are able to raise the rate to the current rate.","CDs pay less than the going rate so that the banks can earn money. Investing is risky right now due to the inaction of the Fed. Try your independent life insurance agent. You could get endowment life insurance. It would pay out at age 21. If you decide to invest it yourself try to buy a stable equity fund. My 'bedrock' fund is PGF. It pays dividends each month and is currently yealding 5.5% per year. Scottrade has a facility to automatically reinvest the dividend each month at no commission. http://www.marketwatch.com/investing/Fund/PGF?CountryCode=US","\"The \"\"Money 70\"\" is a fine list: http://money.cnn.com/magazines/moneymag/bestfunds/index.html Money magazine is usually more reasonable than the other ones (SmartMoney, Kiplinger's, etc. are in my opinion sillier). If you want a lot of depth, the Morningstar Analyst Picks are useful but you have to pay for a membership which is probably not worth it for now: http://www.morningstar.com/Cover/Funds.aspx (side note: Morningstar star ratings are not useful, I'd ignore those. analyst picks are pretty useful.) Vanguard is a can't-go-too-wrong suggestion. They don't have any house funds that are \"\"bad,\"\" while for example Fidelity has some good ones mixed with a bunch that aren't so much. Of course, some funds at Vanguard may be inappropriate for your situation. (Vanguard also sells third-party funds, I'm talking about their own branded funds.) If getting started with 5K I think you'd want to go with an all-in-one fund like a target date retirement fund or a balanced fund. Such a fund also handles rebalancing for you. There's a Vanguard target date fund and balanced fund (Wellington) in the Money 70 list. fwiw, I think it's more important to ask how much risk you need to take, rather than how much you are willing to take. I wrote this down at more length here: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ First pick your desired asset allocation, then pick your fund after that to match. Good luck.\"","Your question is actually quite broad, so will try to split it into it's key parts: Yes, standard bank ISAs pay very poor rates of interest at the moment. They are however basically risk free and should track inflation. Any investment in the 6-7% return range at the moment will be linked to stock. Stock always carries large risks (~50% swings in capital are pretty standard in the short run. In the long run it generally beats every other asset class by miles). If you can’t handle those types of short terms swings, you shouldn’t get involved. If you do want to invest in stock, there is a hefty ignorance tax waiting at every corner in terms of how brokers construct their fees. In a nutshell, there is a different best value broker in the UK for virtually every band of capital, and they make their money through people signing up when they are in range x, and not moving their money when they reach band y; or just having a large marketing budget and screwing you from the start (Nutmeg at ~1% a year is def in this category). There isn't much of an obvious way around this if you are adamant you don't want to learn about it - the way the market is constructed is just a total predatory minefield for the complete novice. There are middle ground style investments between the two extremes you are looking at: bonds, bond funds and mixes of bonds and small amounts of stock (such as the Vanguard income or Conservative Growth funds outlined here), can return more than savings accounts with less risk than stocks, but again its a very diverse field that's hard to give specific advice about without knowing more about what your risk tolerance, timelines and aims are. If you do go down this (or the pure stock fund) route, it will need to be purchased via a broker in an ISA wrapper. The broker charges a platform fee, the fund charges a fund fee. In both cases you want these as low as possible. The Telegraph has a good heat map for the best value ISA platform providers by capital range here. Fund fees are always in the key investor document (KIID), under 'ongoing charges'.","These interest rates are very low. One of the reasons that I prefer E*Trade is because on their on-line savings account the interest rates are several times higher than on ScotTrade margin accounts (currently it's 0.7% on E*Trade, on any amount, IIRC). The transfers between the accounts on E*Trade are immediate, and they allow using the money for investing immediately even for transfers from outside source. If you can wait a couple of days for the money to arrive before your investment (unless ScotTrade, like E*Trade, allow investing external transfers immediately), you can look at AMEX, ING Direct or Capitol One on-line savings accounts for even higher rates. Oh, and needless to mention, on-line savings accounts are FDIC insured, I'm not sure if the uninvested deposits on Scottrade are.","\"TD e-series index funds are great for regular contributions every paycheck since there is no trading commission. The personal finance blog \"\"Canadian Couch Potato\"\" has great examples of what they call \"\"model portfolios\"\" and one consists of entirely TD e-series index funds. Check it out: http://canadiancouchpotato.com/model-portfolios-2/ The e-series portfolio that is described in the Model Portfolios (linked above) made returns of just over 10%. This is very similar to the ETF Model Portolio. One thing to remember is that these funds have a 30 day no sell time frame, otherwise a 2% fee is applied to the funds you withdraw.\"","I highly recommend passive investing through something like betterment (www.betterment.com) or vanguard's ETFs. FutureAdvisor.com can provide some good advice as to what funds to invest in. I'd recommend using that money to max out your Roth IRAs each year, too.","\"The best predictor of mutual fund performance is low expense ratio, as reported by Morningstar despite the fact that it produces the star ratings you cite. Most of the funds you list are actively managed and thus have high expense ratios. Even if you believe there are mutual fund managers out there that can pick investments intelligently enough to offset the costs versus a passive index fund, do you trust that you will be able to select such a manager? Most people that aren't trying to sell you something will advise that your best bet is to stick with low-cost, passive index funds. I only see one of these in your options, which is FUSVX (Fidelity Spartan 500 Index Fund Fidelity Advantage Class) with an exceptionally low expense ratio of 0.05%. Do you have other investment accounts with more choices, like an IRA? If so you might consider putting a major chunk of your 401(k) money into FUSVX, and use your IRA to balance your overall porfolio with small- and medium-cap domestic stock, international stock, and bond funds. As an aside, I remember seeing a funny comment on this site once that is applicable here, something along the lines of \"\"don't take investment advice from coworkers unless they're Warren Buffett or Bill Gross\"\".\"","\"Index funds can be a very good way to get into the stock market. It's a lot easier, and cheaper, to buy a few shares of an index fund than it is to buy a few shares in hundreds of different companies. An index fund will also generally charge lower fees than an \"\"actively managed\"\" mutual fund, where the manager tries to pick which stocks to invest for you. While the actively managed fund might give you better returns (by investing in good companies instead of every company in the index) that doesn't always work out, and the fees can eat away at that advantage. (Stocks, on average, are expected to yield an annual return of 4%, after inflation. Consider that when you see an expense ratio of 1%. Index funds should charge you more like 0.1%-0.3% or so, possibly more if it's an exotic index.) The question is what sort of index you're going to invest in. The Standard and Poor's 500 (S&P 500) is a major index, and if you see someone talking about the performance of a mutual fund or investment strategy, there's a good chance they'll compare it to the return of the S&P 500. Moreover, there are a variety of index funds and exchange-traded funds that offer very good expense ratios (e.g. Vanguard's ETF charges ~0.06%, very cheap!). You can also find some funds which try to get you exposure to the entire world stock market, e.g. Vanguard Total World Stock ETF, NYSE:VT). An index fund is probably the ideal way to start a portfolio - easy, and you get a lot of diversification. Later, when you have more money available, you can consider adding individual stocks or investing in specific sectors or regions. (Someone else suggested Brazil/Russia/Indo-China, or BRICs - having some money invested in that region isn't necessarily a bad idea, but putting all or most of your money in that region would be. If BRICs are more of your portfolio then they are of the world economy, your portfolio isn't balanced. Also, while these countries are experiencing a lot of economic growth, that doesn't always mean that the companies that you own stock in are the ones which will benefit; small businesses and new ventures may make up a significant part of that growth.) Bond funds are useful when you want to diversify your portfolio so that it's not all stocks. There's a bunch of portfolio theory built around asset allocation strategies. The idea is that you should try to maintain a target mix of assets, whatever the market's doing. The basic simplified guideline about investing for retirement says that your portfolio should have (your age)% in bonds (e.g. a 30-year-old should have 30% in bonds, a 50-year-old 50%.) This helps maintain a balance between the volatility of your portfolio (the stock market's ups and downs) and the rate of return: you want to earn money when you can, but when it's almost time to spend it, you don't want a sudden stock market crash to wipe it all out. Bonds help preserve that value (but don't have as nice of a return). The other idea behind asset allocation is that if the market changes - e.g. your stocks go up a lot while your bonds stagnate - you rebalance and buy more bonds. If the stock market subsequently crashes, you move some of your bond money back into stocks. This basically means that you buy low and sell high, just by maintaining your asset allocation. This is generally more reliable than trying to \"\"time the market\"\" and move into an asset class before it goes up (and move out before it goes down). Market-timing is just speculation. You get better returns if you guess right, but you get worse returns if you guess wrong. Commodity funds are useful as another way to diversify your portfolio, and can serve as a little bit of protection in case of crisis or inflation. You can buy gold, silver, platinum and palladium ETFs on the stock exchanges. Having a small amount of money in these funds isn't a bad idea, but commodities can be subject to violent price swings! Moreover, a bar of gold doesn't really earn any money (and owning a share of a precious-metals ETF will incur administrative, storage, and insurance costs to boot). A well-run business does earn money. Assuming you're saving for the long haul (retirement or something several decades off) my suggestion for you would be to start by investing most of your money* in index funds to match the total world stock market (with something like the aforementioned NYSE:VT, for instance), a small portion in bonds, and a smaller portion in commodity funds. (For all the negative stuff I've said about market-timing, it's pretty clear that the bond market is very expensive right now, and so are the commodities!) Then, as you do additional research and determine what sort investments are right for you, add new investment money in the places that you think are appropriate - stock funds, bond funds, commodity funds, individual stocks, sector-specific funds, actively managed mutual funds, et cetera - and try to maintain a reasonable asset allocation. Have fun. *(Most of your investment money. You should have a separate fund for emergencies, and don't invest money in stocks if you know you're going need it within the next few years).\"","On reading couple of articles & some research over internet, I got to know about diversified investment where one should invest 70% in equity related & rest 30% in debt related funds Yes that is about right. Although the recommendation keeps varying a bit. However your first investment should not aim for diversification. Putting small amounts in multiple mutual funds may create paper work and tracking issues. My suggestion would be to start with an Index EFT or Large cap. Then move to balanced funds and mid caps etc. On this site we don't advise on specific funds. You can refer to moneycontrol.com or economictimes or quite a few other personal finance advisory sites to understand the top funds in the segments and decide on funds accordingly. PS: Rather than buying paper, buy it electronic, better you can now buy it as Demat. If you already have an Demat account it would be best to buy through it.","You don't say what kinds of mutual funds, or what bonds. You don't say how old you are. You seem to have enough cushion to strike out on your own comfortably. This is good. Compared with Vanguard's management fees, the fees you're paying are pretty high. The bottom line of what to invest in rests with you. If you outsource it, it's still your money. The managers get paid whether you make money or not. You have lots of other options: real estate from a distressed seller, commodities, currencies, websites, or other things where you have a knowledge advantage. For the time being, though, if you're concerned about your main income stream, I wouldn't get terribly risky with your money. Cash is just peachy in that case.","http://www.moneysupermarket.com/shares/CompareSharesForm.asp lists many. I found the Interactive Investor website to be excruciatingly bad. I switched to TD Waterhouse and found the website good but the telephone service a bit abrupt. I often use the data presented on SelfTrade but don't have an account there.","The SEC 30-Day Yield you're seeing is a standardized yield calculation set out by the Securities & Exchange Commission. It can be useful for comparing bond funds, but it doesn't guarantee what you'll actually earn from a fund. IMPORTANT: The SEC 30-day yield represents a bond fund's returns from the previous 30 days expressed as an annual percentage of the current fund price — yes, an annual percentage. In other words, don't expect 1.81% return on your money every 30 days! Such a return is too-good-to-be-true return in today's low rate environment. 1.81% per year? More reasonable. Even then, the 1.81% you see is merely an estimate, one based on assumptions, of what you might expect to earn if you keep your money in place for the next year. The estimate is based on the assumptions that: These aren't reliable assumptions. BIV's price does fluctuate. You are not promised to get your principal back with a bond fund. Only an individual bond promises your principal back, and only at maturity. So, earning $181 on $10,000 invested for a full year while taking on interest-rate and other risks might not be worth the trouble of putting your money in a brokerage account. You'll need to transfer the money in and out, and there are potential trading fees to take into account. (How much to buy/sell units?) An FDIC-insured high interest savings account makes more sense.","I would stay away from the Actively Managed Funds. Index funds or the asset allocation funds are your best bet since they have the lowest fees. What is your risk tolerance? How old are you? I would suggest reading:","\"Most mutual funds are designed to make the investment banks that sell them money, not to make investers money. They do this by taking significant fees out. Because they make lots of money on these funds, they advertise them a lot, and give them important-sounding names, like \"\"Advanced technology global diversity long term appreciation\"\". Index funds are the exception; they attempt to mirror the performance of a specific index (such as the S&P 500 index). They generally have very low fees.\"","It depends on the exact level of risk that you want, but if you want to keep your risk close to zero you're pretty much stuck with the banks (and those rates don't look to be going up any time soon). If you're willing to accept a little more risk, you can invest in some index tracking ETFs instead, with the main providers in Australia being Vanguard, Street State and Betashares. A useful tool for for an overview of the Australian ETF market is offered by StockSpot. The index funds reduce your level of risk by investing in an index of the market, e.g. the S&P 200 tracked by STW. If the market as a whole rises, then your investment will too, even though within that index individual companies will rise and fall. This limits your potential rate of return as well, and is still significantly more risky than leaving your cash in an Aussie bank (after all, the whole market can fall), but it might strike the right balance for you. If you're getting started, HSBC, Nabtrade, Commsec and Westpac were all offering a couple of months of free trades up to a certain value. Once the free trades are done, you'll do better to move to another broker (you can migrate your shares to the others to take advantage of their free trades too) or to a cheaper broker like CMC Markets.","\"I used the term \"\"bond fund\"\" to mean a mutual fund which invests in bonds. Vanguard has a list. If you live in PA, OH, MA, FL, CA, NJ, or NY there are tax free funds you can invest in on that list.\"","I'm looking for ways to geared to save for retirement, not general investment. Many mutual fund companies offer a range of target retirement funds for different retirement dates (usually in increments of 5 years). These are funds of funds, that is, a Target 2040 Fund, say, will be invested in five or six different stock and bond mutual funds offered by the same company. Over the years and as the target date approaches closer, the investment mix will change from extra weight given to stock mutual funds towards extra weight being given to bond mutual funds. The disadvantage to these funds is that the Target Fund charges its own expense ratio over and above the expense ratios charged by the mutual funds it invests in: you could do the same investments yourself (or pick your own mix and weighting of various funds) and save the extra expense ratio. However, over the years, as the Target Fund changes its mix, withdrawing money from the stock mutual funds and investing the proceeds into bond mutual funds, you do not have to pay taxes on the profits generated by these transactions except insofar as some part of the profits become distributions from the Target Fund itself. If you were doing the same transactions outside the Target Fund, you would be liable for taxes on the profits when you withdrew money from a stock fund and invested the proceeds into the bond fund.","\"Check out the \"\"rewards checking\"\" accounts listed on this thread at fatwallet finance forums. You could easily get 3.5% - 4% right now if you are willing to do the rewards checking dance. If not, you should look into the 1-2% accounts at the top. I use Alliant CU and their website is nice (and they give you your credit score every six months).\"","In the past 10 years there have been mutual funds that would act as a single bucket of stocks and bonds. A good example is Fidelity's Four In One. The trade off was a management fee for the fund in exchange for having to manage the portfolio itself and pay separate commissions and fees. These days though it is very simple and pretty cheap to put together a basket of 5-6 ETFs that would represent a balanced portfolio. Whats even more interesting is that large online brokerage houses are starting to offer commission free trading of a number of ETFs, as long as they are not day traded and are held for a period similar to NTF mutual funds. I think you could easily put together a basket of 5-6 ETFs to trade on Fidelity or TD Ameritrade commission free, and one that would represent a nice diversified portfolio. The main advantage is that you are not giving money to the fund manager but rather paying the minimal cost of investing in an index ETF. Overall this can save you an extra .5-1% annually on your portfolio, just in fees. Here are links to commission free ETF trading on Fidelity and TD Ameritrade.","\"Morningstar is often considered a trusted industry standard when it comes to rating mutual funds and ETFs. They offer the same data-centric information for other investments as well, such as individual stocks and bonds. You can consult Morningstar directly if you like, but any established broker will usually provide you with Morningstar's ratings for the products it is trying to sell to you. Vanguard offers a few Emerging Markets stock and bond funds, some actively managed, some index funds. Other investment management companies (Fidelity, Schwab, etc.) presumably do as well. You could start by looking in Morningstar (or on the individual companies' websites) to find what the similarities and differences are among these funds. That can help answer some important questions: I personally just shove a certain percentage of my portfolio into non-US stocks and bonds, and of that allocation a certain fraction goes into \"\"established\"\" economies and a certain fraction into \"\"emerging\"\" ones. I do all this with just a few basic index funds, because the indices make sense (to me) and index funds cost very little.\"","\"If you want the answer from the horse's mouth, go to the website of the ETF or mutual find, and the expense ratio will be listed there, both on the \"\"Important Information\"\" part of the front page, as well as in the .pdf file that you click on to download the Prospectus. Oh wait, you don't want to go the fund's website at all, just to a query site where you type in something like VFINX. hit SEARCH, and out pops the expense ratio for the Vanguard S&P 500 Index Fund? Well, have you considered MorningStar?\"","Congratulations! You're making enough money to invest. There are two easy places to start: I recommend against savings accounts because they will quite safely lose your money: the inflation rate is usually higher than the interest rate on a savings account. You may have twice as much money after 50 years, but if everything costs four times as much, then you've lost buying power. If, in the course of learning about investing, you'd like to try buying individual stocks, do it only with money you wouldn't mind losing. Index funds will go down slightly if one of the companies in that index fails entirely, but the stock of a failed company is worthless.","There are quite a few options. Suggest you put a mix of things and begin investing into Mutual Funds.","\"There are raters of stock and bond funds of which Morningstar's is the best. Standard and Poor's and Value line offer reports that aren't quite as good. If you are able to read and understand these reports yourself, you don't need a professional. Such help is necessary for people who are \"\"rank beginners\"\" in investments.\"","Just find a low cost S&P 500 index fund, and spend your time reading The Great Mutual Fund Trap instead of wasting your time and money picking actively managed funds.","Yes, it is. Got to start somewhere. Typically directly through a company itself. Check out this site that lists a bunch of them and their minimum requirements. Not many only accept $100 but there are a few. ie. ACTIVEnergy Income Fund, CIBC, COMPASS Income Fund, Suncor Energy Inc. and a few others.","\"An alternative to a savings account is a money market account. Not a bank \"\"Money Market\"\" account which pays effectively the same silly rate as a savings account, but an actual Money Market investment account. You can even write checks against some Money Market investment accounts. I have several accounts worth about 13,000 each. Originally, my \"\"emergency fund\"\" was in a CD ladder. I started experimenting with two different Money market investment accounts recently. Here's my latest results: August returns on various accounts worth about $13k: - Discover Bank CD: $13.22 - Discover Bank CD: $13.27 - Discover Bank CD: $13.20 - Discover Savings: $13.18 - Credit Union \"\"Money Market\"\" Savings account: $1.80 - Fidelity Money Market Account (SPAXX): $7.35 - Vanguard Money market Account (VMFXX): $10.86 The actual account values are approximate. The Fidelity Money Market Account holds the least value, and the Credit Union account by far the most. The result of the experiment is that as the CDs mature, I'll be moving out of Discover Bank into the Vanguard Money Market account. You can put your money into more traditional equities mutual fund. The danger with them is the stock market may drop big the day before you want to make your withdrawl... and then you don't have the down payment for your house anymore. But a well chosen mutual fund will yield better. There are 3 ways a mutual fund increase in value: Here's how three of my mutual funds did in the past month... adjusted as if the accounts had started off to be worth about $13,000: Those must vary wildly month-to-month. By the way, if you look up the ticker symbols, VASGX is a Vanguard \"\"Fund of Funds\"\" -- it invests not 100% in the stock market, but 80% in the stock market and 20% in bonds. VSMGX is a 60/40 split. Interesting that VASGX grew less than VSMGX...but that assumes my spreadsheet is correct. Most of my mutual funds pay dividends and capital gains once or twice a year. I don't think any pay in August.\"","I agree with others here that suggest that you should be taking higher risk since it is repaid with higher returns. You have 40 years or so to go before you might switch to safer but lower return funds. I suggest that you look at the Morningstar rating for the funds you are considering: http://www.morningstar.com/ A fund rated five stars means that the fund performs in the top 20% compared to all similar funds. I prefer five star funds. Next, check the management fees. Here is an example from one of the funds you mentioned; https://www.google.com/finance?cid=466533039917726 Next, I suggest you compare how each fund has performed compared to a benchmark. Here are some common indices: Compare an equity fund to, for example, the S&P 500. Has your fund beat or closely matched the S&P for 1, 5 and 10 years? If not, you may as well buy an index fund, such as SPY.","What is the question? A total return fund seeks to just maximize total returns, as opposed to benchmark tracking, low vol, high vol, sectoral, whatever, this is just a name you gotta read the long prospectus to see how they are supposed to go about doing it. Fixed income investing DOES NOT rely on on interest rates, it relies on the movements of interest rates (this is a key difference). When economies are doing poorly, there is a flight to quality (everyone is scared and lends only to governments) driving government interest rate downs and increasing the spread between government rates and corporates. My usual advice is There is never a good time to buy a mutual fund :P, better to buy an ETF or a portfolio of ETF's that correspond to your views. You need to sit down and ask yourself what type of risk tolerances you're willing to take as mutual funds by construction deliver negative alpha due to fees.","Go with a Vanguard ETF. I had a lengthy discussion with a successful broker who runs a firm in Chicago. He boiled all of finance down to Vanguard ETF and start saving with a roth IRA. 20 years of psychology research shows that there's a .01 correlation (that's 1/100 of 1%) of stock/mutual fund performance to prediction. That's effectively zero. You can read more about it in the book Thinking Fast and Slow. Investors have ignored this research for years. The truth is you'd be just as successful if you picked your mutual funds out of a hat. But I'll recommend you go with a broker's advice.","As observed above, 1.5% for 3 years is not attractive, and since due to the risk profile the stock market also needs to be excluded, there seems about 2 primary ways, viz: fixed income bonds and commodity(e,g, gold). However, since local bonds (gilt or corporate) are sensitive and follow the central bank interest rates, you could look out investing in overseas bonds (usually through a overseas gilt based mutual fund). I am specifically mentioning gilt here as they are government backed (of the overseas location) and have very low risk. Best would be to scout out for strong fund houses that have mutual funds that invest in overseas gilts, preferably of the emerging markets (as the interest is higher). The good fund houses manage the currency volatility and can generate decent returns at fairly low risk.","\"Funds - especially index funds - are a safe way for beginning investors to get a diversified investment across a lot of the stock market. They are not the perfect investment, but they are better than the majority of mutual funds, and you do not spend a lot of money in fees. Compared to the alternative - buying individual stocks based on what a friend tells you or buying a \"\"hot\"\" mutual fund - it's a great choice for a lot of people. If you are willing to do some study, you can do better - quite a bit better - with common stocks. As an individual investor, you have some structural advantages; you can take significant (to you) positions in small-cap companies, while this is not practical for large institutional investors or mutual fund managers. However, you can also lose a lot of money quickly in individual stocks. It pays to go slow and to your homework, however, and make sure that you are investing, not speculating. I like fool.com as a good place to start, and subscribe to a couple of their newsletters. I will note that investing is not for the faint of heart; to do well, you may need to do the opposite of what everybody else is doing; buying when the market is down and selling when the market is high. A few people mentioned the efficient market hypothesis. There is ample evidence that the market is not efficient; the existence of the .com and mortgage bubbles makes it pretty obvious that the market is often not rationally valued, and a couple of hedge funds profited in the billions from this.\"","Generally value funds (particularly large value funds) will be the ones to pay dividends. You don't specifically need a High Dividend Yield fund in order to get a fund that pays dividends. Site likes vanguards can show you the dividends paid for mutual funds in the past to get an idea of what a fund would pay. Growth funds on the other hand don't generally pay dividends (or at least that's not their purpose). Instead, the company grows and become worth more. You earn money here because the company (or fund) you invested in is now worth more. If you're saying you want a fund that pays dividends but is also a growth fund I'm sure there are some funds like that out there, you just have to look around","I am going to assume that this is going to be a long term investment and you don't need this money before 5-6years at the very least. My advise would be to invest in one of the following funds : IDFC Premier equity fund growth plan (Direct) (Only SIP allowed right now) ICICI Discovery fund growth plan (Direct) DSP microcap fund growth plan (Direct) In case you do not want to be invested in small and mid cap and want a little less volatility then my first choice for that would be : Quantum long term equity fund dividend plan Whatever you go for make sure you go directly with the fund house and not through a broker as you end up getting charged an extra .63% extra as opposed to going direct and you will also be paying for a demat account which can be avoided if you invest directly with a fund house. Out of the above mentioned funds Quantum has the lowest expense ratio of 1.25% and it is a huge benefit if you are talking 10+ years because it makes a lot of difference. Source : My own research and experience as an investor.","\"There are mutual funds oriented toward kids or that are suitable in some way (e.g. they have low minimums). Here are two articles with mention of some of them: Of those only USAA First Start Growth is explicitly for kids: http://quote.morningstar.com/fund/f.aspx?t=UFSGX or https://www.usaa.com/inet/pages/mutual_funds_reports Another fund aimed at kids is Monetta Young Investor http://quote.morningstar.com/fund/f.aspx?t=MYIFX or http://www.younginvestorfund.com/ The diversified funds (with fixed income) like USAA First Start Growth, Vanguard STAR, Pax World Balanced, etc. have the nice property that they won't be as volatile and may spend less time \"\"underwater,\"\" so that might better convey the value of investing (vs. an all-stock fund where it could be kind of depressing for years on end, if you get bad luck). Though, I feel the same principle applies for adults. Kids may appreciate intangible aspects of the funds, e.g. Pax World Balanced invests in sustainable companies, Ariel Appreciation also has some social parameters and I think the guy running it does charity work with kids, that type of thing. There should be quarterly and annual reports on mutual funds (or stocks) that would give kids something to read and think about related to the investment. Disclaimer: none of these funds are recommendations, I have not researched them in any detail, just giving you some leads.\"","Based on your question, I am going to assume your criterion are: Based on these, I believe you'd be interested in a different savings account, a CD, or money market account. Savings account can get you up to 1.3% and money market accounts can get up to 1.5%. CDs can get you a little more, but they're a little trickier. For example, a 5 year CD could get up to 2%. However, now you're money is locked away for the next few years, so this is not a good option if this money is your emergency fund or you want to use it soon. Also, if interest rates increase then your money market and savings accounts' interest rates will increase but your CD's interest rate misses out. Conversely, if interest rates drop, you're still locked into a higher rate.","\"From a quick look at sources on the web, it looks to me like Money Market Accounts and savings accounts are both paying about the same rate today: around 1%, give or take maybe 0.4%. I suppose that's better than nothing, but it's not a whole lot better than nothing. (I saw several savings accounts advertising 0.1% interest. If they mailed you a check, the postage could be more than the returns.) Personally, I keep a modest amount of emergency cash in my checking account, and I put my \"\"savings\"\" in a very safe mutual fund. That generally gets somewhere from making maybe 3% a year to losing a small amount. Certainly nothing to sing about, but better than savings or money markets. Whether you are willing to tolerate the modest risk or the sales charges is a matter for your personal situation and feelings.\"","\"Yahoo Finance is definitely a good one, and its ultimately the source of the data that a lot of other places use (like the iOS Stocks app), because of their famous API. Another good dividend website is Dividata.com. It's a fairly simple website, free to use, which provides tons of dividend-specific info, including the highest-yield stocks, the upcoming ex-div dates, and the highest-rated stocks based on their 3-metric rating system. It's a great place to find new stocks to investigate, although you obviously don't want to stop there. It also shows dividend payment histories and \"\"years paying,\"\" so you can quickly get an idea of which stocks are long-established and which may just be flashes in the pan. For example: Lastly, I've got a couple of iOS apps that really help me with dividend investing: Compounder is a single-stock compound interest calculator, which automatically looks up a stock's info and calculates a simulated return for a given number of years, and Dividender allows you to input your entire portfolio and then calculates its growth over time as a whole. The former is great for researching potential stocks, running scenarios, and deciding how much to invest, while the latter is great for tracking your portfolio and making plans regarding your investments overall.\"","\"First off, you generally want to park your emergency fund somewhere that is \"\"safe\"\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need to think about how quickly you will need access to the money. If you have an emergency, odds are you don't want to be waiting around for weeks/months/years for the money to become available. This rules out most fixed-term investments (Bonds, traditional CDs, etc). If you are concerned that you will need near-instant access to your emergency money, then you probably want to keep it in a Savings or Money Market Account at the same bank as your checking account. Most banks will let you transfer money between local accounts instantly. Unfortunately, your local bank probably has pitiful interest rates for the Savings/MMA, far below the inflation rate. This means your money will slowly lose value over time. Be prepared to keep contributing to it! For most people, being able to draw the cash from your fund within a few days (<1 week) is sufficient. Worst case, you charge something on your credit card, and then pay down the card when the emergency fund withdrawal arrives. If \"\"money within a few days\"\" is okay for you, there are a few options: Money Market (Mutual) Funds (not to be confused with a Money Market Account) - This is the traditional place to keep an emergency fund. These are investment funds you can buy with a brokerage account. An example of such a fund would be Fidelity Cash Reserves. MMFs are not FDIC insured, so they are not exactly zero risk. However, they are considered extremely safe. They almost never go down in value (only a few times in the past few decades), and when they have, the fund manager or the Federal Govt stepped in to restore the value. They usually offer slightly better return than a local savings account, and are available in taxable and non-taxable varieties. Online High-Yield Savings or Money Market Account - These are a relatively new invention. It's basically a the same thing as what your local bank offers, but it's online-only. No local branch means low overhead, so they offer higher interest rates (2.0% vs 0.5% for your local bank). Some of them used to be over 5% before the economy tanked. Like your local bank, it is FDIC insured. One bit of caution: Some of these accounts have become \"\"gimmicky\"\" lately. They have started to do things like promo rates for a few months, only offering the high interest rate on the first few $K deposited, limiting the amount that can be withdrawn, etc. Be sure to read the details before you open an account! No-Penalty CDs - Certificates of Deposit usually offer a better rate than a Savings Account, but your money is locked up until the CD term is up (e.g. 36 months). If you need to cash out before then, you pay a penalty. Some banks have begun to offer CDs that you can cash out with no penalty at all. These can offer better rates than the savings account. Make sure it really is no-penalty though. Also watch what your options are for slowly adding money over time. This can be an issue if you want to deposit $100 from every paycheck. Rewards Checking Accounts - These are checking accounts that will pay a relatively high interest rate (3% or more) provided you generate enough activity. Most of them will have requirements like you must have direct deposit setup with them, and you must do a minimum number of debit card transactions from the account per month. If you can stay on top of the requirements, these can be a great deal. If you don't stay on top of it, your interest rate usually drops back to something pitiful, though. Personally, we use the Online High-Yield Savings Account for our emergency fund. I'm not going to make a specific recommendation as to which bank to use. The best deal changes almost week to week. Instead, I will say to check out Bankrate.com for a list of savings accounts and CDs that you can sort. The Bank Deals blog is a good place to follow rate changes.\"","Just sticking to equities: If you are investing directly in a share/stock, depending on various factors, you may have picked up a winner or to your dismay a loser. Say you just have Rs 10,000/- to invest, which stock would you buy? If you don't know, then it’s better to buy a Mutual Fund. Now if you say you would buy a few of everything, then even to purchase say Rs 5000/- worth of each stock in the NIFTY Index [50 companies] you would require at least an investment of 250,000/-. When you are investing directly you always have to buy in whole numbers, i.e. you can't buy 1/2 share or 1.6 share of some stock. The way Mutual funds work is they take 10,000 from 250 people and invest in all the stocks. There are fund managers who's job is to pick good stocks, however even they cannot predict winners all the time. Normally a few of the picks become great winners, most are average, and a few are losers; this means that overall your returns are average VS if you had picked the winning stock. The essential difference between you investing on your own and via mutual funds are: It is good to begin with a Mutual Fund, and once you start understanding the stocks better you can invest directly into the equities. The same logic holds true for Debt as well."],"string":"[\n \"Any investment company or online brokerage makes investing in their products easy. The hard part is choosing which fund(s) will earn you 12% and up.\",\n \"\\\"If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskiest stuff. Think \\\"\\\"emerging markets\\\"\\\". Even funds like Vanguard Emerging Markets (ETF: VWO, mutual fund, VEIEX) or Fidelity Advisor Emerging Markets Income Trust (FAEMX) seem to have yields which only push 11% or so. (But inflation is about nil, so if you're used to normal 2% inflation or so, these yields are like 13% or so. And there's no tax on that last 2%! Yay.) Remember that these investments are very risky. They go up lots because they can go down lots too. Don't put any money in there unless you can afford to have it go missing, because sooner or later you're likely to lose something half your money, and it might not come back for a decade (or ever). Investments like these should only be a small part of your overall portfolio. So, that said... Sites which make investing in these risky markets easy? There are a good number, but you should probably just go with vanguard.com. Their funds have low fees which won't erode your returns. (You can actually get lower expense ratios by using their brokerage account to trade the ETF versions of their funds commission-free, though you'll have to worry more about the actual number of shares you want to buy, instead of just plopping in and out dollar amounts). You can also trade Vanguard ETFs and other ETFs at almost any brokerage, just like stocks, and most brokerages will also offer you access to a variety of mutual funds as well (though often for a hefty fee of $20-$50, which you should avoid). Or you can sign up for another fund providers' account, but remember that the fund fees add up quickly. And the better plan? Just stuff most of your money in something like VTI (Vanguard Total Stock Market Index) instead.\\\"\",\n \"There are hundreds of entities which offer mutual funds - too many to adequately address here. If you need to pick one, just go with Vanguard for the low low low fees. Yes, this is important. A typical expense ratio of 1% may not sound like much until you realize that the annualized real rate of return on the stock market - after inflation - is about 4%... so the fund eats a quarter of your earnings. (Vanguard's typical expense ratios are closer to 0.1-0.2%). If your company offers a tax-deferred retirement account such as a 401(k), you'll probably find it advantageous to use whatever funds that plan offers just to get the tax advantage, and roll over the account to a cheaper provider when you change employers. You can also buy mutual funds and exchange-traded funds (ETFs) through most brokerages. E*Trade has a nice mutual fund screener, with over 6700 mutual funds and 1180 ETFs. Charles Schwab has one you can browse without even having an account.\",\n \"\\\"Liquid cash (emergency, rainy day fund) should be safe from a loss in value. Mutual funds don't give you this, especially stock funds. You can find \\\"\\\"high yield\\\"\\\" savings accounts that are now at around .8% to .9% APY which is much better than .05% and will hopefully go up. Barclays US and American Express are two big banks that normally have the highest rates. Most/all Savings and Money Market accounts should be FDIC insured. Mutual funds are not, though the investment IRA, etc. holding them may be.\\\"\",\n \"@JoeTaxpayer gave a great response to your first question. Here are some thoughts on the other two... 2) Transaction fees for mutual funds are tied to the class of shares you're buying and will be the same no matter where you buy them. A-shares have a front-end 'load' (the fee charged), and the lowest expenses, and can be liquidated without any fees. B-shares have no up-front load, but come with a 4-7 year period where they will charge you a fee to liquidate (technically called Contingent Deferred Sales Charge, CDSC), and slightly higher management fees, after which they often will convert to A-shares. C-shares have the highest management fees, and usually a 12- to 18-month period where they will charge a small percentage fee if you liquidate. There are lots of other share classes available, but they are tied to special accounts such as managed accounts and 401-K plans. Not all companies offer all share classes. C-shares are intended for shorter timeframes, eg 2-5 years. A and B shares work best for longer times. Use a B share if you're sure you won't need to take the money out until after the fee period ends. Most fund companies will allow you to exchange funds within the same fund family without charging the CDSC. EDIT: No-load funds don't charge a fee in or out (usually). They are a great option if they are available to you. Most self-service brokerages offer them. Few full-service brokerages offer them. The advantage of a brokerage versus personal accounts at each fund is the brokerage gives you a single view of things and a single statement, and buying and selling is easy and convenient. 3) High turnover rates in bond funds... depending on how actively the portfolio is managed, the fund company may deliver returns as a mix of both interest and capital gains, and the management expenses may be high with a lot of churn in the underlying portfolio. Bond values fall as interest rates rise, so (at least in the USA) be prepared to see the share values of the fund fall in the next few years. The biggest risk of a bond fund is that there is no maturity date, so there is no point in time that you have an assurance that your original investment will be returned to you.\",\n \"You do not need to have 'high net value', and yes, you can invest in it. Typically, fund companies require a minimum investment, that could be 100, it could be a 1000. 5000 should be enough for 99.9 % of all funds for an initial investment. What you need is an investment company that manages the account for you. I cannot name those for your country, but they should be easy to find (companies like IMG, and Fidelity might serve your country). You then open an account with the company of your choice, transfer the money, and tell them which fund it shall go in; all this is possible online. You can also go to see an agent in person, and he will fill the forms for you, and handle all the action, but he might take a fee for it.\",\n \"Are you looking for something like Morningstar.com? They provide information about lots of mutual funds so you can search based on many factors and find good candidate mutual funds. Use their fund screener to pick funds with long track records of beating the S&P500.\",\n \"According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.\",\n \"Buy only 'Direct' Plans, not regular. - Demat providers won't sell Direct plans, that you can do it through https://www.mfuindia.com Make sure expense ratio < 2.5% (With direct plans it will be much lesser) I hope these points will help you to take a better decision.\",\n \"I quite like the Canadian Couch Potato which provides useful information targeted at investors in Canada. They specifically provide some model portfolios. Canadian Couch Potato generally suggests investing in indexed ETFs or mutual funds made up of four components. One ETF or mutual fund tracking Canadian bonds, another tracking Canadian stocks, a third tracking US stocks, and a fourth tracking international stocks. I personally add a REIT ETF (BMO Equal Weight REITs Index ETF, ZRE), but that may complicate things too much for your liking. Canadian Couch Potato specifically recommends the Tangerine Streetwise Portfolio if you are looking for something particularly easy, though the Management Expense Ratio is rather high for my liking. Anyway, the website provides specific suggestions, whether you are looking for a single mutual fund, multiple mutual funds, or prefer ETFs. From personal experience, Tangerine's offerings are very, very simple and far cheaper than the 2.5% you are quoting. I currently use TD's e-series funds and spend only a few minutes a year rebalancing. There are a number of good ETFs available if you want to lower your overhead further, though Canadians don't get quite the deals available in the U.S. Still, you shouldn't be paying anything remotely close to 2.5%. Also, beware of tax implications; the website has several articles that cover these in detail.\",\n \"Nothing beats statistics like that found on Morning Star, Yahoo or Google Finance. When you are starting out, there is no need to reinvent the wheel. Pick a couple of mutual funds with good track records and start there. Keep in mind the financial press, to some degree, has a vested interest in having their readership chase the next hot thing. So while sites like Seeking Alpha, Kiplingers, or Money do provide some good advice, there is also an element that placates their advertisers. The only peer-to-peer lending I would consider is Lending Club. However, you are probably better off in the long run investing in mutual funds. One way to get involved in individual stocks without getting burned is to participate in Dividend Reinvestment Plans (DRIPs). Companies that have them tend to be very well established, and they are structured to discourage trading. Buying is easy, dividend reinvestment is easy, dividend payouts are easy; but, starting and selling is kind of a pain. That is a good thing.\",\n \"I think you can do better than the straight indexes. For instance Vanguard's High Yield Tax Exempt Fund has made 4.19% over the past 5 years. The S&P 500 Index has lost -2.25% in the same period. I think good mutual funds will continue to outperform the markets because you have skilled managers taking care of your money. The index is just a bet on the whole market. That said, whatever you do, you should diversify. List of Vanguard Funds\",\n \"LendingClub.com I am an investor, 3 years now, and am making ~12%. It takes a little savvy and some research, but I'm getting a far better return than any typical investment today. As always, investors beware. If you dump your money in and don't invest wisely, you'll get taken for a ride.\",\n \"Most of these blogs/websites that you mention above promote banks that pay a commission and hence you never realize there are better banks out there that offer a higher rate. I went through the same exercise to find the bank that paid the best rate and realized the truth I mention above. I currently bank with Alliant Credit Union, which doesn't pay a commission or have affiliate fees. If you find a bank that pays a higher rate than ACU, let me know, I'd like to switch to that bank as well! To give an example, ACU's regular savings rate is equivalent to EverBank's 2 year CD! See what I mean when I say affiliate and commissions run the show? Disclosure: BTW, I'm a customer of this bank, not an employee. I do have a blog if you wish to read my experience with ACU.\",\n \"This might be better suited to r/personalfinance but if you're looking to invest I'd say start with an index fund. The MER's (fees) for most other mutual funds take too heavy a chunk of returns to be worth it in a market where actively managed funds are either underperforming of performing at par with passive funds. Additionally if these are your first investments, make sure you're doing it with investment goals in mind. Is this money you're saving for short, medium, or long term? For medium and long term investing make sure you're doing it through a tax efficient instrument like an IRA or 401k.\",\n \"Most mutual funds underperform the stock market. Of those that over-perform, much of the performance can be attributed to dumb luck. Most mutual funds exist to generate fees from you, rather than make you wealthy. In my opinion, if you want to invest in one, choose a no-load index fund, and you will outperform most other funds. Better still get some good financial education and learn to manage your funds/investments yourself.\",\n \"I personally like Schwab. Great service, low fees, wide variety of fund are available at no fee. TD Ameritrade is good too.\",\n \"@sharam - big question. I am going to answer part of it, but not as directly as you might like. You mention 4-6 cents per unit per month, but fail to give a unit price, so it is hard to tell how much return you are really looking for. Given the amount you have to invest, depending on your time horizon, you will do much better outside of mutual funds. Many funds in this category have fees in the 2% range. You actually have enough money to have a diversified portfolio on your own, without recourse to funds. If you want to use a fund-like product, I encourage you to look at well established ETFs (Exchange Traded Funds). They are basically like mutual funds that trade on the open stock market. One good example in this category is iShares XDV Good Luck\",\n \"Searching for Banks or Credit Unions based on their high interest accounts is likely to be a giant waste of your time. The highest you might find is 1.5% not clearing inflation. For anything less than 100k youre better off putting it in a money market fund until you know what you want to do with it, which you can find anywhere.\",\n \"I'd have a look at Capital One's Online account too, they've got 1.35% interest rate with 10% bonus if you have over $15k deposited. It is still low like all interest rates, but at least it is on top (or at least close)!\",\n \"In addition to all the good information that JoeTaxpayer has provided, be aware of this. When you sell mutual fund shares, you can, if you choose to do so, tell the mutual fund company which shares you want to sell (e.g. all shares purchased on xx/yy/2010 plus 10 shares out of 23.147 shares purchased on ss/tt/2011 plus...) and pay taxes on the gains/losses on those specific shares. If you do not specify which shares you want sold, the mutual fund company will tell you the gains/losses based on the average cost basis and you can use this information if you like. Note that some of your gains/losses will be short-term gains or losses if you use the average cost basis. Or, you can use the FIFO method (usually resulting in the largest gain) in which the shares are sold in the order in which they were purchased. This usually results in no short-term gains/losses. Just so that you know, most mutual fund companies will link your checking account in your bank to your account with them (a one-time paperwork deal is necessary in which your bank manager's signature is required on the authorization to be sent to the fund company). After that, the connection is nearly as seamless as with your current system. Tell the fund company you want to invest money in a certain mutual fund and to take the money from your linked checking account, and they will take care of it. Sell some shares and they will deposit the money into your linked bank account, and so on. The mutual fund company will not accept instructions from you (or someone purporting to be you) to sell shares and to send the money to Joe Blow (or to Joe Taxpayer for that matter): the proceeds of redemptions go to your checking account or are used to buy shares in other mutual funds offered by the company (called an exchange and not a redemption). Oh, and most fund companies offer automatic investments (as well as automatic redemptions) at fixed time intervals, just as with your bank.\",\n \"This is a great forum, mostly focused around mutual funds though: http://www.bogleheads.org/\",\n \"Do not do investing with a bank. Do investing with a low cost investment company like Vanguard, Fidelity, or Charles Schwab. The lower the expenses of the fund the better. The additional money your account earns because of lower overhead expenses is so dramatic over the course of your investing it is mind boggling to me. The lower the expenses, the more of your money you keep, which feeds the power of compound interest. http://www.fool.com/investing/mutual-funds/2008/09/03/this-fund-charges-what.aspx\",\n \"Nowhere. To back up a bit, mutual funds are the stock market (and the bond market). That is, when you invest in a mutual fund, your money is ultimately buying stocks on the open market. Some of it might be buying bonds. The exact mix of stocks and bonds depends on the mutual fund. But a mutual fund is just a basket of stocks and/or bonds (and/or other, more exotic investments). At 25, you probably should just be investing your Roth IRA in index stock mutual funds and index bond mutual funds. You probably shouldn't even be doing peer-to-peer lending (unless you're willing to think of any losses as the cost of a hobby); the higher interest rate you're getting is a reflection of the risk that your borrowers will default. I'm not even sure if peer-to-peer lending is allowed in Roth IRA's. Investing in just stocks, bonds, and cast is boring, but these are easy investments to understand. The harder the investment is to understand, the easier it is for it to be a scam (or just a bad investment). There's not necessarily anything wrong with boring.\",\n \"Go to fidelity.com and open a free brokerage account. Deposit money from your bank account into your fidelity account. (expect a minimum of $2500, FBIDX requires more I believe) Buy free to trade ETF Funds of your liking. I tend to prefer US Bonds to stocks, FBIDX is a decent intermediate US Bond etf, but the euro zone has added a little more volatile lately than I'd like. If you do really want to trade stocks, you may want to go with a large cap fund like FLCSX, but it is more risky especially in this economy. (but buy low sell high right?) I've put my savings into FBIDX and FGMNX (basically the same thing, intermediate bond ETF funds) and made $700 in interest and capitol gains last year. (started with zero initially, have 30k in there now)\",\n \"One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.\",\n \"If you are in an economy which has a decent liquid debt market (corporate bonds, etc.), then you may look into investing in AA or AA+ rated bonds. They can provide higher returns than bank deposits and are virtually risk-free. (Though in severe economic downturns, you can see defaults in even very high-rated bonds, leading to partial or complete loss of value however, this is statistically quite rare). You can make this investment through a debt mutual fund but please make sure that you read through the offer document carefully to understand the investment style of the mutual fund and their expense ratio (which directly affect your returns). In any case, it is always recommended to reach out to an investment adviser who is good with local tax laws to minimize taxes and maximize returns.\",\n \"Yahoo's primary business isn't providing mutual fund performance data. They aim to be convenient, but often leave something to be desired in terms of completeness. Try Morningstar instead. Their mission is investment research. Here's a link to Morningstar's data for the fund you specified. If you scroll down, you'll see:\",\n \"At what point does my investment benefit from compounded interest? Monthly? Quarter? Yearly? Does it even benefit? I think you are mixing things. There is no concept of interest or compounding in Mutual Funds. When you buy a mutual fund, it either appreciates in value or depreciates in value; both can happen depending on the time period you compare. Now, let's assume at the end of the year I have a 5% return. My $10,000 is now $10,500. The way you need to look at this is Given you started with $10,000 and its now $10,500 the return is 5%. Now if you want to calculate simple return or compounded return, you would have to calculate accordingly. You may potentially want to find a compounded return for ease of comparison with say a Bank FD interest rate or some other reason. So if $10,000 become $10,500 after one year and $11,000 after 2 year. The absolute return is 10%, the simple yearly return is 5%. Or the Simple rate of return for first year is 5% and for second year is 4.9%. Or the Average Year on Year return is 4.775%.\",\n \"You are not limited in these 3 choices. You can also invest in ETFs, which are similar to mutual funds, but traded like stocks. Usually (at least in Canada), MERs for ETFs are smaller than for mutual funds.\",\n \"\\\"I'll try to give you some clues on how to find an answer to your question, rather than answering directly the question asked. Why not answer it directly? Well, I can, but it won't help you (or anyone else) much in two months when the rates change again. Generally, you won't find such in brick-and-mortar banks. You can save some time and only look at online banks. Examples: ING Direct (CapitalOne), CapitalOne, Amex FSB, E*Trade, Ally, etc. There are plenty. Go to their web sites, look for promotions, and compare. Sometimes you can find coupons/promotions which will yield more than the actual savings rate. For example, ING frequently have a $50 promotion for opening a new account. You need to understand that rates change frequently, and the highest rate account today may become barely average in a week. There are plenty of sites that offer various levels of comparison information. One of the most comprehensive ones (IMHO) is Bankrate.com. Another place to look is MoneyRates.com. These sites provide various comparisons, and you can also find some promotions advertised there. There are more similar sites. Also, search the Internet and you can find various blog posts with additional promotions – frequently banks give \\\"\\\"referral bonuses\\\"\\\" to provide incentive for clients to promote the banks. Do some due diligence on the results that appear promising. Not much. You won't find any savings account that would keep the value (purchasing power) of your money over the long term. Keeping money in savings accounts is a sure way to lose value because the inflation rate is much higher than even high-yield savings accounts. But, savings accounts are safe (insured by FDIC/NCUA up to the limit), and very convenient to keep short term savings – such as an emergency fund – that you cannot afford to lose to investments. Sometimes you'll get slightly better rates by locking up your money in a Certificate of Deposit (CD), but not significantly higher when the CD is short-term.\\\"\",\n \"\\\"In addition to the advice of @karancan, If you wish to stay strictly with GICs, there are better ways to find good GIC rates, than looking at advertising from institutions you are already dealing with. This site, http://www.globeinvestor.com/servlet/Page/document/v5/data/rates?order=d&pageType=gic_long&sort=IR1&page=1&tax_indicator=N (among others) display impartial GIC rates for many institutions and terms of investment, in sortable form. Many of these institutions allow on-line purchases and transfers, requiring only a \\\"\\\"regular\\\"\\\" bank account as a source/destination for on-line transfers...\\\"\",\n \"Vanguard has a lot of mutual fund offerings. (I have an account there.) Within the members' section they give indications of the level of risk/reward for each fund.\",\n \"\\\"First, you don't state where you are and this is a rather global site. There are people from Canada, US, and many other countries here so \\\"\\\"mutual funds\\\"\\\" that mean one thing to you may be a bit different for someone in a foreign country for one point. Thanks for stating that point in a tag. Second, mutual funds are merely a type of investment vehicle, there is something to be said for what is in the fund which could be an investment company, trust or a few other possibilities. Within North America there are money market mutual funds, bond mutual funds, stock mutual funds, mutual funds of other mutual funds and funds that are a combination of any and all of the former choices. Thus, something like a money market mutual fund would be low risk but quite likely low return as well. Short-term bond funds would bring up the risk a tick though this depends on how you handle the volatility of the fund's NAV changing. There is also something to be said for open-end, ETF and closed-end funds that are a few types to consider as well. Third, taxes are something not even mentioned here which could impact which kinds of funds make sense as some funds may invest in instruments with favorable tax-treatment. Aside from funds, I'd look at CDs and Treasuries would be my suggestion. With a rather short time frame, stocks could be quite dangerous to my mind. I'd only suggest stocks if you are investing for at least 5 years. In 2 years there is a lot that can happen with stocks where if you look at history there was a record of stocks going down about 1 in every 4 years on average. Something to consider is what kind of downside would you accept here? Are you OK if what you save gets cut in half? This is what can happen with some growth funds in the short-term which is what a 2 year time horizon looks like. If you do with a stock mutual fund, it would be a gamble to my mind. Don't forget that if the fund goes down 10% and then comes up 10%, you're still down 1% since the down will take more.\\\"\",\n \"\\\"Yes, there is a very good Return vs Risk graph put out at riskgrades.com. Look at it soon, because it will be unavailable after 6-30-11. The RA (return analysis) graph is what I think you are looking for. The first graph shown is an \\\"\\\"Average Return\\\"\\\", which I was told was for a 3 year period. Three period returns of 3, 6 and 12 months, are also available. You can specify the ticker symbols of funds or stocks you want a display of. For funds, the return includes price and distributions (total return), but only price movement for stocks - per site webmaster. I've used the graphs for a few years, since Forbes identified it as a \\\"\\\"Best of the Web\\\"\\\" site. Initially, I found numerous problems with some of the data and was able to work with the webmaster to correct them. Lately though, they have NOT been correcting problems that I bring to their attention. For example, try the symbols MUTHX, EDITX, AWSHX and you'll see that the Risk Grades on the graphs are seriously in error, and compress the graph results and cause overwriting and poor readability. If anyone knows of a similar product, I'd like to know about it. Thanks, George\\\"\",\n \"One of the things I would suggest looking into is peer-to-peer lending. I do lendingclub.com, but with a lot less money, and have only done it a short period of time. Still my return is about 13%. In your case you would probably have to commit to about 3.5 years to invest your money. Buy 3 year notes, and as they are paid off pull the money out and put into a CD or money market.. They sell notes that are 3 or 5 year and you may not want to tie your money up that long.\",\n \"\\\"There is a site that treats you like a fund manager in the real market, Marketoracy, http://marketocracy.com/. Each user is given 1 million in cash. You can have multiple \\\"\\\"mutual funds\\\"\\\", and the site allows use to choose between two types of strategies, buy/sell, short/cover. Currently, options are not supported. The real value of the site is that users are ranked against each other (of course, you can op out of the rankings). This is really cool because you can determine the real worth of your returns compared to the rest of investors across the site. A couple years back, the top 100 investors were invited to come on as real mutual fund managers - so the competition is legitimate. Take a look at the site, it's definitely worth a try. Were there other great sites you looked at?\\\"\",\n \"\\\"Since this is your emergency fund, you generally want to avoid volatility while keeping pace with inflation. You really shouldn't be looking for aggressive growth (which means taking on some risk). That comes from money outside of the emergency fund. The simplest thing to do would be to shop around for a different savings account. There are some deals out there that are better than ING. Here is a good list. The \\\"\\\"traditional\\\"\\\" places to keep an emergency fund are Money Market Mutual Funds (not to be confused with Money Market Accounts). They are considered extremely safe investments. However, the returns on such a fund is pretty low these days, often lower than a high-yield online savings account. The next step up would be a bond fund (more volatility, slightly better return). Pick something that relies on Government bonds, not \\\"\\\"high-yield\\\"\\\" (junk) bonds or anything crazy like that. Fidelity Four in One comes pretty close to your \\\"\\\"index of indexes\\\"\\\" request, but it isn't the most stable thing. You'd probably do better with a safer investment.\\\"\",\n \"In almost every circumstance high expense ratios are a bad idea. I would say every circumstance, but I don't want backlash from anyone. There are many other investment companies out there that offer mutual funds for FAR less than 1.5% ratio. I couldn't even imagine paying a 1% expense ratio for a mutual fund. Vanguard offers mutual funds that are significantly lower, on average, than the industry. Certainly MUCH lower than 1.5%, but then again I'm not sure what mutual funds you have, stock, bonds, etc. Here is a list of all Vanguard's mutual funds. I honestly like the company a lot, many people haven't heard of them because they don't spend nearly as much money on advertisements or a flashy website - but they have extremely low expense ratios. You can buy into many of their mutual funds with a 0.10%-0.20% expense ratio. Some are higher, but certainly not even close to 1.5%. I don't believe any of them are even half of that. Also, if you were referring to ETF's when you mentioned Index Fund (assuming that since you have ETFs in your tag), then 0.20% for ETF's is steep, check out some identical ETFs on Vanguard. I am not a Vanguard employee soliciting their service to you. I'm just trying to pass on good information to another investor. I believe you can buy vanguard funds through other investment companies, like Fidelity, for a good price, but I prefer to go through them.\",\n \"\\\"Mutual funds can be relatively low risk and a good starting point. Really it depends on you. What are your goals? This is a pretty open ended question. These can all be low risk and provide some return. Note \\\"\\\"Less Knowledge\\\"\\\" is never a good qualifier for an investment. Your money is your business and you are entitled to know what your business is up to.\\\"\",\n \"Don't invest in regular mutual funds. They are a rip-off. And, most investment professionals will not do much to help your financial future. Here's the advice:\",\n \"The Vanguard Short-Term Bond Index mutual fund (VBIRX) might fit your need. Apart from 2008, it has only had one single quarter of negative returns, and has always had positive annual returns. If you're looking for an ETF, you might consider iShares Barclays 1-3 Year Credit Bond (CSJ).\",\n \"There are many considerations before deciding on the best place for your funds: How liquid do you need the funds to be? If this is for an emergency fund I would keep at least some in an account that you have instant access to, What is your risk (volatility) tolerance? Would you be OK with the value dropping by as much as 30% in a year knowing that over time you'll probably earn 8-12% on it? If not, then equity funds or other stock investments are probably not the best move for you. Do you need the funds now or are they for long-term (retirement) savings? Are you eligible to fund an IRA? That would defer your taxes until you withdraw the funds from the account, but there are age restrictions that you must heed to avoid penalties. Are CDs a good idea? They do pay decent interest, but in return for that you lock up your funds for a set period of time. All that to say that there are many facets to determining the best place for your funds. If you provide more specifics you can get a more specific answer.\",\n \"Returns: Variable, as with all investments. Legitimate: Contact the usual major investment-fund houses.\",\n \"Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.\",\n \"The Telegraph had an interesting article recently going back 30 years for Mutual's in the UK that had beaten the market and trackers for both IT and UT http://www.telegraph.co.uk/finance/personalfinance/investing/11489789/The-funds-that-have-returned-more-than-12pc-per-year-for-THIRTY-years.html\",\n \"Magazines like SmartMoney often have an annual issue that reviews brokers. One broker may have a wider variety of no-fee mutual funds, and if that's your priority, then the stock commissions may be a moot issue for you. In general, you can't go wrong with a Fidelity or Schwab, and to choose investments within the accounts with an eye toward low expenses.\",\n \"As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.\",\n \"\\\"Congratulations on deciding to save money and choosing to invest it. One thing to know about mutual funds including index funds is that they typically require a minimum investment of a few thousand dollars, $3000 being a typical amount, unless the investment is in an IRA in which case $1000 might be a minimum. In some cases, automated monthly investments of $50 or $100 might need to be set up if you are beginning with a small balance. There is nothing wrong with your approach. You now should go and look at the various requirements for specific index funds. The Fidelity and Vanguard families are good choices and both offer very low-cost index funds to choose from, but different funds can have different requirements regarding minimum investments etc. You also have a choice of which index you want to follow, the S&P 500 Index, MidCap Indexes, Small-Cap Indexes, Total Stock Market Indexes etc., but your choice might be limited until you have more money to invest because of minimum investment rules etc. Most important, after you have made your choice, I urge you to not look every day, or even every month, to see how your investment is doing. You will save yourself a lot of anxiety and will save yourself from making wrong decisions. Far too many investors ignore the maxim \\\"\\\"Buy Low, Sell High\\\"\\\" and pull money out of what should be long-term investments at the first flicker of a downturn and end up buying high and selling low. Finally, the time is approaching when most stock funds will be declaring dividends and capital gains distributions. If you invest now, you may end up with a paper profit on which you will have to pay taxes (in non-tax-advantaged accounts) on your 2012 tax return (this is called \\\"\\\"buying a dividend\\\"\\\"), and so you might want to spend some time investigating now, but actually make the investment in late December after your chosen fund has made its distributions (the date for this will be on the fund's web site) or in early 2013.\\\"\",\n \"If you need the money in the short-term, you want to invest in something fairly safe. These include saving accounts, CDs, and money market funds from someplace like Vanguard. The last two might give you a slightly better return than the local branch of a national bank.\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"Congratulations on being in such good financial state. You have a few investment choices. If you want very low risk, you are talking bonds or CDs. With the prime rate so low, nobody is paying anything useful for very low risk investments. However, my opinion is that given your finances, you should consider taking on a little more risk. A good step is a index fund, which is designed to mirror the performance of a stock index such as the S&P 500. That may be volatile in the short-term, but is likely to be a good investment in the longer term. I am not a fan of non-index mutual funds; in general the management charge makes them a less attractive investment. The next step up is investing in individual stocks, which can provide very big gains or very big losses. The Motley fool site (www.fool.com) has a lot of information about investing overall.\",\n \"So if someone would invest 14000 credits on 1st April 2016, he'd get monthly dividend = ((14000 ÷ 14) × 0.0451) × (1 - 1.42 ÷ 100) = 44.459 credits, right? One would get ((14000 ÷ 14) × 0.0451) = 45.1 is what you would get. The expenses are not to be factored. Generally if a scheme has less expense ratio, the yield is more. i.e. this has already got factored in 0.0451. If the expense ratio was less, this would have been 0.05 if expense ration would have been more it would have been 0.040. Can I then consider the bank deposit earning a higher income per month than the mutual fund scheme? As the MIP as classified as Hybrid funds as they invest around 30% in equities, there is no tax on the income. More so if there is a lock-in of 3 years. In Bank FD, there would be tax applicable as per tax brackets.\",\n \"As always with investments, it depends on your risk adversity. I don't want to repeat the content of hundreds of recommendations here, so just the nutshell: (For qualified investments,) the more risk you are willing to take, the more returns you'll get. The upper end is the mutual funds and share market, where you have long-term expectations of 8 - 10 % (and corresponding risks of maybe +/- 50% per year), the lower end is a CD, where you can expect little to no interest, corresponding to little to no risk. Investing in shares/funds is not 'better' than investing in CDs, it is different. Not everybody likes financial roller-coasters, and some people mainly consider the high risk, which gives them sleepless nights; while others just consider the expected high long-term gains as all that counts. Find out what your personal risk adversity is, and then pick accordingly.\",\n \"Bond aren't necessarily any safer than the stock market. Ultimately, there is no such thing as a low risk mutual fund. You want something that will allow you get at your money relatively quickly. In other words, CDs (since you you can pick a definite time period for your money to be tied up), money market account or just a plain old savings account. Basically, you want to match inflation and have easy access to the money. Any other returns on top of that are gravy, but don't fret too much about it. See also: Where can I park my rainy-day / emergency fund? Savings accounts don’t generate much interest. Where should I park my rainy-day / emergency fund?\",\n \"\\\"Books such as \\\"\\\"The Pocket Idiot's Guide to Investing in Mutual Funds\\\"\\\" claim that money market funds and CDs are the most prudent things to invest in if you need the money within 5 years. More specifically:\\\"\",\n \"See if any of the funds they offer are index funds, which will generally have MUCH lower fees and which seem to perform as well as any of the actively managed funds in the same categories.\",\n \"A CDIC-insured high-interest savings bank account is both safe and liquid (i.e. you can withdraw your money at any time.) At present time, you could earn interest of ~1.35% per year, if you shop around. If you are willing to truly lock in for 2 years minimum, rates go up slightly, but perhaps not enough to warrant loss of liquidity. Look at GIC rates to get an idea. Any other investments – such as mutual funds, stocks, index funds, ETFs, etc. – are generally not consistent with your stated risk objective and time frame. Better returns are generally only possible if you accept the risk of loss of capital, or lock in for longer time periods.\",\n \"Almost all major no-load mutual fund families allow you to do the kind of thing you are talking about, however you may need an initial investment of between $1000 to $3000 depending on the fund. Once you have it however, annual fee's are usually very little, and the fees to buy that companies funds are usually zero if it's a no-load company (Vanguard, TRowPrice, etc) With the larger companies that means you have a pretty large selection of funds, but generally EACH fund has a minimum initial purchase, once that's met then you can buy additional amounts in small quantities without a problem. For someone on a smaller budget, many low cost brokers (ETrade as mentioned by Litteadv, Scottrade as mentioned by myself in another similar question today) allow you to start with smaller initial balances and have a small selection of funds or ETF's that you can trade from without commission. In the case of Scottrade, they have like 15 ETF's that you can trade comission free. Check with the various low cost brokerages such as ETrade, Scottrade, and TDAmeritrade, to see what their policies are, and what if any funds/ETF's they allow you to trade in without commissions. Keep in mind that for Mutual funds, there may still be a fund minimum initial investment that applies, be sure to check if that is the case or not. The lack of any minimum investment makes ETF's a slightly more attractive option for someone who doesn't have the 'buy in' that many funds require.\",\n \"Since returning of capital is the most important, I would go to bankrate.com and find either an online bank savings account or MMA account. By going to bankrate.com, you can find higher rates. Sometimes you can find rates that are higher than a CD and are still FDIC insured. I've found ally bank's raise your rate 2 year CD to always have the best rate. In addition, if rates go up, you are able to raise the rate to the current rate.\",\n \"CDs pay less than the going rate so that the banks can earn money. Investing is risky right now due to the inaction of the Fed. Try your independent life insurance agent. You could get endowment life insurance. It would pay out at age 21. If you decide to invest it yourself try to buy a stable equity fund. My 'bedrock' fund is PGF. It pays dividends each month and is currently yealding 5.5% per year. Scottrade has a facility to automatically reinvest the dividend each month at no commission. http://www.marketwatch.com/investing/Fund/PGF?CountryCode=US\",\n \"\\\"The \\\"\\\"Money 70\\\"\\\" is a fine list: http://money.cnn.com/magazines/moneymag/bestfunds/index.html Money magazine is usually more reasonable than the other ones (SmartMoney, Kiplinger's, etc. are in my opinion sillier). If you want a lot of depth, the Morningstar Analyst Picks are useful but you have to pay for a membership which is probably not worth it for now: http://www.morningstar.com/Cover/Funds.aspx (side note: Morningstar star ratings are not useful, I'd ignore those. analyst picks are pretty useful.) Vanguard is a can't-go-too-wrong suggestion. They don't have any house funds that are \\\"\\\"bad,\\\"\\\" while for example Fidelity has some good ones mixed with a bunch that aren't so much. Of course, some funds at Vanguard may be inappropriate for your situation. (Vanguard also sells third-party funds, I'm talking about their own branded funds.) If getting started with 5K I think you'd want to go with an all-in-one fund like a target date retirement fund or a balanced fund. Such a fund also handles rebalancing for you. There's a Vanguard target date fund and balanced fund (Wellington) in the Money 70 list. fwiw, I think it's more important to ask how much risk you need to take, rather than how much you are willing to take. I wrote this down at more length here: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ First pick your desired asset allocation, then pick your fund after that to match. Good luck.\\\"\",\n \"Your question is actually quite broad, so will try to split it into it's key parts: Yes, standard bank ISAs pay very poor rates of interest at the moment. They are however basically risk free and should track inflation. Any investment in the 6-7% return range at the moment will be linked to stock. Stock always carries large risks (~50% swings in capital are pretty standard in the short run. In the long run it generally beats every other asset class by miles). If you can’t handle those types of short terms swings, you shouldn’t get involved. If you do want to invest in stock, there is a hefty ignorance tax waiting at every corner in terms of how brokers construct their fees. In a nutshell, there is a different best value broker in the UK for virtually every band of capital, and they make their money through people signing up when they are in range x, and not moving their money when they reach band y; or just having a large marketing budget and screwing you from the start (Nutmeg at ~1% a year is def in this category). There isn't much of an obvious way around this if you are adamant you don't want to learn about it - the way the market is constructed is just a total predatory minefield for the complete novice. There are middle ground style investments between the two extremes you are looking at: bonds, bond funds and mixes of bonds and small amounts of stock (such as the Vanguard income or Conservative Growth funds outlined here), can return more than savings accounts with less risk than stocks, but again its a very diverse field that's hard to give specific advice about without knowing more about what your risk tolerance, timelines and aims are. If you do go down this (or the pure stock fund) route, it will need to be purchased via a broker in an ISA wrapper. The broker charges a platform fee, the fund charges a fund fee. In both cases you want these as low as possible. The Telegraph has a good heat map for the best value ISA platform providers by capital range here. Fund fees are always in the key investor document (KIID), under 'ongoing charges'.\",\n \"These interest rates are very low. One of the reasons that I prefer E*Trade is because on their on-line savings account the interest rates are several times higher than on ScotTrade margin accounts (currently it's 0.7% on E*Trade, on any amount, IIRC). The transfers between the accounts on E*Trade are immediate, and they allow using the money for investing immediately even for transfers from outside source. If you can wait a couple of days for the money to arrive before your investment (unless ScotTrade, like E*Trade, allow investing external transfers immediately), you can look at AMEX, ING Direct or Capitol One on-line savings accounts for even higher rates. Oh, and needless to mention, on-line savings accounts are FDIC insured, I'm not sure if the uninvested deposits on Scottrade are.\",\n \"\\\"TD e-series index funds are great for regular contributions every paycheck since there is no trading commission. The personal finance blog \\\"\\\"Canadian Couch Potato\\\"\\\" has great examples of what they call \\\"\\\"model portfolios\\\"\\\" and one consists of entirely TD e-series index funds. Check it out: http://canadiancouchpotato.com/model-portfolios-2/ The e-series portfolio that is described in the Model Portfolios (linked above) made returns of just over 10%. This is very similar to the ETF Model Portolio. One thing to remember is that these funds have a 30 day no sell time frame, otherwise a 2% fee is applied to the funds you withdraw.\\\"\",\n \"I highly recommend passive investing through something like betterment (www.betterment.com) or vanguard's ETFs. FutureAdvisor.com can provide some good advice as to what funds to invest in. I'd recommend using that money to max out your Roth IRAs each year, too.\",\n \"\\\"The best predictor of mutual fund performance is low expense ratio, as reported by Morningstar despite the fact that it produces the star ratings you cite. Most of the funds you list are actively managed and thus have high expense ratios. Even if you believe there are mutual fund managers out there that can pick investments intelligently enough to offset the costs versus a passive index fund, do you trust that you will be able to select such a manager? Most people that aren't trying to sell you something will advise that your best bet is to stick with low-cost, passive index funds. I only see one of these in your options, which is FUSVX (Fidelity Spartan 500 Index Fund Fidelity Advantage Class) with an exceptionally low expense ratio of 0.05%. Do you have other investment accounts with more choices, like an IRA? If so you might consider putting a major chunk of your 401(k) money into FUSVX, and use your IRA to balance your overall porfolio with small- and medium-cap domestic stock, international stock, and bond funds. As an aside, I remember seeing a funny comment on this site once that is applicable here, something along the lines of \\\"\\\"don't take investment advice from coworkers unless they're Warren Buffett or Bill Gross\\\"\\\".\\\"\",\n \"\\\"Index funds can be a very good way to get into the stock market. It's a lot easier, and cheaper, to buy a few shares of an index fund than it is to buy a few shares in hundreds of different companies. An index fund will also generally charge lower fees than an \\\"\\\"actively managed\\\"\\\" mutual fund, where the manager tries to pick which stocks to invest for you. While the actively managed fund might give you better returns (by investing in good companies instead of every company in the index) that doesn't always work out, and the fees can eat away at that advantage. (Stocks, on average, are expected to yield an annual return of 4%, after inflation. Consider that when you see an expense ratio of 1%. Index funds should charge you more like 0.1%-0.3% or so, possibly more if it's an exotic index.) The question is what sort of index you're going to invest in. The Standard and Poor's 500 (S&P 500) is a major index, and if you see someone talking about the performance of a mutual fund or investment strategy, there's a good chance they'll compare it to the return of the S&P 500. Moreover, there are a variety of index funds and exchange-traded funds that offer very good expense ratios (e.g. Vanguard's ETF charges ~0.06%, very cheap!). You can also find some funds which try to get you exposure to the entire world stock market, e.g. Vanguard Total World Stock ETF, NYSE:VT). An index fund is probably the ideal way to start a portfolio - easy, and you get a lot of diversification. Later, when you have more money available, you can consider adding individual stocks or investing in specific sectors or regions. (Someone else suggested Brazil/Russia/Indo-China, or BRICs - having some money invested in that region isn't necessarily a bad idea, but putting all or most of your money in that region would be. If BRICs are more of your portfolio then they are of the world economy, your portfolio isn't balanced. Also, while these countries are experiencing a lot of economic growth, that doesn't always mean that the companies that you own stock in are the ones which will benefit; small businesses and new ventures may make up a significant part of that growth.) Bond funds are useful when you want to diversify your portfolio so that it's not all stocks. There's a bunch of portfolio theory built around asset allocation strategies. The idea is that you should try to maintain a target mix of assets, whatever the market's doing. The basic simplified guideline about investing for retirement says that your portfolio should have (your age)% in bonds (e.g. a 30-year-old should have 30% in bonds, a 50-year-old 50%.) This helps maintain a balance between the volatility of your portfolio (the stock market's ups and downs) and the rate of return: you want to earn money when you can, but when it's almost time to spend it, you don't want a sudden stock market crash to wipe it all out. Bonds help preserve that value (but don't have as nice of a return). The other idea behind asset allocation is that if the market changes - e.g. your stocks go up a lot while your bonds stagnate - you rebalance and buy more bonds. If the stock market subsequently crashes, you move some of your bond money back into stocks. This basically means that you buy low and sell high, just by maintaining your asset allocation. This is generally more reliable than trying to \\\"\\\"time the market\\\"\\\" and move into an asset class before it goes up (and move out before it goes down). Market-timing is just speculation. You get better returns if you guess right, but you get worse returns if you guess wrong. Commodity funds are useful as another way to diversify your portfolio, and can serve as a little bit of protection in case of crisis or inflation. You can buy gold, silver, platinum and palladium ETFs on the stock exchanges. Having a small amount of money in these funds isn't a bad idea, but commodities can be subject to violent price swings! Moreover, a bar of gold doesn't really earn any money (and owning a share of a precious-metals ETF will incur administrative, storage, and insurance costs to boot). A well-run business does earn money. Assuming you're saving for the long haul (retirement or something several decades off) my suggestion for you would be to start by investing most of your money* in index funds to match the total world stock market (with something like the aforementioned NYSE:VT, for instance), a small portion in bonds, and a smaller portion in commodity funds. (For all the negative stuff I've said about market-timing, it's pretty clear that the bond market is very expensive right now, and so are the commodities!) Then, as you do additional research and determine what sort investments are right for you, add new investment money in the places that you think are appropriate - stock funds, bond funds, commodity funds, individual stocks, sector-specific funds, actively managed mutual funds, et cetera - and try to maintain a reasonable asset allocation. Have fun. *(Most of your investment money. You should have a separate fund for emergencies, and don't invest money in stocks if you know you're going need it within the next few years).\\\"\",\n \"On reading couple of articles & some research over internet, I got to know about diversified investment where one should invest 70% in equity related & rest 30% in debt related funds Yes that is about right. Although the recommendation keeps varying a bit. However your first investment should not aim for diversification. Putting small amounts in multiple mutual funds may create paper work and tracking issues. My suggestion would be to start with an Index EFT or Large cap. Then move to balanced funds and mid caps etc. On this site we don't advise on specific funds. You can refer to moneycontrol.com or economictimes or quite a few other personal finance advisory sites to understand the top funds in the segments and decide on funds accordingly. PS: Rather than buying paper, buy it electronic, better you can now buy it as Demat. If you already have an Demat account it would be best to buy through it.\",\n \"You don't say what kinds of mutual funds, or what bonds. You don't say how old you are. You seem to have enough cushion to strike out on your own comfortably. This is good. Compared with Vanguard's management fees, the fees you're paying are pretty high. The bottom line of what to invest in rests with you. If you outsource it, it's still your money. The managers get paid whether you make money or not. You have lots of other options: real estate from a distressed seller, commodities, currencies, websites, or other things where you have a knowledge advantage. For the time being, though, if you're concerned about your main income stream, I wouldn't get terribly risky with your money. Cash is just peachy in that case.\",\n \"http://www.moneysupermarket.com/shares/CompareSharesForm.asp lists many. I found the Interactive Investor website to be excruciatingly bad. I switched to TD Waterhouse and found the website good but the telephone service a bit abrupt. I often use the data presented on SelfTrade but don't have an account there.\",\n \"The SEC 30-Day Yield you're seeing is a standardized yield calculation set out by the Securities & Exchange Commission. It can be useful for comparing bond funds, but it doesn't guarantee what you'll actually earn from a fund. IMPORTANT: The SEC 30-day yield represents a bond fund's returns from the previous 30 days expressed as an annual percentage of the current fund price — yes, an annual percentage. In other words, don't expect 1.81% return on your money every 30 days! Such a return is too-good-to-be-true return in today's low rate environment. 1.81% per year? More reasonable. Even then, the 1.81% you see is merely an estimate, one based on assumptions, of what you might expect to earn if you keep your money in place for the next year. The estimate is based on the assumptions that: These aren't reliable assumptions. BIV's price does fluctuate. You are not promised to get your principal back with a bond fund. Only an individual bond promises your principal back, and only at maturity. So, earning $181 on $10,000 invested for a full year while taking on interest-rate and other risks might not be worth the trouble of putting your money in a brokerage account. You'll need to transfer the money in and out, and there are potential trading fees to take into account. (How much to buy/sell units?) An FDIC-insured high interest savings account makes more sense.\",\n \"I would stay away from the Actively Managed Funds. Index funds or the asset allocation funds are your best bet since they have the lowest fees. What is your risk tolerance? How old are you? I would suggest reading:\",\n \"\\\"Most mutual funds are designed to make the investment banks that sell them money, not to make investers money. They do this by taking significant fees out. Because they make lots of money on these funds, they advertise them a lot, and give them important-sounding names, like \\\"\\\"Advanced technology global diversity long term appreciation\\\"\\\". Index funds are the exception; they attempt to mirror the performance of a specific index (such as the S&P 500 index). They generally have very low fees.\\\"\",\n \"It depends on the exact level of risk that you want, but if you want to keep your risk close to zero you're pretty much stuck with the banks (and those rates don't look to be going up any time soon). If you're willing to accept a little more risk, you can invest in some index tracking ETFs instead, with the main providers in Australia being Vanguard, Street State and Betashares. A useful tool for for an overview of the Australian ETF market is offered by StockSpot. The index funds reduce your level of risk by investing in an index of the market, e.g. the S&P 200 tracked by STW. If the market as a whole rises, then your investment will too, even though within that index individual companies will rise and fall. This limits your potential rate of return as well, and is still significantly more risky than leaving your cash in an Aussie bank (after all, the whole market can fall), but it might strike the right balance for you. If you're getting started, HSBC, Nabtrade, Commsec and Westpac were all offering a couple of months of free trades up to a certain value. Once the free trades are done, you'll do better to move to another broker (you can migrate your shares to the others to take advantage of their free trades too) or to a cheaper broker like CMC Markets.\",\n \"\\\"I used the term \\\"\\\"bond fund\\\"\\\" to mean a mutual fund which invests in bonds. Vanguard has a list. If you live in PA, OH, MA, FL, CA, NJ, or NY there are tax free funds you can invest in on that list.\\\"\",\n \"I'm looking for ways to geared to save for retirement, not general investment. Many mutual fund companies offer a range of target retirement funds for different retirement dates (usually in increments of 5 years). These are funds of funds, that is, a Target 2040 Fund, say, will be invested in five or six different stock and bond mutual funds offered by the same company. Over the years and as the target date approaches closer, the investment mix will change from extra weight given to stock mutual funds towards extra weight being given to bond mutual funds. The disadvantage to these funds is that the Target Fund charges its own expense ratio over and above the expense ratios charged by the mutual funds it invests in: you could do the same investments yourself (or pick your own mix and weighting of various funds) and save the extra expense ratio. However, over the years, as the Target Fund changes its mix, withdrawing money from the stock mutual funds and investing the proceeds into bond mutual funds, you do not have to pay taxes on the profits generated by these transactions except insofar as some part of the profits become distributions from the Target Fund itself. If you were doing the same transactions outside the Target Fund, you would be liable for taxes on the profits when you withdrew money from a stock fund and invested the proceeds into the bond fund.\",\n \"\\\"Check out the \\\"\\\"rewards checking\\\"\\\" accounts listed on this thread at fatwallet finance forums. You could easily get 3.5% - 4% right now if you are willing to do the rewards checking dance. If not, you should look into the 1-2% accounts at the top. I use Alliant CU and their website is nice (and they give you your credit score every six months).\\\"\",\n \"In the past 10 years there have been mutual funds that would act as a single bucket of stocks and bonds. A good example is Fidelity's Four In One. The trade off was a management fee for the fund in exchange for having to manage the portfolio itself and pay separate commissions and fees. These days though it is very simple and pretty cheap to put together a basket of 5-6 ETFs that would represent a balanced portfolio. Whats even more interesting is that large online brokerage houses are starting to offer commission free trading of a number of ETFs, as long as they are not day traded and are held for a period similar to NTF mutual funds. I think you could easily put together a basket of 5-6 ETFs to trade on Fidelity or TD Ameritrade commission free, and one that would represent a nice diversified portfolio. The main advantage is that you are not giving money to the fund manager but rather paying the minimal cost of investing in an index ETF. Overall this can save you an extra .5-1% annually on your portfolio, just in fees. Here are links to commission free ETF trading on Fidelity and TD Ameritrade.\",\n \"\\\"Morningstar is often considered a trusted industry standard when it comes to rating mutual funds and ETFs. They offer the same data-centric information for other investments as well, such as individual stocks and bonds. You can consult Morningstar directly if you like, but any established broker will usually provide you with Morningstar's ratings for the products it is trying to sell to you. Vanguard offers a few Emerging Markets stock and bond funds, some actively managed, some index funds. Other investment management companies (Fidelity, Schwab, etc.) presumably do as well. You could start by looking in Morningstar (or on the individual companies' websites) to find what the similarities and differences are among these funds. That can help answer some important questions: I personally just shove a certain percentage of my portfolio into non-US stocks and bonds, and of that allocation a certain fraction goes into \\\"\\\"established\\\"\\\" economies and a certain fraction into \\\"\\\"emerging\\\"\\\" ones. I do all this with just a few basic index funds, because the indices make sense (to me) and index funds cost very little.\\\"\",\n \"\\\"If you want the answer from the horse's mouth, go to the website of the ETF or mutual find, and the expense ratio will be listed there, both on the \\\"\\\"Important Information\\\"\\\" part of the front page, as well as in the .pdf file that you click on to download the Prospectus. Oh wait, you don't want to go the fund's website at all, just to a query site where you type in something like VFINX. hit SEARCH, and out pops the expense ratio for the Vanguard S&P 500 Index Fund? Well, have you considered MorningStar?\\\"\",\n \"Congratulations! You're making enough money to invest. There are two easy places to start: I recommend against savings accounts because they will quite safely lose your money: the inflation rate is usually higher than the interest rate on a savings account. You may have twice as much money after 50 years, but if everything costs four times as much, then you've lost buying power. If, in the course of learning about investing, you'd like to try buying individual stocks, do it only with money you wouldn't mind losing. Index funds will go down slightly if one of the companies in that index fails entirely, but the stock of a failed company is worthless.\",\n \"There are quite a few options. Suggest you put a mix of things and begin investing into Mutual Funds.\",\n \"\\\"There are raters of stock and bond funds of which Morningstar's is the best. Standard and Poor's and Value line offer reports that aren't quite as good. If you are able to read and understand these reports yourself, you don't need a professional. Such help is necessary for people who are \\\"\\\"rank beginners\\\"\\\" in investments.\\\"\",\n \"Just find a low cost S&P 500 index fund, and spend your time reading The Great Mutual Fund Trap instead of wasting your time and money picking actively managed funds.\",\n \"Yes, it is. Got to start somewhere. Typically directly through a company itself. Check out this site that lists a bunch of them and their minimum requirements. Not many only accept $100 but there are a few. ie. ACTIVEnergy Income Fund, CIBC, COMPASS Income Fund, Suncor Energy Inc. and a few others.\",\n \"\\\"An alternative to a savings account is a money market account. Not a bank \\\"\\\"Money Market\\\"\\\" account which pays effectively the same silly rate as a savings account, but an actual Money Market investment account. You can even write checks against some Money Market investment accounts. I have several accounts worth about 13,000 each. Originally, my \\\"\\\"emergency fund\\\"\\\" was in a CD ladder. I started experimenting with two different Money market investment accounts recently. Here's my latest results: August returns on various accounts worth about $13k: - Discover Bank CD: $13.22 - Discover Bank CD: $13.27 - Discover Bank CD: $13.20 - Discover Savings: $13.18 - Credit Union \\\"\\\"Money Market\\\"\\\" Savings account: $1.80 - Fidelity Money Market Account (SPAXX): $7.35 - Vanguard Money market Account (VMFXX): $10.86 The actual account values are approximate. The Fidelity Money Market Account holds the least value, and the Credit Union account by far the most. The result of the experiment is that as the CDs mature, I'll be moving out of Discover Bank into the Vanguard Money Market account. You can put your money into more traditional equities mutual fund. The danger with them is the stock market may drop big the day before you want to make your withdrawl... and then you don't have the down payment for your house anymore. But a well chosen mutual fund will yield better. There are 3 ways a mutual fund increase in value: Here's how three of my mutual funds did in the past month... adjusted as if the accounts had started off to be worth about $13,000: Those must vary wildly month-to-month. By the way, if you look up the ticker symbols, VASGX is a Vanguard \\\"\\\"Fund of Funds\\\"\\\" -- it invests not 100% in the stock market, but 80% in the stock market and 20% in bonds. VSMGX is a 60/40 split. Interesting that VASGX grew less than VSMGX...but that assumes my spreadsheet is correct. Most of my mutual funds pay dividends and capital gains once or twice a year. I don't think any pay in August.\\\"\",\n \"I agree with others here that suggest that you should be taking higher risk since it is repaid with higher returns. You have 40 years or so to go before you might switch to safer but lower return funds. I suggest that you look at the Morningstar rating for the funds you are considering: http://www.morningstar.com/ A fund rated five stars means that the fund performs in the top 20% compared to all similar funds. I prefer five star funds. Next, check the management fees. Here is an example from one of the funds you mentioned; https://www.google.com/finance?cid=466533039917726 Next, I suggest you compare how each fund has performed compared to a benchmark. Here are some common indices: Compare an equity fund to, for example, the S&P 500. Has your fund beat or closely matched the S&P for 1, 5 and 10 years? If not, you may as well buy an index fund, such as SPY.\",\n \"What is the question? A total return fund seeks to just maximize total returns, as opposed to benchmark tracking, low vol, high vol, sectoral, whatever, this is just a name you gotta read the long prospectus to see how they are supposed to go about doing it. Fixed income investing DOES NOT rely on on interest rates, it relies on the movements of interest rates (this is a key difference). When economies are doing poorly, there is a flight to quality (everyone is scared and lends only to governments) driving government interest rate downs and increasing the spread between government rates and corporates. My usual advice is There is never a good time to buy a mutual fund :P, better to buy an ETF or a portfolio of ETF's that correspond to your views. You need to sit down and ask yourself what type of risk tolerances you're willing to take as mutual funds by construction deliver negative alpha due to fees.\",\n \"Go with a Vanguard ETF. I had a lengthy discussion with a successful broker who runs a firm in Chicago. He boiled all of finance down to Vanguard ETF and start saving with a roth IRA. 20 years of psychology research shows that there's a .01 correlation (that's 1/100 of 1%) of stock/mutual fund performance to prediction. That's effectively zero. You can read more about it in the book Thinking Fast and Slow. Investors have ignored this research for years. The truth is you'd be just as successful if you picked your mutual funds out of a hat. But I'll recommend you go with a broker's advice.\",\n \"As observed above, 1.5% for 3 years is not attractive, and since due to the risk profile the stock market also needs to be excluded, there seems about 2 primary ways, viz: fixed income bonds and commodity(e,g, gold). However, since local bonds (gilt or corporate) are sensitive and follow the central bank interest rates, you could look out investing in overseas bonds (usually through a overseas gilt based mutual fund). I am specifically mentioning gilt here as they are government backed (of the overseas location) and have very low risk. Best would be to scout out for strong fund houses that have mutual funds that invest in overseas gilts, preferably of the emerging markets (as the interest is higher). The good fund houses manage the currency volatility and can generate decent returns at fairly low risk.\",\n \"\\\"Funds - especially index funds - are a safe way for beginning investors to get a diversified investment across a lot of the stock market. They are not the perfect investment, but they are better than the majority of mutual funds, and you do not spend a lot of money in fees. Compared to the alternative - buying individual stocks based on what a friend tells you or buying a \\\"\\\"hot\\\"\\\" mutual fund - it's a great choice for a lot of people. If you are willing to do some study, you can do better - quite a bit better - with common stocks. As an individual investor, you have some structural advantages; you can take significant (to you) positions in small-cap companies, while this is not practical for large institutional investors or mutual fund managers. However, you can also lose a lot of money quickly in individual stocks. It pays to go slow and to your homework, however, and make sure that you are investing, not speculating. I like fool.com as a good place to start, and subscribe to a couple of their newsletters. I will note that investing is not for the faint of heart; to do well, you may need to do the opposite of what everybody else is doing; buying when the market is down and selling when the market is high. A few people mentioned the efficient market hypothesis. There is ample evidence that the market is not efficient; the existence of the .com and mortgage bubbles makes it pretty obvious that the market is often not rationally valued, and a couple of hedge funds profited in the billions from this.\\\"\",\n \"Generally value funds (particularly large value funds) will be the ones to pay dividends. You don't specifically need a High Dividend Yield fund in order to get a fund that pays dividends. Site likes vanguards can show you the dividends paid for mutual funds in the past to get an idea of what a fund would pay. Growth funds on the other hand don't generally pay dividends (or at least that's not their purpose). Instead, the company grows and become worth more. You earn money here because the company (or fund) you invested in is now worth more. If you're saying you want a fund that pays dividends but is also a growth fund I'm sure there are some funds like that out there, you just have to look around\",\n \"I am going to assume that this is going to be a long term investment and you don't need this money before 5-6years at the very least. My advise would be to invest in one of the following funds : IDFC Premier equity fund growth plan (Direct) (Only SIP allowed right now) ICICI Discovery fund growth plan (Direct) DSP microcap fund growth plan (Direct) In case you do not want to be invested in small and mid cap and want a little less volatility then my first choice for that would be : Quantum long term equity fund dividend plan Whatever you go for make sure you go directly with the fund house and not through a broker as you end up getting charged an extra .63% extra as opposed to going direct and you will also be paying for a demat account which can be avoided if you invest directly with a fund house. Out of the above mentioned funds Quantum has the lowest expense ratio of 1.25% and it is a huge benefit if you are talking 10+ years because it makes a lot of difference. Source : My own research and experience as an investor.\",\n \"\\\"There are mutual funds oriented toward kids or that are suitable in some way (e.g. they have low minimums). Here are two articles with mention of some of them: Of those only USAA First Start Growth is explicitly for kids: http://quote.morningstar.com/fund/f.aspx?t=UFSGX or https://www.usaa.com/inet/pages/mutual_funds_reports Another fund aimed at kids is Monetta Young Investor http://quote.morningstar.com/fund/f.aspx?t=MYIFX or http://www.younginvestorfund.com/ The diversified funds (with fixed income) like USAA First Start Growth, Vanguard STAR, Pax World Balanced, etc. have the nice property that they won't be as volatile and may spend less time \\\"\\\"underwater,\\\"\\\" so that might better convey the value of investing (vs. an all-stock fund where it could be kind of depressing for years on end, if you get bad luck). Though, I feel the same principle applies for adults. Kids may appreciate intangible aspects of the funds, e.g. Pax World Balanced invests in sustainable companies, Ariel Appreciation also has some social parameters and I think the guy running it does charity work with kids, that type of thing. There should be quarterly and annual reports on mutual funds (or stocks) that would give kids something to read and think about related to the investment. Disclaimer: none of these funds are recommendations, I have not researched them in any detail, just giving you some leads.\\\"\",\n \"Based on your question, I am going to assume your criterion are: Based on these, I believe you'd be interested in a different savings account, a CD, or money market account. Savings account can get you up to 1.3% and money market accounts can get up to 1.5%. CDs can get you a little more, but they're a little trickier. For example, a 5 year CD could get up to 2%. However, now you're money is locked away for the next few years, so this is not a good option if this money is your emergency fund or you want to use it soon. Also, if interest rates increase then your money market and savings accounts' interest rates will increase but your CD's interest rate misses out. Conversely, if interest rates drop, you're still locked into a higher rate.\",\n \"\\\"From a quick look at sources on the web, it looks to me like Money Market Accounts and savings accounts are both paying about the same rate today: around 1%, give or take maybe 0.4%. I suppose that's better than nothing, but it's not a whole lot better than nothing. (I saw several savings accounts advertising 0.1% interest. If they mailed you a check, the postage could be more than the returns.) Personally, I keep a modest amount of emergency cash in my checking account, and I put my \\\"\\\"savings\\\"\\\" in a very safe mutual fund. That generally gets somewhere from making maybe 3% a year to losing a small amount. Certainly nothing to sing about, but better than savings or money markets. Whether you are willing to tolerate the modest risk or the sales charges is a matter for your personal situation and feelings.\\\"\",\n \"\\\"Yahoo Finance is definitely a good one, and its ultimately the source of the data that a lot of other places use (like the iOS Stocks app), because of their famous API. Another good dividend website is Dividata.com. It's a fairly simple website, free to use, which provides tons of dividend-specific info, including the highest-yield stocks, the upcoming ex-div dates, and the highest-rated stocks based on their 3-metric rating system. It's a great place to find new stocks to investigate, although you obviously don't want to stop there. It also shows dividend payment histories and \\\"\\\"years paying,\\\"\\\" so you can quickly get an idea of which stocks are long-established and which may just be flashes in the pan. For example: Lastly, I've got a couple of iOS apps that really help me with dividend investing: Compounder is a single-stock compound interest calculator, which automatically looks up a stock's info and calculates a simulated return for a given number of years, and Dividender allows you to input your entire portfolio and then calculates its growth over time as a whole. The former is great for researching potential stocks, running scenarios, and deciding how much to invest, while the latter is great for tracking your portfolio and making plans regarding your investments overall.\\\"\",\n \"\\\"First off, you generally want to park your emergency fund somewhere that is \\\"\\\"safe\\\"\\\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need to think about how quickly you will need access to the money. If you have an emergency, odds are you don't want to be waiting around for weeks/months/years for the money to become available. This rules out most fixed-term investments (Bonds, traditional CDs, etc). If you are concerned that you will need near-instant access to your emergency money, then you probably want to keep it in a Savings or Money Market Account at the same bank as your checking account. Most banks will let you transfer money between local accounts instantly. Unfortunately, your local bank probably has pitiful interest rates for the Savings/MMA, far below the inflation rate. This means your money will slowly lose value over time. Be prepared to keep contributing to it! For most people, being able to draw the cash from your fund within a few days (<1 week) is sufficient. Worst case, you charge something on your credit card, and then pay down the card when the emergency fund withdrawal arrives. If \\\"\\\"money within a few days\\\"\\\" is okay for you, there are a few options: Money Market (Mutual) Funds (not to be confused with a Money Market Account) - This is the traditional place to keep an emergency fund. These are investment funds you can buy with a brokerage account. An example of such a fund would be Fidelity Cash Reserves. MMFs are not FDIC insured, so they are not exactly zero risk. However, they are considered extremely safe. They almost never go down in value (only a few times in the past few decades), and when they have, the fund manager or the Federal Govt stepped in to restore the value. They usually offer slightly better return than a local savings account, and are available in taxable and non-taxable varieties. Online High-Yield Savings or Money Market Account - These are a relatively new invention. It's basically a the same thing as what your local bank offers, but it's online-only. No local branch means low overhead, so they offer higher interest rates (2.0% vs 0.5% for your local bank). Some of them used to be over 5% before the economy tanked. Like your local bank, it is FDIC insured. One bit of caution: Some of these accounts have become \\\"\\\"gimmicky\\\"\\\" lately. They have started to do things like promo rates for a few months, only offering the high interest rate on the first few $K deposited, limiting the amount that can be withdrawn, etc. Be sure to read the details before you open an account! No-Penalty CDs - Certificates of Deposit usually offer a better rate than a Savings Account, but your money is locked up until the CD term is up (e.g. 36 months). If you need to cash out before then, you pay a penalty. Some banks have begun to offer CDs that you can cash out with no penalty at all. These can offer better rates than the savings account. Make sure it really is no-penalty though. Also watch what your options are for slowly adding money over time. This can be an issue if you want to deposit $100 from every paycheck. Rewards Checking Accounts - These are checking accounts that will pay a relatively high interest rate (3% or more) provided you generate enough activity. Most of them will have requirements like you must have direct deposit setup with them, and you must do a minimum number of debit card transactions from the account per month. If you can stay on top of the requirements, these can be a great deal. If you don't stay on top of it, your interest rate usually drops back to something pitiful, though. Personally, we use the Online High-Yield Savings Account for our emergency fund. I'm not going to make a specific recommendation as to which bank to use. The best deal changes almost week to week. Instead, I will say to check out Bankrate.com for a list of savings accounts and CDs that you can sort. The Bank Deals blog is a good place to follow rate changes.\\\"\",\n \"Just sticking to equities: If you are investing directly in a share/stock, depending on various factors, you may have picked up a winner or to your dismay a loser. Say you just have Rs 10,000/- to invest, which stock would you buy? If you don't know, then it’s better to buy a Mutual Fund. Now if you say you would buy a few of everything, then even to purchase say Rs 5000/- worth of each stock in the NIFTY Index [50 companies] you would require at least an investment of 250,000/-. When you are investing directly you always have to buy in whole numbers, i.e. you can't buy 1/2 share or 1.6 share of some stock. The way Mutual funds work is they take 10,000 from 250 people and invest in all the stocks. There are fund managers who's job is to pick good stocks, however even they cannot predict winners all the time. Normally a few of the picks become great winners, most are average, and a few are losers; this means that overall your returns are average VS if you had picked the winning stock. The essential difference between you investing on your own and via mutual funds are: It is good to begin with a Mutual Fund, and once you start understanding the stocks better you can invest directly into the equities. The same logic holds true for Debt as well.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskiest stuff. Think \"\"emerging markets\"\". Even funds like Vanguard Emerging Markets (ETF: VWO, mutual fund, VEIEX) or Fidelity Advisor Emerging Markets Income Trust (FAEMX) seem to have yields which only push 11% or so. (But inflation is about nil, so if you're used to normal 2% inflation or so, these yields are like 13% or so. And there's no tax on that last 2%! Yay.) Remember that these investments are very risky. They go up lots because they can go down lots too. Don't put any money in there unless you can afford to have it go missing, because sooner or later you're likely to lose something half your money, and it might not come back for a decade (or ever). Investments like these should only be a small part of your overall portfolio. So, that said... Sites which make investing in these risky markets easy? There are a good number, but you should probably just go with vanguard.com. Their funds have low fees which won't erode your returns. (You can actually get lower expense ratios by using their brokerage account to trade the ETF versions of their funds commission-free, though you'll have to worry more about the actual number of shares you want to buy, instead of just plopping in and out dollar amounts). You can also trade Vanguard ETFs and other ETFs at almost any brokerage, just like stocks, and most brokerages will also offer you access to a variety of mutual funds as well (though often for a hefty fee of $20-$50, which you should avoid). Or you can sign up for another fund providers' account, but remember that the fund fees add up quickly. And the better plan? Just stuff most of your money in something like VTI (Vanguard Total Stock Market Index) instead.\"","Any investment company or online brokerage makes investing in their products easy. The hard part is choosing which fund(s) will earn you 12% and up.","Are you looking for something like Morningstar.com? They provide information about lots of mutual funds so you can search based on many factors and find good candidate mutual funds. Use their fund screener to pick funds with long track records of beating the S&P500."],"string":"[\n \"\\\"If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskiest stuff. Think \\\"\\\"emerging markets\\\"\\\". Even funds like Vanguard Emerging Markets (ETF: VWO, mutual fund, VEIEX) or Fidelity Advisor Emerging Markets Income Trust (FAEMX) seem to have yields which only push 11% or so. (But inflation is about nil, so if you're used to normal 2% inflation or so, these yields are like 13% or so. And there's no tax on that last 2%! Yay.) Remember that these investments are very risky. They go up lots because they can go down lots too. Don't put any money in there unless you can afford to have it go missing, because sooner or later you're likely to lose something half your money, and it might not come back for a decade (or ever). Investments like these should only be a small part of your overall portfolio. So, that said... Sites which make investing in these risky markets easy? There are a good number, but you should probably just go with vanguard.com. Their funds have low fees which won't erode your returns. (You can actually get lower expense ratios by using their brokerage account to trade the ETF versions of their funds commission-free, though you'll have to worry more about the actual number of shares you want to buy, instead of just plopping in and out dollar amounts). You can also trade Vanguard ETFs and other ETFs at almost any brokerage, just like stocks, and most brokerages will also offer you access to a variety of mutual funds as well (though often for a hefty fee of $20-$50, which you should avoid). Or you can sign up for another fund providers' account, but remember that the fund fees add up quickly. And the better plan? Just stuff most of your money in something like VTI (Vanguard Total Stock Market Index) instead.\\\"\",\n \"Any investment company or online brokerage makes investing in their products easy. The hard part is choosing which fund(s) will earn you 12% and up.\",\n \"Are you looking for something like Morningstar.com? They provide information about lots of mutual funds so you can search based on many factors and find good candidate mutual funds. Use their fund screener to pick funds with long track records of beating the S&P500.\"\n]","isConversational":false}}},{"rowIdx":264,"cells":{"_id":{"kind":"string","value":"3791"},"query":{"kind":"string","value":"\"When people say 'Interest rates are at all time low!\"\" … Which interest rate are they actually referring to?\""},"gt_ids":{"kind":"list like","value":["327432","577201","212222"],"string":"[\n \"327432\",\n \"577201\",\n \"212222\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["327432","212222","594667","570466","483218","228211","531551","581257","96396","227653","577201","519470","346064","37484","466745","420484","578983","52735","332136","205163","2390","551234","491219","357103","285064","36602","417311","499112","350180","447237","363817","136325","118817","484884","346662","389264","35251","72168","361114","569691","491917","400646","596914","433340","177137","12378","42475","133486","144177","16626","435740","377035","521813","211026","257495","129676","2234","380071","59710","534886","185104","512573","72683","500985","46716","219335","517750","335951","60486","323932","257552","121716","525717","88774","209626","307082","131723","228668","118138","548971","252496","230948","379492","305539","493963","457865","443092","135352","282013","370086","216962","331758","523959","11356","216717","148627","37954","294152","144077","129742"],"string":"[\n \"327432\",\n \"212222\",\n \"594667\",\n \"570466\",\n \"483218\",\n \"228211\",\n \"531551\",\n \"581257\",\n \"96396\",\n \"227653\",\n \"577201\",\n \"519470\",\n \"346064\",\n \"37484\",\n \"466745\",\n \"420484\",\n \"578983\",\n \"52735\",\n \"332136\",\n \"205163\",\n \"2390\",\n \"551234\",\n \"491219\",\n \"357103\",\n \"285064\",\n \"36602\",\n \"417311\",\n \"499112\",\n \"350180\",\n \"447237\",\n \"363817\",\n \"136325\",\n \"118817\",\n \"484884\",\n \"346662\",\n \"389264\",\n \"35251\",\n \"72168\",\n \"361114\",\n \"569691\",\n \"491917\",\n \"400646\",\n \"596914\",\n \"433340\",\n \"177137\",\n \"12378\",\n \"42475\",\n \"133486\",\n \"144177\",\n \"16626\",\n \"435740\",\n \"377035\",\n \"521813\",\n \"211026\",\n \"257495\",\n \"129676\",\n \"2234\",\n \"380071\",\n \"59710\",\n \"534886\",\n \"185104\",\n \"512573\",\n \"72683\",\n \"500985\",\n \"46716\",\n \"219335\",\n \"517750\",\n \"335951\",\n \"60486\",\n \"323932\",\n \"257552\",\n \"121716\",\n \"525717\",\n \"88774\",\n \"209626\",\n \"307082\",\n \"131723\",\n \"228668\",\n \"118138\",\n \"548971\",\n \"252496\",\n \"230948\",\n \"379492\",\n \"305539\",\n \"493963\",\n \"457865\",\n \"443092\",\n \"135352\",\n \"282013\",\n \"370086\",\n \"216962\",\n \"331758\",\n \"523959\",\n \"11356\",\n \"216717\",\n \"148627\",\n \"37954\",\n \"294152\",\n \"144077\",\n \"129742\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"You are correct that it could refer to any of the types of interest rates that you've mentioned. In general, though, phrases such as \"\"rising interest rates\"\" and \"\"falling interest rates\"\" refer to the Federal Funds Rate or LIBOR. These are the interest rates at which banks in the U.S. and U.K., respectively, are lending money to each other.\"","\"I would say people are generally talking about the prime lending rate. I have heard the prime lending rate defined as \"\"The rate that banks charge each other when they borrow money overnight.\"\" But it often defined as the rate at which banks lend their most creditworthy customers. That definition comes with the caveat that it is not always held to strictly. Either definition has the same idea: it's the lowest rate at which anyone could currently borrow money. The rate for many types of lending is based upon the prime rate. A variable rate loan might have an interest rate of (Prime + x). The prime rate is in turn based upon the Federal Funds Rate, which is the rate that the Fed sets manually. When the news breaks that \"\"the Fed is raising interest rates by a quarter of a point\"\" (or similar) it is the Federal Funds Rate that they control. Lending institutions then \"\"fall in line\"\" and adjust the rates at which they lend money. So to summarize: When people refer to \"\"high\"\" or \"\"low\"\" or \"\"rising\"\" interest rates they are conceptually referring to the prime lending rate. When people talk about the Fed raising/lowering interest rates (In the U.S.) they are referring specifically to the Federal Funds Rate (which ultimately sets other lending rates).\"","\"In the United States, if someone refers to the \"\"interest rate\"\", especially if heard on news or talk radio in particular, they are almost always referring to the federal funds rate, a rate set forth and maintained by the United States Federal Reserve (the \"\"fed\"\" for short). If the fed opts to raise or lower this rate, it subsequently effects all interest rates, whether by being directly connected in a chain of loans or by market demand through the efficiency of financial markets in the case of bond auctions. The FOMC meets eight times each year to determine the target for the federal funds rate. The federal funds rate effects all interest rates because it is the originating rate of interest on all loans in the chain of loans. Because of this significance as a benchmark for all interest rates, it is the rate most commonly referred to as \"\"interest rate\"\" when used alone. That is why other rates are specified by what they actually are; e.g., mortgage rates; 10 year & 30 year (for 10 year treasury and 30 year treasury bond yields respectively); savings rate, auto rate, credit card rate, CD rate—all rates of interest effected by the originating loan that is the federal funds rate. This is true in the United States but will vary for other countries. In general though, it will almost always refer to the originating rate for all loans in a given country, institution, etc. Note that bonds have yields that are based on market demand that is, in turn, based on the federal funds rate. It is because of the efficiency of financial markets that the demand, and thus the yields, are correlated to the federal funds rate.\"","\"When \"\"people say\"\", each person is referring to whatever he/she is looking at. Interest rates tend to move roughly the same, but often there is a bias regarding long vs. short term. In the US right now, short term interest rates are very low but there is a lot of chatter saying they will rise in the future. The differential between long term rates and short term rates is high compared to historical norms, suggesting that the market believes this chatter. You can also look at the differences in rates between different quality levels. If the economy is improving, the difference in rate for lower rated debt vs. higher rated debt decreases as people think the chance of businesses failing is decreasing. Right now, any interest rate you look at is well below long term historical averages, so asserting that interest rates are low is quite safe.\"","The generic representative of interest rates is the 10 year treasury bond rate. (USA). As an approximation most other interest rates do tend to move up and down with the treasury rate, but with more or less sensitivity. Another prominently discussed interest rate is the short term loan rate established by the Federal Reserve for loans it makes to banks.","Because giving someone a loan and paying them to take it isn't a loan anymore. I'll grant you, some of the treasury bill auctions did slip below 0% -- people paid in slightly more than what the bill would pay out. In as much as this was done by actual investors (and not afore-mentioned helicopter Ben Bernanke keeping the printing presses running hot all night), it was major accounts fearful of the euro disintegrating and banks crashing, and so on, and needing a safe spot to stick their cash for a couple months. Where the Fed is concerned, that interest rate he's referring to is lending they do to banks. So, how much would you take if you ran a bank and the Fed offered to pay you to take their money? A billion? A trillion? As much as you could cram in your vaults, shove in your pockets, and stuff down your favorite teller's blouse? Yea, me too.","\"These rates are so low because the cost of money is so low. Specifically, two rates are near zero. The Federal Reserve discount rate, which is \"\"the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window.\"\" The effective federal funds rate, which is the rate banks pay when they trade balances with each other through the Federal Reserve. Banks want to profit on the loans they make, like mortgage loans. To do so, they try to maximize the difference between the rates they charge on mortgages and other loans (revenue), and the rates they pay savings account holders, the Federal Reserve or other banks to obtain funds (expenses). This means that the rates they offer to pay are as close to these rates as possible. As the charts shows, both rates have been cut significantly since the start of the recession, either through open market operations (the federal funds rate) or directly (the discount rate). The discount rate is set directly by the regional Federal Reserve banks every 14 days. In most cases, the federal funds rate is lower than the discount rate, in order to encourage banks to lend money to each other instead of borrowing it from the Fed. In the past, however, there have been rare instances where the federal funds rate has exceeded the discount rate, and it's been cheaper for banks to borrow money directly from the Fed than from each other.\"","Generically, interest rates being charged are driven in large part by the central bank's rate and competition tends to keep similar loans priced fairly close to each other. Interest rates being paid are driven by what's needed to get folks to lend you their money (deposit in bank, purchase bonds) so it's again related. There certainly isn't very direct coupling, but in general interest rates of all sorts do tend to swing (very) roughly in the same direction at (very) roughly the same time... so the concept that interest rates of all types are rising or falling at any given moment is a simplification but not wholly unreasonable. If you want to know which interest rates a particular person is citing to back up their claim you really need to ask them.","It refers to the risk free rate of a particular country. Because all other rates are usually pegged to the risk free rate. In US,it is the 30 day treasury rate. In England, it is the LIBOR In Canada, it is the overnight rate at which banks lend money to each other. All of these come under the category of risk free rate.","It's really not. You have to realize that current rates are an outlier. The average on the 10yr since 1960 is 6.7%. Even on the 1yr it's still 5.7%. The average on the 30Yr from '77-present is 7.6%. You can use your own discretion about the length of time to consider for the average, but you don't just take the current rate as the risk free rate.","As Sean pointed out they usually mean LIBOR or the FFR (or for other countries the equivalent risk free rate of interest). I will just like to add on to what everyone has said here and will like to explain how various interest rates you mentioned work out when the risk free rate moves: For brevity, let's denote the risk free rate by Rf, the savings account interest rate as Rs, a mortgage interest rate as Rmort, and a term deposit rate with the bank as Rterm. Savings account interest rate: When a central bank revises the overnight lending rate (or the prime rate, repo rate etc.), in some countries banks are not obliged to increase the savings account interest rate. Usually a downward revision will force them to lower it (because they net they will be paying out = Rf - Rs). On the other hand, if Rf goes up and if one of the banks increases the Rs then other banks may be forced to do so too under competitive pressure. In some countries the central bank has the authority to revise Rs without revising the overnight lending rate. Term deposits with the bank (or certificates of deposit): Usually movements in these rates are more in sync with Rf than Rs is. The chief difference is that savings account offer more liquidity than term deposits and hence banks can offer lower rates and still get deposits under them --consider the higher interest rate offered by the term deposit as a liquidity risk premium. Generally, interest rates paid by instruments of similar risk profile that offer similar liquidity will move in parallel (otherwise there can be arbitrage). Sometimes these rates can move to anticipate a future change in Rf. Mortgage loan rates or other interests that you pay to the bank: If the risk free rate goes up, banks will increase these rates to keep the net interest they earn over risk free (= Δr = Rmort - Rf) the same. If Rf drops and if banks are not obliged to decrease loan rates then they will only do so if one of the banks does it first. P.S:- Wherever I have said they will do so when one of the banks does it first, I am not referring to a recursion but merely to the competitive market theory. Under such a theory, the first one to cut down the profit margin usually has a strong business incentive to do so (e.g., gain market share, or eliminate competition by lowering profit margins etc.). Others are forced to follow the trend.","Is your question academic curiosity or are you thinking of buying bonds? Be aware that bond interest rates are near all-time lows, and if interest rates were to rise, the prices of bonds could fall. Those buying bonds today are taking unusually large risk of capital loss.","This is a very interesting question. I'm going to attempt to answer it. Use debt to leverage investment. Historically, stock markets have returned 10% p.a., so today when interest rates are very low, and depending on which country you live in, you could theoretically borrow money at a very low interest rate and earn 10% p.a., pocketing the difference. This can be done through an ETF, mutual funds and other investment instruments. Make sure you have enough cash flow to cover the interest payments! Similar to the concept of acid ratio for companies, you should have slightly more than enough liquid funds to meet the monthly payments. Naturally, this strategy only works when interest rates are low. After that, you'll have to think of other ideas. However, IMO the Fed seems to be heading towards QE3 so we might be seeing a prolonged period of low interest rates, so borrowing seems like a sensible option now. Since the movements of interest rates are political in nature, monitoring this should be quite simple. It depends on you. Since interest rates are the opportunity cost of spending money, the lower the interest rates, the lower the opportunity costs of using money now and repaying it later. Interest rates are a market mechanism so that people who prefer to spend later can lend to people who prefer to spend now for the price of interest. *Disclaimer: Historically stocks have returned 10% p.a., but that doesn't mean this trend will continue indefinitely as we have seen fixed income outperform stocks in the recent past.","> if govt does it's job of keeping some competition in the banking sector, then the rates offered you and me should be near the actual cost to service such loans, You cannot really believe this. There is no sector more artificial than banking, and under the current regime there is no such thing as a relation between any interest rates and the cost to service the loans. Rates have been artificially depressed across the spectrum using every available manipulation, and we are experiencing a coordinated money-printing/government bailout operation on a global scale. To say that rates anywhere have any relation to the real cost and/or demand for capital is absurd.","but I can't help but feel that these low rates are somehow a gimmick to trick people into taking out loans Let me help you: it's not a feeling. That's exactly what it is. Since the economy is down, people don't want to jeopardize what they have, and keep the cash in their wallets. But, while keeping the money safe in the pocket, it makes the economy even worse. So in order to make people spend some money, the rates go down so that the cost of money is lower. It also means that the inflation will be on the rise, which is again a reason not to keep money uninvested. So yes, the rates are now very low, and the housing market is a buyers' market, so it does make sense to take out a loan at this time (provided of course that you can actually repay it over time, and don't take loans you can't handle). Of course, you shouldn't be taking loans just because the rates are low. But if you were already planning on purchasing a house - now would be a good time to go on with that.","I've wondered the same thing. And, after reading the above replies, I think there is a simpler explanation. It goes like this. When the bank goes to make a loan they need capital to do it. So, they can get it from the federal reserve, another bank, or us. Well, if the federal reserve will loan it to them for lets say 0.05%, what do you think they are going to be willing to pay us? Id say maybe 0.04%. Anyway, I could be wrong, but this makes sense to me.","The yield on treasury bond indicates the amount of money anyone at can make at virtually zero risk. So lets say banks have X [say 100] amount of money. They can either invest this in treasury bonds and get Y% [say 1%] interest that is very safe, or invest into mortgage loans [i.e. lend it to people] at Y+Z% [say at 3%]. The extra Z% is to cover the servicing cost and the associated risk. (Put another way, if you wanted only Y%, why not invest into treasury bonds, rather than take the risk and hassle of getting the same Y% by lending to individuals?) In short, treasury bond rates drive the rate at which banks can invest surplus money in the market or borrow from the market. This indirectly translates into the savings & lending rates to the banks' customers.","so this is a loan for a house? a loan on a house? a new mortgage? you shouldn't just get a loan for the hell of it any time. interests rates are low because the yields on US treasuries have been pushed closer to zero, and thats pretty much that. the risk is on the bank that approves the loan, and not you. (your ability to repay should be truthful, but your payments are smaller because the interest is so low)","You understand that the Fed is *supposed* to make overnight loans to banks, that one of its primary jobs is to be a lender of last resort? And yes, some were foreign banks; foreign subsidies of US banks or counter-parties to large US banks. Near-zero, yes for course we're talking about *overnight* loans. The current commercial rate for overnight euro LIBOR is 0.26179%, in other words, 0.0026, near zero OMG conspiracy!","\"In practice No, not at zero. Banks currently have the ability to borrow at very low interest rates but not quite at zero. Using the Fed Funds Range as a metric we can see that recently (Nov 2015) the lower bound of the fed funds range was 0.05%. Fed funds are overnight lend/borrow transactions between banks (often between the federal home loan banks and other institutions) 0.05% is also the FED's current Reverse Repo Program rate (RRP), which is the rate at which certain counterparties can deposit cash with the FED overnight in exchange for collateral. The collateral (US Treasuries) is insurance against the FED defaulting, a very low risk considering the FED has the ability to create more US Dollars out of thin air. In theory the RRP rate should be a lower bound for the fed funds rate however in practice it is possible to see lower rates trade in the street. What do you mean by \"\"Third party institutions\"\"? Only banks of the highest credit quality are able to borrow at the lower bound of the Fed Funds range. These are usually large domestic banks like JP Morgan, Bank of NY etc... As credit quality decreases the rate at which they borrow increases. Currently Skandinavien, German, French banks have relatively good credit and borrow overnight money towards the lower part of the fed funds range. Italian, Spanish and smaller regional US banks have lesser credit quality and borrow at the higher end of the Fed Funds range. Institutions with lower credit quality would borrow at still higher rates.\"","But Uncle Sam isn't just borrowing money from other people/countires. He's borrowing money from himself..... with printed money. The ostensible purpose of QE, Operation Twist, et al, is to force interest rates down largely through the monetization of government debt. So to reference interest rates as if they were some neutral barometer of America's financial strength is a bit spurious.","Surely some borrowers and lenders make decisions about making and taking loans based on the actual interest rates on the actual loans? In which case it doesn't matter so much if the rates are calculated based on a fictional assumption about something. At the end of the day every borrower or lender in the market makes their own decision about which lending contracts they take part in.","Mortgage or other interest rates are determined by the banks on cost of funds, risk and operating cost. The Fed raises money from the markets by issuing Tresury Bonds at a specified rate. This rate at which it raises money varies depening on the economy. Thus there are 2 rates: the rate at which banks can borrow money from the Fed, which is higher than the rate that the Fed would give banks for excess money deposited with them. So if the cost of borrowing is less, banks can borrow this money from the Fed and loan it to individuals at a slightly higher rate that would cover their costs plus a small profit. The risk associated with a mortgage is less, and hence these would be cheaper, then say a personal loan. If the cost of borrowing goes up, the mortgage rate will go up. If the cost of borrowing money goes down, the cost would come down. Banks may not always borrow money to lend. If they have existing money, they can either park it with the Fed for a lower interest rate, or loan it to individuals for a rate higher than what they would have received from the Fed.","\"My answer is specific to the US because you mentioned the Federal Reserve, but a similar system is in place in most countries. Do interest rates increase based on what the market is doing, or do they solely increase based on what the Federal Reserve sets them at? There are actually two rates in question here; the Wikipedia article on the federal funds rate has a nice description that I'll summarize here. The interest rate that's usually referred to is the federal funds rate, and it's the rate at which banks can lend money to each other through the Federal Reserve. The nominal federal funds rate - this is a target set by the Board of Governors of the Federal Reserve at each meeting of the Federal Open Market Committee (FOMC). When you hear in the media that the Fed is changing interest rates, this is almost always what they're referring to. The actual federal funds rate - through the trading desk of the New York Federal Reserve, the FOMC conducts open market operations to enforce the federal funds rate, thus leading to the actual rate, which is the rate determined by market forces as a result of the Fed's operations. Open market operations involve buying and selling short-term securities in order to influence the rate. As an example, the current nominal federal funds rate is 0% (in economic parlance, this is known as the Zero Lower Bound (ZLB)), while the actual rate is approximately 25 basis points, or 0.25%. Why is it assumed that interest rates are going to increase when the Federal Reserve ends QE3? I don't understand why interest rates are going to increase. In the United States, quantitative easing is actually a little different from the usual open market operations the Fed conducts. Open market operations usually involve the buying and selling of short-term Treasury securities; in QE, however (especially the latest and ongoing round, QE3), the Fed has been purchasing longer-term Treasury securities and mortgage-backed securities (MBS). By purchasing MBS, the Fed is trying to reduce the overall risk of the commercial housing debt market. Furthermore, the demand created by these purchases drives up prices on the debt, which drives down interest rates in the commercial housing market. To clarify: the debt market I'm referring to is the market for mortgage-backed securities and other debt derivatives (CDO's, for instance). I'll use MBS as an example. The actual mortgages are sold to companies that securitize them by pooling them and issuing securities based on the value of the pool. This process may happen numerous times, since derivatives can be created based on the value of the MBS themselves, which in turn are based on housing debt. In other words, MBS aren't exactly the same thing as housing debt, but they're based on housing debt. It's these packaged securities the Fed is purchasing, not the mortgages themselves. Once the Fed draws down QE3, however, this demand will probably decrease. As the Fed unloads its balance sheet over several years, and demand decreases throughout the market, prices will fall and interest rates in the commercial housing market will fall. Ideally, the Fed will wait until the economy is healthy enough to absorb the unloading of these securities. Just to be clear, the interest rates that QE3 are targeting are different from the interest rates you usually hear about. It's possible for the Fed to unwind QE3, while still keeping the \"\"interest rate\"\", i.e. the federal funds rate, near zero. although this is considered unlikely. Also, the Fed can target long-term vs. short-term interest rates as well, which is once again slightly different from what I talked about above. This was the goal of the Operation Twist program in 2011 (and in the 1960's). Kirill Fuchs gave a great description of the program in this answer, but basically, the Fed purchased long-term securities and sold short-term securities, with the goal of twisting the yield curve to lower long-term interest rates relative to short-term rates. The goal is to encourage people and businesses to take on long-term debt, e.g. mortgages, capital investments, etc. My main question that I'm trying to understand is why interest rates are what they are. Is it more of an arbitrary number set by central banks or is it due to market activity? Hopefully I addressed much of this above, but I'll give a quick summary. There are many \"\"interest rates\"\" in numerous different financial markets. The rate most commonly talked about is the nominal federal funds rate that I mentioned above; although it's a target set by the Board of Governors, it's not arbitrary. There's a reason the Federal Reserve hires hundreds of research economists. No central bank arbitrarily sets the interest rate; it's determined as part of an effort to reach certain economic benchmarks for the foreseeable future, whatever those may be. In the US, current Fed policy maintains that the federal funds rate should be approximately zero until the economy surpasses the unemployment and inflation benchmarks set forth by the Evans Rule (named after Charles Evans, the president of the Federal Reserve Bank of Chicago, who pushed for the rule). The effective federal funds rate, as well as other rates the Fed has targeted like interest rates on commercial housing debt, long-term rates on Treasury securities, etc. are market driven. The Fed may enter the market, but the same forces of supply and demand are still at work. Although the Fed's actions are controversial, the effects of their actions are still bound by market forces, so the policies and their effects are anything but arbitrary.\"","Fundamentally interest rates reflect the time preference people place on money and the things money can buy. If I have a high time preference then I prefer money in my hand versus money promised to me at some date in the future. Thus, I will only loan my money to someone if they offer me an incentive which would be an amount of money to be received in the future that is larger than the amount of money I’m giving the debtor in the present (i.e. the interest rate). Many factors go into my time preference determination. My demand for cash (i.e. my cash balance), the credit rating of the borrower, the length of the loan, and my expectation of the change in currency value are just a few of the factors that affect what interest rate I will loan money. The first loan I make will have a lower interest rate than the last loan, ceteris paribus. This is because my supply of cash diminishes with each loan which makes my remaining cash more valuable and a higher interest rate will be needed to entice me to make additional loans. This is the theory behind why interest rates will rise when QE3 or QEinfinity ever stops. QE is where the Federal Reserve cartel prints new money to purchase bonds from cartel banks. If QE slows or ends the supply of money will stop increasing which will make cash more valuable and higher interest rates will be needed to entice creditors to loan money. Note that increasing the stock of money does not necessarily result in lower interest rates. As stated earlier, the change in value of the currency also affects the interest rate lenders are willing to accept. If the Federal Reserve cartel deposited $1 million everyday into every US citizen’s bank account it wouldn’t take long before lenders demanded very high interest rates as compensation for the decrease in the value of the currency. Does the Federal Reserve cartel affect interest rates? Yes, in two ways. First, as mentioned before, it prints new money that is loaned to the government. It either purchases the bonds directly or purchases the bonds from cartel banks which give them cash to purchase more government bonds. This keeps demand high for government bonds which lowers the yield on government bonds (yields move inverse to the price of the bond). The Federal Reserve cartel also can provide an unlimited amount of funds at the Federal Funds rate to the cartel member banks. Banks can borrow at this rate and then proceed to make loans at a higher rate and pocket the difference. Remember, however, that the Federal Reserve cartel is not the only market participant. Other bond holders, such as foreign governments and pension funds, buy and sell US bonds. At some point they could demand higher rates. The Federal Reserve cartel, which currently holds close to 17% of US public debt, could attempt to keep rates low by printing new money to buy all existing US bonds to prevent the yield on bonds from going up. At that point, however, holding US dollars becomes very dangerous as it is apparent the Federal Reserve cartel is just a money printing machine for the US government. That’s when most people begin to dump dollars en masse.","1) Low-Interest Rate: Isn't the inflation rate currently (and over the last couple of years) also really low, around 2%? If you're saying the inflation rate is going to go back up, I'm curious as to your reasoning. I don't see any general decrease in the money supply in the near future, wages are stagnant, and GDP looks like it's trundling along at standard rates - however, with the Gini coefficient still rising, more and more of that production is finding its way into fewer and fewer hands that don't have a lot of incentive to re-invest it.","The prime rate is actually the rate at which banks lend to consumers/businesses with the highest credit ratings. The bank rate (more commonly known as the overnight rate) is the interest rate at which banks can borrow funds from the Bank of Canada or from each other.","Wait, if everyone isn't buying things and saving money instead, who is left to get loans to buy things at higher rates? Banks don't wag the consumer's tail. Banks will make loads more money on their variable rate loans which will hurt a lot of people. Until wages rise to incentivize buying things, loan interest rates need to be low. Only way to spur the economy is to get more money in the hands of the spenders. We keep giving it to the hoarders.","There's often a legal basis to answer this question. For instance, Austria (guessing from your profile) currently uses a 4% Statutory interest rate. You'll need to dig up not just the actual but also the historical rates. Note that you'll want the non-commercial interest rate - some countries differentiate between loans to businesses and loans to individuals.","Without commenting on whether or not it's needed I don't think we are going to see a QE3 and all the political pressure is for some reason to start raising rates. Regardless of how it plays out it's safe to say that the Fed Rate isn't going any lower. You should also watch closely what happens to Fannie and Freddie. If they are dismantled and government backed mortgages become a thing of the past then I think it'll become impossible for a consumer to find a 30 year fixed rate mortgage. Even if they are kept alive, they will be put on a short leash and that will serve to further depress the mortgage market. Long story short, I'd lock your rate in.","Interest rates can't remain this low. It's like having extremely low blood pressure. When you raise the rates, banks are incented to loan money and that movement of capital is good for the economy. It forces us to become savers instead of spenders, and our pensions, 401ks, social security are all getting killed by not being able to use debt to get safer stable returns. Interest rates have to come back up.","It just means that they think that in the long-term, interest rates should be around 3-4%, i.e. probably between 3% and 4%, but perhaps a bit lower or higher occasionally.","Federal Funds Rate The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The federal funds rate is generally only applicable to the most creditworthy institutions when they borrow and lend overnight funds to each other. The federal funds rate is one of the most influential interest rates in the U.S. economy, since it affects monetary and financial conditions, which in turn have a bearing on key aspects of the broad economy including employment, growth and inflation. http://www.investopedia.com/terms/f/federalfundsrate.asp#ixzz3mB5kCtvT","Yes. In the US these are called certificates of deposit or savings accounts. Every run-of-the-mill bank offers them. You give the bank money and in return they pay you an interest rate that is some fraction of or (negative) offset from the returns they expect to make from your money. Since most investments that a bank makes (say, loaning money to a local business) are themselves based on some multiple of or (positive) offset from the prime rate, in return the interest rate that they offer you is also mathematically based on the prime rate. You can find lists of banks offering the best returns on CDs or savings accounts at sites like BankRate.","If you had a time machine and could go back and tell yourself in 2005 that there would be a stretch coming up where the FFR would be held a 0% for (at least) 6 solid years you would not have believed it. No one would have believed it. That would have been crazy loony toon talk.","And how is that even an argument? So...the fed needs to raise rates, is what you seem to be saying. I'm not sure that now is the time for that, considering the weak jobs numbers recently, but it's possibly a good idea for them to announce that a hike will come soon instead of actually raising the rate. Either way, to say that having a low interest rate for a decade is a bad thing sort of obscures a harsh reality. It's certainly not something that you *want*, but what's the alternative? Would the US have been better off without the Feds balance sheet expansion? Very few economists would say yes. In fact that exact line of thought likely turned a financial crash into the Great Depression of the 30's.","You can find the national average interest rates on commercial bank accounts from the FDIC or nicely aggregated [here from the St. Louis Fed.](https://fred.stlouisfed.org/search?st=National+Rate+on+Non-Jumbo+Deposits+%28less+than+%24100%2C000%29%3A+Savings) [Here is the national average interest rate on savings accounts.](https://fred.stlouisfed.org/series/SAVNRNJ) If you are looking for a general historical proxy for a savings account interest rate, then the effective federal funds rate or overnight LIBOR is a good estimate prior to the 2008 financial crisis.","The prime rate is the interest rate banks use amongst themselves to lend money to each other only. It is used as the basis (sometimes) for what interest rate banks charge you. The prime rate is based loosely on the Fed rate. There is a committee that meets regularly to set this and other industry interest rates. http://en.wikipedia.org/wiki/Prime_rate I am not 100% positive the following is totally accurate The banks keep our deposits and pay us interest for doing so. They are paying us interest because they take yours, mine and everybody elses deposits as a large lump sum and invest that money. Sometimes as business loans, sometimes as mortgages and sometimes as credit card. The banks have a book of business that will be EXACTLY how much credit they have extended to everybody. But they do not keep that amount of cash in the vaults, only some smaller percentage of that large amount. When I use my credit card and they need to transfer money to amazon.com, if they don't happen to have enough cash that day, they will just borrow from another bank that does, and the interest rate they pay to do so is the prime rate. Since they are paying interest on the money they borrow to pay the debt I charged because they told me my credit was worth so much (...???...) they charge me a little bit more than that. Hence your credit card or mortgage's APR being based on the prime rate. I THINK that is what they do If I am wrong leave a comment and I will update, or the mods can.","\"Not at these rates. The motto used to be 3/6/3: \"\"Borrow at 3%, Loan out at 6%, and then be at the golf course by 3pm\"\". So they get 3% on the spread, minus fixed costs. Now, they borrow at near 0% and loan out at slightly above 0%. Those fixed costs starts becoming an issue. It isn't cheap to have all these ATMs, bank branches, tellers, computer systems, etc. Also, a lot of the money cannot be loaned out at all because there are not enough creditworthy borrowers. You might have recalled a few months ago, several banks started charging for deposits. They don't want more money that will just lay there while they have to pay the costs of maintaining the accounts. Some bank CEOs have stated that they would be better off if the Fed raised rates up to 1%.\"","\"Interest rates are at a record low and the government is printing money. You can get a fixed rate loan at a rate equal to inflation in a healthy economy. Unless you know that you are moving in < 5 years, why would you expose yourself to interest rate risk when rates are about as close to zero as they can be? If your thought with respect to mitigating interest rate risk is: \"\"What's the big deal, I'll just refinance!\"\", think again, because in a market where rates are climbing, you may not be able to affordably refinance at the LTV that you'll have in 5-7 years. From 1974-1991, 30 year mortgages never fell below 9%, and were over 12% from 1979 to 1985. Think about what those kinds of rates -- which reduce a new homeowner's buying power by over 40%, would do to your homes value.\"","\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-06-06/are-low-interest-rates-bad-for-growth) reduced by 83%. (I'm a bot) ***** > James Chessen, the chief economist of the American Bankers&#039; Association, said in a June 5 interview, &quot;Interest rates have been too low for too long. It has created a problem for banks.&quot; The Independent Community Bankers of America, which represents smaller U.S. banks, believes that &quot;Higher interest rates would be a net plus for the community banking sector that would help them extend more credit,&quot; according to spokesman Paul Merski. > Officials at the European Central Bank and the Bank of Japan are sensitive to the side effects of extremely low or even subzero interest rates. > In a May 24 speech in Madrid, ECB President Mario Draghi acknowledged that low policy rates &quot;May compress banks&#039; net interest margins and thus exert pressure on their profitability.&quot; But he said that ECB researchers found that taking into account offsetting beneficial effects, &quot;The overall impact of our measures on bank profitability was positive.\"\" ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6fodm5/is_the_world_overdoing_low_interest_rates/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~138044 tl;drs so far.\"\") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **bank**^#1 **rate**^#2 **interest**^#3 **Low**^#4 **Calomiris**^#5\"","\"Can it be so that these low-interest rates cause investors to take greater risk to get a decent return? With interest rates being as low as they are, there is little to no risk in banking; especially after Dodd-Frank. \"\"Risk\"\" is just a fancy word for \"\"Will I make money in the near/ long future.\"\" No one knows what the actual risk is (unless you can see into the future.) But there are ways to mitigate it. So, arguably, the best way to make money is the stock market, not in banking. There is a great misallocation of resources which at some point will show itself and cause tremendous losses, even maybe cause a new financial crisis? A financial crisis is backed on a believed-to-be strong investment that goes belly-up. \"\"Tremendous Losses\"\" is a rather grand term with no merit. Banks are not purposely keeping interest rates low to cause a financial crisis. As the central banks have kept interest rates extremely low for a decade, even negative, this affects how much we save and borrow. The biggest point here is to know one thing: bonds. Bonds affect all things from municipalities, construction, to pensions. If interest rates increased currently, the current rate of bonds would drop vastly and actually cause a financial crisis (in the U.S.) due to millions of older persons relying on bonds as sources of income.\"","There's two competing forces at work, and they are at work worldwide. Banks can get money from several sources: Through inter-bank borrowing and from raising capital. Capital can come from from selling assets, stock offerings, deposits, etc. The money the banks get from depositors is capital. In the United States, the Federal Reserve regulates the amount of capital that banks must maintain. If there was no requirement for capital then there would be zero demand for capital at an interest rate above the inter-bank offering rate. As capital requirements have risen, banks are allowed to make less loans given a certain amount of capital. That has caused an increased demand for capital from depositors. As described in this Federal Reserve ruling, effective January 1st, 2014 the Federal Reserve is again raising capital requirements. As you can see here money can be borrowed, in the United States, at .0825% (100 - 99.9175). Currently interest rates paid to borrowers are quite high compared to prevailing inter-bank rates. They could see more upward pressure given the fact that banks will be forced to maintain an increased amount of capital for a given amount of loans.","There is a strange puzzle today where savings account interest rates are not rising in-line with the Federal Funds rate. Either customers are apathetic to their alternative uses of cash, or banks have some-how formed a cartel to keep their cost of funding low. I'm leaning towards the former since bank customers today likely value readily accessible cash more than the interest rate they could earn by investing in money market mutual funds.","I've read this claim many times in the news: banks are making less profit from the lending business when interest rates are historically low. The issue with most loans is they can be satisfied at any time. When you have falling interest rates it means most of the banks loans are refinanced from nice high rates to current market low interest rates which can significantly reduce the expected return on past loans. The bank gets the money back when it wants it the least because it can only re-lend the money at the current market (lower) interest rates. When interest rates are increasing refinance and early repayment activity reduces significantly. It's important to look at the loan from the point of view of the bank, a bank must first issue out the entire principal amount. On a 60 month loan the lender has not received payments sufficient to satisfy the principal until around 50th or 55th month depending on the interest rate. If the bank receives payment of the outstanding amount on month 30 the expected return on that loan is reduced significantly. Consider a $10,000, 60 month loan at 5% apr. The bank is expected to receive $11,322 in total for interest income of $1,322. If the loan is repaid on month 30, the total interest is about $972. That's a 26% reduction of expected interest income, and the money received can only be re-lent for yet a lower interest rate. Add to this the tricky accounting of holding a loan, which is really a discounted bond, which is an asset, on the books and profitability of lending while interest rates are falling gets really funky. And this doesn't even examine default risk/cost.","Firstly, the banks are far less risky than the people they lend to. Most of the interest banks charge borrowers covers defaults, but banks rarely default to the fed, especially those able to borrow from the Fed. Secondly, most banks borrowing is in the form of overnight loans to cover short term reserve fluctuations; they are not borrowing dollars to lend to you. Thirdly, if govt does it's job of keeping some competition in the banking sector, then the rates offered you and me should be near the actual cost to service such loans, so are the true value of those loans. Since there are a significant number of banks that I can borrow from with a multitude of options in how to borrow, there is likely still decent competition for my business. Finally, the Fed funds rate is not currently 0%, so the banks are not getting interest free money.","\"The interest rate offered by a bond is called the nominal interest rate. The so-called real interest rate is the nominal interest rate minus the rate of inflation. If inflation is equal to or greater than the nominal rate at any given time, the REAL interest rate is zero or negative. We're talking about a ten year bond. It's possible for the real interest rate to be negative for one or two years of the bond's life, and positive for eight or nine. On the other hand, if we have a period of rising inflation, as in the 1970s, the inflation rate will exceed the (original) interest rate in most years, meaning that the real interest rate on the ten year bond will be negative over its whole life. People lost \"\"serious\"\" money on bonds (and loans) in the 1970s. In such situations, the BORROWERS make out. That is, they borrow money at low rates, earn inflation (plus a little more) pay back inflated dollars, and pocket the difference. For them, the money is \"\"free.\"\"\"","\"Keep in mind that the Federal Reserve Chairman needs to be very careful with his use of words. Here's what he said: It is arguable that interest rates are too high, that they are being constrained by the fact that interest rates can't go below zero. We have an economy where demand falls far short of the capacity of the economy to produce. We have an economy where the amount of investment in durable goods spending is far less than the capacity of the economy to produce. That suggests that interest rates in some sense should be lower rather than higher. We can't make interest rates lower, of course. (They) only can go down to zero. And again I would argue that a healthy economy with good returns is the best way to get returns to savers. So what does that mean? When he says that \"\"we can't make interest rates lower\"\", that doesn't mean that it isn't possible. He's saying that our demand for goods is lower than our ability to produce them. Negative interest would actually make that problem worse -- if I know that things will cost less in a month, I'm not going to buy anything. The Fed is incentivizing spending by lowering the cost of capital to zero. By continuing this policy, they are eventually going to bring on inflation, which will reduce the value of the currency -- which gives people and companies that are sitting on money an dis-incentive to continue hoarding it.\"","\"If you owned a bank how would you invest the bank's money? Typically banks are involved in loaning out money to businesses, people, and government at a higher interest rate then what they are paying to depositors. This is the spread and how they make money. If the bank determines that the yields on government bonds is more attractive then loaning the money out to businesses and people then the bank will purchase government bonds. It can also decide the other way. In this manner the mortgage and bond markets are always competing for capital and tend to offer very similar yields. Certain banks have the unique privilege of being able to borrow money from the FED at the Federal Funds rate and use this money to purchase government debt or loan it out to other banks or purchase other debt products. In this manner you see a high correlation between the FED funds rate, mortgage rates, and treasury yields. Other political factors include legislation that encourages mortgage lending (see Community Reinvestment Act) where banks may not have made the loans without said legislation. In short, keep your eye on the FED and ask yourself: \"\"Does the FED want rates to rise?\"\" and \"\"Can the US government afford rising rates?\"\" The answer to these two questions is no. However, the FED may be pressured to \"\"stop the presses\"\" if inflation becomes unwieldy and the FED actually starts to care about food and energy prices. So far this hasn't been the case.\"","\"Here's a number-crunching example of how the \"\"Zero interest rate\"\" offer is misleading. Suppose the offer is that a car \"\"costs $24,000.00 with zero percent financing over 24 months\"\" or as an alternative, \"\"$3,000.00 off for cash\"\". Ignore the hype: the quoted prices and the quoted interest rates. Look at what really happens to two people who take advantage of the two offers, One person hands over $21,000.00 cash, and leaves with the new car. The second promises to make 24 payments of $1000.00, one a month, starting in one month's time, and also leaves with the same make and model new car. The two people have received exactly the same benefit, so the two payment schemes must have the same value. A mortgage program will tell you that paying off a $21,000.00 loan by making 24 monthly payments of $1000.00 requires an interest rate of 1.10% a month, or an effective annual rate of 14.03%.\"","There is a significant tie between housing prices and mortgage rates. As such, don't assume low mortgage rates mean you will be financially better off if you buy now, since housing prices are inversely correlated with mortgage rates. This isn't a huge correlation - it's R-squared is a bit under 20%, at a 1.5-2 year lag - but there is a significant connection there. Particularly in that 10%+ era (see chart at end of post for details) in 1979-1982, there was a dramatic drop in housing price growth that corresponded with high interest rates. There is a second major factor here, though, one that is likely much more important: why the interest rates are at 10%. Interest rates are largely set to follow the Federal Funds rate (the rate at which the Federal Reserve loans to banks). That rate is set higher for essentially one purpose: to combat inflation. Higher interest rates means less borrowing, slower economic growth, and most importantly, a slower increase in the money supply - all of which come together to prevent inflation. Those 10% (and higher!) rates you heard about? Those were in the 70's and early 80's. Anyone remember the Jimmy Carter years? Inflation in the period from 1979 to 1981 averaged over 10%. Inflation in the 70s from 1973 to 1982 averaged nearly 9% annually. That meant your dollar this year was worth only $0.90 next year - which means inevitably a higher cost of borrowing. In addition to simply keeping pace with inflation, the Fed also uses the rate as a carrot/stick to control US inflation. They weren't as good at that in the 70s - they misread economic indicators in the late 1970s significantly, lowering rates dramatically in 1975-1977 (from ~12% to ~5%). This led to the dramatic double-digit inflation of the 1979-1981 period, requiring them to raise rates to astronomic levels - nearly 20% at one point. Yeah, I hope nobody bought a house on a fixed-rate mortgage from 1979-1981. The Fed has gotten a lot more careful over the years - Alan Greenspan largely was responsible for the shift in policy which seems to have been quite effective from the mid 1980s to the present (though he's long gone from his spot on the Fed board). Despite significant economic changes in both directions, inflation has been kept largely under control since then, and since 1991 have been keeping pretty steady around 6% or less. The current rate (around 0%) is unlikely to stay around forever - that would lead to massive inflation, eventually - but it's reasonable to say that prolonged periods over 10% are unlikely in the medium term. Further, if inflation did spike (and with it, your interest rates), salaries tend to spike also. Not quite as fast as inflation - in fact, that's a major reason a small positive inflation around 2-3% is important, to allow for wages to grow more slowly for poorer performers - but still, at 10% inflation the average wage will climb at a fairly similar pace. Thus, you'd be able to buy more house - or, perhaps a better idea, save more money for a house that you can then buy a few years down the road when rates drop. Ultimately, the advice here is to not worry too much about interest rates. Buy a house when you're ready, and buy the house you're ready for. Interest rates may rise, but if so it's likely due to an increase in inflation and thus wage growth; and it would take a major shift in the economy for rates to rise to the 10-11% level. If that did happen, housing prices (or at least growth in prices) would likely drop significantly. Some further references:","\"Okay, yes that's true. However, we don't know what inflation would have been during this period had the fed not been increasing their balance sheet. That's what I'm trying to get at it. So it's easy for them to say \"\"Low inflation , low interest rates\"\".\"","Holy shit that can't be USA unless you're talking about commercial lending, even then sky high rates. For the 97% LTV we sell at 3.58 last Saturday. We're a large bank too, so none of that credit unions selling themselves short nonsense. Mind you that's a special program through Fanny, but our normal rates are something like 4.4-4.55 depending on the day for 80/20 How can you be conservative but loan to credit score of over 500? We don't even look at under 640 and we're considered somewhat conservative.","It can be zero or negative given the current market conditions. Any money parked with treasury bonds is 100% risk free. So if I have a large amount of USD, and need a safe place to keep, then in today's environment even the banks (large as well) are at risk. So if I park my money with some large bank and that bank goes bankrupt, my money is gone for good. After a long drawn bankruptcy procedure, I may get back all of it or some of it. Even if the bank does not go bankrupt, it may face liquidity crises and I may not be able to withdraw when I want. Hence it's safer to keep it in Treasury bonds even though I may not gain any interest, or even lose a small amount of money. At least it will be very safe. Today there are very few options for large investors (typically governments and institutional investors.) The Euro is facing uncertainty. The Yuan is still regulated. There is not enough gold to buy (or to store it.) Hence this leads towards the USD. The very fact that USD is safe in today's environment is reflected in the Treasury rates.","Banks in general will keep saving rates as low as possible especially if there is a surplus of funds or alternative access for funding as in the case of the Fed in the USA. Generally speaking, why would bank pay you a high interest rate when they cannot generate any income from your money? Usually we will expect to see a drop in the loan interest rate when their is a surplus of funds so as to encourage investment. But if the market is volatile then no banks will allow easy access to money through loans. The old traditional policy of lending money without proper security and no control from the central bank has created serious problems for savings account holders when some of these banks went into bankruptcy. It is for this reason most countries has modified their Financial Act to offer more protection to account holders. At the moment banks must follow rigid guidelines before a loan can be approved to a customer. In my country (Guyana) we have seen the collapse of a few banks which sent a shock wave across the county for those that have savings held at those bank. We have also seen unsecured loans having to be written off thus putting serious pressure of those banks. So government stepped in a few years ago and amended the act to make it mandatory to have commercial banks follow certain strict guidelines before approving a loan.","Most of the bankruptcy is due to taking [or building over a period of time] a loan that one cannot service, if the interest rates rise, then the amount of money to repay the loan increases, when one doesnt pay the revised amount and keeps paying less, the over all debt keeps shooting through the roof ... a lower interest rate means that one can continue to pay the same amount ... and few missed payments do not cause as much as damage as it does when the rates are high.","Usually that is the case that when fixed rates are lower than the variable rates, it is an indication that the banks feel the next movement in rates could be down. You also need to look at the fixed rates for different periods, for example 1 year fixed compared to 3 year fixed and 5 year fixed rates. If you find the 3 and 5 year fixed rates are higher than the 1 year fixed rates this could be an indication that the banks feel rates will fall in the short term but the falls won't last long and will continue to rise after a year or so. If the 3 year fixed rates are also low in comparison, then the banks may feel that the economy is heading for a longer term down trend. The banks won't want to lose out, so will change their fixed rates on their perception of where they feel the economy is headed. Since your post in May 2011, the standard variable rate has since dropped twice (in November and December) to be at 7.30%. You will also find that fixed rates have also been dropped further by the banks, indicating additional future cuts in the variable rates. Regards, Victor","\"Banks make less profit when \"\"long\"\" rates are low compared to \"\"short\"\" rates. Banks lend for long term purposes like five year business loans or 30 year mortgages. They get their funds from (mostly) \"\"short term\"\" deposits, which can be emptied in days. Banks make money on the difference between 5 and 30 year rates, and short term rates. It is the difference, and not the absolute level of rates, that determines their profitability. A bank that pays 1% on CDs, and lends at 3% will make money. During the 1970s, short rates kept rising,and banks were stuck with 30 year loans at 7% from the early part of the decade, when short rates rose to double digits around 1980, and they lost money.\"","One will find that the fixed 30 year mortgage rate is tightly correlated to the 10 year treasury. An adder of 2-2.5% or so, changing slightly with the rest of the economy, as money can get tight or loose independent of the rate itself. In 2011 we are witnessing low rates yet tough loan standards, this is the phenomenon I am referencing.","\"So after you've learned about bonds, you might find yourself learning about interest rates. You might, in fact, discover that there's no such thing as a \"\"correct\"\" interest rate, or even a true \"\"market\"\" interest rate. PS We already had the housing bubble. It has come, and gone. What *new* bubble are you referring to?\"","The United States Federal Reserve has decided that interest rates should be low. (They think it may help the economy. The details matter little here though.) It will enforce this low rate by buying Treasury bonds at this very low interest rate. (Bonds are future money, so this means they pay a lot of money up front, for very little interest in the future. The Fed will pay more than anyone who offers less money up front, so they can set the price as long as they're willing to buy.) At the end of the day, Treasury bonds pay nearly no interest. Since there's little money to be made with Treasuries, people who want better-than-zero returns will bid up the current-price of any other bonds or similar loan-like instruments to get what whatever rate of return that they can. There's really no more than one price for money; you can think of the price of those bonds as basically (Treasury rate + some modifier based on the risk) percent. I realize thinking about bond prices is weird and different than other prices (you're measuring future-money using present-money and it's easy to be confused) and assure you it ultimately makes sense :) Anyway. Your savings account money has to compete with everyone else willing to lend money to banks. Everyone-else lends money for peanuts, so you get peanuts on your savings account too. Your banking is probably worth more to your bank on account of your check-card payment processing fees (collected from the merchant) than from the money they make lending out your savings (notice how many places have promotional rates if you make your direct deposits or use your check card to make a purchase N times a month). In Europe, it's similar, except you've got a different central bank. If Europe's bank operated radically differently for an extended period of time, you'd expect to see a difference in the exchange rates which would ultimately make the returns from investing in those currencies pretty similar as well. Such a change may show up domestically as inflation in the country with the loose-money policy, and internationally as weakness against other currencies. There's really only one price for money around the entire world. Any difference boils down to a difference in (perceived) risk.","You might be thinking of the Overnight market/Overnight Rate. This lending happens constantly.","Interesting thing is not all of this analysis is typically done by the person you are speaking with re: your mortgage. Likely there is an economic team (at some institution or another, as many many loans are sold/distributed in some fashion), finance team, and all of them are looking at various rates etc. Typically what is offered is matching an offsetting liability somewhere else. So there may be cases where the spread someone is looking to pick up might be tighter or looser within institutions or types of institutions vs others, even though the overall market is at one place. (e.g. banks vs. insurance companies). So you may have negotiating room at a certain term, but not another, or the reverse at another firm. One firm might have lots of 10 year money, while another might be limited, so will be picky in what they choose. Either more conservative loan terms/ltv, or a higher spread, for example. So many things go into the ultimate rate someone can get, but in theory the blog did a decent job.","All unsubstantiated opinions. >there is no such thing as a relation between any interest rates and the cost to service the loans Really. No relation whatsoever? And your background in finance letting you understand this is what? Are you telling me every bank of the [7,213](http://www2.fdic.gov/idasp/) independent banks are in cahoots and none of them compete based on prices and services? Can you give me precise evidence that all those independent banks are not in competition? What should the price be for capital if the current prices are incorrect, and tell me why.","These are yields for the government bonds. EuroZone interest rates are much lower (10 times lower, in fact) than the UK (GBP zone) interest rates. The rates are set by the central banks.","If you throw up a 20 year chart on the 10 year you can see it isn't fluctuating around 2%. It happens to be at 2% now but it has been relentlessly driving lower for at least 20 years. My own personal biased opinion is that it is a market infested with ultra-wealthy people who aren't looking for returns. They just basically want to maintain what they already sucked out of the system.","As of now in 2016, is is safe to assume that mortgage rates would/should not get back to 10%? What would the rates be in future is speculation. It depends on quite a few things, overall economy, demand / supply, liquidity in market etc ... Chances are less that rates would show a dramatic rise in near future. Does this mean that one should always buy a house ONLy when mortgage rates are low? Is it worth the wait IF the rates are high right now? Nope. House purchase decision are not solely based on interest rates. There are quite a few other aspects to consider, the housing industry, your need, etc. Although interest rate do form one of the aspect to consider specially affordability of the EMI. Is refinancing an option on the table, if I made a deal at a bad time when rates are high? This depends on the terms of current mortgage. Most would allow refinance, there may be penal charges breaking the current mortgage. Note refinance does not always mean that you would get a better rate. Many mortgages these days are on variable interest rates, this means that they can go down or go up. How can people afford 10% mortgage? Well if you buy a small cheaper [Less expensive] house you can afford a higher interest rate.","Probably means next to zero chance of having decent rates on savings accounts for the near future - who needs your money if banks can have government money for free? Probably no short-term effects on you besides that.","\"On a longer time scale, the plot thickens: It almost looks random. A large drop in real rates in the mid-70s, a massive spike in the early 80s, followed by a slow multi-decade decline. The chaos doesn't seem to be due to interest rates. They steadily climbed and steadily fell: All that's left is inflation: First, real rates should be expected to pay a moderate rate, so nominal rates will usually be higher than inflation. However, interest rates are very stable over long time periods while inflation is not. Economists call this type of phenomenon \"\"sticky pricing\"\", where the price, interest rates in this case, do not change much despite the realities surrounding them. But the story is a little more complicated. In the early 1970s, Nixon had an election to win and tried to lessen the impacts of recession by increasing gov't spending, not raising taxes, and financing through the central bank, causing inflation. The strategy failed, but he was reelected anyways. This set the precedent for the hyperinflation of the 1970s that ended abruptly by Reagan at the beginning of his first term in the early 1980s. Again, interest rates remained sticky, so real rates spiked. Now, the world is not growing, almost stagnating. Demand for equity is somewhat above average, but because corporate income is decelerating, and the developed world's population is aging, demand for investment income is skyrocketing. As demand rises, so does the price, which for an investor is a form of inverse of the interest rate. Future demand is probably best answered by forecasters, and the monetarist over and undertones still dominating the Federal Reserve show that they have finally learned after 100 years that inflation is best kept \"\"low and stable\"\": But what happens if growth in the US suddenly spikes, inflation rises, and the Federal Reserve must sell all of the long term assets it has bet so heavily on quickly while interest rates rise? Inflation may not be intended, but it is not impossible.\"","I will just explain the time value of money in general, descriptive terms and save the math for someone else. Imagine: You have half a million dollars. I'd like to borrow it all from you. I'll pay it all back, every penny, but no more. And I'll pay it back in about, oh, thirty years or so. (Imagine also that you can be 100% sure that I'll pay it back.) Does this sound like a good deal? Not really. Why not? Well, you could do something with that sort of money. With that sort of money, you could do a lot of things for 30 years. You could buy a nice house and live in it for 30 years and save yourself from spending a lot of money on rent during that time (or save money on interest by paying off a mortgage early) even if the price of the house goes nowhere. If you already had a house, you could do some home improvement, like insulate the place better (to save on heating bills) or even just on something that you're going to enjoy for part of those 30 years (a patio in the back yard). If you were feeling entrepreneurial, you could take that money and start a business. Or you could invest that money in the stock market, and get a lot more back.... and if that's too risky for you, just start a savings account and earn interest. And finally, in 30 years, the value of the dollar will be lower because of inflation, so it won't buy as much now as it will then. That's the time value of money. It's the opportunity cost of the best of the things that you could have done with that money during the time it was gone. When you take out a loan, your interest payments will depend in part on the time value of the money you're borrowing: the people making the loan could be investing that money somewhere else, like government bonds. (It will also depend on factors like the risk of default on the loan - this is why credit card debt is more expensive than debt like a mortgage that's backed by a big fat asset like a house which can be seized and sold if you happen to default.) This is how the Federal Reserve can affect interest rates across the economy by just buying or selling government bonds.","\"You are not \"\"the economy\"\". The economy is just the aggregate of what is going on with everyone else. You should make the decision based on your own situation now and projected into the future as best you can. Loan rates ARE at historical lows, so it is a great time to take a loan if you actually need one for some reason. However, I wouldn't go looking for a loan just because the rates are low for the same reason it doesn't make sense to buy maternity clothes if you are a single guy just because they are on sale.\"","\"No... that's just what I'm owed for letting them use my principal. If I wanted to enjoy the opportunity cost of 0% interest for 13 plus years, I'd just keep the money in my \"\"savings\"\" account (where the 8th wonder of world, miracle of compound interest no longer exists). The bigger question posited by my snark was if/when the bond market will stop trading them as legitimate paper.\"","\"The Bank of Canada does not \"\"set\"\" the interest rates. They auction government debt, and then report what the average yield/interest rate was (rounded to 25 basis points). [The average yield of yesterday's auction of 3-month Treasury bills was 0.76%](http://www.bankofcanada.ca/rates/interest-rates/t-bill-yields/). I don't know why the news tries to interpret what the BOC \"\"is trying to say\"\". BOC isn't saying anything - just reporting what happened, with some filler words.\"","Obviously you can't predict the future too much, but it's not too hard to figure out what is going to happen to mortgage rates in the short term. Mortgage rates are heavily influenced by 10 year treasury yields. You can find the daily 10 year rates here. It's easy to see the direction they've been moving recently. It usually takes a few days for mortgage rates to follow if the 10 year treasury yield is dropping (although if it's going up, mortgage rates will go up faster than they will fall). Here's a sample of all the 10 year treasury yields for the past 10 years. Looks like a good time to get a mortgage or refinance! You can also take a look at movements in mortgage backed securities. Here you can find a chart for Fannie Mae 3.0% mortgages. As the price goes up, mortgage rates go down. Think of it this way. Right now people are will to pay $103 for $100 worth of 3.0% mortgages. That doesn't really make sense because I could just loan you $100 at 3.0% and turn around and sell it for $103 immediately, pocketing the $3 profit. The reason is because right now, no one would willingly borrow money at 3.0%. Rates have fallen so much that if a bank has a customer paying them 3.0% on a mortgage, other people are willing to pay a premium on that mortgage. New mortgages are probably being written for 2.0%. (There is no current mortgage backed security for 2.0% fannie maes because rates have never been this low before).","\"Yes sir, I'm working on compiling your \"\"precise evidence,\"\" and I'll have it printed and bound for you on the double. In the meantime, you can look here as a starting point and try to find the part where the Fed has allowed interest rates to adjust freely, and maybe you can learn why rates are artificial: http://en.wikipedia.org/wiki/Federal_Reserve_responses_to_the_subprime_crisis As for \"\"cahoots\"\" and independent banks and whatever other off-topic nonsense you're babbling about, there was nothing said about cahoots or independent banks. The interest rates paid for and to US banks are affected by the monetary policy of the Fed. There is no collusion, or \"\"cahoots,\"\" required for them to follow a common policy of artificially-low interest rates, which was the point of the earlier post.\"","I'd have a look at Capital One's Online account too, they've got 1.35% interest rate with 10% bonus if you have over $15k deposited. It is still low like all interest rates, but at least it is on top (or at least close)!","Interest rates are always given annually, to make them comparable. If you prefer to calculate the rate or the total interest for the complete time, like 10 years or 15 years or 30 years, it is simple math, and it tells you the total you will pay, but it is not helpful for picking the better or even the right offer for your situation. Compare it to your car's gas mileage- what sense does it make to provide the information that a car will use 5000 gallons of gas over its lifetime? Is that better than a car that uses 6000 gallons (but may live 2 years longer?)","Yes those are really yields. A large portion of the world has negative yielding bonds in fact. This process has been in motion for the past 10 years for very specific reasons. So congratulations on discovering the bond market.","Right, so if a federal interest rate near 0 percent is not enough to stimulate the demand for those loans, then we have pretty much exhausted what we can do with monetary policy. So the only thing left is fiscal policy - raise spending or lower taxes","Mortgage rates generally consist of two factors: The risk premium is relatively constant for a particular individual / house combination, so most of the changes in your mortgage rate will be associated with changes in the price of money in the world economy at large. Interest rates in the overall economy are usually tied to an interest rate called the Federal Funds rate. The Federal Reserve manipulates the federal funds rate by buying and/or selling bonds until the rate is something they like. So you can usually expect your interest rate to rise or fall depending on the policies of the Federal Reserve. You can predict this in a couple of ways: The way they have described their plans recently indicates that will keep interest rates low for an extended period of time - probably through 2014 or so - and they hope to keep inflation around 2%. Unless inflation is significantly more than 2% between now and then, they are extremely unlikely to change that plan. As such, you should probably not expect mortgage interest rates in general to change more than infinitesimally small amounts until 2014ish. Worry more about your credit score.","This is of course using 'new math'. Namely, if I lend you $100 and you keep it for a month, I've lent you $100. In fact, if I loan you $100 for a year I've loaned you $100. But if I lend you $100 overnight, you pay me back in the morning, I lend you $100 overnight, you pay me back in the morning and we repeat that for a month, I've supposedly lent you $3,000. That's some interesting math for sure.","If the best they can do is 1/8th of a percent for a 15 year term, you are best served by taking the 30 year term. Pay it down sooner if you can, but it's nice to have the flexibility if you have a month where things are tight.","yield on a Treasury bond increases This primarily happens when the government increases interest rates or there is too much money floating around and the government wants to suck out money from the economy, this is the first step not the other way around. The most recent case was Fed buying up bonds and hence releasing money in to the economy so companies and people start investing to push the economy on the growth path. Banks normally base their interest rates on the Treasury bonds, which they use as a reference rate because of the probability of 0 default. As mortgage is a long term investment, so they follow the long duration bonds issued by the Fed. They than put a premium on the money lent out for taking that extra risk. So when the governments are trying to suck out money, there is a dearth of free flowing money and hence you pay more premium to borrow because supply is less demand is more, demand will eventually decrease but not in the short run. Why do banks increase the rates they loan money at when people sell bonds? Not people per se, but primarily the central bank in a country i.e. Fed in US.","\"When you say that the problem is \"\"high supply but no demand\"\" you are actually correct. Here's why: The phrase \"\"borrow/spend less, save more\"\" isn't an absolute law. It's more of a cautionary tale. Obviously, spending is an integral part of an economy: it accounts for at least 50% of every transaction! But the aphorism is getting at something other than admonishing people to not spend. The point of the saying is that interest rates should reflect savings rates. What it comes down to is the how the law of supply and demand applies to the relationship between savings and interest rates. Consider this thought experiment: in a world where everybody saves 50% of their income, what would happen to interest rates? Banks would have a glut of savings, relative to the population. Assuming demand remains constant, interest rates would go down: the price of borrowing goes down as the supply of money to be borrowed increases. Thus a corollary of the law of supply and demand is that as savings increase, interest rates tend to go down. So, as savings increase, the economic environment encourages capital improvements. Businesses can borrow at lower rates and increase long-term productive capacity. This is what the federal reserve has attempted to do by lowering the Fed Funds rate to near zero and by Operation Twist: increase economic activity through low borrowing costs. So, what's the problem? When interest rates are artificially low there are no savings to support the production later in time. A company that borrows at a 1% rate created by the feds can build a factory to make widgets, but it will have a hard time selling that widget to a population with a negative net worth. However, if the 1% rate is \"\"natural\"\", then the company should be fine: the savings of the population should support the production from his widget factory. For about 30 years we have experienced a credit boom in this country that was not created by excess savings. This trend couldn't continue forever. Look around you. At the end of the day, an economy is simply a group of people getting together to buy and sell stuff and services. Right now there is a lot of debt, and little cash. Who will be doing the buying?\"","Interest rates are market driven. They tend to be based on the prime rate set by the federal reserve bank because of the tremendous lending capacity of that institution and that other loan originators will often fund their own lending (at least in part) with fed loans. However, there is no mandatory link between the federal reserve rate and the market rate. No law stipulates that rates cannot rise or fall. They will rise and fall as lenders see necessary to use their capital. Though a lender asking 10% interest might make no loans when others are willing to lend for 9%. The only protection you have is that we are (mostly) economically free. As a borrower, you are protected by the fact that there are many lenders. Likewise, as a lender, because there are many borrowers. Stability is simply by virtue of the fact that one market participant with inordinate pricing will find fewer counterparties to transact.","\"This is the best tl;dr I could make, [original](https://www.nytimes.com/2017/07/27/business/dealbook/libor-fca-banks-andrew-bailey.html) reduced by 82%. (I'm a bot) ***** > The one-year Libor, which represents the rate of interest on a loan between banks to be paid back within a year, is the most commonly used index for mortgages in the United States, according to the Consumer Financial Protection Bureau. > &quot;And while we have given our full support to encouraging panel banks to continue to contribute and maintaining Libor over recent years, we do not think markets can rely on Libor continuing to be available indefinitely.\"\" > Mr. Bailey said that the regulator had agreed with the panel banks to sustain Libor through 2021 to smooth a transition to new rates. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6r14fz/libor_brought_scandal_greatest_financial_scandal/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~180937 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **Libor**^#1 **rate**^#2 **bank**^#3 **over**^#4 **Financial**^#5\"","\"This is the best tl;dr I could make, [original](http://www.rollingstone.com/politics/news/taibbi-is-libor-crucial-financial-benchmark-a-lie-w497305) reduced by 88%. (I'm a bot) ***** > If you have any kind of consumer loan, it&#039;s a fair bet that it&#039;s based on LIBOR. A 2009 study by the Cleveland Fed found that 60 percent of all mortgages in the U.S. were based on LIBOR. Buried somewhere in your home, you probably have a piece of paper that outlines the terms of your credit card, student loan, or auto loan, and if you peek in the fine print, you have a good chance of seeing that the rate you pay every month is based on LIBOR. Years ago, we found out that the world&#039;s biggest banks were manipulating LIBOR. That sucked. > As a few Wall Street analysts have quietly noted in the weeks since those comments, an &quot;Absence of underlying markets&quot; is a fancy way of saying that LIBOR has not been based on real trading activity, which is a fancy way of saying that LIBOR is bullshit. > So as LIBOR reflected reality less and less, it became more and more ubiquitous, burying itself, tick-like, into the core of the financial system. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6tasuo/years_ago_we_found_out_that_the_worlds_biggest/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~189474 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **LIBOR**^#1 **Bank**^#2 **market**^#3 **rate**^#4 **based**^#5\"","But it also can't be 1.46%, because that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. The rates are displayed as of Today. As the footnote suggests these are to be read with Maturities. A Treasury with 1 year Maturity is at 1.162% and a Treasury with 30Y Maturity is at 2.78%. Generally Bonds with longer maturity terms give better yields than bonds of shorter duration. This indicates the belief that in long term the outlook is positive.",">“At some point,” he said, interest rates are going to go up again, “and I should have been able to get those low rates. It’s not fair.” It's perfectly fair. Why is a bank going to lend you more money than what the collateral's worth? That would be unfair.","FYI, I am assuming you are an individual investor.. The rates on the website may change, if the government decides so. Anyway it is a UK government website, so it would reflect the changes immediately.","Monetizing loan is akin to loan money the banks don't have so they can lend money to people/state that don't have money. The ECB and the FED are theorically independant from the political power, and in pratique they more often than naught proove it (at least for the ECB), after that being independent from the financial sector they lend to... that's another question. Rates are low not because they monetize but because they want to do so without inducing inflation.","It seems a bit late in the process, no? They moved in, you are elsewhere, etc. Today, the Prime Rate is 3.25%. I don't know enough to suggest whether this is fair to both parties. It's more than you'd earn in the bank, and less than they'd pay for a business loan. My own equity line is currently 2.5%, for what that's worth.","Things we should all understand: * The Federal Reserve will not engage in QE3 or QE4 or any kind of QE. - Inflation is too high and the economy would be harmed rather than helped. * The Federal Reserve will not raise rates until 2013-2014. - Ben has been pretty adamant and clear about this. What I'm concerned about is that they keep pushing back the date. Interest rates should have been raised last year.","Interest rates have been going down since 1980. At some point it has to rebound, but as the old adage goes, the market can remain irrational longer than you can remain solvent. The only thing we know with certainty about the 10 year interest rates is that it will most likely cap out at 0%. Maybe....","Lowered rates = boom for equities, currently held bonds, and assets. Cheaper money means a (disproportionately) good time had by all. This all comes with malinvestment, potential for moral hazard, and savers losing in a big way. Why save for retirement when your risk free return on US Treasuries can barely keep up with inflation? As an aside, it is not really a risk free rate anymore, with $20 trillion in debt and no real hope of paying it off. This is why we see the rate increases and movement towards asset sales by the Fed to get the poop off their books. They are worried about all of the above and need more arrows in their quiver when the next recession hits. They won't have enough, however. They are trying to right a ship that is fully overturned. This is now the longest period of growth (however tepid) since the tech bubble of the 1990's. Are the fundamentals really better than then?","Thanks. It has taken me some time to understand how all this works, and there are still many gray areas I want to understand further. The Fed interest rate is the rate charged by banks to loan to each other to balance overnight reserves but only using the reserves they hold at the Fed. That adds no new money to the system, but increases the money multiplier a little since perhaps more loans can be made. Basically one bank with excess reserves can loan to another bank that needs reserves. The Fed injects no money here, only sets the rate for banks to do this with each other. When the Fed buys securities that effectively adds that many more dollars into circulation, which then gets hit by the money multiplier, adding a lot of new liquidity. I think historically the latter tracks increases in the money supply much better than the former. I think the St. Louis Fed has records online for all this dating back to the 1940's or so.","Different rates. What the BoE is conducting is known as Quantitative Easing, which is a form of monetary policy avalable to central banks whenever interest rates are already too close to zero or at zero (just like in the UK). In this case, the central banks hopes to influence longer-term rates, rather than just short-term rates. It is useful to remember that the rate central banks announce is a short-term rate used for interbank lending.","It depends solely on the risk your willing to take. For example, few years back one of the leading banks in my country was offering 25% interest rate for 5 year fixed deposits and the lending rate in the market was around 12%. So people borrowed money from other banks and invested in the high return fixed deposits. After 6 months the bank filed for bankruptcy and people lost their money. Later investigations revealed that abnormal high return was offered because the bank had a major liquidity problem. So all depends on the risk associated with return on your investment. Higher the risk, higher the return.","Banks cannot just borrow from the Federal Reserve and use that money to make loans. The first thing you need to understand is how fractional reserve banking works. The banks can make loans with money that their customers have deposited in their accounts. The interest and fees from those loans go to pay the salaries of those working at the banks with leftover profit to pay dividends (interest on your bank accounts). The only reason that the Federal Reserve allows overnight lending is so that banks don't immediately become insolvent if they have larger than usual withdrawals by their depositors. The Federal Reserve keeps an eye on the balance sheets of the banks that are doing the borrowing, and if they didn't have assets in the form of deposits, they would force the banks to sell the loans that were made from those deposits. What does this have to do with personal finance? I think this question is only marginally on-topic here. This amount of money in circulation is affected specifically by the fraction of the money that can be used for making other loans. But the bigger influence is the rate that the Federal Reserve charges for overnight lending. They raise and lower the rates which affects the rates that the banks can lend at while remaining profitable.","What the comments above say is true, but one more thing is there. FD rates are directly proportional to loan rates. However, banks make money because loan rates will always be higher than FD rates."],"string":"[\n \"\\\"You are correct that it could refer to any of the types of interest rates that you've mentioned. In general, though, phrases such as \\\"\\\"rising interest rates\\\"\\\" and \\\"\\\"falling interest rates\\\"\\\" refer to the Federal Funds Rate or LIBOR. These are the interest rates at which banks in the U.S. and U.K., respectively, are lending money to each other.\\\"\",\n \"\\\"I would say people are generally talking about the prime lending rate. I have heard the prime lending rate defined as \\\"\\\"The rate that banks charge each other when they borrow money overnight.\\\"\\\" But it often defined as the rate at which banks lend their most creditworthy customers. That definition comes with the caveat that it is not always held to strictly. Either definition has the same idea: it's the lowest rate at which anyone could currently borrow money. The rate for many types of lending is based upon the prime rate. A variable rate loan might have an interest rate of (Prime + x). The prime rate is in turn based upon the Federal Funds Rate, which is the rate that the Fed sets manually. When the news breaks that \\\"\\\"the Fed is raising interest rates by a quarter of a point\\\"\\\" (or similar) it is the Federal Funds Rate that they control. Lending institutions then \\\"\\\"fall in line\\\"\\\" and adjust the rates at which they lend money. So to summarize: When people refer to \\\"\\\"high\\\"\\\" or \\\"\\\"low\\\"\\\" or \\\"\\\"rising\\\"\\\" interest rates they are conceptually referring to the prime lending rate. When people talk about the Fed raising/lowering interest rates (In the U.S.) they are referring specifically to the Federal Funds Rate (which ultimately sets other lending rates).\\\"\",\n \"\\\"In the United States, if someone refers to the \\\"\\\"interest rate\\\"\\\", especially if heard on news or talk radio in particular, they are almost always referring to the federal funds rate, a rate set forth and maintained by the United States Federal Reserve (the \\\"\\\"fed\\\"\\\" for short). If the fed opts to raise or lower this rate, it subsequently effects all interest rates, whether by being directly connected in a chain of loans or by market demand through the efficiency of financial markets in the case of bond auctions. The FOMC meets eight times each year to determine the target for the federal funds rate. The federal funds rate effects all interest rates because it is the originating rate of interest on all loans in the chain of loans. Because of this significance as a benchmark for all interest rates, it is the rate most commonly referred to as \\\"\\\"interest rate\\\"\\\" when used alone. That is why other rates are specified by what they actually are; e.g., mortgage rates; 10 year & 30 year (for 10 year treasury and 30 year treasury bond yields respectively); savings rate, auto rate, credit card rate, CD rate—all rates of interest effected by the originating loan that is the federal funds rate. This is true in the United States but will vary for other countries. In general though, it will almost always refer to the originating rate for all loans in a given country, institution, etc. Note that bonds have yields that are based on market demand that is, in turn, based on the federal funds rate. It is because of the efficiency of financial markets that the demand, and thus the yields, are correlated to the federal funds rate.\\\"\",\n \"\\\"When \\\"\\\"people say\\\"\\\", each person is referring to whatever he/she is looking at. Interest rates tend to move roughly the same, but often there is a bias regarding long vs. short term. In the US right now, short term interest rates are very low but there is a lot of chatter saying they will rise in the future. The differential between long term rates and short term rates is high compared to historical norms, suggesting that the market believes this chatter. You can also look at the differences in rates between different quality levels. If the economy is improving, the difference in rate for lower rated debt vs. higher rated debt decreases as people think the chance of businesses failing is decreasing. Right now, any interest rate you look at is well below long term historical averages, so asserting that interest rates are low is quite safe.\\\"\",\n \"The generic representative of interest rates is the 10 year treasury bond rate. (USA). As an approximation most other interest rates do tend to move up and down with the treasury rate, but with more or less sensitivity. Another prominently discussed interest rate is the short term loan rate established by the Federal Reserve for loans it makes to banks.\",\n \"Because giving someone a loan and paying them to take it isn't a loan anymore. I'll grant you, some of the treasury bill auctions did slip below 0% -- people paid in slightly more than what the bill would pay out. In as much as this was done by actual investors (and not afore-mentioned helicopter Ben Bernanke keeping the printing presses running hot all night), it was major accounts fearful of the euro disintegrating and banks crashing, and so on, and needing a safe spot to stick their cash for a couple months. Where the Fed is concerned, that interest rate he's referring to is lending they do to banks. So, how much would you take if you ran a bank and the Fed offered to pay you to take their money? A billion? A trillion? As much as you could cram in your vaults, shove in your pockets, and stuff down your favorite teller's blouse? Yea, me too.\",\n \"\\\"These rates are so low because the cost of money is so low. Specifically, two rates are near zero. The Federal Reserve discount rate, which is \\\"\\\"the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window.\\\"\\\" The effective federal funds rate, which is the rate banks pay when they trade balances with each other through the Federal Reserve. Banks want to profit on the loans they make, like mortgage loans. To do so, they try to maximize the difference between the rates they charge on mortgages and other loans (revenue), and the rates they pay savings account holders, the Federal Reserve or other banks to obtain funds (expenses). This means that the rates they offer to pay are as close to these rates as possible. As the charts shows, both rates have been cut significantly since the start of the recession, either through open market operations (the federal funds rate) or directly (the discount rate). The discount rate is set directly by the regional Federal Reserve banks every 14 days. In most cases, the federal funds rate is lower than the discount rate, in order to encourage banks to lend money to each other instead of borrowing it from the Fed. In the past, however, there have been rare instances where the federal funds rate has exceeded the discount rate, and it's been cheaper for banks to borrow money directly from the Fed than from each other.\\\"\",\n \"Generically, interest rates being charged are driven in large part by the central bank's rate and competition tends to keep similar loans priced fairly close to each other. Interest rates being paid are driven by what's needed to get folks to lend you their money (deposit in bank, purchase bonds) so it's again related. There certainly isn't very direct coupling, but in general interest rates of all sorts do tend to swing (very) roughly in the same direction at (very) roughly the same time... so the concept that interest rates of all types are rising or falling at any given moment is a simplification but not wholly unreasonable. If you want to know which interest rates a particular person is citing to back up their claim you really need to ask them.\",\n \"It refers to the risk free rate of a particular country. Because all other rates are usually pegged to the risk free rate. In US,it is the 30 day treasury rate. In England, it is the LIBOR In Canada, it is the overnight rate at which banks lend money to each other. All of these come under the category of risk free rate.\",\n \"It's really not. You have to realize that current rates are an outlier. The average on the 10yr since 1960 is 6.7%. Even on the 1yr it's still 5.7%. The average on the 30Yr from '77-present is 7.6%. You can use your own discretion about the length of time to consider for the average, but you don't just take the current rate as the risk free rate.\",\n \"As Sean pointed out they usually mean LIBOR or the FFR (or for other countries the equivalent risk free rate of interest). I will just like to add on to what everyone has said here and will like to explain how various interest rates you mentioned work out when the risk free rate moves: For brevity, let's denote the risk free rate by Rf, the savings account interest rate as Rs, a mortgage interest rate as Rmort, and a term deposit rate with the bank as Rterm. Savings account interest rate: When a central bank revises the overnight lending rate (or the prime rate, repo rate etc.), in some countries banks are not obliged to increase the savings account interest rate. Usually a downward revision will force them to lower it (because they net they will be paying out = Rf - Rs). On the other hand, if Rf goes up and if one of the banks increases the Rs then other banks may be forced to do so too under competitive pressure. In some countries the central bank has the authority to revise Rs without revising the overnight lending rate. Term deposits with the bank (or certificates of deposit): Usually movements in these rates are more in sync with Rf than Rs is. The chief difference is that savings account offer more liquidity than term deposits and hence banks can offer lower rates and still get deposits under them --consider the higher interest rate offered by the term deposit as a liquidity risk premium. Generally, interest rates paid by instruments of similar risk profile that offer similar liquidity will move in parallel (otherwise there can be arbitrage). Sometimes these rates can move to anticipate a future change in Rf. Mortgage loan rates or other interests that you pay to the bank: If the risk free rate goes up, banks will increase these rates to keep the net interest they earn over risk free (= Δr = Rmort - Rf) the same. If Rf drops and if banks are not obliged to decrease loan rates then they will only do so if one of the banks does it first. P.S:- Wherever I have said they will do so when one of the banks does it first, I am not referring to a recursion but merely to the competitive market theory. Under such a theory, the first one to cut down the profit margin usually has a strong business incentive to do so (e.g., gain market share, or eliminate competition by lowering profit margins etc.). Others are forced to follow the trend.\",\n \"Is your question academic curiosity or are you thinking of buying bonds? Be aware that bond interest rates are near all-time lows, and if interest rates were to rise, the prices of bonds could fall. Those buying bonds today are taking unusually large risk of capital loss.\",\n \"This is a very interesting question. I'm going to attempt to answer it. Use debt to leverage investment. Historically, stock markets have returned 10% p.a., so today when interest rates are very low, and depending on which country you live in, you could theoretically borrow money at a very low interest rate and earn 10% p.a., pocketing the difference. This can be done through an ETF, mutual funds and other investment instruments. Make sure you have enough cash flow to cover the interest payments! Similar to the concept of acid ratio for companies, you should have slightly more than enough liquid funds to meet the monthly payments. Naturally, this strategy only works when interest rates are low. After that, you'll have to think of other ideas. However, IMO the Fed seems to be heading towards QE3 so we might be seeing a prolonged period of low interest rates, so borrowing seems like a sensible option now. Since the movements of interest rates are political in nature, monitoring this should be quite simple. It depends on you. Since interest rates are the opportunity cost of spending money, the lower the interest rates, the lower the opportunity costs of using money now and repaying it later. Interest rates are a market mechanism so that people who prefer to spend later can lend to people who prefer to spend now for the price of interest. *Disclaimer: Historically stocks have returned 10% p.a., but that doesn't mean this trend will continue indefinitely as we have seen fixed income outperform stocks in the recent past.\",\n \"> if govt does it's job of keeping some competition in the banking sector, then the rates offered you and me should be near the actual cost to service such loans, You cannot really believe this. There is no sector more artificial than banking, and under the current regime there is no such thing as a relation between any interest rates and the cost to service the loans. Rates have been artificially depressed across the spectrum using every available manipulation, and we are experiencing a coordinated money-printing/government bailout operation on a global scale. To say that rates anywhere have any relation to the real cost and/or demand for capital is absurd.\",\n \"but I can't help but feel that these low rates are somehow a gimmick to trick people into taking out loans Let me help you: it's not a feeling. That's exactly what it is. Since the economy is down, people don't want to jeopardize what they have, and keep the cash in their wallets. But, while keeping the money safe in the pocket, it makes the economy even worse. So in order to make people spend some money, the rates go down so that the cost of money is lower. It also means that the inflation will be on the rise, which is again a reason not to keep money uninvested. So yes, the rates are now very low, and the housing market is a buyers' market, so it does make sense to take out a loan at this time (provided of course that you can actually repay it over time, and don't take loans you can't handle). Of course, you shouldn't be taking loans just because the rates are low. But if you were already planning on purchasing a house - now would be a good time to go on with that.\",\n \"I've wondered the same thing. And, after reading the above replies, I think there is a simpler explanation. It goes like this. When the bank goes to make a loan they need capital to do it. So, they can get it from the federal reserve, another bank, or us. Well, if the federal reserve will loan it to them for lets say 0.05%, what do you think they are going to be willing to pay us? Id say maybe 0.04%. Anyway, I could be wrong, but this makes sense to me.\",\n \"The yield on treasury bond indicates the amount of money anyone at can make at virtually zero risk. So lets say banks have X [say 100] amount of money. They can either invest this in treasury bonds and get Y% [say 1%] interest that is very safe, or invest into mortgage loans [i.e. lend it to people] at Y+Z% [say at 3%]. The extra Z% is to cover the servicing cost and the associated risk. (Put another way, if you wanted only Y%, why not invest into treasury bonds, rather than take the risk and hassle of getting the same Y% by lending to individuals?) In short, treasury bond rates drive the rate at which banks can invest surplus money in the market or borrow from the market. This indirectly translates into the savings & lending rates to the banks' customers.\",\n \"so this is a loan for a house? a loan on a house? a new mortgage? you shouldn't just get a loan for the hell of it any time. interests rates are low because the yields on US treasuries have been pushed closer to zero, and thats pretty much that. the risk is on the bank that approves the loan, and not you. (your ability to repay should be truthful, but your payments are smaller because the interest is so low)\",\n \"You understand that the Fed is *supposed* to make overnight loans to banks, that one of its primary jobs is to be a lender of last resort? And yes, some were foreign banks; foreign subsidies of US banks or counter-parties to large US banks. Near-zero, yes for course we're talking about *overnight* loans. The current commercial rate for overnight euro LIBOR is 0.26179%, in other words, 0.0026, near zero OMG conspiracy!\",\n \"\\\"In practice No, not at zero. Banks currently have the ability to borrow at very low interest rates but not quite at zero. Using the Fed Funds Range as a metric we can see that recently (Nov 2015) the lower bound of the fed funds range was 0.05%. Fed funds are overnight lend/borrow transactions between banks (often between the federal home loan banks and other institutions) 0.05% is also the FED's current Reverse Repo Program rate (RRP), which is the rate at which certain counterparties can deposit cash with the FED overnight in exchange for collateral. The collateral (US Treasuries) is insurance against the FED defaulting, a very low risk considering the FED has the ability to create more US Dollars out of thin air. In theory the RRP rate should be a lower bound for the fed funds rate however in practice it is possible to see lower rates trade in the street. What do you mean by \\\"\\\"Third party institutions\\\"\\\"? Only banks of the highest credit quality are able to borrow at the lower bound of the Fed Funds range. These are usually large domestic banks like JP Morgan, Bank of NY etc... As credit quality decreases the rate at which they borrow increases. Currently Skandinavien, German, French banks have relatively good credit and borrow overnight money towards the lower part of the fed funds range. Italian, Spanish and smaller regional US banks have lesser credit quality and borrow at the higher end of the Fed Funds range. Institutions with lower credit quality would borrow at still higher rates.\\\"\",\n \"But Uncle Sam isn't just borrowing money from other people/countires. He's borrowing money from himself..... with printed money. The ostensible purpose of QE, Operation Twist, et al, is to force interest rates down largely through the monetization of government debt. So to reference interest rates as if they were some neutral barometer of America's financial strength is a bit spurious.\",\n \"Surely some borrowers and lenders make decisions about making and taking loans based on the actual interest rates on the actual loans? In which case it doesn't matter so much if the rates are calculated based on a fictional assumption about something. At the end of the day every borrower or lender in the market makes their own decision about which lending contracts they take part in.\",\n \"Mortgage or other interest rates are determined by the banks on cost of funds, risk and operating cost. The Fed raises money from the markets by issuing Tresury Bonds at a specified rate. This rate at which it raises money varies depening on the economy. Thus there are 2 rates: the rate at which banks can borrow money from the Fed, which is higher than the rate that the Fed would give banks for excess money deposited with them. So if the cost of borrowing is less, banks can borrow this money from the Fed and loan it to individuals at a slightly higher rate that would cover their costs plus a small profit. The risk associated with a mortgage is less, and hence these would be cheaper, then say a personal loan. If the cost of borrowing goes up, the mortgage rate will go up. If the cost of borrowing money goes down, the cost would come down. Banks may not always borrow money to lend. If they have existing money, they can either park it with the Fed for a lower interest rate, or loan it to individuals for a rate higher than what they would have received from the Fed.\",\n \"\\\"My answer is specific to the US because you mentioned the Federal Reserve, but a similar system is in place in most countries. Do interest rates increase based on what the market is doing, or do they solely increase based on what the Federal Reserve sets them at? There are actually two rates in question here; the Wikipedia article on the federal funds rate has a nice description that I'll summarize here. The interest rate that's usually referred to is the federal funds rate, and it's the rate at which banks can lend money to each other through the Federal Reserve. The nominal federal funds rate - this is a target set by the Board of Governors of the Federal Reserve at each meeting of the Federal Open Market Committee (FOMC). When you hear in the media that the Fed is changing interest rates, this is almost always what they're referring to. The actual federal funds rate - through the trading desk of the New York Federal Reserve, the FOMC conducts open market operations to enforce the federal funds rate, thus leading to the actual rate, which is the rate determined by market forces as a result of the Fed's operations. Open market operations involve buying and selling short-term securities in order to influence the rate. As an example, the current nominal federal funds rate is 0% (in economic parlance, this is known as the Zero Lower Bound (ZLB)), while the actual rate is approximately 25 basis points, or 0.25%. Why is it assumed that interest rates are going to increase when the Federal Reserve ends QE3? I don't understand why interest rates are going to increase. In the United States, quantitative easing is actually a little different from the usual open market operations the Fed conducts. Open market operations usually involve the buying and selling of short-term Treasury securities; in QE, however (especially the latest and ongoing round, QE3), the Fed has been purchasing longer-term Treasury securities and mortgage-backed securities (MBS). By purchasing MBS, the Fed is trying to reduce the overall risk of the commercial housing debt market. Furthermore, the demand created by these purchases drives up prices on the debt, which drives down interest rates in the commercial housing market. To clarify: the debt market I'm referring to is the market for mortgage-backed securities and other debt derivatives (CDO's, for instance). I'll use MBS as an example. The actual mortgages are sold to companies that securitize them by pooling them and issuing securities based on the value of the pool. This process may happen numerous times, since derivatives can be created based on the value of the MBS themselves, which in turn are based on housing debt. In other words, MBS aren't exactly the same thing as housing debt, but they're based on housing debt. It's these packaged securities the Fed is purchasing, not the mortgages themselves. Once the Fed draws down QE3, however, this demand will probably decrease. As the Fed unloads its balance sheet over several years, and demand decreases throughout the market, prices will fall and interest rates in the commercial housing market will fall. Ideally, the Fed will wait until the economy is healthy enough to absorb the unloading of these securities. Just to be clear, the interest rates that QE3 are targeting are different from the interest rates you usually hear about. It's possible for the Fed to unwind QE3, while still keeping the \\\"\\\"interest rate\\\"\\\", i.e. the federal funds rate, near zero. although this is considered unlikely. Also, the Fed can target long-term vs. short-term interest rates as well, which is once again slightly different from what I talked about above. This was the goal of the Operation Twist program in 2011 (and in the 1960's). Kirill Fuchs gave a great description of the program in this answer, but basically, the Fed purchased long-term securities and sold short-term securities, with the goal of twisting the yield curve to lower long-term interest rates relative to short-term rates. The goal is to encourage people and businesses to take on long-term debt, e.g. mortgages, capital investments, etc. My main question that I'm trying to understand is why interest rates are what they are. Is it more of an arbitrary number set by central banks or is it due to market activity? Hopefully I addressed much of this above, but I'll give a quick summary. There are many \\\"\\\"interest rates\\\"\\\" in numerous different financial markets. The rate most commonly talked about is the nominal federal funds rate that I mentioned above; although it's a target set by the Board of Governors, it's not arbitrary. There's a reason the Federal Reserve hires hundreds of research economists. No central bank arbitrarily sets the interest rate; it's determined as part of an effort to reach certain economic benchmarks for the foreseeable future, whatever those may be. In the US, current Fed policy maintains that the federal funds rate should be approximately zero until the economy surpasses the unemployment and inflation benchmarks set forth by the Evans Rule (named after Charles Evans, the president of the Federal Reserve Bank of Chicago, who pushed for the rule). The effective federal funds rate, as well as other rates the Fed has targeted like interest rates on commercial housing debt, long-term rates on Treasury securities, etc. are market driven. The Fed may enter the market, but the same forces of supply and demand are still at work. Although the Fed's actions are controversial, the effects of their actions are still bound by market forces, so the policies and their effects are anything but arbitrary.\\\"\",\n \"Fundamentally interest rates reflect the time preference people place on money and the things money can buy. If I have a high time preference then I prefer money in my hand versus money promised to me at some date in the future. Thus, I will only loan my money to someone if they offer me an incentive which would be an amount of money to be received in the future that is larger than the amount of money I’m giving the debtor in the present (i.e. the interest rate). Many factors go into my time preference determination. My demand for cash (i.e. my cash balance), the credit rating of the borrower, the length of the loan, and my expectation of the change in currency value are just a few of the factors that affect what interest rate I will loan money. The first loan I make will have a lower interest rate than the last loan, ceteris paribus. This is because my supply of cash diminishes with each loan which makes my remaining cash more valuable and a higher interest rate will be needed to entice me to make additional loans. This is the theory behind why interest rates will rise when QE3 or QEinfinity ever stops. QE is where the Federal Reserve cartel prints new money to purchase bonds from cartel banks. If QE slows or ends the supply of money will stop increasing which will make cash more valuable and higher interest rates will be needed to entice creditors to loan money. Note that increasing the stock of money does not necessarily result in lower interest rates. As stated earlier, the change in value of the currency also affects the interest rate lenders are willing to accept. If the Federal Reserve cartel deposited $1 million everyday into every US citizen’s bank account it wouldn’t take long before lenders demanded very high interest rates as compensation for the decrease in the value of the currency. Does the Federal Reserve cartel affect interest rates? Yes, in two ways. First, as mentioned before, it prints new money that is loaned to the government. It either purchases the bonds directly or purchases the bonds from cartel banks which give them cash to purchase more government bonds. This keeps demand high for government bonds which lowers the yield on government bonds (yields move inverse to the price of the bond). The Federal Reserve cartel also can provide an unlimited amount of funds at the Federal Funds rate to the cartel member banks. Banks can borrow at this rate and then proceed to make loans at a higher rate and pocket the difference. Remember, however, that the Federal Reserve cartel is not the only market participant. Other bond holders, such as foreign governments and pension funds, buy and sell US bonds. At some point they could demand higher rates. The Federal Reserve cartel, which currently holds close to 17% of US public debt, could attempt to keep rates low by printing new money to buy all existing US bonds to prevent the yield on bonds from going up. At that point, however, holding US dollars becomes very dangerous as it is apparent the Federal Reserve cartel is just a money printing machine for the US government. That’s when most people begin to dump dollars en masse.\",\n \"1) Low-Interest Rate: Isn't the inflation rate currently (and over the last couple of years) also really low, around 2%? If you're saying the inflation rate is going to go back up, I'm curious as to your reasoning. I don't see any general decrease in the money supply in the near future, wages are stagnant, and GDP looks like it's trundling along at standard rates - however, with the Gini coefficient still rising, more and more of that production is finding its way into fewer and fewer hands that don't have a lot of incentive to re-invest it.\",\n \"The prime rate is actually the rate at which banks lend to consumers/businesses with the highest credit ratings. The bank rate (more commonly known as the overnight rate) is the interest rate at which banks can borrow funds from the Bank of Canada or from each other.\",\n \"Wait, if everyone isn't buying things and saving money instead, who is left to get loans to buy things at higher rates? Banks don't wag the consumer's tail. Banks will make loads more money on their variable rate loans which will hurt a lot of people. Until wages rise to incentivize buying things, loan interest rates need to be low. Only way to spur the economy is to get more money in the hands of the spenders. We keep giving it to the hoarders.\",\n \"There's often a legal basis to answer this question. For instance, Austria (guessing from your profile) currently uses a 4% Statutory interest rate. You'll need to dig up not just the actual but also the historical rates. Note that you'll want the non-commercial interest rate - some countries differentiate between loans to businesses and loans to individuals.\",\n \"Without commenting on whether or not it's needed I don't think we are going to see a QE3 and all the political pressure is for some reason to start raising rates. Regardless of how it plays out it's safe to say that the Fed Rate isn't going any lower. You should also watch closely what happens to Fannie and Freddie. If they are dismantled and government backed mortgages become a thing of the past then I think it'll become impossible for a consumer to find a 30 year fixed rate mortgage. Even if they are kept alive, they will be put on a short leash and that will serve to further depress the mortgage market. Long story short, I'd lock your rate in.\",\n \"Interest rates can't remain this low. It's like having extremely low blood pressure. When you raise the rates, banks are incented to loan money and that movement of capital is good for the economy. It forces us to become savers instead of spenders, and our pensions, 401ks, social security are all getting killed by not being able to use debt to get safer stable returns. Interest rates have to come back up.\",\n \"It just means that they think that in the long-term, interest rates should be around 3-4%, i.e. probably between 3% and 4%, but perhaps a bit lower or higher occasionally.\",\n \"Federal Funds Rate The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The federal funds rate is generally only applicable to the most creditworthy institutions when they borrow and lend overnight funds to each other. The federal funds rate is one of the most influential interest rates in the U.S. economy, since it affects monetary and financial conditions, which in turn have a bearing on key aspects of the broad economy including employment, growth and inflation. http://www.investopedia.com/terms/f/federalfundsrate.asp#ixzz3mB5kCtvT\",\n \"Yes. In the US these are called certificates of deposit or savings accounts. Every run-of-the-mill bank offers them. You give the bank money and in return they pay you an interest rate that is some fraction of or (negative) offset from the returns they expect to make from your money. Since most investments that a bank makes (say, loaning money to a local business) are themselves based on some multiple of or (positive) offset from the prime rate, in return the interest rate that they offer you is also mathematically based on the prime rate. You can find lists of banks offering the best returns on CDs or savings accounts at sites like BankRate.\",\n \"If you had a time machine and could go back and tell yourself in 2005 that there would be a stretch coming up where the FFR would be held a 0% for (at least) 6 solid years you would not have believed it. No one would have believed it. That would have been crazy loony toon talk.\",\n \"And how is that even an argument? So...the fed needs to raise rates, is what you seem to be saying. I'm not sure that now is the time for that, considering the weak jobs numbers recently, but it's possibly a good idea for them to announce that a hike will come soon instead of actually raising the rate. Either way, to say that having a low interest rate for a decade is a bad thing sort of obscures a harsh reality. It's certainly not something that you *want*, but what's the alternative? Would the US have been better off without the Feds balance sheet expansion? Very few economists would say yes. In fact that exact line of thought likely turned a financial crash into the Great Depression of the 30's.\",\n \"You can find the national average interest rates on commercial bank accounts from the FDIC or nicely aggregated [here from the St. Louis Fed.](https://fred.stlouisfed.org/search?st=National+Rate+on+Non-Jumbo+Deposits+%28less+than+%24100%2C000%29%3A+Savings) [Here is the national average interest rate on savings accounts.](https://fred.stlouisfed.org/series/SAVNRNJ) If you are looking for a general historical proxy for a savings account interest rate, then the effective federal funds rate or overnight LIBOR is a good estimate prior to the 2008 financial crisis.\",\n \"The prime rate is the interest rate banks use amongst themselves to lend money to each other only. It is used as the basis (sometimes) for what interest rate banks charge you. The prime rate is based loosely on the Fed rate. There is a committee that meets regularly to set this and other industry interest rates. http://en.wikipedia.org/wiki/Prime_rate I am not 100% positive the following is totally accurate The banks keep our deposits and pay us interest for doing so. They are paying us interest because they take yours, mine and everybody elses deposits as a large lump sum and invest that money. Sometimes as business loans, sometimes as mortgages and sometimes as credit card. The banks have a book of business that will be EXACTLY how much credit they have extended to everybody. But they do not keep that amount of cash in the vaults, only some smaller percentage of that large amount. When I use my credit card and they need to transfer money to amazon.com, if they don't happen to have enough cash that day, they will just borrow from another bank that does, and the interest rate they pay to do so is the prime rate. Since they are paying interest on the money they borrow to pay the debt I charged because they told me my credit was worth so much (...???...) they charge me a little bit more than that. Hence your credit card or mortgage's APR being based on the prime rate. I THINK that is what they do If I am wrong leave a comment and I will update, or the mods can.\",\n \"\\\"Not at these rates. The motto used to be 3/6/3: \\\"\\\"Borrow at 3%, Loan out at 6%, and then be at the golf course by 3pm\\\"\\\". So they get 3% on the spread, minus fixed costs. Now, they borrow at near 0% and loan out at slightly above 0%. Those fixed costs starts becoming an issue. It isn't cheap to have all these ATMs, bank branches, tellers, computer systems, etc. Also, a lot of the money cannot be loaned out at all because there are not enough creditworthy borrowers. You might have recalled a few months ago, several banks started charging for deposits. They don't want more money that will just lay there while they have to pay the costs of maintaining the accounts. Some bank CEOs have stated that they would be better off if the Fed raised rates up to 1%.\\\"\",\n \"\\\"Interest rates are at a record low and the government is printing money. You can get a fixed rate loan at a rate equal to inflation in a healthy economy. Unless you know that you are moving in < 5 years, why would you expose yourself to interest rate risk when rates are about as close to zero as they can be? If your thought with respect to mitigating interest rate risk is: \\\"\\\"What's the big deal, I'll just refinance!\\\"\\\", think again, because in a market where rates are climbing, you may not be able to affordably refinance at the LTV that you'll have in 5-7 years. From 1974-1991, 30 year mortgages never fell below 9%, and were over 12% from 1979 to 1985. Think about what those kinds of rates -- which reduce a new homeowner's buying power by over 40%, would do to your homes value.\\\"\",\n \"\\\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-06-06/are-low-interest-rates-bad-for-growth) reduced by 83%. (I'm a bot) ***** > James Chessen, the chief economist of the American Bankers&#039; Association, said in a June 5 interview, &quot;Interest rates have been too low for too long. It has created a problem for banks.&quot; The Independent Community Bankers of America, which represents smaller U.S. banks, believes that &quot;Higher interest rates would be a net plus for the community banking sector that would help them extend more credit,&quot; according to spokesman Paul Merski. > Officials at the European Central Bank and the Bank of Japan are sensitive to the side effects of extremely low or even subzero interest rates. > In a May 24 speech in Madrid, ECB President Mario Draghi acknowledged that low policy rates &quot;May compress banks&#039; net interest margins and thus exert pressure on their profitability.&quot; But he said that ECB researchers found that taking into account offsetting beneficial effects, &quot;The overall impact of our measures on bank profitability was positive.\\\"\\\" ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6fodm5/is_the_world_overdoing_low_interest_rates/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~138044 tl;drs so far.\\\"\\\") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **bank**^#1 **rate**^#2 **interest**^#3 **Low**^#4 **Calomiris**^#5\\\"\",\n \"\\\"Can it be so that these low-interest rates cause investors to take greater risk to get a decent return? With interest rates being as low as they are, there is little to no risk in banking; especially after Dodd-Frank. \\\"\\\"Risk\\\"\\\" is just a fancy word for \\\"\\\"Will I make money in the near/ long future.\\\"\\\" No one knows what the actual risk is (unless you can see into the future.) But there are ways to mitigate it. So, arguably, the best way to make money is the stock market, not in banking. There is a great misallocation of resources which at some point will show itself and cause tremendous losses, even maybe cause a new financial crisis? A financial crisis is backed on a believed-to-be strong investment that goes belly-up. \\\"\\\"Tremendous Losses\\\"\\\" is a rather grand term with no merit. Banks are not purposely keeping interest rates low to cause a financial crisis. As the central banks have kept interest rates extremely low for a decade, even negative, this affects how much we save and borrow. The biggest point here is to know one thing: bonds. Bonds affect all things from municipalities, construction, to pensions. If interest rates increased currently, the current rate of bonds would drop vastly and actually cause a financial crisis (in the U.S.) due to millions of older persons relying on bonds as sources of income.\\\"\",\n \"There's two competing forces at work, and they are at work worldwide. Banks can get money from several sources: Through inter-bank borrowing and from raising capital. Capital can come from from selling assets, stock offerings, deposits, etc. The money the banks get from depositors is capital. In the United States, the Federal Reserve regulates the amount of capital that banks must maintain. If there was no requirement for capital then there would be zero demand for capital at an interest rate above the inter-bank offering rate. As capital requirements have risen, banks are allowed to make less loans given a certain amount of capital. That has caused an increased demand for capital from depositors. As described in this Federal Reserve ruling, effective January 1st, 2014 the Federal Reserve is again raising capital requirements. As you can see here money can be borrowed, in the United States, at .0825% (100 - 99.9175). Currently interest rates paid to borrowers are quite high compared to prevailing inter-bank rates. They could see more upward pressure given the fact that banks will be forced to maintain an increased amount of capital for a given amount of loans.\",\n \"There is a strange puzzle today where savings account interest rates are not rising in-line with the Federal Funds rate. Either customers are apathetic to their alternative uses of cash, or banks have some-how formed a cartel to keep their cost of funding low. I'm leaning towards the former since bank customers today likely value readily accessible cash more than the interest rate they could earn by investing in money market mutual funds.\",\n \"I've read this claim many times in the news: banks are making less profit from the lending business when interest rates are historically low. The issue with most loans is they can be satisfied at any time. When you have falling interest rates it means most of the banks loans are refinanced from nice high rates to current market low interest rates which can significantly reduce the expected return on past loans. The bank gets the money back when it wants it the least because it can only re-lend the money at the current market (lower) interest rates. When interest rates are increasing refinance and early repayment activity reduces significantly. It's important to look at the loan from the point of view of the bank, a bank must first issue out the entire principal amount. On a 60 month loan the lender has not received payments sufficient to satisfy the principal until around 50th or 55th month depending on the interest rate. If the bank receives payment of the outstanding amount on month 30 the expected return on that loan is reduced significantly. Consider a $10,000, 60 month loan at 5% apr. The bank is expected to receive $11,322 in total for interest income of $1,322. If the loan is repaid on month 30, the total interest is about $972. That's a 26% reduction of expected interest income, and the money received can only be re-lent for yet a lower interest rate. Add to this the tricky accounting of holding a loan, which is really a discounted bond, which is an asset, on the books and profitability of lending while interest rates are falling gets really funky. And this doesn't even examine default risk/cost.\",\n \"Firstly, the banks are far less risky than the people they lend to. Most of the interest banks charge borrowers covers defaults, but banks rarely default to the fed, especially those able to borrow from the Fed. Secondly, most banks borrowing is in the form of overnight loans to cover short term reserve fluctuations; they are not borrowing dollars to lend to you. Thirdly, if govt does it's job of keeping some competition in the banking sector, then the rates offered you and me should be near the actual cost to service such loans, so are the true value of those loans. Since there are a significant number of banks that I can borrow from with a multitude of options in how to borrow, there is likely still decent competition for my business. Finally, the Fed funds rate is not currently 0%, so the banks are not getting interest free money.\",\n \"\\\"The interest rate offered by a bond is called the nominal interest rate. The so-called real interest rate is the nominal interest rate minus the rate of inflation. If inflation is equal to or greater than the nominal rate at any given time, the REAL interest rate is zero or negative. We're talking about a ten year bond. It's possible for the real interest rate to be negative for one or two years of the bond's life, and positive for eight or nine. On the other hand, if we have a period of rising inflation, as in the 1970s, the inflation rate will exceed the (original) interest rate in most years, meaning that the real interest rate on the ten year bond will be negative over its whole life. People lost \\\"\\\"serious\\\"\\\" money on bonds (and loans) in the 1970s. In such situations, the BORROWERS make out. That is, they borrow money at low rates, earn inflation (plus a little more) pay back inflated dollars, and pocket the difference. For them, the money is \\\"\\\"free.\\\"\\\"\\\"\",\n \"\\\"Keep in mind that the Federal Reserve Chairman needs to be very careful with his use of words. Here's what he said: It is arguable that interest rates are too high, that they are being constrained by the fact that interest rates can't go below zero. We have an economy where demand falls far short of the capacity of the economy to produce. We have an economy where the amount of investment in durable goods spending is far less than the capacity of the economy to produce. That suggests that interest rates in some sense should be lower rather than higher. We can't make interest rates lower, of course. (They) only can go down to zero. And again I would argue that a healthy economy with good returns is the best way to get returns to savers. So what does that mean? When he says that \\\"\\\"we can't make interest rates lower\\\"\\\", that doesn't mean that it isn't possible. He's saying that our demand for goods is lower than our ability to produce them. Negative interest would actually make that problem worse -- if I know that things will cost less in a month, I'm not going to buy anything. The Fed is incentivizing spending by lowering the cost of capital to zero. By continuing this policy, they are eventually going to bring on inflation, which will reduce the value of the currency -- which gives people and companies that are sitting on money an dis-incentive to continue hoarding it.\\\"\",\n \"\\\"If you owned a bank how would you invest the bank's money? Typically banks are involved in loaning out money to businesses, people, and government at a higher interest rate then what they are paying to depositors. This is the spread and how they make money. If the bank determines that the yields on government bonds is more attractive then loaning the money out to businesses and people then the bank will purchase government bonds. It can also decide the other way. In this manner the mortgage and bond markets are always competing for capital and tend to offer very similar yields. Certain banks have the unique privilege of being able to borrow money from the FED at the Federal Funds rate and use this money to purchase government debt or loan it out to other banks or purchase other debt products. In this manner you see a high correlation between the FED funds rate, mortgage rates, and treasury yields. Other political factors include legislation that encourages mortgage lending (see Community Reinvestment Act) where banks may not have made the loans without said legislation. In short, keep your eye on the FED and ask yourself: \\\"\\\"Does the FED want rates to rise?\\\"\\\" and \\\"\\\"Can the US government afford rising rates?\\\"\\\" The answer to these two questions is no. However, the FED may be pressured to \\\"\\\"stop the presses\\\"\\\" if inflation becomes unwieldy and the FED actually starts to care about food and energy prices. So far this hasn't been the case.\\\"\",\n \"\\\"Here's a number-crunching example of how the \\\"\\\"Zero interest rate\\\"\\\" offer is misleading. Suppose the offer is that a car \\\"\\\"costs $24,000.00 with zero percent financing over 24 months\\\"\\\" or as an alternative, \\\"\\\"$3,000.00 off for cash\\\"\\\". Ignore the hype: the quoted prices and the quoted interest rates. Look at what really happens to two people who take advantage of the two offers, One person hands over $21,000.00 cash, and leaves with the new car. The second promises to make 24 payments of $1000.00, one a month, starting in one month's time, and also leaves with the same make and model new car. The two people have received exactly the same benefit, so the two payment schemes must have the same value. A mortgage program will tell you that paying off a $21,000.00 loan by making 24 monthly payments of $1000.00 requires an interest rate of 1.10% a month, or an effective annual rate of 14.03%.\\\"\",\n \"There is a significant tie between housing prices and mortgage rates. As such, don't assume low mortgage rates mean you will be financially better off if you buy now, since housing prices are inversely correlated with mortgage rates. This isn't a huge correlation - it's R-squared is a bit under 20%, at a 1.5-2 year lag - but there is a significant connection there. Particularly in that 10%+ era (see chart at end of post for details) in 1979-1982, there was a dramatic drop in housing price growth that corresponded with high interest rates. There is a second major factor here, though, one that is likely much more important: why the interest rates are at 10%. Interest rates are largely set to follow the Federal Funds rate (the rate at which the Federal Reserve loans to banks). That rate is set higher for essentially one purpose: to combat inflation. Higher interest rates means less borrowing, slower economic growth, and most importantly, a slower increase in the money supply - all of which come together to prevent inflation. Those 10% (and higher!) rates you heard about? Those were in the 70's and early 80's. Anyone remember the Jimmy Carter years? Inflation in the period from 1979 to 1981 averaged over 10%. Inflation in the 70s from 1973 to 1982 averaged nearly 9% annually. That meant your dollar this year was worth only $0.90 next year - which means inevitably a higher cost of borrowing. In addition to simply keeping pace with inflation, the Fed also uses the rate as a carrot/stick to control US inflation. They weren't as good at that in the 70s - they misread economic indicators in the late 1970s significantly, lowering rates dramatically in 1975-1977 (from ~12% to ~5%). This led to the dramatic double-digit inflation of the 1979-1981 period, requiring them to raise rates to astronomic levels - nearly 20% at one point. Yeah, I hope nobody bought a house on a fixed-rate mortgage from 1979-1981. The Fed has gotten a lot more careful over the years - Alan Greenspan largely was responsible for the shift in policy which seems to have been quite effective from the mid 1980s to the present (though he's long gone from his spot on the Fed board). Despite significant economic changes in both directions, inflation has been kept largely under control since then, and since 1991 have been keeping pretty steady around 6% or less. The current rate (around 0%) is unlikely to stay around forever - that would lead to massive inflation, eventually - but it's reasonable to say that prolonged periods over 10% are unlikely in the medium term. Further, if inflation did spike (and with it, your interest rates), salaries tend to spike also. Not quite as fast as inflation - in fact, that's a major reason a small positive inflation around 2-3% is important, to allow for wages to grow more slowly for poorer performers - but still, at 10% inflation the average wage will climb at a fairly similar pace. Thus, you'd be able to buy more house - or, perhaps a better idea, save more money for a house that you can then buy a few years down the road when rates drop. Ultimately, the advice here is to not worry too much about interest rates. Buy a house when you're ready, and buy the house you're ready for. Interest rates may rise, but if so it's likely due to an increase in inflation and thus wage growth; and it would take a major shift in the economy for rates to rise to the 10-11% level. If that did happen, housing prices (or at least growth in prices) would likely drop significantly. Some further references:\",\n \"\\\"Okay, yes that's true. However, we don't know what inflation would have been during this period had the fed not been increasing their balance sheet. That's what I'm trying to get at it. So it's easy for them to say \\\"\\\"Low inflation , low interest rates\\\"\\\".\\\"\",\n \"Holy shit that can't be USA unless you're talking about commercial lending, even then sky high rates. For the 97% LTV we sell at 3.58 last Saturday. We're a large bank too, so none of that credit unions selling themselves short nonsense. Mind you that's a special program through Fanny, but our normal rates are something like 4.4-4.55 depending on the day for 80/20 How can you be conservative but loan to credit score of over 500? We don't even look at under 640 and we're considered somewhat conservative.\",\n \"It can be zero or negative given the current market conditions. Any money parked with treasury bonds is 100% risk free. So if I have a large amount of USD, and need a safe place to keep, then in today's environment even the banks (large as well) are at risk. So if I park my money with some large bank and that bank goes bankrupt, my money is gone for good. After a long drawn bankruptcy procedure, I may get back all of it or some of it. Even if the bank does not go bankrupt, it may face liquidity crises and I may not be able to withdraw when I want. Hence it's safer to keep it in Treasury bonds even though I may not gain any interest, or even lose a small amount of money. At least it will be very safe. Today there are very few options for large investors (typically governments and institutional investors.) The Euro is facing uncertainty. The Yuan is still regulated. There is not enough gold to buy (or to store it.) Hence this leads towards the USD. The very fact that USD is safe in today's environment is reflected in the Treasury rates.\",\n \"Banks in general will keep saving rates as low as possible especially if there is a surplus of funds or alternative access for funding as in the case of the Fed in the USA. Generally speaking, why would bank pay you a high interest rate when they cannot generate any income from your money? Usually we will expect to see a drop in the loan interest rate when their is a surplus of funds so as to encourage investment. But if the market is volatile then no banks will allow easy access to money through loans. The old traditional policy of lending money without proper security and no control from the central bank has created serious problems for savings account holders when some of these banks went into bankruptcy. It is for this reason most countries has modified their Financial Act to offer more protection to account holders. At the moment banks must follow rigid guidelines before a loan can be approved to a customer. In my country (Guyana) we have seen the collapse of a few banks which sent a shock wave across the county for those that have savings held at those bank. We have also seen unsecured loans having to be written off thus putting serious pressure of those banks. So government stepped in a few years ago and amended the act to make it mandatory to have commercial banks follow certain strict guidelines before approving a loan.\",\n \"Most of the bankruptcy is due to taking [or building over a period of time] a loan that one cannot service, if the interest rates rise, then the amount of money to repay the loan increases, when one doesnt pay the revised amount and keeps paying less, the over all debt keeps shooting through the roof ... a lower interest rate means that one can continue to pay the same amount ... and few missed payments do not cause as much as damage as it does when the rates are high.\",\n \"Usually that is the case that when fixed rates are lower than the variable rates, it is an indication that the banks feel the next movement in rates could be down. You also need to look at the fixed rates for different periods, for example 1 year fixed compared to 3 year fixed and 5 year fixed rates. If you find the 3 and 5 year fixed rates are higher than the 1 year fixed rates this could be an indication that the banks feel rates will fall in the short term but the falls won't last long and will continue to rise after a year or so. If the 3 year fixed rates are also low in comparison, then the banks may feel that the economy is heading for a longer term down trend. The banks won't want to lose out, so will change their fixed rates on their perception of where they feel the economy is headed. Since your post in May 2011, the standard variable rate has since dropped twice (in November and December) to be at 7.30%. You will also find that fixed rates have also been dropped further by the banks, indicating additional future cuts in the variable rates. Regards, Victor\",\n \"\\\"Banks make less profit when \\\"\\\"long\\\"\\\" rates are low compared to \\\"\\\"short\\\"\\\" rates. Banks lend for long term purposes like five year business loans or 30 year mortgages. They get their funds from (mostly) \\\"\\\"short term\\\"\\\" deposits, which can be emptied in days. Banks make money on the difference between 5 and 30 year rates, and short term rates. It is the difference, and not the absolute level of rates, that determines their profitability. A bank that pays 1% on CDs, and lends at 3% will make money. During the 1970s, short rates kept rising,and banks were stuck with 30 year loans at 7% from the early part of the decade, when short rates rose to double digits around 1980, and they lost money.\\\"\",\n \"One will find that the fixed 30 year mortgage rate is tightly correlated to the 10 year treasury. An adder of 2-2.5% or so, changing slightly with the rest of the economy, as money can get tight or loose independent of the rate itself. In 2011 we are witnessing low rates yet tough loan standards, this is the phenomenon I am referencing.\",\n \"\\\"So after you've learned about bonds, you might find yourself learning about interest rates. You might, in fact, discover that there's no such thing as a \\\"\\\"correct\\\"\\\" interest rate, or even a true \\\"\\\"market\\\"\\\" interest rate. PS We already had the housing bubble. It has come, and gone. What *new* bubble are you referring to?\\\"\",\n \"The United States Federal Reserve has decided that interest rates should be low. (They think it may help the economy. The details matter little here though.) It will enforce this low rate by buying Treasury bonds at this very low interest rate. (Bonds are future money, so this means they pay a lot of money up front, for very little interest in the future. The Fed will pay more than anyone who offers less money up front, so they can set the price as long as they're willing to buy.) At the end of the day, Treasury bonds pay nearly no interest. Since there's little money to be made with Treasuries, people who want better-than-zero returns will bid up the current-price of any other bonds or similar loan-like instruments to get what whatever rate of return that they can. There's really no more than one price for money; you can think of the price of those bonds as basically (Treasury rate + some modifier based on the risk) percent. I realize thinking about bond prices is weird and different than other prices (you're measuring future-money using present-money and it's easy to be confused) and assure you it ultimately makes sense :) Anyway. Your savings account money has to compete with everyone else willing to lend money to banks. Everyone-else lends money for peanuts, so you get peanuts on your savings account too. Your banking is probably worth more to your bank on account of your check-card payment processing fees (collected from the merchant) than from the money they make lending out your savings (notice how many places have promotional rates if you make your direct deposits or use your check card to make a purchase N times a month). In Europe, it's similar, except you've got a different central bank. If Europe's bank operated radically differently for an extended period of time, you'd expect to see a difference in the exchange rates which would ultimately make the returns from investing in those currencies pretty similar as well. Such a change may show up domestically as inflation in the country with the loose-money policy, and internationally as weakness against other currencies. There's really only one price for money around the entire world. Any difference boils down to a difference in (perceived) risk.\",\n \"You might be thinking of the Overnight market/Overnight Rate. This lending happens constantly.\",\n \"Interesting thing is not all of this analysis is typically done by the person you are speaking with re: your mortgage. Likely there is an economic team (at some institution or another, as many many loans are sold/distributed in some fashion), finance team, and all of them are looking at various rates etc. Typically what is offered is matching an offsetting liability somewhere else. So there may be cases where the spread someone is looking to pick up might be tighter or looser within institutions or types of institutions vs others, even though the overall market is at one place. (e.g. banks vs. insurance companies). So you may have negotiating room at a certain term, but not another, or the reverse at another firm. One firm might have lots of 10 year money, while another might be limited, so will be picky in what they choose. Either more conservative loan terms/ltv, or a higher spread, for example. So many things go into the ultimate rate someone can get, but in theory the blog did a decent job.\",\n \"All unsubstantiated opinions. >there is no such thing as a relation between any interest rates and the cost to service the loans Really. No relation whatsoever? And your background in finance letting you understand this is what? Are you telling me every bank of the [7,213](http://www2.fdic.gov/idasp/) independent banks are in cahoots and none of them compete based on prices and services? Can you give me precise evidence that all those independent banks are not in competition? What should the price be for capital if the current prices are incorrect, and tell me why.\",\n \"These are yields for the government bonds. EuroZone interest rates are much lower (10 times lower, in fact) than the UK (GBP zone) interest rates. The rates are set by the central banks.\",\n \"If you throw up a 20 year chart on the 10 year you can see it isn't fluctuating around 2%. It happens to be at 2% now but it has been relentlessly driving lower for at least 20 years. My own personal biased opinion is that it is a market infested with ultra-wealthy people who aren't looking for returns. They just basically want to maintain what they already sucked out of the system.\",\n \"As of now in 2016, is is safe to assume that mortgage rates would/should not get back to 10%? What would the rates be in future is speculation. It depends on quite a few things, overall economy, demand / supply, liquidity in market etc ... Chances are less that rates would show a dramatic rise in near future. Does this mean that one should always buy a house ONLy when mortgage rates are low? Is it worth the wait IF the rates are high right now? Nope. House purchase decision are not solely based on interest rates. There are quite a few other aspects to consider, the housing industry, your need, etc. Although interest rate do form one of the aspect to consider specially affordability of the EMI. Is refinancing an option on the table, if I made a deal at a bad time when rates are high? This depends on the terms of current mortgage. Most would allow refinance, there may be penal charges breaking the current mortgage. Note refinance does not always mean that you would get a better rate. Many mortgages these days are on variable interest rates, this means that they can go down or go up. How can people afford 10% mortgage? Well if you buy a small cheaper [Less expensive] house you can afford a higher interest rate.\",\n \"Probably means next to zero chance of having decent rates on savings accounts for the near future - who needs your money if banks can have government money for free? Probably no short-term effects on you besides that.\",\n \"\\\"On a longer time scale, the plot thickens: It almost looks random. A large drop in real rates in the mid-70s, a massive spike in the early 80s, followed by a slow multi-decade decline. The chaos doesn't seem to be due to interest rates. They steadily climbed and steadily fell: All that's left is inflation: First, real rates should be expected to pay a moderate rate, so nominal rates will usually be higher than inflation. However, interest rates are very stable over long time periods while inflation is not. Economists call this type of phenomenon \\\"\\\"sticky pricing\\\"\\\", where the price, interest rates in this case, do not change much despite the realities surrounding them. But the story is a little more complicated. In the early 1970s, Nixon had an election to win and tried to lessen the impacts of recession by increasing gov't spending, not raising taxes, and financing through the central bank, causing inflation. The strategy failed, but he was reelected anyways. This set the precedent for the hyperinflation of the 1970s that ended abruptly by Reagan at the beginning of his first term in the early 1980s. Again, interest rates remained sticky, so real rates spiked. Now, the world is not growing, almost stagnating. Demand for equity is somewhat above average, but because corporate income is decelerating, and the developed world's population is aging, demand for investment income is skyrocketing. As demand rises, so does the price, which for an investor is a form of inverse of the interest rate. Future demand is probably best answered by forecasters, and the monetarist over and undertones still dominating the Federal Reserve show that they have finally learned after 100 years that inflation is best kept \\\"\\\"low and stable\\\"\\\": But what happens if growth in the US suddenly spikes, inflation rises, and the Federal Reserve must sell all of the long term assets it has bet so heavily on quickly while interest rates rise? Inflation may not be intended, but it is not impossible.\\\"\",\n \"I will just explain the time value of money in general, descriptive terms and save the math for someone else. Imagine: You have half a million dollars. I'd like to borrow it all from you. I'll pay it all back, every penny, but no more. And I'll pay it back in about, oh, thirty years or so. (Imagine also that you can be 100% sure that I'll pay it back.) Does this sound like a good deal? Not really. Why not? Well, you could do something with that sort of money. With that sort of money, you could do a lot of things for 30 years. You could buy a nice house and live in it for 30 years and save yourself from spending a lot of money on rent during that time (or save money on interest by paying off a mortgage early) even if the price of the house goes nowhere. If you already had a house, you could do some home improvement, like insulate the place better (to save on heating bills) or even just on something that you're going to enjoy for part of those 30 years (a patio in the back yard). If you were feeling entrepreneurial, you could take that money and start a business. Or you could invest that money in the stock market, and get a lot more back.... and if that's too risky for you, just start a savings account and earn interest. And finally, in 30 years, the value of the dollar will be lower because of inflation, so it won't buy as much now as it will then. That's the time value of money. It's the opportunity cost of the best of the things that you could have done with that money during the time it was gone. When you take out a loan, your interest payments will depend in part on the time value of the money you're borrowing: the people making the loan could be investing that money somewhere else, like government bonds. (It will also depend on factors like the risk of default on the loan - this is why credit card debt is more expensive than debt like a mortgage that's backed by a big fat asset like a house which can be seized and sold if you happen to default.) This is how the Federal Reserve can affect interest rates across the economy by just buying or selling government bonds.\",\n \"\\\"You are not \\\"\\\"the economy\\\"\\\". The economy is just the aggregate of what is going on with everyone else. You should make the decision based on your own situation now and projected into the future as best you can. Loan rates ARE at historical lows, so it is a great time to take a loan if you actually need one for some reason. However, I wouldn't go looking for a loan just because the rates are low for the same reason it doesn't make sense to buy maternity clothes if you are a single guy just because they are on sale.\\\"\",\n \"\\\"No... that's just what I'm owed for letting them use my principal. If I wanted to enjoy the opportunity cost of 0% interest for 13 plus years, I'd just keep the money in my \\\"\\\"savings\\\"\\\" account (where the 8th wonder of world, miracle of compound interest no longer exists). The bigger question posited by my snark was if/when the bond market will stop trading them as legitimate paper.\\\"\",\n \"\\\"The Bank of Canada does not \\\"\\\"set\\\"\\\" the interest rates. They auction government debt, and then report what the average yield/interest rate was (rounded to 25 basis points). [The average yield of yesterday's auction of 3-month Treasury bills was 0.76%](http://www.bankofcanada.ca/rates/interest-rates/t-bill-yields/). I don't know why the news tries to interpret what the BOC \\\"\\\"is trying to say\\\"\\\". BOC isn't saying anything - just reporting what happened, with some filler words.\\\"\",\n \"Obviously you can't predict the future too much, but it's not too hard to figure out what is going to happen to mortgage rates in the short term. Mortgage rates are heavily influenced by 10 year treasury yields. You can find the daily 10 year rates here. It's easy to see the direction they've been moving recently. It usually takes a few days for mortgage rates to follow if the 10 year treasury yield is dropping (although if it's going up, mortgage rates will go up faster than they will fall). Here's a sample of all the 10 year treasury yields for the past 10 years. Looks like a good time to get a mortgage or refinance! You can also take a look at movements in mortgage backed securities. Here you can find a chart for Fannie Mae 3.0% mortgages. As the price goes up, mortgage rates go down. Think of it this way. Right now people are will to pay $103 for $100 worth of 3.0% mortgages. That doesn't really make sense because I could just loan you $100 at 3.0% and turn around and sell it for $103 immediately, pocketing the $3 profit. The reason is because right now, no one would willingly borrow money at 3.0%. Rates have fallen so much that if a bank has a customer paying them 3.0% on a mortgage, other people are willing to pay a premium on that mortgage. New mortgages are probably being written for 2.0%. (There is no current mortgage backed security for 2.0% fannie maes because rates have never been this low before).\",\n \"\\\"Yes sir, I'm working on compiling your \\\"\\\"precise evidence,\\\"\\\" and I'll have it printed and bound for you on the double. In the meantime, you can look here as a starting point and try to find the part where the Fed has allowed interest rates to adjust freely, and maybe you can learn why rates are artificial: http://en.wikipedia.org/wiki/Federal_Reserve_responses_to_the_subprime_crisis As for \\\"\\\"cahoots\\\"\\\" and independent banks and whatever other off-topic nonsense you're babbling about, there was nothing said about cahoots or independent banks. The interest rates paid for and to US banks are affected by the monetary policy of the Fed. There is no collusion, or \\\"\\\"cahoots,\\\"\\\" required for them to follow a common policy of artificially-low interest rates, which was the point of the earlier post.\\\"\",\n \"I'd have a look at Capital One's Online account too, they've got 1.35% interest rate with 10% bonus if you have over $15k deposited. It is still low like all interest rates, but at least it is on top (or at least close)!\",\n \"Interest rates are always given annually, to make them comparable. If you prefer to calculate the rate or the total interest for the complete time, like 10 years or 15 years or 30 years, it is simple math, and it tells you the total you will pay, but it is not helpful for picking the better or even the right offer for your situation. Compare it to your car's gas mileage- what sense does it make to provide the information that a car will use 5000 gallons of gas over its lifetime? Is that better than a car that uses 6000 gallons (but may live 2 years longer?)\",\n \"Yes those are really yields. A large portion of the world has negative yielding bonds in fact. This process has been in motion for the past 10 years for very specific reasons. So congratulations on discovering the bond market.\",\n \"Right, so if a federal interest rate near 0 percent is not enough to stimulate the demand for those loans, then we have pretty much exhausted what we can do with monetary policy. So the only thing left is fiscal policy - raise spending or lower taxes\",\n \"Mortgage rates generally consist of two factors: The risk premium is relatively constant for a particular individual / house combination, so most of the changes in your mortgage rate will be associated with changes in the price of money in the world economy at large. Interest rates in the overall economy are usually tied to an interest rate called the Federal Funds rate. The Federal Reserve manipulates the federal funds rate by buying and/or selling bonds until the rate is something they like. So you can usually expect your interest rate to rise or fall depending on the policies of the Federal Reserve. You can predict this in a couple of ways: The way they have described their plans recently indicates that will keep interest rates low for an extended period of time - probably through 2014 or so - and they hope to keep inflation around 2%. Unless inflation is significantly more than 2% between now and then, they are extremely unlikely to change that plan. As such, you should probably not expect mortgage interest rates in general to change more than infinitesimally small amounts until 2014ish. Worry more about your credit score.\",\n \"This is of course using 'new math'. Namely, if I lend you $100 and you keep it for a month, I've lent you $100. In fact, if I loan you $100 for a year I've loaned you $100. But if I lend you $100 overnight, you pay me back in the morning, I lend you $100 overnight, you pay me back in the morning and we repeat that for a month, I've supposedly lent you $3,000. That's some interesting math for sure.\",\n \"If the best they can do is 1/8th of a percent for a 15 year term, you are best served by taking the 30 year term. Pay it down sooner if you can, but it's nice to have the flexibility if you have a month where things are tight.\",\n \"yield on a Treasury bond increases This primarily happens when the government increases interest rates or there is too much money floating around and the government wants to suck out money from the economy, this is the first step not the other way around. The most recent case was Fed buying up bonds and hence releasing money in to the economy so companies and people start investing to push the economy on the growth path. Banks normally base their interest rates on the Treasury bonds, which they use as a reference rate because of the probability of 0 default. As mortgage is a long term investment, so they follow the long duration bonds issued by the Fed. They than put a premium on the money lent out for taking that extra risk. So when the governments are trying to suck out money, there is a dearth of free flowing money and hence you pay more premium to borrow because supply is less demand is more, demand will eventually decrease but not in the short run. Why do banks increase the rates they loan money at when people sell bonds? Not people per se, but primarily the central bank in a country i.e. Fed in US.\",\n \"\\\"When you say that the problem is \\\"\\\"high supply but no demand\\\"\\\" you are actually correct. Here's why: The phrase \\\"\\\"borrow/spend less, save more\\\"\\\" isn't an absolute law. It's more of a cautionary tale. Obviously, spending is an integral part of an economy: it accounts for at least 50% of every transaction! But the aphorism is getting at something other than admonishing people to not spend. The point of the saying is that interest rates should reflect savings rates. What it comes down to is the how the law of supply and demand applies to the relationship between savings and interest rates. Consider this thought experiment: in a world where everybody saves 50% of their income, what would happen to interest rates? Banks would have a glut of savings, relative to the population. Assuming demand remains constant, interest rates would go down: the price of borrowing goes down as the supply of money to be borrowed increases. Thus a corollary of the law of supply and demand is that as savings increase, interest rates tend to go down. So, as savings increase, the economic environment encourages capital improvements. Businesses can borrow at lower rates and increase long-term productive capacity. This is what the federal reserve has attempted to do by lowering the Fed Funds rate to near zero and by Operation Twist: increase economic activity through low borrowing costs. So, what's the problem? When interest rates are artificially low there are no savings to support the production later in time. A company that borrows at a 1% rate created by the feds can build a factory to make widgets, but it will have a hard time selling that widget to a population with a negative net worth. However, if the 1% rate is \\\"\\\"natural\\\"\\\", then the company should be fine: the savings of the population should support the production from his widget factory. For about 30 years we have experienced a credit boom in this country that was not created by excess savings. This trend couldn't continue forever. Look around you. At the end of the day, an economy is simply a group of people getting together to buy and sell stuff and services. Right now there is a lot of debt, and little cash. Who will be doing the buying?\\\"\",\n \"Interest rates are market driven. They tend to be based on the prime rate set by the federal reserve bank because of the tremendous lending capacity of that institution and that other loan originators will often fund their own lending (at least in part) with fed loans. However, there is no mandatory link between the federal reserve rate and the market rate. No law stipulates that rates cannot rise or fall. They will rise and fall as lenders see necessary to use their capital. Though a lender asking 10% interest might make no loans when others are willing to lend for 9%. The only protection you have is that we are (mostly) economically free. As a borrower, you are protected by the fact that there are many lenders. Likewise, as a lender, because there are many borrowers. Stability is simply by virtue of the fact that one market participant with inordinate pricing will find fewer counterparties to transact.\",\n \"\\\"This is the best tl;dr I could make, [original](https://www.nytimes.com/2017/07/27/business/dealbook/libor-fca-banks-andrew-bailey.html) reduced by 82%. (I'm a bot) ***** > The one-year Libor, which represents the rate of interest on a loan between banks to be paid back within a year, is the most commonly used index for mortgages in the United States, according to the Consumer Financial Protection Bureau. > &quot;And while we have given our full support to encouraging panel banks to continue to contribute and maintaining Libor over recent years, we do not think markets can rely on Libor continuing to be available indefinitely.\\\"\\\" > Mr. Bailey said that the regulator had agreed with the panel banks to sustain Libor through 2021 to smooth a transition to new rates. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6r14fz/libor_brought_scandal_greatest_financial_scandal/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~180937 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **Libor**^#1 **rate**^#2 **bank**^#3 **over**^#4 **Financial**^#5\\\"\",\n \"\\\"This is the best tl;dr I could make, [original](http://www.rollingstone.com/politics/news/taibbi-is-libor-crucial-financial-benchmark-a-lie-w497305) reduced by 88%. (I'm a bot) ***** > If you have any kind of consumer loan, it&#039;s a fair bet that it&#039;s based on LIBOR. A 2009 study by the Cleveland Fed found that 60 percent of all mortgages in the U.S. were based on LIBOR. Buried somewhere in your home, you probably have a piece of paper that outlines the terms of your credit card, student loan, or auto loan, and if you peek in the fine print, you have a good chance of seeing that the rate you pay every month is based on LIBOR. Years ago, we found out that the world&#039;s biggest banks were manipulating LIBOR. That sucked. > As a few Wall Street analysts have quietly noted in the weeks since those comments, an &quot;Absence of underlying markets&quot; is a fancy way of saying that LIBOR has not been based on real trading activity, which is a fancy way of saying that LIBOR is bullshit. > So as LIBOR reflected reality less and less, it became more and more ubiquitous, burying itself, tick-like, into the core of the financial system. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6tasuo/years_ago_we_found_out_that_the_worlds_biggest/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~189474 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **LIBOR**^#1 **Bank**^#2 **market**^#3 **rate**^#4 **based**^#5\\\"\",\n \"But it also can't be 1.46%, because that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. The rates are displayed as of Today. As the footnote suggests these are to be read with Maturities. A Treasury with 1 year Maturity is at 1.162% and a Treasury with 30Y Maturity is at 2.78%. Generally Bonds with longer maturity terms give better yields than bonds of shorter duration. This indicates the belief that in long term the outlook is positive.\",\n \">“At some point,” he said, interest rates are going to go up again, “and I should have been able to get those low rates. It’s not fair.” It's perfectly fair. Why is a bank going to lend you more money than what the collateral's worth? That would be unfair.\",\n \"FYI, I am assuming you are an individual investor.. The rates on the website may change, if the government decides so. Anyway it is a UK government website, so it would reflect the changes immediately.\",\n \"Monetizing loan is akin to loan money the banks don't have so they can lend money to people/state that don't have money. The ECB and the FED are theorically independant from the political power, and in pratique they more often than naught proove it (at least for the ECB), after that being independent from the financial sector they lend to... that's another question. Rates are low not because they monetize but because they want to do so without inducing inflation.\",\n \"It seems a bit late in the process, no? They moved in, you are elsewhere, etc. Today, the Prime Rate is 3.25%. I don't know enough to suggest whether this is fair to both parties. It's more than you'd earn in the bank, and less than they'd pay for a business loan. My own equity line is currently 2.5%, for what that's worth.\",\n \"Things we should all understand: * The Federal Reserve will not engage in QE3 or QE4 or any kind of QE. - Inflation is too high and the economy would be harmed rather than helped. * The Federal Reserve will not raise rates until 2013-2014. - Ben has been pretty adamant and clear about this. What I'm concerned about is that they keep pushing back the date. Interest rates should have been raised last year.\",\n \"Interest rates have been going down since 1980. At some point it has to rebound, but as the old adage goes, the market can remain irrational longer than you can remain solvent. The only thing we know with certainty about the 10 year interest rates is that it will most likely cap out at 0%. Maybe....\",\n \"Lowered rates = boom for equities, currently held bonds, and assets. Cheaper money means a (disproportionately) good time had by all. This all comes with malinvestment, potential for moral hazard, and savers losing in a big way. Why save for retirement when your risk free return on US Treasuries can barely keep up with inflation? As an aside, it is not really a risk free rate anymore, with $20 trillion in debt and no real hope of paying it off. This is why we see the rate increases and movement towards asset sales by the Fed to get the poop off their books. They are worried about all of the above and need more arrows in their quiver when the next recession hits. They won't have enough, however. They are trying to right a ship that is fully overturned. This is now the longest period of growth (however tepid) since the tech bubble of the 1990's. Are the fundamentals really better than then?\",\n \"Thanks. It has taken me some time to understand how all this works, and there are still many gray areas I want to understand further. The Fed interest rate is the rate charged by banks to loan to each other to balance overnight reserves but only using the reserves they hold at the Fed. That adds no new money to the system, but increases the money multiplier a little since perhaps more loans can be made. Basically one bank with excess reserves can loan to another bank that needs reserves. The Fed injects no money here, only sets the rate for banks to do this with each other. When the Fed buys securities that effectively adds that many more dollars into circulation, which then gets hit by the money multiplier, adding a lot of new liquidity. I think historically the latter tracks increases in the money supply much better than the former. I think the St. Louis Fed has records online for all this dating back to the 1940's or so.\",\n \"Different rates. What the BoE is conducting is known as Quantitative Easing, which is a form of monetary policy avalable to central banks whenever interest rates are already too close to zero or at zero (just like in the UK). In this case, the central banks hopes to influence longer-term rates, rather than just short-term rates. It is useful to remember that the rate central banks announce is a short-term rate used for interbank lending.\",\n \"It depends solely on the risk your willing to take. For example, few years back one of the leading banks in my country was offering 25% interest rate for 5 year fixed deposits and the lending rate in the market was around 12%. So people borrowed money from other banks and invested in the high return fixed deposits. After 6 months the bank filed for bankruptcy and people lost their money. Later investigations revealed that abnormal high return was offered because the bank had a major liquidity problem. So all depends on the risk associated with return on your investment. Higher the risk, higher the return.\",\n \"Banks cannot just borrow from the Federal Reserve and use that money to make loans. The first thing you need to understand is how fractional reserve banking works. The banks can make loans with money that their customers have deposited in their accounts. The interest and fees from those loans go to pay the salaries of those working at the banks with leftover profit to pay dividends (interest on your bank accounts). The only reason that the Federal Reserve allows overnight lending is so that banks don't immediately become insolvent if they have larger than usual withdrawals by their depositors. The Federal Reserve keeps an eye on the balance sheets of the banks that are doing the borrowing, and if they didn't have assets in the form of deposits, they would force the banks to sell the loans that were made from those deposits. What does this have to do with personal finance? I think this question is only marginally on-topic here. This amount of money in circulation is affected specifically by the fraction of the money that can be used for making other loans. But the bigger influence is the rate that the Federal Reserve charges for overnight lending. They raise and lower the rates which affects the rates that the banks can lend at while remaining profitable.\",\n \"What the comments above say is true, but one more thing is there. FD rates are directly proportional to loan rates. However, banks make money because loan rates will always be higher than FD rates.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"You are correct that it could refer to any of the types of interest rates that you've mentioned. In general, though, phrases such as \"\"rising interest rates\"\" and \"\"falling interest rates\"\" refer to the Federal Funds Rate or LIBOR. These are the interest rates at which banks in the U.S. and U.K., respectively, are lending money to each other.\"","As Sean pointed out they usually mean LIBOR or the FFR (or for other countries the equivalent risk free rate of interest). I will just like to add on to what everyone has said here and will like to explain how various interest rates you mentioned work out when the risk free rate moves: For brevity, let's denote the risk free rate by Rf, the savings account interest rate as Rs, a mortgage interest rate as Rmort, and a term deposit rate with the bank as Rterm. Savings account interest rate: When a central bank revises the overnight lending rate (or the prime rate, repo rate etc.), in some countries banks are not obliged to increase the savings account interest rate. Usually a downward revision will force them to lower it (because they net they will be paying out = Rf - Rs). On the other hand, if Rf goes up and if one of the banks increases the Rs then other banks may be forced to do so too under competitive pressure. In some countries the central bank has the authority to revise Rs without revising the overnight lending rate. Term deposits with the bank (or certificates of deposit): Usually movements in these rates are more in sync with Rf than Rs is. The chief difference is that savings account offer more liquidity than term deposits and hence banks can offer lower rates and still get deposits under them --consider the higher interest rate offered by the term deposit as a liquidity risk premium. Generally, interest rates paid by instruments of similar risk profile that offer similar liquidity will move in parallel (otherwise there can be arbitrage). Sometimes these rates can move to anticipate a future change in Rf. Mortgage loan rates or other interests that you pay to the bank: If the risk free rate goes up, banks will increase these rates to keep the net interest they earn over risk free (= Δr = Rmort - Rf) the same. If Rf drops and if banks are not obliged to decrease loan rates then they will only do so if one of the banks does it first. P.S:- Wherever I have said they will do so when one of the banks does it first, I am not referring to a recursion but merely to the competitive market theory. Under such a theory, the first one to cut down the profit margin usually has a strong business incentive to do so (e.g., gain market share, or eliminate competition by lowering profit margins etc.). Others are forced to follow the trend.","\"I would say people are generally talking about the prime lending rate. I have heard the prime lending rate defined as \"\"The rate that banks charge each other when they borrow money overnight.\"\" But it often defined as the rate at which banks lend their most creditworthy customers. That definition comes with the caveat that it is not always held to strictly. Either definition has the same idea: it's the lowest rate at which anyone could currently borrow money. The rate for many types of lending is based upon the prime rate. A variable rate loan might have an interest rate of (Prime + x). The prime rate is in turn based upon the Federal Funds Rate, which is the rate that the Fed sets manually. When the news breaks that \"\"the Fed is raising interest rates by a quarter of a point\"\" (or similar) it is the Federal Funds Rate that they control. Lending institutions then \"\"fall in line\"\" and adjust the rates at which they lend money. So to summarize: When people refer to \"\"high\"\" or \"\"low\"\" or \"\"rising\"\" interest rates they are conceptually referring to the prime lending rate. When people talk about the Fed raising/lowering interest rates (In the U.S.) they are referring specifically to the Federal Funds Rate (which ultimately sets other lending rates).\""],"string":"[\n \"\\\"You are correct that it could refer to any of the types of interest rates that you've mentioned. In general, though, phrases such as \\\"\\\"rising interest rates\\\"\\\" and \\\"\\\"falling interest rates\\\"\\\" refer to the Federal Funds Rate or LIBOR. These are the interest rates at which banks in the U.S. and U.K., respectively, are lending money to each other.\\\"\",\n \"As Sean pointed out they usually mean LIBOR or the FFR (or for other countries the equivalent risk free rate of interest). I will just like to add on to what everyone has said here and will like to explain how various interest rates you mentioned work out when the risk free rate moves: For brevity, let's denote the risk free rate by Rf, the savings account interest rate as Rs, a mortgage interest rate as Rmort, and a term deposit rate with the bank as Rterm. Savings account interest rate: When a central bank revises the overnight lending rate (or the prime rate, repo rate etc.), in some countries banks are not obliged to increase the savings account interest rate. Usually a downward revision will force them to lower it (because they net they will be paying out = Rf - Rs). On the other hand, if Rf goes up and if one of the banks increases the Rs then other banks may be forced to do so too under competitive pressure. In some countries the central bank has the authority to revise Rs without revising the overnight lending rate. Term deposits with the bank (or certificates of deposit): Usually movements in these rates are more in sync with Rf than Rs is. The chief difference is that savings account offer more liquidity than term deposits and hence banks can offer lower rates and still get deposits under them --consider the higher interest rate offered by the term deposit as a liquidity risk premium. Generally, interest rates paid by instruments of similar risk profile that offer similar liquidity will move in parallel (otherwise there can be arbitrage). Sometimes these rates can move to anticipate a future change in Rf. Mortgage loan rates or other interests that you pay to the bank: If the risk free rate goes up, banks will increase these rates to keep the net interest they earn over risk free (= Δr = Rmort - Rf) the same. If Rf drops and if banks are not obliged to decrease loan rates then they will only do so if one of the banks does it first. P.S:- Wherever I have said they will do so when one of the banks does it first, I am not referring to a recursion but merely to the competitive market theory. Under such a theory, the first one to cut down the profit margin usually has a strong business incentive to do so (e.g., gain market share, or eliminate competition by lowering profit margins etc.). Others are forced to follow the trend.\",\n \"\\\"I would say people are generally talking about the prime lending rate. I have heard the prime lending rate defined as \\\"\\\"The rate that banks charge each other when they borrow money overnight.\\\"\\\" But it often defined as the rate at which banks lend their most creditworthy customers. That definition comes with the caveat that it is not always held to strictly. Either definition has the same idea: it's the lowest rate at which anyone could currently borrow money. The rate for many types of lending is based upon the prime rate. A variable rate loan might have an interest rate of (Prime + x). The prime rate is in turn based upon the Federal Funds Rate, which is the rate that the Fed sets manually. When the news breaks that \\\"\\\"the Fed is raising interest rates by a quarter of a point\\\"\\\" (or similar) it is the Federal Funds Rate that they control. Lending institutions then \\\"\\\"fall in line\\\"\\\" and adjust the rates at which they lend money. So to summarize: When people refer to \\\"\\\"high\\\"\\\" or \\\"\\\"low\\\"\\\" or \\\"\\\"rising\\\"\\\" interest rates they are conceptually referring to the prime lending rate. When people talk about the Fed raising/lowering interest rates (In the U.S.) they are referring specifically to the Federal Funds Rate (which ultimately sets other lending rates).\\\"\"\n]","isConversational":false}}},{"rowIdx":265,"cells":{"_id":{"kind":"string","value":"3369"},"query":{"kind":"string","value":"Why should one only contribute up to the employer's match in a 401(k)?"},"gt_ids":{"kind":"list like","value":["371886","163834","231012","145716","411910","395840"],"string":"[\n \"371886\",\n \"163834\",\n \"231012\",\n \"145716\",\n \"411910\",\n \"395840\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["165305","330058","240259","24231","296405","97805","249063","591383","488673","115465","53544","371886","140330","1366","293531","443002","242529","555377","519750","191447","379911","273497","463892","534837","242556","18485","430931","322219","301616","427997","135724","281049","394549","92370","525426","56558","147889","404881","590711","38532","67220","585873","111843","514357","424841","477021","417257","4976","312369","464080","75766","389019","267297","181624","452592","187498","383472","39071","366307","202768","509772","163834","122560","439249","341493","79363","140917","189978","353625","290105","576391","159621","272223","160786","302512","293134","59965","69042","327509","220459","160780","309200","380615","19973","74041","529543","176110","587633","119628","458346","84967","528699","392924","337561","469138","423012","537792","42301","344698","436071"],"string":"[\n \"165305\",\n \"330058\",\n \"240259\",\n \"24231\",\n \"296405\",\n \"97805\",\n \"249063\",\n \"591383\",\n \"488673\",\n \"115465\",\n \"53544\",\n \"371886\",\n \"140330\",\n \"1366\",\n \"293531\",\n \"443002\",\n \"242529\",\n \"555377\",\n \"519750\",\n \"191447\",\n \"379911\",\n \"273497\",\n \"463892\",\n \"534837\",\n \"242556\",\n \"18485\",\n \"430931\",\n \"322219\",\n \"301616\",\n \"427997\",\n \"135724\",\n \"281049\",\n \"394549\",\n \"92370\",\n \"525426\",\n \"56558\",\n \"147889\",\n \"404881\",\n \"590711\",\n \"38532\",\n \"67220\",\n \"585873\",\n \"111843\",\n \"514357\",\n \"424841\",\n \"477021\",\n \"417257\",\n \"4976\",\n \"312369\",\n \"464080\",\n \"75766\",\n \"389019\",\n \"267297\",\n \"181624\",\n \"452592\",\n \"187498\",\n \"383472\",\n \"39071\",\n \"366307\",\n \"202768\",\n \"509772\",\n \"163834\",\n \"122560\",\n \"439249\",\n \"341493\",\n \"79363\",\n \"140917\",\n \"189978\",\n \"353625\",\n \"290105\",\n \"576391\",\n \"159621\",\n \"272223\",\n \"160786\",\n \"302512\",\n \"293134\",\n \"59965\",\n \"69042\",\n \"327509\",\n \"220459\",\n \"160780\",\n \"309200\",\n \"380615\",\n \"19973\",\n \"74041\",\n \"529543\",\n \"176110\",\n \"587633\",\n \"119628\",\n \"458346\",\n \"84967\",\n \"528699\",\n \"392924\",\n \"337561\",\n \"469138\",\n \"423012\",\n \"537792\",\n \"42301\",\n \"344698\",\n \"436071\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["In addition to the prior answer, talking from experience, you get into trouble if you surpass the contribution limit and your employer continues to deposit money above the IRS maximum allowed. When that happens, you have until April to take out the excess contribution and earned interest on that chunk of money and included in your tax return or else you get a steep tax penalty in addition to being double taxed ( for the current and next tax year). Also from experience, payroll departments will most likely get this wrong and it will end up in a compliance mess with you picking up the tab on your tax bill. Don't let it happen!!!","I would definitely be putting in enough to get the most out of the match. Only reasons I can think of not too would be: Other than that, not investing in the 401(k) is turning down free money. Edit based on feedback in comments. The only time I would advocate number 1 is if you are intensely committed to getting out of debt, were on a very tight budget and had eliminated all non-essential spending. In that situation only, I think the mental benefit of having that last debt paid off would be worth more than a few dollars in interest.","401k contributions are exempt from employee and employer FICA withholding. The employer withholding is approximately 7% of the gross. The closer the employer match ratio is to 7%, the closer it is to paying for itself. Example: Assuming an employee is match-maximizing and in very round numbers grosses 100,000 per year. A 50% match schedule is about $350 cheaper per employee than a 100% match schedule: Default non participant: The employee will see about 7000 deducted for FICA, and the employer will pay 7000 to FICA if they don't participate. First case: the match is 100%, 1-for-1 to a 5% cap, the employee will deduct 5000, and have 6650 withheld for FICA. The employer will pay 6650 to FICA. The total employer cost of withholding and match is 11,650. Second case: If the match is 50%, 1-for-2 to a 5% cap, the employee will deduct 10000, and have 6300 withheld for FICA. The employer will pay 6300 to FICA. The total employer cost of withholding and match is 11,300.","If one makes say, $10K/mo, and the company will match the first 5% dollar for dollar, a 10%/mo deposit of $1K/mo will see a $500/mo match. If the employee manages to request 90% get put into the 401(k), after 2 months, he's done. If the company wished, they could continue the $500/mo match, I agree. They typically don't and in fact, the 'true up' you mention isn't even required, one is fortunate to get it. Many companies that match are going the other way, matching only after the year is over. Why? Why does any company do anything? To save money. I used to make an attempt to divide my deposit over the year to max out the 401(k) in December and get the match real time, not a true up.","\"Many employees don't contribute enough to maximize the match, so the cost to the employer is not the same. Under the 50% of 6% strategy an employee contributing 5% would get a 2.5% match not a 3% and that saves the company 0.5%. @TTT provided an excellent link in the comments below to a study titled \"\"How much employer 401(k) matching contributions do employees leave on the table?\"\" performed by Financial Engines, an independent financial advisory service. The information meaningful to this answer is on Page 5 (Page 7 of the PDF): 4,378,445 eligible employees were included in the study 1,077,775 of the eligible employees did not contribute enough for the full match; of them, 285,386 Received zero match funds 792,389 Received some match funds, but not the full match available So 792,389 or 18% of the employees studied contributed in to employer 401(k) plans but not enough to maximize their available match.\"","If your employer does not offer contribution matching, and you don't like the range of investment options provided by the company 401k, then you probably are better off investing in your own IRA instead. In an IRA held at a bank or brokerage, you can invest in multiple stocks or funds and move money around within the IRA pretty freely in most cases. If your company is doing well and is actually sharing profit into the 401k, you might consider leaving your 5% contribution to the 401k where it is and put the other 5% you are planning to contribute into a new IRA of your own. This straddles the risk of you losing money if your company 401k tanks (or profit sharing dries up) and your missing out on profit sharing if it continues to pay well.","I'd take the match, but I wouldn't contribute beyond your match, for two reasons:","If they're not matching, and their profit-sharing has nothing to do with how much you invest, then I'd say don't bother with the company 401k at all. If you need to at least have an account open to get the profit sharing, then contribute the bare minimum. Having your retirement account through your company forces you to follow their standards, choose from their funds, use their broker, etc. It also means that when you leave the company, you either have to move your money anyway, or else have an account through a company you don't work for, which I wouldn't feel all that comfortable doing anyway. If you open a retirement account through your bank or a private financial planner, then it's yours, and you can contribute what you want, when you want, and buy the securities that you want. Your account executive is there to service you, not your company.","If your employer matches a percentage of your contributions, then you should try to max out your plan. Once you have completed maxing out your 401k, you may want to open up an IRA for several reasons: will your 401k be enough to sustain your lifestyle in retirement? Your IRA allows you to save even more for retirement. you can invest in all sorts of stuff through your IRA that might not be available in your plan. you can withdraw the principal from your IRA, usually after five years. This serves as another form of savings. IRAs have some asset protection in the event of bankruptcy. A normal savings or investment account usually does not offer such protection.","Another factor to consider is that it encourages employees to contribute more into to the plan so that they'll be able to comfortably retire. Getting the full match encourages people to put at least 6% in to avoid leaving money on the table; 100% of the 1st 3% would see a lot of people only putting 3% in instead. While 9% of your income is still a rather marginal amount to be saving; it will leave you in a much better place in your 60's than if you had only put in 6%/year.","A matching pension scheme is like free money. No wait, it actually IS free money. You are literally earning 100% interest rate on that money the instant you pay it in to the account. That money would have to sit in your credit card account for at least five years to earn that kind of return; five years in which the pension money would have earned an additional return over and above the 100%. Mathematically there is no contest that contributing to a matching pension scheme is one of the best investment there is. You should always do it. Well, almost always. When should you not do it?","The matching funds are free money, so it is a very good idea to take that money off the table. Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k). (Obviously, I'm keeping things simple. Vesting schedules mean that the employer match isn't yours to keep immediately, but rather after some time; usually in chunks.) Beyond the employer match, you need to consider what is available for investment in a 401(k). Typically, your options are more limited then in an IRA. The cost of the 401(k) should be considered, as it isn't trivial for most. (The specifics will of course vary, but in large IRA accounts are cheaper.) So, it's about the opportunity costs. Up to the employer match, it doesn't matter as much that your investment choices are more limited in a 401(k), because you're getting 100% return just on the matching funds. Once that is exhausted, you have more opportunity for returns, due to having more options available to you, by going with an account that provides more choices. The overall principle here is that you have to look at the whole picture. This is similar to the notion that you should pay-down your high interest debt before investing, because from the perspective of investing the interest you're paying represent a loss, or negative return on investment, since money is going out of your accounts. Specific to your question, you have to consider the various types of investment vehicles available to you. It is not just about 401(k) and IRA accounts. You may also consider a straight brokerage account, a savings account, CDs, etc. The costs and returns that you can typically expect are your guides through the available choices.","Adding to the excellent answers already given, we typically advise members to contribute as much as needed to get a full employer match in their 401K, but not more. We then redirect any additional savings to a traditional IRA or ROTH IRA (depending on their age, income, and future plans). Only once they've exhausted the $5000 maximum in their IRA will we look at putting more money into the 401K. The ROTH IRA is a beautiful and powerful vehicle for savings. The only reason to consider taking money out of the ROTH is in a case of serious catastrophe.","If you can afford to put money in your 401(k) account, I would say at least you should invest enough to get your employer's matching fund. It's free money, why not get it?","\"Agree with Randy, if debt and debt reduction was all about math, nobody would be in debt. It is an emotional game. If you've taken care of the reasons you're in debt, changed your behaviors, then start focusing on the math of getting it done faster. Otherwise, if you don't have a handle on the behaviors that got you there, you're just going to get more rope to hang yourself with. I.e., makes sense to take a low-interest home equity loan to pay off high-interest credit card debt, but more likely than not, you'll just re-rack up the debt on the cards because you never fixed the behavior that put you into debt. Same thing here, if you opt not to contribute to \"\"pay off the cards\"\" without fixing the debt-accumulating behaviors, what you're going to do is stay in debt AND not provide for retirement. Take the match until you're certain you have your debt accumulation habits in check.\"","\"I agree with the other answers that it is a benefit, but wanted to add another explanation for this: Also, why a company would prefer matching someone's contributions (and given him or her additional free money) instead of just offering a simple raise? In addition to a match being a benefit that is part of your total compensation, 401ks have special rules for Highly Compensated Employees. If the lower paid employees do not contribute, the \"\"Highly Compensated Employees\"\" do not get to take full advantage of the 401k. By offering a match, more lower paid employees will take advantage of a 401k program allowing more Highly Compensated Employees to also take advantage of the program.\"","\"IRA is not always an option. There are income limits for IRA, that leave many employees (those with the higher salaries, but not exactly the \"\"riches\"\") out of it. Same for Roth IRA, though the MAGI limits are much higher. Also, the contribution limits on IRA are more than three times less than those on 401K (5K vs 16.5K). Per IRS Publication 590 (page 12) the income limit (AGI) goes away if the employer doesn't provide a 401(k) or similar plan (not if you don't participate, but if the employer doesn't provide). But deduction limits don't change, it's up to $5K (or 100% of the compensation, the lesser) even if you're not covered by the employers' pension plan. Employers are allowed to match the employees' 401K contributions, and this comes on top of the limits (i.e.: with the employers' matching, the employees can save more for their retirement and still have the tax benefits). That's the law. The companies offer the option of 401K because it allows employee retention (I would not work for a company without 401K), and it is part of the overall benefit package - it's an expense for the employer (including the matching). Why would the employer offer matching instead of a raise? Not all employers do. My current employer, for example, pays above average salaries, but doesn't offer 401K match. Some companies have very tight control over the 401K accounts, and until not so long ago were allowed to force employees to invest their retirement savings in the company (see the Enron affair). It is no longer an option, but by now 401K is a standard in some industries, and employers cannot allow themselves not to offer it (see my position above).\"","An experienced individual wouldn't ask such questions. I don't say this to take a jab at you, but to provide context. The matter is much more complicated than a simple answer to your question could accomplish. The short answer is no, not necessarily; but it depends on the details. Generally, if the employer matches, it's suggested that you take advantage of the match. It's free money. That said, it comes with some strings attached, like a vesting schedule. It's not yours right away, necessarily. Choices are limited in a 401k, but we should still come out ahead with that free money. The investment choices available in a 401k are also a part of the details. If they meet your needs you should certainly consider the 401k even if the employer doesn't match. There is also the matter of one's particular tax situation, which is certainly an involved matter. A 401k can certainly be a part of judicious tax planning. It's a matter of working out the details. Continuing this theme of details and coming back to the employer match: if the employer doesn't mach, I would make sure that I'm maxing out an IRA before considering the 401k. If the employer matched, I would probably contribute to take advantage of that match. However, it quickly becomes complicated here. I'm accustomed to employer matching up to some percentage of pay, which typically works out to be less then the anual contribution limits for a 401k. So, I my plan for such a situation is to contribute up to the employer match in the 401k, then max out an IRA, and then return to the 401k to finish contributing up to its yearly maximum. There is plenty for you to consider in order to come up with a plan of action. While it's certainly complicated, it's accessible to most people. You don't have to be a genius. In fact, eggheads are regularly trounced by the markets.","If your employer offers a 401(k) match, definitely take advantage of it. It's free money, so take advantage of it!","Employer match doesn't incur FICA tax (social security, medicare) for you at all - either current year or when you withdraw. All you have to pay is income tax when you withdraw after retirement age. (Disclaimer - I'm not tax professional but has done my research)","\"The error in the example is here: \"\"Now, if you contribute 5% to a Roth 401(k), your employer would match your after-tax 5% contribution. If the tax rate is 25%, that would be 5% of $60,000, which is $3,000. However, that $3,000 is put in to a traditional 401(k), so it is taxed when withdrawn. Assuming the tax rate is still 25% when you withdraw, you are only getting $2,250. Essentially you are giving up $750 of free money in this case.\"\" You set your contribution to Roth 401k as a function of the gross, 80,000. You choose 5% and contribute 4000 Your employer matches 4000. At the end of the year, your taxable income to the IRS is 80000, and you pay 30% or 24000. You have 80K-4K-24K to live on, or 52K If you chose the alternate regular 401k,then you contribute 4K, your income to the IRS is (80-4=) 76k, and you pay 30%, 22.8K in tax. You have 80-4-22.8 or 53.2K to live on. Or, to come at it the other way, you have 4000*30% =1200 extra tax reduction in your income this year. If the extra income in 401k versus extra current year tax in Roth IRA means you have to reduce less, like 2800K to the roth so you maintain a 53.2K lifestyle, then yes, the Roth IRA match is reduced. If you have the cash flow to prepay the current year tax and maximum-match contribution, you will get the full match based on your gross income.\"","I think better advice would be always max out your 401K at least to the level that the company provides a match. For example, my company will match 50% up to 10% of your salary. Good luck finding another investment with a guaranteed immediate 50% return. Beyond the company match, it is probably good advice to put as much in the 401K as you can afford if you aren't disciplined enough to invest that money on your own. Otherwise it depends on a number of factors as to whether it is better to invest on your own or in the company plan.","Your employer's matching contribution is calculated based on the dollar amounts you end up putting in. The nature of your 401(k) contribution—whether pre-tax or Roth after-tax—doesn't matter with respect to how their match gets calculated, and their match always goes into a pre-tax account, even if you are contributing after-tax. The onus is on you to choose a contribution amount that maximizes your employer match regardless of the nature of your contribution. Maximizing your employer match using Roth after-tax contributions will eat up more of your annual gross salary, but as long as you are willing to do that then you won't leave free employer match money on the table. Roth after-tax contributions don't get the tax deduction inherent in a pre-tax contribution. The tradeoff is that you end up with less take-home pay per period if you contribute the same number of dollars on a Roth after-tax basis to your 401(k) as opposed to on a pre-tax basis. For instance, to make a maximum $18,000 Roth after-tax contribution to a 401(k), it's going to cost you a lot more than $18,000 of your annual gross salary to net the same $18,000 number. (On the flip side, the Roth money is worth more in retirement than pre-tax money, because it won't be subject to taxes then.) However, 401(k) plan contribution amounts are almost always expressed as a percentage of gross salary, i.e. in pre-tax terms, even when electing to make after-tax contributions! So when electing after-tax, one is implicitly accepting that the contribution will cost more than the percentage of gross salary, because you'll need to pay the tax on a gross amount that would yield the same number of dollars but as an after-tax amount.","One should fund a 401(k) or matched retirement account up to the match, even if you have other debt. Long term, you will come out ahead, but you must be disciplined in making the payments. If one wants to point out the risk in a 401(k), I'd suggest the money need not be invested in stocks, there's always a short term safe option.","\"If you aren't already contributing the maximum allowable amount, by all means do so. If you are already contributing the maximum, it doesn't matter that much when you make those contributions. Making fixed monthly contributions is done mostly for budgeting reasons. Most of us can't predict fund performance well enough to optimize our contributions (by which I mean, contributing more early if you think the market is going up, but waiting if you think it will go down, following the \"\"buy low\"\" strategy). As for employer matching, check with your company to see how they compute matches. They may match contributions for the year, even if those matching funds are only paid up to a maximum per paycheck. (For example, if you contribute 200% of the match for the first 6 months, then contribute nothing for the remaining 6 months, you may still receive the same matching funds per pay period as if you were contributing 100% throughout the year.)\"","This creates incentive for the employee to contribute more and increases the funds under management of the 401(k) plan. The size of the plan influences the fees that are charged in each of the funds offered. (The more assets under management, the better for those in the plan.) More importantly, 401(k) plans are not allowed to discriminate in favor of highly compensated employees. That discrimination is determined by calculating the average deferrals by your lower compensated employees and comparing them to the average deferrals of your highly compensated employees. If highly compensated employees are saving too much compared to the rest of the pack, they will have some of their contributions returned the next year (with all the tax implications of that). Forcing everyone to contribute 6% to get the full match helps the plan to not fail the discrimination test and protects the highly compensated employees from losing some of their tax deferrals.","Specifically on the subject of maxing out your 401k, there are several downsides: The employer match usually only applies to the first 6%. Some employers offer no match at all. You listed the match as a pro, but I think it should be pointed out that you can usually get this benefit without maxing out your plan. The investment options are limited. Usually there is at least one fund available from all the common investment classes, but these may not be your preferred funds if you were able to choose for yourself. Fees can be very high. If you are working for a small to medium size company, the fees for each fund will often be higher than for the same funds in a plan offered by a large company. Fees are usually related to the dollar amount of assets under management. Each person has a different tax situation, so if you are single and making 6 figures, you might still be in the 25% bracket even after maxing out your 401k, but the same person filing jointly with a spouse that makes less could get down to the 15% bracket with a smaller contribution. I meet my retirement savings goals without maxing out the 401k. As long as the amount is above the employer match amount, my second priority is to funnel as much money as possible in to my IRA (because I get lower fees and better investment options from Vanguard).","Let me add another consideration to the company's side of the equation. Not only is a 401K a tool for the company to make them competitive when recruiting employees among other companies that offer that benefit, it is also a good retention tool. Most company's 401K plans include a vesting period of at least 3 years, sometimes more. An employee that leaves the company before they are vested in the plan will have to give up some % of the employer matched funds in the account. This gives employees incentive to stick around longer and the company reduces the risk of turnover which can be costly in terms of training and recruiting. This also factors into the reason why employers would rather give matching on the 401K than a simple pay raise. Some of those employees are going to leave during the vesting period anyway, and when that happens the employer got the benefit of motivating (extrinsically) the employee, but in the end got to keep some of the money.","The managers of the 401(k) have to make their money somewhere. Either they'll make it from the employer, or from the employees via the expense ratio. If it's the employer setting up the plan, I can bet whose interest he'll be looking after. Regarding your last comment, I'd recommend looking outside your 401(k) for investing. If you get free money from your employer for contributing to your 401(k), that's a plus, but I wouldn't -- actually, I don't -- contribute anything beyond the match. I pay my taxes and I'm done with it.","\"typically, your employer will automatically stop making contributions once you hit the 18k$ limit. it is worth noting that employer contributions (e.g. \"\"matching\"\") do not count towards the 18k$ employee pre-tax contribution limit. however, if you have 2 employers during the year their combined payroll deductions might exceed the limit if you do not inform your later employer of the contributions you made at your former employer (or they ignore the info). in which case, you must request a refund of \"\"excess contributions\"\" from one of the plans (your choice). you must report the refund as taxable income on your taxes. if you do not make this request by the time you file your taxes, the tax man will reject your filing and \"\"adjust\"\" your return with more taxes and penalties. sometimes requesting a refund of excess contributions might cause your employer to remove \"\"matching\"\" funds, but i am not clear on the rules behind that. there are some 401k plans that allow \"\"supplemental after-tax contributions\"\" up to the combined employee/employer limit (53k$ in 2015 and 2016). it is a rare feature, and if your company offers it, you probably already know. however, generally it is governed by a separate contribution election that only take effect once you hit the employee pre-tax contribution limit (18k$ in 2015 and 2016). you could ask your hr department to be sure. 401k plans can be changed if there is enough employee demand for a rule change. especially in a small company, simply asking for them to allow dollar based contributions instead of percent based contributions can cause them to change the plan to allow it. similarly, you could request they allow \"\"supplemental after-tax contributions\"\", but that might be a harder change to get.\"","Yes. Not doing so would be like turning down a raise. The best advice in almost every situation is to at least contribute up to the amount that the company will match so you get the full benefit. One thing to clarify that you might not be understanding. The vesting period is only for the money the company matches, not your own investment. Even if you leave the company before the account is vested or fully vested, you can transfer to a 401k at your new employer, or roll over into an IRA, or take as taxable income (and pay a penalty if it is an early withdrawal), all your contributions together with any investment gains or losses that have occurred. Ditto whatever part of your employer match that has vested by the time you leave. Often, the employer matching contributions are invested in the same funds in the same proportions that you have chosen for your own contributions and thus will have incurred the same gains or losses as your own contributions, but what you are entitled to take with you is the part that has vested. Also, you mention that it is unlikely that you will stay the entire 5 years. However, if you plan to at least stay a couple of years it makes sense to get the 20%, 40%, etc. of the match that you vest during your stay. Again, it's free money.","The other answers assumed student loan debt -- and for that, it's rarely worth it (unless your company only offers managed plans w/ really bad returns, or the economy recovers to the point where banks are paying 5% again on money market accounts) ... but if it's high rate debt, such as carrying a credit card debt, and the current rate of returns on the 401k aren't that great at the time, it would be worth doing the calculations to see if it's better to pay them down instead. If you're carrying extremely high interest debt (such as 'payday loans' or similar), it's almost always going to be worth paying down that debt as quickly as possible, even if it means forgoing matching 401k payments. The other possible reason for not taking the matching funds are if the required contributions would put you in a significant bind -- if you're barely scraping by, and you can't squeeze enough savings out of your budget that you'd risk default on a loan (eg, car or house) or might take penalties for late fees on your utilities, it might be preferable to save up for a bit before starting the contributions -- especially if you've maxed your available credit so you can't just push stuff to credit cards as a last resort.","\"The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary. As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at \"\"total compensation\"\". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match. Note - Keith thanks for catching and fixing one typo, I just caught another.\"","\"The only way to know the specific explanation in your situation is to ask your employer. Different companies do it differently, and they will have their reasons for that difference. I've asked \"\"But why is it that way?\"\" enough times to feel confident in telling you it's rarely an arbitrary decision. In the case of your employer's policy, I can think of a number of reasons why they would limit match earnings per paycheck: Vesting, in a sense - Much as stock options have vesting requirements where you have to work for a certain amount of time to receive the options, this policy works as a sort of vesting mechanism for your employer matching funds. Without it, you could rapidly accumulate your full annual match amount in a few pay periods at the beginning of the year, and then immediately leave for employment elsewhere. You gain 100% of the annual match for only 1-2 months of work, while the employees who remain there all year work 12 months to gain the same 100%. Dollar Cost Averaging - By purchasing the same investment vehicle at different prices over time, you can reduce the impact of volatility on your earnings. For the same reason that 401k plans usually restrict you to a limited selection of mutual funds - namely, the implicit assumption is that you probably have little to no clue about investing - they also do other strategic things to encourage employees to invest (at least somewhat) wisely. By spacing their matching fund out over time, they encourage you to space your contributions over time, and they thereby indirectly force you to practice a sensible strategy of dollar cost averaging. Dollar Cost Averaging, seen from another angle - Mutual funds are the 18-wheeler trucks of the investment super-highway. They carry a lot of cargo, but they are difficult to start, stop, or steer quickly. For the same reasons that DCA is smart for you, it's also smart for a fund. The money is easier to manage and invest according to the goals of the fund if the investments trickle in over time and there are no sudden radical changes. Imagine if every employer that does matching allowed the full maximum match to be earned on the first paycheck of the year - the mutual funds in 401ks would get big balloons of money in January followed by a drastically lower investment for the rest of the year. And that would create volatility. Plan Administration Fees - Your employer has to pay the company managing the 401k for their services. It is likely that their agreement with the management company requires them to pay on a monthly basis, so it potentially makes things convenient for the accounting people on both ends if there's a steady monthly flow of money in and out. (Whether this point is at all relevant is very much dependent on how your company's agreement is structured, and how well the folks handling payroll and accounting understand it.) The Bottom Line - Your employer (let us hope) makes profits. And they pay expenses. And companies, for a variety of financial reasons, prefer to spread their profits and expenses as evenly over the year as they can. There are a lot of ways they achieve this - for example, a seasonal business might offer an annual payment plan to spread their seasonal revenue over the year. Likewise, the matching funds they are paying to you the employees are coming out of their bottom line. And the company would rather not have the majority of those funds being disbursed in a single quarter. They want a nice, even distribution. So once again it behooves them to create a 401k system that supports that objective. To Sum Up Ultimately, those 401k matching funds are a carrot. And that carrot manipulates you the employee into behaving in a way that is good for your employer, good for your investment management company, and good for your own investment success. Unless you are one of the rare birds who can outperform a dollar-cost-averaged investment in a low-cost index fund, there's very little to chafe at about this arrangement. If you are that rare bird, then your investment earning power likely outstrips the value of your annual matching monies significantly, in which case it isn't even worth thinking about.\"","Even ignoring the match (which makes it like a non-deductible IRA), the 401k plans that I know all have a range of choices of investment. Can you find one that is part of the portfolio that you want? For example, do you want to own some S&P500 index fund? That must be an option. If so, do the 401k and make your other investments react to it-reduce the proportion of S&P500 because of it(remember that the values in the 401k are pretax, so only count 60%-70% in asset allocation). The tax deferral is huge over time. For starters, you get to invest the 30-40% you would have paid as taxes now. Yes, you will pay that in taxes on withdrawal, but any return you generate is (60%-70%) yours to keep. The same happens for your returns.","\"Because 401k's are also used by self employed. A person who has a schedule C profitable income can open a 401k and \"\"match\"\" in whatever ratio he wants, up to 25% of the net profits or the limits you stated. This allows self-employed to defer more income taxes to the future. Why only self-employed? Good question. Ask your congressman. My explanation would be that since they're self-employed they're in much more danger of not having income, especially later in life, if their business go south. Thus they need a bigger cushion than an average W2 employee who can just find another job.\"","With a match, the 401(k) becomes the priority, up to that match, often ahead of other high interest debt. Without the match, the analysis is more about the cost within the 401(k). The 401(k) is a tax deferred account (let's not go on a tangent to Roth 401(k)) so ideally, you'd be skimming off money at 25% and saving it till you retire, so some of it is taxed at 0, 10, 15%. If the fees in the 401(k) are say 1.5% between the underlying funds and management fee, it doesn't take long to wipe out the potential 10 or 15% you are trying to gain. Yes, there's a risk that cap gain rates go away, but with today's tax law, the long term rate is 15%. So that money put into a long term low cost ETF will have reinvested dividends taxed at 15% and upon sale, a 15% rate on the gains. There are great index ETFs with sub - .1% annual cost. My simple answer is - If the total cost in that 401(k) is .5% or higher, I'd pass. Save the money in an outside account, using IRAs as best you can. (The exact situation needs to be looked at very carefully. In personal finance, there's a lot of 'grey'. For example, a frequent job changer can view the 401(k) as a way of saving pretax, knowing the fee will only last 2 years, and will end with a transfer to the IRA)","\"You'd need to test the assumptions here - in effect you're saying that in 15 years your account will have a balance 10x your income. But normally you'd expect your income to grow over the years (e.g. promotions) and so you'd hope that your income in 15 years would be significantly larger than what it is now. But, even in the case where your account eventually does grow to 10x your salary at that time, it may still be worth continuing to contribute. In effect, adding a further 1% to your account is boosting the \"\"compounding return\"\" on your account by 1% - after fees and risk free. This additional 1% \"\"return\"\" in effect makes your retirement plan safer - you either get a higher total return for the same investment mix, or you can get the same total return for a slightly safer investment mix. In effect, you're treating your salary as a \"\"safe\"\" annuity and each year putting 10% of the \"\"return\"\" from that into your more risky retirement account.\"","\"As Mhoran answered, typical match, but some have no match at all, so not bad. The loan provision means you can borrow up to $50k or 50% of your balance, whichever is less. 5 year payback for any loan, but a 10 year payback for a home purchase. I am on the side of \"\"don't do it\"\" but finance is personal, and in some situations it does make sense. The elephant in this room is the expenses within the 401(k). Simply put, a high enough expense will wipe out any benefit from tax deferral. If you are in this situation, I recommend depositing to the match, but not a cent more. Last, do they offer a Roth 401(k) option? There's a high probability you will never be in as low a tax bracket as the next few years, now's the time to focus on the Roth deposits, if not in the 401(k), then in an IRA.\"","\"Your contribution limit to a 401(k) is $18,000. Your employer is allowed to contribute to your 401(k), usually a \"\"matching contribution\"\". That matching contribution comes from your employer, so is not subject to your personal contribution limit. A contribution to a regular 401(k) is typically made with pre-tax money (i.e. you don't pay payroll taxes on the money you contribute) so you pay less taxes for the current tax year. However when you retire and you take money out, you pay taxes on the money you take out. On one hand, your tax rate may be lower when you have retired, but on the other hand, if your investments have appreciated over time, the total amount of tax you pay would be higher. If your company offers a Roth 401(k) plan, you can contribute $18,000 of after tax money. This way you pay the tax on the $18,000 today, as you would if you did not put the money in the 401(k), but when you take the money out at retirement, you would not have to pay tax. In my opinion, that serves as a way to pay effectively more money into your 401(k). Some firms put vesting provisions on the amount that they match in your 401(k), e.g. 4 years at 25% per year. So you have to work 1 full year to be entitled to 25% of their matching contribution, 2 years for 50%, and 4 years to receive all of it. Check your company's Summary Plan Description of the 401(k) to be sure. You are not allowed to invest pre-tax money into a Traditional IRA if you are already contributing to a 401(k) plan and have reached the income limits ($62,000 AGI for single head of household). You are allowed to contribute post-tax money to a Traditional IRA plan if you have already contributed to a 401(k), which you can then Roll-over into a Roth IRA (look up 'backdoor IRA'). The IRA contribution limit applies to all IRA accounts over that calendar year. You could put some money in a traditional IRA, a Roth IRA, another traditional IRA, etc. so long as the total amount is not more than the contribution limit. This gives you an upper limit of 5.5k + 18k = 23.5 investments in retirement accounts. Note however, once you reach age 50, these limits increase to 6.5k (IRA) + 24k (401(k)). They also are adjusted periodically with the rate of inflation. The following approach may be more efficient for building wealth: This ordering is the subject of debate and people have different opinions. There is a separate discussion of these priorities here: Best way to start investing, for a young person just starting their career? Note however, a 401(k) loan becomes payable if you leave your company, and if not repaid, is an unauthorised distribution from your 401k (and therefore subject to an additional 10% tax penalty). You should also be careful putting money into an IRA, as you will be subject to an additional 10% tax penalty if you take out the money (distribution) before retirement, unless one of the exceptions defined by the IRA applies (e.g. $10,000 for first time home purchase), which could wipe out more than any gains you made by putting it in there in the first place. Your specific circumstances may vary, so this approach may not be best for you. A registered financial advisor may be able to help - ensure they are legitimate: https://adviserinfo.sec.gov\"","rollover funds only mean the funds one was foolish enough to first roll into this 401(k). With no matching, and need for cash, I'd stop depositing to that account. But, from details you gave, you can't withdraw that money.","I'm not a big fan of tax-advantaged retirement accounts. The rules on tax-advantages accounts can change at any time. It's already painful to get money out before retirement (earnings or possibly contributions taxed as current income, plus 10% penalty). The rules could get worse. There's also the assumption that your taxes will be lower when you retire. I think this is a poor assumption. If you get free money from your employer for contribution to a 401(k), contribute up to what will get you all of the free money you can. Otherwise, pay your taxes and keep control of your assets. So short answer: Keep as much as you can out of tax-advantaged accounts unless you're turning down free money to do so.","It depends on the vesting schedule and the likelihood you'll be there long enough to get any vesting. A typical 6 year schedule gets you 20% after 2 years. You already know you'll be there 1 year, so now you need to decide if you'll last 2 years. Unless you know for sure you won't last 2 years, you should take the match on the 4%. Suppose your retirement plan earns 10%. If you leave before 2 years, compared with your 18% you're only behind by 8% return. But if you last 2 years, you'd be making a 32% return on that same amount. After 3 years you'd make 54%, and up it goes from there until you hit a 120% return after 6 years. I'd take the match simply because you have a lot more to gain than you have to lose if you leave early.","You cannot withdraw funds from a 401(k) while still employed with your company. To access your contributions, that would be treated as a loan against the 401(k), in which case you'd pay an upfront fee, and then have to repay the amount loaned, plus interest, over a set period of time. (In essence, you are paying back yourself.) Typically, there is also a minimum amount you must take out as a loan. Should you leave the job and still have an outstanding loan against your 401(k), it will be treated as a withdrawal after a certain date, at which point a 10% penalty plus taxes applies, unless you pay back the full amount of the loan remaining before that certain date. Your friends should seriously consider contributing the minimum amount necessary to get that full 50% matching amount. It's free money. As you said, it's like leaving money on the table.","If your budget allows for it, max out both plans! However, in my opinion, you're on the right path: The advantage of also contributing to the Roth 401(k) in this case would be: This second point is the main reason that you should also invest in a 401(k), using that as a retirement savings vehicle alongside your Roth IRA. One caveat is that you should ensure that you'll have sufficient savings so that you won't need to dip into either plan - it'd be a shame to reduce the investment base from which you can grow your savings tax free. Personally, I'd view my contributions in the Roth IRA as an emergency fund to be used only in the direst circumstances.","It's probably advantageous to stop depositing into a 401(k) when one is no longer receiving payroll deductions into them. Other than that, why would you want to give up the benefits? Remember, 401(k) is just the kind of account. Most offer a variety of investment options within them, and let you move money between those, so you can rebalance to suit your currently preferred risk/return tradeoffs without having to break them open. You might sometimes want to reduce your contribution for a while, if you have immediate cashflow needs elsewhere... but try to avoid doing that. Compound returns are a good thing, and the earlier the money goes in the more you get back from it.","You might want to bring this fancy new IRS rule to your employer's attention. If your employer sets it up, an After-Tax 401(k) Plan allows employees to contribute after-tax money above the $18k/year limit into a special 401(k) that allows deferral of tax on all earnings until withdrawal in retirement. Now, if you think about it, that's not all that special on its own. Since you've already paid tax on the contribution, you could imitate the above plan all by yourself by simply investing in things that generate no income until the day you sell them and then just waiting to sell them until retirement. So basically you're locking up money until retirement and getting zero benefit. But here's the cool part: the new IRS rule says you can roll over these contributions into a Roth 401(k) or Roth IRA with no extra taxes or penalties! And a Roth plan is much better, because you don't have to pay tax ever on the earnings. So you can contribute to this After-Tax plan and then immediately roll over into a Roth plan and start earning tax-free forever. Now, the article I linked above gets some important things slightly wrong. It seems to suggest that your company is not allowed to create a brand new 401(k) bucket for these special After-Tax contributions. And that means that you would have to mingle pre-tax and post-tax dollars in your existing Traditional 401(k), which would just completely destroy the usefulness of the rollover to Roth. That would make this whole thing worthless. However, I know from personal experience that this is not true. Your company can most definitely set up a separate After-Tax plan to receive all of these new contributions. Then there's no mingling of pre-tax and post-tax dollars, and you can do the rollover to Roth with the click of a button, no taxes or penalties owed. Now, this new plan still sits under the overall umbrella of your company's total retirement plan offerings. So the total amount of money that you can put into a Traditional 401(k), a Roth 401(k), and this new After-Tax 401(k) -- both your personal contributions and your company's match (if any) -- is still limited to $53k per year and still must satisfy all the non-discrimination rules for HCEs, etc. So it's not trivial to set up, and your company will almost certainly not be able to go all the way to $53k, but they could get a lot closer than they currently do.","Companies are required BY THE IRS to try to get everybody to contribute minimal amounts to the 401K's. In the past, there were abuses and only the execs could contribute and the low paid workers were starving while the execs contributed huge amounts. On a year-by-year basis, if the low-paid employees don't contribute, the IRS punishes the high paid employees. Therefore, most employers provide a matching program to incentivize low-paid employees to contribute. This 9% limitation could happen in any year and it could have happened even before you got your pay raise, what matters is what the low-paid employees were doing at your company LAST YEAR.","Congratulations on your raise! Is my employer allowed to impose their own limit on my contributions that's different from the IRS limit? No. Is it something they can limit at will, or are they required to allow me to contribute up to the IRS limit? The employer cannot limit you, you can contribute up to the IRS limit. Your mistake is in thinking that the IRS limit is 17K for everyone. That is not so. You're affected by the HCE rules (Highly Compensated Employees). These rules define certain employees as HCE (if their salary is significantly higher than that of the rest of the employees), and limit the ability of the HCE's to deposit money into 401k, based on the deposits made by the rest of the employees. Basically it means that while the overall maximum is indeed 17K, your personal (and other HCE's in your company) is lowered down because those who are not HCE's in the company don't deposit to 401k enough. You can read more details and technical explanation about the HCE rules in this article and in this blog post.","\"Given that the 6 answers all advocate similar information, let me offer you the alternate scenario - You earn $60K and have an employer offering a 50% match on all deposits. All deposits. (Note, I recently read a Q&A here describing such an offer. If I see it again, I'll link). Let the thought of the above settle in. You think about the fact that $42K isn't a bad salary, and decide to deposit 30%, to gain the full match on your $18K deposit. Now, you budget to live your life, pay your bills, etc, but it's tight. When you accumulate $2000, and a strong want comes up (a toy, a trip, anything, no judgement) you have a tough decision. You think to yourself, \"\"after the match, I am literally saving 45% of my income. I'm on a pace to have the ability to retire in 20 years. Why do I need to save even more?\"\" Your budget has enough discretionary spending that if you have a $2000 'emergency', you charge it and pay it off over the next 6-8 months. Much larger, and you know that your super-funded 401(k) has the ability to tap a loan. Your choice to turn away from the common wisdom has the recommended $20K (about 6 months of your spending) sitting in your 401(k), pretax deposited as $26K, and matched to nearly $40K, growing long term. Note: This is a devil's advocate answer. Had I been the first to answer, it would reflect the above. In my own experience, when I got married, we built up the proper emergency fund. As interest rates fell, we looked at our mortgage balance, and agreed that paying down the loan would enable us to refinance and save enough in mortgage interest that the net effect was as if we were getting 8% on the money. At the same time as we got that new mortgage, the bank offered a HELOC, which I never needed to use. Did we somehow create high risk? Perhaps. Given that my wife and I were both still working, and had similar incomes, it seemed reasonable.\"","They are mutually exclusive. Provided you meet the income limits you can contribute to both. Employer match do not count toward the 18K. On the other hand traditional IRA and Roth IRA are inclusive. So if single and making having a MAGI under 118K, you could do the 18K of your own money into a 401(k), and $5,500 into a Roth. You can put in $23,500 of your own money with the employer match on top of that.","If there is no match and you are disciplined enough to contribute without it coming directly out of your paycheck, dump the 401K. The reason: Most 401K plans have huge hidden fees built into the investment prices. You won't see them directly, but 3% is not uncommon. 3% is a horrible drag on your investment performance. Get an IRA or Roth IRA and pick something with low fees. Bonus: You will have a lot more investment choices!","No, sorry. A change of 401(k) administrator is not an out, otherwise many would flee a bad plan. I'd suggest you only deposit up to the match, but use an IRA if you'd like to save more. A plan with high fees can easily negate the tax benefits and then some.","There's no one answer. You need to weigh the fees and quality of investment options on the one side against the slowly vesting employer contribution and tax benefits of 401k contributions in excess of IRA limits.","You are already doing everything you can. If your employer does not have a 401(k) you are limited to investing in a Roth or a traditional IRA (Roth is post tax money, traditional IRA gives you a deduction so it is essentially pre tax money). The contribution limits are the same for both and contributing to either adds to the limit (so you can't duplicate). CNN wrote an article on some other ways to save: One thing you may want to bring up with your employer is that they could set up a SEP-IRA. This allows them to set a % (up to 25%) that they contribute pre-tax to an IRA for everyone at the company that has worked there at least 3 years. If you are at a small company, maybe everyone with that kind of seniority would take an equivalent pay cut to get the automatic retirement contribution? (Note that a SEP-IRA has to apply to everyone equally percentage wise that has worked there for 3 years, and the employer makes the contribution, not you).","Most companies put the company match in your account each paycheck, but your are not generally vested for the match. If you leave before the specified time period then they pull back part of the matching funds. I knew somebody who did something similar back in the 1980's with their 401K. They put in 8% of their paycheck after taxes; a 100% match was deposited; then they pulled out the employees contribution every quarter. They did this for the 10 years I knew them. It avoided any tax implications, and they were still saving 8% of their pay for retirement.","With a 401k you will be taxed when you withdraw the money upon retirement (just like an IRA), but conventional wisdom had it that you're likely to be in a lower tax bracket at that time. That may not necessarily be the case though, in which case a Roth IRA would be a better option because you're paying for it with after tax dollars and distributions are untaxed. If you wanted to hedge your bets you could have both an IRA/401k and a Roth IRA. An IRA has income limits above which the contributions are no longer tax deductible, I don't believe a 401k has the same limitations (for completion's sake: a Roth IRA has income limits above which you can't contribute to one). And like you said, the employer match is free money.","If you are working for a small company, the expense ratios on the funds in the 401k account are likely much higher than you can get with a similar IRA. Depending on your income, whether you are married and want to contribute to a spouse's IRA, your limit on what can be contributed to an IRA may vary, but the compelling reason to contribute to a 401k is that the contribution limit is higher ($17,500 vs $5,500 for people on the lower end of the income scale) so you may need to contribute to a 401k to meet your retirement savings goals.","If they leave the extra funds in the account the IRS will consider it as employer match. They weren't funds from your paycheck, they were from the employers profits. Because they don't have a formal matching program the extra funds will still keep then under the max match. There is one other explanation that needs to be considered. If the last paycheck from 2011 was near the end of the year (the last Friday of 2011 was December 30th) the 401K funds from that final paycheck may not have been deposited into your 401K until early January 2012. If you count contributions when looking at your 401K statement it will look like one two many for 2012; but the IRS only cares when it was deducted from your paycheck, not when it was deposited into your account. The Department of Labor only requires they be deposited by the 15th of the following month.","Nope, take the match. I cannot see not taking the match unless you don't have enough money to cover the bills. Every situation is different of course, and if the option is to missing minimum payments or other bills in order to get the match, make your payments. But in all other circumstances, take the match. My reasoning is, it is hard enough to earn money so take every chance you can. If you save for retirement in the process, all the better.","The reason your 401k match is always counted as pre-tax whether you are contributing to a traditional 401k or a Roth is that the money is contributed by the employer and is not counted as income, and that contribution is not taxed as income. Should you wish to pay taxes on it and convert it to a Roth, you can do that, though perhaps not until you change jobs.","In addition to George Marian's excellent advice, I'll add that if you're hitting the limits on IRA contributions, then you'd go back to your 401(k). So, put enough into your 401(k) to get the match, then max out IRA contributions to give you access to more and better investment options, then go back to your 401(k) until you top that out as well, assuming you have that much available to invest for retirement.","At the very least you should invest as much as you can that your employer will match, as they are basically giving you free money for saving. After that I would prioritize a Roth IRA as that offers similar tax benefits with more liquidity. Provided you have enough money available in your emergency fund and have plenty for everyday expenses I see no reason not to max out your 401k after that if you can afford it. However, if your emergency fund is lacking, be sure to put some there. Other investments like a 529 may come into play if you have kids you plan on sending to college, but it all depends on your situation.","\"With no match, the traditional 401(k) for someone otherwise in the 15% bracket makes little sense. I'd suggest contributing just enough if you were in the 25% bracket to be in the taxable 15% but no more. Use a Roth IRA if you are saving more than that. I'm adding this based on OP's statement that the fees on the 401(k) range .8-1.4%. I wrote an article Are you 401(k)o’ed? in which I discuss how fees of this range negate the benefit of the mantra \"\"save at 25% to withdraw at 15%\"\" and if one were in the 15% bracket to start, this level off fee will cost you money in no time at all. The people advising you to max out the 401(k) first, given the rest of your situation and that of the account, are misguided. I'd given them the benefit of the doubt and assume they don't have all the details. And with all due respect to the other posters here, everyone of them a bright, valued colleague, your answers should be addressed to the OP's exact situation. 15% bracket, no match, high fees. I suspect some of answers will change on reviewing this.\"","\"Another consideration is that you are going to wind up with money in the \"\"regular\"\" 401(k) no matter which one you contribute to. The employer match can't go into the Roth 401(k). So all employer matching funds go in with pre-tax dollars and will be deposited in a normal 401(k) account. Edit from JoeTaxpayer - 2013 brought with it the Roth 401(k) conversion the ability to convert from the traditional pretax side of your 401(k) account to the Roth side.\"","Mathwise, I absolutely agree with the other answers. No contest, you should keep getting the match. But, just for completeness, I'll give a contrarian opinion that is generally not very popular, but does have some merit. If you can focus on just one main financial goal at a time, and throw every extra dollar you have at that one focus (i.e., getting out of debt, in your case), you will make better progress than if you're trying to do too many things at once. Also, there something incredibly freeing about being out of debt that has other beneficial impacts on your life. So, if you can bring a lot of focus to the credit card debt and get it paid off quickly, it may be worth deferring the 401(k) investing long enough to do that, even though it doesn't make as much mathematical sense. (This is essentially what Dave Ramsey teaches, BTW.)","Does your employer offer a 401(k) match? If so, contribute enough to maximize that--it's free money. After that, contribute to an IRA where you can invest in funds with low expenses. After you max that out, if you still have money left over, max out your 401(k) despite the high expenses for the tax advantages. Remember when you leave the company you can roll over the balance into an IRA and switch to lower-cost investments. Of course this is general advice without knowing your situation. If you're looking to buy a home soon, for example, you might want to keep extra money in a taxable account for a downpayment rather than maxing out your 401(k).","This will be difficult to achieve. It can be done, but it's very rare to have an agreement where your employer is willing to max out your contribution limit unless you are a partner in the business or a family relation. In this situation the extra employer money would probably come from a profit sharing contribution. If your employer increases your match, others are correct that your employer would have to increase the match for everyone. Not so with a profit sharing contribution. This is assuming 2 things though: Both of those are BIG if's, and I'd say 99% of the time it's not gonna happen for either of those two reasons. Your chances are better if you don't own >5% of the company, don't make over $120,000/year, and are related to you employer. Good luck!","\"For easy math, say you are in the 25% tax bracket. A thousand deposited dollars is $750 out of your pocket, but $2000 after the match. Now, you say you want to take the $750 and pay down the card. If you wait a year (at 20%) you'll owe $900, but have access to borrow a full $1000, at a low rate, 4% or so. The payment is less than $19/mo for 5 years. So long as one is comfortable juggling their debt a bit, the impact of a fully matched 401(k) cannot be beat. Keep in mind, this is a different story than those who just say \"\"don't take a 401(k) loan.\"\" Here, it's the loan that offers you the chance to fund the account. If you are let go, and withdraw the money, even at the 25% rate, you net $1500 less the $200 penalty, or $1300 compared to the $750 you are out of pocket. If you don't want to take the loan, you're still ahead so long as you are able to pay the cards over a reasonable time. I'll admit, a 20% card paid over 10+ years can still trash a 100% return. This is why I add the 401(k) loan to the mix. The question for you - jldugger - is how tight is the budget? And how much is the match? Is it dollar for dollar on first X%?\"","I would hire an accountant to help set this up, given the sums of money involved. $53,000 would be the minimum amount of compensation needed to maximize the 401k. The total limit of contributions is the lesser of: 100% of the participant's compensation, or $53,000 ($59,000 including catch-up contributions) for 2015 and 2016. and they don't count contributions as compensation Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. (Your employer can tell you whether your retirement plan is qualified.) On the bright side, employer contributions aren't subject to FICA withholdings.","You should be saving as much money as you can afford in your 401k up to the maximum allowed. If you don't contribute at least 6%, then you are essentially throwing away the match money that your employer is offering. Start out with the target date fund. You can always change your investment option later once you learn more about investing, but get started saving right away and get that match!","\"It's simple. At 100% match, it would take a \"\"long\"\" time for bad fees to negate the benefit. Longer than the average person stays with one company. Even though $50/10 shares is crazy, if you wait till you have $500, it's 10%. Still crazy, but you are still getting 90% of the match. I'd avoid this, however, and just go with the closest thing they have to an S&P fund. Invest outside this account to save the right amount to fund your retirement. 2% total isn't enough, obviously.\"","\"The original question was aimed at early payment on a student loan at 6%. Let's look at some numbers. Note, the actual numbers were much lower, I've increased the debt to a level that's more typical, as well as more likely to keep the borrower worried, and \"\"up at night.\"\" On a $50K loan, we see 2 potential payoffs. A 6 year accelerated payoff which requires $273.54 extra per month, and the original payoff, with a payment of $555.10. Next, I show the 6 year balance on the original loan terms, $23,636.44 which we would need to exceed in the 401(k) to consider we made the right choice. The last section reflects the 401(k) balance with different rates of return. I purposely offer a wide range of returns. Even if we had another 'lost decade' averaging -1%/yr, the 401(k) balance is more than 50% higher than the current loan debt. At a more reasonable 6% average, it's double. (Note: The $273.54 deposit should really be adjusted, adding 33% if one is in the 25% bracket, or 17.6% if 15% bracket. That opens the can of worms at withdrawal. But let me add, I coerced my sister to deposit to the match, while married and a 25%er. Divorced, and disabled, her withdrawals are penalty free, and $10K is tax free due to STD deduction and exemption.) Note: The chart and text above have been edited at the request of a member comment. What about an 18% credit card? Glad you asked - The same $50K debt. It's tough to imagine a worse situation. You budgeted and can afford $901, because that's the number for a 10 year payoff. Your spouse says she can grab a extra shift and add $239/mo to the plan, because that' the number to get to a 6 year payoff. The balance after 6 years if we stick to the 10 year plan? $30,669.82. The 401(k) balances at varying rates of return again appear above. A bit less dramatic, as that 18% is tough, but even at a negative return the 401(k) is still ahead. You are welcome to run the numbers, adjust deposits for your tax rate and same for withdrawals. You'll see -1% is still about break-even. To be fair, there are a number of variables, debt owed, original time for loan to be paid, rate of loan, rate of return assumed on the 401(k), amount of potential extra payment, and the 2 tax rates, going in, coming out. Combine a horrific loan rate (the 18%) with a longer payback (15+ years) and you can contrive a scenario where, in fact, even the matched funds have trouble keeping up. I'm not judging, but I believe it's fair to say that if one can't find a budget that allows them to pay their 18% debt over a 10 year period, they need more help that we can offer here. I'm only offering the math that shows the power of the matched deposit. From a comment below, the one warning I'd offer is regarding vesting. The matched funds may not be yours immediately. Companies are allowed to have a vesting schedule which means your right to this money may be tiered, at say, 20%/year from year 2-6, for example. It's a good idea to check how your plan handles this. On further reflection, the comments of David Wallace need to be understood. At zero return, the matched money will lag the 18% payment after 4 years. The reason my chart doesn't reflect that is the match from the deposits younger than 4 years is still making up for that potential loss. I'd maintain my advice, to grab the match regardless, as there are other factors involved, the more likely return of ~8%, the tax differential should one lose their job, and the hope that one would get their act together and pay the debt off faster.\"","JoeTapayer has good advice here. I would like to add my notes. If they give a 50% match that means you are getting a 50% return on investment(ROI) immediately. I do not know of a way to get a better guaranteed ROI. Next, when investing you need to determine what kind of investor you are. I would suggest you make yourself more literate in investments, as I suggest to anyone, but there are basic things you want to look for. If your primary worry is loss of your prinicipal, go for Conservative investments. This means that you are willing to accept a reduced expected ROI in exchange for lower volatility(risk of loss of principal). This does not mean you have a 100% safe investment as the last market issues have shown, but in general you are better protected. The fidelity investments should give you some information as to volatility or if they deem the investments conservative. Conservative investments are normally made up of trading bonds, which have the lowest ROI in general but are the most secure. You can also invest in blue chip companies, although stock is inherently riskier. It is pointed out in comments that stocks always outperform bonds in the long term, and this has been true over the last 100 years. I am just suggesting ways you can protect yourself against market downturns. When the market is doing very well bonds will not give you the return your friends are seeing. I am just trying to give you a basic idea of what to look for when you pick your investments, nothing can replace a solid investment adviser and taking the time to educate yourself.","To be clear, a 401K is a vehicle, you make investments WITHIN it, if you choose poorly such as say putting all your money into company stock when working for the next Enron, you can still get hurt badly. So it is important to have diversity and an appropriate risk level based on your age, tolerance for risk, etc. That said, as vehicles go it is outstanding, and the 'always max your 401K' is very very common advice for a large number of investing professionals, CFA's, pundits, etc. That said there are a few priorities to consider here. First priority, if there is some level of company matching, grab that, it's hard to beat that kind of 'return' in almost any other case. Second, since you never want to tap into a 401K (if you can at all avoid it) before you are ready to retire, you should first be sure you have a good 'emergency fund' set aside in the event you lose your job, or some other major catastrophy happens. Many recommend setting aside at least 6 months of basic living expenses. Third, if you have any high interest debt (like credit card debt) pay that stuff down as fast as you can. You'll save a ton of interest (it's pretty much the same as investing the money you use to pay it down, and getting a return equal to the interest rate you are paying, with zero risk.. can't be beat. You'll also end up with a lot better cash flow, and the ability to start saving first and spending out of savings, so you earn interest instead of paying it. Once you have those things out of the way, then it is time to think about fully funding the 401K. and keep in mind, since you don't pay taxes on it, the 'felt effect' to you pocket is about 80% or even less, of what goes into the account, so it's not as painful as you might think, and the hit to your take home may be less than you'd expect. Contributing as much as you can, as early as you can also lets you benefit from the effect of compounding, and has a far larger affect on the balance than money put into the account closer to retirement. So if you can afford to max it out, I surely would advise you to do so.","Bad idea. If you lose your job and need to pay medical expenses, you can withdraw penalty-free. If you lose your job and just withdraw, you will have lower income and lower tax, though you will pay a penalty. If you don't lose your job today, consider your 401(k) an additional protection, just in case you do lose it tomorrow. Just pick the least risky investment option and relax. Besides, it will diversify your investment and protect you from your own investment decisions. If you are so ready to take a 10% loss, you are likely not so skilled in this area, so it's good to have a backup plan. But of course, do contribute 3% so you get a match.","The stock market at large has about a 4.5% long-term real-real (inflation-fees-etc-adjusted) rate of return. Yes: even in light of the recent crashes. That means your money invested in stocks doubles every 16 years. So savings when you're 25 and right out of college are worth double what savings are worth when you're 41, and four times what they're worth when you're 57. You're probably going to be making more money when you're 41, but are you really going to be making two times as much? (In real terms?) And at 57, will you be making four times as much? And if you haven't been saving at all in your life, do you think you're going to be able to start, and make the sacrifices in your lifestyle that you may need? And will you save enough in 10 years to live for another 20-30 years after retirement? And what if the economy tanks (again) and your company goes under and you're out of a job when you turn 58? Having tons of money at retirement isn't the only worthy goal you can pursue with your money (ask anyone who saves money to send kids to college), but having some money at retirement is a rather important goal, and you're much more at risk of saving too little than you are of saving too much. In the US, most retirement planners suggest 10-15% as a good savings rate. Coincidentally, the standard US 401(k) plan provides a tax-deferred vehicle for you to put away up to 15% of your income for retirement. If you can save 15% from the age of 20-something onward, you probably will be at least as well-off when you retire as you are during the rest of your life. That means you can spend the rest on things which are meaningful to you. (Well, you should also keep around some cash in case of emergencies or sudden unemployment, and it's never a good idea to waste money, but your responsibilities to your future have at least been satisfied.) And in the UK you get tax relief on your pension contribution at your income tax rate and most employers will match your contributions.","From a long-term planning point of view, is the bump in salary worth not having a 401(k)? In this case, absolutely. At $30k/year, the 4% company match comes to about $1,200 per year. To get that you need to save $1,200 yourself, so your gross pay after retirement contributions is about $28,800. Now you have an offer making $48,000. If you take the new job, you can put $2,400 in retirement (to get to an equivalent retirement rate), and now your gross pay after retirement contributions is $45,600. Now if the raise in salary were not as high, or you were getting a match that let you exceed the individual contribution max, the math might be different, but in this case you can effectively save the company match yourself and still be way ahead. Note that there are MANY other factors that may also be applicable as to whether to take this job or not (do you like the work? The company? The coworkers? The location? Is there upward mobility? Are the benefits equivalent?) but not taking a 67% raise just because you're losing a 4% 401(k) match is not a wise decision.","I think it comes down to whether you are happy with the investment choices in the 401k. If you are, there is no reason not to invest there. Additionally, it doesn't have to be an either-or choice. You can invest up to the maximum in both accounts. BTW, congratulations on thinking about retirement at your age. I wish I had been in a position to do that.","\"You might consider working on getting your new employer to sponsor a 401k, there may be options where you can invest and they aren't required to add anything as a match (which gives you higher limits). If they don't match, they may just be liable for some administration fees. If you have any side business that you do, you might also be eligible for other \"\"self-employed\"\" options that have higher limits (SEP, Simple - I think they may go up to $15k) although, I'm not sure the nitty gritties of them.\"","\"A fascinating view on this. The math of a 10% deposit and projected 10% return lead to an inevitable point when the account is worth 10X your income (nice) and the deposit, 10% of income only represents 1% of the account balance. The use of an IRA is neither here nor there, as your proposed deposit is still just 1% of your retirement account total. Pay off debt? For one with this level of savings, it should be assumed you aren't carrying any high interest debt. It really depends on your age and retirement budget. Our \"\"number\"\" was 12X our final income, so at 10X, we were still saving. For you, if you project hitting your number soon enough, I'd still deposit to the match, but maybe no more. It might be time to just enjoy the extra money. For others, their goal may be much higher and those extra years deposits are still needed. I'd play with a spreadsheet and see the impact of reduced retirement account deposits. Note - the question asks about funding the 401(k) vs paying down debt. I'd always advise to deposit to the match, but beyond that, one should focus on their high interest debt, especially by their 50's.\"","A terrific resource is this article. To summarize the points given: PROS: CONS: There is no generic yes or no answer as to whether you ought to max out your 401(k)s. If you are a sophisticated investor, then saving the income for investing could be a better alternative. Long term capital gains are taxed at 15% in the US, so if you buy and hold on to good companies that reinvest their earnings, then the share price keeps going up and you'll save a lot of money that would go in taxes. If you're not a very good investor, however, then 401(k)s make a lot of sense. If you're going to end up setting up some asset allocation and buying ETFs and rebalancing or having a manager rebalance for you every year or so, then you might as well take the 401(k) option and lower your taxable income. Point #1 is simply wrong, because companies that reinvest earnings and growing for a long time are essentially creating tax-free gains for you, which is even better than tax-deferred gains. Nonetheless, most people have neither the time nor the interest to research companies and for them, the 401(k) makes more sense.","401(k) can come in traditional and Roth forms, as can IRAs. Roth IRA money is not locked away for 40 years, only the earnings are locked away, and earnings can also be withdrawn for special cases. You might not be able to invest in an IRA if your income is too high, and if you don't get a match for your 401(k), that might not be the best option either. The biggest advantage of the 401(k) is the match (if it exists) if there's no match, the second biggest advantage is the tax deferral. If you are in a low tax bracket, that isn't as big of an advantage either. I would say that there are plenty of reasons why you might not max out the 401(k) for savings, but it's pretty easy to max out the Roth IRA if that makes more sense, so there aren't a lot of reasons why not.","\"Will it be more money for me now if I don't take it out? Yes Will it be more money for for my retirement if I do? Yes The difference will be the existence of a match and tax-deferral. If there is a match then you will have an instant 100% gain on the amount that is matched. From a tax standpoint, putting some in your 401(k) now will reduce your taxes this year - you will instead pay tax when you withdraw the money at retirement (the withdrawal will be considered \"\"income\"\" at that time). Other decision points: If there is no match, but you still want to add to retirement savings, then you could alternatively put the money in an IRA, which will give you more control over your investments than a 401(k) (which could be good or bad, depending on how investment savvy you are).\"","Ben Miller's answer is very thorough, and I up voted it. I believe that the ability to rebalance without tax implications is very import, but there are two aspects of the question that were not covered: The 401K in many cases comes with a company match. Putting enough money into the fund each year to maximize the match, give you free money that is not available in the non-retirement accounts. The presence of that match is to encourage employees to contribute: even if they are tying up their funds until retirement age; and they are into a plan with only a handful of investment options; and they may have higher expenses in the 401K. The question also had a concern about the annual limits for the 401K (18,000) and the IRA (5,500). The use of a retirement account doesn't in any way limit your ability to invest in non-retirement accounts. You can choose to invest from 0 to 23,500 in the retirement accounts and from 0 to unlimited into the non-retirement accounts. Double those amounts if you are married.","\"I may be missing something here, but I don't think this is a disadvantage. The fact that the employer contribution will be taxed is the same as it would be if it were a match in a traditional account, so the amount you lose to taxes on it is a wash. The employer contribution is only smaller if you can't afford to contribute as much to the Roth because it's post-tax, and therefore your contribution is under the cap for the match. If you're contributing the maximum the employer will match or higher, then I don't think there's any disadvantage on the match portion. First, the 5% cap on employer contributions is calculated on the gross, even in a Roth account. Second, the taxing of the amount contributed to a Roth does not reduce the dollar amount that goes into the Roth account, it just reduces your net pay. So if your contribution is $100 to a Traditional account, your gross pay is reduced by $100 and your Traditional account gains $100. In the Roth, your gross pay is still taxed as though that $100 were included, but the $100 is put into the Roth. The tax portion of that \"\"after tax\"\" money does not reduce the amount of the contribution.\"","Since there is no match on the 401k, it seems to me that your first priority should be your IRA (Roth or otherwise). I don't know what your salary is, but most 22 year-olds won't be maxing out both an IRA and 401k on only 10% of their incomes, so the rest of the list may be irrelevant.","One situation where it would be prudent not to contribute would be if expenses are so tight that you cannot afford to contribute because you need that cashflow for expenses.","Congrats on saving aggressively when you're young. I'm not a huge fan of tax-advantaged accounts because the rules can change on them, and there's already a penalty for you to take out that money for most purposes until you've almost tripled your age. Free money (a match) overcomes this reservation for me, but I'm not contributing anything beyond that. I'm paying my taxes on the rest and am done with them. Watching your money grow tax-free for another 37 1/2 years only to see your (and everyone else's) marginal tax rate rise isn't much fun. I'm not saying that will happen, but it certainly could.","A 50% company match on your 401(k) is a huge amount of free money. You'd have to absolutely crush the professional money managers to justify turning it down. If you can do that, you should quit your job and do it full-time.","My employer matches 6% of my salary, dollar for dollar. So you have a great benefit. The self-directed side has no fees but $10 trades. No option trading. Yours basically allows you to invest your own funds, but not the match. It's a restriction, agreed, but a good plan.","There is Free employer money on both sides of the tax fence for some employees. On the pretax side, your employer may provide you a match. If so, invest the maximum to get 100% of the match. On the after tax side, many companies offers a 15% discount on ESPP plans and a one year hold. My wife has such an employer. The one year hold is fine because it allows us to be taxed at Long Term Capital gains if the stock goes up which is lower than our current income bracket. After creating a seasoned pool of stocks that we could sell after the one year hold, we are then able to sell the same number of stocks purchased each month. This provides a 17.6% guaranteed gain on a monthly basis. How much would you purchase if you had a guaranteed 17.6% return. Our answer is 15% (our maximum allowed). The other trick is that while the employer is collecting the money, you will purchase the stock at the lowest day of the period. You will usually sell for even more than the purchase price unless the day purchased was the lowest day of month. The trick is to reinvest the money in tax free investments to balance out the pretax investing. Never leave the money in the plan. That is too much risk.","\"First of all, you need to stop using the card completely. Yes, that means you lose out on cash back, double miles, whatever, but that's how you got to this mess in the first place. Switch to a cash budget until you can consistently spend less than you bring home. Keep better track of your expenses, build an emergency fund, and learn to save for expenses rather than borrow for them until you have your spending under control. If you can't cut your expenses any more, consider ways to increase your income (more hours at work, part-time jobs, sell stuff, etc.) Assuming that the employer match is 1-to-1 up to 4%, and you're saving an additional 7 percent to get to 15% total, I would definitely lower your contribution down to 4%, get the card paid off, and ONLY bump your contribution back up once you can safely pay off the card each month and know how much you can contribute. It is not wise to put 15% in retirement if that causes you to spend more than your net take-home pay. Your \"\"13%\"\" in your Roth is not guaranteed by any means, but the interest you pay on your credit card is. I would even be tempted to cut your retirement completely until the debt is paid, but more for motivational reasons that mathematical: I would be more concerned about living within your income at this point than getting a company match. I believe the benefits of spending wisely will outweigh a temporary loss in matched retirement funds in the long run.\"","\"The only time to stop saving money for retirement is when you have enough money to retire tomorrow. Not all of your \"\"retirement savings\"\" need to be in a 401k, it is just better if you can. Be sure to get as much as you can from the employer matching program. Unfortunately some employer matching programs discourage you from putting in too much. I've been able to max out the 401k contribution a number of times, which helps. Remember: you are likely to live to 100, so you better save enough to live that long. I don't trust social security to be there. I recommend saving so that you end up with \"\"enough to be comfortable\"\" -- this is usually about 25x your current income - PLUS inflation between now and when you plan to retire (age 62 is a good target). It is worth knowing your \"\"retirement savings number\"\". If you are making $100K per year now, you need to target $2.5M - PLUS allowance for inflation between now and when you plan to retire. This usually means you need to also arrange to make more money as well as save as much as you can and to use passive investing. Finance advisors are not worth it if you have less than $1M to invest.\"","The 401(k) has the advantage that you don't pay any tax until you take it out. That lets the gains multiple. Two examples: If any of your stocks pay dividends, these are directly taxable if you don't have a 401(k). In the 401(k), the full dividends accumulate and are reinvested. If you sell any stocks and get capital gains, they are also directly taxable in a normal account. Having said that, if you don't get any match, I would consider doing a 50/50; put half of your money in the 401(k), in something simple like an index fund, and invest the rest. That's assuming you have an index fund available in your 401(k).","Its easier than that: employer matching contributions are always pre-tax. While your contribution is split between the pre-tax and the Roth post-tax parts, matching contributions are always pre-tax. Quote from the regulations I linked to: For example, matching contributions are not permitted to be allocated to a designated Roth account. So the tax you pay is only on the Roth portion of your contribution. One of the reasons for that is the complexity you're talking about, but not only. Matching is not always vested, and it would be hard to determine what portion to tax and at what rate if matching would be allowed to go to Roth.","Yes, I have done this and did not feel a change in cash flow - but I didn't do it a the age of 23. I did it at a time when it was comfortable to do so. I should have done it sooner and I strongly encourage you to do so. Another consideration: Is your companies program a good one? if it is not among the best at providing good funds with low fees then you should consider only putting 6% into your employer account to get the match. Above that dollar amount start your own ROTH IRA at the brokerage of your choice and invest the rest there. The fee difference can be considerable amounting to theoretically much higher returns over a long time period. If you choose to do the max , You would not want to max out before the end of the year. Calculate your deferral very carefully to make sure you at least put in 6% deferral on every paycheck to the end of the year. Otherwise you may miss out on your company match. It is wise to consider a ROTH but it is extremely tough to know if it will be good for you or not. It all depends on what kind of taxes (payroll, VAT, etc) you pay now and what you will pay in the future. On the other hand the potential for tax-free capital accumulation is very nice so it seems you should trend toward Roth.","You can only contribute up to 5% of your salary? Odd. Usually 401(k) contributions are limited to some dollar amount in the vicinity of $15,000 or so a year. Normal retirement guidelines suggest that putting away 10-15% of your salary is enough that you probably won't need to worry much when you retire. 5% isn't likely to be enough, employer match or no. I'd try to contribute 10-15% of my salary. I think you're reading the rules wrong. I'm almost certain. It's definitely worth checking. If you're not, you should seriously consider supplementing this saving with a Roth IRA or just an after-tax account. So. If you're with Fidelity and don't know what to do, look for a target date fund with a date near your retirement (e.g. Target Retirement 2040) and put 100% in there until you have a better idea of what going on. All Fidelity funds have pretty miserable expense ratios, even their token S&P500 index fund from another provider, so you might as let them do some leg work and pick your asset allocation for you. Alternatively, look for the Fidelity retirement planner tools on their website to suggest an asset allocation. As a (very rough) rule of thumb, as you're saving for retirement you'll want to have N% of your portfolio in bonds and the rest in stocks, where N is your age in years. Your stocks should probably be split about 70% US and 30% rest-of-world, give or take, and your US stocks should be split about 64% large-cap, 28% mid-cap and 8% small-cap (that's basically how the US stock market is split).","It sounds like they are matching your IRA contribution dollar for dollar up to 1% of your salary. Think of that as an instant 100% yield on your investment. (Your money instantly doubles.) My 401(k) has been doing pretty well over the last year, but it will take several years before my money doubles. So you can let it sit in cash for a year, then take some pretty hefty fees and you will probably still come out ahead. (Of course it's hard to say without knowing all of the fees.)","One factor to consider is that some employers have a 401k contribution match policy that only allows a certain percentage of any given paycheck to be matched. So if the company is willing to match 4% of each paycheck, you could run into a problem here where you lose out on some of your company match. For example, suppose you get a $20,000 bonus. You can contribute $18,000 per year to your 401k and this bonus could be a nice way to knock most of that out and then take home your full paycheck the rest of the year. Sounds pretty nice, but there's a problem. The company will only match 4% of your $20,000 ($800) when they otherwise would have matched up to 4% of your annual salary ($4,000 if you're making $100,000 in this example). I'd say it's definitely worth it to make a big contribution to your 401k when you get a bonus as it's an easy way to get a lot of money in there without really feeling a loss (since it's extra money on top of your normal paycheck). But I'd definitely be careful about this situation. You don't want to throw away free money. To avoid this problem, make sure that you leave enough of your annual limit so you can contribute enough to get your 4% company match on every paycheck of the year."],"string":"[\n \"In addition to the prior answer, talking from experience, you get into trouble if you surpass the contribution limit and your employer continues to deposit money above the IRS maximum allowed. When that happens, you have until April to take out the excess contribution and earned interest on that chunk of money and included in your tax return or else you get a steep tax penalty in addition to being double taxed ( for the current and next tax year). Also from experience, payroll departments will most likely get this wrong and it will end up in a compliance mess with you picking up the tab on your tax bill. Don't let it happen!!!\",\n \"I would definitely be putting in enough to get the most out of the match. Only reasons I can think of not too would be: Other than that, not investing in the 401(k) is turning down free money. Edit based on feedback in comments. The only time I would advocate number 1 is if you are intensely committed to getting out of debt, were on a very tight budget and had eliminated all non-essential spending. In that situation only, I think the mental benefit of having that last debt paid off would be worth more than a few dollars in interest.\",\n \"401k contributions are exempt from employee and employer FICA withholding. The employer withholding is approximately 7% of the gross. The closer the employer match ratio is to 7%, the closer it is to paying for itself. Example: Assuming an employee is match-maximizing and in very round numbers grosses 100,000 per year. A 50% match schedule is about $350 cheaper per employee than a 100% match schedule: Default non participant: The employee will see about 7000 deducted for FICA, and the employer will pay 7000 to FICA if they don't participate. First case: the match is 100%, 1-for-1 to a 5% cap, the employee will deduct 5000, and have 6650 withheld for FICA. The employer will pay 6650 to FICA. The total employer cost of withholding and match is 11,650. Second case: If the match is 50%, 1-for-2 to a 5% cap, the employee will deduct 10000, and have 6300 withheld for FICA. The employer will pay 6300 to FICA. The total employer cost of withholding and match is 11,300.\",\n \"If one makes say, $10K/mo, and the company will match the first 5% dollar for dollar, a 10%/mo deposit of $1K/mo will see a $500/mo match. If the employee manages to request 90% get put into the 401(k), after 2 months, he's done. If the company wished, they could continue the $500/mo match, I agree. They typically don't and in fact, the 'true up' you mention isn't even required, one is fortunate to get it. Many companies that match are going the other way, matching only after the year is over. Why? Why does any company do anything? To save money. I used to make an attempt to divide my deposit over the year to max out the 401(k) in December and get the match real time, not a true up.\",\n \"\\\"Many employees don't contribute enough to maximize the match, so the cost to the employer is not the same. Under the 50% of 6% strategy an employee contributing 5% would get a 2.5% match not a 3% and that saves the company 0.5%. @TTT provided an excellent link in the comments below to a study titled \\\"\\\"How much employer 401(k) matching contributions do employees leave on the table?\\\"\\\" performed by Financial Engines, an independent financial advisory service. The information meaningful to this answer is on Page 5 (Page 7 of the PDF): 4,378,445 eligible employees were included in the study 1,077,775 of the eligible employees did not contribute enough for the full match; of them, 285,386 Received zero match funds 792,389 Received some match funds, but not the full match available So 792,389 or 18% of the employees studied contributed in to employer 401(k) plans but not enough to maximize their available match.\\\"\",\n \"If your employer does not offer contribution matching, and you don't like the range of investment options provided by the company 401k, then you probably are better off investing in your own IRA instead. In an IRA held at a bank or brokerage, you can invest in multiple stocks or funds and move money around within the IRA pretty freely in most cases. If your company is doing well and is actually sharing profit into the 401k, you might consider leaving your 5% contribution to the 401k where it is and put the other 5% you are planning to contribute into a new IRA of your own. This straddles the risk of you losing money if your company 401k tanks (or profit sharing dries up) and your missing out on profit sharing if it continues to pay well.\",\n \"I'd take the match, but I wouldn't contribute beyond your match, for two reasons:\",\n \"If they're not matching, and their profit-sharing has nothing to do with how much you invest, then I'd say don't bother with the company 401k at all. If you need to at least have an account open to get the profit sharing, then contribute the bare minimum. Having your retirement account through your company forces you to follow their standards, choose from their funds, use their broker, etc. It also means that when you leave the company, you either have to move your money anyway, or else have an account through a company you don't work for, which I wouldn't feel all that comfortable doing anyway. If you open a retirement account through your bank or a private financial planner, then it's yours, and you can contribute what you want, when you want, and buy the securities that you want. Your account executive is there to service you, not your company.\",\n \"If your employer matches a percentage of your contributions, then you should try to max out your plan. Once you have completed maxing out your 401k, you may want to open up an IRA for several reasons: will your 401k be enough to sustain your lifestyle in retirement? Your IRA allows you to save even more for retirement. you can invest in all sorts of stuff through your IRA that might not be available in your plan. you can withdraw the principal from your IRA, usually after five years. This serves as another form of savings. IRAs have some asset protection in the event of bankruptcy. A normal savings or investment account usually does not offer such protection.\",\n \"Another factor to consider is that it encourages employees to contribute more into to the plan so that they'll be able to comfortably retire. Getting the full match encourages people to put at least 6% in to avoid leaving money on the table; 100% of the 1st 3% would see a lot of people only putting 3% in instead. While 9% of your income is still a rather marginal amount to be saving; it will leave you in a much better place in your 60's than if you had only put in 6%/year.\",\n \"A matching pension scheme is like free money. No wait, it actually IS free money. You are literally earning 100% interest rate on that money the instant you pay it in to the account. That money would have to sit in your credit card account for at least five years to earn that kind of return; five years in which the pension money would have earned an additional return over and above the 100%. Mathematically there is no contest that contributing to a matching pension scheme is one of the best investment there is. You should always do it. Well, almost always. When should you not do it?\",\n \"The matching funds are free money, so it is a very good idea to take that money off the table. Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k). (Obviously, I'm keeping things simple. Vesting schedules mean that the employer match isn't yours to keep immediately, but rather after some time; usually in chunks.) Beyond the employer match, you need to consider what is available for investment in a 401(k). Typically, your options are more limited then in an IRA. The cost of the 401(k) should be considered, as it isn't trivial for most. (The specifics will of course vary, but in large IRA accounts are cheaper.) So, it's about the opportunity costs. Up to the employer match, it doesn't matter as much that your investment choices are more limited in a 401(k), because you're getting 100% return just on the matching funds. Once that is exhausted, you have more opportunity for returns, due to having more options available to you, by going with an account that provides more choices. The overall principle here is that you have to look at the whole picture. This is similar to the notion that you should pay-down your high interest debt before investing, because from the perspective of investing the interest you're paying represent a loss, or negative return on investment, since money is going out of your accounts. Specific to your question, you have to consider the various types of investment vehicles available to you. It is not just about 401(k) and IRA accounts. You may also consider a straight brokerage account, a savings account, CDs, etc. The costs and returns that you can typically expect are your guides through the available choices.\",\n \"Adding to the excellent answers already given, we typically advise members to contribute as much as needed to get a full employer match in their 401K, but not more. We then redirect any additional savings to a traditional IRA or ROTH IRA (depending on their age, income, and future plans). Only once they've exhausted the $5000 maximum in their IRA will we look at putting more money into the 401K. The ROTH IRA is a beautiful and powerful vehicle for savings. The only reason to consider taking money out of the ROTH is in a case of serious catastrophe.\",\n \"If you can afford to put money in your 401(k) account, I would say at least you should invest enough to get your employer's matching fund. It's free money, why not get it?\",\n \"\\\"Agree with Randy, if debt and debt reduction was all about math, nobody would be in debt. It is an emotional game. If you've taken care of the reasons you're in debt, changed your behaviors, then start focusing on the math of getting it done faster. Otherwise, if you don't have a handle on the behaviors that got you there, you're just going to get more rope to hang yourself with. I.e., makes sense to take a low-interest home equity loan to pay off high-interest credit card debt, but more likely than not, you'll just re-rack up the debt on the cards because you never fixed the behavior that put you into debt. Same thing here, if you opt not to contribute to \\\"\\\"pay off the cards\\\"\\\" without fixing the debt-accumulating behaviors, what you're going to do is stay in debt AND not provide for retirement. Take the match until you're certain you have your debt accumulation habits in check.\\\"\",\n \"\\\"I agree with the other answers that it is a benefit, but wanted to add another explanation for this: Also, why a company would prefer matching someone's contributions (and given him or her additional free money) instead of just offering a simple raise? In addition to a match being a benefit that is part of your total compensation, 401ks have special rules for Highly Compensated Employees. If the lower paid employees do not contribute, the \\\"\\\"Highly Compensated Employees\\\"\\\" do not get to take full advantage of the 401k. By offering a match, more lower paid employees will take advantage of a 401k program allowing more Highly Compensated Employees to also take advantage of the program.\\\"\",\n \"\\\"IRA is not always an option. There are income limits for IRA, that leave many employees (those with the higher salaries, but not exactly the \\\"\\\"riches\\\"\\\") out of it. Same for Roth IRA, though the MAGI limits are much higher. Also, the contribution limits on IRA are more than three times less than those on 401K (5K vs 16.5K). Per IRS Publication 590 (page 12) the income limit (AGI) goes away if the employer doesn't provide a 401(k) or similar plan (not if you don't participate, but if the employer doesn't provide). But deduction limits don't change, it's up to $5K (or 100% of the compensation, the lesser) even if you're not covered by the employers' pension plan. Employers are allowed to match the employees' 401K contributions, and this comes on top of the limits (i.e.: with the employers' matching, the employees can save more for their retirement and still have the tax benefits). That's the law. The companies offer the option of 401K because it allows employee retention (I would not work for a company without 401K), and it is part of the overall benefit package - it's an expense for the employer (including the matching). Why would the employer offer matching instead of a raise? Not all employers do. My current employer, for example, pays above average salaries, but doesn't offer 401K match. Some companies have very tight control over the 401K accounts, and until not so long ago were allowed to force employees to invest their retirement savings in the company (see the Enron affair). It is no longer an option, but by now 401K is a standard in some industries, and employers cannot allow themselves not to offer it (see my position above).\\\"\",\n \"An experienced individual wouldn't ask such questions. I don't say this to take a jab at you, but to provide context. The matter is much more complicated than a simple answer to your question could accomplish. The short answer is no, not necessarily; but it depends on the details. Generally, if the employer matches, it's suggested that you take advantage of the match. It's free money. That said, it comes with some strings attached, like a vesting schedule. It's not yours right away, necessarily. Choices are limited in a 401k, but we should still come out ahead with that free money. The investment choices available in a 401k are also a part of the details. If they meet your needs you should certainly consider the 401k even if the employer doesn't match. There is also the matter of one's particular tax situation, which is certainly an involved matter. A 401k can certainly be a part of judicious tax planning. It's a matter of working out the details. Continuing this theme of details and coming back to the employer match: if the employer doesn't mach, I would make sure that I'm maxing out an IRA before considering the 401k. If the employer matched, I would probably contribute to take advantage of that match. However, it quickly becomes complicated here. I'm accustomed to employer matching up to some percentage of pay, which typically works out to be less then the anual contribution limits for a 401k. So, I my plan for such a situation is to contribute up to the employer match in the 401k, then max out an IRA, and then return to the 401k to finish contributing up to its yearly maximum. There is plenty for you to consider in order to come up with a plan of action. While it's certainly complicated, it's accessible to most people. You don't have to be a genius. In fact, eggheads are regularly trounced by the markets.\",\n \"If your employer offers a 401(k) match, definitely take advantage of it. It's free money, so take advantage of it!\",\n \"Employer match doesn't incur FICA tax (social security, medicare) for you at all - either current year or when you withdraw. All you have to pay is income tax when you withdraw after retirement age. (Disclaimer - I'm not tax professional but has done my research)\",\n \"\\\"The error in the example is here: \\\"\\\"Now, if you contribute 5% to a Roth 401(k), your employer would match your after-tax 5% contribution. If the tax rate is 25%, that would be 5% of $60,000, which is $3,000. However, that $3,000 is put in to a traditional 401(k), so it is taxed when withdrawn. Assuming the tax rate is still 25% when you withdraw, you are only getting $2,250. Essentially you are giving up $750 of free money in this case.\\\"\\\" You set your contribution to Roth 401k as a function of the gross, 80,000. You choose 5% and contribute 4000 Your employer matches 4000. At the end of the year, your taxable income to the IRS is 80000, and you pay 30% or 24000. You have 80K-4K-24K to live on, or 52K If you chose the alternate regular 401k,then you contribute 4K, your income to the IRS is (80-4=) 76k, and you pay 30%, 22.8K in tax. You have 80-4-22.8 or 53.2K to live on. Or, to come at it the other way, you have 4000*30% =1200 extra tax reduction in your income this year. If the extra income in 401k versus extra current year tax in Roth IRA means you have to reduce less, like 2800K to the roth so you maintain a 53.2K lifestyle, then yes, the Roth IRA match is reduced. If you have the cash flow to prepay the current year tax and maximum-match contribution, you will get the full match based on your gross income.\\\"\",\n \"I think better advice would be always max out your 401K at least to the level that the company provides a match. For example, my company will match 50% up to 10% of your salary. Good luck finding another investment with a guaranteed immediate 50% return. Beyond the company match, it is probably good advice to put as much in the 401K as you can afford if you aren't disciplined enough to invest that money on your own. Otherwise it depends on a number of factors as to whether it is better to invest on your own or in the company plan.\",\n \"Your employer's matching contribution is calculated based on the dollar amounts you end up putting in. The nature of your 401(k) contribution—whether pre-tax or Roth after-tax—doesn't matter with respect to how their match gets calculated, and their match always goes into a pre-tax account, even if you are contributing after-tax. The onus is on you to choose a contribution amount that maximizes your employer match regardless of the nature of your contribution. Maximizing your employer match using Roth after-tax contributions will eat up more of your annual gross salary, but as long as you are willing to do that then you won't leave free employer match money on the table. Roth after-tax contributions don't get the tax deduction inherent in a pre-tax contribution. The tradeoff is that you end up with less take-home pay per period if you contribute the same number of dollars on a Roth after-tax basis to your 401(k) as opposed to on a pre-tax basis. For instance, to make a maximum $18,000 Roth after-tax contribution to a 401(k), it's going to cost you a lot more than $18,000 of your annual gross salary to net the same $18,000 number. (On the flip side, the Roth money is worth more in retirement than pre-tax money, because it won't be subject to taxes then.) However, 401(k) plan contribution amounts are almost always expressed as a percentage of gross salary, i.e. in pre-tax terms, even when electing to make after-tax contributions! So when electing after-tax, one is implicitly accepting that the contribution will cost more than the percentage of gross salary, because you'll need to pay the tax on a gross amount that would yield the same number of dollars but as an after-tax amount.\",\n \"One should fund a 401(k) or matched retirement account up to the match, even if you have other debt. Long term, you will come out ahead, but you must be disciplined in making the payments. If one wants to point out the risk in a 401(k), I'd suggest the money need not be invested in stocks, there's always a short term safe option.\",\n \"\\\"If you aren't already contributing the maximum allowable amount, by all means do so. If you are already contributing the maximum, it doesn't matter that much when you make those contributions. Making fixed monthly contributions is done mostly for budgeting reasons. Most of us can't predict fund performance well enough to optimize our contributions (by which I mean, contributing more early if you think the market is going up, but waiting if you think it will go down, following the \\\"\\\"buy low\\\"\\\" strategy). As for employer matching, check with your company to see how they compute matches. They may match contributions for the year, even if those matching funds are only paid up to a maximum per paycheck. (For example, if you contribute 200% of the match for the first 6 months, then contribute nothing for the remaining 6 months, you may still receive the same matching funds per pay period as if you were contributing 100% throughout the year.)\\\"\",\n \"This creates incentive for the employee to contribute more and increases the funds under management of the 401(k) plan. The size of the plan influences the fees that are charged in each of the funds offered. (The more assets under management, the better for those in the plan.) More importantly, 401(k) plans are not allowed to discriminate in favor of highly compensated employees. That discrimination is determined by calculating the average deferrals by your lower compensated employees and comparing them to the average deferrals of your highly compensated employees. If highly compensated employees are saving too much compared to the rest of the pack, they will have some of their contributions returned the next year (with all the tax implications of that). Forcing everyone to contribute 6% to get the full match helps the plan to not fail the discrimination test and protects the highly compensated employees from losing some of their tax deferrals.\",\n \"Specifically on the subject of maxing out your 401k, there are several downsides: The employer match usually only applies to the first 6%. Some employers offer no match at all. You listed the match as a pro, but I think it should be pointed out that you can usually get this benefit without maxing out your plan. The investment options are limited. Usually there is at least one fund available from all the common investment classes, but these may not be your preferred funds if you were able to choose for yourself. Fees can be very high. If you are working for a small to medium size company, the fees for each fund will often be higher than for the same funds in a plan offered by a large company. Fees are usually related to the dollar amount of assets under management. Each person has a different tax situation, so if you are single and making 6 figures, you might still be in the 25% bracket even after maxing out your 401k, but the same person filing jointly with a spouse that makes less could get down to the 15% bracket with a smaller contribution. I meet my retirement savings goals without maxing out the 401k. As long as the amount is above the employer match amount, my second priority is to funnel as much money as possible in to my IRA (because I get lower fees and better investment options from Vanguard).\",\n \"Let me add another consideration to the company's side of the equation. Not only is a 401K a tool for the company to make them competitive when recruiting employees among other companies that offer that benefit, it is also a good retention tool. Most company's 401K plans include a vesting period of at least 3 years, sometimes more. An employee that leaves the company before they are vested in the plan will have to give up some % of the employer matched funds in the account. This gives employees incentive to stick around longer and the company reduces the risk of turnover which can be costly in terms of training and recruiting. This also factors into the reason why employers would rather give matching on the 401K than a simple pay raise. Some of those employees are going to leave during the vesting period anyway, and when that happens the employer got the benefit of motivating (extrinsically) the employee, but in the end got to keep some of the money.\",\n \"The managers of the 401(k) have to make their money somewhere. Either they'll make it from the employer, or from the employees via the expense ratio. If it's the employer setting up the plan, I can bet whose interest he'll be looking after. Regarding your last comment, I'd recommend looking outside your 401(k) for investing. If you get free money from your employer for contributing to your 401(k), that's a plus, but I wouldn't -- actually, I don't -- contribute anything beyond the match. I pay my taxes and I'm done with it.\",\n \"\\\"typically, your employer will automatically stop making contributions once you hit the 18k$ limit. it is worth noting that employer contributions (e.g. \\\"\\\"matching\\\"\\\") do not count towards the 18k$ employee pre-tax contribution limit. however, if you have 2 employers during the year their combined payroll deductions might exceed the limit if you do not inform your later employer of the contributions you made at your former employer (or they ignore the info). in which case, you must request a refund of \\\"\\\"excess contributions\\\"\\\" from one of the plans (your choice). you must report the refund as taxable income on your taxes. if you do not make this request by the time you file your taxes, the tax man will reject your filing and \\\"\\\"adjust\\\"\\\" your return with more taxes and penalties. sometimes requesting a refund of excess contributions might cause your employer to remove \\\"\\\"matching\\\"\\\" funds, but i am not clear on the rules behind that. there are some 401k plans that allow \\\"\\\"supplemental after-tax contributions\\\"\\\" up to the combined employee/employer limit (53k$ in 2015 and 2016). it is a rare feature, and if your company offers it, you probably already know. however, generally it is governed by a separate contribution election that only take effect once you hit the employee pre-tax contribution limit (18k$ in 2015 and 2016). you could ask your hr department to be sure. 401k plans can be changed if there is enough employee demand for a rule change. especially in a small company, simply asking for them to allow dollar based contributions instead of percent based contributions can cause them to change the plan to allow it. similarly, you could request they allow \\\"\\\"supplemental after-tax contributions\\\"\\\", but that might be a harder change to get.\\\"\",\n \"Yes. Not doing so would be like turning down a raise. The best advice in almost every situation is to at least contribute up to the amount that the company will match so you get the full benefit. One thing to clarify that you might not be understanding. The vesting period is only for the money the company matches, not your own investment. Even if you leave the company before the account is vested or fully vested, you can transfer to a 401k at your new employer, or roll over into an IRA, or take as taxable income (and pay a penalty if it is an early withdrawal), all your contributions together with any investment gains or losses that have occurred. Ditto whatever part of your employer match that has vested by the time you leave. Often, the employer matching contributions are invested in the same funds in the same proportions that you have chosen for your own contributions and thus will have incurred the same gains or losses as your own contributions, but what you are entitled to take with you is the part that has vested. Also, you mention that it is unlikely that you will stay the entire 5 years. However, if you plan to at least stay a couple of years it makes sense to get the 20%, 40%, etc. of the match that you vest during your stay. Again, it's free money.\",\n \"The other answers assumed student loan debt -- and for that, it's rarely worth it (unless your company only offers managed plans w/ really bad returns, or the economy recovers to the point where banks are paying 5% again on money market accounts) ... but if it's high rate debt, such as carrying a credit card debt, and the current rate of returns on the 401k aren't that great at the time, it would be worth doing the calculations to see if it's better to pay them down instead. If you're carrying extremely high interest debt (such as 'payday loans' or similar), it's almost always going to be worth paying down that debt as quickly as possible, even if it means forgoing matching 401k payments. The other possible reason for not taking the matching funds are if the required contributions would put you in a significant bind -- if you're barely scraping by, and you can't squeeze enough savings out of your budget that you'd risk default on a loan (eg, car or house) or might take penalties for late fees on your utilities, it might be preferable to save up for a bit before starting the contributions -- especially if you've maxed your available credit so you can't just push stuff to credit cards as a last resort.\",\n \"\\\"The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary. As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at \\\"\\\"total compensation\\\"\\\". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match. Note - Keith thanks for catching and fixing one typo, I just caught another.\\\"\",\n \"\\\"The only way to know the specific explanation in your situation is to ask your employer. Different companies do it differently, and they will have their reasons for that difference. I've asked \\\"\\\"But why is it that way?\\\"\\\" enough times to feel confident in telling you it's rarely an arbitrary decision. In the case of your employer's policy, I can think of a number of reasons why they would limit match earnings per paycheck: Vesting, in a sense - Much as stock options have vesting requirements where you have to work for a certain amount of time to receive the options, this policy works as a sort of vesting mechanism for your employer matching funds. Without it, you could rapidly accumulate your full annual match amount in a few pay periods at the beginning of the year, and then immediately leave for employment elsewhere. You gain 100% of the annual match for only 1-2 months of work, while the employees who remain there all year work 12 months to gain the same 100%. Dollar Cost Averaging - By purchasing the same investment vehicle at different prices over time, you can reduce the impact of volatility on your earnings. For the same reason that 401k plans usually restrict you to a limited selection of mutual funds - namely, the implicit assumption is that you probably have little to no clue about investing - they also do other strategic things to encourage employees to invest (at least somewhat) wisely. By spacing their matching fund out over time, they encourage you to space your contributions over time, and they thereby indirectly force you to practice a sensible strategy of dollar cost averaging. Dollar Cost Averaging, seen from another angle - Mutual funds are the 18-wheeler trucks of the investment super-highway. They carry a lot of cargo, but they are difficult to start, stop, or steer quickly. For the same reasons that DCA is smart for you, it's also smart for a fund. The money is easier to manage and invest according to the goals of the fund if the investments trickle in over time and there are no sudden radical changes. Imagine if every employer that does matching allowed the full maximum match to be earned on the first paycheck of the year - the mutual funds in 401ks would get big balloons of money in January followed by a drastically lower investment for the rest of the year. And that would create volatility. Plan Administration Fees - Your employer has to pay the company managing the 401k for their services. It is likely that their agreement with the management company requires them to pay on a monthly basis, so it potentially makes things convenient for the accounting people on both ends if there's a steady monthly flow of money in and out. (Whether this point is at all relevant is very much dependent on how your company's agreement is structured, and how well the folks handling payroll and accounting understand it.) The Bottom Line - Your employer (let us hope) makes profits. And they pay expenses. And companies, for a variety of financial reasons, prefer to spread their profits and expenses as evenly over the year as they can. There are a lot of ways they achieve this - for example, a seasonal business might offer an annual payment plan to spread their seasonal revenue over the year. Likewise, the matching funds they are paying to you the employees are coming out of their bottom line. And the company would rather not have the majority of those funds being disbursed in a single quarter. They want a nice, even distribution. So once again it behooves them to create a 401k system that supports that objective. To Sum Up Ultimately, those 401k matching funds are a carrot. And that carrot manipulates you the employee into behaving in a way that is good for your employer, good for your investment management company, and good for your own investment success. Unless you are one of the rare birds who can outperform a dollar-cost-averaged investment in a low-cost index fund, there's very little to chafe at about this arrangement. If you are that rare bird, then your investment earning power likely outstrips the value of your annual matching monies significantly, in which case it isn't even worth thinking about.\\\"\",\n \"Even ignoring the match (which makes it like a non-deductible IRA), the 401k plans that I know all have a range of choices of investment. Can you find one that is part of the portfolio that you want? For example, do you want to own some S&P500 index fund? That must be an option. If so, do the 401k and make your other investments react to it-reduce the proportion of S&P500 because of it(remember that the values in the 401k are pretax, so only count 60%-70% in asset allocation). The tax deferral is huge over time. For starters, you get to invest the 30-40% you would have paid as taxes now. Yes, you will pay that in taxes on withdrawal, but any return you generate is (60%-70%) yours to keep. The same happens for your returns.\",\n \"\\\"Because 401k's are also used by self employed. A person who has a schedule C profitable income can open a 401k and \\\"\\\"match\\\"\\\" in whatever ratio he wants, up to 25% of the net profits or the limits you stated. This allows self-employed to defer more income taxes to the future. Why only self-employed? Good question. Ask your congressman. My explanation would be that since they're self-employed they're in much more danger of not having income, especially later in life, if their business go south. Thus they need a bigger cushion than an average W2 employee who can just find another job.\\\"\",\n \"With a match, the 401(k) becomes the priority, up to that match, often ahead of other high interest debt. Without the match, the analysis is more about the cost within the 401(k). The 401(k) is a tax deferred account (let's not go on a tangent to Roth 401(k)) so ideally, you'd be skimming off money at 25% and saving it till you retire, so some of it is taxed at 0, 10, 15%. If the fees in the 401(k) are say 1.5% between the underlying funds and management fee, it doesn't take long to wipe out the potential 10 or 15% you are trying to gain. Yes, there's a risk that cap gain rates go away, but with today's tax law, the long term rate is 15%. So that money put into a long term low cost ETF will have reinvested dividends taxed at 15% and upon sale, a 15% rate on the gains. There are great index ETFs with sub - .1% annual cost. My simple answer is - If the total cost in that 401(k) is .5% or higher, I'd pass. Save the money in an outside account, using IRAs as best you can. (The exact situation needs to be looked at very carefully. In personal finance, there's a lot of 'grey'. For example, a frequent job changer can view the 401(k) as a way of saving pretax, knowing the fee will only last 2 years, and will end with a transfer to the IRA)\",\n \"\\\"You'd need to test the assumptions here - in effect you're saying that in 15 years your account will have a balance 10x your income. But normally you'd expect your income to grow over the years (e.g. promotions) and so you'd hope that your income in 15 years would be significantly larger than what it is now. But, even in the case where your account eventually does grow to 10x your salary at that time, it may still be worth continuing to contribute. In effect, adding a further 1% to your account is boosting the \\\"\\\"compounding return\\\"\\\" on your account by 1% - after fees and risk free. This additional 1% \\\"\\\"return\\\"\\\" in effect makes your retirement plan safer - you either get a higher total return for the same investment mix, or you can get the same total return for a slightly safer investment mix. In effect, you're treating your salary as a \\\"\\\"safe\\\"\\\" annuity and each year putting 10% of the \\\"\\\"return\\\"\\\" from that into your more risky retirement account.\\\"\",\n \"\\\"As Mhoran answered, typical match, but some have no match at all, so not bad. The loan provision means you can borrow up to $50k or 50% of your balance, whichever is less. 5 year payback for any loan, but a 10 year payback for a home purchase. I am on the side of \\\"\\\"don't do it\\\"\\\" but finance is personal, and in some situations it does make sense. The elephant in this room is the expenses within the 401(k). Simply put, a high enough expense will wipe out any benefit from tax deferral. If you are in this situation, I recommend depositing to the match, but not a cent more. Last, do they offer a Roth 401(k) option? There's a high probability you will never be in as low a tax bracket as the next few years, now's the time to focus on the Roth deposits, if not in the 401(k), then in an IRA.\\\"\",\n \"\\\"Your contribution limit to a 401(k) is $18,000. Your employer is allowed to contribute to your 401(k), usually a \\\"\\\"matching contribution\\\"\\\". That matching contribution comes from your employer, so is not subject to your personal contribution limit. A contribution to a regular 401(k) is typically made with pre-tax money (i.e. you don't pay payroll taxes on the money you contribute) so you pay less taxes for the current tax year. However when you retire and you take money out, you pay taxes on the money you take out. On one hand, your tax rate may be lower when you have retired, but on the other hand, if your investments have appreciated over time, the total amount of tax you pay would be higher. If your company offers a Roth 401(k) plan, you can contribute $18,000 of after tax money. This way you pay the tax on the $18,000 today, as you would if you did not put the money in the 401(k), but when you take the money out at retirement, you would not have to pay tax. In my opinion, that serves as a way to pay effectively more money into your 401(k). Some firms put vesting provisions on the amount that they match in your 401(k), e.g. 4 years at 25% per year. So you have to work 1 full year to be entitled to 25% of their matching contribution, 2 years for 50%, and 4 years to receive all of it. Check your company's Summary Plan Description of the 401(k) to be sure. You are not allowed to invest pre-tax money into a Traditional IRA if you are already contributing to a 401(k) plan and have reached the income limits ($62,000 AGI for single head of household). You are allowed to contribute post-tax money to a Traditional IRA plan if you have already contributed to a 401(k), which you can then Roll-over into a Roth IRA (look up 'backdoor IRA'). The IRA contribution limit applies to all IRA accounts over that calendar year. You could put some money in a traditional IRA, a Roth IRA, another traditional IRA, etc. so long as the total amount is not more than the contribution limit. This gives you an upper limit of 5.5k + 18k = 23.5 investments in retirement accounts. Note however, once you reach age 50, these limits increase to 6.5k (IRA) + 24k (401(k)). They also are adjusted periodically with the rate of inflation. The following approach may be more efficient for building wealth: This ordering is the subject of debate and people have different opinions. There is a separate discussion of these priorities here: Best way to start investing, for a young person just starting their career? Note however, a 401(k) loan becomes payable if you leave your company, and if not repaid, is an unauthorised distribution from your 401k (and therefore subject to an additional 10% tax penalty). You should also be careful putting money into an IRA, as you will be subject to an additional 10% tax penalty if you take out the money (distribution) before retirement, unless one of the exceptions defined by the IRA applies (e.g. $10,000 for first time home purchase), which could wipe out more than any gains you made by putting it in there in the first place. Your specific circumstances may vary, so this approach may not be best for you. A registered financial advisor may be able to help - ensure they are legitimate: https://adviserinfo.sec.gov\\\"\",\n \"rollover funds only mean the funds one was foolish enough to first roll into this 401(k). With no matching, and need for cash, I'd stop depositing to that account. But, from details you gave, you can't withdraw that money.\",\n \"I'm not a big fan of tax-advantaged retirement accounts. The rules on tax-advantages accounts can change at any time. It's already painful to get money out before retirement (earnings or possibly contributions taxed as current income, plus 10% penalty). The rules could get worse. There's also the assumption that your taxes will be lower when you retire. I think this is a poor assumption. If you get free money from your employer for contribution to a 401(k), contribute up to what will get you all of the free money you can. Otherwise, pay your taxes and keep control of your assets. So short answer: Keep as much as you can out of tax-advantaged accounts unless you're turning down free money to do so.\",\n \"It depends on the vesting schedule and the likelihood you'll be there long enough to get any vesting. A typical 6 year schedule gets you 20% after 2 years. You already know you'll be there 1 year, so now you need to decide if you'll last 2 years. Unless you know for sure you won't last 2 years, you should take the match on the 4%. Suppose your retirement plan earns 10%. If you leave before 2 years, compared with your 18% you're only behind by 8% return. But if you last 2 years, you'd be making a 32% return on that same amount. After 3 years you'd make 54%, and up it goes from there until you hit a 120% return after 6 years. I'd take the match simply because you have a lot more to gain than you have to lose if you leave early.\",\n \"You cannot withdraw funds from a 401(k) while still employed with your company. To access your contributions, that would be treated as a loan against the 401(k), in which case you'd pay an upfront fee, and then have to repay the amount loaned, plus interest, over a set period of time. (In essence, you are paying back yourself.) Typically, there is also a minimum amount you must take out as a loan. Should you leave the job and still have an outstanding loan against your 401(k), it will be treated as a withdrawal after a certain date, at which point a 10% penalty plus taxes applies, unless you pay back the full amount of the loan remaining before that certain date. Your friends should seriously consider contributing the minimum amount necessary to get that full 50% matching amount. It's free money. As you said, it's like leaving money on the table.\",\n \"If your budget allows for it, max out both plans! However, in my opinion, you're on the right path: The advantage of also contributing to the Roth 401(k) in this case would be: This second point is the main reason that you should also invest in a 401(k), using that as a retirement savings vehicle alongside your Roth IRA. One caveat is that you should ensure that you'll have sufficient savings so that you won't need to dip into either plan - it'd be a shame to reduce the investment base from which you can grow your savings tax free. Personally, I'd view my contributions in the Roth IRA as an emergency fund to be used only in the direst circumstances.\",\n \"It's probably advantageous to stop depositing into a 401(k) when one is no longer receiving payroll deductions into them. Other than that, why would you want to give up the benefits? Remember, 401(k) is just the kind of account. Most offer a variety of investment options within them, and let you move money between those, so you can rebalance to suit your currently preferred risk/return tradeoffs without having to break them open. You might sometimes want to reduce your contribution for a while, if you have immediate cashflow needs elsewhere... but try to avoid doing that. Compound returns are a good thing, and the earlier the money goes in the more you get back from it.\",\n \"You might want to bring this fancy new IRS rule to your employer's attention. If your employer sets it up, an After-Tax 401(k) Plan allows employees to contribute after-tax money above the $18k/year limit into a special 401(k) that allows deferral of tax on all earnings until withdrawal in retirement. Now, if you think about it, that's not all that special on its own. Since you've already paid tax on the contribution, you could imitate the above plan all by yourself by simply investing in things that generate no income until the day you sell them and then just waiting to sell them until retirement. So basically you're locking up money until retirement and getting zero benefit. But here's the cool part: the new IRS rule says you can roll over these contributions into a Roth 401(k) or Roth IRA with no extra taxes or penalties! And a Roth plan is much better, because you don't have to pay tax ever on the earnings. So you can contribute to this After-Tax plan and then immediately roll over into a Roth plan and start earning tax-free forever. Now, the article I linked above gets some important things slightly wrong. It seems to suggest that your company is not allowed to create a brand new 401(k) bucket for these special After-Tax contributions. And that means that you would have to mingle pre-tax and post-tax dollars in your existing Traditional 401(k), which would just completely destroy the usefulness of the rollover to Roth. That would make this whole thing worthless. However, I know from personal experience that this is not true. Your company can most definitely set up a separate After-Tax plan to receive all of these new contributions. Then there's no mingling of pre-tax and post-tax dollars, and you can do the rollover to Roth with the click of a button, no taxes or penalties owed. Now, this new plan still sits under the overall umbrella of your company's total retirement plan offerings. So the total amount of money that you can put into a Traditional 401(k), a Roth 401(k), and this new After-Tax 401(k) -- both your personal contributions and your company's match (if any) -- is still limited to $53k per year and still must satisfy all the non-discrimination rules for HCEs, etc. So it's not trivial to set up, and your company will almost certainly not be able to go all the way to $53k, but they could get a lot closer than they currently do.\",\n \"Companies are required BY THE IRS to try to get everybody to contribute minimal amounts to the 401K's. In the past, there were abuses and only the execs could contribute and the low paid workers were starving while the execs contributed huge amounts. On a year-by-year basis, if the low-paid employees don't contribute, the IRS punishes the high paid employees. Therefore, most employers provide a matching program to incentivize low-paid employees to contribute. This 9% limitation could happen in any year and it could have happened even before you got your pay raise, what matters is what the low-paid employees were doing at your company LAST YEAR.\",\n \"Congratulations on your raise! Is my employer allowed to impose their own limit on my contributions that's different from the IRS limit? No. Is it something they can limit at will, or are they required to allow me to contribute up to the IRS limit? The employer cannot limit you, you can contribute up to the IRS limit. Your mistake is in thinking that the IRS limit is 17K for everyone. That is not so. You're affected by the HCE rules (Highly Compensated Employees). These rules define certain employees as HCE (if their salary is significantly higher than that of the rest of the employees), and limit the ability of the HCE's to deposit money into 401k, based on the deposits made by the rest of the employees. Basically it means that while the overall maximum is indeed 17K, your personal (and other HCE's in your company) is lowered down because those who are not HCE's in the company don't deposit to 401k enough. You can read more details and technical explanation about the HCE rules in this article and in this blog post.\",\n \"\\\"Given that the 6 answers all advocate similar information, let me offer you the alternate scenario - You earn $60K and have an employer offering a 50% match on all deposits. All deposits. (Note, I recently read a Q&A here describing such an offer. If I see it again, I'll link). Let the thought of the above settle in. You think about the fact that $42K isn't a bad salary, and decide to deposit 30%, to gain the full match on your $18K deposit. Now, you budget to live your life, pay your bills, etc, but it's tight. When you accumulate $2000, and a strong want comes up (a toy, a trip, anything, no judgement) you have a tough decision. You think to yourself, \\\"\\\"after the match, I am literally saving 45% of my income. I'm on a pace to have the ability to retire in 20 years. Why do I need to save even more?\\\"\\\" Your budget has enough discretionary spending that if you have a $2000 'emergency', you charge it and pay it off over the next 6-8 months. Much larger, and you know that your super-funded 401(k) has the ability to tap a loan. Your choice to turn away from the common wisdom has the recommended $20K (about 6 months of your spending) sitting in your 401(k), pretax deposited as $26K, and matched to nearly $40K, growing long term. Note: This is a devil's advocate answer. Had I been the first to answer, it would reflect the above. In my own experience, when I got married, we built up the proper emergency fund. As interest rates fell, we looked at our mortgage balance, and agreed that paying down the loan would enable us to refinance and save enough in mortgage interest that the net effect was as if we were getting 8% on the money. At the same time as we got that new mortgage, the bank offered a HELOC, which I never needed to use. Did we somehow create high risk? Perhaps. Given that my wife and I were both still working, and had similar incomes, it seemed reasonable.\\\"\",\n \"They are mutually exclusive. Provided you meet the income limits you can contribute to both. Employer match do not count toward the 18K. On the other hand traditional IRA and Roth IRA are inclusive. So if single and making having a MAGI under 118K, you could do the 18K of your own money into a 401(k), and $5,500 into a Roth. You can put in $23,500 of your own money with the employer match on top of that.\",\n \"If there is no match and you are disciplined enough to contribute without it coming directly out of your paycheck, dump the 401K. The reason: Most 401K plans have huge hidden fees built into the investment prices. You won't see them directly, but 3% is not uncommon. 3% is a horrible drag on your investment performance. Get an IRA or Roth IRA and pick something with low fees. Bonus: You will have a lot more investment choices!\",\n \"No, sorry. A change of 401(k) administrator is not an out, otherwise many would flee a bad plan. I'd suggest you only deposit up to the match, but use an IRA if you'd like to save more. A plan with high fees can easily negate the tax benefits and then some.\",\n \"There's no one answer. You need to weigh the fees and quality of investment options on the one side against the slowly vesting employer contribution and tax benefits of 401k contributions in excess of IRA limits.\",\n \"You are already doing everything you can. If your employer does not have a 401(k) you are limited to investing in a Roth or a traditional IRA (Roth is post tax money, traditional IRA gives you a deduction so it is essentially pre tax money). The contribution limits are the same for both and contributing to either adds to the limit (so you can't duplicate). CNN wrote an article on some other ways to save: One thing you may want to bring up with your employer is that they could set up a SEP-IRA. This allows them to set a % (up to 25%) that they contribute pre-tax to an IRA for everyone at the company that has worked there at least 3 years. If you are at a small company, maybe everyone with that kind of seniority would take an equivalent pay cut to get the automatic retirement contribution? (Note that a SEP-IRA has to apply to everyone equally percentage wise that has worked there for 3 years, and the employer makes the contribution, not you).\",\n \"Most companies put the company match in your account each paycheck, but your are not generally vested for the match. If you leave before the specified time period then they pull back part of the matching funds. I knew somebody who did something similar back in the 1980's with their 401K. They put in 8% of their paycheck after taxes; a 100% match was deposited; then they pulled out the employees contribution every quarter. They did this for the 10 years I knew them. It avoided any tax implications, and they were still saving 8% of their pay for retirement.\",\n \"With a 401k you will be taxed when you withdraw the money upon retirement (just like an IRA), but conventional wisdom had it that you're likely to be in a lower tax bracket at that time. That may not necessarily be the case though, in which case a Roth IRA would be a better option because you're paying for it with after tax dollars and distributions are untaxed. If you wanted to hedge your bets you could have both an IRA/401k and a Roth IRA. An IRA has income limits above which the contributions are no longer tax deductible, I don't believe a 401k has the same limitations (for completion's sake: a Roth IRA has income limits above which you can't contribute to one). And like you said, the employer match is free money.\",\n \"If you are working for a small company, the expense ratios on the funds in the 401k account are likely much higher than you can get with a similar IRA. Depending on your income, whether you are married and want to contribute to a spouse's IRA, your limit on what can be contributed to an IRA may vary, but the compelling reason to contribute to a 401k is that the contribution limit is higher ($17,500 vs $5,500 for people on the lower end of the income scale) so you may need to contribute to a 401k to meet your retirement savings goals.\",\n \"If they leave the extra funds in the account the IRS will consider it as employer match. They weren't funds from your paycheck, they were from the employers profits. Because they don't have a formal matching program the extra funds will still keep then under the max match. There is one other explanation that needs to be considered. If the last paycheck from 2011 was near the end of the year (the last Friday of 2011 was December 30th) the 401K funds from that final paycheck may not have been deposited into your 401K until early January 2012. If you count contributions when looking at your 401K statement it will look like one two many for 2012; but the IRS only cares when it was deducted from your paycheck, not when it was deposited into your account. The Department of Labor only requires they be deposited by the 15th of the following month.\",\n \"Nope, take the match. I cannot see not taking the match unless you don't have enough money to cover the bills. Every situation is different of course, and if the option is to missing minimum payments or other bills in order to get the match, make your payments. But in all other circumstances, take the match. My reasoning is, it is hard enough to earn money so take every chance you can. If you save for retirement in the process, all the better.\",\n \"The reason your 401k match is always counted as pre-tax whether you are contributing to a traditional 401k or a Roth is that the money is contributed by the employer and is not counted as income, and that contribution is not taxed as income. Should you wish to pay taxes on it and convert it to a Roth, you can do that, though perhaps not until you change jobs.\",\n \"In addition to George Marian's excellent advice, I'll add that if you're hitting the limits on IRA contributions, then you'd go back to your 401(k). So, put enough into your 401(k) to get the match, then max out IRA contributions to give you access to more and better investment options, then go back to your 401(k) until you top that out as well, assuming you have that much available to invest for retirement.\",\n \"At the very least you should invest as much as you can that your employer will match, as they are basically giving you free money for saving. After that I would prioritize a Roth IRA as that offers similar tax benefits with more liquidity. Provided you have enough money available in your emergency fund and have plenty for everyday expenses I see no reason not to max out your 401k after that if you can afford it. However, if your emergency fund is lacking, be sure to put some there. Other investments like a 529 may come into play if you have kids you plan on sending to college, but it all depends on your situation.\",\n \"\\\"With no match, the traditional 401(k) for someone otherwise in the 15% bracket makes little sense. I'd suggest contributing just enough if you were in the 25% bracket to be in the taxable 15% but no more. Use a Roth IRA if you are saving more than that. I'm adding this based on OP's statement that the fees on the 401(k) range .8-1.4%. I wrote an article Are you 401(k)o’ed? in which I discuss how fees of this range negate the benefit of the mantra \\\"\\\"save at 25% to withdraw at 15%\\\"\\\" and if one were in the 15% bracket to start, this level off fee will cost you money in no time at all. The people advising you to max out the 401(k) first, given the rest of your situation and that of the account, are misguided. I'd given them the benefit of the doubt and assume they don't have all the details. And with all due respect to the other posters here, everyone of them a bright, valued colleague, your answers should be addressed to the OP's exact situation. 15% bracket, no match, high fees. I suspect some of answers will change on reviewing this.\\\"\",\n \"\\\"Another consideration is that you are going to wind up with money in the \\\"\\\"regular\\\"\\\" 401(k) no matter which one you contribute to. The employer match can't go into the Roth 401(k). So all employer matching funds go in with pre-tax dollars and will be deposited in a normal 401(k) account. Edit from JoeTaxpayer - 2013 brought with it the Roth 401(k) conversion the ability to convert from the traditional pretax side of your 401(k) account to the Roth side.\\\"\",\n \"Mathwise, I absolutely agree with the other answers. No contest, you should keep getting the match. But, just for completeness, I'll give a contrarian opinion that is generally not very popular, but does have some merit. If you can focus on just one main financial goal at a time, and throw every extra dollar you have at that one focus (i.e., getting out of debt, in your case), you will make better progress than if you're trying to do too many things at once. Also, there something incredibly freeing about being out of debt that has other beneficial impacts on your life. So, if you can bring a lot of focus to the credit card debt and get it paid off quickly, it may be worth deferring the 401(k) investing long enough to do that, even though it doesn't make as much mathematical sense. (This is essentially what Dave Ramsey teaches, BTW.)\",\n \"Does your employer offer a 401(k) match? If so, contribute enough to maximize that--it's free money. After that, contribute to an IRA where you can invest in funds with low expenses. After you max that out, if you still have money left over, max out your 401(k) despite the high expenses for the tax advantages. Remember when you leave the company you can roll over the balance into an IRA and switch to lower-cost investments. Of course this is general advice without knowing your situation. If you're looking to buy a home soon, for example, you might want to keep extra money in a taxable account for a downpayment rather than maxing out your 401(k).\",\n \"This will be difficult to achieve. It can be done, but it's very rare to have an agreement where your employer is willing to max out your contribution limit unless you are a partner in the business or a family relation. In this situation the extra employer money would probably come from a profit sharing contribution. If your employer increases your match, others are correct that your employer would have to increase the match for everyone. Not so with a profit sharing contribution. This is assuming 2 things though: Both of those are BIG if's, and I'd say 99% of the time it's not gonna happen for either of those two reasons. Your chances are better if you don't own >5% of the company, don't make over $120,000/year, and are related to you employer. Good luck!\",\n \"\\\"For easy math, say you are in the 25% tax bracket. A thousand deposited dollars is $750 out of your pocket, but $2000 after the match. Now, you say you want to take the $750 and pay down the card. If you wait a year (at 20%) you'll owe $900, but have access to borrow a full $1000, at a low rate, 4% or so. The payment is less than $19/mo for 5 years. So long as one is comfortable juggling their debt a bit, the impact of a fully matched 401(k) cannot be beat. Keep in mind, this is a different story than those who just say \\\"\\\"don't take a 401(k) loan.\\\"\\\" Here, it's the loan that offers you the chance to fund the account. If you are let go, and withdraw the money, even at the 25% rate, you net $1500 less the $200 penalty, or $1300 compared to the $750 you are out of pocket. If you don't want to take the loan, you're still ahead so long as you are able to pay the cards over a reasonable time. I'll admit, a 20% card paid over 10+ years can still trash a 100% return. This is why I add the 401(k) loan to the mix. The question for you - jldugger - is how tight is the budget? And how much is the match? Is it dollar for dollar on first X%?\\\"\",\n \"I would hire an accountant to help set this up, given the sums of money involved. $53,000 would be the minimum amount of compensation needed to maximize the 401k. The total limit of contributions is the lesser of: 100% of the participant's compensation, or $53,000 ($59,000 including catch-up contributions) for 2015 and 2016. and they don't count contributions as compensation Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. (Your employer can tell you whether your retirement plan is qualified.) On the bright side, employer contributions aren't subject to FICA withholdings.\",\n \"You should be saving as much money as you can afford in your 401k up to the maximum allowed. If you don't contribute at least 6%, then you are essentially throwing away the match money that your employer is offering. Start out with the target date fund. You can always change your investment option later once you learn more about investing, but get started saving right away and get that match!\",\n \"\\\"It's simple. At 100% match, it would take a \\\"\\\"long\\\"\\\" time for bad fees to negate the benefit. Longer than the average person stays with one company. Even though $50/10 shares is crazy, if you wait till you have $500, it's 10%. Still crazy, but you are still getting 90% of the match. I'd avoid this, however, and just go with the closest thing they have to an S&P fund. Invest outside this account to save the right amount to fund your retirement. 2% total isn't enough, obviously.\\\"\",\n \"\\\"The original question was aimed at early payment on a student loan at 6%. Let's look at some numbers. Note, the actual numbers were much lower, I've increased the debt to a level that's more typical, as well as more likely to keep the borrower worried, and \\\"\\\"up at night.\\\"\\\" On a $50K loan, we see 2 potential payoffs. A 6 year accelerated payoff which requires $273.54 extra per month, and the original payoff, with a payment of $555.10. Next, I show the 6 year balance on the original loan terms, $23,636.44 which we would need to exceed in the 401(k) to consider we made the right choice. The last section reflects the 401(k) balance with different rates of return. I purposely offer a wide range of returns. Even if we had another 'lost decade' averaging -1%/yr, the 401(k) balance is more than 50% higher than the current loan debt. At a more reasonable 6% average, it's double. (Note: The $273.54 deposit should really be adjusted, adding 33% if one is in the 25% bracket, or 17.6% if 15% bracket. That opens the can of worms at withdrawal. But let me add, I coerced my sister to deposit to the match, while married and a 25%er. Divorced, and disabled, her withdrawals are penalty free, and $10K is tax free due to STD deduction and exemption.) Note: The chart and text above have been edited at the request of a member comment. What about an 18% credit card? Glad you asked - The same $50K debt. It's tough to imagine a worse situation. You budgeted and can afford $901, because that's the number for a 10 year payoff. Your spouse says she can grab a extra shift and add $239/mo to the plan, because that' the number to get to a 6 year payoff. The balance after 6 years if we stick to the 10 year plan? $30,669.82. The 401(k) balances at varying rates of return again appear above. A bit less dramatic, as that 18% is tough, but even at a negative return the 401(k) is still ahead. You are welcome to run the numbers, adjust deposits for your tax rate and same for withdrawals. You'll see -1% is still about break-even. To be fair, there are a number of variables, debt owed, original time for loan to be paid, rate of loan, rate of return assumed on the 401(k), amount of potential extra payment, and the 2 tax rates, going in, coming out. Combine a horrific loan rate (the 18%) with a longer payback (15+ years) and you can contrive a scenario where, in fact, even the matched funds have trouble keeping up. I'm not judging, but I believe it's fair to say that if one can't find a budget that allows them to pay their 18% debt over a 10 year period, they need more help that we can offer here. I'm only offering the math that shows the power of the matched deposit. From a comment below, the one warning I'd offer is regarding vesting. The matched funds may not be yours immediately. Companies are allowed to have a vesting schedule which means your right to this money may be tiered, at say, 20%/year from year 2-6, for example. It's a good idea to check how your plan handles this. On further reflection, the comments of David Wallace need to be understood. At zero return, the matched money will lag the 18% payment after 4 years. The reason my chart doesn't reflect that is the match from the deposits younger than 4 years is still making up for that potential loss. I'd maintain my advice, to grab the match regardless, as there are other factors involved, the more likely return of ~8%, the tax differential should one lose their job, and the hope that one would get their act together and pay the debt off faster.\\\"\",\n \"JoeTapayer has good advice here. I would like to add my notes. If they give a 50% match that means you are getting a 50% return on investment(ROI) immediately. I do not know of a way to get a better guaranteed ROI. Next, when investing you need to determine what kind of investor you are. I would suggest you make yourself more literate in investments, as I suggest to anyone, but there are basic things you want to look for. If your primary worry is loss of your prinicipal, go for Conservative investments. This means that you are willing to accept a reduced expected ROI in exchange for lower volatility(risk of loss of principal). This does not mean you have a 100% safe investment as the last market issues have shown, but in general you are better protected. The fidelity investments should give you some information as to volatility or if they deem the investments conservative. Conservative investments are normally made up of trading bonds, which have the lowest ROI in general but are the most secure. You can also invest in blue chip companies, although stock is inherently riskier. It is pointed out in comments that stocks always outperform bonds in the long term, and this has been true over the last 100 years. I am just suggesting ways you can protect yourself against market downturns. When the market is doing very well bonds will not give you the return your friends are seeing. I am just trying to give you a basic idea of what to look for when you pick your investments, nothing can replace a solid investment adviser and taking the time to educate yourself.\",\n \"To be clear, a 401K is a vehicle, you make investments WITHIN it, if you choose poorly such as say putting all your money into company stock when working for the next Enron, you can still get hurt badly. So it is important to have diversity and an appropriate risk level based on your age, tolerance for risk, etc. That said, as vehicles go it is outstanding, and the 'always max your 401K' is very very common advice for a large number of investing professionals, CFA's, pundits, etc. That said there are a few priorities to consider here. First priority, if there is some level of company matching, grab that, it's hard to beat that kind of 'return' in almost any other case. Second, since you never want to tap into a 401K (if you can at all avoid it) before you are ready to retire, you should first be sure you have a good 'emergency fund' set aside in the event you lose your job, or some other major catastrophy happens. Many recommend setting aside at least 6 months of basic living expenses. Third, if you have any high interest debt (like credit card debt) pay that stuff down as fast as you can. You'll save a ton of interest (it's pretty much the same as investing the money you use to pay it down, and getting a return equal to the interest rate you are paying, with zero risk.. can't be beat. You'll also end up with a lot better cash flow, and the ability to start saving first and spending out of savings, so you earn interest instead of paying it. Once you have those things out of the way, then it is time to think about fully funding the 401K. and keep in mind, since you don't pay taxes on it, the 'felt effect' to you pocket is about 80% or even less, of what goes into the account, so it's not as painful as you might think, and the hit to your take home may be less than you'd expect. Contributing as much as you can, as early as you can also lets you benefit from the effect of compounding, and has a far larger affect on the balance than money put into the account closer to retirement. So if you can afford to max it out, I surely would advise you to do so.\",\n \"Bad idea. If you lose your job and need to pay medical expenses, you can withdraw penalty-free. If you lose your job and just withdraw, you will have lower income and lower tax, though you will pay a penalty. If you don't lose your job today, consider your 401(k) an additional protection, just in case you do lose it tomorrow. Just pick the least risky investment option and relax. Besides, it will diversify your investment and protect you from your own investment decisions. If you are so ready to take a 10% loss, you are likely not so skilled in this area, so it's good to have a backup plan. But of course, do contribute 3% so you get a match.\",\n \"The stock market at large has about a 4.5% long-term real-real (inflation-fees-etc-adjusted) rate of return. Yes: even in light of the recent crashes. That means your money invested in stocks doubles every 16 years. So savings when you're 25 and right out of college are worth double what savings are worth when you're 41, and four times what they're worth when you're 57. You're probably going to be making more money when you're 41, but are you really going to be making two times as much? (In real terms?) And at 57, will you be making four times as much? And if you haven't been saving at all in your life, do you think you're going to be able to start, and make the sacrifices in your lifestyle that you may need? And will you save enough in 10 years to live for another 20-30 years after retirement? And what if the economy tanks (again) and your company goes under and you're out of a job when you turn 58? Having tons of money at retirement isn't the only worthy goal you can pursue with your money (ask anyone who saves money to send kids to college), but having some money at retirement is a rather important goal, and you're much more at risk of saving too little than you are of saving too much. In the US, most retirement planners suggest 10-15% as a good savings rate. Coincidentally, the standard US 401(k) plan provides a tax-deferred vehicle for you to put away up to 15% of your income for retirement. If you can save 15% from the age of 20-something onward, you probably will be at least as well-off when you retire as you are during the rest of your life. That means you can spend the rest on things which are meaningful to you. (Well, you should also keep around some cash in case of emergencies or sudden unemployment, and it's never a good idea to waste money, but your responsibilities to your future have at least been satisfied.) And in the UK you get tax relief on your pension contribution at your income tax rate and most employers will match your contributions.\",\n \"From a long-term planning point of view, is the bump in salary worth not having a 401(k)? In this case, absolutely. At $30k/year, the 4% company match comes to about $1,200 per year. To get that you need to save $1,200 yourself, so your gross pay after retirement contributions is about $28,800. Now you have an offer making $48,000. If you take the new job, you can put $2,400 in retirement (to get to an equivalent retirement rate), and now your gross pay after retirement contributions is $45,600. Now if the raise in salary were not as high, or you were getting a match that let you exceed the individual contribution max, the math might be different, but in this case you can effectively save the company match yourself and still be way ahead. Note that there are MANY other factors that may also be applicable as to whether to take this job or not (do you like the work? The company? The coworkers? The location? Is there upward mobility? Are the benefits equivalent?) but not taking a 67% raise just because you're losing a 4% 401(k) match is not a wise decision.\",\n \"I think it comes down to whether you are happy with the investment choices in the 401k. If you are, there is no reason not to invest there. Additionally, it doesn't have to be an either-or choice. You can invest up to the maximum in both accounts. BTW, congratulations on thinking about retirement at your age. I wish I had been in a position to do that.\",\n \"\\\"You might consider working on getting your new employer to sponsor a 401k, there may be options where you can invest and they aren't required to add anything as a match (which gives you higher limits). If they don't match, they may just be liable for some administration fees. If you have any side business that you do, you might also be eligible for other \\\"\\\"self-employed\\\"\\\" options that have higher limits (SEP, Simple - I think they may go up to $15k) although, I'm not sure the nitty gritties of them.\\\"\",\n \"\\\"A fascinating view on this. The math of a 10% deposit and projected 10% return lead to an inevitable point when the account is worth 10X your income (nice) and the deposit, 10% of income only represents 1% of the account balance. The use of an IRA is neither here nor there, as your proposed deposit is still just 1% of your retirement account total. Pay off debt? For one with this level of savings, it should be assumed you aren't carrying any high interest debt. It really depends on your age and retirement budget. Our \\\"\\\"number\\\"\\\" was 12X our final income, so at 10X, we were still saving. For you, if you project hitting your number soon enough, I'd still deposit to the match, but maybe no more. It might be time to just enjoy the extra money. For others, their goal may be much higher and those extra years deposits are still needed. I'd play with a spreadsheet and see the impact of reduced retirement account deposits. Note - the question asks about funding the 401(k) vs paying down debt. I'd always advise to deposit to the match, but beyond that, one should focus on their high interest debt, especially by their 50's.\\\"\",\n \"A terrific resource is this article. To summarize the points given: PROS: CONS: There is no generic yes or no answer as to whether you ought to max out your 401(k)s. If you are a sophisticated investor, then saving the income for investing could be a better alternative. Long term capital gains are taxed at 15% in the US, so if you buy and hold on to good companies that reinvest their earnings, then the share price keeps going up and you'll save a lot of money that would go in taxes. If you're not a very good investor, however, then 401(k)s make a lot of sense. If you're going to end up setting up some asset allocation and buying ETFs and rebalancing or having a manager rebalance for you every year or so, then you might as well take the 401(k) option and lower your taxable income. Point #1 is simply wrong, because companies that reinvest earnings and growing for a long time are essentially creating tax-free gains for you, which is even better than tax-deferred gains. Nonetheless, most people have neither the time nor the interest to research companies and for them, the 401(k) makes more sense.\",\n \"401(k) can come in traditional and Roth forms, as can IRAs. Roth IRA money is not locked away for 40 years, only the earnings are locked away, and earnings can also be withdrawn for special cases. You might not be able to invest in an IRA if your income is too high, and if you don't get a match for your 401(k), that might not be the best option either. The biggest advantage of the 401(k) is the match (if it exists) if there's no match, the second biggest advantage is the tax deferral. If you are in a low tax bracket, that isn't as big of an advantage either. I would say that there are plenty of reasons why you might not max out the 401(k) for savings, but it's pretty easy to max out the Roth IRA if that makes more sense, so there aren't a lot of reasons why not.\",\n \"\\\"Will it be more money for me now if I don't take it out? Yes Will it be more money for for my retirement if I do? Yes The difference will be the existence of a match and tax-deferral. If there is a match then you will have an instant 100% gain on the amount that is matched. From a tax standpoint, putting some in your 401(k) now will reduce your taxes this year - you will instead pay tax when you withdraw the money at retirement (the withdrawal will be considered \\\"\\\"income\\\"\\\" at that time). Other decision points: If there is no match, but you still want to add to retirement savings, then you could alternatively put the money in an IRA, which will give you more control over your investments than a 401(k) (which could be good or bad, depending on how investment savvy you are).\\\"\",\n \"Ben Miller's answer is very thorough, and I up voted it. I believe that the ability to rebalance without tax implications is very import, but there are two aspects of the question that were not covered: The 401K in many cases comes with a company match. Putting enough money into the fund each year to maximize the match, give you free money that is not available in the non-retirement accounts. The presence of that match is to encourage employees to contribute: even if they are tying up their funds until retirement age; and they are into a plan with only a handful of investment options; and they may have higher expenses in the 401K. The question also had a concern about the annual limits for the 401K (18,000) and the IRA (5,500). The use of a retirement account doesn't in any way limit your ability to invest in non-retirement accounts. You can choose to invest from 0 to 23,500 in the retirement accounts and from 0 to unlimited into the non-retirement accounts. Double those amounts if you are married.\",\n \"\\\"I may be missing something here, but I don't think this is a disadvantage. The fact that the employer contribution will be taxed is the same as it would be if it were a match in a traditional account, so the amount you lose to taxes on it is a wash. The employer contribution is only smaller if you can't afford to contribute as much to the Roth because it's post-tax, and therefore your contribution is under the cap for the match. If you're contributing the maximum the employer will match or higher, then I don't think there's any disadvantage on the match portion. First, the 5% cap on employer contributions is calculated on the gross, even in a Roth account. Second, the taxing of the amount contributed to a Roth does not reduce the dollar amount that goes into the Roth account, it just reduces your net pay. So if your contribution is $100 to a Traditional account, your gross pay is reduced by $100 and your Traditional account gains $100. In the Roth, your gross pay is still taxed as though that $100 were included, but the $100 is put into the Roth. The tax portion of that \\\"\\\"after tax\\\"\\\" money does not reduce the amount of the contribution.\\\"\",\n \"Since there is no match on the 401k, it seems to me that your first priority should be your IRA (Roth or otherwise). I don't know what your salary is, but most 22 year-olds won't be maxing out both an IRA and 401k on only 10% of their incomes, so the rest of the list may be irrelevant.\",\n \"One situation where it would be prudent not to contribute would be if expenses are so tight that you cannot afford to contribute because you need that cashflow for expenses.\",\n \"Congrats on saving aggressively when you're young. I'm not a huge fan of tax-advantaged accounts because the rules can change on them, and there's already a penalty for you to take out that money for most purposes until you've almost tripled your age. Free money (a match) overcomes this reservation for me, but I'm not contributing anything beyond that. I'm paying my taxes on the rest and am done with them. Watching your money grow tax-free for another 37 1/2 years only to see your (and everyone else's) marginal tax rate rise isn't much fun. I'm not saying that will happen, but it certainly could.\",\n \"A 50% company match on your 401(k) is a huge amount of free money. You'd have to absolutely crush the professional money managers to justify turning it down. If you can do that, you should quit your job and do it full-time.\",\n \"My employer matches 6% of my salary, dollar for dollar. So you have a great benefit. The self-directed side has no fees but $10 trades. No option trading. Yours basically allows you to invest your own funds, but not the match. It's a restriction, agreed, but a good plan.\",\n \"There is Free employer money on both sides of the tax fence for some employees. On the pretax side, your employer may provide you a match. If so, invest the maximum to get 100% of the match. On the after tax side, many companies offers a 15% discount on ESPP plans and a one year hold. My wife has such an employer. The one year hold is fine because it allows us to be taxed at Long Term Capital gains if the stock goes up which is lower than our current income bracket. After creating a seasoned pool of stocks that we could sell after the one year hold, we are then able to sell the same number of stocks purchased each month. This provides a 17.6% guaranteed gain on a monthly basis. How much would you purchase if you had a guaranteed 17.6% return. Our answer is 15% (our maximum allowed). The other trick is that while the employer is collecting the money, you will purchase the stock at the lowest day of the period. You will usually sell for even more than the purchase price unless the day purchased was the lowest day of month. The trick is to reinvest the money in tax free investments to balance out the pretax investing. Never leave the money in the plan. That is too much risk.\",\n \"\\\"First of all, you need to stop using the card completely. Yes, that means you lose out on cash back, double miles, whatever, but that's how you got to this mess in the first place. Switch to a cash budget until you can consistently spend less than you bring home. Keep better track of your expenses, build an emergency fund, and learn to save for expenses rather than borrow for them until you have your spending under control. If you can't cut your expenses any more, consider ways to increase your income (more hours at work, part-time jobs, sell stuff, etc.) Assuming that the employer match is 1-to-1 up to 4%, and you're saving an additional 7 percent to get to 15% total, I would definitely lower your contribution down to 4%, get the card paid off, and ONLY bump your contribution back up once you can safely pay off the card each month and know how much you can contribute. It is not wise to put 15% in retirement if that causes you to spend more than your net take-home pay. Your \\\"\\\"13%\\\"\\\" in your Roth is not guaranteed by any means, but the interest you pay on your credit card is. I would even be tempted to cut your retirement completely until the debt is paid, but more for motivational reasons that mathematical: I would be more concerned about living within your income at this point than getting a company match. I believe the benefits of spending wisely will outweigh a temporary loss in matched retirement funds in the long run.\\\"\",\n \"\\\"The only time to stop saving money for retirement is when you have enough money to retire tomorrow. Not all of your \\\"\\\"retirement savings\\\"\\\" need to be in a 401k, it is just better if you can. Be sure to get as much as you can from the employer matching program. Unfortunately some employer matching programs discourage you from putting in too much. I've been able to max out the 401k contribution a number of times, which helps. Remember: you are likely to live to 100, so you better save enough to live that long. I don't trust social security to be there. I recommend saving so that you end up with \\\"\\\"enough to be comfortable\\\"\\\" -- this is usually about 25x your current income - PLUS inflation between now and when you plan to retire (age 62 is a good target). It is worth knowing your \\\"\\\"retirement savings number\\\"\\\". If you are making $100K per year now, you need to target $2.5M - PLUS allowance for inflation between now and when you plan to retire. This usually means you need to also arrange to make more money as well as save as much as you can and to use passive investing. Finance advisors are not worth it if you have less than $1M to invest.\\\"\",\n \"The 401(k) has the advantage that you don't pay any tax until you take it out. That lets the gains multiple. Two examples: If any of your stocks pay dividends, these are directly taxable if you don't have a 401(k). In the 401(k), the full dividends accumulate and are reinvested. If you sell any stocks and get capital gains, they are also directly taxable in a normal account. Having said that, if you don't get any match, I would consider doing a 50/50; put half of your money in the 401(k), in something simple like an index fund, and invest the rest. That's assuming you have an index fund available in your 401(k).\",\n \"Its easier than that: employer matching contributions are always pre-tax. While your contribution is split between the pre-tax and the Roth post-tax parts, matching contributions are always pre-tax. Quote from the regulations I linked to: For example, matching contributions are not permitted to be allocated to a designated Roth account. So the tax you pay is only on the Roth portion of your contribution. One of the reasons for that is the complexity you're talking about, but not only. Matching is not always vested, and it would be hard to determine what portion to tax and at what rate if matching would be allowed to go to Roth.\",\n \"Yes, I have done this and did not feel a change in cash flow - but I didn't do it a the age of 23. I did it at a time when it was comfortable to do so. I should have done it sooner and I strongly encourage you to do so. Another consideration: Is your companies program a good one? if it is not among the best at providing good funds with low fees then you should consider only putting 6% into your employer account to get the match. Above that dollar amount start your own ROTH IRA at the brokerage of your choice and invest the rest there. The fee difference can be considerable amounting to theoretically much higher returns over a long time period. If you choose to do the max , You would not want to max out before the end of the year. Calculate your deferral very carefully to make sure you at least put in 6% deferral on every paycheck to the end of the year. Otherwise you may miss out on your company match. It is wise to consider a ROTH but it is extremely tough to know if it will be good for you or not. It all depends on what kind of taxes (payroll, VAT, etc) you pay now and what you will pay in the future. On the other hand the potential for tax-free capital accumulation is very nice so it seems you should trend toward Roth.\",\n \"You can only contribute up to 5% of your salary? Odd. Usually 401(k) contributions are limited to some dollar amount in the vicinity of $15,000 or so a year. Normal retirement guidelines suggest that putting away 10-15% of your salary is enough that you probably won't need to worry much when you retire. 5% isn't likely to be enough, employer match or no. I'd try to contribute 10-15% of my salary. I think you're reading the rules wrong. I'm almost certain. It's definitely worth checking. If you're not, you should seriously consider supplementing this saving with a Roth IRA or just an after-tax account. So. If you're with Fidelity and don't know what to do, look for a target date fund with a date near your retirement (e.g. Target Retirement 2040) and put 100% in there until you have a better idea of what going on. All Fidelity funds have pretty miserable expense ratios, even their token S&P500 index fund from another provider, so you might as let them do some leg work and pick your asset allocation for you. Alternatively, look for the Fidelity retirement planner tools on their website to suggest an asset allocation. As a (very rough) rule of thumb, as you're saving for retirement you'll want to have N% of your portfolio in bonds and the rest in stocks, where N is your age in years. Your stocks should probably be split about 70% US and 30% rest-of-world, give or take, and your US stocks should be split about 64% large-cap, 28% mid-cap and 8% small-cap (that's basically how the US stock market is split).\",\n \"It sounds like they are matching your IRA contribution dollar for dollar up to 1% of your salary. Think of that as an instant 100% yield on your investment. (Your money instantly doubles.) My 401(k) has been doing pretty well over the last year, but it will take several years before my money doubles. So you can let it sit in cash for a year, then take some pretty hefty fees and you will probably still come out ahead. (Of course it's hard to say without knowing all of the fees.)\",\n \"One factor to consider is that some employers have a 401k contribution match policy that only allows a certain percentage of any given paycheck to be matched. So if the company is willing to match 4% of each paycheck, you could run into a problem here where you lose out on some of your company match. For example, suppose you get a $20,000 bonus. You can contribute $18,000 per year to your 401k and this bonus could be a nice way to knock most of that out and then take home your full paycheck the rest of the year. Sounds pretty nice, but there's a problem. The company will only match 4% of your $20,000 ($800) when they otherwise would have matched up to 4% of your annual salary ($4,000 if you're making $100,000 in this example). I'd say it's definitely worth it to make a big contribution to your 401k when you get a bonus as it's an easy way to get a lot of money in there without really feeling a loss (since it's extra money on top of your normal paycheck). But I'd definitely be careful about this situation. You don't want to throw away free money. To avoid this problem, make sure that you leave enough of your annual limit so you can contribute enough to get your 4% company match on every paycheck of the year.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["The matching funds are free money, so it is a very good idea to take that money off the table. Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k). (Obviously, I'm keeping things simple. Vesting schedules mean that the employer match isn't yours to keep immediately, but rather after some time; usually in chunks.) Beyond the employer match, you need to consider what is available for investment in a 401(k). Typically, your options are more limited then in an IRA. The cost of the 401(k) should be considered, as it isn't trivial for most. (The specifics will of course vary, but in large IRA accounts are cheaper.) So, it's about the opportunity costs. Up to the employer match, it doesn't matter as much that your investment choices are more limited in a 401(k), because you're getting 100% return just on the matching funds. Once that is exhausted, you have more opportunity for returns, due to having more options available to you, by going with an account that provides more choices. The overall principle here is that you have to look at the whole picture. This is similar to the notion that you should pay-down your high interest debt before investing, because from the perspective of investing the interest you're paying represent a loss, or negative return on investment, since money is going out of your accounts. Specific to your question, you have to consider the various types of investment vehicles available to you. It is not just about 401(k) and IRA accounts. You may also consider a straight brokerage account, a savings account, CDs, etc. The costs and returns that you can typically expect are your guides through the available choices.","In addition to George Marian's excellent advice, I'll add that if you're hitting the limits on IRA contributions, then you'd go back to your 401(k). So, put enough into your 401(k) to get the match, then max out IRA contributions to give you access to more and better investment options, then go back to your 401(k) until you top that out as well, assuming you have that much available to invest for retirement.","I'd hazard that Jim is mostly worried that people are getting ripped off by high employer 401(k) fund fees. A lot of employers offer funds with fees over 1% a year. This sounds low-ish if you don't realize that the real (inflation-adjusted) return for the fund will probably average out to about 4%, so it's really something like a quarter of your earnings gone. With an IRA, you don't have to do that. You can get an IRA provider which offers good, cheap index funds and the like (cough Vanguard cough). Fund fees will probably be closer to 0.1%-ish. HOWEVER. The maximum IRA contribution in 2013 will be $5,500. The maximum for a 401(k) contribution will be $17,500. That extra capacity is enough to recommend a 401(k) over an IRA for many people. These people may be best served by putting money into the 401(k) and then rolling it over into a rollover IRA when they change jobs. Also, certain people have retirement plans which offer them good cheap index funds. These people probably don't need to worry quite as much. Finally, having two accounts is more complicated. Please contact someone who knows more about taxes than I am to figure out what limitations apply for contributing to both IRAs and 401(k)s in the same year.","\"Early this year I wrote an article Are you 401(k)o’ed? I described the data from a 401(k) expense survey and the punchline was that the average large retirement plan (over 1000 participants) expense was 1.08%, and for smaller plans it rose to 1.24%. As I commented below, if one's goal is to make deposits with income that avoid a tax of 25%, and hope to withdraw it at retirement at 15%, it doesn't take long for a 1% fee to completely negate the benefit of pretax savings. These numbers are averages, in the same article, I mention (ok, I brag) that my company plan has an S&P fund that costs .05%. That's 1% over 20 years. The sound bite of \"\"deposit to the match\"\" needs to be followed by \"\"depending on the choice of investments and their expenses\"\" within the 401(k). Every answer here has added excellent points, fennec's last sentence shouldn't be ignored, there's a phaseout for IRA deductibility, and another for Roth eligibility. For Married filing joint, IRA deduction starts to be lost at $92K, and Roth deposit disallowed at $173K. This adds a bit to the complexity of the decision, but doesn't change the implication of the 1%+ 401(k) fees.\"","\"Unfortunately, I missed most of segment and I didn't get to understand the Why? To begin with, Cramer is an entertainer and his business is pushing stocks. If you put money into mutual funds (which most 401k plans limit your investments to), then you are not purchasing his product. Also, many 401k plans have limited selections of funds, and many of those funds are not good performers. While his stock-picking track record is much better than mine, his isn't that great. He does point out that there are a lot of fees (mostly hidden) in 401k accounts. If you read your company's 5500 filing (especialy Schedule A), you can determine just how much your plan administrators are paying themselves. If paying excessive fees is your concern, then you should be rolling over your 401k into your IRA when you quit (or the employer-match vests, which ever is later). Finally, Cramer thinks that most of his audience will max out their IRA contributions and have only a little bit left for their 401k. I'm most definately \"\"not most people\"\" as I'm maxing out both my 401k and IRA contributions.\"","If you exceed the income limit for deducting a traditional IRA (which is very low if you are covered by a 401(k) ), then your IRA options are basically limited to a Roth IRA. The Cramer person probably meant to compare 401(k) and IRA from the same pre-/post-tax-ness, so i.e. Traditional 401(k) vs. Traditional IRA, or Roth 401(k) vs. Roth IRA. Comparing a Roth investment against a Traditional investment goes into a whole other topic that only confuses what is being discussed here. So if deducting a traditional IRA is ruled out, then I don't think Cramer's advice can be as simply applied regarding a Traditional 401(k). (However, by that logic, and since most people on 401(k) have Traditional 401(k), and if you are covered by a 401(k) then you cannot deduct a Traditional IRA unless you are super low income, that would mean Cramer's advice is not applicable in most situations. So I don't really know what to think here.)"],"string":"[\n \"The matching funds are free money, so it is a very good idea to take that money off the table. Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k). (Obviously, I'm keeping things simple. Vesting schedules mean that the employer match isn't yours to keep immediately, but rather after some time; usually in chunks.) Beyond the employer match, you need to consider what is available for investment in a 401(k). Typically, your options are more limited then in an IRA. The cost of the 401(k) should be considered, as it isn't trivial for most. (The specifics will of course vary, but in large IRA accounts are cheaper.) So, it's about the opportunity costs. Up to the employer match, it doesn't matter as much that your investment choices are more limited in a 401(k), because you're getting 100% return just on the matching funds. Once that is exhausted, you have more opportunity for returns, due to having more options available to you, by going with an account that provides more choices. The overall principle here is that you have to look at the whole picture. This is similar to the notion that you should pay-down your high interest debt before investing, because from the perspective of investing the interest you're paying represent a loss, or negative return on investment, since money is going out of your accounts. Specific to your question, you have to consider the various types of investment vehicles available to you. It is not just about 401(k) and IRA accounts. You may also consider a straight brokerage account, a savings account, CDs, etc. The costs and returns that you can typically expect are your guides through the available choices.\",\n \"In addition to George Marian's excellent advice, I'll add that if you're hitting the limits on IRA contributions, then you'd go back to your 401(k). So, put enough into your 401(k) to get the match, then max out IRA contributions to give you access to more and better investment options, then go back to your 401(k) until you top that out as well, assuming you have that much available to invest for retirement.\",\n \"I'd hazard that Jim is mostly worried that people are getting ripped off by high employer 401(k) fund fees. A lot of employers offer funds with fees over 1% a year. This sounds low-ish if you don't realize that the real (inflation-adjusted) return for the fund will probably average out to about 4%, so it's really something like a quarter of your earnings gone. With an IRA, you don't have to do that. You can get an IRA provider which offers good, cheap index funds and the like (cough Vanguard cough). Fund fees will probably be closer to 0.1%-ish. HOWEVER. The maximum IRA contribution in 2013 will be $5,500. The maximum for a 401(k) contribution will be $17,500. That extra capacity is enough to recommend a 401(k) over an IRA for many people. These people may be best served by putting money into the 401(k) and then rolling it over into a rollover IRA when they change jobs. Also, certain people have retirement plans which offer them good cheap index funds. These people probably don't need to worry quite as much. Finally, having two accounts is more complicated. Please contact someone who knows more about taxes than I am to figure out what limitations apply for contributing to both IRAs and 401(k)s in the same year.\",\n \"\\\"Early this year I wrote an article Are you 401(k)o’ed? I described the data from a 401(k) expense survey and the punchline was that the average large retirement plan (over 1000 participants) expense was 1.08%, and for smaller plans it rose to 1.24%. As I commented below, if one's goal is to make deposits with income that avoid a tax of 25%, and hope to withdraw it at retirement at 15%, it doesn't take long for a 1% fee to completely negate the benefit of pretax savings. These numbers are averages, in the same article, I mention (ok, I brag) that my company plan has an S&P fund that costs .05%. That's 1% over 20 years. The sound bite of \\\"\\\"deposit to the match\\\"\\\" needs to be followed by \\\"\\\"depending on the choice of investments and their expenses\\\"\\\" within the 401(k). Every answer here has added excellent points, fennec's last sentence shouldn't be ignored, there's a phaseout for IRA deductibility, and another for Roth eligibility. For Married filing joint, IRA deduction starts to be lost at $92K, and Roth deposit disallowed at $173K. This adds a bit to the complexity of the decision, but doesn't change the implication of the 1%+ 401(k) fees.\\\"\",\n \"\\\"Unfortunately, I missed most of segment and I didn't get to understand the Why? To begin with, Cramer is an entertainer and his business is pushing stocks. If you put money into mutual funds (which most 401k plans limit your investments to), then you are not purchasing his product. Also, many 401k plans have limited selections of funds, and many of those funds are not good performers. While his stock-picking track record is much better than mine, his isn't that great. He does point out that there are a lot of fees (mostly hidden) in 401k accounts. If you read your company's 5500 filing (especialy Schedule A), you can determine just how much your plan administrators are paying themselves. If paying excessive fees is your concern, then you should be rolling over your 401k into your IRA when you quit (or the employer-match vests, which ever is later). Finally, Cramer thinks that most of his audience will max out their IRA contributions and have only a little bit left for their 401k. I'm most definately \\\"\\\"not most people\\\"\\\" as I'm maxing out both my 401k and IRA contributions.\\\"\",\n \"If you exceed the income limit for deducting a traditional IRA (which is very low if you are covered by a 401(k) ), then your IRA options are basically limited to a Roth IRA. The Cramer person probably meant to compare 401(k) and IRA from the same pre-/post-tax-ness, so i.e. Traditional 401(k) vs. Traditional IRA, or Roth 401(k) vs. Roth IRA. Comparing a Roth investment against a Traditional investment goes into a whole other topic that only confuses what is being discussed here. So if deducting a traditional IRA is ruled out, then I don't think Cramer's advice can be as simply applied regarding a Traditional 401(k). (However, by that logic, and since most people on 401(k) have Traditional 401(k), and if you are covered by a 401(k) then you cannot deduct a Traditional IRA unless you are super low income, that would mean Cramer's advice is not applicable in most situations. So I don't really know what to think here.)\"\n]","isConversational":false}}},{"rowIdx":266,"cells":{"_id":{"kind":"string","value":"2183"},"query":{"kind":"string","value":"Why are there many small banks and more banks in the U.S.?"},"gt_ids":{"kind":"list like","value":["132678","124427","571625","498146","24994","24344"],"string":"[\n \"132678\",\n \"124427\",\n \"571625\",\n \"498146\",\n \"24994\",\n \"24344\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["132678","498146","24344","550924","248863","571625","124427","24994","553762","18749","10849","550303","476851","493676","149258","322168","486669","107519","9561","374078","129894","270866","462218","491523","582270","537057","511563","95440","536048","575241","175824","424503","580918","339518","98096","469731","63844","189303","387573","111240","37269","507000","587737","305179","378154","535566","26578","258121","595564","315363","340329","535817","171123","558701","252629","552713","145270","545153","209493","335774","263965","276906","381102","294212","311423","201863","17765","495697","517810","71276","261389","470549","458485","30090","473581","54019","564709","500985","326836","417460","104239","528363","596714","249839","258141","158","372294","88196","577251","206109","340435","117286","366753","373192","369677","461416","268914","361114","61026","398131"],"string":"[\n \"132678\",\n \"498146\",\n \"24344\",\n \"550924\",\n \"248863\",\n \"571625\",\n \"124427\",\n \"24994\",\n \"553762\",\n \"18749\",\n \"10849\",\n \"550303\",\n \"476851\",\n \"493676\",\n \"149258\",\n \"322168\",\n \"486669\",\n \"107519\",\n \"9561\",\n \"374078\",\n \"129894\",\n \"270866\",\n \"462218\",\n \"491523\",\n \"582270\",\n \"537057\",\n \"511563\",\n \"95440\",\n \"536048\",\n \"575241\",\n \"175824\",\n \"424503\",\n \"580918\",\n \"339518\",\n \"98096\",\n \"469731\",\n \"63844\",\n \"189303\",\n \"387573\",\n \"111240\",\n \"37269\",\n \"507000\",\n \"587737\",\n \"305179\",\n \"378154\",\n \"535566\",\n \"26578\",\n \"258121\",\n \"595564\",\n \"315363\",\n \"340329\",\n \"535817\",\n \"171123\",\n \"558701\",\n \"252629\",\n \"552713\",\n \"145270\",\n \"545153\",\n \"209493\",\n \"335774\",\n \"263965\",\n \"276906\",\n \"381102\",\n \"294212\",\n \"311423\",\n \"201863\",\n \"17765\",\n \"495697\",\n \"517810\",\n \"71276\",\n \"261389\",\n \"470549\",\n \"458485\",\n \"30090\",\n \"473581\",\n \"54019\",\n \"564709\",\n \"500985\",\n \"326836\",\n \"417460\",\n \"104239\",\n \"528363\",\n \"596714\",\n \"249839\",\n \"258141\",\n \"158\",\n \"372294\",\n \"88196\",\n \"577251\",\n \"206109\",\n \"340435\",\n \"117286\",\n \"366753\",\n \"373192\",\n \"369677\",\n \"461416\",\n \"268914\",\n \"361114\",\n \"61026\",\n \"398131\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"As an addendum to PeterK's answer, once upon a time, there were many Savings and Loan Associations (S&Ls) that acted as small banks, accepting savings deposits from people and lending money for home mortgages to local residents. Some of these S&Ls were chartered Federally with deposits insured by the FSLIC (similar to the FDIC which still insures deposits in banks) while others had State charters and used the State equivalent of FSLIC as the insurer. To induce people to save with S&Ls instead of banks, S&Ls paid higher rates of interest on their savings accounts than banks were permitted to do on bank savings accounts. Until 1980, S&Ls were not permitted to make consumer or commercial loans, have checking accounts, issue credit cards, etc., but once the US Congress in its wisdom permitted this practice, this part of the business boomed. (Note for @RonJohn: Prior to 1980, S&Ls offered NOW accounts on which \"\"checks\"\" (technically, Negotiated Orders of Withdrawal) could be written but they were not checks in the legal sense, and many S&Ls did not return these paid \"\"checks\"\" with the monthly statement as all banks did; writing a \"\"check\"\" while pressing hard created a carbon copy that could be used as proof of payment). In just a few years' time, many S&Ls crashed because they were not geared to handle the complexities of the new things that they were permitted to do, and so ran into trouble with bad loans as well as outright fraud by S&L management and boards of directors etc. After the disappearance of most S&Ls, many small banks (often with State charters only) sprang up, and that's why there are so many banks in the US. Mortgage lending is a lucrative business (if done right), and everyone wants to get into the business. Note that 4 branches of Bank of America in a Florida town is not a sign of many banks; the many different banks that the OP noticed in Maine is.\"","Actually it seems you are not quite correct about the number of different banks in Canada. https://en.wikipedia.org/wiki/List_of_banks_and_credit_unions_in_Canada According to this link there are 82-86 banks in Canada plus credit unions. This may still be lower than what would correspond to the number of banks in the US, scaled for canadian population. One further reason not mentioned before could be that the population density in Canada outside of the metropolitan areas could be lower than in the US, leaving to few small towns large enough (10,000+ (a guess corrected due to comment)) to support a bank.","\"First, is population density. You didn't say where exactly, but for example here in Tampa, Wells Fargo has 25 branches in the area (though that is a bit larger then what I would think of the Tampa area as a local) Second, we can mix in service expectation. I expect that in addition to \"\"good\"\" online service, \"\"great\"\" phone service, \"\"great\"\" email service, that when I have a problem, don't understand something, or want to talk about my options for investing or choosing account types, that I am able to go into a branch. That I can \"\"walk in\"\" and see someone quickly, or schedule an appointment and see some one right away (at my appointment time). Together, these two options means that on a busy day, the nearest Wells Fargo Branch to me has at any one time, 50 - 60 people in it. Smaller branches, of course have less, and larger branches exist. So it just takes that many branches to address the number of people and their expected needs. As to why there are so many different brands/banks Well that's just the USA. We believe in capitalism. We have believed in it much stronger in the past, but banks are the central to capitalism so why shouldn't they serve as an example. At it's core (a very simplistic look) Capitalism and a free market means that we as customers are better served by having lots of different brands fighting for our business. It should drive more consumer desired features (like lower prices, higher interest rates, better fee schedules, etc.) while forcing those brands to operate \"\"better\"\". (Just ignore the bail out, that's a loaded topic) So for some of us, we want a big bank like Wells Fargo, because we want the rates, structure, and service they can provide as a \"\"big bank\"\". For others they want the more personal touch of a \"\"small bank\"\". There are benefits both ways. For example there may be a bank that only allows people with excellent credit to open accounts. That allows they to have lower over all mortgage rates, but means their checking accounts have higher minimums. While the next bank may be more inclusive, and have smaller minimum balances, but as a result charge more for loans. We like our options, and rest assured all those \"\"brands\"\" offer products that have differences that attract customers.\"","Ya small local banks effectively do not exist in Canada. We do however have a number of credit unions. I'm actually going to be defensive of the big five as they are actually well run (or rather well regulated). Our banking context is in many ways radically different up north.","Large businesses are, in every model, considered to be less likely to default, and Lehman brothers etc notwithstanding, this is historically correct. However, this is still stupid, since the diversification of lending money to many small businesses is way better. This, in turn, is not mapped properly by the regulations on reserve capital. Tl;dr: Banks get punished by regulations if they lend money to small institutions instead of large ones.","\"I can't find a citation, but from memory (EDIT: and reading the newspapers at the time it happened): up until around 1980, banks couldn't cross state borders. In my state, at least, they were also very local, only staying within one county. This was to enforce \"\"localness\"\", the thought being that local bankers would know local people and the local situation better than far away people who only see numbers and paperwork.\"","Wikipedia has a good summary: Historically, branch banking in the United States - especially interstate branch banking - was viewed unfavorably by regulatory authorities, and this was codified with the enactment of the McFadden Act of 1927, which specifically prohibited interstate banking. Over the next few decades, some banks attempted to circumvent McFadden's provisions by establishing bank holding companies that operated so-called independent banks in multiple states. To address this, The Bank Holding Company Act of 1956 prohibited bank holding companies headquartered in one state from having branches in any other state. Most interstate banking prohibitions were repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Research has also found that anticompetitive state provisions restricted out-of-state growth when those provisions were more restrictive than the provisions set by the Interstate Banking and Branching Efficiency Act or by neighboring states. Some states have also had restrictive bank branch laws; for example, Illinois outlawed branches (other than the main office) until 1967, and did not allow an unlimited number until 1993.","In the US, paper checks are still the rule, and there is a large amount of the population that does not care to use online banking. As a result, those people need to go to the bank once a week or more often, to deposit checks they get from anywhere, to get cash, etc.; so all those little banks have traffic. This is slowly changing, and banks start to automatic the processes even in the brick-and-mortar location, but for now, they are around.","Capital requirements for a de novo bank, as opposed to an established one, are a real bitch. Basically the government wont let you loan nearly as much of your money out. You can't skirt this by buying an existing bank. Regulators don't want upstarts making stupid loans and thus encouraging lower credit criteria systemwide. Also Incumbents don't want more competition and they have lobbyists so I don't see this changing soon.","I'd add that bigger banks tend to have experience doing more complicated things. As an example, my local credit union (~12 offices), simply didn't have the software to wire money to a Canadian bank, as where Chase did. The Canadian routing number wasn't in the format of a US institution, and their software user interface just didn't allow for that number to be entered. Also, most smaller banks don't have international toll free (in-country) numbers for foreign access. Smaller banks also tend to have less sophisticated business banking tools and experience. If you take a Treasury bond approval to a small bank, they'll generally look at you like you have three heads. So the international side of things is definitely in the favor of big banks; they have a lot more money to dump on services.","\"The most succinct answer is \"\"Banks are in the Money business\"\". Not construction, not real estate, not any of the other things they may find find themselves sometimes being dragged (foreclosure) or tempted (construction) into. \"\"Money\"\" is their core competence, and as good business people they recognize that straying outside that just dilutes their focus.\"","\"Small community banks are absolutely vital to our economy. Plenty of people these days talk about \"\"buying local,\"\" but you never hear them talking about banking local. My friends, for the most part, lean left of center politically, so they constantly complain about Wal-Mart and other large brick and mortar chains, but when I called them out on their banking by asking them to pull out their debit cards, they all banked with larger banks; Chase, PNC, Key; the only person (beside myself) who didn't bank with a large national/multi - national bank uses Huntington, which is still a very large regional bank with over $100 billion in assets. They said they didn't want to have to pay ATM fees, to which I responded that many community banks will reimburse the customer for those fees up to a certain amount (like my bank does.) They just shrugged and said they liked the convenience of it, so I asked them why do they think people shop at Wal-Mart? I didn't really get a good answer to that; they just said \"\"it's different.\"\" The best way to invest in your community is to bank with a local community bank. Those mom and pop shops you love so much; the plumber who lives down the street; the micro brewery that just opened up all do their banking with the local community bank.\"","\"This is the best tl;dr I could make, [original](http://econlog.econlib.org/archives/2017/06/american_bankin.html) reduced by 92%. (I'm a bot) ***** > The importance of the unit banking laws is obvious when you consider than Canada had no bank failures during the Great Depression, despite a similar fall in NGDP. Today, that sort of decline in NGDP would wipe out virtually the entire US banking system. > The pattern is that the governments, on the one hand, protects banks in the forms of deposit insurance or government bailouts when a crisis happens, or give banks certain opportunities. > The way the governments get the banks to subsidize mortgage risk is by protecting the banks. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6fcfck/american_banking_socialism_or_laissezfaire/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~136658 tl;drs so far.\"\") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **Bank**^#1 **government**^#2 **deposit**^#3 **lend**^#4 **more**^#5\"","\"They're over-regulated, but no sifi favors 0 regulation - that's fucking stupid and breaks the \"\"stable\"\" state of competitive universal banking. But consumers are suffering because the regulations are so fucking stupid and costly. It's a bunch of academia-branded lawyers imposing regulations on 30-50 year bankers. That wouldn't go well anywhere. Most bankers have different views - Kashkari is a Goldman guy who wants to break all the big banks up into regional competitors. If that happens, your deposits will have a higher return window, but then you actually have a daily risk to your deposits in the name of competition...I mean, fuck that.\"","I would have been tempted to dismiss your claim, but the data I found shows that you're correct. On the plus side, the growth rate in credit union market share is higher in New York than it is in California. While there is no question that bankers hate credit unions, I can't tell you why credit unions have a smaller market share in NY. Maybe the regulatory environment is part of it. Banks have a big lobby, and they pay a lot of taxes in NYC.","\"Nearly every country has its own exchange because so many countries have their own currency, and currency permeates every part of an exchange's business. Generally, an exchange will support transaction and settlement only in local currency. Securities (except those that explicitly enable FX trading) are denominated and will trade in a single currency-- you can only buy a share of IBM in U.S. dollars. Securities trading always seeks to be a clean, frictionless, scalable process, and adding cross-currency translation to the mix would just complicate things. So it's one exchange, one currency. In most countries, citizens and even businesses are largely restricted to having bank accounts in local currency. There are various political reasons for this, but there it is: it is difficult or impossible to open a domestic bank account in a foreign-denominated currency. A public company headquartered in a given country will be required to publish financial statements in local currency, will be more likely to do business with the local citizenry and businesses in that currency, and so will likely look for investors from that same pool-- which generally means listing in local currency, which means on an exchange in that country. There are exceptions, of course. Big multinationals do business all over the world, and many seek investors all over the world as well. Mechanisms have been created to permit this (American Depositary Receipts or ADRs, for example). But once again, cross-currency translation makes things more complicated, so ADRs and their like are only practical for very big international players. As to why there may be many exchanges in a single country, IMO Nick R has it right. Read \"\"Flash Boys\"\"; many market makers profit from trading between exchanges, and so have an interest in there being many of them. And in the U.S., regulators have expressed an interest in \"\"innovation\"\" in the exchange space, and so permit them. There is also an argument to be made against having a single \"\"Too Big To Fail\"\" exchange just like the argument for banks, but I wouldn't call that a \"\"reason\"\" for the current state of affairs.\"","In Scotland, each bank issues its own separate notes. It's not uncommon to see identical-valued £10 notes, for example, from three different banks in one's wallet.","There are many reasons but perhaps the most telling is that these small foreign companies usually have not experienced diminishing marginal returns. This means they grow faster, which means higher returns for investment. However a lack of infrastructure, and of political and economic stability, make these investments risky!","How can banks be expected to make good decisions when they are not responsible for creating their own reserve? Do you think that the banking system could run without FDIC? And why? And what is your opinion on local banking vs. big corp banking?","Well, it seems you can't answer the question. Perhaps the difference in types of banks isn't so dry, is it, you dumb fuck. But go ahead an double down on being an ignorant idiot who thinks he knows it all. If you get into politics it will serve you well.","But what creates more business owners? They don't pop up out of the ground, and there are always lots of people that want to make their own business. Businesses need capital, they need startup funds. Angel investors, VCs and banks provide the capital.","http://www.fdic.gov/deposit/deposits/index.html FDIC currently insures up to $250,000. (I would have put that as a comment to Jeffery but it says it was locked.) You don't want to put all your eggs in one basket. If you shop around, and keep shopping all the time you can keep your accounts in a single place so long as that single place provides the best deal. Don't have any loyalty to your banking institutions because they don't have any loyalty to you. Also, having lots of accounts means you are familiar with lots of institutions, so you are likely better at shopping around. Things I consider. For fewer institutions: For more institutions:","No, what I'm saying is that the extant regulations have created such massive overheads to compliance that *only* big businesses can operate in that market because of the expenses required to be compliant. Eliminating that overhead would reduce expenses and make it possible for a greater diversity of firms to exist, reducing the *average size of any individual firm*, and increasing stability through diversity.","\"In the US, this was the case during the 19th century. There was a system of \"\"subscriptions\"\" between banks, where larger banks backed the smaller banks to some extent. In trade, notes from distant banks were not accepted or discounted relative to known local banks, or silver/gold coinage. There were a number of problems with this system which came to a head during the Panic of 1907. During this crisis, a cascading series of banking failures was only stopped by the personal intervention of JP Morgan. Even when Morgan intervened, it was very difficult to make capital available in a way that avoided the panic. The subsequent creation of the Federal Reserve was a response to that crisis.\"","When the market isn't allowed to favor one currency (provider) over another, there must be a central authority with the power to regulate, provide, and insure it. People don't learn the dangers of fractional reserve banking and the resulting expansions and contractions of the money supply when the providers of the currency aren't allowed to fall, taking the savings of depositors with them. Insuring people against the dangers of mismanaged money guarantees the mismanagement of money.","> Conglomerates have no interest in gaining control of tiny businesses through loan collateral. Yes they do, at least in China. China has very low farm labor productivity by developed nations status. Agribusiness would be very profitable in China. **The reason why it's in check is because it would make hundreds of millions of farmers redundant**, so the government prevents the industry from encroaching too much.","Yeah, and what blows my mind most is that there was a very easy out for regulatory relief that would have actually brought us closer to compliance with BCBS rules. In the US the threshold for Basel rules is $50B in assets, while under Basel III and in most of the world its €250B. Just adopting this standard would give small banks relief. As an aside, the new law would also make it harder for the Fed to adopt the Basel III finalization rules, which are incredibly advantageous to US banks and which we fought hard for.","The Livret A is a very specific product. It's tax-exempt and would historically not be available through regular banks. Commercial banks can now offer it but they only collect the money on behalf of the Caisse des dépôts (CDC). The CDC then pays interest to the savers and a commission for the bank. The commission is baked into the system, not charged to the customer directly but since the interest rate is set centrally, banks cannot compete on that. So this is risk-free money for them (but on the flip side it does not help them meet capital adequacy requirements). Other savings account or products have different rules. Another angle to consider is that a livret A was historically very attractive for consumers (and was certainly perceived as such) so that many people would have a checking account at a regular bank and another account at the Caisse d'épargne or the Banque postale just to open a livret A. For commercial banks, the alternative therefore isn't having your money on your checking account vs. your livret A or another savings account, it was having your money on a livret A they administer vs. seeing you run away to another institution. There is also a cap on the livret A and you're not allowed to save more money by opening several of them at different banks. At the same time banks have been complaining that the decrease of the interest rate (and consequently of their commission) makes the whole scheme a lot less interesting for them. For what it's worth, I recently (re)opened a bank account in France after living abroad for a long time and the customer advisor did not seem particularly interested in pushing a livret A.","It's not too difficult. Every state has a few local banks that don't do this shit and with new current technology most have apps and allow you to deposit money without going to the bank itself. Yeah you don't have an ATMs everywhere but the need for ATMs deacreses each year. My local bank will even refunds me ATM charges up to 100$ a year.","Part 1 Quite a few [or rather most] countries allow USD account. So there is no conversion. Just to illustrare; In India its allowed to have a USD account. The funds can be transfered as USD and withdrawn as USD, the interest is in USD. There no conversion at any point in time. Typically the rates for CD on USD account was Central Bank regulated rate of 5%, recently this was deregulated, and some banks offer around 7% interest. Why is the rate high on USD in India? - There is a trade deficit which means India gets less USD and has to pay More USD to buy stuff [Oil and other essential items]. - The balance is typically borrowed say from IMF or other countries etc. - Allowing Banks to offer high interest rate is one way to attract more USD into the country in short term. [because somepoint in time they may take back the USD out of India] So why isn't everyone jumping and making USD investiments in India? - The Non-Residents who eventually plan to come back have invested in USD in India. - There is a risk of regulation changes, ie if the Central Bank / Country comes up pressure for Forex Reserves, they may make it difficut to take back the USD. IE they may impose charges / taxes or force conversion on such accounts. - The KYC norms make it difficult for Indian Bank to attract US citizens [except Non Resident Indians] - Certain countries would have explicit regulations to prevent Other Nationals from investing in such products as they may lead to volatility [ie all of them suddenly pull out the funds] - There would be no insurance to foreign nationals. Part 2 The FDIC insurance is not the reason for lower rates. Most countires have similar insurance for Bank deposits for account holdes. The reason for lower interst rate is all the Goverments [China etc] park the excess funds in US Treasuries because; 1. It is safe 2. It is required for any international purchase 3. It is very liquid. Now if the US Fed started giving higher interest rates to tresaury bonds say 5%, it essentially paying more to other countries ... so its keeping the interest rates low even at 1% there are enough people [institutions / governemnts] who would keep the money with US Treasury. So the US Treasury has to make some revenue from the funds kept at it ... it lends at lower interest rates to Bank ... who in turn lend it to borrowers [both corporate and retail]. Now if they can borrow cheaply from Fed, why would they pay more to Individual Retail on CD?, they will pay less; because the lending rates are low as well. Part 3 Check out the regulations","Lending isn't profitable when interest rates are this low. Consider what's involved to offer a savings or checking account. The bank must maintain branches with tellers. The bank has to pay rent (or buy and pay property taxes and utilities). The bank has to pay salaries. The bank has to maintain cash so as to make change. And pay for insurance against robbery. All of that costs money. At 6% interest, a bank can sort of make money. Not great money, but it takes in more than it has to pay out. At 4% interest, which is about where ten year mortgage rates are in Canada, the bank doesn't make enough margin. They are better off selling the loan and closing their branches than offering free checking accounts. An additional problem is that banks tend to make money from overdraft fees. But there's been a move to limit overdraft fees, as they target the most economically vulnerable. So Canadian banks tend to charge monthly fees instead. UK banks may also start charging monthly fees if interest rates stay low and other fees get curtailed.","Exactly what kind of regulations are you talking about here? Regulation in the form of licensing for doctors and lawyers is one thing, but what are you implying in regulation stopping competition for other types of business? As for the profit, I would say there are a lot of contributing factors, Globalization being a big one. Edit: No need to downvote, just asking for clarification...","Because people who work with practical skills work for their own means, and not for corporations. The banks are HEAVILY invested in Corporations. The banks are also HEAVILY invested in debt. Our entire system is orchestrated by the banks. They want a workforce that is highly specialized and in debt- this ensures that they are entirely dependent on Corporate jobs for money to pay debts and on big agro for their food.... It's all a trap. Any one want to blow off the Corporations and go live/work directly for our own needs on a homestead/commune farm?","\"The problem is \"\"what would have been\"\" without regulations. A good cause and effect is the Durbin amendment to DFA - they randomly regulated interchange debit card transactions (win for Walmart, loss for banks) so it no longer makes sense to offer free checking to poor people. WMT wins, banking loses, poor people lose. The other issue is maxing out regulations actually makes the system more frail as it promotes consolidation in the sector. Consultants love it - tons of free, easy, no thought work.\"","\"because bankers are crooks is a very close answer. Just accept the truth that financial industry is the only service industry that could turn into giant parasite chopping pieces from real economy. I am not anti-financial, because greed is not banker's fault, but just one significant part of human nature. Every human being has greed and fear built in it. But financial industry is the only one which is built on exploiting greed and fear. Governments are throwing gasoline canister into that fire in desperate extinguish attempts, trying to \"\"regulate\"\" but only making it worse. With all that \"\"counter-cybercrime\"\", \"\"counter-terrorism\"\" and \"\"counter-everything\"\" efforts, ordinary people will be hurt as always.\"","\"This is unfortunately the truth, and I spend a lot of time with my clients trying to help them through this process. One of the key metrics that banks judge themselves on is \"\"products per household.\"\" The more things you have attached to them, the less likely you are to leave, and they deliberately tie you in with more and more services, e.g. direct deposit, billpay, debit cards, credit cards, etc. If you want to switch but are held back by the daunting task of all the stuff you need to do, it's easier than most people think, and bankers at those smaller banks who are getting your accounts should be more than happy to do about 80% of the work for you. *The other 20% can only be done by you personally due to privacy laws, but your banker can guide you through that too. A prime example: A customer of mine wanted to switch, but he didn't want to go to the old bank to actually wait in line and go through with the nonsense of actually closing the account. I see that anxiety over confrontation a lot, by the way. So I have saved on my desktop a form letter is a simple request by the customer to close their account at 2B2F bank. They sign it, I notarize it, and send it off to the branch. The branch of receipt has to close the account per the request. Before we send that letter, we get everything set up with the new bank, draw the old one down to $10 or so, and give instructions to the old bank to remit a check payable to the customer and mail it to me. Then the old account is closed, and I just deposit that nominal amount into the customer's account. The customer literally never has to set foot in the old bank again. The unfortunate thing is that not everyone knows that these kinds of things are even possible: that your banker should help you with this stuff, or that you can do pretty much everything remotely. Plus, if you look at the smaller banks and CUs these days, they have eliminated the need or ubiquity (i.e. \"\"but their ATMs are everywhere!\"\") because a good bank or CU will never allow you to get charged to get your money, they will give you the direct line and email address of your branch manager, and a lot of places have mobile apps that allow you to deposit checks remotely.\"","There is absolutely no logical reason why each nation does not own and control banking and thus the supply of money. Any system including the financial system works exactly the same way, regardless of ownership. Banking depends solely on the confidence of the customers/investors. Therefore when a sovereign nation/state has ownership of the banks, the profits are kept in-house, within the nation, which is actually a bonus, and taxes can be off-set by profits, which is another benefit. Any improvement or benefit by the private ownership of banking is a total myth.","Another thing to factor in are deals provided by banks. In general, banks care about new customers more than their existing customers. Hence they explicitly restrict the best deals on credit cards, savings accounts, etc, to new customers only. (Of course, there are occasionally good deals for existing customers, and some banks choose not to discriminate.) If you have many different bank accounts, you are making yourself unavailable for switching bonuses and introductory rates.","Many of the Financial intermediaries in the business, have extraordinary high requirements for opening an account. For example to open an account in Credit Suisse one will need 1 million US dollars.","\"Traditional banks don't put their money onto the stock markets. In fact, the economic crisis was in part caused by the fact that banks were placing money into higher-risk portfolios and doing just that: in the UK there has been a debate for the last few years specifically around \"\"firewalling\"\" retail and investment bank operations entirely. What I was discussing was in the retail/consumer sector where the money comes in as mortgages & secured loans and - slightly riskier - unsecured credit, credit cards, etc. In that model, you do not need to be a genius. If I lend you $20k to buy a car and you don't repay me my money plus 8%, I get the car and therefore am unlikely to be seriously out of pocket. The only thing I have to do is make sure I lend to people likely to repay more often than I do to those who will not. And that, well, that's something we've got a few hundred years of experience with... If I walk onto the NYSE and start throwing around my cash at put option on exotic FX markets that are in turn responding to conditions almost impossible to truly understand, well, I'm sure we'd agree that it's hard to beat the market. That's why the investment banks who specialise in that market don't invest their own money: they make money from investing other people's cash. Clever guys. So we need to understand here there are two very different kinds of banks, with two very different business models, and it was the mixing of them that led to the disaster we've seen. Firewalling them makes sense to me! Communists who think banks are making money out of thin air don't seem to understand that, and so it's not surprising that they seem confused about what a bank is actually there for. Those who do get these two models must see that a retail bank is there to provide finance based on savings held and investment banks are there to help people invest in riskier markets. That does not mean they are \"\"magic\"\" or \"\"evil\"\". Now, they might argue that fractional reserve banking is a problem. I would imagine many of them would prefer the credit union model instead, but that's a different debate: that's the mechanics and detail, not the institutional need for existence.\"","Note that this is just looking at public firms, whose numbers have declined while the overall number of firms has increased. It would be interesting to compare their profits to GDP, that might be a better measure to find out whether profits are more concentrated than they used to be. Also note: > However, what could indeed be a deterrent—especially for smaller companies—is that the US Congress wields far more regulatory power over public companies than private ones, note the authors.","Although I do not know about US Institutions; In India Banks have adopted a mix of features that mitigate the risk. Some ways that are used are;","I'm always hesitant to use local credit unions because I love accessing all atms fee free, having services available 24/7, having robust, safe and audited online services, and having a big enough bank that all major third party tools interface with it. Joe Schmo Local Credit Union has a lot of good services, but audited and secure online banking? No fee nationwide ATMs? Native interfacing to major tools? I just don't see it often. I shudder to think of the security at small bank websites, frankly.","Since making loans isn't 'casino banking', I'm going to start a small, regional lending institution that just lends money to people to buy homes. I really want to open up home ownership to a larger group of people, maybe those who wouldn't qualify for traditional loans. I'm just not sure whether to call it Washington Federal or Countrywide Financial.","\"This is 100% accurate: \"\"Conversely, an industry with two or three firms can be more competitive than one with 50, such as supermarkets or online platforms like Uber where economies of scale can enhance competition between fewer but healthier players. The last 40-plus years of economic research is clear: Simply counting the number of firms in an industry tells you very little about competition.\"\"\"","For small amounts I wouldn't be too concerned. There are two factors I can think of: For relatively small amounts and when dealing with reputable banking institutions there should be little concern of banking with a single bank. It's what most people do.","Financial Aid - the government gives you better interest rates and is a better lender. Credit Cards - are for idiots. Mortgage and Loans - Credit Unions give a much better deal. They actually re-invest in the community. You can take you big banks and shove em' up your ass.","\"First off, I originally brought up Wells Fargo to show that big banks may not want to open the floodgates for lower level employees and management to have free reign to profit off customers in less than responsible ways. I didn't mean or want to get into a debate about past govt. oversight of Wells Fargo's practices. [But to your point:](https://www.housingwire.com/articles/39782-cordray-answers-charges-that-cfpb-didnt-take-lead-on-wells-fargo-scandal) >He explained that the bureau first received a whistleblower tip in July 2013. The exposé by the LA Times wasn’t published until December. > >Cordray did add that the LA Times coverage was a “splendid piece of investigative reporting” and that investigative reporting often aides government investigations. > >After that first whistleblower tip, Cordray explained that the Wells Fargo case over time grew into something bigger. > >As the CFPB watched Wells Fargo through 2014 and 2015 in supervisory activity, it became clear the situation was serious enough to migrate into an enforcement action, he said. I'm not sure what you're talking about here: >And what are you talking about freedom to \"\"compete\"\" against the big guys? What are you even talking about and how is that freedom threatened? I'm saying they *will* have freedom to compete in ways that may have negative impact on clients who have chosen to move their investments from bigger banks to smaller ones. As for the list of \"\"positives\"\" you gave surrounding this bill, [there are also negatives:](http://fortune.com/2017/06/07/financial-choice-act/) >Congress this week is considering the Choice Act, which would roll back regulations enacted after the 2007 financial crisis, particularly those designed by the Consumer Financial Protection Bureau (CFPB). Yet, the legislation goes even further and limits consumer access to information that could help them make better choices. > >One of the hallmarks of conservative regulatory philosophy is that educated and empowered consumers are preferable to government bureaucrats, regulations, and prohibitions. Yet, the conservatives in the House of Representatives appears ready to pass the CHOICE Act this week and in the process legally prohibit publishing data the government collects on consumer complaints on financial services. This is a mistake and would cost consumers and businesses. It would also go against the universal values of fair markets and informed consumers. But [this](https://www.nytimes.com/2017/06/08/business/dealbook/house-financial-regulations-dodd-frank.html) is what I find most concerning: >The bill would also eliminate the Labor Department’s fiduciary rule, which requires brokers to act in the best interest of their clients when providing investment advice about retirement. The first parts of the rule are scheduled to go into effect on Friday. The rule was completed last spring under Mr. Obama after years of development. My point, before you started arguing something different, was that larger banks often *need* the oversight conducted by their customers and the government in order to help them nip bad practices in the bud before it becomes a much larger issue. This may not be as much of an issue for smaller banks, but in the end, they all deal in the same industry and present the same danger to their customers if things go bad and employees don't take their intrinsic fiduciary responsibility seriously.\"","Good read. I do wish there were more stats on the issues associated with geographic concentration touched upon in the article. For example, how are the economic gains of being in an urbanized environment mitigated by the costs associated with traffic jams, urban poverty and crime? What would happen to the economy of the US if those inefficient small cities kept declining, how would it have to change?","How do credit unions work in the US? Why not just get rid of deposit insurance for commercial banks and keep it for credit unions. Restrict credit unions ability to filter money to the new 'investment bank' sector by keeping them out of repo and money markets (not sure if this is done currently) and bang - Corporates/institutions can still lend short and banks can still lend long in the professional world, while unsophisticated retail customer's checking accounts at least are protected from the inevitable crash.","\"In the United States, many banks aim to receive $ 100 per year per account in fees and interest markup. There are several ways that they can do this on a checking account. These examples assume that there is a 3 % difference between low-interest-rate deposit accounts and low-interest rate loans. Or some combination of these markups that adds up to $ 100 / year. For example: A two dollar monthly fee = $ 24 / year, plus a $ 2,000 average balance at 0.05% = $ 29 / year, plus $ 250 / month in rewards debit card usage = $ 24 / year, plus $ 2 / month in ATM fees = $ 24 / year. Before it was taken over by Chase Manhattan in 2008, Washington Mutual had a business strategy of offering \"\"free\"\" checking with no monthly fees, no annual fees, and no charges (by Washington Mutual) for using ATMs. The catch was that the overdraft fees were not free. If the customers averaged 3 overdraft fees per year at $ 34 each, Washington Mutual reached its markup target for the accounts.\"","Another reason is that the amount of unused credit you have is a positive factor on your credit score. It's generally easier to open several different accounts for $X dollars each with different banks than to get your current bank to raise your limit severalfold in a single go. Your current bank has to worry about why you suddenly are asking for a large additional amount of credit; while other banks will be willing to offer you smaller amounts of credit in the hope that you transfer your business from your current bank to them.",">I would imagine that given any lack of compulsory regulation, that Americans are using whatever means of payment that suits them. I'd agree, it's almost entirely about competition and consumer protections in areas like banking outside of the US rather than compulsory regulation pushing people to use particular approaches. I run a company in the UK, processing cheques is expensive and awkward (its a manual process, it costs money at basically all points of the process and is more likely to result in a failed payment) for me compared to almost every other method of payment, so I prefer (and actively encourage) the use of electronic payments instead. I can do that because my bank doesn't charge extra for processing electronic payments, in fact it's now cheaper to process them than cheques. That also makes sense from the banks perspective given it costs more money for them to maintain, offer and process cheque payments (to the point that they are already essentially converting them into electronic payments by scanning..). It's not Americans being backward, it's US banks. I doubt that if you had safe, secure, cheap and reliable electronic payment facilities, with the same level of protection and control as with a cheque, most Americans would take the same approach as they do elsewhere (After all, its convenient..).","A typical manufacturer buys raw materials, produces a product using labor and energy at a specific cost with some waste, and then sells the product to produce income. A bank buys raw materials (deposits) by paying interest, then uses labor and energy to turn a portion of the raw materials into their product (loans), they then receive income (interest) on those loans. If the income exceeds the cost to buy and produce the loans taking into account losses due to delinquencies (waste) the bank company has made a profit. The growing profits can lead to an increase in stock prices or the paying of dividends. The search for more raw materials can lead to paying more for the raw materials, or by buying other factories (branches) or even other bank companies.","> accessing all atms fee free, having services available 24/7, having robust, safe and audited online services, and having a big enough bank that all major third party tools interface with it. You just described my single state credit union I've been with for 19 years now, and not the big bank I was with before (Wells Fargo).","Subsidies are anti-competitice practices. Its the government picking winners and losers over the market's preference. Just like onerous regulations. Smaller companies aren't able to hire the overhead required to keep up with them, and are therefore fined out of existences due to this countries staggering regulatory burden.","Yeah, seriously. Cheating your customers has always been part of the core business of the major banks. How would they maintain their high CEO compensation without that extra money? They need to be competitive in executive level compensation to attract the kind of candidates that will keep their bank pulling in the money needed to pay themselves.","Modern banking is operated under central banking which is critical for maintaing a stable keynsian economy. Without central banking the economy is prone to the boom and bust cycle typical of early twentieth industrialization. Our money is not backed by 'nothing' it is backed by the faith and credit of the governments issuing them. Private banks don't issue anything. What fractional reserve banking does is say that for ever X amount of dollars you have in your vaults you can make Y amount of loans. This ratio is set by the central bank in what is called the reserve ratio. If the Fed sets the reserve ratio at 10% and they know the US economy has $10 trillion in circulation than $100 trillion dollars is going to eventually emerge through fractional reserve banking. This explains inflation. Of course the central bank could also raise the reserve ratio forcing banks to call in existing loans. This is deflation. Now if you're a bank and have $1 million dollars in the bank, a reserve ratio of 10% means you can make up to $10 million in loans without getting in trouble with the Fed. If the bank makes $10 million in loans and only recuperate $9 million in loans than they fall below the 10% reserve rate ratio and become insolvent, prior to 2008 these banks would go bankrupt, but the Fed has evolved it's roll into either bailing a bank out for it to recover and learn from it's mistakes or to let it go bankrupt. All people's deposits at these banks however are safe up to $250,000 thanks to the FDIC to protect from bank runs typical of the early twentieth century that intensified boom and bust cycles. Please don't bring in the Federal Reserve into this unless you want me to prove how stupid you are even more. I'm poor broke college student with nothing better to do with my time than to win internet arguments right now, you can't win. **Too stupid, didn't read: banks need to make successful loans or they go out of business, they don't create anything out of thin air. They just listen to whatever the central bank tells them what to do.**","\"It's easy to own many of the larger UK stocks. Companies like British Petroleum, Glaxo, and Royal Dutch Shell, list what they call ADRs (American Depositary Receipts) on the U.S. stock exchanges. That is, they will deposit local shares with Bank of NY Mellon, JP Morgan Chase, or Citicorp (the three banks that do this type of business), and the banks will turn around and issue ADRs equivalent to the number of shares on deposit. This is not true with \"\"small cap\"\" companies. In those cases, a broker like Schwab may occasionally help you, usually not. But you might have difficulty trading U.S. small cap companies as well.\"","Pay attention to nickel-and-dime charges (atm fees, low balance fees, limit on atm transactions per month, charge for human teller transaction, charge for paper statements or tax records). Consider that a financial company will spend on the order of $100-500 to sign up a good customer. Are you getting this in a cash bonus, competitive high interest rate, reasonable other gift, or advertising directed at your eyeballs? A variation in rates less than 1% easily fits into a marketing cost and there doesn't have to be any other magic to it.","\"The real reason credit cards are so popular in the US is that Americans are lazy and broke, and the credit card companies know how to market to that. Have you ever heard of the $30k millionaires? These were individuals that purchased as if they were some of the wealthy elite, but had no real money to back it up. American society has pushed the idea of \"\"living on credit\"\" for quite some time now. An idea that is even furthered by watching the US government operate solely on credit. (Raise the debt ceiling much?) Live in America for more than six months and you will be bombarded with \"\"Pre-Approved Deals\"\" with low introductory rates that are designed to sucker the average consumer into opening multiple accounts that they don't need. Then, they try and get you to carry a balance by allowing low minimum payments that could take in the neighborhood of 20 years to pay off, depending on carried balance. This in turn pads the credit companies' pockets with all of the interest you now pay on the account. The few truly wealthy Americans do not purchase on credit.\"","How often do you need to actually go to a bank? atm's, debit and credit cards work where ever. you can even deposit checks by taking a picture of them. dealing with cash would be more troublesome though.","The one those investors said 'hey instead of pricing Tesla 10 years out, we will pool in and create jobs, by founding a $5b bank with locations nationwide'. I use them because they give great rates at places I shop. Such as if I buy a new tv from that new company founded by that hedge fund that pulled out of netflixes 10 year pricing and started an electronics firm I save 25%!!","Stop defending banks. At the time of the 08 melt down, they opened up multiple ways for large financial institutions to borrow money either for collateral (usually shit assets) or with interest rates akin to free or near free. Do you know what that means? Free money. Borrow money for free, buy treasuries and profit. Who didn't have access? Those that didn't have the inside track in the Fed and in the upper levels of the U.S. government. That's why Lehman went under and Goldman, JPM, even GE (due to finance division) didn't go under. Far far too many people upvote pro corporate comments when they aren't even remotely accurate just because their worldview is that the world is just. How silly.","Idk why Banks are so opposed to holding just a bit more capital. It helps them avoid becoming suddenly insolvent should something happen. It's like they only care about personal short term gain and care little about being in the game for the long term.","Quite the opposite, crony capitalism has caused all of these problems. Big cable? Subsidized. Big oil? Subsidized. Big banks? Bailed out. And the tax code changes they're putting through now, why do you suppose this is being done? The US has the highest statutory corporate rate in the developed world, on small and large businesses. This is anti-competitive because in order avoid steep rates you need to hire big teams of tax lawyers, accountants, and other overhead to handle the paperwork and manage liability for you. Not only that, but its to the point now where most business decisions are not undertaken with the heath of the company in mind, but with great consideration to how it will effect the company's tax liability.","They don't need to accept deposits from normal persons, but that's how they make lots of money. Banks make money off the fees they charge retailers when those folks swipe their debit cards at the retailer. It's their bread and butter. In order to facilitate you accruing swipe fees for them, they need to allow you to make deposits, on which they can charge the retailers swipe fees.","On your first point, banks (or any large company) is primarily concerned with maintaining profits. I'm very familiar with this dynamic in media with broadcast vs streaming. They will try hard to charge as much as possible to sustain the stock price, while competitors will be as aggressive as possible to capture market share. This always happens with every industry that gets disrupted. The new entrants will permanently eat away at bank profits, whether they adapt or not. No comment on your second point. Possibly true, but I don't personally assume that yet.","I mean, when the federal government can pull your bank charter and the FDIC can revoke your government insurance, it's not worth the benefit just to support some small town pot grower. It's likely to be this way until the federal government legalizes it or gives outright approval to the banks.","Banking is highly regulated, but you may want to have a look at Basel II which is kind of an international standard on how to create banking regulations. Your country/state may have considered this when creating its own local regulation; the United States do.","\"I agree -- personally, at the expense of some of the convenience you speak of, I use credit unions exclusively. However, my credit union more than makes up for that with 1) online check deposit (only thing you ever need to go to a bank for) 2) ATM fee reimbursement With those two amenities, I don't need a branch on every corner. I am pretty disappointed with BofA's practices (profiting off of those who are \"\"less responsible\"\" -- to me it's wrong to profit off of people's 'stupidity'), so I would never bank with them. It's just a personal preference because 1) I don't need them and 2) I wouldn't want to indirectly support their business. I can understand why people stick with them, and frankly don't really care, to be honest... I just think they're a fundamentally bad company through and through and would rather keep my money away from them.\"","> The vast majority of companies in the US are small businesses This is a fairly useless measure. Example: Imagine if there was one company that hired 1 billion people. And 99 companies that hired 1 person each. You can now say that 99% of companies are small businesses. Which is true, but 99.9999999% of people don't work for a small business, they work for a large business. The small businesses are inconsequential.","\"This will happen automatically when you open an interest-bearing account with a bank. You didn't think that banks just kept all that cash in a vault somewhere, did you? That's not the way modern banking works. Today (and for a long, long time) banks will keep only a small fraction of their deposits on hand (called the \"\"reserve\"\") to fund daily withdrawals and other operations. The rest they routinely lend out to other customers, which is how they pay for their operations (someone has to pay all those tellers, branch managers, loan officers) and pay interest on your deposits, as well as a profit for their owners (it's not a charity service). The fees charged for loan origination, as well as the difference between the loan interest rate and the deposit rate, make up the profit. Banks rarely hold their own loans. Instead, they will sell the loans in portfolios to investors, sometimes retaining servicing rights (they continue to collect the payments and pass them on) and sometimes not (the payments are now due to someone else). This allows them to make more loans. Banks may sometimes not have enough capital on hand. In this case, they can make inter-bank loans to meet their short-term needs. In some cases, they'll take those loans from a government central bank. In the US, this is \"\"The Fed\"\", or the Federal Reserve Bank. In the US, back around the late 1920's, and again in the 1980's some banks experienced a \"\"run\"\", or a situation where people lost confidence in the bank and wanted to withdraw their money. This caused the bank to have insufficient funds to support the withdrawals, so not everyone got their money. People panicked, and others wanted to take their money out, which caused the situation to snowball. This is how many banks failed. (In the '80s, it was savings-and-loans that failed - still a kind of \"\"bank\"\".) Today, we have the FDIC (Federal Deposit Insurance Corporation) to protect depositors. In the crashes in the early 2000's, many banks closed up one night and opened the next in a conservatorship, and then were literally doing business as a new bank without depositors (necessarily) even knowing. This protected the consumers. The bank (as a company) and its owners were not protected.\"","There are several reasons why credit cards are popular in the US: On the other hand, debit cards do not have any of these going for them. A debit card doesn't make much money for the bank unless you overdraw or something, so banks don't have incentive to push you to use them as much. As a result they don't offer rewards other benefits. Some people say the ability to spend more than you have is a downside of a credit card. But it's really an upside. The behavior of doing that when it isn't needed is bad, but that's not the card's fault, it's the users'. You can get a credit card with a very small limit if this is an issue for you. The question I find interesting is why debit cards are more popular in your home country. I can't think of any advantage they offer besides free cash back. But most people in the US don't use cash much either. I have to think in your home country the banks have a different revenue model or perhaps your country isn't as eager to offer tons of easy credit to everyone as the US is.","Go to bankrate dot com. They will have a lot of metrics there that might give you an idea and rate each category. Capitalization and profitability metrics. May not be as granular as what you are looking for though.","The big risk for a bank in country X is that they would be unfamiliar with all the lending rules and regulations in country Y. What forms and disclosures are required, and all the national and local steps that would be required. A mistake could leave them exposed, or in violation of some obscure law. Plus they wouldn't have the resources in country Y to verify the existence and the actual ownership of the property. The fear would be that it was a scam. This would likely cause them to have to charge a higher interest rate and higher fees. Not to mention that the currency ratio will change over the decades. The risks would be large.","Politicians are for sale and regulations are useless when they are not enforced. Community banks and credit unions have to comply or get hammered by the state and federal governments. The mega banks soldier on under an utterly feckless and corrupt congress. People should never pay fees or credit card interest, pay off their loans, and get out from under banker's thumbs. They are giant impoverishing machines.","All unsubstantiated opinions. >there is no such thing as a relation between any interest rates and the cost to service the loans Really. No relation whatsoever? And your background in finance letting you understand this is what? Are you telling me every bank of the [7,213](http://www2.fdic.gov/idasp/) independent banks are in cahoots and none of them compete based on prices and services? Can you give me precise evidence that all those independent banks are not in competition? What should the price be for capital if the current prices are incorrect, and tell me why.","The best answer is, I think, also the simplest: A bank is an entity which performs maturity transformation. (Conversely, any entity that performs maturity transformation is acting as a bank, regardless of whether it is called one or is regulated as one. And an entity which does not perform maturity transformation isn't really a bank.) Maturity transformation is the process by which a bank accepts short-term deposits, and makes long-term loans. The benefit to society is fairly obvious; we (collectively) like being able to take out mortgages, but we also like having our money in a checking account and available on demand. Banks allow this to happen, although property bubbles and similar make it clear that this isn't without cost. (Note: Central banks are a completely different kettle of fish.)","\"The bank provides a service that the customer voluntarily agreed to - the bank will provide funds to the customer now and the customer will pay back those funds plus interest in the future. The arragement wasn't forced onto the customer. The government, on the other hand, takes money (the exchange is not volutary) from people to provide a \"\"service\"\". This frustrates a lot of people - myself included - since people do not have a choice. They must pay the taxes or go to jail (or have their house confisicated, wages garnished, etc.). It gets even more frustrating when the government takes money from the people and gives it to the banks, auto companies, insurance companies, etc..\"","The big box retailers weren't really a monopoly. It was just a better business model. There were many of them and they were very competitive with each other (we'll match our competitor's price). Many of them even went out of business because the profits were driven down to such low levels.","The core competency of banks is to lend money from depositors and re-lend that money to borrowers. They do not have the expertise to develop real estate. They have trouble evening managing foreclosed real estate, such that they have to sell them at a discount.","Many reasons mentioned already. The reason why I have multiple is missing: I have a personal card for my private use and a company card for company use.","My favorite part about using a local credit union is, if I have an account issue, I can just call up and talk to someone who works five minutes from my house without *ever* punching numbers into an automated answering system. Good luck doing that with Bank of America.","It's the equivalent of you being required to keep some of your savings in a near-zero percent interest savings account vs. being able to invest and grow that capital. Even if the capital requirements were peeled back slightly, (most) banks still hold more than enough capital to absorb extreme losses. Net/net the economy is safer, but less robust than it could be.","In the US, I would say the risk is exactly the same. If your accounts are withing the FDIC amount (currently $250,000) your balance is 100% covered in case of a failure. You are giving up a larger network of ATMs in some cases. You are also perhaps giving up the number of branches you can visit, the hours the bank is open and maybe how well the website works. The features might be less, but the protection for your deposits is the same.",">No, it's not. The bank can't just jack up prices when they've got competitors, after all. Yeah, you don't understand how this stuff works. The cost of changing banks is so high most people just grumble and eat it. It took a *massive* national campaign to switch to Credit Unions and *still* only 250K people did. >Again, if the bank has even one competitor who didn't suffer as much or any damage, customers aren't just going to suck it up. Again, wrong. >I'm not remotely an anarchist No wonder you seem to be somewhat more reasonable than most of them I've spoken to. >Brute force supports the existing regime. That's basically it. And the *image* that this is legitimate is what allows them to wield force without retribution.","\"In the US, usury is complicated and depends on the type of account, the bank charter and the where the bank makes credit decisions. Most major US credit cards are issued by entities in Utah, South Dakota and Delaware. None of these states have usury limits. Many states have usury limits. In New York, for example a loan may not exceed 16% interest, if the institution is supervised by the State. Credit card issuers are usually chartered as \"\"National Associations\"\" (ie Federally chartered banks regulated by the Comptroller of the Currency). There is no Federal usury statute, and Federally chartered banks are allowed to \"\"export\"\" many of the regulations of the state where credit decisions are made. Small states like South Dakota basically design their banking regulations to meet the needs of the banks, which are major employers.\"","And a large part of these kind of phenomenon that we see between the US and Europe just emerge from little initial differences which then carry out and compound themselves over time. For example, in the US, most people get their health insurance from the company they work for, because during WWII, the government obviously instituted a draft. But what is not as obvious, is that to keep wages low to keep the price of goods low, they insituted a wage freeze. The only way companies could compete and incentivize workers was through ancillary benefits. Health insurance being the most appealing.","maybe it would turn into an Oligopoly on it's own, but regulation as that pervasive is what I'm trying to avoid here. I advocate Worker Co-ops as the best examples for these firms because they actually allow a sense of welfare taken up by the workers who can self provide with actual trades (and because their co-ownership allows a voluntary loophole in minimum wage laws, you get a real chance to vindicate/prove Adam Smith's theory of flexible prices and wages based on economic activity.). With self-provided welfare, the Government can pull out of both transfer payments as well as financial regulations because these markets have become more differentiated to a diversity of opinions, so Government can step back and focus on its more important role of Researcher and Developer, which it tends to do better at than other roles. Firms can't do this if they are breaking even, like they would in perfect competition.","Here's a point in favor of central banks: With a central bank in the middle making sure payments clear, transactions can happen with near perfect trust. When a bank has a daylight overdraft, the Fed covers it. When a bank needs overnight funding, the Fed provides it. If a bank needs vault cash, a truck shows up from the Fed. Without this, no one could ever be entirely confident the other party was money-good. With a volume of transactions that can amount to annual GDP in as little as six days, this level of trust is critical to a smoothly functioning system of payments.","The principles behind creating and keeping those entities are reasonable, civilized, and economically sound. That being said, after seeing what the practical application became, I can't say I disagree with you. It might be a failed experiment at this point. The racial angle at the end cheapens your argument, though.","Suppose that the fixed overhead costs of delivering a service, not related to the actual volume of sales, are $50 million per year. Suppose the variable costs on top are $100 per customer per year. Suppose further that 1% of the population buys the service. In the US, 3.2 million people buy the service, and it costs $116 per person to deliver it ($100 plus $50 million divided by 3.2 million). In Australia, 230,000 people buy it, and it costs $317 per person per year to deliver it ($100 plus $50 million divided by 230,000). The larger your market, the cheaper everything is, and Australia is a very small market compared with the USA, the EU, China or India.","This is not a supply side issue (bank), but a demand side (small business) and there is simply no demand. Bank CEOs have been repeating that there is just no interest in borrowing right now, they would love to lend, but businesses are not taking the loans. Businesses are trying to firm up their balance sheets and with concerns of a recession looming most small business owners don't want to borrow and risk defaulting.","If a 08 crash and bailout happens again anytime soon I don't know if the banks will get to keep control this time around. Their power is directly related to the amount of capital they have and there are enough in Congress that see them as not being loyal enough to front the political capital required to refill the coffers if it is needed. I see the next bailout being the fed making a nationalization attempt.","Right. A banker provides a product/service, whether it be liquidity or something else, for a premium. The Rothschilds, for example (I'm only familiar with them because I like their wine), are typical examples of some of the first bankers of the modern era-- they provided the ability to exchange currencies at a market value, and it made them one of the wealthiest families of the modern world. If someone doesn't like banks, then let them walk onto the NYSE and make their own investment decisions. Which is a terrible idea because it's statistically almost impossible to beat the market. If you wanted to be able to prove that you are a successful investor you would have to have higher earnings than a market portfolio every day for around 180 years, in order to have a T-statistic of about 2.0.","> The racial angle at the end cheapens your argument, though. Thanks for pointing that out. Removed race and replaced with 'low income families' > The principles behind creating and keeping those entities are reasonable, civilized, and economically sound I disagree 100%. If banks did not have a big brother to bail them out of loans that went bust whenever they wanted, they would be a lot more careful in who they loaned money too. No one is promised a house and a lawn in this life. Some of us will be renters in apartments for life, and there is nothing wrong with that.","\"Not at these rates. The motto used to be 3/6/3: \"\"Borrow at 3%, Loan out at 6%, and then be at the golf course by 3pm\"\". So they get 3% on the spread, minus fixed costs. Now, they borrow at near 0% and loan out at slightly above 0%. Those fixed costs starts becoming an issue. It isn't cheap to have all these ATMs, bank branches, tellers, computer systems, etc. Also, a lot of the money cannot be loaned out at all because there are not enough creditworthy borrowers. You might have recalled a few months ago, several banks started charging for deposits. They don't want more money that will just lay there while they have to pay the costs of maintaining the accounts. Some bank CEOs have stated that they would be better off if the Fed raised rates up to 1%.\"","Your quote: There's about 10 trillion in gold and about 2.8 trillion of US cash in the world. Neither of these is anywhere large enough to be used for all the transactions in the world. So how was it commercial banks could lend like crazy for home mortgages?? M1 remaind constant throughout the decade and years , if frac multiplier effect was the cause for m2, why wasn't it until the 2000s that m2 became exponential? Commercial Banks able to create credit and lend out of thin air to customers thanks to deregulation that caused m2 to explode. They didn't need no FED. They didin't need no reserves. They were able to act regardless of the FED. The FED responded to them, instead of the other way around. Before deregulation banks didn't bother creating too much credit loans coz it was too dangerous, they were mostly utilty banks. After deregulation, creation of exotic derivatives, low interest rates, and high speed internet globalized digital trading, they went crazy creating credit out of thin air coz it wasn't dangerous because they could sell the home loans.","\"The Ponzi/Madoff schemes were closed loops, so the only source of the so-called \"\"interest\"\" on the money was the contributions of future investors. The economy is more like a living thing, and the availability of capital allows people to develop new ways to do things in a more productive way. Agriculture is a great example -- for most of human history the overwhelming majority of human labor was dedicated to producing food. Now that proportion is dramatically smaller -- the descendants of farmers 100 years ago are doctors and computer programmers... professions that could not exist. Fractional reserve banking makes the economy more efficient by putting capital that would otherwise be hoarded in circulation. Money is a medium of exchange, so the more it turns over, the better it is. Genoa and Britain pioneered this concept centuries ago, and were able to defeat larger rivals in large part because of the economic advantages that the practice brought to bear. That's not to say that banking doesn't come with its warts as well. I'd suggest reading \"\"A Free Nation Deep in Debt\"\", which does a good job of explaining how we got to where we are today.\""],"string":"[\n \"\\\"As an addendum to PeterK's answer, once upon a time, there were many Savings and Loan Associations (S&Ls) that acted as small banks, accepting savings deposits from people and lending money for home mortgages to local residents. Some of these S&Ls were chartered Federally with deposits insured by the FSLIC (similar to the FDIC which still insures deposits in banks) while others had State charters and used the State equivalent of FSLIC as the insurer. To induce people to save with S&Ls instead of banks, S&Ls paid higher rates of interest on their savings accounts than banks were permitted to do on bank savings accounts. Until 1980, S&Ls were not permitted to make consumer or commercial loans, have checking accounts, issue credit cards, etc., but once the US Congress in its wisdom permitted this practice, this part of the business boomed. (Note for @RonJohn: Prior to 1980, S&Ls offered NOW accounts on which \\\"\\\"checks\\\"\\\" (technically, Negotiated Orders of Withdrawal) could be written but they were not checks in the legal sense, and many S&Ls did not return these paid \\\"\\\"checks\\\"\\\" with the monthly statement as all banks did; writing a \\\"\\\"check\\\"\\\" while pressing hard created a carbon copy that could be used as proof of payment). In just a few years' time, many S&Ls crashed because they were not geared to handle the complexities of the new things that they were permitted to do, and so ran into trouble with bad loans as well as outright fraud by S&L management and boards of directors etc. After the disappearance of most S&Ls, many small banks (often with State charters only) sprang up, and that's why there are so many banks in the US. Mortgage lending is a lucrative business (if done right), and everyone wants to get into the business. Note that 4 branches of Bank of America in a Florida town is not a sign of many banks; the many different banks that the OP noticed in Maine is.\\\"\",\n \"Actually it seems you are not quite correct about the number of different banks in Canada. https://en.wikipedia.org/wiki/List_of_banks_and_credit_unions_in_Canada According to this link there are 82-86 banks in Canada plus credit unions. This may still be lower than what would correspond to the number of banks in the US, scaled for canadian population. One further reason not mentioned before could be that the population density in Canada outside of the metropolitan areas could be lower than in the US, leaving to few small towns large enough (10,000+ (a guess corrected due to comment)) to support a bank.\",\n \"\\\"First, is population density. You didn't say where exactly, but for example here in Tampa, Wells Fargo has 25 branches in the area (though that is a bit larger then what I would think of the Tampa area as a local) Second, we can mix in service expectation. I expect that in addition to \\\"\\\"good\\\"\\\" online service, \\\"\\\"great\\\"\\\" phone service, \\\"\\\"great\\\"\\\" email service, that when I have a problem, don't understand something, or want to talk about my options for investing or choosing account types, that I am able to go into a branch. That I can \\\"\\\"walk in\\\"\\\" and see someone quickly, or schedule an appointment and see some one right away (at my appointment time). Together, these two options means that on a busy day, the nearest Wells Fargo Branch to me has at any one time, 50 - 60 people in it. Smaller branches, of course have less, and larger branches exist. So it just takes that many branches to address the number of people and their expected needs. As to why there are so many different brands/banks Well that's just the USA. We believe in capitalism. We have believed in it much stronger in the past, but banks are the central to capitalism so why shouldn't they serve as an example. At it's core (a very simplistic look) Capitalism and a free market means that we as customers are better served by having lots of different brands fighting for our business. It should drive more consumer desired features (like lower prices, higher interest rates, better fee schedules, etc.) while forcing those brands to operate \\\"\\\"better\\\"\\\". (Just ignore the bail out, that's a loaded topic) So for some of us, we want a big bank like Wells Fargo, because we want the rates, structure, and service they can provide as a \\\"\\\"big bank\\\"\\\". For others they want the more personal touch of a \\\"\\\"small bank\\\"\\\". There are benefits both ways. For example there may be a bank that only allows people with excellent credit to open accounts. That allows they to have lower over all mortgage rates, but means their checking accounts have higher minimums. While the next bank may be more inclusive, and have smaller minimum balances, but as a result charge more for loans. We like our options, and rest assured all those \\\"\\\"brands\\\"\\\" offer products that have differences that attract customers.\\\"\",\n \"Ya small local banks effectively do not exist in Canada. We do however have a number of credit unions. I'm actually going to be defensive of the big five as they are actually well run (or rather well regulated). Our banking context is in many ways radically different up north.\",\n \"Large businesses are, in every model, considered to be less likely to default, and Lehman brothers etc notwithstanding, this is historically correct. However, this is still stupid, since the diversification of lending money to many small businesses is way better. This, in turn, is not mapped properly by the regulations on reserve capital. Tl;dr: Banks get punished by regulations if they lend money to small institutions instead of large ones.\",\n \"\\\"I can't find a citation, but from memory (EDIT: and reading the newspapers at the time it happened): up until around 1980, banks couldn't cross state borders. In my state, at least, they were also very local, only staying within one county. This was to enforce \\\"\\\"localness\\\"\\\", the thought being that local bankers would know local people and the local situation better than far away people who only see numbers and paperwork.\\\"\",\n \"Wikipedia has a good summary: Historically, branch banking in the United States - especially interstate branch banking - was viewed unfavorably by regulatory authorities, and this was codified with the enactment of the McFadden Act of 1927, which specifically prohibited interstate banking. Over the next few decades, some banks attempted to circumvent McFadden's provisions by establishing bank holding companies that operated so-called independent banks in multiple states. To address this, The Bank Holding Company Act of 1956 prohibited bank holding companies headquartered in one state from having branches in any other state. Most interstate banking prohibitions were repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Research has also found that anticompetitive state provisions restricted out-of-state growth when those provisions were more restrictive than the provisions set by the Interstate Banking and Branching Efficiency Act or by neighboring states. Some states have also had restrictive bank branch laws; for example, Illinois outlawed branches (other than the main office) until 1967, and did not allow an unlimited number until 1993.\",\n \"In the US, paper checks are still the rule, and there is a large amount of the population that does not care to use online banking. As a result, those people need to go to the bank once a week or more often, to deposit checks they get from anywhere, to get cash, etc.; so all those little banks have traffic. This is slowly changing, and banks start to automatic the processes even in the brick-and-mortar location, but for now, they are around.\",\n \"Capital requirements for a de novo bank, as opposed to an established one, are a real bitch. Basically the government wont let you loan nearly as much of your money out. You can't skirt this by buying an existing bank. Regulators don't want upstarts making stupid loans and thus encouraging lower credit criteria systemwide. Also Incumbents don't want more competition and they have lobbyists so I don't see this changing soon.\",\n \"I'd add that bigger banks tend to have experience doing more complicated things. As an example, my local credit union (~12 offices), simply didn't have the software to wire money to a Canadian bank, as where Chase did. The Canadian routing number wasn't in the format of a US institution, and their software user interface just didn't allow for that number to be entered. Also, most smaller banks don't have international toll free (in-country) numbers for foreign access. Smaller banks also tend to have less sophisticated business banking tools and experience. If you take a Treasury bond approval to a small bank, they'll generally look at you like you have three heads. So the international side of things is definitely in the favor of big banks; they have a lot more money to dump on services.\",\n \"\\\"The most succinct answer is \\\"\\\"Banks are in the Money business\\\"\\\". Not construction, not real estate, not any of the other things they may find find themselves sometimes being dragged (foreclosure) or tempted (construction) into. \\\"\\\"Money\\\"\\\" is their core competence, and as good business people they recognize that straying outside that just dilutes their focus.\\\"\",\n \"\\\"Small community banks are absolutely vital to our economy. Plenty of people these days talk about \\\"\\\"buying local,\\\"\\\" but you never hear them talking about banking local. My friends, for the most part, lean left of center politically, so they constantly complain about Wal-Mart and other large brick and mortar chains, but when I called them out on their banking by asking them to pull out their debit cards, they all banked with larger banks; Chase, PNC, Key; the only person (beside myself) who didn't bank with a large national/multi - national bank uses Huntington, which is still a very large regional bank with over $100 billion in assets. They said they didn't want to have to pay ATM fees, to which I responded that many community banks will reimburse the customer for those fees up to a certain amount (like my bank does.) They just shrugged and said they liked the convenience of it, so I asked them why do they think people shop at Wal-Mart? I didn't really get a good answer to that; they just said \\\"\\\"it's different.\\\"\\\" The best way to invest in your community is to bank with a local community bank. Those mom and pop shops you love so much; the plumber who lives down the street; the micro brewery that just opened up all do their banking with the local community bank.\\\"\",\n \"\\\"This is the best tl;dr I could make, [original](http://econlog.econlib.org/archives/2017/06/american_bankin.html) reduced by 92%. (I'm a bot) ***** > The importance of the unit banking laws is obvious when you consider than Canada had no bank failures during the Great Depression, despite a similar fall in NGDP. Today, that sort of decline in NGDP would wipe out virtually the entire US banking system. > The pattern is that the governments, on the one hand, protects banks in the forms of deposit insurance or government bailouts when a crisis happens, or give banks certain opportunities. > The way the governments get the banks to subsidize mortgage risk is by protecting the banks. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6fcfck/american_banking_socialism_or_laissezfaire/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~136658 tl;drs so far.\\\"\\\") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **Bank**^#1 **government**^#2 **deposit**^#3 **lend**^#4 **more**^#5\\\"\",\n \"\\\"They're over-regulated, but no sifi favors 0 regulation - that's fucking stupid and breaks the \\\"\\\"stable\\\"\\\" state of competitive universal banking. But consumers are suffering because the regulations are so fucking stupid and costly. It's a bunch of academia-branded lawyers imposing regulations on 30-50 year bankers. That wouldn't go well anywhere. Most bankers have different views - Kashkari is a Goldman guy who wants to break all the big banks up into regional competitors. If that happens, your deposits will have a higher return window, but then you actually have a daily risk to your deposits in the name of competition...I mean, fuck that.\\\"\",\n \"I would have been tempted to dismiss your claim, but the data I found shows that you're correct. On the plus side, the growth rate in credit union market share is higher in New York than it is in California. While there is no question that bankers hate credit unions, I can't tell you why credit unions have a smaller market share in NY. Maybe the regulatory environment is part of it. Banks have a big lobby, and they pay a lot of taxes in NYC.\",\n \"\\\"Nearly every country has its own exchange because so many countries have their own currency, and currency permeates every part of an exchange's business. Generally, an exchange will support transaction and settlement only in local currency. Securities (except those that explicitly enable FX trading) are denominated and will trade in a single currency-- you can only buy a share of IBM in U.S. dollars. Securities trading always seeks to be a clean, frictionless, scalable process, and adding cross-currency translation to the mix would just complicate things. So it's one exchange, one currency. In most countries, citizens and even businesses are largely restricted to having bank accounts in local currency. There are various political reasons for this, but there it is: it is difficult or impossible to open a domestic bank account in a foreign-denominated currency. A public company headquartered in a given country will be required to publish financial statements in local currency, will be more likely to do business with the local citizenry and businesses in that currency, and so will likely look for investors from that same pool-- which generally means listing in local currency, which means on an exchange in that country. There are exceptions, of course. Big multinationals do business all over the world, and many seek investors all over the world as well. Mechanisms have been created to permit this (American Depositary Receipts or ADRs, for example). But once again, cross-currency translation makes things more complicated, so ADRs and their like are only practical for very big international players. As to why there may be many exchanges in a single country, IMO Nick R has it right. Read \\\"\\\"Flash Boys\\\"\\\"; many market makers profit from trading between exchanges, and so have an interest in there being many of them. And in the U.S., regulators have expressed an interest in \\\"\\\"innovation\\\"\\\" in the exchange space, and so permit them. There is also an argument to be made against having a single \\\"\\\"Too Big To Fail\\\"\\\" exchange just like the argument for banks, but I wouldn't call that a \\\"\\\"reason\\\"\\\" for the current state of affairs.\\\"\",\n \"In Scotland, each bank issues its own separate notes. It's not uncommon to see identical-valued £10 notes, for example, from three different banks in one's wallet.\",\n \"There are many reasons but perhaps the most telling is that these small foreign companies usually have not experienced diminishing marginal returns. This means they grow faster, which means higher returns for investment. However a lack of infrastructure, and of political and economic stability, make these investments risky!\",\n \"How can banks be expected to make good decisions when they are not responsible for creating their own reserve? Do you think that the banking system could run without FDIC? And why? And what is your opinion on local banking vs. big corp banking?\",\n \"Well, it seems you can't answer the question. Perhaps the difference in types of banks isn't so dry, is it, you dumb fuck. But go ahead an double down on being an ignorant idiot who thinks he knows it all. If you get into politics it will serve you well.\",\n \"But what creates more business owners? They don't pop up out of the ground, and there are always lots of people that want to make their own business. Businesses need capital, they need startup funds. Angel investors, VCs and banks provide the capital.\",\n \"http://www.fdic.gov/deposit/deposits/index.html FDIC currently insures up to $250,000. (I would have put that as a comment to Jeffery but it says it was locked.) You don't want to put all your eggs in one basket. If you shop around, and keep shopping all the time you can keep your accounts in a single place so long as that single place provides the best deal. Don't have any loyalty to your banking institutions because they don't have any loyalty to you. Also, having lots of accounts means you are familiar with lots of institutions, so you are likely better at shopping around. Things I consider. For fewer institutions: For more institutions:\",\n \"No, what I'm saying is that the extant regulations have created such massive overheads to compliance that *only* big businesses can operate in that market because of the expenses required to be compliant. Eliminating that overhead would reduce expenses and make it possible for a greater diversity of firms to exist, reducing the *average size of any individual firm*, and increasing stability through diversity.\",\n \"\\\"In the US, this was the case during the 19th century. There was a system of \\\"\\\"subscriptions\\\"\\\" between banks, where larger banks backed the smaller banks to some extent. In trade, notes from distant banks were not accepted or discounted relative to known local banks, or silver/gold coinage. There were a number of problems with this system which came to a head during the Panic of 1907. During this crisis, a cascading series of banking failures was only stopped by the personal intervention of JP Morgan. Even when Morgan intervened, it was very difficult to make capital available in a way that avoided the panic. The subsequent creation of the Federal Reserve was a response to that crisis.\\\"\",\n \"When the market isn't allowed to favor one currency (provider) over another, there must be a central authority with the power to regulate, provide, and insure it. People don't learn the dangers of fractional reserve banking and the resulting expansions and contractions of the money supply when the providers of the currency aren't allowed to fall, taking the savings of depositors with them. Insuring people against the dangers of mismanaged money guarantees the mismanagement of money.\",\n \"> Conglomerates have no interest in gaining control of tiny businesses through loan collateral. Yes they do, at least in China. China has very low farm labor productivity by developed nations status. Agribusiness would be very profitable in China. **The reason why it's in check is because it would make hundreds of millions of farmers redundant**, so the government prevents the industry from encroaching too much.\",\n \"Yeah, and what blows my mind most is that there was a very easy out for regulatory relief that would have actually brought us closer to compliance with BCBS rules. In the US the threshold for Basel rules is $50B in assets, while under Basel III and in most of the world its €250B. Just adopting this standard would give small banks relief. As an aside, the new law would also make it harder for the Fed to adopt the Basel III finalization rules, which are incredibly advantageous to US banks and which we fought hard for.\",\n \"The Livret A is a very specific product. It's tax-exempt and would historically not be available through regular banks. Commercial banks can now offer it but they only collect the money on behalf of the Caisse des dépôts (CDC). The CDC then pays interest to the savers and a commission for the bank. The commission is baked into the system, not charged to the customer directly but since the interest rate is set centrally, banks cannot compete on that. So this is risk-free money for them (but on the flip side it does not help them meet capital adequacy requirements). Other savings account or products have different rules. Another angle to consider is that a livret A was historically very attractive for consumers (and was certainly perceived as such) so that many people would have a checking account at a regular bank and another account at the Caisse d'épargne or the Banque postale just to open a livret A. For commercial banks, the alternative therefore isn't having your money on your checking account vs. your livret A or another savings account, it was having your money on a livret A they administer vs. seeing you run away to another institution. There is also a cap on the livret A and you're not allowed to save more money by opening several of them at different banks. At the same time banks have been complaining that the decrease of the interest rate (and consequently of their commission) makes the whole scheme a lot less interesting for them. For what it's worth, I recently (re)opened a bank account in France after living abroad for a long time and the customer advisor did not seem particularly interested in pushing a livret A.\",\n \"It's not too difficult. Every state has a few local banks that don't do this shit and with new current technology most have apps and allow you to deposit money without going to the bank itself. Yeah you don't have an ATMs everywhere but the need for ATMs deacreses each year. My local bank will even refunds me ATM charges up to 100$ a year.\",\n \"Part 1 Quite a few [or rather most] countries allow USD account. So there is no conversion. Just to illustrare; In India its allowed to have a USD account. The funds can be transfered as USD and withdrawn as USD, the interest is in USD. There no conversion at any point in time. Typically the rates for CD on USD account was Central Bank regulated rate of 5%, recently this was deregulated, and some banks offer around 7% interest. Why is the rate high on USD in India? - There is a trade deficit which means India gets less USD and has to pay More USD to buy stuff [Oil and other essential items]. - The balance is typically borrowed say from IMF or other countries etc. - Allowing Banks to offer high interest rate is one way to attract more USD into the country in short term. [because somepoint in time they may take back the USD out of India] So why isn't everyone jumping and making USD investiments in India? - The Non-Residents who eventually plan to come back have invested in USD in India. - There is a risk of regulation changes, ie if the Central Bank / Country comes up pressure for Forex Reserves, they may make it difficut to take back the USD. IE they may impose charges / taxes or force conversion on such accounts. - The KYC norms make it difficult for Indian Bank to attract US citizens [except Non Resident Indians] - Certain countries would have explicit regulations to prevent Other Nationals from investing in such products as they may lead to volatility [ie all of them suddenly pull out the funds] - There would be no insurance to foreign nationals. Part 2 The FDIC insurance is not the reason for lower rates. Most countires have similar insurance for Bank deposits for account holdes. The reason for lower interst rate is all the Goverments [China etc] park the excess funds in US Treasuries because; 1. It is safe 2. It is required for any international purchase 3. It is very liquid. Now if the US Fed started giving higher interest rates to tresaury bonds say 5%, it essentially paying more to other countries ... so its keeping the interest rates low even at 1% there are enough people [institutions / governemnts] who would keep the money with US Treasury. So the US Treasury has to make some revenue from the funds kept at it ... it lends at lower interest rates to Bank ... who in turn lend it to borrowers [both corporate and retail]. Now if they can borrow cheaply from Fed, why would they pay more to Individual Retail on CD?, they will pay less; because the lending rates are low as well. Part 3 Check out the regulations\",\n \"Lending isn't profitable when interest rates are this low. Consider what's involved to offer a savings or checking account. The bank must maintain branches with tellers. The bank has to pay rent (or buy and pay property taxes and utilities). The bank has to pay salaries. The bank has to maintain cash so as to make change. And pay for insurance against robbery. All of that costs money. At 6% interest, a bank can sort of make money. Not great money, but it takes in more than it has to pay out. At 4% interest, which is about where ten year mortgage rates are in Canada, the bank doesn't make enough margin. They are better off selling the loan and closing their branches than offering free checking accounts. An additional problem is that banks tend to make money from overdraft fees. But there's been a move to limit overdraft fees, as they target the most economically vulnerable. So Canadian banks tend to charge monthly fees instead. UK banks may also start charging monthly fees if interest rates stay low and other fees get curtailed.\",\n \"Exactly what kind of regulations are you talking about here? Regulation in the form of licensing for doctors and lawyers is one thing, but what are you implying in regulation stopping competition for other types of business? As for the profit, I would say there are a lot of contributing factors, Globalization being a big one. Edit: No need to downvote, just asking for clarification...\",\n \"Because people who work with practical skills work for their own means, and not for corporations. The banks are HEAVILY invested in Corporations. The banks are also HEAVILY invested in debt. Our entire system is orchestrated by the banks. They want a workforce that is highly specialized and in debt- this ensures that they are entirely dependent on Corporate jobs for money to pay debts and on big agro for their food.... It's all a trap. Any one want to blow off the Corporations and go live/work directly for our own needs on a homestead/commune farm?\",\n \"\\\"The problem is \\\"\\\"what would have been\\\"\\\" without regulations. A good cause and effect is the Durbin amendment to DFA - they randomly regulated interchange debit card transactions (win for Walmart, loss for banks) so it no longer makes sense to offer free checking to poor people. WMT wins, banking loses, poor people lose. The other issue is maxing out regulations actually makes the system more frail as it promotes consolidation in the sector. Consultants love it - tons of free, easy, no thought work.\\\"\",\n \"\\\"because bankers are crooks is a very close answer. Just accept the truth that financial industry is the only service industry that could turn into giant parasite chopping pieces from real economy. I am not anti-financial, because greed is not banker's fault, but just one significant part of human nature. Every human being has greed and fear built in it. But financial industry is the only one which is built on exploiting greed and fear. Governments are throwing gasoline canister into that fire in desperate extinguish attempts, trying to \\\"\\\"regulate\\\"\\\" but only making it worse. With all that \\\"\\\"counter-cybercrime\\\"\\\", \\\"\\\"counter-terrorism\\\"\\\" and \\\"\\\"counter-everything\\\"\\\" efforts, ordinary people will be hurt as always.\\\"\",\n \"\\\"This is unfortunately the truth, and I spend a lot of time with my clients trying to help them through this process. One of the key metrics that banks judge themselves on is \\\"\\\"products per household.\\\"\\\" The more things you have attached to them, the less likely you are to leave, and they deliberately tie you in with more and more services, e.g. direct deposit, billpay, debit cards, credit cards, etc. If you want to switch but are held back by the daunting task of all the stuff you need to do, it's easier than most people think, and bankers at those smaller banks who are getting your accounts should be more than happy to do about 80% of the work for you. *The other 20% can only be done by you personally due to privacy laws, but your banker can guide you through that too. A prime example: A customer of mine wanted to switch, but he didn't want to go to the old bank to actually wait in line and go through with the nonsense of actually closing the account. I see that anxiety over confrontation a lot, by the way. So I have saved on my desktop a form letter is a simple request by the customer to close their account at 2B2F bank. They sign it, I notarize it, and send it off to the branch. The branch of receipt has to close the account per the request. Before we send that letter, we get everything set up with the new bank, draw the old one down to $10 or so, and give instructions to the old bank to remit a check payable to the customer and mail it to me. Then the old account is closed, and I just deposit that nominal amount into the customer's account. The customer literally never has to set foot in the old bank again. The unfortunate thing is that not everyone knows that these kinds of things are even possible: that your banker should help you with this stuff, or that you can do pretty much everything remotely. Plus, if you look at the smaller banks and CUs these days, they have eliminated the need or ubiquity (i.e. \\\"\\\"but their ATMs are everywhere!\\\"\\\") because a good bank or CU will never allow you to get charged to get your money, they will give you the direct line and email address of your branch manager, and a lot of places have mobile apps that allow you to deposit checks remotely.\\\"\",\n \"There is absolutely no logical reason why each nation does not own and control banking and thus the supply of money. Any system including the financial system works exactly the same way, regardless of ownership. Banking depends solely on the confidence of the customers/investors. Therefore when a sovereign nation/state has ownership of the banks, the profits are kept in-house, within the nation, which is actually a bonus, and taxes can be off-set by profits, which is another benefit. Any improvement or benefit by the private ownership of banking is a total myth.\",\n \"Another thing to factor in are deals provided by banks. In general, banks care about new customers more than their existing customers. Hence they explicitly restrict the best deals on credit cards, savings accounts, etc, to new customers only. (Of course, there are occasionally good deals for existing customers, and some banks choose not to discriminate.) If you have many different bank accounts, you are making yourself unavailable for switching bonuses and introductory rates.\",\n \"Many of the Financial intermediaries in the business, have extraordinary high requirements for opening an account. For example to open an account in Credit Suisse one will need 1 million US dollars.\",\n \"\\\"Traditional banks don't put their money onto the stock markets. In fact, the economic crisis was in part caused by the fact that banks were placing money into higher-risk portfolios and doing just that: in the UK there has been a debate for the last few years specifically around \\\"\\\"firewalling\\\"\\\" retail and investment bank operations entirely. What I was discussing was in the retail/consumer sector where the money comes in as mortgages & secured loans and - slightly riskier - unsecured credit, credit cards, etc. In that model, you do not need to be a genius. If I lend you $20k to buy a car and you don't repay me my money plus 8%, I get the car and therefore am unlikely to be seriously out of pocket. The only thing I have to do is make sure I lend to people likely to repay more often than I do to those who will not. And that, well, that's something we've got a few hundred years of experience with... If I walk onto the NYSE and start throwing around my cash at put option on exotic FX markets that are in turn responding to conditions almost impossible to truly understand, well, I'm sure we'd agree that it's hard to beat the market. That's why the investment banks who specialise in that market don't invest their own money: they make money from investing other people's cash. Clever guys. So we need to understand here there are two very different kinds of banks, with two very different business models, and it was the mixing of them that led to the disaster we've seen. Firewalling them makes sense to me! Communists who think banks are making money out of thin air don't seem to understand that, and so it's not surprising that they seem confused about what a bank is actually there for. Those who do get these two models must see that a retail bank is there to provide finance based on savings held and investment banks are there to help people invest in riskier markets. That does not mean they are \\\"\\\"magic\\\"\\\" or \\\"\\\"evil\\\"\\\". Now, they might argue that fractional reserve banking is a problem. I would imagine many of them would prefer the credit union model instead, but that's a different debate: that's the mechanics and detail, not the institutional need for existence.\\\"\",\n \"Note that this is just looking at public firms, whose numbers have declined while the overall number of firms has increased. It would be interesting to compare their profits to GDP, that might be a better measure to find out whether profits are more concentrated than they used to be. Also note: > However, what could indeed be a deterrent—especially for smaller companies—is that the US Congress wields far more regulatory power over public companies than private ones, note the authors.\",\n \"Although I do not know about US Institutions; In India Banks have adopted a mix of features that mitigate the risk. Some ways that are used are;\",\n \"I'm always hesitant to use local credit unions because I love accessing all atms fee free, having services available 24/7, having robust, safe and audited online services, and having a big enough bank that all major third party tools interface with it. Joe Schmo Local Credit Union has a lot of good services, but audited and secure online banking? No fee nationwide ATMs? Native interfacing to major tools? I just don't see it often. I shudder to think of the security at small bank websites, frankly.\",\n \"Since making loans isn't 'casino banking', I'm going to start a small, regional lending institution that just lends money to people to buy homes. I really want to open up home ownership to a larger group of people, maybe those who wouldn't qualify for traditional loans. I'm just not sure whether to call it Washington Federal or Countrywide Financial.\",\n \"\\\"This is 100% accurate: \\\"\\\"Conversely, an industry with two or three firms can be more competitive than one with 50, such as supermarkets or online platforms like Uber where economies of scale can enhance competition between fewer but healthier players. The last 40-plus years of economic research is clear: Simply counting the number of firms in an industry tells you very little about competition.\\\"\\\"\\\"\",\n \"For small amounts I wouldn't be too concerned. There are two factors I can think of: For relatively small amounts and when dealing with reputable banking institutions there should be little concern of banking with a single bank. It's what most people do.\",\n \"Financial Aid - the government gives you better interest rates and is a better lender. Credit Cards - are for idiots. Mortgage and Loans - Credit Unions give a much better deal. They actually re-invest in the community. You can take you big banks and shove em' up your ass.\",\n \"\\\"First off, I originally brought up Wells Fargo to show that big banks may not want to open the floodgates for lower level employees and management to have free reign to profit off customers in less than responsible ways. I didn't mean or want to get into a debate about past govt. oversight of Wells Fargo's practices. [But to your point:](https://www.housingwire.com/articles/39782-cordray-answers-charges-that-cfpb-didnt-take-lead-on-wells-fargo-scandal) >He explained that the bureau first received a whistleblower tip in July 2013. The exposé by the LA Times wasn’t published until December. > >Cordray did add that the LA Times coverage was a “splendid piece of investigative reporting” and that investigative reporting often aides government investigations. > >After that first whistleblower tip, Cordray explained that the Wells Fargo case over time grew into something bigger. > >As the CFPB watched Wells Fargo through 2014 and 2015 in supervisory activity, it became clear the situation was serious enough to migrate into an enforcement action, he said. I'm not sure what you're talking about here: >And what are you talking about freedom to \\\"\\\"compete\\\"\\\" against the big guys? What are you even talking about and how is that freedom threatened? I'm saying they *will* have freedom to compete in ways that may have negative impact on clients who have chosen to move their investments from bigger banks to smaller ones. As for the list of \\\"\\\"positives\\\"\\\" you gave surrounding this bill, [there are also negatives:](http://fortune.com/2017/06/07/financial-choice-act/) >Congress this week is considering the Choice Act, which would roll back regulations enacted after the 2007 financial crisis, particularly those designed by the Consumer Financial Protection Bureau (CFPB). Yet, the legislation goes even further and limits consumer access to information that could help them make better choices. > >One of the hallmarks of conservative regulatory philosophy is that educated and empowered consumers are preferable to government bureaucrats, regulations, and prohibitions. Yet, the conservatives in the House of Representatives appears ready to pass the CHOICE Act this week and in the process legally prohibit publishing data the government collects on consumer complaints on financial services. This is a mistake and would cost consumers and businesses. It would also go against the universal values of fair markets and informed consumers. But [this](https://www.nytimes.com/2017/06/08/business/dealbook/house-financial-regulations-dodd-frank.html) is what I find most concerning: >The bill would also eliminate the Labor Department’s fiduciary rule, which requires brokers to act in the best interest of their clients when providing investment advice about retirement. The first parts of the rule are scheduled to go into effect on Friday. The rule was completed last spring under Mr. Obama after years of development. My point, before you started arguing something different, was that larger banks often *need* the oversight conducted by their customers and the government in order to help them nip bad practices in the bud before it becomes a much larger issue. This may not be as much of an issue for smaller banks, but in the end, they all deal in the same industry and present the same danger to their customers if things go bad and employees don't take their intrinsic fiduciary responsibility seriously.\\\"\",\n \"Good read. I do wish there were more stats on the issues associated with geographic concentration touched upon in the article. For example, how are the economic gains of being in an urbanized environment mitigated by the costs associated with traffic jams, urban poverty and crime? What would happen to the economy of the US if those inefficient small cities kept declining, how would it have to change?\",\n \"How do credit unions work in the US? Why not just get rid of deposit insurance for commercial banks and keep it for credit unions. Restrict credit unions ability to filter money to the new 'investment bank' sector by keeping them out of repo and money markets (not sure if this is done currently) and bang - Corporates/institutions can still lend short and banks can still lend long in the professional world, while unsophisticated retail customer's checking accounts at least are protected from the inevitable crash.\",\n \"\\\"In the United States, many banks aim to receive $ 100 per year per account in fees and interest markup. There are several ways that they can do this on a checking account. These examples assume that there is a 3 % difference between low-interest-rate deposit accounts and low-interest rate loans. Or some combination of these markups that adds up to $ 100 / year. For example: A two dollar monthly fee = $ 24 / year, plus a $ 2,000 average balance at 0.05% = $ 29 / year, plus $ 250 / month in rewards debit card usage = $ 24 / year, plus $ 2 / month in ATM fees = $ 24 / year. Before it was taken over by Chase Manhattan in 2008, Washington Mutual had a business strategy of offering \\\"\\\"free\\\"\\\" checking with no monthly fees, no annual fees, and no charges (by Washington Mutual) for using ATMs. The catch was that the overdraft fees were not free. If the customers averaged 3 overdraft fees per year at $ 34 each, Washington Mutual reached its markup target for the accounts.\\\"\",\n \"Another reason is that the amount of unused credit you have is a positive factor on your credit score. It's generally easier to open several different accounts for $X dollars each with different banks than to get your current bank to raise your limit severalfold in a single go. Your current bank has to worry about why you suddenly are asking for a large additional amount of credit; while other banks will be willing to offer you smaller amounts of credit in the hope that you transfer your business from your current bank to them.\",\n \">I would imagine that given any lack of compulsory regulation, that Americans are using whatever means of payment that suits them. I'd agree, it's almost entirely about competition and consumer protections in areas like banking outside of the US rather than compulsory regulation pushing people to use particular approaches. I run a company in the UK, processing cheques is expensive and awkward (its a manual process, it costs money at basically all points of the process and is more likely to result in a failed payment) for me compared to almost every other method of payment, so I prefer (and actively encourage) the use of electronic payments instead. I can do that because my bank doesn't charge extra for processing electronic payments, in fact it's now cheaper to process them than cheques. That also makes sense from the banks perspective given it costs more money for them to maintain, offer and process cheque payments (to the point that they are already essentially converting them into electronic payments by scanning..). It's not Americans being backward, it's US banks. I doubt that if you had safe, secure, cheap and reliable electronic payment facilities, with the same level of protection and control as with a cheque, most Americans would take the same approach as they do elsewhere (After all, its convenient..).\",\n \"A typical manufacturer buys raw materials, produces a product using labor and energy at a specific cost with some waste, and then sells the product to produce income. A bank buys raw materials (deposits) by paying interest, then uses labor and energy to turn a portion of the raw materials into their product (loans), they then receive income (interest) on those loans. If the income exceeds the cost to buy and produce the loans taking into account losses due to delinquencies (waste) the bank company has made a profit. The growing profits can lead to an increase in stock prices or the paying of dividends. The search for more raw materials can lead to paying more for the raw materials, or by buying other factories (branches) or even other bank companies.\",\n \"> accessing all atms fee free, having services available 24/7, having robust, safe and audited online services, and having a big enough bank that all major third party tools interface with it. You just described my single state credit union I've been with for 19 years now, and not the big bank I was with before (Wells Fargo).\",\n \"Subsidies are anti-competitice practices. Its the government picking winners and losers over the market's preference. Just like onerous regulations. Smaller companies aren't able to hire the overhead required to keep up with them, and are therefore fined out of existences due to this countries staggering regulatory burden.\",\n \"Yeah, seriously. Cheating your customers has always been part of the core business of the major banks. How would they maintain their high CEO compensation without that extra money? They need to be competitive in executive level compensation to attract the kind of candidates that will keep their bank pulling in the money needed to pay themselves.\",\n \"Modern banking is operated under central banking which is critical for maintaing a stable keynsian economy. Without central banking the economy is prone to the boom and bust cycle typical of early twentieth industrialization. Our money is not backed by 'nothing' it is backed by the faith and credit of the governments issuing them. Private banks don't issue anything. What fractional reserve banking does is say that for ever X amount of dollars you have in your vaults you can make Y amount of loans. This ratio is set by the central bank in what is called the reserve ratio. If the Fed sets the reserve ratio at 10% and they know the US economy has $10 trillion in circulation than $100 trillion dollars is going to eventually emerge through fractional reserve banking. This explains inflation. Of course the central bank could also raise the reserve ratio forcing banks to call in existing loans. This is deflation. Now if you're a bank and have $1 million dollars in the bank, a reserve ratio of 10% means you can make up to $10 million in loans without getting in trouble with the Fed. If the bank makes $10 million in loans and only recuperate $9 million in loans than they fall below the 10% reserve rate ratio and become insolvent, prior to 2008 these banks would go bankrupt, but the Fed has evolved it's roll into either bailing a bank out for it to recover and learn from it's mistakes or to let it go bankrupt. All people's deposits at these banks however are safe up to $250,000 thanks to the FDIC to protect from bank runs typical of the early twentieth century that intensified boom and bust cycles. Please don't bring in the Federal Reserve into this unless you want me to prove how stupid you are even more. I'm poor broke college student with nothing better to do with my time than to win internet arguments right now, you can't win. **Too stupid, didn't read: banks need to make successful loans or they go out of business, they don't create anything out of thin air. They just listen to whatever the central bank tells them what to do.**\",\n \"\\\"It's easy to own many of the larger UK stocks. Companies like British Petroleum, Glaxo, and Royal Dutch Shell, list what they call ADRs (American Depositary Receipts) on the U.S. stock exchanges. That is, they will deposit local shares with Bank of NY Mellon, JP Morgan Chase, or Citicorp (the three banks that do this type of business), and the banks will turn around and issue ADRs equivalent to the number of shares on deposit. This is not true with \\\"\\\"small cap\\\"\\\" companies. In those cases, a broker like Schwab may occasionally help you, usually not. But you might have difficulty trading U.S. small cap companies as well.\\\"\",\n \"Pay attention to nickel-and-dime charges (atm fees, low balance fees, limit on atm transactions per month, charge for human teller transaction, charge for paper statements or tax records). Consider that a financial company will spend on the order of $100-500 to sign up a good customer. Are you getting this in a cash bonus, competitive high interest rate, reasonable other gift, or advertising directed at your eyeballs? A variation in rates less than 1% easily fits into a marketing cost and there doesn't have to be any other magic to it.\",\n \"\\\"The real reason credit cards are so popular in the US is that Americans are lazy and broke, and the credit card companies know how to market to that. Have you ever heard of the $30k millionaires? These were individuals that purchased as if they were some of the wealthy elite, but had no real money to back it up. American society has pushed the idea of \\\"\\\"living on credit\\\"\\\" for quite some time now. An idea that is even furthered by watching the US government operate solely on credit. (Raise the debt ceiling much?) Live in America for more than six months and you will be bombarded with \\\"\\\"Pre-Approved Deals\\\"\\\" with low introductory rates that are designed to sucker the average consumer into opening multiple accounts that they don't need. Then, they try and get you to carry a balance by allowing low minimum payments that could take in the neighborhood of 20 years to pay off, depending on carried balance. This in turn pads the credit companies' pockets with all of the interest you now pay on the account. The few truly wealthy Americans do not purchase on credit.\\\"\",\n \"How often do you need to actually go to a bank? atm's, debit and credit cards work where ever. you can even deposit checks by taking a picture of them. dealing with cash would be more troublesome though.\",\n \"The one those investors said 'hey instead of pricing Tesla 10 years out, we will pool in and create jobs, by founding a $5b bank with locations nationwide'. I use them because they give great rates at places I shop. Such as if I buy a new tv from that new company founded by that hedge fund that pulled out of netflixes 10 year pricing and started an electronics firm I save 25%!!\",\n \"Stop defending banks. At the time of the 08 melt down, they opened up multiple ways for large financial institutions to borrow money either for collateral (usually shit assets) or with interest rates akin to free or near free. Do you know what that means? Free money. Borrow money for free, buy treasuries and profit. Who didn't have access? Those that didn't have the inside track in the Fed and in the upper levels of the U.S. government. That's why Lehman went under and Goldman, JPM, even GE (due to finance division) didn't go under. Far far too many people upvote pro corporate comments when they aren't even remotely accurate just because their worldview is that the world is just. How silly.\",\n \"Idk why Banks are so opposed to holding just a bit more capital. It helps them avoid becoming suddenly insolvent should something happen. It's like they only care about personal short term gain and care little about being in the game for the long term.\",\n \"Quite the opposite, crony capitalism has caused all of these problems. Big cable? Subsidized. Big oil? Subsidized. Big banks? Bailed out. And the tax code changes they're putting through now, why do you suppose this is being done? The US has the highest statutory corporate rate in the developed world, on small and large businesses. This is anti-competitive because in order avoid steep rates you need to hire big teams of tax lawyers, accountants, and other overhead to handle the paperwork and manage liability for you. Not only that, but its to the point now where most business decisions are not undertaken with the heath of the company in mind, but with great consideration to how it will effect the company's tax liability.\",\n \"They don't need to accept deposits from normal persons, but that's how they make lots of money. Banks make money off the fees they charge retailers when those folks swipe their debit cards at the retailer. It's their bread and butter. In order to facilitate you accruing swipe fees for them, they need to allow you to make deposits, on which they can charge the retailers swipe fees.\",\n \"On your first point, banks (or any large company) is primarily concerned with maintaining profits. I'm very familiar with this dynamic in media with broadcast vs streaming. They will try hard to charge as much as possible to sustain the stock price, while competitors will be as aggressive as possible to capture market share. This always happens with every industry that gets disrupted. The new entrants will permanently eat away at bank profits, whether they adapt or not. No comment on your second point. Possibly true, but I don't personally assume that yet.\",\n \"I mean, when the federal government can pull your bank charter and the FDIC can revoke your government insurance, it's not worth the benefit just to support some small town pot grower. It's likely to be this way until the federal government legalizes it or gives outright approval to the banks.\",\n \"Banking is highly regulated, but you may want to have a look at Basel II which is kind of an international standard on how to create banking regulations. Your country/state may have considered this when creating its own local regulation; the United States do.\",\n \"\\\"I agree -- personally, at the expense of some of the convenience you speak of, I use credit unions exclusively. However, my credit union more than makes up for that with 1) online check deposit (only thing you ever need to go to a bank for) 2) ATM fee reimbursement With those two amenities, I don't need a branch on every corner. I am pretty disappointed with BofA's practices (profiting off of those who are \\\"\\\"less responsible\\\"\\\" -- to me it's wrong to profit off of people's 'stupidity'), so I would never bank with them. It's just a personal preference because 1) I don't need them and 2) I wouldn't want to indirectly support their business. I can understand why people stick with them, and frankly don't really care, to be honest... I just think they're a fundamentally bad company through and through and would rather keep my money away from them.\\\"\",\n \"> The vast majority of companies in the US are small businesses This is a fairly useless measure. Example: Imagine if there was one company that hired 1 billion people. And 99 companies that hired 1 person each. You can now say that 99% of companies are small businesses. Which is true, but 99.9999999% of people don't work for a small business, they work for a large business. The small businesses are inconsequential.\",\n \"\\\"This will happen automatically when you open an interest-bearing account with a bank. You didn't think that banks just kept all that cash in a vault somewhere, did you? That's not the way modern banking works. Today (and for a long, long time) banks will keep only a small fraction of their deposits on hand (called the \\\"\\\"reserve\\\"\\\") to fund daily withdrawals and other operations. The rest they routinely lend out to other customers, which is how they pay for their operations (someone has to pay all those tellers, branch managers, loan officers) and pay interest on your deposits, as well as a profit for their owners (it's not a charity service). The fees charged for loan origination, as well as the difference between the loan interest rate and the deposit rate, make up the profit. Banks rarely hold their own loans. Instead, they will sell the loans in portfolios to investors, sometimes retaining servicing rights (they continue to collect the payments and pass them on) and sometimes not (the payments are now due to someone else). This allows them to make more loans. Banks may sometimes not have enough capital on hand. In this case, they can make inter-bank loans to meet their short-term needs. In some cases, they'll take those loans from a government central bank. In the US, this is \\\"\\\"The Fed\\\"\\\", or the Federal Reserve Bank. In the US, back around the late 1920's, and again in the 1980's some banks experienced a \\\"\\\"run\\\"\\\", or a situation where people lost confidence in the bank and wanted to withdraw their money. This caused the bank to have insufficient funds to support the withdrawals, so not everyone got their money. People panicked, and others wanted to take their money out, which caused the situation to snowball. This is how many banks failed. (In the '80s, it was savings-and-loans that failed - still a kind of \\\"\\\"bank\\\"\\\".) Today, we have the FDIC (Federal Deposit Insurance Corporation) to protect depositors. In the crashes in the early 2000's, many banks closed up one night and opened the next in a conservatorship, and then were literally doing business as a new bank without depositors (necessarily) even knowing. This protected the consumers. The bank (as a company) and its owners were not protected.\\\"\",\n \"There are several reasons why credit cards are popular in the US: On the other hand, debit cards do not have any of these going for them. A debit card doesn't make much money for the bank unless you overdraw or something, so banks don't have incentive to push you to use them as much. As a result they don't offer rewards other benefits. Some people say the ability to spend more than you have is a downside of a credit card. But it's really an upside. The behavior of doing that when it isn't needed is bad, but that's not the card's fault, it's the users'. You can get a credit card with a very small limit if this is an issue for you. The question I find interesting is why debit cards are more popular in your home country. I can't think of any advantage they offer besides free cash back. But most people in the US don't use cash much either. I have to think in your home country the banks have a different revenue model or perhaps your country isn't as eager to offer tons of easy credit to everyone as the US is.\",\n \"Go to bankrate dot com. They will have a lot of metrics there that might give you an idea and rate each category. Capitalization and profitability metrics. May not be as granular as what you are looking for though.\",\n \"The big risk for a bank in country X is that they would be unfamiliar with all the lending rules and regulations in country Y. What forms and disclosures are required, and all the national and local steps that would be required. A mistake could leave them exposed, or in violation of some obscure law. Plus they wouldn't have the resources in country Y to verify the existence and the actual ownership of the property. The fear would be that it was a scam. This would likely cause them to have to charge a higher interest rate and higher fees. Not to mention that the currency ratio will change over the decades. The risks would be large.\",\n \"Politicians are for sale and regulations are useless when they are not enforced. Community banks and credit unions have to comply or get hammered by the state and federal governments. The mega banks soldier on under an utterly feckless and corrupt congress. People should never pay fees or credit card interest, pay off their loans, and get out from under banker's thumbs. They are giant impoverishing machines.\",\n \"All unsubstantiated opinions. >there is no such thing as a relation between any interest rates and the cost to service the loans Really. No relation whatsoever? And your background in finance letting you understand this is what? Are you telling me every bank of the [7,213](http://www2.fdic.gov/idasp/) independent banks are in cahoots and none of them compete based on prices and services? Can you give me precise evidence that all those independent banks are not in competition? What should the price be for capital if the current prices are incorrect, and tell me why.\",\n \"The best answer is, I think, also the simplest: A bank is an entity which performs maturity transformation. (Conversely, any entity that performs maturity transformation is acting as a bank, regardless of whether it is called one or is regulated as one. And an entity which does not perform maturity transformation isn't really a bank.) Maturity transformation is the process by which a bank accepts short-term deposits, and makes long-term loans. The benefit to society is fairly obvious; we (collectively) like being able to take out mortgages, but we also like having our money in a checking account and available on demand. Banks allow this to happen, although property bubbles and similar make it clear that this isn't without cost. (Note: Central banks are a completely different kettle of fish.)\",\n \"\\\"The bank provides a service that the customer voluntarily agreed to - the bank will provide funds to the customer now and the customer will pay back those funds plus interest in the future. The arragement wasn't forced onto the customer. The government, on the other hand, takes money (the exchange is not volutary) from people to provide a \\\"\\\"service\\\"\\\". This frustrates a lot of people - myself included - since people do not have a choice. They must pay the taxes or go to jail (or have their house confisicated, wages garnished, etc.). It gets even more frustrating when the government takes money from the people and gives it to the banks, auto companies, insurance companies, etc..\\\"\",\n \"The big box retailers weren't really a monopoly. It was just a better business model. There were many of them and they were very competitive with each other (we'll match our competitor's price). Many of them even went out of business because the profits were driven down to such low levels.\",\n \"The core competency of banks is to lend money from depositors and re-lend that money to borrowers. They do not have the expertise to develop real estate. They have trouble evening managing foreclosed real estate, such that they have to sell them at a discount.\",\n \"Many reasons mentioned already. The reason why I have multiple is missing: I have a personal card for my private use and a company card for company use.\",\n \"My favorite part about using a local credit union is, if I have an account issue, I can just call up and talk to someone who works five minutes from my house without *ever* punching numbers into an automated answering system. Good luck doing that with Bank of America.\",\n \"It's the equivalent of you being required to keep some of your savings in a near-zero percent interest savings account vs. being able to invest and grow that capital. Even if the capital requirements were peeled back slightly, (most) banks still hold more than enough capital to absorb extreme losses. Net/net the economy is safer, but less robust than it could be.\",\n \"In the US, I would say the risk is exactly the same. If your accounts are withing the FDIC amount (currently $250,000) your balance is 100% covered in case of a failure. You are giving up a larger network of ATMs in some cases. You are also perhaps giving up the number of branches you can visit, the hours the bank is open and maybe how well the website works. The features might be less, but the protection for your deposits is the same.\",\n \">No, it's not. The bank can't just jack up prices when they've got competitors, after all. Yeah, you don't understand how this stuff works. The cost of changing banks is so high most people just grumble and eat it. It took a *massive* national campaign to switch to Credit Unions and *still* only 250K people did. >Again, if the bank has even one competitor who didn't suffer as much or any damage, customers aren't just going to suck it up. Again, wrong. >I'm not remotely an anarchist No wonder you seem to be somewhat more reasonable than most of them I've spoken to. >Brute force supports the existing regime. That's basically it. And the *image* that this is legitimate is what allows them to wield force without retribution.\",\n \"\\\"In the US, usury is complicated and depends on the type of account, the bank charter and the where the bank makes credit decisions. Most major US credit cards are issued by entities in Utah, South Dakota and Delaware. None of these states have usury limits. Many states have usury limits. In New York, for example a loan may not exceed 16% interest, if the institution is supervised by the State. Credit card issuers are usually chartered as \\\"\\\"National Associations\\\"\\\" (ie Federally chartered banks regulated by the Comptroller of the Currency). There is no Federal usury statute, and Federally chartered banks are allowed to \\\"\\\"export\\\"\\\" many of the regulations of the state where credit decisions are made. Small states like South Dakota basically design their banking regulations to meet the needs of the banks, which are major employers.\\\"\",\n \"And a large part of these kind of phenomenon that we see between the US and Europe just emerge from little initial differences which then carry out and compound themselves over time. For example, in the US, most people get their health insurance from the company they work for, because during WWII, the government obviously instituted a draft. But what is not as obvious, is that to keep wages low to keep the price of goods low, they insituted a wage freeze. The only way companies could compete and incentivize workers was through ancillary benefits. Health insurance being the most appealing.\",\n \"maybe it would turn into an Oligopoly on it's own, but regulation as that pervasive is what I'm trying to avoid here. I advocate Worker Co-ops as the best examples for these firms because they actually allow a sense of welfare taken up by the workers who can self provide with actual trades (and because their co-ownership allows a voluntary loophole in minimum wage laws, you get a real chance to vindicate/prove Adam Smith's theory of flexible prices and wages based on economic activity.). With self-provided welfare, the Government can pull out of both transfer payments as well as financial regulations because these markets have become more differentiated to a diversity of opinions, so Government can step back and focus on its more important role of Researcher and Developer, which it tends to do better at than other roles. Firms can't do this if they are breaking even, like they would in perfect competition.\",\n \"Here's a point in favor of central banks: With a central bank in the middle making sure payments clear, transactions can happen with near perfect trust. When a bank has a daylight overdraft, the Fed covers it. When a bank needs overnight funding, the Fed provides it. If a bank needs vault cash, a truck shows up from the Fed. Without this, no one could ever be entirely confident the other party was money-good. With a volume of transactions that can amount to annual GDP in as little as six days, this level of trust is critical to a smoothly functioning system of payments.\",\n \"The principles behind creating and keeping those entities are reasonable, civilized, and economically sound. That being said, after seeing what the practical application became, I can't say I disagree with you. It might be a failed experiment at this point. The racial angle at the end cheapens your argument, though.\",\n \"Suppose that the fixed overhead costs of delivering a service, not related to the actual volume of sales, are $50 million per year. Suppose the variable costs on top are $100 per customer per year. Suppose further that 1% of the population buys the service. In the US, 3.2 million people buy the service, and it costs $116 per person to deliver it ($100 plus $50 million divided by 3.2 million). In Australia, 230,000 people buy it, and it costs $317 per person per year to deliver it ($100 plus $50 million divided by 230,000). The larger your market, the cheaper everything is, and Australia is a very small market compared with the USA, the EU, China or India.\",\n \"This is not a supply side issue (bank), but a demand side (small business) and there is simply no demand. Bank CEOs have been repeating that there is just no interest in borrowing right now, they would love to lend, but businesses are not taking the loans. Businesses are trying to firm up their balance sheets and with concerns of a recession looming most small business owners don't want to borrow and risk defaulting.\",\n \"If a 08 crash and bailout happens again anytime soon I don't know if the banks will get to keep control this time around. Their power is directly related to the amount of capital they have and there are enough in Congress that see them as not being loyal enough to front the political capital required to refill the coffers if it is needed. I see the next bailout being the fed making a nationalization attempt.\",\n \"Right. A banker provides a product/service, whether it be liquidity or something else, for a premium. The Rothschilds, for example (I'm only familiar with them because I like their wine), are typical examples of some of the first bankers of the modern era-- they provided the ability to exchange currencies at a market value, and it made them one of the wealthiest families of the modern world. If someone doesn't like banks, then let them walk onto the NYSE and make their own investment decisions. Which is a terrible idea because it's statistically almost impossible to beat the market. If you wanted to be able to prove that you are a successful investor you would have to have higher earnings than a market portfolio every day for around 180 years, in order to have a T-statistic of about 2.0.\",\n \"> The racial angle at the end cheapens your argument, though. Thanks for pointing that out. Removed race and replaced with 'low income families' > The principles behind creating and keeping those entities are reasonable, civilized, and economically sound I disagree 100%. If banks did not have a big brother to bail them out of loans that went bust whenever they wanted, they would be a lot more careful in who they loaned money too. No one is promised a house and a lawn in this life. Some of us will be renters in apartments for life, and there is nothing wrong with that.\",\n \"\\\"Not at these rates. The motto used to be 3/6/3: \\\"\\\"Borrow at 3%, Loan out at 6%, and then be at the golf course by 3pm\\\"\\\". So they get 3% on the spread, minus fixed costs. Now, they borrow at near 0% and loan out at slightly above 0%. Those fixed costs starts becoming an issue. It isn't cheap to have all these ATMs, bank branches, tellers, computer systems, etc. Also, a lot of the money cannot be loaned out at all because there are not enough creditworthy borrowers. You might have recalled a few months ago, several banks started charging for deposits. They don't want more money that will just lay there while they have to pay the costs of maintaining the accounts. Some bank CEOs have stated that they would be better off if the Fed raised rates up to 1%.\\\"\",\n \"Your quote: There's about 10 trillion in gold and about 2.8 trillion of US cash in the world. Neither of these is anywhere large enough to be used for all the transactions in the world. So how was it commercial banks could lend like crazy for home mortgages?? M1 remaind constant throughout the decade and years , if frac multiplier effect was the cause for m2, why wasn't it until the 2000s that m2 became exponential? Commercial Banks able to create credit and lend out of thin air to customers thanks to deregulation that caused m2 to explode. They didn't need no FED. They didin't need no reserves. They were able to act regardless of the FED. The FED responded to them, instead of the other way around. Before deregulation banks didn't bother creating too much credit loans coz it was too dangerous, they were mostly utilty banks. After deregulation, creation of exotic derivatives, low interest rates, and high speed internet globalized digital trading, they went crazy creating credit out of thin air coz it wasn't dangerous because they could sell the home loans.\",\n \"\\\"The Ponzi/Madoff schemes were closed loops, so the only source of the so-called \\\"\\\"interest\\\"\\\" on the money was the contributions of future investors. The economy is more like a living thing, and the availability of capital allows people to develop new ways to do things in a more productive way. Agriculture is a great example -- for most of human history the overwhelming majority of human labor was dedicated to producing food. Now that proportion is dramatically smaller -- the descendants of farmers 100 years ago are doctors and computer programmers... professions that could not exist. Fractional reserve banking makes the economy more efficient by putting capital that would otherwise be hoarded in circulation. Money is a medium of exchange, so the more it turns over, the better it is. Genoa and Britain pioneered this concept centuries ago, and were able to defeat larger rivals in large part because of the economic advantages that the practice brought to bear. That's not to say that banking doesn't come with its warts as well. I'd suggest reading \\\"\\\"A Free Nation Deep in Debt\\\"\\\", which does a good job of explaining how we got to where we are today.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"As an addendum to PeterK's answer, once upon a time, there were many Savings and Loan Associations (S&Ls) that acted as small banks, accepting savings deposits from people and lending money for home mortgages to local residents. Some of these S&Ls were chartered Federally with deposits insured by the FSLIC (similar to the FDIC which still insures deposits in banks) while others had State charters and used the State equivalent of FSLIC as the insurer. To induce people to save with S&Ls instead of banks, S&Ls paid higher rates of interest on their savings accounts than banks were permitted to do on bank savings accounts. Until 1980, S&Ls were not permitted to make consumer or commercial loans, have checking accounts, issue credit cards, etc., but once the US Congress in its wisdom permitted this practice, this part of the business boomed. (Note for @RonJohn: Prior to 1980, S&Ls offered NOW accounts on which \"\"checks\"\" (technically, Negotiated Orders of Withdrawal) could be written but they were not checks in the legal sense, and many S&Ls did not return these paid \"\"checks\"\" with the monthly statement as all banks did; writing a \"\"check\"\" while pressing hard created a carbon copy that could be used as proof of payment). In just a few years' time, many S&Ls crashed because they were not geared to handle the complexities of the new things that they were permitted to do, and so ran into trouble with bad loans as well as outright fraud by S&L management and boards of directors etc. After the disappearance of most S&Ls, many small banks (often with State charters only) sprang up, and that's why there are so many banks in the US. Mortgage lending is a lucrative business (if done right), and everyone wants to get into the business. Note that 4 branches of Bank of America in a Florida town is not a sign of many banks; the many different banks that the OP noticed in Maine is.\"","Wikipedia has a good summary: Historically, branch banking in the United States - especially interstate branch banking - was viewed unfavorably by regulatory authorities, and this was codified with the enactment of the McFadden Act of 1927, which specifically prohibited interstate banking. Over the next few decades, some banks attempted to circumvent McFadden's provisions by establishing bank holding companies that operated so-called independent banks in multiple states. To address this, The Bank Holding Company Act of 1956 prohibited bank holding companies headquartered in one state from having branches in any other state. Most interstate banking prohibitions were repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Research has also found that anticompetitive state provisions restricted out-of-state growth when those provisions were more restrictive than the provisions set by the Interstate Banking and Branching Efficiency Act or by neighboring states. Some states have also had restrictive bank branch laws; for example, Illinois outlawed branches (other than the main office) until 1967, and did not allow an unlimited number until 1993.","\"I can't find a citation, but from memory (EDIT: and reading the newspapers at the time it happened): up until around 1980, banks couldn't cross state borders. In my state, at least, they were also very local, only staying within one county. This was to enforce \"\"localness\"\", the thought being that local bankers would know local people and the local situation better than far away people who only see numbers and paperwork.\"","Actually it seems you are not quite correct about the number of different banks in Canada. https://en.wikipedia.org/wiki/List_of_banks_and_credit_unions_in_Canada According to this link there are 82-86 banks in Canada plus credit unions. This may still be lower than what would correspond to the number of banks in the US, scaled for canadian population. One further reason not mentioned before could be that the population density in Canada outside of the metropolitan areas could be lower than in the US, leaving to few small towns large enough (10,000+ (a guess corrected due to comment)) to support a bank.","In the US, paper checks are still the rule, and there is a large amount of the population that does not care to use online banking. As a result, those people need to go to the bank once a week or more often, to deposit checks they get from anywhere, to get cash, etc.; so all those little banks have traffic. This is slowly changing, and banks start to automatic the processes even in the brick-and-mortar location, but for now, they are around.","\"First, is population density. You didn't say where exactly, but for example here in Tampa, Wells Fargo has 25 branches in the area (though that is a bit larger then what I would think of the Tampa area as a local) Second, we can mix in service expectation. I expect that in addition to \"\"good\"\" online service, \"\"great\"\" phone service, \"\"great\"\" email service, that when I have a problem, don't understand something, or want to talk about my options for investing or choosing account types, that I am able to go into a branch. That I can \"\"walk in\"\" and see someone quickly, or schedule an appointment and see some one right away (at my appointment time). Together, these two options means that on a busy day, the nearest Wells Fargo Branch to me has at any one time, 50 - 60 people in it. Smaller branches, of course have less, and larger branches exist. So it just takes that many branches to address the number of people and their expected needs. As to why there are so many different brands/banks Well that's just the USA. We believe in capitalism. We have believed in it much stronger in the past, but banks are the central to capitalism so why shouldn't they serve as an example. At it's core (a very simplistic look) Capitalism and a free market means that we as customers are better served by having lots of different brands fighting for our business. It should drive more consumer desired features (like lower prices, higher interest rates, better fee schedules, etc.) while forcing those brands to operate \"\"better\"\". (Just ignore the bail out, that's a loaded topic) So for some of us, we want a big bank like Wells Fargo, because we want the rates, structure, and service they can provide as a \"\"big bank\"\". For others they want the more personal touch of a \"\"small bank\"\". There are benefits both ways. For example there may be a bank that only allows people with excellent credit to open accounts. That allows they to have lower over all mortgage rates, but means their checking accounts have higher minimums. While the next bank may be more inclusive, and have smaller minimum balances, but as a result charge more for loans. We like our options, and rest assured all those \"\"brands\"\" offer products that have differences that attract customers.\""],"string":"[\n \"\\\"As an addendum to PeterK's answer, once upon a time, there were many Savings and Loan Associations (S&Ls) that acted as small banks, accepting savings deposits from people and lending money for home mortgages to local residents. Some of these S&Ls were chartered Federally with deposits insured by the FSLIC (similar to the FDIC which still insures deposits in banks) while others had State charters and used the State equivalent of FSLIC as the insurer. To induce people to save with S&Ls instead of banks, S&Ls paid higher rates of interest on their savings accounts than banks were permitted to do on bank savings accounts. Until 1980, S&Ls were not permitted to make consumer or commercial loans, have checking accounts, issue credit cards, etc., but once the US Congress in its wisdom permitted this practice, this part of the business boomed. (Note for @RonJohn: Prior to 1980, S&Ls offered NOW accounts on which \\\"\\\"checks\\\"\\\" (technically, Negotiated Orders of Withdrawal) could be written but they were not checks in the legal sense, and many S&Ls did not return these paid \\\"\\\"checks\\\"\\\" with the monthly statement as all banks did; writing a \\\"\\\"check\\\"\\\" while pressing hard created a carbon copy that could be used as proof of payment). In just a few years' time, many S&Ls crashed because they were not geared to handle the complexities of the new things that they were permitted to do, and so ran into trouble with bad loans as well as outright fraud by S&L management and boards of directors etc. After the disappearance of most S&Ls, many small banks (often with State charters only) sprang up, and that's why there are so many banks in the US. Mortgage lending is a lucrative business (if done right), and everyone wants to get into the business. Note that 4 branches of Bank of America in a Florida town is not a sign of many banks; the many different banks that the OP noticed in Maine is.\\\"\",\n \"Wikipedia has a good summary: Historically, branch banking in the United States - especially interstate branch banking - was viewed unfavorably by regulatory authorities, and this was codified with the enactment of the McFadden Act of 1927, which specifically prohibited interstate banking. Over the next few decades, some banks attempted to circumvent McFadden's provisions by establishing bank holding companies that operated so-called independent banks in multiple states. To address this, The Bank Holding Company Act of 1956 prohibited bank holding companies headquartered in one state from having branches in any other state. Most interstate banking prohibitions were repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Research has also found that anticompetitive state provisions restricted out-of-state growth when those provisions were more restrictive than the provisions set by the Interstate Banking and Branching Efficiency Act or by neighboring states. Some states have also had restrictive bank branch laws; for example, Illinois outlawed branches (other than the main office) until 1967, and did not allow an unlimited number until 1993.\",\n \"\\\"I can't find a citation, but from memory (EDIT: and reading the newspapers at the time it happened): up until around 1980, banks couldn't cross state borders. In my state, at least, they were also very local, only staying within one county. This was to enforce \\\"\\\"localness\\\"\\\", the thought being that local bankers would know local people and the local situation better than far away people who only see numbers and paperwork.\\\"\",\n \"Actually it seems you are not quite correct about the number of different banks in Canada. https://en.wikipedia.org/wiki/List_of_banks_and_credit_unions_in_Canada According to this link there are 82-86 banks in Canada plus credit unions. This may still be lower than what would correspond to the number of banks in the US, scaled for canadian population. One further reason not mentioned before could be that the population density in Canada outside of the metropolitan areas could be lower than in the US, leaving to few small towns large enough (10,000+ (a guess corrected due to comment)) to support a bank.\",\n \"In the US, paper checks are still the rule, and there is a large amount of the population that does not care to use online banking. As a result, those people need to go to the bank once a week or more often, to deposit checks they get from anywhere, to get cash, etc.; so all those little banks have traffic. This is slowly changing, and banks start to automatic the processes even in the brick-and-mortar location, but for now, they are around.\",\n \"\\\"First, is population density. You didn't say where exactly, but for example here in Tampa, Wells Fargo has 25 branches in the area (though that is a bit larger then what I would think of the Tampa area as a local) Second, we can mix in service expectation. I expect that in addition to \\\"\\\"good\\\"\\\" online service, \\\"\\\"great\\\"\\\" phone service, \\\"\\\"great\\\"\\\" email service, that when I have a problem, don't understand something, or want to talk about my options for investing or choosing account types, that I am able to go into a branch. That I can \\\"\\\"walk in\\\"\\\" and see someone quickly, or schedule an appointment and see some one right away (at my appointment time). Together, these two options means that on a busy day, the nearest Wells Fargo Branch to me has at any one time, 50 - 60 people in it. Smaller branches, of course have less, and larger branches exist. So it just takes that many branches to address the number of people and their expected needs. As to why there are so many different brands/banks Well that's just the USA. We believe in capitalism. We have believed in it much stronger in the past, but banks are the central to capitalism so why shouldn't they serve as an example. At it's core (a very simplistic look) Capitalism and a free market means that we as customers are better served by having lots of different brands fighting for our business. It should drive more consumer desired features (like lower prices, higher interest rates, better fee schedules, etc.) while forcing those brands to operate \\\"\\\"better\\\"\\\". (Just ignore the bail out, that's a loaded topic) So for some of us, we want a big bank like Wells Fargo, because we want the rates, structure, and service they can provide as a \\\"\\\"big bank\\\"\\\". For others they want the more personal touch of a \\\"\\\"small bank\\\"\\\". There are benefits both ways. For example there may be a bank that only allows people with excellent credit to open accounts. That allows they to have lower over all mortgage rates, but means their checking accounts have higher minimums. While the next bank may be more inclusive, and have smaller minimum balances, but as a result charge more for loans. We like our options, and rest assured all those \\\"\\\"brands\\\"\\\" offer products that have differences that attract customers.\\\"\"\n]","isConversational":false}}},{"rowIdx":267,"cells":{"_id":{"kind":"string","value":"4335"},"query":{"kind":"string","value":"What is the US Fair Tax?"},"gt_ids":{"kind":"list like","value":["318583","357013","322246","484148"],"string":"[\n \"318583\",\n \"357013\",\n \"322246\",\n \"484148\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["318583","484148","322246","357013","421656","188485","588454","429037","468123","235708","543161","184705","453956","419466","474832","65284","9819","267111","357079","362173","434835","110515","538490","342618","329246","177217","388250","384572","211196","589161","473567","470215","259810","364463","148490","489383","205547","487280","333955","599320","109838","62335","481555","599987","251411","423416","546299","228503","441497","219188","229454","84528","120521","158136","357577","418520","551831","56063","145353","358286","238294","374021","431182","480635","136497","97540","517626","317570","558836","215314","597909","478195","512429","82460","199173","175520","365370","297676","376850","515513","193667","428771","472052","92902","447271","488774","81457","448390","409338","137225","64868","323111","589044","85690","391657","470087","226549","430431","425795","131959"],"string":"[\n \"318583\",\n \"484148\",\n \"322246\",\n \"357013\",\n \"421656\",\n \"188485\",\n \"588454\",\n \"429037\",\n \"468123\",\n \"235708\",\n \"543161\",\n \"184705\",\n \"453956\",\n \"419466\",\n \"474832\",\n \"65284\",\n \"9819\",\n \"267111\",\n \"357079\",\n \"362173\",\n \"434835\",\n \"110515\",\n \"538490\",\n \"342618\",\n \"329246\",\n \"177217\",\n \"388250\",\n \"384572\",\n \"211196\",\n \"589161\",\n \"473567\",\n \"470215\",\n \"259810\",\n \"364463\",\n \"148490\",\n \"489383\",\n \"205547\",\n \"487280\",\n \"333955\",\n \"599320\",\n \"109838\",\n \"62335\",\n \"481555\",\n \"599987\",\n \"251411\",\n \"423416\",\n \"546299\",\n \"228503\",\n \"441497\",\n \"219188\",\n \"229454\",\n \"84528\",\n \"120521\",\n \"158136\",\n \"357577\",\n \"418520\",\n \"551831\",\n \"56063\",\n \"145353\",\n \"358286\",\n \"238294\",\n \"374021\",\n \"431182\",\n \"480635\",\n \"136497\",\n \"97540\",\n \"517626\",\n \"317570\",\n \"558836\",\n \"215314\",\n \"597909\",\n \"478195\",\n \"512429\",\n \"82460\",\n \"199173\",\n \"175520\",\n \"365370\",\n \"297676\",\n \"376850\",\n \"515513\",\n \"193667\",\n \"428771\",\n \"472052\",\n \"92902\",\n \"447271\",\n \"488774\",\n \"81457\",\n \"448390\",\n \"409338\",\n \"137225\",\n \"64868\",\n \"323111\",\n \"589044\",\n \"85690\",\n \"391657\",\n \"470087\",\n \"226549\",\n \"430431\",\n \"425795\",\n \"131959\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"The fair tax is a proposal to replace the US income tax with a sales tax. Pros of Fair Tax: It's a large change to the way the United States currently does things. The \"\"Fair Tax Act of 2011\"\" is H.R.25 in the US House and S.13 in the Senate. The full text of the bill is available at the links provided. There are some fairly large consequences of implementing a fair tax. For example, 401ks and Roth IRAs serve no benefit over non-retirement investments. Mortgages would no longer have a tax advantage. Luxury items would get far more expensive.\"","Its a new way of computing sales tax. Wikipedia has a nice article on this http://en.wikipedia.org/wiki/FairTax","\"In a nutshell - Value Added Tax. America, as usual, discovers what others have known and used for years. The idea of not taxing income that's tied to it is ridiculous. If you're only taxing spending but not income, people will just take spending elsewhere (Canada, Mexico, further away), and the economy will go down the drain. That's similar to the way people avoid paying sales tax now, except that it will be in orders of magnitude. Why should a corporation by office supplies in the US, if it has a branch in China? Edit Also, Fair Tax doesn't take into account moving money overseas. I've mentioned living elsewhere down below, and that also got me thinking of how I personally would certainly gain from that ridiculous thing called \"\"Fair Tax\"\". Basically, that's exactly how the \"\"rich folks\"\", those who push for it, will gain from it. Being able to move money out of the US basically makes it a perfect tax shelter. You don't pay taxes on the income (that you have in the US), and you don't pay taxes on the spendings (that you have elsewhere, because in that country income is taxable so you only pay VAT or sales taxes). This means that all the wealthy people, while investing and gaining money from the American economy (stocks, property, etc), will actually not be spending it in the US. Thus, no taxes paid to the US, dollars flowing out. Perfect. Actually, I should be all for this stupid idea. Very fair to me, no need to pay any taxes at all, because food will probably be exempt anyway.\"","\"You asked about the challenges. The transition itself is the biggest one. For people to get used to the tax at the register vs at their paycheck. For a great number of people to find new work. I don't know the numbers, but anyone involved with personal income taxes would be out of work. Sales tax is already part of the process in most states, bumping it to a federal tax wont add too much in overhead. I make no moral judgment, but consider, most prostitutes and drug dealers are avoiding income tax, but they still are buying the same goods in stores you and I are. This proposed tax reduces the collection noncompliance, and brings more people into \"\"the system\"\". Another factor some may not like is the ability to affect behavior by picking and choosing what to promote, via deductions, such as home buying or charity.\"","Yeah, the VAT adds more fairness between who gets the taxes, but is only offset by it being more complicated and needing more bureaucracy. I think it's an interesting idea. If I were a policy analyst I'd like to see what costs are vs. benefit.","Meanwhile, income tax is still based on the premise that the government owns your income (property). The government owns all of it and decides how much you get to keep. This is theft based on force. Meanwhile, Gary Johnson wants to end all income taxes including business income taxes and replace it with a federal consumption tax. Doesn't anyone want freedom?","Amazon and other online retailers actually now support bipartisan legislation to level the playing field regarding online sales taxes. Value Added Taxes (not sales taxes in the typical sense) are the way to go, as they are much more difficult to evade and can't be sheltered via the Cayman Islands. They can easily be made progressive through the use of rebates to lower income individuals. There is a reason it is in place in over 130 countries.","What about changing the income tax to a national sales tax and putting different products and services on a tiered system. Basic necessities would be taxed at a lower rate (if at all), then you work up the tiers towards purely luxury items that are taxed at a much higher rate? That would give us the benefits of a sales tax while, at the same time, not placing an extra burden on the lower class (who would, presumably, need to spend a higher portion of their income on basic necessities).","\"No one thinks a flat tax is a good idea. As someone that has a good income, I would love to be paying 20%. But I doubt a poorer person paying 5% would agree. Flat tax is regressive and hurts poorer people the most. \"\"The flat tax falls flat for good reasons\"\" https://www.washingtonpost.com/posteverything/wp/2015/05/26/the-flat-tax-falls-flat-for-good-reasons/\"","\"Yeah the biggest problem with this is that it far more heavily taxes the poor than the rich. Poor people spend *all of their income.* Month-to-month, living paycheck-to-paycheck, poor people have no choice but to spend their entire incomes on basic necessities, utilities, etc. Rich people on the other hand spend very little of their incomes. Most of it gets stashed in hedgefunds and overseas holdings and doesn't really \"\"change hands\"\" in a way that allows it to be taxed under this style of tax structure. So your tax continuously hits 100% of the wealth of the bottom 75%(ish) of households while largely bypassing the rich folks who have more money than they can *spend*. In short, this kind of tax structure is really bad for anyone who doesn't make $300k+ a year and store most of their wealth in stocks and so forth. If you want to help the general public (households making less than $300k/year), you need to generate more tax revenue from *investments* and *capital gains*. A 2% tax, say, on stock trades valued over $10,000 obviously wouldn't hurt poor people at all, and also wouldn't really hurt the rich. Cuz if you've got 10 grand (or a hundred, or thousand, or whatever) to stash in shares of Amazon or whatever, you're really not gonna miss the $200 that comes off the top of your trade. But this *would* generate huge tax revenue, as there are thousands of such transfers a day.\"","Well not over 50%. I would want a very very simple flat rate tax (say around 25-30%) with a high personal allowance (say around $25k) and no tax breaks etc. This seems to be the fairest. Low incomes pay the least and the rich are taxed fairly but not to the extent they feel the need to avoid it.","Say for example a trade totals $10,000. A flat tax of 0.2% would be $20. This is not much for the Buy & Holder b/c he only makes a few trades a year, say 10 transactions a year. So their tax is only about $200 per year. (heck we could even drop it to 0.1%). But DayTraders will routinely do 10 trades a day, or over 3000 trades a year. So using that same 10K trade above, that could hypothetically be 3000x20 = $60,000 per year in taxes. Computer Traders will do hundreds of trades per day. Say 30,000 trades per year. So that is $600,000. So you can see how iit hardly affects legitimate investors, while making the HF traders control themselves a bit. This is what we want. The exchanges charge the flat tax with the transaction like a Sales tax. It avoids excess regulation (the SEC already monitors trades, or is supposed to), and it hurts the gamblers (HFTs), while not hindering the good guys (investors).","Owing taxes to two or more levels of government isn't double taxation. It's a feature of the American union. I'm not for this bill in general, mostly for the timing and the loss of the highest bracket, but both the state and federal governments have to generate revenue, and basing rates on pure incomes with a few loopholes as possible is the most progressive way to do it. By owing taxes unadjusted for other taxes paid, there's more incentive for states to lower local taxes and to balance state programs with federal programs, and for state reps to more fairly redistribute federal transfers instead of targeting states with (usually artificially) low local taxes and fewer state programs (usually Republican).","The point is, they shouldn't be taxing it at all. The US's fair share of that revenue is 0%. It's wasn't produced via their infrastructure or anything. It's pure double dipping. It's not up to the US to determine it's fair share of someone else's pie. It's pure American arrogance: interfering in business in other countries.","\"This is the best tl;dr I could make, [original](https://www.vox.com/policy-and-politics/2017/5/24/15680254/republicans-border-adjustment-tax) reduced by 90%. (I'm a bot) ***** > Which would essentially add a 20 percent tax on imported goods while exempting US exports, was the key solution House Republicans had come up with to raise enough revenue to offset corporate tax cuts. > In the document, House Republicans outlined their communications strategy, which included three steps to selling the BAT. Step 1: Link the broken tax code to job losses in manufacturing. > The problem for the White House and congressional Republicans is that the administration hasn&#039;t offered a competing plan to pay for the trillions of dollars in tax cuts Trump wants. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6ejbtb/nobody_likes_the_border_adjustment_tax_except_the/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~133521 tl;drs so far.\"\") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **tax**^#1 **House**^#2 **Republican**^#3 **border**^#4 **provision**^#5\"","It sounds good on paper, the problem is licensing fees paid to foreign subsidiaries for IP and trademark use. That's how Apple makes 80% of it's revenue in the US and still makes 80% of it's profit in Ireland. If the US doesn't take foreign income into account, every multinational would offshore their profits the same way. Many do it now, and the loop hole isn't as big as people are advocating for.",">a set fraction of the mean income, distributed to everyone whether or not they have other income. Seems fair to me. I would also re-tool tax brackets so instead of being based on income, they'd be based on money eared relative to the national mean. That way the brackets are naturally dynamic.","There's one huge difference. Generally speaking, the entire burden of paying VAT is intended to be placed upon end consumers, and not upon businesses themselves. So ditching corporation tax and increasing VAT would mean shifting a huge amount of the tax burden from corporations to every-day people. Such a policy could kill the party that attempted to push it.","But why can't two companies exchange goods directly without paying VAT? This would make the famous carousel fraud scam impossible and businesses won't have to deal with complicated refunds. Sales tax in the United States works as you describe. Sales tax is charged only to end customers, not to businesses that themselves charge sales tax. But this means that a criminal business can charge tax and just pocket it unless someone else reports it. They can also evade income tax the same way. Not to mention other issues like cross jurisdiction taxes (e.g. internet sales often evade sales tax). The whole point of a Value Added Tax (VAT) is that they charge at each level. This creates a system where each buyer reports the tax paid to the seller so as to be able to deduct it. So the seller has to pay the VAT that they charged. Or the tax authorities know and can revoke their VAT license. If only the end user is charged tax, then fraud is easier than under a VAT. So easy, I doubt they have a special name for it. The fraudulent business just collects tax from end users and disappears. Or simply fails to record those transactions. You could call it missing transaction record fraud, but why bother? It's just straight up tax fraud. The complexity of the carousel fraud arises from the difficulty of evading a VAT.","Well-defined definitions of a successful tax plan and its likely outcomes. Concrete, simple tax brackets. Hard numbers with real world value, not rhetorical promises washed through special interest groups and lobbyists. Well done. There's no way the current administration will do anything remotely this intelligent.","Corporate profits are currently taxed twice. Once at the corporate level, and a second time when the corporation's owners get paid via dividends or capital gains. The alternative is simply to eliminate the corporate-level taxation and raise the dividend and capital gains taxes back up to normal levels. Instead of (1-35%)*(1-15%) we'd just have (1-45%) or something","The way I see it, corporation tax is not fundamentally different from VAT. They are both a tax on revenue minus expenses, just what those expenses are is different. I think the main advantage of corporation tax is that it allows capital expenditure to be spread over several years, although as I said this makes it more complicated (and I believe that there are some capital allowances for VAT as well). One advantage of VAT is that sales in one country are taxed in that country before the money can be sent abroad. It seems simple and fair to split the tax burden between jurisdictions according to how many sales were made in each.","An equity tax does seem to make some sense. It would probably help to stave off deflation as well because it would encourage growth and investment where people would otherwise choose to sit on their money or worse. An equity tax on currency or liquid investments of even .5% APR would have a huge effect on the behavior of corporations. Sadly the largest of them would have the resources to avoid the tax by keeping all of their money out of the country.","This is something a redditor came up with. It provides a basic income to everyone, while still penalizing those who don't work (by minutely by surely lowering their stipend) and preventing a poverty trap (by never withdrawing the stipend).","\"This is the best tl;dr I could make, [original](https://www.nakedcapitalism.com/2017/08/case-consumption-tax.html) reduced by 87%. (I'm a bot) ***** > You often hear calls out there - mostly from Right economists but also from some on the Left - for a consumption tax in the U.S. As presented, it&#039;s a super-simple idea: tally your income, subtract your saving, and what&#039;s left is your consumption. > The tuition line raises a particularly vexing question, and brings us back to the second question: what economic effects would we see from a consumption tax, under various accounting and taxation rules? Clearly, if you tax tuition, you discourage education. > A consumption tax, compared to, say, a wealth tax or a land-value tax, is a direct assault on GDP and GDP growth. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6txd1l/the_case_against_a_consumption_tax/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~191594 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **consumption**^#1 **Save**^#2 **tax**^#3 **account**^#4 **family**^#5\"","Irrelevant to the question. Regardless what is used for the tax base, we would still have the same debate but with much larger anti-taxation sentiments. Supply side Jesus either works or doesn't and shifting the federal revenue sources to the income taxes does not change it.","What a shit idea lol. Like how about not spend so damn much on stupid shit America. How about creating a tax bracket on those that make the oodles of dough per year. Don't go after the working man's retirement savings as easy pickings for taxes. Wtf","It is double taxation. The same income is taxed twice. But as to the core of your argument, starting from a baseline of zero I agree. But we aren't starting over .. there is 100+ years of income tax history and almost 250 years of state/local governments creating the services required for local residents. It's been amazing how a lil bit of federal control has caused the conservative movement has forgotten they brought the 10th amendment to life with Seminole Tribe v. State of Florida.","Currently, the answer is no, you cannot get out of filing a tax return. As noted in the comments, if you want to pay more to get out of the drudgery of working on your return, you can pay an accountant to do it for you. You are not alone in thinking that the current income tax system in the U.S. is overly complicated. What you are essentially describing is a flat tax, a system where there would be a simple tax rate that is paid with no deductions, loopholes, etc., and minimal reporting requirements. Besides flat tax proposals, others have proposed eliminating the income tax altogether and switching to a national sales tax, such as the FairTax proposal. Each of these proposals has pros and cons over the current system, and if you have questions about them, feel free to ask a new question. But what they have in common is that they would drastically simplify the system of taxation in this country. If that sounds good to you, you can learn more about these proposals and support organizations and candidates that advocate these reforms.","What do you propose a fair share should be? They pay nearly $900 million per year in income taxes. Their effective rate is reduced due to them paying higher taxes in years prior, plus they lost money and can deduct that as well. Not to mention, they are double taxed as a corporation and payroll taxes are not part of that $900 million, so they're paying even more than that. Part of what makes the US awesome is an environment that helps business grow. What do you think will happen when a business pays let's say 20% on revenue generated in other countries and then another 20% tax on that revenue here? Either companies will move to a country with a lower tax rate or they pull back on global trade. Both are bad for the economy.","\"So you are back to saying that the price Walmart charges for each item depends on the income level of the purchaser. That's not fair, so neither are taxes based on the income levels of taxpayers. I don't think road sweepers should be subsidized so they can drive a Rolls Royce car. And I don't think they should be allowed to live in a Rolls Royce location unless they can afford to compensate those they exclude from it. The fact they currently are is outrageous as it causes a shrunken economy and excessive inequalities. Real estate bubbles are caused by not have a LVT. Obviously there could be no \"\"bubble\"\" as it would have already been taxed away.\"","> Its a no, there should be no taxes on anyone, only service providers and voluntary customers. Last time you made this claim I pointed you to [a video on the US's Articles of Confederation](https://www.youtube.com/watch?v=C6rHSiN0vKk) and you never responded. Perhaps you'll muster up the courage this time. The Articles of Confederation was set up very similar to what you are proposing. Why do you think that government failed?","Actually, yes, I do think it's fair. It's a corporation, not a family. I think *individuals* should pay 50% of every dollar above $5m. That means every dollar; personal income, capital gains, interest, whatever. My **only** problem with taxes is how poorly I think they're spent right now. Giving more money to worthless corporate whores (congress) who've already proven they don't have the people's interests at heart is not a concept I relish. One thing at a time though.","\"1) Yes in theory that is right - minus any state taxes as well. 2) They could since there is an unknown amount outside of the US - and probably it will be a percentage and not all. Most of these companies that make a difference are already international companies. 3) They would most likely still do it for any money kept offshore, and it doesn't prevent them from continuing to do it. Again, I didn't say this was a good solution. They are just hoping to ward off economic collapse a little longer by doing this, or perhaps hire more accountants to be able to look at their books to figure out how much they are hiding to punish them. There could be many \"\"motivations\"\" for doing this tax. But I doubt any of the motivations intend to stop it from continuing to happen after the tax. The problem is any company that takes advantage of it basically says \"\"yes, i broke the law - in this amount.\"\" Thus, it might be a good way to get a list of companies to audit more thoroughly.\"","Okays, so the prices we pay for goods and services aren't set by our income levels. Why should taxes be any different? Surely they should be set by the benefits we receive from the community as measured by the market? That's what LVT is and does.","We don't have all the details, but individuals and corporations can either deduct or elect to get a credit for foreign taxes paid. What if this stays and the state/local deduction is eliminated. The IRS directly states the intent is to avoid double taxation. https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-choosing-to-take-credit-or-deduction And ya, the system you make reference to was tried in the Articles of Confederation and proved unworkable. The initial point is that it makes no sense to eliminate the state and local tax deduction unless the intent is to punish blue states and localities in order to offset a reduction in taxes for the wealthy.","Agreed which is why an income tax is a bad idea. Personally I'm in favor of property taxes as a way to fund government. It is a much more objective measure and easy for the government's to confiscate if taxes remain unpaid.","I disagree. First off the SEC is under-funded anyhow, and most economists agree that there needs to be better regulation of the exchanges; ya know since it can fucking crash our economy and send us into WW3. Secondly, it's a flat Transaction tax much like any other State Sales Tax. State Sales Tax is arguably the most successful form of taxation there is, b/c it's so damn easy to implement, and so damn easy to audit. You're blowing this thing way out of proportion. They require the markets to charge a Transaction tax, and then they do periodic audits to ensure each exchange is doing it. The rates go up or down based on the previous quarters number of HFTs. Outside of said formula, this transaction rate can be altered by a meeting of a few SEC heads, and approved when approved by the appropriate congressional body. Kills 2 birds with one stone: * more money to the underfunded SEC * lessens the impact of HFTs and turns the markets back into a market instead of a casino. It will have minimal effects on buy & hold traders since they typically research for a long time, then buy & hold stock for many months. It will mainly affect those who buy & unload several times per day. PS: If you think that letting a market die and having new ones pop up periodically is a good idea then holy shit. Financial markets need stability & regulation. Finance doesn't like uncertainty. Crash & burn marketplaces will help no one, and will raise uncertainty which we all know investors hate.","The GOP has a lazy Susan of bad ideas. The proposed tax cuts would reduce federal revenue by two and a half trillion dollars over the next ten years. The argument in favor is that cutting taxes will boost the economy enough to make up for the cuts. IT NEVER DOES. Ever. The proposal is loaded with tax cuts for wealthy folks. Some middle class folks will see an increase because there won't be a deduction for mortgage interest and property taxes. Thanks Obama.","Yes absurd. But those fat cat business owners need to pay their share! I mean my 70 year old Korean dry cleaner and his wife have been screwing the state out of their fair share of the till for a long time. But seriously, the tax is really horrible for the small business with small margins and large volume. Dry cleaners, restaurants and convenience stores are just a few examples.","Lol I'm not even talking about no government (although that's ideal) you're just retarded to think income tax is the ONLY way to fund a government. Like I said before a federal sales tax would more than suffice and in a lot of cases would work better but please by all means continue to live in ignorance. Just because things have been done a certain way for a long time doesn't mean it's the best or most efficient way.","Okay. The goal should be to avoid taxing those at the lower bracket. So no taxes for those making 30,000 and under. A lower bracket for those making $31,000 to $80,000. Leave in deductions for taxes paid to states. These can be very high and many are taxed twice. Trump's plan removes many deductions used for double taxes. Leave in mortgage interest deduction. It benefits mostly small rental companies and home owner. Get rid of many business deductions. Lower corporate taxes, especially on new businesses. There is a start. You want to have a discussion regarding this.","It's a scam pushed through to benefit the banking system. Tax payments become income for the banks. Any alleged benefits for property holders are ultimately reduced by increased property prices, capital gains tax and estate taxes","Giving the government more control over the distribution of goods and services, even more than it has now, is the recipe for imbalance that has doomed communism and socialism. Even the most tax friendly of the euros are having problems with their systems. They simply aren't competitive. https://www.thelocal.dk/20170829/denmarks-government-announces-new-tax-plan","I believe you are confusing sales tax with income tax. The tax holidays in the US are only for sales tax. Consumers purchasing certain goods during the tax holiday do not have to pay sales tax like they normally would. Effectively the price is slightly lower during those days with the purpose of giving people an extra reason to shop at that time. During the tax holiday the stores make the exact same profit that they normally do, but they may experience a bump in sales simply because more people will shop during that time. Income tax for both consumers and the businesses is not affected by this. Although New York state was the first state to implement a tax holiday 20 years ago, they no longer have one today, though they do have certain goods which have a lower tax rate year round.","Saving Fortune 500 companies hundreds of millions to billions a year and a small company a few thousand. Who's paying for the shortfall to the IRS? The reality is a small business probably make $0 profit because the owner pays himself out, or has enough employees that the (company) makes a profit saving a few grand doesn't do anything. You know what would help? The 1 trillion profit the Fortune 500 make a year, take half. Give energy companies 0% interest loans to pay off their nuclear plants and reduce energy costs for 320 million Americans by a large amount. Take the remainder and the following 3 years and refinance mortgages at 0% interest starting from the smallest to largest loans. 4 years high taxes on large corporations I just bailed out the middle class and helped the poor with 100% retuned to the IRS.","Sales taxes are charged at the point of purchase, while a VAT is assessed during the production process of the item. In the end, the amount paid by the consumer is the same, but with the VAT, the tax was collected from the manufacturer, instead of the consumer. One of the big arguments for VAT is that it prevents lost revenue due to things like smuggling (if sales tax increases past 10% smuggling spikes, so the VAT is a good mechanism if you're looking to implement large taxes on goods). It also keeps the tax burden away from shippers and other tiers of the production process that don't change the intrinsic value of the item.","Much of this inequality would be reduced if we moved from income taxation to a wealth/asset tax. We could exempt a person's main residence and retirement savings (similar to the way we do now with the home mortgage deduction and capital gains exemption and with IRAs). This would also obviate the need for a separate capital gains tax.","\"> So raise taxes on individuals and eliminate business taxes? The government still has to pay for things eventually. The big thing the US pays for that other countries don't is our massive, most-expensive-in-the-world military, which can take up roughly half our budget, Yes we should decrease military spending and stop policing the world. The biggest future expenditure will be unfunded obligations which are between $20 to $60 trillion USD. Without reform the US will go bankrupt. The dollar could be hyper-inflated which destroys the value and people's savings. The dollar will lose world reserve currency status. > We defend other countries through alliances like NATO and bilateral agreements. For that, we need a higher tax rate. We can tax individuals or businesses. Let other countries defend themselves unless they absolutely need help. People and businesses can be taxed, but high taxes and regulations are counter-productive. It hurts small business, innovation, job growth and pushes companies to move abroad and outsource. There's alarming record high unemployment in the US: >**[One in Five Families Are on Food Stamps](http://reason.com/24-7/2013/04/25/one-in-five-families-are-on-food-stamps)** The latest available data from the United States Department of Agriculture (USDA) shows that **a record number 23 million households in the United States are now on food stamps.** > The most recent Supplemental Assistance Nutrition Program (SNAP) statistics of **the number of households receiving food stamps shows that 23,087,886 households participated in January 2013 - an increase of 889,154 families from January 2012 when the number of households totaled 22,188,732.** As John F. Kennedy said:. >**“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”** >– John F. Kennedy, Nov. 20, 1962, president’s news conference >**\"\"'Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”*** >– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964 >“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”* >– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President” [Read more]( http://www.wnd.com/2004/07/25640/#GRyFgRZYqUiKoud6.99)\"","http://www.npr.org/blogs/money/2012/07/19/157047211/six-policies-economists-love-and-politicians-hate > Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people. >Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you're taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households. http://www.npr.org/blogs/money/2012/07/18/156928675/episode-387-the-no-brainer-economic-platform","\"Ah, gotcha. That would be moving the country towards a more socialistic or communistic system where the government controls more of the means of production. I think there would be a problem. Successful companies need to be disruptive and the larger you are the harder it is to try a different approach. I think if the government did try to offer a competing product, the beauracracy would weigh down the offering. The only way the government could be assured a profitable business is to compete unfairly. Consider one of the big government companies, the Post Office. UPS has always been seen as the higher-quality delivery serive. Overnight shipping was considered impossible until FedEx did it. Even today the USPS is in serious financial trouble even though it is granted a monopoly on letter delivery (it is illegal for UPS and FedEx to deliver letters). The Post Office is too inefficient to make money on package delivery so they subsidize that side of their business selling stamps. > so we could abolish income tax and lower taxes over all IMO, the taxes will be paid one way or another. If you cut income tax then it will be replaced with a payroll tax, or sales tax, or property tax, or tariff, or passed to you in the form of higher prices. The only question is the definition of a person or group's \"\"fair share\"\".\"","\"Tax US corporate \"\"persons (citizens)\"\" under the same regime as US human persons/citizens, i.e., file/pay taxes on all income earned annually with deductions for foreign taxes paid. Problem solved for both shareholders and governments. [US Citizens and Resident Aliens Abroad - Filing Requirements](https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-filing-requirements) >If you are a U.S. citizen or resident alien living or traveling outside the United States, **you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.** Thing is, we know solving this isn't the point. It is to misdirect and talk about everything, but the actual issues, i.e., the discrepancy between tax regimes applied to persons and the massive inequality it creates in tax responsibility. Because that would lead to the simple solutions that the populace need/crave. My guess is most US human persons would LOVE to pay taxes only on what was left AFTER they covered their expenses.\"","I am guessing that you don't understand that even a 100% tax bracket doesn't actually equal you paying 100% of your profits in taxes. This is why the use, while having a 35%messaging corporate tax rate, only sees less than 20% in an average effective corporate tax rate... In the same vein, if a company paid taxes on what profits were created within a countries borders, that would be a fairly accurate method of calculating every country's fair percent of revenue from that company and the amount of infrastructure that were utilized by that company within that country's borders. And it still wouldn't add up to anywhere near 100% of that company's net profits...","\"The current tax regime? Not sure if you are being serious or facetious, but: [US Citizens and Resident Aliens Abroad - Filing Requirements](https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-filing-requirements) >If you are a U.S. citizen or resident alien living or traveling outside the United States, **you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.** In contrast, corporations don't pay taxes on profits earned abroad until repatriation [here](http://money.cnn.com/2014/08/14/news/economy/corporate-taxes-inversion/index.html), [here](https://www.nytimes.com/2017/03/09/business/economy/corporate-tax-report.html), [here](https://www.bloomberg.com/graphics/2016-apple-profits/). So guess what they NEVER do? This is why literally every large US multi-national corporate \"\"person\"\" pays next to nothing in taxes. It is quite obvious that this is a violation of the spirit if not the letter of tax law. That simple fix would wipe out massive amounts of government debt and force multi-national corporations and their shareholders to become engaged stake holders in the efficiency of government. But if, unlike W-2 paid human counterparts, you can dodge all taxation, \"\"Who cares if the government is using funds efficiently?\"\" That is incentive to actually game the system to force the government into wasteful spending because the subsequent fallout of increased taxation and/or failure of the state can be dodged without consequence.\"","Why not talk about services? Why should I pay more for services. It's not like more income means I use the roads and bridges more. More income doesn't mean more kids that need public education. More income doesn't mean I use fire services more. If you ask me, I'd rather people just pay for the services they use. Have kids? Then you pay for their school. Drive 60 minutes to work, then you pay more than someone that drives 10 minutes. That's seems fair.","Does that strike you as a fair solution? All the people that have made sacrifices and not spent every dime they have earned deserve to have it taken away? And I am sure they do have it 'somewhere' like low yield bonds or savings accounts...","> if a company paid taxes on what profits were created within a countries borders, that would be a fairly accurate method of calculating every country's fair percent of revenue from that company That's exactly what I said in the post you originally replied to.","\"Why is this even on the table? It's effectively a **revenue neurtral** proposal! You still pay taxes on \"\"tax deferred\"\" retirement plans - In fact, I would dare say that in most cases, people end up paying **more** in taxes, because they pay it as regular income rather than LTCG. The poor will still eat cat food and live on SSI; the rich consider what $18k/year would get them as a laughable pittance (and I say that as someone who *doesn't* grudge them their wealth). This will *only* have the effect of fucking the middle class. There is absolutely no other possible interpretation.\"","One of the reasons is also general distrust to the government. Another one is that there exist special interest group which profits from the complicated scheme, keep adding special cases, and has stronger financial situation that the opponents of such complex scheme. People do not trust government, or companies, to act in their best interests. So they (we) waste huge amount of time and/or money to comply with byzantine income laws. In 2004 Democratic presidential primary, presidential candidate Wes Clark (who beyond being 4-star general has also master degree in economics from Oxford, and taught economics in West point) proposed similar scheme: for people with income under 50K, employer would do all the (simple) paperwork, if desired, and get return. In the noise of the campaign, idea how to simplify taxes for half of the population was lost. Funny how the only candidate in recent history who was both professor of economics (not MBA, which is about business and profits) and distinguished military hero, could not get any traction in Democratic party.","\">Source: I'm a state tax auditor, and my job is to make sure corporations pay what they are supposed to. Most of the American public believes that the bulk of taxes are federal income taxes. That's what they fixate on when evaluating the \"\"fairness\"\" of taxation. The fact remains that the very wealthy and very large corporations are structured so that they don't pay that particular type of tax. That's why Mitt Romney's tax returns are being squinted at. Mitt pays capital gains tax, not income tax and tripling the tax rate on the upper-most tax bracket wouldn't really affect him. You know this. I know this. But most people don't and few people are interested in learning how it works. If you want to \"\"tax the rich\"\" just create a progressive scale for capital gains instead of a flat 15%.\"","Proportional is good, but we don't need redistribution. The market mechanism does that on its own when it's free. The bailouts of the banks and auto industry should have shown that the only thing stopping a major, but poorly run business from bankruptcy (and having its assets redistributed) is government intervention. Maybe the change will light a fire under complacent companies and they'll start earning their profits again, or maybe they'll fail. There's no way to know ahead of time, but with no legal barriers to entry, the playing field will be fair again.","\"The only reason taxes are \"\"needed\"\" is because the people are to ignorant to know there are better more moral systems out there. For instance instead of stealing hard earned money from people tax the money they spend ie federal sales tax. \"\"How is that any different?!\"\" Because a sales tax isn't theft it just raises the price of products you want to buy, this way there is no tax dodging and no imprisonment for keeping what you earned and what is rightfully yours\"","It destroyed Sweden's position as a major player in the global securities market. When the tax was rescinded in 1991, some of the trade returned over time but things were never the same. It was also a net revenue loser without even considering the long term market damage.",">American politics is pretty utterly fucked isn't it? Haha, I think that's the one thing most sides can agree on. >That's interesting, and I've heard it before. Is something like this writer outlines what you are thinking? Essentially remove corporate taxes, and then tax dividends and capital gains as normal income? Yeah I like the idea for a few reasons. Incentivizes investments in America (capital is far more mobile than labor or even capital owners), gets rid of malinvestment of tax avoidance, sticks taxation exactly where we want it (in this case capital owners instead of random incidence among labor/capital/consumers), and cuts other deadweight losses inherent in a corporate income tax. It's really hard for me to understand why almost anyone would be against this. It's a progressive, pro-growth, anti-crony idea.","\"> Bernie sources: I would agree, it looks like the tax would cover all those that buy stock, bonds, and derivatives. However, this article didn't really cover the specifics. What would the tax be? Would it a flat dollar amount per transaction? That would make sense as it would focus more on those that do high volume traders. That wouldn't really impact me, as I already pay $9 per transaction. And I don't do many transactions. A couple dollars more, and I would be fine. > To answer your Enron example, no corporation would have enough power to actually do something like that if they didn't have at least partial backing by the government. Ah, but corporations [edit - wouldn't] have the power to do much of anything without someone to enforce their policies. Name one market that doesn't have an enforcement agency of some type. That is a mighty big assumption that the \"\"free market\"\" would make it work... especially since one doesn't really exist. And that would be the crux of my argument. All of the things you say about the perfection of the market to regulate itself is so far not proven. Take a market like Kansas - over the last 6 years, they just underwent one of the largest deregulation, de-taxation experiments of any state in the union. The results were less than stellar. Kansas is lagging the national average in growth. And they took a hundred million dollar surplus and turned into a couple billion dollar deficit almost overnight. And who suffers, of course the most poor. They shut down schools, fired teachers, and shelved many infrastructure jobs - jobs that would have been fielded by lower wage workers... And those infrastructure projects were undoubtedly in lower income areas. I would say, if you truly believe in what you preach then live it. Start a commune somewhere. Demonstrate how it is effective. That would have more power than preaching some amorphous unproveable policy over the internet.\"",">All tax is income tax, as if you haven't got the income, you can't pay it. This is a pretty apt simplification. I find that most land value tax advocates are either trying to engineer the demographics of property ownership or spiteful against people who own more than they themselves do.","> Taxation is theft. No, and [we've already gone down this road](https://www.reddit.com/r/economy/comments/6leb2o/missouri_republicans_lower_st_louis_minimum_wage/dju1jjp/). Are you familiar with US history and the time they had the [Articles of Confederation](https://en.wikipedia.org/wiki/Articles_of_Confederation)? I would be curious to know why you think it failed.","I see a couple of ways of getting at this. One would be to switch to a VAT. That would capture a good amount of revenue on anything that's made here. Second, I want IP to be taxed. We pay property taxes, so I think that trademarks and copyrighted works should be taxed just like how real property is taxed. You want to register the Burger King logo in the US? Sure thing! You will pay a percentage of its value every year and you get to use it exclusively with the full protection of the US courts your taxes help fund. I also see this as a good way out of the IP cesspool we're currently in. Copyright has become unreasonably long mostly because Disney doesn't want to lose the rights to Mickey Mouse. Look, I *am* sympathetic to Disney's argument. Mickey genuinely is important to them. But Mickey is fucking things up for everyone else. So I think Disney should pay a percentage of Mickey's value every year. In exchange, they keep their copyright forever as long as they keep paying. Now, if the copyright tax isn't paid, then the property becomes public domain forever. This would let Disney have what they want while non-profitable copyrights become public domain, as they should. Anyhow, the one thing all the big tax-avoiding companies have in common is IP. If you tax their IP in exchange for protection in US courts, there's really no way around that. They will either have to pay or let their IP go public domain.","\"Let's imagine an economy where 100% of wealth creation comes from existing financial assets and 0% comes from new wealth creation. That would essentially be a dead economy. I don't think it matters what your philosophy on economics is--that's a bad outcome. If you don't agree with that point we'll stop here. Note, if you don't think it's bad for this to keep going higher, Japan is at about 80% and we know how they're doing. If you agree 100% would be bad then we're 70% of the way there in the US. Trump's tax plan, if enacted, would push us even further. The question we should be asking is what is a reasonable way to encourage NEW wealth creation rather than protect and preserve existing wealth. For starters, it makes little sense to have a preferential tax rate for capital gains/dividends/estates as compared to earned income. Even if you just hate taxes and want them all to be gone I think it's fairly easy to say IF we're going to have taxes they should not favor income/transfer from existing financial assets as compared to earned income. A much more reasonable way to approach this is to say, we have a lot of concentration of financial assets in the top decile of wealth spectrum. Let's just level the tax rate so that income from financial assets is taxes at a similar rate to income from work. That's not even an \"\"eat the rich\"\" proposal, it's just a \"\"eat everyone equally\"\" proposal. All it would do is tax the very substantial gains in stocks at the same rate as the very meagre (median) gains from working. The fact that taxing income from financial assets at the same rate as work is a controversial idea is, to me, emblematic of a government completely captured by wealthy interests.\"","Wanna make sure every company pays at least some taxes? Install a 'tax floor'. Basically, no matter how many losses you claim, no matter how much you offshore, no matter how many loopholes you find, you can not drop below a certain number. Let's say 15%. That is it, you have to pay at least 15%. As this takes effect, and only after revenues stream in for a few years to help balance things out, you can even slightly adjust the high rate down a tad to help the big companies that don't use the loopholes. Please spread this idea around.","So raise taxes on individuals and eliminate business taxes? The government still has to pay for things eventually. The big thing the US pays for that other countries don't is our massive, most-expensive-in-the-world military, which can take up roughly half our budget, sometimes even more depending on how active we are abroad. That includes paying for current wars, preparing for future wars, and serving the veterans of past wars. We defend other countries through alliances like NATO and bilateral agreements. For that, we need a higher tax rate. We can tax individuals or businesses.","My state (Oregon) doesn't give me credit for all the federal taxes I pay so I get taxed by the state for money I never received. Now both will, fun. With this policy it would be worth it to move my family to a red state and start turning it blue.","\"So some background here - when corporations, large ones have to deal with tax, they generally try to avoid as much tax as possible. Since there are places that are \"\"tax havens\"\" where there is less to even no tax on profit, a lot of money gets routed there to avoid taxes in other places (US or other unfavorable countries). The problem with this from an IRS/government view is that they keep losing millions/billions of dollars in money because of this. I think the corporate federal tax rate is around 35% and that is without state taxes. Unfortunately when you have less and less money at home - less investment at home happens. Corporations stop doing business at home because they have more money somewhere else - and it makes sense to move more of the company to where the money is or to more favorable tax locations. Even worse - the corporation might just \"\"save\"\" its money somewhere else and kill all reinvestment - thus the money is effectively dead to the rest of the economy. There is a lot of talk about a 'one-time' repatriation tax to allow companies that have dodged their tax burdens to have their money come back to the US (and thus can be used locally) at 10% instead of 35% since there is theroretically a vast amount of cash that would be injected into the US economy. The government is hoping this stimulation will help GDP grow, taxes grow, and help the economy as a whole. In reality, it will reward corporations that broke the law (even though everyone does it), and probably just go into savings accounts here in the US - and not be the \"\"silver bullet\"\" to the economy on verge of collapse again.\"",">Corporate taxes as a percentage of federal revenue declined from 27.3 percent in 1955 to 8.9 percent in 2010 If the federal government adds a European-style VAT tax, that would also greatly decrease corporate taxes as a percentage of federal revenue, but it would be because there's more taxes coming in from other sources. Federal income taxes in the United States didn't even *exist* until 1913. Percentage of federal income goes down as income from other sources go up. The United States [currently has the highest corporate tax rate in the developed world](http://www.huffingtonpost.com/2012/03/30/us-corporate-tax-rate_n_1392310.html).","Yet, if you are wealthy enough to have already accumulated the bulk of your savings, they're going to treat your capital gains much more favorably than the wage income of the poor shlub who's still trying to make these contributions. I can't wait to see how they attempt to sell this to the average taxpayer.","How about if we lower taxes on the bottom two brackets and increase taxes on the top two brackets? Right now it's 10, 15, 25, 28, 33, and 35 percent. But wouldnt it be better if we change it to 8, 13, 25, 28, 35, 38 percent? The poor are the ones who spends most of their money on sale taxes than compared with any other brackets and the more money the poor have the more they will spend which will lead to more growth in the economy","> This constant belief that services should cost a percentage instead of a fixed rate that everyone pays is a joke. Your position makes good sense but if everyone paid a fixed rate in taxes then about %25 of the people would go broke. It doesn't seem fair that someone working within the system is bankrupted by the system. Seems to me we need to first fix unfairness in wages. Anyone who works full time for the system should at least be able to afford a modest life including health care, retirement, and taxes. Then I think it is right to demand they pay taxes to the system. Would you agree?","\"No, it is not true. That is one of the many \"\"conspiracy theorists'\"\" claims to not pay taxes, and is considered as frivolous (i.e.: punishable by very harsh penalties and criminal prosecution). Specifically to your question, the current Federal income tax framework was laid down in 1986, with the Tax Reform Act of 1986. It is codified under the title 26 of the US Code. It is usually referred to as the \"\"Internal Revenue Code\"\", or IRC.\"","Your federal taxes in US include the tax which Indian government wants back from you under the treaty with US government. Some countries have treaty with US where all the money person earns in US can be reclaimed at the end of the financial year i.e no money goes to the country of citizenship. However, Indian citizens working in US are not liable for 100% reclaim on their federal tax.","Yeah because paying millions a year in taxes is somehow less than than paying the nothing the poor pay. This constant belief that services should cost a percentage instead of a fixed rate that everyone pays is a joke. There is nothing equal about going into a McDonalds lining everyone up based on income then making one guy pay for everyone else because he was more successful. Then calling it equal or fair, which it isn't.","\"C'mon, Bill - you're better than this. Aside from the fact that he accumulated his personal wealth through ruthless profiteering and tax shelters, it's just a flat out bad idea. It was an even worse idea when some neckbeard actor and commie guitarist started pushing it. All this tax will do is hamper the ability to do business (i.e., market liquidity), and end up being shouldered by small banks and in the end, the consumer. Big banks will find their ways around this, no problem, but the boutique capital firms will surely struggle. This isn't just a \"\"oh, we'll institute this micro-tax and everyone is happy!\"\" - they want to tax the underlying value of assets on each trade. This creates a direct impact to free-market trading which I don't believe they've accounted for (which is shocking, really). It's a tax on the top and bottomline, and a general tax on the actual execution point of an entire industry. It's a half-baked idea that shouldn't have gotten as far as it did.\"","\"This is the best tl;dr I could make, [original](http://dissidentvoice.org/2013/07/can-an-lvt-save-us/) reduced by 93%. (I'm a bot) ***** > They amended their LVT to add a tax on property improvements but should have done the opposite - increase the LVT and reduce other taxes. > By adopting an LVT, they guarantee themselves sufficient income to provide government and public services - without falling into the predatory clutches of international bankers and the IMF. In his 2011 book Re-Solving the Economic Puzzle, Walter Rybeck relates how the US contemplated LVT enabling legislation during the Carter administration. > Five other states have passed LVT enabling legislation - Connecticut, Maryland, New York, Pennsylvania, Virginia, Washington - to make it easier for local communities to adopt an LVT. Other American communities that have already benefited from an LVT include California&#039;s Central Valley, Fairhope in Alabama, Arden in Delaware, and Pittsburgh and other cities in Pennsylvania. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6hxn1x/can_an_lvt_save_us_dissident_voice/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~146992 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **LVT**^#1 **Land**^#2 **economic**^#3 **Harrison**^#4 **Tax**^#5\"","There are fees on retail trades imposed by trading houses, but not on traders like MS and GS. That's why HFT is possible. Personally, I get 100 free trades per year and that's more than enough for me. Adding a tax to this is just stupid.","What is tax slavery? Most impacted by higher taxes can afford to put them in off shore accounts. This going to hurt the economy because businesses aren't going to higher more people. Trickle down economics consistently fails. You'll have a bunch of owners saving the profits instead of giving the jobs because most of them are already operating efficiently. Especially in a state where menial labor is the most common form. Tax Slavery is a bullshit term to justify the rich robbing the government of their due while being able to benefit from the clout that comes with being American.","\".. 99% of the people against this proposition are 100% likely never to earn above $5 million a year .. the American Dream is strong, so people will be strongly against this type of taxes, making the entire suggestion a provocation of \"\"the unwashed masses\"\".\"","Walmart is one of the biggest low wage employers. Let's say $1B of the $2.66B is spent on subsidizing Wal-Mart employees. That's >$3 per US citizen, that we all pay and cannot put back into the economy how we wish. I don't even shop at wal mart and I'm forced to subsidize their employees. IMO, that is not fair. This just incentivizes walmart to hire more cheap government-subsidized employees, rewarding walmart's on my back. So let's do this: For every government dollar spent on helping low-wage employees subsist, we tax the employer the same dollar. From this I bet we would see walmart building housing for their employees, maybe even cafeterias, to get them off section 8 / food stamps. That is more efficient than sending money to the IRS, it makes its way to HUD, then to some government employees who are overburdoned, then we pay out section 8 money to landlords. That's inefficient. I know of walmart employees who rely on $1400/month in section 8, so walmart's tax bill would increase substantially, costs would rise, but tax receipts that we all have to currently pay would decrease by the same amount. So overall costs stay them same, but the finances are more efficient and where they should be vs spread around.","[Eliminating breaks **would allow the government to simplify the tax code and broaden the base of income** against which taxes are levied] [The dilemma—which Republicans are colliding with right now—is that many of the biggest tax breaks, especially for individuals, are **popular and hard to dislodge.**]","Not optional, but I assumed the premise was that with out having to pay for health care corporations would pay more in wages. In the US that is never going to be true. In other words they would use the VAT and not having to pay for health care as an excuse to extract more profit. Employee wages wouldn't go up, corporate health care costs would go down, and the VAT would be passed on to the consumer through higher prices.","Your source doesn't support your point. I don't have a problem paying taxes for services we all use - you do. Charging fees for police & courts is a libertarian notion. As sourced in my previous post, no current tax rates need to be changed to pay for UH. We just need to remove corporate subsides. As a whole, America would save about 10% of GDP yearly by converting to a UH in this fashion. If you can't honestly debate the sources or ideas I've put out and insist on circling back around to these ideological positions regardless of how often they get blown up - then I think we've made all the progress we're going to.","I've had zero taxable income for the past 2 years and yet the calculations say I owe the government $250 for each year for the Self Employment tax. How can they charge a non-zero tax on my income when my taxable income is zero? That is theft. That demands reform.","Its one of the main points. Transfer pricing includes discretionary decisions and is part of BEPS. Its also completely unnecessary: Pay taxes on revenue in country earned/sold. Get tax credits/refunds in country were spending is made. The reason why already profitable companies consider BEPS/tax arbitrage for HQ locations is because they get discretionary power over accounting profit allocation. Tax policy should serve the society though, and this proposal encourages the spending that benefits society. Its the usual case that the right answer is different than that being lobbied for.","They should be (and are) taxed the corporate rate on the 10 cents. The company they purchased the coffee grounds from will pay taxes on the 90 cents. The other alternative you suggested would put an end to most commercial activity. Very few businesses could sustain a 35% (of revenue) penalty to their margins. Society would collapse.","> It makes sense for EVERYONE to pay their fair and equal share. Totally agree. Don't you agree that a fair an equal share for someone working full time for the system is at least a modest but complete life within the system?","\"> So the fact that i was born here against my own free will automatically gives the government the right to seize the fruits of my labor? Yes, in the same way that being born to parents living in a clean house means you are going to make your bed, pick up your clothes, and mow the lawn... > \"\"well just leave then!\"\" Well, yes. It is either that, or change the laws. > Which is fucking stupid and in pretty sure I already gave you 1 way but I'll say it again cuz it's clear you're incapable of following along For someone who is so sure that they have \"\"*THE* answer\"\" you sure are defensive. It is quite possible that I have had a discussion over the SAME topic over the last 5 days with a *bunch* of people because so many people got butt hurt that I enjoy paying my taxes, and feel it is a patriotic duty because of all the good it does. > federal sales tax So federal sales tax is your big secret? I would actually be fine with it, as long as it took into account those that are currently not paying income tax due to poverty or disability. > That's why you see countries like Sweden with insane tax rates seeing limited growth and in a lot of cases on the verge of an economic collapse. I have lived in Europe for a number of years. I was in Germany last year, I will be in Spain next week. If you think that strong tax policy makes a country economically weak, then you have not actually lived in any of these countries, have you? Sweden is currently ranked 11th in the world for [GDP per capita](https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita). Matter of fact, the only country in the top ten of that list that don't have a strong tax policy is Qatar - and that is only because of ridiculous oil money. Would like to see where they sit in two years. Sweden last year had an [economic growth rate of 4.1%](http://www.imf.org/en/News/Articles/2016/11/14/111716Sweden-Great-Economic-Performance-but-Mind-the-Debt). More than 3 times what the growth rate in the US was, at [1.6% for 2016](http://www.cbsnews.com/news/u-s-economic-growth-slowed-in-2016-to-1-9/). It was ranked [#34 in the world for economic growth](https://en.wikipedia.org/wiki/List_of_countries_by_real_GDP_growth_rate), just under your Bahamas with their no income tax, no estate or wealth tax, but well above the US at 47. The IMF matter of fact said their economy was \"\"in good health and growing robustly\"\"... So, not sure where you are getting your facts from, but may want to think again. I would recommend that you actually go visit a couple of these \"\"tax hellholes\"\" and see for yourself how \"\"crushed\"\" by their taxes these poor victims of government \"\"theft\"\" are...\"","> To be honest we are probably wrong in trying to tax foreign earnings. [We only tax foreign earnings when the money is repatriated to the US](http://www.taxpolicycenter.org/briefing-book/how-does-current-system-international-taxation-work). You think businesses should be able to go to the Bahamas, sell vast property to another American, and return the profit to the US tax free? > The US should learn the get on with less. I'm all for discussing that idea. Cut the spending before you talk about cutting the taxes that fund it.","Except again you're wrong and retarded the comment I first made was in response to a ridiculous statement you mad to someone else who was referring to income tax because income tax is theft and I know this because I'm capable of critical thinking now even in my very first comment I mention income tax and nowhere in this entire conversation have I deviated from income taxes other than bringing up an alternative. I would like to ask you again, how hard is it going through life with 0 critical thinking and comprehension skills?","\"Similar, but actually quite different. A negative income tax on the first $20,000/year has a couple of problems this scheme doesn't: 1) Administration costs and legal complexity. Are we \"\"prebating\"\" or \"\"rebating\"\" the stipend? How is someone supposed to get along if they lose their job unexpectedly in a rebate-based system, can they get their income-tax withholdings back up to $20,000/year? How does the government register changes in income to know when to write someone a check? 2) With a negative tax up to a certain *fixed* level, there's effectively a changing level of subsidy depending how much of the per-capita income is the break-even tax level. If the per-capita income is $45,000/year (our current GDP per capita), then the subsidy level is almost 50%, and if it goes up to $60,000/year (our current mean household income), the subsidy level is then 33%. The system I described and steepk (IIRC) invented fixes the subsidy percentage in relation to the mean reported income (effectively fixing a *relative class level* as minimum) rather than a particular monetary amount (whose relative buying power versus inflation or other incomes can fluctuate wildly). We pick a subsidy level, say 1/3 (33.33333%). We then impose a flat income tax of that level plus a little bit more for administration costs (say, 35%). At the end of the year, everyone is taxed at that flat level, and the government scrapes its administration costs off the top and now has a big pot with 1/3 of everyone's income in it. This is divided into one portion for each taxpayer, and those portions into monthly or biweekly pieces. These pieces are sent out regularly as checks to the taxpayer, and *these checks are not taxed as income*. That last bit is what makes this so nice: it turns the tax progressive, in fact more progressive than our current system. After taxes and *after stipend*, only the rich will pay an *effective* tax rate asymptotically close to the real 35%. Most people without incomes many, many times the size of their stipends will be looking at an effective tax rate of less than 15%, including the tax-paying middle class and the professional upper-middle class who currently bitch so much about our tax rates being so confiscatory (which they *are*, for the abysmal level of social services we receive). Now, to get back to the big benefits of fixing the subsidy percentage. This means that the subsidy grows with mean income, effectively functioning as easy to run, fair, and direct wealth redistribution without the difficulty of trying to create efficient, productive WPA-style jobs or imposing market-distorting subsidies. It also means that we can allow things like automation to improve the productivity of our economy because *everyone* gets a share: if automating a certain job is truly more efficient than having a worker do it, the capitalist's income-gain from automation will push up the mean income, and therefore the basic income, further than the worker's lesser income and the capitalist's lesser profit would have.\"","> But sure, if you want companies to stay in the US and customers to pay higher prices to compensate for those higher taxes... But they don't. Across the board; prices in the US are much lower than they are in every other developed country. Partly because of economies of scale, partly because the posted tax rate != the effective tax rate.","\"I largely agree with you; but there's *no way* to make a true apples-to-apples comparison, because we've never had a \"\"flat\"\" across-the-board tax rate, and we never will. And obviously, in the degenerate cases of taxes at 0% and 100%, revenue drop to zero. Given that, the closest we can come to evaluating the potential effects of Trump's proposal is to look at what happens when major shifts in tax policy have occurred in the past; and since 1943 (when something approaching our modern tax structure first solidified)... The short answer to that is, \"\"nothing at all happens\"\". The *explanation* for that is a more interesting issue (though it boils down to \"\"if you tax X, people will Y instead\"\"), but the implications for fiscal policy are both fascinating and terrifying: Effectively, if the government spends more than 15-16% of GDP, *regardless* of how they structure taxes, they're spending against the deficit.\"","\"Alternative Minimum Tax is based not just on your income, but moreso on the deductions you use. In short, if you have above the minimum AMT threshold of income (54k per your link), and pay a tiny amount of tax, you will pay AMT. AMT is used as an overall protection for the government to say \"\"okay, you can use these deductions from your taxable income, but if you're making a lot of money, you should pay something, no matter what your deductions are\"\". This extra AMT can be used to reduce your tax payment in a future year, if you pay regular tax again. For example - if you have 60k in income, but have 60k in specific deductions from your income, you will pay zero regular tax [because your taxable income will be zero]. AMT would require you to pay some tax on your income above the minimum 54k threshold, which might work out to a few thousand bucks. Next year, if you have 60k in income, but only 15k in deductions, then you would pay some regular tax, and would be able to offset that regular tax by claiming a credit from your AMT already paid. AMT is really a pre-payment of tax paid in years when you have a lot of deductions. Unless you have a lot of deductions every single year, in which case you might not be able to get all of your AMT refunded in the end. Wikipedia has a pretty good summary of AMT in the US, here: https://en.wikipedia.org/wiki/Alternative_minimum_tax. If you think AMT is unfair (and maybe in some cases you might pay it when you think it's \"\"unfair\"\"), look at the root causes of paying AMT listed in that Wikipedia article: I am not trying to convince you that AMT is fair, just that it applies only when someone already has a very low tax rate due to deductions. If you have straight salary income, it would only apply in rare scenarios.\""],"string":"[\n \"\\\"The fair tax is a proposal to replace the US income tax with a sales tax. Pros of Fair Tax: It's a large change to the way the United States currently does things. The \\\"\\\"Fair Tax Act of 2011\\\"\\\" is H.R.25 in the US House and S.13 in the Senate. The full text of the bill is available at the links provided. There are some fairly large consequences of implementing a fair tax. For example, 401ks and Roth IRAs serve no benefit over non-retirement investments. Mortgages would no longer have a tax advantage. Luxury items would get far more expensive.\\\"\",\n \"Its a new way of computing sales tax. Wikipedia has a nice article on this http://en.wikipedia.org/wiki/FairTax\",\n \"\\\"In a nutshell - Value Added Tax. America, as usual, discovers what others have known and used for years. The idea of not taxing income that's tied to it is ridiculous. If you're only taxing spending but not income, people will just take spending elsewhere (Canada, Mexico, further away), and the economy will go down the drain. That's similar to the way people avoid paying sales tax now, except that it will be in orders of magnitude. Why should a corporation by office supplies in the US, if it has a branch in China? Edit Also, Fair Tax doesn't take into account moving money overseas. I've mentioned living elsewhere down below, and that also got me thinking of how I personally would certainly gain from that ridiculous thing called \\\"\\\"Fair Tax\\\"\\\". Basically, that's exactly how the \\\"\\\"rich folks\\\"\\\", those who push for it, will gain from it. Being able to move money out of the US basically makes it a perfect tax shelter. You don't pay taxes on the income (that you have in the US), and you don't pay taxes on the spendings (that you have elsewhere, because in that country income is taxable so you only pay VAT or sales taxes). This means that all the wealthy people, while investing and gaining money from the American economy (stocks, property, etc), will actually not be spending it in the US. Thus, no taxes paid to the US, dollars flowing out. Perfect. Actually, I should be all for this stupid idea. Very fair to me, no need to pay any taxes at all, because food will probably be exempt anyway.\\\"\",\n \"\\\"You asked about the challenges. The transition itself is the biggest one. For people to get used to the tax at the register vs at their paycheck. For a great number of people to find new work. I don't know the numbers, but anyone involved with personal income taxes would be out of work. Sales tax is already part of the process in most states, bumping it to a federal tax wont add too much in overhead. I make no moral judgment, but consider, most prostitutes and drug dealers are avoiding income tax, but they still are buying the same goods in stores you and I are. This proposed tax reduces the collection noncompliance, and brings more people into \\\"\\\"the system\\\"\\\". Another factor some may not like is the ability to affect behavior by picking and choosing what to promote, via deductions, such as home buying or charity.\\\"\",\n \"Yeah, the VAT adds more fairness between who gets the taxes, but is only offset by it being more complicated and needing more bureaucracy. I think it's an interesting idea. If I were a policy analyst I'd like to see what costs are vs. benefit.\",\n \"Meanwhile, income tax is still based on the premise that the government owns your income (property). The government owns all of it and decides how much you get to keep. This is theft based on force. Meanwhile, Gary Johnson wants to end all income taxes including business income taxes and replace it with a federal consumption tax. Doesn't anyone want freedom?\",\n \"Amazon and other online retailers actually now support bipartisan legislation to level the playing field regarding online sales taxes. Value Added Taxes (not sales taxes in the typical sense) are the way to go, as they are much more difficult to evade and can't be sheltered via the Cayman Islands. They can easily be made progressive through the use of rebates to lower income individuals. There is a reason it is in place in over 130 countries.\",\n \"What about changing the income tax to a national sales tax and putting different products and services on a tiered system. Basic necessities would be taxed at a lower rate (if at all), then you work up the tiers towards purely luxury items that are taxed at a much higher rate? That would give us the benefits of a sales tax while, at the same time, not placing an extra burden on the lower class (who would, presumably, need to spend a higher portion of their income on basic necessities).\",\n \"\\\"No one thinks a flat tax is a good idea. As someone that has a good income, I would love to be paying 20%. But I doubt a poorer person paying 5% would agree. Flat tax is regressive and hurts poorer people the most. \\\"\\\"The flat tax falls flat for good reasons\\\"\\\" https://www.washingtonpost.com/posteverything/wp/2015/05/26/the-flat-tax-falls-flat-for-good-reasons/\\\"\",\n \"\\\"Yeah the biggest problem with this is that it far more heavily taxes the poor than the rich. Poor people spend *all of their income.* Month-to-month, living paycheck-to-paycheck, poor people have no choice but to spend their entire incomes on basic necessities, utilities, etc. Rich people on the other hand spend very little of their incomes. Most of it gets stashed in hedgefunds and overseas holdings and doesn't really \\\"\\\"change hands\\\"\\\" in a way that allows it to be taxed under this style of tax structure. So your tax continuously hits 100% of the wealth of the bottom 75%(ish) of households while largely bypassing the rich folks who have more money than they can *spend*. In short, this kind of tax structure is really bad for anyone who doesn't make $300k+ a year and store most of their wealth in stocks and so forth. If you want to help the general public (households making less than $300k/year), you need to generate more tax revenue from *investments* and *capital gains*. A 2% tax, say, on stock trades valued over $10,000 obviously wouldn't hurt poor people at all, and also wouldn't really hurt the rich. Cuz if you've got 10 grand (or a hundred, or thousand, or whatever) to stash in shares of Amazon or whatever, you're really not gonna miss the $200 that comes off the top of your trade. But this *would* generate huge tax revenue, as there are thousands of such transfers a day.\\\"\",\n \"Well not over 50%. I would want a very very simple flat rate tax (say around 25-30%) with a high personal allowance (say around $25k) and no tax breaks etc. This seems to be the fairest. Low incomes pay the least and the rich are taxed fairly but not to the extent they feel the need to avoid it.\",\n \"Say for example a trade totals $10,000. A flat tax of 0.2% would be $20. This is not much for the Buy & Holder b/c he only makes a few trades a year, say 10 transactions a year. So their tax is only about $200 per year. (heck we could even drop it to 0.1%). But DayTraders will routinely do 10 trades a day, or over 3000 trades a year. So using that same 10K trade above, that could hypothetically be 3000x20 = $60,000 per year in taxes. Computer Traders will do hundreds of trades per day. Say 30,000 trades per year. So that is $600,000. So you can see how iit hardly affects legitimate investors, while making the HF traders control themselves a bit. This is what we want. The exchanges charge the flat tax with the transaction like a Sales tax. It avoids excess regulation (the SEC already monitors trades, or is supposed to), and it hurts the gamblers (HFTs), while not hindering the good guys (investors).\",\n \"Owing taxes to two or more levels of government isn't double taxation. It's a feature of the American union. I'm not for this bill in general, mostly for the timing and the loss of the highest bracket, but both the state and federal governments have to generate revenue, and basing rates on pure incomes with a few loopholes as possible is the most progressive way to do it. By owing taxes unadjusted for other taxes paid, there's more incentive for states to lower local taxes and to balance state programs with federal programs, and for state reps to more fairly redistribute federal transfers instead of targeting states with (usually artificially) low local taxes and fewer state programs (usually Republican).\",\n \"The point is, they shouldn't be taxing it at all. The US's fair share of that revenue is 0%. It's wasn't produced via their infrastructure or anything. It's pure double dipping. It's not up to the US to determine it's fair share of someone else's pie. It's pure American arrogance: interfering in business in other countries.\",\n \"\\\"This is the best tl;dr I could make, [original](https://www.vox.com/policy-and-politics/2017/5/24/15680254/republicans-border-adjustment-tax) reduced by 90%. (I'm a bot) ***** > Which would essentially add a 20 percent tax on imported goods while exempting US exports, was the key solution House Republicans had come up with to raise enough revenue to offset corporate tax cuts. > In the document, House Republicans outlined their communications strategy, which included three steps to selling the BAT. Step 1: Link the broken tax code to job losses in manufacturing. > The problem for the White House and congressional Republicans is that the administration hasn&#039;t offered a competing plan to pay for the trillions of dollars in tax cuts Trump wants. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6ejbtb/nobody_likes_the_border_adjustment_tax_except_the/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~133521 tl;drs so far.\\\"\\\") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **tax**^#1 **House**^#2 **Republican**^#3 **border**^#4 **provision**^#5\\\"\",\n \"It sounds good on paper, the problem is licensing fees paid to foreign subsidiaries for IP and trademark use. That's how Apple makes 80% of it's revenue in the US and still makes 80% of it's profit in Ireland. If the US doesn't take foreign income into account, every multinational would offshore their profits the same way. Many do it now, and the loop hole isn't as big as people are advocating for.\",\n \">a set fraction of the mean income, distributed to everyone whether or not they have other income. Seems fair to me. I would also re-tool tax brackets so instead of being based on income, they'd be based on money eared relative to the national mean. That way the brackets are naturally dynamic.\",\n \"There's one huge difference. Generally speaking, the entire burden of paying VAT is intended to be placed upon end consumers, and not upon businesses themselves. So ditching corporation tax and increasing VAT would mean shifting a huge amount of the tax burden from corporations to every-day people. Such a policy could kill the party that attempted to push it.\",\n \"But why can't two companies exchange goods directly without paying VAT? This would make the famous carousel fraud scam impossible and businesses won't have to deal with complicated refunds. Sales tax in the United States works as you describe. Sales tax is charged only to end customers, not to businesses that themselves charge sales tax. But this means that a criminal business can charge tax and just pocket it unless someone else reports it. They can also evade income tax the same way. Not to mention other issues like cross jurisdiction taxes (e.g. internet sales often evade sales tax). The whole point of a Value Added Tax (VAT) is that they charge at each level. This creates a system where each buyer reports the tax paid to the seller so as to be able to deduct it. So the seller has to pay the VAT that they charged. Or the tax authorities know and can revoke their VAT license. If only the end user is charged tax, then fraud is easier than under a VAT. So easy, I doubt they have a special name for it. The fraudulent business just collects tax from end users and disappears. Or simply fails to record those transactions. You could call it missing transaction record fraud, but why bother? It's just straight up tax fraud. The complexity of the carousel fraud arises from the difficulty of evading a VAT.\",\n \"Well-defined definitions of a successful tax plan and its likely outcomes. Concrete, simple tax brackets. Hard numbers with real world value, not rhetorical promises washed through special interest groups and lobbyists. Well done. There's no way the current administration will do anything remotely this intelligent.\",\n \"Corporate profits are currently taxed twice. Once at the corporate level, and a second time when the corporation's owners get paid via dividends or capital gains. The alternative is simply to eliminate the corporate-level taxation and raise the dividend and capital gains taxes back up to normal levels. Instead of (1-35%)*(1-15%) we'd just have (1-45%) or something\",\n \"The way I see it, corporation tax is not fundamentally different from VAT. They are both a tax on revenue minus expenses, just what those expenses are is different. I think the main advantage of corporation tax is that it allows capital expenditure to be spread over several years, although as I said this makes it more complicated (and I believe that there are some capital allowances for VAT as well). One advantage of VAT is that sales in one country are taxed in that country before the money can be sent abroad. It seems simple and fair to split the tax burden between jurisdictions according to how many sales were made in each.\",\n \"An equity tax does seem to make some sense. It would probably help to stave off deflation as well because it would encourage growth and investment where people would otherwise choose to sit on their money or worse. An equity tax on currency or liquid investments of even .5% APR would have a huge effect on the behavior of corporations. Sadly the largest of them would have the resources to avoid the tax by keeping all of their money out of the country.\",\n \"This is something a redditor came up with. It provides a basic income to everyone, while still penalizing those who don't work (by minutely by surely lowering their stipend) and preventing a poverty trap (by never withdrawing the stipend).\",\n \"\\\"This is the best tl;dr I could make, [original](https://www.nakedcapitalism.com/2017/08/case-consumption-tax.html) reduced by 87%. (I'm a bot) ***** > You often hear calls out there - mostly from Right economists but also from some on the Left - for a consumption tax in the U.S. As presented, it&#039;s a super-simple idea: tally your income, subtract your saving, and what&#039;s left is your consumption. > The tuition line raises a particularly vexing question, and brings us back to the second question: what economic effects would we see from a consumption tax, under various accounting and taxation rules? Clearly, if you tax tuition, you discourage education. > A consumption tax, compared to, say, a wealth tax or a land-value tax, is a direct assault on GDP and GDP growth. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6txd1l/the_case_against_a_consumption_tax/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~191594 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **consumption**^#1 **Save**^#2 **tax**^#3 **account**^#4 **family**^#5\\\"\",\n \"Irrelevant to the question. Regardless what is used for the tax base, we would still have the same debate but with much larger anti-taxation sentiments. Supply side Jesus either works or doesn't and shifting the federal revenue sources to the income taxes does not change it.\",\n \"What a shit idea lol. Like how about not spend so damn much on stupid shit America. How about creating a tax bracket on those that make the oodles of dough per year. Don't go after the working man's retirement savings as easy pickings for taxes. Wtf\",\n \"It is double taxation. The same income is taxed twice. But as to the core of your argument, starting from a baseline of zero I agree. But we aren't starting over .. there is 100+ years of income tax history and almost 250 years of state/local governments creating the services required for local residents. It's been amazing how a lil bit of federal control has caused the conservative movement has forgotten they brought the 10th amendment to life with Seminole Tribe v. State of Florida.\",\n \"Currently, the answer is no, you cannot get out of filing a tax return. As noted in the comments, if you want to pay more to get out of the drudgery of working on your return, you can pay an accountant to do it for you. You are not alone in thinking that the current income tax system in the U.S. is overly complicated. What you are essentially describing is a flat tax, a system where there would be a simple tax rate that is paid with no deductions, loopholes, etc., and minimal reporting requirements. Besides flat tax proposals, others have proposed eliminating the income tax altogether and switching to a national sales tax, such as the FairTax proposal. Each of these proposals has pros and cons over the current system, and if you have questions about them, feel free to ask a new question. But what they have in common is that they would drastically simplify the system of taxation in this country. If that sounds good to you, you can learn more about these proposals and support organizations and candidates that advocate these reforms.\",\n \"What do you propose a fair share should be? They pay nearly $900 million per year in income taxes. Their effective rate is reduced due to them paying higher taxes in years prior, plus they lost money and can deduct that as well. Not to mention, they are double taxed as a corporation and payroll taxes are not part of that $900 million, so they're paying even more than that. Part of what makes the US awesome is an environment that helps business grow. What do you think will happen when a business pays let's say 20% on revenue generated in other countries and then another 20% tax on that revenue here? Either companies will move to a country with a lower tax rate or they pull back on global trade. Both are bad for the economy.\",\n \"\\\"So you are back to saying that the price Walmart charges for each item depends on the income level of the purchaser. That's not fair, so neither are taxes based on the income levels of taxpayers. I don't think road sweepers should be subsidized so they can drive a Rolls Royce car. And I don't think they should be allowed to live in a Rolls Royce location unless they can afford to compensate those they exclude from it. The fact they currently are is outrageous as it causes a shrunken economy and excessive inequalities. Real estate bubbles are caused by not have a LVT. Obviously there could be no \\\"\\\"bubble\\\"\\\" as it would have already been taxed away.\\\"\",\n \"> Its a no, there should be no taxes on anyone, only service providers and voluntary customers. Last time you made this claim I pointed you to [a video on the US's Articles of Confederation](https://www.youtube.com/watch?v=C6rHSiN0vKk) and you never responded. Perhaps you'll muster up the courage this time. The Articles of Confederation was set up very similar to what you are proposing. Why do you think that government failed?\",\n \"Actually, yes, I do think it's fair. It's a corporation, not a family. I think *individuals* should pay 50% of every dollar above $5m. That means every dollar; personal income, capital gains, interest, whatever. My **only** problem with taxes is how poorly I think they're spent right now. Giving more money to worthless corporate whores (congress) who've already proven they don't have the people's interests at heart is not a concept I relish. One thing at a time though.\",\n \"\\\"1) Yes in theory that is right - minus any state taxes as well. 2) They could since there is an unknown amount outside of the US - and probably it will be a percentage and not all. Most of these companies that make a difference are already international companies. 3) They would most likely still do it for any money kept offshore, and it doesn't prevent them from continuing to do it. Again, I didn't say this was a good solution. They are just hoping to ward off economic collapse a little longer by doing this, or perhaps hire more accountants to be able to look at their books to figure out how much they are hiding to punish them. There could be many \\\"\\\"motivations\\\"\\\" for doing this tax. But I doubt any of the motivations intend to stop it from continuing to happen after the tax. The problem is any company that takes advantage of it basically says \\\"\\\"yes, i broke the law - in this amount.\\\"\\\" Thus, it might be a good way to get a list of companies to audit more thoroughly.\\\"\",\n \"Okays, so the prices we pay for goods and services aren't set by our income levels. Why should taxes be any different? Surely they should be set by the benefits we receive from the community as measured by the market? That's what LVT is and does.\",\n \"We don't have all the details, but individuals and corporations can either deduct or elect to get a credit for foreign taxes paid. What if this stays and the state/local deduction is eliminated. The IRS directly states the intent is to avoid double taxation. https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-choosing-to-take-credit-or-deduction And ya, the system you make reference to was tried in the Articles of Confederation and proved unworkable. The initial point is that it makes no sense to eliminate the state and local tax deduction unless the intent is to punish blue states and localities in order to offset a reduction in taxes for the wealthy.\",\n \"Agreed which is why an income tax is a bad idea. Personally I'm in favor of property taxes as a way to fund government. It is a much more objective measure and easy for the government's to confiscate if taxes remain unpaid.\",\n \"I disagree. First off the SEC is under-funded anyhow, and most economists agree that there needs to be better regulation of the exchanges; ya know since it can fucking crash our economy and send us into WW3. Secondly, it's a flat Transaction tax much like any other State Sales Tax. State Sales Tax is arguably the most successful form of taxation there is, b/c it's so damn easy to implement, and so damn easy to audit. You're blowing this thing way out of proportion. They require the markets to charge a Transaction tax, and then they do periodic audits to ensure each exchange is doing it. The rates go up or down based on the previous quarters number of HFTs. Outside of said formula, this transaction rate can be altered by a meeting of a few SEC heads, and approved when approved by the appropriate congressional body. Kills 2 birds with one stone: * more money to the underfunded SEC * lessens the impact of HFTs and turns the markets back into a market instead of a casino. It will have minimal effects on buy & hold traders since they typically research for a long time, then buy & hold stock for many months. It will mainly affect those who buy & unload several times per day. PS: If you think that letting a market die and having new ones pop up periodically is a good idea then holy shit. Financial markets need stability & regulation. Finance doesn't like uncertainty. Crash & burn marketplaces will help no one, and will raise uncertainty which we all know investors hate.\",\n \"The GOP has a lazy Susan of bad ideas. The proposed tax cuts would reduce federal revenue by two and a half trillion dollars over the next ten years. The argument in favor is that cutting taxes will boost the economy enough to make up for the cuts. IT NEVER DOES. Ever. The proposal is loaded with tax cuts for wealthy folks. Some middle class folks will see an increase because there won't be a deduction for mortgage interest and property taxes. Thanks Obama.\",\n \"Yes absurd. But those fat cat business owners need to pay their share! I mean my 70 year old Korean dry cleaner and his wife have been screwing the state out of their fair share of the till for a long time. But seriously, the tax is really horrible for the small business with small margins and large volume. Dry cleaners, restaurants and convenience stores are just a few examples.\",\n \"Lol I'm not even talking about no government (although that's ideal) you're just retarded to think income tax is the ONLY way to fund a government. Like I said before a federal sales tax would more than suffice and in a lot of cases would work better but please by all means continue to live in ignorance. Just because things have been done a certain way for a long time doesn't mean it's the best or most efficient way.\",\n \"Okay. The goal should be to avoid taxing those at the lower bracket. So no taxes for those making 30,000 and under. A lower bracket for those making $31,000 to $80,000. Leave in deductions for taxes paid to states. These can be very high and many are taxed twice. Trump's plan removes many deductions used for double taxes. Leave in mortgage interest deduction. It benefits mostly small rental companies and home owner. Get rid of many business deductions. Lower corporate taxes, especially on new businesses. There is a start. You want to have a discussion regarding this.\",\n \"It's a scam pushed through to benefit the banking system. Tax payments become income for the banks. Any alleged benefits for property holders are ultimately reduced by increased property prices, capital gains tax and estate taxes\",\n \"Giving the government more control over the distribution of goods and services, even more than it has now, is the recipe for imbalance that has doomed communism and socialism. Even the most tax friendly of the euros are having problems with their systems. They simply aren't competitive. https://www.thelocal.dk/20170829/denmarks-government-announces-new-tax-plan\",\n \"I believe you are confusing sales tax with income tax. The tax holidays in the US are only for sales tax. Consumers purchasing certain goods during the tax holiday do not have to pay sales tax like they normally would. Effectively the price is slightly lower during those days with the purpose of giving people an extra reason to shop at that time. During the tax holiday the stores make the exact same profit that they normally do, but they may experience a bump in sales simply because more people will shop during that time. Income tax for both consumers and the businesses is not affected by this. Although New York state was the first state to implement a tax holiday 20 years ago, they no longer have one today, though they do have certain goods which have a lower tax rate year round.\",\n \"Saving Fortune 500 companies hundreds of millions to billions a year and a small company a few thousand. Who's paying for the shortfall to the IRS? The reality is a small business probably make $0 profit because the owner pays himself out, or has enough employees that the (company) makes a profit saving a few grand doesn't do anything. You know what would help? The 1 trillion profit the Fortune 500 make a year, take half. Give energy companies 0% interest loans to pay off their nuclear plants and reduce energy costs for 320 million Americans by a large amount. Take the remainder and the following 3 years and refinance mortgages at 0% interest starting from the smallest to largest loans. 4 years high taxes on large corporations I just bailed out the middle class and helped the poor with 100% retuned to the IRS.\",\n \"Sales taxes are charged at the point of purchase, while a VAT is assessed during the production process of the item. In the end, the amount paid by the consumer is the same, but with the VAT, the tax was collected from the manufacturer, instead of the consumer. One of the big arguments for VAT is that it prevents lost revenue due to things like smuggling (if sales tax increases past 10% smuggling spikes, so the VAT is a good mechanism if you're looking to implement large taxes on goods). It also keeps the tax burden away from shippers and other tiers of the production process that don't change the intrinsic value of the item.\",\n \"Much of this inequality would be reduced if we moved from income taxation to a wealth/asset tax. We could exempt a person's main residence and retirement savings (similar to the way we do now with the home mortgage deduction and capital gains exemption and with IRAs). This would also obviate the need for a separate capital gains tax.\",\n \"\\\"> So raise taxes on individuals and eliminate business taxes? The government still has to pay for things eventually. The big thing the US pays for that other countries don't is our massive, most-expensive-in-the-world military, which can take up roughly half our budget, Yes we should decrease military spending and stop policing the world. The biggest future expenditure will be unfunded obligations which are between $20 to $60 trillion USD. Without reform the US will go bankrupt. The dollar could be hyper-inflated which destroys the value and people's savings. The dollar will lose world reserve currency status. > We defend other countries through alliances like NATO and bilateral agreements. For that, we need a higher tax rate. We can tax individuals or businesses. Let other countries defend themselves unless they absolutely need help. People and businesses can be taxed, but high taxes and regulations are counter-productive. It hurts small business, innovation, job growth and pushes companies to move abroad and outsource. There's alarming record high unemployment in the US: >**[One in Five Families Are on Food Stamps](http://reason.com/24-7/2013/04/25/one-in-five-families-are-on-food-stamps)** The latest available data from the United States Department of Agriculture (USDA) shows that **a record number 23 million households in the United States are now on food stamps.** > The most recent Supplemental Assistance Nutrition Program (SNAP) statistics of **the number of households receiving food stamps shows that 23,087,886 households participated in January 2013 - an increase of 889,154 families from January 2012 when the number of households totaled 22,188,732.** As John F. Kennedy said:. >**“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”** >– John F. Kennedy, Nov. 20, 1962, president’s news conference >**\\\"\\\"'Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”*** >– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964 >“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”* >– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President” [Read more]( http://www.wnd.com/2004/07/25640/#GRyFgRZYqUiKoud6.99)\\\"\",\n \"http://www.npr.org/blogs/money/2012/07/19/157047211/six-policies-economists-love-and-politicians-hate > Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people. >Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you're taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households. http://www.npr.org/blogs/money/2012/07/18/156928675/episode-387-the-no-brainer-economic-platform\",\n \"\\\"Ah, gotcha. That would be moving the country towards a more socialistic or communistic system where the government controls more of the means of production. I think there would be a problem. Successful companies need to be disruptive and the larger you are the harder it is to try a different approach. I think if the government did try to offer a competing product, the beauracracy would weigh down the offering. The only way the government could be assured a profitable business is to compete unfairly. Consider one of the big government companies, the Post Office. UPS has always been seen as the higher-quality delivery serive. Overnight shipping was considered impossible until FedEx did it. Even today the USPS is in serious financial trouble even though it is granted a monopoly on letter delivery (it is illegal for UPS and FedEx to deliver letters). The Post Office is too inefficient to make money on package delivery so they subsidize that side of their business selling stamps. > so we could abolish income tax and lower taxes over all IMO, the taxes will be paid one way or another. If you cut income tax then it will be replaced with a payroll tax, or sales tax, or property tax, or tariff, or passed to you in the form of higher prices. The only question is the definition of a person or group's \\\"\\\"fair share\\\"\\\".\\\"\",\n \"\\\"Tax US corporate \\\"\\\"persons (citizens)\\\"\\\" under the same regime as US human persons/citizens, i.e., file/pay taxes on all income earned annually with deductions for foreign taxes paid. Problem solved for both shareholders and governments. [US Citizens and Resident Aliens Abroad - Filing Requirements](https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-filing-requirements) >If you are a U.S. citizen or resident alien living or traveling outside the United States, **you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.** Thing is, we know solving this isn't the point. It is to misdirect and talk about everything, but the actual issues, i.e., the discrepancy between tax regimes applied to persons and the massive inequality it creates in tax responsibility. Because that would lead to the simple solutions that the populace need/crave. My guess is most US human persons would LOVE to pay taxes only on what was left AFTER they covered their expenses.\\\"\",\n \"I am guessing that you don't understand that even a 100% tax bracket doesn't actually equal you paying 100% of your profits in taxes. This is why the use, while having a 35%messaging corporate tax rate, only sees less than 20% in an average effective corporate tax rate... In the same vein, if a company paid taxes on what profits were created within a countries borders, that would be a fairly accurate method of calculating every country's fair percent of revenue from that company and the amount of infrastructure that were utilized by that company within that country's borders. And it still wouldn't add up to anywhere near 100% of that company's net profits...\",\n \"\\\"The current tax regime? Not sure if you are being serious or facetious, but: [US Citizens and Resident Aliens Abroad - Filing Requirements](https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-filing-requirements) >If you are a U.S. citizen or resident alien living or traveling outside the United States, **you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.** In contrast, corporations don't pay taxes on profits earned abroad until repatriation [here](http://money.cnn.com/2014/08/14/news/economy/corporate-taxes-inversion/index.html), [here](https://www.nytimes.com/2017/03/09/business/economy/corporate-tax-report.html), [here](https://www.bloomberg.com/graphics/2016-apple-profits/). So guess what they NEVER do? This is why literally every large US multi-national corporate \\\"\\\"person\\\"\\\" pays next to nothing in taxes. It is quite obvious that this is a violation of the spirit if not the letter of tax law. That simple fix would wipe out massive amounts of government debt and force multi-national corporations and their shareholders to become engaged stake holders in the efficiency of government. But if, unlike W-2 paid human counterparts, you can dodge all taxation, \\\"\\\"Who cares if the government is using funds efficiently?\\\"\\\" That is incentive to actually game the system to force the government into wasteful spending because the subsequent fallout of increased taxation and/or failure of the state can be dodged without consequence.\\\"\",\n \"Why not talk about services? Why should I pay more for services. It's not like more income means I use the roads and bridges more. More income doesn't mean more kids that need public education. More income doesn't mean I use fire services more. If you ask me, I'd rather people just pay for the services they use. Have kids? Then you pay for their school. Drive 60 minutes to work, then you pay more than someone that drives 10 minutes. That's seems fair.\",\n \"Does that strike you as a fair solution? All the people that have made sacrifices and not spent every dime they have earned deserve to have it taken away? And I am sure they do have it 'somewhere' like low yield bonds or savings accounts...\",\n \"> if a company paid taxes on what profits were created within a countries borders, that would be a fairly accurate method of calculating every country's fair percent of revenue from that company That's exactly what I said in the post you originally replied to.\",\n \"\\\"Why is this even on the table? It's effectively a **revenue neurtral** proposal! You still pay taxes on \\\"\\\"tax deferred\\\"\\\" retirement plans - In fact, I would dare say that in most cases, people end up paying **more** in taxes, because they pay it as regular income rather than LTCG. The poor will still eat cat food and live on SSI; the rich consider what $18k/year would get them as a laughable pittance (and I say that as someone who *doesn't* grudge them their wealth). This will *only* have the effect of fucking the middle class. There is absolutely no other possible interpretation.\\\"\",\n \"One of the reasons is also general distrust to the government. Another one is that there exist special interest group which profits from the complicated scheme, keep adding special cases, and has stronger financial situation that the opponents of such complex scheme. People do not trust government, or companies, to act in their best interests. So they (we) waste huge amount of time and/or money to comply with byzantine income laws. In 2004 Democratic presidential primary, presidential candidate Wes Clark (who beyond being 4-star general has also master degree in economics from Oxford, and taught economics in West point) proposed similar scheme: for people with income under 50K, employer would do all the (simple) paperwork, if desired, and get return. In the noise of the campaign, idea how to simplify taxes for half of the population was lost. Funny how the only candidate in recent history who was both professor of economics (not MBA, which is about business and profits) and distinguished military hero, could not get any traction in Democratic party.\",\n \"\\\">Source: I'm a state tax auditor, and my job is to make sure corporations pay what they are supposed to. Most of the American public believes that the bulk of taxes are federal income taxes. That's what they fixate on when evaluating the \\\"\\\"fairness\\\"\\\" of taxation. The fact remains that the very wealthy and very large corporations are structured so that they don't pay that particular type of tax. That's why Mitt Romney's tax returns are being squinted at. Mitt pays capital gains tax, not income tax and tripling the tax rate on the upper-most tax bracket wouldn't really affect him. You know this. I know this. But most people don't and few people are interested in learning how it works. If you want to \\\"\\\"tax the rich\\\"\\\" just create a progressive scale for capital gains instead of a flat 15%.\\\"\",\n \"Proportional is good, but we don't need redistribution. The market mechanism does that on its own when it's free. The bailouts of the banks and auto industry should have shown that the only thing stopping a major, but poorly run business from bankruptcy (and having its assets redistributed) is government intervention. Maybe the change will light a fire under complacent companies and they'll start earning their profits again, or maybe they'll fail. There's no way to know ahead of time, but with no legal barriers to entry, the playing field will be fair again.\",\n \"\\\"The only reason taxes are \\\"\\\"needed\\\"\\\" is because the people are to ignorant to know there are better more moral systems out there. For instance instead of stealing hard earned money from people tax the money they spend ie federal sales tax. \\\"\\\"How is that any different?!\\\"\\\" Because a sales tax isn't theft it just raises the price of products you want to buy, this way there is no tax dodging and no imprisonment for keeping what you earned and what is rightfully yours\\\"\",\n \"It destroyed Sweden's position as a major player in the global securities market. When the tax was rescinded in 1991, some of the trade returned over time but things were never the same. It was also a net revenue loser without even considering the long term market damage.\",\n \">American politics is pretty utterly fucked isn't it? Haha, I think that's the one thing most sides can agree on. >That's interesting, and I've heard it before. Is something like this writer outlines what you are thinking? Essentially remove corporate taxes, and then tax dividends and capital gains as normal income? Yeah I like the idea for a few reasons. Incentivizes investments in America (capital is far more mobile than labor or even capital owners), gets rid of malinvestment of tax avoidance, sticks taxation exactly where we want it (in this case capital owners instead of random incidence among labor/capital/consumers), and cuts other deadweight losses inherent in a corporate income tax. It's really hard for me to understand why almost anyone would be against this. It's a progressive, pro-growth, anti-crony idea.\",\n \"\\\"> Bernie sources: I would agree, it looks like the tax would cover all those that buy stock, bonds, and derivatives. However, this article didn't really cover the specifics. What would the tax be? Would it a flat dollar amount per transaction? That would make sense as it would focus more on those that do high volume traders. That wouldn't really impact me, as I already pay $9 per transaction. And I don't do many transactions. A couple dollars more, and I would be fine. > To answer your Enron example, no corporation would have enough power to actually do something like that if they didn't have at least partial backing by the government. Ah, but corporations [edit - wouldn't] have the power to do much of anything without someone to enforce their policies. Name one market that doesn't have an enforcement agency of some type. That is a mighty big assumption that the \\\"\\\"free market\\\"\\\" would make it work... especially since one doesn't really exist. And that would be the crux of my argument. All of the things you say about the perfection of the market to regulate itself is so far not proven. Take a market like Kansas - over the last 6 years, they just underwent one of the largest deregulation, de-taxation experiments of any state in the union. The results were less than stellar. Kansas is lagging the national average in growth. And they took a hundred million dollar surplus and turned into a couple billion dollar deficit almost overnight. And who suffers, of course the most poor. They shut down schools, fired teachers, and shelved many infrastructure jobs - jobs that would have been fielded by lower wage workers... And those infrastructure projects were undoubtedly in lower income areas. I would say, if you truly believe in what you preach then live it. Start a commune somewhere. Demonstrate how it is effective. That would have more power than preaching some amorphous unproveable policy over the internet.\\\"\",\n \">All tax is income tax, as if you haven't got the income, you can't pay it. This is a pretty apt simplification. I find that most land value tax advocates are either trying to engineer the demographics of property ownership or spiteful against people who own more than they themselves do.\",\n \"> Taxation is theft. No, and [we've already gone down this road](https://www.reddit.com/r/economy/comments/6leb2o/missouri_republicans_lower_st_louis_minimum_wage/dju1jjp/). Are you familiar with US history and the time they had the [Articles of Confederation](https://en.wikipedia.org/wiki/Articles_of_Confederation)? I would be curious to know why you think it failed.\",\n \"I see a couple of ways of getting at this. One would be to switch to a VAT. That would capture a good amount of revenue on anything that's made here. Second, I want IP to be taxed. We pay property taxes, so I think that trademarks and copyrighted works should be taxed just like how real property is taxed. You want to register the Burger King logo in the US? Sure thing! You will pay a percentage of its value every year and you get to use it exclusively with the full protection of the US courts your taxes help fund. I also see this as a good way out of the IP cesspool we're currently in. Copyright has become unreasonably long mostly because Disney doesn't want to lose the rights to Mickey Mouse. Look, I *am* sympathetic to Disney's argument. Mickey genuinely is important to them. But Mickey is fucking things up for everyone else. So I think Disney should pay a percentage of Mickey's value every year. In exchange, they keep their copyright forever as long as they keep paying. Now, if the copyright tax isn't paid, then the property becomes public domain forever. This would let Disney have what they want while non-profitable copyrights become public domain, as they should. Anyhow, the one thing all the big tax-avoiding companies have in common is IP. If you tax their IP in exchange for protection in US courts, there's really no way around that. They will either have to pay or let their IP go public domain.\",\n \"\\\"Let's imagine an economy where 100% of wealth creation comes from existing financial assets and 0% comes from new wealth creation. That would essentially be a dead economy. I don't think it matters what your philosophy on economics is--that's a bad outcome. If you don't agree with that point we'll stop here. Note, if you don't think it's bad for this to keep going higher, Japan is at about 80% and we know how they're doing. If you agree 100% would be bad then we're 70% of the way there in the US. Trump's tax plan, if enacted, would push us even further. The question we should be asking is what is a reasonable way to encourage NEW wealth creation rather than protect and preserve existing wealth. For starters, it makes little sense to have a preferential tax rate for capital gains/dividends/estates as compared to earned income. Even if you just hate taxes and want them all to be gone I think it's fairly easy to say IF we're going to have taxes they should not favor income/transfer from existing financial assets as compared to earned income. A much more reasonable way to approach this is to say, we have a lot of concentration of financial assets in the top decile of wealth spectrum. Let's just level the tax rate so that income from financial assets is taxes at a similar rate to income from work. That's not even an \\\"\\\"eat the rich\\\"\\\" proposal, it's just a \\\"\\\"eat everyone equally\\\"\\\" proposal. All it would do is tax the very substantial gains in stocks at the same rate as the very meagre (median) gains from working. The fact that taxing income from financial assets at the same rate as work is a controversial idea is, to me, emblematic of a government completely captured by wealthy interests.\\\"\",\n \"Wanna make sure every company pays at least some taxes? Install a 'tax floor'. Basically, no matter how many losses you claim, no matter how much you offshore, no matter how many loopholes you find, you can not drop below a certain number. Let's say 15%. That is it, you have to pay at least 15%. As this takes effect, and only after revenues stream in for a few years to help balance things out, you can even slightly adjust the high rate down a tad to help the big companies that don't use the loopholes. Please spread this idea around.\",\n \"So raise taxes on individuals and eliminate business taxes? The government still has to pay for things eventually. The big thing the US pays for that other countries don't is our massive, most-expensive-in-the-world military, which can take up roughly half our budget, sometimes even more depending on how active we are abroad. That includes paying for current wars, preparing for future wars, and serving the veterans of past wars. We defend other countries through alliances like NATO and bilateral agreements. For that, we need a higher tax rate. We can tax individuals or businesses.\",\n \"My state (Oregon) doesn't give me credit for all the federal taxes I pay so I get taxed by the state for money I never received. Now both will, fun. With this policy it would be worth it to move my family to a red state and start turning it blue.\",\n \"\\\"So some background here - when corporations, large ones have to deal with tax, they generally try to avoid as much tax as possible. Since there are places that are \\\"\\\"tax havens\\\"\\\" where there is less to even no tax on profit, a lot of money gets routed there to avoid taxes in other places (US or other unfavorable countries). The problem with this from an IRS/government view is that they keep losing millions/billions of dollars in money because of this. I think the corporate federal tax rate is around 35% and that is without state taxes. Unfortunately when you have less and less money at home - less investment at home happens. Corporations stop doing business at home because they have more money somewhere else - and it makes sense to move more of the company to where the money is or to more favorable tax locations. Even worse - the corporation might just \\\"\\\"save\\\"\\\" its money somewhere else and kill all reinvestment - thus the money is effectively dead to the rest of the economy. There is a lot of talk about a 'one-time' repatriation tax to allow companies that have dodged their tax burdens to have their money come back to the US (and thus can be used locally) at 10% instead of 35% since there is theroretically a vast amount of cash that would be injected into the US economy. The government is hoping this stimulation will help GDP grow, taxes grow, and help the economy as a whole. In reality, it will reward corporations that broke the law (even though everyone does it), and probably just go into savings accounts here in the US - and not be the \\\"\\\"silver bullet\\\"\\\" to the economy on verge of collapse again.\\\"\",\n \">Corporate taxes as a percentage of federal revenue declined from 27.3 percent in 1955 to 8.9 percent in 2010 If the federal government adds a European-style VAT tax, that would also greatly decrease corporate taxes as a percentage of federal revenue, but it would be because there's more taxes coming in from other sources. Federal income taxes in the United States didn't even *exist* until 1913. Percentage of federal income goes down as income from other sources go up. The United States [currently has the highest corporate tax rate in the developed world](http://www.huffingtonpost.com/2012/03/30/us-corporate-tax-rate_n_1392310.html).\",\n \"Yet, if you are wealthy enough to have already accumulated the bulk of your savings, they're going to treat your capital gains much more favorably than the wage income of the poor shlub who's still trying to make these contributions. I can't wait to see how they attempt to sell this to the average taxpayer.\",\n \"How about if we lower taxes on the bottom two brackets and increase taxes on the top two brackets? Right now it's 10, 15, 25, 28, 33, and 35 percent. But wouldnt it be better if we change it to 8, 13, 25, 28, 35, 38 percent? The poor are the ones who spends most of their money on sale taxes than compared with any other brackets and the more money the poor have the more they will spend which will lead to more growth in the economy\",\n \"> This constant belief that services should cost a percentage instead of a fixed rate that everyone pays is a joke. Your position makes good sense but if everyone paid a fixed rate in taxes then about %25 of the people would go broke. It doesn't seem fair that someone working within the system is bankrupted by the system. Seems to me we need to first fix unfairness in wages. Anyone who works full time for the system should at least be able to afford a modest life including health care, retirement, and taxes. Then I think it is right to demand they pay taxes to the system. Would you agree?\",\n \"\\\"No, it is not true. That is one of the many \\\"\\\"conspiracy theorists'\\\"\\\" claims to not pay taxes, and is considered as frivolous (i.e.: punishable by very harsh penalties and criminal prosecution). Specifically to your question, the current Federal income tax framework was laid down in 1986, with the Tax Reform Act of 1986. It is codified under the title 26 of the US Code. It is usually referred to as the \\\"\\\"Internal Revenue Code\\\"\\\", or IRC.\\\"\",\n \"Your federal taxes in US include the tax which Indian government wants back from you under the treaty with US government. Some countries have treaty with US where all the money person earns in US can be reclaimed at the end of the financial year i.e no money goes to the country of citizenship. However, Indian citizens working in US are not liable for 100% reclaim on their federal tax.\",\n \"Yeah because paying millions a year in taxes is somehow less than than paying the nothing the poor pay. This constant belief that services should cost a percentage instead of a fixed rate that everyone pays is a joke. There is nothing equal about going into a McDonalds lining everyone up based on income then making one guy pay for everyone else because he was more successful. Then calling it equal or fair, which it isn't.\",\n \"\\\"C'mon, Bill - you're better than this. Aside from the fact that he accumulated his personal wealth through ruthless profiteering and tax shelters, it's just a flat out bad idea. It was an even worse idea when some neckbeard actor and commie guitarist started pushing it. All this tax will do is hamper the ability to do business (i.e., market liquidity), and end up being shouldered by small banks and in the end, the consumer. Big banks will find their ways around this, no problem, but the boutique capital firms will surely struggle. This isn't just a \\\"\\\"oh, we'll institute this micro-tax and everyone is happy!\\\"\\\" - they want to tax the underlying value of assets on each trade. This creates a direct impact to free-market trading which I don't believe they've accounted for (which is shocking, really). It's a tax on the top and bottomline, and a general tax on the actual execution point of an entire industry. It's a half-baked idea that shouldn't have gotten as far as it did.\\\"\",\n \"\\\"This is the best tl;dr I could make, [original](http://dissidentvoice.org/2013/07/can-an-lvt-save-us/) reduced by 93%. (I'm a bot) ***** > They amended their LVT to add a tax on property improvements but should have done the opposite - increase the LVT and reduce other taxes. > By adopting an LVT, they guarantee themselves sufficient income to provide government and public services - without falling into the predatory clutches of international bankers and the IMF. In his 2011 book Re-Solving the Economic Puzzle, Walter Rybeck relates how the US contemplated LVT enabling legislation during the Carter administration. > Five other states have passed LVT enabling legislation - Connecticut, Maryland, New York, Pennsylvania, Virginia, Washington - to make it easier for local communities to adopt an LVT. Other American communities that have already benefited from an LVT include California&#039;s Central Valley, Fairhope in Alabama, Arden in Delaware, and Pittsburgh and other cities in Pennsylvania. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6hxn1x/can_an_lvt_save_us_dissident_voice/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~146992 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **LVT**^#1 **Land**^#2 **economic**^#3 **Harrison**^#4 **Tax**^#5\\\"\",\n \"There are fees on retail trades imposed by trading houses, but not on traders like MS and GS. That's why HFT is possible. Personally, I get 100 free trades per year and that's more than enough for me. Adding a tax to this is just stupid.\",\n \"What is tax slavery? Most impacted by higher taxes can afford to put them in off shore accounts. This going to hurt the economy because businesses aren't going to higher more people. Trickle down economics consistently fails. You'll have a bunch of owners saving the profits instead of giving the jobs because most of them are already operating efficiently. Especially in a state where menial labor is the most common form. Tax Slavery is a bullshit term to justify the rich robbing the government of their due while being able to benefit from the clout that comes with being American.\",\n \"\\\".. 99% of the people against this proposition are 100% likely never to earn above $5 million a year .. the American Dream is strong, so people will be strongly against this type of taxes, making the entire suggestion a provocation of \\\"\\\"the unwashed masses\\\"\\\".\\\"\",\n \"Walmart is one of the biggest low wage employers. Let's say $1B of the $2.66B is spent on subsidizing Wal-Mart employees. That's >$3 per US citizen, that we all pay and cannot put back into the economy how we wish. I don't even shop at wal mart and I'm forced to subsidize their employees. IMO, that is not fair. This just incentivizes walmart to hire more cheap government-subsidized employees, rewarding walmart's on my back. So let's do this: For every government dollar spent on helping low-wage employees subsist, we tax the employer the same dollar. From this I bet we would see walmart building housing for their employees, maybe even cafeterias, to get them off section 8 / food stamps. That is more efficient than sending money to the IRS, it makes its way to HUD, then to some government employees who are overburdoned, then we pay out section 8 money to landlords. That's inefficient. I know of walmart employees who rely on $1400/month in section 8, so walmart's tax bill would increase substantially, costs would rise, but tax receipts that we all have to currently pay would decrease by the same amount. So overall costs stay them same, but the finances are more efficient and where they should be vs spread around.\",\n \"[Eliminating breaks **would allow the government to simplify the tax code and broaden the base of income** against which taxes are levied] [The dilemma—which Republicans are colliding with right now—is that many of the biggest tax breaks, especially for individuals, are **popular and hard to dislodge.**]\",\n \"Not optional, but I assumed the premise was that with out having to pay for health care corporations would pay more in wages. In the US that is never going to be true. In other words they would use the VAT and not having to pay for health care as an excuse to extract more profit. Employee wages wouldn't go up, corporate health care costs would go down, and the VAT would be passed on to the consumer through higher prices.\",\n \"Your source doesn't support your point. I don't have a problem paying taxes for services we all use - you do. Charging fees for police & courts is a libertarian notion. As sourced in my previous post, no current tax rates need to be changed to pay for UH. We just need to remove corporate subsides. As a whole, America would save about 10% of GDP yearly by converting to a UH in this fashion. If you can't honestly debate the sources or ideas I've put out and insist on circling back around to these ideological positions regardless of how often they get blown up - then I think we've made all the progress we're going to.\",\n \"I've had zero taxable income for the past 2 years and yet the calculations say I owe the government $250 for each year for the Self Employment tax. How can they charge a non-zero tax on my income when my taxable income is zero? That is theft. That demands reform.\",\n \"Its one of the main points. Transfer pricing includes discretionary decisions and is part of BEPS. Its also completely unnecessary: Pay taxes on revenue in country earned/sold. Get tax credits/refunds in country were spending is made. The reason why already profitable companies consider BEPS/tax arbitrage for HQ locations is because they get discretionary power over accounting profit allocation. Tax policy should serve the society though, and this proposal encourages the spending that benefits society. Its the usual case that the right answer is different than that being lobbied for.\",\n \"They should be (and are) taxed the corporate rate on the 10 cents. The company they purchased the coffee grounds from will pay taxes on the 90 cents. The other alternative you suggested would put an end to most commercial activity. Very few businesses could sustain a 35% (of revenue) penalty to their margins. Society would collapse.\",\n \"> It makes sense for EVERYONE to pay their fair and equal share. Totally agree. Don't you agree that a fair an equal share for someone working full time for the system is at least a modest but complete life within the system?\",\n \"\\\"> So the fact that i was born here against my own free will automatically gives the government the right to seize the fruits of my labor? Yes, in the same way that being born to parents living in a clean house means you are going to make your bed, pick up your clothes, and mow the lawn... > \\\"\\\"well just leave then!\\\"\\\" Well, yes. It is either that, or change the laws. > Which is fucking stupid and in pretty sure I already gave you 1 way but I'll say it again cuz it's clear you're incapable of following along For someone who is so sure that they have \\\"\\\"*THE* answer\\\"\\\" you sure are defensive. It is quite possible that I have had a discussion over the SAME topic over the last 5 days with a *bunch* of people because so many people got butt hurt that I enjoy paying my taxes, and feel it is a patriotic duty because of all the good it does. > federal sales tax So federal sales tax is your big secret? I would actually be fine with it, as long as it took into account those that are currently not paying income tax due to poverty or disability. > That's why you see countries like Sweden with insane tax rates seeing limited growth and in a lot of cases on the verge of an economic collapse. I have lived in Europe for a number of years. I was in Germany last year, I will be in Spain next week. If you think that strong tax policy makes a country economically weak, then you have not actually lived in any of these countries, have you? Sweden is currently ranked 11th in the world for [GDP per capita](https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita). Matter of fact, the only country in the top ten of that list that don't have a strong tax policy is Qatar - and that is only because of ridiculous oil money. Would like to see where they sit in two years. Sweden last year had an [economic growth rate of 4.1%](http://www.imf.org/en/News/Articles/2016/11/14/111716Sweden-Great-Economic-Performance-but-Mind-the-Debt). More than 3 times what the growth rate in the US was, at [1.6% for 2016](http://www.cbsnews.com/news/u-s-economic-growth-slowed-in-2016-to-1-9/). It was ranked [#34 in the world for economic growth](https://en.wikipedia.org/wiki/List_of_countries_by_real_GDP_growth_rate), just under your Bahamas with their no income tax, no estate or wealth tax, but well above the US at 47. The IMF matter of fact said their economy was \\\"\\\"in good health and growing robustly\\\"\\\"... So, not sure where you are getting your facts from, but may want to think again. I would recommend that you actually go visit a couple of these \\\"\\\"tax hellholes\\\"\\\" and see for yourself how \\\"\\\"crushed\\\"\\\" by their taxes these poor victims of government \\\"\\\"theft\\\"\\\" are...\\\"\",\n \"> To be honest we are probably wrong in trying to tax foreign earnings. [We only tax foreign earnings when the money is repatriated to the US](http://www.taxpolicycenter.org/briefing-book/how-does-current-system-international-taxation-work). You think businesses should be able to go to the Bahamas, sell vast property to another American, and return the profit to the US tax free? > The US should learn the get on with less. I'm all for discussing that idea. Cut the spending before you talk about cutting the taxes that fund it.\",\n \"Except again you're wrong and retarded the comment I first made was in response to a ridiculous statement you mad to someone else who was referring to income tax because income tax is theft and I know this because I'm capable of critical thinking now even in my very first comment I mention income tax and nowhere in this entire conversation have I deviated from income taxes other than bringing up an alternative. I would like to ask you again, how hard is it going through life with 0 critical thinking and comprehension skills?\",\n \"\\\"Similar, but actually quite different. A negative income tax on the first $20,000/year has a couple of problems this scheme doesn't: 1) Administration costs and legal complexity. Are we \\\"\\\"prebating\\\"\\\" or \\\"\\\"rebating\\\"\\\" the stipend? How is someone supposed to get along if they lose their job unexpectedly in a rebate-based system, can they get their income-tax withholdings back up to $20,000/year? How does the government register changes in income to know when to write someone a check? 2) With a negative tax up to a certain *fixed* level, there's effectively a changing level of subsidy depending how much of the per-capita income is the break-even tax level. If the per-capita income is $45,000/year (our current GDP per capita), then the subsidy level is almost 50%, and if it goes up to $60,000/year (our current mean household income), the subsidy level is then 33%. The system I described and steepk (IIRC) invented fixes the subsidy percentage in relation to the mean reported income (effectively fixing a *relative class level* as minimum) rather than a particular monetary amount (whose relative buying power versus inflation or other incomes can fluctuate wildly). We pick a subsidy level, say 1/3 (33.33333%). We then impose a flat income tax of that level plus a little bit more for administration costs (say, 35%). At the end of the year, everyone is taxed at that flat level, and the government scrapes its administration costs off the top and now has a big pot with 1/3 of everyone's income in it. This is divided into one portion for each taxpayer, and those portions into monthly or biweekly pieces. These pieces are sent out regularly as checks to the taxpayer, and *these checks are not taxed as income*. That last bit is what makes this so nice: it turns the tax progressive, in fact more progressive than our current system. After taxes and *after stipend*, only the rich will pay an *effective* tax rate asymptotically close to the real 35%. Most people without incomes many, many times the size of their stipends will be looking at an effective tax rate of less than 15%, including the tax-paying middle class and the professional upper-middle class who currently bitch so much about our tax rates being so confiscatory (which they *are*, for the abysmal level of social services we receive). Now, to get back to the big benefits of fixing the subsidy percentage. This means that the subsidy grows with mean income, effectively functioning as easy to run, fair, and direct wealth redistribution without the difficulty of trying to create efficient, productive WPA-style jobs or imposing market-distorting subsidies. It also means that we can allow things like automation to improve the productivity of our economy because *everyone* gets a share: if automating a certain job is truly more efficient than having a worker do it, the capitalist's income-gain from automation will push up the mean income, and therefore the basic income, further than the worker's lesser income and the capitalist's lesser profit would have.\\\"\",\n \"> But sure, if you want companies to stay in the US and customers to pay higher prices to compensate for those higher taxes... But they don't. Across the board; prices in the US are much lower than they are in every other developed country. Partly because of economies of scale, partly because the posted tax rate != the effective tax rate.\",\n \"\\\"I largely agree with you; but there's *no way* to make a true apples-to-apples comparison, because we've never had a \\\"\\\"flat\\\"\\\" across-the-board tax rate, and we never will. And obviously, in the degenerate cases of taxes at 0% and 100%, revenue drop to zero. Given that, the closest we can come to evaluating the potential effects of Trump's proposal is to look at what happens when major shifts in tax policy have occurred in the past; and since 1943 (when something approaching our modern tax structure first solidified)... The short answer to that is, \\\"\\\"nothing at all happens\\\"\\\". The *explanation* for that is a more interesting issue (though it boils down to \\\"\\\"if you tax X, people will Y instead\\\"\\\"), but the implications for fiscal policy are both fascinating and terrifying: Effectively, if the government spends more than 15-16% of GDP, *regardless* of how they structure taxes, they're spending against the deficit.\\\"\",\n \"\\\"Alternative Minimum Tax is based not just on your income, but moreso on the deductions you use. In short, if you have above the minimum AMT threshold of income (54k per your link), and pay a tiny amount of tax, you will pay AMT. AMT is used as an overall protection for the government to say \\\"\\\"okay, you can use these deductions from your taxable income, but if you're making a lot of money, you should pay something, no matter what your deductions are\\\"\\\". This extra AMT can be used to reduce your tax payment in a future year, if you pay regular tax again. For example - if you have 60k in income, but have 60k in specific deductions from your income, you will pay zero regular tax [because your taxable income will be zero]. AMT would require you to pay some tax on your income above the minimum 54k threshold, which might work out to a few thousand bucks. Next year, if you have 60k in income, but only 15k in deductions, then you would pay some regular tax, and would be able to offset that regular tax by claiming a credit from your AMT already paid. AMT is really a pre-payment of tax paid in years when you have a lot of deductions. Unless you have a lot of deductions every single year, in which case you might not be able to get all of your AMT refunded in the end. Wikipedia has a pretty good summary of AMT in the US, here: https://en.wikipedia.org/wiki/Alternative_minimum_tax. If you think AMT is unfair (and maybe in some cases you might pay it when you think it's \\\"\\\"unfair\\\"\\\"), look at the root causes of paying AMT listed in that Wikipedia article: I am not trying to convince you that AMT is fair, just that it applies only when someone already has a very low tax rate due to deductions. If you have straight salary income, it would only apply in rare scenarios.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"The fair tax is a proposal to replace the US income tax with a sales tax. Pros of Fair Tax: It's a large change to the way the United States currently does things. The \"\"Fair Tax Act of 2011\"\" is H.R.25 in the US House and S.13 in the Senate. The full text of the bill is available at the links provided. There are some fairly large consequences of implementing a fair tax. For example, 401ks and Roth IRAs serve no benefit over non-retirement investments. Mortgages would no longer have a tax advantage. Luxury items would get far more expensive.\"","\"You asked about the challenges. The transition itself is the biggest one. For people to get used to the tax at the register vs at their paycheck. For a great number of people to find new work. I don't know the numbers, but anyone involved with personal income taxes would be out of work. Sales tax is already part of the process in most states, bumping it to a federal tax wont add too much in overhead. I make no moral judgment, but consider, most prostitutes and drug dealers are avoiding income tax, but they still are buying the same goods in stores you and I are. This proposed tax reduces the collection noncompliance, and brings more people into \"\"the system\"\". Another factor some may not like is the ability to affect behavior by picking and choosing what to promote, via deductions, such as home buying or charity.\"","\"In a nutshell - Value Added Tax. America, as usual, discovers what others have known and used for years. The idea of not taxing income that's tied to it is ridiculous. If you're only taxing spending but not income, people will just take spending elsewhere (Canada, Mexico, further away), and the economy will go down the drain. That's similar to the way people avoid paying sales tax now, except that it will be in orders of magnitude. Why should a corporation by office supplies in the US, if it has a branch in China? Edit Also, Fair Tax doesn't take into account moving money overseas. I've mentioned living elsewhere down below, and that also got me thinking of how I personally would certainly gain from that ridiculous thing called \"\"Fair Tax\"\". Basically, that's exactly how the \"\"rich folks\"\", those who push for it, will gain from it. Being able to move money out of the US basically makes it a perfect tax shelter. You don't pay taxes on the income (that you have in the US), and you don't pay taxes on the spendings (that you have elsewhere, because in that country income is taxable so you only pay VAT or sales taxes). This means that all the wealthy people, while investing and gaining money from the American economy (stocks, property, etc), will actually not be spending it in the US. Thus, no taxes paid to the US, dollars flowing out. Perfect. Actually, I should be all for this stupid idea. Very fair to me, no need to pay any taxes at all, because food will probably be exempt anyway.\"","Its a new way of computing sales tax. Wikipedia has a nice article on this http://en.wikipedia.org/wiki/FairTax"],"string":"[\n \"\\\"The fair tax is a proposal to replace the US income tax with a sales tax. Pros of Fair Tax: It's a large change to the way the United States currently does things. The \\\"\\\"Fair Tax Act of 2011\\\"\\\" is H.R.25 in the US House and S.13 in the Senate. The full text of the bill is available at the links provided. There are some fairly large consequences of implementing a fair tax. For example, 401ks and Roth IRAs serve no benefit over non-retirement investments. Mortgages would no longer have a tax advantage. Luxury items would get far more expensive.\\\"\",\n \"\\\"You asked about the challenges. The transition itself is the biggest one. For people to get used to the tax at the register vs at their paycheck. For a great number of people to find new work. I don't know the numbers, but anyone involved with personal income taxes would be out of work. Sales tax is already part of the process in most states, bumping it to a federal tax wont add too much in overhead. I make no moral judgment, but consider, most prostitutes and drug dealers are avoiding income tax, but they still are buying the same goods in stores you and I are. This proposed tax reduces the collection noncompliance, and brings more people into \\\"\\\"the system\\\"\\\". Another factor some may not like is the ability to affect behavior by picking and choosing what to promote, via deductions, such as home buying or charity.\\\"\",\n \"\\\"In a nutshell - Value Added Tax. America, as usual, discovers what others have known and used for years. The idea of not taxing income that's tied to it is ridiculous. If you're only taxing spending but not income, people will just take spending elsewhere (Canada, Mexico, further away), and the economy will go down the drain. That's similar to the way people avoid paying sales tax now, except that it will be in orders of magnitude. Why should a corporation by office supplies in the US, if it has a branch in China? Edit Also, Fair Tax doesn't take into account moving money overseas. I've mentioned living elsewhere down below, and that also got me thinking of how I personally would certainly gain from that ridiculous thing called \\\"\\\"Fair Tax\\\"\\\". Basically, that's exactly how the \\\"\\\"rich folks\\\"\\\", those who push for it, will gain from it. Being able to move money out of the US basically makes it a perfect tax shelter. You don't pay taxes on the income (that you have in the US), and you don't pay taxes on the spendings (that you have elsewhere, because in that country income is taxable so you only pay VAT or sales taxes). This means that all the wealthy people, while investing and gaining money from the American economy (stocks, property, etc), will actually not be spending it in the US. Thus, no taxes paid to the US, dollars flowing out. Perfect. Actually, I should be all for this stupid idea. Very fair to me, no need to pay any taxes at all, because food will probably be exempt anyway.\\\"\",\n \"Its a new way of computing sales tax. Wikipedia has a nice article on this http://en.wikipedia.org/wiki/FairTax\"\n]","isConversational":false}}},{"rowIdx":268,"cells":{"_id":{"kind":"string","value":"10152"},"query":{"kind":"string","value":"What does a high operating margin but a small but positive ROE imply about a company?"},"gt_ids":{"kind":"list like","value":["113585"],"string":"[\n \"113585\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["113585","371515","549181","516797","37032","557607","557350","106155","406542","565598","426343","266672","559363","495715","336601","544451","384642","137746","521792","444747","522040","137307","131335","14488","393759","135109","295857","527230","477426","523303","97688","576865","558635","331530","562238","401753","154769","23489","278586","8679","453635","522072","355554","113506","330242","258306","307716","253246","421248","527519","465806","560757","377686","321432","552281","80285","288551","368738","251735","531095","500533","448872","76973","278582","280895","531395","253339","168675","28183","393580","512851","72666","384583","507012","336444","283938","335651","61193","502432","446877","63725","81527","40160","374510","509659","9478","517641","11124","294095","61798","154725","482892","113587","324867","176253","56405","107519","194641","583234","76661"],"string":"[\n \"113585\",\n \"371515\",\n \"549181\",\n \"516797\",\n \"37032\",\n \"557607\",\n \"557350\",\n \"106155\",\n \"406542\",\n \"565598\",\n \"426343\",\n \"266672\",\n \"559363\",\n \"495715\",\n \"336601\",\n \"544451\",\n \"384642\",\n \"137746\",\n \"521792\",\n \"444747\",\n \"522040\",\n \"137307\",\n \"131335\",\n \"14488\",\n \"393759\",\n \"135109\",\n \"295857\",\n \"527230\",\n \"477426\",\n \"523303\",\n \"97688\",\n \"576865\",\n \"558635\",\n \"331530\",\n \"562238\",\n \"401753\",\n \"154769\",\n \"23489\",\n \"278586\",\n \"8679\",\n \"453635\",\n \"522072\",\n \"355554\",\n \"113506\",\n \"330242\",\n \"258306\",\n \"307716\",\n \"253246\",\n \"421248\",\n \"527519\",\n \"465806\",\n \"560757\",\n \"377686\",\n \"321432\",\n \"552281\",\n \"80285\",\n \"288551\",\n \"368738\",\n \"251735\",\n \"531095\",\n \"500533\",\n \"448872\",\n \"76973\",\n \"278582\",\n \"280895\",\n \"531395\",\n \"253339\",\n \"168675\",\n \"28183\",\n \"393580\",\n \"512851\",\n \"72666\",\n \"384583\",\n \"507012\",\n \"336444\",\n \"283938\",\n \"335651\",\n \"61193\",\n \"502432\",\n \"446877\",\n \"63725\",\n \"81527\",\n \"40160\",\n \"374510\",\n \"509659\",\n \"9478\",\n \"517641\",\n \"11124\",\n \"294095\",\n \"61798\",\n \"154725\",\n \"482892\",\n \"113587\",\n \"324867\",\n \"176253\",\n \"56405\",\n \"107519\",\n \"194641\",\n \"583234\",\n \"76661\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["The operating margin deals with the ability for a company to make a profit above the costs of running the company and generating sales. While ROE is how much money the company makes relative to the shareholders equity. I'd be willing to bet that if a company has a small ROE then it also has a quite large P/E (price to earnings) ratio. This would be caused by the company's stock being bid up in relation to its earnings and may not necessarily be a bad thing. People expect the high operating margin to help drive increased revenues in the future, and are willing to pay a higher price now for when that day comes.","An operating margin will not compare with ROE. If a company has even a small margin on a large turnover and has a comparative lower shareholder equity, it ROE will be much higher. One ratio alone can not analyse a company. You need a full set of ratios and figures.","A company's Return on Equity (ROE) is its net income divided by its shareholder's equity. The shareholder's equity is the difference between total assets and total liabilities, and is not dependent on the stock price. What it takes to have a ROE over 100% is to have the income be greater than the equity. This might happen for a variety of reasons, but one way a high ROE happens is if the shareholder's equity (the divisor) is small, which can occur if past losses have eroded the company's capital (the original invested cash and retained earnings). If the equity has become a small value, the income for some period might exceed it, and so the ROE would be over 100%. Operating margin is not closely related to ROE. Although operating income is related to net income, to calculate the margin you divide by sales, which is completely unrelated to shareholder's equity. So there is no relationship with ROE to be expected. Operating margin is primarily dependent on market conditions, and can be substantially different in different industries.","\"The short answer is that it depends on the industry. In other words, margin alone - even in comparison to peers - will not be a sufficient index to track company success. I'll mention Apple quickly as a special case that has managed to charge a premium margin for a mass-market product. Few companies can achieve this. As with all investment analysis, you need to have a very clear understanding of the industry (i.e. what is \"\"normal\"\" for debt/equity/gearing/margin/cash-on-hand) as well as of the barriers-to-entry which competitors face. A higher-than-normal margin may swiftly be undermined by competitors (Apple aside). Any company offering perpetual above-the-odds returns may just be a Ponzi scheme (Bernie Maddof, etc.). More important than high-margins or high-profits over some short-term track is consistency of approach, an ability to whether adverse cyclical events, and deep investment in continuity (i.e. the entire company doesn't come to a grinding halt when a crucial staff-member retires).\"","Small companies could have growth prospects. Large companies may not have that many. So look at ROE of companies by quatile to determine which companies have better growth.","Just to clarify things: The Net Working Capital is the funds, the capital that will finance the everyday, the short term, operations of a company like buying raw materials, paying wages erc. So, Net Working Capital doesn't have a negative impact. And you should not see the liabilities as beneficial per se. It's rather the fact that with smaller capital to finance the short term operations the company is able to make this EBIT. You can see it as the efficiency of the company, the smaller the net working capital the more efficient the company is (given the EBIT). I hope you find it helpful, it's my first amswer here. Edit: why do you say the net working capital has a negative impact?","Yes definitely Warren Buffet averaged returns of only around 21% throughout his 40 years in business. ROE of 23% is probably more than double the ROE of most companies , whats more as the saying goes its easier to grow sales from 1 million to 100 million than to grow sales from 100 million to 10 billion","Lets say the hurdle rate for this company is 10% and the current return on assets is 8%. A linear increase in revenue and earnings would actually destroy some value as projects that have a 9% return are accepted even though they destroy value for the shareholder. hope this helps!","On a company level ROCE over WACC would be more meaningful in my view but the end result should be be pretty much the same. This concept is closely related to value creation. Value can only be created when a company's ROCE is exceeding its cost of funding - WACC. This is also tightly related with the NPV concept. Value is only created when the NPV on a project is >0. And to directly answer OP. Study in detail WACC. (weighted average cost of capital). Focus on the Modigliani–Miller theorem with taxes and financial distress costs. Good luck.","Profit margins. The difference goes to shareholders as new equity every quarter. You don’t need growth to see a return on equity. The consumer staple sector is a great example of this. They’ve had negative to 0 revenue growth, yet have posted respectable returns since the recession.","Another way to look at this is if we separate the owner's account from the business's account. At the start of the year, the owner puts $9 into the business account to get the business started. At the end of the first day, the business account has $10, and at the end of the second day, the business account has $11. The owner doesn't need to add any more of his own money into the business account. At the end of the 365th day, the business will have $374, which is $365 profit + $9 investment. Assuming the business has no other expenses, the business will calculate profit for the year like this: The author is making a strange point. The two numbers he is talking about are two different quantities. The business owner's return on investment is $365 / $9 = 4056%. But the business's profit margin is $365 / $3650 = 10%. Both are useful numbers when running the business. I disagree with the author's insinuation that a business is doing something tricky when calculating profit margin. Remember that, in addition to the business owner's monetary investment, he worked every day for a year to earn that $365.","Without reading the source, from your description it seems that the author believes that this particular company was undervalued in the marketplace. It seems that investors were blinded by a small dividend, without considering the actual value of the company they were owners of. Remember that a shareholder has the right to their proportion of the company's net value, and that amount will be distributed both (a) in the form of dividends and (b) on liquidation of the company. Theoretically, EPS is an indication of how much value an investor's single share has increased by in the year [of course this is not accurate, because accounting income does not directly correlate with company value increase, but it is a good indicator]. This means in this example that each share had a return of $10, of which the investors only received $1. The remainder sat in the company for further investment. Considering that liquidation may never happen, particularly within the time-frame that a particular investor wants to hold a share, some investors may undervalue share return that does not come in the form of a dividend. This may or may not be legitimate, because if the company reinvests its profits in poorer performing projects, the investors would have been better off getting the dividend immediately. However some value does need to be given to the non-dividend ownership of the company. It seems the author believes that investors failing to consider value of the non-dividend part of the corporation's shares in question led to an undervaluation of the company's shares in the market.","I've spent enough time researching this question where I feel comfortable enough providing an answer. I'll start with the high level fundamentals and work my way down to the specific question that I had. So point #5 is really the starting point for my answer. We want to find companies that are investing their money. A good company should be reinvesting most of its excess assets so that it can make more money off of them. If a company has too much working capital, then it is not being efficiently reinvested. That explains why excess working capital can have a negative impact on Return on Capital. But what about the fact that current liabilities in excess of current assets has a positive impact on the Return on Capital calculation? That is a problem, period. If current liabilities exceed current assets then the company may have a hard time meeting their short term financial obligations. This could mean borrowing more money, or it could mean something worse - like bankruptcy. If the company borrows money, then it will have to repay it in the future at higher costs. This approach could be fine if the company can invest money at a rate of return exceeding the cost of their debt, but to favor debt in the Return on Capital calculation is wrong. That scenario would skew the metric. The company has to overcome this debt. Anyways, this is my understanding, as the amateur investor. My credibility is not even comparable to Greenblatt's credibility, so I have no business calling any part of his calculation wrong. But, in defense of my explanation, Greenblatt doesn't get into these gritty details so I don't know that he allowed current liabilities in excess of current assets to have a positive impact on his Return on Capital calculation.","Means A has a much higher level of interest payments dye to either higher debt or higher cost of debt (or combination of both). MM theory suggests higher debt in a capital structure due to the tax shield but you need to consider if A's debt level is appropriate or too high and what that says about your company.","\"This isn't as rigorous as it should be, but may offer some useful insight into how big and small companies differ operationally. Putting Apple aside, larger companies tend to sell larger volumes of products (even if they're MRI devices, or turbines) relative to what smaller companies can sell (obviously, in absolute terms as well). They are also able to negotiate volume discounts as well as payment terms. This allows them to finance sales through their supply chain. However, their large direct competitors are able to do the same thing as well. Competitive forces then drive prices down. Smaller businesses, without these advantages of scale, tend to have to charge higher margins since they have to pay directly (and, if their clients are large businesses, finance the sale). Small businesses still have higher proportional costs of operation. Sadly, my reference here is a study I performed for the South African Revenue Service about ten years ago, and not available online. However, the time taken by a small business to manage admin, tax, HR is a greater proportion of revenue than for larger companies. If the small business is a start-up with big investment from venture finance, then they could subsidise their selling price, run at a loss and try and gain scale. Funnily enough, there is a fantastic article on this by Joel Spolsky (Ben and Jerry's vs. Amazon) For the average highly-competitive smaller company, the best choice is to chase design/quality/premium markets in order to justify the higher margins they have to charge. And that's what makes Apple interesting as a case study. They were a small company in the presence of giants (Intel, Microsoft, IBM). They were \"\"forced\"\" to concentrate on design and premium markets in order to justify their need for higher margins. It almost didn't work but then they broke through. Now they're in the unique position of having gained scale but are still small enough relative to other electronics manufacturers to continue charging that premium (by volume their sales are still relatively small but their margins make them a giant). This type of variation from market to market makes developing some sort of generalised solution very unlikely but the general requirement holds: that smaller companies must charge higher margins in order to create equivalent profits to larger companies which must gain scale through volume.\"","I'll give it a shot, though I know nearly nothing about airlines. 1% is a lot when your revenue is very high. Lets say a plane can have 200 people on it. Plane tickets are a lot, so each person is charged $700 in this example. That's 140K in gross revenue per trip. 1% of that is $1400. You have several trips a day per plane. Lets say 5 trips a day per plane. Each plane is netting $7000 a day. Or around $2.5 million in profit a year. Lets say a commercial plane that has a capacity of 200, costs around $50 million. That's a 20 year ROI. Up your margins to 2%, now you're at 10 year ROI. Plus depreciation. You get to depreciate that $50 million over the course of X years. Basically making all of the profits the airline gets, tax free due to their insane amount of depreciation. Pair this income with cheap oil, and a smart CEO that can cut costs, and you have a cash cow on your hands. And given the fact that a lot of airlines have a ton of planes already depreciated to $0 that aren't on their books any more, you may be able to buy the airline for a fraction of their net assets. Margins are important, but it's all relative. Edit: Changed numbers to prove my point, and because I am not a smart man",">Jeremy Grantham, chief investment strategist of Boston-based Grantham, Mayo, Van Otterloo & Co., said margins will send stock markets tumbling when they eventually revert to their mean. >“The implication for the stock market is ugly, because it means earnings are unsustainably high,” Grantham’s colleague Ben Inker, GMO’s director of asset allocation, said in a telephone interview.","Problem with deciding investments in a company is that you have multiple potential options, each with their projected returns, but each also has some hard-to-estimate risks. A further problem is that these opportunities arrive one-by-one, so you usually cannot compare project A vs. project B to decide which one is better. The internal rate of return is a rule-of-thumb like way to make these decisions. The company board may set an IRR target of e.g. 15%, and each executive will compare their projects against that target. They'll execute only the projects that are projected to give a good return, but some of these projects will end up failing. Thus the real average profit will not be equal to IRR. Important thing is that this target number gives ways to compare projects, and also for the board to control the investments. If the company has a good track record of being successful at projects, the board might set an IRR target of 10% and expect to get e.g. 8% return on their investment. However, if the company has a much larger risk of projects failing, they might demand a predicted IRR of 20% to account for the risk. Ultimately if the IRR target is set too high, the company will find no projects it considers profitable to invest in. In practice if this happens, the company owners are better off taking out the cash as dividends and investing it elsewhere.","When your profits are increased from mass layoffs and reduced expenses (like r&d) to appease investors, and not based on innovation, new market entry, or competitive advantage. It's a short term quick win but puts the long term in jeopardy.","Two of the main ways that investors benefit financially from a stock are dividends and increases in the price of the stock. In the example as described, the benefits came primarily from dividends, leaving less benefits to be realized in terms of an increase in the value of the company. Another way to put that is that the company paid its profits to shareholders in the form of a dividend, instead of accumulating that as an increase in the value of the company. The company could have chosen to take those profits and reinvest them in growing the business, which would lead to lower dividends but (hopefully) an increase in the valuation of the stock, but they chose to pay dividends instead. This still rewards the investors, but share prices stay low.","\"The company was paying \"\"only\"\" $1 a share in dividends, compared to $10 a share in earnings. That is a so-called payout ratio of 10%, which is low. A more normal payout ratio would be 40%, something like $4 a share. If a $13 stock had a $4 dividend, the dividend yield would be about 30%, which would be \"\"too high,\"\" meaning that the price would go up to drive down the resulting yield. Even $1 a share on a $13 stock is a high dividend of about 7%, allowing for appreciation to say, the $20-$25 range. Graham was a great believer in the theory that management should pay out \"\"most\"\" of its earnings in dividends. He believed that by holding dividends so far below earnings, the company was either being \"\"stingy,\"\" or signalling that the $10 a share of earnings was unsustainable. Either of these would be bad for the stock. For instance, if $1 a share in dividends actually represented a 40% payout ratio, it would signal management's belief that they could normally earn only $2.50 a year instead of $10.\"","> But so long as the incremental improvement to your bottom line is there, the investment is sound, with or without taxes. wat If E(ROA)>0 it's a sound investment? Not at all. > any investment the company makes that improves their net income automatically means more money for the company Where is this money coming from? If it's debt-financed it escapes corporate tax rate because interest payments are deductible. Is it coming from the company's retained earnings? We have less of that now because we hiked up the corporate tax rate. Your argument also neglects the impact corporate taxes have on equity financing and corporate leverage.","PE can be misleading when theres a good risk the company simply goes out of business in a few years. For this reason some people use PEG, which incorporates growth into the equation.","Depending on the improvement, you have to amortize or depreciate it over time, which effectively allows you to write off the value over a period of years, even if you pay for it all up front. This messes with cash flow, which is different than profitability, but when you span the write off over five or ten years, the distinction between cash flow and profitability for a private, self funded company is irrelevant. If the money ain't there, the money ain't there. Operating capital is life blood. Taxes also alter the ROI equation of the investment, since you don't keep all the money you put in. Way over simplified example: Lets say I close out the year with some arbitrary profit - ten million bucks - in my war chest. 3.5 could go to taxes. I also know that my supplier can't handle my volume for next year while the season is hot, so I'd like to buy inventory in the off season. Last year I sold 6.5 mill worth of stuff from this supplier, but I estimate I could sell 9-10 mill if I didn't have availability problems. If I buy 9-10 mill in inventory, I can't pay taxes. If I pay taxes, I can't buy enough to grow next year. Sure, COGS is a deductible expense, but the expense isn't realized until the inventory is sold, which won't be until long after these taxes are due. I now have taxes interfering with my expansion, even though eventually I can write that off. Now lets look at the manufacturer - sure he could expand his capacity and make more money, but he has to deduct the 5 mill machine he needs over twenty years (or ten or whatever) while the purchase price needs to be made today. This year he's gonna pay tax on 90 or 95% of the money he used to buy that machine, which would eat into the money he needs to buy raw materials to fill orders he already has. Of course, the real world is much more complicated, and you can leverage leasing agreements and purchasing terms to alleviate this to some extent, but I wanted to illustrate a point. I hope my extremely simplified example communicated what I mean. Does that make sense?","the implications are that the company's earnings per share may seem greater, (after the company buys them there will be less shares outstanding), giving wall street the impression that there is more growth potential than there really is. its an accounting gimmick that can work for a few quarters while the company evaluates how else to impress wall street","It sounds like you're drastically oversimplifying basic business economics, and implying that any company is just as well off breaking even (zero profit) as it is with turning a big profit. This is blatantly incorrect and naive. For one thing, it is certainly be easier to justify expansion or attract new investments if your company is profitable.","Honestly, I’m not sure I understand your point. The figures suggest to me that the business invests (higher capex and amortisation) and grows it’s revenues and cash flow. D&A can be higher than new capex for a number of reasons including accelerated amortisation for tax purposes. Why is D&A contribution (actually i prefer to separate the concepts of P&L and cash flow) to operating cash flow a problem or why does it evidence manipulation?","Agree with mjvcaj, it is rare. Larger cap examples include Nokia and NII Holdings (Nextel). If cash exceeds market cap, that means total debt is greater than EV, the value of the operating assets. If the debt is partially repaid / matures, the equity is ok. BUT if management is crap and the cash is spent at an ROIC below the interest rate on the debt, now you have a situation where the net debt exceeds the value of the operating assets, the credit quality suffers, debt trades down, you need to recapitalize in order to avoid bankruptcy. The above assumes debt is greater than cash. Situations where cash exceeds market cap and debt is less than cash (i.e. a negative EV) are exceedingly rare in larger companies and are either a) a wonderfully attractive mispricing or b) market views management as so awful that the cash will get burnt up by the business and the value of that cash will be destroyed.","\"The key to evaluating book value is return on equity (ROE). That's net profit divided by book value. The \"\"value\"\" of book value is measured by the company's ROE (the higher the better). If the stock is selling below book value, the company's assets aren't earning enough to satisfy most investors. Would you buy a CD that was paying, say two percentage points below the going rate for 100 cents on the dollar? Probably not. You might be willing to buy it only by paying 2% less per year, say 98 cents on the dollar for a one year CD. The two cent discount from \"\"book value\"\" is your compensation for a low \"\"interest\"\" rate.\"","\"Why there is this huge difference? I am not able to reconcile Yahoo's answer of 5.75%, even using their definition for ROA of: Return on Assets Formula: Earnings from Continuing Operations / Average Total Equity This ratio shows percentage of Returns to Total Assets of the company. This is a useful measure in analyzing how well a company uses its assets to produce earnings. I suspect the \"\"Average Total Equity\"\" in their formula is a typo, but using either measure I cannot come up with 5.75% for any 12-month period. I can, however, match MarketWatch's answer by looking at the 2016 fiscal year totals and using a \"\"traditional\"\" formula of Net Income / Average Total Assets: I'm NOT saying that MatketWatch is right and Yahoo is wrong - MW is using fiscal year totals while Yahoo is using trailing 12-month numbers, and Yahoo uses \"\"Earnings from Continuing Operations\"\", but even using that number (which Yahoo calculates) I am not able to reconcile the 5.75% they give.\"","It is true that operation profit comes from gross profit however it is possible for a company to have negative net profit yet have postive cash flow , it has to do with the accounting practice A possible example is that a company has extremely high depreciation expense of fixed asset hence net profit will be negative but cash flow will be positive. Assuming the fixed asset has been fully paid for in earlier years","It would be the sales revenue less everything else. When he says reinvest, that is to say they keep all of the post-tax earnings and place it in retained earnings. This means that it is still the companies money to invest and use to fulfill their goals. If they didn't have any worthy investing opportunities, they could issue dividends. So say your cost of capital is, eeeeeh, 15%. And the best investment you can make will earn you 12%. That's a loss of value. So the company, acting in the investors best interests, will give those funds back so that the investors can allocate that money to more efficient areas. Dividends are one mechanism a company has to control their rate of growth.","I don't think it makes sense to allow accounting numbers that you are not sure how to interpret as being a sell sign. If you know why the numbers are weird and you feel that the reason for it bodes ill about the future, and if you think there's a reason this has not been accounted for by the market, then you might think about selling. The stock's performance will depend on what happens in the future. Financials just document the past, and are subject to all kinds of lumpiness, seasonality, and manipulation. You might benefit from posting a link to where you got your financials. Whenever one computes something like a dividend payout ratio, one must select a time period over which to measure. If the company had a rough quarter in terms of earnings but chose not to reduce dividends because they don't expect the future to be rough, that would explain a crazy high dividend ratio. Or if they were changing their capital structure. Or one of many other potentially benign things. Accounting numbers summarize a ton of complex workings of the company and many ratios we look at could be defined in several different ways. I'm afraid that the answer to your question about how to interpret things is in the details, and we are not looking at the same details you are.","High ROI and high barriers to entry are rare to find existing together at the same time in the same market. More commonly, you have high margins/ROI in early markets, but high barriers to entry are more common in mature markets. The most common places to find high ROI and barriers to entry is when there is something *proprietary* involved. This is why the STEM (science, technology, engineering, and math) fields are so valuable. Industries related to these fields have an edge because they are the most likely fields to create something proprietary. When something proprietary is also in high demand, you have a barrier to entry and also a potential to create high margins (which in turn will be high ROI). Some people have mentioned medical devices, which are an excellent example. There are only a handful of companies that have went to the lengths of development to create the Swan Ganz catheter, for example (an essential tool used in cardiac surgeries). With little competition and high demand, companies that manufacture Swan Ganz catheters can put healthy margins on the product without worry. TL;DR: The best way to find something high ROI that also has barriers to entry is to specialize towards something proprietary that cannot be imitated or replaced, but is also in high demand.","The P/E ratio is a measure of historic (the previous financial year) earnings against the current share price. If the P/E is high, this means that the market perceives a big increase in future earnings per share. In other words, the perception is that this is a fast growing company. Higher earnings may also equate to big increases in dividends and rapid expansion. On the other hand, if the P/E is low, then there is a perception that either earnings per share are decreasing or that future growth in earnings is negligible. In other words, low P/E equates to a perception of low future growth and therefore low prospects for future payout increases - possibly even decreases. The market is (rightly) usually willing to pay a premium for fast growing companies.","Actually, share holder value is is better maximised by borrowing, and paying dividends is fairly irrelevant but a natural phase on a mature and stable company. Company finance is generally a balance between borrowing, and money raised from shares. It should be self evident with a little thought that if not now, then in the future, a company should be able to create earnings in excess of the cost of borrowing, or it's not a very valuable company to invest in! In fact what's the point of borrowing if the cost of the interest is greater than whatever wealth is being generated? The important thing about this is that money raised from shares is more expensive than borrowing. If a company doesn't pay dividends, and its share price goes up because of the increasing value of the business, and in your example the company is not borrowing more because of this, then the proportion of the value of the company that is based on the borrowing goes down. So, this means a higher and higher proportion of the finance of a company is provided by the more expensive share holders than the less expensive borrowing, and thus the company is actually providing LESS value to share holders than it might. Of course, if a company doesn't pay a dividend AND borrows more, this is not true, but that's not the scenario in your question, and generally mature companies with mature earnings may as well pay dividends as they aren't on a massive expansion drive in the same way. Now, this relative expense of share holders and borrowing is MORE true for a mature company with stable earnings, as they are less of a risk and can borrow at more favourable rates, AND such a company is LIKELY to be expanding less rapidly than a small new innovative company, so for both these reasons returning money to share holders and borrowing (or maintaining existing lending facilities) maintains a relatively more efficient financing ratio. Of course all this means that in theory, a company should be more efficient if it has no share holders at all and borrows ALL of the money it needs. Yes. In practise though, lenders aren't so keen on that scenario, they would rather have shareholders sharing the risk, and lending a less than 100% proportion of the total of a companies finance means they are much more likely to get their money back if things go horribly wrong. To take a small start up company by comparison, lenders will be leary of lending at all, and will certainly impose high rates if they do, or ask for guarantors, or demand security (and security is only available if there is other investment besides the loan). So this is why a small start up is likely to be much more heavily or exclusively funded by share holders. Also the start up is likely not to pay a dividend, because for a start it's probably not making any profit, but even if it is and could pay a dividend, in this situation borrowing is unavailable or very expensive and this is a rapidly growing business that wants to keep its hands on all the cash it can to accelerate itself. Once it starts making money of course a start up is on its way to making the transition, it becomes able to borrow money at sensible rates, it becomes bigger and more valuable on the back of the borrowing. Another important point is that dividend income is more stable, at least for the mature companies with stable earnings of your scenario, and investors like stability. If all the income from a portfolio has to be generated by sales, what happens when there is a market crash? Suddenly the investor has to pay, where as with dividends, the company pays, at least for a while. If a company's earnings are hit by market conditions of course it's likely the dividend will eventually be cut, but short term volatility should be largely eliminated.","I agree, the markets that Amazon competes in his extremely competitive with larger companies (such as Wal Mart) operating at smaller margins to increase volume. Since Amazon is continuously trying to increase its customer base and customer loyalty, they really need the low margins. The 1% increase could be harmful to the long-term growth of the company, which as the executives of Amazon explain, really matters more than higher profits this quarter. Furthermore, 5% decrease in SGA sounds like a company that's downsizing, particularly a company that operates as efficiently as Amazon, making that suggestion unreasonable and unrealistic.","Well like a lot of stuff on money.stackexchange there is not a simple answer, but generally it is not a good thing. Take a look at the wikipedia entry on Net Operating Loss. Basically the company is commenting that when they do make money they will receive preferential tax treatment on that income. So whether or not this is a positive or a negative depends on a couple of things: NOL doesn't directly impact book value other than how the actual assets of the company changed over the previous quarter. I believe there is a 1:1 correspondence to how the assets change and NOL, but I am sure someone could clarify that for me in another answer or as a comment.","Instead of giving part of their profits back as dividends, management puts it back into the company so the company can grow and produce higher profits. When these companies do well, there is high demand for them as in the long term higher profits equates to a higher share price. So if a company invests in itself to grow its profits higher and higher, one of the main reasons investors will buy the shares, is in the expectation of future capital gains.","EBIT could be lower due to non-operating revenues such as investments in other companies, tax reliefs, adjustments to incorrect loss provisions and various other items that would not be part of the companies day to day operations. Be careful and read the footnotes and managements discussion for those items, they should be disclosed to some extent.","> You need to look at where the profits are coming from. Sure. If profits are coming from non-recurring revenue sources, then it isn't a great indication of ongoing profitability. If, on the other hand, profits are coming from lean staffing, low costs and a focus on the bottom line...then you're talking about how a well-run business is operated. It has been a long time since I worked on the floor of an IB so I can't speak to work happiness these days, but I do know that much of the exodus is in the form of people leaving for the buyside (as always), or for greener pastures working on FinTech out in SF.","Yeah that all can definitely be true as well, in fact we both 100% agree on symptoms of low growth. However personally I believe there are always ways to reinvest and build your business. I mean look at AAPL, they allocated $100~ billion into their own Nevada hedge fund buying up high quality debt like it's a fire sale. Some companies create their own VC firms combatting disruptive innovation. We can argue about this all we want but share buybacks can signify a lot of things at the end of the day haha. My main point with the comment above was that the buybacks inflating EPS makes it more difficult to identify true earnings growth of a company. So serious question, do you know of any ways to filter that out and identify real earnings growth?","It just had less cash. That doesn't necessarily mean that the company had a net loss for the year. Just like having more cash doesn't mean the company made a profit. What if a company had revenue of $1 million, expenses of $2 million, and took out a loan of $5 million? They had a net loss of $1 million, but they have $4 million more in cash.","If it's a low margin business and you can get value for it that's higher than the leadership values it, and they have some opportunity in a better margin business but for some reason couldn't acquire debt funding or more investors to fund the new business; then it might be feasible, but unusual and probably not ideal.","This is the point of the article. Somehow a company which is so successful has, for tax purposes, such a razor thin margin. So their taxation clearly isn't in keeping with its actual ability to pay, passing along the burden to other businesses and individuals.","Reading and analyzing financial statements is one of the most important tasks of Equity Analysts which look at a company from a fundamental perspective. However, analyzing a company and its financial statements is much more than just reading the absolute dollar figures provided in financial statements: You need to calculate financial ratios which can be compared over multiple periods and companies to be able to gauge the development of a company over time and compare it to its competitors. For instance, for an Equity Analyst, the absolute dollar figures of a company's operating profit is less important than the ratio of the operating profit to revenue, which is called the operating margin. Another very important figure is Free Cash Flow which can be set in relation to sales (= Free Cash Flow / Sales). The following working capital related metrics can be used as a health check for a company and give you early warning signs when they deviate too much: You can either calculate those metrics yourself using a spreadsheet (e.g. Excel) or use a professional solution, e.g. Bloomberg Professional, Reuters Eikon or WorldCap.","There are not always capital-efficient ways for a company to reinvest its own profits. This is why dividends exist. Imagine a company will reinvest 80% of its profits into a project with a huge projected return, but the other 20% of the company's profits cannot be reinvested efficiently because there are zero projects in which to reinvest the profits into that would return a better profit than what the company's shareholders could make by reinvesting those profits in their own way (ie: a benchmark market index like an S&P 500 index fund). Since the shareholders could make a better return with this than the company could with any company project, it would be irresponsible (technically maybe even illegal) for the company to reinvest that 20% of the profits. This reason for companies sometimes paying out profits to shareholders in the form of dividends is a market-efficient part of the economic system, and it really is great. If a CEO/CFO/anyone is paying out so much profit from a company that it is irresponsible to the company's investors, then that would also technically be illegal since the company is evading efficient project that would benefit its shareholders more than they could benefit themselves elsewhere in the market. (These legalities with shareholder laws are not explicitly put into action very often, but their effects are always there) It's also worth noting payout/plowback strategy is very important for the strategy and financing of a company, particularly for public investments.","\"No, having to borrow money does not necessarily mean a company will have a hard time paying the interest on it. Similarly, having to take out a mortgage on a house does not mean a person will not be able to make their mortgage payments. Borrowing money can be a way to spend future money instead of present money (at a cost, of course). A company might not have all that money at the moment, but that in no way implies they won't have it in the future. And as you allude to in your question where you talk about \"\"funding some … plans\"\", a company might be able to grow itself—possibly increasing future profits—by borrowing money.\"","Residential Construction at 362x, by the way. I'm going to hazard a guess here - Say XYZ corp trades at $100, and it's showing a normal earnings of $10 the last few years. Its industry falls on hard times, and while it makes enough to keep its doors open, profits fall to $1. The company itself is still sound, but the small earnings result in a high P/E. By the way, its book value is $110, and they have huge cash on the books along with real estate. I offer these details to show why the price doesn't drop like a rock. Now, biotech may be in a period of low reported earnings but with future results expected to justify the price. On one hand it may be an anomaly, with earnings due to rise, or it may be a bit of a bubble. An analyst for this sector should be able to comment if I'm on the right track.","First, the earnings are per year, not per quarter. Why would you expect to get a 100% per year return on your money? The earnings can go one of two ways. They can be retained, reinvested in the company, or they can be distributed as a dividend. So, the 'return' on this share is just over 5%, which is competitive with the rate you'd get on fixed investments. It's higher, in fact, as there's the risk that comes with holding the stock.","There's a distinction between profits and cash flow, attributed to the recognition of non-cash items. If you have a business where your customers pay you quickly, you manage your inventory well, and you’re able to take your time in paying your suppliers, your free cash flow can be consistently positive even when your net income is not.","This is basically saying that it's not possible to make more than some not-so-large amount without taking for yourself part of what several other people produce, yes? How does that fit with the very high profits per a employee numbers that some companies have?: http://www.bloomberg.com/visual-data/best-and-worst/most-profitable-employees-companies","Their net income hangs around zero because they raise expenses as reinvestment in the company (line items like $16.09B in Research & Development expense last year). Retained earnings is a balance sheet item reflective of assets they're holding for projects in a later fiscal period; they aren't waiting for the next period to reinvest.","First read mhoran's answer, Then this - If the company sold nothing but refrigerators, and had 40% market share, that's $4M/yr in sales. If they have a 30% profit margin, $1.2M in profit each year. A P/E of 10 would give a stock value totaling $12M, more than the market size. The numbers are related, of course, but one isn't the maximum of the other.","\"P/E is a pretty poor way to value the company as it exists today. The company generates free cash flow yield of 2.5-3.3% which isn't remarkably high, but it's not nearly as bad as the earnings yield of 1.1%. But let's operate within the P/E ratio for right now. The company sells $40 billion of \"\"stuff\"\" each year with a net margin of 2%. If they increased prices on every product by 1% (which really wouldn't be _that_ noticeable) their profit would grow 50%. Thus, P/E drops from 90 to 60. SGA expenses equal ~20% of their operating costs. Cut 5% of SGA and you get the same 1% increase in net margin. This could come from cost-cutting today, or by greater economies of scale in the future while keeping prices the same. So, yes, it's priced as a growth firm, but it doesn't necessarily need customer growth in the traditional sense to be fairly-valued.\"","Profits go to the owners of the corporation for providing capitol. CAT is paying around 2% ... a little under $2/year/share in dividends. (note that dividends come out of profits, not before.) A 2% return on investment isn't a terrible thing. It's not great, but in current economic conditions, it's respectable. Looking at their financial statements, they don't have tons of cash on the books relative to what they spend in a quarter. They do have a fair chunk of their assets tied up in inventory. On the books, that goes down as a profit - kinda. It's mostly neutral accounting wise - money went out, inventory came in. You now have an asset worth exactly what you spent on it. The biggest growth in assets over the last couple of years has been in inventory. The amount in inventory is greater than assets minus liabilities. Then again, so is cash on hand, but the cash flow rate is also pretty high because the margins are low. So... yeah... they're making more money, but they're also investing most of that back into the capital costs of growing the business. New machinery, inventory that they can sell, business development in new markets, etc. Remember that capital costs are considered neutral - you receive an asset in return. This is distinct from operating costs which come straight to the bottom line.","You are omitting how the company made 120 million in the previous year and may be facing a shrinking market and thus have poor future prospects. If the company is shrinking, what will the shares be worth down the road. Remember companies like AOL or Blackberry? There was a time they had big profits before things changed which is the part you aren't considering here. If the company has lost something big on its earnings, e.g. the oil wells it owned have run out of reserves or the patents on its key drugs have expired, then there could be the perception that the company won't be able to compete in the future to continue to deliver earnings. Some companies may well end up going broke as one could look at GM for a company that used to be one of the largest car companies in the world and yet it ended up going broke.","\"It depends on the definition of earnings. A company could have revenue that nets in excess of expenses, so from that perspective a good cash flow or EBITDA, but have debt servicing costs, taxes, depreciation, amortization, that alters that perspective. So if a company is carrying a large debt load, then the bondholders are in the position to capture any excess revenues through debt service payments and the company is in a negative equity positions (no equity or dividends payable to shareholders) and has not produced earnings. If a company has valuable preferred shares issued and outstanding, then depending on the earnings definition, there may be no earnings (for the common stock) until the preferences are satisfied by the returns. So while the venture itself (revenues minus costs) could be cash flow positive, this may not be sufficient to produce \"\"earnings\"\" for shareholders, whose claim on the company still entitles them to zero current liquidation value (i.e. they get nothing if the company dissolves immediately - all value goes to bondholders or preferred). It could also be that taxes are eating into revenue, or the depreciation of key assets is greater than the excess of revenues over costs (e.g. a bike rental company by the beach makes money on a weekly basis but is rusting out half its stock every 3 months and replacement costs will overwhelm the operating revenues).\"","\"If a company is doing well, it seems less likely to go bankrupt. If a company is doing poorly, it seems more likely to go bankrupt. The problem is, where is the inflection point between \"\"well\"\" and \"\"poorly\"\"? When does a company start to head into oblivion? Sometimes it is hard to know. But if you don't call that right and hold onto your shares when a company is tanking, others, who call it before you do, will sell off, devalue the share price, and now you've missed your chance to get out at a good profit. If you hang on too long, the company may just go bankrupt and you've lost your investment entirely. A healthy profitability of the company therefore has to bolster investor confidence in avoiding this very unpleasant scenario. Therefore, the more profitable a company is, the more shareholder confidence it inspires, and the more willing to pay for it in the form of increased share price. And, this then has a \"\"meta\"\" effect, in that each shareholder thinks, \"\"all other investors think this way, too,\"\" and so each feels good about holding the stock, since he knows he can likely easily liquidate it for good cash if he needs to, either now or in the next year or sometime hence.\"","It means someone's getting paid too much. I'd check the sharpe ratio and compare that to similar funds along with their expense ratio. So in some scenarios it's not necessarily a bad thing but being informed is the important thing","> In other words, the company's operating assets function as a kind of piggy bank whose purpose is to extract profits that are then flushed out to shareholders. This is the sad fate of essentially all mature businesses under the conditions of American financial capitalism and, indeed, Whole Foods' executive team — led by its founder John Mackey — has been under intense pressure recently from an activist hedge fund that bought shares and has been agitating for cost cutting and more payouts. No shit. If an investor can't make a return from an increasing stock price (whole foods is flat or worse, trading at 50% of peak before Amazon closed) then then the stock must pay a dividend or nobody wants to hold it because it's a losing asset.","\"IMO, what it seems like you've done is nothing more than having screened out a company worth further investigation. The next step would be a thorough analysis of the company's past financials and current statements to arrive at your own opinion / forecast of the immediate and far future of the company's prospects. Typically, this is done by looking at the company's regulatory filings, and maybe some additional searching on comparison businesses. There are many sources of instruction for how one might \"\"value\"\" or \"\"analyze\"\" a company, or that provide help on \"\"reading a balance sheet\"\". (This is not an easy skill to learn, but it is one that will prove invaluable over a lifetime of investing.) It is possible that you'll uncover a deteriorating business where the latest selling, and subsequent drop in price that caused the high yield, is well-deserved. In which case, you know to stay away and move on to the next idea. On the other hand, you might end up confident that the company is not suffering from a drop in sales, rise in expenses, growing debt payments, loss of \"\"moat\"\", etc. In which case, you've found a great investment candidate. I say candidate because you still may decide this company isn't for you, even if the financials are right, because you might find better opportunities for an equal, or acceptable, return at lower risk while you're researching. As to the yield being high when there are no problems with the fundamentals of the business, this may simply be because of panic selling during this past few week's downturn, or some other sort of temporary and superficial scare. However, be warned that the masses can remain irrational, and thus the price stay suppressed or even drop further, for longer than you're willing to wait for your ROI. The good news is that in that case, you're being well compensated to wait at a 11+% yield!\"","Let me ask you something else: If you knew about a company that makes $1 million of profit per year and growing, with costs that are half that, would you not be interested to have a stake in this company? Of course you would. And because the shares can be publicly bought, you can. I don't think you'd care if it's an asset manager or some other company. An asset manager can do a lot with the capital it raises. It could get bigger and better offices, invest in a better computer system, maybe get faster access to exchange information, better information terminals, have more money for marketing and road shows. But the really big cash usually goes to acquire new talent. You might not need that much money for support staff, but a sales manager can be expensive, and a good fund manager can easily cost a high 7 to 8 figure number per year.","\"Your question asks us to explain why a false statement is true. From the point of view of an investor, a high price to earnings ratio is not necessarily desirable. From the point of view of an investor, a desirable stock is one that is likely to provide future dividends or price increases that more than compensates for the risk of the stock. This information cannot be inferred from the P/E ratio. So what does the P/E ratio tell us? The P/E ratio measures a stock's current price (i.e., the market's belief about its future earnings) divided by its recent past earnings. A high ratio means the market thinks earnings in the future will be higher than they are now and have therefore bid the price up. These can thought of as expensive stocks, and are often called \"\"growth\"\" stocks because their price is driven by the market's belief in future growth. Some individual high P/E stocks do live up to or exceed the market's expectation, but there's no evidence that this happens enough that they are more desirable as a group than low P/E stocks. If anything, the empirical evidence goes the other way.\"","no interest expense (no debt in the capital structure) and an income tax benefit is one possible scenario. you determine this through the financial statement by looking for the differences between the E and EBIT in those calculations (interest and taxes). of course, extraordinary items and discontinued operations could also be present, and result in the difference noted.","Mostly we invest in companies to make money. The money can be paid to as in the form of dividends that are a share of the profit. Or the company can convince enough people that it will make a lot higher profit next year, so its stock prices increases. Clearly a company that reinvests its 20% profit from one shop to open an 2nd shop is doing well and is a good investment. But, But, But... we only have the companies word for it! A dividend paying company finds it a lot harder to hide bad news for long, as it will not have the money in the bank to pay the dividends.","Aside from the market implications Victor and JB King mention, another possible reason is the dividends they pay. Usually, the dividends a company pays are dependent on the profit the company made. if a company makes less profit, the dividends turn out smaller. This might incite unrest among the shareholders, because this means that they get paid less dividends, which makes that share more likely to be sold, and thus for the price to fall.","While losing market share. That's the required context to understand why their model isn't working. Price hikes reduced their losses but people still jumped ship. Their top line growth is a result of market growth and not competitive growth as a company.","\"In some sense, I agree, but let's look at Apple who in 1997 when Steve came back as CEO and had to beg monies from Microsoft (which he received as a professional courtesy) to stay afloat swore he would never have to do again and literally deemed investors as a \"\"necessary evil\"\". He presided over one of the most profound rainy day funds (which eclipsed the US Government for a few days in its depth) because he never wanted to be in that position again. He died and Tim Cook initiated splits and buybacks. I think Cook went too far in one direction and Jobs in the other. Another stock to consider in a similar light is Starbucks. But these stocks are performing, I'm an investor, and I'm not going to complain about management decisions when ROI is at are above 20/30ish percent. Other companies like Thomson Reuters fail to achieve a cohesive diverse presence in multiple markets inexpensively sans their newsdesk operations. I'm not saying your wrong, it's just a formula of trust and strategy.\"",">But when share repurchases replace a company’s research-and-development spending, that indicates its management is unable or unwilling to spend on innovation that could generate future earnings to shareholders. I disagree. If we look at buybacks and r&d purely as investments, a shorter term investment is lower in risk and return, while a longer term one is higher in risk. Of course, the same goes for respective returns. Knowing that research-to-market time for a drug is 5-12 years, and that buybacks are almost immediate returns, the 11% difference over ten years seems generous, not greedy. I've read the same being said about marketing budgets being more than r&d. Again, if the market doesn't have perfect flow of information, marketing become a need to survive. A smart CEO would never spend more on marketing than is necessary. It's the last cost a company bears on a product before booking a sale, and it's the last bite out of the profit.","Just looking at the numbers, something appears off. Cost of equity of ~4% seems very low and should not be below cost of debt. Also a risk free rate of 1.66% seems VERY low. Sometimes it's worth taking a step back and seeing if the numbers even make sense. If you're serious about using your own analysis for investing, the assumptions are extremely important and incorrect ones can throw everything off.","I think the most concise way to understand EV is the value of the *operating assets* of the firm. It's most generally used when using income statement or cash flow ratios that are unlevered - before applying interest expense (which if the firm is optimally financed, in theory should only impact the equity). Examples include revenue, EBIT, EBITDA, unlevered FCF, etc. In your hypothetical scenario, you would expect the equity value of the firm to increase linearly as cash builds up. In other words, in some implausible, ceteris paribus formulation of the firm, the enterprise value should remain constant.","No. The information you are describing is technical data about a stock's market price and trading volume, only. There is nothing implied in that data about a company's financial fundamentals (earnings/profitability, outstanding shares, market capitalization, dividends, balance sheet assets and liabilities, etc.) All you can infer is positive or negative momentum in the trading of the stock. If you want to understand if a company is performing well, then you need fundamental data about the company such as you would get from a company's annual and quarterly reports.","I took a look at their cash flow and they spent 3 billion buying back shares and another 3 billion just last year in capex. That is 6 billion right there. I'm not sure what that capex was supposed to buy but it appears they aren't getting much of a payoff.","According to pretty well accepted corporate finance principles. They're mature/maturing companies with large durable noncyclical cash flow streams. Increasing their debt load and distributing the proceeds to shareholders would lower their after tax cost of capital and increase the value of their equity. IMO operating with such under levered balance sheets is nonoptimal. It's subjective though.","Yes youre right it's far more complex than the M-M textbook theory. My view is that there's even more advantages to debt than M-M would say. Further you've nailed exactly why these companies don't follow corporate norms. As disruptors they fear disruption despite their pretty much impenetrable moats. But their CFOs are slowly turning them. MSFT now has a normal corporate structure, apple is getting there, and Google hired Morgan Stanley's CFO. I disagree on your last point: what an entrepreneur CEO (who built a disruptive business from the ground up) wants for his balance sheet is usually not the right thing for shareholders. They do it because they can get away with it due to share class structure and their phenomenal operating performance. That's just my opinion.","In finance you are taught that debt financing is cheaper than equity financing. Also to improve your credit rating, showing that you can carry debt responsibly and pay it off without a hitch sends dog whistle that the corporation is operating well.","Do not confuse the DIV (%) value and the dividend yield. As you can see from this page, the DIV (%) is, as you say, 165%. However, the dividend yield is 3.73% at the time of writing. As the Investopedia page referenced above says: The payout ratio is calculated as follows: Annual Dividends per Share / Earnings per Share. which means that the dividends being paid out are more than the earnings of the company: In extreme cases, dividend payout ratios exceed 100%, meaning more dividends were paid out than there were profits that year. Significantly high ratios are unsustainable.","\"There is no general theory to support the notion that larger companies will be more profitable than smaller companies. Economies of scale are not always positive, one can have diseconomies of scale too. It is more common to talk about an optimal firm size, even going back to Stigler's (1958) \"\"The Economies of Scale.\"\" Intuitively, if economies of scale extended indefinitely, then natural monopolies would dominate all industries in the long run. A profit ratio, unfortunately, wouldn't quite get at scale economies. Consider, for example, that the denominator of your metric would be profit+cost and that you are trying to get at the cost reduction that derives from scale. Then, you are measuring the size of a company by the exact metric that should be reduced if scale economies exist, so the calculation would be a bit confounded. It is my understanding that such assessments are usually conducted at the industry level by determining whether the industry is becoming increasingly concentrated among fewer firms over time. (Again see Stigler). If concentration is increasing, there is an implication that, at current firm sizes, there are economies of scale in the industry.\"","How you use the metric is super important. Because it subtracts cash, it does not represent 'value'. It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash. So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0. If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless.","\">Good, that gives their competition time to take market share. Except TAM (total actual market) is decreasing, the pool of \"\"market share\"\" is going down. So what's happening is companies are slashing margins to even maintain market share, much less increase it. Look at what's happening in computers, DELL, HP, Acer, Asus, Lenovo. Apple's sales numbers dropped for notebooks as well, but because they didnt drop as much as HP or Lenovo their market share went up. This is the new normal. Less than stellar sales. >As long as there is money on the table, someone is going to reach for it. Markets aren't known for their patience. Problem is there is less and less money on the table. Big companies are squeezing little companies. Know what you just described? Wal-mart puts the little guy out of business--- they're efficent! >Bullshit, tax burdens cause tax avoidance, they don't touch production as long as profits are still available. Yes, some, but you can only avoid it if you are multi-national. Businesses with completely domestic operations cannot avoid liabilities in the same way. But as I said above the markets are shrinking, there is less money on the table and the players that are left are fighting over the last scraps. That is obviously a bit extreme, but I personally deal with a lot of retailers and OEMs and there is NOT the wiggle room you describe. I get beat up for a few dollars. I am not talking about banks, or energy companies, or healthcare companies. I am talking about the thousands of small and medium businesses that are already squeezed. These entities are the lifeblood of the larger economy. One or two go out of business and nobody notices, but hundreds and thousands of these companies have closed now. A healthy company is not made up of only Wal-mart, Exxon and Apple.\"","\"Right. Because there was no profits. The company managed to grow by keeping very tight control of costs with respect to revenue. It's not a loophole. The alternative is spending less or charging more. Either of these things probably has significantly worse outcomes to the company - slower growth due to lack of reinvestment in the business, or slower growth due to not attracting as many customers through competitive pricing. What they have done is become a very valuable company due to a strong revenue stream. (You can ask whether a strong revenue stream alone is enough to justify their valuation, but investors seem to think so, and it also seems to indicate that they expect the stock price to continue rising or they wouldn't spend that much.) When Amazon started, I remember people joking \"\"they lose money on every sale, but they make up for it in volume\"\". Seems to have worked out for them in the long run.\"","First, corporate profits can grow relative to GDP. If companies succeed in growing revenue without paying much more to workers, then corporate profits and stock prices will grow relative to GDP. That has been happening for the last couple decades. If you require that we keep corporate profits vs GDP constant, then borrowing/leverage is how you do it. Companies can expand their operations on a fixed amount of shareholder equity, and as long as they can grow their profits faster than the cost of the debt, then shareholders keep the upside. But this also means that share prices will quickly fall if profits decline even a small amount, because the debt must still be paid off.","Talk to almost any large cap CFO or read any corporate finance textbook. McKinsey's Valuation is a great one to own: though yes McKinsey consultants can take a good idea and turn it bad by overdoing it to an extreme. Why would universal corporate finance principles not apply to large cap tech? Why is having $XXb of unutilized cash for a company with durable cash flow a good thing for equity investors?","As JB hints, it is likely due to superior or improving, fundamentals. If the fundamentals of a company improve then its ability to repay loans improves. If its ability to repay improves then more sources of cash become willing to lend to the company. Also if fundamentals are improving then more sources are willing to buy and/or hold the stock.","Both of these terms do refer to your profit; they're just different ways of evaluating it. First, your definition of capitalization rate is flipped. As explained here, it should be: On the other hand, as explained here: So cap rate is like a reverse unit cost approach to comparing two investments. If house A costs $1M and you'll make $50K (profit) from it yearly, and house B costs $1.33M and you'll make $65K (profit) from it yearly, then you can compute cap rates to see that A is a more efficient investment from the point of view of income vs. amount-of-money-you-have-stuck-in-this-investment-and-unavailable-for-use-elsewhere. Profit margin, on the other hand, cares more about your ongoing expenses than about your total investment. If it costs less to maintain property B than it does to maintain property A, then you could have something like: So B is a more efficient investment from the point of view of the fraction of your revenue you actually get to keep each year. Certainly you could think of the property's value as an opportunity cost and factor that into the net profit margin equation to get a more robust estimate of exactly how efficient your investment is. You can keep piling more factors into the equation until you've accounted for every possible facet of your investment. This is what accountants and economists spend their days doing. :-)","It says Amazon has no profits (or very low profits) but the value of the company is very high and growing because of the high revenue. All of the returns to investors are in the form of increased share price which isn't realized or taxed until the shares are sold. This isn't a loophole. Anybody can run a business where they spend most of their revenue on operating costs and run on very slim margins with the goal of growing the revenue.","The ROI percentage becomes a meaningless figure at that point and would either be infinite or a very large number if you assume an equity investment of $1 or $0.01. At that point it's obviously a lucrative deal *as long as it works out* so the bigger question is what are the risks of it not working out and what's the ROIC.","With your numbers, look at it this way - You borrowed $50. When the stock is $100, you are at 50% margin. What's most important, is that there's margin interest charged, so the amount owed will increase regardless of the stock price. When calculating your return or loss, the interest has to be accounted for or your numbers will be wrong. For a small investor, margin rates can run high, and often, will offset much of your potential gain. What good is a $100 gain if you paid $125 in margin interest?","\"It's not abnormal for a company that is as young as yours seems to be. It seems (based on what little I know), that you have debts, or accounts payable that were formerly covered by the $200 cash, but now aren't, because you paid it to yourself. For now, you're \"\"entitled\"\" to pay yourself a draw or a salary. But if you continue to do so without earning money to cover it, your company will fail.\"","A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember;","You can do a bunch of sales if you price your product too low to make any money. Lots of sales, not much revenue. Kind of like what Square is going through right now. Now if you do a lot of sales at a good price, leading to good revenue and cash flow, THEN you are winning. EDIT: Before people get pedantic over my Square analogy, yes, I know they are making a lot of revenue but their margins are incredibly thin and the bulk of their revenue goes immediately to Visa/MC etc so the analogy still works. Lots of sales, not much green.","\"My favorite line: \"\"Companies should generate enough profits to justify the price that shareholders are willing to pay for its shares. Once shareholders are no longer willing to pay up for those profits, they should invest that money elsewhere.\"\" This person loses all credibility right here.\"","The market cap always reflect the company's equity. Except that you cannot fix a stock price in a free market. A company with such profit pattern would have stock price behave like present value of a perpetuity (future income stream discounted by risk free rate) Since your assumption is unachievable, there is no point in determining the logic.","Small companies are generally able to adapt quickly to take advantage of changing conditions to enter new markets when the economy is growing. This gives them a lot of growth potential under those circumstances. However, in times of crisis, there may not be a lot of new markets to enter, and financing to expand any operations may be impossible to get. Under these conditions, small-caps will suffer relative to large-caps.","\"No, but it is certainly a possibility. the efficient market hypothesis would say that this means that the market perceives the present value of all future earning as negative. These earnings might take the form of a writedown of assets at some point. (Companies carry a goodwill asset that is generally imaginary. They book that asset when they buy companies for more than they are worth.) It would be as if PRUN was a stock tracking my life. If I bought my house in 2006 for $1 million cash. I might have a book value of $1 million. However, PRUN might trade at $500k because the market knows that my asset isn't really worth $1 million and at some point my earnings will take a hit to reflect that. It might also mean that future \"\"real\"\" earnings \"\"ie actual profit and loss on sales\"\" are going to be negative. This would mean bankruptcy is more likely.\"","There are many reasons but perhaps the most telling is that these small foreign companies usually have not experienced diminishing marginal returns. This means they grow faster, which means higher returns for investment. However a lack of infrastructure, and of political and economic stability, make these investments risky!","\"Not sure I fully understand your question but my take on it is this: There a lot of people out there that admire companies and own the stock just because they like the company. For example, I know some kids who own Disney stock. They only have a share or two but they keep it because they want to say \"\"I own a part of Disney.\"\" Realistically speaking, if they hold or sell the stock it is so minuscule to have any realizable affect on the overall value of the stock which does not really make the company look better from an investor perspective. However, if a company has people that just want to own the stock just like your uncle are indeed \"\"better\"\" because they must have provided a product or service that is valued intrinsically.\"","It is. The outstanding value is the net cash flow, but it will always be higher than cash outflow due to a constant growth rate/expected return. I was slightly confused when my manager told me to find the IRR before and after cash inflows (the whole life of the investment). Especially as IRR after cash inflows is higher than the former.","\"> Or does it differ between every company what non-cash charges they have? This. Here's a hint: the FCFF *can* be calculated from Cash Flow from Operations (CFO). Think of FCFF this way: \"\"after the business has operated *and* made *all* investments needed to grow, both short and long-term, how much is left over for providers of capital?\"\" [Here's a good resource for you.](https://www.cfainstitute.org/learning/products/publications/inv/Documents/equity_chapter6.ppt)\""],"string":"[\n \"The operating margin deals with the ability for a company to make a profit above the costs of running the company and generating sales. While ROE is how much money the company makes relative to the shareholders equity. I'd be willing to bet that if a company has a small ROE then it also has a quite large P/E (price to earnings) ratio. This would be caused by the company's stock being bid up in relation to its earnings and may not necessarily be a bad thing. People expect the high operating margin to help drive increased revenues in the future, and are willing to pay a higher price now for when that day comes.\",\n \"An operating margin will not compare with ROE. If a company has even a small margin on a large turnover and has a comparative lower shareholder equity, it ROE will be much higher. One ratio alone can not analyse a company. You need a full set of ratios and figures.\",\n \"A company's Return on Equity (ROE) is its net income divided by its shareholder's equity. The shareholder's equity is the difference between total assets and total liabilities, and is not dependent on the stock price. What it takes to have a ROE over 100% is to have the income be greater than the equity. This might happen for a variety of reasons, but one way a high ROE happens is if the shareholder's equity (the divisor) is small, which can occur if past losses have eroded the company's capital (the original invested cash and retained earnings). If the equity has become a small value, the income for some period might exceed it, and so the ROE would be over 100%. Operating margin is not closely related to ROE. Although operating income is related to net income, to calculate the margin you divide by sales, which is completely unrelated to shareholder's equity. So there is no relationship with ROE to be expected. Operating margin is primarily dependent on market conditions, and can be substantially different in different industries.\",\n \"\\\"The short answer is that it depends on the industry. In other words, margin alone - even in comparison to peers - will not be a sufficient index to track company success. I'll mention Apple quickly as a special case that has managed to charge a premium margin for a mass-market product. Few companies can achieve this. As with all investment analysis, you need to have a very clear understanding of the industry (i.e. what is \\\"\\\"normal\\\"\\\" for debt/equity/gearing/margin/cash-on-hand) as well as of the barriers-to-entry which competitors face. A higher-than-normal margin may swiftly be undermined by competitors (Apple aside). Any company offering perpetual above-the-odds returns may just be a Ponzi scheme (Bernie Maddof, etc.). More important than high-margins or high-profits over some short-term track is consistency of approach, an ability to whether adverse cyclical events, and deep investment in continuity (i.e. the entire company doesn't come to a grinding halt when a crucial staff-member retires).\\\"\",\n \"Small companies could have growth prospects. Large companies may not have that many. So look at ROE of companies by quatile to determine which companies have better growth.\",\n \"Just to clarify things: The Net Working Capital is the funds, the capital that will finance the everyday, the short term, operations of a company like buying raw materials, paying wages erc. So, Net Working Capital doesn't have a negative impact. And you should not see the liabilities as beneficial per se. It's rather the fact that with smaller capital to finance the short term operations the company is able to make this EBIT. You can see it as the efficiency of the company, the smaller the net working capital the more efficient the company is (given the EBIT). I hope you find it helpful, it's my first amswer here. Edit: why do you say the net working capital has a negative impact?\",\n \"Yes definitely Warren Buffet averaged returns of only around 21% throughout his 40 years in business. ROE of 23% is probably more than double the ROE of most companies , whats more as the saying goes its easier to grow sales from 1 million to 100 million than to grow sales from 100 million to 10 billion\",\n \"Lets say the hurdle rate for this company is 10% and the current return on assets is 8%. A linear increase in revenue and earnings would actually destroy some value as projects that have a 9% return are accepted even though they destroy value for the shareholder. hope this helps!\",\n \"On a company level ROCE over WACC would be more meaningful in my view but the end result should be be pretty much the same. This concept is closely related to value creation. Value can only be created when a company's ROCE is exceeding its cost of funding - WACC. This is also tightly related with the NPV concept. Value is only created when the NPV on a project is >0. And to directly answer OP. Study in detail WACC. (weighted average cost of capital). Focus on the Modigliani–Miller theorem with taxes and financial distress costs. Good luck.\",\n \"Profit margins. The difference goes to shareholders as new equity every quarter. You don’t need growth to see a return on equity. The consumer staple sector is a great example of this. They’ve had negative to 0 revenue growth, yet have posted respectable returns since the recession.\",\n \"Another way to look at this is if we separate the owner's account from the business's account. At the start of the year, the owner puts $9 into the business account to get the business started. At the end of the first day, the business account has $10, and at the end of the second day, the business account has $11. The owner doesn't need to add any more of his own money into the business account. At the end of the 365th day, the business will have $374, which is $365 profit + $9 investment. Assuming the business has no other expenses, the business will calculate profit for the year like this: The author is making a strange point. The two numbers he is talking about are two different quantities. The business owner's return on investment is $365 / $9 = 4056%. But the business's profit margin is $365 / $3650 = 10%. Both are useful numbers when running the business. I disagree with the author's insinuation that a business is doing something tricky when calculating profit margin. Remember that, in addition to the business owner's monetary investment, he worked every day for a year to earn that $365.\",\n \"Without reading the source, from your description it seems that the author believes that this particular company was undervalued in the marketplace. It seems that investors were blinded by a small dividend, without considering the actual value of the company they were owners of. Remember that a shareholder has the right to their proportion of the company's net value, and that amount will be distributed both (a) in the form of dividends and (b) on liquidation of the company. Theoretically, EPS is an indication of how much value an investor's single share has increased by in the year [of course this is not accurate, because accounting income does not directly correlate with company value increase, but it is a good indicator]. This means in this example that each share had a return of $10, of which the investors only received $1. The remainder sat in the company for further investment. Considering that liquidation may never happen, particularly within the time-frame that a particular investor wants to hold a share, some investors may undervalue share return that does not come in the form of a dividend. This may or may not be legitimate, because if the company reinvests its profits in poorer performing projects, the investors would have been better off getting the dividend immediately. However some value does need to be given to the non-dividend ownership of the company. It seems the author believes that investors failing to consider value of the non-dividend part of the corporation's shares in question led to an undervaluation of the company's shares in the market.\",\n \"I've spent enough time researching this question where I feel comfortable enough providing an answer. I'll start with the high level fundamentals and work my way down to the specific question that I had. So point #5 is really the starting point for my answer. We want to find companies that are investing their money. A good company should be reinvesting most of its excess assets so that it can make more money off of them. If a company has too much working capital, then it is not being efficiently reinvested. That explains why excess working capital can have a negative impact on Return on Capital. But what about the fact that current liabilities in excess of current assets has a positive impact on the Return on Capital calculation? That is a problem, period. If current liabilities exceed current assets then the company may have a hard time meeting their short term financial obligations. This could mean borrowing more money, or it could mean something worse - like bankruptcy. If the company borrows money, then it will have to repay it in the future at higher costs. This approach could be fine if the company can invest money at a rate of return exceeding the cost of their debt, but to favor debt in the Return on Capital calculation is wrong. That scenario would skew the metric. The company has to overcome this debt. Anyways, this is my understanding, as the amateur investor. My credibility is not even comparable to Greenblatt's credibility, so I have no business calling any part of his calculation wrong. But, in defense of my explanation, Greenblatt doesn't get into these gritty details so I don't know that he allowed current liabilities in excess of current assets to have a positive impact on his Return on Capital calculation.\",\n \"Means A has a much higher level of interest payments dye to either higher debt or higher cost of debt (or combination of both). MM theory suggests higher debt in a capital structure due to the tax shield but you need to consider if A's debt level is appropriate or too high and what that says about your company.\",\n \"\\\"This isn't as rigorous as it should be, but may offer some useful insight into how big and small companies differ operationally. Putting Apple aside, larger companies tend to sell larger volumes of products (even if they're MRI devices, or turbines) relative to what smaller companies can sell (obviously, in absolute terms as well). They are also able to negotiate volume discounts as well as payment terms. This allows them to finance sales through their supply chain. However, their large direct competitors are able to do the same thing as well. Competitive forces then drive prices down. Smaller businesses, without these advantages of scale, tend to have to charge higher margins since they have to pay directly (and, if their clients are large businesses, finance the sale). Small businesses still have higher proportional costs of operation. Sadly, my reference here is a study I performed for the South African Revenue Service about ten years ago, and not available online. However, the time taken by a small business to manage admin, tax, HR is a greater proportion of revenue than for larger companies. If the small business is a start-up with big investment from venture finance, then they could subsidise their selling price, run at a loss and try and gain scale. Funnily enough, there is a fantastic article on this by Joel Spolsky (Ben and Jerry's vs. Amazon) For the average highly-competitive smaller company, the best choice is to chase design/quality/premium markets in order to justify the higher margins they have to charge. And that's what makes Apple interesting as a case study. They were a small company in the presence of giants (Intel, Microsoft, IBM). They were \\\"\\\"forced\\\"\\\" to concentrate on design and premium markets in order to justify their need for higher margins. It almost didn't work but then they broke through. Now they're in the unique position of having gained scale but are still small enough relative to other electronics manufacturers to continue charging that premium (by volume their sales are still relatively small but their margins make them a giant). This type of variation from market to market makes developing some sort of generalised solution very unlikely but the general requirement holds: that smaller companies must charge higher margins in order to create equivalent profits to larger companies which must gain scale through volume.\\\"\",\n \"I'll give it a shot, though I know nearly nothing about airlines. 1% is a lot when your revenue is very high. Lets say a plane can have 200 people on it. Plane tickets are a lot, so each person is charged $700 in this example. That's 140K in gross revenue per trip. 1% of that is $1400. You have several trips a day per plane. Lets say 5 trips a day per plane. Each plane is netting $7000 a day. Or around $2.5 million in profit a year. Lets say a commercial plane that has a capacity of 200, costs around $50 million. That's a 20 year ROI. Up your margins to 2%, now you're at 10 year ROI. Plus depreciation. You get to depreciate that $50 million over the course of X years. Basically making all of the profits the airline gets, tax free due to their insane amount of depreciation. Pair this income with cheap oil, and a smart CEO that can cut costs, and you have a cash cow on your hands. And given the fact that a lot of airlines have a ton of planes already depreciated to $0 that aren't on their books any more, you may be able to buy the airline for a fraction of their net assets. Margins are important, but it's all relative. Edit: Changed numbers to prove my point, and because I am not a smart man\",\n \">Jeremy Grantham, chief investment strategist of Boston-based Grantham, Mayo, Van Otterloo & Co., said margins will send stock markets tumbling when they eventually revert to their mean. >“The implication for the stock market is ugly, because it means earnings are unsustainably high,” Grantham’s colleague Ben Inker, GMO’s director of asset allocation, said in a telephone interview.\",\n \"Problem with deciding investments in a company is that you have multiple potential options, each with their projected returns, but each also has some hard-to-estimate risks. A further problem is that these opportunities arrive one-by-one, so you usually cannot compare project A vs. project B to decide which one is better. The internal rate of return is a rule-of-thumb like way to make these decisions. The company board may set an IRR target of e.g. 15%, and each executive will compare their projects against that target. They'll execute only the projects that are projected to give a good return, but some of these projects will end up failing. Thus the real average profit will not be equal to IRR. Important thing is that this target number gives ways to compare projects, and also for the board to control the investments. If the company has a good track record of being successful at projects, the board might set an IRR target of 10% and expect to get e.g. 8% return on their investment. However, if the company has a much larger risk of projects failing, they might demand a predicted IRR of 20% to account for the risk. Ultimately if the IRR target is set too high, the company will find no projects it considers profitable to invest in. In practice if this happens, the company owners are better off taking out the cash as dividends and investing it elsewhere.\",\n \"When your profits are increased from mass layoffs and reduced expenses (like r&d) to appease investors, and not based on innovation, new market entry, or competitive advantage. It's a short term quick win but puts the long term in jeopardy.\",\n \"Two of the main ways that investors benefit financially from a stock are dividends and increases in the price of the stock. In the example as described, the benefits came primarily from dividends, leaving less benefits to be realized in terms of an increase in the value of the company. Another way to put that is that the company paid its profits to shareholders in the form of a dividend, instead of accumulating that as an increase in the value of the company. The company could have chosen to take those profits and reinvest them in growing the business, which would lead to lower dividends but (hopefully) an increase in the valuation of the stock, but they chose to pay dividends instead. This still rewards the investors, but share prices stay low.\",\n \"\\\"The company was paying \\\"\\\"only\\\"\\\" $1 a share in dividends, compared to $10 a share in earnings. That is a so-called payout ratio of 10%, which is low. A more normal payout ratio would be 40%, something like $4 a share. If a $13 stock had a $4 dividend, the dividend yield would be about 30%, which would be \\\"\\\"too high,\\\"\\\" meaning that the price would go up to drive down the resulting yield. Even $1 a share on a $13 stock is a high dividend of about 7%, allowing for appreciation to say, the $20-$25 range. Graham was a great believer in the theory that management should pay out \\\"\\\"most\\\"\\\" of its earnings in dividends. He believed that by holding dividends so far below earnings, the company was either being \\\"\\\"stingy,\\\"\\\" or signalling that the $10 a share of earnings was unsustainable. Either of these would be bad for the stock. For instance, if $1 a share in dividends actually represented a 40% payout ratio, it would signal management's belief that they could normally earn only $2.50 a year instead of $10.\\\"\",\n \"> But so long as the incremental improvement to your bottom line is there, the investment is sound, with or without taxes. wat If E(ROA)>0 it's a sound investment? Not at all. > any investment the company makes that improves their net income automatically means more money for the company Where is this money coming from? If it's debt-financed it escapes corporate tax rate because interest payments are deductible. Is it coming from the company's retained earnings? We have less of that now because we hiked up the corporate tax rate. Your argument also neglects the impact corporate taxes have on equity financing and corporate leverage.\",\n \"PE can be misleading when theres a good risk the company simply goes out of business in a few years. For this reason some people use PEG, which incorporates growth into the equation.\",\n \"Depending on the improvement, you have to amortize or depreciate it over time, which effectively allows you to write off the value over a period of years, even if you pay for it all up front. This messes with cash flow, which is different than profitability, but when you span the write off over five or ten years, the distinction between cash flow and profitability for a private, self funded company is irrelevant. If the money ain't there, the money ain't there. Operating capital is life blood. Taxes also alter the ROI equation of the investment, since you don't keep all the money you put in. Way over simplified example: Lets say I close out the year with some arbitrary profit - ten million bucks - in my war chest. 3.5 could go to taxes. I also know that my supplier can't handle my volume for next year while the season is hot, so I'd like to buy inventory in the off season. Last year I sold 6.5 mill worth of stuff from this supplier, but I estimate I could sell 9-10 mill if I didn't have availability problems. If I buy 9-10 mill in inventory, I can't pay taxes. If I pay taxes, I can't buy enough to grow next year. Sure, COGS is a deductible expense, but the expense isn't realized until the inventory is sold, which won't be until long after these taxes are due. I now have taxes interfering with my expansion, even though eventually I can write that off. Now lets look at the manufacturer - sure he could expand his capacity and make more money, but he has to deduct the 5 mill machine he needs over twenty years (or ten or whatever) while the purchase price needs to be made today. This year he's gonna pay tax on 90 or 95% of the money he used to buy that machine, which would eat into the money he needs to buy raw materials to fill orders he already has. Of course, the real world is much more complicated, and you can leverage leasing agreements and purchasing terms to alleviate this to some extent, but I wanted to illustrate a point. I hope my extremely simplified example communicated what I mean. Does that make sense?\",\n \"the implications are that the company's earnings per share may seem greater, (after the company buys them there will be less shares outstanding), giving wall street the impression that there is more growth potential than there really is. its an accounting gimmick that can work for a few quarters while the company evaluates how else to impress wall street\",\n \"It sounds like you're drastically oversimplifying basic business economics, and implying that any company is just as well off breaking even (zero profit) as it is with turning a big profit. This is blatantly incorrect and naive. For one thing, it is certainly be easier to justify expansion or attract new investments if your company is profitable.\",\n \"Honestly, I’m not sure I understand your point. The figures suggest to me that the business invests (higher capex and amortisation) and grows it’s revenues and cash flow. D&A can be higher than new capex for a number of reasons including accelerated amortisation for tax purposes. Why is D&A contribution (actually i prefer to separate the concepts of P&L and cash flow) to operating cash flow a problem or why does it evidence manipulation?\",\n \"Agree with mjvcaj, it is rare. Larger cap examples include Nokia and NII Holdings (Nextel). If cash exceeds market cap, that means total debt is greater than EV, the value of the operating assets. If the debt is partially repaid / matures, the equity is ok. BUT if management is crap and the cash is spent at an ROIC below the interest rate on the debt, now you have a situation where the net debt exceeds the value of the operating assets, the credit quality suffers, debt trades down, you need to recapitalize in order to avoid bankruptcy. The above assumes debt is greater than cash. Situations where cash exceeds market cap and debt is less than cash (i.e. a negative EV) are exceedingly rare in larger companies and are either a) a wonderfully attractive mispricing or b) market views management as so awful that the cash will get burnt up by the business and the value of that cash will be destroyed.\",\n \"\\\"The key to evaluating book value is return on equity (ROE). That's net profit divided by book value. The \\\"\\\"value\\\"\\\" of book value is measured by the company's ROE (the higher the better). If the stock is selling below book value, the company's assets aren't earning enough to satisfy most investors. Would you buy a CD that was paying, say two percentage points below the going rate for 100 cents on the dollar? Probably not. You might be willing to buy it only by paying 2% less per year, say 98 cents on the dollar for a one year CD. The two cent discount from \\\"\\\"book value\\\"\\\" is your compensation for a low \\\"\\\"interest\\\"\\\" rate.\\\"\",\n \"\\\"Why there is this huge difference? I am not able to reconcile Yahoo's answer of 5.75%, even using their definition for ROA of: Return on Assets Formula: Earnings from Continuing Operations / Average Total Equity This ratio shows percentage of Returns to Total Assets of the company. This is a useful measure in analyzing how well a company uses its assets to produce earnings. I suspect the \\\"\\\"Average Total Equity\\\"\\\" in their formula is a typo, but using either measure I cannot come up with 5.75% for any 12-month period. I can, however, match MarketWatch's answer by looking at the 2016 fiscal year totals and using a \\\"\\\"traditional\\\"\\\" formula of Net Income / Average Total Assets: I'm NOT saying that MatketWatch is right and Yahoo is wrong - MW is using fiscal year totals while Yahoo is using trailing 12-month numbers, and Yahoo uses \\\"\\\"Earnings from Continuing Operations\\\"\\\", but even using that number (which Yahoo calculates) I am not able to reconcile the 5.75% they give.\\\"\",\n \"It is true that operation profit comes from gross profit however it is possible for a company to have negative net profit yet have postive cash flow , it has to do with the accounting practice A possible example is that a company has extremely high depreciation expense of fixed asset hence net profit will be negative but cash flow will be positive. Assuming the fixed asset has been fully paid for in earlier years\",\n \"It would be the sales revenue less everything else. When he says reinvest, that is to say they keep all of the post-tax earnings and place it in retained earnings. This means that it is still the companies money to invest and use to fulfill their goals. If they didn't have any worthy investing opportunities, they could issue dividends. So say your cost of capital is, eeeeeh, 15%. And the best investment you can make will earn you 12%. That's a loss of value. So the company, acting in the investors best interests, will give those funds back so that the investors can allocate that money to more efficient areas. Dividends are one mechanism a company has to control their rate of growth.\",\n \"I don't think it makes sense to allow accounting numbers that you are not sure how to interpret as being a sell sign. If you know why the numbers are weird and you feel that the reason for it bodes ill about the future, and if you think there's a reason this has not been accounted for by the market, then you might think about selling. The stock's performance will depend on what happens in the future. Financials just document the past, and are subject to all kinds of lumpiness, seasonality, and manipulation. You might benefit from posting a link to where you got your financials. Whenever one computes something like a dividend payout ratio, one must select a time period over which to measure. If the company had a rough quarter in terms of earnings but chose not to reduce dividends because they don't expect the future to be rough, that would explain a crazy high dividend ratio. Or if they were changing their capital structure. Or one of many other potentially benign things. Accounting numbers summarize a ton of complex workings of the company and many ratios we look at could be defined in several different ways. I'm afraid that the answer to your question about how to interpret things is in the details, and we are not looking at the same details you are.\",\n \"High ROI and high barriers to entry are rare to find existing together at the same time in the same market. More commonly, you have high margins/ROI in early markets, but high barriers to entry are more common in mature markets. The most common places to find high ROI and barriers to entry is when there is something *proprietary* involved. This is why the STEM (science, technology, engineering, and math) fields are so valuable. Industries related to these fields have an edge because they are the most likely fields to create something proprietary. When something proprietary is also in high demand, you have a barrier to entry and also a potential to create high margins (which in turn will be high ROI). Some people have mentioned medical devices, which are an excellent example. There are only a handful of companies that have went to the lengths of development to create the Swan Ganz catheter, for example (an essential tool used in cardiac surgeries). With little competition and high demand, companies that manufacture Swan Ganz catheters can put healthy margins on the product without worry. TL;DR: The best way to find something high ROI that also has barriers to entry is to specialize towards something proprietary that cannot be imitated or replaced, but is also in high demand.\",\n \"The P/E ratio is a measure of historic (the previous financial year) earnings against the current share price. If the P/E is high, this means that the market perceives a big increase in future earnings per share. In other words, the perception is that this is a fast growing company. Higher earnings may also equate to big increases in dividends and rapid expansion. On the other hand, if the P/E is low, then there is a perception that either earnings per share are decreasing or that future growth in earnings is negligible. In other words, low P/E equates to a perception of low future growth and therefore low prospects for future payout increases - possibly even decreases. The market is (rightly) usually willing to pay a premium for fast growing companies.\",\n \"Actually, share holder value is is better maximised by borrowing, and paying dividends is fairly irrelevant but a natural phase on a mature and stable company. Company finance is generally a balance between borrowing, and money raised from shares. It should be self evident with a little thought that if not now, then in the future, a company should be able to create earnings in excess of the cost of borrowing, or it's not a very valuable company to invest in! In fact what's the point of borrowing if the cost of the interest is greater than whatever wealth is being generated? The important thing about this is that money raised from shares is more expensive than borrowing. If a company doesn't pay dividends, and its share price goes up because of the increasing value of the business, and in your example the company is not borrowing more because of this, then the proportion of the value of the company that is based on the borrowing goes down. So, this means a higher and higher proportion of the finance of a company is provided by the more expensive share holders than the less expensive borrowing, and thus the company is actually providing LESS value to share holders than it might. Of course, if a company doesn't pay a dividend AND borrows more, this is not true, but that's not the scenario in your question, and generally mature companies with mature earnings may as well pay dividends as they aren't on a massive expansion drive in the same way. Now, this relative expense of share holders and borrowing is MORE true for a mature company with stable earnings, as they are less of a risk and can borrow at more favourable rates, AND such a company is LIKELY to be expanding less rapidly than a small new innovative company, so for both these reasons returning money to share holders and borrowing (or maintaining existing lending facilities) maintains a relatively more efficient financing ratio. Of course all this means that in theory, a company should be more efficient if it has no share holders at all and borrows ALL of the money it needs. Yes. In practise though, lenders aren't so keen on that scenario, they would rather have shareholders sharing the risk, and lending a less than 100% proportion of the total of a companies finance means they are much more likely to get their money back if things go horribly wrong. To take a small start up company by comparison, lenders will be leary of lending at all, and will certainly impose high rates if they do, or ask for guarantors, or demand security (and security is only available if there is other investment besides the loan). So this is why a small start up is likely to be much more heavily or exclusively funded by share holders. Also the start up is likely not to pay a dividend, because for a start it's probably not making any profit, but even if it is and could pay a dividend, in this situation borrowing is unavailable or very expensive and this is a rapidly growing business that wants to keep its hands on all the cash it can to accelerate itself. Once it starts making money of course a start up is on its way to making the transition, it becomes able to borrow money at sensible rates, it becomes bigger and more valuable on the back of the borrowing. Another important point is that dividend income is more stable, at least for the mature companies with stable earnings of your scenario, and investors like stability. If all the income from a portfolio has to be generated by sales, what happens when there is a market crash? Suddenly the investor has to pay, where as with dividends, the company pays, at least for a while. If a company's earnings are hit by market conditions of course it's likely the dividend will eventually be cut, but short term volatility should be largely eliminated.\",\n \"I agree, the markets that Amazon competes in his extremely competitive with larger companies (such as Wal Mart) operating at smaller margins to increase volume. Since Amazon is continuously trying to increase its customer base and customer loyalty, they really need the low margins. The 1% increase could be harmful to the long-term growth of the company, which as the executives of Amazon explain, really matters more than higher profits this quarter. Furthermore, 5% decrease in SGA sounds like a company that's downsizing, particularly a company that operates as efficiently as Amazon, making that suggestion unreasonable and unrealistic.\",\n \"Well like a lot of stuff on money.stackexchange there is not a simple answer, but generally it is not a good thing. Take a look at the wikipedia entry on Net Operating Loss. Basically the company is commenting that when they do make money they will receive preferential tax treatment on that income. So whether or not this is a positive or a negative depends on a couple of things: NOL doesn't directly impact book value other than how the actual assets of the company changed over the previous quarter. I believe there is a 1:1 correspondence to how the assets change and NOL, but I am sure someone could clarify that for me in another answer or as a comment.\",\n \"Instead of giving part of their profits back as dividends, management puts it back into the company so the company can grow and produce higher profits. When these companies do well, there is high demand for them as in the long term higher profits equates to a higher share price. So if a company invests in itself to grow its profits higher and higher, one of the main reasons investors will buy the shares, is in the expectation of future capital gains.\",\n \"EBIT could be lower due to non-operating revenues such as investments in other companies, tax reliefs, adjustments to incorrect loss provisions and various other items that would not be part of the companies day to day operations. Be careful and read the footnotes and managements discussion for those items, they should be disclosed to some extent.\",\n \"> You need to look at where the profits are coming from. Sure. If profits are coming from non-recurring revenue sources, then it isn't a great indication of ongoing profitability. If, on the other hand, profits are coming from lean staffing, low costs and a focus on the bottom line...then you're talking about how a well-run business is operated. It has been a long time since I worked on the floor of an IB so I can't speak to work happiness these days, but I do know that much of the exodus is in the form of people leaving for the buyside (as always), or for greener pastures working on FinTech out in SF.\",\n \"Yeah that all can definitely be true as well, in fact we both 100% agree on symptoms of low growth. However personally I believe there are always ways to reinvest and build your business. I mean look at AAPL, they allocated $100~ billion into their own Nevada hedge fund buying up high quality debt like it's a fire sale. Some companies create their own VC firms combatting disruptive innovation. We can argue about this all we want but share buybacks can signify a lot of things at the end of the day haha. My main point with the comment above was that the buybacks inflating EPS makes it more difficult to identify true earnings growth of a company. So serious question, do you know of any ways to filter that out and identify real earnings growth?\",\n \"It just had less cash. That doesn't necessarily mean that the company had a net loss for the year. Just like having more cash doesn't mean the company made a profit. What if a company had revenue of $1 million, expenses of $2 million, and took out a loan of $5 million? They had a net loss of $1 million, but they have $4 million more in cash.\",\n \"If it's a low margin business and you can get value for it that's higher than the leadership values it, and they have some opportunity in a better margin business but for some reason couldn't acquire debt funding or more investors to fund the new business; then it might be feasible, but unusual and probably not ideal.\",\n \"This is the point of the article. Somehow a company which is so successful has, for tax purposes, such a razor thin margin. So their taxation clearly isn't in keeping with its actual ability to pay, passing along the burden to other businesses and individuals.\",\n \"Reading and analyzing financial statements is one of the most important tasks of Equity Analysts which look at a company from a fundamental perspective. However, analyzing a company and its financial statements is much more than just reading the absolute dollar figures provided in financial statements: You need to calculate financial ratios which can be compared over multiple periods and companies to be able to gauge the development of a company over time and compare it to its competitors. For instance, for an Equity Analyst, the absolute dollar figures of a company's operating profit is less important than the ratio of the operating profit to revenue, which is called the operating margin. Another very important figure is Free Cash Flow which can be set in relation to sales (= Free Cash Flow / Sales). The following working capital related metrics can be used as a health check for a company and give you early warning signs when they deviate too much: You can either calculate those metrics yourself using a spreadsheet (e.g. Excel) or use a professional solution, e.g. Bloomberg Professional, Reuters Eikon or WorldCap.\",\n \"There are not always capital-efficient ways for a company to reinvest its own profits. This is why dividends exist. Imagine a company will reinvest 80% of its profits into a project with a huge projected return, but the other 20% of the company's profits cannot be reinvested efficiently because there are zero projects in which to reinvest the profits into that would return a better profit than what the company's shareholders could make by reinvesting those profits in their own way (ie: a benchmark market index like an S&P 500 index fund). Since the shareholders could make a better return with this than the company could with any company project, it would be irresponsible (technically maybe even illegal) for the company to reinvest that 20% of the profits. This reason for companies sometimes paying out profits to shareholders in the form of dividends is a market-efficient part of the economic system, and it really is great. If a CEO/CFO/anyone is paying out so much profit from a company that it is irresponsible to the company's investors, then that would also technically be illegal since the company is evading efficient project that would benefit its shareholders more than they could benefit themselves elsewhere in the market. (These legalities with shareholder laws are not explicitly put into action very often, but their effects are always there) It's also worth noting payout/plowback strategy is very important for the strategy and financing of a company, particularly for public investments.\",\n \"\\\"No, having to borrow money does not necessarily mean a company will have a hard time paying the interest on it. Similarly, having to take out a mortgage on a house does not mean a person will not be able to make their mortgage payments. Borrowing money can be a way to spend future money instead of present money (at a cost, of course). A company might not have all that money at the moment, but that in no way implies they won't have it in the future. And as you allude to in your question where you talk about \\\"\\\"funding some … plans\\\"\\\", a company might be able to grow itself—possibly increasing future profits—by borrowing money.\\\"\",\n \"Residential Construction at 362x, by the way. I'm going to hazard a guess here - Say XYZ corp trades at $100, and it's showing a normal earnings of $10 the last few years. Its industry falls on hard times, and while it makes enough to keep its doors open, profits fall to $1. The company itself is still sound, but the small earnings result in a high P/E. By the way, its book value is $110, and they have huge cash on the books along with real estate. I offer these details to show why the price doesn't drop like a rock. Now, biotech may be in a period of low reported earnings but with future results expected to justify the price. On one hand it may be an anomaly, with earnings due to rise, or it may be a bit of a bubble. An analyst for this sector should be able to comment if I'm on the right track.\",\n \"First, the earnings are per year, not per quarter. Why would you expect to get a 100% per year return on your money? The earnings can go one of two ways. They can be retained, reinvested in the company, or they can be distributed as a dividend. So, the 'return' on this share is just over 5%, which is competitive with the rate you'd get on fixed investments. It's higher, in fact, as there's the risk that comes with holding the stock.\",\n \"There's a distinction between profits and cash flow, attributed to the recognition of non-cash items. If you have a business where your customers pay you quickly, you manage your inventory well, and you’re able to take your time in paying your suppliers, your free cash flow can be consistently positive even when your net income is not.\",\n \"This is basically saying that it's not possible to make more than some not-so-large amount without taking for yourself part of what several other people produce, yes? How does that fit with the very high profits per a employee numbers that some companies have?: http://www.bloomberg.com/visual-data/best-and-worst/most-profitable-employees-companies\",\n \"Their net income hangs around zero because they raise expenses as reinvestment in the company (line items like $16.09B in Research & Development expense last year). Retained earnings is a balance sheet item reflective of assets they're holding for projects in a later fiscal period; they aren't waiting for the next period to reinvest.\",\n \"First read mhoran's answer, Then this - If the company sold nothing but refrigerators, and had 40% market share, that's $4M/yr in sales. If they have a 30% profit margin, $1.2M in profit each year. A P/E of 10 would give a stock value totaling $12M, more than the market size. The numbers are related, of course, but one isn't the maximum of the other.\",\n \"\\\"P/E is a pretty poor way to value the company as it exists today. The company generates free cash flow yield of 2.5-3.3% which isn't remarkably high, but it's not nearly as bad as the earnings yield of 1.1%. But let's operate within the P/E ratio for right now. The company sells $40 billion of \\\"\\\"stuff\\\"\\\" each year with a net margin of 2%. If they increased prices on every product by 1% (which really wouldn't be _that_ noticeable) their profit would grow 50%. Thus, P/E drops from 90 to 60. SGA expenses equal ~20% of their operating costs. Cut 5% of SGA and you get the same 1% increase in net margin. This could come from cost-cutting today, or by greater economies of scale in the future while keeping prices the same. So, yes, it's priced as a growth firm, but it doesn't necessarily need customer growth in the traditional sense to be fairly-valued.\\\"\",\n \"Profits go to the owners of the corporation for providing capitol. CAT is paying around 2% ... a little under $2/year/share in dividends. (note that dividends come out of profits, not before.) A 2% return on investment isn't a terrible thing. It's not great, but in current economic conditions, it's respectable. Looking at their financial statements, they don't have tons of cash on the books relative to what they spend in a quarter. They do have a fair chunk of their assets tied up in inventory. On the books, that goes down as a profit - kinda. It's mostly neutral accounting wise - money went out, inventory came in. You now have an asset worth exactly what you spent on it. The biggest growth in assets over the last couple of years has been in inventory. The amount in inventory is greater than assets minus liabilities. Then again, so is cash on hand, but the cash flow rate is also pretty high because the margins are low. So... yeah... they're making more money, but they're also investing most of that back into the capital costs of growing the business. New machinery, inventory that they can sell, business development in new markets, etc. Remember that capital costs are considered neutral - you receive an asset in return. This is distinct from operating costs which come straight to the bottom line.\",\n \"You are omitting how the company made 120 million in the previous year and may be facing a shrinking market and thus have poor future prospects. If the company is shrinking, what will the shares be worth down the road. Remember companies like AOL or Blackberry? There was a time they had big profits before things changed which is the part you aren't considering here. If the company has lost something big on its earnings, e.g. the oil wells it owned have run out of reserves or the patents on its key drugs have expired, then there could be the perception that the company won't be able to compete in the future to continue to deliver earnings. Some companies may well end up going broke as one could look at GM for a company that used to be one of the largest car companies in the world and yet it ended up going broke.\",\n \"\\\"It depends on the definition of earnings. A company could have revenue that nets in excess of expenses, so from that perspective a good cash flow or EBITDA, but have debt servicing costs, taxes, depreciation, amortization, that alters that perspective. So if a company is carrying a large debt load, then the bondholders are in the position to capture any excess revenues through debt service payments and the company is in a negative equity positions (no equity or dividends payable to shareholders) and has not produced earnings. If a company has valuable preferred shares issued and outstanding, then depending on the earnings definition, there may be no earnings (for the common stock) until the preferences are satisfied by the returns. So while the venture itself (revenues minus costs) could be cash flow positive, this may not be sufficient to produce \\\"\\\"earnings\\\"\\\" for shareholders, whose claim on the company still entitles them to zero current liquidation value (i.e. they get nothing if the company dissolves immediately - all value goes to bondholders or preferred). It could also be that taxes are eating into revenue, or the depreciation of key assets is greater than the excess of revenues over costs (e.g. a bike rental company by the beach makes money on a weekly basis but is rusting out half its stock every 3 months and replacement costs will overwhelm the operating revenues).\\\"\",\n \"\\\"If a company is doing well, it seems less likely to go bankrupt. If a company is doing poorly, it seems more likely to go bankrupt. The problem is, where is the inflection point between \\\"\\\"well\\\"\\\" and \\\"\\\"poorly\\\"\\\"? When does a company start to head into oblivion? Sometimes it is hard to know. But if you don't call that right and hold onto your shares when a company is tanking, others, who call it before you do, will sell off, devalue the share price, and now you've missed your chance to get out at a good profit. If you hang on too long, the company may just go bankrupt and you've lost your investment entirely. A healthy profitability of the company therefore has to bolster investor confidence in avoiding this very unpleasant scenario. Therefore, the more profitable a company is, the more shareholder confidence it inspires, and the more willing to pay for it in the form of increased share price. And, this then has a \\\"\\\"meta\\\"\\\" effect, in that each shareholder thinks, \\\"\\\"all other investors think this way, too,\\\"\\\" and so each feels good about holding the stock, since he knows he can likely easily liquidate it for good cash if he needs to, either now or in the next year or sometime hence.\\\"\",\n \"It means someone's getting paid too much. I'd check the sharpe ratio and compare that to similar funds along with their expense ratio. So in some scenarios it's not necessarily a bad thing but being informed is the important thing\",\n \"> In other words, the company's operating assets function as a kind of piggy bank whose purpose is to extract profits that are then flushed out to shareholders. This is the sad fate of essentially all mature businesses under the conditions of American financial capitalism and, indeed, Whole Foods' executive team — led by its founder John Mackey — has been under intense pressure recently from an activist hedge fund that bought shares and has been agitating for cost cutting and more payouts. No shit. If an investor can't make a return from an increasing stock price (whole foods is flat or worse, trading at 50% of peak before Amazon closed) then then the stock must pay a dividend or nobody wants to hold it because it's a losing asset.\",\n \"\\\"IMO, what it seems like you've done is nothing more than having screened out a company worth further investigation. The next step would be a thorough analysis of the company's past financials and current statements to arrive at your own opinion / forecast of the immediate and far future of the company's prospects. Typically, this is done by looking at the company's regulatory filings, and maybe some additional searching on comparison businesses. There are many sources of instruction for how one might \\\"\\\"value\\\"\\\" or \\\"\\\"analyze\\\"\\\" a company, or that provide help on \\\"\\\"reading a balance sheet\\\"\\\". (This is not an easy skill to learn, but it is one that will prove invaluable over a lifetime of investing.) It is possible that you'll uncover a deteriorating business where the latest selling, and subsequent drop in price that caused the high yield, is well-deserved. In which case, you know to stay away and move on to the next idea. On the other hand, you might end up confident that the company is not suffering from a drop in sales, rise in expenses, growing debt payments, loss of \\\"\\\"moat\\\"\\\", etc. In which case, you've found a great investment candidate. I say candidate because you still may decide this company isn't for you, even if the financials are right, because you might find better opportunities for an equal, or acceptable, return at lower risk while you're researching. As to the yield being high when there are no problems with the fundamentals of the business, this may simply be because of panic selling during this past few week's downturn, or some other sort of temporary and superficial scare. However, be warned that the masses can remain irrational, and thus the price stay suppressed or even drop further, for longer than you're willing to wait for your ROI. The good news is that in that case, you're being well compensated to wait at a 11+% yield!\\\"\",\n \"Let me ask you something else: If you knew about a company that makes $1 million of profit per year and growing, with costs that are half that, would you not be interested to have a stake in this company? Of course you would. And because the shares can be publicly bought, you can. I don't think you'd care if it's an asset manager or some other company. An asset manager can do a lot with the capital it raises. It could get bigger and better offices, invest in a better computer system, maybe get faster access to exchange information, better information terminals, have more money for marketing and road shows. But the really big cash usually goes to acquire new talent. You might not need that much money for support staff, but a sales manager can be expensive, and a good fund manager can easily cost a high 7 to 8 figure number per year.\",\n \"\\\"Your question asks us to explain why a false statement is true. From the point of view of an investor, a high price to earnings ratio is not necessarily desirable. From the point of view of an investor, a desirable stock is one that is likely to provide future dividends or price increases that more than compensates for the risk of the stock. This information cannot be inferred from the P/E ratio. So what does the P/E ratio tell us? The P/E ratio measures a stock's current price (i.e., the market's belief about its future earnings) divided by its recent past earnings. A high ratio means the market thinks earnings in the future will be higher than they are now and have therefore bid the price up. These can thought of as expensive stocks, and are often called \\\"\\\"growth\\\"\\\" stocks because their price is driven by the market's belief in future growth. Some individual high P/E stocks do live up to or exceed the market's expectation, but there's no evidence that this happens enough that they are more desirable as a group than low P/E stocks. If anything, the empirical evidence goes the other way.\\\"\",\n \"no interest expense (no debt in the capital structure) and an income tax benefit is one possible scenario. you determine this through the financial statement by looking for the differences between the E and EBIT in those calculations (interest and taxes). of course, extraordinary items and discontinued operations could also be present, and result in the difference noted.\",\n \"Mostly we invest in companies to make money. The money can be paid to as in the form of dividends that are a share of the profit. Or the company can convince enough people that it will make a lot higher profit next year, so its stock prices increases. Clearly a company that reinvests its 20% profit from one shop to open an 2nd shop is doing well and is a good investment. But, But, But... we only have the companies word for it! A dividend paying company finds it a lot harder to hide bad news for long, as it will not have the money in the bank to pay the dividends.\",\n \"Aside from the market implications Victor and JB King mention, another possible reason is the dividends they pay. Usually, the dividends a company pays are dependent on the profit the company made. if a company makes less profit, the dividends turn out smaller. This might incite unrest among the shareholders, because this means that they get paid less dividends, which makes that share more likely to be sold, and thus for the price to fall.\",\n \"While losing market share. That's the required context to understand why their model isn't working. Price hikes reduced their losses but people still jumped ship. Their top line growth is a result of market growth and not competitive growth as a company.\",\n \"\\\"In some sense, I agree, but let's look at Apple who in 1997 when Steve came back as CEO and had to beg monies from Microsoft (which he received as a professional courtesy) to stay afloat swore he would never have to do again and literally deemed investors as a \\\"\\\"necessary evil\\\"\\\". He presided over one of the most profound rainy day funds (which eclipsed the US Government for a few days in its depth) because he never wanted to be in that position again. He died and Tim Cook initiated splits and buybacks. I think Cook went too far in one direction and Jobs in the other. Another stock to consider in a similar light is Starbucks. But these stocks are performing, I'm an investor, and I'm not going to complain about management decisions when ROI is at are above 20/30ish percent. Other companies like Thomson Reuters fail to achieve a cohesive diverse presence in multiple markets inexpensively sans their newsdesk operations. I'm not saying your wrong, it's just a formula of trust and strategy.\\\"\",\n \">But when share repurchases replace a company’s research-and-development spending, that indicates its management is unable or unwilling to spend on innovation that could generate future earnings to shareholders. I disagree. If we look at buybacks and r&d purely as investments, a shorter term investment is lower in risk and return, while a longer term one is higher in risk. Of course, the same goes for respective returns. Knowing that research-to-market time for a drug is 5-12 years, and that buybacks are almost immediate returns, the 11% difference over ten years seems generous, not greedy. I've read the same being said about marketing budgets being more than r&d. Again, if the market doesn't have perfect flow of information, marketing become a need to survive. A smart CEO would never spend more on marketing than is necessary. It's the last cost a company bears on a product before booking a sale, and it's the last bite out of the profit.\",\n \"Just looking at the numbers, something appears off. Cost of equity of ~4% seems very low and should not be below cost of debt. Also a risk free rate of 1.66% seems VERY low. Sometimes it's worth taking a step back and seeing if the numbers even make sense. If you're serious about using your own analysis for investing, the assumptions are extremely important and incorrect ones can throw everything off.\",\n \"I think the most concise way to understand EV is the value of the *operating assets* of the firm. It's most generally used when using income statement or cash flow ratios that are unlevered - before applying interest expense (which if the firm is optimally financed, in theory should only impact the equity). Examples include revenue, EBIT, EBITDA, unlevered FCF, etc. In your hypothetical scenario, you would expect the equity value of the firm to increase linearly as cash builds up. In other words, in some implausible, ceteris paribus formulation of the firm, the enterprise value should remain constant.\",\n \"No. The information you are describing is technical data about a stock's market price and trading volume, only. There is nothing implied in that data about a company's financial fundamentals (earnings/profitability, outstanding shares, market capitalization, dividends, balance sheet assets and liabilities, etc.) All you can infer is positive or negative momentum in the trading of the stock. If you want to understand if a company is performing well, then you need fundamental data about the company such as you would get from a company's annual and quarterly reports.\",\n \"I took a look at their cash flow and they spent 3 billion buying back shares and another 3 billion just last year in capex. That is 6 billion right there. I'm not sure what that capex was supposed to buy but it appears they aren't getting much of a payoff.\",\n \"According to pretty well accepted corporate finance principles. They're mature/maturing companies with large durable noncyclical cash flow streams. Increasing their debt load and distributing the proceeds to shareholders would lower their after tax cost of capital and increase the value of their equity. IMO operating with such under levered balance sheets is nonoptimal. It's subjective though.\",\n \"Yes youre right it's far more complex than the M-M textbook theory. My view is that there's even more advantages to debt than M-M would say. Further you've nailed exactly why these companies don't follow corporate norms. As disruptors they fear disruption despite their pretty much impenetrable moats. But their CFOs are slowly turning them. MSFT now has a normal corporate structure, apple is getting there, and Google hired Morgan Stanley's CFO. I disagree on your last point: what an entrepreneur CEO (who built a disruptive business from the ground up) wants for his balance sheet is usually not the right thing for shareholders. They do it because they can get away with it due to share class structure and their phenomenal operating performance. That's just my opinion.\",\n \"In finance you are taught that debt financing is cheaper than equity financing. Also to improve your credit rating, showing that you can carry debt responsibly and pay it off without a hitch sends dog whistle that the corporation is operating well.\",\n \"Do not confuse the DIV (%) value and the dividend yield. As you can see from this page, the DIV (%) is, as you say, 165%. However, the dividend yield is 3.73% at the time of writing. As the Investopedia page referenced above says: The payout ratio is calculated as follows: Annual Dividends per Share / Earnings per Share. which means that the dividends being paid out are more than the earnings of the company: In extreme cases, dividend payout ratios exceed 100%, meaning more dividends were paid out than there were profits that year. Significantly high ratios are unsustainable.\",\n \"\\\"There is no general theory to support the notion that larger companies will be more profitable than smaller companies. Economies of scale are not always positive, one can have diseconomies of scale too. It is more common to talk about an optimal firm size, even going back to Stigler's (1958) \\\"\\\"The Economies of Scale.\\\"\\\" Intuitively, if economies of scale extended indefinitely, then natural monopolies would dominate all industries in the long run. A profit ratio, unfortunately, wouldn't quite get at scale economies. Consider, for example, that the denominator of your metric would be profit+cost and that you are trying to get at the cost reduction that derives from scale. Then, you are measuring the size of a company by the exact metric that should be reduced if scale economies exist, so the calculation would be a bit confounded. It is my understanding that such assessments are usually conducted at the industry level by determining whether the industry is becoming increasingly concentrated among fewer firms over time. (Again see Stigler). If concentration is increasing, there is an implication that, at current firm sizes, there are economies of scale in the industry.\\\"\",\n \"How you use the metric is super important. Because it subtracts cash, it does not represent 'value'. It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash. So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0. If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless.\",\n \"\\\">Good, that gives their competition time to take market share. Except TAM (total actual market) is decreasing, the pool of \\\"\\\"market share\\\"\\\" is going down. So what's happening is companies are slashing margins to even maintain market share, much less increase it. Look at what's happening in computers, DELL, HP, Acer, Asus, Lenovo. Apple's sales numbers dropped for notebooks as well, but because they didnt drop as much as HP or Lenovo their market share went up. This is the new normal. Less than stellar sales. >As long as there is money on the table, someone is going to reach for it. Markets aren't known for their patience. Problem is there is less and less money on the table. Big companies are squeezing little companies. Know what you just described? Wal-mart puts the little guy out of business--- they're efficent! >Bullshit, tax burdens cause tax avoidance, they don't touch production as long as profits are still available. Yes, some, but you can only avoid it if you are multi-national. Businesses with completely domestic operations cannot avoid liabilities in the same way. But as I said above the markets are shrinking, there is less money on the table and the players that are left are fighting over the last scraps. That is obviously a bit extreme, but I personally deal with a lot of retailers and OEMs and there is NOT the wiggle room you describe. I get beat up for a few dollars. I am not talking about banks, or energy companies, or healthcare companies. I am talking about the thousands of small and medium businesses that are already squeezed. These entities are the lifeblood of the larger economy. One or two go out of business and nobody notices, but hundreds and thousands of these companies have closed now. A healthy company is not made up of only Wal-mart, Exxon and Apple.\\\"\",\n \"\\\"Right. Because there was no profits. The company managed to grow by keeping very tight control of costs with respect to revenue. It's not a loophole. The alternative is spending less or charging more. Either of these things probably has significantly worse outcomes to the company - slower growth due to lack of reinvestment in the business, or slower growth due to not attracting as many customers through competitive pricing. What they have done is become a very valuable company due to a strong revenue stream. (You can ask whether a strong revenue stream alone is enough to justify their valuation, but investors seem to think so, and it also seems to indicate that they expect the stock price to continue rising or they wouldn't spend that much.) When Amazon started, I remember people joking \\\"\\\"they lose money on every sale, but they make up for it in volume\\\"\\\". Seems to have worked out for them in the long run.\\\"\",\n \"First, corporate profits can grow relative to GDP. If companies succeed in growing revenue without paying much more to workers, then corporate profits and stock prices will grow relative to GDP. That has been happening for the last couple decades. If you require that we keep corporate profits vs GDP constant, then borrowing/leverage is how you do it. Companies can expand their operations on a fixed amount of shareholder equity, and as long as they can grow their profits faster than the cost of the debt, then shareholders keep the upside. But this also means that share prices will quickly fall if profits decline even a small amount, because the debt must still be paid off.\",\n \"Talk to almost any large cap CFO or read any corporate finance textbook. McKinsey's Valuation is a great one to own: though yes McKinsey consultants can take a good idea and turn it bad by overdoing it to an extreme. Why would universal corporate finance principles not apply to large cap tech? Why is having $XXb of unutilized cash for a company with durable cash flow a good thing for equity investors?\",\n \"As JB hints, it is likely due to superior or improving, fundamentals. If the fundamentals of a company improve then its ability to repay loans improves. If its ability to repay improves then more sources of cash become willing to lend to the company. Also if fundamentals are improving then more sources are willing to buy and/or hold the stock.\",\n \"Both of these terms do refer to your profit; they're just different ways of evaluating it. First, your definition of capitalization rate is flipped. As explained here, it should be: On the other hand, as explained here: So cap rate is like a reverse unit cost approach to comparing two investments. If house A costs $1M and you'll make $50K (profit) from it yearly, and house B costs $1.33M and you'll make $65K (profit) from it yearly, then you can compute cap rates to see that A is a more efficient investment from the point of view of income vs. amount-of-money-you-have-stuck-in-this-investment-and-unavailable-for-use-elsewhere. Profit margin, on the other hand, cares more about your ongoing expenses than about your total investment. If it costs less to maintain property B than it does to maintain property A, then you could have something like: So B is a more efficient investment from the point of view of the fraction of your revenue you actually get to keep each year. Certainly you could think of the property's value as an opportunity cost and factor that into the net profit margin equation to get a more robust estimate of exactly how efficient your investment is. You can keep piling more factors into the equation until you've accounted for every possible facet of your investment. This is what accountants and economists spend their days doing. :-)\",\n \"It says Amazon has no profits (or very low profits) but the value of the company is very high and growing because of the high revenue. All of the returns to investors are in the form of increased share price which isn't realized or taxed until the shares are sold. This isn't a loophole. Anybody can run a business where they spend most of their revenue on operating costs and run on very slim margins with the goal of growing the revenue.\",\n \"The ROI percentage becomes a meaningless figure at that point and would either be infinite or a very large number if you assume an equity investment of $1 or $0.01. At that point it's obviously a lucrative deal *as long as it works out* so the bigger question is what are the risks of it not working out and what's the ROIC.\",\n \"With your numbers, look at it this way - You borrowed $50. When the stock is $100, you are at 50% margin. What's most important, is that there's margin interest charged, so the amount owed will increase regardless of the stock price. When calculating your return or loss, the interest has to be accounted for or your numbers will be wrong. For a small investor, margin rates can run high, and often, will offset much of your potential gain. What good is a $100 gain if you paid $125 in margin interest?\",\n \"\\\"It's not abnormal for a company that is as young as yours seems to be. It seems (based on what little I know), that you have debts, or accounts payable that were formerly covered by the $200 cash, but now aren't, because you paid it to yourself. For now, you're \\\"\\\"entitled\\\"\\\" to pay yourself a draw or a salary. But if you continue to do so without earning money to cover it, your company will fail.\\\"\",\n \"A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember;\",\n \"You can do a bunch of sales if you price your product too low to make any money. Lots of sales, not much revenue. Kind of like what Square is going through right now. Now if you do a lot of sales at a good price, leading to good revenue and cash flow, THEN you are winning. EDIT: Before people get pedantic over my Square analogy, yes, I know they are making a lot of revenue but their margins are incredibly thin and the bulk of their revenue goes immediately to Visa/MC etc so the analogy still works. Lots of sales, not much green.\",\n \"\\\"My favorite line: \\\"\\\"Companies should generate enough profits to justify the price that shareholders are willing to pay for its shares. Once shareholders are no longer willing to pay up for those profits, they should invest that money elsewhere.\\\"\\\" This person loses all credibility right here.\\\"\",\n \"The market cap always reflect the company's equity. Except that you cannot fix a stock price in a free market. A company with such profit pattern would have stock price behave like present value of a perpetuity (future income stream discounted by risk free rate) Since your assumption is unachievable, there is no point in determining the logic.\",\n \"Small companies are generally able to adapt quickly to take advantage of changing conditions to enter new markets when the economy is growing. This gives them a lot of growth potential under those circumstances. However, in times of crisis, there may not be a lot of new markets to enter, and financing to expand any operations may be impossible to get. Under these conditions, small-caps will suffer relative to large-caps.\",\n \"\\\"No, but it is certainly a possibility. the efficient market hypothesis would say that this means that the market perceives the present value of all future earning as negative. These earnings might take the form of a writedown of assets at some point. (Companies carry a goodwill asset that is generally imaginary. They book that asset when they buy companies for more than they are worth.) It would be as if PRUN was a stock tracking my life. If I bought my house in 2006 for $1 million cash. I might have a book value of $1 million. However, PRUN might trade at $500k because the market knows that my asset isn't really worth $1 million and at some point my earnings will take a hit to reflect that. It might also mean that future \\\"\\\"real\\\"\\\" earnings \\\"\\\"ie actual profit and loss on sales\\\"\\\" are going to be negative. This would mean bankruptcy is more likely.\\\"\",\n \"There are many reasons but perhaps the most telling is that these small foreign companies usually have not experienced diminishing marginal returns. This means they grow faster, which means higher returns for investment. However a lack of infrastructure, and of political and economic stability, make these investments risky!\",\n \"\\\"Not sure I fully understand your question but my take on it is this: There a lot of people out there that admire companies and own the stock just because they like the company. For example, I know some kids who own Disney stock. They only have a share or two but they keep it because they want to say \\\"\\\"I own a part of Disney.\\\"\\\" Realistically speaking, if they hold or sell the stock it is so minuscule to have any realizable affect on the overall value of the stock which does not really make the company look better from an investor perspective. However, if a company has people that just want to own the stock just like your uncle are indeed \\\"\\\"better\\\"\\\" because they must have provided a product or service that is valued intrinsically.\\\"\",\n \"It is. The outstanding value is the net cash flow, but it will always be higher than cash outflow due to a constant growth rate/expected return. I was slightly confused when my manager told me to find the IRR before and after cash inflows (the whole life of the investment). Especially as IRR after cash inflows is higher than the former.\",\n \"\\\"> Or does it differ between every company what non-cash charges they have? This. Here's a hint: the FCFF *can* be calculated from Cash Flow from Operations (CFO). Think of FCFF this way: \\\"\\\"after the business has operated *and* made *all* investments needed to grow, both short and long-term, how much is left over for providers of capital?\\\"\\\" [Here's a good resource for you.](https://www.cfainstitute.org/learning/products/publications/inv/Documents/equity_chapter6.ppt)\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["The operating margin deals with the ability for a company to make a profit above the costs of running the company and generating sales. While ROE is how much money the company makes relative to the shareholders equity. I'd be willing to bet that if a company has a small ROE then it also has a quite large P/E (price to earnings) ratio. This would be caused by the company's stock being bid up in relation to its earnings and may not necessarily be a bad thing. People expect the high operating margin to help drive increased revenues in the future, and are willing to pay a higher price now for when that day comes."],"string":"[\n \"The operating margin deals with the ability for a company to make a profit above the costs of running the company and generating sales. While ROE is how much money the company makes relative to the shareholders equity. I'd be willing to bet that if a company has a small ROE then it also has a quite large P/E (price to earnings) ratio. This would be caused by the company's stock being bid up in relation to its earnings and may not necessarily be a bad thing. People expect the high operating margin to help drive increased revenues in the future, and are willing to pay a higher price now for when that day comes.\"\n]","isConversational":false}}},{"rowIdx":269,"cells":{"_id":{"kind":"string","value":"2747"},"query":{"kind":"string","value":"What evidence do I need to declare tutoring income on my income tax?"},"gt_ids":{"kind":"list like","value":["540571"],"string":"[\n \"540571\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["540571","123693","184698","150271","527776","402686","65095","172457","174025","159709","111157","156444","11021","449816","189994","327826","294187","509617","392484","238622","281803","421924","128861","51761","349424","172745","576873","388078","374264","469601","223624","442142","304034","299258","399409","555732","199617","427849","15270","257249","298009","433766","118615","91325","114835","345603","416511","599336","232451","496947","157551","496064","401551","547941","24421","466718","454184","66492","283505","384187","19245","2718","378110","219156","393354","583945","125776","33287","316925","545780","218460","26979","527318","156063","60820","141111","521411","416117","334902","221014","322906","599876","541315","568324","101382","405777","284085","529565","215437","204703","312625","426947","433292","82344","445052","203155","93638","328853","484375","319158"],"string":"[\n \"540571\",\n \"123693\",\n \"184698\",\n \"150271\",\n \"527776\",\n \"402686\",\n \"65095\",\n \"172457\",\n \"174025\",\n \"159709\",\n \"111157\",\n \"156444\",\n \"11021\",\n \"449816\",\n \"189994\",\n \"327826\",\n \"294187\",\n \"509617\",\n \"392484\",\n \"238622\",\n \"281803\",\n \"421924\",\n \"128861\",\n \"51761\",\n \"349424\",\n \"172745\",\n \"576873\",\n \"388078\",\n \"374264\",\n \"469601\",\n \"223624\",\n \"442142\",\n \"304034\",\n \"299258\",\n \"399409\",\n \"555732\",\n \"199617\",\n \"427849\",\n \"15270\",\n \"257249\",\n \"298009\",\n \"433766\",\n \"118615\",\n \"91325\",\n \"114835\",\n \"345603\",\n \"416511\",\n \"599336\",\n \"232451\",\n \"496947\",\n \"157551\",\n \"496064\",\n \"401551\",\n \"547941\",\n \"24421\",\n \"466718\",\n \"454184\",\n \"66492\",\n \"283505\",\n \"384187\",\n \"19245\",\n \"2718\",\n \"378110\",\n \"219156\",\n \"393354\",\n \"583945\",\n \"125776\",\n \"33287\",\n \"316925\",\n \"545780\",\n \"218460\",\n \"26979\",\n \"527318\",\n \"156063\",\n \"60820\",\n \"141111\",\n \"521411\",\n \"416117\",\n \"334902\",\n \"221014\",\n \"322906\",\n \"599876\",\n \"541315\",\n \"568324\",\n \"101382\",\n \"405777\",\n \"284085\",\n \"529565\",\n \"215437\",\n \"204703\",\n \"312625\",\n \"426947\",\n \"433292\",\n \"82344\",\n \"445052\",\n \"203155\",\n \"93638\",\n \"328853\",\n \"484375\",\n \"319158\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["I have been a private tutor on and off for about 30 years, in three countries, so I understand your concerns! I always kept records as though it was a real business - even if I only had one student I kept records of dates/times/names, and also tracked where the money went (I never spent it straight up - it always got deposited to complete the paper trail; yes, this is paranoia on my part). I've never been asked to prove anything with regards this income (although I have no Canadian experience). It's always been a case of tell the tax folks and make sure my arse is covered if they come asking questions. Hope this helps.","There is a moral and legal obligation to file the earnings. Not doing so is tax fraud. You should keep a ledger or some record of your earnings, helpful guidelines here. Records are required by the CRA: According to the law, your responsibilities include: (source) You could get in trouble if one of your pupils report the expense at their tax filing, and the CRA finds no matching statement on your filing report. Tutoring are eligible for tax credit in case of disability: Tutoring services that are supplementary to the primary education of a person with a learning disability or an impairment in mental functions, and paid to a person in the business of providing these services to individuals who are not related to the person. A medical practitioner must certify in writing that these services are necessary. So if one of your pupils fall under that provision, you will get tax trouble sooner or later. Bottom line: start making records now, and report your earnings. Collect your tax as any lawful citizen is required to.","\"You can list it as other income reported on line 21 of form 1040. In TurboTax, enter at: - Federal Taxes tab (Personal in Home & Business) - Wages & Income -“I’ll choose what I work on” Button Scroll down to: -Less Common Income -Misc Income, 1099-A, 1099-C. -The next screen will give you several choices. Choose \"\"Other reportable Income\"\". You will reach a screen where you can type a description of the income and the amount. Type in the amount of income and categorize as Tutoring.\"","In the united states qualified institutions of higher education should give the student a 1098-t. This form breaks down all money received/billed and for tuition and scholarships. It would not include items such as books and room and board. The 1098 would constitute proof of attendance and proof of expenses. If a 529 plan was used to pay for part or all of the tuition it should also be sent to you or the student depending on where the funds were sent. If the student can't find the 1098-t it is likely that the college had an electronic copy sent to the students official email, or it can be downloaded from the student's account where tuition bills care paid. Note: a confusing part of the 1098-T is that many universities include the spring semester numbers in the form for the previous year. For Example: The 1098-T will tell you if they have done that.","For tax purposes you will need to file as an employee (T4 slips and tax withheld automatically), but also as an entrepreneur. I had the same situation myself last year. Employee and self-employed is a publication from Revenue Canada that will help you. You need to fill out the statement of business activity form and keep detailed records of all your deductible expenses. Make photocopies and keep them 7 years. May I suggest you take an accountant to file your income tax form. More expensive but makes you less susceptible to receive Revenue Canada inspectors for a check-in. If you can read french, you can use this simple spreadsheet for your expenses. Your accountant will be happy.","You should include the checks you received from the company, invoices you sent, bank statements showing the deposits, and your receipts, if any, you issued to the company. You'd be surprised to know that this is a fairly common tax fraud. You can also try and sue the company or its successor for the missing amounts, but if it has been dissolved it may be difficult. As with any non-trivial tax issue - I suggest you get a professional advice from a EA/CPA licensed in your State. You may need representation before the IRS - only EA, CPA or an Attorney may represent you in IRS proceedings (including audit and correspondence).","As an individual freelancer, you would need to maintain a book of accounts. This should show all the income you are getting, and should also list all the payments incurred. This can not only include the payments to other professionals, but also any hardware purchased, phone bills, any travel and entertainment bills directly related to the service you are offering. Once you arrive at a net profit figure, you would need to file this as your income. Consult a tax professional and he can help with how to keep the records of income and expenses. i.e. You would need to create invoices for payments, use checks or online transfers for most payments, segregate the accounts, one account used for this professional stuff, and another for your personal stuff, etc. In a normal course the Income Tax Department does not ask for these records, however whenever your tax returns get scrutinized on a random basis, they would ask for all the relevant documentations.","You would be required to report it as self-employment income and pay tax accordingly. It's up to you to keep proper records (like a receipt book, for example), especially when it comes to cash. If you can't prove exactly how much you earned and the government decides to guess the amount for you then you won't like the outcome!","You are right that even if you do not receive a 1099-MISC, you still need to report all income to the IRS. Report the $40 on Schedule C or Schedule C-EZ. Since your net profit was less than $400, you do not need to file Schedule SE. From the IRS web site: Self-Employment Income It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income. All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040. Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income. Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.","\"ITR1 or ITR2 needs to be filed. Declare the income through freelancing in the section \"\"income from other sources\"\"\"","Unfortunately this is something that should have been determined prior to the book tour. Your tax advisor or accountant could have assisted you in making sure you collected the documentation you needed. You are going to have to sit down with your advisor with the documentation you have and determine what you can prove.","\"It's pretty easy. In the Interview Setup for Ufile, check the box for \"\"Self-employment business income\"\". Then during the process of filling everything out, you'll get a Self-Employment screen. It'll ask for the name of your business, but just put your own name since you don't have one. For the 6-digit classification code, click the ? button and look through the list for the industry that best matches the one for whom you wrote the technical report. Or you can go with 711500: Independent artists, writers and performers. It doesn't really matter that much so don't worry if it's a poor match. It will also ask you for your income and expenses. I don't know exactly what costs you might have incurred to write your report, but you can likely claim a very tiny amount of \"\"home office\"\" expenses. Costs like rent (or mortgage interest + property tax), utilities, and home insurance can be claimed, but they have to be pro-rated for the time you were actually doing the work, and are based on the amount of space you used for the work. For example, if you paid $1000 rent and $200 utilities for the month in which the work was done, and it took you 20 of the 31 days in that month to actually do the work, and you used a room that makes up about 10% of the square footage of your home, then you can claim: $1200 * 20/31 * 0.1 = $77.42 for your home office expenses. If you also used that room for non-business purposes during that time, then you reduce it even further. Say, if the room was also used for playing video games 50% of the time, then you'd only claim $38.71\"","You need to register as self-employed with HMRC (it is perfectly fine to be self-employed and employed by an employer at the same time, in exactly your kind of situation). Then, when the income arrives you will need to declare it on your yearly tax return. HMRC information about registering for self-employment and declaring the income is here: https://www.gov.uk/working-for-yourself/overview There's a few extra hoops if your clients are outside the UK; the detail depends on whether they are in the EU or not. More details about this are here: https://www.gov.uk/online-and-distance-selling-for-businesses/selling-overseas .","Yes, you do. Depending on your country's laws and regulations, since you're not an employee but a self employed, you're likely to be required to file some kind of a tax return with your country's tax authority, and pay the income taxes on the money you earn. You'll have to tell us more about the situation, at least let us know what country you're in, for more information.","To be on the safe side - you'll want to get the full invoice. You don't need to actually print them, you can save it as a PDF and make sure to make your own backups once in a while. Only actually print them when the IRS asks you to kill some trees and send them a paper response, and even then you can talk to the agent in charge and check if you can email the digital file instead. The IRS won't ask for this when you file your taxes, they will only ask for this if you're under audit and they will want to actually validate the numbers on your return. You'll know when you're under audit, and who is the auditor (the agent in charge of your case). You'll also want to have some representation when that happens.","You only need to report INCOME to the IRS. Money which you are paying to a landlord on behalf of someone else is not income.","It should be reported as Miscellaneous Income. Congratulations for wanting to report this income.","Scanned or electronic copies of invoices should be sufficient as long as they are accurate and you can deliver them during an audit. Also, if you have an accountant prepare your taxes you would either need to provide them a copy of the invoices or a summary of them with the corresponding amounts to be claimed. Personally I prefer to print out a paper copy and file that away with that quarter's and year's other tax documents. I do my own taxes and find paper copies handy as I can go through each invoice/receipt and make sure I have entered its information by ticking it. I find that when handling a large number of documents that paper copies are more easy to handle than electronic ones. In the end you will need to use a system that you feel comfortable with and are able to use effectively.","You would report the overall income on your T1 general income tax return, and use form T2125 to report income and expenses for your business. Form T2125 is like a mini income-statement where you report your gross revenue and subtract off expenses. Being able to claim legitimate expenses as a deduction is an important tax benefit for businesses big and small. In terms of your second question, you generally need to register for a business number at least once you cross the threshold for GST / HST. If you earn $30,000/year (or spread over four consecutive quarters) then charging GST / HST is mandatory; see GST/HST Mandatory registration. There are other conditions as well, but the threshold is the principal one. You can also register voluntarily for GST / HST even if you're below that threshold; see GST/HST Voluntary registration. The advantage of registering voluntarily is that you can claim input tax credits (ITC) on any GST that your business pays, and remit only the difference. That saves your business money, especially if you have a lot of expenses early on. Finally, in terms of Ontario specifically (saw that on your profile), you might want to check out Ontario Sole Proprietorship. There are specific cases in which you need to register a business: e.g. specific types of businesses, or if you plan on doing business under a name other than your own. Finally, you may want to consider whether incorporating might be better for you. Here's an interesting article that compares Sole Proprietorship Versus Incorporation. Here's another article, Choosing a business structure, from the feds.","Since you worked as an RA, the university should send you a W2 form. The taxable wages line in that form would be the sum of both the direct salary and employer paid benefits that are taxable. As such you should not need to do anything than enter the numbers that they provide you.","The amount earned is taxable. It needs to shown as income from other sources. Although the last date for paying Advance tax is over [15 March], there is still time to pay Self-Assessment tax till 15 June. If the tax amount due is less than 10,000/- there is no penalty. If the tax is more than Rs 10,000/- there is penalty at the rate of 1% per month from March, and if the amount of tax exceeds 40% of the total tax, there will be additional 1% interest from December. The tax can be paid online via your Banks website or using the Income Tax website at https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp The form to be used is 280. You can use the Income tax website to calculate and file your tax returns at https://incometaxindiaefiling.gov.in/ or use the services of a CA. Edit: If the income is less than expenses, you need not pay tax. Maintain proper records [receipts] of income and expenses, if possible use a different Bank account so that they remain different from your main account. The tax to be paid depending on your income slab. The additional income needs to added to you salary. The tax and slabs will be as per this. There is no distinction on this amount. Its treated as normal income. All Tax for the given year has to be paid in advance. i.e. for Tax year 2013-14, 30% of total tax by 15-Sept, Additional 30% [total 60%] by 15-Dec and Balance by 15-Mar. Read Page 3 and page 10 of http://incometaxindia.gov.in/Archive/Taxation_Of_Salaried_Employees_18062012.pdf","You can use the ITR 1 and declare the income from freelancing as income from other sources. As part of freelancing, certain expenses can be deducted provided they are directly related to work and have proper records. Please consult a CA who can advice you on how to do this. The Actual income shown should be less of the expenses.","Such activity is normally referred to as bartering income. From the IRS site - You must include in gross income in the year of receipt the fair market value of goods or services received from bartering. Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business (Sole Proprietorship). If you failed to report this income, correct your return by filing a Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Refer to Topic 308 and Amended Returns for information on filing an amended return.","You are correct that you do not need to file under a certain circumstances primarily related to income, but other items are taken into account such as filing status, whether the amount was earned or unearned income (interest, dividends, etc.) and a few other special situations which probably don't apply to you. If you go through table 2 on page 3 and 4 of IRS publication 501 (attached), there is a worksheet to fill out that will give you the definitive answer. As far as the 1099 goes, that is to be filed by the person who paid you. How you were paid (i.e., cash, check, etc., makes no difference). You don't have a filing requirement for that form in this case. https://www.irs.gov/pub/irs-pdf/p501.pdf","\"As you are earning an income by working in India, you are required to pay tax in India. If you contract is of freelance, then the income earned by you has to be self declared and taxes paid accordingly. There are some expenses one can claim, a CA should be able to guide you. Not sure why the Swiss comapny is paying taxes?. Are they depositing this with Income Tax, India, do they have a TAN Number. If yes, then you don't need to pay tax. But you need to get a statement from your company showing the tax paid on behalf of you. You can also verify the tax paid on your behalf via \"\"http://incometaxindia.gov.in/26ASTaxCreditStatement.asp\"\" you cna register. Alternatively if you have a Bank Account in India with a PAN card on their records, most Banks provide a link to directly see\"","\"Re the business license - in California business licenses are given by the municipal/county governments, so you'll have to check that with your city hall or county office. Re taxes - yes, you'll have to pay taxes, as with any income. Services are considered \"\"imputed income\"\", and generally you'd recognize income to the extent they would be paying had they been paying the full price (or the actual cost of services provided, if more). Since this is a hobby and not a for-profit enterprise, your deductions may be limited by the actual income and the 2% AGI threshold. See more here.\"","You can receive money directly into your savings bank account. It is perfectly legal. FYI the Bank as part of regulation would report this to RBI. As the funds are received for the services you have rendered, You are liable to pay tax on the income. The income is taxed as professional income similar to the income of Doctors, Lawyers, Accountants etc. If you are paying your colleagues, it would be treated as expense. Not only this, you can also treat any phone calls you make, or equipment your purchase [laptop, desk etc] as expense. The difference become your actual income and you would be taxed as per the rate for individuals. It's advisable you contact an accountant who would advise you better for a nominal fee [few thousand rupees] and help you pay the tax and file the returns. With or without accountant It is very important for you to record all payments and expenses in a book of accounts.","\"Another factor you may want to consider is insurance, if your wife is at their house as a friend who happens to be teaching the kid to play and the kid falls off their chair and hurts them self that is rather different to your wife being brought in to the house as a contractor and an injury occurring during an activity that she was supervising. I am in a similar situation and I have a $5 million public liability policy, which costs about $300 per year. So if her income is likely to be less than that she may be better off \"\"helping a friend learn\"\" rather than \"\"providing tutoring services\"\". There may also be legal requirements, I am required to apply for government checks every few years in order to operate a business that involves working with children.\"","I am not an accountant, but I do run a business in the UK and my understanding is that it's a threshold thing, which I believe is £2,500. Assuming you don't currently have to submit self assessment, and your additional income from all sources other than employment (for which you already pay tax) is less than £2,500, you don't have to declare it. Above this level you have to submit self assessment. More information can be found here I also find that HMRC are quite helpful - give them a call and ask.","Here's an answer received elsewhere. Yes, it looks like you have a pretty good understanding the concept and the process. Your wife's income will be so low - why? If she is a full-time student in any of those months, you may attribute $250 x 2 children worth of income for each of those months. Incidentally, even if you do end up paying taxes on the extra $3000, you won't be paying the employee's share of Social Security and Medicare (7.65%) or state disability on those funds. So you still end up saving some tax money. No doubt, there's no need to remind you to be sure that you submit all the valid receipts to the administrator in time to get reimbursed. And a must-have disclaimer: Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this email, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. ... Any information contained in this email does not fall under the guidelines of IRS Circular 230.","Yes, you need to include income from your freelance work on your tax return. In the eyes of the IRS, this is self-employment income from your sole-proprietorship business. The reason you don't see it mentioned in the 1040EZ instructions is that you can't use the 1040EZ form if you have self-employment income. You'll need to use the full 1040 form. Your business income and expenses will be reported on a Schedule C or Schedule C-EZ, and the result will end up on Line 12 of the 1040. Take a look at the requirements at the top of the C-EZ form; you probably meet them and can use it instead of the more complicated C form. If you have any deductible business expenses related to your freelance business, this would be done on Schedule C or C-EZ. If your freelance income was more than $400, you'll also need to pay self-employment tax. To do this, you file Schedule SE, and the tax from that schedule lands on form 1040 Line 57.","I suggest to start charging slightly more than needed to cover expenses. All you need is to show profit. It doesn't have to be significant - a couple of hundred of dollars of consistent yearly profit should suffice to show a profitable business. Then you can deduct on Schedule C all the related expenses. The caveat is that the profit (after the deduction of the expenses will be a bit smaller) will be subject to not only income tax but also the self-employment tax. But at least you'll pay tax on profit that is not entirely phantom. I remember suggesting you getting a professional consultation on this matter a while ago. You should really do that - talk to a EA/CPA licensed in your state, it may be well worth the $100-200 fee they'll charge for the consultation (if at all...).","It's always beneficial to have detailed business records. There are any number of reasons where you'd need to prove both the types of services you've rendered and the payment history - you've already noted audits (for IRS taxes). Other possibilities: Whether these records need to be original or electronic might be the topic for another question.","From the IRS web site: So if your income was reported to the IRS (by the payer, not you) using one of the forms above, the IRS would have a record of it, regardless of whether you filed a tax return or not.","We run into this all the time with our EU clients. As far as I can tell, the only requirements when it comes to invoicing have to do with sales tax, which is determined at the state level, and only in the case that items are taxable. It seems that the service provided to you is not taxable and so there is no obligation under Californian law to provide you with the invoice you need. That said, it would be nice to provide this information to you as a courtesy. We don't provide the information typically required by EU tax authorities on our receipts either, but whenever one of our EU clients requests a more formal invoice we gladly send them one.","\"My number one piece of advice is to see a tax professional who can guide you through the process, especially if you're new to the process. Second, keep detailed records. That being said, I found two articles, [1] and [2] that give some relevant details that you might find helpful. The articles state that: Many artists end up with a combination of income types: income from regular wages and income from self-employment. Income from wages involves a regular paycheck with all appropriate taxes, social security, and Medicare withheld. Income from self-employment may be in the form of cash, check, or goods, with no withholding of any kind. They provide a breakdown for expenses and deductions based on the type of income you receive. If you get a regular paycheck: If you've got a gig lasting more than a few weeks, chances are you will get paid regular wages with all taxes withheld. At the end of the year, your employer will issue you a form W-2. If this regular paycheck is for entertainment-related work (and not just for waiting tables to keep the rent paid), you will deduct related expenses on a Schedule A, under \"\"Unreimbursed Employee business expenses,\"\" or on Form 2106, which will give you a total to carry to the schedule A. The type of expenses that go here are: If you are considered an independent contractor (I presume this includes the value of goods, based on the first quoted paragraph above): Independent contractors get paid by cash or check with no withholding of any kind. This means that you are responsible for all of the Social Security and Medicare normally paid or withheld by your employer; this is called Self-Employment Tax. In order to take your deductions, you will need to complete a Schedule C, which breaks down expenses into even more detail. In addition to the items listed above, you will probably have items in the following categories: Ideally, you should receive a 1099 MISC from whatever employer(s) paid you as an independent contractor. Keep in mind that some states have a non-resident entertainers' tax, which is A state tax levied against performers whose legal residence is outside of the state where the performance is given. The tax requires that a certain percentage of any gross earnings from the performance be withheld for the state. Seriously, keep all of your receipts, pay stubs, W2's, 1099 forms, contracts written on the backs of napkins, etc. and go see a tax professional.\"","There is no document that I know of that stipulates otherwise. This can also be corroborated by the fact that RESP withdrawals are considered as income in the name of the student. Thus, so long as the student pays tuition and receives a T2202A slip from the educational institution, they should be able to claim tuition, education, and textbook amounts.","There is no strict need to do that, you can consider yourself to be consulting, a 10% of your payment will be withheld and paid as tax by the company, you can deduct up to 60% of your income as expenses and pay tax on the rest (factoring the tax deducted at source). In another approach, you could register for service tax and charge service tax on your invoice and pay to the service tax department, the tax calculations are similar to above. It will be good if you speak to a chartered accountant and get more clarity. As for business card, you could print it with your name and qualification, there are no restrictions on that.","Your freelance income will not qualify you for the work-from-home deductions, for that you would need a T2200 form signed by your employer. But, you are allowed to be self employed as a sole-proprietorship while still being an employee of another company. If you take that route, you'll be able to write-off even more expenses than those you linked to. Things like a portion of your internet bill can be claimed, for example. But note that these deductions would only apply to offset the self-employment income, so if you're not earning very much from the freelance work, it might not be worth all the hassle. Filing taxes when self-employed is definitely more complicated, and many people will get professional tax preparation help - at least for the first time.","It is definitely legal and will be accounted by the IRS as earned income.","\"VAT = Value Added Tax (as an Aussie think \"\"GST\"\") This is applicable in Britain. Basically, if you were in Britain, and if you could claim VAT as a deduction, that invoice is not sufficient proof to make the claim. But you're in Oz so it doesn't apply to you in any case. For work-related deductions like book purchases, see http://www.ato.gov.au/individuals/content.asp?doc=/content/00216829.htm&pc=001/002/068/001/002&mnu=&mfp=&st=&cy=1 Issues such as the books being second hand or purchased online are not cited in the instructions as relevant/limiting factors. In fact, if you really want to get into the nitty gritty, you could claim the work-related proportion of your internet access fees as a deduction (question D5 instructions, above, cover that as well).\"","First, request that you complete a tax return. On this tax return, you will complete both the employed and self employed sections. This will give you a total income and tax liability. You will already have paid some tax via PAYE, but you will have to pay additional tax for any other income. For future years there is the option, depending on amount, to collect extra tax through PAYE to cover the other earnings. If it is likely to be the same for the next few years, this may be a better option than paying a lump sum. The tax return is now mostly online, and not too bad if your affairs are otherwise simple. The hardest part will be keeping a good record of your other earnings. Remember that you have to keep these records for seven years in case HMRC ever want to audit them, and it's a good idea to have a separate account for the income, or some other way of easily identifying it.","Every bill you write counts as income (if the bill doesn't get paid, you would count that as an expense). In cases where you don't write bills, I think the payment you receive would count as income, but you might check that on the HMRC website. So to record your income, you can basically record the payments that you receive. Anything you pay out for your business is an expense. You keep a receipt for every expense - if you don't have a receipt, you can't count it as an expense, so keeping all the receipts is very, very important. An exception are investments, for example buying a computer that should last multiple years; there you can count a percentage of the investment as expense every year. All income, minus all expenses, is your profit. You pay tax and National Insurance contributions according to your profit. You can do whatever you like with the profit. Notice that I didn't mention any salary. Self employed means you have no salary, you have profits and do with them whatever you like. On the other hand, you pay taxes on these profits almost exactly as if they were income. If you have this blog but are also employed, you'll add the profits to your normal income statement.","\"This is going to depend on the tax jurisdiction and I have no knowledge of the rules in Illinois. But I'd like to give you some direction about how to think about this. The biggest problem that you might hit is that if you collect a single check and then distribute to the tutors, you may be considered their employer. As an employer, you would be responsible for things like This is not meant as an exhaustive list. Even if not an employer, you are still paying them. You would be responsible for issuing 1099 forms to anyone who goes above $600 for the year (source). You would need to file for a taxpayer identification number for your organization, as it is acting as a business. You need to give this number to the school so that they can issue the correct form to you. You might have to register a \"\"Doing Business As\"\" name. It's conceivable that you could get away with having the school write the check to you as an individual. But if you do that, it will show up as income on your taxes and you will have to deduct payments to the other tutors. If the organization already has a separate tax identity, then you could use that. Note that the organization will be responsible for paying income tax. It should be able to deduct payments to the tutors as well as marketing expenses, etc. If the school will go for it, consider structuring things with a payment to your organization for your organization duties. Then you tell the school how much to pay each tutor. You would be responsible for giving the school the necessary information, like name, address, Social Security number, and cost (or possibly hours worked).\"","If you are being paid money in exchange for services that you are providing to your cousin, then that is income, are legally you are required to declare it as self-employment income, and pay taxes when you file your tax return (and if you have a significant amount of self-employment income, you're supposed make payments every quarter of your estimated tax liability. The deposit itself will not be taxed, however.","I probably can, but I realized I also do have a commission sheet from the month of June which shows how much I made in just commissions, and then I could tell them I also get my 300 a week salary. Do you think that would suffice?","\"As a Canadian resident, the simple answer to your question is \"\"yes\"\" Having worked as a tax auditor and as a Certified Financial Planner, you are required to file an income tax return because you have taxable employment income. All the employer is doing is deducting it at source and remitting it on your behalf. That does not alleviate your need to file. In fact, if you don't file you will be subject to a no filing penalty. The one aspect you are missing is that taxpayers may be entitled to tax credits that may result in a refund to you depending on your personal situation (e.g spousal or minor dependents). I hope this helps.\"","Generally for tax questions you should talk to a tax adviser. Don't consider anything I write here as a tax advice, and the answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Does IRS like one payment method over other or they simply don't care as long as she can show the receipts? They don't care as long as she withholds the taxes (30%, unless specific arrangements are made for otherwise). She should withhold 30% of the payment and send it to the IRS. The recipient should claim refund, if the actual tax liability is lower. It's only consulting work at the moment, so most of the communication is done over phone. Should they start engaging in written communication to keep records of the work done? Yes, if she wants it to be a business expense. Is it okay to pay in one go to save money-transferring fees? Can she pay in advance? Again, she can do whatever she wants, but if she wants to account for it on her tax returns she should do it the same way she would pay any other vendor in her business. She cannot use different accounting methods for different vendors. Basically, she has not outsourced work in previous years, and she wants to avoid any red flags. Then she should start by calling on her tax adviser, and not an anonymous Internet forum.","You don't need to file or do anything. The bank will report all transfers over 10 000, but chances are slim that it will even be looked at, if you don't do this every week. Worst case, someone will ask you about the source, and you tell them exactly what you wrote above (I had multiple international transfers over 60k and nobody ever asked). You said you paid his tuition, and he is now paying you back, so in case someone asks, you should be able to produce the documentation on the tuition payment - a bill, or your bank statement showing you paid it; and the amount should be matching, so you have proof. Note that if he pays you interest, it is taxable income. You are obligated to list it on your next tax filing.","You send the proper form to the other person for the amount you gave him, and file it as your business expense on your Schedule C.","You need receipts only if you claim deductions in the itemized deductions section based on them. You itemize deductions only if your claims exceed the standard deduction (which for a single person was $5,800 last year). Even then, you need receipts for everything only if you claim sales tax as the deduction (you have to buy really a lot to pass $5K with sales tax...). I would expect people to pay more in state income taxes than sales taxes (you can claim either this or that, not both). For food - there are no taxes (at least here in California), so nothing to deduct anyway. In any case, you can always scan your receipts and keep them in the computer, for just in case, but IMHO it's waste of time, pixels and gigabytes. Here's a question which deals with the same issue, read the answers there as well.","If this will be your sole income for the year, going self-employed is the best way to do this: So, here's how to go at it: Total cash in: £2000 Total Tax paid: £0 Admin overhead: approx 3 hours. Legit: 100% :) Edit: Can you tell me that in my case what are the required fields on the invoice? If you're non-VAT registered, there are no legal requirements as to what information you need to put on the invoice -it literally can be a couple of numbers on a napkin, and still be legit. With that said, to make a professional appearance, my invoices are usually structured as follows: Left side: ( Sidenote: why client-specific incremental numbering? Why, so they can't make educated guesses to the number of clients I have at any given time :) ) Right side: Center table: And so far, none of my clients missed any fields, so this should have everything they need to :) Hope this helps, but keep in mind, all of the above is synthetic sugar on the top -ultimately, the relationship you share with your Clients is the thing you will (or will not) get paid for! Edit#2: The voices in my head just pointed out, that I've totally omitted National Insurance contributions in the above. However, and I quote HMRC: If your profits are expected to be less than £5,315 you may not have to pay Class 2 National Insurance contributions. Hence, this won't change the numbers above, either -just make sure to point this out during your registration in the office.","If you want to be safe, only claim deductions for which you have a receipt. This explanation may help.","\"These kinds of questions can be rather tricky. I've struggled with this sort of thing in the past when I had income from a hobby, and I wanted to ensure that it was indeed \"\"hobby income\"\" and I didn't need to call it \"\"self-employment\"\". Here are a few resources from the IRS: There's a lot of overlap among these resources, of course. Here's the relevant portion of Publication 535, which I think is reasonable guidance on how the IRS looks at things: In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether: Most of the guidance looks to be centered around what one would need to do to convince the IRS that an activity actually is a business, because then one can deduct the \"\"business expenses\"\", even if that brings the total \"\"business income\"\" negative (and I'm guessing that's a fraud problem the IRS needs to deal with more often). There's not nearly as much about how to convince the IRS that an activity isn't a business and thus can be thrown into \"\"Other Income\"\" instead of needing to pay self-employment tax. Presumably the same principles should apply going either way, though. If after reading through the information they provide, you decide in good faith that your activity is really just \"\"Other income\"\" and not \"\"a business you're in on the side\"\", I would find it likely that the IRS would agree with you if they ever questioned you on it and you provided your reasoning, assuming your reasoning is reasonable. (Though it's always possible that reasonable people could end up disagreeing on some things even given the same set of facts.) Just keep good records about what you did and why, and don't get too panicked about it once you've done your due diligence. Just file based on all the information you know.\"","The Canada Revenue Agency describes in detail here what information businesses must generally include on their invoices so that GST/HST registrants can claim Input Tax Credits (ITCs) for the expenses. Quote: Sales invoices for GST/HST registrants You have to give customers who are GST/HST registrants specific information on the invoices, receipts, contracts, or other business papers that you use when you provide taxable goods and services. This information lets them support their claims for input tax credits (ITCs) or rebates for the GST/HST you charged. [...] The page quoted continues with a table describing what, specifically, needs to be on a sales invoice based on the total amount of the invoice; the requirements differ for: total sale under $30, total sale between $30 to $149.99, and total sale $150 or more. For the total sale under $30 category, the only things a sales invoice must contain to support an ITC claim are (1) the provider's business name, (2) the invoice date, and (3) the total amount paid/payable. i.e. When the total sale is under $30, there is no requirement for any GST/HST amount to be indicated separately, nor for a business number to be present on the invoice. Hence, IMHO (and I am neither an accountant nor a lawyer), if your Uber rides are for $30 or less, then you shouldn't expect a GST/HST number anyway, and a simple invoice as described should be enough for you to claim your ITCs. Whether or not the provider is registered in fact for GST/HST is beside the point. For amounts over $30, you need a bit more. While the page above specifies that the provider's business number should be included beginning with the next level of total sales, there are exceptions to those rules described at another page mentioned, Exceptions to invoice requirements, that specifically apply to the taxi/limousine case. Quote: Exceptions to invoice requirements GST/HST registrants are required to keep the necessary documentation to support their claim for ITCs and rebates. In certain circumstances the documentation requirements have been reduced. [...] For taxi or limousine fares your books and records must show: So at a minimum, for fare in excess of $30 total, you should ask the driver to note either (a) the amount of GST/HST charged, or (b) a statement that the fare includes GST/HST. The driver's business number need not be specified. Consequently, if your receipt for a ride in excess of $30 does not contain any such additional information with respect to GST/HST, then I would expect the receipt does not satisfy the CRA's requirements for supporting your ITC claim. i.e. Keep your individual rides under $30 each, or else get a better receipt from the driver when it is above that amount. p.s. It should go without saying, but your rides, of course, must be considered reasonable business expenses in order to qualify for GST/HST ITCs for your business. Receipts for rides of a personal nature are not eligible, so be sure to maintain proper records as to the business purpose and destination for each ride receipt so claimed.","\"From the poster's description of this activity, it doesn't look like he is engaged in a business, so Schedule C would not be appropriate. The first paragraph of the IRS Instructions for Schedule C is as follows: Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Form 1040, line 21, or Form 1040NR, line 21. What the poster is doing is acting as a nominee or agent for his members. For instance, if I give you $3.00 and ask you to go into Starbucks and buy me a pumpkin-spice latte, you do not have income or receipts of $3.00, and you are not engaged in a business. The amounts that the poster's members are forwarding him are like this. Money that the poster receives for his trouble should be reported as nonbusiness income on Line 21 of Form 1040, in accordance with the instructions quoted above and the instructions for Form 1040. Finally, it should be noted that the poster cannot take deductions or losses relating to this activity. So he can't deduct any expenses of organizing the group buy on his tax return. Of course, this would not be the case if the group buy really is the poster's business and not just a \"\"hobby.\"\" Of course, it goes without saying that the poster should document all of this activity with receipts, contemporaneous emails (and if available, contracts) - as well as anything else that could possibly be relevant to proving the nature of this activity in the event of an audit.\"","I'm not sure how this gets entered in TurboTax, but this income from the company should be included in the Schedule C (or C-EZ) Line 1 Gross Receipts total, along with all of your 1099-MISC income from your business and any other income that your business took in. You don't need a 1099 from them, and the IRS doesn't care (at least from your perspective) if you got a 1099 or not; in fact, they probably expect you to have some non-1099 income. We don't know why the company chose not to issue 1099 forms, but luckily it isn't your concern. You can fill out your tax return properly without it. Note: This answer assumes that you didn't have any tax withheld from your checks from this company. If you did have tax withheld, you'll need to insist on a 1099 to show that.","You're charging service fees as a conduit entity for these tickets. While the service fee is not a fixed rate, but a percentage, you would need to record each purchase at dollar amount. To illustrate, it would look like: Now, to your question: How do I report this on my taxes? You would first start out by filing your Schedule C from the eyes of the business (the money you earn at your job, and the money you earn as a business are different). Just keep a general journal with the above entry for each sale and close them down to a simple balance sheet and income statement and you should be fine. Of course, read the instructions for your Schedule C before you begin. As always, good luck.","If your net profit is $0, then no, you will not owe income tax as a result of providing this service. But there's a lot more to consider than just that... Before you begin you'll need to decide if this is a business or a hobby. Based on the fact that you don't intend to make a profit, you are probably going to be calling it a hobby for tax purposes. Regardless of whether it is a business or a hobby, since you will be accepting payments from people, you will need to report the income on your tax return. As both a business and a hobby you can deduct all of your expenses to bring your profit down to $0. (Assuming all the expenses are legitimate business/hobby expenses.) The main differences between business and hobby are: If you choose to run as a business you'll likely save quite a bit of money by avoiding the 2% rule, and also by being able to deduct any non-specific-customer expenses and take a loss. Be careful though that you don't go too many years with a business loss or the IRS may re-classify it as a hobby, which may include an audit. If you decide to run as a business you may need to charge a little more than just expenses to attempt to turn a profit, or at least break even.","Aside from the fact that probably nobody is ever going to come and ask for that proof unless your amounts get five digits (or you're unlucky), if you never before reimbursed yourself, your old tax declarations would clearly show that. You can't prove a negative, so the only potential is that you had reimbursements before, and an audit might ask you to prove that the new ones are not duplicates of those. In this case, if you have other receipts / proof for all those other reimbursements, they are obviously not duplicates.","You're not subject to the US tax laws, and since the income is not US-sourced, it is not subject to withholding. Your employer doesn't need any form, but if they insist - you can provide them a W8-BEN to certify your non-resident status. Keep in mind that if you do come to the US, the money you earn while in the US is US-sourced and subject to the US taxes and withholding, even if you're non-resident.","The Canada Revenue Agency does indeed put out just the guide you want. It's at http://www.cra-arc.gc.ca/E/pub/tg/rc4070/rc4070-e.html - you should always take a good look at URLs to make sure they're really from the government and not from some for-profit firm that will charge you to fill out forms for free services. It covers ways to structure your business (probably a sole proprietor in your case), collecting and submitting GST or HST, sending in payroll remittances (if you pay yourself a T4 salary), and income tax including what you can deduct. It's a great place to start and you can use it as a source of keywords if you want to search for more details.","\"In general, scholarship income that you receive that is not used for tuition or books must be included in your gross income and reported as such on your tax return. Scholarship income you receive that is used for those kinds of expenses may be excludable from your gross income. See this IRS information and this related question. I believe that as represented on the 1098-T, this generally means that if Box 5 (Scholarships and Grants) is greater than Box 1 or 2 (only one of which will be used on your 1098-T), you received taxable scholarship income. If Box 5 is less than or equal to Box 1/2, you did not receive taxable scholarship income. This TaxSlayer page draws the same conclusion. However, you should realize that the 1098-T is not what makes you have to pay or not pay taxes. You incur the taxes by receiving scholarship money, and you may reduce your tax liability by paying tuition. The 1098-T is simply a record of payments that have already been made. For instance, if you received $10,000 in scholarship money --- that is, actually received checks for that amount or had that amount deposited into your bank account --- then your income went up by $10,000. If you yourself paid tuition, it is likely that you can exclude the amount of the tuition from your taxable income, reducing the tax you owe (see the IRS page linked above). However, if you received $10,000 in actual money and in addition your tuition was paid by the scholarship (with money you never actually had in your own bank account), then the entire $10,000 would be taxable. You do not give enough information in your question to be sure which of these situations is closer to your own. However, you should be able to decide by looking at your bank account: look at how much money you received and how much you spent on tuition. If you received more scholarship money than the tuition you paid out of pocket, you owe taxes on the remainder. (I emphasize that this is just a general rule of thumb and should not be taken as tax advice; you should review the IRS information and/or consult a tax professional to determine what part of your scholarship income is taxable.) In addition, as this (now rather old) article from the New York Society of CPAs notes, \"\"many colleges and universities prepare 1098-Ts incorrectly and report tuition and related expenses inconsistently\"\". This means you should be careful to reconcile the 1098-T with your own financial records of what money you actually received and paid. When I was in grad school there was a good deal of hand-wringing and hair-pulling each year among the students as we tried to determine what relationship (if any) the 1098-T bore to the financial facts.\"","\"If you want an \"\"account statement\"\" from the IRS listing the taxes due and paid and confirming a zero balance remaining, you want what they call a Tax Account Transcript. It sounds like you tried to submit this online, but yes, it would require the actual taxpayer to submit it. The other option would be to fill out Form 4506-T requesting the Form 1040 Tax Account Transcript, have the taxpayer sign it, and mail it in. Presumably whatever method you used to have her sign the Form 1040 you prepared for her you could also use to have her sign the 4506-T. Another option could be to try to request the transcript over the phone. I don't know what authentication they require, or if you would need to have been listed on the 1040 as an authorized Third Party Designee. According to the IRS Transcript FAQ Page: Q19. What if I’m unable to use Get Transcript by Mail? If you are unable to use Get Transcript by Mail, you may try our automated phone transcript service at 800-908-9946 and also receive your transcript by mail. Please allow 5 to 10 calendar days for delivery. But unless there's a reason to think that the tax account wasn't credited properly or the IRS is sending another bill or the like, I don't think there's a lot of point in doing so. In general, the fact that the check cleared the bank should be sufficient documentation that the amount was paid.\"","It's fine - if you are an employee, you will normally have all taxes deducted by the employer, and won't even need to complete a tax return. Even if you do, all the figures will be on the P60 you get at the end of the year. If that's your only income, it's pretty easy to do. Remember, your taxes and your girlfriends are totally separate. It also doesnt matter where the money goes - you could be paid in cash or into any account, it's the fact that you earn it makes it taxable.","Assuming that the jobs where you've earned money from have sent you W-2s, 1099s, etc. Then yes, you can request a Wage and Income Transcript: Shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. Current tax year information may not be complete until July. This transcript is available for up to 10 prior years using Get Transcript Online or Form 4506-T.","You normally wouldn't pay income taxes on money that isn't income. Transferring money or withdrawing it from a bank isn't an income generating event. I think it is very doubtful that you would need to claim that on income tax forms.","As Victor says, you pay tax on net profit. If this is a significant source of income for you, you should file quarterly estimated tax payments or you're going to get hit with a penalty at the end of the year.","HMRC may or may not find out about it; the risks and penalties involved if they do find out make it unwise not to just declare it and pay the tax on it. Based on the fact you asked the question, I am assuming that you currently pay all your tax through PAYE and don't do a tax return. You would need to register for Self Assessment and complete a return; this is not at all difficult if your tax situation is straightforward, which it sounds like yours is. Then you would owe the tax on the additional money, at whatever applicable rate (which depends on how much you earn in your main job, the rate tables are here: https://www.gov.uk/income-tax-rates/current-rates-and-allowances ). If it truly is a one off you could simply declare it on your return as other income, but if it is more than that then you would need to look at setting up as Self Employed - there is some good advice on the differences here: http://www.brighton-accountants.com/blog/tax-self-employment-still-employed/ : Broadly, you are likely to be running a business if you have a regular, organised activity with a profit motive, which continues for at least a few months. If the work is one-off, or very occasional (say, a few times per year), or not very organised, or of very low value (say, under £2,000 per year), then it might qualify as casual income. If you think it is beyond the definition of casual income then you would also need to pay National Insurance, as described in the previous link, but otherwise the tax treatment would be the same.","Adsense don't pay you daily. They pay you every month (as they have to calculate the final value). I'd say you only have to declare it when it hits your bank account. £60 actually isn't that much. It only took me a couple of months of just making a few quid, to making enough to get a monthly payment, and I only tot up what goes into my bank account. I've opened up a second account with my bank to send and receive payments relating to my online adventures. Then any in/out goes into a spreadsheet that I do at the end of the month keeping track of everything. If Mr. Taxman want to investigate at the end of the tax year, it's all logged in that account. It gets a bit murkier if you start doing US Amazon affiliates. The simplest method is to get the cheque delivered, and then log the amount that goes into your bank (after $->£ conversion). I have a Payoneer account, and transfer most of the money into my account (after it hits $500), and keep a little bit in for things I buy that are in USD. Hope that helps.","\"This may be closed as not quite PF, but really \"\"startup\"\" as it's a business question. In general, you should talk to a professional if you have this type of question, specifics like this regarding your tax code. I would expect that as a business, you will use a proper paper trail to show that money, say 1000 units of currency, came in and 900 went out. This is a service, no goods involved. The transaction nets you 100, and you track all of this. In the end you have the gross profit, and then business expenses. The gross amount, 1000, should not be the amount taxed, only the final profit.\"","You'll need to show the whole paper trail: show that the $2000 are the same $2000 (i.e.: show that you didn't get any new income that was not yet reported on your Elance balance), and show that it was in fact transfer from Elance (matching transactions on both accounts). Obviously, add a letter describing the whole process and pointing to the specific pages and lines in the statements and prior year tax returns. Follow the instructions on the notice about where to send your response, and make sure you send it certified USPS mail. Consider having a tax professional (EA/CPA licensed in your State) helping you with this. For the future - do not leave money on various private parties' accounts. It is uninsured, and if something happens to that company - you lose the money. That includes, in the US, also PayPal accounts.","Assuming you have registered your activities as partnership and receiving this money as Individual, you need to show this under Schedule OS, 1d [other income]. this will be under the ITR-2 [tab CG-OS] XLS tax preparation utility given by Tax Department. The XLS can be found at https://incometaxindiaefiling.gov.in/portal/individual_huf.do If the funds you are receiving are large [more than say Rs 500,000] then suggest you incorporate a partnership firm or company, there are quite a few exceptions you can claim lowering you tax outgo. The fact that you are transferring funds to your partners can be an issue incase you get audited. You would need to have sufficient evidence to show that the money paid was for services rendered directly and not your income. It would be easier if you create a partnership or have the client directly pay to them. Again if the sum is small its fine, as the sum becomes large, it would get noticed by the tax authorities.","If you are freelancing, the best form for you is ITR-4. With this form you can declare your salary income as well as your expenses related to your freelancing. And you should treat your freelancing income as business. That way you can get max deductions claimed.","You can invoice your advertisers and use the date of the invoice for tax purposes. Some advertisers may want to pay monthly, weekly etc so that would require multiple entries as income on the relevant dates.","\"The Dutch tax office is pretty decent, although slightly overburdened. Don't expect a lot of help, but they're not generally known for making a lot of problems. Digital copies are fine, for instance. They will send you your first VAT notice. You probably would have known if your company would have been incorporated, so I'll assume you're just trading as a natural person. That means you still have to file VAT returns, but the business income is just filed annually as \"\"other income\"\". For the VAT part, you'll need to invoice your customers. Keep a copy of those invoices for your own bookkeeping, and keep track of the matching customer payments. Together these form the chief evidence of your VAT obligation. You also have a VAT deduction from your purchases (it's a Value-Added Tax, after all). Again, keep receipts. The usual VAT period is 3 months, so you'd pay VAT 4 times a year. But if you would pay less than 1883 euro, you might not need to pay at all and just need to file annually The income part is easy with the receipts you had for VAT purposes anyway. Dutch Tax Office, VAT, in English\"","The problem with your profession is that it is hard to distinguish those activities as 'services rendered' or just a 'pastime hobby'. If you believe that both of those activities constitutes a 'service rendered in a professional capacity', then you should include it into the 'Goods and services for your own use' field. However, should you believe that those services rendered was not in a professional capacity and it was in a personal one (i.e. helping out), you need not include it in the field. In addition, should you feel that the pro-bono services rendered overlaps with your professional freelance work in any way, you might want to consider the service rendered to your dad and yourself as a 'professional service' and include it in Goods and services for your own use. Such examples include (but not limited to): It might be wise to call up the HMRC to clarify on your particular situation. But what I know is, this box was created to ensure that such services rendered should be considered a profit (i.e. an advantage, adds value) and not a loss (or no value).","You are confused about a couple of terms: For example you work for company A: As to the 1098-T: It is likely that you or your parents will use the 1098-T. You don't have to file a copy with the IRS. You and your parents need to determine who should be reporting the educational expenses: you or your parents.","There is no reason for you to open a firm. However, it will help you, if you operate separate bank account for business and personal purposes. You can run your business as proprietorship business. Your inward remittance is your income. You can deduct payment made to your colleagues as salary. You should pay them by way of cheques or bank transfer only. You are also entitled to deduct other business expenses provided you keep proper receipt of the same such as broadband connection charges, depreciation on equipment and more importantly, rent on your house. If your total receipt from such income exceeds INR 60,00,000 you will need to withhold tax on payment made to your colleagues as also subject to audit of your accounts. If you want to grow your business, suggest you should take an Import / Export Code in your own name. You can put any further question in this regard.","I had a chat with a coworker whose spouse also teaches music lessons. One interesting insight was that after raising prices, the children were much more likely to come prepared because the parents felt more invested when it cost them more. They were also less likely to cancel the lessons at the last minute. This is an argument in favor of TTT's suggestion to charge something even if we donate the income to charity. Along those lines it might also make sense to give discounts if the child comes prepared having practiced daily. I agree that it's not a lot of paperwork for some additional pay, the problem is that I would also be tempted to buy a new piano and find other expenses to reduce the income. That's a discussion for another day. I think the break-even point is probably somewhere around $1000/year when I weigh record-keeping time verses the income. So as long as we exceed that, I will probably encourage her to charge for the lessons even if she charges below the market for them. I will consider setting up a charitable giving account that they can pay to instead of paying us directly.","Yes. You must register for GST as well, if you will be making over the threshold (currently $60,000). That's probably a bonus for you, as your home office expenses will mostly include GST, but your income will most likely be zero-rated. Check with an accountant or with the IRD directly. Just be certain to put aside enough money from each payment to cover income tax, GST and ACC. You will get a very large bill in your second year of business.","You are in business for yourself. You file Schedule C with your income tax return, and can deduct the business expenses and the cost of goods sold from the gross receipts of your business. If you have inventory (things bought but not yet sold by the end of the year of purchase), then there are other calculations that need to be done. You will have to pay income tax as well as Social Security and Medicare taxes (both the employee's share and the employer's share) on the net profits from this business activity.","If you took advantage of options like a home buyers plan (HBP) you definitely need to file since you must designate how much of the plan to repay. Your employer does not know about what you do with your money so cannot take this into account for the withheld taxes. If you do not report repayment of the HBP it will be treated as a withdrawal from your RRSP i.e. additional income for that tax year.","Because the question puts moral obligations aside, I'll answer from the practical point of view. There are two reasons for declaring side income, even cash income. If you buy a house in a year or two, the additional income will help qualify you for a mortgage. The IRS has ways to discover that you earned the money. a. A client might be audited. If the client deducts the cost of your services from their income, they could be asked for proof that they paid you. Suppose they saved ATM receipts that show the withdrawals of cash used to pay you, and kept records that document the dates they paid you. The IRS might want to ask you if you were paid by the client on those dates, and how much. The asking might be in the form of an audit, and you'd have to lie to the IRS to avoid penalty. b. A client might develop a grudge against you and report you to the IRS. Someone could do this even if they don't know for sure that you don't declare the income. If you were interviewed or audited, you'd have to lie to the IRS to avoid penalty. c. You could fall prey to an algorithm. There might be one that compares deductions and income. If you run a crazy-high ratio year after year, you could be flagged for audit. Once again, you'd have to lie to avoid penalty.","One piece of documentation that might help here is a confirmation of your benefit selections through your employer for each year since the expenses in question were incurred, assuming you have a job with eligibility for benefits. If you can prove which accounts you maintained through your/your spouse's (if applicable) employer(s), then it is relatively simple to go back through the records for those specific accounts and see if a specific expense was ever reimbursed. Obviously, you can't prove through documentation that you didn't have accounts that don't exist. This seems like it would be more important for the accounts elected by a significant other, since I believe reimbursements from an account in your name would typically be reported to the IRS on your behalf anyway. Also, keep in mind that the IRS won't care about each line item individually. Their focus will be on whether, for any given snapshot in time, your total reimbursed amount exceeded your total eligible expenses.","(do I need to get a W9 from our suppliers)? Will PayPal or Shopify send me a 1099k or something? Do not assume that you'll get paperwork from anyone. Do assume that you have to generate your own paperwork. Ideally you should print out some kind of record of each transaction. Note that it can be hard to view older transactions in PayPal, so start now. If you can't document something, write up a piece of paper showing the state of the world to the best of your knowledge. Do assume that you need separate receipts for each expenditure. The PayPal receipt might be enough (but print it in case the IRS wants to see it). A receipt from the vendor would be better (again, print it if it is online now). A CPA is not strictly necessary. A CPA is certified (the C in CPA) to formally audit the books of a corporation. In your case, any accountant would be legally sufficient. You still may want to use a CPA, as the certification, while technically unnecessary, still demonstrates knowledge. You may otherwise not be in a position to evaluate an accountant. A compromise option is to go to a firm that includes a CPA and then let them assign you to someone else to process the actual taxes. You are going to have to fill out some business tax forms. In particular, I would expect a schedule C. That's where you would show revenues and expenses. You may well have to file other forms as well.","You need to file IRS Form 1040-NR. The IRS's website provides instructions.","Yes. This income would be reported on schedule SE. Normally, you will not owe any tax if the amount is less than $400. Practically, $100 in a garage sale is not why the IRS created the form SE. I wouldn't lose sleep over keeping track of small cash sales over the course of a year. However, if you have the information I'm not going to tell you not to report it.","This is taxable in India. You need to declare the income and pay taxes accordingly","The request for your parent's income comes from Form 8615, Tax for Certain Children Who Have Unearned Income. I typically see this form appear as I'm doing my daughter's taxes and start to enter data from stock transactions. In other words, your earned income is your's. But if you are a dependent, or 'can be,' the flow avoids the potentially lucrative results from gifting children appreciated stock, and have them take the gain at their lower, potentially zero cap gain rate. I suggest you grab a coffee and thumb through Pub 929 Tax Rules for Children and Dependents to understand this better. From page 14 of the linked doc - Parent's return information not available. If a child can’t get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS). How to request. After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. (The IRS can’t process a request received before the end of the tax year.) It also suggests that you file for an extension for the due date of your return. Include payment for the tax you expect to pay, say by plugging in $200K for parent income as an estimate. My parents' accountant tells them I do not need it. Well, a piece of software told you that you do, and 3 people on line who collectively qualify as experts documented why. (Note, I am not full of myself. This board operates via the wisdom of crowds. Members DStanley, and Ben Miller, commented and edited to help me form a well documented response that would be tough to argue against.)","According to TurboTax: You report the income in the year you received it... Therefore, since you received payment in 2017, you will report it on your 2017 tax return.","You appear to just have admitted to tax evasion. You need a lawyer. There's a good chance you don't actually owe any money, but you need legal advice. To be clear, you may well not have been obligated to file tax returns, but you have stated you had some income you didn't report, so there's really nothing else we can say other than recommend you seek legal advice.","Nope pay the employer back the due does not involve any tax. Just keep a record of the transaction so that its available as reference.","Generally, report your $150,000. If/when the the tax collectors notice the anomaly, they'll attempt to contact you to remedy it. I can't speak for Canada, but in the US, it's pretty orderly. The IRS requests additional information or proof and only open it up into a full blown audit if the suspect wrongdoing. In your case, you could show a business agreement detailing the revenue split proving you correctly reported. This is only for your consideration. I strongly recommending finding and keeping a professional tax advisor.","He has included this on Schedule D line 1a, but I don't see any details on the actual transaction. It is reported on form 8949. However, if it is fully reported in 1099-B (with cost basis), then you don't have to actually detail every position. Turbotax asked me to fill in individual stock sales with proceeds and cost basis information. ... Again, it seems to be documented on Schedule D in boxes 1a and 8a. See above. I received a 1099-Q for a 529 distribution for a family member. It was used for qualified expenses, so should not be taxable. Then there's nothing to report. I believe I paid the correct amounts based on my (possibly flawed) understanding of estimated taxes. His initial draft had me paying a penalty. I explained my situation for the year, and his next draft had the penalties removed, with no documentation or explanation. IRS assesses the penalty. If you volunteer to pay the penalty, you can calculate it yourself and pay with the taxes due. Otherwise - leave it to the IRS to calculate and assess the penalty they deem right and send you a bill. You can then argue with the IRS about that assessment. Many times they don't even bother, if the amounts are small, so I'd suggest going with what the CPA did.","While IANAL (tax or otherwise), I have always found that keeping original receipts is the only way to go. While anything can, at some level, be forged or faked, a photo is one more step removed from the original. A mere listing on a web site isn't much proof of anything. Keep your originals for a suggested seven years; while the IRS is trying to audit much faster than that, and any inkling of fraud can be investigated at any time, you should be well and clear with originals kept that long.","You need to clarify with Bob what your agreement is. If you and Bob are working together on these jobs as partners, you should get a written partnership agreement done by a lawyer who works with software industry entity formation. You can legally be considered a partnership if you are operating a business together, even if there is nothing in writing. The partnership will have its own tax return, and you each will be allocated 50% of the profits/losses (if that's what you agree to). This amount will be reported on your own individual 1040 as self-employment income. Since you have now lost all the expense deductions you would have taken on your Schedule C, and any home office deduction, it's a good idea to put language in the partnership agreement stating that the partnership will reimburse partners for their out-of-pocket expenses. If Bob is just hiring you as a contractor, you give him your SSN, and he issues you a 1099, like any other client. This should be a situation where you invoice him for the amount you are charging. Same thing with Joe - figure out if you're hiring him as an independent contractor, or if you have a partnership. Either way, you will owe income and self-employment tax on your profits. In the case of a partnership, the amount will be on the K-1 from the partnership return. For an independent contractor who's operating as a sole proprietor, you report the income you invoiced for and received, and deduct your expenses, including independent contractors that you hired, on your Schedule C. Talk to your tax guy about quarterly estimated payments. If you don't have a tax guy, go get one. Find somebody people in your city working in your industry recommend. A good tax person will save you more money than they cost. IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law.","Its best you start this venture as a Business entity. Whatever the customer pays you is your income. Whatever you pay to the hotel will be your expenses. Apart from this there will be other expenses. So essentially difference between your income and expense will be the profit of the entity and tax will be on the profit. If you do not want to start an Business entity and pay as an individual then please add the country tag, depending on the country there may different ways to account for the funds.","\"DirectGov has a good overview here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017814 and answers to your specific questions here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435 In short, you do need to declare the rental income on your tax return and will need to pay tax on it (and note that only the mortgage interest (not the full repayment) is deductible as an \"\"allowable expense\"\", see the full list of what is deductible here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027 ).\"","Of course you're reportable to the IRS. Your income is someone's expense, they'll report it if required. What you're probably asking is whether you need to pay any taxes in the US. If you're neither US citizen nor a green card holder, and you don't step foot to the US - you will probably not need to pay taxes there."],"string":"[\n \"I have been a private tutor on and off for about 30 years, in three countries, so I understand your concerns! I always kept records as though it was a real business - even if I only had one student I kept records of dates/times/names, and also tracked where the money went (I never spent it straight up - it always got deposited to complete the paper trail; yes, this is paranoia on my part). I've never been asked to prove anything with regards this income (although I have no Canadian experience). It's always been a case of tell the tax folks and make sure my arse is covered if they come asking questions. Hope this helps.\",\n \"There is a moral and legal obligation to file the earnings. Not doing so is tax fraud. You should keep a ledger or some record of your earnings, helpful guidelines here. Records are required by the CRA: According to the law, your responsibilities include: (source) You could get in trouble if one of your pupils report the expense at their tax filing, and the CRA finds no matching statement on your filing report. Tutoring are eligible for tax credit in case of disability: Tutoring services that are supplementary to the primary education of a person with a learning disability or an impairment in mental functions, and paid to a person in the business of providing these services to individuals who are not related to the person. A medical practitioner must certify in writing that these services are necessary. So if one of your pupils fall under that provision, you will get tax trouble sooner or later. Bottom line: start making records now, and report your earnings. Collect your tax as any lawful citizen is required to.\",\n \"\\\"You can list it as other income reported on line 21 of form 1040. In TurboTax, enter at: - Federal Taxes tab (Personal in Home & Business) - Wages & Income -“I’ll choose what I work on” Button Scroll down to: -Less Common Income -Misc Income, 1099-A, 1099-C. -The next screen will give you several choices. Choose \\\"\\\"Other reportable Income\\\"\\\". You will reach a screen where you can type a description of the income and the amount. Type in the amount of income and categorize as Tutoring.\\\"\",\n \"In the united states qualified institutions of higher education should give the student a 1098-t. This form breaks down all money received/billed and for tuition and scholarships. It would not include items such as books and room and board. The 1098 would constitute proof of attendance and proof of expenses. If a 529 plan was used to pay for part or all of the tuition it should also be sent to you or the student depending on where the funds were sent. If the student can't find the 1098-t it is likely that the college had an electronic copy sent to the students official email, or it can be downloaded from the student's account where tuition bills care paid. Note: a confusing part of the 1098-T is that many universities include the spring semester numbers in the form for the previous year. For Example: The 1098-T will tell you if they have done that.\",\n \"For tax purposes you will need to file as an employee (T4 slips and tax withheld automatically), but also as an entrepreneur. I had the same situation myself last year. Employee and self-employed is a publication from Revenue Canada that will help you. You need to fill out the statement of business activity form and keep detailed records of all your deductible expenses. Make photocopies and keep them 7 years. May I suggest you take an accountant to file your income tax form. More expensive but makes you less susceptible to receive Revenue Canada inspectors for a check-in. If you can read french, you can use this simple spreadsheet for your expenses. Your accountant will be happy.\",\n \"You should include the checks you received from the company, invoices you sent, bank statements showing the deposits, and your receipts, if any, you issued to the company. You'd be surprised to know that this is a fairly common tax fraud. You can also try and sue the company or its successor for the missing amounts, but if it has been dissolved it may be difficult. As with any non-trivial tax issue - I suggest you get a professional advice from a EA/CPA licensed in your State. You may need representation before the IRS - only EA, CPA or an Attorney may represent you in IRS proceedings (including audit and correspondence).\",\n \"As an individual freelancer, you would need to maintain a book of accounts. This should show all the income you are getting, and should also list all the payments incurred. This can not only include the payments to other professionals, but also any hardware purchased, phone bills, any travel and entertainment bills directly related to the service you are offering. Once you arrive at a net profit figure, you would need to file this as your income. Consult a tax professional and he can help with how to keep the records of income and expenses. i.e. You would need to create invoices for payments, use checks or online transfers for most payments, segregate the accounts, one account used for this professional stuff, and another for your personal stuff, etc. In a normal course the Income Tax Department does not ask for these records, however whenever your tax returns get scrutinized on a random basis, they would ask for all the relevant documentations.\",\n \"You would be required to report it as self-employment income and pay tax accordingly. It's up to you to keep proper records (like a receipt book, for example), especially when it comes to cash. If you can't prove exactly how much you earned and the government decides to guess the amount for you then you won't like the outcome!\",\n \"You are right that even if you do not receive a 1099-MISC, you still need to report all income to the IRS. Report the $40 on Schedule C or Schedule C-EZ. Since your net profit was less than $400, you do not need to file Schedule SE. From the IRS web site: Self-Employment Income It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income. All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040. Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income. Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.\",\n \"\\\"ITR1 or ITR2 needs to be filed. Declare the income through freelancing in the section \\\"\\\"income from other sources\\\"\\\"\\\"\",\n \"Unfortunately this is something that should have been determined prior to the book tour. Your tax advisor or accountant could have assisted you in making sure you collected the documentation you needed. You are going to have to sit down with your advisor with the documentation you have and determine what you can prove.\",\n \"\\\"It's pretty easy. In the Interview Setup for Ufile, check the box for \\\"\\\"Self-employment business income\\\"\\\". Then during the process of filling everything out, you'll get a Self-Employment screen. It'll ask for the name of your business, but just put your own name since you don't have one. For the 6-digit classification code, click the ? button and look through the list for the industry that best matches the one for whom you wrote the technical report. Or you can go with 711500: Independent artists, writers and performers. It doesn't really matter that much so don't worry if it's a poor match. It will also ask you for your income and expenses. I don't know exactly what costs you might have incurred to write your report, but you can likely claim a very tiny amount of \\\"\\\"home office\\\"\\\" expenses. Costs like rent (or mortgage interest + property tax), utilities, and home insurance can be claimed, but they have to be pro-rated for the time you were actually doing the work, and are based on the amount of space you used for the work. For example, if you paid $1000 rent and $200 utilities for the month in which the work was done, and it took you 20 of the 31 days in that month to actually do the work, and you used a room that makes up about 10% of the square footage of your home, then you can claim: $1200 * 20/31 * 0.1 = $77.42 for your home office expenses. If you also used that room for non-business purposes during that time, then you reduce it even further. Say, if the room was also used for playing video games 50% of the time, then you'd only claim $38.71\\\"\",\n \"You need to register as self-employed with HMRC (it is perfectly fine to be self-employed and employed by an employer at the same time, in exactly your kind of situation). Then, when the income arrives you will need to declare it on your yearly tax return. HMRC information about registering for self-employment and declaring the income is here: https://www.gov.uk/working-for-yourself/overview There's a few extra hoops if your clients are outside the UK; the detail depends on whether they are in the EU or not. More details about this are here: https://www.gov.uk/online-and-distance-selling-for-businesses/selling-overseas .\",\n \"Yes, you do. Depending on your country's laws and regulations, since you're not an employee but a self employed, you're likely to be required to file some kind of a tax return with your country's tax authority, and pay the income taxes on the money you earn. You'll have to tell us more about the situation, at least let us know what country you're in, for more information.\",\n \"To be on the safe side - you'll want to get the full invoice. You don't need to actually print them, you can save it as a PDF and make sure to make your own backups once in a while. Only actually print them when the IRS asks you to kill some trees and send them a paper response, and even then you can talk to the agent in charge and check if you can email the digital file instead. The IRS won't ask for this when you file your taxes, they will only ask for this if you're under audit and they will want to actually validate the numbers on your return. You'll know when you're under audit, and who is the auditor (the agent in charge of your case). You'll also want to have some representation when that happens.\",\n \"You only need to report INCOME to the IRS. Money which you are paying to a landlord on behalf of someone else is not income.\",\n \"It should be reported as Miscellaneous Income. Congratulations for wanting to report this income.\",\n \"Scanned or electronic copies of invoices should be sufficient as long as they are accurate and you can deliver them during an audit. Also, if you have an accountant prepare your taxes you would either need to provide them a copy of the invoices or a summary of them with the corresponding amounts to be claimed. Personally I prefer to print out a paper copy and file that away with that quarter's and year's other tax documents. I do my own taxes and find paper copies handy as I can go through each invoice/receipt and make sure I have entered its information by ticking it. I find that when handling a large number of documents that paper copies are more easy to handle than electronic ones. In the end you will need to use a system that you feel comfortable with and are able to use effectively.\",\n \"You would report the overall income on your T1 general income tax return, and use form T2125 to report income and expenses for your business. Form T2125 is like a mini income-statement where you report your gross revenue and subtract off expenses. Being able to claim legitimate expenses as a deduction is an important tax benefit for businesses big and small. In terms of your second question, you generally need to register for a business number at least once you cross the threshold for GST / HST. If you earn $30,000/year (or spread over four consecutive quarters) then charging GST / HST is mandatory; see GST/HST Mandatory registration. There are other conditions as well, but the threshold is the principal one. You can also register voluntarily for GST / HST even if you're below that threshold; see GST/HST Voluntary registration. The advantage of registering voluntarily is that you can claim input tax credits (ITC) on any GST that your business pays, and remit only the difference. That saves your business money, especially if you have a lot of expenses early on. Finally, in terms of Ontario specifically (saw that on your profile), you might want to check out Ontario Sole Proprietorship. There are specific cases in which you need to register a business: e.g. specific types of businesses, or if you plan on doing business under a name other than your own. Finally, you may want to consider whether incorporating might be better for you. Here's an interesting article that compares Sole Proprietorship Versus Incorporation. Here's another article, Choosing a business structure, from the feds.\",\n \"Since you worked as an RA, the university should send you a W2 form. The taxable wages line in that form would be the sum of both the direct salary and employer paid benefits that are taxable. As such you should not need to do anything than enter the numbers that they provide you.\",\n \"The amount earned is taxable. It needs to shown as income from other sources. Although the last date for paying Advance tax is over [15 March], there is still time to pay Self-Assessment tax till 15 June. If the tax amount due is less than 10,000/- there is no penalty. If the tax is more than Rs 10,000/- there is penalty at the rate of 1% per month from March, and if the amount of tax exceeds 40% of the total tax, there will be additional 1% interest from December. The tax can be paid online via your Banks website or using the Income Tax website at https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp The form to be used is 280. You can use the Income tax website to calculate and file your tax returns at https://incometaxindiaefiling.gov.in/ or use the services of a CA. Edit: If the income is less than expenses, you need not pay tax. Maintain proper records [receipts] of income and expenses, if possible use a different Bank account so that they remain different from your main account. The tax to be paid depending on your income slab. The additional income needs to added to you salary. The tax and slabs will be as per this. There is no distinction on this amount. Its treated as normal income. All Tax for the given year has to be paid in advance. i.e. for Tax year 2013-14, 30% of total tax by 15-Sept, Additional 30% [total 60%] by 15-Dec and Balance by 15-Mar. Read Page 3 and page 10 of http://incometaxindia.gov.in/Archive/Taxation_Of_Salaried_Employees_18062012.pdf\",\n \"You can use the ITR 1 and declare the income from freelancing as income from other sources. As part of freelancing, certain expenses can be deducted provided they are directly related to work and have proper records. Please consult a CA who can advice you on how to do this. The Actual income shown should be less of the expenses.\",\n \"Such activity is normally referred to as bartering income. From the IRS site - You must include in gross income in the year of receipt the fair market value of goods or services received from bartering. Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business (Sole Proprietorship). If you failed to report this income, correct your return by filing a Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Refer to Topic 308 and Amended Returns for information on filing an amended return.\",\n \"You are correct that you do not need to file under a certain circumstances primarily related to income, but other items are taken into account such as filing status, whether the amount was earned or unearned income (interest, dividends, etc.) and a few other special situations which probably don't apply to you. If you go through table 2 on page 3 and 4 of IRS publication 501 (attached), there is a worksheet to fill out that will give you the definitive answer. As far as the 1099 goes, that is to be filed by the person who paid you. How you were paid (i.e., cash, check, etc., makes no difference). You don't have a filing requirement for that form in this case. https://www.irs.gov/pub/irs-pdf/p501.pdf\",\n \"\\\"As you are earning an income by working in India, you are required to pay tax in India. If you contract is of freelance, then the income earned by you has to be self declared and taxes paid accordingly. There are some expenses one can claim, a CA should be able to guide you. Not sure why the Swiss comapny is paying taxes?. Are they depositing this with Income Tax, India, do they have a TAN Number. If yes, then you don't need to pay tax. But you need to get a statement from your company showing the tax paid on behalf of you. You can also verify the tax paid on your behalf via \\\"\\\"http://incometaxindia.gov.in/26ASTaxCreditStatement.asp\\\"\\\" you cna register. Alternatively if you have a Bank Account in India with a PAN card on their records, most Banks provide a link to directly see\\\"\",\n \"\\\"Re the business license - in California business licenses are given by the municipal/county governments, so you'll have to check that with your city hall or county office. Re taxes - yes, you'll have to pay taxes, as with any income. Services are considered \\\"\\\"imputed income\\\"\\\", and generally you'd recognize income to the extent they would be paying had they been paying the full price (or the actual cost of services provided, if more). Since this is a hobby and not a for-profit enterprise, your deductions may be limited by the actual income and the 2% AGI threshold. See more here.\\\"\",\n \"You can receive money directly into your savings bank account. It is perfectly legal. FYI the Bank as part of regulation would report this to RBI. As the funds are received for the services you have rendered, You are liable to pay tax on the income. The income is taxed as professional income similar to the income of Doctors, Lawyers, Accountants etc. If you are paying your colleagues, it would be treated as expense. Not only this, you can also treat any phone calls you make, or equipment your purchase [laptop, desk etc] as expense. The difference become your actual income and you would be taxed as per the rate for individuals. It's advisable you contact an accountant who would advise you better for a nominal fee [few thousand rupees] and help you pay the tax and file the returns. With or without accountant It is very important for you to record all payments and expenses in a book of accounts.\",\n \"\\\"Another factor you may want to consider is insurance, if your wife is at their house as a friend who happens to be teaching the kid to play and the kid falls off their chair and hurts them self that is rather different to your wife being brought in to the house as a contractor and an injury occurring during an activity that she was supervising. I am in a similar situation and I have a $5 million public liability policy, which costs about $300 per year. So if her income is likely to be less than that she may be better off \\\"\\\"helping a friend learn\\\"\\\" rather than \\\"\\\"providing tutoring services\\\"\\\". There may also be legal requirements, I am required to apply for government checks every few years in order to operate a business that involves working with children.\\\"\",\n \"I am not an accountant, but I do run a business in the UK and my understanding is that it's a threshold thing, which I believe is £2,500. Assuming you don't currently have to submit self assessment, and your additional income from all sources other than employment (for which you already pay tax) is less than £2,500, you don't have to declare it. Above this level you have to submit self assessment. More information can be found here I also find that HMRC are quite helpful - give them a call and ask.\",\n \"Here's an answer received elsewhere. Yes, it looks like you have a pretty good understanding the concept and the process. Your wife's income will be so low - why? If she is a full-time student in any of those months, you may attribute $250 x 2 children worth of income for each of those months. Incidentally, even if you do end up paying taxes on the extra $3000, you won't be paying the employee's share of Social Security and Medicare (7.65%) or state disability on those funds. So you still end up saving some tax money. No doubt, there's no need to remind you to be sure that you submit all the valid receipts to the administrator in time to get reimbursed. And a must-have disclaimer: Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this email, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. ... Any information contained in this email does not fall under the guidelines of IRS Circular 230.\",\n \"Yes, you need to include income from your freelance work on your tax return. In the eyes of the IRS, this is self-employment income from your sole-proprietorship business. The reason you don't see it mentioned in the 1040EZ instructions is that you can't use the 1040EZ form if you have self-employment income. You'll need to use the full 1040 form. Your business income and expenses will be reported on a Schedule C or Schedule C-EZ, and the result will end up on Line 12 of the 1040. Take a look at the requirements at the top of the C-EZ form; you probably meet them and can use it instead of the more complicated C form. If you have any deductible business expenses related to your freelance business, this would be done on Schedule C or C-EZ. If your freelance income was more than $400, you'll also need to pay self-employment tax. To do this, you file Schedule SE, and the tax from that schedule lands on form 1040 Line 57.\",\n \"I suggest to start charging slightly more than needed to cover expenses. All you need is to show profit. It doesn't have to be significant - a couple of hundred of dollars of consistent yearly profit should suffice to show a profitable business. Then you can deduct on Schedule C all the related expenses. The caveat is that the profit (after the deduction of the expenses will be a bit smaller) will be subject to not only income tax but also the self-employment tax. But at least you'll pay tax on profit that is not entirely phantom. I remember suggesting you getting a professional consultation on this matter a while ago. You should really do that - talk to a EA/CPA licensed in your state, it may be well worth the $100-200 fee they'll charge for the consultation (if at all...).\",\n \"It's always beneficial to have detailed business records. There are any number of reasons where you'd need to prove both the types of services you've rendered and the payment history - you've already noted audits (for IRS taxes). Other possibilities: Whether these records need to be original or electronic might be the topic for another question.\",\n \"From the IRS web site: So if your income was reported to the IRS (by the payer, not you) using one of the forms above, the IRS would have a record of it, regardless of whether you filed a tax return or not.\",\n \"We run into this all the time with our EU clients. As far as I can tell, the only requirements when it comes to invoicing have to do with sales tax, which is determined at the state level, and only in the case that items are taxable. It seems that the service provided to you is not taxable and so there is no obligation under Californian law to provide you with the invoice you need. That said, it would be nice to provide this information to you as a courtesy. We don't provide the information typically required by EU tax authorities on our receipts either, but whenever one of our EU clients requests a more formal invoice we gladly send them one.\",\n \"\\\"My number one piece of advice is to see a tax professional who can guide you through the process, especially if you're new to the process. Second, keep detailed records. That being said, I found two articles, [1] and [2] that give some relevant details that you might find helpful. The articles state that: Many artists end up with a combination of income types: income from regular wages and income from self-employment. Income from wages involves a regular paycheck with all appropriate taxes, social security, and Medicare withheld. Income from self-employment may be in the form of cash, check, or goods, with no withholding of any kind. They provide a breakdown for expenses and deductions based on the type of income you receive. If you get a regular paycheck: If you've got a gig lasting more than a few weeks, chances are you will get paid regular wages with all taxes withheld. At the end of the year, your employer will issue you a form W-2. If this regular paycheck is for entertainment-related work (and not just for waiting tables to keep the rent paid), you will deduct related expenses on a Schedule A, under \\\"\\\"Unreimbursed Employee business expenses,\\\"\\\" or on Form 2106, which will give you a total to carry to the schedule A. The type of expenses that go here are: If you are considered an independent contractor (I presume this includes the value of goods, based on the first quoted paragraph above): Independent contractors get paid by cash or check with no withholding of any kind. This means that you are responsible for all of the Social Security and Medicare normally paid or withheld by your employer; this is called Self-Employment Tax. In order to take your deductions, you will need to complete a Schedule C, which breaks down expenses into even more detail. In addition to the items listed above, you will probably have items in the following categories: Ideally, you should receive a 1099 MISC from whatever employer(s) paid you as an independent contractor. Keep in mind that some states have a non-resident entertainers' tax, which is A state tax levied against performers whose legal residence is outside of the state where the performance is given. The tax requires that a certain percentage of any gross earnings from the performance be withheld for the state. Seriously, keep all of your receipts, pay stubs, W2's, 1099 forms, contracts written on the backs of napkins, etc. and go see a tax professional.\\\"\",\n \"There is no document that I know of that stipulates otherwise. This can also be corroborated by the fact that RESP withdrawals are considered as income in the name of the student. Thus, so long as the student pays tuition and receives a T2202A slip from the educational institution, they should be able to claim tuition, education, and textbook amounts.\",\n \"There is no strict need to do that, you can consider yourself to be consulting, a 10% of your payment will be withheld and paid as tax by the company, you can deduct up to 60% of your income as expenses and pay tax on the rest (factoring the tax deducted at source). In another approach, you could register for service tax and charge service tax on your invoice and pay to the service tax department, the tax calculations are similar to above. It will be good if you speak to a chartered accountant and get more clarity. As for business card, you could print it with your name and qualification, there are no restrictions on that.\",\n \"Your freelance income will not qualify you for the work-from-home deductions, for that you would need a T2200 form signed by your employer. But, you are allowed to be self employed as a sole-proprietorship while still being an employee of another company. If you take that route, you'll be able to write-off even more expenses than those you linked to. Things like a portion of your internet bill can be claimed, for example. But note that these deductions would only apply to offset the self-employment income, so if you're not earning very much from the freelance work, it might not be worth all the hassle. Filing taxes when self-employed is definitely more complicated, and many people will get professional tax preparation help - at least for the first time.\",\n \"It is definitely legal and will be accounted by the IRS as earned income.\",\n \"\\\"VAT = Value Added Tax (as an Aussie think \\\"\\\"GST\\\"\\\") This is applicable in Britain. Basically, if you were in Britain, and if you could claim VAT as a deduction, that invoice is not sufficient proof to make the claim. But you're in Oz so it doesn't apply to you in any case. For work-related deductions like book purchases, see http://www.ato.gov.au/individuals/content.asp?doc=/content/00216829.htm&pc=001/002/068/001/002&mnu=&mfp=&st=&cy=1 Issues such as the books being second hand or purchased online are not cited in the instructions as relevant/limiting factors. In fact, if you really want to get into the nitty gritty, you could claim the work-related proportion of your internet access fees as a deduction (question D5 instructions, above, cover that as well).\\\"\",\n \"First, request that you complete a tax return. On this tax return, you will complete both the employed and self employed sections. This will give you a total income and tax liability. You will already have paid some tax via PAYE, but you will have to pay additional tax for any other income. For future years there is the option, depending on amount, to collect extra tax through PAYE to cover the other earnings. If it is likely to be the same for the next few years, this may be a better option than paying a lump sum. The tax return is now mostly online, and not too bad if your affairs are otherwise simple. The hardest part will be keeping a good record of your other earnings. Remember that you have to keep these records for seven years in case HMRC ever want to audit them, and it's a good idea to have a separate account for the income, or some other way of easily identifying it.\",\n \"Every bill you write counts as income (if the bill doesn't get paid, you would count that as an expense). In cases where you don't write bills, I think the payment you receive would count as income, but you might check that on the HMRC website. So to record your income, you can basically record the payments that you receive. Anything you pay out for your business is an expense. You keep a receipt for every expense - if you don't have a receipt, you can't count it as an expense, so keeping all the receipts is very, very important. An exception are investments, for example buying a computer that should last multiple years; there you can count a percentage of the investment as expense every year. All income, minus all expenses, is your profit. You pay tax and National Insurance contributions according to your profit. You can do whatever you like with the profit. Notice that I didn't mention any salary. Self employed means you have no salary, you have profits and do with them whatever you like. On the other hand, you pay taxes on these profits almost exactly as if they were income. If you have this blog but are also employed, you'll add the profits to your normal income statement.\",\n \"\\\"This is going to depend on the tax jurisdiction and I have no knowledge of the rules in Illinois. But I'd like to give you some direction about how to think about this. The biggest problem that you might hit is that if you collect a single check and then distribute to the tutors, you may be considered their employer. As an employer, you would be responsible for things like This is not meant as an exhaustive list. Even if not an employer, you are still paying them. You would be responsible for issuing 1099 forms to anyone who goes above $600 for the year (source). You would need to file for a taxpayer identification number for your organization, as it is acting as a business. You need to give this number to the school so that they can issue the correct form to you. You might have to register a \\\"\\\"Doing Business As\\\"\\\" name. It's conceivable that you could get away with having the school write the check to you as an individual. But if you do that, it will show up as income on your taxes and you will have to deduct payments to the other tutors. If the organization already has a separate tax identity, then you could use that. Note that the organization will be responsible for paying income tax. It should be able to deduct payments to the tutors as well as marketing expenses, etc. If the school will go for it, consider structuring things with a payment to your organization for your organization duties. Then you tell the school how much to pay each tutor. You would be responsible for giving the school the necessary information, like name, address, Social Security number, and cost (or possibly hours worked).\\\"\",\n \"If you are being paid money in exchange for services that you are providing to your cousin, then that is income, are legally you are required to declare it as self-employment income, and pay taxes when you file your tax return (and if you have a significant amount of self-employment income, you're supposed make payments every quarter of your estimated tax liability. The deposit itself will not be taxed, however.\",\n \"I probably can, but I realized I also do have a commission sheet from the month of June which shows how much I made in just commissions, and then I could tell them I also get my 300 a week salary. Do you think that would suffice?\",\n \"\\\"As a Canadian resident, the simple answer to your question is \\\"\\\"yes\\\"\\\" Having worked as a tax auditor and as a Certified Financial Planner, you are required to file an income tax return because you have taxable employment income. All the employer is doing is deducting it at source and remitting it on your behalf. That does not alleviate your need to file. In fact, if you don't file you will be subject to a no filing penalty. The one aspect you are missing is that taxpayers may be entitled to tax credits that may result in a refund to you depending on your personal situation (e.g spousal or minor dependents). I hope this helps.\\\"\",\n \"Generally for tax questions you should talk to a tax adviser. Don't consider anything I write here as a tax advice, and the answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Does IRS like one payment method over other or they simply don't care as long as she can show the receipts? They don't care as long as she withholds the taxes (30%, unless specific arrangements are made for otherwise). She should withhold 30% of the payment and send it to the IRS. The recipient should claim refund, if the actual tax liability is lower. It's only consulting work at the moment, so most of the communication is done over phone. Should they start engaging in written communication to keep records of the work done? Yes, if she wants it to be a business expense. Is it okay to pay in one go to save money-transferring fees? Can she pay in advance? Again, she can do whatever she wants, but if she wants to account for it on her tax returns she should do it the same way she would pay any other vendor in her business. She cannot use different accounting methods for different vendors. Basically, she has not outsourced work in previous years, and she wants to avoid any red flags. Then she should start by calling on her tax adviser, and not an anonymous Internet forum.\",\n \"You don't need to file or do anything. The bank will report all transfers over 10 000, but chances are slim that it will even be looked at, if you don't do this every week. Worst case, someone will ask you about the source, and you tell them exactly what you wrote above (I had multiple international transfers over 60k and nobody ever asked). You said you paid his tuition, and he is now paying you back, so in case someone asks, you should be able to produce the documentation on the tuition payment - a bill, or your bank statement showing you paid it; and the amount should be matching, so you have proof. Note that if he pays you interest, it is taxable income. You are obligated to list it on your next tax filing.\",\n \"You send the proper form to the other person for the amount you gave him, and file it as your business expense on your Schedule C.\",\n \"You need receipts only if you claim deductions in the itemized deductions section based on them. You itemize deductions only if your claims exceed the standard deduction (which for a single person was $5,800 last year). Even then, you need receipts for everything only if you claim sales tax as the deduction (you have to buy really a lot to pass $5K with sales tax...). I would expect people to pay more in state income taxes than sales taxes (you can claim either this or that, not both). For food - there are no taxes (at least here in California), so nothing to deduct anyway. In any case, you can always scan your receipts and keep them in the computer, for just in case, but IMHO it's waste of time, pixels and gigabytes. Here's a question which deals with the same issue, read the answers there as well.\",\n \"If this will be your sole income for the year, going self-employed is the best way to do this: So, here's how to go at it: Total cash in: £2000 Total Tax paid: £0 Admin overhead: approx 3 hours. Legit: 100% :) Edit: Can you tell me that in my case what are the required fields on the invoice? If you're non-VAT registered, there are no legal requirements as to what information you need to put on the invoice -it literally can be a couple of numbers on a napkin, and still be legit. With that said, to make a professional appearance, my invoices are usually structured as follows: Left side: ( Sidenote: why client-specific incremental numbering? Why, so they can't make educated guesses to the number of clients I have at any given time :) ) Right side: Center table: And so far, none of my clients missed any fields, so this should have everything they need to :) Hope this helps, but keep in mind, all of the above is synthetic sugar on the top -ultimately, the relationship you share with your Clients is the thing you will (or will not) get paid for! Edit#2: The voices in my head just pointed out, that I've totally omitted National Insurance contributions in the above. However, and I quote HMRC: If your profits are expected to be less than £5,315 you may not have to pay Class 2 National Insurance contributions. Hence, this won't change the numbers above, either -just make sure to point this out during your registration in the office.\",\n \"If you want to be safe, only claim deductions for which you have a receipt. This explanation may help.\",\n \"\\\"These kinds of questions can be rather tricky. I've struggled with this sort of thing in the past when I had income from a hobby, and I wanted to ensure that it was indeed \\\"\\\"hobby income\\\"\\\" and I didn't need to call it \\\"\\\"self-employment\\\"\\\". Here are a few resources from the IRS: There's a lot of overlap among these resources, of course. Here's the relevant portion of Publication 535, which I think is reasonable guidance on how the IRS looks at things: In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether: Most of the guidance looks to be centered around what one would need to do to convince the IRS that an activity actually is a business, because then one can deduct the \\\"\\\"business expenses\\\"\\\", even if that brings the total \\\"\\\"business income\\\"\\\" negative (and I'm guessing that's a fraud problem the IRS needs to deal with more often). There's not nearly as much about how to convince the IRS that an activity isn't a business and thus can be thrown into \\\"\\\"Other Income\\\"\\\" instead of needing to pay self-employment tax. Presumably the same principles should apply going either way, though. If after reading through the information they provide, you decide in good faith that your activity is really just \\\"\\\"Other income\\\"\\\" and not \\\"\\\"a business you're in on the side\\\"\\\", I would find it likely that the IRS would agree with you if they ever questioned you on it and you provided your reasoning, assuming your reasoning is reasonable. (Though it's always possible that reasonable people could end up disagreeing on some things even given the same set of facts.) Just keep good records about what you did and why, and don't get too panicked about it once you've done your due diligence. Just file based on all the information you know.\\\"\",\n \"The Canada Revenue Agency describes in detail here what information businesses must generally include on their invoices so that GST/HST registrants can claim Input Tax Credits (ITCs) for the expenses. Quote: Sales invoices for GST/HST registrants You have to give customers who are GST/HST registrants specific information on the invoices, receipts, contracts, or other business papers that you use when you provide taxable goods and services. This information lets them support their claims for input tax credits (ITCs) or rebates for the GST/HST you charged. [...] The page quoted continues with a table describing what, specifically, needs to be on a sales invoice based on the total amount of the invoice; the requirements differ for: total sale under $30, total sale between $30 to $149.99, and total sale $150 or more. For the total sale under $30 category, the only things a sales invoice must contain to support an ITC claim are (1) the provider's business name, (2) the invoice date, and (3) the total amount paid/payable. i.e. When the total sale is under $30, there is no requirement for any GST/HST amount to be indicated separately, nor for a business number to be present on the invoice. Hence, IMHO (and I am neither an accountant nor a lawyer), if your Uber rides are for $30 or less, then you shouldn't expect a GST/HST number anyway, and a simple invoice as described should be enough for you to claim your ITCs. Whether or not the provider is registered in fact for GST/HST is beside the point. For amounts over $30, you need a bit more. While the page above specifies that the provider's business number should be included beginning with the next level of total sales, there are exceptions to those rules described at another page mentioned, Exceptions to invoice requirements, that specifically apply to the taxi/limousine case. Quote: Exceptions to invoice requirements GST/HST registrants are required to keep the necessary documentation to support their claim for ITCs and rebates. In certain circumstances the documentation requirements have been reduced. [...] For taxi or limousine fares your books and records must show: So at a minimum, for fare in excess of $30 total, you should ask the driver to note either (a) the amount of GST/HST charged, or (b) a statement that the fare includes GST/HST. The driver's business number need not be specified. Consequently, if your receipt for a ride in excess of $30 does not contain any such additional information with respect to GST/HST, then I would expect the receipt does not satisfy the CRA's requirements for supporting your ITC claim. i.e. Keep your individual rides under $30 each, or else get a better receipt from the driver when it is above that amount. p.s. It should go without saying, but your rides, of course, must be considered reasonable business expenses in order to qualify for GST/HST ITCs for your business. Receipts for rides of a personal nature are not eligible, so be sure to maintain proper records as to the business purpose and destination for each ride receipt so claimed.\",\n \"\\\"From the poster's description of this activity, it doesn't look like he is engaged in a business, so Schedule C would not be appropriate. The first paragraph of the IRS Instructions for Schedule C is as follows: Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Form 1040, line 21, or Form 1040NR, line 21. What the poster is doing is acting as a nominee or agent for his members. For instance, if I give you $3.00 and ask you to go into Starbucks and buy me a pumpkin-spice latte, you do not have income or receipts of $3.00, and you are not engaged in a business. The amounts that the poster's members are forwarding him are like this. Money that the poster receives for his trouble should be reported as nonbusiness income on Line 21 of Form 1040, in accordance with the instructions quoted above and the instructions for Form 1040. Finally, it should be noted that the poster cannot take deductions or losses relating to this activity. So he can't deduct any expenses of organizing the group buy on his tax return. Of course, this would not be the case if the group buy really is the poster's business and not just a \\\"\\\"hobby.\\\"\\\" Of course, it goes without saying that the poster should document all of this activity with receipts, contemporaneous emails (and if available, contracts) - as well as anything else that could possibly be relevant to proving the nature of this activity in the event of an audit.\\\"\",\n \"I'm not sure how this gets entered in TurboTax, but this income from the company should be included in the Schedule C (or C-EZ) Line 1 Gross Receipts total, along with all of your 1099-MISC income from your business and any other income that your business took in. You don't need a 1099 from them, and the IRS doesn't care (at least from your perspective) if you got a 1099 or not; in fact, they probably expect you to have some non-1099 income. We don't know why the company chose not to issue 1099 forms, but luckily it isn't your concern. You can fill out your tax return properly without it. Note: This answer assumes that you didn't have any tax withheld from your checks from this company. If you did have tax withheld, you'll need to insist on a 1099 to show that.\",\n \"You're charging service fees as a conduit entity for these tickets. While the service fee is not a fixed rate, but a percentage, you would need to record each purchase at dollar amount. To illustrate, it would look like: Now, to your question: How do I report this on my taxes? You would first start out by filing your Schedule C from the eyes of the business (the money you earn at your job, and the money you earn as a business are different). Just keep a general journal with the above entry for each sale and close them down to a simple balance sheet and income statement and you should be fine. Of course, read the instructions for your Schedule C before you begin. As always, good luck.\",\n \"If your net profit is $0, then no, you will not owe income tax as a result of providing this service. But there's a lot more to consider than just that... Before you begin you'll need to decide if this is a business or a hobby. Based on the fact that you don't intend to make a profit, you are probably going to be calling it a hobby for tax purposes. Regardless of whether it is a business or a hobby, since you will be accepting payments from people, you will need to report the income on your tax return. As both a business and a hobby you can deduct all of your expenses to bring your profit down to $0. (Assuming all the expenses are legitimate business/hobby expenses.) The main differences between business and hobby are: If you choose to run as a business you'll likely save quite a bit of money by avoiding the 2% rule, and also by being able to deduct any non-specific-customer expenses and take a loss. Be careful though that you don't go too many years with a business loss or the IRS may re-classify it as a hobby, which may include an audit. If you decide to run as a business you may need to charge a little more than just expenses to attempt to turn a profit, or at least break even.\",\n \"Aside from the fact that probably nobody is ever going to come and ask for that proof unless your amounts get five digits (or you're unlucky), if you never before reimbursed yourself, your old tax declarations would clearly show that. You can't prove a negative, so the only potential is that you had reimbursements before, and an audit might ask you to prove that the new ones are not duplicates of those. In this case, if you have other receipts / proof for all those other reimbursements, they are obviously not duplicates.\",\n \"You're not subject to the US tax laws, and since the income is not US-sourced, it is not subject to withholding. Your employer doesn't need any form, but if they insist - you can provide them a W8-BEN to certify your non-resident status. Keep in mind that if you do come to the US, the money you earn while in the US is US-sourced and subject to the US taxes and withholding, even if you're non-resident.\",\n \"The Canada Revenue Agency does indeed put out just the guide you want. It's at http://www.cra-arc.gc.ca/E/pub/tg/rc4070/rc4070-e.html - you should always take a good look at URLs to make sure they're really from the government and not from some for-profit firm that will charge you to fill out forms for free services. It covers ways to structure your business (probably a sole proprietor in your case), collecting and submitting GST or HST, sending in payroll remittances (if you pay yourself a T4 salary), and income tax including what you can deduct. It's a great place to start and you can use it as a source of keywords if you want to search for more details.\",\n \"\\\"In general, scholarship income that you receive that is not used for tuition or books must be included in your gross income and reported as such on your tax return. Scholarship income you receive that is used for those kinds of expenses may be excludable from your gross income. See this IRS information and this related question. I believe that as represented on the 1098-T, this generally means that if Box 5 (Scholarships and Grants) is greater than Box 1 or 2 (only one of which will be used on your 1098-T), you received taxable scholarship income. If Box 5 is less than or equal to Box 1/2, you did not receive taxable scholarship income. This TaxSlayer page draws the same conclusion. However, you should realize that the 1098-T is not what makes you have to pay or not pay taxes. You incur the taxes by receiving scholarship money, and you may reduce your tax liability by paying tuition. The 1098-T is simply a record of payments that have already been made. For instance, if you received $10,000 in scholarship money --- that is, actually received checks for that amount or had that amount deposited into your bank account --- then your income went up by $10,000. If you yourself paid tuition, it is likely that you can exclude the amount of the tuition from your taxable income, reducing the tax you owe (see the IRS page linked above). However, if you received $10,000 in actual money and in addition your tuition was paid by the scholarship (with money you never actually had in your own bank account), then the entire $10,000 would be taxable. You do not give enough information in your question to be sure which of these situations is closer to your own. However, you should be able to decide by looking at your bank account: look at how much money you received and how much you spent on tuition. If you received more scholarship money than the tuition you paid out of pocket, you owe taxes on the remainder. (I emphasize that this is just a general rule of thumb and should not be taken as tax advice; you should review the IRS information and/or consult a tax professional to determine what part of your scholarship income is taxable.) In addition, as this (now rather old) article from the New York Society of CPAs notes, \\\"\\\"many colleges and universities prepare 1098-Ts incorrectly and report tuition and related expenses inconsistently\\\"\\\". This means you should be careful to reconcile the 1098-T with your own financial records of what money you actually received and paid. When I was in grad school there was a good deal of hand-wringing and hair-pulling each year among the students as we tried to determine what relationship (if any) the 1098-T bore to the financial facts.\\\"\",\n \"\\\"If you want an \\\"\\\"account statement\\\"\\\" from the IRS listing the taxes due and paid and confirming a zero balance remaining, you want what they call a Tax Account Transcript. It sounds like you tried to submit this online, but yes, it would require the actual taxpayer to submit it. The other option would be to fill out Form 4506-T requesting the Form 1040 Tax Account Transcript, have the taxpayer sign it, and mail it in. Presumably whatever method you used to have her sign the Form 1040 you prepared for her you could also use to have her sign the 4506-T. Another option could be to try to request the transcript over the phone. I don't know what authentication they require, or if you would need to have been listed on the 1040 as an authorized Third Party Designee. According to the IRS Transcript FAQ Page: Q19. What if I’m unable to use Get Transcript by Mail? If you are unable to use Get Transcript by Mail, you may try our automated phone transcript service at 800-908-9946 and also receive your transcript by mail. Please allow 5 to 10 calendar days for delivery. But unless there's a reason to think that the tax account wasn't credited properly or the IRS is sending another bill or the like, I don't think there's a lot of point in doing so. In general, the fact that the check cleared the bank should be sufficient documentation that the amount was paid.\\\"\",\n \"It's fine - if you are an employee, you will normally have all taxes deducted by the employer, and won't even need to complete a tax return. Even if you do, all the figures will be on the P60 you get at the end of the year. If that's your only income, it's pretty easy to do. Remember, your taxes and your girlfriends are totally separate. It also doesnt matter where the money goes - you could be paid in cash or into any account, it's the fact that you earn it makes it taxable.\",\n \"Assuming that the jobs where you've earned money from have sent you W-2s, 1099s, etc. Then yes, you can request a Wage and Income Transcript: Shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. Current tax year information may not be complete until July. This transcript is available for up to 10 prior years using Get Transcript Online or Form 4506-T.\",\n \"You normally wouldn't pay income taxes on money that isn't income. Transferring money or withdrawing it from a bank isn't an income generating event. I think it is very doubtful that you would need to claim that on income tax forms.\",\n \"As Victor says, you pay tax on net profit. If this is a significant source of income for you, you should file quarterly estimated tax payments or you're going to get hit with a penalty at the end of the year.\",\n \"HMRC may or may not find out about it; the risks and penalties involved if they do find out make it unwise not to just declare it and pay the tax on it. Based on the fact you asked the question, I am assuming that you currently pay all your tax through PAYE and don't do a tax return. You would need to register for Self Assessment and complete a return; this is not at all difficult if your tax situation is straightforward, which it sounds like yours is. Then you would owe the tax on the additional money, at whatever applicable rate (which depends on how much you earn in your main job, the rate tables are here: https://www.gov.uk/income-tax-rates/current-rates-and-allowances ). If it truly is a one off you could simply declare it on your return as other income, but if it is more than that then you would need to look at setting up as Self Employed - there is some good advice on the differences here: http://www.brighton-accountants.com/blog/tax-self-employment-still-employed/ : Broadly, you are likely to be running a business if you have a regular, organised activity with a profit motive, which continues for at least a few months. If the work is one-off, or very occasional (say, a few times per year), or not very organised, or of very low value (say, under £2,000 per year), then it might qualify as casual income. If you think it is beyond the definition of casual income then you would also need to pay National Insurance, as described in the previous link, but otherwise the tax treatment would be the same.\",\n \"Adsense don't pay you daily. They pay you every month (as they have to calculate the final value). I'd say you only have to declare it when it hits your bank account. £60 actually isn't that much. It only took me a couple of months of just making a few quid, to making enough to get a monthly payment, and I only tot up what goes into my bank account. I've opened up a second account with my bank to send and receive payments relating to my online adventures. Then any in/out goes into a spreadsheet that I do at the end of the month keeping track of everything. If Mr. Taxman want to investigate at the end of the tax year, it's all logged in that account. It gets a bit murkier if you start doing US Amazon affiliates. The simplest method is to get the cheque delivered, and then log the amount that goes into your bank (after $->£ conversion). I have a Payoneer account, and transfer most of the money into my account (after it hits $500), and keep a little bit in for things I buy that are in USD. Hope that helps.\",\n \"\\\"This may be closed as not quite PF, but really \\\"\\\"startup\\\"\\\" as it's a business question. In general, you should talk to a professional if you have this type of question, specifics like this regarding your tax code. I would expect that as a business, you will use a proper paper trail to show that money, say 1000 units of currency, came in and 900 went out. This is a service, no goods involved. The transaction nets you 100, and you track all of this. In the end you have the gross profit, and then business expenses. The gross amount, 1000, should not be the amount taxed, only the final profit.\\\"\",\n \"You'll need to show the whole paper trail: show that the $2000 are the same $2000 (i.e.: show that you didn't get any new income that was not yet reported on your Elance balance), and show that it was in fact transfer from Elance (matching transactions on both accounts). Obviously, add a letter describing the whole process and pointing to the specific pages and lines in the statements and prior year tax returns. Follow the instructions on the notice about where to send your response, and make sure you send it certified USPS mail. Consider having a tax professional (EA/CPA licensed in your State) helping you with this. For the future - do not leave money on various private parties' accounts. It is uninsured, and if something happens to that company - you lose the money. That includes, in the US, also PayPal accounts.\",\n \"Assuming you have registered your activities as partnership and receiving this money as Individual, you need to show this under Schedule OS, 1d [other income]. this will be under the ITR-2 [tab CG-OS] XLS tax preparation utility given by Tax Department. The XLS can be found at https://incometaxindiaefiling.gov.in/portal/individual_huf.do If the funds you are receiving are large [more than say Rs 500,000] then suggest you incorporate a partnership firm or company, there are quite a few exceptions you can claim lowering you tax outgo. The fact that you are transferring funds to your partners can be an issue incase you get audited. You would need to have sufficient evidence to show that the money paid was for services rendered directly and not your income. It would be easier if you create a partnership or have the client directly pay to them. Again if the sum is small its fine, as the sum becomes large, it would get noticed by the tax authorities.\",\n \"If you are freelancing, the best form for you is ITR-4. With this form you can declare your salary income as well as your expenses related to your freelancing. And you should treat your freelancing income as business. That way you can get max deductions claimed.\",\n \"You can invoice your advertisers and use the date of the invoice for tax purposes. Some advertisers may want to pay monthly, weekly etc so that would require multiple entries as income on the relevant dates.\",\n \"\\\"The Dutch tax office is pretty decent, although slightly overburdened. Don't expect a lot of help, but they're not generally known for making a lot of problems. Digital copies are fine, for instance. They will send you your first VAT notice. You probably would have known if your company would have been incorporated, so I'll assume you're just trading as a natural person. That means you still have to file VAT returns, but the business income is just filed annually as \\\"\\\"other income\\\"\\\". For the VAT part, you'll need to invoice your customers. Keep a copy of those invoices for your own bookkeeping, and keep track of the matching customer payments. Together these form the chief evidence of your VAT obligation. You also have a VAT deduction from your purchases (it's a Value-Added Tax, after all). Again, keep receipts. The usual VAT period is 3 months, so you'd pay VAT 4 times a year. But if you would pay less than 1883 euro, you might not need to pay at all and just need to file annually The income part is easy with the receipts you had for VAT purposes anyway. Dutch Tax Office, VAT, in English\\\"\",\n \"The problem with your profession is that it is hard to distinguish those activities as 'services rendered' or just a 'pastime hobby'. If you believe that both of those activities constitutes a 'service rendered in a professional capacity', then you should include it into the 'Goods and services for your own use' field. However, should you believe that those services rendered was not in a professional capacity and it was in a personal one (i.e. helping out), you need not include it in the field. In addition, should you feel that the pro-bono services rendered overlaps with your professional freelance work in any way, you might want to consider the service rendered to your dad and yourself as a 'professional service' and include it in Goods and services for your own use. Such examples include (but not limited to): It might be wise to call up the HMRC to clarify on your particular situation. But what I know is, this box was created to ensure that such services rendered should be considered a profit (i.e. an advantage, adds value) and not a loss (or no value).\",\n \"You are confused about a couple of terms: For example you work for company A: As to the 1098-T: It is likely that you or your parents will use the 1098-T. You don't have to file a copy with the IRS. You and your parents need to determine who should be reporting the educational expenses: you or your parents.\",\n \"There is no reason for you to open a firm. However, it will help you, if you operate separate bank account for business and personal purposes. You can run your business as proprietorship business. Your inward remittance is your income. You can deduct payment made to your colleagues as salary. You should pay them by way of cheques or bank transfer only. You are also entitled to deduct other business expenses provided you keep proper receipt of the same such as broadband connection charges, depreciation on equipment and more importantly, rent on your house. If your total receipt from such income exceeds INR 60,00,000 you will need to withhold tax on payment made to your colleagues as also subject to audit of your accounts. If you want to grow your business, suggest you should take an Import / Export Code in your own name. You can put any further question in this regard.\",\n \"I had a chat with a coworker whose spouse also teaches music lessons. One interesting insight was that after raising prices, the children were much more likely to come prepared because the parents felt more invested when it cost them more. They were also less likely to cancel the lessons at the last minute. This is an argument in favor of TTT's suggestion to charge something even if we donate the income to charity. Along those lines it might also make sense to give discounts if the child comes prepared having practiced daily. I agree that it's not a lot of paperwork for some additional pay, the problem is that I would also be tempted to buy a new piano and find other expenses to reduce the income. That's a discussion for another day. I think the break-even point is probably somewhere around $1000/year when I weigh record-keeping time verses the income. So as long as we exceed that, I will probably encourage her to charge for the lessons even if she charges below the market for them. I will consider setting up a charitable giving account that they can pay to instead of paying us directly.\",\n \"Yes. You must register for GST as well, if you will be making over the threshold (currently $60,000). That's probably a bonus for you, as your home office expenses will mostly include GST, but your income will most likely be zero-rated. Check with an accountant or with the IRD directly. Just be certain to put aside enough money from each payment to cover income tax, GST and ACC. You will get a very large bill in your second year of business.\",\n \"You are in business for yourself. You file Schedule C with your income tax return, and can deduct the business expenses and the cost of goods sold from the gross receipts of your business. If you have inventory (things bought but not yet sold by the end of the year of purchase), then there are other calculations that need to be done. You will have to pay income tax as well as Social Security and Medicare taxes (both the employee's share and the employer's share) on the net profits from this business activity.\",\n \"If you took advantage of options like a home buyers plan (HBP) you definitely need to file since you must designate how much of the plan to repay. Your employer does not know about what you do with your money so cannot take this into account for the withheld taxes. If you do not report repayment of the HBP it will be treated as a withdrawal from your RRSP i.e. additional income for that tax year.\",\n \"Because the question puts moral obligations aside, I'll answer from the practical point of view. There are two reasons for declaring side income, even cash income. If you buy a house in a year or two, the additional income will help qualify you for a mortgage. The IRS has ways to discover that you earned the money. a. A client might be audited. If the client deducts the cost of your services from their income, they could be asked for proof that they paid you. Suppose they saved ATM receipts that show the withdrawals of cash used to pay you, and kept records that document the dates they paid you. The IRS might want to ask you if you were paid by the client on those dates, and how much. The asking might be in the form of an audit, and you'd have to lie to the IRS to avoid penalty. b. A client might develop a grudge against you and report you to the IRS. Someone could do this even if they don't know for sure that you don't declare the income. If you were interviewed or audited, you'd have to lie to the IRS to avoid penalty. c. You could fall prey to an algorithm. There might be one that compares deductions and income. If you run a crazy-high ratio year after year, you could be flagged for audit. Once again, you'd have to lie to avoid penalty.\",\n \"One piece of documentation that might help here is a confirmation of your benefit selections through your employer for each year since the expenses in question were incurred, assuming you have a job with eligibility for benefits. If you can prove which accounts you maintained through your/your spouse's (if applicable) employer(s), then it is relatively simple to go back through the records for those specific accounts and see if a specific expense was ever reimbursed. Obviously, you can't prove through documentation that you didn't have accounts that don't exist. This seems like it would be more important for the accounts elected by a significant other, since I believe reimbursements from an account in your name would typically be reported to the IRS on your behalf anyway. Also, keep in mind that the IRS won't care about each line item individually. Their focus will be on whether, for any given snapshot in time, your total reimbursed amount exceeded your total eligible expenses.\",\n \"(do I need to get a W9 from our suppliers)? Will PayPal or Shopify send me a 1099k or something? Do not assume that you'll get paperwork from anyone. Do assume that you have to generate your own paperwork. Ideally you should print out some kind of record of each transaction. Note that it can be hard to view older transactions in PayPal, so start now. If you can't document something, write up a piece of paper showing the state of the world to the best of your knowledge. Do assume that you need separate receipts for each expenditure. The PayPal receipt might be enough (but print it in case the IRS wants to see it). A receipt from the vendor would be better (again, print it if it is online now). A CPA is not strictly necessary. A CPA is certified (the C in CPA) to formally audit the books of a corporation. In your case, any accountant would be legally sufficient. You still may want to use a CPA, as the certification, while technically unnecessary, still demonstrates knowledge. You may otherwise not be in a position to evaluate an accountant. A compromise option is to go to a firm that includes a CPA and then let them assign you to someone else to process the actual taxes. You are going to have to fill out some business tax forms. In particular, I would expect a schedule C. That's where you would show revenues and expenses. You may well have to file other forms as well.\",\n \"You need to file IRS Form 1040-NR. The IRS's website provides instructions.\",\n \"Yes. This income would be reported on schedule SE. Normally, you will not owe any tax if the amount is less than $400. Practically, $100 in a garage sale is not why the IRS created the form SE. I wouldn't lose sleep over keeping track of small cash sales over the course of a year. However, if you have the information I'm not going to tell you not to report it.\",\n \"This is taxable in India. You need to declare the income and pay taxes accordingly\",\n \"The request for your parent's income comes from Form 8615, Tax for Certain Children Who Have Unearned Income. I typically see this form appear as I'm doing my daughter's taxes and start to enter data from stock transactions. In other words, your earned income is your's. But if you are a dependent, or 'can be,' the flow avoids the potentially lucrative results from gifting children appreciated stock, and have them take the gain at their lower, potentially zero cap gain rate. I suggest you grab a coffee and thumb through Pub 929 Tax Rules for Children and Dependents to understand this better. From page 14 of the linked doc - Parent's return information not available. If a child can’t get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS). How to request. After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. (The IRS can’t process a request received before the end of the tax year.) It also suggests that you file for an extension for the due date of your return. Include payment for the tax you expect to pay, say by plugging in $200K for parent income as an estimate. My parents' accountant tells them I do not need it. Well, a piece of software told you that you do, and 3 people on line who collectively qualify as experts documented why. (Note, I am not full of myself. This board operates via the wisdom of crowds. Members DStanley, and Ben Miller, commented and edited to help me form a well documented response that would be tough to argue against.)\",\n \"According to TurboTax: You report the income in the year you received it... Therefore, since you received payment in 2017, you will report it on your 2017 tax return.\",\n \"You appear to just have admitted to tax evasion. You need a lawyer. There's a good chance you don't actually owe any money, but you need legal advice. To be clear, you may well not have been obligated to file tax returns, but you have stated you had some income you didn't report, so there's really nothing else we can say other than recommend you seek legal advice.\",\n \"Nope pay the employer back the due does not involve any tax. Just keep a record of the transaction so that its available as reference.\",\n \"Generally, report your $150,000. If/when the the tax collectors notice the anomaly, they'll attempt to contact you to remedy it. I can't speak for Canada, but in the US, it's pretty orderly. The IRS requests additional information or proof and only open it up into a full blown audit if the suspect wrongdoing. In your case, you could show a business agreement detailing the revenue split proving you correctly reported. This is only for your consideration. I strongly recommending finding and keeping a professional tax advisor.\",\n \"He has included this on Schedule D line 1a, but I don't see any details on the actual transaction. It is reported on form 8949. However, if it is fully reported in 1099-B (with cost basis), then you don't have to actually detail every position. Turbotax asked me to fill in individual stock sales with proceeds and cost basis information. ... Again, it seems to be documented on Schedule D in boxes 1a and 8a. See above. I received a 1099-Q for a 529 distribution for a family member. It was used for qualified expenses, so should not be taxable. Then there's nothing to report. I believe I paid the correct amounts based on my (possibly flawed) understanding of estimated taxes. His initial draft had me paying a penalty. I explained my situation for the year, and his next draft had the penalties removed, with no documentation or explanation. IRS assesses the penalty. If you volunteer to pay the penalty, you can calculate it yourself and pay with the taxes due. Otherwise - leave it to the IRS to calculate and assess the penalty they deem right and send you a bill. You can then argue with the IRS about that assessment. Many times they don't even bother, if the amounts are small, so I'd suggest going with what the CPA did.\",\n \"While IANAL (tax or otherwise), I have always found that keeping original receipts is the only way to go. While anything can, at some level, be forged or faked, a photo is one more step removed from the original. A mere listing on a web site isn't much proof of anything. Keep your originals for a suggested seven years; while the IRS is trying to audit much faster than that, and any inkling of fraud can be investigated at any time, you should be well and clear with originals kept that long.\",\n \"You need to clarify with Bob what your agreement is. If you and Bob are working together on these jobs as partners, you should get a written partnership agreement done by a lawyer who works with software industry entity formation. You can legally be considered a partnership if you are operating a business together, even if there is nothing in writing. The partnership will have its own tax return, and you each will be allocated 50% of the profits/losses (if that's what you agree to). This amount will be reported on your own individual 1040 as self-employment income. Since you have now lost all the expense deductions you would have taken on your Schedule C, and any home office deduction, it's a good idea to put language in the partnership agreement stating that the partnership will reimburse partners for their out-of-pocket expenses. If Bob is just hiring you as a contractor, you give him your SSN, and he issues you a 1099, like any other client. This should be a situation where you invoice him for the amount you are charging. Same thing with Joe - figure out if you're hiring him as an independent contractor, or if you have a partnership. Either way, you will owe income and self-employment tax on your profits. In the case of a partnership, the amount will be on the K-1 from the partnership return. For an independent contractor who's operating as a sole proprietor, you report the income you invoiced for and received, and deduct your expenses, including independent contractors that you hired, on your Schedule C. Talk to your tax guy about quarterly estimated payments. If you don't have a tax guy, go get one. Find somebody people in your city working in your industry recommend. A good tax person will save you more money than they cost. IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law.\",\n \"Its best you start this venture as a Business entity. Whatever the customer pays you is your income. Whatever you pay to the hotel will be your expenses. Apart from this there will be other expenses. So essentially difference between your income and expense will be the profit of the entity and tax will be on the profit. If you do not want to start an Business entity and pay as an individual then please add the country tag, depending on the country there may different ways to account for the funds.\",\n \"\\\"DirectGov has a good overview here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017814 and answers to your specific questions here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435 In short, you do need to declare the rental income on your tax return and will need to pay tax on it (and note that only the mortgage interest (not the full repayment) is deductible as an \\\"\\\"allowable expense\\\"\\\", see the full list of what is deductible here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027 ).\\\"\",\n \"Of course you're reportable to the IRS. Your income is someone's expense, they'll report it if required. What you're probably asking is whether you need to pay any taxes in the US. If you're neither US citizen nor a green card holder, and you don't step foot to the US - you will probably not need to pay taxes there.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["I have been a private tutor on and off for about 30 years, in three countries, so I understand your concerns! I always kept records as though it was a real business - even if I only had one student I kept records of dates/times/names, and also tracked where the money went (I never spent it straight up - it always got deposited to complete the paper trail; yes, this is paranoia on my part). I've never been asked to prove anything with regards this income (although I have no Canadian experience). It's always been a case of tell the tax folks and make sure my arse is covered if they come asking questions. Hope this helps."],"string":"[\n \"I have been a private tutor on and off for about 30 years, in three countries, so I understand your concerns! I always kept records as though it was a real business - even if I only had one student I kept records of dates/times/names, and also tracked where the money went (I never spent it straight up - it always got deposited to complete the paper trail; yes, this is paranoia on my part). I've never been asked to prove anything with regards this income (although I have no Canadian experience). It's always been a case of tell the tax folks and make sure my arse is covered if they come asking questions. Hope this helps.\"\n]","isConversational":false}}},{"rowIdx":270,"cells":{"_id":{"kind":"string","value":"5254"},"query":{"kind":"string","value":"How do I calculate the quarterly returns of a stock index?"},"gt_ids":{"kind":"list like","value":["392851","402466"],"string":"[\n \"392851\",\n \"402466\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["402466","354857","138487","563169","573928","220025","409434","476260","392851","242849","574974","438547","531066","276860","143302","96697","238817","422904","105391","8003","591089","408610","175107","599651","72141","235592","2810","559168","169754","83987","583913","489706","470687","550642","48952","117049","251824","589234","144005","131044","428315","181013","369762","99708","386309","170652","393987","553377","112223","173052","394715","154927","332567","475426","459351","14368","240519","368848","532616","90570","223277","285238","187583","403870","435096","204761","336284","501153","135176","88575","198606","245648","1699","76139","443689","575237","580586","412657","18939","239137","554734","159336","456667","197480","42390","521590","517637","573899","469599","501032","345217","457873","249360","44617","223823","21103","241101","565487","556235","491647"],"string":"[\n \"402466\",\n \"354857\",\n \"138487\",\n \"563169\",\n \"573928\",\n \"220025\",\n \"409434\",\n \"476260\",\n \"392851\",\n \"242849\",\n \"574974\",\n \"438547\",\n \"531066\",\n \"276860\",\n \"143302\",\n \"96697\",\n \"238817\",\n \"422904\",\n \"105391\",\n \"8003\",\n \"591089\",\n \"408610\",\n \"175107\",\n \"599651\",\n \"72141\",\n \"235592\",\n \"2810\",\n \"559168\",\n \"169754\",\n \"83987\",\n \"583913\",\n \"489706\",\n \"470687\",\n \"550642\",\n \"48952\",\n \"117049\",\n \"251824\",\n \"589234\",\n \"144005\",\n \"131044\",\n \"428315\",\n \"181013\",\n \"369762\",\n \"99708\",\n \"386309\",\n \"170652\",\n \"393987\",\n \"553377\",\n \"112223\",\n \"173052\",\n \"394715\",\n \"154927\",\n \"332567\",\n \"475426\",\n \"459351\",\n \"14368\",\n \"240519\",\n \"368848\",\n \"532616\",\n \"90570\",\n \"223277\",\n \"285238\",\n \"187583\",\n \"403870\",\n \"435096\",\n \"204761\",\n \"336284\",\n \"501153\",\n \"135176\",\n \"88575\",\n \"198606\",\n \"245648\",\n \"1699\",\n \"76139\",\n \"443689\",\n \"575237\",\n \"580586\",\n \"412657\",\n \"18939\",\n \"239137\",\n \"554734\",\n \"159336\",\n \"456667\",\n \"197480\",\n \"42390\",\n \"521590\",\n \"517637\",\n \"573899\",\n \"469599\",\n \"501032\",\n \"345217\",\n \"457873\",\n \"249360\",\n \"44617\",\n \"223823\",\n \"21103\",\n \"241101\",\n \"565487\",\n \"556235\",\n \"491647\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Here's a few demo steps, first calculating the year to date return, then calculating the Q4 quarterly return based on the cumulative returns for Q3 and Q4. It's fine to use closing price to closing price as return periods.","You could take these definitions from MSCI as an example of how to proceed. They calculate price indices (PR) and total return indices (including dividends). For performance benchmarks the net total return (NR) indices are usually the most relevant. In your example the gross total return (TR) is 25%. From the MSCI Index Defintions page :- The MSCI Price Indexes measure the price performance of markets without including dividends. On any given day, the price return of an index captures the sum of its constituents’ free float-weighted market capitalization returns. The MSCI Total Return Indexes measure the price performance of markets with the income from constituent dividend payments. The MSCI Daily Total Return (DTR) Methodology reinvests an index constituent’s dividends at the close of trading on the day the security is quoted ex-dividend (the ex-date). Two variants of MSCI Total Return Indices are calculated: With Gross Dividends: Gross total return indexes reinvest as much as possible of a company’s dividend distributions. The reinvested amount is equal to the total dividend amount distributed to persons residing in the country of the dividend-paying company. Gross total return indexes do not, however, include any tax credits. With Net Dividends: Net total return indexes reinvest dividends after the deduction of withholding taxes, using (for international indexes) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.","Well i dont know of any calculator but you can do the following 1) Google S&P 500 chart 2) Find out whats the S&P index points (P1) on the first date 3) Find out whats the S&P index points (P2) on the second date 4) P1 - P2 = result","If you mean the internal rate of return, then the quarterly rate of return which would make the net present value of these cash flows to be zero is 8.0535% (found by goal seek in Excel), or an equivalent compound annual rate of 36.3186% p.a. The net present value of the cash flows is: 10,000 + 4,000/(1+r) - 2,000/(1+r)^2 - 15,125/(1+r)^3, where r is the quarterly rate. If instead you mean Modified Dietz return, then the net gain over the period is: End value - start value - net flow = 15,125 - 10,000 - (4,000 - 2,000) = 3,125 The weighted average capital invested over the period is: 1 x 10,000 + 2/3 x 4,000 - 1/3 x 2,000 = 12,000 so the Modified Dietz return is 3,125 / 12,000 = 26.0417%, or 1.260417^(1/3)-1 = 8.0201% per quarter, or an equivalent compound annual rate of 1.260417^(4/3)-1 = 36.1504%. You are using an inappropriate formula, because we know for a fact that the flows take place at the beginning/end of the period. Instead, you should be combining the returns for the quarters (which have in fact been provided in the question). To calculate this, first calculate the growth factor over each quarter, then link them geometrically to get the overall growth factor. Subtracting 1 gives you the overall return for the 3-quarter period. Then convert the result to a quarterly rate of return. Growth factor in 2012 Q4 is 11,000/10,000 = 1.1 Growth factor in 2013 Q1 is 15,750/15,000 = 1.05 Growth factor in 2013 Q2 is 15,125/13,750 = 1.1 Overall growth factor is 1.1 x 1.05 x 1.1 = 1.2705 Return for the whole period is 27.05% Quarterly rate of return is 1.2705^(1/3)-1 = 8.3074% Equivalent annual rate of return is 1.2705^(4/3)-1 = 37.6046% ========= I'd recommend you to refer to Wikipedia.","( t2 / t1 ) - 1 Where t2 is the value today, t1 is the value 12 months ago. Be sure to include dividend payments, if there were any, to t2. That will give you total return over 12 months.","Since you have the balance at equal periods and the cash flows at the period ends, the best return calculation in this case is the true time-weighted return. See http://en.wikipedia.org/wiki/Time-weighted_return#Formulae So, notwithstanding some ambiguity about your figures, here is a calculation using the first three periods from your second table. Giving a total return over the three periods of -23.88% If the periods are months, multiply by four to annualise.","TWRR = (2012Q4 x 2013Q1 x 2013Q2) ^ (1/3) = ?? (1.1 * .809 * 1.29) ^ (1/3) = 1.047 or 4.7% return. No imaginary numbers needed. But. Your second line there is wrong $15,750 - $15,000 - $4,000 ? The $15K already contains the $4k, why did you subtract it again? This a homework problem?","\"This is the same answer as for your other question, but you can easily do this yourself: ( initial adjusted close / final adjusted close ) ^ ( 1 / ( # of years sampled) ) Note: \"\"# of years sampled\"\" can be a fraction, so the one week # of years sampled would be 1/52. Crazy to say, but yahoo finance is better at quick, easy, and free data. Just pick a security, go to historical prices, and use the \"\"adjusted close\"\". money.msn's best at presenting finances quick, easy, and cheap.\"","So for quarters So, if Q1's value was 10 and Q2's value was 25 For closing or opening prices, I would use closing prices. For instance, some used Adjusted Close or Close on Yahoo Finance (see this example of AAPL). Added Note: In your example, for your example, you'll want to take the absolute value of the denominator (aka: divisor), so an Excel formula might look like the below example ... ... where the new and old are cells.","Simple math. Take the sale proceeds (after trade expenses) and divide by cost. Subtract 1, and this is your return. For example, buy at 80, sell at 100, 100/80 = 1.25, your return is 25%. To annualize this return, multiply by 365 over the days you were in that stock. If the above stock were held for 3 months, you would have an annualized return of 100%. There's an alternative way to annualize, in the same example above take the days invested and dive into 365, here you get 4. I suggested that 25% x 4 = 100%. Others will ask why I don't say 1.25^4 = 2.44 so the return is 144%/yr. (in other words, compound the return, 1.25x1.25x...) A single day trade, noon to noon the next day returning just 1%, would multiply to 365% over a year, ignoring the fact there are about 250 trading days. But 1.01^365 is 37.78 or a 3678% return. For long periods, the compounding makes sense of course, the 8%/yr I hope to see should double my money in 9 years, not 12, but taking the short term trades and compounding creates odd results of little value.","Annualize quarterly returns: AR = (1+QR)^4 Where *QR* is a decimal return, e.g. 0.05. Standard deviations are similar: Annual SD = SD * sqrt(T) If you have quarterly deviations, *T=4*, if you have daily, *T=252*, etc. As an aside, for work with money riding on it, it is *not* okay to aggregate standard deviations if there's autocorrelation amongst observations at a smaller time scale. Volatility is often quoted this way and that's fine, but it is dangerous to do any sort of risk management with this and you'll require more due diligence. It's a good enough approximation for napkin math, though.","There are many ways to calculate the return, and every way will give you a different results in terms of a percentage-value. One way to always get something meaningful - count the cash. You had 977 (+ 31) and in the end you have 1.370, which means you have earned 363 dollars. But what is your return in terms of percentage? One way to look at it, is by pretending that it is a fund in which you invest 1 dollar. What is the fund worth in the beginning and in the end? The tricky part in your example is, you injected new capital into the equation. Initially you invested 977 dollars which later, in the second period became worth 1.473. You then sold off 200 shares for 950 dollars. Remember your portfolio is still worth 1.473, split between 950 in cash and 523 in Shares. So far so good - still easy to calculate return (1.473 / 977 -1 = 50.8% return). Now you buy share for 981 dollars, but you only had 950 in cash? We now need to consider 2 scenarios. Either you (or someone else) injected 31 dollars into the fund - or you actually had the 31 dollars in the fund to begin with. If you already had the cash in the fund to begin with, your initial investment is 1.008 and not 977 (977 in shares and 31 in cash). In the end the value of the fund is 1.370, which means your return is 1.370 / 1.007 = 36%. Consider if the 31 dollars was paid in to the fund by someone other than you. You will then need to recalculate how much you each own of the fund. Just before the injection, the fund was worth 950 in cash and 387 in stock (310 - 200 = 110 x 3.54) = 1.339 dollars - then 31 dollars are injected, bringing the value of the fund up to 1.370. The ownership of the fund is split with 1.339 / 1.370 = 97.8% of the value for the old capital and 2.2% for the new capital. If the value of the fund was to change from here, you could calculate the return for each investor individually by applying their share of the funds value respective to their investment. Because the value of the fund has not changed since the last period (bullet 3), the return on the original investment is (977 / 1.339 - 1 = 37.2%) and the return on the new capital is (31 / 31 = 0%). If you (and not someone else) injected the 31 dollar into the fund, you will need to calculate the weight of each share of capital in each period and get the average return for each period to get to a total return. In this specific case you will still get 37.2% return - but it gets even more comlex for each time you inject new capital.","\"This page from simplestockinvesting.com gives details of total returns for the S&P500 for each decade over the last 60 years, including total returns for the entire 60 year period. It is important to understand that, from an investors point of view, the total return includes both the change in index value (capital gain) plus dividends received. This total then needs to be adjusted for inflation to give the \"\"total real return\"\". As noted in the analysis provided, 44% of the total return from the S&P500 over the last 80 years comes from dividends. For the DowJones30, this site provides a calculator for total returns and inflation adjusted total returns for user selected periods. Finding comparable analysis for the NASDAQ market is more difficult. The NASDAQ market site provides gross values for total returns over fixed periods, but you will then need to do the arithmetic to calculate the equivalent average annual total returns. No inflation adjusted values for \"\"real\"\" returns are provided, so again you will need to combine inflation data from elsewhere and do the arithmetic.\"","However, you have to remember that not all dividends are paid quarterly. For example one stock I recently purchased has a price of $8.03 and the Div/yield = 0.08/11.9 . $.08 * 4 = $0.32 which is only 3.9% (But this stock pays monthly dividends). $.08 * 12 = $0.96 which is 11.9 %. So over the course of a year assuming the stock price and the dividends didn't change you would make 11.9%","\"Total Return is the percent change in value (including andy dividends) of an instrument. The \"\"trailing 12-month\"\" means that your starting point is the value 12 months ago. So the formula is: where V is the value of the instrument on the reference date, V0 is the value of the instrument 12 months prior to the reference date, and D is the amount of dividends paid between the two dates.\"","Technically you should take the quarterly dividend yield as a fraction, add one, take the cube root, and subtract one (and then multiple by the stock price, if you want a dollar amount per share rather than a rate). This is to account for the fact that you could have re-invested the monthly dividends and earned dividends on that reinvestment. However, the difference between this and just dividing by three is going to be negligible over the range of dividend rates that are realistically paid out by ordinary stocks.","Your example isn't consistent: Q1 end market value (EMV) is $15,750, then you take out $2,000 and say your Q2 BMV is $11,750? For the following demo calculations I'll assume you mean your Q2 BMV is $13,750, with quarterly returns as stated: 10%, 5%, 10%. The Q2 EMV is therefore $15,125. True time-weighted return :- http://en.wikipedia.org/wiki/True_time-weighted_rate_of_return The following methods have the advantage of not requiring interim valuations. Money-weighted return :- http://en.wikipedia.org/wiki/Rate_of_return#Internal_rate_of_return Logarithmic return :- http://en.wikipedia.org/wiki/Rate_of_return#Logarithmic_or_continuously_compounded_return Modified Dietz return :- http://en.wikipedia.org/wiki/Modified_Dietz_method Backcalculating the final value (v3) using the calculated returns show the advantage of the money-weighted return over the true time-weighted return.","How S&P 500 returns are calculated is jotted down here. You should follow the same methodology i.e. base-weighted aggregate methodology to calculate your own returns. Anything different and it would be an incorrect comparison.","MoneyChimp is great for this. It only offers full year returns, but it compounds the results correctly, including dividends. For mid year results, just adjust a bit based on the data you can find from Google or Yahoo to add some return (or loss) for the months.","Knowing the log return is useful - the log return can help you to work out the annual return over the period it was estimated - and this should be comparable between stocks. One should just be careful with the calculation so that allowance for dividends is made sensibly.",".INX (the S&P 500 index itself) does not include reinvested dividens. You can figure total return by going to Yahoo finance, historical data. Choose the start year, and end year. You should find that data for SPY (going back to 1993) will show an adjusted close, and takes dividends into account. This isn't perfect as SPY has a .09% expense ratio, but it's better than just the S&P index. One of the more popular Dow ETF is DIA, this will let you similarly track the Dow while accounting for dividends.","\"Google is a poor example since it doesn't pay a dividend (and doesn't expect to), so let's use another example with easy numbers. Company X has a stock price of $100, and it pays a quarterly dividend (many companies do). Let's assume X pays a dividend of $4. Dividends are always quoted in annual terms, as is dividend yield. When a company says that they pay \"\"quarterly dividends,\"\" it means that the company pays dividends every quarter, or every 3 months. BUT, if a company has a $4 dividend, you will not receive $4 every quarter per share. You will receive $4/4 = $1 per share, every quarter. So over the course of a fiscal year, or 4 quarters, you'll get $1 + $1 + $1 + $1 = $4 per share, which is the annual dividend. The dividend yield = annual dividend/stock price. So in this case, company X's div. yield will be $4/$100 * 100 = 4%. It's important to note that this is the annual yield. To get the quarterly yield, you must divide by 4. It's also important to note that the yield fluctuates based on stock price, but the dividend payment stays constant unless the company states an announcement. For a real world example, consider Intel Corp. (TICKER: INTC) http://finance.yahoo.com/q?s=INTC The share price is currently $22.05, and the dividend is $0.84. This makes the annual yield = $0.84/$22.05 * 100 = 3.80%. Intel pays a quarterly dividend, so you can expect to receive $0.21 every quarter for every share of Intel that you own. Hope that clears it up!\"","If you just want to know total return, either as dollars or a percentage, just add up the total amount spent on buys and compare this to current value plus money received on sales. In this case, you spent (310 x $3.15 + $19.95) + (277 x $3.54 + $19.95). So your total investment is ... calculator please ... $1996.98. You received 200 x $4.75 on the sale minus the $19.95 = $930.05. The present value of your remaining shares is 387 x $6.06 = $2345.22. So you have realized plus unrealized value of $2345.22 + $930.05 = $3275.27. Assuming I didn't mix up numbers or make an arithmetic mistake, your dollar gain is $3275.27 - $1996.98 = $1278.29, which comes to 1278.29 / 1996.98 = 64%. If you want to know percentage gain as an annual rate, we'd have to know buy and sell dates, and with multiple buys and sells the calculation gets messier.","Points are index based. Simple take the total value of the stocks that compose the index, and set it equal to an arbitrary number. (Say 100 or 1000) This becomes your base. Each day, you recalculate the value of the index basket, and relate it to the base. So if our index on day 0 was 100, and the value of the basket went up 1%, the new index would be 101 points. For the example given, the percentage change would be (133.32 -133.68 ) / 133.68 * 100% = -0.27% Keep in mind that an index basket will change in composition over time. Assets are added and removed as the composition of the market changes. For example, the TSX index no longer includes Nortel, a stock that at one time made up a significant portion of the index. I'm not sure if a percentage drop in an index is really a meaningful statistic because of that. It is however, a good way of looking at an individual instrument.","> So: what do i do to have the monthly %change? I was thinking (last day of the mont CP - 1st day of the month OP)/ 1st day of the mont opening price. No, use the same day (usually month end) of each month (i.e. December 31 vs. January 31). Use closing prices only. Keep in mind, it may make more mathematical sense to use LN (natural logs) to determine %-change and standard deviation. The simplest way to compare the riskiness of each is just to compare St. Dev. You can, of course, go into more detail. If you want to impress your professor, look up the efficient frontier and make one for each portfolio.","R has really good package that lets you calculate the return of rebalanced portfolios. The package is called: PerformanceAnalytics (see: http://www.inside-r.org/packages/cran/PerformanceAnalytics/docs/Return.portfolio). I quickly wrote a small script for you that lets you do exactly what you want. Code: By default the portfolio is rebalanced to an equally weighted portfolio. It is also possible to rebalance your portfolio using custom weights. See the documentation on how to do this. In order for this code to work you need to have your data already in return terms. You can do this easily in Excel. Make sure your data in excel looks like this: Than export your data to a CSV file. Note: before you run the code make sure you have installed the package PerformanceAnalytics. You can do this as follows: Let me know if you have any questions regarding the above.","The author is using the simple Dietz method, (alternatively the modified Dietz), with the assumption that the net cash-flow occurs halfway through the time period. Let's say the time period is one year for illustration, so the cash-flow would be at the end of the second quarter. The money-weighted method gives a more accurate return, but has to be solved by trial-and-error or using a computer. The money-weighted return is 11.2718 % and the simple or modified Dietz return is 11.2676 %. When the sums are done backwards to check, the Dietz is half a dollar out with a final value of $11,999.50 while the money-weighted return recalculates exactly $12,000. It is worth pointing out that the return changes if the cash-flow is not in the middle of the time period. A case with the cash-flow at the end of Q3 is added to illustrate.","\"So, there is no truly \"\"correct\"\" way to calculate return. Professionals will often calculate many different rates of return depending on what they wish to understand about their portfolio. However, the two most common ways of calculating multi-period return though are time-weighted return and money-weighted return. I'll leave the details to this good Investopeadia article, but the big picture is time-weighted returns help you understand how the stock performed during the period in question independent of how you invested it it. Whereas money-weighted return helps you understand how you performed investing in the stock in question. From your question, it appears both methods would be useful in combination to help you evaluate your portfolio. Both methods should be fairly easy to calculate yourself in a spread sheet, but if you are interested there are plenty of examples of both in google docs on the web.\"","\"Good observation. In fact, the S&P index itself is guilty of not including dividends. So when you look at the index alone, the delta between any two points in time diverges, and the 20 return observed if one fails to include dividends is meaningless, in my my humble opinion. Yahoo finance will let you look at a stock ticker and offer you an \"\"adjusted close\"\" to include the dividend effect.\"","Thanks for showing me that. I can see it now. I have always used my formula, and even a senior at another company confirmed the way I calculated the returns. Luckily, I do not work with that manager, and he has his own model, and so do I. But he was pretty cool about it when I asked about his calculations.","\"Month to date For the month to date (MTD), the price on Feb 28th is $4.58 and the price on March 16th is $4.61 so the return is which can be written more simply as The position is 1000 shares valued at $4580 on Feb 28th, so the profit on the month to date is Calendar year to date For the calendar year to date (YTD), the price on Dec 31st is $4.60 and the price on Feb 28th is $4.58 so the return to Feb 28th is The return from Feb 28th to March 16th is 0.655022 % so the year to date return is or more directly So the 2011 YTD profit on 1000 shares valued at $4600 on Dec 31st is Year to date starting Dec 10th For the year to date starting Dec 10th, the starting value is and the value on Dec 31st is 1000 * $4.60 = $4600 so the return is $4600 / $4510 - 1 = 0.0199557 = 1.99557 % The year to date profit is therefore Note - YTD is often understood to mean calendar year to date. To cover all the bases state both, ie \"\"calendar YTD (2011)\"\" and \"\"YTD starting Dec 10th 2010\"\". Edit further to comment For the calendar year to date, with 200 shares sold on Jan 10th with the share price at $4.58, the return from Dec 31st to Jan 10th is The return from Jan 10th to Feb 28th is The return from Feb 28th to March 16th is The profit on 1000 shares from Dec 31st to Jan 10th is $4600 * -0.00434783 = -$20 The profit on 800 shares from Jan 10th to Feb 28th is zero. The profit on 800 shares from Feb 28th to March 16th is So the year to date profit is $4.\"","The point of a total return index is that it already has accounted for the capital gains + coupon income. If you want to calculate it yourself you'll have to find the on-the-run 10y bond for each distinct period then string them together to calc your total return. Check XLTP if they have anything","There are at least a couple of ways you could view this to my mind: Make an Excel spreadsheet and use the IRR function to compute the rate of return you are having based on money being added. Re-invested distributions in a mutual fund aren't really an additional investment as the Net Asset Value of the fund will drop by the amount of the distribution aside from market fluctuation. This is presuming you want a raw percentage that could be tricky to compare to other funds without doing more than a bit of work in a way. Look at what is the fund's returns compared to both the category and the index it is tracking. The tracking error is likely worth noting as some index funds could lag the index by a sizable margin and thus may not be that great. At the same time there may exist cases where an index fund isn't quite measuring up that well. The Small-Growth Indexing Anomaly would be the William Bernstein article from 2001 that has some facts and figures for this that may be useful.","If annualized rate of return is what you are looking for, using a tool would make it a lot easier. In the post I've also explained how to use the spreadsheet. Hope this helps.","Yes an index is by definition any arbitrary selection. In general, to measure performance there are 2 ways: By absolute return - meaning you want a positive return at all times ie. 10% is good. -1% is bad. By relative return - this means beating the benchmark. For example, if the benchmark returns -20% and your portfolio returns -10%, then it has delivered +10% relative returns as compared to the benchmark.","\"It's easy for me to look at an IRA, no deposits or withdrawal in a year, and compare the return to some index. Once you start adding transactions, not so easy. Here's a method that answers your goal as closely as I can offer: SPY goes back to 1993. It's the most quoted EFT that replicates the S&P 500, and you specifically asked to compare how the investment would have gone if you were in such a fund. This is an important distinction, as I don't have to adjust for its .09% expense, as you would have been subject to it in this fund. Simply go to Yahoo, and start with the historical prices. Easy to do this on a spreadsheet. I'll assume you can find all your purchases inc dates & dollars invested. Look these up and treat those dollars as purchases of SPY. Once the list is done, go back and look up the dividends, issues quarterly, and on the dividend date, add the shares it would purchase based on that day's price. Of course, any withdrawals get accounted for the same way, take out the number of SPY shares it would have bought. Remember to include the commission on SPY, whatever your broker charges. If I've missed something, I'm sure we'll see someone point that out, I'd be happy to edit that in, to make this wiki-worthy. Edit - due to the nature of comments and the inability to edit, I'm adding this here. Perhaps I'm reading the question too pedantically, perhaps not. I'm reading it as \"\"if instead of doing whatever I did, I invested in an S&P index fund, how would I have performed?\"\" To measure one's return against a benchmark, the mechanics of the benchmarks calculation are not needed. In a comment I offer an example - if there were an ETF based on some type of black-box investing for which the investments were not disclosed at all, only day's end pricing, my answer above still applies exactly. The validity of such comparisons is a different question, but the fact that the formulation of the EFT doesn't come into play remains. In my comment below which I removed I hypothesized an ETF name, not intending it to come off as sarcastic. For the record, if one wishes to start JoesETF, I'm ok with it.\"","To figure this out, you need to know the price per share then vs the price per share now. Google Finance will show you historical prices. For GOOG, the closing price on January 5, 2015 was $513.87. The price on December 31, 2015 was $758.88. Return on Investment (ROI) is calculated with this formula: ROI = (Proceeds from Investment - Cost of Investment) / Cost of Investment Using this formula, your return on investment would be 47.7%. Since the time period was one year, this number is already an annualized return. If the time period was different than one year, you would normally convert it to an annualized rate of return in order to compare it to other investments.","Treat each transaction as separate, with its own principal, its own gain, and its own number of days. Then the total annualized return is just a weighted average of each annualized return, with the weighting related to the number of shares in that transaction.","As I write this, the NASDAQ Composite is at 2790.00, down 6.14 points from yesterday. To calculate the percentage, you take 6.14 and divide by yesterday's close of 2796.14 to yield 0.22%. In your example, if SPY drops from 133.68 to 133.32, you use the difference of -0.36 and divide by the original, i.e. -0.36/133.68 = -0.27%. SPY is an ETF which you can invest in that tracks the S&P 500 index. Ideally, the index would have dropped the same percentage as SPY, but the points would be different (~10x higher). To answer your question about how one qualifies a point, it completely depends on the index being discussed. For example, the S&P 500 is a market-capitalization weighted index of the common stock of 500 large-cap US public companies. It is as if you owned every share of each of the 500 companies, then divide by some large constant to create a number that's easily understood mentally (i.e. 1330). The NASDAQ Composite used the same methodology but includes practically all stocks listed on the NASDAQ. Meanwhile, the Dow Jones Industrial Average is a price-weighted index of 30 large-cap companies. It's final value is modified using a divisor known as the Dow Divisor, which accounts for stock splits and similar events that have occurred since a stock has joined the index. Thus, points when referring to an index do not typically represent dollars. Rather, they serve as a quantitative measure of how the market is doing based on the performance of the index constituents. ETFs like SPY add a layer of abstraction by creating an investible vehicle that ideally tracks the value of the underlying index directly. Finally, neither price nor index value is related to volume. Volume is a raw measurement of the total number of shares traded for a given stock or the aggregate for a given exchange. Hope this helps!","I found one such tool here: Point-to-Point Returns tool","Hart's answer regarding the difference between an index and a stock aside, remember that dividend yield is a passive measure. It takes the announced dividend (which is a $/share amount) and divides it by the current market price. So you can't assume that if you buy a stock that had a dividend yield of 4% for $100 that you're guaranteed 4% of the stock price in dividends. If the price of the stock doubles, you'd still get $4, but the yield would drop to 2%. Or the company could reduce (or even suspend) its dividends, which would reduce the yield if the stock price stayed flat. For an index like the S&P, it's easier to measure dividends on % yield terms rather then $/share terms since you'd have to own shares in every single company to get that amount, but on average the stocks in the S&P 500 pay X% in dividends (which are typically quarterly) - some pay more than that, some less, and some none at all.","See the Moneychimp site. From 1934 to 2006, the S&P returned an 'average' 12.81%. But the CAGR was 11.26%. I wrote an article Average Return vs Compound Annual Growth to address this issue. Interesting that over time only a few funds have managed to get anywhere near this return, but the low cost indexer can get the long term CAGR minus .05% or so, if they wish.","\"There's no need for an index to have a currency as its purpose is not to act as an asset but rather to signal investors about the performance of a collection of stocks. An index can be price-weighted, meaning that its value equals the (arithmetic) average of the prices of each stock in the index. With no stock splits, the return on this index is the same as the return on a portfolio composed of one share of each stock. If there is a stock split, however instead of dividing by the number of stocks, as you normally would when taking the arithmetic average, you divide it by the number that will make the value of the index pre-stock-split (arithmetic average) equal to the value post stock split. Then use that dividing number for all periods until a new stock split occurs. An index can be value-weighted, meaning that its changes in value track the percentage changes in total market capitalization of the stocks in the index. Price weighted indexes ignore for \"\"firm size\"\" and percentage changes in price weighted indexes are not robust to stock-splits. Value weighted indexes take \"\"firm size\"\" into account and are robust to stock-splits. DJIA is price-weighted. S&P 500 is value-weighted.\"","This link does it ok: http://investexcel.net/1979/calculate-historical-volatility-excel/ Basically, you calculate percentage return by doing stock price now / stock price before. You're not calculating the rate of return hence no subtraction of 100%. The standard is to do this on a daily basis: stock price today / stock price yesterday. The most important and most misunderstood part is that you now have to analyze the data geometrically not arithmetically. To easily do this, convert all percentage returns with the natural log, ln(). Next, you take the standard deviation of all of those results, and apply exp(). This answers the title of your question. For convenience's sake, it's best to annualize since volatility (implied or statistical) is now almost always quoted annualized. There are ~240 trading days each year. You multiply your stdev() result by (240 / # of trading days per return) ^ 0.5, so if you're doing this for daily returns, multiply the stdev() result by 240^0.5; if you were doing it weekly, you'd want to multiply by (240 / ~5)^0.5; etc. This is your number for sigma. This answers the intent of your question. For black-scholes, you do not convert anything back with exp(); BS is already set up for geometric analysis, so you need to stay there. The reason why analysis is done geometrically is because the distribution of stock returns is assumed to be lognormal (even though it's really more like logLaplace).","This answer contains three assumptions: New Share Price: Old Share Price * 1.0125 Quarterly Dividend: (New Share Price*0.01) * # of Shares in Previous Quarter Number of Shares: Shares from Previous Quarter + Quarterly Dividend/New Share Price For example, starting from right after Quarter One: New share price: $20 * 1.0125 = 20.25 1000 shares @ $20.25 a share yields $20.25 * 0.01 * 1000 = $202.5 dividend New shares: $202.5/20.25 = 10 shares Quarter Two: New share price: $20.503 1010 shares @ 20.503 yields $20.503*0.01*1010 = $207.082 dividend New shares: $207.082/20.503 = 10.1 shares Repeat over many cycles: 8 Quarters (2 years): 1061.52 shares @ $21.548 a share 20 Quarters (5 years): 1196.15 shares @ $25.012 a share 40 Quarters (10 years): 1459.53 shares @ $32.066 a share Graphically this looks like this: It's late enough someone may want to check my math ;). But I'd also assert that a 5% growth rate and a 4% dividend rate is pretty optimistic.","\"(Value of shares+Dividends received)/(Initial investment) would be the typical formula though this is more of a percentage where 1 would indicate that you broke even, assuming no inflation to be factored. No, you don't have to estimate the share price based on revenues as I would question how well did anyone estimate what kind of revenues Facebook, Apple, or Google have had and will have. To estimate the value of shares, I'd likely consider what does my investment strategy use as metrics: Is it discounted cash flow, is it based on earnings, is it something else? There are many ways to determine what a stock \"\"should be worth\"\" that depending on what you want to believe there are more than a few ways one could go.\"","I use the following method. For each stock I hold long term, I have an individual table which records dates, purchases, sales, returns of cash, dividends, and way at the bottom, current value of the holding. Since I am not taking the income, and reinvesting across the portfolio, and XIRR won't take that into account, I build an additional column where I 'gross up' the future value up to today() of that dividend by the portfolio average yield at the date the dividend is received. The grossing up formula is divi*(1+portfolio average return%)^((today-dividend date-suitable delay to reinvest)/365.25) This is equivalent to a complex XMIRR computation but much simpler, and produces very accurate views of return. The 'weighted combined' XIRR calculated across all holdings then agrees very nearly with the overall portfolio XIRR. I have done this for very along time. TR1933 Yes, 1933 is my year of birth and still re investing divis!","\"You could use any of various financial APIs (e.g., Yahoo finance) to get prices of some reference stock and bond index funds. That would be a reasonable approximation to market performance over a given time span. As for inflation data, just googling \"\"monthly inflation data\"\" gave me two pages with numbers that seem to agree and go back to 1914. If you want to double-check their numbers you could go to the source at the BLS. As for whether any existing analysis exists, I'm not sure exactly what you mean. I don't think you need to do much analysis to show that stock returns are different over different time periods.\"","At what point does my investment benefit from compounded interest? Monthly? Quarter? Yearly? Does it even benefit? I think you are mixing things. There is no concept of interest or compounding in Mutual Funds. When you buy a mutual fund, it either appreciates in value or depreciates in value; both can happen depending on the time period you compare. Now, let's assume at the end of the year I have a 5% return. My $10,000 is now $10,500. The way you need to look at this is Given you started with $10,000 and its now $10,500 the return is 5%. Now if you want to calculate simple return or compounded return, you would have to calculate accordingly. You may potentially want to find a compounded return for ease of comparison with say a Bank FD interest rate or some other reason. So if $10,000 become $10,500 after one year and $11,000 after 2 year. The absolute return is 10%, the simple yearly return is 5%. Or the Simple rate of return for first year is 5% and for second year is 4.9%. Or the Average Year on Year return is 4.775%.","\"Probably the best way to investigate this is to look at an example. First, as the commenters above have already said, the log-return from one period is log(price at time t/price at time t-1) which is approximately equal to the percentage change in the price from time t-1 to time t, provided that this percentage change is not big compared to the size of the price. (Note that you have to use the natural log, ie. log to the base e -- ln button on a calculator -- here.) The main use of the log-return is that is a proxy for the percentage change in the price, which turns out to be mathematically convenient, for various reasons which have mostly already been mentioned in the comments. But you already know this; your actual question is about the average log-return over a period of time. What does this indicate about the stock? The answer is: if the stock price is not changing very much, then the average log-return is about equal to the average percentage change in the price, and is very easy and quick to calculate. But if the stock price is very volatile, then the average log-return can be wildly different to the average percentage change in the price. Here is an example: the closing prices for Pitchfork Oil from last week's trading are: 10, 5, 12, 5, 10, 2, 15. The percentage changes are: -0.5, 1.4, -0.58, 1, -0.8, 6.5 (where -0.5 means -50%, etc.) The average percentage change is 1.17, or 117%. On the other hand, the log-returns for the same period are -0.69, 0.88, -0.88, 0.69, -1.6, 2, and the average log-return is about 0.068. If we used this as a proxy for the average percentage change in the price over the whole seven days, we would get 6.8% instead of 117%, which is wildly wrong. The reason why it is wrong is because the price fluctuated so much. On the other hand, the closing prices for United Marshmallow over the same period are 10, 11, 12, 11, 12, 13, 15. The average percentage change from day to day is 0.073, and the average log-return is 0.068, so in this case the log-return is very close to the percentage change. And it has the advantage of being computable from just the first and last prices, because the properties of logarithms imply that it simplifies to (log(15)-log(10))/6. Notice that this is exactly the same as for Pitchfork Oil. So one reason why you might be interested in the average log-return is that it gives a very quick way to estimate the average return, if the stock price is not changing very much. Another, more subtle reason, is that it actually behaves better than the percentage return. When the price of Pitchfork jumps from 5 to 12 and then crashes back to 5 again, the percentage changes are +140% and -58%, for an average of +82%. That sounds good, but if you had bought it at 5, and then sold it at 5, you would actually have made 0% on your money. The log-returns for the same period do not have this disturbing property, because they do add up to 0%. What's the real difference in this example? Well, if you had bought $1 worth of Pitchfork on Tuesday, when it was 5, and sold it on Wednesday, when it was 12, you would have made a profit of $1.40. If you had then bought another $1 on Wednesday and sold it on Thursday, you would have made a loss of $0.58. Overall, your profit would have been $0.82. This is what the average percentage return is calculating. On the other hand, if you had been a long-term investor who had bought on Tuesday and hung on until Thursday, then quoting an \"\"average return\"\" of 82% is highly misleading, because it in no way corresponds to the return of 0% which you actually got! The moral is that it may be better to look at the log-returns if you are a buy-and-hold type of investor, because log-returns cancel out when prices fluctuate, whereas percentage changes in price do not. But the flip-side of this is that your average log-return over a period of time does not give you much information about what the prices have been doing, since it is just (log(final price) - log(initial price))/number of periods. Since it is so easy to calculate from the initial and final prices themselves, you commonly won't see it in the financial pages, as far as I know. Finally, to answer your question: \"\"Does knowing this single piece of information indicate something about the stock?\"\", I would say: not really. From the point of view of this one indicator, Pitchfork Oil and United Marshmallow look like identical investments, when they are clearly not. Knowing the average log-return is exactly the same as knowing the ratio between the final and initial prices.\"","Do what's outlined here. The capital asset pricing model will reveal how an asset (a stock in this instance) performed relative to the market performance for that time period. This by itself will answer your assignment's question but allowing you to traverse much deeper in the intricate details of the field. You'll learn a few interesting things on the way! Good luck :)","While the S&P500 is not a total return index, there is an official total return S&P500 that includes reinvested dividends and which is typically used for benchmarking. For a long time it was not available for free, but it can currently be found on yahoo finance using the ticker ^SP500TR.","You simply add the dividend to the stock price when calculating its annual return. So for year one, instead of it would be","\"Google Docs spreadsheets have a function for filling in stock and fund prices. You can use that data to graph (fund1 / fund2) over some time period. Syntax: =GoogleFinance(\"\"symbol\"\", \"\"attribute\"\", \"\"start_date\"\", \"\"num_days|end_date\"\", \"\"interval\"\") where: This analysis won’t include dividends or distributions. Yahoo provides adjusted data, if you want to include that.\"","A one year period of study - Stock A trades at $100, and doesn't increase in value, but has $10 in dividends over the period. Stock B starts at $100, no dividend, and ends at $105. However you account for this, it would be incorrect to ignore stock A's 10% return over the period. To flip to a real example, MoneyChimp shows the S&P return from Jan 1980 to Dec 2012 as +3264% yet, the index only rose from 107.94 to 1426.19 or +1221%. The error expands with greater time and larger dividends involved, a good analysis won't ignore any dividends or splits.","Have you actually read the Wikipedia article? To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Early on, the initial divisor was composed of the original number of component companies; which made the DJIA at first, a simple arithmetic average. The present divisor, after many adjustments, is less than one (meaning the index is larger than the sum of the prices of the components). That is: DJIA = sum(p) / d where p are the prices of the component stocks and d is the Dow Divisor. Events such as stock splits or changes in the list of the companies composing the index alter the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the Dow Divisor is updated so that the quotations right before and after the event coincide: DJIA = sum(p_old) / d_old = sum(p_new) / d_new The Dow Divisor was 0.14602128057775 on December 24, 2015.[40] Presently, every $1 change in price in a particular stock within the average, equates to a 6.848 (or 1 ÷ 0.14602128057775) point movement. Knowing the old prices, new prices (e.g. following a split), and old divisor, you can easily compute the new divisor... Edit: Also, the detailed methodology is published by SP Indices (PDF). Edit #2: For simplicity's sake, assume the DJIA is an index that contains 4 stocks, with a price of $100.00 each. One of the stocks splits 2:1, meaning the new price/share is $50.00. Plugging the numbers into the above equation, we can determine the new Dow Divisor: 400 / 4 = 350 / d => d = 3.5","I have asked myself this exact same question many times. The analysis would be simple if you invested all your money in a single day, but I did not and therefore I would need to convert your cash transactions into Index fund buys/sells. I got tired of trying to do this using Yahoo's data and excel so I built a website in my spare time. I humbly suggest you try my website out in the hopes that it helps you perform this computation: http://www.amibeatingthemarket.com/","What you're referring to is the yield. The issue with these sorts of calculations is that the dividend isn't guaranteed until it's declared. It may have paid the quarterly dividend like clockwork for the last decade, that does not guarantee it will pay this quarter. Regarding question number 2. Yield is generally an after the fact calculation. Dividends are paid out of current or retained earnings. If the company becomes hot and the stock price doubles, but earnings are relatively similar, the dividend will not be doubled to maintain the prior yield; the yield will instead be halved because the dividend per share was made more expensive to attain due to the increased share price. As for the calculation, obviously your yield will likely vary from the yield published on services like Google and Yahoo finance. The variation is strictly based on the price you paid for the share. Dividend per share is a declared amount. Assuming a $10 share paying a quarterly dividend of $0.25 your yield is: Now figure that you paid $8.75 for the share. Now the way dividends are allocated to shareholders depends on dates published when the dividend is declared. The day you purchase the share, the day your transaction clears etc are all vital to being paid a particular dividend. Here's a link to the SEC with related information: https://www.sec.gov/answers/dividen.htm I suppose it goes without saying but, historical dividend payments should not be your sole evaluation criteria. Personally, I would be extremely wary of a company paying a 40% dividend ($1 quarterly dividend on a $10 stock), it's very possible that in your example bar corp is a more sound investment. Additionally, this has really nothing to do with P/E (price/earnings) ratios.","At this time, Google Finance doesn't support historical return or dividend data, only share prices. The attributes for mutual funds such as return52 are only available as real-time data, not historical. Yahoo also does not appear to offer market return data including dividends. For example, the S&P 500 index does not account for dividends--the S&P ^SPXTR index does, but is unavailable through Yahoo Finance.","The adjusted close price takes into account stock splits (and possibly dividends). You want to look at the adjusted close price. Calculating percentage changes gets computationally tricky because you need to account for splits and dividends.","The return from one day to the next is based on the Day's closing price. To be clear - opening prices can be quite different from the prior day close. In your example, they are pretty close, but this is not always the case. Just pull a larger data set to observe this. The above aside, dividends are not reflected in the index, so, after a dividend has occurred, you'd need to account for this if you are looking for true total return. In 2011, the S&P closed at 1257.60 vs a 2010 year end 1257.64. The return, however was 2.11%, not zero, after accounting for the dividends. To me, articles that suggest the yearly return was zero are inaccurate and misleading.","Yes, if your IRR is 5% per annum after three years then the total return (I prefer total rather than your use of actual) over those three years is 15.76%. Note that if you have other cashflows in and out, it gets a bit more complicated (e.g. using the XIRR function in Excel), but the idea is to find an effective annual percentage return that you're getting for your money.","\"Compounding is just the notion that the current period's growth (or loss) becomes the next period's principal. So, applied to stocks, your beginning value, plus growth (or loss) in value, plus any dividends, becomes the beginning value for the next period. Your value is compounded as you measure the performance of the investment over time. Dividends do not participate in the compounding unless you reinvest them. Compound interest is just the principle of compounding applied to an amount owed, either by you, or to you. You have a balance with which a certain percentage is calculated each period and is added to the balance. The new balance is used to calculate the next period's interest, which again adds to the balance, etc. Obviously, it's better to be on the receiving end of a compound interest calculation than on the paying end. Interest bearing investments, like bonds, pay simple interest. Like stock dividends, you would have to invest the interest in something else in order to get a compounding effect. When using a basic calculator tool for stocks, you would include the expected average annual growth rate plus the expected annual dividend rate as your \"\"interest\"\" rate. For bonds you would use the coupon rate plus the expected rate of return on whatever you put the interest into as the \"\"interest\"\" rate. Factoring in risk, you would just have to pick a different rate for a simple calculator, or use a more complex tool that allows for more variables over time. Believe it or not, this is where you would start seeing all that calculus homework pay off!\"","Fund performance at NAV (%) for latest quarter, YTD, and average annual total returns for 1, 3, 5, 10 years. P/E ratio (1 yr. forecast), P/B ratio, Beta, Sharpe ratio, Wtd. avg. market cap, fund assets. I guess I would want to calculate all these things based off of the data that I would be working with. I will assume I am working with daily fund values per share over 10+ years.","You are looking for the Internal Rate of Return. If you have a spreadsheet like Microsoft Excel you can simply put in a list of the transactions (every time money went in or out) and their dates, and the spreadsheet's XIRR function will calculate a percentage rate of return. Here's a simple example. Investment 1 was 100,000 which is now worth 104,930 so it's made about 5% per year. Investment 2 is much more complicated, money was going in and out, but the internal rate of return was 7% so money in that investment, on average, grew faster than money in the first investment.","\"You can calculate the \"\"return on investment\"\" using libreoffice, for example. Look at the xirr function. You would have 2 columns, one a list of dates (ie the dates of the deposits or dividends or whatever that you want to track, the last entry would be today's date and the value of the investment today. The xirr function calculates the internal rate of return for you. If you add money to the account, and the current value includes the original investment and the added funds, it will be difficult to calculate the ROI. If you add money by purchasing additional shares (or redepositing dividends by buying additional shares), and you only want to track the ROI of the initial investment (ignoring future investments), you would have to calculate the current value of all of the added shares (that you don't want to include in the ROI) and subtract that value from the current total value of the account. But, if you include the dates and values of these additional share purchases in the spreadsheet, xirr will calculate the overall IRR for you.\"","\"the \"\"how\"\" all depends on your level of computer savvy. Are you an Excel spreadsheet user or can you write in programming languages such as python? Either approach have math functions that make the calculation of ROI and Volatility trivial. If you're a python coder, then look up \"\"pandas\"\" (http://pandas.pydata.org/) - it handles a lot of the book-keeping and downloading of end of day equities data. With a dozen lines of code, you can compute ROI and volatility.\"","\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \"\"patient buyer\"\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \"\"representative sample.\"\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \"\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\"\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\"","\"It can be pretty hard to compute the right number. What you need to know for your actual return is called the dollar-weighted return. This is the Internal Rate of Return (IRR) http://en.wikipedia.org/wiki/Internal_rate_of_return computed for your actual cash flows. So if you add $100 per month or whatever, that has to be factored in. If you have a separate account then hopefully your investment manager is computing this. If you just have mutual funds at a brokerage or fund company, computing it may be a bunch of manual labor, unless the brokerage does it for you. A site like Morningstar will show a couple of return numbers on say an S&P500 index fund. The first is \"\"time weighted\"\" and is just the raw return if you invested all money at time A and took it all out at time B. They also show \"\"investor return\"\" which is the average dollar-weighted return for everyone who invested in the fund; so if people sold the fund during a market crash, that would lower the investor return. This investor return shows actual returns for the average person, which makes it more relevant in one way (these were returns people actually received) but less relevant in another (the return is often lower because people are on average doing dumb stuff, such as selling at market bottoms). You could compare yourself to the time-weighted return to see how you did vs. if you'd bought and held with a big lump sum. And you can compare yourself to the investor return to see how you did vs. actual irrational people. .02, it isn't clear that either comparison matters so much; after all, the idea is to make adequate returns to meet your goals with minimum risk of not meeting your goals. You can't spend \"\"beating the market\"\" (or \"\"matching the market\"\" or anything else benchmarked to the market) in retirement, you can only spend cash. So beating a terrible market return won't make you feel better, and beating a great market return isn't necessary. I think it's bad that many investment books and advisors frame things in terms of a market benchmark. (Market benchmarks have their uses, such as exposing index-hugging active managers that aren't earning their fees, but to me it's easy to get mixed up and think the market benchmark is \"\"the point\"\" - I feel \"\"the point\"\" is to achieve your financial goals.)\"","\"A mutual fund's return or yield has nothing to do with what you receive from the mutual fund. The annual percentage return is simply the percentage increase (or decrease!) of the value of one share of the mutual fund from January 1 till December 31. The cash value of any distributions (dividend income, short-term capital gains, long-term capital gains) might be reported separately or might be included in the annual return. What you receive from the mutual fund is the distributions which you have the option of taking in cash (and spending on whatever you like, or investing elsewhere) or of re-investing into the fund without ever actually touching the money. Regardless of whether you take a distribution as cash or re-invest it in the mutual fund, that amount is taxable income in most jurisdictions. In the US, long-term capital gains are taxed at different (lower) rates than ordinary income, and I believe that long-term capital gains from mutual funds are not taxed at all in India. You are not taxed on the increase in the value of your investment caused by an increase in the share price over the year nor do you get deduct the \"\"loss\"\" if the share price declined over the year. It is only when you sell the mutual fund shares (back to the mutual fund company) that you have to pay taxes on the capital gains (if you sold for a higher price) or deduct the capital loss (if you sold for a lower price) than the purchase price of the shares. Be aware that different shares in the sale might have different purchase prices because they were bought at different times, and thus have different gains and losses. So, how do you calculate your personal return from the mutual fund investment? If you have a money management program or a spreadsheet program, it can calculate your return for you. If you have online access to your mutual fund account on its website, it will most likely have a tool called something like \"\"Personal rate of return\"\" and this will provide you with the same calculations without your having to type in all the data by hand. Finally, If you want to do it personally by hand, I am sure that someone will soon post an answer writing out the gory details.\"","The number you are trying to calculate is called the Internal Rate of Return (IRR). Google Spreadsheets (and excel) both have an XIRR function that can do this for you fairly simply. Setup a spreadsheet with 1 column for dates, 1 column for investment. Mark your investments as negative numbers (payment to invest). All investments will be negative. Mark your last row with today's date and today's valuation (positive). All withdrawals will be positive, so you are pretending to withdrawal your entire account for the purpose of calculation. Do not record dividends or other interim returns unless you are actually withdrawing money. The XIRR function will calculate your internal rate of return with irregularly timed investments. Links: Article explaining XIRR function (sample spreadsheet in google docs to modify)","It's not compound interest. It is internal rate of return. If you have access to Excel look up the XIRR built-in function.","\"The TWRR calculation will work even with negative values: TWRR = (1 + 0.10) x (1 + (-0.191) ) x (1 + 0.29) ^ (1/3) = 1.047 which is a 4.7% return. Your second question concerns the -19% return calculated for the second quarter. You seem to think this return is \"\"way-off\"\". Not really. The TWRR calculates a return by accounting for cash that was added or deducted to/from the account. So if I started with $100,000, added $10,000 to the account, and ended up with $110,000, what should be the return on my investment? My answer would be 0% since the only reason my account balance went up was due to me adding cash to it. Therefore, if I started with $100,000, added $10,000 in cash to the account, and ended up with $100,000 in my account, then my return would be a negative value since I lost the $10,000 that I deposited in the account. In the second quarter you started with $15,000, deposited $4,000, and ended with $15,750. You essentially lost almost all of the $4,000 you deposited. That is a significant loss.\"","It depends on what stocks you invest in or whether you invest in an index, as all stocks are not created equally. If you prefer to invest directly into individual stocks and you choose ones that are financially health and trending upwards, you should be able to easily outperform any indexes and get your 30% return much quicker. But you always need to make sure that you have a stop loss placed on all of your stocks, because even the best performing companies can go through bad patches. The stop loss prevents you from losing all your capital if the share price suddenly starts going south and turns into a downtrend.","\"The author is using an approximation to what you have exactly, which is called a \"\"true\"\" time-weighted rate of return. You have expressed the total time-weighted return for the period in question. In order to express this as an annual rate, you may annualize it by adding one, raising to the 1/y power, and subtracting one again, for a period of y years. The alternative to a time-weighted return is a money-weighted return, which is actually another name for the internal rate of return.\"","Indices such as SP500 are typically including dividends - the payment of dividends doesn't impact the value of the index. Where can I find data on these dividends? I found data on dividend yields, but these give me access only to the sum of dividends over the last year. This in turn can change either because there are new dividends being paid, or because you stop counting last year's dividends...","A couple ideas: Use excel - it has an IRR (internal rate of return) that can handle a table of inputs as you describe, along with dates deposited to give you a precise number. Go simple - track total deposits over the year, assume half of that was present in January. So, for example, your account started the year with $10k, ended with $15k, but you deposited $4k over the year. It should be clear the return (gain) is $1k, right? But it's not 10%, as you added during the year. I'd divide $1k/$12k for an 8.3% return. Not knowing how your deposits were structured, the true number lies between the 10% and 6.7% as extremes. You'll find as you get older and have a higher balance, this fast method gaining accuracy, as your deposits are a tinier fraction of your account and likely spread out pretty smoothly over the year anyway.","Prices are adjusted for return and not payout. So if you take the ratio of the close price and the adjusted close price, it should remain constant. The idea behind a total return (back-)adjustment is to give you a feeling how much money you would have needed back then to reach the price today under the premise that all distributions (dividends, spin-offs, etc.) are reinvested instantly and that reinvestment doesn't cost anything.","Average rates of return usually assume compounding, so your formula would be for annual compounding ,or for continuous compounding.","If you use Google Finance, you will get incorrect results because Google Finance does not show the dividend history. Since your requirement is that dividends are re-invested, you should use Yahoo Finance instead, downloading the historical 'adjusted' price.","A good way to measure the performance of your investments is over the long term. 25-30% returns are easy to get! It's not going to be 25-30% in a single year, though. You shouldn't expect more than about 4% real (inflation-adjusted) return per year, on average, over the long term, unless you have reason to believe that you're doing a better job of predicting the market than the intellectual and investment might of Wall Street - which is possible, but hard. (Pro tip: It's actually quite easy to outdo the market at large over the short term just by getting lucky or investing in risky askets in a good year. Earning this sort of return consistently over many years, though, is stupidly hard. Usually you'll wipe out your gains several years into the process, instead.) The stock market fluctuates like crazy, which is why they tell you not to invest any money you're likely to need sooner than about 5 years out and you switch your portfolio from stocks to bonds as you approach and enter retirement. The traditional benchmark for comparison, as others have mentioned, is the rate of return (including dividends) from the Standard and Poors 500 Index. These are large stable companies which make up the core of larger United States business. (Most people supplement these with some smaller companies and overseas companies as a part of the portfolio.)","\"To try and address your 'how' it goes a bit like this. You need to first assess how your stuff is invested, if for example half is in stocks, and the other half is in bonds, then you will need to calculate a 'blended' rate for what are reasonable 'average return' for both. That might mean looking at the S&P500 or Russell 3000 for the stock portion, and some bond index for that portion, then 'blend the rates', in this case using a formula like this then compare the blended rate with the return in your IRA. It is generally a lot more useful to compare the various components of your total return separately, especially if you investing with a particular style such as 'agressive growth' or you are buying actual bonds and not a bond fund since most of the bond oriented indexes are for bond funds, which you can't really compare well with buying and holding bonds to maturity. Lets say your stock side was two mutual funds with different styles, one 'large cap' the other 'aggressive growth'. In that case you might want to compare each one of those funds with an appropriate index such as those provided by Morningstar If you find one of them is consistently below the average, you might want to consider finding an alternative fund who's manager has a better track record (bearing in mind that \"\"past performance....\"\") For me (maybe someone has a good suggestion here) bonds are the hard thing to judge. The normal goal of actually owning bonds (as opposed to a fund) is to retain the entire principal value because there's no principal fluctuation if you hold the bond to maturity (as long as you choose well and the issuer doesn't default) The actual value 'right now' of a bond (as in selling before maturity) and bond funds, goes up and down in an inverse relationship with interest rates. That means the indexes for such things also go up and down a lot, so it's very hard to compare them to a bond you intend to hold to maturity. Also, for such a bond, there's not a lot of point to 'switch out' unless you are worried about the issuer defaulting. If rates are up from what you are getting on your bonds, then you'll have to sell your bond at a discount, and all that happens is you'll end up holding a different bond that is worth less, but has higher interest (basically the net return is likely to be pretty much the same). The better approach there is generally to 'ladder' your maturity dates so you get opportunities to reinvest at whatever the prevailing rates are, without having to sell at a discount.. anyway the point is that I'm not sure there's a lot of value to comparing return on the bond portion of an IRA unless it's invested in bond funds (which a lot of people wanting to preserve principal tend to avoid)\"","You've flipped the numerator and denominator around, and need to multiply by 100 to get percentage rather than 10: I like to use a simple example to assess reasonableness of an approach, if you had invested $100 and after 1 year had $150, your approach would yield: But since $50 is half of $100, we know the rate of return should be 50%, so we know that approach is off. But, flipping the numerator and denominator and multiplying by 100 gets us the 50% we expected: Edit: Good catch by @DJohnM you've called it 9 years, but it's actually 11, so you'd want to adjust accordingly.","\"To calculate a sector (or index) P/E ratio you need to sum the market caps of the constituent stocks and divide it by the sum of the total earnings of the constituent stocks (including stocks that have negative earnings). There are no \"\"per share\"\" figures used in the calculation. Beware when you include an individual stock that there may be multiple issues associated with the company that are not in the index.... eg. Berkshire Hathaway BRK.B is in the S&P 500 but BRK.A is not. In contrast, Google has both GOOGL and GOOG included in the S&P 500 index but not its unlisted Class B shares. All such shares need to be included in the market cap and figuring out the different share class ratios can be tricky.\"","The total number of shares on April 1st is 100 + 180 + 275 = 555. The price on April 1st is required. The current price is stated as $2, but $2 * 555 = $1110 and the current fund values is stated as $1500. Opting to take the current value as $1500, the price on April 1st can be calculated as $1500/555 = $2.7027. The amounts invested as number of shares x share price are: (Note these investment amounts do not match the example scenario's investment amounts, presumably because the example numbers are just made up.) The monthly returns can be calculated: The current values for each investor as invested amount x returns are: Checking the total:","You probably want the Internal Rate of Return (IRR), see http://en.wikipedia.org/wiki/Internal_rate_of_return which is the compound interest rate that would produce your return. You can compute it in a spreadsheet with XIRR(), I made an example: https://spreadsheets.google.com/ccc?key=0AvuTW2HtDQfYdEsxVlM0RFdrRk1QS1hoNURxZkVFN3c&hl=en You can also use a financial calculator, or there are probably lots of web-based calculators such as the ones people have mentioned.","\"Re. question 2 If I buy 20 shares every year, how do I get proper IRR? ... (I would have multiple purchase dates) Use the money-weighted return calculation: http://en.wikipedia.org/wiki/Rate_of_return#Internal_rate_of_return where t is the fraction of the time period and Ct is the cash flow at that time period. For the treatment of dividends, if they are reinvested then there should not be an external cash flow for the dividend. They are included in the final value and the return is termed \"\"total return\"\". If the dividends are taken in cash, the return based on the final value is \"\"net return\"\". The money-weighted return for question 2, with reinvested dividends, can be found by solving for r, the rate for the whole 431 day period, in the NPV summation. Now annualising And in Excel\"","The formula you're looking for is Thus, from 3% p.a. you get ca. 0.247% per month. However, as you see 0.25% is a good approximation (generally, small rates give good approximation).","The Investopedia article you linked to is a good start. Its key takeaway is that you should always consider risk-adjusted return when evaluating your portfolio. In general, investors seeking a higher level of return must face a higher likelihood of taking a loss (risk). Different types of stocks (large vs small; international vs US; different industry sectors) have different levels of historical risk and return. Not to mention stocks vs bonds or other financial instruments... So, it's key to make an apples-to-apples comparison against an appropriate benchmark. A benchmark will tell you how your portfolio is doing versus a comparable portfolio. An index, such as the S&P 500, is often used, because it tells you how your portfolio is doing compared against simply passively investing in a diversified basket of securities. First, I would start with analyzing your portfolio to understand its asset allocation. You can use a tool like the Morningstar X-Ray to do this. You may be happy with the asset allocation, or this tool may inform you to adjust your portfolio to meet your long-term goals. The next step will be to choose a benchmark. Given that you are investing primarily in non-US securities, you may want to pick a globally diversified index such as the Dow Jones Global Index. Depending on the region and stock characteristics you are investing in, you may want to pick a more specialized index, such as the ones listed here in this WSJ list. With your benchmark set, you can then see how your portfolio's returns compare to the index over time. IRR and ROI are helpful metrics in general, especially for corporate finance, but the comparison-based approach gives you a better picture of your portfolio's performance. You can still calculate your personal IRR, and make sure to include factors such as tax treatment and investment expenses that may not be fully reflected by just looking at benchmarks. Also, you can calculate the metrics listed in the Investopedia article, such as the Sharpe ratio, to give you another view on the risk-adjusted return.","From Wikipedia - To calculate the value of the S&P 500 Index, the sum of the adjusted market capitalization of all 500 stocks is divided by a factor, usually referred to as the Divisor. For example, if the total adjusted market cap of the 500 component stocks is US$13 trillion and the Divisor is set at 8.933 billion, then the S&P 500 Index value would be 1,455.28. From a strictly mathematical perspective, the divisor is not canceling out the units, and the S&P index is dollar denominated even though it's never quoted that way. A case in point is that the S&P is often said to have a P/E, and especially an E, the earnings attributed to one 'unit' of S&P. And if you buy a mutual fund sporting a low expense ratio, you can invest exactly that much money (the current S&P index value) and see the dividends accrue to your account, less the fee.","Right, that's my understanding of the problem too. I tried some of the indices last night (not necessarily the ones you are suggesting), but when pulling them into COMP it only provided the price return, not the total return including coupons. This latter part is still the challenge.","One thing to keep in mind when calculating P/E on an index is that the E (earnings) can be very close to zero. For example, if you had a stock trading at $100 and the earnings per share was $.01, this would result in a P/E of 10,000, which would dominate the P/E you calculate for the index. Of course negative earnings also skew results. One way to get around this would be to calculate the average price of the index and the earnings per share of the index separately, and then divide the average price of the index by the average earnings per share of the index. Different sources calculate these numbers in different ways. Some throw out negative P/Es (or earnings per share) and some don't. Some calculate the price and earnings per share separate and some don't, etc... You'll need to understand how they are calculating the number in order to compare it to PEs of individual companies.","You could use the Gordon growth model implied expected return: P = D/(r-g) --> r = D/P (forward dividend yield) + g (expected dividend growth). But obviously there is no such thing as a good market return proxy.","\"There are no guarantees in the stock market. The index fund can send you a prospectus which shows what their results have been over the past decade or so, or you can find that info on line, but \"\"past results are not a guarantee of future performance\"\". Returns and risk generally trade off against each other; trying for higher than average results requires accepting higher than usual risk, and you need to decide which types of investments, in what mix, balance those in a way you are comfortable with. Reinvested dividends are exactly the same concept as compounded interest in a bank account. That is, you get the chance to earn interest on the interest, and then interest on the interest on the interest; it's a (slow) exponential growth curve, not just linear. Note that this applies to any reinvestment of gains, not just automatic reinvestment back into the same fund -- but automatic reinvestment is very convenient as a default. This is separate from increase in value due to growth in value of the companies. Yes, you will get a yearly report with the results, including the numbers needed for your tax return. You will owe income tax on any dividends or sales of shares. Unless the fund is inside a 401k or IRA, it's just normal property and you can sell or buy shares at any time and in any amount. Of course the advantage of investing through those special retirement accounts is advantageous tax treatment, which is why they have penalties if you use the money before retirement. Re predicting results: Guesswork and rule of thumb and hope that past trends continue a bit longer. Really the right answer is not to try to predict precise numbers, but to make a moderately conservative guess, hope you do at least that well, and be delighted if you do better... And to understand that you can lose value, and that losses often correct themselves if you can avoid having to sell until prices have recovered. You can, of course, compute historical results exactly, since you know how much you put in when, how much you took out when, and how much is in the account now. You can either look at how rate of return varied over time, or just compute an average rate of return; both approaches can be useful when trying to compare one fund against another... I get an approximate version of this reported by my financial management software, but mostly ignore it except for amusement and to reassure myself that things are behaving approximately as expected. (As long as I'm outperforming what I need to hit my retirement goals, I'm happy enough and unwilling to spend much more time on it... and my plans were based on fairly conservative assumptions.) If you invest $3k, it grows at whatever rate it grows, and ten years later you have $3k+X. If you then invest another $10k, you now have $3k+X+10k, all of which grows at whatever rate the fund now grows. When you go to sell shares or fractional shares, your profit has to be calculated based on when those specific shares were purchased and how much you paid for them versus when they were sold and how much you sold them for; this is a more annoying bit of record keeping and accounting than just reporting bank account interest, but many/most brokerages and investment banks will now do that work for you and report it at the end of the year for your taxes, as I mentioned.\"","PE ratio is the current share price divided by the prior 4 quarters earnings per share. Any stock quote site will report it. You can also compute it yourself. All you need is an income statement and a current stock quote.","\"Instead of using the actual index, use a mutual fund as a proxy for the index. Mutual funds will include dividend income, and usually report data on the value of a \"\"hypothetical $10,000 investment\"\" over the life of the fund. If you take those dollar values and normalize them, you should get what you want. There are so many different factors that feed into general trends that it will be difficult to draw conclusions from this sort of data. Things like news flow, earnings reporting periods, business cycles, geopolitical activity, etc all affect the various sectors of the economy differently.\"","\"A good measurement would be to compare to index's. Basically a good way to measure your self would be to ask \"\"If I put my money somewhere else how much better or worse would I have done?\"\" Mutual funds and Hedge funds use the SP500 as a bench mark. Some funds actually wave their fee if they do not outperform the SP or only take a fee on the portion that has outperformed the SP500. in today's economy i dont know how to expect such a return The economy is not a good benchmark on what to expect from the stock market. For example in 2009 by certain standards the economy was worse then today but in 2009 the market rallied a great deal so your returns should have reflected that. You can use the SP500 as a quick reference to compare your returns (this is also considered the \"\"standard\"\" for a quick comparison). The way you compare your performance is also dependent on how you invest your money. If you are outperforming the SP500 you are doing well. Many mutual funds DO NOT outperform the SP500. Edit Additional Info: Here is an article with more comprehensive information on how to gauge your performance. In the article is a link to a free tool from morning star. Use the Right Benchmark to Accurately Measure Investment Performance\"","ROI and volatility should be calculated over a representative period of time, for example 3 or 5 years, depending on data availability. The ROI is simple, for example, over 5 years:- For the 5 year annualised volatility you can refer to the ESMA SRRI methodology. Box 1 (page 3) m is the annualisation factor. Stock volatility calculated from weekly data should not be compared with volatility calculated from monthly data. Also, for reference: How to Calculate your Portfolio's Rate of Return","\"Well depends but \"\"on average\"\" the stock market has historically returned somewhere around 10% per year. Note, this can vary wildly from year to year see http://en.wikipedia.org/wiki/S%26P_500#Market_statistics So it would be roughly 2.8 years to get your 30% if you happen to get the average market return for those 3 years, but the chances of that happening exactly are slim to none. You could end up with +50% or -30% over that ~3 year period of time - so the calculation doesn't do you that much good for that short period of time, but if you are talking a span of 30 years then you could plan using that as a very rough ballpark. Good rule of thumb is you shouldn't put any money in the stock market you think you will need anytime in the next 5 years. Formula to figure out total gain would be Principal x (1+ rate of return) ^ years\"","\"What you are looking for is an indicator called the \"\"Rate of Change (Price)\"\". It provides a rolling % change in the price over the period you have chosen. Below is an example showing a price chart over the last 6 months with a 100 day Rate of Change indicator below the price chart.\""],"string":"[\n \"Here's a few demo steps, first calculating the year to date return, then calculating the Q4 quarterly return based on the cumulative returns for Q3 and Q4. It's fine to use closing price to closing price as return periods.\",\n \"You could take these definitions from MSCI as an example of how to proceed. They calculate price indices (PR) and total return indices (including dividends). For performance benchmarks the net total return (NR) indices are usually the most relevant. In your example the gross total return (TR) is 25%. From the MSCI Index Defintions page :- The MSCI Price Indexes measure the price performance of markets without including dividends. On any given day, the price return of an index captures the sum of its constituents’ free float-weighted market capitalization returns. The MSCI Total Return Indexes measure the price performance of markets with the income from constituent dividend payments. The MSCI Daily Total Return (DTR) Methodology reinvests an index constituent’s dividends at the close of trading on the day the security is quoted ex-dividend (the ex-date). Two variants of MSCI Total Return Indices are calculated: With Gross Dividends: Gross total return indexes reinvest as much as possible of a company’s dividend distributions. The reinvested amount is equal to the total dividend amount distributed to persons residing in the country of the dividend-paying company. Gross total return indexes do not, however, include any tax credits. With Net Dividends: Net total return indexes reinvest dividends after the deduction of withholding taxes, using (for international indexes) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.\",\n \"Well i dont know of any calculator but you can do the following 1) Google S&P 500 chart 2) Find out whats the S&P index points (P1) on the first date 3) Find out whats the S&P index points (P2) on the second date 4) P1 - P2 = result\",\n \"If you mean the internal rate of return, then the quarterly rate of return which would make the net present value of these cash flows to be zero is 8.0535% (found by goal seek in Excel), or an equivalent compound annual rate of 36.3186% p.a. The net present value of the cash flows is: 10,000 + 4,000/(1+r) - 2,000/(1+r)^2 - 15,125/(1+r)^3, where r is the quarterly rate. If instead you mean Modified Dietz return, then the net gain over the period is: End value - start value - net flow = 15,125 - 10,000 - (4,000 - 2,000) = 3,125 The weighted average capital invested over the period is: 1 x 10,000 + 2/3 x 4,000 - 1/3 x 2,000 = 12,000 so the Modified Dietz return is 3,125 / 12,000 = 26.0417%, or 1.260417^(1/3)-1 = 8.0201% per quarter, or an equivalent compound annual rate of 1.260417^(4/3)-1 = 36.1504%. You are using an inappropriate formula, because we know for a fact that the flows take place at the beginning/end of the period. Instead, you should be combining the returns for the quarters (which have in fact been provided in the question). To calculate this, first calculate the growth factor over each quarter, then link them geometrically to get the overall growth factor. Subtracting 1 gives you the overall return for the 3-quarter period. Then convert the result to a quarterly rate of return. Growth factor in 2012 Q4 is 11,000/10,000 = 1.1 Growth factor in 2013 Q1 is 15,750/15,000 = 1.05 Growth factor in 2013 Q2 is 15,125/13,750 = 1.1 Overall growth factor is 1.1 x 1.05 x 1.1 = 1.2705 Return for the whole period is 27.05% Quarterly rate of return is 1.2705^(1/3)-1 = 8.3074% Equivalent annual rate of return is 1.2705^(4/3)-1 = 37.6046% ========= I'd recommend you to refer to Wikipedia.\",\n \"( t2 / t1 ) - 1 Where t2 is the value today, t1 is the value 12 months ago. Be sure to include dividend payments, if there were any, to t2. That will give you total return over 12 months.\",\n \"Since you have the balance at equal periods and the cash flows at the period ends, the best return calculation in this case is the true time-weighted return. See http://en.wikipedia.org/wiki/Time-weighted_return#Formulae So, notwithstanding some ambiguity about your figures, here is a calculation using the first three periods from your second table. Giving a total return over the three periods of -23.88% If the periods are months, multiply by four to annualise.\",\n \"TWRR = (2012Q4 x 2013Q1 x 2013Q2) ^ (1/3) = ?? (1.1 * .809 * 1.29) ^ (1/3) = 1.047 or 4.7% return. No imaginary numbers needed. But. Your second line there is wrong $15,750 - $15,000 - $4,000 ? The $15K already contains the $4k, why did you subtract it again? This a homework problem?\",\n \"\\\"This is the same answer as for your other question, but you can easily do this yourself: ( initial adjusted close / final adjusted close ) ^ ( 1 / ( # of years sampled) ) Note: \\\"\\\"# of years sampled\\\"\\\" can be a fraction, so the one week # of years sampled would be 1/52. Crazy to say, but yahoo finance is better at quick, easy, and free data. Just pick a security, go to historical prices, and use the \\\"\\\"adjusted close\\\"\\\". money.msn's best at presenting finances quick, easy, and cheap.\\\"\",\n \"So for quarters So, if Q1's value was 10 and Q2's value was 25 For closing or opening prices, I would use closing prices. For instance, some used Adjusted Close or Close on Yahoo Finance (see this example of AAPL). Added Note: In your example, for your example, you'll want to take the absolute value of the denominator (aka: divisor), so an Excel formula might look like the below example ... ... where the new and old are cells.\",\n \"Simple math. Take the sale proceeds (after trade expenses) and divide by cost. Subtract 1, and this is your return. For example, buy at 80, sell at 100, 100/80 = 1.25, your return is 25%. To annualize this return, multiply by 365 over the days you were in that stock. If the above stock were held for 3 months, you would have an annualized return of 100%. There's an alternative way to annualize, in the same example above take the days invested and dive into 365, here you get 4. I suggested that 25% x 4 = 100%. Others will ask why I don't say 1.25^4 = 2.44 so the return is 144%/yr. (in other words, compound the return, 1.25x1.25x...) A single day trade, noon to noon the next day returning just 1%, would multiply to 365% over a year, ignoring the fact there are about 250 trading days. But 1.01^365 is 37.78 or a 3678% return. For long periods, the compounding makes sense of course, the 8%/yr I hope to see should double my money in 9 years, not 12, but taking the short term trades and compounding creates odd results of little value.\",\n \"Annualize quarterly returns: AR = (1+QR)^4 Where *QR* is a decimal return, e.g. 0.05. Standard deviations are similar: Annual SD = SD * sqrt(T) If you have quarterly deviations, *T=4*, if you have daily, *T=252*, etc. As an aside, for work with money riding on it, it is *not* okay to aggregate standard deviations if there's autocorrelation amongst observations at a smaller time scale. Volatility is often quoted this way and that's fine, but it is dangerous to do any sort of risk management with this and you'll require more due diligence. It's a good enough approximation for napkin math, though.\",\n \"There are many ways to calculate the return, and every way will give you a different results in terms of a percentage-value. One way to always get something meaningful - count the cash. You had 977 (+ 31) and in the end you have 1.370, which means you have earned 363 dollars. But what is your return in terms of percentage? One way to look at it, is by pretending that it is a fund in which you invest 1 dollar. What is the fund worth in the beginning and in the end? The tricky part in your example is, you injected new capital into the equation. Initially you invested 977 dollars which later, in the second period became worth 1.473. You then sold off 200 shares for 950 dollars. Remember your portfolio is still worth 1.473, split between 950 in cash and 523 in Shares. So far so good - still easy to calculate return (1.473 / 977 -1 = 50.8% return). Now you buy share for 981 dollars, but you only had 950 in cash? We now need to consider 2 scenarios. Either you (or someone else) injected 31 dollars into the fund - or you actually had the 31 dollars in the fund to begin with. If you already had the cash in the fund to begin with, your initial investment is 1.008 and not 977 (977 in shares and 31 in cash). In the end the value of the fund is 1.370, which means your return is 1.370 / 1.007 = 36%. Consider if the 31 dollars was paid in to the fund by someone other than you. You will then need to recalculate how much you each own of the fund. Just before the injection, the fund was worth 950 in cash and 387 in stock (310 - 200 = 110 x 3.54) = 1.339 dollars - then 31 dollars are injected, bringing the value of the fund up to 1.370. The ownership of the fund is split with 1.339 / 1.370 = 97.8% of the value for the old capital and 2.2% for the new capital. If the value of the fund was to change from here, you could calculate the return for each investor individually by applying their share of the funds value respective to their investment. Because the value of the fund has not changed since the last period (bullet 3), the return on the original investment is (977 / 1.339 - 1 = 37.2%) and the return on the new capital is (31 / 31 = 0%). If you (and not someone else) injected the 31 dollar into the fund, you will need to calculate the weight of each share of capital in each period and get the average return for each period to get to a total return. In this specific case you will still get 37.2% return - but it gets even more comlex for each time you inject new capital.\",\n \"\\\"This page from simplestockinvesting.com gives details of total returns for the S&P500 for each decade over the last 60 years, including total returns for the entire 60 year period. It is important to understand that, from an investors point of view, the total return includes both the change in index value (capital gain) plus dividends received. This total then needs to be adjusted for inflation to give the \\\"\\\"total real return\\\"\\\". As noted in the analysis provided, 44% of the total return from the S&P500 over the last 80 years comes from dividends. For the DowJones30, this site provides a calculator for total returns and inflation adjusted total returns for user selected periods. Finding comparable analysis for the NASDAQ market is more difficult. The NASDAQ market site provides gross values for total returns over fixed periods, but you will then need to do the arithmetic to calculate the equivalent average annual total returns. No inflation adjusted values for \\\"\\\"real\\\"\\\" returns are provided, so again you will need to combine inflation data from elsewhere and do the arithmetic.\\\"\",\n \"However, you have to remember that not all dividends are paid quarterly. For example one stock I recently purchased has a price of $8.03 and the Div/yield = 0.08/11.9 . $.08 * 4 = $0.32 which is only 3.9% (But this stock pays monthly dividends). $.08 * 12 = $0.96 which is 11.9 %. So over the course of a year assuming the stock price and the dividends didn't change you would make 11.9%\",\n \"\\\"Total Return is the percent change in value (including andy dividends) of an instrument. The \\\"\\\"trailing 12-month\\\"\\\" means that your starting point is the value 12 months ago. So the formula is: where V is the value of the instrument on the reference date, V0 is the value of the instrument 12 months prior to the reference date, and D is the amount of dividends paid between the two dates.\\\"\",\n \"Technically you should take the quarterly dividend yield as a fraction, add one, take the cube root, and subtract one (and then multiple by the stock price, if you want a dollar amount per share rather than a rate). This is to account for the fact that you could have re-invested the monthly dividends and earned dividends on that reinvestment. However, the difference between this and just dividing by three is going to be negligible over the range of dividend rates that are realistically paid out by ordinary stocks.\",\n \"Your example isn't consistent: Q1 end market value (EMV) is $15,750, then you take out $2,000 and say your Q2 BMV is $11,750? For the following demo calculations I'll assume you mean your Q2 BMV is $13,750, with quarterly returns as stated: 10%, 5%, 10%. The Q2 EMV is therefore $15,125. True time-weighted return :- http://en.wikipedia.org/wiki/True_time-weighted_rate_of_return The following methods have the advantage of not requiring interim valuations. Money-weighted return :- http://en.wikipedia.org/wiki/Rate_of_return#Internal_rate_of_return Logarithmic return :- http://en.wikipedia.org/wiki/Rate_of_return#Logarithmic_or_continuously_compounded_return Modified Dietz return :- http://en.wikipedia.org/wiki/Modified_Dietz_method Backcalculating the final value (v3) using the calculated returns show the advantage of the money-weighted return over the true time-weighted return.\",\n \"How S&P 500 returns are calculated is jotted down here. You should follow the same methodology i.e. base-weighted aggregate methodology to calculate your own returns. Anything different and it would be an incorrect comparison.\",\n \"MoneyChimp is great for this. It only offers full year returns, but it compounds the results correctly, including dividends. For mid year results, just adjust a bit based on the data you can find from Google or Yahoo to add some return (or loss) for the months.\",\n \"Knowing the log return is useful - the log return can help you to work out the annual return over the period it was estimated - and this should be comparable between stocks. One should just be careful with the calculation so that allowance for dividends is made sensibly.\",\n \".INX (the S&P 500 index itself) does not include reinvested dividens. You can figure total return by going to Yahoo finance, historical data. Choose the start year, and end year. You should find that data for SPY (going back to 1993) will show an adjusted close, and takes dividends into account. This isn't perfect as SPY has a .09% expense ratio, but it's better than just the S&P index. One of the more popular Dow ETF is DIA, this will let you similarly track the Dow while accounting for dividends.\",\n \"\\\"Google is a poor example since it doesn't pay a dividend (and doesn't expect to), so let's use another example with easy numbers. Company X has a stock price of $100, and it pays a quarterly dividend (many companies do). Let's assume X pays a dividend of $4. Dividends are always quoted in annual terms, as is dividend yield. When a company says that they pay \\\"\\\"quarterly dividends,\\\"\\\" it means that the company pays dividends every quarter, or every 3 months. BUT, if a company has a $4 dividend, you will not receive $4 every quarter per share. You will receive $4/4 = $1 per share, every quarter. So over the course of a fiscal year, or 4 quarters, you'll get $1 + $1 + $1 + $1 = $4 per share, which is the annual dividend. The dividend yield = annual dividend/stock price. So in this case, company X's div. yield will be $4/$100 * 100 = 4%. It's important to note that this is the annual yield. To get the quarterly yield, you must divide by 4. It's also important to note that the yield fluctuates based on stock price, but the dividend payment stays constant unless the company states an announcement. For a real world example, consider Intel Corp. (TICKER: INTC) http://finance.yahoo.com/q?s=INTC The share price is currently $22.05, and the dividend is $0.84. This makes the annual yield = $0.84/$22.05 * 100 = 3.80%. Intel pays a quarterly dividend, so you can expect to receive $0.21 every quarter for every share of Intel that you own. Hope that clears it up!\\\"\",\n \"If you just want to know total return, either as dollars or a percentage, just add up the total amount spent on buys and compare this to current value plus money received on sales. In this case, you spent (310 x $3.15 + $19.95) + (277 x $3.54 + $19.95). So your total investment is ... calculator please ... $1996.98. You received 200 x $4.75 on the sale minus the $19.95 = $930.05. The present value of your remaining shares is 387 x $6.06 = $2345.22. So you have realized plus unrealized value of $2345.22 + $930.05 = $3275.27. Assuming I didn't mix up numbers or make an arithmetic mistake, your dollar gain is $3275.27 - $1996.98 = $1278.29, which comes to 1278.29 / 1996.98 = 64%. If you want to know percentage gain as an annual rate, we'd have to know buy and sell dates, and with multiple buys and sells the calculation gets messier.\",\n \"Points are index based. Simple take the total value of the stocks that compose the index, and set it equal to an arbitrary number. (Say 100 or 1000) This becomes your base. Each day, you recalculate the value of the index basket, and relate it to the base. So if our index on day 0 was 100, and the value of the basket went up 1%, the new index would be 101 points. For the example given, the percentage change would be (133.32 -133.68 ) / 133.68 * 100% = -0.27% Keep in mind that an index basket will change in composition over time. Assets are added and removed as the composition of the market changes. For example, the TSX index no longer includes Nortel, a stock that at one time made up a significant portion of the index. I'm not sure if a percentage drop in an index is really a meaningful statistic because of that. It is however, a good way of looking at an individual instrument.\",\n \"> So: what do i do to have the monthly %change? I was thinking (last day of the mont CP - 1st day of the month OP)/ 1st day of the mont opening price. No, use the same day (usually month end) of each month (i.e. December 31 vs. January 31). Use closing prices only. Keep in mind, it may make more mathematical sense to use LN (natural logs) to determine %-change and standard deviation. The simplest way to compare the riskiness of each is just to compare St. Dev. You can, of course, go into more detail. If you want to impress your professor, look up the efficient frontier and make one for each portfolio.\",\n \"R has really good package that lets you calculate the return of rebalanced portfolios. The package is called: PerformanceAnalytics (see: http://www.inside-r.org/packages/cran/PerformanceAnalytics/docs/Return.portfolio). I quickly wrote a small script for you that lets you do exactly what you want. Code: By default the portfolio is rebalanced to an equally weighted portfolio. It is also possible to rebalance your portfolio using custom weights. See the documentation on how to do this. In order for this code to work you need to have your data already in return terms. You can do this easily in Excel. Make sure your data in excel looks like this: Than export your data to a CSV file. Note: before you run the code make sure you have installed the package PerformanceAnalytics. You can do this as follows: Let me know if you have any questions regarding the above.\",\n \"The author is using the simple Dietz method, (alternatively the modified Dietz), with the assumption that the net cash-flow occurs halfway through the time period. Let's say the time period is one year for illustration, so the cash-flow would be at the end of the second quarter. The money-weighted method gives a more accurate return, but has to be solved by trial-and-error or using a computer. The money-weighted return is 11.2718 % and the simple or modified Dietz return is 11.2676 %. When the sums are done backwards to check, the Dietz is half a dollar out with a final value of $11,999.50 while the money-weighted return recalculates exactly $12,000. It is worth pointing out that the return changes if the cash-flow is not in the middle of the time period. A case with the cash-flow at the end of Q3 is added to illustrate.\",\n \"\\\"So, there is no truly \\\"\\\"correct\\\"\\\" way to calculate return. Professionals will often calculate many different rates of return depending on what they wish to understand about their portfolio. However, the two most common ways of calculating multi-period return though are time-weighted return and money-weighted return. I'll leave the details to this good Investopeadia article, but the big picture is time-weighted returns help you understand how the stock performed during the period in question independent of how you invested it it. Whereas money-weighted return helps you understand how you performed investing in the stock in question. From your question, it appears both methods would be useful in combination to help you evaluate your portfolio. Both methods should be fairly easy to calculate yourself in a spread sheet, but if you are interested there are plenty of examples of both in google docs on the web.\\\"\",\n \"\\\"Good observation. In fact, the S&P index itself is guilty of not including dividends. So when you look at the index alone, the delta between any two points in time diverges, and the 20 return observed if one fails to include dividends is meaningless, in my my humble opinion. Yahoo finance will let you look at a stock ticker and offer you an \\\"\\\"adjusted close\\\"\\\" to include the dividend effect.\\\"\",\n \"Thanks for showing me that. I can see it now. I have always used my formula, and even a senior at another company confirmed the way I calculated the returns. Luckily, I do not work with that manager, and he has his own model, and so do I. But he was pretty cool about it when I asked about his calculations.\",\n \"\\\"Month to date For the month to date (MTD), the price on Feb 28th is $4.58 and the price on March 16th is $4.61 so the return is which can be written more simply as The position is 1000 shares valued at $4580 on Feb 28th, so the profit on the month to date is Calendar year to date For the calendar year to date (YTD), the price on Dec 31st is $4.60 and the price on Feb 28th is $4.58 so the return to Feb 28th is The return from Feb 28th to March 16th is 0.655022 % so the year to date return is or more directly So the 2011 YTD profit on 1000 shares valued at $4600 on Dec 31st is Year to date starting Dec 10th For the year to date starting Dec 10th, the starting value is and the value on Dec 31st is 1000 * $4.60 = $4600 so the return is $4600 / $4510 - 1 = 0.0199557 = 1.99557 % The year to date profit is therefore Note - YTD is often understood to mean calendar year to date. To cover all the bases state both, ie \\\"\\\"calendar YTD (2011)\\\"\\\" and \\\"\\\"YTD starting Dec 10th 2010\\\"\\\". Edit further to comment For the calendar year to date, with 200 shares sold on Jan 10th with the share price at $4.58, the return from Dec 31st to Jan 10th is The return from Jan 10th to Feb 28th is The return from Feb 28th to March 16th is The profit on 1000 shares from Dec 31st to Jan 10th is $4600 * -0.00434783 = -$20 The profit on 800 shares from Jan 10th to Feb 28th is zero. The profit on 800 shares from Feb 28th to March 16th is So the year to date profit is $4.\\\"\",\n \"The point of a total return index is that it already has accounted for the capital gains + coupon income. If you want to calculate it yourself you'll have to find the on-the-run 10y bond for each distinct period then string them together to calc your total return. Check XLTP if they have anything\",\n \"There are at least a couple of ways you could view this to my mind: Make an Excel spreadsheet and use the IRR function to compute the rate of return you are having based on money being added. Re-invested distributions in a mutual fund aren't really an additional investment as the Net Asset Value of the fund will drop by the amount of the distribution aside from market fluctuation. This is presuming you want a raw percentage that could be tricky to compare to other funds without doing more than a bit of work in a way. Look at what is the fund's returns compared to both the category and the index it is tracking. The tracking error is likely worth noting as some index funds could lag the index by a sizable margin and thus may not be that great. At the same time there may exist cases where an index fund isn't quite measuring up that well. The Small-Growth Indexing Anomaly would be the William Bernstein article from 2001 that has some facts and figures for this that may be useful.\",\n \"If annualized rate of return is what you are looking for, using a tool would make it a lot easier. In the post I've also explained how to use the spreadsheet. Hope this helps.\",\n \"Yes an index is by definition any arbitrary selection. In general, to measure performance there are 2 ways: By absolute return - meaning you want a positive return at all times ie. 10% is good. -1% is bad. By relative return - this means beating the benchmark. For example, if the benchmark returns -20% and your portfolio returns -10%, then it has delivered +10% relative returns as compared to the benchmark.\",\n \"\\\"It's easy for me to look at an IRA, no deposits or withdrawal in a year, and compare the return to some index. Once you start adding transactions, not so easy. Here's a method that answers your goal as closely as I can offer: SPY goes back to 1993. It's the most quoted EFT that replicates the S&P 500, and you specifically asked to compare how the investment would have gone if you were in such a fund. This is an important distinction, as I don't have to adjust for its .09% expense, as you would have been subject to it in this fund. Simply go to Yahoo, and start with the historical prices. Easy to do this on a spreadsheet. I'll assume you can find all your purchases inc dates & dollars invested. Look these up and treat those dollars as purchases of SPY. Once the list is done, go back and look up the dividends, issues quarterly, and on the dividend date, add the shares it would purchase based on that day's price. Of course, any withdrawals get accounted for the same way, take out the number of SPY shares it would have bought. Remember to include the commission on SPY, whatever your broker charges. If I've missed something, I'm sure we'll see someone point that out, I'd be happy to edit that in, to make this wiki-worthy. Edit - due to the nature of comments and the inability to edit, I'm adding this here. Perhaps I'm reading the question too pedantically, perhaps not. I'm reading it as \\\"\\\"if instead of doing whatever I did, I invested in an S&P index fund, how would I have performed?\\\"\\\" To measure one's return against a benchmark, the mechanics of the benchmarks calculation are not needed. In a comment I offer an example - if there were an ETF based on some type of black-box investing for which the investments were not disclosed at all, only day's end pricing, my answer above still applies exactly. The validity of such comparisons is a different question, but the fact that the formulation of the EFT doesn't come into play remains. In my comment below which I removed I hypothesized an ETF name, not intending it to come off as sarcastic. For the record, if one wishes to start JoesETF, I'm ok with it.\\\"\",\n \"To figure this out, you need to know the price per share then vs the price per share now. Google Finance will show you historical prices. For GOOG, the closing price on January 5, 2015 was $513.87. The price on December 31, 2015 was $758.88. Return on Investment (ROI) is calculated with this formula: ROI = (Proceeds from Investment - Cost of Investment) / Cost of Investment Using this formula, your return on investment would be 47.7%. Since the time period was one year, this number is already an annualized return. If the time period was different than one year, you would normally convert it to an annualized rate of return in order to compare it to other investments.\",\n \"Treat each transaction as separate, with its own principal, its own gain, and its own number of days. Then the total annualized return is just a weighted average of each annualized return, with the weighting related to the number of shares in that transaction.\",\n \"As I write this, the NASDAQ Composite is at 2790.00, down 6.14 points from yesterday. To calculate the percentage, you take 6.14 and divide by yesterday's close of 2796.14 to yield 0.22%. In your example, if SPY drops from 133.68 to 133.32, you use the difference of -0.36 and divide by the original, i.e. -0.36/133.68 = -0.27%. SPY is an ETF which you can invest in that tracks the S&P 500 index. Ideally, the index would have dropped the same percentage as SPY, but the points would be different (~10x higher). To answer your question about how one qualifies a point, it completely depends on the index being discussed. For example, the S&P 500 is a market-capitalization weighted index of the common stock of 500 large-cap US public companies. It is as if you owned every share of each of the 500 companies, then divide by some large constant to create a number that's easily understood mentally (i.e. 1330). The NASDAQ Composite used the same methodology but includes practically all stocks listed on the NASDAQ. Meanwhile, the Dow Jones Industrial Average is a price-weighted index of 30 large-cap companies. It's final value is modified using a divisor known as the Dow Divisor, which accounts for stock splits and similar events that have occurred since a stock has joined the index. Thus, points when referring to an index do not typically represent dollars. Rather, they serve as a quantitative measure of how the market is doing based on the performance of the index constituents. ETFs like SPY add a layer of abstraction by creating an investible vehicle that ideally tracks the value of the underlying index directly. Finally, neither price nor index value is related to volume. Volume is a raw measurement of the total number of shares traded for a given stock or the aggregate for a given exchange. Hope this helps!\",\n \"I found one such tool here: Point-to-Point Returns tool\",\n \"Hart's answer regarding the difference between an index and a stock aside, remember that dividend yield is a passive measure. It takes the announced dividend (which is a $/share amount) and divides it by the current market price. So you can't assume that if you buy a stock that had a dividend yield of 4% for $100 that you're guaranteed 4% of the stock price in dividends. If the price of the stock doubles, you'd still get $4, but the yield would drop to 2%. Or the company could reduce (or even suspend) its dividends, which would reduce the yield if the stock price stayed flat. For an index like the S&P, it's easier to measure dividends on % yield terms rather then $/share terms since you'd have to own shares in every single company to get that amount, but on average the stocks in the S&P 500 pay X% in dividends (which are typically quarterly) - some pay more than that, some less, and some none at all.\",\n \"See the Moneychimp site. From 1934 to 2006, the S&P returned an 'average' 12.81%. But the CAGR was 11.26%. I wrote an article Average Return vs Compound Annual Growth to address this issue. Interesting that over time only a few funds have managed to get anywhere near this return, but the low cost indexer can get the long term CAGR minus .05% or so, if they wish.\",\n \"\\\"There's no need for an index to have a currency as its purpose is not to act as an asset but rather to signal investors about the performance of a collection of stocks. An index can be price-weighted, meaning that its value equals the (arithmetic) average of the prices of each stock in the index. With no stock splits, the return on this index is the same as the return on a portfolio composed of one share of each stock. If there is a stock split, however instead of dividing by the number of stocks, as you normally would when taking the arithmetic average, you divide it by the number that will make the value of the index pre-stock-split (arithmetic average) equal to the value post stock split. Then use that dividing number for all periods until a new stock split occurs. An index can be value-weighted, meaning that its changes in value track the percentage changes in total market capitalization of the stocks in the index. Price weighted indexes ignore for \\\"\\\"firm size\\\"\\\" and percentage changes in price weighted indexes are not robust to stock-splits. Value weighted indexes take \\\"\\\"firm size\\\"\\\" into account and are robust to stock-splits. DJIA is price-weighted. S&P 500 is value-weighted.\\\"\",\n \"This link does it ok: http://investexcel.net/1979/calculate-historical-volatility-excel/ Basically, you calculate percentage return by doing stock price now / stock price before. You're not calculating the rate of return hence no subtraction of 100%. The standard is to do this on a daily basis: stock price today / stock price yesterday. The most important and most misunderstood part is that you now have to analyze the data geometrically not arithmetically. To easily do this, convert all percentage returns with the natural log, ln(). Next, you take the standard deviation of all of those results, and apply exp(). This answers the title of your question. For convenience's sake, it's best to annualize since volatility (implied or statistical) is now almost always quoted annualized. There are ~240 trading days each year. You multiply your stdev() result by (240 / # of trading days per return) ^ 0.5, so if you're doing this for daily returns, multiply the stdev() result by 240^0.5; if you were doing it weekly, you'd want to multiply by (240 / ~5)^0.5; etc. This is your number for sigma. This answers the intent of your question. For black-scholes, you do not convert anything back with exp(); BS is already set up for geometric analysis, so you need to stay there. The reason why analysis is done geometrically is because the distribution of stock returns is assumed to be lognormal (even though it's really more like logLaplace).\",\n \"This answer contains three assumptions: New Share Price: Old Share Price * 1.0125 Quarterly Dividend: (New Share Price*0.01) * # of Shares in Previous Quarter Number of Shares: Shares from Previous Quarter + Quarterly Dividend/New Share Price For example, starting from right after Quarter One: New share price: $20 * 1.0125 = 20.25 1000 shares @ $20.25 a share yields $20.25 * 0.01 * 1000 = $202.5 dividend New shares: $202.5/20.25 = 10 shares Quarter Two: New share price: $20.503 1010 shares @ 20.503 yields $20.503*0.01*1010 = $207.082 dividend New shares: $207.082/20.503 = 10.1 shares Repeat over many cycles: 8 Quarters (2 years): 1061.52 shares @ $21.548 a share 20 Quarters (5 years): 1196.15 shares @ $25.012 a share 40 Quarters (10 years): 1459.53 shares @ $32.066 a share Graphically this looks like this: It's late enough someone may want to check my math ;). But I'd also assert that a 5% growth rate and a 4% dividend rate is pretty optimistic.\",\n \"\\\"(Value of shares+Dividends received)/(Initial investment) would be the typical formula though this is more of a percentage where 1 would indicate that you broke even, assuming no inflation to be factored. No, you don't have to estimate the share price based on revenues as I would question how well did anyone estimate what kind of revenues Facebook, Apple, or Google have had and will have. To estimate the value of shares, I'd likely consider what does my investment strategy use as metrics: Is it discounted cash flow, is it based on earnings, is it something else? There are many ways to determine what a stock \\\"\\\"should be worth\\\"\\\" that depending on what you want to believe there are more than a few ways one could go.\\\"\",\n \"I use the following method. For each stock I hold long term, I have an individual table which records dates, purchases, sales, returns of cash, dividends, and way at the bottom, current value of the holding. Since I am not taking the income, and reinvesting across the portfolio, and XIRR won't take that into account, I build an additional column where I 'gross up' the future value up to today() of that dividend by the portfolio average yield at the date the dividend is received. The grossing up formula is divi*(1+portfolio average return%)^((today-dividend date-suitable delay to reinvest)/365.25) This is equivalent to a complex XMIRR computation but much simpler, and produces very accurate views of return. The 'weighted combined' XIRR calculated across all holdings then agrees very nearly with the overall portfolio XIRR. I have done this for very along time. TR1933 Yes, 1933 is my year of birth and still re investing divis!\",\n \"\\\"You could use any of various financial APIs (e.g., Yahoo finance) to get prices of some reference stock and bond index funds. That would be a reasonable approximation to market performance over a given time span. As for inflation data, just googling \\\"\\\"monthly inflation data\\\"\\\" gave me two pages with numbers that seem to agree and go back to 1914. If you want to double-check their numbers you could go to the source at the BLS. As for whether any existing analysis exists, I'm not sure exactly what you mean. I don't think you need to do much analysis to show that stock returns are different over different time periods.\\\"\",\n \"At what point does my investment benefit from compounded interest? Monthly? Quarter? Yearly? Does it even benefit? I think you are mixing things. There is no concept of interest or compounding in Mutual Funds. When you buy a mutual fund, it either appreciates in value or depreciates in value; both can happen depending on the time period you compare. Now, let's assume at the end of the year I have a 5% return. My $10,000 is now $10,500. The way you need to look at this is Given you started with $10,000 and its now $10,500 the return is 5%. Now if you want to calculate simple return or compounded return, you would have to calculate accordingly. You may potentially want to find a compounded return for ease of comparison with say a Bank FD interest rate or some other reason. So if $10,000 become $10,500 after one year and $11,000 after 2 year. The absolute return is 10%, the simple yearly return is 5%. Or the Simple rate of return for first year is 5% and for second year is 4.9%. Or the Average Year on Year return is 4.775%.\",\n \"\\\"Probably the best way to investigate this is to look at an example. First, as the commenters above have already said, the log-return from one period is log(price at time t/price at time t-1) which is approximately equal to the percentage change in the price from time t-1 to time t, provided that this percentage change is not big compared to the size of the price. (Note that you have to use the natural log, ie. log to the base e -- ln button on a calculator -- here.) The main use of the log-return is that is a proxy for the percentage change in the price, which turns out to be mathematically convenient, for various reasons which have mostly already been mentioned in the comments. But you already know this; your actual question is about the average log-return over a period of time. What does this indicate about the stock? The answer is: if the stock price is not changing very much, then the average log-return is about equal to the average percentage change in the price, and is very easy and quick to calculate. But if the stock price is very volatile, then the average log-return can be wildly different to the average percentage change in the price. Here is an example: the closing prices for Pitchfork Oil from last week's trading are: 10, 5, 12, 5, 10, 2, 15. The percentage changes are: -0.5, 1.4, -0.58, 1, -0.8, 6.5 (where -0.5 means -50%, etc.) The average percentage change is 1.17, or 117%. On the other hand, the log-returns for the same period are -0.69, 0.88, -0.88, 0.69, -1.6, 2, and the average log-return is about 0.068. If we used this as a proxy for the average percentage change in the price over the whole seven days, we would get 6.8% instead of 117%, which is wildly wrong. The reason why it is wrong is because the price fluctuated so much. On the other hand, the closing prices for United Marshmallow over the same period are 10, 11, 12, 11, 12, 13, 15. The average percentage change from day to day is 0.073, and the average log-return is 0.068, so in this case the log-return is very close to the percentage change. And it has the advantage of being computable from just the first and last prices, because the properties of logarithms imply that it simplifies to (log(15)-log(10))/6. Notice that this is exactly the same as for Pitchfork Oil. So one reason why you might be interested in the average log-return is that it gives a very quick way to estimate the average return, if the stock price is not changing very much. Another, more subtle reason, is that it actually behaves better than the percentage return. When the price of Pitchfork jumps from 5 to 12 and then crashes back to 5 again, the percentage changes are +140% and -58%, for an average of +82%. That sounds good, but if you had bought it at 5, and then sold it at 5, you would actually have made 0% on your money. The log-returns for the same period do not have this disturbing property, because they do add up to 0%. What's the real difference in this example? Well, if you had bought $1 worth of Pitchfork on Tuesday, when it was 5, and sold it on Wednesday, when it was 12, you would have made a profit of $1.40. If you had then bought another $1 on Wednesday and sold it on Thursday, you would have made a loss of $0.58. Overall, your profit would have been $0.82. This is what the average percentage return is calculating. On the other hand, if you had been a long-term investor who had bought on Tuesday and hung on until Thursday, then quoting an \\\"\\\"average return\\\"\\\" of 82% is highly misleading, because it in no way corresponds to the return of 0% which you actually got! The moral is that it may be better to look at the log-returns if you are a buy-and-hold type of investor, because log-returns cancel out when prices fluctuate, whereas percentage changes in price do not. But the flip-side of this is that your average log-return over a period of time does not give you much information about what the prices have been doing, since it is just (log(final price) - log(initial price))/number of periods. Since it is so easy to calculate from the initial and final prices themselves, you commonly won't see it in the financial pages, as far as I know. Finally, to answer your question: \\\"\\\"Does knowing this single piece of information indicate something about the stock?\\\"\\\", I would say: not really. From the point of view of this one indicator, Pitchfork Oil and United Marshmallow look like identical investments, when they are clearly not. Knowing the average log-return is exactly the same as knowing the ratio between the final and initial prices.\\\"\",\n \"Do what's outlined here. The capital asset pricing model will reveal how an asset (a stock in this instance) performed relative to the market performance for that time period. This by itself will answer your assignment's question but allowing you to traverse much deeper in the intricate details of the field. You'll learn a few interesting things on the way! Good luck :)\",\n \"While the S&P500 is not a total return index, there is an official total return S&P500 that includes reinvested dividends and which is typically used for benchmarking. For a long time it was not available for free, but it can currently be found on yahoo finance using the ticker ^SP500TR.\",\n \"You simply add the dividend to the stock price when calculating its annual return. So for year one, instead of it would be\",\n \"\\\"Google Docs spreadsheets have a function for filling in stock and fund prices. You can use that data to graph (fund1 / fund2) over some time period. Syntax: =GoogleFinance(\\\"\\\"symbol\\\"\\\", \\\"\\\"attribute\\\"\\\", \\\"\\\"start_date\\\"\\\", \\\"\\\"num_days|end_date\\\"\\\", \\\"\\\"interval\\\"\\\") where: This analysis won’t include dividends or distributions. Yahoo provides adjusted data, if you want to include that.\\\"\",\n \"A one year period of study - Stock A trades at $100, and doesn't increase in value, but has $10 in dividends over the period. Stock B starts at $100, no dividend, and ends at $105. However you account for this, it would be incorrect to ignore stock A's 10% return over the period. To flip to a real example, MoneyChimp shows the S&P return from Jan 1980 to Dec 2012 as +3264% yet, the index only rose from 107.94 to 1426.19 or +1221%. The error expands with greater time and larger dividends involved, a good analysis won't ignore any dividends or splits.\",\n \"Have you actually read the Wikipedia article? To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Early on, the initial divisor was composed of the original number of component companies; which made the DJIA at first, a simple arithmetic average. The present divisor, after many adjustments, is less than one (meaning the index is larger than the sum of the prices of the components). That is: DJIA = sum(p) / d where p are the prices of the component stocks and d is the Dow Divisor. Events such as stock splits or changes in the list of the companies composing the index alter the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the Dow Divisor is updated so that the quotations right before and after the event coincide: DJIA = sum(p_old) / d_old = sum(p_new) / d_new The Dow Divisor was 0.14602128057775 on December 24, 2015.[40] Presently, every $1 change in price in a particular stock within the average, equates to a 6.848 (or 1 ÷ 0.14602128057775) point movement. Knowing the old prices, new prices (e.g. following a split), and old divisor, you can easily compute the new divisor... Edit: Also, the detailed methodology is published by SP Indices (PDF). Edit #2: For simplicity's sake, assume the DJIA is an index that contains 4 stocks, with a price of $100.00 each. One of the stocks splits 2:1, meaning the new price/share is $50.00. Plugging the numbers into the above equation, we can determine the new Dow Divisor: 400 / 4 = 350 / d => d = 3.5\",\n \"I have asked myself this exact same question many times. The analysis would be simple if you invested all your money in a single day, but I did not and therefore I would need to convert your cash transactions into Index fund buys/sells. I got tired of trying to do this using Yahoo's data and excel so I built a website in my spare time. I humbly suggest you try my website out in the hopes that it helps you perform this computation: http://www.amibeatingthemarket.com/\",\n \"What you're referring to is the yield. The issue with these sorts of calculations is that the dividend isn't guaranteed until it's declared. It may have paid the quarterly dividend like clockwork for the last decade, that does not guarantee it will pay this quarter. Regarding question number 2. Yield is generally an after the fact calculation. Dividends are paid out of current or retained earnings. If the company becomes hot and the stock price doubles, but earnings are relatively similar, the dividend will not be doubled to maintain the prior yield; the yield will instead be halved because the dividend per share was made more expensive to attain due to the increased share price. As for the calculation, obviously your yield will likely vary from the yield published on services like Google and Yahoo finance. The variation is strictly based on the price you paid for the share. Dividend per share is a declared amount. Assuming a $10 share paying a quarterly dividend of $0.25 your yield is: Now figure that you paid $8.75 for the share. Now the way dividends are allocated to shareholders depends on dates published when the dividend is declared. The day you purchase the share, the day your transaction clears etc are all vital to being paid a particular dividend. Here's a link to the SEC with related information: https://www.sec.gov/answers/dividen.htm I suppose it goes without saying but, historical dividend payments should not be your sole evaluation criteria. Personally, I would be extremely wary of a company paying a 40% dividend ($1 quarterly dividend on a $10 stock), it's very possible that in your example bar corp is a more sound investment. Additionally, this has really nothing to do with P/E (price/earnings) ratios.\",\n \"At this time, Google Finance doesn't support historical return or dividend data, only share prices. The attributes for mutual funds such as return52 are only available as real-time data, not historical. Yahoo also does not appear to offer market return data including dividends. For example, the S&P 500 index does not account for dividends--the S&P ^SPXTR index does, but is unavailable through Yahoo Finance.\",\n \"The adjusted close price takes into account stock splits (and possibly dividends). You want to look at the adjusted close price. Calculating percentage changes gets computationally tricky because you need to account for splits and dividends.\",\n \"The return from one day to the next is based on the Day's closing price. To be clear - opening prices can be quite different from the prior day close. In your example, they are pretty close, but this is not always the case. Just pull a larger data set to observe this. The above aside, dividends are not reflected in the index, so, after a dividend has occurred, you'd need to account for this if you are looking for true total return. In 2011, the S&P closed at 1257.60 vs a 2010 year end 1257.64. The return, however was 2.11%, not zero, after accounting for the dividends. To me, articles that suggest the yearly return was zero are inaccurate and misleading.\",\n \"Yes, if your IRR is 5% per annum after three years then the total return (I prefer total rather than your use of actual) over those three years is 15.76%. Note that if you have other cashflows in and out, it gets a bit more complicated (e.g. using the XIRR function in Excel), but the idea is to find an effective annual percentage return that you're getting for your money.\",\n \"\\\"Compounding is just the notion that the current period's growth (or loss) becomes the next period's principal. So, applied to stocks, your beginning value, plus growth (or loss) in value, plus any dividends, becomes the beginning value for the next period. Your value is compounded as you measure the performance of the investment over time. Dividends do not participate in the compounding unless you reinvest them. Compound interest is just the principle of compounding applied to an amount owed, either by you, or to you. You have a balance with which a certain percentage is calculated each period and is added to the balance. The new balance is used to calculate the next period's interest, which again adds to the balance, etc. Obviously, it's better to be on the receiving end of a compound interest calculation than on the paying end. Interest bearing investments, like bonds, pay simple interest. Like stock dividends, you would have to invest the interest in something else in order to get a compounding effect. When using a basic calculator tool for stocks, you would include the expected average annual growth rate plus the expected annual dividend rate as your \\\"\\\"interest\\\"\\\" rate. For bonds you would use the coupon rate plus the expected rate of return on whatever you put the interest into as the \\\"\\\"interest\\\"\\\" rate. Factoring in risk, you would just have to pick a different rate for a simple calculator, or use a more complex tool that allows for more variables over time. Believe it or not, this is where you would start seeing all that calculus homework pay off!\\\"\",\n \"Fund performance at NAV (%) for latest quarter, YTD, and average annual total returns for 1, 3, 5, 10 years. P/E ratio (1 yr. forecast), P/B ratio, Beta, Sharpe ratio, Wtd. avg. market cap, fund assets. I guess I would want to calculate all these things based off of the data that I would be working with. I will assume I am working with daily fund values per share over 10+ years.\",\n \"You are looking for the Internal Rate of Return. If you have a spreadsheet like Microsoft Excel you can simply put in a list of the transactions (every time money went in or out) and their dates, and the spreadsheet's XIRR function will calculate a percentage rate of return. Here's a simple example. Investment 1 was 100,000 which is now worth 104,930 so it's made about 5% per year. Investment 2 is much more complicated, money was going in and out, but the internal rate of return was 7% so money in that investment, on average, grew faster than money in the first investment.\",\n \"\\\"You can calculate the \\\"\\\"return on investment\\\"\\\" using libreoffice, for example. Look at the xirr function. You would have 2 columns, one a list of dates (ie the dates of the deposits or dividends or whatever that you want to track, the last entry would be today's date and the value of the investment today. The xirr function calculates the internal rate of return for you. If you add money to the account, and the current value includes the original investment and the added funds, it will be difficult to calculate the ROI. If you add money by purchasing additional shares (or redepositing dividends by buying additional shares), and you only want to track the ROI of the initial investment (ignoring future investments), you would have to calculate the current value of all of the added shares (that you don't want to include in the ROI) and subtract that value from the current total value of the account. But, if you include the dates and values of these additional share purchases in the spreadsheet, xirr will calculate the overall IRR for you.\\\"\",\n \"\\\"the \\\"\\\"how\\\"\\\" all depends on your level of computer savvy. Are you an Excel spreadsheet user or can you write in programming languages such as python? Either approach have math functions that make the calculation of ROI and Volatility trivial. If you're a python coder, then look up \\\"\\\"pandas\\\"\\\" (http://pandas.pydata.org/) - it handles a lot of the book-keeping and downloading of end of day equities data. With a dozen lines of code, you can compute ROI and volatility.\\\"\",\n \"\\\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \\\"\\\"patient buyer\\\"\\\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \\\"\\\"representative sample.\\\"\\\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \\\"\\\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\\\"\\\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\\\"\",\n \"\\\"It can be pretty hard to compute the right number. What you need to know for your actual return is called the dollar-weighted return. This is the Internal Rate of Return (IRR) http://en.wikipedia.org/wiki/Internal_rate_of_return computed for your actual cash flows. So if you add $100 per month or whatever, that has to be factored in. If you have a separate account then hopefully your investment manager is computing this. If you just have mutual funds at a brokerage or fund company, computing it may be a bunch of manual labor, unless the brokerage does it for you. A site like Morningstar will show a couple of return numbers on say an S&P500 index fund. The first is \\\"\\\"time weighted\\\"\\\" and is just the raw return if you invested all money at time A and took it all out at time B. They also show \\\"\\\"investor return\\\"\\\" which is the average dollar-weighted return for everyone who invested in the fund; so if people sold the fund during a market crash, that would lower the investor return. This investor return shows actual returns for the average person, which makes it more relevant in one way (these were returns people actually received) but less relevant in another (the return is often lower because people are on average doing dumb stuff, such as selling at market bottoms). You could compare yourself to the time-weighted return to see how you did vs. if you'd bought and held with a big lump sum. And you can compare yourself to the investor return to see how you did vs. actual irrational people. .02, it isn't clear that either comparison matters so much; after all, the idea is to make adequate returns to meet your goals with minimum risk of not meeting your goals. You can't spend \\\"\\\"beating the market\\\"\\\" (or \\\"\\\"matching the market\\\"\\\" or anything else benchmarked to the market) in retirement, you can only spend cash. So beating a terrible market return won't make you feel better, and beating a great market return isn't necessary. I think it's bad that many investment books and advisors frame things in terms of a market benchmark. (Market benchmarks have their uses, such as exposing index-hugging active managers that aren't earning their fees, but to me it's easy to get mixed up and think the market benchmark is \\\"\\\"the point\\\"\\\" - I feel \\\"\\\"the point\\\"\\\" is to achieve your financial goals.)\\\"\",\n \"\\\"A mutual fund's return or yield has nothing to do with what you receive from the mutual fund. The annual percentage return is simply the percentage increase (or decrease!) of the value of one share of the mutual fund from January 1 till December 31. The cash value of any distributions (dividend income, short-term capital gains, long-term capital gains) might be reported separately or might be included in the annual return. What you receive from the mutual fund is the distributions which you have the option of taking in cash (and spending on whatever you like, or investing elsewhere) or of re-investing into the fund without ever actually touching the money. Regardless of whether you take a distribution as cash or re-invest it in the mutual fund, that amount is taxable income in most jurisdictions. In the US, long-term capital gains are taxed at different (lower) rates than ordinary income, and I believe that long-term capital gains from mutual funds are not taxed at all in India. You are not taxed on the increase in the value of your investment caused by an increase in the share price over the year nor do you get deduct the \\\"\\\"loss\\\"\\\" if the share price declined over the year. It is only when you sell the mutual fund shares (back to the mutual fund company) that you have to pay taxes on the capital gains (if you sold for a higher price) or deduct the capital loss (if you sold for a lower price) than the purchase price of the shares. Be aware that different shares in the sale might have different purchase prices because they were bought at different times, and thus have different gains and losses. So, how do you calculate your personal return from the mutual fund investment? If you have a money management program or a spreadsheet program, it can calculate your return for you. If you have online access to your mutual fund account on its website, it will most likely have a tool called something like \\\"\\\"Personal rate of return\\\"\\\" and this will provide you with the same calculations without your having to type in all the data by hand. Finally, If you want to do it personally by hand, I am sure that someone will soon post an answer writing out the gory details.\\\"\",\n \"The number you are trying to calculate is called the Internal Rate of Return (IRR). Google Spreadsheets (and excel) both have an XIRR function that can do this for you fairly simply. Setup a spreadsheet with 1 column for dates, 1 column for investment. Mark your investments as negative numbers (payment to invest). All investments will be negative. Mark your last row with today's date and today's valuation (positive). All withdrawals will be positive, so you are pretending to withdrawal your entire account for the purpose of calculation. Do not record dividends or other interim returns unless you are actually withdrawing money. The XIRR function will calculate your internal rate of return with irregularly timed investments. Links: Article explaining XIRR function (sample spreadsheet in google docs to modify)\",\n \"It's not compound interest. It is internal rate of return. If you have access to Excel look up the XIRR built-in function.\",\n \"\\\"The TWRR calculation will work even with negative values: TWRR = (1 + 0.10) x (1 + (-0.191) ) x (1 + 0.29) ^ (1/3) = 1.047 which is a 4.7% return. Your second question concerns the -19% return calculated for the second quarter. You seem to think this return is \\\"\\\"way-off\\\"\\\". Not really. The TWRR calculates a return by accounting for cash that was added or deducted to/from the account. So if I started with $100,000, added $10,000 to the account, and ended up with $110,000, what should be the return on my investment? My answer would be 0% since the only reason my account balance went up was due to me adding cash to it. Therefore, if I started with $100,000, added $10,000 in cash to the account, and ended up with $100,000 in my account, then my return would be a negative value since I lost the $10,000 that I deposited in the account. In the second quarter you started with $15,000, deposited $4,000, and ended with $15,750. You essentially lost almost all of the $4,000 you deposited. That is a significant loss.\\\"\",\n \"It depends on what stocks you invest in or whether you invest in an index, as all stocks are not created equally. If you prefer to invest directly into individual stocks and you choose ones that are financially health and trending upwards, you should be able to easily outperform any indexes and get your 30% return much quicker. But you always need to make sure that you have a stop loss placed on all of your stocks, because even the best performing companies can go through bad patches. The stop loss prevents you from losing all your capital if the share price suddenly starts going south and turns into a downtrend.\",\n \"\\\"The author is using an approximation to what you have exactly, which is called a \\\"\\\"true\\\"\\\" time-weighted rate of return. You have expressed the total time-weighted return for the period in question. In order to express this as an annual rate, you may annualize it by adding one, raising to the 1/y power, and subtracting one again, for a period of y years. The alternative to a time-weighted return is a money-weighted return, which is actually another name for the internal rate of return.\\\"\",\n \"Indices such as SP500 are typically including dividends - the payment of dividends doesn't impact the value of the index. Where can I find data on these dividends? I found data on dividend yields, but these give me access only to the sum of dividends over the last year. This in turn can change either because there are new dividends being paid, or because you stop counting last year's dividends...\",\n \"A couple ideas: Use excel - it has an IRR (internal rate of return) that can handle a table of inputs as you describe, along with dates deposited to give you a precise number. Go simple - track total deposits over the year, assume half of that was present in January. So, for example, your account started the year with $10k, ended with $15k, but you deposited $4k over the year. It should be clear the return (gain) is $1k, right? But it's not 10%, as you added during the year. I'd divide $1k/$12k for an 8.3% return. Not knowing how your deposits were structured, the true number lies between the 10% and 6.7% as extremes. You'll find as you get older and have a higher balance, this fast method gaining accuracy, as your deposits are a tinier fraction of your account and likely spread out pretty smoothly over the year anyway.\",\n \"Prices are adjusted for return and not payout. So if you take the ratio of the close price and the adjusted close price, it should remain constant. The idea behind a total return (back-)adjustment is to give you a feeling how much money you would have needed back then to reach the price today under the premise that all distributions (dividends, spin-offs, etc.) are reinvested instantly and that reinvestment doesn't cost anything.\",\n \"Average rates of return usually assume compounding, so your formula would be for annual compounding ,or for continuous compounding.\",\n \"If you use Google Finance, you will get incorrect results because Google Finance does not show the dividend history. Since your requirement is that dividends are re-invested, you should use Yahoo Finance instead, downloading the historical 'adjusted' price.\",\n \"A good way to measure the performance of your investments is over the long term. 25-30% returns are easy to get! It's not going to be 25-30% in a single year, though. You shouldn't expect more than about 4% real (inflation-adjusted) return per year, on average, over the long term, unless you have reason to believe that you're doing a better job of predicting the market than the intellectual and investment might of Wall Street - which is possible, but hard. (Pro tip: It's actually quite easy to outdo the market at large over the short term just by getting lucky or investing in risky askets in a good year. Earning this sort of return consistently over many years, though, is stupidly hard. Usually you'll wipe out your gains several years into the process, instead.) The stock market fluctuates like crazy, which is why they tell you not to invest any money you're likely to need sooner than about 5 years out and you switch your portfolio from stocks to bonds as you approach and enter retirement. The traditional benchmark for comparison, as others have mentioned, is the rate of return (including dividends) from the Standard and Poors 500 Index. These are large stable companies which make up the core of larger United States business. (Most people supplement these with some smaller companies and overseas companies as a part of the portfolio.)\",\n \"\\\"To try and address your 'how' it goes a bit like this. You need to first assess how your stuff is invested, if for example half is in stocks, and the other half is in bonds, then you will need to calculate a 'blended' rate for what are reasonable 'average return' for both. That might mean looking at the S&P500 or Russell 3000 for the stock portion, and some bond index for that portion, then 'blend the rates', in this case using a formula like this then compare the blended rate with the return in your IRA. It is generally a lot more useful to compare the various components of your total return separately, especially if you investing with a particular style such as 'agressive growth' or you are buying actual bonds and not a bond fund since most of the bond oriented indexes are for bond funds, which you can't really compare well with buying and holding bonds to maturity. Lets say your stock side was two mutual funds with different styles, one 'large cap' the other 'aggressive growth'. In that case you might want to compare each one of those funds with an appropriate index such as those provided by Morningstar If you find one of them is consistently below the average, you might want to consider finding an alternative fund who's manager has a better track record (bearing in mind that \\\"\\\"past performance....\\\"\\\") For me (maybe someone has a good suggestion here) bonds are the hard thing to judge. The normal goal of actually owning bonds (as opposed to a fund) is to retain the entire principal value because there's no principal fluctuation if you hold the bond to maturity (as long as you choose well and the issuer doesn't default) The actual value 'right now' of a bond (as in selling before maturity) and bond funds, goes up and down in an inverse relationship with interest rates. That means the indexes for such things also go up and down a lot, so it's very hard to compare them to a bond you intend to hold to maturity. Also, for such a bond, there's not a lot of point to 'switch out' unless you are worried about the issuer defaulting. If rates are up from what you are getting on your bonds, then you'll have to sell your bond at a discount, and all that happens is you'll end up holding a different bond that is worth less, but has higher interest (basically the net return is likely to be pretty much the same). The better approach there is generally to 'ladder' your maturity dates so you get opportunities to reinvest at whatever the prevailing rates are, without having to sell at a discount.. anyway the point is that I'm not sure there's a lot of value to comparing return on the bond portion of an IRA unless it's invested in bond funds (which a lot of people wanting to preserve principal tend to avoid)\\\"\",\n \"You've flipped the numerator and denominator around, and need to multiply by 100 to get percentage rather than 10: I like to use a simple example to assess reasonableness of an approach, if you had invested $100 and after 1 year had $150, your approach would yield: But since $50 is half of $100, we know the rate of return should be 50%, so we know that approach is off. But, flipping the numerator and denominator and multiplying by 100 gets us the 50% we expected: Edit: Good catch by @DJohnM you've called it 9 years, but it's actually 11, so you'd want to adjust accordingly.\",\n \"\\\"To calculate a sector (or index) P/E ratio you need to sum the market caps of the constituent stocks and divide it by the sum of the total earnings of the constituent stocks (including stocks that have negative earnings). There are no \\\"\\\"per share\\\"\\\" figures used in the calculation. Beware when you include an individual stock that there may be multiple issues associated with the company that are not in the index.... eg. Berkshire Hathaway BRK.B is in the S&P 500 but BRK.A is not. In contrast, Google has both GOOGL and GOOG included in the S&P 500 index but not its unlisted Class B shares. All such shares need to be included in the market cap and figuring out the different share class ratios can be tricky.\\\"\",\n \"The total number of shares on April 1st is 100 + 180 + 275 = 555. The price on April 1st is required. The current price is stated as $2, but $2 * 555 = $1110 and the current fund values is stated as $1500. Opting to take the current value as $1500, the price on April 1st can be calculated as $1500/555 = $2.7027. The amounts invested as number of shares x share price are: (Note these investment amounts do not match the example scenario's investment amounts, presumably because the example numbers are just made up.) The monthly returns can be calculated: The current values for each investor as invested amount x returns are: Checking the total:\",\n \"You probably want the Internal Rate of Return (IRR), see http://en.wikipedia.org/wiki/Internal_rate_of_return which is the compound interest rate that would produce your return. You can compute it in a spreadsheet with XIRR(), I made an example: https://spreadsheets.google.com/ccc?key=0AvuTW2HtDQfYdEsxVlM0RFdrRk1QS1hoNURxZkVFN3c&hl=en You can also use a financial calculator, or there are probably lots of web-based calculators such as the ones people have mentioned.\",\n \"\\\"Re. question 2 If I buy 20 shares every year, how do I get proper IRR? ... (I would have multiple purchase dates) Use the money-weighted return calculation: http://en.wikipedia.org/wiki/Rate_of_return#Internal_rate_of_return where t is the fraction of the time period and Ct is the cash flow at that time period. For the treatment of dividends, if they are reinvested then there should not be an external cash flow for the dividend. They are included in the final value and the return is termed \\\"\\\"total return\\\"\\\". If the dividends are taken in cash, the return based on the final value is \\\"\\\"net return\\\"\\\". The money-weighted return for question 2, with reinvested dividends, can be found by solving for r, the rate for the whole 431 day period, in the NPV summation. Now annualising And in Excel\\\"\",\n \"The formula you're looking for is Thus, from 3% p.a. you get ca. 0.247% per month. However, as you see 0.25% is a good approximation (generally, small rates give good approximation).\",\n \"The Investopedia article you linked to is a good start. Its key takeaway is that you should always consider risk-adjusted return when evaluating your portfolio. In general, investors seeking a higher level of return must face a higher likelihood of taking a loss (risk). Different types of stocks (large vs small; international vs US; different industry sectors) have different levels of historical risk and return. Not to mention stocks vs bonds or other financial instruments... So, it's key to make an apples-to-apples comparison against an appropriate benchmark. A benchmark will tell you how your portfolio is doing versus a comparable portfolio. An index, such as the S&P 500, is often used, because it tells you how your portfolio is doing compared against simply passively investing in a diversified basket of securities. First, I would start with analyzing your portfolio to understand its asset allocation. You can use a tool like the Morningstar X-Ray to do this. You may be happy with the asset allocation, or this tool may inform you to adjust your portfolio to meet your long-term goals. The next step will be to choose a benchmark. Given that you are investing primarily in non-US securities, you may want to pick a globally diversified index such as the Dow Jones Global Index. Depending on the region and stock characteristics you are investing in, you may want to pick a more specialized index, such as the ones listed here in this WSJ list. With your benchmark set, you can then see how your portfolio's returns compare to the index over time. IRR and ROI are helpful metrics in general, especially for corporate finance, but the comparison-based approach gives you a better picture of your portfolio's performance. You can still calculate your personal IRR, and make sure to include factors such as tax treatment and investment expenses that may not be fully reflected by just looking at benchmarks. Also, you can calculate the metrics listed in the Investopedia article, such as the Sharpe ratio, to give you another view on the risk-adjusted return.\",\n \"From Wikipedia - To calculate the value of the S&P 500 Index, the sum of the adjusted market capitalization of all 500 stocks is divided by a factor, usually referred to as the Divisor. For example, if the total adjusted market cap of the 500 component stocks is US$13 trillion and the Divisor is set at 8.933 billion, then the S&P 500 Index value would be 1,455.28. From a strictly mathematical perspective, the divisor is not canceling out the units, and the S&P index is dollar denominated even though it's never quoted that way. A case in point is that the S&P is often said to have a P/E, and especially an E, the earnings attributed to one 'unit' of S&P. And if you buy a mutual fund sporting a low expense ratio, you can invest exactly that much money (the current S&P index value) and see the dividends accrue to your account, less the fee.\",\n \"Right, that's my understanding of the problem too. I tried some of the indices last night (not necessarily the ones you are suggesting), but when pulling them into COMP it only provided the price return, not the total return including coupons. This latter part is still the challenge.\",\n \"One thing to keep in mind when calculating P/E on an index is that the E (earnings) can be very close to zero. For example, if you had a stock trading at $100 and the earnings per share was $.01, this would result in a P/E of 10,000, which would dominate the P/E you calculate for the index. Of course negative earnings also skew results. One way to get around this would be to calculate the average price of the index and the earnings per share of the index separately, and then divide the average price of the index by the average earnings per share of the index. Different sources calculate these numbers in different ways. Some throw out negative P/Es (or earnings per share) and some don't. Some calculate the price and earnings per share separate and some don't, etc... You'll need to understand how they are calculating the number in order to compare it to PEs of individual companies.\",\n \"You could use the Gordon growth model implied expected return: P = D/(r-g) --> r = D/P (forward dividend yield) + g (expected dividend growth). But obviously there is no such thing as a good market return proxy.\",\n \"\\\"There are no guarantees in the stock market. The index fund can send you a prospectus which shows what their results have been over the past decade or so, or you can find that info on line, but \\\"\\\"past results are not a guarantee of future performance\\\"\\\". Returns and risk generally trade off against each other; trying for higher than average results requires accepting higher than usual risk, and you need to decide which types of investments, in what mix, balance those in a way you are comfortable with. Reinvested dividends are exactly the same concept as compounded interest in a bank account. That is, you get the chance to earn interest on the interest, and then interest on the interest on the interest; it's a (slow) exponential growth curve, not just linear. Note that this applies to any reinvestment of gains, not just automatic reinvestment back into the same fund -- but automatic reinvestment is very convenient as a default. This is separate from increase in value due to growth in value of the companies. Yes, you will get a yearly report with the results, including the numbers needed for your tax return. You will owe income tax on any dividends or sales of shares. Unless the fund is inside a 401k or IRA, it's just normal property and you can sell or buy shares at any time and in any amount. Of course the advantage of investing through those special retirement accounts is advantageous tax treatment, which is why they have penalties if you use the money before retirement. Re predicting results: Guesswork and rule of thumb and hope that past trends continue a bit longer. Really the right answer is not to try to predict precise numbers, but to make a moderately conservative guess, hope you do at least that well, and be delighted if you do better... And to understand that you can lose value, and that losses often correct themselves if you can avoid having to sell until prices have recovered. You can, of course, compute historical results exactly, since you know how much you put in when, how much you took out when, and how much is in the account now. You can either look at how rate of return varied over time, or just compute an average rate of return; both approaches can be useful when trying to compare one fund against another... I get an approximate version of this reported by my financial management software, but mostly ignore it except for amusement and to reassure myself that things are behaving approximately as expected. (As long as I'm outperforming what I need to hit my retirement goals, I'm happy enough and unwilling to spend much more time on it... and my plans were based on fairly conservative assumptions.) If you invest $3k, it grows at whatever rate it grows, and ten years later you have $3k+X. If you then invest another $10k, you now have $3k+X+10k, all of which grows at whatever rate the fund now grows. When you go to sell shares or fractional shares, your profit has to be calculated based on when those specific shares were purchased and how much you paid for them versus when they were sold and how much you sold them for; this is a more annoying bit of record keeping and accounting than just reporting bank account interest, but many/most brokerages and investment banks will now do that work for you and report it at the end of the year for your taxes, as I mentioned.\\\"\",\n \"PE ratio is the current share price divided by the prior 4 quarters earnings per share. Any stock quote site will report it. You can also compute it yourself. All you need is an income statement and a current stock quote.\",\n \"\\\"Instead of using the actual index, use a mutual fund as a proxy for the index. Mutual funds will include dividend income, and usually report data on the value of a \\\"\\\"hypothetical $10,000 investment\\\"\\\" over the life of the fund. If you take those dollar values and normalize them, you should get what you want. There are so many different factors that feed into general trends that it will be difficult to draw conclusions from this sort of data. Things like news flow, earnings reporting periods, business cycles, geopolitical activity, etc all affect the various sectors of the economy differently.\\\"\",\n \"\\\"A good measurement would be to compare to index's. Basically a good way to measure your self would be to ask \\\"\\\"If I put my money somewhere else how much better or worse would I have done?\\\"\\\" Mutual funds and Hedge funds use the SP500 as a bench mark. Some funds actually wave their fee if they do not outperform the SP or only take a fee on the portion that has outperformed the SP500. in today's economy i dont know how to expect such a return The economy is not a good benchmark on what to expect from the stock market. For example in 2009 by certain standards the economy was worse then today but in 2009 the market rallied a great deal so your returns should have reflected that. You can use the SP500 as a quick reference to compare your returns (this is also considered the \\\"\\\"standard\\\"\\\" for a quick comparison). The way you compare your performance is also dependent on how you invest your money. If you are outperforming the SP500 you are doing well. Many mutual funds DO NOT outperform the SP500. Edit Additional Info: Here is an article with more comprehensive information on how to gauge your performance. In the article is a link to a free tool from morning star. Use the Right Benchmark to Accurately Measure Investment Performance\\\"\",\n \"ROI and volatility should be calculated over a representative period of time, for example 3 or 5 years, depending on data availability. The ROI is simple, for example, over 5 years:- For the 5 year annualised volatility you can refer to the ESMA SRRI methodology. Box 1 (page 3) m is the annualisation factor. Stock volatility calculated from weekly data should not be compared with volatility calculated from monthly data. Also, for reference: How to Calculate your Portfolio's Rate of Return\",\n \"\\\"Well depends but \\\"\\\"on average\\\"\\\" the stock market has historically returned somewhere around 10% per year. Note, this can vary wildly from year to year see http://en.wikipedia.org/wiki/S%26P_500#Market_statistics So it would be roughly 2.8 years to get your 30% if you happen to get the average market return for those 3 years, but the chances of that happening exactly are slim to none. You could end up with +50% or -30% over that ~3 year period of time - so the calculation doesn't do you that much good for that short period of time, but if you are talking a span of 30 years then you could plan using that as a very rough ballpark. Good rule of thumb is you shouldn't put any money in the stock market you think you will need anytime in the next 5 years. Formula to figure out total gain would be Principal x (1+ rate of return) ^ years\\\"\",\n \"\\\"What you are looking for is an indicator called the \\\"\\\"Rate of Change (Price)\\\"\\\". It provides a rolling % change in the price over the period you have chosen. Below is an example showing a price chart over the last 6 months with a 100 day Rate of Change indicator below the price chart.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["So for quarters So, if Q1's value was 10 and Q2's value was 25 For closing or opening prices, I would use closing prices. For instance, some used Adjusted Close or Close on Yahoo Finance (see this example of AAPL). Added Note: In your example, for your example, you'll want to take the absolute value of the denominator (aka: divisor), so an Excel formula might look like the below example ... ... where the new and old are cells.","Here's a few demo steps, first calculating the year to date return, then calculating the Q4 quarterly return based on the cumulative returns for Q3 and Q4. It's fine to use closing price to closing price as return periods."],"string":"[\n \"So for quarters So, if Q1's value was 10 and Q2's value was 25 For closing or opening prices, I would use closing prices. For instance, some used Adjusted Close or Close on Yahoo Finance (see this example of AAPL). Added Note: In your example, for your example, you'll want to take the absolute value of the denominator (aka: divisor), so an Excel formula might look like the below example ... ... where the new and old are cells.\",\n \"Here's a few demo steps, first calculating the year to date return, then calculating the Q4 quarterly return based on the cumulative returns for Q3 and Q4. It's fine to use closing price to closing price as return periods.\"\n]","isConversational":false}}},{"rowIdx":271,"cells":{"_id":{"kind":"string","value":"6629"},"query":{"kind":"string","value":"Tax treatment of a boxed trade?"},"gt_ids":{"kind":"list like","value":["444405"],"string":"[\n \"444405\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["267067","247902","99448","249687","123287","578022","154774","42521","552255","390864","211122","557181","233248","478600","333425","251394","361482","204388","91466","222320","178059","481283","232207","278460","350080","295153","530410","302735","163836","487256","443354","385310","161041","16187","581380","314200","581632","514970","569455","562481","428318","36341","34139","207788","430570","396180","137251","292065","330848","14364","89546","456436","543898","342411","431610","591157","423929","263312","264820","195767","115333","417295","259072","580429","252176","218460","537371","212312","72677","444405","530146","152960","526661","553253","289120","173133","227064","383287","19144","562904","265159","146177","482768","244061","175563","179855","87283","193485","50250","548705","361507","350317","406042","345793","149305","202645","435798","414454","441718","526714"],"string":"[\n \"267067\",\n \"247902\",\n \"99448\",\n \"249687\",\n \"123287\",\n \"578022\",\n \"154774\",\n \"42521\",\n \"552255\",\n \"390864\",\n \"211122\",\n \"557181\",\n \"233248\",\n \"478600\",\n \"333425\",\n \"251394\",\n \"361482\",\n \"204388\",\n \"91466\",\n \"222320\",\n \"178059\",\n \"481283\",\n \"232207\",\n \"278460\",\n \"350080\",\n \"295153\",\n \"530410\",\n \"302735\",\n \"163836\",\n \"487256\",\n \"443354\",\n \"385310\",\n \"161041\",\n \"16187\",\n \"581380\",\n \"314200\",\n \"581632\",\n \"514970\",\n \"569455\",\n \"562481\",\n \"428318\",\n \"36341\",\n \"34139\",\n \"207788\",\n \"430570\",\n \"396180\",\n \"137251\",\n \"292065\",\n \"330848\",\n \"14364\",\n \"89546\",\n \"456436\",\n \"543898\",\n \"342411\",\n \"431610\",\n \"591157\",\n \"423929\",\n \"263312\",\n \"264820\",\n \"195767\",\n \"115333\",\n \"417295\",\n \"259072\",\n \"580429\",\n \"252176\",\n \"218460\",\n \"537371\",\n \"212312\",\n \"72677\",\n \"444405\",\n \"530146\",\n \"152960\",\n \"526661\",\n \"553253\",\n \"289120\",\n \"173133\",\n \"227064\",\n \"383287\",\n \"19144\",\n \"562904\",\n \"265159\",\n \"146177\",\n \"482768\",\n \"244061\",\n \"175563\",\n \"179855\",\n \"87283\",\n \"193485\",\n \"50250\",\n \"548705\",\n \"361507\",\n \"350317\",\n \"406042\",\n \"345793\",\n \"149305\",\n \"202645\",\n \"435798\",\n \"414454\",\n \"441718\",\n \"526714\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different.","If you buy puts, there are no guaranteed proceeds though. If you short against the box, you've got immediate proceeds with a nice capital loss if it doesn't work out. Conversely, you could write a covered call, take the contract proceeds, and write off the long position losses. Nobody ever factors tax consequences into the equation here.","\"Apparently box 39 does not receive half of box 38 if \"\"The price of the share or unit is less than its fair market value when the agreement was made.\"\" - the last point in paragraph 110(1)(d): *http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/fnncl/scrty/stckpt03-eng.html#dspst The employee can claim a deduction under paragraph 110(1)(d) of the Income Tax Act if all of the following conditions are met:\"","You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.","This is taxed as ordinary income. See the IRC Sec 988(a)(1). The exclusion you're talking about (the $200) is in the IRC Sec 988(e)(2), but you'll have to read the Treasury Regulations on this section to see if and how it can apply to you. Since you do this regularly and for profit (i.e.: not a personal transaction), I'd argue that it doesn't apply.","\"You owe no tax on the option transaction in 2015 in this case. How you ultimately get taxed depends on how you dispose of the position. If it expires, then you will have a short-term capital gain on the option position at expiration. If it is exercised, then the option is \"\"gone\"\" for tax purposes and your basis in the underlying is adjusted. From IRS Publication 550: If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. In your case, this will be a long-term capital gain. For completeness, if you buy to cover the option back from the market before expiration or exercise, then it is also a short-term capital gain. Also, keep in mind that this all assumes that this covered call is \"\"qualified\"\" so that it does not count as a straddle. You can find more about that in Pub 550. https://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010630 All of this is for US tax purposes.\"","For case 1, there is no tax due as you sold the book for less than your cost basis. If you had sold for more than $100, then you would have had a profit. For case 2, that depends on the value of the gift card with respect to the value of your fare. Most likely that gift card is less than the cost of the fare. And in that case it would generally be treated as a reduction in the purchase price. The same way that rebates and cash back on credit card are treated. Note if for some reason a 1099 was generated that would change the situation and you would need to consult a tax professional. Since that would indicate that the other party to the transaction had a different view of the situation.","\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \"\"otherwise\"\" is substantial and far-ranging.\"","The loss for B can be used to write off the gain for A. You will fill out a schedule 3 with cost base and proceeds of disposition. This will give you a $0 capital gain for the year and an amount of $5 (50% of the $10 loss) you can carry forward to offset future capital gains. You can also file a T1-a and carry the losses back up to 3 years if you're so inclined. It can't be used to offset other income (unless you die). Your C and D trades can't be on income account except for very unusual circumstances. It's not generally acceptable to the CRA for you to use 2 separate accounting methods. There are some intricacies but you should probably just use capital gains. There is one caveat that if you do short sales of Canadian listed securities, they will be on income account unless you fill out form T-123 and elect to have them all treated as capital gains. I just remembered one wrinkle in carrying forward capital losses. They don't reduce your capital gains anymore, but they reduce your taxable income. This means your net income won't be reduced and any benefits that are calculated from that (line 236), will not get an increase.","I sold it at 609.25 and buy again at 608.75 in the same day If you Sold and bought the same day, it would be considered as intra-day trade. Profit will be due and would be taxed at normal tax brackets. Edits Best Consult a CA. This is covered under Indian Accounting Standard AG51 The following examples illustrate the application of the derecognition principles of this Standard. (e) Wash sale transaction. The repurchase of a financial asset shortly after it has been sold is sometimes referred to as a wash sale. Such a repurchase does not preclude derecognition provided that the original transaction met the derecognition requirements. However, if an agreement to sell a financial asset is entered into concurrently with an agreement to repurchase the same asset at a fixed price or the sale price plus a lender's return, then the asset is not derecognised. This is more relevant now for shares/stocks as Long Term Capital Gains are tax free, Long Term Capital Loss cannot be adjusted against anything. Short Term Gains are taxed differentially. Hence the transaction can be interpreted as tax evasion, professional advise is recommended. A simple way to avoid this situation; sell on a given day and buy it next or few days later.","In addition to the expatriation case already mentioned by Ben Miller, traders/investors are required to use mark-to-market accounting on certain investments. These go by Section 1256 contracts due to the part of the law that defines them. Mark-to-market is also required on straddles (combination of a long and and a short position in equities that are expected to vary inversely to each other). Mark-to-market means that you have to treat the positions as if you closed them at their end-of-year market value (even if you still have the position across the new year).","No. Black Scholes includes a number of variables to calculate the value of the derivative but taxation isn't one of them. Whether you are trading options or futures, the dividend itelf may be part of the equation, but not the tax on said dividend.","(I'm assuming the tag of United-states is accurate) Yes, the remaining amount is tax free -- at the current price. If you sell at exactly the original price, there is no capital gain, no capital loss. So you've already payed the taxes. If you sell and there is a capital gain of $3000, then you will pay taxes on the $3000. If 33% is your marginal tax rate, and if you held the stock for less than a year, then you will keep $7000 and pay taxes of $1000. Somehow, I doubt your marginal tax rate is 33%. If you hold the stock for a year after eTrade sold some for you to pay taxes, then you will pay 15% on the gain -- or $450. eTrade sold the shares to pay the taxes generated by the income. Yes, those shares were considered income. If you sell and have a loss, well, life sucks. However, if you sell something else, you can use the loss to offset the other gain. So if you sell stock A for a loss of $3000, and sell stock B at a gain of $4000, then you pay taxes on the net of $1000.","\"The tax comes when you close the position. If the option expires worthless it's as if you bought it back for $0. There's a short-term capital gain for the difference between your short-sale price and your buyback price on the option. I believe the capital gain is always short-term because short sales are treated as short-term even if you hold them open more than one year. If the option is exercised (calling away your stock) then you add the premium to your sale price on the stock and then compute the capital gain. So in this case you can end up treating the premium as a long-term capital gain. See IRS pub 550 http://www.irs.gov/publications/p550/ch04.html#en_US_2010_publink100010619 Search for \"\"Writers of puts and calls\"\"\"","As mentioned by Dilip, you need to provide more details. In general for transacting on stocks; Long Term: If you hold the stock for more than one year then its long term and not taxable. There is a STT [Securities Transaction Tax] that is already deducted/paid during buying and selling of a stock. Short Term: If you hold the stock for less than one year, it's short term gain. This can be adjusted against the short term loss for the financial year. The tax rate is 10%. Day Trading: Is same as short term from tax point of view. Unless you are doing it as a full time business. If you have purchased multiple quantities of same stock in different quantities and time, then when you selling you have to arrive at profit or loss on FIFO basis, ie First in First Out","The capital gain is either short-term or long-term and will be indicated on the 1099-DiV. You pay taxes on this amount as the capital gain was received in a taxable account (assuming since you received a 1099-DIV). More info here: https://www.mutualfundstore.com/brokerage-account/capital-gains-distributions-taxable","Stock awards by employers are treated and taxed as salary. I.e.: you pay ordinary rate income tax, FICA taxes, State taxes etc. The fact that you got your salary in shares and not cash is irrelevant for tax purposes. Once you got the shares and paid your taxes on them, the treatment is the same as if you got the salary and immediately bought the shares. Holding period for capital gains tax purposes starts at the time you paid your taxes on the award, which is the time at which you get full ownership (i.e.: vesting time, for the restricted stocks). When you sell these stocks - you treat the sale as any other stock sale: you check the holding period for capital gains tax rates, and you do not pay (or get refund) any FICA taxes on the sales transaction. So bottom line: You got $10K salary and you bought $10K worth of company stock, and you sold it at $8K half a year later. You have $10K wages income and $2K short term capital loss.","You likely received the shares as ordinary income for services of $10k, since they withheld taxes at granting. Separately, you likely had a short term capital loss on sale of $2k, since your holding period seems to have been under one year.","\"Gifts given and received between business partners or employers/employees are treated as income, if they are beyond minimal value. If your boss gives you a gift, s/he should include it as part of your taxable wages for payroll purposes - which means that some of your wages should be withheld to cover income, social security, and Medicare taxes on it. At the end of the year, the value of the gift should be included in Box 1 (wages) of your form W-2. Assuming that's the case, you don't need to do anything special. A 1099-MISC would not be appropriate because you are an employee of your boss - so the two of you need to address the full panoply of employment taxes, not just income tax, which would be the result if the payment were reported on 1099-MISC. If the employer wants to cover the cost to you of the taxes on the gift, they'll need to \"\"gross up\"\" your pay to cover it. Let's say your employer gives you a gift worth $100, and you're in a 25% tax bracket. Your employer has to give you $125 so that you end up with a gain of $100. But the extra $25 is taxable, too, so your employer will need to add on an extra $6.25 to cover the 25% tax on the $25. But, wait, now we've gotta pay 25% tax on the $6.25, so they add an extra $1.56 to cover that tax. And now they've gotta pay an extra $.39 . . . The formula to calculate the gross-up amount is: where [TAX RATE] is the tax rate expressed as a percentage. So, to get the grossed-up amount for a $100 gift in a 25% bracket, we'd calculate 1/(1-.25), or 1/.75, or 1.333, multiply that by the target gift amount of $100, and end up with $133.33. The equation is a little uglier if you have to pay state income taxes that are deductible on the federal return but it's a similar principle. The entire $133.33 would then be reported as income, but the net effect on the employee is that they're $100 richer after taxes. The \"\"gross-up\"\" idea can be quite complicated if you dig into the details - there are some circumstances where an additional few dollars of income can have an unexpected impact on a tax return, in a fashion not obvious from looking at the tax table. If the employer doesn't include the gift in Box 1 on the W-2 but you want to pay taxes on it anyway, include the amount in Line 7 on the 1040 as if it had been on a W-2, and fill out form 8919 to calculate the FICA taxes that should have been withheld.\"","\"In the USA there are two ways this situation can be treated. First, if your short position was held less than 45 days. You have to (when preparing the taxes) add the amount of dividend back to the purchase price of the stock. That's called adjusting the basis. Example: short at $10, covered at $8, but during this time stock paid a $1 dividend. It is beneficial for you to add that $1 back to $8 so your stock purchase basis is $9 and your profit is also $1. Inside software (depending what you use) there are options to click on \"\"adjust the basis\"\" or if not, than do it manually specifically for those shares and add a note for tax reviewer. Second option is to have that \"\"dividednd payment in lieu paid\"\" deducted as investment expence. But that option is only available if you hold the shorts for more than 45 days and itemize your deductions. Hope that helps!\"","Elaborating on kelsham's answer: You buy 100 shares XYZ at $1, for a total cost of $100 plus commissions. You sell 100 shares XYZ at $2, for a total income of $200 minus commissions. Exclusive of commissions, your capital gain is $100 for this trade, and you will pay taxes on that. Even if you proceed to buy 200 shares XYZ at $1, reinvesting all your income from the sale, you still owe taxes on that $100 gain. The IRS has met this trick before.","Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.","does it still count as a capital gain or loss? Yes. Is it essentially treated like you sold the stock at the price of the buy-out? Yes. Do you still get a 1099-B from your broker? Yes.","Flipping usually refers to real-estate transaction: you buy a property, improve/renovate/rehabilitate it and resell it quickly. The distinction between flipper and investor is similar to the distinction between trader and investor, even though the tax code doesn't explicitly refer to house flipping. Gains on house flipping can be considered as active business gain or passive activity income, which are treated differently: passive income goes on Schedule E and Schedule D, active income goes on Schedule C. The distinction between passive and active is based on the characteristics of the activity (hours you spent on it, among other things). Trading income can similarly be considered as either passive (Schedule D/E treatment) or active (Schedule C treatment). Here's what the IRS has to say about traders: Special rules apply if you are a trader in securities, in the business of buying and selling securities for your own account. This is considered a business, even though you do not maintain an inventory and do not have customers. To be engaged in business as a trader in securities, you must meet all of the following conditions: The following facts and circumstances should be considered in determining if your activity is a securities trading business: If the nature of your trading activities does not qualify as a business, you are considered an investor... Investor, in this context, means passive income treatment (Schedule D/E). However, even if your income is considered active (Schedule C), stock sale proceeds are not subject to the self-employment tax. As you can see, there's no specific definition, but the facts and circumstances matter. You may be considered a trader by the IRS, or you may not. You may want to be considered a trader (for example to be able to make a mark-to-market election), or you may not. You should talk to a professional tax adviser (EA/CPA licensed in your State) for more details and suggestions.","Great question! It can be a confusing for sure -- but here's a great example I've adapted to your scenario: As a Day Trader, you buy 100 shares of LMNO at $100, then after a large drop the same day, you sell all 10 shares at $90 for a loss of $1,000. Later in the afternoon, you bought another 100 shares at $92 and resold them an hour later at $97 (a $500 profit), closing out your position for the day. The second trade had a profit of $500, so you had a net loss of $500 (the $1,000 loss plus the $500 profit). Here’s how this works out tax-wise: The IRS first disallows the $1,000 loss and lets you show only a profit of $500 for the first trade (since it was a wash). But it lets you add the $1,000 loss to the basis of your replacement shares. So instead of spending $9,200 (100 shares times $92), for tax purposes, you spent $10,200 ($9,200 plus $1,000), which means that the second trade is what caused you to lose the $500 that you added back (100 x $97 = $9,700 minus the 100 x $102 = $10,200, netting $500 loss). On a net basis, you get to record your loss, it just gets recorded on the second trade. The basis addition lets you work off your wash-sale losses eventually, and in your case, on Day 3 you would recognize a $500 final net loss for tax purposes since you EXITED your position. Caveat: UNLESS you re-enter LMNO within 30 days later (at which point it would be another wash and the basis would shift again). Source: http://www.dummies.com/personal-finance/investing/day-trading/understand-the-irs-wash-sale-rule-when-day-trading/","\"Keep in mind that all of the information below assumes: That being said, here are some examples of national tax laws relating to barter transactions. Obviously this isn't an exhaustive list, but based on my grossly non-representative sample, I think it's fairly safe to assume that barter transactions are more likely taxable than not. You're referring to a barter system; in the United States, the IRS is very specific about this (see the section titled Bartering). Bartering is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included on Form 1040 in the income of both parties. The IRS also provides more details: Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. You must include in gross income in the year of receipt the fair market value of goods and services received in exchange for goods or services you provide or may provide under the bartering arrangement. Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business or Form 1040, Schedule C-EZ (PDF), Net Profit from Business. If you failed to report this income, correct your return by filing a Form 1040X (PDF). Refer to Topic 308 for amended return information. So yes, the net value of bartered goods or services is most likely taxable. According to the Australian Tax Office: Barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions. Her Majesty's Revenue and Customs states that: If you supply services or goods (new or second-hand) and receive other goods or services in payment, there are two separate supplies: You must account for VAT, and so must your customer if they're VAT-registered. The VAT treatment is the same as for part-exchanges. You must both account for VAT on the amounts you would each have paid for the goods or services if there had been no barter and they had been paid for with money. Searching the website of the Federal Tax Service for the Russian/Cryllic word for barter (бартер) doesn't yield any results, but that might be because even between Google Translate and the rest of the internet, I don't speak Russian. That being said, I did manage to find this (translated from the first full paragraph of the Russian, beginning with \"\"Налог на доходы...\"\": The tax on personal income is paid by citizens of the Russian Federation with all types of income received by them in the calendar year, either in cash or in kind. Since bartering would probably qualify as an in kind transaction, it would likely be taxable. The South African Revenue Service includes barter transactions in the supply of goods taxed under the VAT. The term “supply” is defined very broadly and includes all forms of supply and any derivative of the term, irrespective of where the supply is effected. The term includes performance in terms of a sale, rental agreement, instalment credit agreement or barter transaction. Look for section 3.6, Supply and Taxable Supply, found on p17 of the current version of the linked document.\"","For the employee, this is an identical tax situation to an at-the-money option purchase. They're buying an asset with a specific cost basis. For the company, you are just issuing shares from treasury as authorized... debit cash, credit additional paid-in-capital and equity. There is no tax consequence for this money received.","I'm assuming this was a cashless exercise because you had income show up on your w-2. When I had a similar situation, I did the following: If you made $50,000 in salary and $10,000 in stock options then your W-2 now says $60,000. You'll record that on your taxes just like it was regular income. You'll also get a form that talks about your stock sale. But remember, you bought and sold the stock within seconds. Your forms will probably look like this: Bought stock: $10,000 Sold stock: $10,000 + $50 commission Total profit (loss): ($50) From the Turbotax/IRS view point, you lost $50 on the sale of the stock because you paid the commission, but the buy and sell prices were identical or nearly identical.","Outside of a tax sheltered IRA or 401(k) type of account your transactions may trigger tax liability. However, transactions are not taxed immediately at the time of the transaction; and up to a certain limits capital gains can be offset by capital losses which can mitigate your liability at tax time. Also, remember that dividend receipts are taxable income as well. As others have said, this has nothing to do with whether or not money has been moved out of the account.","Generally speaking, you realize options gains or losses for (US) tax purposes when you close out the option position, or when it expires so in your example, if you're discussing an equity option, you'd realize the gain or loss next year, assuming you don't close it out prior to year end. But options tax treatment can get messy fast: Still, if you have no other stock or option positions in the underlying during or within 30 days of the establishment of the naked put, and assuming the option isn't assigned, you won't realize any gains or losses until the year in which the option is closed or expires.","Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.","Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.","ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.","The business and investment would be shown on separate parts of the tax return. (An exception to this is where an investment is related and part of your business, such as futures trading on business products) On the business side of it, you would show the transfer to the stocks as a draw from the business, the amount transferred would then be the cost base of the investment. For taxes, you only have to report gains or losses on investments.","You continue with this form. The fact that the trade in value is less than market value doesn't mean that you don't have taxable income from the sale. Since you depreciated the car before selling it, you need to compare the trade in value not to the market value, but to your cost basis, which may be lower.","If you received shares as part of a bonus you needed to pay income tax on the dollar valuse of those shares at the time you received them. This income tax is based on the dollar value of the bonus and has nothing to do with the shares. If you have since sold these shares you will need to report any capital gain or loss you made from their dollar value when you received them. If you made a gain you would need to pay capital gains tax on the profits (if you held them for more than a year you would get a discount on the capital gains tax you have to pay). If you made a loss you can use that capital loss to reduce any other capital gains in that income year, reduce any other income up to $3000 per year, or carry any additional capital loss forward to future income years to reduce any gains or income (up to $3000 per year) you do have in the future.","Consult a professional CA. For shares sold outside the Indian Stock Exchanges, these will be treated as normal Long Term Capital Gains if held more than one year. The rate would be 10% without Indexation and 20% with Indexation. If the stocks are held for less than 1 years, it will be short term gains and taxed according you to tax bracket.","You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.","Work on your own site is certainly not relevant here, that's just a part of your trade, not a service you provided to yourself. The business received the benefit of that work, not you. Suppose your business sold televisions. If you took a TV from stock for your own lounge, that would be included in this box because you have effectively paid yourself with a TV rather than cash. If you take a TV from stock to use as a demo model, that's part of your trade and not goods you have taken out of the business for your own use. For services provided to your dad it's less clear. As Skaty said, it depends whether it's your business providing the service, or you personally. If you gave your dad a free TV then it would be clear that you have effectively paid yourself with another TV and then given it to your dad as a gift. With services it's less clear whether you're receiving services from the business for free. You might consider how it would be treated by your employer if you weren't self-employed. If you were just applying your skills to help your dad in your free time, your employer wouldn't care. If you used your employer's equipment or facilities, or hosted his site on a server that your employer pays for, your employer would be more likely to discipline you for effectively stealing services from them, as they would if you took a TV from their warehouse for him.","No, the reinvestment is done as a courtesy. Consider, one can have, say, 100 shares of a $50 stock. A 2% dividend is $100/yr or $25/quarter. It would be a pretty bad deal if brokers charged you even $5 for that trade. When cap gains and dividends are grouped as you suggest, it refers to Mutual Funds. My funds will have a year end dividend and cap gain distribution. In a non-retirement account, one has to pay the tax due, and be sure to add this to your cost basis, as it's money you are effectively adding to your account. It does not mean cap gain the same as when you sell your shares of Apple for a huge gain. Those check boxes seem to offer you a chance to put all your holding on the same reinvestment plan for div/cap gain. You should also be able to choose one by one what you'd like to do.","Interesting. How would they account for it? Monthly? And if so do they modify the cost basis for each lot for the month and then restate? It's hard to imagine they do that. I have a million questions regarding this topic do you know where in the regs it is covered?","The purpose of the transfer determines the taxability. If this is happening to frequent, it is advisable to keep proper records of the transaction so that if there is an enquiry from Tax authorities you can explain. Unless you explain the why the transfer is being made, I have put out some broad categories.","Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity.","\"You have a sequence of questions here, so a sequence of answers: If you stopped at the point where you had multiple wins with a net profit of $72, then you would pay regular income tax on that $72. It's a short term capital gain, which does not get special tax treatment, and the fact that you made it on multiple transactions does not matter. When you enter your next transaction that takes the hypothetical loss the question gets more complicated. In either case, you are paying a percentage on net gains. If you took a two year view in the second case and you don't have anything to offset your loss in the second year, then I guess you could say that you paid more tax than you won in the total sequence of trades over the two years. Although you picked a sequence of trades where it does not appear to play, if you're going to pursue this type of strategy then you are likely at some point to run into a case where the \"\"wash sale\"\" rules apply, so you should be aware of that. You can find information on this elsewhere on this site and also, for example, here: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02 Basically these rules require you to defer recording a loss under some circumstances where you have rapid wins and losses on \"\"substantially identical\"\" securities. EDIT A slight correction, you can take part of your losses in the second year even if you have no off-setting gain. From the IRS: If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately)\"","\"Of course. The rationale is exactly the same as always: profit is taxed. The fact that you use intermediate barter to make that profit is irrelevant. To clarify, as it seems that you think it makes a difference that no money \"\"changed hands\"\". Consider this situation: So far your cost is $10000. How will the tax authority address this? They will look at the fair market value of the barter. You got gold worth of $20000. So from their perspective, you got $20000, and immediately exchanged it into gold. What does it mean for you? That you're taxed on the $10000 gain you made on your product X (the $20000 worth of barter that you received minus the $10000 worth of work/material/expenses that you spend on producing the merchandise), and that you have $20000 basis in the gold that you now own. If in a year, when you plan to sell the gold, its price drops - you can deduct investment losses. If its price goes up - you'll have investment gain. But for the gain you're making on your product X you will pay taxes now, because that's when you realized it - sold the merchandize and received in return something else of a value.\"","\"I don't think its a taxable event since no income has been constructively received (talking about the RSU shareholders here). I believe you're right with the IRC 1033, and the basis of the RSU is the basis of the original stock option (probably zero). Edit: see below. However, once the stock becomes vested - then it is a taxable event (not when the cash is received, but when the chance of forfeiture diminishes, even if the employee doesn't sell the stock), and is an ordinary income, not capital. That is my understanding of the situation, do not consider it as a tax advice in any way. I gave it a bit more though and I don't think IRC 1033 is relevant. You're not doing any exchange or conversion here, because you didn't have anything to convert to begin with, and don't have anything after the \"\"conversion\"\". Your ISO's are forfeited and no longer available, basically - you treat them as you've never had them. What happened is that you've received RSU's, and you treat them as a regular RSU grant, based on its vesting schedule. The tax consequences are exactly as I described in my original response: you recognize ordinary income on the vested stocks, as they vest. Your basis is zero (i.e.: the whole FMV of the stock at the time of vesting is your ordinary income). It should also be reflected in your W2 accordingly.\"","You are correct. She cannot claim the initial loss of $1,000 on her taxes, she can only report the $500 profit. However, the IRS does allow her to add the $1,000 loss to the basis cost of her replacement shares. e.g.","The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would be any different for the person that created the account initially, except that the basis starts at $0 making the entire sale price taxable. How you figure the value of the account before the initial sale would be more difficult, but fortunately you may not ever need to know the value (for tax purposes) until you actually sell it.","\"According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is \"\"substantially identical\"\". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical.\"","Yes, you would have to report the gain. It is not relevant that you traded the stock previously, you still made a profit on the trade-at-hand. Imagine if for some reason this type of trade were exempt. Investors could follow the short term swings of volatile stocks completely tax-free.","If you have made $33k from winning trades and lost $30k from loosing trades your net gain for the year would be $3k, so obviously you would pay taxes only on the net $3k gains.","The 'same day rule' in the UK is a rule for matching purposes only. It says that sales on any day are matched firstly with purchases made on the same day for the purposes of ascertaining any gain/loss. Hence the phrase 'bed-and-breakfast' ('b&b') when you wish to crystalise a gain (that is within the exempt amount) and re-establish a purchase price at a higher level. You do the sale on one day, just before the market closes, which gets matched with your original purchase, and then you buy the shares back the next day, just after the market opens. This is standard tax-planning. Whenever you have a paper gain, and you wish to lock that gain out of being taxed, you do a bed-and-breakfast transaction, the idea being to use up your annual exemption each and every year. Of course, if your dealing costs are high, then they may outweigh any tax saved, and so it would be pointless. For the purpose of an example, let's assume that the UK tax year is the same as the calendar year. Scenario 1. Suppose I bought some shares in 2016, for a total price of Stg.50,000. Suppose by the end of 2016, the holding is worth Stg.54,000, resulting in a paper gain of Stg.4,000. Question. Should I do a b&b transaction to make use of my Stg.11,100 annual exemption ? Answer. Well, with transaction costs at 1.5% for a round-trip trade, suppose, and stamp duty on the purchase of 0.5%, your total costs for a b&b will be Stg1,080, and your tax saved (upon some future sale date) assuming you are a 20% tax-payer is 20%x(4,000-1,080) = Stg584 (the transaction costs are deductible, we assume). This does not make sense. Scenario 2. The same as scenario 1., but the shares are worth Stg60,000 by end-2016. Answer. The total transaction costs are 2%x60,000 = 1,200 and so the taxable gain of 10,000-1,200 = 8,800 would result in a tax bill of 20%x8,800 = 1,760 and so the transaction costs are lower than the tax to be saved (a strict analysis would take into account only the present value of the tax to be saved), it makes sense to crystalise the gain. We sell some day before the tax year-end, and re-invest the very next day. Scenario 3. The same as scenario 1., but the shares are worth Stg70,000 by end-2016. Answer. The gain of 20,000 less costs would result in a tax bill for 1,500 (this is: 20%x(20,000 - 2%x70,000 - 11,100) ). This tax bill will be on top of the dealing costs of 1,400. But the gain is in excess of the annual exemption. The strategy is to sell just enough of the holding to crystallise a taxable gain of just 11,100. The fraction, f%, is given by: f%x(70,000-50,000) - 2%xf%x70,000 = 11,100 ... which simplifies to: f% = 11,100/18,600 = 59.68%. The tax saved is 20%x11,100 = 2,220, versus costs of 2%x59.58%x70,000 = 835.52. This strategy of partial b&b is adopted because it never makes sense to pay tax early ! End.","The sentence you quoted does not apply in the case where you sell the stock at a loss. In that case, you recognize zero ordinary income, and a capital loss (opposite of a gain) for the loss. Reference: http://efs.fidelity.com/support/sps/article/article2.html","If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you have $166 loss. You report all these items on your Schedule D. Make sure to calculate the tax correctly, since the tax is not capital gains tax but rather ordinary income at marginal rates. Changes in foreign exchange between a transaction and the conversion of the proceeds to USD are generally not considered as income (i.e.: You sold a property in Mexico, but since the money took a couple of days to clear, the exchange rate changed and you got $2K more/less than you would based on the exchange rate on the day of the transaction - this is not a taxable income/loss). This is covered by the IRC Sec. 988. There are additional rules for contracts on foreign currency, TTM rules, etc. Better talk to a licensed tax adviser (EA/CPA licensed in your State) for anything other than trivial.","You are still selling one investment and buying another - the fact that they are managed by the same company should be irrelevant. So yes, it would get the same tax treatment as if they were managed by different companies.","Sale of a stock creates a capital gain. It can be offset with losses, up to $3000 more than the gains. It can be deferred when held within a retirement account. When you gift appreciated stock, the basis follows. So when I gifted my daughter's trust shares, there was still tax due upon sale. The kiddy tax helped reduce but not eliminate it. And there was no quotes around ownership. The money is gone, her account is for college. No 1031 exchange exists for stock.","If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.","\"The shares are \"\"imputed income\"\" / payment in kind. You worked in the UK, but are you a \"\"US Person\"\"? If not, you should go back to payroll with this query as this income is taxable in the UK. It is important you find out on what basis they were issued. The company will have answers. Where they aquired at a discount to fair market value ? Where they purchased with a salary deduction as part of a scheme ? Where they acquired by conversion of employee stock options ? If you sell the shares, or are paid dividends, then there will be tax withheld.\"","\"An investment is sold when you sell that particular stock or fund. It doesn't wait until you withdraw cash from the brokerage account. Whether an investment is subject to long term or short term taxes depends on how long you held that particular stock. Sorry, you can't get around the higher short term tax by leaving the money in a brokerage account or re-investing in something else. If you are invested in a mutual fund, whether it's long or short term depends on when you buy and sell the fund. The fact that the fund managers are buying and selling behind your back doesn't affect this. (I don't know what taxes they have to pay, maybe you really are paying for it in the form of management fees or lower returns, but you don't explicitly pay the tax on these \"\"inner\"\" transactions.) Your broker should send you a tax statement every year giving the numbers that you need to fill in to the various boxes of your income tax form. You don't have to figure it out. Of course it helps to know the rules. If you've held a stock for 11 1/2 months and are planning to sell, you might want to consider waiting a couple of weeks so it becomes a long term capital gain rather than short term and thus subject to lower tax.\"","@BlackJack does a good answer of addressing the gains and when you are taxed on them and at what kind of rate. Money held in a brokerage account will usually be in a money-market fund, so you would own taxes on the interest it earned. There is one important consideration that must be understood for capitol Losses. This is called the Wash Sale Rule. This rule comes into affect if you sell a stock at a LOSS, and buy shares of the same stock within 30 days (before or after) the sale. A common tactic used to minimize taxes paid is to 'capture losses' when they occur, since these can be used to offset gains and lower your taxes. This is normally done by selling a stock in which you have a LOSS, and then either buying another similar stock, or waiting and buying back the stock you sold. However, if you are intending to buy back the same stock, you must not 'trigger' the Wash Sale Rule or you are forbidden to take the loss. Examples. Lets presume you own 1000 shares of a stock and it's trading 25% below where you bought it, and you want to capture the loss to use on your taxes. This can be a very important consideration if trading index ETF's if you have a loss in something like a S&P500 ETF, you would likely incur a wash sale if you sold it and bought a different S&P500 ETF from another company since they are effectively the same thing. OTOH, if you sold an S&P500 ETF and bought something like a 'viper''total stock market' ETF it should be different enough to not trigger the wash sale rule. If you are trying to minimize the taxes you pay on stocks, there are basically two rules to follow. 1) When a gain is involved, hold things at least a year before selling, if at all possible. 2) Capture losses when they occur and use to offset gains, but be sure not to trigger the wash sale rule when doing so.","With the W8-Ben filed, tax will be withheld at a lower rate. (I would expect 10%). Tax treaty treatment will mean that this witholding will reduce your UK tax even if this payment is not taxable there. This is only effective if you actually pay tax. This is how it works for lotteries and dividends as well.","If the $882 is reported on W2 as your income then it is added to your taxable income on W2 and is taxed as salary. Your basis then becomes $5882. If it is not reported on your W2 - you need to add it yourself. Its salary income. If its not properly reported on W2 it may have some issues with FICA, so I suggest talking to your salary department to verify it is. In any case, this is not short term capital gain. Your broker may or may not be aware of the reporting on W2, and if they report the basis as $5000 on your 1099, when you fill your tax form you can add a statement that it is ESPP reported on W2 and change the basis to correct one. H&R Block and TurboTax both support that (you need to chose the correct type of investment there).","What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000.","It looks like what you're calling a name change was registered as a merger that resulted in an exchange of stock. If that's the case, then what you've been told is correct. You've got one long-term sale and one short-term sale. Based a quick read of the Form 8937 that was filed, it looks like there were multiple entities involved in this event, more than one of which existed prior to it. https://www.mylan.com/-/media/mylancom/files/form%208937%20for%20mylan%20n%20v.pdf","\"There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are \"\"ready made\"\" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a \"\"frequent trader\"\" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales.\"","\"This may be closed as not quite PF, but really \"\"startup\"\" as it's a business question. In general, you should talk to a professional if you have this type of question, specifics like this regarding your tax code. I would expect that as a business, you will use a proper paper trail to show that money, say 1000 units of currency, came in and 900 went out. This is a service, no goods involved. The transaction nets you 100, and you track all of this. In the end you have the gross profit, and then business expenses. The gross amount, 1000, should not be the amount taxed, only the final profit.\"","No Tax would have been deducted at the time of purchase/sale of shares. You would yourself be required to compute your tax liability and then pay taxes to the govt. In case the shares sold were held for less than 1 year - 15% tax on capital gains would be levied. In case the shares sold were held for more than 1 year - No Tax would be levied and the income earned would be tax free. PS: No Tax is levied at the time of purchase of shares and Tax is only applicable at the time of sale of shares.","Generally speaking, if a business loses money for whatever reason, then that reduces the profits of the business which reduces the tax payable. However if you were holding the assets on a personal basis prior to incorporating the business, the position may become more complicated. For that kind of money some professional advice may be worthwhile.","\"if you buy back the now ITM calls, then you will have a short term loss. That pair of transactions is independent, from a tax perspective, of your long position (which was being used as \"\"collateral\"\" in the very case that occurred). I can see your tax situation and can see the logic of taking a short term loss to balance a short term gain. Referring to D Stanley's answer, #2 and #3 are not the same because you are paying intrinsic value in the options and the skew in #2, whereas #3 has no intrinsic value. Of course, because you can't know the future, the stock price could move higher or lower between #2 and #3. #1 presumes the stock continues to climb.\"","Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it.","Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income.","\"Summary of accepted answer: Your \"\"loss\"\" will not count as a loss (to the IRS). Which means no tax deduction for a \"\"short-term capital loss\"\" (on that sale). Instead, the IRS simply pretends like you had paid less for the stock to begin with.\"","\"Long term: Assuming you sold stock ABC through a registered stock exchange, e.g., the Bombay Stock Exchange or the National Stock Exchange of India, and you paid the Securities Transaction Tax (STT), you don't owe any other taxes on the long term capital gain of INR 100. If you buy stock BCD afterwards, this doesn't affect the long term capital gains from the sale of stock ABC. Short term: If you sell the BCD stock (or the ABC stock, or some combination therein) within one year of its purchase, you're required to pay short term capital gains on the net profit, in which case you pay the STT and the exchange fees and an additional flat rate of 15%. The Income Tax Department of India has a publication titled \"\"How to Compute your Capital Gains,\"\" which goes into more detail about a variety of relevant situations.\"","E.g. I buy 1 stock unit for $100.00 and sell it later for $150.00 => income taxes arise. Correct. You pay tax on your gains, i.e.: the different between net proceeds and gross costs (proceeds sans fees, acquisition costs including fees). I buy 1 stock unit for $150.00 and sell it later for $100.00 => no income taxes here. Not correct. The loss is deductible from other capital gains, and if no other capital gains - from your income (up to $3000 a year, until exhausted). Also, there are two different tax rate sets for capital gains: short term (holding up to 1 year) and long term (more than that). Short term capital gains tax matches ordinary income brackets, whereas long term capital gains tax brackets are much lower.","\"I held shares in BIND Therapeutics, a small biotechnology company on the NASDAQ that was liquidated on the chapter 11 auction block in 2016. There were sufficient proceeds to pay the debts and return some cash to shareholders, with payments in 2016 and 2017. (Some payments have yet to occur.) The whole process is counter-intuitive and full of landmines, both for tax preparation & planning and receiving payments: Landmine 0: Some shareholders will sell in a panic as soon as the chapter 11 is announced. This would have been a huge mistake in the case of BIND, because the eventual liquidation payments were worth 3 or so times as much as the share price after chapter 11. The amount of the liquidation payments wasn't immediately calculable, because the company's intellectual property had to be auctioned. Landmine 1: The large brokerages (Vanguard, Fidelity, TDA, and others) mischaracterized the distributions to shareholders on form 1099, distributed to both shareholders and the IRS. The bankruptcy trustee considered this to be their responsibility. According to the tax code and to the IRS website, the liquidation is taxed like a sale of stock, rather than a dividend. \"\"On the shareholder level, a complete liquidation can be thought of as a sale of all outstanding corporate stock held by the shareholders in exchange for all of the assets in that corporation. Like any sale of stock, the shareholder receives capital gain treatment on the difference between the amount received by the shareholder in the distribution and the cost or other basis of the stock.\"\" Mischaracterizing the distributions as dividends makes them wrongly ineligible to be wiped out by the enormous capital loss on the stock. Vanguard's error appeared on my own 1099, and the others were mentioned in an investor discussion on stocktwits. However, Geoffrey L Berman, the bankruptcy trustee stated on twitter that while the payments are NOT dividends, the 1099s were the brokers' responsibility. Landmine 2: Many shareholders will wrongly attempt to claim the capital loss for tax year 2016, or they may have failed to understand the law in time for proper tax planning for tax year 2016. It does not matter that the company's BINDQ shares were cancelled in 2016. According to the IRS website \"\"When a shareholder receives a series of distributions in liquidation, gain is recognized once all of the shareholder's stock basis is recovered. A loss, however, will not be recognized until the final distribution is received.\"\" In particular, shareholders who receive the 2017 payment will not be able to take a capital loss for tax year 2016 because the liquidation wasn't complete. Late discovery of this timing issue no doubt resulted in an end-of-year underestimation of 2016 overall capital gains for many, causing a failure to preemptively realize available capital losses elsewhere. I'm not going to carefully consider the following issues, which may or may not have some effect on the timing of the capital loss: Landmine 3: Surprisingly, it appears that some shareholders who sold their shares in 2016 still may not claim the capital loss for tax year 2016, because they will receive a liquidation distribution in 2017. Taken at face value, the IRS website's statement \"\"A loss, however, will not be recognized until the final distribution is received\"\" appears to apply to shareholders of record of August 30, 2016, who receive the payouts, even if they sold the shares after the record date. However, to know for sure it might be worth carefully parsing the relevant tax code and treasury regs. Landmine 4: Some shareholders are completely cut out of the bankruptcy distribution. The bankruptcy plan only provides distributions for shareholders of record Aug 30, 2016. Those who bought shares of BINDQ afterwards are out of luck. Landmine 5: According to the discussion on stocktwits, many shareholders have yet to receive or even learn of the existence of a form [more secure link showing brokers served here] required to accept 2017 payments. To add to confusion there is apparently ongoing legal wrangling over whether the trustee is able to require this form. Worse, shareholders report difficulty getting brokers' required cooperation in submitting this form. Landmine 6: Hopefully there are no more landmines. Boom. DISCLAIMER: I am not a tax professional. Consult the tax code/treasury regulations/IRS publications when preparing your taxes. They are more trustworthy than accountants, or at least more trustworthy than good ones.\"","Tax questions require that you specify a jurisdiction. Assuming that this is the US, you owe Federal income tax (at the special long-term capital gains tax rate) on the net long-term capital gains (total long-term capital gains minus total long-term capital losses) and so, yes, if these two were your only transactions involving long-term holdings, you would pay long-term capital gains tax on $3000-$50 = $2950. Many States in the US don't tax long-term capital gains at special rates the way the Federal Government does, but you still pay taxes on the net long-term capital gains. I suspect that other countries have similar rules.","You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.","The original post's $16 has two errors: Here is the first scenario: . Tax Liability($) on Net . Cash # of Price Paper Realized Value Time: ($) Shares ($/sh) Profits Profits ($) 1. Start with: 100 - n/a - - 100 2. After buy 10@10$/sh: - 10 10 - - 100 3. Before selling: - 10 12 (5) - 115 4. After sell 10@12$/sh: 120 - n/a - (5) 115 5. After buy 12@10$/sh: - 12 10 - (5) 115 6. Before selling: - 12 12 (6) (5) 133 7. After sell 12@12$/sh: 144 - n/a - (11) 133 8. After buy 14@10$/sh: 4 14 10 - (11) 133 9. Before selling: 4 14 12 (7) (11) 154 10.After sell 14@12$/sh: 172 - n/a - (18) 154 At this point, assuming that all of the transactions occurred in the same fiscal year, and the realized profits were subject to a 25% short-term capital gains tax, you would owe $18 in taxes. Yes, this is 25% of $172 - $100.","The key point is from the penultimate sentence in your second paragraph: for which you have already paid taxes When you receive a dividend or realise a capital gain, you get taxed on that then, and you shouldn't have to pay taxes on it again in future. So the cost basis gets adjusted to reflect that.","From the instructions: If you do not need to make any adjustments to the basis or type of gain or loss (short-term or long-term) reported to you on Form 1099-B (or substitute statement) or to your gain or loss for any transactions for which basis has been reported to the IRS (normally reported on Form 8949 with box A checked), you do not have to include those transactions on Form 8949. Instead, you can report summary information for those transactions directly on Schedule D. For more information, see Exception 1, later. However, in case of ESPP and RSU, it is likely that you actually do need to make adjustments. Since 2014, brokers are no longer required to track basis for these, so you better check that the calculations are correct. If the numbers are right and you just summarized instead of reporting each on a separate line, its probably not an issue. As long as the gains reported are correct, no-one will waste their time on you. If you missed several thousand dollars because of incorrect calculations, some might think you were intentionally trying to hide something by aggregating and may come after you.","The HMRC website says: Stock dividends are treated as income by virtue of CTA10/S1049, and taxable as savings income under Chapter 5 of Part 4 of ITTOIA05 (sections 409 to 414). ITTOIA05 is the Income Tax (Trading and Other Income) Act 2005, and says: 409 Charge to tax on stock dividend income (1) Income tax is charged on stock dividend income. (2) In this Chapter “stock dividend income” means the income that is treated as arising under section 410. 411 Income charged (1) Tax is charged under this Chapter on the amount of stock dividend income treated for income tax purposes as arising in the tax year. (2) That amount is the cash equivalent of the share capital on the issue of which the stock dividend income arises (see section 412), grossed up by reference to the dividend ordinary rate for the tax year.","It looks like it has to deal with an expiration of rights as a taxable event. I found this link via google, which states that Not only does the PSEC shareholder have a TAXABLE EVENT, but he has TWO taxable events. The net effect of these two taxable events has DIFFERENT CONSEQUENCES for DIFFERENT SHAREHOLDERS depending upon their peculiar TAX SITUATIONS. The CORRECT STATEMENT of the tax treatment of unexercised PYLDR rights is in the N-2 on page 32, which reads in relevant part as follows: “…, if you receive a Subscription Right from PSEC and do not sell or exercise that right before it expires, you should generally expect to have (1) taxable dividend income equal to the fair market value (if any) of the Subscription Right on the date of its distribution by PSEC to the extent of PSEC’s current and accumulated earnings and profits and (2) a capital loss upon the expiration of such right in an amount equal to your adjusted tax basis (if any) in such right (which should generally equal the fair market value (if any) of the Subscription Right on the date of its distribution by PSEC).” Please note, for quarterly “estimated taxes” purposes, that the DIVIDEND taxable events occur “ON THE DATE OF ITS DISTRIBUTION BY PSEC (my emphasis),” while the CAPITAL LOSS occurs “UPON EXPIRATION OF SUCH RIGHT” (my emphasis). They do NOT occur on 31 December 2015 or some other date. However, to my knowledge, neither of the taxable events he mentions would be taxed by 4/15. If you are worried about it, I would recommend seeing a tax professional. Otherwise I'd wait to see the tax forms sent by your brokerage.","There are a few incorrect assumptions in your question but the TL;DR version is: All, or most, of the withdrawal is taxable income that is reported on Lines 15a (total distribution) and 15b (taxable amount) of Form 1040. None of the distribution is given special treatment as Qualified Dividends or Capital Gains regardless of what happened inside the IRA, and none of the distribution is subject to the 3.8% Net Investment Income Tax that some high-income people need to compute on Form 8960. If the withdrawal is not a Qualified Distribution, it will be subject to a 10% excise tax (tax penalty on premature withdrawal). Not all contributions to Traditional IRAs are deductible from income for the year for which the contribution was made. People with high income and/or coverage by a workplace retirement plan (pension plan, 401(k) plan, 403(b) plan, etc) cannot deduct any contributions that they choose to make to a Traditional IRA. Such people can always make a contribution (subject to them having compensation (earned income such as salary or wages, self-employment income, commissions on sales, etc), but they don't get a tax deduction for it (just as contributions to Roth IRAs are not deductible). Whether it is wise to make such nondeductible contributions to a Traditional IRA is a question on which reasonable people can hold different opinions. Be that as it may, nondeductible contributions to a Traditional IRA create (or add to) what is called the basis of an IRA. They are reported to the IRS on Form 8606 which is attached to the Federal Form 1040. Note that the IRA custodian or trustee is not told that the contributions are not deductible. Earnings on the basis accumulate tax-deferred within the IRA just as do the earnings on the deductible contributions. Now, when you make a withdrawal from your Traditional IRA, no matter which of your various IRA accounts you take the money from, part of the money is deemed to be taken from the basis (and is not subject to income tax) while the rest is pure taxable income. That is, none of the rest is eligible for the reduced taxation rates for Qualified Dividends or Capital Gains and since it does not count as investment income, it is not subject to the 3.8% Net Investment Tax of Form 8960 either. Computation of how much of your withdrawal is nontaxable basis and how much is taxable income is done on Form 8606. Note that you don't get to withdraw your entire basis until such time as when you close all your Traditional IRA accounts. How is all this reported? Well, your IRA custodian(s) will send you Form 1099-R reporting the total amount of the withdrawal, what income tax, if any, was withheld, etc. The custodian(s) don't know what your basis is, and so Box 2b will say that the taxable amount is not determined. You need to fill out Form 8606 to figure out what the taxable amount is, and then report the taxable amount on Line 15b of Form 1040. (The total withdrawal is reported on Line 15a which is not included in the AGI computations). Note that as far as the IRS is concerned, you have only one Traditional IRA. The A in IRA stands for Arrangement, not Account as most everybody thinks, and your Traditional IRA can invest in many different things, stocks, bonds, mutual funds, etc with different custodians if you choose, but your basis is in the IRA, not the specific investment that you made with your nondeductible contribution. That's why the total IRA contribution is limited, not the per-account contribution, and why you need to look that the total value of your IRA in determining the taxable portion, not the specific account(s) from which you withdrew the money. So, how much basis did you withdraw? Well, if you withdrew $W during 2016 and the total value of all your Traditional IRA accounts was $X at the end of 2016 and your total basis in your Traditional IRA is $B, then (assuming that you did not indulge in any Traditional-to-Roth rollovers for 2016), multiply W by B/(W+X) to get the amount of nontaxable basis in the withdrawal. B thus gets reduced for 2017 by amount of basis withdrawal. What if you never made a nondeductible contribution to your Traditional IRA, or you made some nondeductible contributions many years ago and have forgotten about them? Well, you could still fill out Form 8606 reporting a zero basis, but it will just tell you that your basis continues $0. Or, you could just enter the total amount of your withdrawal in Lines 15a and 15b, effectively saying that all of the withdrawal is taxable income to you. The IRS does not care if you choose to pay taxes on nontaxable income.","The tax is only payable on the gain you make i.e the difference between the price you paid and the price you sold at. In your cse no tax is payable if you sell at the same price you bought at","In response to your points #1 and #2: In general, yes it is true that capital gains are only subject to half one's marginal rate of income tax. That doesn't mean 50% of the gain is due as tax... rather, it means that if one's marginal tax rate (tax bracket) on the next $10K would have been, say, 32%, then one is taxed on the gain at 16%. (The percentages are examples, not factual.) However, because these are employee stock options, the tax treatment is different than for a capital gain! Details: On the Federal tax return are lines for reporting Security option benefits (Line 101) and Security options deductions (Line 249). The distinction between a regular capital gain and an employee stock option benefits is important. In many cases the net effect may be the same as a capital gain, but the income is characterized differently and there are cases where it matters. Somebody who is about to or has realized employee stock option benefits should seek professional tax advice. In response to your next two points: No, one cannot transfer a capital gain or other investment income into a TFSA immediately after-the-fact in order to receive the tax-free benefits of the TFSA on that income. Only income and gains earned within a TFSA are free from tax – i.e. The options would have to have been in the TFSA before being exercised. Once a gain or other investment income has been realized in a non-sheltered account, it is considered taxable. The horse has already left the barn, so to speak! However, despite the above, there is another strategy available: One can create an offsetting deduction by contributing some of the realized gain into an RRSP. The RRSP contribution, assuming room is available, would yield a tax deduction to offset some tax due on the gain. However, the RRSP only defers income tax; upon withdrawal of funds, ordinary income tax is due (hopefully, at a lower marginal rate in retirement.) There is no minimum amount of time that money or assets have to be inside a TFSA to benefit from the tax-free nature of the account. However, there are limits on how much money you can move into a TFSA in any given year, and many folks weren't aware of the rules. p.s. Let me add once more that this is a case where I suggest seeking professional tax advice.","\"While derivative pricing models are better modeling reality as academia invests more into the subject, none sufficiently do. If, for example, one assumes that stock returns are lognormal for the purposes of pricing options like Black Scholes does, the only true dependent variable becomes log-standard deviation otherwise known as \"\"volatility\"\", producing the infamous \"\"volatility smile\"\" which disappears in the cases of models with more factors accounting for other mathematical moments such as mean, skew, and kurtosis, etc. Still, these more advanced models are flawed, and suffer the same extreme time mispricing as Black Scholes. In other words, one can model anything however one wants, but the worse the model, the stranger the results since volatility for a given expiration should be constant across all strikes and is with better models. In the case of pricing dividends, these can be adjusted for the many complexities of taxation, but the model becomes ever more complex and extremely computationally expensive for each eventuality. Furthermore, with more complexity in any model, the likelihood of discovering a closed form in the short run is less. For equities in a low interest rate, not high dividend yield, not low volatility, low dividend tax environment, the standard swap pricing models will not provide results much different from one where a single low tax rate on dividends is assumed. If one is pricing a swap on equity outside of the bounds above, the dividend tax rate could have more of an effect, but for computational efficiency, applying a single assumed dividend tax rate would be optimal with D*(1-x), instead of D in a formula, where D is the dividend paid and x is the tax rate. In short, a closed form model is only as good as its assumptions, so if anomalies appear between the actual prices of swaps in the market and a swap model then that model is less correct than the one with smaller anomalies of the same type. In other words, if pricing equity swaps without a dividend tax rate factored more closely matches the actual prices than pricing with dividend taxes factored then it could be assumed that pricing without a dividend tax factored is superior. This all depends upon the data, and there doesn't seem to be much in academia to assist with a conclusion. If equity swaps do truly provide a tax advantage and both parties to a swap transaction are aware of this fact then it seems unlikely swap sellers wouldn't demand some of the tax advantage back in the form of a higher price. A model is no defense since volatility curves persist despite what Black Scholes says they should be.\"","You would not owe any taxes in the 2015 year, unless you got exercised and called away in 2015. The premium would be short term capital gains barring some other exception I'm not aware of, and if you retain a gain on the underlying shares then that would still be long term capital gains. If it gets called in say April 2016, is the premium+profit+dividends all long term capital gains for the year 2016? The profits are long term capital gains and the premium serves to lower your cost basis, dividends have their own conditions so you'll have to do separate research on that, fortunately they'll likely be negligible compared to the potential capital gains and options premium.","\"A nondividend distribution is typically a return of capital; in other words, you're getting money back that you've contributed previously (and thus would have been taxed upon in previous years when those funds were first remunerated to you). Nondividend distributions are nontaxable, so they do not represent income from capital gains, but do effect your cost basis when determining the capital gain/loss once that capital gain/loss is realized. As an example, publicly-traded real estate investment trusts (REITs) generally distribute a return of capital back to shareholders throughout the year as a nondividend distribution. This is a return of a portion of the shareholder's original capital investment, not a share of the REITs profits, so it is simply getting a portion of your original investment back, and thus, is not income being received (I like to refer to it as \"\"new income\"\" to differentiate). However, the return of capital does change the cost basis of the original investment, so if one were to then sell the shares of the REIT (in this example), the basis of the original investment has to be adjusted by the nondividend distributions received over the course of ownership (in other words, the cost basis will be reduced when the shares are sold). I'm wondering if the OP could give us some additional information about his/her S-Corp. What type of business is it? In the course of its business and trade activity, does it buy and sell securities (stocks, etc.)? Does it sell assets or business property? Does it own interests in other corporations or partnerships (sales of those interests are one form of capital gain). Long-term capital gains are taxed at rates lower than ordinary income, but the IRS has very specific rules as to what constitutes a capital gain (loss). I hate to answer a question with a question, but we need a little more information before we can weigh-in on whether you have actual capital gains or losses in the course of your S-Corporation trade.\"","In addition to the adjustment type in NL7's answer, there are a host of others. If there are any adjustments, form 8949 is required, if not, the gains can be separated into short and long-term and added together to be entered on Schedule D. Anything requiring an adjustment code in column F of the 8949 requires an entry in column G. Some other example entries for column F include: (see the 8949 instructions for a complete list) **A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. (from Pub17)","This investment strategy may have tax advantages. In some countries, income received from dividends is taxed as income, whereas profits on share trades are capital gains. If you have already exceeded your tax-free income limit for the year, but not your capital gains tax allowance, it may be preferable to make a dealing profit rather than an investment income. These arrangements are called a bed-and-breakfast.","The tax cost at election should be zero. The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture. It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income. §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it. If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes. That means they are most likely a capital asset in your hands, like other stocks you own or trade. The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election. The appreciation past election-FMV will be capital gain, rather than ordinary income. This is why the §83(b) election is so valuable. It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election.","Generally, ETFs and mutual funds don't pay taxes (although there are some cases where they do, and some countries where it is a common case). What happens is, the fund reports the portion of the gain attributed to each investor, and the investor pays the tax. In the US, this is reported to you on 1099-DIV as capital gains distribution, and can be either short term (as in the scenario you described), long term, or a mix of both. It doesn't mean you actually get a distribution, though, but if you don't - it reduces your basis.","Are the amounts in those boxes taxes that have already been removed? Yes. If they are, how do I report these totals? When I entered the information from the 1099-MISC, it only asked for the total, and didn't ask for (what I thought were) the taxes already taken out. It should appear on your 1040 line 64 (and similar line on your State tax return). If the program doesn't ask for all the 1099 fields (which is stupid), you can add it as additional taxes paid in the Credits section, somewhere in the area where they ask about estimated payments etc.","\"Overall the question is one of a political nature. However, this component can have objective answers: \"\"What behavior is trying to be prevented?\"\" There are mechanisms by which capital gains can be deferred (1031 like-kind exchange, or simply holding a long position for years) or eliminated by the estate step up in basis. With these available, mechanisms that enable basis-reduction are ripe for abuse. On the other hand, if this truly bothers you then if you meet the IRS qualifications of a day trader, you may elect to use \"\"mark to market\"\" accounting, eliminating this entirely as a concern. Special rules for traders of securities\"","\"Appreciation of a Capital Asset is a Capital Gain. In the United States, Capital Gains get favorable tax treatment after being held for 12 months. From the IRS newsroom: Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%. The IRS defines a Capital Asset as \"\"most property you own\"\" with a list of exclusions found in Schedule D Instructions. None of the exclusions listed relate to Bond ETFs.\"","For stocks, bonds, ETF funds and so on - Taxed only on realised gain and losses are deductible from the gain and not from company's income. Corporate tax is calculated only after all expenses have been deducted. Not the other way around. Real estate expenses can be deducted because of repairs and maintenance. In general all expenses related to the operation of the business can be deducted. But you cannot use expenses as willy nilly, as you assume. You cannot deduct your subscription to Playboy as an expense. Doing it is illegal and if caught, the tours to church will increase exponentially. VAT is only paid if you claim VAT on your invoices. Your situation seems quite complicated. I would suggest, get an accountant pronto. There are nuances in your situation, which an accountant only can understand and help.","Well, you won't be double taxed based on what you described. Partners are taxed on income, typically distributions. Your gain in the partnership is not income. However, you were essentially given some money which you elected to invest in the partnership, so you need to pay tax on that money. The question becomes, are you being double taxed in another way? Your question doesn't explain how you invested, but pretty much the options are either a payroll deduction (some amount taken out of X paychecks or a bonus) or some other payment to you that was not treated as a payroll deduction. Given that you got a 1099, that suggests the latter. However, if the money was taken out as a payroll deduction - you've already paid taxes (via your W2)! So, I'd double check on that. Regarding why the numbers don't exactly match up - Your shares in the partnership likely transacted before the partnership valuation. Let's illustrate with an example. Say the partnership is currently worth $1000 with 100 outstanding shares. You put up $1000 and get 100 shares. Partnership is now worth $2000 with 200 outstanding shares. However, after a good year for the firm, it's valuation sets the firm's worth at $3000. Your gain is $1500 not $1000. You can also see if what happened was the firm's valuation went down, your gain would be less than your initial investment. If instead your shares transacted immediately after the valuation, then your gain and your cost to acquire the shares would be the same. So again, I'd suggest double checking on this - if your shares transacted after the valuation, there needs to be an explanation for the difference in your gain. For reference: http://smallbusiness.findlaw.com/incorporation-and-legal-structures/partnership-taxes.html And https://www.irs.gov/publications/p541/ar02.html Here you learn the purpose of the gain boxes on your K1 - tracking your capital basis should the partnership sell. Essentially, when the partnership is sold, you as a partner get some money. That money is then taxed. How much you pay will depend on what you received versus what the company was worth and whether your gain was long term or short term. This link doesn't go into that detail, but should give you a thread to pull. I'd also suggest reading more about partnerships and K1 and not just the IRS publications. Don't get me wrong, they're a good source of information, just also dense and sometimes tough to understand. Good luck and congrats.","\"If it's fully expensed, it has zero basis. Any sale is taxable, 100%. To the ordinary income / cap gain issue raised in comment - It's a cap gain, but I believe, as with real estate, special rates apply. This is where I am out of my area of expertise, and as they say - \"\"Consult a professional.\"\"\"","This may be a good or a bad deal, depending on the fair market value (FMV) of the stock at the time of exercise. Let's assume the FMV is $6, which is the break even point. In general this would probably be treated as two transactions. So overall you would be cash neutral, but your regular tax income would be increased by $30,000 and your AMT income by $60,000.","An update for anyone looking this up, I am still working through all the details but I can answer the question as far as Stack Exchange will go. In this situation the answer and processes involved greatly differs based on the personal circumstances of the person asking the question. Best to seek qualified tax advice than relying only on a forum as they are able to be more accurate and descriptive than any reply that you might receive."],"string":"[\n \"In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different.\",\n \"If you buy puts, there are no guaranteed proceeds though. If you short against the box, you've got immediate proceeds with a nice capital loss if it doesn't work out. Conversely, you could write a covered call, take the contract proceeds, and write off the long position losses. Nobody ever factors tax consequences into the equation here.\",\n \"\\\"Apparently box 39 does not receive half of box 38 if \\\"\\\"The price of the share or unit is less than its fair market value when the agreement was made.\\\"\\\" - the last point in paragraph 110(1)(d): *http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/fnncl/scrty/stckpt03-eng.html#dspst The employee can claim a deduction under paragraph 110(1)(d) of the Income Tax Act if all of the following conditions are met:\\\"\",\n \"You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.\",\n \"This is taxed as ordinary income. See the IRC Sec 988(a)(1). The exclusion you're talking about (the $200) is in the IRC Sec 988(e)(2), but you'll have to read the Treasury Regulations on this section to see if and how it can apply to you. Since you do this regularly and for profit (i.e.: not a personal transaction), I'd argue that it doesn't apply.\",\n \"\\\"You owe no tax on the option transaction in 2015 in this case. How you ultimately get taxed depends on how you dispose of the position. If it expires, then you will have a short-term capital gain on the option position at expiration. If it is exercised, then the option is \\\"\\\"gone\\\"\\\" for tax purposes and your basis in the underlying is adjusted. From IRS Publication 550: If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. In your case, this will be a long-term capital gain. For completeness, if you buy to cover the option back from the market before expiration or exercise, then it is also a short-term capital gain. Also, keep in mind that this all assumes that this covered call is \\\"\\\"qualified\\\"\\\" so that it does not count as a straddle. You can find more about that in Pub 550. https://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010630 All of this is for US tax purposes.\\\"\",\n \"For case 1, there is no tax due as you sold the book for less than your cost basis. If you had sold for more than $100, then you would have had a profit. For case 2, that depends on the value of the gift card with respect to the value of your fare. Most likely that gift card is less than the cost of the fare. And in that case it would generally be treated as a reduction in the purchase price. The same way that rebates and cash back on credit card are treated. Note if for some reason a 1099 was generated that would change the situation and you would need to consult a tax professional. Since that would indicate that the other party to the transaction had a different view of the situation.\",\n \"\\\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \\\"\\\"otherwise\\\"\\\" is substantial and far-ranging.\\\"\",\n \"The loss for B can be used to write off the gain for A. You will fill out a schedule 3 with cost base and proceeds of disposition. This will give you a $0 capital gain for the year and an amount of $5 (50% of the $10 loss) you can carry forward to offset future capital gains. You can also file a T1-a and carry the losses back up to 3 years if you're so inclined. It can't be used to offset other income (unless you die). Your C and D trades can't be on income account except for very unusual circumstances. It's not generally acceptable to the CRA for you to use 2 separate accounting methods. There are some intricacies but you should probably just use capital gains. There is one caveat that if you do short sales of Canadian listed securities, they will be on income account unless you fill out form T-123 and elect to have them all treated as capital gains. I just remembered one wrinkle in carrying forward capital losses. They don't reduce your capital gains anymore, but they reduce your taxable income. This means your net income won't be reduced and any benefits that are calculated from that (line 236), will not get an increase.\",\n \"I sold it at 609.25 and buy again at 608.75 in the same day If you Sold and bought the same day, it would be considered as intra-day trade. Profit will be due and would be taxed at normal tax brackets. Edits Best Consult a CA. This is covered under Indian Accounting Standard AG51 The following examples illustrate the application of the derecognition principles of this Standard. (e) Wash sale transaction. The repurchase of a financial asset shortly after it has been sold is sometimes referred to as a wash sale. Such a repurchase does not preclude derecognition provided that the original transaction met the derecognition requirements. However, if an agreement to sell a financial asset is entered into concurrently with an agreement to repurchase the same asset at a fixed price or the sale price plus a lender's return, then the asset is not derecognised. This is more relevant now for shares/stocks as Long Term Capital Gains are tax free, Long Term Capital Loss cannot be adjusted against anything. Short Term Gains are taxed differentially. Hence the transaction can be interpreted as tax evasion, professional advise is recommended. A simple way to avoid this situation; sell on a given day and buy it next or few days later.\",\n \"In addition to the expatriation case already mentioned by Ben Miller, traders/investors are required to use mark-to-market accounting on certain investments. These go by Section 1256 contracts due to the part of the law that defines them. Mark-to-market is also required on straddles (combination of a long and and a short position in equities that are expected to vary inversely to each other). Mark-to-market means that you have to treat the positions as if you closed them at their end-of-year market value (even if you still have the position across the new year).\",\n \"No. Black Scholes includes a number of variables to calculate the value of the derivative but taxation isn't one of them. Whether you are trading options or futures, the dividend itelf may be part of the equation, but not the tax on said dividend.\",\n \"(I'm assuming the tag of United-states is accurate) Yes, the remaining amount is tax free -- at the current price. If you sell at exactly the original price, there is no capital gain, no capital loss. So you've already payed the taxes. If you sell and there is a capital gain of $3000, then you will pay taxes on the $3000. If 33% is your marginal tax rate, and if you held the stock for less than a year, then you will keep $7000 and pay taxes of $1000. Somehow, I doubt your marginal tax rate is 33%. If you hold the stock for a year after eTrade sold some for you to pay taxes, then you will pay 15% on the gain -- or $450. eTrade sold the shares to pay the taxes generated by the income. Yes, those shares were considered income. If you sell and have a loss, well, life sucks. However, if you sell something else, you can use the loss to offset the other gain. So if you sell stock A for a loss of $3000, and sell stock B at a gain of $4000, then you pay taxes on the net of $1000.\",\n \"\\\"The tax comes when you close the position. If the option expires worthless it's as if you bought it back for $0. There's a short-term capital gain for the difference between your short-sale price and your buyback price on the option. I believe the capital gain is always short-term because short sales are treated as short-term even if you hold them open more than one year. If the option is exercised (calling away your stock) then you add the premium to your sale price on the stock and then compute the capital gain. So in this case you can end up treating the premium as a long-term capital gain. See IRS pub 550 http://www.irs.gov/publications/p550/ch04.html#en_US_2010_publink100010619 Search for \\\"\\\"Writers of puts and calls\\\"\\\"\\\"\",\n \"As mentioned by Dilip, you need to provide more details. In general for transacting on stocks; Long Term: If you hold the stock for more than one year then its long term and not taxable. There is a STT [Securities Transaction Tax] that is already deducted/paid during buying and selling of a stock. Short Term: If you hold the stock for less than one year, it's short term gain. This can be adjusted against the short term loss for the financial year. The tax rate is 10%. Day Trading: Is same as short term from tax point of view. Unless you are doing it as a full time business. If you have purchased multiple quantities of same stock in different quantities and time, then when you selling you have to arrive at profit or loss on FIFO basis, ie First in First Out\",\n \"The capital gain is either short-term or long-term and will be indicated on the 1099-DiV. You pay taxes on this amount as the capital gain was received in a taxable account (assuming since you received a 1099-DIV). More info here: https://www.mutualfundstore.com/brokerage-account/capital-gains-distributions-taxable\",\n \"Stock awards by employers are treated and taxed as salary. I.e.: you pay ordinary rate income tax, FICA taxes, State taxes etc. The fact that you got your salary in shares and not cash is irrelevant for tax purposes. Once you got the shares and paid your taxes on them, the treatment is the same as if you got the salary and immediately bought the shares. Holding period for capital gains tax purposes starts at the time you paid your taxes on the award, which is the time at which you get full ownership (i.e.: vesting time, for the restricted stocks). When you sell these stocks - you treat the sale as any other stock sale: you check the holding period for capital gains tax rates, and you do not pay (or get refund) any FICA taxes on the sales transaction. So bottom line: You got $10K salary and you bought $10K worth of company stock, and you sold it at $8K half a year later. You have $10K wages income and $2K short term capital loss.\",\n \"You likely received the shares as ordinary income for services of $10k, since they withheld taxes at granting. Separately, you likely had a short term capital loss on sale of $2k, since your holding period seems to have been under one year.\",\n \"\\\"Gifts given and received between business partners or employers/employees are treated as income, if they are beyond minimal value. If your boss gives you a gift, s/he should include it as part of your taxable wages for payroll purposes - which means that some of your wages should be withheld to cover income, social security, and Medicare taxes on it. At the end of the year, the value of the gift should be included in Box 1 (wages) of your form W-2. Assuming that's the case, you don't need to do anything special. A 1099-MISC would not be appropriate because you are an employee of your boss - so the two of you need to address the full panoply of employment taxes, not just income tax, which would be the result if the payment were reported on 1099-MISC. If the employer wants to cover the cost to you of the taxes on the gift, they'll need to \\\"\\\"gross up\\\"\\\" your pay to cover it. Let's say your employer gives you a gift worth $100, and you're in a 25% tax bracket. Your employer has to give you $125 so that you end up with a gain of $100. But the extra $25 is taxable, too, so your employer will need to add on an extra $6.25 to cover the 25% tax on the $25. But, wait, now we've gotta pay 25% tax on the $6.25, so they add an extra $1.56 to cover that tax. And now they've gotta pay an extra $.39 . . . The formula to calculate the gross-up amount is: where [TAX RATE] is the tax rate expressed as a percentage. So, to get the grossed-up amount for a $100 gift in a 25% bracket, we'd calculate 1/(1-.25), or 1/.75, or 1.333, multiply that by the target gift amount of $100, and end up with $133.33. The equation is a little uglier if you have to pay state income taxes that are deductible on the federal return but it's a similar principle. The entire $133.33 would then be reported as income, but the net effect on the employee is that they're $100 richer after taxes. The \\\"\\\"gross-up\\\"\\\" idea can be quite complicated if you dig into the details - there are some circumstances where an additional few dollars of income can have an unexpected impact on a tax return, in a fashion not obvious from looking at the tax table. If the employer doesn't include the gift in Box 1 on the W-2 but you want to pay taxes on it anyway, include the amount in Line 7 on the 1040 as if it had been on a W-2, and fill out form 8919 to calculate the FICA taxes that should have been withheld.\\\"\",\n \"\\\"In the USA there are two ways this situation can be treated. First, if your short position was held less than 45 days. You have to (when preparing the taxes) add the amount of dividend back to the purchase price of the stock. That's called adjusting the basis. Example: short at $10, covered at $8, but during this time stock paid a $1 dividend. It is beneficial for you to add that $1 back to $8 so your stock purchase basis is $9 and your profit is also $1. Inside software (depending what you use) there are options to click on \\\"\\\"adjust the basis\\\"\\\" or if not, than do it manually specifically for those shares and add a note for tax reviewer. Second option is to have that \\\"\\\"dividednd payment in lieu paid\\\"\\\" deducted as investment expence. But that option is only available if you hold the shorts for more than 45 days and itemize your deductions. Hope that helps!\\\"\",\n \"Elaborating on kelsham's answer: You buy 100 shares XYZ at $1, for a total cost of $100 plus commissions. You sell 100 shares XYZ at $2, for a total income of $200 minus commissions. Exclusive of commissions, your capital gain is $100 for this trade, and you will pay taxes on that. Even if you proceed to buy 200 shares XYZ at $1, reinvesting all your income from the sale, you still owe taxes on that $100 gain. The IRS has met this trick before.\",\n \"Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.\",\n \"does it still count as a capital gain or loss? Yes. Is it essentially treated like you sold the stock at the price of the buy-out? Yes. Do you still get a 1099-B from your broker? Yes.\",\n \"Flipping usually refers to real-estate transaction: you buy a property, improve/renovate/rehabilitate it and resell it quickly. The distinction between flipper and investor is similar to the distinction between trader and investor, even though the tax code doesn't explicitly refer to house flipping. Gains on house flipping can be considered as active business gain or passive activity income, which are treated differently: passive income goes on Schedule E and Schedule D, active income goes on Schedule C. The distinction between passive and active is based on the characteristics of the activity (hours you spent on it, among other things). Trading income can similarly be considered as either passive (Schedule D/E treatment) or active (Schedule C treatment). Here's what the IRS has to say about traders: Special rules apply if you are a trader in securities, in the business of buying and selling securities for your own account. This is considered a business, even though you do not maintain an inventory and do not have customers. To be engaged in business as a trader in securities, you must meet all of the following conditions: The following facts and circumstances should be considered in determining if your activity is a securities trading business: If the nature of your trading activities does not qualify as a business, you are considered an investor... Investor, in this context, means passive income treatment (Schedule D/E). However, even if your income is considered active (Schedule C), stock sale proceeds are not subject to the self-employment tax. As you can see, there's no specific definition, but the facts and circumstances matter. You may be considered a trader by the IRS, or you may not. You may want to be considered a trader (for example to be able to make a mark-to-market election), or you may not. You should talk to a professional tax adviser (EA/CPA licensed in your State) for more details and suggestions.\",\n \"Great question! It can be a confusing for sure -- but here's a great example I've adapted to your scenario: As a Day Trader, you buy 100 shares of LMNO at $100, then after a large drop the same day, you sell all 10 shares at $90 for a loss of $1,000. Later in the afternoon, you bought another 100 shares at $92 and resold them an hour later at $97 (a $500 profit), closing out your position for the day. The second trade had a profit of $500, so you had a net loss of $500 (the $1,000 loss plus the $500 profit). Here’s how this works out tax-wise: The IRS first disallows the $1,000 loss and lets you show only a profit of $500 for the first trade (since it was a wash). But it lets you add the $1,000 loss to the basis of your replacement shares. So instead of spending $9,200 (100 shares times $92), for tax purposes, you spent $10,200 ($9,200 plus $1,000), which means that the second trade is what caused you to lose the $500 that you added back (100 x $97 = $9,700 minus the 100 x $102 = $10,200, netting $500 loss). On a net basis, you get to record your loss, it just gets recorded on the second trade. The basis addition lets you work off your wash-sale losses eventually, and in your case, on Day 3 you would recognize a $500 final net loss for tax purposes since you EXITED your position. Caveat: UNLESS you re-enter LMNO within 30 days later (at which point it would be another wash and the basis would shift again). Source: http://www.dummies.com/personal-finance/investing/day-trading/understand-the-irs-wash-sale-rule-when-day-trading/\",\n \"\\\"Keep in mind that all of the information below assumes: That being said, here are some examples of national tax laws relating to barter transactions. Obviously this isn't an exhaustive list, but based on my grossly non-representative sample, I think it's fairly safe to assume that barter transactions are more likely taxable than not. You're referring to a barter system; in the United States, the IRS is very specific about this (see the section titled Bartering). Bartering is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included on Form 1040 in the income of both parties. The IRS also provides more details: Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. You must include in gross income in the year of receipt the fair market value of goods and services received in exchange for goods or services you provide or may provide under the bartering arrangement. Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business or Form 1040, Schedule C-EZ (PDF), Net Profit from Business. If you failed to report this income, correct your return by filing a Form 1040X (PDF). Refer to Topic 308 for amended return information. So yes, the net value of bartered goods or services is most likely taxable. According to the Australian Tax Office: Barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions. Her Majesty's Revenue and Customs states that: If you supply services or goods (new or second-hand) and receive other goods or services in payment, there are two separate supplies: You must account for VAT, and so must your customer if they're VAT-registered. The VAT treatment is the same as for part-exchanges. You must both account for VAT on the amounts you would each have paid for the goods or services if there had been no barter and they had been paid for with money. Searching the website of the Federal Tax Service for the Russian/Cryllic word for barter (бартер) doesn't yield any results, but that might be because even between Google Translate and the rest of the internet, I don't speak Russian. That being said, I did manage to find this (translated from the first full paragraph of the Russian, beginning with \\\"\\\"Налог на доходы...\\\"\\\": The tax on personal income is paid by citizens of the Russian Federation with all types of income received by them in the calendar year, either in cash or in kind. Since bartering would probably qualify as an in kind transaction, it would likely be taxable. The South African Revenue Service includes barter transactions in the supply of goods taxed under the VAT. The term “supply” is defined very broadly and includes all forms of supply and any derivative of the term, irrespective of where the supply is effected. The term includes performance in terms of a sale, rental agreement, instalment credit agreement or barter transaction. Look for section 3.6, Supply and Taxable Supply, found on p17 of the current version of the linked document.\\\"\",\n \"For the employee, this is an identical tax situation to an at-the-money option purchase. They're buying an asset with a specific cost basis. For the company, you are just issuing shares from treasury as authorized... debit cash, credit additional paid-in-capital and equity. There is no tax consequence for this money received.\",\n \"I'm assuming this was a cashless exercise because you had income show up on your w-2. When I had a similar situation, I did the following: If you made $50,000 in salary and $10,000 in stock options then your W-2 now says $60,000. You'll record that on your taxes just like it was regular income. You'll also get a form that talks about your stock sale. But remember, you bought and sold the stock within seconds. Your forms will probably look like this: Bought stock: $10,000 Sold stock: $10,000 + $50 commission Total profit (loss): ($50) From the Turbotax/IRS view point, you lost $50 on the sale of the stock because you paid the commission, but the buy and sell prices were identical or nearly identical.\",\n \"Outside of a tax sheltered IRA or 401(k) type of account your transactions may trigger tax liability. However, transactions are not taxed immediately at the time of the transaction; and up to a certain limits capital gains can be offset by capital losses which can mitigate your liability at tax time. Also, remember that dividend receipts are taxable income as well. As others have said, this has nothing to do with whether or not money has been moved out of the account.\",\n \"Generally speaking, you realize options gains or losses for (US) tax purposes when you close out the option position, or when it expires so in your example, if you're discussing an equity option, you'd realize the gain or loss next year, assuming you don't close it out prior to year end. But options tax treatment can get messy fast: Still, if you have no other stock or option positions in the underlying during or within 30 days of the establishment of the naked put, and assuming the option isn't assigned, you won't realize any gains or losses until the year in which the option is closed or expires.\",\n \"Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.\",\n \"Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.\",\n \"ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.\",\n \"The business and investment would be shown on separate parts of the tax return. (An exception to this is where an investment is related and part of your business, such as futures trading on business products) On the business side of it, you would show the transfer to the stocks as a draw from the business, the amount transferred would then be the cost base of the investment. For taxes, you only have to report gains or losses on investments.\",\n \"You continue with this form. The fact that the trade in value is less than market value doesn't mean that you don't have taxable income from the sale. Since you depreciated the car before selling it, you need to compare the trade in value not to the market value, but to your cost basis, which may be lower.\",\n \"If you received shares as part of a bonus you needed to pay income tax on the dollar valuse of those shares at the time you received them. This income tax is based on the dollar value of the bonus and has nothing to do with the shares. If you have since sold these shares you will need to report any capital gain or loss you made from their dollar value when you received them. If you made a gain you would need to pay capital gains tax on the profits (if you held them for more than a year you would get a discount on the capital gains tax you have to pay). If you made a loss you can use that capital loss to reduce any other capital gains in that income year, reduce any other income up to $3000 per year, or carry any additional capital loss forward to future income years to reduce any gains or income (up to $3000 per year) you do have in the future.\",\n \"Consult a professional CA. For shares sold outside the Indian Stock Exchanges, these will be treated as normal Long Term Capital Gains if held more than one year. The rate would be 10% without Indexation and 20% with Indexation. If the stocks are held for less than 1 years, it will be short term gains and taxed according you to tax bracket.\",\n \"You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.\",\n \"Work on your own site is certainly not relevant here, that's just a part of your trade, not a service you provided to yourself. The business received the benefit of that work, not you. Suppose your business sold televisions. If you took a TV from stock for your own lounge, that would be included in this box because you have effectively paid yourself with a TV rather than cash. If you take a TV from stock to use as a demo model, that's part of your trade and not goods you have taken out of the business for your own use. For services provided to your dad it's less clear. As Skaty said, it depends whether it's your business providing the service, or you personally. If you gave your dad a free TV then it would be clear that you have effectively paid yourself with another TV and then given it to your dad as a gift. With services it's less clear whether you're receiving services from the business for free. You might consider how it would be treated by your employer if you weren't self-employed. If you were just applying your skills to help your dad in your free time, your employer wouldn't care. If you used your employer's equipment or facilities, or hosted his site on a server that your employer pays for, your employer would be more likely to discipline you for effectively stealing services from them, as they would if you took a TV from their warehouse for him.\",\n \"No, the reinvestment is done as a courtesy. Consider, one can have, say, 100 shares of a $50 stock. A 2% dividend is $100/yr or $25/quarter. It would be a pretty bad deal if brokers charged you even $5 for that trade. When cap gains and dividends are grouped as you suggest, it refers to Mutual Funds. My funds will have a year end dividend and cap gain distribution. In a non-retirement account, one has to pay the tax due, and be sure to add this to your cost basis, as it's money you are effectively adding to your account. It does not mean cap gain the same as when you sell your shares of Apple for a huge gain. Those check boxes seem to offer you a chance to put all your holding on the same reinvestment plan for div/cap gain. You should also be able to choose one by one what you'd like to do.\",\n \"Interesting. How would they account for it? Monthly? And if so do they modify the cost basis for each lot for the month and then restate? It's hard to imagine they do that. I have a million questions regarding this topic do you know where in the regs it is covered?\",\n \"The purpose of the transfer determines the taxability. If this is happening to frequent, it is advisable to keep proper records of the transaction so that if there is an enquiry from Tax authorities you can explain. Unless you explain the why the transfer is being made, I have put out some broad categories.\",\n \"Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity.\",\n \"\\\"You have a sequence of questions here, so a sequence of answers: If you stopped at the point where you had multiple wins with a net profit of $72, then you would pay regular income tax on that $72. It's a short term capital gain, which does not get special tax treatment, and the fact that you made it on multiple transactions does not matter. When you enter your next transaction that takes the hypothetical loss the question gets more complicated. In either case, you are paying a percentage on net gains. If you took a two year view in the second case and you don't have anything to offset your loss in the second year, then I guess you could say that you paid more tax than you won in the total sequence of trades over the two years. Although you picked a sequence of trades where it does not appear to play, if you're going to pursue this type of strategy then you are likely at some point to run into a case where the \\\"\\\"wash sale\\\"\\\" rules apply, so you should be aware of that. You can find information on this elsewhere on this site and also, for example, here: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02 Basically these rules require you to defer recording a loss under some circumstances where you have rapid wins and losses on \\\"\\\"substantially identical\\\"\\\" securities. EDIT A slight correction, you can take part of your losses in the second year even if you have no off-setting gain. From the IRS: If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately)\\\"\",\n \"\\\"Of course. The rationale is exactly the same as always: profit is taxed. The fact that you use intermediate barter to make that profit is irrelevant. To clarify, as it seems that you think it makes a difference that no money \\\"\\\"changed hands\\\"\\\". Consider this situation: So far your cost is $10000. How will the tax authority address this? They will look at the fair market value of the barter. You got gold worth of $20000. So from their perspective, you got $20000, and immediately exchanged it into gold. What does it mean for you? That you're taxed on the $10000 gain you made on your product X (the $20000 worth of barter that you received minus the $10000 worth of work/material/expenses that you spend on producing the merchandise), and that you have $20000 basis in the gold that you now own. If in a year, when you plan to sell the gold, its price drops - you can deduct investment losses. If its price goes up - you'll have investment gain. But for the gain you're making on your product X you will pay taxes now, because that's when you realized it - sold the merchandize and received in return something else of a value.\\\"\",\n \"\\\"I don't think its a taxable event since no income has been constructively received (talking about the RSU shareholders here). I believe you're right with the IRC 1033, and the basis of the RSU is the basis of the original stock option (probably zero). Edit: see below. However, once the stock becomes vested - then it is a taxable event (not when the cash is received, but when the chance of forfeiture diminishes, even if the employee doesn't sell the stock), and is an ordinary income, not capital. That is my understanding of the situation, do not consider it as a tax advice in any way. I gave it a bit more though and I don't think IRC 1033 is relevant. You're not doing any exchange or conversion here, because you didn't have anything to convert to begin with, and don't have anything after the \\\"\\\"conversion\\\"\\\". Your ISO's are forfeited and no longer available, basically - you treat them as you've never had them. What happened is that you've received RSU's, and you treat them as a regular RSU grant, based on its vesting schedule. The tax consequences are exactly as I described in my original response: you recognize ordinary income on the vested stocks, as they vest. Your basis is zero (i.e.: the whole FMV of the stock at the time of vesting is your ordinary income). It should also be reflected in your W2 accordingly.\\\"\",\n \"You are correct. She cannot claim the initial loss of $1,000 on her taxes, she can only report the $500 profit. However, the IRS does allow her to add the $1,000 loss to the basis cost of her replacement shares. e.g.\",\n \"The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would be any different for the person that created the account initially, except that the basis starts at $0 making the entire sale price taxable. How you figure the value of the account before the initial sale would be more difficult, but fortunately you may not ever need to know the value (for tax purposes) until you actually sell it.\",\n \"\\\"According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is \\\"\\\"substantially identical\\\"\\\". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical.\\\"\",\n \"Yes, you would have to report the gain. It is not relevant that you traded the stock previously, you still made a profit on the trade-at-hand. Imagine if for some reason this type of trade were exempt. Investors could follow the short term swings of volatile stocks completely tax-free.\",\n \"If you have made $33k from winning trades and lost $30k from loosing trades your net gain for the year would be $3k, so obviously you would pay taxes only on the net $3k gains.\",\n \"The 'same day rule' in the UK is a rule for matching purposes only. It says that sales on any day are matched firstly with purchases made on the same day for the purposes of ascertaining any gain/loss. Hence the phrase 'bed-and-breakfast' ('b&b') when you wish to crystalise a gain (that is within the exempt amount) and re-establish a purchase price at a higher level. You do the sale on one day, just before the market closes, which gets matched with your original purchase, and then you buy the shares back the next day, just after the market opens. This is standard tax-planning. Whenever you have a paper gain, and you wish to lock that gain out of being taxed, you do a bed-and-breakfast transaction, the idea being to use up your annual exemption each and every year. Of course, if your dealing costs are high, then they may outweigh any tax saved, and so it would be pointless. For the purpose of an example, let's assume that the UK tax year is the same as the calendar year. Scenario 1. Suppose I bought some shares in 2016, for a total price of Stg.50,000. Suppose by the end of 2016, the holding is worth Stg.54,000, resulting in a paper gain of Stg.4,000. Question. Should I do a b&b transaction to make use of my Stg.11,100 annual exemption ? Answer. Well, with transaction costs at 1.5% for a round-trip trade, suppose, and stamp duty on the purchase of 0.5%, your total costs for a b&b will be Stg1,080, and your tax saved (upon some future sale date) assuming you are a 20% tax-payer is 20%x(4,000-1,080) = Stg584 (the transaction costs are deductible, we assume). This does not make sense. Scenario 2. The same as scenario 1., but the shares are worth Stg60,000 by end-2016. Answer. The total transaction costs are 2%x60,000 = 1,200 and so the taxable gain of 10,000-1,200 = 8,800 would result in a tax bill of 20%x8,800 = 1,760 and so the transaction costs are lower than the tax to be saved (a strict analysis would take into account only the present value of the tax to be saved), it makes sense to crystalise the gain. We sell some day before the tax year-end, and re-invest the very next day. Scenario 3. The same as scenario 1., but the shares are worth Stg70,000 by end-2016. Answer. The gain of 20,000 less costs would result in a tax bill for 1,500 (this is: 20%x(20,000 - 2%x70,000 - 11,100) ). This tax bill will be on top of the dealing costs of 1,400. But the gain is in excess of the annual exemption. The strategy is to sell just enough of the holding to crystallise a taxable gain of just 11,100. The fraction, f%, is given by: f%x(70,000-50,000) - 2%xf%x70,000 = 11,100 ... which simplifies to: f% = 11,100/18,600 = 59.68%. The tax saved is 20%x11,100 = 2,220, versus costs of 2%x59.58%x70,000 = 835.52. This strategy of partial b&b is adopted because it never makes sense to pay tax early ! End.\",\n \"The sentence you quoted does not apply in the case where you sell the stock at a loss. In that case, you recognize zero ordinary income, and a capital loss (opposite of a gain) for the loss. Reference: http://efs.fidelity.com/support/sps/article/article2.html\",\n \"If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you have $166 loss. You report all these items on your Schedule D. Make sure to calculate the tax correctly, since the tax is not capital gains tax but rather ordinary income at marginal rates. Changes in foreign exchange between a transaction and the conversion of the proceeds to USD are generally not considered as income (i.e.: You sold a property in Mexico, but since the money took a couple of days to clear, the exchange rate changed and you got $2K more/less than you would based on the exchange rate on the day of the transaction - this is not a taxable income/loss). This is covered by the IRC Sec. 988. There are additional rules for contracts on foreign currency, TTM rules, etc. Better talk to a licensed tax adviser (EA/CPA licensed in your State) for anything other than trivial.\",\n \"You are still selling one investment and buying another - the fact that they are managed by the same company should be irrelevant. So yes, it would get the same tax treatment as if they were managed by different companies.\",\n \"Sale of a stock creates a capital gain. It can be offset with losses, up to $3000 more than the gains. It can be deferred when held within a retirement account. When you gift appreciated stock, the basis follows. So when I gifted my daughter's trust shares, there was still tax due upon sale. The kiddy tax helped reduce but not eliminate it. And there was no quotes around ownership. The money is gone, her account is for college. No 1031 exchange exists for stock.\",\n \"If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.\",\n \"\\\"The shares are \\\"\\\"imputed income\\\"\\\" / payment in kind. You worked in the UK, but are you a \\\"\\\"US Person\\\"\\\"? If not, you should go back to payroll with this query as this income is taxable in the UK. It is important you find out on what basis they were issued. The company will have answers. Where they aquired at a discount to fair market value ? Where they purchased with a salary deduction as part of a scheme ? Where they acquired by conversion of employee stock options ? If you sell the shares, or are paid dividends, then there will be tax withheld.\\\"\",\n \"\\\"An investment is sold when you sell that particular stock or fund. It doesn't wait until you withdraw cash from the brokerage account. Whether an investment is subject to long term or short term taxes depends on how long you held that particular stock. Sorry, you can't get around the higher short term tax by leaving the money in a brokerage account or re-investing in something else. If you are invested in a mutual fund, whether it's long or short term depends on when you buy and sell the fund. The fact that the fund managers are buying and selling behind your back doesn't affect this. (I don't know what taxes they have to pay, maybe you really are paying for it in the form of management fees or lower returns, but you don't explicitly pay the tax on these \\\"\\\"inner\\\"\\\" transactions.) Your broker should send you a tax statement every year giving the numbers that you need to fill in to the various boxes of your income tax form. You don't have to figure it out. Of course it helps to know the rules. If you've held a stock for 11 1/2 months and are planning to sell, you might want to consider waiting a couple of weeks so it becomes a long term capital gain rather than short term and thus subject to lower tax.\\\"\",\n \"@BlackJack does a good answer of addressing the gains and when you are taxed on them and at what kind of rate. Money held in a brokerage account will usually be in a money-market fund, so you would own taxes on the interest it earned. There is one important consideration that must be understood for capitol Losses. This is called the Wash Sale Rule. This rule comes into affect if you sell a stock at a LOSS, and buy shares of the same stock within 30 days (before or after) the sale. A common tactic used to minimize taxes paid is to 'capture losses' when they occur, since these can be used to offset gains and lower your taxes. This is normally done by selling a stock in which you have a LOSS, and then either buying another similar stock, or waiting and buying back the stock you sold. However, if you are intending to buy back the same stock, you must not 'trigger' the Wash Sale Rule or you are forbidden to take the loss. Examples. Lets presume you own 1000 shares of a stock and it's trading 25% below where you bought it, and you want to capture the loss to use on your taxes. This can be a very important consideration if trading index ETF's if you have a loss in something like a S&P500 ETF, you would likely incur a wash sale if you sold it and bought a different S&P500 ETF from another company since they are effectively the same thing. OTOH, if you sold an S&P500 ETF and bought something like a 'viper''total stock market' ETF it should be different enough to not trigger the wash sale rule. If you are trying to minimize the taxes you pay on stocks, there are basically two rules to follow. 1) When a gain is involved, hold things at least a year before selling, if at all possible. 2) Capture losses when they occur and use to offset gains, but be sure not to trigger the wash sale rule when doing so.\",\n \"With the W8-Ben filed, tax will be withheld at a lower rate. (I would expect 10%). Tax treaty treatment will mean that this witholding will reduce your UK tax even if this payment is not taxable there. This is only effective if you actually pay tax. This is how it works for lotteries and dividends as well.\",\n \"If the $882 is reported on W2 as your income then it is added to your taxable income on W2 and is taxed as salary. Your basis then becomes $5882. If it is not reported on your W2 - you need to add it yourself. Its salary income. If its not properly reported on W2 it may have some issues with FICA, so I suggest talking to your salary department to verify it is. In any case, this is not short term capital gain. Your broker may or may not be aware of the reporting on W2, and if they report the basis as $5000 on your 1099, when you fill your tax form you can add a statement that it is ESPP reported on W2 and change the basis to correct one. H&R Block and TurboTax both support that (you need to chose the correct type of investment there).\",\n \"What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000.\",\n \"It looks like what you're calling a name change was registered as a merger that resulted in an exchange of stock. If that's the case, then what you've been told is correct. You've got one long-term sale and one short-term sale. Based a quick read of the Form 8937 that was filed, it looks like there were multiple entities involved in this event, more than one of which existed prior to it. https://www.mylan.com/-/media/mylancom/files/form%208937%20for%20mylan%20n%20v.pdf\",\n \"\\\"There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are \\\"\\\"ready made\\\"\\\" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a \\\"\\\"frequent trader\\\"\\\" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales.\\\"\",\n \"\\\"This may be closed as not quite PF, but really \\\"\\\"startup\\\"\\\" as it's a business question. In general, you should talk to a professional if you have this type of question, specifics like this regarding your tax code. I would expect that as a business, you will use a proper paper trail to show that money, say 1000 units of currency, came in and 900 went out. This is a service, no goods involved. The transaction nets you 100, and you track all of this. In the end you have the gross profit, and then business expenses. The gross amount, 1000, should not be the amount taxed, only the final profit.\\\"\",\n \"No Tax would have been deducted at the time of purchase/sale of shares. You would yourself be required to compute your tax liability and then pay taxes to the govt. In case the shares sold were held for less than 1 year - 15% tax on capital gains would be levied. In case the shares sold were held for more than 1 year - No Tax would be levied and the income earned would be tax free. PS: No Tax is levied at the time of purchase of shares and Tax is only applicable at the time of sale of shares.\",\n \"Generally speaking, if a business loses money for whatever reason, then that reduces the profits of the business which reduces the tax payable. However if you were holding the assets on a personal basis prior to incorporating the business, the position may become more complicated. For that kind of money some professional advice may be worthwhile.\",\n \"\\\"if you buy back the now ITM calls, then you will have a short term loss. That pair of transactions is independent, from a tax perspective, of your long position (which was being used as \\\"\\\"collateral\\\"\\\" in the very case that occurred). I can see your tax situation and can see the logic of taking a short term loss to balance a short term gain. Referring to D Stanley's answer, #2 and #3 are not the same because you are paying intrinsic value in the options and the skew in #2, whereas #3 has no intrinsic value. Of course, because you can't know the future, the stock price could move higher or lower between #2 and #3. #1 presumes the stock continues to climb.\\\"\",\n \"Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it.\",\n \"Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income.\",\n \"\\\"Summary of accepted answer: Your \\\"\\\"loss\\\"\\\" will not count as a loss (to the IRS). Which means no tax deduction for a \\\"\\\"short-term capital loss\\\"\\\" (on that sale). Instead, the IRS simply pretends like you had paid less for the stock to begin with.\\\"\",\n \"\\\"Long term: Assuming you sold stock ABC through a registered stock exchange, e.g., the Bombay Stock Exchange or the National Stock Exchange of India, and you paid the Securities Transaction Tax (STT), you don't owe any other taxes on the long term capital gain of INR 100. If you buy stock BCD afterwards, this doesn't affect the long term capital gains from the sale of stock ABC. Short term: If you sell the BCD stock (or the ABC stock, or some combination therein) within one year of its purchase, you're required to pay short term capital gains on the net profit, in which case you pay the STT and the exchange fees and an additional flat rate of 15%. The Income Tax Department of India has a publication titled \\\"\\\"How to Compute your Capital Gains,\\\"\\\" which goes into more detail about a variety of relevant situations.\\\"\",\n \"E.g. I buy 1 stock unit for $100.00 and sell it later for $150.00 => income taxes arise. Correct. You pay tax on your gains, i.e.: the different between net proceeds and gross costs (proceeds sans fees, acquisition costs including fees). I buy 1 stock unit for $150.00 and sell it later for $100.00 => no income taxes here. Not correct. The loss is deductible from other capital gains, and if no other capital gains - from your income (up to $3000 a year, until exhausted). Also, there are two different tax rate sets for capital gains: short term (holding up to 1 year) and long term (more than that). Short term capital gains tax matches ordinary income brackets, whereas long term capital gains tax brackets are much lower.\",\n \"\\\"I held shares in BIND Therapeutics, a small biotechnology company on the NASDAQ that was liquidated on the chapter 11 auction block in 2016. There were sufficient proceeds to pay the debts and return some cash to shareholders, with payments in 2016 and 2017. (Some payments have yet to occur.) The whole process is counter-intuitive and full of landmines, both for tax preparation & planning and receiving payments: Landmine 0: Some shareholders will sell in a panic as soon as the chapter 11 is announced. This would have been a huge mistake in the case of BIND, because the eventual liquidation payments were worth 3 or so times as much as the share price after chapter 11. The amount of the liquidation payments wasn't immediately calculable, because the company's intellectual property had to be auctioned. Landmine 1: The large brokerages (Vanguard, Fidelity, TDA, and others) mischaracterized the distributions to shareholders on form 1099, distributed to both shareholders and the IRS. The bankruptcy trustee considered this to be their responsibility. According to the tax code and to the IRS website, the liquidation is taxed like a sale of stock, rather than a dividend. \\\"\\\"On the shareholder level, a complete liquidation can be thought of as a sale of all outstanding corporate stock held by the shareholders in exchange for all of the assets in that corporation. Like any sale of stock, the shareholder receives capital gain treatment on the difference between the amount received by the shareholder in the distribution and the cost or other basis of the stock.\\\"\\\" Mischaracterizing the distributions as dividends makes them wrongly ineligible to be wiped out by the enormous capital loss on the stock. Vanguard's error appeared on my own 1099, and the others were mentioned in an investor discussion on stocktwits. However, Geoffrey L Berman, the bankruptcy trustee stated on twitter that while the payments are NOT dividends, the 1099s were the brokers' responsibility. Landmine 2: Many shareholders will wrongly attempt to claim the capital loss for tax year 2016, or they may have failed to understand the law in time for proper tax planning for tax year 2016. It does not matter that the company's BINDQ shares were cancelled in 2016. According to the IRS website \\\"\\\"When a shareholder receives a series of distributions in liquidation, gain is recognized once all of the shareholder's stock basis is recovered. A loss, however, will not be recognized until the final distribution is received.\\\"\\\" In particular, shareholders who receive the 2017 payment will not be able to take a capital loss for tax year 2016 because the liquidation wasn't complete. Late discovery of this timing issue no doubt resulted in an end-of-year underestimation of 2016 overall capital gains for many, causing a failure to preemptively realize available capital losses elsewhere. I'm not going to carefully consider the following issues, which may or may not have some effect on the timing of the capital loss: Landmine 3: Surprisingly, it appears that some shareholders who sold their shares in 2016 still may not claim the capital loss for tax year 2016, because they will receive a liquidation distribution in 2017. Taken at face value, the IRS website's statement \\\"\\\"A loss, however, will not be recognized until the final distribution is received\\\"\\\" appears to apply to shareholders of record of August 30, 2016, who receive the payouts, even if they sold the shares after the record date. However, to know for sure it might be worth carefully parsing the relevant tax code and treasury regs. Landmine 4: Some shareholders are completely cut out of the bankruptcy distribution. The bankruptcy plan only provides distributions for shareholders of record Aug 30, 2016. Those who bought shares of BINDQ afterwards are out of luck. Landmine 5: According to the discussion on stocktwits, many shareholders have yet to receive or even learn of the existence of a form [more secure link showing brokers served here] required to accept 2017 payments. To add to confusion there is apparently ongoing legal wrangling over whether the trustee is able to require this form. Worse, shareholders report difficulty getting brokers' required cooperation in submitting this form. Landmine 6: Hopefully there are no more landmines. Boom. DISCLAIMER: I am not a tax professional. Consult the tax code/treasury regulations/IRS publications when preparing your taxes. They are more trustworthy than accountants, or at least more trustworthy than good ones.\\\"\",\n \"Tax questions require that you specify a jurisdiction. Assuming that this is the US, you owe Federal income tax (at the special long-term capital gains tax rate) on the net long-term capital gains (total long-term capital gains minus total long-term capital losses) and so, yes, if these two were your only transactions involving long-term holdings, you would pay long-term capital gains tax on $3000-$50 = $2950. Many States in the US don't tax long-term capital gains at special rates the way the Federal Government does, but you still pay taxes on the net long-term capital gains. I suspect that other countries have similar rules.\",\n \"You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.\",\n \"The original post's $16 has two errors: Here is the first scenario: . Tax Liability($) on Net . Cash # of Price Paper Realized Value Time: ($) Shares ($/sh) Profits Profits ($) 1. Start with: 100 - n/a - - 100 2. After buy 10@10$/sh: - 10 10 - - 100 3. Before selling: - 10 12 (5) - 115 4. After sell 10@12$/sh: 120 - n/a - (5) 115 5. After buy 12@10$/sh: - 12 10 - (5) 115 6. Before selling: - 12 12 (6) (5) 133 7. After sell 12@12$/sh: 144 - n/a - (11) 133 8. After buy 14@10$/sh: 4 14 10 - (11) 133 9. Before selling: 4 14 12 (7) (11) 154 10.After sell 14@12$/sh: 172 - n/a - (18) 154 At this point, assuming that all of the transactions occurred in the same fiscal year, and the realized profits were subject to a 25% short-term capital gains tax, you would owe $18 in taxes. Yes, this is 25% of $172 - $100.\",\n \"The key point is from the penultimate sentence in your second paragraph: for which you have already paid taxes When you receive a dividend or realise a capital gain, you get taxed on that then, and you shouldn't have to pay taxes on it again in future. So the cost basis gets adjusted to reflect that.\",\n \"From the instructions: If you do not need to make any adjustments to the basis or type of gain or loss (short-term or long-term) reported to you on Form 1099-B (or substitute statement) or to your gain or loss for any transactions for which basis has been reported to the IRS (normally reported on Form 8949 with box A checked), you do not have to include those transactions on Form 8949. Instead, you can report summary information for those transactions directly on Schedule D. For more information, see Exception 1, later. However, in case of ESPP and RSU, it is likely that you actually do need to make adjustments. Since 2014, brokers are no longer required to track basis for these, so you better check that the calculations are correct. If the numbers are right and you just summarized instead of reporting each on a separate line, its probably not an issue. As long as the gains reported are correct, no-one will waste their time on you. If you missed several thousand dollars because of incorrect calculations, some might think you were intentionally trying to hide something by aggregating and may come after you.\",\n \"The HMRC website says: Stock dividends are treated as income by virtue of CTA10/S1049, and taxable as savings income under Chapter 5 of Part 4 of ITTOIA05 (sections 409 to 414). ITTOIA05 is the Income Tax (Trading and Other Income) Act 2005, and says: 409 Charge to tax on stock dividend income (1) Income tax is charged on stock dividend income. (2) In this Chapter “stock dividend income” means the income that is treated as arising under section 410. 411 Income charged (1) Tax is charged under this Chapter on the amount of stock dividend income treated for income tax purposes as arising in the tax year. (2) That amount is the cash equivalent of the share capital on the issue of which the stock dividend income arises (see section 412), grossed up by reference to the dividend ordinary rate for the tax year.\",\n \"It looks like it has to deal with an expiration of rights as a taxable event. I found this link via google, which states that Not only does the PSEC shareholder have a TAXABLE EVENT, but he has TWO taxable events. The net effect of these two taxable events has DIFFERENT CONSEQUENCES for DIFFERENT SHAREHOLDERS depending upon their peculiar TAX SITUATIONS. The CORRECT STATEMENT of the tax treatment of unexercised PYLDR rights is in the N-2 on page 32, which reads in relevant part as follows: “…, if you receive a Subscription Right from PSEC and do not sell or exercise that right before it expires, you should generally expect to have (1) taxable dividend income equal to the fair market value (if any) of the Subscription Right on the date of its distribution by PSEC to the extent of PSEC’s current and accumulated earnings and profits and (2) a capital loss upon the expiration of such right in an amount equal to your adjusted tax basis (if any) in such right (which should generally equal the fair market value (if any) of the Subscription Right on the date of its distribution by PSEC).” Please note, for quarterly “estimated taxes” purposes, that the DIVIDEND taxable events occur “ON THE DATE OF ITS DISTRIBUTION BY PSEC (my emphasis),” while the CAPITAL LOSS occurs “UPON EXPIRATION OF SUCH RIGHT” (my emphasis). They do NOT occur on 31 December 2015 or some other date. However, to my knowledge, neither of the taxable events he mentions would be taxed by 4/15. If you are worried about it, I would recommend seeing a tax professional. Otherwise I'd wait to see the tax forms sent by your brokerage.\",\n \"There are a few incorrect assumptions in your question but the TL;DR version is: All, or most, of the withdrawal is taxable income that is reported on Lines 15a (total distribution) and 15b (taxable amount) of Form 1040. None of the distribution is given special treatment as Qualified Dividends or Capital Gains regardless of what happened inside the IRA, and none of the distribution is subject to the 3.8% Net Investment Income Tax that some high-income people need to compute on Form 8960. If the withdrawal is not a Qualified Distribution, it will be subject to a 10% excise tax (tax penalty on premature withdrawal). Not all contributions to Traditional IRAs are deductible from income for the year for which the contribution was made. People with high income and/or coverage by a workplace retirement plan (pension plan, 401(k) plan, 403(b) plan, etc) cannot deduct any contributions that they choose to make to a Traditional IRA. Such people can always make a contribution (subject to them having compensation (earned income such as salary or wages, self-employment income, commissions on sales, etc), but they don't get a tax deduction for it (just as contributions to Roth IRAs are not deductible). Whether it is wise to make such nondeductible contributions to a Traditional IRA is a question on which reasonable people can hold different opinions. Be that as it may, nondeductible contributions to a Traditional IRA create (or add to) what is called the basis of an IRA. They are reported to the IRS on Form 8606 which is attached to the Federal Form 1040. Note that the IRA custodian or trustee is not told that the contributions are not deductible. Earnings on the basis accumulate tax-deferred within the IRA just as do the earnings on the deductible contributions. Now, when you make a withdrawal from your Traditional IRA, no matter which of your various IRA accounts you take the money from, part of the money is deemed to be taken from the basis (and is not subject to income tax) while the rest is pure taxable income. That is, none of the rest is eligible for the reduced taxation rates for Qualified Dividends or Capital Gains and since it does not count as investment income, it is not subject to the 3.8% Net Investment Tax of Form 8960 either. Computation of how much of your withdrawal is nontaxable basis and how much is taxable income is done on Form 8606. Note that you don't get to withdraw your entire basis until such time as when you close all your Traditional IRA accounts. How is all this reported? Well, your IRA custodian(s) will send you Form 1099-R reporting the total amount of the withdrawal, what income tax, if any, was withheld, etc. The custodian(s) don't know what your basis is, and so Box 2b will say that the taxable amount is not determined. You need to fill out Form 8606 to figure out what the taxable amount is, and then report the taxable amount on Line 15b of Form 1040. (The total withdrawal is reported on Line 15a which is not included in the AGI computations). Note that as far as the IRS is concerned, you have only one Traditional IRA. The A in IRA stands for Arrangement, not Account as most everybody thinks, and your Traditional IRA can invest in many different things, stocks, bonds, mutual funds, etc with different custodians if you choose, but your basis is in the IRA, not the specific investment that you made with your nondeductible contribution. That's why the total IRA contribution is limited, not the per-account contribution, and why you need to look that the total value of your IRA in determining the taxable portion, not the specific account(s) from which you withdrew the money. So, how much basis did you withdraw? Well, if you withdrew $W during 2016 and the total value of all your Traditional IRA accounts was $X at the end of 2016 and your total basis in your Traditional IRA is $B, then (assuming that you did not indulge in any Traditional-to-Roth rollovers for 2016), multiply W by B/(W+X) to get the amount of nontaxable basis in the withdrawal. B thus gets reduced for 2017 by amount of basis withdrawal. What if you never made a nondeductible contribution to your Traditional IRA, or you made some nondeductible contributions many years ago and have forgotten about them? Well, you could still fill out Form 8606 reporting a zero basis, but it will just tell you that your basis continues $0. Or, you could just enter the total amount of your withdrawal in Lines 15a and 15b, effectively saying that all of the withdrawal is taxable income to you. The IRS does not care if you choose to pay taxes on nontaxable income.\",\n \"The tax is only payable on the gain you make i.e the difference between the price you paid and the price you sold at. In your cse no tax is payable if you sell at the same price you bought at\",\n \"In response to your points #1 and #2: In general, yes it is true that capital gains are only subject to half one's marginal rate of income tax. That doesn't mean 50% of the gain is due as tax... rather, it means that if one's marginal tax rate (tax bracket) on the next $10K would have been, say, 32%, then one is taxed on the gain at 16%. (The percentages are examples, not factual.) However, because these are employee stock options, the tax treatment is different than for a capital gain! Details: On the Federal tax return are lines for reporting Security option benefits (Line 101) and Security options deductions (Line 249). The distinction between a regular capital gain and an employee stock option benefits is important. In many cases the net effect may be the same as a capital gain, but the income is characterized differently and there are cases where it matters. Somebody who is about to or has realized employee stock option benefits should seek professional tax advice. In response to your next two points: No, one cannot transfer a capital gain or other investment income into a TFSA immediately after-the-fact in order to receive the tax-free benefits of the TFSA on that income. Only income and gains earned within a TFSA are free from tax – i.e. The options would have to have been in the TFSA before being exercised. Once a gain or other investment income has been realized in a non-sheltered account, it is considered taxable. The horse has already left the barn, so to speak! However, despite the above, there is another strategy available: One can create an offsetting deduction by contributing some of the realized gain into an RRSP. The RRSP contribution, assuming room is available, would yield a tax deduction to offset some tax due on the gain. However, the RRSP only defers income tax; upon withdrawal of funds, ordinary income tax is due (hopefully, at a lower marginal rate in retirement.) There is no minimum amount of time that money or assets have to be inside a TFSA to benefit from the tax-free nature of the account. However, there are limits on how much money you can move into a TFSA in any given year, and many folks weren't aware of the rules. p.s. Let me add once more that this is a case where I suggest seeking professional tax advice.\",\n \"\\\"While derivative pricing models are better modeling reality as academia invests more into the subject, none sufficiently do. If, for example, one assumes that stock returns are lognormal for the purposes of pricing options like Black Scholes does, the only true dependent variable becomes log-standard deviation otherwise known as \\\"\\\"volatility\\\"\\\", producing the infamous \\\"\\\"volatility smile\\\"\\\" which disappears in the cases of models with more factors accounting for other mathematical moments such as mean, skew, and kurtosis, etc. Still, these more advanced models are flawed, and suffer the same extreme time mispricing as Black Scholes. In other words, one can model anything however one wants, but the worse the model, the stranger the results since volatility for a given expiration should be constant across all strikes and is with better models. In the case of pricing dividends, these can be adjusted for the many complexities of taxation, but the model becomes ever more complex and extremely computationally expensive for each eventuality. Furthermore, with more complexity in any model, the likelihood of discovering a closed form in the short run is less. For equities in a low interest rate, not high dividend yield, not low volatility, low dividend tax environment, the standard swap pricing models will not provide results much different from one where a single low tax rate on dividends is assumed. If one is pricing a swap on equity outside of the bounds above, the dividend tax rate could have more of an effect, but for computational efficiency, applying a single assumed dividend tax rate would be optimal with D*(1-x), instead of D in a formula, where D is the dividend paid and x is the tax rate. In short, a closed form model is only as good as its assumptions, so if anomalies appear between the actual prices of swaps in the market and a swap model then that model is less correct than the one with smaller anomalies of the same type. In other words, if pricing equity swaps without a dividend tax rate factored more closely matches the actual prices than pricing with dividend taxes factored then it could be assumed that pricing without a dividend tax factored is superior. This all depends upon the data, and there doesn't seem to be much in academia to assist with a conclusion. If equity swaps do truly provide a tax advantage and both parties to a swap transaction are aware of this fact then it seems unlikely swap sellers wouldn't demand some of the tax advantage back in the form of a higher price. A model is no defense since volatility curves persist despite what Black Scholes says they should be.\\\"\",\n \"You would not owe any taxes in the 2015 year, unless you got exercised and called away in 2015. The premium would be short term capital gains barring some other exception I'm not aware of, and if you retain a gain on the underlying shares then that would still be long term capital gains. If it gets called in say April 2016, is the premium+profit+dividends all long term capital gains for the year 2016? The profits are long term capital gains and the premium serves to lower your cost basis, dividends have their own conditions so you'll have to do separate research on that, fortunately they'll likely be negligible compared to the potential capital gains and options premium.\",\n \"\\\"A nondividend distribution is typically a return of capital; in other words, you're getting money back that you've contributed previously (and thus would have been taxed upon in previous years when those funds were first remunerated to you). Nondividend distributions are nontaxable, so they do not represent income from capital gains, but do effect your cost basis when determining the capital gain/loss once that capital gain/loss is realized. As an example, publicly-traded real estate investment trusts (REITs) generally distribute a return of capital back to shareholders throughout the year as a nondividend distribution. This is a return of a portion of the shareholder's original capital investment, not a share of the REITs profits, so it is simply getting a portion of your original investment back, and thus, is not income being received (I like to refer to it as \\\"\\\"new income\\\"\\\" to differentiate). However, the return of capital does change the cost basis of the original investment, so if one were to then sell the shares of the REIT (in this example), the basis of the original investment has to be adjusted by the nondividend distributions received over the course of ownership (in other words, the cost basis will be reduced when the shares are sold). I'm wondering if the OP could give us some additional information about his/her S-Corp. What type of business is it? In the course of its business and trade activity, does it buy and sell securities (stocks, etc.)? Does it sell assets or business property? Does it own interests in other corporations or partnerships (sales of those interests are one form of capital gain). Long-term capital gains are taxed at rates lower than ordinary income, but the IRS has very specific rules as to what constitutes a capital gain (loss). I hate to answer a question with a question, but we need a little more information before we can weigh-in on whether you have actual capital gains or losses in the course of your S-Corporation trade.\\\"\",\n \"In addition to the adjustment type in NL7's answer, there are a host of others. If there are any adjustments, form 8949 is required, if not, the gains can be separated into short and long-term and added together to be entered on Schedule D. Anything requiring an adjustment code in column F of the 8949 requires an entry in column G. Some other example entries for column F include: (see the 8949 instructions for a complete list) **A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. (from Pub17)\",\n \"This investment strategy may have tax advantages. In some countries, income received from dividends is taxed as income, whereas profits on share trades are capital gains. If you have already exceeded your tax-free income limit for the year, but not your capital gains tax allowance, it may be preferable to make a dealing profit rather than an investment income. These arrangements are called a bed-and-breakfast.\",\n \"The tax cost at election should be zero. The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture. It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income. §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it. If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes. That means they are most likely a capital asset in your hands, like other stocks you own or trade. The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election. The appreciation past election-FMV will be capital gain, rather than ordinary income. This is why the §83(b) election is so valuable. It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election.\",\n \"Generally, ETFs and mutual funds don't pay taxes (although there are some cases where they do, and some countries where it is a common case). What happens is, the fund reports the portion of the gain attributed to each investor, and the investor pays the tax. In the US, this is reported to you on 1099-DIV as capital gains distribution, and can be either short term (as in the scenario you described), long term, or a mix of both. It doesn't mean you actually get a distribution, though, but if you don't - it reduces your basis.\",\n \"Are the amounts in those boxes taxes that have already been removed? Yes. If they are, how do I report these totals? When I entered the information from the 1099-MISC, it only asked for the total, and didn't ask for (what I thought were) the taxes already taken out. It should appear on your 1040 line 64 (and similar line on your State tax return). If the program doesn't ask for all the 1099 fields (which is stupid), you can add it as additional taxes paid in the Credits section, somewhere in the area where they ask about estimated payments etc.\",\n \"\\\"Overall the question is one of a political nature. However, this component can have objective answers: \\\"\\\"What behavior is trying to be prevented?\\\"\\\" There are mechanisms by which capital gains can be deferred (1031 like-kind exchange, or simply holding a long position for years) or eliminated by the estate step up in basis. With these available, mechanisms that enable basis-reduction are ripe for abuse. On the other hand, if this truly bothers you then if you meet the IRS qualifications of a day trader, you may elect to use \\\"\\\"mark to market\\\"\\\" accounting, eliminating this entirely as a concern. Special rules for traders of securities\\\"\",\n \"\\\"Appreciation of a Capital Asset is a Capital Gain. In the United States, Capital Gains get favorable tax treatment after being held for 12 months. From the IRS newsroom: Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%. The IRS defines a Capital Asset as \\\"\\\"most property you own\\\"\\\" with a list of exclusions found in Schedule D Instructions. None of the exclusions listed relate to Bond ETFs.\\\"\",\n \"For stocks, bonds, ETF funds and so on - Taxed only on realised gain and losses are deductible from the gain and not from company's income. Corporate tax is calculated only after all expenses have been deducted. Not the other way around. Real estate expenses can be deducted because of repairs and maintenance. In general all expenses related to the operation of the business can be deducted. But you cannot use expenses as willy nilly, as you assume. You cannot deduct your subscription to Playboy as an expense. Doing it is illegal and if caught, the tours to church will increase exponentially. VAT is only paid if you claim VAT on your invoices. Your situation seems quite complicated. I would suggest, get an accountant pronto. There are nuances in your situation, which an accountant only can understand and help.\",\n \"Well, you won't be double taxed based on what you described. Partners are taxed on income, typically distributions. Your gain in the partnership is not income. However, you were essentially given some money which you elected to invest in the partnership, so you need to pay tax on that money. The question becomes, are you being double taxed in another way? Your question doesn't explain how you invested, but pretty much the options are either a payroll deduction (some amount taken out of X paychecks or a bonus) or some other payment to you that was not treated as a payroll deduction. Given that you got a 1099, that suggests the latter. However, if the money was taken out as a payroll deduction - you've already paid taxes (via your W2)! So, I'd double check on that. Regarding why the numbers don't exactly match up - Your shares in the partnership likely transacted before the partnership valuation. Let's illustrate with an example. Say the partnership is currently worth $1000 with 100 outstanding shares. You put up $1000 and get 100 shares. Partnership is now worth $2000 with 200 outstanding shares. However, after a good year for the firm, it's valuation sets the firm's worth at $3000. Your gain is $1500 not $1000. You can also see if what happened was the firm's valuation went down, your gain would be less than your initial investment. If instead your shares transacted immediately after the valuation, then your gain and your cost to acquire the shares would be the same. So again, I'd suggest double checking on this - if your shares transacted after the valuation, there needs to be an explanation for the difference in your gain. For reference: http://smallbusiness.findlaw.com/incorporation-and-legal-structures/partnership-taxes.html And https://www.irs.gov/publications/p541/ar02.html Here you learn the purpose of the gain boxes on your K1 - tracking your capital basis should the partnership sell. Essentially, when the partnership is sold, you as a partner get some money. That money is then taxed. How much you pay will depend on what you received versus what the company was worth and whether your gain was long term or short term. This link doesn't go into that detail, but should give you a thread to pull. I'd also suggest reading more about partnerships and K1 and not just the IRS publications. Don't get me wrong, they're a good source of information, just also dense and sometimes tough to understand. Good luck and congrats.\",\n \"\\\"If it's fully expensed, it has zero basis. Any sale is taxable, 100%. To the ordinary income / cap gain issue raised in comment - It's a cap gain, but I believe, as with real estate, special rates apply. This is where I am out of my area of expertise, and as they say - \\\"\\\"Consult a professional.\\\"\\\"\\\"\",\n \"This may be a good or a bad deal, depending on the fair market value (FMV) of the stock at the time of exercise. Let's assume the FMV is $6, which is the break even point. In general this would probably be treated as two transactions. So overall you would be cash neutral, but your regular tax income would be increased by $30,000 and your AMT income by $60,000.\",\n \"An update for anyone looking this up, I am still working through all the details but I can answer the question as far as Stack Exchange will go. In this situation the answer and processes involved greatly differs based on the personal circumstances of the person asking the question. Best to seek qualified tax advice than relying only on a forum as they are able to be more accurate and descriptive than any reply that you might receive.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it."],"string":"[\n \"Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it.\"\n]","isConversational":false}}},{"rowIdx":272,"cells":{"_id":{"kind":"string","value":"6792"},"query":{"kind":"string","value":"Where to find the full book of outstanding bids/asks for a stock?"},"gt_ids":{"kind":"list like","value":["485973"],"string":"[\n \"485973\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["557770","48493","283008","382067","251100","294867","485973","404604","212685","334383","571620","321028","118389","347315","580133","446904","177926","100188","526377","322798","137175","487074","501748","51063","384850","146125","315334","568043","577075","560245","442048","471643","425561","466255","421724","28604","284235","87065","63403","96467","402482","596106","124205","373620","306104","485054","516923","129745","274733","423841","218670","215260","481544","375544","317148","123649","575018","373862","112714","492262","413423","21376","560558","161411","32485","39185","95010","427747","38545","535343","558566","53263","524050","517161","159966","37959","517935","5018","86281","237653","123958","546493","65894","303649","14461","420587","189275","71330","365463","9683","577090","253135","146076","396844","15112","261858","503075","49111","510061","175831"],"string":"[\n \"557770\",\n \"48493\",\n \"283008\",\n \"382067\",\n \"251100\",\n \"294867\",\n \"485973\",\n \"404604\",\n \"212685\",\n \"334383\",\n \"571620\",\n \"321028\",\n \"118389\",\n \"347315\",\n \"580133\",\n \"446904\",\n \"177926\",\n \"100188\",\n \"526377\",\n \"322798\",\n \"137175\",\n \"487074\",\n \"501748\",\n \"51063\",\n \"384850\",\n \"146125\",\n \"315334\",\n \"568043\",\n \"577075\",\n \"560245\",\n \"442048\",\n \"471643\",\n \"425561\",\n \"466255\",\n \"421724\",\n \"28604\",\n \"284235\",\n \"87065\",\n \"63403\",\n \"96467\",\n \"402482\",\n \"596106\",\n \"124205\",\n \"373620\",\n \"306104\",\n \"485054\",\n \"516923\",\n \"129745\",\n \"274733\",\n \"423841\",\n \"218670\",\n \"215260\",\n \"481544\",\n \"375544\",\n \"317148\",\n \"123649\",\n \"575018\",\n \"373862\",\n \"112714\",\n \"492262\",\n \"413423\",\n \"21376\",\n \"560558\",\n \"161411\",\n \"32485\",\n \"39185\",\n \"95010\",\n \"427747\",\n \"38545\",\n \"535343\",\n \"558566\",\n \"53263\",\n \"524050\",\n \"517161\",\n \"159966\",\n \"37959\",\n \"517935\",\n \"5018\",\n \"86281\",\n \"237653\",\n \"123958\",\n \"546493\",\n \"65894\",\n \"303649\",\n \"14461\",\n \"420587\",\n \"189275\",\n \"71330\",\n \"365463\",\n \"9683\",\n \"577090\",\n \"253135\",\n \"146076\",\n \"396844\",\n \"15112\",\n \"261858\",\n \"503075\",\n \"49111\",\n \"510061\",\n \"175831\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["As another answer started, this information comes straight from an exchange and generally costs a fortune . . . However things change: IEX, a new exchange, recently opened and they are offering real time bid/ask data for free. Here's the API description: https://www.iextrading.com/developer/ This data should be good for active securities, but for securities less actively traded the numbers might be stale.","Buy Data products from NSE. You will get historical order book. The Live order book may not be available. https://www.nseindia.com/supra_global/content/dotex/data_products.htm This link has all the data products that NSE can provide","My broker collates the order book by price and marketplace, displaying the number of shares available at each level, sorted as in Victor's screencap. You can glean information from not just a snapshot of the order book but also by watching how it changes over time. Although it's not always a complete picture -- many brokers hold limit orders internally until the market is close, at which point they'll route to an exchange or trade internally. And of course skilled market participants know that there's people out there looking to glean information from the order book and will act to confuse the picture. The order book can show you: Combined with a list of trades (price & size, and whether it was a buy or sell), you can get a much more complete picture of what's going on with a stock than by looking at charts alone.","Depends on when you are seeing these bids & asks-- off hours, many market makers pull their bid & ask prices entirely. In a lightly traded stock there may just be no market except during the regular trading day.","In order to see whether you can buy or sell some given quantity of a stock at the current bid price, you need a counterparty (a buyer) who is willing to buy the number of stocks you are wishing to offload. To see whether such a counterparty exists, you can look at the stock's order book, or level two feed. The order book shows all the people who have placed buy or sell orders, the price they are willing to pay, and the quantity they demand at that price. Here is the order book from earlier this morning for the British pharmaceutical company, GlaxoSmithKline PLC. Let's start by looking at the left-hand blue part of the book, beneath the yellow strip. This is called the Buy side. The book is sorted with the highest price at the top, because this is the best price that a seller can presently obtain. If several buyers bid at the same price, then the oldest entry on the book takes precedence. You can see we have five buyers each willing to pay 1543.0 p (that's 1543 British pence, or £15.43) per share. Therefore the current bid price for this instrument is 1543.0. The first buyer wants 175 shares, the next, 300, and so on. The total volume that is demanded at 1543.0p is 2435 shares. This information is summarized on the yellow strip: 5 buyers, total volume of 2435, at 1543.0. These are all buyers who want to buy right now and the exchange will make the trade happen immediately if you put in a sell order for 1543.0 p or less. If you want to sell 2435 shares or fewer, you are good to go. The important thing to note is that once you sell these bidders a total of 2435 shares, then their orders are fulfilled and they will be removed from the order book. At this point, the next bidder is promoted up the book; but his price is 1542.5, 0.5 p lower than before. Absent any further changes to the order book, the bid price will decrease to 1542.5 p. This makes sense because you are selling a lot of shares so you'd expect the market price to be depressed. This information will be disseminated to the level one feed and the level one graph of the stock price will be updated. Thus if you have more than 2435 shares to sell, you cannot expect to execute your order at the bid price in one go. Of course, the more shares you are trying to get rid of, the further down the buy side you will have to go. In reality for a highly liquid stock as this, the order book receives many amendments per second and it is unlikely that your trade would make much difference. On the right hand side of the display you can see the recent trades: these are the times the trades were done (or notified to the exchange), the price of the trade, the volume and the trade type (AT means automatic trade). GlaxoSmithKline is a highly liquid stock with many willing buyers and sellers. But some stocks are less liquid. In order to enable traders to find a counterparty at short notice, exchanges often require less liquid stocks to have market makers. A market maker places buy and sell orders simultaneously, with a spread between the two prices so that they can profit from each transaction. For instance Diurnal Group PLC has had no trades today and no quotes. It has a more complicated order book, enabling both ordinary buyers and sellers to list if they wish, but market makers are separated out at the top. Here you can see that three market makers are providing liquidity on this stock, Peel Hunt (PEEL), Numis (NUMS) and Winterflood (WINS). They have a very unpalatable spread of over 5% between their bid and offer prices. Further in each case the sum total that they are willing to trade is 3000 shares. If you have more than three thousand Dirunal Group shares to sell, you would have to wait for the market makers to come back with a new quote after you'd sold the first 3000.","You don't see Buying and Selling. You see Bid and Ask. Best Bid--Highest Price someone is willing to pay to buy a stock. Best Ask - Lowest price someone is willing to accept to sell a stock. As for your second question, if you can look up Accumulation/Distribution Algorithm and Iceberg Order, you will get basic idea.","For starters, that site shows the first 5 levels on each side of the book, which is actually quite a bit of information. When traders say the top of the book, they mean just the first level. So you're already getting 8 extra levels. If you want all the details, you must subscribe to the exchange's data feeds (this costs thousands of dollars per month) or open an account with a broker who offers that information. More important than depth, however, is update frequency. The BATS site appears to update every 5 seconds, which is nowhere near frequently enough to see what's truly going on in the book. Depending on your use case, 2 levels on each side of the book updated every millisecond might be far more valuable than 20 levels on each side updated every second.","Yes apply for live and dynamic data (you may have to pay for this depending on your broker and your country) and look at the market depth.","At any point of time, buyer wants to purchase a stock at lesser price and seller wants to sell the stock at a higher price. Let's consider this scenario Company XYZ is trading at 100$, as stated above buyer wants to purchase at lower price and seller at higher price, this information will be available in Market depth, let's consider there are 5 buyers and 5 sellers, below are the details of their orders Buyers List Sellers List Highest order in buyers list will contain the bid price and bid quantity, Lowest order in Sellers list will contain the offer price and offer quantity. Now, if I want to buy 50 Stocks of company XYZ, need to place an order first, it can be either limit or Market. Limit Order : In this order, I will mention the price(buy price) at which I wish to buy, if there is any seller selling the stock less than or equal to price I have mentioned, then the order will be executed else it will be added to buyers list Market Order : In this order, I will not mention the price, if I wish to purchase 50 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 101. if I wish to purchase 200 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 2 transactions, since entire request cannot be accommodated in single order Usually the volume(Ask Volume and Offer Volume) being displayed are all Limit orders and not Market orders, Market orders are executed immediately. This is just an example, However several transactions are executed within a second, hence we will get to know the exact value only after the order is completed(executed)","Interactive Brokers provides historical intraday data including Bid, Ask, Last Trade and Volume for the majority of stocks. You can chart the data, download it to Excel or use it in your own application through their API. EDIT: Compared to other solutions (like FreeStockCharts.com for instance), Interactive Brokers provides not only historic intraday LAST**** trades **but also historic BID and ASK data, which is very useful information if you want to design your own trading system. I have enclosed a screenshot to the chart parameter window and a link to the API description.","The three sites mentioned in the second link are all professional trading workstations, not public web sites. There may not be free quotes available.","Depends on the exchange, and it's usually not going to be free. I use IB's API, and I've heard good things about IQFeed. You can get some free book data from Bats, but again you probably won't see your own transactions go by. http://batstrading.com/market_data/","One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE. Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.","They're all in one place. The OCC provides: http://www.optionsclearing.com/webapps/flex-reports","I think Infochimps has what you are looking for: NYSE and NASDAQ.","Quite a few Banks/brokers offer direct terminals to NSE where you can see live prices.","In the stock market many participants enter orders that are not necessarily set at the current market price of the stock (i.e. they are not market orders, they are limit orders). They can be lower than the market price (if they want to buy) or they can be higher than the market price (if they want to sell). The set of orders at each point of time for a security is called the order book. The lowest selling price of the order book is the offer or ask, the higher buying price is the bid. The more liquid is a security, the more orders will be in the order book, and the narrower will be the bid-ask spread. The depth of the order book is the number of units that the order book can absorb in any direction (buy or sell). As an example: imagine I want to buy 100 units at the lowest offer, but the size of the lowest offer is only 50 units, and there is not any further order, that means the stock has little depth.","They could have different quotes as there are more than a few pieces here. Are you talking a Real Time Level II quote or just a delayed quote? Delayed quotes could vary as different companies would be using different time points in their data. You aren't specifying exactly what kind of quote from which system are you using here. The key to this question is how much of a pinpoint answer do you want and how prepared are you to pay for that kind of access to the automated trades happening? Remember that there could well be more than a few trades happening each millisecond and thus latency is something to be very careful here, regardless of the exchange as long as we are talking about first-world stock exchanges where there are various automated systems being used for trading. Different market makers is just a possible piece of the equation here. One could have the same market maker but if the timings are different,e.g. if one quote is at 2:30:30 and the other is at 2:30:29 there could be a difference given all the trades processed within that second, thus the question is how well can you get that split second total view of bids and asks for a stock. You want to get all the outstanding orders which could be a non-trivial task.","You can buy the data and process it on your own. http://www.nyxdata.com/Data-Products/Daily-TAQ","\"I think for this a picture is worth a thousand words. This is a \"\"depth chart\"\" that I pulled from google images, specifically because it doesn't name any security. On the left you have all of the \"\"bids\"\" to buy this security, on the right you have the \"\"asks\"\" to sell the security. In the middle you have the bid/ask spread, this is the space between the highest bid and the lowest ask. As you can see you are free to place you order to the market to buy for 232, and someone else is free to place their order to the market to sell for 234. When the bid and the ask match there's a transaction for the maximum number of available shares. Alternatively, someone can place a market order to buy or sell and they'll just take the current market price. Retail investors don't really get access to this kind of chart from their brokers because for the most part the information isn't terribly relevant at the retail level.\"","If you are buying your order will be placed in Bid list. If you are selling your order will be placed in the Ask list. The highest Bid price will be placed at the top of the Bid list and the lowest Ask price will be placed at the top of the Ask list. When a Bid and Ask price are matched a transaction will take place and it will the last traded price. If you are looking to buy at a lower price, say $155.01, your Bid price will be placed 3rd in the Bid list, and unless the Ask prices fall to that level, your order will remain in the list until it trades, it expires or you cancel it. If prices don't fall to you Bid price you will not get a trade. If you wanted your trade to go through you could either place a limit buy order closer to the lowest Ask price (however this is still not a certainty), or to be certain place a market buy order which will trade at the lowest Ask price.","Ya, that's a lot of data - especially considering your relative lack of experience and the likely fact that you have no idea what to do with what you're given. How do you even know you need minute or tick-based bid-ask data? You can get a lot more than OHLC/V/Split/Dividend. You can get: * Book Value; * Dividend information (Amount, yield, ex date, pay date); * EBITDA; * EPS (current AND estimates); * Price/sales ratio; * Price/book value; * Price/earnings ratio; * PEG ratio; * Short ratio; * Market cap. Among other things, all for free.","To add a bit to Daniel Anderson's great answer, if you want to 'peek' at what a the set of bid and ask spreads looks like, the otc market page could be interesting (NOTE: I'm NOT recommending that you trade Over The Counter. Many of these stocks are amusingly scary): http://www.otcmarkets.com/stock/ACBFF/quote You can see market makers essentially offering to buy or sell blocks of stock at a variety of prices.","It's an over-the-counter stock quote system. Read all about it. Or visit it.","\"My Broker and probably many Brokers provide this information in a table format under \"\"Course of Sale\"\". It provides the time, price and volume of each trade on that day. You could also view this data on a chart in some charting programs. Just set the interval to \"\"Tick by Tick\"\" and look at the volume. \"\"Tick by Tick\"\" will basically place a mark for every trade that is taken and then the volume will tell you the size of that trade.\"","The best ask is the lowest ask, and the best bid is the highest bid. If the ask was lower than the bid then they crossed, and that would be a crossed market and quickly resolved. So the bid will almost always be cheaper than the ask. A heuristic is that a bid is the revenue of the stock at any given time while the ask is the cost, so the market will only ever offer a profit to itself not to the liquidity seeker. If examining the book vertically, all orders are usually sorted descending. Since the best ask is the lowest ask, it is on the bottom of the asks, and vice versa for the best bid. The best bid & best ask will be those closest since that's the narrowest spread and price-time priority will promise that a bid that crosses the asks will hit the lowest ask, the best possible price for the bidder and vice versa for an ask that crosses the best bid.","If you're willing to shell out some cash, vendors will be quite happy to sell you everything you need. Picking one out of thin air, and no idea if this is a good price or not, the CBOE will sell you EOD data for every option for $40 for one day, and at a discount for multiple days. Beyond the high/low/close for each contract, you get the volume. Or a month of TAQ data will run your $1550, for what that's worth, which probably isn't a lot for a retail strategy.","\"Though you're looking to repeat this review with multiple securities and events at different times, I've taken liberty in assuming you are not looking to conduct backtests with hundreds of events. I've answered below assuming it's an ad hoc review for a single event pertaining to one security. Had the event occurred more recently, your full-service broker could often get it for you for free. Even some discount brokers will offer it so. If the stock and its options were actively traded, you can request \"\"time and sales,\"\" or \"\"TNS,\"\" data for the dates you have in mind. If not active, then request \"\"time and quotes,\"\" or \"\"TNQ\"\" data. If the event happened long ago, as seems to be the case, then your choices become much more limited and possibly costly. Below are some suggestions: Wall Street Journal and Investors' Business Daily print copies have daily stock options trading data. They are best for trading data on actively traded options. Since the event sounds like it was a major one for the company, it may have been actively traded that day and hence reported in the papers' listings. Some of the print pages have been digitized; otherwise you'll need to review the archived printed copies. Bloomberg has these data and access to them will depend on whether the account you use has that particular subscription. I've used it to get detailed equity trading data on defunct and delisted companies on specific dates and times and for and futures trading data. If you don't have personal access to Bloomberg, as many do not, you can try to request access from a public, commercial or business school library. The stock options exchanges sell their data; some strictly to resellers and others to anyone willing to pay. If you know which exchange(s) the options traded on, you can contact the exchange's market data services department and request TNS and / or TNQ data and a list of resellers, as the resellers may be cheaper for single queries.\"","Bloomberg terminal is a pretty standard way nowadays to get this information (and a lot more) pretty much in real time.","The CBOE site, as well as some other sites and trading platforms, will show the bid/ask and statistics for that option at each individual options exchange, in addition to statistics and the best bid/offer across all exchanges. cboe.com: Delayed Quote Help lists what the single-letter codes mean. A is for the AMEX options exchange, B is for BOX, X is for PHLX, etc.","All the time. For high volume stocks, it may be tough to see exactly what's going on, e.g. the bid/ask may be moving faster than your connection to the broker can show you. What I've observed is with options. The volume on some options is measured in the 10's or 100's of contracts in a day. I'll see a case where it's $1.80/$2.00 bid/ask, and by offering $1.90 will often see a fill at that price. Since I may be the only trade on that option in the 15 minute period and note that the stock wasn't moving more than a penny during that time, I know that it was my order that managed to fill between the bid/ask.","Another one I have seen mentioned used is Equity Feed. It had varies levels of the software depending on the markets you want and can provide level 2 quotes if select that option. http://stockcharts.com/ is also a great tool I see mentioned with lots of free stuff.","Agree with some of the posts above - Barchart is a good source for finding unusual options activity and also open interest -https://www.barchart.com/options/open-interest-change","You'd have to buy that information. Quoting from this page, Commercial Historical Data Higher resolution and more complete datasets are generally not available for free. Below is a list of vendors which have passed our quality screening (in total, we screened over a dozen vendors). To qualify, the vendor must aggregate data from all US national/regional exchanges as only complete datasets are suitable for research use. The last point is especially important as there are many vendors who just get data from a couple sources and is missing important information such as dark pool trades. They offer some alternatives for free data: Daily Resolution Data 1) Yahoo! Finance– Daily resolution data, with split/dividend adjustments can be downloaded from here. The download procedure can be automated using this tool. Note, Yahoo quite frequently has errors in its database and does not contain data for delisted symbols. 2) QuantQuote Free Data– QuantQuote offers free daily resolution data for the S&P500 at this web page under the Free Data tab. The data accounts for symbol changes, splits, and dividends, and is largely free of the errors found in the Yahoo data. Note, only 500 symbols are available unlike Yahoo which provides all listed symbols. And they list recommendations about who to buy the data from.","Many exchanges trade the same securities. An order may be posted to a secondary exchange, but if the National Best Bid and Offer data provider malfunctions, only those with data feeds from that exchange will see it. Only the data provider for the primary exchange where a stock is listed provides the NBBO. Missing orders are very common with the NBBO data providers. NASDAQ's order consolidator has had many failures over the past few years, and the data provider's top executive has recently resigned. Brokers have no control over this system. A broker may be alerted to a malfunction by an accountholder, but a broker may only inform the relevant exchange and the relevant data provider.","\"The current stock price you're referring to is actually the price of the last trade. It is a historical price – but during market hours, that's usually mere seconds ago for very liquid stocks. Whereas, the bid and ask are the best potential prices that buyers and sellers are willing to transact at: the bid for the buying side, and the ask for the selling side. But, think of the bid and ask prices you see as \"\"tip of the iceberg\"\" prices. That is: The \"\"Bid: 13.20 x200\"\" is an indication that there are potential buyers bidding $13.20 for up to 200 shares. Their bids are the highest currently bid; and there are others in line behind with lower bid prices. So the \"\"bid\"\" you're seeing is actually the best bid price at that moment. If you entered a \"\"market\"\" order to sell more than 200 shares, part of your order would likely be filled at a lower price. The \"\"Ask: 13.27 x1,000\"\" is an indication that there are potential sellers asking $13.27 for up to 1000 shares. Their ask prices are the lowest currently asked; and there are others in line behind with higher ask prices. So the \"\"ask\"\" you're seeing is the best asking price at that moment. If you entered a \"\"market\"\" order to buy more than 1000 shares, part of your order would likely be filled at a higher price. A transaction takes place when either a potential buyer is willing to pay the asking price, or a potential seller is willing to accept the bid price, or else they meet in the middle if both buyers and sellers change their orders. Note: There are primarily two kinds of stock exchanges. The one I just described is a typical order-driven matched bargain market, and perhaps the kind you're referring to. The other kind is a quote-driven over-the-counter market where there is a market-maker, as JohnFx already mentioned. In those cases, the spread between the bid & ask goes to the market maker as compensation for making a market in a stock. For a liquid stock that is easy for the market maker to turn around and buy/sell to somebody else, the spread is small (narrow). For illiquid stocks that are harder to deal in, the spread is larger (wide) to compensate the market-maker having to potentially carry the stock in inventory for some period of time, during which there's a risk to him if it moves in the wrong direction. Finally ... if you wanted to buy 1000 shares, you could enter a market order, in which case as described above you'll pay $13.27. If you wanted to buy your shares at no more than $13.22 instead, i.e. the so-called \"\"current\"\" price, then you would enter a limit order for 1000 shares at $13.22. And more to the point, your order would become the new highest-bid price (until somebody else accepts your bid for their shares.) Of course, there's no guarantee that with a limit order that you will get filled; your order could expire at the end of the day if nobody accepts your bid.\"","\"EVERYONE buys at the ask price and sells at the bid price (no matter who you are). There are a few important things you need to understand. Example: EVE bid: 16.00 EVE ask: 16.25 So if your selling EVE at \"\"market price\"\" you are entering an ask equal to the highest bid ($16.00). If you buy EVE at \"\"market price\"\" you are entering a bid equal to the lowest ask price ($16.25). Its key to understand this rule: \"\"An order executes ONLY when both bid and ask meet. (bid = ask).\"\" So a market maker puts in a bid when he wants to buy but the trade only executes when an ASK price meets his BID price. When you see a quote for a stock it is the price of the last trade. So it is possible to have a quote higher or lower then both the bid and the ask.\"","The Bid price is simply the highest buy price currently being offered and the Ask price simply the lowest sell price being offered. The list of Bid and Ask prices is called the market depth. When the Bid and Ask prices match then a sale goes through. When looking to sell you would generally look at both the Bid and Ask prices. As a seller you want to be matched with the Bid price to get a sale, but you also need to check the current list of Ask prices. If the price you want to sell at is too high you will be placed down the Ask price list, and unless the price moves up to match your sell price you will not end up selling. On the other-hand, if your price to sell is too low and in fact much lower than the current lowest sell price you may get a quick sale but maybe at a lower price than you could have gotten. Similarly, when looking to buy, you would generally also look at both the Bid and Ask prices. As a buyer you want to be matched with the Ask price to get a sale, but you also need to check the current list of Bid prices. If the price you want to buy at is too low you will be placed down the Bid price list, and unless the price moves down to match your buy price you will no end up buying. On the other-hand, if your price to buy is too high and in fact much higher than the current highest buy price you may get a quick purchase but maybe at a higher price than you could have gotten. So, whether buying or selling, it is important to look at and consider both the Bid and Ask prices in the market depth.","\"People must simply be willing to match your orders if they know about it. You can sniff orders out if you can see them or predict them. For instance, you can look at an order book and decide who you want to get filled at, especially if you are looking at different quotes from different exchanges. So you can get a \"\"better\"\" fill just by looking at what someone is willing to pay to enter/exit their order as well as what exchange they placed their order through, and send an order to that specific exchange to match them. You (or a program) can just watch the level 2's and place an order as soon as you see one you like. The orders on the level2's do not reveal ALL interested market participants. Also many brokers have difficulty updating options quotes. Finally, options & market volatility can inflate or decrease the price of options by large percentages very quickly.\"","you can try CME DataSuite. Your broker gives you real time options quotes. If you do not have one you can open a scottrade account with just $500 deposit. When I moved my money from scottrade to ameritrade they did not close my account even till this day I can access my scottrade account and see real time quotes and the same research they offered me before. You can try withdrawing your deposit and see if it stays open like mine did.","You can always trade at bid or ask price (depending if you are selling or buying). Market price is the price the last transaction was executed at so you may not be able to get that. If your order is large then you may not even be able to get bid/ask but should look at the depth of the order book (ie what prices are other market participants asking for and what is the size of their order). Usually only fast traders will trade at bid/ask, those who believe the price move is imminent. If you are a long term trader you can often get better than bid or ask by placing a limit order and waiting until a market participant takes your offer.","A number of places. First, fast and cheap, you can probably get this from EODData.com, as part of a historical index price download -- they have good customer service in my experience and will likely confirm it for you before you buy. Any number of other providers can get it for you too. Likely Capital IQ, Bloomberg, and other professional solutions. I checked a number of free sites, and Market Watch was the only that had a longer history than a few months.","Is the stock's price at any given moment the price at which all shares could be sold to new investors? No. For the simple fact that the current bid/offer always have sizes associated. What you should be looking at is the consolidated price to buy/sell X shares (10bn doesn't really work as not everyone is willing to sell/buy). If you look at the spread of the consolidated price at your quantity level, you'd notice it would be in stark contrast to the spread of the best bid/offer but (by definition) that would be the price to buy or sell X shares to new investors. Edit Calculation of the consolidated price of X shares: You go through the order book and calculate the size-weighted average price until you covered X. Example: So the consolidated price for 3000 shares would be $39.80, the consolidated price for 2000 shares would be $39.90.","I spent a while looking for something similar a few weeks back and ended up getting frustrated and asking to borrow a friend's Bloombterg. I wish you the best of luck finding something, but I wasn't able to. S&P and Morningstar have some stuff on their site, but I wasn't able to make use of it. Edit: Also, Bloomberg allows shared terminals. Depending on how much you think as a firm, these questions might come up, it might be worth the 20k / year","Not that I am aware. There are times that an option is available, but none have traded yet, and it takes a request to get a bid/ask, or you can make an offer and see if it's accepted. But the option chain itself has to be open.","You can get this data from a variety of sources, but likely not all from 1 source. Yahoo is a good source, as is Google, but some stock markets also give away some of this data, and there's foreign websites which provide data for foreign exchanges. Some Googling is required, as is knowledge of web scraping (R, Python, Ruby or Perl are great tools for this...).","I'm answering in a perspective of an End-User within the United Kingdom. Most stockbrokers won't provide Real-time information without 'Level 2' access, however this comes free for most who trade over a certain threshold. If you're like me, who trade within their ISA Holding each year, you need to look elsewhere. I personally use IG.com. They've recently began a stockbroking service, whereas this comes with realtime information etc with a paid account without any 'threshold'. Additionally, you may want to look into CFDs/Spreadbets as these, won't include the heavy 'fees' and tax liabilities that trading with stocks may bring.","I don't see it in any of the exchange feeds I've gone through, including the SIPs. Not sure if there's something wrong with Nasdaq Last Sale (I don't have that feed) but it should be putting out the exact same data as ITCH.","The trick is real time. I like to wake up in the morning, turn on my computer and see at a glance the gain or loss data on each of my stock and bond at that moment. Companies like Ameritrde offer them, but you have to enroll and trade stock in them.","You can get this information through Bloomberg, but it's a paid service.","the data source is the same as the live market trading. pre and after market trading are active markets and there are actual buyers and sellers getting their orders matched.","\"You can infer some of the answers to your questions from the BATS exchange's market data page and its associated help page. (I'm pretty sure a page like this exists on each stock exchange's website; BATS just happens to be the one I'm used to looking at.) The Matched Volume section refers to all trades on a given date that took place on \"\"lit\"\" exchanges; that is, where a public protected US stock exchange's matching engine helped a buyer and a seller find each other. Because there are exactly 11 such exchanges in existence, it's easy to show 100% of the matched volume broken down into 11 rows. The FINRA & TRF Volume section refers to all trades on a given date that took place on \"\"non-lit\"\" exchanges. These types of trades include dark pool volume and any other trade that is not required to take place in public but is required to be reported (the R in TRF) to FINRA. There are three venues via which these trades may be reported to FINRA -- NASDAQ's, NYSE's, and FINRA's own ADF. They're all operated under the purview of FINRA, so the fact that they're \"\"located at\"\" NASDAQ or NYSE is a red herring. (For example, from the volume data it's clear that the NASDAQ facility does not only handle NASDAQ-listed (Tape C) securities, nor does the NYSE facility only handle NYSE-listed (Tape A) securities or anything like that.) The number of institutions reporting to each of the TRFs is large -- many more than the 11 public exchanges -- so the TRF data is not broken down further. (Also I think the whole point of the TRFs is to report in secret.) I don't know enough details to say why the NASDTRF has always handled more reporting volume than the other two facilities. Of course, since we can't see inside the TRF reporting anyway, it's sort of a moot point.\"","\"You can see all the (millions) of trades per day for a US stock only if you purchase that data from the individual exchanges (NYSE, NASDAQ, ARCA, ...), from a commercial market data aggregator (Bloomberg, Axioma, ...), or from the Consolidated Tape Association. In none of that data will you ever find identifying information for the traders. What you are recalling regarding the names of \"\"people from the company\"\" trading company stock is related to SEC regulations stating that people with significant ownership of company stock and/or controlling positions on the company board of directors must publicize (most of) their trades in that stock. That information can usually be found on the company's investor relations website, or through the SEC website.\"","You probably will not find to many places if any that give you live quotes on options because for the general public there is not that high of a demand. Most people do not even know what stock options are. You can get update on some sites like CNBC, but you will have refresh constantly to get the latest option prices. You can also try an online broker, most of whom will let you have access to their tools and quotes if you sign up for an account. Some require a deposit before you can access those tools and some don't. Personally, I use TD Ameritrade and I do not believe they require a deposit to use their tools, but don't quote me on that.","So in your screenshot, someone or some group of someones is willing to buy 3,000 shares at $3.45, and someone or some group of someones is willing to sell 2,000 shares at 3.88. Without getting in to the specific mechanics, you can place a market buy order for 10 (or whatever number) shares and it will probably transact at $3.88 per share because that's the lowest price for which someone will currently sell their shares. As a small fish, you can generally ignore the volume notations in the bid/ask quotes.","It depends on the way you have directed the order and the execution agreement you have signed with your broker. In case of DMA (direct market access) you would direct your order to the specific exchange - and that exchange would post your offer, assuming you did not tag it as hidden. However, if you just gave your order to the broker (be it via telephone, email or even online), they may not have to display your order to the market or chose which exchange to sell it on. It will also depend where the stock is listed. For most US listed and OTC stocks, regulation NMS applies where your order should have been executed against if it went to the exchanges. Check your account opening docs and agreements, particulary the execution agreement. In there it will tell you how your order should be treated. In case where the broker stipulates that you have DMA or that they will direct your order to Lit markets (public exchanges and not market making firms and dark-pools) then you may have a case - you would need to request information to whcih exchange your broker sent the order to. In case that you gave them discretion on routing of your order - read the fine print. The answer lies there. Regarding NBBO missing you quote as quantycuenta suggested above is also a possibility, however Reg NMS should take care of this. Do you have stock and date & time of your order?","Yup. What I wanted to know was where they are pulling it up from. Have casually used Google finance for personal investments, but they suck at corp actions. Not sure if they provide free APIs, but that would probably suck too! :D","Sounds to me like you're describing just how it should work. Ask is at 30, Bid is at 20; you offer a new bid at 25. Either: Depending on liquidity, one or the other may be more likely. This Investorplace article on the subject describes what you're seeing, and recommends the strategy you're describing precisely. Instead of a market order, take advantage of the fact that the options world truly is a marketplace — one where you can possibly get a better price just by asking. How does that work? If you use a limit order (instead of a market order) when opening a position, you can tell your broker how much you are willing to pay to enter a trade. For example, if you enter a limit price of $1.15, you can see whether the market-maker will bite. You will be surprised at how many times you will get your price (i.e., $1.15) instead of the ask price of $1.30. If your order at $1.15 is not filled after a few minutes, you can modify your order and pay the ask price by entering a market order or limit order at the ask price (that is, you can tell your broker to pay no more than $1.30).","\"Market makers (shortened MM) in an exchange are generally required to list both a bid and ask price to allow both buyers and sellers to trade and keep the market moving. However, a more general idea of a MM may includes companies off an exchange (say large banks acting as broker/dealers in an over-the-counter market) are not required to give a simultaneous bid/ask, but often will on request. So, it might depend on where you are getting this data but likely the bid/ask was quoted simultaneously. An exchange, like the NASDAQ for instance, may have multiple MMs for a given market. The \"\"market\"\" spread will be from the highest bid to the lowest ask over all the MMs. The highest bid and lowest ask may come from different MMs and any particular MM often will have a larger spread. The size of the spread gives a rough idea of how much a MM is trying to make off of a \"\"round trip\"\" trade (buying than immediately selling to someone else or selling than immediately buying from someone else). Of course, immediate round-trip trades are not always possible and there are many other complications. However, half the spread is a rough indicator of how much they hope to make off of a single trade.\"","There are about 250 trading days in a year. There are also about 1,900 stocks listed on the NYSE. What you're asking for would require about 6.2M rows of data. Depending on the number of attributes you're likely looking at a couple GB of data. You're only getting that much information through an API or an FTP.","It's difficult to compile free information because the large providers are not yet permitted to provide bulk data downloads by their sources. As better advertising revenue arrangements that mimic youtube become more prevalent, this will assuredly change, based upon the trend. The data is available at money.msn.com. Here's an example for ASX:TSE. You can compare that to shares outstanding here. They've been improving the site incrementally over time and have recently added extensive non-US data. Non-US listings weren't available until about 5 years ago. I haven't used their screener for some years because I've built my own custom tools, but I will tell you that with a little PHP knowledge, you can build a custom screener with just a few pages of code; besides, it wouldn't surprise me if their screener has increased in power. It may have the filter you seek already conveniently prepared. Based upon the trend, one day bulk data downloads will be available much like how they are for US equities on finviz.com. To do your part to hasten that wonderful day, I recommend turning off your adblocker on money.msn and clicking on a worthy advertisement. With enough revenue, a data provider may finally be seduced into entering into better arrangements. I'd much rather prefer downloading in bulk unadulterated than maintain a custom screener. money.msn has been my go to site for mult-year financials for more than a decade. They even provide limited 10-year data which also has been expanded slowly over the years.","But what about the following scenario which is my paraphrasing of a Nanex article (I'm hoping you can help clarify this for me). 1. I observe a 1,000 lot @$10 advertised for Sell on a lit exchange. 2. I try to lift the 1,000 by placing a limit order @10. 3. My order goes through some kind of order routing process. First, 3 orders get executed on a dark pool. Let's say I got a 50 lot filled (so available offer reduces to 950). 4. My order hits a lit exchange. I get a partial fill for 100 (offer shrinks to 850); but the offered size shrinks instead to 500. Or 0. 5. Now, in order to execute my trade, I will have to take a higher price than the original advertised liquidity. My question (maybe you can answer this) is why did my original order size of 1,000 appear in smaller blocks? Is this because the order routing algorithm breaks up the size? Or is it that market makers only post offers in small block sizes (e.g. 100) So even if the order book looked like: 100 @ 10 100 @ 10 100 @ 10 100 @ 10 100 @ 10 100 @ 10 All the way to 1,000 total -- as soon as the first 100 shares were lifted, the MM can immediately cancel the remainder of the advertised liquidity -- in practical terms making it impossible to execute large orders at an advertised price.","As others have stated, the current price is simply the last price at which the security traded. For any given tick, however, there are many bid-ask prices because securities can trade on multiple exchanges and between many agents on a single exchange. This is true for both types of exchanges that Chris mentioned in his answer. Chris' answer is pretty thorough in explaining how the two types of exchanges work, so I'll just add some minor details. In exchanges like NASDAQ, there are multiple market makers for most relatively liquid securities, which theoretically introduces competition between them and therefore lowers the bid-ask spreads that traders face. Although this results in the market makers earning less compensation for their risk, they hope to make up the difference by making the market for highly liquid securities. This could also result in your order filling, in pieces, at several different prices if your brokerage firm fills it through multiple market makers. Of course, if you place your order on an exchange where an electronic system fills it (the other type of exchange that Chris mentioned), this could happen anyway. In short, if you place a market order for 1000 shares, it could be filled at several different prices, depending on volume, multiple bid-ask prices, etc. If you place a sizable order, your broker may fill it in pieces regardless to prevent you from moving the market. This is rarely a problem for small-time investors trading securities with high volumes, but for investors with higher capital like institutional investors, mutual funds, etc. who place large orders relative to the average volume, this could conceivably be a burden, both in the price difference across time as the order is placed and the increased bookkeeping it demands. This is tangentially related, so I'll add it anyway. In cases like the one described above, all-or-none (AON) orders are one solution; these are orders that instruct the broker to only execute the order if it can be filled in a single transaction. Most brokers offer these, but there are some caveats that apply to them specifically. (I haven't been able to find some of this information, so some of this is from memory). All-or-none orders are only an option if the order is for more than a certain numbers of shares. I think the minimum size is 300 or 400 shares. Your order won't be placed until your broker places all other orders ahead of it that don't have special conditions attached to them. I believe all-or-none orders are day orders, which means that if there wasn't enough supply to fill the order during the day, the order is cancelled at market close. AON orders only apply to limit orders. If you want to replicate the behavior of a market order with AON characteristics, you can try setting a limit buy/sell order a few cents above/below the current market price.","\"For US equities, Edgar Online is where companies post their government filings to the SEC. On Google Finance, you would look at the \"\"SEC filings\"\" link on the page, and then find their 10K and 10Q documents, where that information is listed and already calculated. Many companies also have these same documents posted on their Investor Relations web pages.\"","Volume @ 0 doesn't mean that there are no buyers and sellers, it just means that there hasn't been any trades done yet. What you need to look for are the bids and offers (for selling and buying, respectively). For further expiration and NTM or IT options there will almost always be a bid and an offer (but it may be very wide). Now, in case where there is 0 bid (no one is willing to buy), you may still have a chance if the option has some value in it. For that - you need your broker to try to shop it to market making firms. Now, depending on who your broker is, this may or may not be possible. Alternatively, if you have DMA (direct market access) to the options exchanges, you can try to put in an offer of your own and wait for someone to execute against you, however do not expect to be traded with unless your price is out of line with the cost. However, in wide markets, you can try Lampost options (they may give you price improvement) or try to offer very close to the bid. You may save yourself a penny or two and perhaps get a rebate if you are using BATSO or NASDAQO markets (if you have DMA and pass-through exchange fees).","The Level 2 data is simply showing the depth of the market. If I am trading shares with my broker I have the option of viewing only the top 10 bid/ask prices in the depth or all of the data (which sometimes can be a very long list). With another broker I get the top ten bid and ask prices and how many orders are available for each price level, or I have the option of listing each order separately for each price level (in order of when the order was placed). I get the same kind of data if trading options. I do not know about futures because I don't trade them. Simply this data may be important to a trader because it may give an indication of whether there are more buyers or sellers in the market, which in turn may (but not always) give an indication of which way the market may be moving. As an example the price depth below shows WBC before market open with sellers outweighing the buyers in both numbers and volume. This gives an indication that prices may drop when the market opens. Of course there could be some good news coming out prior to market open or just after, causing a flood of buyers into the market and sellers to cancel their orders. This would change everything around with more buyers than sellers and indicate that prices may now be going up. The market depth is an important aspect to look at before putting an order in, as it can give an indication of which way the market is moving, especially in a very liquid security or market.","There are usually so many different options around for the same stock that some are rarely traded. Especially if the price has moved since the option was issued, nobody might be interested in that particular option at that price anymore. So the asking price might be something that someone asked for ages ago and that is much higher than anyone would reasonably pay today. With a bid of $20 and an ask of $30, nobody is trading, but the value of that option is somewhere between $20 and $30. If the value is below $25, someone will notice your $25 bid and sell.","Market price simply depends on your order side. If you are placing a buy order the market price is the lowest ask, if you are placing a sell order the market price is the highest bid. If your order is larger than the volume then you'd need to also consider the next lowest ask or next highest bid until you've fulfilled your order volume.","\"Yes, Interactive Brokers is a good source for live data feeds and they have an API which is used to programmatically access the feeds, you will have to pay for data feeds from the individual data sources though. The stock exchanges have a very high price for their data and this has stifled innovation in the financial sector for several decades in the united states. But at the same time, it has inflated the value and mystique of \"\"quants\"\" doing simple algorithms \"\"that execute within milliseconds\"\" for banks and funds. Also RIZM has live feeds, it is a younger service than other exchanges but helps people tap into any online broker's feeds and let you trade your custom algorithms that way, that is their goal.\"","Yahoo Finance's Historical Prices section allows you to look up daily historical quotes for any given stock symbol, you don't have to hit a library for this information. Your can choose a desired time frame for your query, and the dataset will include High/Low/Close/Volume numbers. You can then download a CSV version of this report and perform additional analysis in a spreadsheet of your choice. Below is Twitter report from IPO through yesterday: http://finance.yahoo.com/q/hp?s=TWTR&a=10&b=7&c=2013&d=08&e=23&f=2014&g=d","Yes, but also note each exchange have rules that states various conditions when the market maker can enlarge the bid-ask (e.g. for situations such as freely falling markets, etc.) and when the market makers need to give a normal bid-ask. In normal markets, the bid-asks are usually within exchange dictated bounds. MM's price spread can be larger than bid-ask spread only when there are multiple market makers and different market makers are providing different bid-asks. As long as the MM under question gives bid and ask within exchange's rules, it can be fine. These are usually rare situations. One advice: please carefully check the time-stamps. I have seen many occasions when tick data time-stamps between different vendors are mismatched in databases whereas in real life it isn't. MM's profits not just from spreads, but also from short term mean-reversion (fading). If a large order comes in suddenly, the MM increases the prices in one direction, takes the opposite side, and once the order is done, the prices comes down and the MM off-loads his imbalance at lower prices, etc.","The information on GOOG or other sites is the average price of the stock and is indicative of the price at with the stock would be available. The actual trades happen at different values throught the day ... So the prices are good for most purposes and if you need the exact prices, you can thne decided to log into you trading terminal and get the actual quotes This is similar to FX quotes or any other such quotes and give you a general sense","Regulators? SEC, in the US. Its public records for public companies.","\"Considering the fact that you are so unaware of how to find such data, I find it very very hard to believe that you actually need it. \"\"All trade and finance data for as much tickers and markets as possible.\"\" Wtf does that even mean. You could be referencing thousands of different types of data for any given \"\"ticker\"\" with a statement so vague. What are you looking for?\"","Yes, past option prices are available for many options, but as far as I know not for free. You can get them from, for example, OptionMetrics. Probably there are other providers as well, which may be cheaper for an individual or small institution. OptionMetrics data comes from the National Best Bid and Offer. Probably there are some over-the-counter options that are not included here, but for someone asking this question, OptionMetrics will most likely have the option you are interested in.","FINRA lets you view recent trades, but as stated in the other answer bonds are illiquid and often do not trade frequently. Therefore recent trades prices are only a rough estimate of the current price that would be accepted. http://finra-markets.morningstar.com/BondCenter/Default.jsp","I use and recommend barchart.com. Again you have to register but it's free. Although it's a US system it has a full listing of UK stocks and ETFs under International > London. The big advantage of barchart.com is that you can do advanced technical screening with Stochastics and RS, new highs and lows, moving averages etc. You're not stuck with just fundamentals, which in my opinion belong to a previous era. Even if you don't share that opinion you'd still find barchart.com useful for UK stocks.","It could be that the contracts were bought at cheaper prices such as $.01 earlier in the day. What you see there with the bid and ask is the CURRENT bid and CURRENT ask. The high ask price means there is no current liquidity, as someone is quoting a very high ask price just in case someone really wants to trade that price. But as you said, no one would buy this with a better price on a closer strike price. The volume likely occurred at a different price than listed on the current ask.","You can use the Securities Exchange Commission's EDGAR search engine to search all available SEC related filings. https://www.sec.gov/edgar/searchedgar/companysearch.html Top tip: use the fast search on the right to search for the company ticker rather than by company name.","Try Google Finance Screener ; you will be able to filter for NASDAQ and NYSE exchanges.","\"My answer isn't a full one, but that's because I think the answer depends on, at minimum, the country your broker is in, the type of order you place (limit, market, algo, etc.,) and the size of your order. For example, I can tell from watching live rates on regular lot limit orders I place with my UK-based broker that they hold limit orders internally until they see a crossing rate on the exchange my requested stock is trading on, then they submit a limit order to that exchange. I only get filled from that one exchange and this happens noticeably after I see my limit price print, and my fills are always better than my limit price. Whereas with my US-based broker, I can see my regular lotsize limit order in the order book (depth of book data) prior to any fills. I will routinely be notified of a fill before I see the limit price print. And my fills come from any number of US exchanges (NYSE, ARCA, BATS, etc.) even for the same stock. I should point out that the \"\"NBBO\"\" rule in the US, under SEC regulation NMS, probably causes more complications in handling of market and limit orders than you're likely to find in most countries.\"","\"You're confusing a specific visual representation of the top bid & ask orders selected from the order book with the actual \"\"top of the book\"\". \"\"Top\"\" in the sense of the \"\"top of the book\"\" is a ranking (by order of \"\"best\"\", different for bids vs. asks) and not meant to be strictly a visual positioning on a page or screen. The data in the visual representation comes from the top of the order book (the best bids, and the best asks), but that visual representation is choosing to present it in a specific way. Think of the \"\"book\"\" as the model, the abstract collection of outstanding bid and ask order data. When people talk about the \"\"top of the book\"\", they're talking about the best bids (higher being better), and the best asks (lower being better). The visual representation above is but one possible way to render a tip-of-the-iceberg view of the best orders in the \"\"book\"\". The advantage of that particular visual representation is that one can see the asks & bids converging towards the center. The spread is visible as the difference between the two middle elements – being the lowest row in the blue \"\"Asks\"\" area, and the highest row in the green \"\"Bids\"\" area. The up-arrow they had included in the \"\"Asks\"\" area was perhaps meant to provide a clue about how the data was sorted contrary to expectations of descending order of \"\"bestness\"\", and/or to imply there is further depth to the book data in the indicated direction. If the bids & asks had been oriented side-by-side instead, they might have chosen to represent it as below, re-arranging the rows in the \"\"Asks\"\" in the opposite order (i.e. in the order you had expected) so that the \"\"bests\"\" are both in the top row:\"","Since I've been doing this since late 03 I have colo machines in Chicago and NYC, and have direct exchange data feeds etc. I mentioned in a prior post though, for someone starting out on algorithmic trading, I'd recommend Nanex for tick data and Interactive Brokers for your brokerage account. IB has a robust and easy to use API. It won't let you do the most low latency stuff bc you can't colo at the exchange and have to clear through their order management systems but if you are looking at opportunities that exist in the market in excess of 50ms it's probably a good place to start. If not, go Lightspeed imo, but that'll cost you on the colo/data a lot more.","Log in to your Scottrade account, and goto Markets --> Analyst Views --> Click the PDF link for the company. Also, there is also the 'Views and News' part of the web page which has additional information beyond what exist in the reports.","For a company listed on NASDAQ, the numbers are published on NASDAQ's site. The most recent settlement date was 4/30/2013, and you can see that it lists 27.5 million shares as held short. NASDAQ gets these numbers from FINRA member firms, which are required to submit them to the exchange twice a month: Each FINRA member firm is required to report its “total” short interest positions in all customer and proprietary accounts in NASDAQ-listed securities twice a month. These reports are used to calculate short interest in NASDAQ stocks. FINRA member firms are required to report their short positions as of settlement on (1) the 15th of each month, or the preceding business day if the 15th is not a business day, and (2) as of settlement on the last business day of the month.* The reports must be filed by the second business day after the reporting settlement date. FINRA compiles the short interest data and provides it for publication on the 8th business day after the reporting settlement date.","Moody's is now Mergent Online. It's no longer being printed, and must be accessed digitally. In order to browse the database, check with your local public library or university to see if you can get access. (A University will probably require you to visit for access). Another good tool is Value Line Reports. They are printed information sheets on public companies that are updated regularly, and are convenient for browsing and for comparing securities. Again, check your local libraries. A lot of the public information you may be looking for can be found on Yahoo Finance, for free, from home. Yahoo finance, will give financial information, ratios, news, filings, analysis, all in one place.","\"I'm familiar with and have traded U.S.-listed LEAPS and I've always used the CBOE quotes page you linked to. So, I too was surprised I couldn't find 3M (MMM) LEAPS quotes at that page, even after checking the \"\"List all options, LEAPS, Credit Options & Weeklys if avail.\"\" radio button. Used to work! Fortunately, I was able to get access to the full chain of option quotes from the CBOE's other quotes page: Go to the \"\"Quotes & Data\"\" menu, then select Delayed Quotes - NEW! Here's how: I think the new interface is terrible: it's too many steps to get to the information desired. I preferred the all-in-one table of the Delayed Quotes Classic page, the one you linked to. As to why that classic page isn't yielding the full chain, I can only suggest it is a recently introduced bug (software defect). I certainly was able to get LEAPS quotes from that page before. On Yahoo! Finance option quotes: I don't know why their chain is incomplete – I can't see the logic, for instance, as to why MMM Jan 2012 60 calls are missing. I thought at first it may be lack of volume or open interest, but nope. Anyway, I don't trust Yahoo! to provide accurate, reliable quotes anyway, having seen too many errors and missing data in particular in the feed of Canadian stocks, which I also trade. I rely on the exchange's quotes, and my broker's real-time quotes. I check Yahoo! only for convenience sake, and when it actually matters I go to the other more reliable sources. For what it's worth, though, you can also get full chain option quotes at NASDAQ. See here for the 3M (MMM) example then click on the \"\"Jan 12\"\" link near the top. However, I would consider CBOE's quotes more definitive, since they are the options exchange.\"","Well, kind of XD. I usually just look through Business Week for the ADRs that are on the OTC market. I don't do anything major, but why I love them is that they have a greater reach than just ADRs on the NYSE or NASDAQ. Like for instance, if I wanted to own Thai or European stocks, many of the larger, more reputable firms are listed on the OTC market. Having said that, most other sites don't have earnings reports laid out for you. Business Week does. The only fancy thing I am interested in are options and options on futures, and Bar Chart is good for the latter.","> we make a trade-off between time to execute and market impact. Is your time frame any longer than intraday? I imagine you wouldn't want to carry that risk overnight if you're a broker or selling a route.. > we will join the bid for some fraction of our size, and also hit the offer when it looks like the price might be moving away from us So, say for instance you join a bid a few levels down, you aren't really get filled, you start hitting the offer and eventually you realize you're competing with someone for the shares offered, so you take out the price level and bid on all the exchanges so that you're first on the bid at that level, then repeat until someone that can match your appetite starts to fill you on the bid? > In some certain situations we will even sweep the book several levels deep to avoid tipping off market makers and having them adjust in anticipation of the rest of our order. Right, so say you need 100k shares, there are 10k offered at 9.98, 25k offered at 9.99, and 65k at 10.00, you might just enter an intermarket sweep order of 100k @ 10 limit and hope that you can get most of the shares off before everyone can cancel? I imagine there has to be a lot of bidding it up to attract sellers and then letting people take out your bids all day... I have a few other questions I would appreciate your insight on. Just trying to ascertain how orders are filled when, as you put it, time is more important than market impact to the client - when they need to take a large amount of liquidity as quickly as possible and as orderly as possible. Let me know if you'd rather I pm you about this or the additional questions, I work in the industry as well so I know privacy is paramount.","[Brute Force](http://en.wikipedia.org/wiki/Brute-force_attack) Sending random hits to a server over and over again. Three order books. One happens earlier, the other two simultaneously. Bid ABT 105.00x1000 **Cancelled** Bid APPL 105.00x1000 **Cancelled** Bid AET 105.00x1000 **Cancelled** Bid ACT 105.00x1000 **Filled** The aforementioned happens before all else. Act's current value is 100.01.* Ask Act 100.00x1000 **Limit order denied** Ask Act 109.00x1000 **Filled** The third order book is simply testing the waters to see what the guy making the ask is willing to pay. *As well as all the cancelled orders, for the illustration.","http://www.euroinvestor.com/exchanges/nasdaq/macromedia-inc/41408/history will work as DumbCoder states, but didn't contain LEHMQ (Lehman Brother's holding company). You can use Yahoo for companies that have declared bankruptcy, such as Lehman Brothers: http://finance.yahoo.com/q/hp?s=LEHMQ&a=08&b=01&c=2008&d=08&e=30&f=2008&g=d but you have to know the symbol of the holding company.","\"Where can I download all stock symbols of all companies \"\"currently listed\"\" and \"\"delisted\"\" as of today? That's incredibly similar . You can also do it with a Bloomberg terminal but there's no need to pay to do this because he data changes so slowly.\"","\"Publicly traded companies files 10-Ks with the SEC, searchable on the EDGAR system. If you want basic financial statement info then look for 10-Ks that are marked \"\"Interactive Data\"\", as for those the SEC has broken everything out by statement into standard formats. You could also use marketwatch which puts everything in financial statements into the same or as similar of categories as it can to make it easier to compare companies.\"","It depends on the sequence in which the order [bid and ask] were placed. Please read the below question to understand how the order are matched. How do exchanges match limit orders?","Neither site offers index futures or options pricing. Your best best is likely to get the quote from a broker who supports trading those vehicles. Free sites usually limit themselves to stocks and sometimes to options chains -- the exception is Reuters where just about any security for which you have the reuters formatted trading symbol can be quoted.","$500 per package, with a package representing 100 stocks, or $5k for the entire market from a single source (NYSE, for example). IIRC that was the neighborhood when I went looking. I actually only needed one index in great detail - I chose the S&P 500, and found a source for well under $100.","To add to @Victor 's answer; if you are entering a market order, and not a limit order (where you set the price you want to buy or sell at), then the Ask price is what you can expect to pay to purchase shares of stock in a long position and the Bid price is what you can expect to receive when you sell stock you own in a long position.","\"http://www.interactivedata.com -> reference data No, it's not free. Nor would I consider it \"\"high quality\"\". For free data, try the Yahoo Finance API. The data you want is there, though you may need to calculate some of the fields yourself. Once you have your application working with free data you will be in a good position to evaluate whether it's worth it to shift to more detailed non-free data.\"","\"My broker (thinkorswim) offers this from the platform's trade tab. I believe this feature isn't crippled in the PaperMoney version which is effectively a \"\"free online service.\"\"\"","yes you are right as per my understanding while doing trade you must consider fol (specially for starters like me) The volume of the stock you are trading in should be high enough to keep you secure for quick in and out Whenever the bid volume is more than the ask volume the prices will move up and vice versa. to give an example if a stock is at 100 points and there are fol bids: The transaction will occur when either the bidder agrees to pay the ask price (case 1. he pays 101 . his bid offer will disappear and the next best ask will be 102. and the current price will be 101 which was the last transaction.) or when the person giving ask price agrees to deal at best bid which was 99 in which case the share will go down."],"string":"[\n \"As another answer started, this information comes straight from an exchange and generally costs a fortune . . . However things change: IEX, a new exchange, recently opened and they are offering real time bid/ask data for free. Here's the API description: https://www.iextrading.com/developer/ This data should be good for active securities, but for securities less actively traded the numbers might be stale.\",\n \"Buy Data products from NSE. You will get historical order book. The Live order book may not be available. https://www.nseindia.com/supra_global/content/dotex/data_products.htm This link has all the data products that NSE can provide\",\n \"My broker collates the order book by price and marketplace, displaying the number of shares available at each level, sorted as in Victor's screencap. You can glean information from not just a snapshot of the order book but also by watching how it changes over time. Although it's not always a complete picture -- many brokers hold limit orders internally until the market is close, at which point they'll route to an exchange or trade internally. And of course skilled market participants know that there's people out there looking to glean information from the order book and will act to confuse the picture. The order book can show you: Combined with a list of trades (price & size, and whether it was a buy or sell), you can get a much more complete picture of what's going on with a stock than by looking at charts alone.\",\n \"Depends on when you are seeing these bids & asks-- off hours, many market makers pull their bid & ask prices entirely. In a lightly traded stock there may just be no market except during the regular trading day.\",\n \"In order to see whether you can buy or sell some given quantity of a stock at the current bid price, you need a counterparty (a buyer) who is willing to buy the number of stocks you are wishing to offload. To see whether such a counterparty exists, you can look at the stock's order book, or level two feed. The order book shows all the people who have placed buy or sell orders, the price they are willing to pay, and the quantity they demand at that price. Here is the order book from earlier this morning for the British pharmaceutical company, GlaxoSmithKline PLC. Let's start by looking at the left-hand blue part of the book, beneath the yellow strip. This is called the Buy side. The book is sorted with the highest price at the top, because this is the best price that a seller can presently obtain. If several buyers bid at the same price, then the oldest entry on the book takes precedence. You can see we have five buyers each willing to pay 1543.0 p (that's 1543 British pence, or £15.43) per share. Therefore the current bid price for this instrument is 1543.0. The first buyer wants 175 shares, the next, 300, and so on. The total volume that is demanded at 1543.0p is 2435 shares. This information is summarized on the yellow strip: 5 buyers, total volume of 2435, at 1543.0. These are all buyers who want to buy right now and the exchange will make the trade happen immediately if you put in a sell order for 1543.0 p or less. If you want to sell 2435 shares or fewer, you are good to go. The important thing to note is that once you sell these bidders a total of 2435 shares, then their orders are fulfilled and they will be removed from the order book. At this point, the next bidder is promoted up the book; but his price is 1542.5, 0.5 p lower than before. Absent any further changes to the order book, the bid price will decrease to 1542.5 p. This makes sense because you are selling a lot of shares so you'd expect the market price to be depressed. This information will be disseminated to the level one feed and the level one graph of the stock price will be updated. Thus if you have more than 2435 shares to sell, you cannot expect to execute your order at the bid price in one go. Of course, the more shares you are trying to get rid of, the further down the buy side you will have to go. In reality for a highly liquid stock as this, the order book receives many amendments per second and it is unlikely that your trade would make much difference. On the right hand side of the display you can see the recent trades: these are the times the trades were done (or notified to the exchange), the price of the trade, the volume and the trade type (AT means automatic trade). GlaxoSmithKline is a highly liquid stock with many willing buyers and sellers. But some stocks are less liquid. In order to enable traders to find a counterparty at short notice, exchanges often require less liquid stocks to have market makers. A market maker places buy and sell orders simultaneously, with a spread between the two prices so that they can profit from each transaction. For instance Diurnal Group PLC has had no trades today and no quotes. It has a more complicated order book, enabling both ordinary buyers and sellers to list if they wish, but market makers are separated out at the top. Here you can see that three market makers are providing liquidity on this stock, Peel Hunt (PEEL), Numis (NUMS) and Winterflood (WINS). They have a very unpalatable spread of over 5% between their bid and offer prices. Further in each case the sum total that they are willing to trade is 3000 shares. If you have more than three thousand Dirunal Group shares to sell, you would have to wait for the market makers to come back with a new quote after you'd sold the first 3000.\",\n \"You don't see Buying and Selling. You see Bid and Ask. Best Bid--Highest Price someone is willing to pay to buy a stock. Best Ask - Lowest price someone is willing to accept to sell a stock. As for your second question, if you can look up Accumulation/Distribution Algorithm and Iceberg Order, you will get basic idea.\",\n \"For starters, that site shows the first 5 levels on each side of the book, which is actually quite a bit of information. When traders say the top of the book, they mean just the first level. So you're already getting 8 extra levels. If you want all the details, you must subscribe to the exchange's data feeds (this costs thousands of dollars per month) or open an account with a broker who offers that information. More important than depth, however, is update frequency. The BATS site appears to update every 5 seconds, which is nowhere near frequently enough to see what's truly going on in the book. Depending on your use case, 2 levels on each side of the book updated every millisecond might be far more valuable than 20 levels on each side updated every second.\",\n \"Yes apply for live and dynamic data (you may have to pay for this depending on your broker and your country) and look at the market depth.\",\n \"At any point of time, buyer wants to purchase a stock at lesser price and seller wants to sell the stock at a higher price. Let's consider this scenario Company XYZ is trading at 100$, as stated above buyer wants to purchase at lower price and seller at higher price, this information will be available in Market depth, let's consider there are 5 buyers and 5 sellers, below are the details of their orders Buyers List Sellers List Highest order in buyers list will contain the bid price and bid quantity, Lowest order in Sellers list will contain the offer price and offer quantity. Now, if I want to buy 50 Stocks of company XYZ, need to place an order first, it can be either limit or Market. Limit Order : In this order, I will mention the price(buy price) at which I wish to buy, if there is any seller selling the stock less than or equal to price I have mentioned, then the order will be executed else it will be added to buyers list Market Order : In this order, I will not mention the price, if I wish to purchase 50 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 101. if I wish to purchase 200 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 2 transactions, since entire request cannot be accommodated in single order Usually the volume(Ask Volume and Offer Volume) being displayed are all Limit orders and not Market orders, Market orders are executed immediately. This is just an example, However several transactions are executed within a second, hence we will get to know the exact value only after the order is completed(executed)\",\n \"Interactive Brokers provides historical intraday data including Bid, Ask, Last Trade and Volume for the majority of stocks. You can chart the data, download it to Excel or use it in your own application through their API. EDIT: Compared to other solutions (like FreeStockCharts.com for instance), Interactive Brokers provides not only historic intraday LAST**** trades **but also historic BID and ASK data, which is very useful information if you want to design your own trading system. I have enclosed a screenshot to the chart parameter window and a link to the API description.\",\n \"The three sites mentioned in the second link are all professional trading workstations, not public web sites. There may not be free quotes available.\",\n \"Depends on the exchange, and it's usually not going to be free. I use IB's API, and I've heard good things about IQFeed. You can get some free book data from Bats, but again you probably won't see your own transactions go by. http://batstrading.com/market_data/\",\n \"One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE. Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.\",\n \"They're all in one place. The OCC provides: http://www.optionsclearing.com/webapps/flex-reports\",\n \"I think Infochimps has what you are looking for: NYSE and NASDAQ.\",\n \"Quite a few Banks/brokers offer direct terminals to NSE where you can see live prices.\",\n \"In the stock market many participants enter orders that are not necessarily set at the current market price of the stock (i.e. they are not market orders, they are limit orders). They can be lower than the market price (if they want to buy) or they can be higher than the market price (if they want to sell). The set of orders at each point of time for a security is called the order book. The lowest selling price of the order book is the offer or ask, the higher buying price is the bid. The more liquid is a security, the more orders will be in the order book, and the narrower will be the bid-ask spread. The depth of the order book is the number of units that the order book can absorb in any direction (buy or sell). As an example: imagine I want to buy 100 units at the lowest offer, but the size of the lowest offer is only 50 units, and there is not any further order, that means the stock has little depth.\",\n \"They could have different quotes as there are more than a few pieces here. Are you talking a Real Time Level II quote or just a delayed quote? Delayed quotes could vary as different companies would be using different time points in their data. You aren't specifying exactly what kind of quote from which system are you using here. The key to this question is how much of a pinpoint answer do you want and how prepared are you to pay for that kind of access to the automated trades happening? Remember that there could well be more than a few trades happening each millisecond and thus latency is something to be very careful here, regardless of the exchange as long as we are talking about first-world stock exchanges where there are various automated systems being used for trading. Different market makers is just a possible piece of the equation here. One could have the same market maker but if the timings are different,e.g. if one quote is at 2:30:30 and the other is at 2:30:29 there could be a difference given all the trades processed within that second, thus the question is how well can you get that split second total view of bids and asks for a stock. You want to get all the outstanding orders which could be a non-trivial task.\",\n \"You can buy the data and process it on your own. http://www.nyxdata.com/Data-Products/Daily-TAQ\",\n \"\\\"I think for this a picture is worth a thousand words. This is a \\\"\\\"depth chart\\\"\\\" that I pulled from google images, specifically because it doesn't name any security. On the left you have all of the \\\"\\\"bids\\\"\\\" to buy this security, on the right you have the \\\"\\\"asks\\\"\\\" to sell the security. In the middle you have the bid/ask spread, this is the space between the highest bid and the lowest ask. As you can see you are free to place you order to the market to buy for 232, and someone else is free to place their order to the market to sell for 234. When the bid and the ask match there's a transaction for the maximum number of available shares. Alternatively, someone can place a market order to buy or sell and they'll just take the current market price. Retail investors don't really get access to this kind of chart from their brokers because for the most part the information isn't terribly relevant at the retail level.\\\"\",\n \"If you are buying your order will be placed in Bid list. If you are selling your order will be placed in the Ask list. The highest Bid price will be placed at the top of the Bid list and the lowest Ask price will be placed at the top of the Ask list. When a Bid and Ask price are matched a transaction will take place and it will the last traded price. If you are looking to buy at a lower price, say $155.01, your Bid price will be placed 3rd in the Bid list, and unless the Ask prices fall to that level, your order will remain in the list until it trades, it expires or you cancel it. If prices don't fall to you Bid price you will not get a trade. If you wanted your trade to go through you could either place a limit buy order closer to the lowest Ask price (however this is still not a certainty), or to be certain place a market buy order which will trade at the lowest Ask price.\",\n \"Ya, that's a lot of data - especially considering your relative lack of experience and the likely fact that you have no idea what to do with what you're given. How do you even know you need minute or tick-based bid-ask data? You can get a lot more than OHLC/V/Split/Dividend. You can get: * Book Value; * Dividend information (Amount, yield, ex date, pay date); * EBITDA; * EPS (current AND estimates); * Price/sales ratio; * Price/book value; * Price/earnings ratio; * PEG ratio; * Short ratio; * Market cap. Among other things, all for free.\",\n \"To add a bit to Daniel Anderson's great answer, if you want to 'peek' at what a the set of bid and ask spreads looks like, the otc market page could be interesting (NOTE: I'm NOT recommending that you trade Over The Counter. Many of these stocks are amusingly scary): http://www.otcmarkets.com/stock/ACBFF/quote You can see market makers essentially offering to buy or sell blocks of stock at a variety of prices.\",\n \"It's an over-the-counter stock quote system. Read all about it. Or visit it.\",\n \"\\\"My Broker and probably many Brokers provide this information in a table format under \\\"\\\"Course of Sale\\\"\\\". It provides the time, price and volume of each trade on that day. You could also view this data on a chart in some charting programs. Just set the interval to \\\"\\\"Tick by Tick\\\"\\\" and look at the volume. \\\"\\\"Tick by Tick\\\"\\\" will basically place a mark for every trade that is taken and then the volume will tell you the size of that trade.\\\"\",\n \"The best ask is the lowest ask, and the best bid is the highest bid. If the ask was lower than the bid then they crossed, and that would be a crossed market and quickly resolved. So the bid will almost always be cheaper than the ask. A heuristic is that a bid is the revenue of the stock at any given time while the ask is the cost, so the market will only ever offer a profit to itself not to the liquidity seeker. If examining the book vertically, all orders are usually sorted descending. Since the best ask is the lowest ask, it is on the bottom of the asks, and vice versa for the best bid. The best bid & best ask will be those closest since that's the narrowest spread and price-time priority will promise that a bid that crosses the asks will hit the lowest ask, the best possible price for the bidder and vice versa for an ask that crosses the best bid.\",\n \"If you're willing to shell out some cash, vendors will be quite happy to sell you everything you need. Picking one out of thin air, and no idea if this is a good price or not, the CBOE will sell you EOD data for every option for $40 for one day, and at a discount for multiple days. Beyond the high/low/close for each contract, you get the volume. Or a month of TAQ data will run your $1550, for what that's worth, which probably isn't a lot for a retail strategy.\",\n \"\\\"Though you're looking to repeat this review with multiple securities and events at different times, I've taken liberty in assuming you are not looking to conduct backtests with hundreds of events. I've answered below assuming it's an ad hoc review for a single event pertaining to one security. Had the event occurred more recently, your full-service broker could often get it for you for free. Even some discount brokers will offer it so. If the stock and its options were actively traded, you can request \\\"\\\"time and sales,\\\"\\\" or \\\"\\\"TNS,\\\"\\\" data for the dates you have in mind. If not active, then request \\\"\\\"time and quotes,\\\"\\\" or \\\"\\\"TNQ\\\"\\\" data. If the event happened long ago, as seems to be the case, then your choices become much more limited and possibly costly. Below are some suggestions: Wall Street Journal and Investors' Business Daily print copies have daily stock options trading data. They are best for trading data on actively traded options. Since the event sounds like it was a major one for the company, it may have been actively traded that day and hence reported in the papers' listings. Some of the print pages have been digitized; otherwise you'll need to review the archived printed copies. Bloomberg has these data and access to them will depend on whether the account you use has that particular subscription. I've used it to get detailed equity trading data on defunct and delisted companies on specific dates and times and for and futures trading data. If you don't have personal access to Bloomberg, as many do not, you can try to request access from a public, commercial or business school library. The stock options exchanges sell their data; some strictly to resellers and others to anyone willing to pay. If you know which exchange(s) the options traded on, you can contact the exchange's market data services department and request TNS and / or TNQ data and a list of resellers, as the resellers may be cheaper for single queries.\\\"\",\n \"Bloomberg terminal is a pretty standard way nowadays to get this information (and a lot more) pretty much in real time.\",\n \"The CBOE site, as well as some other sites and trading platforms, will show the bid/ask and statistics for that option at each individual options exchange, in addition to statistics and the best bid/offer across all exchanges. cboe.com: Delayed Quote Help lists what the single-letter codes mean. A is for the AMEX options exchange, B is for BOX, X is for PHLX, etc.\",\n \"All the time. For high volume stocks, it may be tough to see exactly what's going on, e.g. the bid/ask may be moving faster than your connection to the broker can show you. What I've observed is with options. The volume on some options is measured in the 10's or 100's of contracts in a day. I'll see a case where it's $1.80/$2.00 bid/ask, and by offering $1.90 will often see a fill at that price. Since I may be the only trade on that option in the 15 minute period and note that the stock wasn't moving more than a penny during that time, I know that it was my order that managed to fill between the bid/ask.\",\n \"Another one I have seen mentioned used is Equity Feed. It had varies levels of the software depending on the markets you want and can provide level 2 quotes if select that option. http://stockcharts.com/ is also a great tool I see mentioned with lots of free stuff.\",\n \"Agree with some of the posts above - Barchart is a good source for finding unusual options activity and also open interest -https://www.barchart.com/options/open-interest-change\",\n \"You'd have to buy that information. Quoting from this page, Commercial Historical Data Higher resolution and more complete datasets are generally not available for free. Below is a list of vendors which have passed our quality screening (in total, we screened over a dozen vendors). To qualify, the vendor must aggregate data from all US national/regional exchanges as only complete datasets are suitable for research use. The last point is especially important as there are many vendors who just get data from a couple sources and is missing important information such as dark pool trades. They offer some alternatives for free data: Daily Resolution Data 1) Yahoo! Finance– Daily resolution data, with split/dividend adjustments can be downloaded from here. The download procedure can be automated using this tool. Note, Yahoo quite frequently has errors in its database and does not contain data for delisted symbols. 2) QuantQuote Free Data– QuantQuote offers free daily resolution data for the S&P500 at this web page under the Free Data tab. The data accounts for symbol changes, splits, and dividends, and is largely free of the errors found in the Yahoo data. Note, only 500 symbols are available unlike Yahoo which provides all listed symbols. And they list recommendations about who to buy the data from.\",\n \"Many exchanges trade the same securities. An order may be posted to a secondary exchange, but if the National Best Bid and Offer data provider malfunctions, only those with data feeds from that exchange will see it. Only the data provider for the primary exchange where a stock is listed provides the NBBO. Missing orders are very common with the NBBO data providers. NASDAQ's order consolidator has had many failures over the past few years, and the data provider's top executive has recently resigned. Brokers have no control over this system. A broker may be alerted to a malfunction by an accountholder, but a broker may only inform the relevant exchange and the relevant data provider.\",\n \"\\\"The current stock price you're referring to is actually the price of the last trade. It is a historical price – but during market hours, that's usually mere seconds ago for very liquid stocks. Whereas, the bid and ask are the best potential prices that buyers and sellers are willing to transact at: the bid for the buying side, and the ask for the selling side. But, think of the bid and ask prices you see as \\\"\\\"tip of the iceberg\\\"\\\" prices. That is: The \\\"\\\"Bid: 13.20 x200\\\"\\\" is an indication that there are potential buyers bidding $13.20 for up to 200 shares. Their bids are the highest currently bid; and there are others in line behind with lower bid prices. So the \\\"\\\"bid\\\"\\\" you're seeing is actually the best bid price at that moment. If you entered a \\\"\\\"market\\\"\\\" order to sell more than 200 shares, part of your order would likely be filled at a lower price. The \\\"\\\"Ask: 13.27 x1,000\\\"\\\" is an indication that there are potential sellers asking $13.27 for up to 1000 shares. Their ask prices are the lowest currently asked; and there are others in line behind with higher ask prices. So the \\\"\\\"ask\\\"\\\" you're seeing is the best asking price at that moment. If you entered a \\\"\\\"market\\\"\\\" order to buy more than 1000 shares, part of your order would likely be filled at a higher price. A transaction takes place when either a potential buyer is willing to pay the asking price, or a potential seller is willing to accept the bid price, or else they meet in the middle if both buyers and sellers change their orders. Note: There are primarily two kinds of stock exchanges. The one I just described is a typical order-driven matched bargain market, and perhaps the kind you're referring to. The other kind is a quote-driven over-the-counter market where there is a market-maker, as JohnFx already mentioned. In those cases, the spread between the bid & ask goes to the market maker as compensation for making a market in a stock. For a liquid stock that is easy for the market maker to turn around and buy/sell to somebody else, the spread is small (narrow). For illiquid stocks that are harder to deal in, the spread is larger (wide) to compensate the market-maker having to potentially carry the stock in inventory for some period of time, during which there's a risk to him if it moves in the wrong direction. Finally ... if you wanted to buy 1000 shares, you could enter a market order, in which case as described above you'll pay $13.27. If you wanted to buy your shares at no more than $13.22 instead, i.e. the so-called \\\"\\\"current\\\"\\\" price, then you would enter a limit order for 1000 shares at $13.22. And more to the point, your order would become the new highest-bid price (until somebody else accepts your bid for their shares.) Of course, there's no guarantee that with a limit order that you will get filled; your order could expire at the end of the day if nobody accepts your bid.\\\"\",\n \"\\\"EVERYONE buys at the ask price and sells at the bid price (no matter who you are). There are a few important things you need to understand. Example: EVE bid: 16.00 EVE ask: 16.25 So if your selling EVE at \\\"\\\"market price\\\"\\\" you are entering an ask equal to the highest bid ($16.00). If you buy EVE at \\\"\\\"market price\\\"\\\" you are entering a bid equal to the lowest ask price ($16.25). Its key to understand this rule: \\\"\\\"An order executes ONLY when both bid and ask meet. (bid = ask).\\\"\\\" So a market maker puts in a bid when he wants to buy but the trade only executes when an ASK price meets his BID price. When you see a quote for a stock it is the price of the last trade. So it is possible to have a quote higher or lower then both the bid and the ask.\\\"\",\n \"The Bid price is simply the highest buy price currently being offered and the Ask price simply the lowest sell price being offered. The list of Bid and Ask prices is called the market depth. When the Bid and Ask prices match then a sale goes through. When looking to sell you would generally look at both the Bid and Ask prices. As a seller you want to be matched with the Bid price to get a sale, but you also need to check the current list of Ask prices. If the price you want to sell at is too high you will be placed down the Ask price list, and unless the price moves up to match your sell price you will not end up selling. On the other-hand, if your price to sell is too low and in fact much lower than the current lowest sell price you may get a quick sale but maybe at a lower price than you could have gotten. Similarly, when looking to buy, you would generally also look at both the Bid and Ask prices. As a buyer you want to be matched with the Ask price to get a sale, but you also need to check the current list of Bid prices. If the price you want to buy at is too low you will be placed down the Bid price list, and unless the price moves down to match your buy price you will no end up buying. On the other-hand, if your price to buy is too high and in fact much higher than the current highest buy price you may get a quick purchase but maybe at a higher price than you could have gotten. So, whether buying or selling, it is important to look at and consider both the Bid and Ask prices in the market depth.\",\n \"\\\"People must simply be willing to match your orders if they know about it. You can sniff orders out if you can see them or predict them. For instance, you can look at an order book and decide who you want to get filled at, especially if you are looking at different quotes from different exchanges. So you can get a \\\"\\\"better\\\"\\\" fill just by looking at what someone is willing to pay to enter/exit their order as well as what exchange they placed their order through, and send an order to that specific exchange to match them. You (or a program) can just watch the level 2's and place an order as soon as you see one you like. The orders on the level2's do not reveal ALL interested market participants. Also many brokers have difficulty updating options quotes. Finally, options & market volatility can inflate or decrease the price of options by large percentages very quickly.\\\"\",\n \"you can try CME DataSuite. Your broker gives you real time options quotes. If you do not have one you can open a scottrade account with just $500 deposit. When I moved my money from scottrade to ameritrade they did not close my account even till this day I can access my scottrade account and see real time quotes and the same research they offered me before. You can try withdrawing your deposit and see if it stays open like mine did.\",\n \"You can always trade at bid or ask price (depending if you are selling or buying). Market price is the price the last transaction was executed at so you may not be able to get that. If your order is large then you may not even be able to get bid/ask but should look at the depth of the order book (ie what prices are other market participants asking for and what is the size of their order). Usually only fast traders will trade at bid/ask, those who believe the price move is imminent. If you are a long term trader you can often get better than bid or ask by placing a limit order and waiting until a market participant takes your offer.\",\n \"A number of places. First, fast and cheap, you can probably get this from EODData.com, as part of a historical index price download -- they have good customer service in my experience and will likely confirm it for you before you buy. Any number of other providers can get it for you too. Likely Capital IQ, Bloomberg, and other professional solutions. I checked a number of free sites, and Market Watch was the only that had a longer history than a few months.\",\n \"Is the stock's price at any given moment the price at which all shares could be sold to new investors? No. For the simple fact that the current bid/offer always have sizes associated. What you should be looking at is the consolidated price to buy/sell X shares (10bn doesn't really work as not everyone is willing to sell/buy). If you look at the spread of the consolidated price at your quantity level, you'd notice it would be in stark contrast to the spread of the best bid/offer but (by definition) that would be the price to buy or sell X shares to new investors. Edit Calculation of the consolidated price of X shares: You go through the order book and calculate the size-weighted average price until you covered X. Example: So the consolidated price for 3000 shares would be $39.80, the consolidated price for 2000 shares would be $39.90.\",\n \"I spent a while looking for something similar a few weeks back and ended up getting frustrated and asking to borrow a friend's Bloombterg. I wish you the best of luck finding something, but I wasn't able to. S&P and Morningstar have some stuff on their site, but I wasn't able to make use of it. Edit: Also, Bloomberg allows shared terminals. Depending on how much you think as a firm, these questions might come up, it might be worth the 20k / year\",\n \"Not that I am aware. There are times that an option is available, but none have traded yet, and it takes a request to get a bid/ask, or you can make an offer and see if it's accepted. But the option chain itself has to be open.\",\n \"You can get this data from a variety of sources, but likely not all from 1 source. Yahoo is a good source, as is Google, but some stock markets also give away some of this data, and there's foreign websites which provide data for foreign exchanges. Some Googling is required, as is knowledge of web scraping (R, Python, Ruby or Perl are great tools for this...).\",\n \"I'm answering in a perspective of an End-User within the United Kingdom. Most stockbrokers won't provide Real-time information without 'Level 2' access, however this comes free for most who trade over a certain threshold. If you're like me, who trade within their ISA Holding each year, you need to look elsewhere. I personally use IG.com. They've recently began a stockbroking service, whereas this comes with realtime information etc with a paid account without any 'threshold'. Additionally, you may want to look into CFDs/Spreadbets as these, won't include the heavy 'fees' and tax liabilities that trading with stocks may bring.\",\n \"I don't see it in any of the exchange feeds I've gone through, including the SIPs. Not sure if there's something wrong with Nasdaq Last Sale (I don't have that feed) but it should be putting out the exact same data as ITCH.\",\n \"The trick is real time. I like to wake up in the morning, turn on my computer and see at a glance the gain or loss data on each of my stock and bond at that moment. Companies like Ameritrde offer them, but you have to enroll and trade stock in them.\",\n \"You can get this information through Bloomberg, but it's a paid service.\",\n \"the data source is the same as the live market trading. pre and after market trading are active markets and there are actual buyers and sellers getting their orders matched.\",\n \"\\\"You can infer some of the answers to your questions from the BATS exchange's market data page and its associated help page. (I'm pretty sure a page like this exists on each stock exchange's website; BATS just happens to be the one I'm used to looking at.) The Matched Volume section refers to all trades on a given date that took place on \\\"\\\"lit\\\"\\\" exchanges; that is, where a public protected US stock exchange's matching engine helped a buyer and a seller find each other. Because there are exactly 11 such exchanges in existence, it's easy to show 100% of the matched volume broken down into 11 rows. The FINRA & TRF Volume section refers to all trades on a given date that took place on \\\"\\\"non-lit\\\"\\\" exchanges. These types of trades include dark pool volume and any other trade that is not required to take place in public but is required to be reported (the R in TRF) to FINRA. There are three venues via which these trades may be reported to FINRA -- NASDAQ's, NYSE's, and FINRA's own ADF. They're all operated under the purview of FINRA, so the fact that they're \\\"\\\"located at\\\"\\\" NASDAQ or NYSE is a red herring. (For example, from the volume data it's clear that the NASDAQ facility does not only handle NASDAQ-listed (Tape C) securities, nor does the NYSE facility only handle NYSE-listed (Tape A) securities or anything like that.) The number of institutions reporting to each of the TRFs is large -- many more than the 11 public exchanges -- so the TRF data is not broken down further. (Also I think the whole point of the TRFs is to report in secret.) I don't know enough details to say why the NASDTRF has always handled more reporting volume than the other two facilities. Of course, since we can't see inside the TRF reporting anyway, it's sort of a moot point.\\\"\",\n \"\\\"You can see all the (millions) of trades per day for a US stock only if you purchase that data from the individual exchanges (NYSE, NASDAQ, ARCA, ...), from a commercial market data aggregator (Bloomberg, Axioma, ...), or from the Consolidated Tape Association. In none of that data will you ever find identifying information for the traders. What you are recalling regarding the names of \\\"\\\"people from the company\\\"\\\" trading company stock is related to SEC regulations stating that people with significant ownership of company stock and/or controlling positions on the company board of directors must publicize (most of) their trades in that stock. That information can usually be found on the company's investor relations website, or through the SEC website.\\\"\",\n \"You probably will not find to many places if any that give you live quotes on options because for the general public there is not that high of a demand. Most people do not even know what stock options are. You can get update on some sites like CNBC, but you will have refresh constantly to get the latest option prices. You can also try an online broker, most of whom will let you have access to their tools and quotes if you sign up for an account. Some require a deposit before you can access those tools and some don't. Personally, I use TD Ameritrade and I do not believe they require a deposit to use their tools, but don't quote me on that.\",\n \"So in your screenshot, someone or some group of someones is willing to buy 3,000 shares at $3.45, and someone or some group of someones is willing to sell 2,000 shares at 3.88. Without getting in to the specific mechanics, you can place a market buy order for 10 (or whatever number) shares and it will probably transact at $3.88 per share because that's the lowest price for which someone will currently sell their shares. As a small fish, you can generally ignore the volume notations in the bid/ask quotes.\",\n \"It depends on the way you have directed the order and the execution agreement you have signed with your broker. In case of DMA (direct market access) you would direct your order to the specific exchange - and that exchange would post your offer, assuming you did not tag it as hidden. However, if you just gave your order to the broker (be it via telephone, email or even online), they may not have to display your order to the market or chose which exchange to sell it on. It will also depend where the stock is listed. For most US listed and OTC stocks, regulation NMS applies where your order should have been executed against if it went to the exchanges. Check your account opening docs and agreements, particulary the execution agreement. In there it will tell you how your order should be treated. In case where the broker stipulates that you have DMA or that they will direct your order to Lit markets (public exchanges and not market making firms and dark-pools) then you may have a case - you would need to request information to whcih exchange your broker sent the order to. In case that you gave them discretion on routing of your order - read the fine print. The answer lies there. Regarding NBBO missing you quote as quantycuenta suggested above is also a possibility, however Reg NMS should take care of this. Do you have stock and date & time of your order?\",\n \"Yup. What I wanted to know was where they are pulling it up from. Have casually used Google finance for personal investments, but they suck at corp actions. Not sure if they provide free APIs, but that would probably suck too! :D\",\n \"Sounds to me like you're describing just how it should work. Ask is at 30, Bid is at 20; you offer a new bid at 25. Either: Depending on liquidity, one or the other may be more likely. This Investorplace article on the subject describes what you're seeing, and recommends the strategy you're describing precisely. Instead of a market order, take advantage of the fact that the options world truly is a marketplace — one where you can possibly get a better price just by asking. How does that work? If you use a limit order (instead of a market order) when opening a position, you can tell your broker how much you are willing to pay to enter a trade. For example, if you enter a limit price of $1.15, you can see whether the market-maker will bite. You will be surprised at how many times you will get your price (i.e., $1.15) instead of the ask price of $1.30. If your order at $1.15 is not filled after a few minutes, you can modify your order and pay the ask price by entering a market order or limit order at the ask price (that is, you can tell your broker to pay no more than $1.30).\",\n \"\\\"Market makers (shortened MM) in an exchange are generally required to list both a bid and ask price to allow both buyers and sellers to trade and keep the market moving. However, a more general idea of a MM may includes companies off an exchange (say large banks acting as broker/dealers in an over-the-counter market) are not required to give a simultaneous bid/ask, but often will on request. So, it might depend on where you are getting this data but likely the bid/ask was quoted simultaneously. An exchange, like the NASDAQ for instance, may have multiple MMs for a given market. The \\\"\\\"market\\\"\\\" spread will be from the highest bid to the lowest ask over all the MMs. The highest bid and lowest ask may come from different MMs and any particular MM often will have a larger spread. The size of the spread gives a rough idea of how much a MM is trying to make off of a \\\"\\\"round trip\\\"\\\" trade (buying than immediately selling to someone else or selling than immediately buying from someone else). Of course, immediate round-trip trades are not always possible and there are many other complications. However, half the spread is a rough indicator of how much they hope to make off of a single trade.\\\"\",\n \"There are about 250 trading days in a year. There are also about 1,900 stocks listed on the NYSE. What you're asking for would require about 6.2M rows of data. Depending on the number of attributes you're likely looking at a couple GB of data. You're only getting that much information through an API or an FTP.\",\n \"It's difficult to compile free information because the large providers are not yet permitted to provide bulk data downloads by their sources. As better advertising revenue arrangements that mimic youtube become more prevalent, this will assuredly change, based upon the trend. The data is available at money.msn.com. Here's an example for ASX:TSE. You can compare that to shares outstanding here. They've been improving the site incrementally over time and have recently added extensive non-US data. Non-US listings weren't available until about 5 years ago. I haven't used their screener for some years because I've built my own custom tools, but I will tell you that with a little PHP knowledge, you can build a custom screener with just a few pages of code; besides, it wouldn't surprise me if their screener has increased in power. It may have the filter you seek already conveniently prepared. Based upon the trend, one day bulk data downloads will be available much like how they are for US equities on finviz.com. To do your part to hasten that wonderful day, I recommend turning off your adblocker on money.msn and clicking on a worthy advertisement. With enough revenue, a data provider may finally be seduced into entering into better arrangements. I'd much rather prefer downloading in bulk unadulterated than maintain a custom screener. money.msn has been my go to site for mult-year financials for more than a decade. They even provide limited 10-year data which also has been expanded slowly over the years.\",\n \"But what about the following scenario which is my paraphrasing of a Nanex article (I'm hoping you can help clarify this for me). 1. I observe a 1,000 lot @$10 advertised for Sell on a lit exchange. 2. I try to lift the 1,000 by placing a limit order @10. 3. My order goes through some kind of order routing process. First, 3 orders get executed on a dark pool. Let's say I got a 50 lot filled (so available offer reduces to 950). 4. My order hits a lit exchange. I get a partial fill for 100 (offer shrinks to 850); but the offered size shrinks instead to 500. Or 0. 5. Now, in order to execute my trade, I will have to take a higher price than the original advertised liquidity. My question (maybe you can answer this) is why did my original order size of 1,000 appear in smaller blocks? Is this because the order routing algorithm breaks up the size? Or is it that market makers only post offers in small block sizes (e.g. 100) So even if the order book looked like: 100 @ 10 100 @ 10 100 @ 10 100 @ 10 100 @ 10 100 @ 10 All the way to 1,000 total -- as soon as the first 100 shares were lifted, the MM can immediately cancel the remainder of the advertised liquidity -- in practical terms making it impossible to execute large orders at an advertised price.\",\n \"As others have stated, the current price is simply the last price at which the security traded. For any given tick, however, there are many bid-ask prices because securities can trade on multiple exchanges and between many agents on a single exchange. This is true for both types of exchanges that Chris mentioned in his answer. Chris' answer is pretty thorough in explaining how the two types of exchanges work, so I'll just add some minor details. In exchanges like NASDAQ, there are multiple market makers for most relatively liquid securities, which theoretically introduces competition between them and therefore lowers the bid-ask spreads that traders face. Although this results in the market makers earning less compensation for their risk, they hope to make up the difference by making the market for highly liquid securities. This could also result in your order filling, in pieces, at several different prices if your brokerage firm fills it through multiple market makers. Of course, if you place your order on an exchange where an electronic system fills it (the other type of exchange that Chris mentioned), this could happen anyway. In short, if you place a market order for 1000 shares, it could be filled at several different prices, depending on volume, multiple bid-ask prices, etc. If you place a sizable order, your broker may fill it in pieces regardless to prevent you from moving the market. This is rarely a problem for small-time investors trading securities with high volumes, but for investors with higher capital like institutional investors, mutual funds, etc. who place large orders relative to the average volume, this could conceivably be a burden, both in the price difference across time as the order is placed and the increased bookkeeping it demands. This is tangentially related, so I'll add it anyway. In cases like the one described above, all-or-none (AON) orders are one solution; these are orders that instruct the broker to only execute the order if it can be filled in a single transaction. Most brokers offer these, but there are some caveats that apply to them specifically. (I haven't been able to find some of this information, so some of this is from memory). All-or-none orders are only an option if the order is for more than a certain numbers of shares. I think the minimum size is 300 or 400 shares. Your order won't be placed until your broker places all other orders ahead of it that don't have special conditions attached to them. I believe all-or-none orders are day orders, which means that if there wasn't enough supply to fill the order during the day, the order is cancelled at market close. AON orders only apply to limit orders. If you want to replicate the behavior of a market order with AON characteristics, you can try setting a limit buy/sell order a few cents above/below the current market price.\",\n \"\\\"For US equities, Edgar Online is where companies post their government filings to the SEC. On Google Finance, you would look at the \\\"\\\"SEC filings\\\"\\\" link on the page, and then find their 10K and 10Q documents, where that information is listed and already calculated. Many companies also have these same documents posted on their Investor Relations web pages.\\\"\",\n \"Volume @ 0 doesn't mean that there are no buyers and sellers, it just means that there hasn't been any trades done yet. What you need to look for are the bids and offers (for selling and buying, respectively). For further expiration and NTM or IT options there will almost always be a bid and an offer (but it may be very wide). Now, in case where there is 0 bid (no one is willing to buy), you may still have a chance if the option has some value in it. For that - you need your broker to try to shop it to market making firms. Now, depending on who your broker is, this may or may not be possible. Alternatively, if you have DMA (direct market access) to the options exchanges, you can try to put in an offer of your own and wait for someone to execute against you, however do not expect to be traded with unless your price is out of line with the cost. However, in wide markets, you can try Lampost options (they may give you price improvement) or try to offer very close to the bid. You may save yourself a penny or two and perhaps get a rebate if you are using BATSO or NASDAQO markets (if you have DMA and pass-through exchange fees).\",\n \"The Level 2 data is simply showing the depth of the market. If I am trading shares with my broker I have the option of viewing only the top 10 bid/ask prices in the depth or all of the data (which sometimes can be a very long list). With another broker I get the top ten bid and ask prices and how many orders are available for each price level, or I have the option of listing each order separately for each price level (in order of when the order was placed). I get the same kind of data if trading options. I do not know about futures because I don't trade them. Simply this data may be important to a trader because it may give an indication of whether there are more buyers or sellers in the market, which in turn may (but not always) give an indication of which way the market may be moving. As an example the price depth below shows WBC before market open with sellers outweighing the buyers in both numbers and volume. This gives an indication that prices may drop when the market opens. Of course there could be some good news coming out prior to market open or just after, causing a flood of buyers into the market and sellers to cancel their orders. This would change everything around with more buyers than sellers and indicate that prices may now be going up. The market depth is an important aspect to look at before putting an order in, as it can give an indication of which way the market is moving, especially in a very liquid security or market.\",\n \"There are usually so many different options around for the same stock that some are rarely traded. Especially if the price has moved since the option was issued, nobody might be interested in that particular option at that price anymore. So the asking price might be something that someone asked for ages ago and that is much higher than anyone would reasonably pay today. With a bid of $20 and an ask of $30, nobody is trading, but the value of that option is somewhere between $20 and $30. If the value is below $25, someone will notice your $25 bid and sell.\",\n \"Market price simply depends on your order side. If you are placing a buy order the market price is the lowest ask, if you are placing a sell order the market price is the highest bid. If your order is larger than the volume then you'd need to also consider the next lowest ask or next highest bid until you've fulfilled your order volume.\",\n \"\\\"Yes, Interactive Brokers is a good source for live data feeds and they have an API which is used to programmatically access the feeds, you will have to pay for data feeds from the individual data sources though. The stock exchanges have a very high price for their data and this has stifled innovation in the financial sector for several decades in the united states. But at the same time, it has inflated the value and mystique of \\\"\\\"quants\\\"\\\" doing simple algorithms \\\"\\\"that execute within milliseconds\\\"\\\" for banks and funds. Also RIZM has live feeds, it is a younger service than other exchanges but helps people tap into any online broker's feeds and let you trade your custom algorithms that way, that is their goal.\\\"\",\n \"Yahoo Finance's Historical Prices section allows you to look up daily historical quotes for any given stock symbol, you don't have to hit a library for this information. Your can choose a desired time frame for your query, and the dataset will include High/Low/Close/Volume numbers. You can then download a CSV version of this report and perform additional analysis in a spreadsheet of your choice. Below is Twitter report from IPO through yesterday: http://finance.yahoo.com/q/hp?s=TWTR&a=10&b=7&c=2013&d=08&e=23&f=2014&g=d\",\n \"Yes, but also note each exchange have rules that states various conditions when the market maker can enlarge the bid-ask (e.g. for situations such as freely falling markets, etc.) and when the market makers need to give a normal bid-ask. In normal markets, the bid-asks are usually within exchange dictated bounds. MM's price spread can be larger than bid-ask spread only when there are multiple market makers and different market makers are providing different bid-asks. As long as the MM under question gives bid and ask within exchange's rules, it can be fine. These are usually rare situations. One advice: please carefully check the time-stamps. I have seen many occasions when tick data time-stamps between different vendors are mismatched in databases whereas in real life it isn't. MM's profits not just from spreads, but also from short term mean-reversion (fading). If a large order comes in suddenly, the MM increases the prices in one direction, takes the opposite side, and once the order is done, the prices comes down and the MM off-loads his imbalance at lower prices, etc.\",\n \"The information on GOOG or other sites is the average price of the stock and is indicative of the price at with the stock would be available. The actual trades happen at different values throught the day ... So the prices are good for most purposes and if you need the exact prices, you can thne decided to log into you trading terminal and get the actual quotes This is similar to FX quotes or any other such quotes and give you a general sense\",\n \"Regulators? SEC, in the US. Its public records for public companies.\",\n \"\\\"Considering the fact that you are so unaware of how to find such data, I find it very very hard to believe that you actually need it. \\\"\\\"All trade and finance data for as much tickers and markets as possible.\\\"\\\" Wtf does that even mean. You could be referencing thousands of different types of data for any given \\\"\\\"ticker\\\"\\\" with a statement so vague. What are you looking for?\\\"\",\n \"Yes, past option prices are available for many options, but as far as I know not for free. You can get them from, for example, OptionMetrics. Probably there are other providers as well, which may be cheaper for an individual or small institution. OptionMetrics data comes from the National Best Bid and Offer. Probably there are some over-the-counter options that are not included here, but for someone asking this question, OptionMetrics will most likely have the option you are interested in.\",\n \"FINRA lets you view recent trades, but as stated in the other answer bonds are illiquid and often do not trade frequently. Therefore recent trades prices are only a rough estimate of the current price that would be accepted. http://finra-markets.morningstar.com/BondCenter/Default.jsp\",\n \"I use and recommend barchart.com. Again you have to register but it's free. Although it's a US system it has a full listing of UK stocks and ETFs under International > London. The big advantage of barchart.com is that you can do advanced technical screening with Stochastics and RS, new highs and lows, moving averages etc. You're not stuck with just fundamentals, which in my opinion belong to a previous era. Even if you don't share that opinion you'd still find barchart.com useful for UK stocks.\",\n \"It could be that the contracts were bought at cheaper prices such as $.01 earlier in the day. What you see there with the bid and ask is the CURRENT bid and CURRENT ask. The high ask price means there is no current liquidity, as someone is quoting a very high ask price just in case someone really wants to trade that price. But as you said, no one would buy this with a better price on a closer strike price. The volume likely occurred at a different price than listed on the current ask.\",\n \"You can use the Securities Exchange Commission's EDGAR search engine to search all available SEC related filings. https://www.sec.gov/edgar/searchedgar/companysearch.html Top tip: use the fast search on the right to search for the company ticker rather than by company name.\",\n \"Try Google Finance Screener ; you will be able to filter for NASDAQ and NYSE exchanges.\",\n \"\\\"My answer isn't a full one, but that's because I think the answer depends on, at minimum, the country your broker is in, the type of order you place (limit, market, algo, etc.,) and the size of your order. For example, I can tell from watching live rates on regular lot limit orders I place with my UK-based broker that they hold limit orders internally until they see a crossing rate on the exchange my requested stock is trading on, then they submit a limit order to that exchange. I only get filled from that one exchange and this happens noticeably after I see my limit price print, and my fills are always better than my limit price. Whereas with my US-based broker, I can see my regular lotsize limit order in the order book (depth of book data) prior to any fills. I will routinely be notified of a fill before I see the limit price print. And my fills come from any number of US exchanges (NYSE, ARCA, BATS, etc.) even for the same stock. I should point out that the \\\"\\\"NBBO\\\"\\\" rule in the US, under SEC regulation NMS, probably causes more complications in handling of market and limit orders than you're likely to find in most countries.\\\"\",\n \"\\\"You're confusing a specific visual representation of the top bid & ask orders selected from the order book with the actual \\\"\\\"top of the book\\\"\\\". \\\"\\\"Top\\\"\\\" in the sense of the \\\"\\\"top of the book\\\"\\\" is a ranking (by order of \\\"\\\"best\\\"\\\", different for bids vs. asks) and not meant to be strictly a visual positioning on a page or screen. The data in the visual representation comes from the top of the order book (the best bids, and the best asks), but that visual representation is choosing to present it in a specific way. Think of the \\\"\\\"book\\\"\\\" as the model, the abstract collection of outstanding bid and ask order data. When people talk about the \\\"\\\"top of the book\\\"\\\", they're talking about the best bids (higher being better), and the best asks (lower being better). The visual representation above is but one possible way to render a tip-of-the-iceberg view of the best orders in the \\\"\\\"book\\\"\\\". The advantage of that particular visual representation is that one can see the asks & bids converging towards the center. The spread is visible as the difference between the two middle elements – being the lowest row in the blue \\\"\\\"Asks\\\"\\\" area, and the highest row in the green \\\"\\\"Bids\\\"\\\" area. The up-arrow they had included in the \\\"\\\"Asks\\\"\\\" area was perhaps meant to provide a clue about how the data was sorted contrary to expectations of descending order of \\\"\\\"bestness\\\"\\\", and/or to imply there is further depth to the book data in the indicated direction. If the bids & asks had been oriented side-by-side instead, they might have chosen to represent it as below, re-arranging the rows in the \\\"\\\"Asks\\\"\\\" in the opposite order (i.e. in the order you had expected) so that the \\\"\\\"bests\\\"\\\" are both in the top row:\\\"\",\n \"Since I've been doing this since late 03 I have colo machines in Chicago and NYC, and have direct exchange data feeds etc. I mentioned in a prior post though, for someone starting out on algorithmic trading, I'd recommend Nanex for tick data and Interactive Brokers for your brokerage account. IB has a robust and easy to use API. It won't let you do the most low latency stuff bc you can't colo at the exchange and have to clear through their order management systems but if you are looking at opportunities that exist in the market in excess of 50ms it's probably a good place to start. If not, go Lightspeed imo, but that'll cost you on the colo/data a lot more.\",\n \"Log in to your Scottrade account, and goto Markets --> Analyst Views --> Click the PDF link for the company. Also, there is also the 'Views and News' part of the web page which has additional information beyond what exist in the reports.\",\n \"For a company listed on NASDAQ, the numbers are published on NASDAQ's site. The most recent settlement date was 4/30/2013, and you can see that it lists 27.5 million shares as held short. NASDAQ gets these numbers from FINRA member firms, which are required to submit them to the exchange twice a month: Each FINRA member firm is required to report its “total” short interest positions in all customer and proprietary accounts in NASDAQ-listed securities twice a month. These reports are used to calculate short interest in NASDAQ stocks. FINRA member firms are required to report their short positions as of settlement on (1) the 15th of each month, or the preceding business day if the 15th is not a business day, and (2) as of settlement on the last business day of the month.* The reports must be filed by the second business day after the reporting settlement date. FINRA compiles the short interest data and provides it for publication on the 8th business day after the reporting settlement date.\",\n \"Moody's is now Mergent Online. It's no longer being printed, and must be accessed digitally. In order to browse the database, check with your local public library or university to see if you can get access. (A University will probably require you to visit for access). Another good tool is Value Line Reports. They are printed information sheets on public companies that are updated regularly, and are convenient for browsing and for comparing securities. Again, check your local libraries. A lot of the public information you may be looking for can be found on Yahoo Finance, for free, from home. Yahoo finance, will give financial information, ratios, news, filings, analysis, all in one place.\",\n \"\\\"I'm familiar with and have traded U.S.-listed LEAPS and I've always used the CBOE quotes page you linked to. So, I too was surprised I couldn't find 3M (MMM) LEAPS quotes at that page, even after checking the \\\"\\\"List all options, LEAPS, Credit Options & Weeklys if avail.\\\"\\\" radio button. Used to work! Fortunately, I was able to get access to the full chain of option quotes from the CBOE's other quotes page: Go to the \\\"\\\"Quotes & Data\\\"\\\" menu, then select Delayed Quotes - NEW! Here's how: I think the new interface is terrible: it's too many steps to get to the information desired. I preferred the all-in-one table of the Delayed Quotes Classic page, the one you linked to. As to why that classic page isn't yielding the full chain, I can only suggest it is a recently introduced bug (software defect). I certainly was able to get LEAPS quotes from that page before. On Yahoo! Finance option quotes: I don't know why their chain is incomplete – I can't see the logic, for instance, as to why MMM Jan 2012 60 calls are missing. I thought at first it may be lack of volume or open interest, but nope. Anyway, I don't trust Yahoo! to provide accurate, reliable quotes anyway, having seen too many errors and missing data in particular in the feed of Canadian stocks, which I also trade. I rely on the exchange's quotes, and my broker's real-time quotes. I check Yahoo! only for convenience sake, and when it actually matters I go to the other more reliable sources. For what it's worth, though, you can also get full chain option quotes at NASDAQ. See here for the 3M (MMM) example then click on the \\\"\\\"Jan 12\\\"\\\" link near the top. However, I would consider CBOE's quotes more definitive, since they are the options exchange.\\\"\",\n \"Well, kind of XD. I usually just look through Business Week for the ADRs that are on the OTC market. I don't do anything major, but why I love them is that they have a greater reach than just ADRs on the NYSE or NASDAQ. Like for instance, if I wanted to own Thai or European stocks, many of the larger, more reputable firms are listed on the OTC market. Having said that, most other sites don't have earnings reports laid out for you. Business Week does. The only fancy thing I am interested in are options and options on futures, and Bar Chart is good for the latter.\",\n \"> we make a trade-off between time to execute and market impact. Is your time frame any longer than intraday? I imagine you wouldn't want to carry that risk overnight if you're a broker or selling a route.. > we will join the bid for some fraction of our size, and also hit the offer when it looks like the price might be moving away from us So, say for instance you join a bid a few levels down, you aren't really get filled, you start hitting the offer and eventually you realize you're competing with someone for the shares offered, so you take out the price level and bid on all the exchanges so that you're first on the bid at that level, then repeat until someone that can match your appetite starts to fill you on the bid? > In some certain situations we will even sweep the book several levels deep to avoid tipping off market makers and having them adjust in anticipation of the rest of our order. Right, so say you need 100k shares, there are 10k offered at 9.98, 25k offered at 9.99, and 65k at 10.00, you might just enter an intermarket sweep order of 100k @ 10 limit and hope that you can get most of the shares off before everyone can cancel? I imagine there has to be a lot of bidding it up to attract sellers and then letting people take out your bids all day... I have a few other questions I would appreciate your insight on. Just trying to ascertain how orders are filled when, as you put it, time is more important than market impact to the client - when they need to take a large amount of liquidity as quickly as possible and as orderly as possible. Let me know if you'd rather I pm you about this or the additional questions, I work in the industry as well so I know privacy is paramount.\",\n \"[Brute Force](http://en.wikipedia.org/wiki/Brute-force_attack) Sending random hits to a server over and over again. Three order books. One happens earlier, the other two simultaneously. Bid ABT 105.00x1000 **Cancelled** Bid APPL 105.00x1000 **Cancelled** Bid AET 105.00x1000 **Cancelled** Bid ACT 105.00x1000 **Filled** The aforementioned happens before all else. Act's current value is 100.01.* Ask Act 100.00x1000 **Limit order denied** Ask Act 109.00x1000 **Filled** The third order book is simply testing the waters to see what the guy making the ask is willing to pay. *As well as all the cancelled orders, for the illustration.\",\n \"http://www.euroinvestor.com/exchanges/nasdaq/macromedia-inc/41408/history will work as DumbCoder states, but didn't contain LEHMQ (Lehman Brother's holding company). You can use Yahoo for companies that have declared bankruptcy, such as Lehman Brothers: http://finance.yahoo.com/q/hp?s=LEHMQ&a=08&b=01&c=2008&d=08&e=30&f=2008&g=d but you have to know the symbol of the holding company.\",\n \"\\\"Where can I download all stock symbols of all companies \\\"\\\"currently listed\\\"\\\" and \\\"\\\"delisted\\\"\\\" as of today? That's incredibly similar . You can also do it with a Bloomberg terminal but there's no need to pay to do this because he data changes so slowly.\\\"\",\n \"\\\"Publicly traded companies files 10-Ks with the SEC, searchable on the EDGAR system. If you want basic financial statement info then look for 10-Ks that are marked \\\"\\\"Interactive Data\\\"\\\", as for those the SEC has broken everything out by statement into standard formats. You could also use marketwatch which puts everything in financial statements into the same or as similar of categories as it can to make it easier to compare companies.\\\"\",\n \"It depends on the sequence in which the order [bid and ask] were placed. Please read the below question to understand how the order are matched. How do exchanges match limit orders?\",\n \"Neither site offers index futures or options pricing. Your best best is likely to get the quote from a broker who supports trading those vehicles. Free sites usually limit themselves to stocks and sometimes to options chains -- the exception is Reuters where just about any security for which you have the reuters formatted trading symbol can be quoted.\",\n \"$500 per package, with a package representing 100 stocks, or $5k for the entire market from a single source (NYSE, for example). IIRC that was the neighborhood when I went looking. I actually only needed one index in great detail - I chose the S&P 500, and found a source for well under $100.\",\n \"To add to @Victor 's answer; if you are entering a market order, and not a limit order (where you set the price you want to buy or sell at), then the Ask price is what you can expect to pay to purchase shares of stock in a long position and the Bid price is what you can expect to receive when you sell stock you own in a long position.\",\n \"\\\"http://www.interactivedata.com -> reference data No, it's not free. Nor would I consider it \\\"\\\"high quality\\\"\\\". For free data, try the Yahoo Finance API. The data you want is there, though you may need to calculate some of the fields yourself. Once you have your application working with free data you will be in a good position to evaluate whether it's worth it to shift to more detailed non-free data.\\\"\",\n \"\\\"My broker (thinkorswim) offers this from the platform's trade tab. I believe this feature isn't crippled in the PaperMoney version which is effectively a \\\"\\\"free online service.\\\"\\\"\\\"\",\n \"yes you are right as per my understanding while doing trade you must consider fol (specially for starters like me) The volume of the stock you are trading in should be high enough to keep you secure for quick in and out Whenever the bid volume is more than the ask volume the prices will move up and vice versa. to give an example if a stock is at 100 points and there are fol bids: The transaction will occur when either the bidder agrees to pay the ask price (case 1. he pays 101 . his bid offer will disappear and the next best ask will be 102. and the current price will be 101 which was the last transaction.) or when the person giving ask price agrees to deal at best bid which was 99 in which case the share will go down.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["For starters, that site shows the first 5 levels on each side of the book, which is actually quite a bit of information. When traders say the top of the book, they mean just the first level. So you're already getting 8 extra levels. If you want all the details, you must subscribe to the exchange's data feeds (this costs thousands of dollars per month) or open an account with a broker who offers that information. More important than depth, however, is update frequency. The BATS site appears to update every 5 seconds, which is nowhere near frequently enough to see what's truly going on in the book. Depending on your use case, 2 levels on each side of the book updated every millisecond might be far more valuable than 20 levels on each side updated every second."],"string":"[\n \"For starters, that site shows the first 5 levels on each side of the book, which is actually quite a bit of information. When traders say the top of the book, they mean just the first level. So you're already getting 8 extra levels. If you want all the details, you must subscribe to the exchange's data feeds (this costs thousands of dollars per month) or open an account with a broker who offers that information. More important than depth, however, is update frequency. The BATS site appears to update every 5 seconds, which is nowhere near frequently enough to see what's truly going on in the book. Depending on your use case, 2 levels on each side of the book updated every millisecond might be far more valuable than 20 levels on each side updated every second.\"\n]","isConversational":false}}},{"rowIdx":273,"cells":{"_id":{"kind":"string","value":"10122"},"query":{"kind":"string","value":"Why diversify stocks/investments?"},"gt_ids":{"kind":"list like","value":["570787","139368","273718","259084"],"string":"[\n \"570787\",\n \"139368\",\n \"273718\",\n \"259084\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["502495","153989","259084","279072","139368","110078","297100","508540","43683","331008","238702","477646","459970","296567","370777","365189","180855","310218","225239","419038","378137","144261","134542","218728","533576","570787","89084","102620","208977","384857","564069","463837","438582","257835","565181","36534","312942","593879","288144","474351","122581","229364","146637","216757","186575","525929","214723","470758","217035","323363","119392","344783","568443","391861","568624","322806","287846","222646","278607","297429","425452","420118","185123","599436","513818","179328","309157","314085","456761","418528","31581","90294","336722","526115","142188","28425","465774","216391","362579","526681","576008","199181","559027","260384","221795","347825","437875","499166","256349","30774","1103","98704","556913","433730","317354","577832","343977","466950","107751","549188"],"string":"[\n \"502495\",\n \"153989\",\n \"259084\",\n \"279072\",\n \"139368\",\n \"110078\",\n \"297100\",\n \"508540\",\n \"43683\",\n \"331008\",\n \"238702\",\n \"477646\",\n \"459970\",\n \"296567\",\n \"370777\",\n \"365189\",\n \"180855\",\n \"310218\",\n \"225239\",\n \"419038\",\n \"378137\",\n \"144261\",\n \"134542\",\n \"218728\",\n \"533576\",\n \"570787\",\n \"89084\",\n \"102620\",\n \"208977\",\n \"384857\",\n \"564069\",\n \"463837\",\n \"438582\",\n \"257835\",\n \"565181\",\n \"36534\",\n \"312942\",\n \"593879\",\n \"288144\",\n \"474351\",\n \"122581\",\n \"229364\",\n \"146637\",\n \"216757\",\n \"186575\",\n \"525929\",\n \"214723\",\n \"470758\",\n \"217035\",\n \"323363\",\n \"119392\",\n \"344783\",\n \"568443\",\n \"391861\",\n \"568624\",\n \"322806\",\n \"287846\",\n \"222646\",\n \"278607\",\n \"297429\",\n \"425452\",\n \"420118\",\n \"185123\",\n \"599436\",\n \"513818\",\n \"179328\",\n \"309157\",\n \"314085\",\n \"456761\",\n \"418528\",\n \"31581\",\n \"90294\",\n \"336722\",\n \"526115\",\n \"142188\",\n \"28425\",\n \"465774\",\n \"216391\",\n \"362579\",\n \"526681\",\n \"576008\",\n \"199181\",\n \"559027\",\n \"260384\",\n \"221795\",\n \"347825\",\n \"437875\",\n \"499166\",\n \"256349\",\n \"30774\",\n \"1103\",\n \"98704\",\n \"556913\",\n \"433730\",\n \"317354\",\n \"577832\",\n \"343977\",\n \"466950\",\n \"107751\",\n \"549188\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Diversification is a good method of risk management. Different types of investments do better in different situations and economic climates. Invest all your money at the wrong time in a single product and you could lose everything. You could also technically make a great deal of money, but actions such as these are the actions of speculators, not investors. Spreading your investments appropriately lets you maximize your growth opportunities while limiting your risk.","\"Diversification tends to protect you from big losses. But it also tends to \"\"protect\"\" you from big gains. In any industry, some companies provide good products and services and prosper while others have problems and fail. (Or maybe the winners are just lucky or they paid off the right politicians, whatever, not the point here.) If you put all your money in one stock and they do well, you could make a bundle. But if you pick a loser, you could lose your entire investment. If you buy a little stock in each of many companies, then some will go up and some will go down, and your returns will be an average of how everyone in the industry is doing. Suppose I offered to bet you a large sum of money that if I roll a die, it will come up 6. You might be reluctant to take that bet, because you can't predict what number will come up on one roll of a die. But suppose I offered to bet you a large sum of money that a die will come up 6, 100 times in a row. You might well take that bet, because the chance that it will turn up 6 time after time after time is very low. You reduce risk by spreading your bets. Anyone who's bought stock has surely had times when he said, \"\"Oh man! If only I'd bought X ten years ago I'd be a millionaire now!\"\" But quite a few have also said, \"\"If only I'd sold X ten years ago I wouldn't have lost all this money!\"\" I recently bought a stock a stock that within a few months rose to 10 times what I paid for it ... and then a few months later the company went bankrupt and the stock was worth nothing. I knew the company was on a roller coaster when I bought the stock, I was gambling that they'd pull through and I'd make money. I guessed wrong. Fortunately I gambled an amount that I was willing to lose.\"","Diversification is used by many to hopefully reduce the risk when bad investments are made. Diversification does not help you make more profits but instead averages down your profits. There is no way one can tell whether a stock or portfolio of stocks will go up or down once they are purchased. In order to try to provide some protection against total loss of the portfolio, a lazy so called long term investor will use diversification as a way of risk management. But the best outcome for them will be an averaging down of their profits. A better method is to let the market tell you when your purchased investment is a bad one and get out of that investment early and thus limiting your losses, whilst letting your good investments (as determined by the market) run and make larger profits.","If you are diversifying just for diversification purposes then all you are doing is averaging down your returns. You shouldn't just buy two securities because you think it is safer than putting all your money into one. A better method is to use money management and position sizing to limit your risk and exposure in any one security. You should know what your maximum risk is before you buy any security and know when it is time to get out of it. There are better ways to manage your risk. Don't put all your eggs in the one basket - yes, but don't diversify just for diversification purposes.","Diversifying is the first advice given to beginner in order to avoid big loss. For example in 2014 the company Theranos was really appealing before it fail in 2016. So a beginner could have invest ALL his money and lose it. But if he has deverified he wouldn't lost everything. As an investor goes from beginner to experience some still Diversify and other concentrate. Mostly it depends how much confident you are about an investement. If you have 20 years of experience, now everything about the company and you are sure there will be profit you can concentrate. If you are not 100% sure there will be a profit, it is better to Diversify. Diversifying can also be profitating when you loose money: because you will pay tax when you earn money, if you diversify you can choose to loose money in some stock (usually in december) and in this way cut your taxes.","If you buy stock in established companies, it is vey unlikely that they will lose all their value. Spreading your money across multiple stocks -- diversifying -- reduces that risk because it is extremely unlikely that they all lose all their value at once. Spreading them across multiple industries and adding bonds to the mix increases diversification. Of course the trade-off is that if one of the stocks skyrockets you don't benefit as much as if you had been lucky enough to put all your money in that one stock. You need to decide for yourself how much risk you are willing to tolerate in exchange for the chance of gains. Other answers on this site have dealt with this in more detail.","\"There are a couple of reasons to diversify your assets. First, since we cannot predict which of our investments will perform best, we want to \"\"cast our net\"\" broadly enough to have something invested in what's going to be performing well. Second, diversification isn't intended to provide the highest returns, but rather it is used to soften the effects of market volatility. By softening the downsides and lowering the overall volatility among our assets, returns are more consistent. If a model does not address future downside risk it is only telling you part of the story. (Past performance does not guarantee... you get the picture)\"","\"Diversification is extremely important and the one true \"\"Free Lunch\"\" of investing, meaning it can provide both greater returns and less risk than a portfolio that is not diversified. The reason people say otherwise is because they are talking about \"\"true\"\" portfolio diversification, which cannot be achieved by simply spreading money across stocks. To truly diversify a portfolio it must be diversified across multiple, unrelated \"\"Return Drivers.\"\" I describe this throughout my best-selling book and am pleased to provide complimentary links to the following two chapters, where I discuss the lack of diversification from spreading money solely across stocks (including correlation tables), as well as the benefits of true portfolio diversification: Jackass Investing - Myth #8: Trading is Gambling – Investing is Safer Jackass Investing - Myth #20: There is No Free Lunch\"","If you have 100% of your money in one security that is inherently more risky than splitting your money 50/50 between two securities, regardless of the purported riskiness of the two securities. The calculations people use to justify their particular breed of diversification may carry some assumptions related risk/reward calculations. But these particular justifications don't change the fact that spreading your money across different assets protects your money from value variances of the individual assets. Splitting your $100 between Apple and Microsoft stock is probably less valuable (less well diversified) than splitting your money between Apple and Whole Foods stock but either way you're carrying less risk than putting all $100 in to Apple stock regardless of the assumed rates of return for any of these companies stock specifically. Edit: I'm sure the downvotes are because I didn't make a big deal about correlation and measuring correlation and standard deviations of returns and detailed portfolio theory. Measuring efficacy and justifying your particular allocations (that generally uses data from the past to project the future) is all well and good. Fact of the matter is, if you have 100% of your money in stock that's more stock risk than 25% in cash, 25% in bonds and 50% in stock would be because now you're in different asset classes. You can measure to your hearts delight the effects of splitting your money between different specific companies, or different industries, or different market capitalizations, or different countries or different fund managers or different whatever-metrics and doing any of those things will reduce your exposure to those specific allocations. It may be worth pointing out that currently the hot recommendation is a plain vanilla market tracking S&P 500 index fund (that just buys some of each of the 500 largest US companies without any consideration given to risk correlation) over standard deviation calculating actively managed funds. If you ask me that speaks volumes of the true efficacy of hyper analyzing the purported correlations of various securities.","\"I would like to first point out that there is nothing special about a self-managed investment portfolio as compared to one managed by someone else. With some exceptions, you can put together exactly the same investment portfolio yourself as a professional investor could put together for you. Not uncommonly, too, at a lower cost (and remember that cost is among the, if not the, best indicator(s) of how your investment portfolio will perform over time). Diversification is the concept of not \"\"putting all your eggs in one basket\"\". The idea here is that there are things that happen together because they have a common cause, and by spreading your investments in ways such that not all of your investments have the same underlying risks, you reduce your overall risk. The technical term for risk is generally volatility, meaning how much (in this case the price of) something fluctuates over a given period of time. A stock that falls 30% one month and then climbs 40% the next month is more volatile than one that falls 3% the first month and climbs 4% the second month. The former is riskier because if for some reason you need to sell when it is down, you lose a larger portion of your original investment with the former stock than with the latter. Diversification, thus, is reducing commonality between your investments, generally but not necessarily in an attempt to reduce the risk of all investments moving in the same direction by the same amount at the same time. You can diversify in various ways: Do you see where I am going with this? A well-diversed portfolio will tend to have a mix of equity in your own country and a variety of other countries, spread out over different types of equity (company stock, corporate bonds, government bonds, ...), in different sectors of the economy, in countries with differing growth patterns. It may contain uncommon classes of investments such as precious metals. A poorly diversified portfolio will likely be restricted to either some particular geographical area, type of equity or investment, focus on some particular sector of the economy (such as medicine or vehicle manufacturers), or so on. The poorly diversified portfolio can do better in the short term, if you time it just right and happen to pick exactly the right thing to buy or sell. This is incredibly hard to do, as you are basically working against everyone who gets paid to do that kind of work full time, plus computer-algorithm-based trading which is programmed to look for any exploitable patterns. It is virtually impossible to do for any real length of time. Thus, the well-diversified portfolio tends to do better over time.\"","\"Years ago I wrote an article Risk, Reward, Coin Flipping which explains from a 'game theory' perspective how diversifying works to minimize standard deviation in one's returns. It's long and tedious, not easy to summarize, but it holds up well, I'm pleased with how the analogy does its job. Update - the above is too \"\"link-only\"\", written over 5 years ago. The article I wrote offers a mathematical approach via an understandable example of coin flipping. With just 2 options, a 'head' is a 10% loss, while a 'tail' is a 30% gain. This actually represents the market fairly well as it results in a 10% average gain and 28% standard deviation for just 2 flips. The article shows how by 'diversifying', choosing to make multiple smaller bets, the average 10% stays the same, but the standard deviation is brought down dramatically, 7.6% when we use a sample experiment with 7 coins.\"","\"Diversification is spreading your investments around so that one point of risk doesn't sink your whole portfolio. The effect of having a diversified portfolio is that you've always got something that's going up (though, the corollary is that you've also always got something going down... winning overall comes by picking investments worth investing in (not to state the obvious or anything :-) )) It's worth looking at the different types of risk you can mitigate with diversification: Company risk This is the risk that the company you bought actually sucks. For instance, you thought gold was going to go up, and so you bought a gold miner. Say there are only two -- ABC and XYZ. You buy XYZ. Then the CEO reveals their gold mine is played out, and the stock goes splat. You're wiped out. But gold does go up, and ABC does gangbusters, especially now they've got no competition. If you'd bought both XYZ and ABC, you would have diversified your company risk, and you would have been much better off. Say you invested $10K, $5K in each. XYZ goes to zero, and you lose that $5K. ABC goes up 120%, and is now worth $11K. So despite XYZ bankrupting, you're up 10% on your overall position. Sector risk You can categorize stocks by what \"\"sector\"\" they're in. We've already talked about one: gold miners. But there are many more, like utilities, bio-tech, transportation, banks, etc. Stocks in a sector will tend to move together, so you can be right about the company, but if the sector is out of favor, it's going to have a hard time going up. Lets extend the above example. What if you were wrong about gold going up? Then XYZ would still be bankrupt, and ABC would be making less money so they went down as well; say, 20%. At that point, you've only got $4K left. But say that besides gold, you also thought that banks were cheap. So, you split your investment between the gold miners and a couple of banks -- lets call them LMN and OP -- for $2500 each in XYZ, ABC, LMN, and OP. Say you were wrong about gold, but right about banks; LMN goes up 15%, and OP goes up 40%. At that point, your portfolio looks like this: XYZ start $2500 -100% end $0 ABC start $2500 +120% end $5500 LMN start $2500 +15% end $2875 OP start $2500 +40% end $3500 For a portfolio total of: $11,875, or a total gain of 18.75%. See how that works? Region/Country/Currency risk So, now what if everything's been going up in the USA, and everything seems so overpriced? Well, odds are, some area of the world is not over-bought. Like Brazil or England. So, you can buy some Brazilian or English companies, and diversify away from the USA. That way, if the market tanks here, those foreign companies aren't caught in it, and could still go up. This is the same idea as the sector risk, except it's location based, instead of business type based. There is an additional twist to this -- currencies. The Brits use the pound, and the Brazilians use the real. Most small investors don't think about this much, but the value of currencies, including our dollar, fluctuates. If the dollar has been strong, and the pound weak (as it has been, lately), then what happens if that changes? Say you own a British bank, and the dollar weakens and the pound strengthens. Even if that bank doesn't move at all, you would still make a gain. Example: You buy British bank BBB for 40 pounds a share, when each pound costs $1.20. Say after a while, BBB is still 40 pounds/share, but the dollar weakened and the pound strengthened, such that each pound is now worth $1.50. You could sell BBB, and because of the currency exchange once you've got it converted back to dollars you'd have a 25% gain. Market cap risk Sometimes big companies do well, sometimes it's small companies. The small caps are riskier but higher returning. When you think about it, small and mid cap stocks have much more \"\"room to run\"\" than large caps do. It's much easier to double a company worth $1 billion than it is to double a company worth $100 billion. Investment types Stocks aren't the only thing you can invest in. There's also bonds, convertible bonds, CDs, preferred stocks, options and futures. It can get pretty complicated, especially the last two. But each of these investment behaves differently; and again the idea is to have something going up all the time. The classical mix is stocks and bonds. The idea here is that when times are good, the stocks go up; when times are bad, the bonds go up (because they're safer, so more people want them), but mostly they're there to providing steady income and help keep your portfolio from cratering along with the stocks. Currently, this may not work out so well; stocks and bonds have been moving in sync for several years, and with interest rates so low they don't provide much income. So what does this mean to you? I'm going make some assumptions here based on your post. You said single index, self-managed, and don't lower overall risk (and return). I'm going to assume you're a small investor, young, you invest in ETFs, and the single index is the S&P 500 index ETF -- SPY. S&P 500 is, roughly, the 500 biggest companies in the USA. Further, it's weighted -- how much of each stock is in the index -- such that the bigger the company is, the bigger a percentage of the index it is. If slickcharts is right, the top 5 companies combined are already 11% of the index! (Apple, Microsoft, Exxon, Amazon, and Johnson & Johnson). The smallest, News Corp, is a measly 0.008% of the index. In other words, if all you're invested in is SPY, you're invested in a handfull of giant american companies, and a little bit of other stuff besides. To diversify: Company risk and sector risk aren't really relevant to you, since you want broad market ETFs; they've already got that covered. The first thing I would do is add some smaller companies -- get some ETFs for mid cap, and small cap value (not small cap growth; it sucks for structural reasons). Examples are IWR for mid-cap and VBR for small-cap value. After you've done that, and are comfortable with what you have, it may be time to branch out internationally. You can get ETFs for regions (such as the EU - check out IEV), or countries (like Japan - see EWJ). But you'd probably want to start with one that's \"\"all major countries that aren't the USA\"\" - check out EFA. In any case, don't go too crazy with it. As index investing goes, the S&P 500 is not a bad way to go. Feed in anything else a little bit at a time, and take the time to really understand what it is you're investing in. So for example, using the ETFs I mentioned, add in 10% each IWR and VBR. Then after you're comfortable, maybe add 10% EFA, and raise IWR to 20%. What the ultimate percentages are, of course, is something you have to decide for yourself. Or, you could just chuck it all and buy a single Target Date Retirement fund from, say, Vanguard or T. Rowe Price and just not worry about it.\"","I think to answer this question it is best for you to learn more about why people diversify through asset allocation. Look at related questions involving Asset Allocation here. I've asked a couple questions about asset allocation - I think you'll find the top rated answer on this post useful.","\"While it's definitely possible (and likely?) that a diversified portfolio generates higher returns than the S&P 500, that's not the main reason why you diversify. Diversification reduces risk. Modern portfolio theory suggests that you should maximize return while reducing risk, instead of blindly chasing the highest returns. Think about it this way--say the average return is 11% for large cap US stocks (the S&P 500), and it's 10% for a diversified portfolio (say, 6-8 asset classes). The large cap only portfolio has a 10% chance of losing 30% in a given year, while the diversified portfolio has a 1% chance of losing 30% in a year. For the vast majority of investors, it's worth the 1% annual gap in expected return to greatly reduce their risk exposure. Of course, I just made those numbers up. Read what finance professors have written for the \"\"data and proof\"\". But modern portfolio theory is believed by a lot of investors and other finance experts. There are a ton of studies (and therefore data) on MPT--including many that contradict it.\"","if I have a asset A with expected return of 100% and risk(measured by standard deviation) 1%, and asset B with expected return of 1% and risk 100%, would it be rational to put asset B into the portfolio ? No, because Modern Portfolio Theory would say that if there is another asset (B2) with the same (or higher) return but less risk (which you already have in asset A), you should invest in that. If those are the only two assets you can choose from, you would invest completely in Asset A. The point of diversification is that, so long as two assets aren't perfectly positively correlated (meaning that if one moves up the other always moves up), then losses in one asset will sometimes be offset by gains in another, reducing the overall risk.","At its simplest level it's an application of basic statistics/probability: Suppose you have n independent and identically distributed assets with the return on asset i denoted R_i which has mean m and variance s^2 (same for all assets). You can easily weaken these assumptions but I make them to simplify the exposition [Square brackets show a numerical example with n=20, m=8%, s=2%] if you invest in one of these assets you expect to get a return of m [8%] with standard deviation s [2%] (so you expect with probability 95% (approx) to get a return between m-2*s and m+2*s. [between 4% and 12%] Now suppose you split your money equally among the n-assets. Your return is now R = (1/n)\\Sum{i=1}^n R_i your expected return is E(R) = (1/n)\\Sum{i=1}^n E(R_i) = (1/n)\\Sum{i=1}^n m = m [8%] the variance of your return is Var(R) = Var( (1/n)\\Sum{i=1}^n R_i ) = (1/n^2)\\Sum{i=1}^n Var(R_i) = n * s^2 / n^2) = s^2/n So, the standard deviation is SD(R) = Sqrt(V(R)) = s/Sqrt(n) [2%/Sqrt(20) = 0.44%] Now, with 95% probability we get a return between E(R)-2*SD(R) and E(R)+2*SD(R) [between 7.12% and 8.88%]. This interval is smaller than when we invested in the single asset, so in effect with this portfolio we are achieving the same return m [8%] but with lower variance (risk) [0.44% instead of 2%]. This is the result of diversification. You can assume the assets are not independent (and most book expositions of this topic do indeed do that). In that case the calculation is modified because the variance of the portfolio now depends on the correlation between returns, as does the reduction in variance caused by the diversification. If assets are negatively correlated the result of the diversification will be more reduction in risk and vice versa. You can also assume the assets are not identically distributed and the above analysis does not change too much. You might look for some references on CAPM (Capital Asset Pricing Model) or portfolio theory but broadly these are based on what I have described above - finding the portfolio with minimum variance for a given return by investing proportionally in treasury bonds and risky assets.","Diversifying your portfolio between asset A and asset B only reduces the portfolio risk if asset A and asset B are not correlated. If they have either a low correlation or a negative correlation to each other, then you benefit from combining them in a portfolio in terms of risk reduction. The standard deviation of returns will be lower in a portfolio of low or uncorrelated assets. If on the other hand you combine two correlated assets into a portfolio you are doubling down on the same assumption, which means you are not reducing your risk. You are also wasting capital because now you have allocated capital to 2 separate trades / investments yet they have shown a high tendency of moving together. Here is an article that discusses this further: Why Diversify your Stock Portfolio","\"If the stock market dropped 30%-40% next month, providing you with a rare opportunity to buy stocks at a deep discount, wouldn't you want to have some of your assets in investments other than stocks? If you don't otherwise have piles of new cash to throw into the market when it significantly tanks, then having some of your portfolio invested elsewhere will enable you to back up the proverbial truck and load up on more stocks while they are on sale. I'm not advocating active market timing. Rather, the way that long-term investors capitalize on such opportunities is by choosing a portfolio asset allocation that includes some percentage of safer assets (e.g. cash, short term bonds, etc.), permitting the investor to rebalance the portfolio periodically back to target allocations (e.g. 80% stocks, 20% bonds.) When rebalancing would have you buy stocks, it's usually because they are on sale. Similarly, when rebalancing would have you sell stocks, it's usually because they are overpriced. So, don't consider \"\"safer investments\"\" strictly as a way to reduce your risk. Rather, they can give you the means to take advantage of market drops, rather than just riding it out when you are already 100% invested in stocks. I could say a lot more about diversification and risk reduction, but there are plenty of other great questions on the site that you can look through instead.\"","Most investors should not be in individual stocks. The market, however you measure it, can rise, yet some stocks will fall for whatever reason. The diversification needed is to have a number of shares of different stocks, and that a bit higher than most investors are able to invest and certainly not one starting out. I suggest you look at either mutual funds or ETFs, and keep studying. (I'm told I should have offered the UK equivalent Investment Trusts , OEIC, or Unit Trusts)","\"JoeTaxpayer's answer is dead on... but let me give my own two cents with a little bit of math. Otherwise, I personally find that people talking about diversified portfolios tends to be full of buzzwords. Let's say that Buffett's investments are $10 million. He would like to earn ≥7% this year, or $700,000. He can invest that money in coca-cola//underwear, which might return: Or he can invest in \"\"genius moves\"\" that will make headlines: (like buying huge stakes in Goldman Sachs), which might return: And he makes plays for the long haul based on the expected value of the investments. So if he splits it 50/50... ($5 million/ $5 million), then his expected value is 822,250: By diversifying, he does reduce the expected value of the portfolio... (He is not giving $10 M the chance to turn into $1.5 million or $2 million for him!). The expected value of that shock-and-awe portfolio with all $10 million invested in it is $1.2M. By taking less risk... for less reward... his expected return is lower. But his risk is lower too. Scale this example back up into the $100 million or billion range that Buffett invests in and that extra margin makes the difference. In the context of your original article, the lower-risk 'cake and underwear' investments let Buffett go big on the things that will make 20%+ returns on billions of dollars, without completely destroying his investment capital when things take a turn for the worse.\"","Diversification is just one aspect in an investment portfolio. The other aspects in Investment are Risk Taking Ability, Liquidity, Local Regulations, Tax benefits, Ease & Convenience, Cost of carrying out transactions etc. Investing in other regions is prone FX risk and other risks depending on the region of investment. For example investing in Emerging markets there is a risk of Local Regulations being changed, additional tax being levied, or Political instability and host of such risks. Investing in local markets give you better understanding of such changes and the risk associated is less plus the Ease of carrying out transactions is great, less expensive compared to cost of transactions in other markets. Diversification in Investment should also be looked upon how much you invest in; Equities Debt Bullion Real Estate Once you have a sizeable amount of investment in Equities or Debt, it would then make more sense to diversify this portion more to include funds from other regions. Unless you are an Running your own business, it makes sense to invest in your line of business if that is performing well. The reason being that the benefit / returns from the equities is much greater than the salary rise / bonus. For example I am in Information Technology and yet invest in all leading IT companies because the returns from companies in these segments have been good.","\"Index funds are well-known to give the best long-term investment. Not exactly. Indexes give the best long term performance when compared to actively managing investments directly in the underlying stocks. That is, if you compare an S&P500 index to trying to pick stocks that are part of it, you're more likely to succeed with blindly following the index than trying to actively beat it. That said, no-one promises that investing in S&P500 is better than investing in DJIA, for example. These are two different indexes tracking different stocks and areas. So when advisers say \"\"diversify\"\" they don't mean it that you should diversify between different stocks that build up the S&P500 index. They mean that you should diversify your investments in different areas. Some in S&P500, some in DJIA, some in international indexes, some in bond indexes, etc. Still, investing in various indexes will likely yield better results than actively managing the investments trying to beat those indexes, but you should not invest in only one, and that is the meaning of diversification. In the comments you asked \"\"why diversify at all?\"\", and that is entirely a different question from your original \"\"what diversification is?\"\". You diversify to reduce the risk of loss from one side, and widen the net for gains from another. The thing is that any single investment can eventually fail, regardless of how it performed before. You can see that the S&P500 index lost 50% of its value twice within ten years, whereas before it was doubling itself every several years. Many people who were only invested in that index (or what's underlying to it) lost a lot of money. But consider you've diversified, and in the last 20 years you've invested in a blend of indexes that include the S&P500, but also other investments like S&P BSE SENSEX mentioned by Victor below. You would reduce your risk of loss on the American market by increasing your gains on the Indian market. Add to the mix soaring Chinese Real Estate market during the time of the collapse of the US real-estate, gains on the dollar losing its value by investing in other currencies (Canadian dollar, for example), etc. There are many risks, and by diversifying you mitigate them, and also have a chance to create other potential gains. Now, another question is why invest in indexes. That has been answered before on this site. It is my opinion that some methods of investing are just gambling by trying to catch the wave and they will almost always fail, and rarely will individual stock picking beat the market. Of course, after the fact its easy to be smart and pick the winning stocks. But the problem is to be able to predict those charts ahead of time.\"","\"When you invest in a single index/security, you are completely exposed to the risk of that security. Diversification means spreading the investments so the losses on one side can be compensated by the gains on the other side. What you are talking about is one thing called \"\"risk apettite\"\", more formally known as Risk Tolerance: Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand. (emphasis added) This means that you are willing to accept some losses in order to get a potential bigger return. Fidelity has this graph: As you can see in the table above, the higher the risk tolerance, the bigger the difference between the best and worst values. That is the variability. The right-most pie can be one example of an agressive diversified portfolio. But this does not mean you should go and buy exactly that security compostion. High-risk means playing with fire. Unless you are a professional stuntman, playing with fire usually leaves people burnt. In a financial context this usually means the money is gone. Recommended Reading: Investopedia; Risk and Diversification: The Risk-Reward Tradeoff Investopedia; How to construct a High Risk portfolio Fidelity: Guide to Diversification KPMG: Understanding and articulating Risk Appetite (pdf)\"","The other example I'd offer is the case for diversification. If one buys 10 well chosen stocks, i.e. stocks spread across different industries so their correlation to one another is low, they will have lower risk than each of the 10 folk who own one of those stocks per person. Same stocks, but lower risk when combined.","\"You should only invest in individual stocks if you truly understand the company's business model and follow its financial reports closely. Even then, individual stocks should represent only the tiniest, most \"\"adventurous\"\" part of your portfolio, as they are a huge risk. A basic investing principle is diversification. If you invest in a variety of financial instruments, then: (a) when some components of your portfolio are doing poorly, others will be doing well. Even in the case of significant economic downturns, when it seems like everything is doing poorly, there will be some investment sectors that are doing relatively better (such as bonds, physical real estate, precious metals). (b) over time, some components of your portfolio will gain more money than others, so every 6 or 12 months you can \"\"rebalance\"\" such that all components once again have the same % of money invested in them as when you began. You can do this either by selling off some of your well-performing assets to purchase more of your poorly-performing assets or (if you don't want to incur a taxable event) by introducing additional money from outside your portfolio. This essentially forces you to \"\"buy (relatively) low, sell (relatively) high\"\". Now, if you accept the above argument for diversification, then you should recognize that owning a handful (or even several handfuls) of individual stocks will not help you achieve diversification. Even if you buy one stock in the energy sector, one in consumer discretionary, one in financials, etc., then you're still massively exposed to the day-to-day fates of those individual companies. And if you invest solely in the US stock market, then when the US has a decline, your whole portfolio will decline. And if you don't buy any bonds, then again when the world has a downturn, your portfolio will decline. And so on ... That's why index mutual funds are so helpful. Someone else has already gone to the trouble of grouping together all the stocks or bonds of a certain \"\"type\"\" (small-cap/large-cap, domestic/foreign, value/growth) so all you have to do is pick the types you want until you feel you have the diversity you need. No more worrying about whether you've picked the \"\"right\"\" company to represent a particular sector. The fewer knobs there are to turn in your portfolio, the less chance there is for mistakes!\"","Basically, diversifying narrows the spread of possible results, raising the center of the returns bell-curve by reducing the likelihood of extreme results at either the high or low end. It's largely a matter of basic statistics. Bet double-or-nothing on a single coin flip, and those are the only possible results, and your odds of a disaster (losing most or all of the money) are 50%. Bet half of it on each of two coin flips, and your odds of losing are reduced to 25% at the cost of reducing your odds of winning to 25%, with 50% odds that you retain your money and can try the game again. Three coins divides the space further; the extremes are reduced to 12.5% each, with the middle being most likely. If that was all there was, this would be a zero-sum game and pure gambling. But the stock market is actually positive-sum, since companies are delivering part of their profits to their stockholder owners. This moves the center of the bell curve up a bit from break-even, historically to about +8%. This is why index funds produce a profit with very little active decision; they treat the variation as mostly random (which seems to work statistically) and just try to capture average results of a (hopefully) slightly above-average bucket of stocks and/or bonds. This approach is boring. It will never double your money overnight. On the other hand, it will never wipe you out overnight. If you have patience and are willing to let compound interest work for you, and trust that most market swings regress to the mean in the long run, it quietly builds your savings while not driving you crazy worrying about it. If all you are looking for is better return than the banks, and you have a reasonable amount of time before you need to pull the funds out, it's one of the more reliably predictable risk/reward trade-off points. You may want to refine this by biasing the mix of what you're holding. The simplest adjustment is how much you keep in each of several major investment categories. Large cap stocks, small cap stocks, bonds, and real estate (in the form of REITs) each have different baseline risk/return curves, and move in different ways in response to news, so maintaining a selected ratio between these buckets and adding the resulting curves together is one simple way to make fairly predictable adjustments to the width (and centerline) of the total bell curve. If you think you can do better than this, go for it. But index funds have been outperforming professionally managed funds (after the management fees are accounted for), and unless you are interested in spending a lot of time researching and playing with your money the odds of your doing much better aren't great unless you're willing to risk doing much worse. For me, boring is good. I want my savings to work for me rather than the other way around, and I don't consider the market at all interesting as a game. Others will feel differently.","Diversification is a risk-mitigation strategy. When you invest in equities, you generally get a higher rate of return than a fixed income investment. But you have risks... a single company's market value can decline for all sorts of reasons, including factors outside of the control of management. Diversification lets you spread risk and concentrate on sectors that you feel offer the best value. Investing outside of your currency zone allows you to diversify more, but also introduces currency risks, which require a whole other level of understanding. Today, investing in emerging markets is very popular for US investors because these economies are booming and US monetary policy has been weakening the dollar for some time. A major bank failure in China or a flip to a strong dollar policy could literally implode those investments overnight. At the end of the day, invest in what you understand. Know the factors that can lower your investment value.","You are diversified within a particular type of security. Notably the stock market. A truly diversified portfolio not only has multiple types of holdings within a single type of security (what your broad market fund does) but between different types. You have partially succeeded in doing this with the international fund - that way your risk is spread between domestic and international stocks. But there are other holdings. Cash, bonds, commodities, real estate, etc. There are broad index funds/ETFs for those as well, which may reduce your risk when the stock market as a whole tanks - which it does on occasion.","Hedging - You have an investment and are worried that the price might drop in the near future. You don't want to sell as this will realise a capital gain for which you may have to pay capital gains tax. So instead you make an investment in another instrument (sometimes called insurance) to offset falls in your investment. An example may be that you own shares in XYZ. You feel the price has risen sharply over the last month and is due for a steep fall. So you buy some put option over XYZ. You pay a small premium and if the price of XYZ falls you will lose money on the shares but will make money on the put option, thus limiting your losses. If the price continues to go up you will only lose the premium you paid for the option (very similar to an insurance policy). Diversification - This is when you may have say $100,000 to invest and spread your investments over a portfolio of shares, some units in a property fund and some bonds. So you are spreading your risks and returns over a range of products. The idea is if one stock or one sector goes down, you will not lose a large portion of your investment, as it is unlikely that all the different sectors will all go down at the same time.","The common advice you mentioned is just a guideline and has little to do with how your portfolio would look like when you construct it. In order to diversify you would be using correlations and some common sense. Recall the recent global financial crisis, ones of the first to crash were AAA-rated CDO's, stocks and so on. Because correlation is a statistical measure this can work fine when the economy is stable, but it doesn't account for real-life interrelations, especially when population is affected. Once consumers are affected this spans to the entire economy so that sectors that previously seemed unrelated have now been tied together by the fall in demand or reduced ability to pay-off. I always find it funny how US advisers tell you to hold 80% of US stocks and bonds, while UK ones tell you to stick to the UK securities. The same happens all over the world, I would assume. The safest portfolio is a Global Market portfolio, obviously I wouldn't be getting, say, Somalian bonds (if such exist at all), but there are plenty of markets to choose from. A chance of all of them crashing simultaneously is significantly lower. Why don't people include derivatives in their portfolios? Could be because these are mainly short-term, while most of the portfolios are being held for a significant amount of time thus capital and money markets are the key components. Derivatives are used to hedge these portfolios. As for the currencies - by having foreign stocks and bonds you are already exposed to FX risk so you, again, could be using it as a hedging instrument.","\"The short answer: zero. dg99's answer gives some good reasons why. You will basically never be able to achieve diversification with individual stocks that is anywhere close to what you can get with mutual funds. Owning individual stocks exposes you to much greater risk in that random one-off events that happen to affect one of the companies you own can have a disproportionate effect on your assets. (For instance, some sort of scandal involving a particular company can cause its stock to tank.) There are only two reasons I can see to invest in individual stocks: a. You have some unique opportunity to acquire stock that other people might not be able to get (or get at that price). This can be the case if you work for a privately-held company that allows you to buy stock (or options), or allows you to participate in its IPO. Even then, you should not go too crazy, since having too much stock in the company you work for can double your pain if the company falls on hard times (you may lose your job and your investment). b. For fun. If you like tracking stocks and trying to beat the market, you may want to test your skills at this by using a small proportion of your investable cash (no more than 10%). In this case you're not so much hoping to increase your returns as to just enjoy investing more. This can also have a psychological benefit in that it allows you to \"\"blow off steam\"\" and indulge your desire to make decisions, while allowing your passive investments (index funds) to shoulder the load of actually gaining value.\"","\"John Bensin's answer covers the math, but I like the plain-English examples of the theory from William Bernstein's fine book, The Intelligent Asset Allocator. At the author's web site, you can find the complete chapter 1 and chapter 2, though not chapter 3, which is the one with the \"\"multiple coin toss\"\" portfolio example I want to highlight. I'll summarize Bernstein's multiple coin toss example here with some excerpts from the book. (Another top user, @JoeTaxpayer, has also written about the coin flip on his blog, also mentioning Bernstein's book.) Bernstein begins Chapter 1 by describing an offer from a fictitious \"\"Uncle Fred\"\": Imagine that you work for your rich but eccentric Uncle Fred. [...] he decides to let you in on the company pension plan. [...] you must pick ahead of time one of two investment choices for the duration of your employment: Certificates of deposit with a 3% annualized rate of return, or, A most peculiar option: At the end of each year Uncle Fred flips a coin. Heads you receive a 30% investment return for that year, tails a minus 10% (loss) for the year. This will be hereafter referred to as \"\"Uncle Fred’s coin toss,\"\" or simply, the \"\"coin toss.\"\" In effect, choosing option 2 results in a higher expected return than option 1, but it is certainly riskier, having a high standard deviation and being especially prone to a series of bad tosses. Chapters 1 and 2 continue to expand on the idea of risk, and take a look at various assets/markets over time. Chapter 3 then begins by introducing the multiple coin toss example: Time passes. You have spent several more years in the employ of your Uncle Fred, and have truly grown to dread the annual coin-toss sessions. [...] He makes you another offer. At the end of each year, he will divide your pension account into two equal parts and conduct a separate coin toss for each half [...] there are four possible outcomes [...]: [...] Being handy with numbers, you calculate that your annualized return for this two-coin-toss sequence is 9.08%, which is nearly a full percentage point higher than your previous expected return of 8.17% with only one coin toss. Even more amazingly, you realize that your risk has been reduced — with the addition of two returns at the mean of 10%, your calculated standard deviation is now only 14.14%, as opposed to 20% for the single coin toss. [...] Dividing your portfolio between assets with uncorrelated results increases return while decreasing risk. [...] If the second coin toss were perfectly inversely correlated with the first and always gave the opposite result [hence, outcomes 1 and 4 above never occurring], then our return would always be 10%. In this case, we would have a 10% annualized long-term return with zero risk! I hope that summarizes the example well. Of course, in the real world, one of the tricks to building a good portfolio is finding assets that aren't well-correlated, and if you're interested in more on the subject I suggest you check out his books (including The Four Pillars of Investing) and read more about Modern Portfolio Theory (MPT).\"","I think you need a diversified portfolio, and index funds can be a part of that. Make sure that you understand the composition of your funds and that they are in fact invested in different investments.","The easiest way to deal with risks for individual stocks is to diversify. I do most of my investing in broad market index funds, particularly the S&P 500. I don't generally hold individual stocks long, but I do buy options when I think there are price moves that aren't supported by the fundamentals of a stock. All of this riskier short-term investing is done in my Roth IRA, because I want to maximize the profits in the account that won't ever be taxed. I wouldn't want a particularly fruitful investing year to bite me with short term capital gains on my income tax. I usually beat the market in that account, but not by much. It would be pretty easy to wipe out those gains on a particularly bad year if I was investing in the actual stocks and not just using options. Many people who deal in individual stocks hedge with put options, but this is only cost effective at strike prices that represent losses of 20% or more and it eats away the gains. Other people or try to add to their gains by selling covered call options figuring that they're happy to sell with a large upward move, but if that upward move doesn't happen you still get the gains from the options you've sold.","I am voting you up because this is a legitimate question with a correct possible answer. Yes, you shouldn't buy penny stocks, yes you shouldn't speculate, yes people will be jealous that you have money to burn. Your question: how to maximize expected return. There are several definitions of return and the correct one will determine the correct answer. For your situation, $1,000 sounds like disposable income and that you have the human capital to make more income in the future with your productive years. So we will not assume you want to take this money and reinvest the remains until you are dead. This rules out #2. It sounds like you are the sole beneficiary of this fund and that your value proposition is regardless of asset class and competition to other investment opportunities. In other words, you are committed to blowing this $1,000 and would not consider instead putting the money towards paying down credit card debt or other valuable uses. This rules out #3. You are left with #1, expected value. Now there is already evidence that penny stocks are a losing proposition. In fact, some people have been successful in setting up honeypot email accounts and waiting for penny stock spam... then shorting those stocks. So to maximize expected return, invest 0% of your bankroll. But that's boring, let's ignore it. As you have correctly identified, the transaction costs are significant, $14 in tolls on crossing the bridge both ways on a $1,000 investment already exceeds the 5-year US bond rate. Diversification will affect the correlation and overall risk (Kelly Criterion) of your portfolio -- but it has no effect on your expected return. In summary, diversification has zero effect on your expected return and is not justified by the cost.","\"Generally investing in index-tracking funds in the long term poses relatively low risk (compared to \"\"short term investment\"\", aka speculation). No-one says differently. However, it is a higher risk than money-market/savings/bonds. The reason for that is that the return is not guaranteed and loss is not limited. Here volatility plays part, as well as general market conditions (although the volatility risk also affects bonds at some level as well). While long term trend may be upwards, short term trend may be significantly different. Take as an example year 2008 for S&P500. If, by any chance, you needed to liquidate your investment in November 2008 after investing in November 1998 - you might have ended up with 0 gain (or even loss). Had you waited just another year (or liquidated a year earlier) - the result would be significantly different. That's the volatility risk. You don't invest indefinitely, even when you invest long term. At some point you'll have to liquidate your investment. Higher volatility means that there's a higher chance of downward spike just at that point of time killing your gains, even if the general trend over the period around that point of time was upward (as it was for S&P500, for example, for the period 1998-2014, with the significant downward spikes in 2003 and 2008). If you invest in major indexes, these kinds of risks are hard to avoid (as they're all tied together). So you need to diversify between different kinds of investments (bonds vs stocks, as the books \"\"parrot\"\"), and/or different markets (not only US, but also foreign).\"","Diversified is relative. Alfred has all his money in Apple. He's done very well over the last 10 years, but I think most investors would say that he's taking an incredible risk by putting everything on one stock. Betty has stock in Apple, Microsoft, and Google. Compared to Alfred, she is diversified. Charlie looks at Betty and realizes that she is only investing in one particular industry. All the companies in an individual industry can have a downturn together, so he invests everything in an S&P 500 index fund. David looks at Charlie and notes that he's got everything in large, high-capitalization companies. Small-cap stocks are often where the growth happens, so he invests in a total stock market fund. Evelyn realizes that David has all his money tied up in one country, the United States. What about the rest of the world? She invests in a global fund. Frank really likes Evelyn's broad approach to equities, but he knows that some portion of fixed-income assets (e.g. cash deposits, bonds) can reduce portfolio volatility—and may even enhance returns through periodic rebalancing. He does what Evelyn does, but also allocates some percentage of his portfolio to fixed income, and intends to maintain his target allocations. Being diversified enough depends on your individual goals and investing philosophy. There are some who would say that it is wrong to put all of your money in one fund, no matter what it is. Others would say that a sufficiently broad index fund is inherently diversified as-is.","\"A diversified portfolio (such as a 60% stocks / 40% bonds balanced fund) is much more predictable and reliable than an all-stocks portfolio, and the returns are perfectly adequate. The extra returns on 100% stocks vs. 60% are 1.2% per year (historically) according to https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations To get those average higher stock returns, you need to be thinking 20-30 years (even 10 years is too short-term). Over the 20-30 years, you must never panic and go to cash, or you will destroy the higher returns. You must never get discouraged and stop saving, or you will destroy the higher returns. You have to avoid the panic and discouragement despite the likelihood that some 10-year period in your 20-30 years the stock market will go nowhere. You also must never have an emergency or other reason to withdraw money early. If you look at \"\"dry periods\"\" in stocks, like 2000 to 2011, a 60/40 portfolio made significant money and stocks went nowhere. A diversified portfolio means that price volatility makes you money (due to rebalancing) while a 100% stocks portfolio means that price volatility is just a lot of stress with no benefit. It's somewhat possible, probably, to predict dry periods in stocks; if I remember the statistics, about 50% of the variability in the market price 10 years out can be explained by normalized market valuation (normalized = adjusted for business cycle and abnormal profit margins). Some funds such as http://hussmanfunds.com/ are completely based on this, though a lot of money managers consider it. With a balanced portfolio and rebalancing, though, you don't have to worry about it very much. In my view, the proper goal is not to beat the market, nor match the market, nor is it to earn the absolute highest possible returns. Instead, the goal is to have the highest chance of financing your non-financial goals (such as retirement, or buying a house). To maximize your chances of supporting your life goals with your financial decisions, predictability is more important than maximized returns. Your results are primarily determined by your savings rate - which realistic investment returns will never compensate for if it's too low. You can certainly make a 40-year projection in which 1.2% difference in returns makes a big difference. But you have to remember that a projection in which value steadily and predictably compounds is not the same as real life, where you could have emergency or emotional factors, where the market will move erratically and might have a big plunge at just the wrong time (end of the 40 years), and so on. If your plan \"\"relies\"\" on the extra 1.2% returns then it's not a reasonable plan anyhow, in my opinion, since you can't count on them. So why suffer the stress and extra risk created by an all-stocks portfolio?\"","Depends on the fund. If it's a Target Date fund, which is inherently diversified, this comes down to how much you trust the investment house to not go belly-up. If it's another kind of fund, you need to manage your own duversification and occasional rebalancing. Most of my money is in index funds (details elsewhere), but that's five or six very different indexes to cover the investment space with the mix of investment types I've selected. And most of it is in a single family of funds, which might be argued to be higher risk than desirable but which has been convenient.","\"The calculation and theory are explained in the other answers, but it should be pointed out that the video is the equivalent of watching a magic trick. The secret is: \"\"Stock A and B are perfectly negatively correlated.\"\" The video glasses over that fact that without that fact the risk doesn't drop to zero. The rule is that true diversification does decrease risk. That is why you are advised to spread year investments across small-cap, large-cap, bonds, international, commodities, real estate. Getting two S&P 500 indexes isn't diversification. Your mix of investments will still have risk, because return and risk are backward calculations, not a guarantee of future performance. Changes that were not anticipated will change future performance. What kind of changes: technology, outsourcing, currency, political, scandal.\"","Bonds provide protections against stock market crashes, diversity and returns as the other posters have said but the primary reason to invest in bonds is to receive relatively guaranteed income. By that I mean you receive regular payments as long as the debtor doesn't go bankrupt and stop paying. Even when this happens, bondholders are the first in line to get paid from the sale of the business's assets. This also makes them less risky. Stocks don't guarantee income and shareholders are last in line to get paid. When a stock goes to zero, you lose everything, where as a bondholder will get some face value redemption to the notes issue price and still keep all the previous income payments. In addition, you can use your bond income to buy more shares of stock and increase your gains there.","Dollar-Cost averaging will allow you to reduce your risk while the stock prices falls provided: You must invest a fixed amount $X on a fixed time scale (i.e. every Y days). By doing this you will be able to take advantage of the lowering price by obtaining more shares per period as the price falls. But at the same time, if it starts to rise, you will already have your pig in the race. Example: Suppose you wanted to invest $300 in a company. We will do so over 3 periods. As the price falls, your average dollar cost will as well. But since you don't know where the bottom is, you cannot wait until the bottom. By trying to guess the bottom and dumping all of your investment at once you expose yourself to a higher level of risk.","\"Yes, a diversified portfolio can generate greater returns than the S&P 500 by going OUTSIDE it. For instance, small stocks (on average) generate higher returns than the \"\"large caps\"\" found in the S&P 500. So if you own a diversified portfolio of stocks, some of which are smaller (in market cap) than the typical S&P 500 stock, you have a chance to outperform. You might also outperform by owning other asset classes than stocks such as gold, real estate, and timber (among others) at appropriate times. (You may also be able to get the relevant exposure by owning gold and timber stocks and REITS.) This was a lesson that David Swensen of the Yale endowment taught us.\"","\"Great question! While investing in individual stocks can be very useful as a learning experience, my opinion is that concentrating an entire portfolio in a few companies' stock is a mistake for most investors, and especially for a novice for several reasons. After all, only a handful of professional investors have ever beaten the market over the long term by picking stocks, so is it really worth trying? If you could, I'd say go work on Wall Street and good luck to you. Diversification For many investors, diversification is an important reason to use an ETF or index fund. If they were to focus on a few sectors or companies, it is more likely that they would have a lop-sided risk profile and might be subject to a larger downside risk potential than the market as a whole, i.e. \"\"don't put all your eggs in one basket\"\". Diversification is important because of the nature of compound investing - if you take a significant hit, it will take you a long time to recover because all of your future gains are building off of a smaller base. This is one reason that younger investors often take a larger position in equities, as they have longer to recover from significant market declines. While it is very possible to build a balanced, diversified portfolio from individual stocks, this isn't something I'd recommend for a new investor and would require a substantial college-level understanding of investments, and in any case, this portfolio would have a more discrete efficient frontier than the market as a whole. Lower Volatility Picking individual stocks or sectors would could also significantly increase or decrease the overall volatility of the portfolio relative to the market, especially if the stocks are highly cyclical or correlated to the same market factors. So if they are buying tech stocks, they might see bigger upswings and downswings compared to the market as a whole, or see the opposite effect in the case of utilities. In other words, owning a basket of individual stocks may result in an unintended volatility/beta profile. Lower Trading Costs and Taxes Investors who buy individual stocks tend to trade more in an attempt to beat the market. After accounting for commission fees, transaction costs (bid/ask spread), and taxes, most individual investors get only a fraction of the market average return. One famous academic study finds that investors who trade more trail the stock market more. Trading also tends to incur higher taxes since short term gains (<1 year) are taxed at marginal income tax rates that are higher than long term capital gains. Investors tend to trade due to behavioral failures such as trying to time the market, being overconfident, speculating on stocks instead of long-term investing, following what everyone else is doing, and getting in and out of the market as a result of an emotional reaction to volatility (ie buying when stocks are high/rising and selling when they are low/falling). Investing in index funds can involve minimal fees and discourages behavior that causes investors to incur excessive trading costs. This can make a big difference over the long run as extra costs and taxes compound significantly over time. It's Hard to Beat the Market since Markets are Quite Efficient Another reason to use funds is that it is reasonable to assume that at any point in time, the market does a fairly good job of pricing securities based on all known information. In other words, if a given stock is trading at a low P/E relative to the market, the market as a whole has decided that there is good reason for this valuation. This idea is based on the assumption that there are already so many professional analysts and traders looking for arbitrage opportunities that few such opportunities exist, and where they do exist, persist for only a short time. If you accept this theory generally (obviously, the market is not perfect), there is very little in the way of insight on pricing that the average novice investor could provide given limited knowledge of the markets and only a few hours of research. It might be more likely that opportunities identified by the novice would reflect omissions of relevant information. Trying to make money in this way then becomes a bet that other informed, professional investors are wrong and you are right (options traders, for example). Prices are Unpredictable (Behave Like \"\"Random\"\" Walks) If you want to make money as a long-term investor/owner rather than a speculator/trader, than most of the future change in asset prices will be a result of future events and information that is not yet known. Since no one knows how the world will change or who will be tomorrow's winners or losers, much less in 30 years, this is sometimes referred to as a \"\"random walk.\"\" You can point to fundamental analysis and say \"\"X company has great free cash flow, so I will invest in them\"\", but ultimately, the problem with this type of analysis is that everyone else has already done it too. For example, Warren Buffett famously already knows the price at which he'd buy every company he's interested in buying. When everyone else can do the same analysis as you, the price already reflects the market's take on that public information (Efficent Market theory), and what is left is the unknown (I wouldn't use the term \"\"random\"\"). Overall, I think there is simply a very large potential for an individual investor to make a few mistakes with individual stocks over 20+ years that will really cost a lot, and I think most investors want a balance of risk and return versus the largest possible return, and don't have an interest in developing a professional knowledge of stocks. I think a better strategy for most investors is to share in the future profits of companies buy holding a well-diversified portfolio for the long term and to avoid making a large number of decisions about which stocks to own.\"","You're missing the concept of systemic risk, which is the risk of the entire market or an entire asset class. Diversification is about achieving a balance between risk and return that's appropriate for you. Your investment in Vanguard's fund, although diversified between many public companies, is still restricted to one asset class in one country. Yes, you lower your risk by investing in all of these companies, but you don't erase it entirely. Clearly, there is still risk, despite your diversification. You may decide that you want other investments or a different asset allocation that reduce the overall risk of your portfolio. Over the long run, you may earn a high level of return, but never forget that there is still risk involved. bonds seem pretty worthless, at least until I retire According to your profile, you're about my age. Our cohort will probably begin retiring sometime around 2050 or later, and no one knows what the bond market will look like over the next 40 years. We may have forecasts for the next few years, but not for almost four decades. Writing off an entire asset class for almost four decades doesn't seem like a good idea. Also, bonds are like equity, and all other asset classes, in that there are different levels of risk within the asset class too. When calculating the overall risk/return profile of my portfolio, I certainly don't consider Treasuries as the same risk level as corporate bonds or high-yield (or junk) bonds from abroad. Depending on your risk preferences, you may find that an asset allocation that includes US and/or international bonds/fixed-income, international equities, real-estate, and cash (to make rebalancing your asset allocation easier) reduces your risk to levels you're willing to tolerate, while still allowing you to achieve returns during periods where one asset class, e.g. equities, is losing value or performing below your expectations.","It all depends on the liquidity of your investments some examples: You can mitigate only the risk that you can control. It is always good to have:","While you would reduce risk by diversifying into other stock ETFs across the world, Developed Market returns (and Emerging Markets to a lesser extent) are generally highly correlated with another (correlation of ~0.85-0.90). This implies that they all go up in bull-markets and go down together in bear markets. You are better off diversifying into other asset-classes given your risk tolerance (such as government bonds, as you have mentioned). Alternatively, you can target a portfolio owning all of the assets in the universe (assuming you're trading in Frankfurt, a combination of something similar to H4ZJ and XBAG, but with higher volumes and/or lower fees)! A good starting resource would be the Bogleheads Wiki: https://www.bogleheads.org/wiki/Asset_allocation","\"One approach is to invest in \"\"allocation\"\" mutual funds that use various methods to vary their asset allocation. Some examples (these are not recommendations; just to show you what I am talking about): A good way to identify a useful allocation fund is to look at the \"\"R-squared\"\" (correlation) with indexes on Morningstar. If the allocation fund has a 90-plus R-squared with any index, it probably isn't doing a lot. If it's relatively uncorrelated, then the manager is not index-hugging, but is making decisions to give you different risks from the index. If you put 10% of your portfolio in a fund that varies allocation to stocks from 25% to 75%, then your allocation to stocks created by that 10% would be between 2.5% to 7.5% depending on the views of the fund manager. You can use that type of calculation to invest enough in allocation funds to allow your overall allocation to vary within a desired range, and then you could put the rest of your money in index funds or whatever you normally use. You can think of this as diversifying across investment discipline in addition to across asset class. Another approach is to simply rely on your already balanced portfolio and enjoy any downturns in stocks as an opportunity to rebalance and buy some stocks at a lower price. Then enjoy any run-up as an opportunity to rebalance and sell some stocks at a high price. The difficulty of course is going through with the rebalance. This is one advantage of all-in-one funds (target date, \"\"lifecycle,\"\" balanced, they have many names), they will always go through with the rebalance for you - and you can't \"\"see\"\" each bucket in order to get stressed about it. i.e. it's important to think of your portfolio as a whole, not look at the loss in the stocks portion. An all-in-one fund keeps you from seeing the stocks-by-themselves loss number, which is a good way to trick yourself into behaving sensibly. If you want to rebalance \"\"more aggressively\"\" then look at value averaging (search for \"\"value averaging\"\" on this site for example). A questionable approach is flat-out market-timing, where you try to get out and back in at the right times; a variation on this would be to buy put options at certain times; the problem is that it's just too hard. I think it makes more sense to buy an allocation fund that does this for you. If you do market time, you want to go in and out gradually, and value averaging is one way to do that.\"","Research the company. Obtain and read their current and past financial statements. Find and read news stories about them. Look for patterns and draw conclusions. Or diversify to the point where one company failing doesn't hurt you significantly. Or both.","In a word, no. Diversification is the first rule of investing. Your plan has poor diversification because it ignores most of the economy (large cap stocks). This means for the expected return your portfolio would get, you would bear an unnecessarily large amount of risk. Large cap and small cap stocks take turns outperforming each other. If you hold both, you have a safer portfolio because one will perform well while the other performs poorly. You will also likely want some exposure to the bond market. A simple and diversified portfolio would be a total market index fund and a total bond market fund. Something like 60% in the equity and 40% in the bonds would be reasonable. You may also want international exposure and maybe exposure to real estate via a REIT fund. You have expressed some risk-aversion in your post. The way to handle that is to take some of your money and keep it in your cash account and the rest into the diversified portfolio. Remember, when people add more and more asset classes (large cap, international, bonds, etc.) they are not increasing the risk of their portfolio, they are reducing it via diversification. The way to reduce it even more (after you have diversified) is to keep a larger proportion of it in a savings account or other guaranteed investment. BTW, your P2P lender investment seems like a great idea to me, but 60% of your money in it sounds like a lot.","Generally a diversified portfolio will give you a better overall return --a couple of factors that may address what you are looking at - 1) Correlation - The correlation between your two funds is still very high -- it's partially a function of how global economies are related and many companies are now multi-national. It may help if you diversified into other types of products. 2) Diversification - Following up from before, you may want to also look into diversifying into some bonds, commodities, reits, etc. They will have a much smaller correlation with a total domestic stock fund. 3) Returns - I'm not sure if by dominate you mean that it has better overall returns, but the point of diversification is to to get you the highest returns. It's really the ability to limit the risk for the returns - this really translates to limiting the volatility. This may mean that overall your max returns could be lower-- ie: maybe VTSAX gives potential average returns between 3%-11%. A diversified portfolio may give you potential average returns of 5%-9%. A similar article debating the merits of 'smart beta ETFs' if you are curious. Hope that helps.","\"There are some good answers about the benefits of diversification, but I'm going to go into what is going on mathematically with what you are attempting. I was always under the assumption that as long as two securities are less than perfectly correlated (i.e. 1), that the standard deviation/risk would be less than if I had put 100% into either of the securities. While there does exist a minimum variance portfolio that is a combination of the two with lower vol than 100% of either individually, this portfolio is not necessarily the portfolio with highest utility under your metric. Your metric includes returns not just volatility/variance so the different returns bias the result away from the min-vol portfolio. Using the utility function: E[x] - .5*A*sig^2 results in the highest utility of 100% VTSAX. So here the Sharpe ratio (risk adjusted return) of the U.S. portfolio is so much higher than the international portfolio over the period tracked that the loss of returns from adding more international stocks outweigh the lower risk that you would get from both just adding the lower vol international stocks and the diversification effects from having a correlation less than one. The key point in the above is \"\"over the period tracked\"\". When you do this type of analysis you implicitly assume that the returns/risk observed in the past will be similar to the returns/risk in the future. Certainly, if you had invested 100% in the U.S. recently you would have done better than investing in a mix of US/Intl. However, while the risk and correlations of assets can be (somewhat) stable over time relative returns can vary wildly! This uncertainty of future returns is why most people use a diversified portfolio of assets. What is the exact right amount is a very hard question though.\"","Because stock markets don't always go up, sometimes they go down. Sometimes they go way down. Between 2007 and 2009 the S&P 500 lost over half its value. So if in 2007 you thought you had just enough to retire on, in 2009 you'd suddenly find you had only half of what you needed! Of course over the next few years, many of the stocks recovered value, but if you had retired in 2008 and depended on a 401k that consisted entirely of stocks, you'd have been forced to sell a bunch of stocks near the bottom of the market to cover your retirement living expenses. Bonds go up and down too, but usually not to the same extent as stocks, and ideally you aren't selling the bonds for your living expenses, just collecting the interest that's due you for the year. Of course, some companies and cities went bankrupt in the 2008 crisis too, and they stopped making interest payments. Another risk is that you may be forced to retire before you were actually planning to. As you age you are at increasing risk for medical problems that may force an early retirement. Many businesses coped with the 2008 recession by laying off their older workers who were earning higher salaries. It wasn't an easy environment for older workers to find jobs in, so many folks were forced into early retirement. Nothing is risk free, so you need to make an effort to understand what the risks are, and decide which ones you are comfortable with.","Asset Allocation serves many purposes, not just mitigating risk via a diversification of asset classes, but also allowing you to take a level of risk that is appropriate for a given investor at a given time by how much is allocated to which asset classes. A younger investor with a longer timeframe, may wish to take a lot more risk, investing heavily in equities, and perhaps managed funds that are of the 'aggressive growth' variety, seeking better than market returns. Someone a little older may wish to pull back a bit, especially after a bull market has brought them substantial gains, and begin to 'take money off the table' perhaps by starting to establish some fixed income positions, or pulling back to slightly less risky index, 'value' or 'balanced' funds. An investor who is near or in retirement will generally want even less risk, going to a much more balanced approach with half or more of their investments in fixed income, and the remainder often in income producing 'blue chip' type stocks, or 'income funds'. This allows them to protect a good amount of their wealth from potential loss at a time when they have to be able to depend on it for a majority of their income. An institution such as Yale has very different concerns, and may always be in a more aggressive 'long term' mode since 'retirement' is not a factor for them. They are willing to invest mostly in very aggressive ways, using diversification to protect them from one of those choices 'tanking' but still overall taking a pretty high level of risk, much more so than might be appropriate for an individual who will generally need to seek safety and to preserve gains as they get older. For example look at the PDF that @JLDugger linked, and observe the overall risk level that Yale is taking, and in addition observe the large allocations they make to things like private equity with a 27%+ risk level compared to their very small amount of fixed income with a 10% risk level. Yale has a very long time horizon and invests in a way that is atypical of the needs and concerns of an individual investor. They also have as you pointed out, the economy of scale (with something like #17B in assets?) to afford to hire proven experts, and their own internal PHD level experts to watch over the whole thing, all of which very few individual investors have. For either class of investor, diversification, is a means to mitigate risk by not having all your eggs in one basket. Via having multiple different investments (such as picking multiple individual stocks, or aggressive funds with different approaches, or just an index fund to get multiple stocks) you are protected from being wiped out as might happen if a single choice might fail. For example imagine what would have happened if you had in 2005 put all your money into a single stock with a company that had been showing record profits such as Lehman Brothers, and left it there until 2008 when the stock tanked. or even faster collapses such as Enron, etc that all 'looked great' up until shortly after they failed utterly. Being allocated across multiple asset classes provides some diversification all on it's own, but you can also be diversified within a class. Yale uses the diversification across several asset classes to have lower risk than being invested in a single asset class such as private equity. But their allocation places much more of their funds in high risk classes and much less of their funds in the lowest risk classes such as fixed income.","Index funds are well-known to give the best long-term investment. Are they? Maybe not all the time! If you had invested in an index fund tracking the S&P500 at the start of 2000 you would still be behind in terms of capital appreciation when taking inflation into considerations. Your only returns in 13.5 years would have been any dividends you may have received. See the monthly chart of the S&P500 below. Diversification can be good for your overall returns, but diversification simply for diversification sake is as you said, a way of reducing your overall returns in order of smoothing out your equity curve. After looking up indexes for various countries the only one that had made decent returns over a 13.5 year period was the Indian BSE 30 index, almost 400% over 13.5 years, although it also has gone nowhere since the end of 2007 (5.5 years). See monthly chart below. So investing internationally (especially in developing countries when developed nations are stagnating) can improve your returns, but I would learn about the various international markets first before plunging straight in. Regarding investing in an Index fund vs direct investment in a select group of shares, I did a search on the US markets with the following criteria on the 3rd January 2000: If the resulting top 10 from the search were bought on 3rd January 2000 and held up until the close of the market on the 19th June 2013, the results would be as per the table below: The result, almost 250% return in 13.5 years compared to almost no return if you had invested into the whole S&P 500 Index. Note, this table lists only the top ten from the search without screening through the charts, and no risk management was applied (if risk management was applied the 4 losses of 40%+ would have been limited to a maximum of 20%, but possibly much smaller losses or even for gains, as they might have gone into positive territory before coming back down - as I have not looked at any of the charts I cannot confirm this). This is one simple example how selecting good shares can result in much better returns than investing into a whole Index, as you are not pulled down by the bad stocks.","\"Diversification is the only real free lunch in finance (reduction in risk without any reduction in expected returns), so clearly every good answer to your question will be \"\"yes.\"\" Diversification is good.\"\" Let's talk about many details your question solicits. Many funds are already pretty diversified. If you buy a mutual fund, you are generally already getting a large portion of the gains from diversification. There is a very large difference between the unnecessary risk in your portfolio if you only hold a couple of stocks and if you hold a mutual fund. Should you be diversified across mutual funds as well? It depends on what your funds are. Many funds, such as target-date funds, are intended to be your sole investment. If you have funds covering every major asset class, then there may not be any additional benefit to buying other funds. You probably could not have picked your \"\"favorite fund\"\" early on. As humans, we have cognitive biases that make us think we knew things early on that we did not. I'm sure at some point at the very beginning you had a positive feeling toward that fund. Today you regret not acting on it and putting all your money there. But the number of such feelings is very large and if you acted on all those, you would do a lot of crazy and harmful things. You didn't know early on which fund would do well. You could just as well have had a good feeling about a fund that subsequently did much worse than your diversified portfolio did. The advice you have had about your portfolio probably isn't based on sound finance theory. You say you have always kept your investments in line with your age. This implies that you believe the guidelines given you by your broker or financial advisor are based in finance theory. Generally speaking, they are not. They are rules of thumb that seemed good to someone but are not rigorously proven either in theory or empirics. For example the notion that you should slowly shift your investments from speculative to conservative as you age is not based on sound finance theory. It just seems good to the people who give advice on such things. Nothing particularly wrong with it, I guess, but it's not remotely on par with the general concept of being well-diversified. The latter is extremely well established and verified, both in theory and in practice. Don't confuse the concept of diversification with the specific advice you have received from your advisor. A fund averaging very good returns is not an anomaly--at least going forward it will not be. There are many thousand funds and a large distribution in their historical performance. Just by random chance, some funds will have a truly outstanding track record. Perhaps the manager really was skilled. However, very careful empirical testing has shown the following: (1) You, me, and people whose profession it is to select outperforming mutual funds are unable to reliably detect which ones will outperform, except in hindsight (2) A fund that has outperformed, even over a long horizon, is not more likely to outperform in the future. No one is stopping you from putting all your money in that fund. Depending on its investment objective, you may even have decent diversification if you do so. However, please be aware that if you move your money based on historical outperformance, you will be acting on the same cognitive bias that makes gamblers believe they are on a \"\"hot streak\"\" and \"\"can't lose.\"\" They can, and so can you. ======== Edit to answer a more specific line of questions =========== One of your questions is whether it makes sense to buy a number of mutual funds as part of your diversification strategy. This is a slightly more subtle question and I will indicate where there is uncertainty in my answer. Diversifying across asset classes. Most of the gains from diversification are available in a single fund. There is a lot of idiosyncratic risk in one or two stocks and much less in a collection of hundreds of stocks, which is what any mutual fund will hold. Still,you will probably want at least a couple of funds in your portfolio. I will list them from most important to least and I will assume the bulk of your portfolio is in a total US equity fund (or S&P500-style fund) so that you are almost completely diversified already. Risky Bonds. These are corporate, municipal, sovereign debt, and long-term treasury debt funds. There is almost certainly a good deal to be gained by having a portion of your portfolio in bonds, and normally a total market fund will not include bond exposure. Bonds fund returns are closely related to interest rate and inflation changes. They are also exposed to some market risk but it's more efficient to get that from equity. The bond market is very large, so if you did market weights you would have more in bonds than in equity. Normally people do not do this, though. Instead you can get the exposure to interest rates by holding a lesser amount in longer-term bonds, rather than more in shorter-term bonds. I don't believe in shifting your weights toward nor away from this type of bond (as opposed to equity) as you age so if you are getting that advice, know that it is not well-founded in theory. Whatever your relative weight in risky bonds when you are young is should also be your weight when you are older. International. There are probably some gains from having some exposure to international markets, although these have decreased over time as economies have become more integrated. If we followed market weights, you would actually put half your equity weight in an international fund. Because international funds are taxed differently (gains are always taxed at the short-term capital gains rate) and because they have higher management fees, most people make only a small investment to international funds, if any at all. Emerging markets International funds often ignore emerging markets in order to maintain liquidity and low fees. You can get some exposure to these markets through emerging markets funds. However, the value of public equity in emerging markets is small when compared with that of developed markets, so according to finance theory, your investment in them should be small as well. That's a theoretical, not an empirical result. Emerging market funds charge high fees as well, so this one is kind of up to your taste. I can't say whether it will work out in the future. Real estate. You may want to get exposure to real estate by buying a real-estate fund (REIT). Though, if you own a house you are already exposed to the real estate market, perhaps more than you want to be. REITs often invest in commercial real estate, which is a little different from the residential market. Small Cap. Although total market funds invest in all capitalization levels, the market is so skewed toward large firms that many total market funds don't have any significant small cap exposure. It's common for individuals to hold a small cap fund to compensate for this, but it's not actually required by investment theory. In principle, the most diversified portfolio should be market-cap weighted, so small cap should have negligible weight in your portfolio. Many people hold small cap because historically it has outperformed large cap firms of equal risk, but this trend is uncertain. Many researchers feel that the small cap \"\"premium\"\" may have been a short-term artifact in the data. Given these facts and the fact that small-cap funds charge higher fees, it may make sense to pass on this asset class. Depends on your opinion and beliefs. Value (or Growth) Funds. Half the market can be classed as \"\"value\"\", while the other half is \"\"growth.\"\" Your total market fund should have equal representation in both so there is no diversification reason to buy a special value or growth fund. Historically, value funds have outperformed over long horizons and many researchers think this will continue, but it's not exactly mandated by the theory. If you choose to skew your portfolio by buying one of these, it should be a value fund. Sector funds. There is, in general, no diversification reason to buy funds that invest in a particular sector. If you are trying to hedge your income (like trying to avoid investing in the tech sector because you work in that sector) or your costs (buying energy because you buy use a disproportionate amount of energy) I could imagine you buying one of these funds. Risk-free bonds. Funds specializing in short-term treasuries or short-term high-quality bonds of other types are basically a substitute for a savings account, CD, money market fund, or other cash equivalent. Use as appropriate but there is little diversification here per se. In short, there is some value in diversifying across asset classes, and it is open to opinion how much you should do. Less well-justified is diversifying across managers within the same asset class. There's very little if any advantage to doing that.\"","Not that I am aware. If you are trying to mitigate losses from stock purchases, you may want to consider stock mutual funds. This is why single stocks can be extremely risky.","thanks! hence the etf - I hoped to get an ETF of say 20-25 positions, out of which 12 will lose in value, 10 will stay flat or lose a bit, and 2-3 go AAPL, bringing the total ETF up by a solid 10% or so :) and then the divident game begins.","To optimize your return on investment, you need to buy low and sell high. If you knew that one stock had hit rock bottom, and the others had not, buying the low stock would be the best. However, unless you can predict the future, you don't know if any individual stock has hit the bottom, or if it will continue to drop. If you decide to spend the same amount of money each month on stock purchases, then when the price is low, you will automatically buy more shares, and when the price is high, you will buy fewer shares. This strategy is sometimes called dollar cost averaging. It eliminates the need to predict the future to optimize your buying. All that having been said, I agree with @Powers that at the investment amount that you are talking about and the per transaction fee you listed, a monthly investment in several stocks will cause you to lose quite a bit to transaction fees. It sounds like you need a different strategy.","Chris Rea's comment captures it -- most people don't have working crystal balls. Unless you are a trader, you address risk with diversification. There are several questions on this site discussing strategies to diversify your portfolio. In many ways, the markets offer investors false choices. We have an emotional desire to react to stimuli -- but that often leads to lousy outcomes. For example, selling your NASDAQ 100 fund after its value falls is usually a bad idea.","\"In theory, the idea is that diversified assets will perform differently in different circumstances, spreading your risk around. Whether that still functions in practice is a decent question, as the \"\"truth\"\" of most probability based arguments for diversification rely on the different assets being at least somewhat uncorrelated. This article suggests that might not be true. Specifically: The correlations we note among industry sectors are profoundly and dysfunctionally high. and Gold and silver traders have gotten too used to the negative correlation trade with stocks. This is, in fact, an unusual relationship for precious metals tostocks. The correlation should actually be zero.\"","\"Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. How about Enron? GM? WorldCom? Lehman Brothers? Those are just a few of the many stocks that went to 0. Even stock in solvent companies have an \"\"all-time high\"\" that it will never reach again. Please explain to my why my thought is [in]correct. It is based on flawed assumptions, specifically that stock always regain any losses from any point in time. This is not true. Stocks go up and down - sometimes that have losses that are never made up, even if they don't go bankrupt. If your argument is that you should cash out any gains regardless of size, and you will \"\"never lose\"\", I would argue that you might have very small gains in most cases, but there are still times where you are going to lose value and never regain it, and those losses can easily wipe out any gains you've made. Never bought stocks and if I try something stupid I'll lose my money, so why not ask the professionals first..? If you really believe that you \"\"can't lose\"\" in the stock market then do NOT buy individual stocks. You may as well buy a lottery ticket (not really, those are actually worthless). Stick to index funds or other stable investments that don't rely on the performance of a single company and its management. Yes, diversification reduces (not eliminates) risk of losses. Yes, chasing unreasonable gains can cause you to lose. But what is a \"\"reasonable gain\"\"? Why is your \"\"guaranteed\"\" X% gain better than the \"\"unreasonable\"\" Y% gain? How do you know what a \"\"reasonable\"\" gain for an individual stock is?\"","\"Well.... If you have alllll your money invested, and then there's a financial crisis, and there's a personal crisis at the same time (e.g. you lose your job) then you're in big trouble. You might not have enough money to cover your bills while you find a new job. You could lose your house, ruin your credit, or something icky like that. Think 2008. Even if there's not a financial crisis, if the money is in a tax-sheltered retirement account then withdrawing it will incur ugly penalities. Now, after you've got an emergency fund established, things are different. If you could probably ride out six to twelve months with your general-purpose savings, then with the money you are investing for the long term (retirement) there's no reason you shouldn't invest 100% of the money in stocks. The difference is that you're not going to come back for that money in 6 months, you're going to come back for it in 40 years. As for retirement savings over the long term, though, I don't think it's a good idea to think of your money in those terms. If you ever lose 100% of your money on the stock market while you've invested in diversified instruments like S&P500 index funds, you're probably screwed one way or another because that represents the core industrial base of the US economy, and you'll have better things to worry about, like looking for a used shotgun. Myself, I prefer to give the suggestion \"\"don't invest any money in stocks if you're going to need to take it out in the next 5 years or so\"\" because you generally shouldn't be worried about a 100% loss of all the money in stocks your retirement accounts nearly so much as you should be worried about weathering large, medium-term setbacks, like the dot-com bubble crash and the 2008 financial crisis. I save the \"\"don't invest money unless you can afford to lose it all\"\" advice for highly speculative instruments like gold futures or social-media IPOs. Remember also that while you might lose a lot of your money on the stock market, your savings accounts and bonds will earn you pathetic amounts by comparison, which you will slowly lose to inflation. If you've had your money invested for decades then even during a crash you may still be coming out ahead relative to bonds.\"","\"1. Interest rates What you should know is that the longer the \"\"term\"\" of a bond fund, the more it will be affected by interest rates. So a short-term bond fund will not be subject to large gains or losses due to rate changes, an intermediate-term bond fund will be subject to moderate gains or losses, and a long-term bond fund will be subject to the largest gains or losses. When a book or financial planner says to buy \"\"bonds\"\" with no other qualification, they almost always mean investment-grade intermediate-term bond funds (or for individual bonds, the equivalent would be a bond ladder averaging an intermediate term). If you want technical details, look at the \"\"average duration\"\" or \"\"average maturity\"\" of the bond fund; as a rough guide, if the duration is 10, then a 1% change in interest rates would be a 10% gain or loss on the fund. Another thing you can do is look at long-term (10 years or ideally longer) performance history on some short, intermediate, and long term bond index funds, and you can see how the long term funds bounced around more. Non-investment-grade bonds (aka junk bonds or high yield bonds) are more affected by factors other than interest rates, including some of the same factors (economic booms or recessions) that affect stocks. As a result, they aren't as good for diversifying a portfolio that otherwise consists of stocks. (Having stocks, investment grade bonds, and also a little bit in high-yield bonds can add diversification, though. Just don't replace your bond allocation with high-yield bonds.) A variety of \"\"complicated\"\" bonds exist (convertible bonds are an example) and these are tough to analyze. There are also \"\"floating rate\"\" bonds (bank loan funds), these have minimal interest rate sensitivity because the rate goes up to offset rate rises. These funds still have credit risks, in the credit crisis some of them lost a lot of money. 2. Diversification The purpose of diversification is risk control. Your non-bond funds will outperform in many years, but in other years (say the -37% S&P 500 drop in 2008) they may not. You will not know in advance which year you'll get. You get risk control in at least a few ways. There's also an academic Modern Portfolio Theory explanation for why you should diversify among risky assets (aka stocks), something like: for a given desired risk/return ratio, it's better to leverage up a diverse portfolio than to use a non-diverse portfolio, because risk that can be eliminated through diversification is not compensated by increased returns. The theory also goes that you should choose your diversification between risk assets and the risk-free asset according to your risk tolerance (i.e. select the highest return with tolerable risk). See http://en.wikipedia.org/wiki/Modern_portfolio_theory for excruciating detail. The translation of the MPT stuff to practical steps is typically, put as much in stock index funds as you can tolerate over your time horizon, and put the rest in (intermediate-term investment-grade) bond index funds. That's probably what your planner is asking you to do. My personal view, which is not the standard view, is that you should take as much risk as you need to take, not as much as you think you can tolerate: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ But almost everyone else will say to do the 80/20 if you have decades to retirement and feel you can tolerate the risk, so my view that 60/40 is the max desirable allocation to stocks is not mainstream. Your planner's 80/20 advice is the standard advice. Before doing 100% stocks I'd give you at least a couple cautions: See also:\"","Stock portfolios have diversifiable risk and undiversifiable risk. The market rewards investors for taking undiversifiable risk (e.g. owning an index of oil producing companies) and does not reward investors for assuming diversifiable risk (e.g. owning a single oil producing company). The market will not provide investors with any extra return for owning a single oil company when they can buy an oil index fund at no additional cost. Similarly, the market will not reward you for owning a small-cap index fund when you can purchase a globally diversified / capitalization diversified index fund at no additional cost. This article provides a more detailed description. The Vanguard Total World Stock Index Fund is a much better staring point for an equity portfolio. You will need to make sure that the asset allocation of your overall portfolio (e.g. stocks, bonds, P2P lending, cash) is consistent with your time horizon (5-10 years).","This depends completely on your investing goals. Typically when saving for retirement younger investors aim for a more volatile and aggressive portfolio but diversify their portfolio with more cautious stocks/bonds as they near retirement. In other words, the volatility that owning a single stock brings may be in line with your goals if you can shoulder the risk.","Rephrasing your question: Am I diversified if I have more than 50% US stocks? I would say that you can certainly be diversified and have more than 50% of your portfolio invested in US Stocks. I view the amount of international stocks (non-US) as a risk choice. My observations have been that my international stocks have higher risk which comes with a higher reward. I'm not comfortable with putting too much of my portfolio into a very high risk category. I personally invest 25% directly in mutual funds that invest in foreign stocks. When you couple that with the money I invest in US stocks via mutual funds that have foreign interests (Coke, GE, etc.), I'm somewhat over 25% international in my portfolio.","\"The difference is in the interrelation between the varied investments you make. Hedging is about specifically offsetting a possible loss in an investment by making another related investment that will increase in value for the same reasons that the original investment would lose value. Gold, for instance, is often regarded as the ultimate hedge. Its value is typically inversely correlated to the rest of the market as a whole, because its status as a material, durable store of value makes it a preferred \"\"safe haven\"\" to move money into in times of economic downturn, when stock prices, bond yields and similar investments are losing value. That specific behavior makes investing in gold alongside stocks and bonds a \"\"hedge\"\"; the increase in value of gold as stock prices and bond yields fall limits losses in those other areas. Investment of cash in gold is also specifically a hedge against currency inflation; paper money, account balances, and even debt instruments like bonds and CDs can lose real value over time in a \"\"hot\"\" economy where there's more money than things to buy with it. By keeping a store of value in something other than currency, the price of that good will rise as the currencies used to buy it decrease in real value, maintaining your level of real wealth. Other hedges are more localized. One might, for example, trade oil futures as a hedge on a position in transportation stocks; when oil prices rise, trucking and airline companies suffer in the short term as their margins get squeezed due to fuel costs. Currency futures are another popular hedge; a company in international business will often trade options on the currencies of the companies it does business in, to limit the \"\"jitters\"\" seen in the FOREX spot market caused by speculation and other transient changes in market demand. Diversification, by contrast, is about choosing multiple unrelated investments, the idea being to limit losses due to a localized change in the market. Companies' stocks gain and lose value every day, and those companies can also go out of business without bringing the entire economy to its knees. By spreading your wealth among investments in multiple industries and companies of various sizes and global locations, you insulate yourself against the risk that any one of them will fail. If, tomorrow, Kroger grocery stores went bankrupt and shuttered all its stores, people in the regions it serves might be inconvenienced, but the market as a whole will move on. You, however, would have lost everything if you'd bet your retirement on that one stock. Nobody does that in the real world; instead, you put some of your money in Kroger, some in Microsoft, some in Home Depot, some in ALCOA, some in PG&E, etc etc. By investing in stocks that would be more or less unaffected by a downturn in another, if Kroger went bankrupt tomorrow you would still have, say, 95% of your investment next egg still alive, well and continuing to pay you dividends. The flip side is that if tomorrow, Kroger announced an exclusive deal with the Girl Scouts to sell their cookies, making them the only place in the country you can get them, you would miss out on the full possible amount of gains you'd get from the price spike if you had bet everything on Kroger. Hindsight's always 20/20; I could have spent some beer money to buy Bitcoins when they were changing hands for pennies apiece, and I'd be a multi-millionaire right now. You can't think that way when investing, because it's \"\"survivor bias\"\"; you see the successes topping the index charts, not the failures. You could just as easily have invested in any of the hundreds of Internet startups that don't last a year.\"","\"Historically, the market's average rate of return has been about 8%. (Serakfalcon's \"\"6% to 10%\"\" is essentially the same number.) You should be able to get into that range for long-term investments with minimal risk. \"\"5 or 6 companies\"\", unless you know a heck of a lot about those companies, is fairly high risk. If any one of those runs into trouble, a considerable amount of your net investment is riding on it. Of course if any of them invents the Next Big Thing you could hit it big; that's the tradeoff. Diversification isn't sexy, but it buffers you from single-company disasters, and if you diversify across kinds of investment that buffers you from single-sector disasters. Index funds aren't sexy, but they're a low-cost way to diversify, especially if you go with a mix of funds in different categories (large cap, small cap, bond, international, real estate) or a fund which has that mix built into it such as a target date fund.\"","\"Having cash and bonds in your portfolio isn't just about balancing out the risk and volatility inherent in equities. Consider: If you are 100% invested in equities and the market declines by 30%, you'll be hard pressed to come up with additional money to \"\"buy low\"\". You'll miss out on the rebalancing bonus. But, if you make a point of keeping some portion of your portfolio in cash and bonds, then when the market has such a decline (and it will), you'll be able to rebalance your portfolio back to target weights — i.e. redeploy some of your cash and bonds into equities to take advantage of the lower prices.\"","When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that.","For what it's worth -- and I realize this isn't directly an answer to the question -- one of the advantages of sticking with mutual funds, beyond their being inherently diversified, is that it removes a lot of the temptation to try to time the market. When you need money, you sell shares in such a way that it maintains your preferred investment ratio, and simply don't worry about which stocks are actually involved. (I've gotten 15% APR this year across all my investments, for absolutely minimal effort. That's quite good enough for me.)","Your question reminds me of a Will Rogers quote: buy some good stock, and hold it till it goes up, then sell it. If it don’t go up, don’t buy it. There's no way to prevent yourself from buying a stock that goes down. In fact all stocks go down at some times. The way to protect your long term investment is to diversify, which increases the chances that you have more stocks that go up than go down. So many advisors will encourage index funds, which have a low cost (which eats away at returns) and low rick (because of diversification). If you want to experiment with your criteria that's great, and I wish you luck, but Note that historically, very few managed funds (meaning funds that actively buy and sell stocks based on some set of criteria) outperform the market over long periods. So don't be afraid of some of your stocks losing - if you diversify enough, then statistically you should have more winners than losers. It's like playing blackjack. The goal is not to win every hand. The goal is to have more winning hands than losing hands.","The mathematical answer is for you to have a diversified portfolio in your ISA. But that's easier said than done.","1. It doesn't have an almost perfect negative correlation - its value decays very fast because of time. In fact, something like 80% of options expire worthless. They typically have a lifespan of 30-90 days and unless you're using them as a way to earn excess return, you'll likely just throw away your premium. 2. You're also making some assumptions about correlation and risk/reward. You won't become wealthy by distributing risk, all you can hope for is less volatility - maybe that's what you're looking for - but you can also expect your return to be less than the market over almost any period of time. 3. Options aren't really for diversifying. Furthermore, why diversify? It's a myth that it adds any value. There's around a 90% correlation for all asset classes since around 2000, so you're being sold some blue sky if someone tells you otherwise. 4. Look up prices of put options. 1-2% of your portfolio might buy you a handful of options, but again, there's a high probability you'll lose that 1-2% entirely every 30-90 days.","A strategy of rebalancing assumes that the business cycle will continue, that all bull and bear markets end eventually. Imagine that you maintained a 50% split between a US Treasury bond mutual fund (VUSTX) and an S&P 500 stock mutual fund (VFINX) beginning with a $10,000 investment in each on January 1, 2008, then on the first of each year you rebalanced your portfolio on the first of January (we can pretend the markets are open that day). The following table illustrates the values in each of those funds with the rebalancing transactions: This second table shows what that same money would look like without any rebalancing over those years: Obviously this is cherry-picking for the biggest drop we've recently experienced, but even if you skipped 2008 and 2009, the increase for a rebalanced portfolio from 2010-2017 is 85% verses 54% for the portfolio that is not being rebalanced in the same period. This is also a plenty conservative portfolio. You can see that a 100% stock portfolio dropped 40% in 2008, but the combined portfolio only dropped 18%. A 100% stock portfolio has gained 175% since 2009, compared to 105% for the balanced portfolio, but it's common to trade gains for safety as you get closer to retirement. You didn't ask about a 100% stock portfolio in your initial question. These results would be repeated in many other portfolio allocations because some asset classes outperform others one year, then underperform the next. You sell after the years it outperforms, then you buy after years that it underperforms.","I think it depends entirely on your risk tolerance. Putting money in individual stocks obviously increases your risk and potentially increases your reward. Personally (as a fairly conservative investor) I'd only invest in individual stocks if I could afford to lose the entire investment (maybe I'd end up buying Enron or Nortel). If you enjoy envesting and feel 10% is an acceptable loss I think you have your answer","The problem is aggregating information from so many sources, countries, and economies. You are probably more aware of local laws, local tax changes, local economic performance, etc, so it makes sense that you'd be more in tune with your own country. If your intent is to be fully diversified, then buy a total world fund. A lot of hedge funds do what you are suggesting, but I think it requires either some serious math or some serious research. Note: I'm invested in emerging markets (EEM) for exactly the reason you suggest... diversification.","Cost. If an investor wanted to diversify his portfolio by investing in the companies that make up the S&P 500, the per-share and commission costs to individually place trades for each and every one of those companies would be prohibitive. I can buy one share of an exchange-traded fund that tracks the S&P 500 for less than the purchase price of a single share in some of the companies that make up the index.","As mentioned, dividends are a way of returning value to shareholders. It is a conduit of profit as companies don't legitimately control upward appreciation in their share prices. If you can't wrap your head around the risk to the reward, then this simply means you partially fit the description for a greater investment risk profile, so you need to put down Warren Buffett's books and Rich Dad Poor Dad and get an investment book that fits your risk profile.","Buying the right shares gives higher return. Buying the wrong ones gives worse return, possibly negative. The usual recommendation, even if you have a pro advising you, is to diversify most of your investments to reduce the risk, even though that may reduce the possible gain. A mutual fund is diversification-in-a-can. It requires little to no active maintenance. Yes, you pay a management fee, but you aren't paying per-transaction fees every time you adjust your holdings, and the management costs can be quite reasonable if you pick the right funds; minimal in the case of computer-managed (index) funds. If you actively enjoy playing with stocks and bonds and are willing/able to accept your failures and less-than-great choices as part of the game, and if you can convince yourself that you will do better this way, go for it. For those of us who just want to deposit out money, watch it grow, and maybe rebalance once a year if that, index funds are a perfectly good choice. I spend at least 8 hours a day working for my money; the rest of the time, I want my money to work for me. Risk and reward tend to be proportional to each other; when they aren't, market prices tend to move to correct that. You need to decide how much risk you're comfortable with, and how much time and effort and money you're willing to spend managing that risk. Personally, I am perfectly happy with the better-than-market-rate-of-return I'm getting, and I don't have any conviction that I could do better if I was more involved. Your milage will vary. If folks didn't disagree, there wouldn't be a market.","If you are a novice investor and want to diversify, I'd recommend looking into targeted mutual funds. They couldn't be easier. You just put your money in the fund with the year that you anticipating needing to take the money out and the fund manager handles diversification and adjusting the risk appropriately over the life of the fund based on the remaining time horizon. The only downside is that the annual expenses tend to be higher on these than if you just invested in the underlying securities/funds, but you are pretty much paying them to manage it for you.","Diversification is an important aspect of precious metals investing. Therefore I would suggest diversifying in a number of different ways:","\"Yes, you can insure against the fall in price of stock by purchasing a put option. You pay for a put and if the price of the share falls below the \"\"strike price\"\" of the put, then you can exercise the put. On exercise, the person who sold you the put contract agrees to buy the stock for the strike price, even though that strike price is higher than the market price. You can adjust the level of insurance by buying put options at higher or lower prices, or buying fewer put options than shares you own (leaving some shares uninsured). Alternatively, you can minimize your risk exposure by investing in an index or other fund, which gives you partial ownership in a large number of shares. That means on any given day, lots of shares do worse and lots of shares do better. You can reduce the need for insurance by purchasing a lower-risk, lower-growth financial product.\"","There are several problems with your reasoning: if I buy one share of GOOGLE now for $830, I could have $860 within the end of tonight -- totally possible and maybe even likely. You can do the same thing with 1,000,000 shares of google, and it's just as likely to go down as go up. if I were to invest $1,000.00 in gold to have $1,000.00 worth of gold, it's no different than keeping $1,000.00 in cash It's VERY different. Gold can be just as volatile as stocks, so it certainly is different as just keeping it in cash. Benefits of a larger portfolio:","The reason diversification in general is a benefit is easily seen in your first graph. While the purple line (Betterment 100% Stock) is always below the blue line (S&P), and the blue line is the superior return over the entire period, it's a bit different if you retired in 2009, isn't it? In that case the orange line is superior: because its risk is much lower, so it didn't drop much during the major crash. Lowering risk (and lowering return) is a benefit the closer you get to retirement as you won't see as big a cumulative return from the large percentage, but you could see a big temporary drop, and need your income to be relatively stable (if you're living off it or soon going to). Now, you can certainly invest on your own in a diverse way, and if you're reasonably smart about it and have enough funds to avoid any fees, you can almost certainly do better than a managed solution - even a relatively lightly managed solution like Betterment. They take .15% off the top, so if you just did exactly the same as them, you would end up .15% (per year) better off. However, not everyone is reasonably smart, and not everyone has much in the way of funds. Betterment's target audience are people who aren't terribly smart about investing and/or have very small amounts of funds to invest. Plenty of people aren't able to work out how to do diversification on their own; while they probably mostly aren't asking questions on this site, they're a large percentage of the population. It's also work to diversify your portfolio: you have to make minor changes every year at a minimum to ensure you have a nicely balanced portfolio. This is why target retirement date portfolios are very popular; a bit higher cost (similar to Betterment, roughly) but no work required to diversify correctly and maintain that diversification.","An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)","It's all about risk. These guidelines were all developed based on the risk characteristics of the various asset categories. Bonds are ultra-low-risk, large caps are low-risk (you don't see most big stocks like Coca-Cola going anywhere soon), foreign stocks are medium-risk (subject to additional political risk and currency risk, especially so in developing markets) and small-caps are higher risk (more to gain, but more likely to go out of business). Moreover, the risks of different asset classes tend to balance each other out some. When stocks fall, bonds typically rise (the recent credit crunch being a notable but temporary exception) as people flock to safety or as the Fed adjusts interest rates. When stocks soar, bonds don't look as attractive, and interest rates may rise (a bummer when you already own the bonds). Is the US economy stumbling with the dollar in the dumps, while the rest of the world passes us by? Your foreign holdings will be worth more in dollar terms. If you'd like to work alternative asset classes (real estate, gold and other commodities, etc) into your mix, consider their risk characteristics, and what will make them go up and down. A good asset allocation should limit the amount of 'down' that can happen all at once; the more conservative the allocation needs to be, the less 'down' is possible (at the expense of the 'up'). .... As for what risks you are willing to take, that will depend on your position in life, and what risks you are presently are exposed to (including: your job, how stable your company is and whether it could fold or do layoffs in a recession like this one, whether you're married, whether you have kids, where you live). For instance, if you're a realtor by trade, you should probably avoid investing too much in real estate or it'll be a double-whammy if the market crashes. A good financial advisor can discuss these matters with you in detail.","The stock market, as a whole, is extremely volatile. During any 3 year period, the market could go up or down. However, and this is the important point,the market as a whole has historically been a good long term investment. If you need the money in 5 years, then you want to put it in something less volatile (so there's less chance of losing it). If you need the money in 50 years, put it in the market; the massive growth over those 50 years will more than make up for any short term drops, and you will probably come out ahead. Once you get closer to retirement age, you want to take the money out of stocks and put it in something safer; essentially locking in your profit, and protecting yourself from the possibility of further loss. Something else to consider: everyone lost money in 2008. There were no safe investments (well, ok, there were a few... but not enough to talk about). Given that, why would you choose another investment over stocks? Taking a 50% loss after decades of 10% annual returns is still better than a 50% loss after decades of 5% growth (in fact, after 20 years of growth, it's still 250% better - and that ratio will only improve the longer you leave it in).","The biggest challenge with owning any individual stock is price fluctuation, which is called risk. The scenarios you describe assume that the stock behaves exactly as you predict (price/portfolio doubles) and you need to consider risk. One way to measure risk in a stock or in a portfolio is Sharpe Ratio (risk adjusted return), or the related Sortino ratio. One piece of advice that is often offered to individual investors is to diversify, and the stated reason for diversification is to reduce risk. But that is not telling the whole story. When you are able to identify stocks that are not price correlated, you can construct a portfolio that reduces risk. You are trying to avoid 10% tax on the stock grant (25%-15%), but need to accept significant risk to avoid the 10% differential tax ($1000). An alternative to a single stock is to invest in an ETF (much lower risk), which you can buy and hold for a long time, and the price/growth of an ETF (ex. SPY) can be charted versus your stock to visualize the difference in growth/fluctuation. Look up the beta (volatility) of your stock compared to SPY (for example, IBM). Compare the beta of IBM and TSLA and note that you may accept higher volatility when you invest in a stock like Tesla over IBM. What is the beta of your stock? And how willing are you to accept that risk? When you can identify stocks that move in opposite directions, and mix your portfolio (look up beta balanced portolio), you can smooth out the variability (reduce the risk), although you may reduce your absolute return. This cannot be done with a single stock, but if you have more money to invest you could compose the rest of your portfolio to balance the risk for this stock grant, keep the grant shares, and still effectively manage risk. Some years ago I had accumulated over 10,000 shares (grants, options) in a company where I worked. During the time I worked there, their price varied between $30/share and < $1/share. I was able to liquidate at $3/share.","Investing only in one industry may be problematic as it is highly correlated. There are factor outside your (or anyones) knowledge which may affect all the industry: If you are familiar with the industry it may happen that you work in that (ignore rest of paragraph if this is not the case). In such case you are likely to have problems at work (frozen salary, no bonus, position terminated) and you need to liquidate the investments at that point (see many advice regarding ESPP). Depending on your field you may have some inside knowledge so even if you would took a position without it you may need to somehow prove it. On the other hand diversifying the investment might reduce the volatility of investment. Rise in oil will cause problems for air industry but will be a boom for oil industry etc. In this way you smooth the grow of the investments. Investing part of portfolio into specific industry may make more sense. It still possibly worth to avoid it at the beginning investor may have trouble to beat the market (for example according to behavioural economics you are exposed to various biases, or if markets are efficient then prices most likely already take into account any information you may have). (I'm still new to all this so it's mostly based on what I read rather then any personal experience. Also a standard disclaimer that this is not an investment, or any other, advice and I'm not licensed financial advisor in any jurisdiction)","\"When you hear advice to buy index funds, that usually comes with two additional pieces of investment discipline advice that are important: These two elements are important to give you relative predictability in your outcome 20 years from now. In this old blog post of mine I linked to Warren Buffett talking about this, also mentioned it in a comment on another answer: http://blog.ometer.com/2008/03/27/index-funds/ It's perfectly plausible to do poorly over 20 years if you buy 100% stocks at once, without dollar-cost averaging or rebalancing. It's very very very plausible to do poorly over 10 years, such as the last 10 in fact. Can you really say you know your financial situation in 20-30 years, and for sure won't need that money? Because predictability is important, I like buying a balanced fund and not \"\"pure stocks\"\": http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ (feel a little bad linking to my blog, but retyping all that into this answer seems dumb!) Here's another tip. You can go one step past dollar cost averaging and try value averaging: http://www.amazon.com/Value-Averaging-Strategy-Investment-Classics/dp/0470049774 However, chances are you aren't even going to be good about rebalancing if it's done \"\"by hand,\"\" so personally I would not do value averaging unless you can find either a fund or a financial advisor to do it for you automatically. (Finance Buff blog makes a case for a financial advisor, in case you like that more than my balanced fund suggestion: http://thefinancebuff.com/the-average-investor-should-use-an-investment-advisor-how-to-find-one.html) Like rebalancing, value averaging makes you buy more when you're depressed about the market and less when it's exciting. It's hard. (Dollar cost averaging is easily done by setting up automatic investment, of course, so you don't have to do it manually in the way you would with value averaging.) If you read the usual canonical books on index funds and efficient markets it's easy to remember the takeaway that nobody knows whether the market will go up or down, and yes you won't successfully time the market. But what you can do successfully is use an investment discipline with risk control: assume that the market will fluctuate, that both up and down are likely and possible, and optimize for predictability in light of that. Most importantly, optimize to take your emotions and behavior out of the picture. Some disciplines for example are: there are dozens out there, many of them snake oil, I think these I mentioned are valid. Anyway, you need some form of risk control, and putting all your money in stocks at once doesn't give you a lot of risk control. There's no real need to get creative. A balanced fund that uses index funds for equity and bond portions is a great choice.\"","Keep in mind that it's a cliche statement used as non-controversial filler in articles, not some universal truth. When you were young, did you mom tell you to eat your vegetables because children are starving in Ethiopia? This is the personal finance article equivalent of that. Generally speaking, the statement as an air of truth about it. If you're living hand to mouth, you probably shouldn't be thinking about the stock market. If you're a typical middle class individual investor, you probably shouldn't be messing around with very speculative investments. That said, be careful about looking for some deeper meaning that just isn't there. If the secret of investment success is hidden in that statement, I have a bridge to sell you that has a great view of Brooklyn.","I think it may be best to take everything you're asking line-by-line. Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. This is not true. Companies can go out of business, or take a major hit and never recover. Take Volkswagen for example, in 2015 due to a scandal they were involved in, their stocks went downhill. Now their stocks are starting to rise again. The investors goal is not to wait as long as necessary to make a profit on every stock purchase, but to make the largest profit possible in the shortest time possible. Sometimes this means selling a stock before it recovers (if it ever does). I think the problem with most buyers is that they desire the most gain they can possibly have. However, that is very risky. This can be true. Every investor needs to gauge the risk they're willing to take and high-gain investments are riskier. Therefore, it's better to be winning [small/medium] amounts of money (~)100% of the time than [any] amount of money <~25%. Safer investments do tend to yield more consistent returns, but this doesn't mean that every investor should aim for low-yield investments. Again, this is driven by the investor's risk tolerance. To conclude, profitable companies' stock tends to increase over time and less aggressive investments are safer, but it is possible to lose from any stock investment.","You can simply stick with some index funds that tracks the S&P 500 and Ex-US world market. That should provide some good diversification. And of course, you should always have a portion of your money in short/mid term bond fund, rebalancing your stock/bond ratio all the way as deemed necessary. If you want to follow the The Über–Tuber portfolio, you'd better make sure that there's minimum overlapping among the underlying shares that they hold.","Your question seems to be making assumptions around “investing”, that investing is only about stock market and bonds or similar things. I would suggest that you should look much broader than that in terms of your investments. Investment Types Your should consider (and include) some or all of the following for your investments, depending on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. I love @Blackjack’s explanation of diversification into other asset classes producing a lower risk portfolio. Excellent! All the above need to be considered in this spread of risk, depending as I said earlier on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. Stock Market Investment I’ll focus most of the rest of my post on the stock markets, as that is where my main experience lies. But the comments are applicable to a greater or lesser extent to other types of investing. We then come to how engaged you want to be with your investments. Two general management styles are passive investment management versus active investment management. @Blackjack says That pretty much sums up passive management. The idea is to buy ETFs across asset classes and just leave them. The difficulty with this idea is that profitability is very dependent upon when the stocks are purchased and when they are sold. This is why active investing should be considered as a viable alternative to passive investment. I don’t have access to a very long time frame of stock market data, but I do have 30 or so years of FTSE data, so let’s say that we invest £100,000 for 10 years by buying an ETF in the FTSE100 index. I know this isn't de-risking across a number of asset classes by purchasing a number of different EFTs, but the logic still applies, if you will bear with me. Passive Investing I have chosen my example dates of best 10 years and worst 10 years as specific dates that demonstrate my point that active investing will (usually) out-perform passive investing. From a passive investing point of view, here is a graph of the FTSE with two purchase dates chosen (for maximum effect), to show the best and worst return you could receive. Note this ignores brokerage and other fees. In these time frames of data I have … These are contrived dates to illustrate the point, on how ineffective passive investing can be, depending if there is a bear/bull market and where you buy in the cycle. One obviously wouldn’t buy all their stocks in one tranche, but I’m just trying to illustrate the point. Active Investing Let’s consider now active investing. I use the following rules for selling and buying:- This is obviously a very simple technical trading system and I would not recommend using it to trade with, as it is overly simplistic and there are some flaws and inefficiencies in it. So, in my simulation, These beat the passive stock market profit for their respective dates. Summary Passive stock market investing is dependent upon the entry and exit prices on the dates the transactions are made and will trade regardless of market cycles. Active stock market trading or investing engages with the market using a set of criteria, which can change over time, but allows one’s investments to be in or out of the market at any point in time. My time frames were arbitrary, but with the logic applied (which is a very simple technical trading methodology), I would suggest that any 10 year time frame active investing would beat passive investing.","\"Ryan's suggestion to index for your main strategy is dead on. Your risk is highest with one given stock, and decreases as you diversify. Yet, picking the stocks one at a time is an effort, when done right, it's time consuming. For what one can say about Jim \"\"mad money\"\" Cramer, his advice to spend an hour a month studying each stock you own, is pretty decent advice. Penny stocks are sub one dollar priced, typically small companies which in theory can grow to be large companies, but the available information tends to be tougher to get hold of. Options are a discussion for a different thread, I discussed the covered call strategy elsewhere and show that options are not necessarily high risk, it depends how they are used.\"","\"Having savings only in your home currency is relatively 'low risk' compared with other types of 'low diversification'. This is because, in a simple case, your future cash outflows will be in your home currency, so if the GBP fluctuates in value, it will (theoretically) still buy you the same goods at home. In this way, keeping your savings in the same currency as your future expenditures creates a natural hedge against currency fluctuation. This gets complicated for goods imported from other countries, where base price fluctuates based on a foreign currency, or for situations where you expect to incur significant foreign currency expenditures (retirement elsewhere, etc.). In such cases, you no longer have certainty that your future expenditures will be based on the GBP, and saving money in other currencies may make more sense. In many circumstances, 'diversification' of the currency of your savings may actually increase your risk, not decrease it. Be sure you are doing this for a specific reason, with a specific strategy, and not just to generally 'spread your money around'. Even in case of a Brexit, consider: what would you do with a bank account full of USD? If the answer is \"\"Convert it back to GBP when needed (in 6 months, 5 years, 30, etc.), to buy British goods\"\", then I wouldn't call this a way to reduce your risk. Instead, I would call it a type of investment, with its own set of risks associated.\"","When the market moves significantly, you should rebalance your investments to maintain the diversification ratios you have selected. That means if bonds go up and stocks go down, you sell bonds and buy stocks (to some degree), and vice versa. Sell high to buy low, and remember that over the long run most things regress to the mean.","\"If you read Joel Greenblatt's The Little Book That Beats the Market, he says: Owning two stocks eliminates 46% of the non market risk of owning just one stock. This risk is reduced by 72% with 4 stocks, by 81% with 8 stocks, by 93% with 16 stocks, by 96% with 32 stocks, and by 99% with 500 stocks. Conclusion: After purchasing 6-8 stocks, benefits of adding stocks to decrease risk are small. Overall market risk won't be eliminated merely by adding more stocks. And that's just specific stocks. So you're very right that allocating a 1% share to a specific type of fund is not going to offset your other funds by much. You are correct that you can emulate the lifecycle fund by simply buying all the underlying funds, but there are two caveats: Generally, these funds are supposed to be cheaper than buying the separate funds individually. Check over your math and make sure everything is in order. Call the fund manager and tell him about your findings and see what they have to say. If you are going to emulate the lifecycle fund, be sure to stay on top of rebalancing. One advantage of buying the actual fund is that the portfolio distributions are managed for you, so if you're going to buy separate ETFs, make sure you're rebalancing. As for whether you need all those funds, my answer is a definite no. Consider Mark Cuban's blog post Wall Street's new lie to Main Street - Asset Allocation. Although there are some highly questionable points in the article, one portion is indisputably clear: Let me translate this all for you. “I want you to invest 5pct in cash and the rest in 10 different funds about which you know absolutely nothing. I want you to make this investment knowing that even if there were 128 hours in a day and you had a year long vacation, you could not possibly begin to understand all of these products. In fact, I don’t understand them either, but because I know it sounds good and everyone is making the same kind of recommendations, we all can pretend we are smart and going to make a lot of money. Until we don’t\"\" Standard theory says that you want to invest in low-cost funds (like those provided by Vanguard), and you want to have enough variety to protect against risk. Although I can't give a specific allocation recommendation because I don't know your personal circumstances, you should ideally have some in US Equities, US Fixed Income, International Equities, Commodities, of varying sizes to have adequate diversification \"\"as defined by theory.\"\" You can either do your own research to establish a distribution, or speak to an investment advisor to get help on what your target allocation should be.\""],"string":"[\n \"Diversification is a good method of risk management. Different types of investments do better in different situations and economic climates. Invest all your money at the wrong time in a single product and you could lose everything. You could also technically make a great deal of money, but actions such as these are the actions of speculators, not investors. Spreading your investments appropriately lets you maximize your growth opportunities while limiting your risk.\",\n \"\\\"Diversification tends to protect you from big losses. But it also tends to \\\"\\\"protect\\\"\\\" you from big gains. In any industry, some companies provide good products and services and prosper while others have problems and fail. (Or maybe the winners are just lucky or they paid off the right politicians, whatever, not the point here.) If you put all your money in one stock and they do well, you could make a bundle. But if you pick a loser, you could lose your entire investment. If you buy a little stock in each of many companies, then some will go up and some will go down, and your returns will be an average of how everyone in the industry is doing. Suppose I offered to bet you a large sum of money that if I roll a die, it will come up 6. You might be reluctant to take that bet, because you can't predict what number will come up on one roll of a die. But suppose I offered to bet you a large sum of money that a die will come up 6, 100 times in a row. You might well take that bet, because the chance that it will turn up 6 time after time after time is very low. You reduce risk by spreading your bets. Anyone who's bought stock has surely had times when he said, \\\"\\\"Oh man! If only I'd bought X ten years ago I'd be a millionaire now!\\\"\\\" But quite a few have also said, \\\"\\\"If only I'd sold X ten years ago I wouldn't have lost all this money!\\\"\\\" I recently bought a stock a stock that within a few months rose to 10 times what I paid for it ... and then a few months later the company went bankrupt and the stock was worth nothing. I knew the company was on a roller coaster when I bought the stock, I was gambling that they'd pull through and I'd make money. I guessed wrong. Fortunately I gambled an amount that I was willing to lose.\\\"\",\n \"Diversification is used by many to hopefully reduce the risk when bad investments are made. Diversification does not help you make more profits but instead averages down your profits. There is no way one can tell whether a stock or portfolio of stocks will go up or down once they are purchased. In order to try to provide some protection against total loss of the portfolio, a lazy so called long term investor will use diversification as a way of risk management. But the best outcome for them will be an averaging down of their profits. A better method is to let the market tell you when your purchased investment is a bad one and get out of that investment early and thus limiting your losses, whilst letting your good investments (as determined by the market) run and make larger profits.\",\n \"If you are diversifying just for diversification purposes then all you are doing is averaging down your returns. You shouldn't just buy two securities because you think it is safer than putting all your money into one. A better method is to use money management and position sizing to limit your risk and exposure in any one security. You should know what your maximum risk is before you buy any security and know when it is time to get out of it. There are better ways to manage your risk. Don't put all your eggs in the one basket - yes, but don't diversify just for diversification purposes.\",\n \"Diversifying is the first advice given to beginner in order to avoid big loss. For example in 2014 the company Theranos was really appealing before it fail in 2016. So a beginner could have invest ALL his money and lose it. But if he has deverified he wouldn't lost everything. As an investor goes from beginner to experience some still Diversify and other concentrate. Mostly it depends how much confident you are about an investement. If you have 20 years of experience, now everything about the company and you are sure there will be profit you can concentrate. If you are not 100% sure there will be a profit, it is better to Diversify. Diversifying can also be profitating when you loose money: because you will pay tax when you earn money, if you diversify you can choose to loose money in some stock (usually in december) and in this way cut your taxes.\",\n \"If you buy stock in established companies, it is vey unlikely that they will lose all their value. Spreading your money across multiple stocks -- diversifying -- reduces that risk because it is extremely unlikely that they all lose all their value at once. Spreading them across multiple industries and adding bonds to the mix increases diversification. Of course the trade-off is that if one of the stocks skyrockets you don't benefit as much as if you had been lucky enough to put all your money in that one stock. You need to decide for yourself how much risk you are willing to tolerate in exchange for the chance of gains. Other answers on this site have dealt with this in more detail.\",\n \"\\\"There are a couple of reasons to diversify your assets. First, since we cannot predict which of our investments will perform best, we want to \\\"\\\"cast our net\\\"\\\" broadly enough to have something invested in what's going to be performing well. Second, diversification isn't intended to provide the highest returns, but rather it is used to soften the effects of market volatility. By softening the downsides and lowering the overall volatility among our assets, returns are more consistent. If a model does not address future downside risk it is only telling you part of the story. (Past performance does not guarantee... you get the picture)\\\"\",\n \"\\\"Diversification is extremely important and the one true \\\"\\\"Free Lunch\\\"\\\" of investing, meaning it can provide both greater returns and less risk than a portfolio that is not diversified. The reason people say otherwise is because they are talking about \\\"\\\"true\\\"\\\" portfolio diversification, which cannot be achieved by simply spreading money across stocks. To truly diversify a portfolio it must be diversified across multiple, unrelated \\\"\\\"Return Drivers.\\\"\\\" I describe this throughout my best-selling book and am pleased to provide complimentary links to the following two chapters, where I discuss the lack of diversification from spreading money solely across stocks (including correlation tables), as well as the benefits of true portfolio diversification: Jackass Investing - Myth #8: Trading is Gambling – Investing is Safer Jackass Investing - Myth #20: There is No Free Lunch\\\"\",\n \"If you have 100% of your money in one security that is inherently more risky than splitting your money 50/50 between two securities, regardless of the purported riskiness of the two securities. The calculations people use to justify their particular breed of diversification may carry some assumptions related risk/reward calculations. But these particular justifications don't change the fact that spreading your money across different assets protects your money from value variances of the individual assets. Splitting your $100 between Apple and Microsoft stock is probably less valuable (less well diversified) than splitting your money between Apple and Whole Foods stock but either way you're carrying less risk than putting all $100 in to Apple stock regardless of the assumed rates of return for any of these companies stock specifically. Edit: I'm sure the downvotes are because I didn't make a big deal about correlation and measuring correlation and standard deviations of returns and detailed portfolio theory. Measuring efficacy and justifying your particular allocations (that generally uses data from the past to project the future) is all well and good. Fact of the matter is, if you have 100% of your money in stock that's more stock risk than 25% in cash, 25% in bonds and 50% in stock would be because now you're in different asset classes. You can measure to your hearts delight the effects of splitting your money between different specific companies, or different industries, or different market capitalizations, or different countries or different fund managers or different whatever-metrics and doing any of those things will reduce your exposure to those specific allocations. It may be worth pointing out that currently the hot recommendation is a plain vanilla market tracking S&P 500 index fund (that just buys some of each of the 500 largest US companies without any consideration given to risk correlation) over standard deviation calculating actively managed funds. If you ask me that speaks volumes of the true efficacy of hyper analyzing the purported correlations of various securities.\",\n \"\\\"I would like to first point out that there is nothing special about a self-managed investment portfolio as compared to one managed by someone else. With some exceptions, you can put together exactly the same investment portfolio yourself as a professional investor could put together for you. Not uncommonly, too, at a lower cost (and remember that cost is among the, if not the, best indicator(s) of how your investment portfolio will perform over time). Diversification is the concept of not \\\"\\\"putting all your eggs in one basket\\\"\\\". The idea here is that there are things that happen together because they have a common cause, and by spreading your investments in ways such that not all of your investments have the same underlying risks, you reduce your overall risk. The technical term for risk is generally volatility, meaning how much (in this case the price of) something fluctuates over a given period of time. A stock that falls 30% one month and then climbs 40% the next month is more volatile than one that falls 3% the first month and climbs 4% the second month. The former is riskier because if for some reason you need to sell when it is down, you lose a larger portion of your original investment with the former stock than with the latter. Diversification, thus, is reducing commonality between your investments, generally but not necessarily in an attempt to reduce the risk of all investments moving in the same direction by the same amount at the same time. You can diversify in various ways: Do you see where I am going with this? A well-diversed portfolio will tend to have a mix of equity in your own country and a variety of other countries, spread out over different types of equity (company stock, corporate bonds, government bonds, ...), in different sectors of the economy, in countries with differing growth patterns. It may contain uncommon classes of investments such as precious metals. A poorly diversified portfolio will likely be restricted to either some particular geographical area, type of equity or investment, focus on some particular sector of the economy (such as medicine or vehicle manufacturers), or so on. The poorly diversified portfolio can do better in the short term, if you time it just right and happen to pick exactly the right thing to buy or sell. This is incredibly hard to do, as you are basically working against everyone who gets paid to do that kind of work full time, plus computer-algorithm-based trading which is programmed to look for any exploitable patterns. It is virtually impossible to do for any real length of time. Thus, the well-diversified portfolio tends to do better over time.\\\"\",\n \"\\\"Years ago I wrote an article Risk, Reward, Coin Flipping which explains from a 'game theory' perspective how diversifying works to minimize standard deviation in one's returns. It's long and tedious, not easy to summarize, but it holds up well, I'm pleased with how the analogy does its job. Update - the above is too \\\"\\\"link-only\\\"\\\", written over 5 years ago. The article I wrote offers a mathematical approach via an understandable example of coin flipping. With just 2 options, a 'head' is a 10% loss, while a 'tail' is a 30% gain. This actually represents the market fairly well as it results in a 10% average gain and 28% standard deviation for just 2 flips. The article shows how by 'diversifying', choosing to make multiple smaller bets, the average 10% stays the same, but the standard deviation is brought down dramatically, 7.6% when we use a sample experiment with 7 coins.\\\"\",\n \"\\\"Diversification is spreading your investments around so that one point of risk doesn't sink your whole portfolio. The effect of having a diversified portfolio is that you've always got something that's going up (though, the corollary is that you've also always got something going down... winning overall comes by picking investments worth investing in (not to state the obvious or anything :-) )) It's worth looking at the different types of risk you can mitigate with diversification: Company risk This is the risk that the company you bought actually sucks. For instance, you thought gold was going to go up, and so you bought a gold miner. Say there are only two -- ABC and XYZ. You buy XYZ. Then the CEO reveals their gold mine is played out, and the stock goes splat. You're wiped out. But gold does go up, and ABC does gangbusters, especially now they've got no competition. If you'd bought both XYZ and ABC, you would have diversified your company risk, and you would have been much better off. Say you invested $10K, $5K in each. XYZ goes to zero, and you lose that $5K. ABC goes up 120%, and is now worth $11K. So despite XYZ bankrupting, you're up 10% on your overall position. Sector risk You can categorize stocks by what \\\"\\\"sector\\\"\\\" they're in. We've already talked about one: gold miners. But there are many more, like utilities, bio-tech, transportation, banks, etc. Stocks in a sector will tend to move together, so you can be right about the company, but if the sector is out of favor, it's going to have a hard time going up. Lets extend the above example. What if you were wrong about gold going up? Then XYZ would still be bankrupt, and ABC would be making less money so they went down as well; say, 20%. At that point, you've only got $4K left. But say that besides gold, you also thought that banks were cheap. So, you split your investment between the gold miners and a couple of banks -- lets call them LMN and OP -- for $2500 each in XYZ, ABC, LMN, and OP. Say you were wrong about gold, but right about banks; LMN goes up 15%, and OP goes up 40%. At that point, your portfolio looks like this: XYZ start $2500 -100% end $0 ABC start $2500 +120% end $5500 LMN start $2500 +15% end $2875 OP start $2500 +40% end $3500 For a portfolio total of: $11,875, or a total gain of 18.75%. See how that works? Region/Country/Currency risk So, now what if everything's been going up in the USA, and everything seems so overpriced? Well, odds are, some area of the world is not over-bought. Like Brazil or England. So, you can buy some Brazilian or English companies, and diversify away from the USA. That way, if the market tanks here, those foreign companies aren't caught in it, and could still go up. This is the same idea as the sector risk, except it's location based, instead of business type based. There is an additional twist to this -- currencies. The Brits use the pound, and the Brazilians use the real. Most small investors don't think about this much, but the value of currencies, including our dollar, fluctuates. If the dollar has been strong, and the pound weak (as it has been, lately), then what happens if that changes? Say you own a British bank, and the dollar weakens and the pound strengthens. Even if that bank doesn't move at all, you would still make a gain. Example: You buy British bank BBB for 40 pounds a share, when each pound costs $1.20. Say after a while, BBB is still 40 pounds/share, but the dollar weakened and the pound strengthened, such that each pound is now worth $1.50. You could sell BBB, and because of the currency exchange once you've got it converted back to dollars you'd have a 25% gain. Market cap risk Sometimes big companies do well, sometimes it's small companies. The small caps are riskier but higher returning. When you think about it, small and mid cap stocks have much more \\\"\\\"room to run\\\"\\\" than large caps do. It's much easier to double a company worth $1 billion than it is to double a company worth $100 billion. Investment types Stocks aren't the only thing you can invest in. There's also bonds, convertible bonds, CDs, preferred stocks, options and futures. It can get pretty complicated, especially the last two. But each of these investment behaves differently; and again the idea is to have something going up all the time. The classical mix is stocks and bonds. The idea here is that when times are good, the stocks go up; when times are bad, the bonds go up (because they're safer, so more people want them), but mostly they're there to providing steady income and help keep your portfolio from cratering along with the stocks. Currently, this may not work out so well; stocks and bonds have been moving in sync for several years, and with interest rates so low they don't provide much income. So what does this mean to you? I'm going make some assumptions here based on your post. You said single index, self-managed, and don't lower overall risk (and return). I'm going to assume you're a small investor, young, you invest in ETFs, and the single index is the S&P 500 index ETF -- SPY. S&P 500 is, roughly, the 500 biggest companies in the USA. Further, it's weighted -- how much of each stock is in the index -- such that the bigger the company is, the bigger a percentage of the index it is. If slickcharts is right, the top 5 companies combined are already 11% of the index! (Apple, Microsoft, Exxon, Amazon, and Johnson & Johnson). The smallest, News Corp, is a measly 0.008% of the index. In other words, if all you're invested in is SPY, you're invested in a handfull of giant american companies, and a little bit of other stuff besides. To diversify: Company risk and sector risk aren't really relevant to you, since you want broad market ETFs; they've already got that covered. The first thing I would do is add some smaller companies -- get some ETFs for mid cap, and small cap value (not small cap growth; it sucks for structural reasons). Examples are IWR for mid-cap and VBR for small-cap value. After you've done that, and are comfortable with what you have, it may be time to branch out internationally. You can get ETFs for regions (such as the EU - check out IEV), or countries (like Japan - see EWJ). But you'd probably want to start with one that's \\\"\\\"all major countries that aren't the USA\\\"\\\" - check out EFA. In any case, don't go too crazy with it. As index investing goes, the S&P 500 is not a bad way to go. Feed in anything else a little bit at a time, and take the time to really understand what it is you're investing in. So for example, using the ETFs I mentioned, add in 10% each IWR and VBR. Then after you're comfortable, maybe add 10% EFA, and raise IWR to 20%. What the ultimate percentages are, of course, is something you have to decide for yourself. Or, you could just chuck it all and buy a single Target Date Retirement fund from, say, Vanguard or T. Rowe Price and just not worry about it.\\\"\",\n \"I think to answer this question it is best for you to learn more about why people diversify through asset allocation. Look at related questions involving Asset Allocation here. I've asked a couple questions about asset allocation - I think you'll find the top rated answer on this post useful.\",\n \"\\\"While it's definitely possible (and likely?) that a diversified portfolio generates higher returns than the S&P 500, that's not the main reason why you diversify. Diversification reduces risk. Modern portfolio theory suggests that you should maximize return while reducing risk, instead of blindly chasing the highest returns. Think about it this way--say the average return is 11% for large cap US stocks (the S&P 500), and it's 10% for a diversified portfolio (say, 6-8 asset classes). The large cap only portfolio has a 10% chance of losing 30% in a given year, while the diversified portfolio has a 1% chance of losing 30% in a year. For the vast majority of investors, it's worth the 1% annual gap in expected return to greatly reduce their risk exposure. Of course, I just made those numbers up. Read what finance professors have written for the \\\"\\\"data and proof\\\"\\\". But modern portfolio theory is believed by a lot of investors and other finance experts. There are a ton of studies (and therefore data) on MPT--including many that contradict it.\\\"\",\n \"if I have a asset A with expected return of 100% and risk(measured by standard deviation) 1%, and asset B with expected return of 1% and risk 100%, would it be rational to put asset B into the portfolio ? No, because Modern Portfolio Theory would say that if there is another asset (B2) with the same (or higher) return but less risk (which you already have in asset A), you should invest in that. If those are the only two assets you can choose from, you would invest completely in Asset A. The point of diversification is that, so long as two assets aren't perfectly positively correlated (meaning that if one moves up the other always moves up), then losses in one asset will sometimes be offset by gains in another, reducing the overall risk.\",\n \"At its simplest level it's an application of basic statistics/probability: Suppose you have n independent and identically distributed assets with the return on asset i denoted R_i which has mean m and variance s^2 (same for all assets). You can easily weaken these assumptions but I make them to simplify the exposition [Square brackets show a numerical example with n=20, m=8%, s=2%] if you invest in one of these assets you expect to get a return of m [8%] with standard deviation s [2%] (so you expect with probability 95% (approx) to get a return between m-2*s and m+2*s. [between 4% and 12%] Now suppose you split your money equally among the n-assets. Your return is now R = (1/n)\\\\Sum{i=1}^n R_i your expected return is E(R) = (1/n)\\\\Sum{i=1}^n E(R_i) = (1/n)\\\\Sum{i=1}^n m = m [8%] the variance of your return is Var(R) = Var( (1/n)\\\\Sum{i=1}^n R_i ) = (1/n^2)\\\\Sum{i=1}^n Var(R_i) = n * s^2 / n^2) = s^2/n So, the standard deviation is SD(R) = Sqrt(V(R)) = s/Sqrt(n) [2%/Sqrt(20) = 0.44%] Now, with 95% probability we get a return between E(R)-2*SD(R) and E(R)+2*SD(R) [between 7.12% and 8.88%]. This interval is smaller than when we invested in the single asset, so in effect with this portfolio we are achieving the same return m [8%] but with lower variance (risk) [0.44% instead of 2%]. This is the result of diversification. You can assume the assets are not independent (and most book expositions of this topic do indeed do that). In that case the calculation is modified because the variance of the portfolio now depends on the correlation between returns, as does the reduction in variance caused by the diversification. If assets are negatively correlated the result of the diversification will be more reduction in risk and vice versa. You can also assume the assets are not identically distributed and the above analysis does not change too much. You might look for some references on CAPM (Capital Asset Pricing Model) or portfolio theory but broadly these are based on what I have described above - finding the portfolio with minimum variance for a given return by investing proportionally in treasury bonds and risky assets.\",\n \"Diversifying your portfolio between asset A and asset B only reduces the portfolio risk if asset A and asset B are not correlated. If they have either a low correlation or a negative correlation to each other, then you benefit from combining them in a portfolio in terms of risk reduction. The standard deviation of returns will be lower in a portfolio of low or uncorrelated assets. If on the other hand you combine two correlated assets into a portfolio you are doubling down on the same assumption, which means you are not reducing your risk. You are also wasting capital because now you have allocated capital to 2 separate trades / investments yet they have shown a high tendency of moving together. Here is an article that discusses this further: Why Diversify your Stock Portfolio\",\n \"\\\"If the stock market dropped 30%-40% next month, providing you with a rare opportunity to buy stocks at a deep discount, wouldn't you want to have some of your assets in investments other than stocks? If you don't otherwise have piles of new cash to throw into the market when it significantly tanks, then having some of your portfolio invested elsewhere will enable you to back up the proverbial truck and load up on more stocks while they are on sale. I'm not advocating active market timing. Rather, the way that long-term investors capitalize on such opportunities is by choosing a portfolio asset allocation that includes some percentage of safer assets (e.g. cash, short term bonds, etc.), permitting the investor to rebalance the portfolio periodically back to target allocations (e.g. 80% stocks, 20% bonds.) When rebalancing would have you buy stocks, it's usually because they are on sale. Similarly, when rebalancing would have you sell stocks, it's usually because they are overpriced. So, don't consider \\\"\\\"safer investments\\\"\\\" strictly as a way to reduce your risk. Rather, they can give you the means to take advantage of market drops, rather than just riding it out when you are already 100% invested in stocks. I could say a lot more about diversification and risk reduction, but there are plenty of other great questions on the site that you can look through instead.\\\"\",\n \"Most investors should not be in individual stocks. The market, however you measure it, can rise, yet some stocks will fall for whatever reason. The diversification needed is to have a number of shares of different stocks, and that a bit higher than most investors are able to invest and certainly not one starting out. I suggest you look at either mutual funds or ETFs, and keep studying. (I'm told I should have offered the UK equivalent Investment Trusts , OEIC, or Unit Trusts)\",\n \"\\\"JoeTaxpayer's answer is dead on... but let me give my own two cents with a little bit of math. Otherwise, I personally find that people talking about diversified portfolios tends to be full of buzzwords. Let's say that Buffett's investments are $10 million. He would like to earn ≥7% this year, or $700,000. He can invest that money in coca-cola//underwear, which might return: Or he can invest in \\\"\\\"genius moves\\\"\\\" that will make headlines: (like buying huge stakes in Goldman Sachs), which might return: And he makes plays for the long haul based on the expected value of the investments. So if he splits it 50/50... ($5 million/ $5 million), then his expected value is 822,250: By diversifying, he does reduce the expected value of the portfolio... (He is not giving $10 M the chance to turn into $1.5 million or $2 million for him!). The expected value of that shock-and-awe portfolio with all $10 million invested in it is $1.2M. By taking less risk... for less reward... his expected return is lower. But his risk is lower too. Scale this example back up into the $100 million or billion range that Buffett invests in and that extra margin makes the difference. In the context of your original article, the lower-risk 'cake and underwear' investments let Buffett go big on the things that will make 20%+ returns on billions of dollars, without completely destroying his investment capital when things take a turn for the worse.\\\"\",\n \"Diversification is just one aspect in an investment portfolio. The other aspects in Investment are Risk Taking Ability, Liquidity, Local Regulations, Tax benefits, Ease & Convenience, Cost of carrying out transactions etc. Investing in other regions is prone FX risk and other risks depending on the region of investment. For example investing in Emerging markets there is a risk of Local Regulations being changed, additional tax being levied, or Political instability and host of such risks. Investing in local markets give you better understanding of such changes and the risk associated is less plus the Ease of carrying out transactions is great, less expensive compared to cost of transactions in other markets. Diversification in Investment should also be looked upon how much you invest in; Equities Debt Bullion Real Estate Once you have a sizeable amount of investment in Equities or Debt, it would then make more sense to diversify this portion more to include funds from other regions. Unless you are an Running your own business, it makes sense to invest in your line of business if that is performing well. The reason being that the benefit / returns from the equities is much greater than the salary rise / bonus. For example I am in Information Technology and yet invest in all leading IT companies because the returns from companies in these segments have been good.\",\n \"\\\"Index funds are well-known to give the best long-term investment. Not exactly. Indexes give the best long term performance when compared to actively managing investments directly in the underlying stocks. That is, if you compare an S&P500 index to trying to pick stocks that are part of it, you're more likely to succeed with blindly following the index than trying to actively beat it. That said, no-one promises that investing in S&P500 is better than investing in DJIA, for example. These are two different indexes tracking different stocks and areas. So when advisers say \\\"\\\"diversify\\\"\\\" they don't mean it that you should diversify between different stocks that build up the S&P500 index. They mean that you should diversify your investments in different areas. Some in S&P500, some in DJIA, some in international indexes, some in bond indexes, etc. Still, investing in various indexes will likely yield better results than actively managing the investments trying to beat those indexes, but you should not invest in only one, and that is the meaning of diversification. In the comments you asked \\\"\\\"why diversify at all?\\\"\\\", and that is entirely a different question from your original \\\"\\\"what diversification is?\\\"\\\". You diversify to reduce the risk of loss from one side, and widen the net for gains from another. The thing is that any single investment can eventually fail, regardless of how it performed before. You can see that the S&P500 index lost 50% of its value twice within ten years, whereas before it was doubling itself every several years. Many people who were only invested in that index (or what's underlying to it) lost a lot of money. But consider you've diversified, and in the last 20 years you've invested in a blend of indexes that include the S&P500, but also other investments like S&P BSE SENSEX mentioned by Victor below. You would reduce your risk of loss on the American market by increasing your gains on the Indian market. Add to the mix soaring Chinese Real Estate market during the time of the collapse of the US real-estate, gains on the dollar losing its value by investing in other currencies (Canadian dollar, for example), etc. There are many risks, and by diversifying you mitigate them, and also have a chance to create other potential gains. Now, another question is why invest in indexes. That has been answered before on this site. It is my opinion that some methods of investing are just gambling by trying to catch the wave and they will almost always fail, and rarely will individual stock picking beat the market. Of course, after the fact its easy to be smart and pick the winning stocks. But the problem is to be able to predict those charts ahead of time.\\\"\",\n \"\\\"When you invest in a single index/security, you are completely exposed to the risk of that security. Diversification means spreading the investments so the losses on one side can be compensated by the gains on the other side. What you are talking about is one thing called \\\"\\\"risk apettite\\\"\\\", more formally known as Risk Tolerance: Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand. (emphasis added) This means that you are willing to accept some losses in order to get a potential bigger return. Fidelity has this graph: As you can see in the table above, the higher the risk tolerance, the bigger the difference between the best and worst values. That is the variability. The right-most pie can be one example of an agressive diversified portfolio. But this does not mean you should go and buy exactly that security compostion. High-risk means playing with fire. Unless you are a professional stuntman, playing with fire usually leaves people burnt. In a financial context this usually means the money is gone. Recommended Reading: Investopedia; Risk and Diversification: The Risk-Reward Tradeoff Investopedia; How to construct a High Risk portfolio Fidelity: Guide to Diversification KPMG: Understanding and articulating Risk Appetite (pdf)\\\"\",\n \"The other example I'd offer is the case for diversification. If one buys 10 well chosen stocks, i.e. stocks spread across different industries so their correlation to one another is low, they will have lower risk than each of the 10 folk who own one of those stocks per person. Same stocks, but lower risk when combined.\",\n \"\\\"You should only invest in individual stocks if you truly understand the company's business model and follow its financial reports closely. Even then, individual stocks should represent only the tiniest, most \\\"\\\"adventurous\\\"\\\" part of your portfolio, as they are a huge risk. A basic investing principle is diversification. If you invest in a variety of financial instruments, then: (a) when some components of your portfolio are doing poorly, others will be doing well. Even in the case of significant economic downturns, when it seems like everything is doing poorly, there will be some investment sectors that are doing relatively better (such as bonds, physical real estate, precious metals). (b) over time, some components of your portfolio will gain more money than others, so every 6 or 12 months you can \\\"\\\"rebalance\\\"\\\" such that all components once again have the same % of money invested in them as when you began. You can do this either by selling off some of your well-performing assets to purchase more of your poorly-performing assets or (if you don't want to incur a taxable event) by introducing additional money from outside your portfolio. This essentially forces you to \\\"\\\"buy (relatively) low, sell (relatively) high\\\"\\\". Now, if you accept the above argument for diversification, then you should recognize that owning a handful (or even several handfuls) of individual stocks will not help you achieve diversification. Even if you buy one stock in the energy sector, one in consumer discretionary, one in financials, etc., then you're still massively exposed to the day-to-day fates of those individual companies. And if you invest solely in the US stock market, then when the US has a decline, your whole portfolio will decline. And if you don't buy any bonds, then again when the world has a downturn, your portfolio will decline. And so on ... That's why index mutual funds are so helpful. Someone else has already gone to the trouble of grouping together all the stocks or bonds of a certain \\\"\\\"type\\\"\\\" (small-cap/large-cap, domestic/foreign, value/growth) so all you have to do is pick the types you want until you feel you have the diversity you need. No more worrying about whether you've picked the \\\"\\\"right\\\"\\\" company to represent a particular sector. The fewer knobs there are to turn in your portfolio, the less chance there is for mistakes!\\\"\",\n \"Basically, diversifying narrows the spread of possible results, raising the center of the returns bell-curve by reducing the likelihood of extreme results at either the high or low end. It's largely a matter of basic statistics. Bet double-or-nothing on a single coin flip, and those are the only possible results, and your odds of a disaster (losing most or all of the money) are 50%. Bet half of it on each of two coin flips, and your odds of losing are reduced to 25% at the cost of reducing your odds of winning to 25%, with 50% odds that you retain your money and can try the game again. Three coins divides the space further; the extremes are reduced to 12.5% each, with the middle being most likely. If that was all there was, this would be a zero-sum game and pure gambling. But the stock market is actually positive-sum, since companies are delivering part of their profits to their stockholder owners. This moves the center of the bell curve up a bit from break-even, historically to about +8%. This is why index funds produce a profit with very little active decision; they treat the variation as mostly random (which seems to work statistically) and just try to capture average results of a (hopefully) slightly above-average bucket of stocks and/or bonds. This approach is boring. It will never double your money overnight. On the other hand, it will never wipe you out overnight. If you have patience and are willing to let compound interest work for you, and trust that most market swings regress to the mean in the long run, it quietly builds your savings while not driving you crazy worrying about it. If all you are looking for is better return than the banks, and you have a reasonable amount of time before you need to pull the funds out, it's one of the more reliably predictable risk/reward trade-off points. You may want to refine this by biasing the mix of what you're holding. The simplest adjustment is how much you keep in each of several major investment categories. Large cap stocks, small cap stocks, bonds, and real estate (in the form of REITs) each have different baseline risk/return curves, and move in different ways in response to news, so maintaining a selected ratio between these buckets and adding the resulting curves together is one simple way to make fairly predictable adjustments to the width (and centerline) of the total bell curve. If you think you can do better than this, go for it. But index funds have been outperforming professionally managed funds (after the management fees are accounted for), and unless you are interested in spending a lot of time researching and playing with your money the odds of your doing much better aren't great unless you're willing to risk doing much worse. For me, boring is good. I want my savings to work for me rather than the other way around, and I don't consider the market at all interesting as a game. Others will feel differently.\",\n \"Diversification is a risk-mitigation strategy. When you invest in equities, you generally get a higher rate of return than a fixed income investment. But you have risks... a single company's market value can decline for all sorts of reasons, including factors outside of the control of management. Diversification lets you spread risk and concentrate on sectors that you feel offer the best value. Investing outside of your currency zone allows you to diversify more, but also introduces currency risks, which require a whole other level of understanding. Today, investing in emerging markets is very popular for US investors because these economies are booming and US monetary policy has been weakening the dollar for some time. A major bank failure in China or a flip to a strong dollar policy could literally implode those investments overnight. At the end of the day, invest in what you understand. Know the factors that can lower your investment value.\",\n \"You are diversified within a particular type of security. Notably the stock market. A truly diversified portfolio not only has multiple types of holdings within a single type of security (what your broad market fund does) but between different types. You have partially succeeded in doing this with the international fund - that way your risk is spread between domestic and international stocks. But there are other holdings. Cash, bonds, commodities, real estate, etc. There are broad index funds/ETFs for those as well, which may reduce your risk when the stock market as a whole tanks - which it does on occasion.\",\n \"Hedging - You have an investment and are worried that the price might drop in the near future. You don't want to sell as this will realise a capital gain for which you may have to pay capital gains tax. So instead you make an investment in another instrument (sometimes called insurance) to offset falls in your investment. An example may be that you own shares in XYZ. You feel the price has risen sharply over the last month and is due for a steep fall. So you buy some put option over XYZ. You pay a small premium and if the price of XYZ falls you will lose money on the shares but will make money on the put option, thus limiting your losses. If the price continues to go up you will only lose the premium you paid for the option (very similar to an insurance policy). Diversification - This is when you may have say $100,000 to invest and spread your investments over a portfolio of shares, some units in a property fund and some bonds. So you are spreading your risks and returns over a range of products. The idea is if one stock or one sector goes down, you will not lose a large portion of your investment, as it is unlikely that all the different sectors will all go down at the same time.\",\n \"The common advice you mentioned is just a guideline and has little to do with how your portfolio would look like when you construct it. In order to diversify you would be using correlations and some common sense. Recall the recent global financial crisis, ones of the first to crash were AAA-rated CDO's, stocks and so on. Because correlation is a statistical measure this can work fine when the economy is stable, but it doesn't account for real-life interrelations, especially when population is affected. Once consumers are affected this spans to the entire economy so that sectors that previously seemed unrelated have now been tied together by the fall in demand or reduced ability to pay-off. I always find it funny how US advisers tell you to hold 80% of US stocks and bonds, while UK ones tell you to stick to the UK securities. The same happens all over the world, I would assume. The safest portfolio is a Global Market portfolio, obviously I wouldn't be getting, say, Somalian bonds (if such exist at all), but there are plenty of markets to choose from. A chance of all of them crashing simultaneously is significantly lower. Why don't people include derivatives in their portfolios? Could be because these are mainly short-term, while most of the portfolios are being held for a significant amount of time thus capital and money markets are the key components. Derivatives are used to hedge these portfolios. As for the currencies - by having foreign stocks and bonds you are already exposed to FX risk so you, again, could be using it as a hedging instrument.\",\n \"\\\"The short answer: zero. dg99's answer gives some good reasons why. You will basically never be able to achieve diversification with individual stocks that is anywhere close to what you can get with mutual funds. Owning individual stocks exposes you to much greater risk in that random one-off events that happen to affect one of the companies you own can have a disproportionate effect on your assets. (For instance, some sort of scandal involving a particular company can cause its stock to tank.) There are only two reasons I can see to invest in individual stocks: a. You have some unique opportunity to acquire stock that other people might not be able to get (or get at that price). This can be the case if you work for a privately-held company that allows you to buy stock (or options), or allows you to participate in its IPO. Even then, you should not go too crazy, since having too much stock in the company you work for can double your pain if the company falls on hard times (you may lose your job and your investment). b. For fun. If you like tracking stocks and trying to beat the market, you may want to test your skills at this by using a small proportion of your investable cash (no more than 10%). In this case you're not so much hoping to increase your returns as to just enjoy investing more. This can also have a psychological benefit in that it allows you to \\\"\\\"blow off steam\\\"\\\" and indulge your desire to make decisions, while allowing your passive investments (index funds) to shoulder the load of actually gaining value.\\\"\",\n \"\\\"John Bensin's answer covers the math, but I like the plain-English examples of the theory from William Bernstein's fine book, The Intelligent Asset Allocator. At the author's web site, you can find the complete chapter 1 and chapter 2, though not chapter 3, which is the one with the \\\"\\\"multiple coin toss\\\"\\\" portfolio example I want to highlight. I'll summarize Bernstein's multiple coin toss example here with some excerpts from the book. (Another top user, @JoeTaxpayer, has also written about the coin flip on his blog, also mentioning Bernstein's book.) Bernstein begins Chapter 1 by describing an offer from a fictitious \\\"\\\"Uncle Fred\\\"\\\": Imagine that you work for your rich but eccentric Uncle Fred. [...] he decides to let you in on the company pension plan. [...] you must pick ahead of time one of two investment choices for the duration of your employment: Certificates of deposit with a 3% annualized rate of return, or, A most peculiar option: At the end of each year Uncle Fred flips a coin. Heads you receive a 30% investment return for that year, tails a minus 10% (loss) for the year. This will be hereafter referred to as \\\"\\\"Uncle Fred’s coin toss,\\\"\\\" or simply, the \\\"\\\"coin toss.\\\"\\\" In effect, choosing option 2 results in a higher expected return than option 1, but it is certainly riskier, having a high standard deviation and being especially prone to a series of bad tosses. Chapters 1 and 2 continue to expand on the idea of risk, and take a look at various assets/markets over time. Chapter 3 then begins by introducing the multiple coin toss example: Time passes. You have spent several more years in the employ of your Uncle Fred, and have truly grown to dread the annual coin-toss sessions. [...] He makes you another offer. At the end of each year, he will divide your pension account into two equal parts and conduct a separate coin toss for each half [...] there are four possible outcomes [...]: [...] Being handy with numbers, you calculate that your annualized return for this two-coin-toss sequence is 9.08%, which is nearly a full percentage point higher than your previous expected return of 8.17% with only one coin toss. Even more amazingly, you realize that your risk has been reduced — with the addition of two returns at the mean of 10%, your calculated standard deviation is now only 14.14%, as opposed to 20% for the single coin toss. [...] Dividing your portfolio between assets with uncorrelated results increases return while decreasing risk. [...] If the second coin toss were perfectly inversely correlated with the first and always gave the opposite result [hence, outcomes 1 and 4 above never occurring], then our return would always be 10%. In this case, we would have a 10% annualized long-term return with zero risk! I hope that summarizes the example well. Of course, in the real world, one of the tricks to building a good portfolio is finding assets that aren't well-correlated, and if you're interested in more on the subject I suggest you check out his books (including The Four Pillars of Investing) and read more about Modern Portfolio Theory (MPT).\\\"\",\n \"I think you need a diversified portfolio, and index funds can be a part of that. Make sure that you understand the composition of your funds and that they are in fact invested in different investments.\",\n \"The easiest way to deal with risks for individual stocks is to diversify. I do most of my investing in broad market index funds, particularly the S&P 500. I don't generally hold individual stocks long, but I do buy options when I think there are price moves that aren't supported by the fundamentals of a stock. All of this riskier short-term investing is done in my Roth IRA, because I want to maximize the profits in the account that won't ever be taxed. I wouldn't want a particularly fruitful investing year to bite me with short term capital gains on my income tax. I usually beat the market in that account, but not by much. It would be pretty easy to wipe out those gains on a particularly bad year if I was investing in the actual stocks and not just using options. Many people who deal in individual stocks hedge with put options, but this is only cost effective at strike prices that represent losses of 20% or more and it eats away the gains. Other people or try to add to their gains by selling covered call options figuring that they're happy to sell with a large upward move, but if that upward move doesn't happen you still get the gains from the options you've sold.\",\n \"I am voting you up because this is a legitimate question with a correct possible answer. Yes, you shouldn't buy penny stocks, yes you shouldn't speculate, yes people will be jealous that you have money to burn. Your question: how to maximize expected return. There are several definitions of return and the correct one will determine the correct answer. For your situation, $1,000 sounds like disposable income and that you have the human capital to make more income in the future with your productive years. So we will not assume you want to take this money and reinvest the remains until you are dead. This rules out #2. It sounds like you are the sole beneficiary of this fund and that your value proposition is regardless of asset class and competition to other investment opportunities. In other words, you are committed to blowing this $1,000 and would not consider instead putting the money towards paying down credit card debt or other valuable uses. This rules out #3. You are left with #1, expected value. Now there is already evidence that penny stocks are a losing proposition. In fact, some people have been successful in setting up honeypot email accounts and waiting for penny stock spam... then shorting those stocks. So to maximize expected return, invest 0% of your bankroll. But that's boring, let's ignore it. As you have correctly identified, the transaction costs are significant, $14 in tolls on crossing the bridge both ways on a $1,000 investment already exceeds the 5-year US bond rate. Diversification will affect the correlation and overall risk (Kelly Criterion) of your portfolio -- but it has no effect on your expected return. In summary, diversification has zero effect on your expected return and is not justified by the cost.\",\n \"\\\"Generally investing in index-tracking funds in the long term poses relatively low risk (compared to \\\"\\\"short term investment\\\"\\\", aka speculation). No-one says differently. However, it is a higher risk than money-market/savings/bonds. The reason for that is that the return is not guaranteed and loss is not limited. Here volatility plays part, as well as general market conditions (although the volatility risk also affects bonds at some level as well). While long term trend may be upwards, short term trend may be significantly different. Take as an example year 2008 for S&P500. If, by any chance, you needed to liquidate your investment in November 2008 after investing in November 1998 - you might have ended up with 0 gain (or even loss). Had you waited just another year (or liquidated a year earlier) - the result would be significantly different. That's the volatility risk. You don't invest indefinitely, even when you invest long term. At some point you'll have to liquidate your investment. Higher volatility means that there's a higher chance of downward spike just at that point of time killing your gains, even if the general trend over the period around that point of time was upward (as it was for S&P500, for example, for the period 1998-2014, with the significant downward spikes in 2003 and 2008). If you invest in major indexes, these kinds of risks are hard to avoid (as they're all tied together). So you need to diversify between different kinds of investments (bonds vs stocks, as the books \\\"\\\"parrot\\\"\\\"), and/or different markets (not only US, but also foreign).\\\"\",\n \"Diversified is relative. Alfred has all his money in Apple. He's done very well over the last 10 years, but I think most investors would say that he's taking an incredible risk by putting everything on one stock. Betty has stock in Apple, Microsoft, and Google. Compared to Alfred, she is diversified. Charlie looks at Betty and realizes that she is only investing in one particular industry. All the companies in an individual industry can have a downturn together, so he invests everything in an S&P 500 index fund. David looks at Charlie and notes that he's got everything in large, high-capitalization companies. Small-cap stocks are often where the growth happens, so he invests in a total stock market fund. Evelyn realizes that David has all his money tied up in one country, the United States. What about the rest of the world? She invests in a global fund. Frank really likes Evelyn's broad approach to equities, but he knows that some portion of fixed-income assets (e.g. cash deposits, bonds) can reduce portfolio volatility—and may even enhance returns through periodic rebalancing. He does what Evelyn does, but also allocates some percentage of his portfolio to fixed income, and intends to maintain his target allocations. Being diversified enough depends on your individual goals and investing philosophy. There are some who would say that it is wrong to put all of your money in one fund, no matter what it is. Others would say that a sufficiently broad index fund is inherently diversified as-is.\",\n \"\\\"A diversified portfolio (such as a 60% stocks / 40% bonds balanced fund) is much more predictable and reliable than an all-stocks portfolio, and the returns are perfectly adequate. The extra returns on 100% stocks vs. 60% are 1.2% per year (historically) according to https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations To get those average higher stock returns, you need to be thinking 20-30 years (even 10 years is too short-term). Over the 20-30 years, you must never panic and go to cash, or you will destroy the higher returns. You must never get discouraged and stop saving, or you will destroy the higher returns. You have to avoid the panic and discouragement despite the likelihood that some 10-year period in your 20-30 years the stock market will go nowhere. You also must never have an emergency or other reason to withdraw money early. If you look at \\\"\\\"dry periods\\\"\\\" in stocks, like 2000 to 2011, a 60/40 portfolio made significant money and stocks went nowhere. A diversified portfolio means that price volatility makes you money (due to rebalancing) while a 100% stocks portfolio means that price volatility is just a lot of stress with no benefit. It's somewhat possible, probably, to predict dry periods in stocks; if I remember the statistics, about 50% of the variability in the market price 10 years out can be explained by normalized market valuation (normalized = adjusted for business cycle and abnormal profit margins). Some funds such as http://hussmanfunds.com/ are completely based on this, though a lot of money managers consider it. With a balanced portfolio and rebalancing, though, you don't have to worry about it very much. In my view, the proper goal is not to beat the market, nor match the market, nor is it to earn the absolute highest possible returns. Instead, the goal is to have the highest chance of financing your non-financial goals (such as retirement, or buying a house). To maximize your chances of supporting your life goals with your financial decisions, predictability is more important than maximized returns. Your results are primarily determined by your savings rate - which realistic investment returns will never compensate for if it's too low. You can certainly make a 40-year projection in which 1.2% difference in returns makes a big difference. But you have to remember that a projection in which value steadily and predictably compounds is not the same as real life, where you could have emergency or emotional factors, where the market will move erratically and might have a big plunge at just the wrong time (end of the 40 years), and so on. If your plan \\\"\\\"relies\\\"\\\" on the extra 1.2% returns then it's not a reasonable plan anyhow, in my opinion, since you can't count on them. So why suffer the stress and extra risk created by an all-stocks portfolio?\\\"\",\n \"Depends on the fund. If it's a Target Date fund, which is inherently diversified, this comes down to how much you trust the investment house to not go belly-up. If it's another kind of fund, you need to manage your own duversification and occasional rebalancing. Most of my money is in index funds (details elsewhere), but that's five or six very different indexes to cover the investment space with the mix of investment types I've selected. And most of it is in a single family of funds, which might be argued to be higher risk than desirable but which has been convenient.\",\n \"\\\"The calculation and theory are explained in the other answers, but it should be pointed out that the video is the equivalent of watching a magic trick. The secret is: \\\"\\\"Stock A and B are perfectly negatively correlated.\\\"\\\" The video glasses over that fact that without that fact the risk doesn't drop to zero. The rule is that true diversification does decrease risk. That is why you are advised to spread year investments across small-cap, large-cap, bonds, international, commodities, real estate. Getting two S&P 500 indexes isn't diversification. Your mix of investments will still have risk, because return and risk are backward calculations, not a guarantee of future performance. Changes that were not anticipated will change future performance. What kind of changes: technology, outsourcing, currency, political, scandal.\\\"\",\n \"Bonds provide protections against stock market crashes, diversity and returns as the other posters have said but the primary reason to invest in bonds is to receive relatively guaranteed income. By that I mean you receive regular payments as long as the debtor doesn't go bankrupt and stop paying. Even when this happens, bondholders are the first in line to get paid from the sale of the business's assets. This also makes them less risky. Stocks don't guarantee income and shareholders are last in line to get paid. When a stock goes to zero, you lose everything, where as a bondholder will get some face value redemption to the notes issue price and still keep all the previous income payments. In addition, you can use your bond income to buy more shares of stock and increase your gains there.\",\n \"Dollar-Cost averaging will allow you to reduce your risk while the stock prices falls provided: You must invest a fixed amount $X on a fixed time scale (i.e. every Y days). By doing this you will be able to take advantage of the lowering price by obtaining more shares per period as the price falls. But at the same time, if it starts to rise, you will already have your pig in the race. Example: Suppose you wanted to invest $300 in a company. We will do so over 3 periods. As the price falls, your average dollar cost will as well. But since you don't know where the bottom is, you cannot wait until the bottom. By trying to guess the bottom and dumping all of your investment at once you expose yourself to a higher level of risk.\",\n \"\\\"Yes, a diversified portfolio can generate greater returns than the S&P 500 by going OUTSIDE it. For instance, small stocks (on average) generate higher returns than the \\\"\\\"large caps\\\"\\\" found in the S&P 500. So if you own a diversified portfolio of stocks, some of which are smaller (in market cap) than the typical S&P 500 stock, you have a chance to outperform. You might also outperform by owning other asset classes than stocks such as gold, real estate, and timber (among others) at appropriate times. (You may also be able to get the relevant exposure by owning gold and timber stocks and REITS.) This was a lesson that David Swensen of the Yale endowment taught us.\\\"\",\n \"\\\"Great question! While investing in individual stocks can be very useful as a learning experience, my opinion is that concentrating an entire portfolio in a few companies' stock is a mistake for most investors, and especially for a novice for several reasons. After all, only a handful of professional investors have ever beaten the market over the long term by picking stocks, so is it really worth trying? If you could, I'd say go work on Wall Street and good luck to you. Diversification For many investors, diversification is an important reason to use an ETF or index fund. If they were to focus on a few sectors or companies, it is more likely that they would have a lop-sided risk profile and might be subject to a larger downside risk potential than the market as a whole, i.e. \\\"\\\"don't put all your eggs in one basket\\\"\\\". Diversification is important because of the nature of compound investing - if you take a significant hit, it will take you a long time to recover because all of your future gains are building off of a smaller base. This is one reason that younger investors often take a larger position in equities, as they have longer to recover from significant market declines. While it is very possible to build a balanced, diversified portfolio from individual stocks, this isn't something I'd recommend for a new investor and would require a substantial college-level understanding of investments, and in any case, this portfolio would have a more discrete efficient frontier than the market as a whole. Lower Volatility Picking individual stocks or sectors would could also significantly increase or decrease the overall volatility of the portfolio relative to the market, especially if the stocks are highly cyclical or correlated to the same market factors. So if they are buying tech stocks, they might see bigger upswings and downswings compared to the market as a whole, or see the opposite effect in the case of utilities. In other words, owning a basket of individual stocks may result in an unintended volatility/beta profile. Lower Trading Costs and Taxes Investors who buy individual stocks tend to trade more in an attempt to beat the market. After accounting for commission fees, transaction costs (bid/ask spread), and taxes, most individual investors get only a fraction of the market average return. One famous academic study finds that investors who trade more trail the stock market more. Trading also tends to incur higher taxes since short term gains (<1 year) are taxed at marginal income tax rates that are higher than long term capital gains. Investors tend to trade due to behavioral failures such as trying to time the market, being overconfident, speculating on stocks instead of long-term investing, following what everyone else is doing, and getting in and out of the market as a result of an emotional reaction to volatility (ie buying when stocks are high/rising and selling when they are low/falling). Investing in index funds can involve minimal fees and discourages behavior that causes investors to incur excessive trading costs. This can make a big difference over the long run as extra costs and taxes compound significantly over time. It's Hard to Beat the Market since Markets are Quite Efficient Another reason to use funds is that it is reasonable to assume that at any point in time, the market does a fairly good job of pricing securities based on all known information. In other words, if a given stock is trading at a low P/E relative to the market, the market as a whole has decided that there is good reason for this valuation. This idea is based on the assumption that there are already so many professional analysts and traders looking for arbitrage opportunities that few such opportunities exist, and where they do exist, persist for only a short time. If you accept this theory generally (obviously, the market is not perfect), there is very little in the way of insight on pricing that the average novice investor could provide given limited knowledge of the markets and only a few hours of research. It might be more likely that opportunities identified by the novice would reflect omissions of relevant information. Trying to make money in this way then becomes a bet that other informed, professional investors are wrong and you are right (options traders, for example). Prices are Unpredictable (Behave Like \\\"\\\"Random\\\"\\\" Walks) If you want to make money as a long-term investor/owner rather than a speculator/trader, than most of the future change in asset prices will be a result of future events and information that is not yet known. Since no one knows how the world will change or who will be tomorrow's winners or losers, much less in 30 years, this is sometimes referred to as a \\\"\\\"random walk.\\\"\\\" You can point to fundamental analysis and say \\\"\\\"X company has great free cash flow, so I will invest in them\\\"\\\", but ultimately, the problem with this type of analysis is that everyone else has already done it too. For example, Warren Buffett famously already knows the price at which he'd buy every company he's interested in buying. When everyone else can do the same analysis as you, the price already reflects the market's take on that public information (Efficent Market theory), and what is left is the unknown (I wouldn't use the term \\\"\\\"random\\\"\\\"). Overall, I think there is simply a very large potential for an individual investor to make a few mistakes with individual stocks over 20+ years that will really cost a lot, and I think most investors want a balance of risk and return versus the largest possible return, and don't have an interest in developing a professional knowledge of stocks. I think a better strategy for most investors is to share in the future profits of companies buy holding a well-diversified portfolio for the long term and to avoid making a large number of decisions about which stocks to own.\\\"\",\n \"You're missing the concept of systemic risk, which is the risk of the entire market or an entire asset class. Diversification is about achieving a balance between risk and return that's appropriate for you. Your investment in Vanguard's fund, although diversified between many public companies, is still restricted to one asset class in one country. Yes, you lower your risk by investing in all of these companies, but you don't erase it entirely. Clearly, there is still risk, despite your diversification. You may decide that you want other investments or a different asset allocation that reduce the overall risk of your portfolio. Over the long run, you may earn a high level of return, but never forget that there is still risk involved. bonds seem pretty worthless, at least until I retire According to your profile, you're about my age. Our cohort will probably begin retiring sometime around 2050 or later, and no one knows what the bond market will look like over the next 40 years. We may have forecasts for the next few years, but not for almost four decades. Writing off an entire asset class for almost four decades doesn't seem like a good idea. Also, bonds are like equity, and all other asset classes, in that there are different levels of risk within the asset class too. When calculating the overall risk/return profile of my portfolio, I certainly don't consider Treasuries as the same risk level as corporate bonds or high-yield (or junk) bonds from abroad. Depending on your risk preferences, you may find that an asset allocation that includes US and/or international bonds/fixed-income, international equities, real-estate, and cash (to make rebalancing your asset allocation easier) reduces your risk to levels you're willing to tolerate, while still allowing you to achieve returns during periods where one asset class, e.g. equities, is losing value or performing below your expectations.\",\n \"It all depends on the liquidity of your investments some examples: You can mitigate only the risk that you can control. It is always good to have:\",\n \"While you would reduce risk by diversifying into other stock ETFs across the world, Developed Market returns (and Emerging Markets to a lesser extent) are generally highly correlated with another (correlation of ~0.85-0.90). This implies that they all go up in bull-markets and go down together in bear markets. You are better off diversifying into other asset-classes given your risk tolerance (such as government bonds, as you have mentioned). Alternatively, you can target a portfolio owning all of the assets in the universe (assuming you're trading in Frankfurt, a combination of something similar to H4ZJ and XBAG, but with higher volumes and/or lower fees)! A good starting resource would be the Bogleheads Wiki: https://www.bogleheads.org/wiki/Asset_allocation\",\n \"\\\"One approach is to invest in \\\"\\\"allocation\\\"\\\" mutual funds that use various methods to vary their asset allocation. Some examples (these are not recommendations; just to show you what I am talking about): A good way to identify a useful allocation fund is to look at the \\\"\\\"R-squared\\\"\\\" (correlation) with indexes on Morningstar. If the allocation fund has a 90-plus R-squared with any index, it probably isn't doing a lot. If it's relatively uncorrelated, then the manager is not index-hugging, but is making decisions to give you different risks from the index. If you put 10% of your portfolio in a fund that varies allocation to stocks from 25% to 75%, then your allocation to stocks created by that 10% would be between 2.5% to 7.5% depending on the views of the fund manager. You can use that type of calculation to invest enough in allocation funds to allow your overall allocation to vary within a desired range, and then you could put the rest of your money in index funds or whatever you normally use. You can think of this as diversifying across investment discipline in addition to across asset class. Another approach is to simply rely on your already balanced portfolio and enjoy any downturns in stocks as an opportunity to rebalance and buy some stocks at a lower price. Then enjoy any run-up as an opportunity to rebalance and sell some stocks at a high price. The difficulty of course is going through with the rebalance. This is one advantage of all-in-one funds (target date, \\\"\\\"lifecycle,\\\"\\\" balanced, they have many names), they will always go through with the rebalance for you - and you can't \\\"\\\"see\\\"\\\" each bucket in order to get stressed about it. i.e. it's important to think of your portfolio as a whole, not look at the loss in the stocks portion. An all-in-one fund keeps you from seeing the stocks-by-themselves loss number, which is a good way to trick yourself into behaving sensibly. If you want to rebalance \\\"\\\"more aggressively\\\"\\\" then look at value averaging (search for \\\"\\\"value averaging\\\"\\\" on this site for example). A questionable approach is flat-out market-timing, where you try to get out and back in at the right times; a variation on this would be to buy put options at certain times; the problem is that it's just too hard. I think it makes more sense to buy an allocation fund that does this for you. If you do market time, you want to go in and out gradually, and value averaging is one way to do that.\\\"\",\n \"Research the company. Obtain and read their current and past financial statements. Find and read news stories about them. Look for patterns and draw conclusions. Or diversify to the point where one company failing doesn't hurt you significantly. Or both.\",\n \"In a word, no. Diversification is the first rule of investing. Your plan has poor diversification because it ignores most of the economy (large cap stocks). This means for the expected return your portfolio would get, you would bear an unnecessarily large amount of risk. Large cap and small cap stocks take turns outperforming each other. If you hold both, you have a safer portfolio because one will perform well while the other performs poorly. You will also likely want some exposure to the bond market. A simple and diversified portfolio would be a total market index fund and a total bond market fund. Something like 60% in the equity and 40% in the bonds would be reasonable. You may also want international exposure and maybe exposure to real estate via a REIT fund. You have expressed some risk-aversion in your post. The way to handle that is to take some of your money and keep it in your cash account and the rest into the diversified portfolio. Remember, when people add more and more asset classes (large cap, international, bonds, etc.) they are not increasing the risk of their portfolio, they are reducing it via diversification. The way to reduce it even more (after you have diversified) is to keep a larger proportion of it in a savings account or other guaranteed investment. BTW, your P2P lender investment seems like a great idea to me, but 60% of your money in it sounds like a lot.\",\n \"Generally a diversified portfolio will give you a better overall return --a couple of factors that may address what you are looking at - 1) Correlation - The correlation between your two funds is still very high -- it's partially a function of how global economies are related and many companies are now multi-national. It may help if you diversified into other types of products. 2) Diversification - Following up from before, you may want to also look into diversifying into some bonds, commodities, reits, etc. They will have a much smaller correlation with a total domestic stock fund. 3) Returns - I'm not sure if by dominate you mean that it has better overall returns, but the point of diversification is to to get you the highest returns. It's really the ability to limit the risk for the returns - this really translates to limiting the volatility. This may mean that overall your max returns could be lower-- ie: maybe VTSAX gives potential average returns between 3%-11%. A diversified portfolio may give you potential average returns of 5%-9%. A similar article debating the merits of 'smart beta ETFs' if you are curious. Hope that helps.\",\n \"\\\"There are some good answers about the benefits of diversification, but I'm going to go into what is going on mathematically with what you are attempting. I was always under the assumption that as long as two securities are less than perfectly correlated (i.e. 1), that the standard deviation/risk would be less than if I had put 100% into either of the securities. While there does exist a minimum variance portfolio that is a combination of the two with lower vol than 100% of either individually, this portfolio is not necessarily the portfolio with highest utility under your metric. Your metric includes returns not just volatility/variance so the different returns bias the result away from the min-vol portfolio. Using the utility function: E[x] - .5*A*sig^2 results in the highest utility of 100% VTSAX. So here the Sharpe ratio (risk adjusted return) of the U.S. portfolio is so much higher than the international portfolio over the period tracked that the loss of returns from adding more international stocks outweigh the lower risk that you would get from both just adding the lower vol international stocks and the diversification effects from having a correlation less than one. The key point in the above is \\\"\\\"over the period tracked\\\"\\\". When you do this type of analysis you implicitly assume that the returns/risk observed in the past will be similar to the returns/risk in the future. Certainly, if you had invested 100% in the U.S. recently you would have done better than investing in a mix of US/Intl. However, while the risk and correlations of assets can be (somewhat) stable over time relative returns can vary wildly! This uncertainty of future returns is why most people use a diversified portfolio of assets. What is the exact right amount is a very hard question though.\\\"\",\n \"Because stock markets don't always go up, sometimes they go down. Sometimes they go way down. Between 2007 and 2009 the S&P 500 lost over half its value. So if in 2007 you thought you had just enough to retire on, in 2009 you'd suddenly find you had only half of what you needed! Of course over the next few years, many of the stocks recovered value, but if you had retired in 2008 and depended on a 401k that consisted entirely of stocks, you'd have been forced to sell a bunch of stocks near the bottom of the market to cover your retirement living expenses. Bonds go up and down too, but usually not to the same extent as stocks, and ideally you aren't selling the bonds for your living expenses, just collecting the interest that's due you for the year. Of course, some companies and cities went bankrupt in the 2008 crisis too, and they stopped making interest payments. Another risk is that you may be forced to retire before you were actually planning to. As you age you are at increasing risk for medical problems that may force an early retirement. Many businesses coped with the 2008 recession by laying off their older workers who were earning higher salaries. It wasn't an easy environment for older workers to find jobs in, so many folks were forced into early retirement. Nothing is risk free, so you need to make an effort to understand what the risks are, and decide which ones you are comfortable with.\",\n \"Asset Allocation serves many purposes, not just mitigating risk via a diversification of asset classes, but also allowing you to take a level of risk that is appropriate for a given investor at a given time by how much is allocated to which asset classes. A younger investor with a longer timeframe, may wish to take a lot more risk, investing heavily in equities, and perhaps managed funds that are of the 'aggressive growth' variety, seeking better than market returns. Someone a little older may wish to pull back a bit, especially after a bull market has brought them substantial gains, and begin to 'take money off the table' perhaps by starting to establish some fixed income positions, or pulling back to slightly less risky index, 'value' or 'balanced' funds. An investor who is near or in retirement will generally want even less risk, going to a much more balanced approach with half or more of their investments in fixed income, and the remainder often in income producing 'blue chip' type stocks, or 'income funds'. This allows them to protect a good amount of their wealth from potential loss at a time when they have to be able to depend on it for a majority of their income. An institution such as Yale has very different concerns, and may always be in a more aggressive 'long term' mode since 'retirement' is not a factor for them. They are willing to invest mostly in very aggressive ways, using diversification to protect them from one of those choices 'tanking' but still overall taking a pretty high level of risk, much more so than might be appropriate for an individual who will generally need to seek safety and to preserve gains as they get older. For example look at the PDF that @JLDugger linked, and observe the overall risk level that Yale is taking, and in addition observe the large allocations they make to things like private equity with a 27%+ risk level compared to their very small amount of fixed income with a 10% risk level. Yale has a very long time horizon and invests in a way that is atypical of the needs and concerns of an individual investor. They also have as you pointed out, the economy of scale (with something like #17B in assets?) to afford to hire proven experts, and their own internal PHD level experts to watch over the whole thing, all of which very few individual investors have. For either class of investor, diversification, is a means to mitigate risk by not having all your eggs in one basket. Via having multiple different investments (such as picking multiple individual stocks, or aggressive funds with different approaches, or just an index fund to get multiple stocks) you are protected from being wiped out as might happen if a single choice might fail. For example imagine what would have happened if you had in 2005 put all your money into a single stock with a company that had been showing record profits such as Lehman Brothers, and left it there until 2008 when the stock tanked. or even faster collapses such as Enron, etc that all 'looked great' up until shortly after they failed utterly. Being allocated across multiple asset classes provides some diversification all on it's own, but you can also be diversified within a class. Yale uses the diversification across several asset classes to have lower risk than being invested in a single asset class such as private equity. But their allocation places much more of their funds in high risk classes and much less of their funds in the lowest risk classes such as fixed income.\",\n \"Index funds are well-known to give the best long-term investment. Are they? Maybe not all the time! If you had invested in an index fund tracking the S&P500 at the start of 2000 you would still be behind in terms of capital appreciation when taking inflation into considerations. Your only returns in 13.5 years would have been any dividends you may have received. See the monthly chart of the S&P500 below. Diversification can be good for your overall returns, but diversification simply for diversification sake is as you said, a way of reducing your overall returns in order of smoothing out your equity curve. After looking up indexes for various countries the only one that had made decent returns over a 13.5 year period was the Indian BSE 30 index, almost 400% over 13.5 years, although it also has gone nowhere since the end of 2007 (5.5 years). See monthly chart below. So investing internationally (especially in developing countries when developed nations are stagnating) can improve your returns, but I would learn about the various international markets first before plunging straight in. Regarding investing in an Index fund vs direct investment in a select group of shares, I did a search on the US markets with the following criteria on the 3rd January 2000: If the resulting top 10 from the search were bought on 3rd January 2000 and held up until the close of the market on the 19th June 2013, the results would be as per the table below: The result, almost 250% return in 13.5 years compared to almost no return if you had invested into the whole S&P 500 Index. Note, this table lists only the top ten from the search without screening through the charts, and no risk management was applied (if risk management was applied the 4 losses of 40%+ would have been limited to a maximum of 20%, but possibly much smaller losses or even for gains, as they might have gone into positive territory before coming back down - as I have not looked at any of the charts I cannot confirm this). This is one simple example how selecting good shares can result in much better returns than investing into a whole Index, as you are not pulled down by the bad stocks.\",\n \"\\\"Diversification is the only real free lunch in finance (reduction in risk without any reduction in expected returns), so clearly every good answer to your question will be \\\"\\\"yes.\\\"\\\" Diversification is good.\\\"\\\" Let's talk about many details your question solicits. Many funds are already pretty diversified. If you buy a mutual fund, you are generally already getting a large portion of the gains from diversification. There is a very large difference between the unnecessary risk in your portfolio if you only hold a couple of stocks and if you hold a mutual fund. Should you be diversified across mutual funds as well? It depends on what your funds are. Many funds, such as target-date funds, are intended to be your sole investment. If you have funds covering every major asset class, then there may not be any additional benefit to buying other funds. You probably could not have picked your \\\"\\\"favorite fund\\\"\\\" early on. As humans, we have cognitive biases that make us think we knew things early on that we did not. I'm sure at some point at the very beginning you had a positive feeling toward that fund. Today you regret not acting on it and putting all your money there. But the number of such feelings is very large and if you acted on all those, you would do a lot of crazy and harmful things. You didn't know early on which fund would do well. You could just as well have had a good feeling about a fund that subsequently did much worse than your diversified portfolio did. The advice you have had about your portfolio probably isn't based on sound finance theory. You say you have always kept your investments in line with your age. This implies that you believe the guidelines given you by your broker or financial advisor are based in finance theory. Generally speaking, they are not. They are rules of thumb that seemed good to someone but are not rigorously proven either in theory or empirics. For example the notion that you should slowly shift your investments from speculative to conservative as you age is not based on sound finance theory. It just seems good to the people who give advice on such things. Nothing particularly wrong with it, I guess, but it's not remotely on par with the general concept of being well-diversified. The latter is extremely well established and verified, both in theory and in practice. Don't confuse the concept of diversification with the specific advice you have received from your advisor. A fund averaging very good returns is not an anomaly--at least going forward it will not be. There are many thousand funds and a large distribution in their historical performance. Just by random chance, some funds will have a truly outstanding track record. Perhaps the manager really was skilled. However, very careful empirical testing has shown the following: (1) You, me, and people whose profession it is to select outperforming mutual funds are unable to reliably detect which ones will outperform, except in hindsight (2) A fund that has outperformed, even over a long horizon, is not more likely to outperform in the future. No one is stopping you from putting all your money in that fund. Depending on its investment objective, you may even have decent diversification if you do so. However, please be aware that if you move your money based on historical outperformance, you will be acting on the same cognitive bias that makes gamblers believe they are on a \\\"\\\"hot streak\\\"\\\" and \\\"\\\"can't lose.\\\"\\\" They can, and so can you. ======== Edit to answer a more specific line of questions =========== One of your questions is whether it makes sense to buy a number of mutual funds as part of your diversification strategy. This is a slightly more subtle question and I will indicate where there is uncertainty in my answer. Diversifying across asset classes. Most of the gains from diversification are available in a single fund. There is a lot of idiosyncratic risk in one or two stocks and much less in a collection of hundreds of stocks, which is what any mutual fund will hold. Still,you will probably want at least a couple of funds in your portfolio. I will list them from most important to least and I will assume the bulk of your portfolio is in a total US equity fund (or S&P500-style fund) so that you are almost completely diversified already. Risky Bonds. These are corporate, municipal, sovereign debt, and long-term treasury debt funds. There is almost certainly a good deal to be gained by having a portion of your portfolio in bonds, and normally a total market fund will not include bond exposure. Bonds fund returns are closely related to interest rate and inflation changes. They are also exposed to some market risk but it's more efficient to get that from equity. The bond market is very large, so if you did market weights you would have more in bonds than in equity. Normally people do not do this, though. Instead you can get the exposure to interest rates by holding a lesser amount in longer-term bonds, rather than more in shorter-term bonds. I don't believe in shifting your weights toward nor away from this type of bond (as opposed to equity) as you age so if you are getting that advice, know that it is not well-founded in theory. Whatever your relative weight in risky bonds when you are young is should also be your weight when you are older. International. There are probably some gains from having some exposure to international markets, although these have decreased over time as economies have become more integrated. If we followed market weights, you would actually put half your equity weight in an international fund. Because international funds are taxed differently (gains are always taxed at the short-term capital gains rate) and because they have higher management fees, most people make only a small investment to international funds, if any at all. Emerging markets International funds often ignore emerging markets in order to maintain liquidity and low fees. You can get some exposure to these markets through emerging markets funds. However, the value of public equity in emerging markets is small when compared with that of developed markets, so according to finance theory, your investment in them should be small as well. That's a theoretical, not an empirical result. Emerging market funds charge high fees as well, so this one is kind of up to your taste. I can't say whether it will work out in the future. Real estate. You may want to get exposure to real estate by buying a real-estate fund (REIT). Though, if you own a house you are already exposed to the real estate market, perhaps more than you want to be. REITs often invest in commercial real estate, which is a little different from the residential market. Small Cap. Although total market funds invest in all capitalization levels, the market is so skewed toward large firms that many total market funds don't have any significant small cap exposure. It's common for individuals to hold a small cap fund to compensate for this, but it's not actually required by investment theory. In principle, the most diversified portfolio should be market-cap weighted, so small cap should have negligible weight in your portfolio. Many people hold small cap because historically it has outperformed large cap firms of equal risk, but this trend is uncertain. Many researchers feel that the small cap \\\"\\\"premium\\\"\\\" may have been a short-term artifact in the data. Given these facts and the fact that small-cap funds charge higher fees, it may make sense to pass on this asset class. Depends on your opinion and beliefs. Value (or Growth) Funds. Half the market can be classed as \\\"\\\"value\\\"\\\", while the other half is \\\"\\\"growth.\\\"\\\" Your total market fund should have equal representation in both so there is no diversification reason to buy a special value or growth fund. Historically, value funds have outperformed over long horizons and many researchers think this will continue, but it's not exactly mandated by the theory. If you choose to skew your portfolio by buying one of these, it should be a value fund. Sector funds. There is, in general, no diversification reason to buy funds that invest in a particular sector. If you are trying to hedge your income (like trying to avoid investing in the tech sector because you work in that sector) or your costs (buying energy because you buy use a disproportionate amount of energy) I could imagine you buying one of these funds. Risk-free bonds. Funds specializing in short-term treasuries or short-term high-quality bonds of other types are basically a substitute for a savings account, CD, money market fund, or other cash equivalent. Use as appropriate but there is little diversification here per se. In short, there is some value in diversifying across asset classes, and it is open to opinion how much you should do. Less well-justified is diversifying across managers within the same asset class. There's very little if any advantage to doing that.\\\"\",\n \"Not that I am aware. If you are trying to mitigate losses from stock purchases, you may want to consider stock mutual funds. This is why single stocks can be extremely risky.\",\n \"thanks! hence the etf - I hoped to get an ETF of say 20-25 positions, out of which 12 will lose in value, 10 will stay flat or lose a bit, and 2-3 go AAPL, bringing the total ETF up by a solid 10% or so :) and then the divident game begins.\",\n \"To optimize your return on investment, you need to buy low and sell high. If you knew that one stock had hit rock bottom, and the others had not, buying the low stock would be the best. However, unless you can predict the future, you don't know if any individual stock has hit the bottom, or if it will continue to drop. If you decide to spend the same amount of money each month on stock purchases, then when the price is low, you will automatically buy more shares, and when the price is high, you will buy fewer shares. This strategy is sometimes called dollar cost averaging. It eliminates the need to predict the future to optimize your buying. All that having been said, I agree with @Powers that at the investment amount that you are talking about and the per transaction fee you listed, a monthly investment in several stocks will cause you to lose quite a bit to transaction fees. It sounds like you need a different strategy.\",\n \"Chris Rea's comment captures it -- most people don't have working crystal balls. Unless you are a trader, you address risk with diversification. There are several questions on this site discussing strategies to diversify your portfolio. In many ways, the markets offer investors false choices. We have an emotional desire to react to stimuli -- but that often leads to lousy outcomes. For example, selling your NASDAQ 100 fund after its value falls is usually a bad idea.\",\n \"\\\"In theory, the idea is that diversified assets will perform differently in different circumstances, spreading your risk around. Whether that still functions in practice is a decent question, as the \\\"\\\"truth\\\"\\\" of most probability based arguments for diversification rely on the different assets being at least somewhat uncorrelated. This article suggests that might not be true. Specifically: The correlations we note among industry sectors are profoundly and dysfunctionally high. and Gold and silver traders have gotten too used to the negative correlation trade with stocks. This is, in fact, an unusual relationship for precious metals tostocks. The correlation should actually be zero.\\\"\",\n \"\\\"Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. How about Enron? GM? WorldCom? Lehman Brothers? Those are just a few of the many stocks that went to 0. Even stock in solvent companies have an \\\"\\\"all-time high\\\"\\\" that it will never reach again. Please explain to my why my thought is [in]correct. It is based on flawed assumptions, specifically that stock always regain any losses from any point in time. This is not true. Stocks go up and down - sometimes that have losses that are never made up, even if they don't go bankrupt. If your argument is that you should cash out any gains regardless of size, and you will \\\"\\\"never lose\\\"\\\", I would argue that you might have very small gains in most cases, but there are still times where you are going to lose value and never regain it, and those losses can easily wipe out any gains you've made. Never bought stocks and if I try something stupid I'll lose my money, so why not ask the professionals first..? If you really believe that you \\\"\\\"can't lose\\\"\\\" in the stock market then do NOT buy individual stocks. You may as well buy a lottery ticket (not really, those are actually worthless). Stick to index funds or other stable investments that don't rely on the performance of a single company and its management. Yes, diversification reduces (not eliminates) risk of losses. Yes, chasing unreasonable gains can cause you to lose. But what is a \\\"\\\"reasonable gain\\\"\\\"? Why is your \\\"\\\"guaranteed\\\"\\\" X% gain better than the \\\"\\\"unreasonable\\\"\\\" Y% gain? How do you know what a \\\"\\\"reasonable\\\"\\\" gain for an individual stock is?\\\"\",\n \"\\\"Well.... If you have alllll your money invested, and then there's a financial crisis, and there's a personal crisis at the same time (e.g. you lose your job) then you're in big trouble. You might not have enough money to cover your bills while you find a new job. You could lose your house, ruin your credit, or something icky like that. Think 2008. Even if there's not a financial crisis, if the money is in a tax-sheltered retirement account then withdrawing it will incur ugly penalities. Now, after you've got an emergency fund established, things are different. If you could probably ride out six to twelve months with your general-purpose savings, then with the money you are investing for the long term (retirement) there's no reason you shouldn't invest 100% of the money in stocks. The difference is that you're not going to come back for that money in 6 months, you're going to come back for it in 40 years. As for retirement savings over the long term, though, I don't think it's a good idea to think of your money in those terms. If you ever lose 100% of your money on the stock market while you've invested in diversified instruments like S&P500 index funds, you're probably screwed one way or another because that represents the core industrial base of the US economy, and you'll have better things to worry about, like looking for a used shotgun. Myself, I prefer to give the suggestion \\\"\\\"don't invest any money in stocks if you're going to need to take it out in the next 5 years or so\\\"\\\" because you generally shouldn't be worried about a 100% loss of all the money in stocks your retirement accounts nearly so much as you should be worried about weathering large, medium-term setbacks, like the dot-com bubble crash and the 2008 financial crisis. I save the \\\"\\\"don't invest money unless you can afford to lose it all\\\"\\\" advice for highly speculative instruments like gold futures or social-media IPOs. Remember also that while you might lose a lot of your money on the stock market, your savings accounts and bonds will earn you pathetic amounts by comparison, which you will slowly lose to inflation. If you've had your money invested for decades then even during a crash you may still be coming out ahead relative to bonds.\\\"\",\n \"\\\"1. Interest rates What you should know is that the longer the \\\"\\\"term\\\"\\\" of a bond fund, the more it will be affected by interest rates. So a short-term bond fund will not be subject to large gains or losses due to rate changes, an intermediate-term bond fund will be subject to moderate gains or losses, and a long-term bond fund will be subject to the largest gains or losses. When a book or financial planner says to buy \\\"\\\"bonds\\\"\\\" with no other qualification, they almost always mean investment-grade intermediate-term bond funds (or for individual bonds, the equivalent would be a bond ladder averaging an intermediate term). If you want technical details, look at the \\\"\\\"average duration\\\"\\\" or \\\"\\\"average maturity\\\"\\\" of the bond fund; as a rough guide, if the duration is 10, then a 1% change in interest rates would be a 10% gain or loss on the fund. Another thing you can do is look at long-term (10 years or ideally longer) performance history on some short, intermediate, and long term bond index funds, and you can see how the long term funds bounced around more. Non-investment-grade bonds (aka junk bonds or high yield bonds) are more affected by factors other than interest rates, including some of the same factors (economic booms or recessions) that affect stocks. As a result, they aren't as good for diversifying a portfolio that otherwise consists of stocks. (Having stocks, investment grade bonds, and also a little bit in high-yield bonds can add diversification, though. Just don't replace your bond allocation with high-yield bonds.) A variety of \\\"\\\"complicated\\\"\\\" bonds exist (convertible bonds are an example) and these are tough to analyze. There are also \\\"\\\"floating rate\\\"\\\" bonds (bank loan funds), these have minimal interest rate sensitivity because the rate goes up to offset rate rises. These funds still have credit risks, in the credit crisis some of them lost a lot of money. 2. Diversification The purpose of diversification is risk control. Your non-bond funds will outperform in many years, but in other years (say the -37% S&P 500 drop in 2008) they may not. You will not know in advance which year you'll get. You get risk control in at least a few ways. There's also an academic Modern Portfolio Theory explanation for why you should diversify among risky assets (aka stocks), something like: for a given desired risk/return ratio, it's better to leverage up a diverse portfolio than to use a non-diverse portfolio, because risk that can be eliminated through diversification is not compensated by increased returns. The theory also goes that you should choose your diversification between risk assets and the risk-free asset according to your risk tolerance (i.e. select the highest return with tolerable risk). See http://en.wikipedia.org/wiki/Modern_portfolio_theory for excruciating detail. The translation of the MPT stuff to practical steps is typically, put as much in stock index funds as you can tolerate over your time horizon, and put the rest in (intermediate-term investment-grade) bond index funds. That's probably what your planner is asking you to do. My personal view, which is not the standard view, is that you should take as much risk as you need to take, not as much as you think you can tolerate: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ But almost everyone else will say to do the 80/20 if you have decades to retirement and feel you can tolerate the risk, so my view that 60/40 is the max desirable allocation to stocks is not mainstream. Your planner's 80/20 advice is the standard advice. Before doing 100% stocks I'd give you at least a couple cautions: See also:\\\"\",\n \"Stock portfolios have diversifiable risk and undiversifiable risk. The market rewards investors for taking undiversifiable risk (e.g. owning an index of oil producing companies) and does not reward investors for assuming diversifiable risk (e.g. owning a single oil producing company). The market will not provide investors with any extra return for owning a single oil company when they can buy an oil index fund at no additional cost. Similarly, the market will not reward you for owning a small-cap index fund when you can purchase a globally diversified / capitalization diversified index fund at no additional cost. This article provides a more detailed description. The Vanguard Total World Stock Index Fund is a much better staring point for an equity portfolio. You will need to make sure that the asset allocation of your overall portfolio (e.g. stocks, bonds, P2P lending, cash) is consistent with your time horizon (5-10 years).\",\n \"This depends completely on your investing goals. Typically when saving for retirement younger investors aim for a more volatile and aggressive portfolio but diversify their portfolio with more cautious stocks/bonds as they near retirement. In other words, the volatility that owning a single stock brings may be in line with your goals if you can shoulder the risk.\",\n \"Rephrasing your question: Am I diversified if I have more than 50% US stocks? I would say that you can certainly be diversified and have more than 50% of your portfolio invested in US Stocks. I view the amount of international stocks (non-US) as a risk choice. My observations have been that my international stocks have higher risk which comes with a higher reward. I'm not comfortable with putting too much of my portfolio into a very high risk category. I personally invest 25% directly in mutual funds that invest in foreign stocks. When you couple that with the money I invest in US stocks via mutual funds that have foreign interests (Coke, GE, etc.), I'm somewhat over 25% international in my portfolio.\",\n \"\\\"The difference is in the interrelation between the varied investments you make. Hedging is about specifically offsetting a possible loss in an investment by making another related investment that will increase in value for the same reasons that the original investment would lose value. Gold, for instance, is often regarded as the ultimate hedge. Its value is typically inversely correlated to the rest of the market as a whole, because its status as a material, durable store of value makes it a preferred \\\"\\\"safe haven\\\"\\\" to move money into in times of economic downturn, when stock prices, bond yields and similar investments are losing value. That specific behavior makes investing in gold alongside stocks and bonds a \\\"\\\"hedge\\\"\\\"; the increase in value of gold as stock prices and bond yields fall limits losses in those other areas. Investment of cash in gold is also specifically a hedge against currency inflation; paper money, account balances, and even debt instruments like bonds and CDs can lose real value over time in a \\\"\\\"hot\\\"\\\" economy where there's more money than things to buy with it. By keeping a store of value in something other than currency, the price of that good will rise as the currencies used to buy it decrease in real value, maintaining your level of real wealth. Other hedges are more localized. One might, for example, trade oil futures as a hedge on a position in transportation stocks; when oil prices rise, trucking and airline companies suffer in the short term as their margins get squeezed due to fuel costs. Currency futures are another popular hedge; a company in international business will often trade options on the currencies of the companies it does business in, to limit the \\\"\\\"jitters\\\"\\\" seen in the FOREX spot market caused by speculation and other transient changes in market demand. Diversification, by contrast, is about choosing multiple unrelated investments, the idea being to limit losses due to a localized change in the market. Companies' stocks gain and lose value every day, and those companies can also go out of business without bringing the entire economy to its knees. By spreading your wealth among investments in multiple industries and companies of various sizes and global locations, you insulate yourself against the risk that any one of them will fail. If, tomorrow, Kroger grocery stores went bankrupt and shuttered all its stores, people in the regions it serves might be inconvenienced, but the market as a whole will move on. You, however, would have lost everything if you'd bet your retirement on that one stock. Nobody does that in the real world; instead, you put some of your money in Kroger, some in Microsoft, some in Home Depot, some in ALCOA, some in PG&E, etc etc. By investing in stocks that would be more or less unaffected by a downturn in another, if Kroger went bankrupt tomorrow you would still have, say, 95% of your investment next egg still alive, well and continuing to pay you dividends. The flip side is that if tomorrow, Kroger announced an exclusive deal with the Girl Scouts to sell their cookies, making them the only place in the country you can get them, you would miss out on the full possible amount of gains you'd get from the price spike if you had bet everything on Kroger. Hindsight's always 20/20; I could have spent some beer money to buy Bitcoins when they were changing hands for pennies apiece, and I'd be a multi-millionaire right now. You can't think that way when investing, because it's \\\"\\\"survivor bias\\\"\\\"; you see the successes topping the index charts, not the failures. You could just as easily have invested in any of the hundreds of Internet startups that don't last a year.\\\"\",\n \"\\\"Historically, the market's average rate of return has been about 8%. (Serakfalcon's \\\"\\\"6% to 10%\\\"\\\" is essentially the same number.) You should be able to get into that range for long-term investments with minimal risk. \\\"\\\"5 or 6 companies\\\"\\\", unless you know a heck of a lot about those companies, is fairly high risk. If any one of those runs into trouble, a considerable amount of your net investment is riding on it. Of course if any of them invents the Next Big Thing you could hit it big; that's the tradeoff. Diversification isn't sexy, but it buffers you from single-company disasters, and if you diversify across kinds of investment that buffers you from single-sector disasters. Index funds aren't sexy, but they're a low-cost way to diversify, especially if you go with a mix of funds in different categories (large cap, small cap, bond, international, real estate) or a fund which has that mix built into it such as a target date fund.\\\"\",\n \"\\\"Having cash and bonds in your portfolio isn't just about balancing out the risk and volatility inherent in equities. Consider: If you are 100% invested in equities and the market declines by 30%, you'll be hard pressed to come up with additional money to \\\"\\\"buy low\\\"\\\". You'll miss out on the rebalancing bonus. But, if you make a point of keeping some portion of your portfolio in cash and bonds, then when the market has such a decline (and it will), you'll be able to rebalance your portfolio back to target weights — i.e. redeploy some of your cash and bonds into equities to take advantage of the lower prices.\\\"\",\n \"When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that.\",\n \"For what it's worth -- and I realize this isn't directly an answer to the question -- one of the advantages of sticking with mutual funds, beyond their being inherently diversified, is that it removes a lot of the temptation to try to time the market. When you need money, you sell shares in such a way that it maintains your preferred investment ratio, and simply don't worry about which stocks are actually involved. (I've gotten 15% APR this year across all my investments, for absolutely minimal effort. That's quite good enough for me.)\",\n \"Your question reminds me of a Will Rogers quote: buy some good stock, and hold it till it goes up, then sell it. If it don’t go up, don’t buy it. There's no way to prevent yourself from buying a stock that goes down. In fact all stocks go down at some times. The way to protect your long term investment is to diversify, which increases the chances that you have more stocks that go up than go down. So many advisors will encourage index funds, which have a low cost (which eats away at returns) and low rick (because of diversification). If you want to experiment with your criteria that's great, and I wish you luck, but Note that historically, very few managed funds (meaning funds that actively buy and sell stocks based on some set of criteria) outperform the market over long periods. So don't be afraid of some of your stocks losing - if you diversify enough, then statistically you should have more winners than losers. It's like playing blackjack. The goal is not to win every hand. The goal is to have more winning hands than losing hands.\",\n \"The mathematical answer is for you to have a diversified portfolio in your ISA. But that's easier said than done.\",\n \"1. It doesn't have an almost perfect negative correlation - its value decays very fast because of time. In fact, something like 80% of options expire worthless. They typically have a lifespan of 30-90 days and unless you're using them as a way to earn excess return, you'll likely just throw away your premium. 2. You're also making some assumptions about correlation and risk/reward. You won't become wealthy by distributing risk, all you can hope for is less volatility - maybe that's what you're looking for - but you can also expect your return to be less than the market over almost any period of time. 3. Options aren't really for diversifying. Furthermore, why diversify? It's a myth that it adds any value. There's around a 90% correlation for all asset classes since around 2000, so you're being sold some blue sky if someone tells you otherwise. 4. Look up prices of put options. 1-2% of your portfolio might buy you a handful of options, but again, there's a high probability you'll lose that 1-2% entirely every 30-90 days.\",\n \"A strategy of rebalancing assumes that the business cycle will continue, that all bull and bear markets end eventually. Imagine that you maintained a 50% split between a US Treasury bond mutual fund (VUSTX) and an S&P 500 stock mutual fund (VFINX) beginning with a $10,000 investment in each on January 1, 2008, then on the first of each year you rebalanced your portfolio on the first of January (we can pretend the markets are open that day). The following table illustrates the values in each of those funds with the rebalancing transactions: This second table shows what that same money would look like without any rebalancing over those years: Obviously this is cherry-picking for the biggest drop we've recently experienced, but even if you skipped 2008 and 2009, the increase for a rebalanced portfolio from 2010-2017 is 85% verses 54% for the portfolio that is not being rebalanced in the same period. This is also a plenty conservative portfolio. You can see that a 100% stock portfolio dropped 40% in 2008, but the combined portfolio only dropped 18%. A 100% stock portfolio has gained 175% since 2009, compared to 105% for the balanced portfolio, but it's common to trade gains for safety as you get closer to retirement. You didn't ask about a 100% stock portfolio in your initial question. These results would be repeated in many other portfolio allocations because some asset classes outperform others one year, then underperform the next. You sell after the years it outperforms, then you buy after years that it underperforms.\",\n \"I think it depends entirely on your risk tolerance. Putting money in individual stocks obviously increases your risk and potentially increases your reward. Personally (as a fairly conservative investor) I'd only invest in individual stocks if I could afford to lose the entire investment (maybe I'd end up buying Enron or Nortel). If you enjoy envesting and feel 10% is an acceptable loss I think you have your answer\",\n \"The problem is aggregating information from so many sources, countries, and economies. You are probably more aware of local laws, local tax changes, local economic performance, etc, so it makes sense that you'd be more in tune with your own country. If your intent is to be fully diversified, then buy a total world fund. A lot of hedge funds do what you are suggesting, but I think it requires either some serious math or some serious research. Note: I'm invested in emerging markets (EEM) for exactly the reason you suggest... diversification.\",\n \"Cost. If an investor wanted to diversify his portfolio by investing in the companies that make up the S&P 500, the per-share and commission costs to individually place trades for each and every one of those companies would be prohibitive. I can buy one share of an exchange-traded fund that tracks the S&P 500 for less than the purchase price of a single share in some of the companies that make up the index.\",\n \"As mentioned, dividends are a way of returning value to shareholders. It is a conduit of profit as companies don't legitimately control upward appreciation in their share prices. If you can't wrap your head around the risk to the reward, then this simply means you partially fit the description for a greater investment risk profile, so you need to put down Warren Buffett's books and Rich Dad Poor Dad and get an investment book that fits your risk profile.\",\n \"Buying the right shares gives higher return. Buying the wrong ones gives worse return, possibly negative. The usual recommendation, even if you have a pro advising you, is to diversify most of your investments to reduce the risk, even though that may reduce the possible gain. A mutual fund is diversification-in-a-can. It requires little to no active maintenance. Yes, you pay a management fee, but you aren't paying per-transaction fees every time you adjust your holdings, and the management costs can be quite reasonable if you pick the right funds; minimal in the case of computer-managed (index) funds. If you actively enjoy playing with stocks and bonds and are willing/able to accept your failures and less-than-great choices as part of the game, and if you can convince yourself that you will do better this way, go for it. For those of us who just want to deposit out money, watch it grow, and maybe rebalance once a year if that, index funds are a perfectly good choice. I spend at least 8 hours a day working for my money; the rest of the time, I want my money to work for me. Risk and reward tend to be proportional to each other; when they aren't, market prices tend to move to correct that. You need to decide how much risk you're comfortable with, and how much time and effort and money you're willing to spend managing that risk. Personally, I am perfectly happy with the better-than-market-rate-of-return I'm getting, and I don't have any conviction that I could do better if I was more involved. Your milage will vary. If folks didn't disagree, there wouldn't be a market.\",\n \"If you are a novice investor and want to diversify, I'd recommend looking into targeted mutual funds. They couldn't be easier. You just put your money in the fund with the year that you anticipating needing to take the money out and the fund manager handles diversification and adjusting the risk appropriately over the life of the fund based on the remaining time horizon. The only downside is that the annual expenses tend to be higher on these than if you just invested in the underlying securities/funds, but you are pretty much paying them to manage it for you.\",\n \"Diversification is an important aspect of precious metals investing. Therefore I would suggest diversifying in a number of different ways:\",\n \"\\\"Yes, you can insure against the fall in price of stock by purchasing a put option. You pay for a put and if the price of the share falls below the \\\"\\\"strike price\\\"\\\" of the put, then you can exercise the put. On exercise, the person who sold you the put contract agrees to buy the stock for the strike price, even though that strike price is higher than the market price. You can adjust the level of insurance by buying put options at higher or lower prices, or buying fewer put options than shares you own (leaving some shares uninsured). Alternatively, you can minimize your risk exposure by investing in an index or other fund, which gives you partial ownership in a large number of shares. That means on any given day, lots of shares do worse and lots of shares do better. You can reduce the need for insurance by purchasing a lower-risk, lower-growth financial product.\\\"\",\n \"There are several problems with your reasoning: if I buy one share of GOOGLE now for $830, I could have $860 within the end of tonight -- totally possible and maybe even likely. You can do the same thing with 1,000,000 shares of google, and it's just as likely to go down as go up. if I were to invest $1,000.00 in gold to have $1,000.00 worth of gold, it's no different than keeping $1,000.00 in cash It's VERY different. Gold can be just as volatile as stocks, so it certainly is different as just keeping it in cash. Benefits of a larger portfolio:\",\n \"The reason diversification in general is a benefit is easily seen in your first graph. While the purple line (Betterment 100% Stock) is always below the blue line (S&P), and the blue line is the superior return over the entire period, it's a bit different if you retired in 2009, isn't it? In that case the orange line is superior: because its risk is much lower, so it didn't drop much during the major crash. Lowering risk (and lowering return) is a benefit the closer you get to retirement as you won't see as big a cumulative return from the large percentage, but you could see a big temporary drop, and need your income to be relatively stable (if you're living off it or soon going to). Now, you can certainly invest on your own in a diverse way, and if you're reasonably smart about it and have enough funds to avoid any fees, you can almost certainly do better than a managed solution - even a relatively lightly managed solution like Betterment. They take .15% off the top, so if you just did exactly the same as them, you would end up .15% (per year) better off. However, not everyone is reasonably smart, and not everyone has much in the way of funds. Betterment's target audience are people who aren't terribly smart about investing and/or have very small amounts of funds to invest. Plenty of people aren't able to work out how to do diversification on their own; while they probably mostly aren't asking questions on this site, they're a large percentage of the population. It's also work to diversify your portfolio: you have to make minor changes every year at a minimum to ensure you have a nicely balanced portfolio. This is why target retirement date portfolios are very popular; a bit higher cost (similar to Betterment, roughly) but no work required to diversify correctly and maintain that diversification.\",\n \"An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)\",\n \"It's all about risk. These guidelines were all developed based on the risk characteristics of the various asset categories. Bonds are ultra-low-risk, large caps are low-risk (you don't see most big stocks like Coca-Cola going anywhere soon), foreign stocks are medium-risk (subject to additional political risk and currency risk, especially so in developing markets) and small-caps are higher risk (more to gain, but more likely to go out of business). Moreover, the risks of different asset classes tend to balance each other out some. When stocks fall, bonds typically rise (the recent credit crunch being a notable but temporary exception) as people flock to safety or as the Fed adjusts interest rates. When stocks soar, bonds don't look as attractive, and interest rates may rise (a bummer when you already own the bonds). Is the US economy stumbling with the dollar in the dumps, while the rest of the world passes us by? Your foreign holdings will be worth more in dollar terms. If you'd like to work alternative asset classes (real estate, gold and other commodities, etc) into your mix, consider their risk characteristics, and what will make them go up and down. A good asset allocation should limit the amount of 'down' that can happen all at once; the more conservative the allocation needs to be, the less 'down' is possible (at the expense of the 'up'). .... As for what risks you are willing to take, that will depend on your position in life, and what risks you are presently are exposed to (including: your job, how stable your company is and whether it could fold or do layoffs in a recession like this one, whether you're married, whether you have kids, where you live). For instance, if you're a realtor by trade, you should probably avoid investing too much in real estate or it'll be a double-whammy if the market crashes. A good financial advisor can discuss these matters with you in detail.\",\n \"The stock market, as a whole, is extremely volatile. During any 3 year period, the market could go up or down. However, and this is the important point,the market as a whole has historically been a good long term investment. If you need the money in 5 years, then you want to put it in something less volatile (so there's less chance of losing it). If you need the money in 50 years, put it in the market; the massive growth over those 50 years will more than make up for any short term drops, and you will probably come out ahead. Once you get closer to retirement age, you want to take the money out of stocks and put it in something safer; essentially locking in your profit, and protecting yourself from the possibility of further loss. Something else to consider: everyone lost money in 2008. There were no safe investments (well, ok, there were a few... but not enough to talk about). Given that, why would you choose another investment over stocks? Taking a 50% loss after decades of 10% annual returns is still better than a 50% loss after decades of 5% growth (in fact, after 20 years of growth, it's still 250% better - and that ratio will only improve the longer you leave it in).\",\n \"The biggest challenge with owning any individual stock is price fluctuation, which is called risk. The scenarios you describe assume that the stock behaves exactly as you predict (price/portfolio doubles) and you need to consider risk. One way to measure risk in a stock or in a portfolio is Sharpe Ratio (risk adjusted return), or the related Sortino ratio. One piece of advice that is often offered to individual investors is to diversify, and the stated reason for diversification is to reduce risk. But that is not telling the whole story. When you are able to identify stocks that are not price correlated, you can construct a portfolio that reduces risk. You are trying to avoid 10% tax on the stock grant (25%-15%), but need to accept significant risk to avoid the 10% differential tax ($1000). An alternative to a single stock is to invest in an ETF (much lower risk), which you can buy and hold for a long time, and the price/growth of an ETF (ex. SPY) can be charted versus your stock to visualize the difference in growth/fluctuation. Look up the beta (volatility) of your stock compared to SPY (for example, IBM). Compare the beta of IBM and TSLA and note that you may accept higher volatility when you invest in a stock like Tesla over IBM. What is the beta of your stock? And how willing are you to accept that risk? When you can identify stocks that move in opposite directions, and mix your portfolio (look up beta balanced portolio), you can smooth out the variability (reduce the risk), although you may reduce your absolute return. This cannot be done with a single stock, but if you have more money to invest you could compose the rest of your portfolio to balance the risk for this stock grant, keep the grant shares, and still effectively manage risk. Some years ago I had accumulated over 10,000 shares (grants, options) in a company where I worked. During the time I worked there, their price varied between $30/share and < $1/share. I was able to liquidate at $3/share.\",\n \"Investing only in one industry may be problematic as it is highly correlated. There are factor outside your (or anyones) knowledge which may affect all the industry: If you are familiar with the industry it may happen that you work in that (ignore rest of paragraph if this is not the case). In such case you are likely to have problems at work (frozen salary, no bonus, position terminated) and you need to liquidate the investments at that point (see many advice regarding ESPP). Depending on your field you may have some inside knowledge so even if you would took a position without it you may need to somehow prove it. On the other hand diversifying the investment might reduce the volatility of investment. Rise in oil will cause problems for air industry but will be a boom for oil industry etc. In this way you smooth the grow of the investments. Investing part of portfolio into specific industry may make more sense. It still possibly worth to avoid it at the beginning investor may have trouble to beat the market (for example according to behavioural economics you are exposed to various biases, or if markets are efficient then prices most likely already take into account any information you may have). (I'm still new to all this so it's mostly based on what I read rather then any personal experience. Also a standard disclaimer that this is not an investment, or any other, advice and I'm not licensed financial advisor in any jurisdiction)\",\n \"\\\"When you hear advice to buy index funds, that usually comes with two additional pieces of investment discipline advice that are important: These two elements are important to give you relative predictability in your outcome 20 years from now. In this old blog post of mine I linked to Warren Buffett talking about this, also mentioned it in a comment on another answer: http://blog.ometer.com/2008/03/27/index-funds/ It's perfectly plausible to do poorly over 20 years if you buy 100% stocks at once, without dollar-cost averaging or rebalancing. It's very very very plausible to do poorly over 10 years, such as the last 10 in fact. Can you really say you know your financial situation in 20-30 years, and for sure won't need that money? Because predictability is important, I like buying a balanced fund and not \\\"\\\"pure stocks\\\"\\\": http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ (feel a little bad linking to my blog, but retyping all that into this answer seems dumb!) Here's another tip. You can go one step past dollar cost averaging and try value averaging: http://www.amazon.com/Value-Averaging-Strategy-Investment-Classics/dp/0470049774 However, chances are you aren't even going to be good about rebalancing if it's done \\\"\\\"by hand,\\\"\\\" so personally I would not do value averaging unless you can find either a fund or a financial advisor to do it for you automatically. (Finance Buff blog makes a case for a financial advisor, in case you like that more than my balanced fund suggestion: http://thefinancebuff.com/the-average-investor-should-use-an-investment-advisor-how-to-find-one.html) Like rebalancing, value averaging makes you buy more when you're depressed about the market and less when it's exciting. It's hard. (Dollar cost averaging is easily done by setting up automatic investment, of course, so you don't have to do it manually in the way you would with value averaging.) If you read the usual canonical books on index funds and efficient markets it's easy to remember the takeaway that nobody knows whether the market will go up or down, and yes you won't successfully time the market. But what you can do successfully is use an investment discipline with risk control: assume that the market will fluctuate, that both up and down are likely and possible, and optimize for predictability in light of that. Most importantly, optimize to take your emotions and behavior out of the picture. Some disciplines for example are: there are dozens out there, many of them snake oil, I think these I mentioned are valid. Anyway, you need some form of risk control, and putting all your money in stocks at once doesn't give you a lot of risk control. There's no real need to get creative. A balanced fund that uses index funds for equity and bond portions is a great choice.\\\"\",\n \"Keep in mind that it's a cliche statement used as non-controversial filler in articles, not some universal truth. When you were young, did you mom tell you to eat your vegetables because children are starving in Ethiopia? This is the personal finance article equivalent of that. Generally speaking, the statement as an air of truth about it. If you're living hand to mouth, you probably shouldn't be thinking about the stock market. If you're a typical middle class individual investor, you probably shouldn't be messing around with very speculative investments. That said, be careful about looking for some deeper meaning that just isn't there. If the secret of investment success is hidden in that statement, I have a bridge to sell you that has a great view of Brooklyn.\",\n \"I think it may be best to take everything you're asking line-by-line. Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. This is not true. Companies can go out of business, or take a major hit and never recover. Take Volkswagen for example, in 2015 due to a scandal they were involved in, their stocks went downhill. Now their stocks are starting to rise again. The investors goal is not to wait as long as necessary to make a profit on every stock purchase, but to make the largest profit possible in the shortest time possible. Sometimes this means selling a stock before it recovers (if it ever does). I think the problem with most buyers is that they desire the most gain they can possibly have. However, that is very risky. This can be true. Every investor needs to gauge the risk they're willing to take and high-gain investments are riskier. Therefore, it's better to be winning [small/medium] amounts of money (~)100% of the time than [any] amount of money <~25%. Safer investments do tend to yield more consistent returns, but this doesn't mean that every investor should aim for low-yield investments. Again, this is driven by the investor's risk tolerance. To conclude, profitable companies' stock tends to increase over time and less aggressive investments are safer, but it is possible to lose from any stock investment.\",\n \"You can simply stick with some index funds that tracks the S&P 500 and Ex-US world market. That should provide some good diversification. And of course, you should always have a portion of your money in short/mid term bond fund, rebalancing your stock/bond ratio all the way as deemed necessary. If you want to follow the The Über–Tuber portfolio, you'd better make sure that there's minimum overlapping among the underlying shares that they hold.\",\n \"Your question seems to be making assumptions around “investing”, that investing is only about stock market and bonds or similar things. I would suggest that you should look much broader than that in terms of your investments. Investment Types Your should consider (and include) some or all of the following for your investments, depending on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. I love @Blackjack’s explanation of diversification into other asset classes producing a lower risk portfolio. Excellent! All the above need to be considered in this spread of risk, depending as I said earlier on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. Stock Market Investment I’ll focus most of the rest of my post on the stock markets, as that is where my main experience lies. But the comments are applicable to a greater or lesser extent to other types of investing. We then come to how engaged you want to be with your investments. Two general management styles are passive investment management versus active investment management. @Blackjack says That pretty much sums up passive management. The idea is to buy ETFs across asset classes and just leave them. The difficulty with this idea is that profitability is very dependent upon when the stocks are purchased and when they are sold. This is why active investing should be considered as a viable alternative to passive investment. I don’t have access to a very long time frame of stock market data, but I do have 30 or so years of FTSE data, so let’s say that we invest £100,000 for 10 years by buying an ETF in the FTSE100 index. I know this isn't de-risking across a number of asset classes by purchasing a number of different EFTs, but the logic still applies, if you will bear with me. Passive Investing I have chosen my example dates of best 10 years and worst 10 years as specific dates that demonstrate my point that active investing will (usually) out-perform passive investing. From a passive investing point of view, here is a graph of the FTSE with two purchase dates chosen (for maximum effect), to show the best and worst return you could receive. Note this ignores brokerage and other fees. In these time frames of data I have … These are contrived dates to illustrate the point, on how ineffective passive investing can be, depending if there is a bear/bull market and where you buy in the cycle. One obviously wouldn’t buy all their stocks in one tranche, but I’m just trying to illustrate the point. Active Investing Let’s consider now active investing. I use the following rules for selling and buying:- This is obviously a very simple technical trading system and I would not recommend using it to trade with, as it is overly simplistic and there are some flaws and inefficiencies in it. So, in my simulation, These beat the passive stock market profit for their respective dates. Summary Passive stock market investing is dependent upon the entry and exit prices on the dates the transactions are made and will trade regardless of market cycles. Active stock market trading or investing engages with the market using a set of criteria, which can change over time, but allows one’s investments to be in or out of the market at any point in time. My time frames were arbitrary, but with the logic applied (which is a very simple technical trading methodology), I would suggest that any 10 year time frame active investing would beat passive investing.\",\n \"\\\"Ryan's suggestion to index for your main strategy is dead on. Your risk is highest with one given stock, and decreases as you diversify. Yet, picking the stocks one at a time is an effort, when done right, it's time consuming. For what one can say about Jim \\\"\\\"mad money\\\"\\\" Cramer, his advice to spend an hour a month studying each stock you own, is pretty decent advice. Penny stocks are sub one dollar priced, typically small companies which in theory can grow to be large companies, but the available information tends to be tougher to get hold of. Options are a discussion for a different thread, I discussed the covered call strategy elsewhere and show that options are not necessarily high risk, it depends how they are used.\\\"\",\n \"\\\"Having savings only in your home currency is relatively 'low risk' compared with other types of 'low diversification'. This is because, in a simple case, your future cash outflows will be in your home currency, so if the GBP fluctuates in value, it will (theoretically) still buy you the same goods at home. In this way, keeping your savings in the same currency as your future expenditures creates a natural hedge against currency fluctuation. This gets complicated for goods imported from other countries, where base price fluctuates based on a foreign currency, or for situations where you expect to incur significant foreign currency expenditures (retirement elsewhere, etc.). In such cases, you no longer have certainty that your future expenditures will be based on the GBP, and saving money in other currencies may make more sense. In many circumstances, 'diversification' of the currency of your savings may actually increase your risk, not decrease it. Be sure you are doing this for a specific reason, with a specific strategy, and not just to generally 'spread your money around'. Even in case of a Brexit, consider: what would you do with a bank account full of USD? If the answer is \\\"\\\"Convert it back to GBP when needed (in 6 months, 5 years, 30, etc.), to buy British goods\\\"\\\", then I wouldn't call this a way to reduce your risk. Instead, I would call it a type of investment, with its own set of risks associated.\\\"\",\n \"When the market moves significantly, you should rebalance your investments to maintain the diversification ratios you have selected. That means if bonds go up and stocks go down, you sell bonds and buy stocks (to some degree), and vice versa. Sell high to buy low, and remember that over the long run most things regress to the mean.\",\n \"\\\"If you read Joel Greenblatt's The Little Book That Beats the Market, he says: Owning two stocks eliminates 46% of the non market risk of owning just one stock. This risk is reduced by 72% with 4 stocks, by 81% with 8 stocks, by 93% with 16 stocks, by 96% with 32 stocks, and by 99% with 500 stocks. Conclusion: After purchasing 6-8 stocks, benefits of adding stocks to decrease risk are small. Overall market risk won't be eliminated merely by adding more stocks. And that's just specific stocks. So you're very right that allocating a 1% share to a specific type of fund is not going to offset your other funds by much. You are correct that you can emulate the lifecycle fund by simply buying all the underlying funds, but there are two caveats: Generally, these funds are supposed to be cheaper than buying the separate funds individually. Check over your math and make sure everything is in order. Call the fund manager and tell him about your findings and see what they have to say. If you are going to emulate the lifecycle fund, be sure to stay on top of rebalancing. One advantage of buying the actual fund is that the portfolio distributions are managed for you, so if you're going to buy separate ETFs, make sure you're rebalancing. As for whether you need all those funds, my answer is a definite no. Consider Mark Cuban's blog post Wall Street's new lie to Main Street - Asset Allocation. Although there are some highly questionable points in the article, one portion is indisputably clear: Let me translate this all for you. “I want you to invest 5pct in cash and the rest in 10 different funds about which you know absolutely nothing. I want you to make this investment knowing that even if there were 128 hours in a day and you had a year long vacation, you could not possibly begin to understand all of these products. In fact, I don’t understand them either, but because I know it sounds good and everyone is making the same kind of recommendations, we all can pretend we are smart and going to make a lot of money. Until we don’t\\\"\\\" Standard theory says that you want to invest in low-cost funds (like those provided by Vanguard), and you want to have enough variety to protect against risk. Although I can't give a specific allocation recommendation because I don't know your personal circumstances, you should ideally have some in US Equities, US Fixed Income, International Equities, Commodities, of varying sizes to have adequate diversification \\\"\\\"as defined by theory.\\\"\\\" You can either do your own research to establish a distribution, or speak to an investment advisor to get help on what your target allocation should be.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Basically, diversifying narrows the spread of possible results, raising the center of the returns bell-curve by reducing the likelihood of extreme results at either the high or low end. It's largely a matter of basic statistics. Bet double-or-nothing on a single coin flip, and those are the only possible results, and your odds of a disaster (losing most or all of the money) are 50%. Bet half of it on each of two coin flips, and your odds of losing are reduced to 25% at the cost of reducing your odds of winning to 25%, with 50% odds that you retain your money and can try the game again. Three coins divides the space further; the extremes are reduced to 12.5% each, with the middle being most likely. If that was all there was, this would be a zero-sum game and pure gambling. But the stock market is actually positive-sum, since companies are delivering part of their profits to their stockholder owners. This moves the center of the bell curve up a bit from break-even, historically to about +8%. This is why index funds produce a profit with very little active decision; they treat the variation as mostly random (which seems to work statistically) and just try to capture average results of a (hopefully) slightly above-average bucket of stocks and/or bonds. This approach is boring. It will never double your money overnight. On the other hand, it will never wipe you out overnight. If you have patience and are willing to let compound interest work for you, and trust that most market swings regress to the mean in the long run, it quietly builds your savings while not driving you crazy worrying about it. If all you are looking for is better return than the banks, and you have a reasonable amount of time before you need to pull the funds out, it's one of the more reliably predictable risk/reward trade-off points. You may want to refine this by biasing the mix of what you're holding. The simplest adjustment is how much you keep in each of several major investment categories. Large cap stocks, small cap stocks, bonds, and real estate (in the form of REITs) each have different baseline risk/return curves, and move in different ways in response to news, so maintaining a selected ratio between these buckets and adding the resulting curves together is one simple way to make fairly predictable adjustments to the width (and centerline) of the total bell curve. If you think you can do better than this, go for it. But index funds have been outperforming professionally managed funds (after the management fees are accounted for), and unless you are interested in spending a lot of time researching and playing with your money the odds of your doing much better aren't great unless you're willing to risk doing much worse. For me, boring is good. I want my savings to work for me rather than the other way around, and I don't consider the market at all interesting as a game. Others will feel differently.","Diversifying is the first advice given to beginner in order to avoid big loss. For example in 2014 the company Theranos was really appealing before it fail in 2016. So a beginner could have invest ALL his money and lose it. But if he has deverified he wouldn't lost everything. As an investor goes from beginner to experience some still Diversify and other concentrate. Mostly it depends how much confident you are about an investement. If you have 20 years of experience, now everything about the company and you are sure there will be profit you can concentrate. If you are not 100% sure there will be a profit, it is better to Diversify. Diversifying can also be profitating when you loose money: because you will pay tax when you earn money, if you diversify you can choose to loose money in some stock (usually in december) and in this way cut your taxes.","Any investor can make a bad bet, even Buffett. Even if you have done every bit of research on an investment possible you are exposed to random external events.. acts of god, and outright fraud.","Diversification is used by many to hopefully reduce the risk when bad investments are made. Diversification does not help you make more profits but instead averages down your profits. There is no way one can tell whether a stock or portfolio of stocks will go up or down once they are purchased. In order to try to provide some protection against total loss of the portfolio, a lazy so called long term investor will use diversification as a way of risk management. But the best outcome for them will be an averaging down of their profits. A better method is to let the market tell you when your purchased investment is a bad one and get out of that investment early and thus limiting your losses, whilst letting your good investments (as determined by the market) run and make larger profits."],"string":"[\n \"Basically, diversifying narrows the spread of possible results, raising the center of the returns bell-curve by reducing the likelihood of extreme results at either the high or low end. It's largely a matter of basic statistics. Bet double-or-nothing on a single coin flip, and those are the only possible results, and your odds of a disaster (losing most or all of the money) are 50%. Bet half of it on each of two coin flips, and your odds of losing are reduced to 25% at the cost of reducing your odds of winning to 25%, with 50% odds that you retain your money and can try the game again. Three coins divides the space further; the extremes are reduced to 12.5% each, with the middle being most likely. If that was all there was, this would be a zero-sum game and pure gambling. But the stock market is actually positive-sum, since companies are delivering part of their profits to their stockholder owners. This moves the center of the bell curve up a bit from break-even, historically to about +8%. This is why index funds produce a profit with very little active decision; they treat the variation as mostly random (which seems to work statistically) and just try to capture average results of a (hopefully) slightly above-average bucket of stocks and/or bonds. This approach is boring. It will never double your money overnight. On the other hand, it will never wipe you out overnight. If you have patience and are willing to let compound interest work for you, and trust that most market swings regress to the mean in the long run, it quietly builds your savings while not driving you crazy worrying about it. If all you are looking for is better return than the banks, and you have a reasonable amount of time before you need to pull the funds out, it's one of the more reliably predictable risk/reward trade-off points. You may want to refine this by biasing the mix of what you're holding. The simplest adjustment is how much you keep in each of several major investment categories. Large cap stocks, small cap stocks, bonds, and real estate (in the form of REITs) each have different baseline risk/return curves, and move in different ways in response to news, so maintaining a selected ratio between these buckets and adding the resulting curves together is one simple way to make fairly predictable adjustments to the width (and centerline) of the total bell curve. If you think you can do better than this, go for it. But index funds have been outperforming professionally managed funds (after the management fees are accounted for), and unless you are interested in spending a lot of time researching and playing with your money the odds of your doing much better aren't great unless you're willing to risk doing much worse. For me, boring is good. I want my savings to work for me rather than the other way around, and I don't consider the market at all interesting as a game. Others will feel differently.\",\n \"Diversifying is the first advice given to beginner in order to avoid big loss. For example in 2014 the company Theranos was really appealing before it fail in 2016. So a beginner could have invest ALL his money and lose it. But if he has deverified he wouldn't lost everything. As an investor goes from beginner to experience some still Diversify and other concentrate. Mostly it depends how much confident you are about an investement. If you have 20 years of experience, now everything about the company and you are sure there will be profit you can concentrate. If you are not 100% sure there will be a profit, it is better to Diversify. Diversifying can also be profitating when you loose money: because you will pay tax when you earn money, if you diversify you can choose to loose money in some stock (usually in december) and in this way cut your taxes.\",\n \"Any investor can make a bad bet, even Buffett. Even if you have done every bit of research on an investment possible you are exposed to random external events.. acts of god, and outright fraud.\",\n \"Diversification is used by many to hopefully reduce the risk when bad investments are made. Diversification does not help you make more profits but instead averages down your profits. There is no way one can tell whether a stock or portfolio of stocks will go up or down once they are purchased. In order to try to provide some protection against total loss of the portfolio, a lazy so called long term investor will use diversification as a way of risk management. But the best outcome for them will be an averaging down of their profits. A better method is to let the market tell you when your purchased investment is a bad one and get out of that investment early and thus limiting your losses, whilst letting your good investments (as determined by the market) run and make larger profits.\"\n]","isConversational":false}}},{"rowIdx":274,"cells":{"_id":{"kind":"string","value":"11054"},"query":{"kind":"string","value":"Short Term Capital Gains tax vs. IRA Withdrawal Tax w/o Quarterly Est. Taxes"},"gt_ids":{"kind":"list like","value":["155053","321015"],"string":"[\n \"155053\",\n \"321015\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["155053","321015","101578","420529","267466","112231","60929","482768","94496","559324","561636","395686","575833","181294","290182","188890","276333","536390","66858","110202","56951","453639","557361","240651","176105","141939","76530","83769","116017","448589","558867","393693","530146","338170","358371","562957","109305","415815","197576","223042","581085","159462","518310","523521","304479","144313","84996","125168","513392","571142","561377","481283","318579","251394","208216","487975","271504","423171","461084","298685","159197","18059","477172","156832","199544","424427","144751","46621","419160","374676","187810","147656","578798","508219","80014","466720","481014","303193","12119","158907","152603","451314","448038","259150","207788","500175","127974","243855","84105","121832","162592","526661","112182","423929","272458","565410","445052","235470","549223","76480"],"string":"[\n \"155053\",\n \"321015\",\n \"101578\",\n \"420529\",\n \"267466\",\n \"112231\",\n \"60929\",\n \"482768\",\n \"94496\",\n \"559324\",\n \"561636\",\n \"395686\",\n \"575833\",\n \"181294\",\n \"290182\",\n \"188890\",\n \"276333\",\n \"536390\",\n \"66858\",\n \"110202\",\n \"56951\",\n \"453639\",\n \"557361\",\n \"240651\",\n \"176105\",\n \"141939\",\n \"76530\",\n \"83769\",\n \"116017\",\n \"448589\",\n \"558867\",\n \"393693\",\n \"530146\",\n \"338170\",\n \"358371\",\n \"562957\",\n \"109305\",\n \"415815\",\n \"197576\",\n \"223042\",\n \"581085\",\n \"159462\",\n \"518310\",\n \"523521\",\n \"304479\",\n \"144313\",\n \"84996\",\n \"125168\",\n \"513392\",\n \"571142\",\n \"561377\",\n \"481283\",\n \"318579\",\n \"251394\",\n \"208216\",\n \"487975\",\n \"271504\",\n \"423171\",\n \"461084\",\n \"298685\",\n \"159197\",\n \"18059\",\n \"477172\",\n \"156832\",\n \"199544\",\n \"424427\",\n \"144751\",\n \"46621\",\n \"419160\",\n \"374676\",\n \"187810\",\n \"147656\",\n \"578798\",\n \"508219\",\n \"80014\",\n \"466720\",\n \"481014\",\n \"303193\",\n \"12119\",\n \"158907\",\n \"152603\",\n \"451314\",\n \"448038\",\n \"259150\",\n \"207788\",\n \"500175\",\n \"127974\",\n \"243855\",\n \"84105\",\n \"121832\",\n \"162592\",\n \"526661\",\n \"112182\",\n \"423929\",\n \"272458\",\n \"565410\",\n \"445052\",\n \"235470\",\n \"549223\",\n \"76480\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed at 25%, plus a 10% penalty, for 35% total. Thus the bite on the IRA withdrawal is larger than that on a non-IRA withdrawal. As for the estimated tax issue, I don't think there will be a significant difference there. The reason is that (traditional) IRA withdrawals count as ordinary taxable income (see here). This means that, when you withdraw the funds from your IRA, you will increase your income. If that increase pushes you too far beyond what your withholding is accounting for, then you owe estimated tax. In other words, whether you get the money by selling stocks in a taxable account or by withdrawing them from an IRA, you still increase your taxable income, and thus potentially expose yourself to the estimated tax obligation. (In fact, there may be a difference. As you note, you will pay tax at the capital gains rate on gains from selling in a taxable account. But if you sell the stocks inside the IRA and withdraw, that is ordinary income. However, since ordinary income is taxed at a higher rate than long-term capital gains, you will potentially pay more tax on the IRA withdrawal, since it will be taxed at the higher rate, if your gains are long-term rather than short term. This is doubly true if you withdraw early, incurring the extra 10% penalty. See this question for some more discussion of this issue.) In addition, I think you may be somewhat misunderstanding the nature of estimated tax. The IRS will not \"\"ask\"\" you for a quarterly estimated tax when you sell stock. The IRS does not monitor your activity and send you a bill each quarter. They may indeed check whether your reported income jibes with info they received from your bank, etc., but they'll still do that regardless of whether you got that income by selling in a taxable account or withdrawing money from an IRA, because both of those increase your taxable income. Quarterly estimated tax is not an extra tax; it is just you paying your normal income tax over the course of the year instead of all at once. If your withholdings will not cover enough of your tax liability, you must figure that out yourself and pay the estimated tax (see here); if you don't do so, you may be assessed a penalty. It doesn't matter how you got the money; if your taxable income is too high relative to your withheld tax, then you have to pay the estimated tax. Typically tax will be withheld from your IRA distribution, but if it's not withheld, you'll still owe it as estimated tax.\"","\"Bottom line is this: there's no \"\"short term capital gains tax\"\" in the US. There's only long term capital gains tax, which is lower than the regular (aka ordinary) tax rates. Short term capital gains are taxed using the ordinary tax rates, depending on your bracket. So if you're in the 25% bracket - your short term gains are taxed at 25%. You're describing two options: For the case #1 you'll pay 25% tax (your marginal rate) + 10% penalty (flat rate), total 35%. For the case #2 you'll pay 25% tax (your marginal rate) + 0% penalty. Total 25%. Thus, by withdrawing from IRA you'll be 10% worse than by realizing capital gains. In addition, if you need $10K - taking it from IRA will make the whole amount taxable. While realizing capital gains from a taxable account will make only the gains taxable, the original investment amount is yours and had been taxed before. So not only there's a 10% difference in the tax rate, there's also a significant difference in the amount being taxed. Thus, withdrawing from IRA is generally not a good idea, and you will never be better off with withdrawing from IRA than with cashing out taxable investments (from tax perspective). That's by design.\"","First you need to distinguish between short-term and long-term capital gains. In an IRA you can use investment strategies that incur short-term capital gains without being taxed as ordinary income. As mentioned in a comment above, with a Roth IRA, you can invest now at your low income tax rates and withdraw all gains without incurring any taxes at retirement time. You can also pull out your contributions penalty free before retirement age (59 1/2) if you've had the account for more than 5 years. You only pay taxes and penalties on the earnings. You can also make withdrawals for education expenses and you have one lifetime exclusion of $10,000 for a down-payment on a house.","I assume US as mhoran_psprep edited, although I'm not sure IRS necessarily means US. (It definitely used to also include Britain's Inland Revenue, but they changed.) (US) Stockbrokers do not normally withhold on either dividends/interest/distributions or realized capital gains, especially since gains might be reduced or eliminated by later losses. (They can be required to apply backup withholding to dividends and interest; don't ask how I know :-) You are normally required to pay most of your tax during the year, defined as within 10% or $1000 whichever is more, by withholding and/or estimated payments. Thus if the tax on your income including your recent gain will exceed your withholding by 10% and $1000, you should either adjust your withholding or make an estimated payment or some combination, although even if you have a job the last week of December is too late for you to adjust withholding significantly, or even to make a timely estimated payment if 'earlier in the year' means in an earlier quarter as defined for tax (Jan-Mar, Apr-May, June-Aug, Sept-Dec). See https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes and for details its link to Publication 505. But a 'safe harbor' may apply since you say this is your first time to have capital gains. If you did not owe any income tax for last year (and were a citizen or resident), or (except very high earners) if you did owe tax and your withholding plus estimated payments this year is enough to pay last year's tax, you are exempt from the Form 2210 penalty and you have until the filing deadline (normally April 15 but this year April 18 due to weekend and holiday) to pay. The latter is likely if your job and therefore payroll income and withholding this year was the same or nearly the same as last year and there was no other big change other than the new capital gain. Also note that gains on investments held more than one year are classified as long-term and taxed at lower rates, which reduces the tax you will owe (all else equal) and thus the payments you need to make. But your wording 'bought and sold ... earlier this year' suggests your holding was not long-term, and short-term gains are taxed as 'ordinary' income. Added: if the state you live in has a state income tax similar considerations apply but to smaller amounts. TTBOMK all states tax capital gains (and other investment income, other than interest on exempt bonds), and don't necessarily give the lower rates for long-term gains. And all states I have lived in have 'must have withholding or estimated payments' rules generally similar to the Federal ones, though not identical.","In general, you are expected to pay all the money you owe in taxes by the end of the tax year, or you may have to pay a penalty. But you don't have to pay a penalty if: The amount you owe (i.e. total tax due minus what you paid in withholding and estimated taxes) is less than $1000. You paid at least 90% of your total tax bill. You paid at least 100% of last year's tax bill. https://www.irs.gov/taxtopics/tc306.html I think point #3 may work for you here. Suppose that last year your total tax liability was, say, $5,000. This year your tax on your regular income would be $5,500, but you have this additional capital gain that brings your total tax to $6,500. If your withholding was $5,000 -- the amount you owed last year -- than you'll owe the difference, $1,500, but you won't have to pay any penalties. If you normally get a refund every year, even a small one, then you should be fine. I'd check the numbers to be sure, of course. If you normally have to pay something every April 15, or if your income and therefore your withholding went down this year for whatever reason, then you should make an estimated payment. The IRS has a page explaining the rules in more detail: https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc","It would be fairer to the average person if we paid our normal tax rate on the amount we contributed to the IRA and paid at the capital gains rate for the difference. The same as people that invest outside of the IRA. Most IRAs aren't that large and most people are going to have a rough time living on the reduced social security. It seems like we are taxing the average Joe at a higher rate than the rich.","\"In a Traditional IRA contributions are often tax-deductible. For instance, if a taxpayer contributes $4,000 to a traditional IRA and is in the twenty-five percent marginal tax bracket, then a $1,000 benefit ($1,000 reduced tax liability) will be realized for the year. So that's why they tax you as income, because they didn't tax that income before. If a taxpayer expects to be in a lower tax bracket in retirement than during the working years, then this is one advantage for using a Traditional IRA vs a Roth. Distributions are taxed as ordinary income. So it depends on your tax bracket UPDATE FOR COMMENT: Currently you may have heard on the news about \"\"the fiscal cliff\"\" - CNBC at the end of the year. This is due to the fact that the Bush tax-cuts are set to expire and if they expire. Many tax rates will change. But here is the info as of right now: Dividends: From 2003 to 2007, qualified dividends were taxed at 15% or 5% depending on the individual's ordinary income tax bracket, and from 2008 to 2012, the tax rate on qualified dividends was reduced to 0% for taxpayers in the 10% and 15% ordinary income tax brackets. After 2012, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket. - If the Bush tax cuts are allowed to expire. - Reference - Wikipedia Capital Gains tax rates can be seen here - the Capital Gains tax rate is relative to your Ordinary Income tax rate For Example: this year long term gains will be 0% if you fall in the 15% ordinary tax bracket. NOTE: These rates can change every year so any future rates might be different from the current year.\"","There are a few incorrect assumptions in your question but the TL;DR version is: All, or most, of the withdrawal is taxable income that is reported on Lines 15a (total distribution) and 15b (taxable amount) of Form 1040. None of the distribution is given special treatment as Qualified Dividends or Capital Gains regardless of what happened inside the IRA, and none of the distribution is subject to the 3.8% Net Investment Income Tax that some high-income people need to compute on Form 8960. If the withdrawal is not a Qualified Distribution, it will be subject to a 10% excise tax (tax penalty on premature withdrawal). Not all contributions to Traditional IRAs are deductible from income for the year for which the contribution was made. People with high income and/or coverage by a workplace retirement plan (pension plan, 401(k) plan, 403(b) plan, etc) cannot deduct any contributions that they choose to make to a Traditional IRA. Such people can always make a contribution (subject to them having compensation (earned income such as salary or wages, self-employment income, commissions on sales, etc), but they don't get a tax deduction for it (just as contributions to Roth IRAs are not deductible). Whether it is wise to make such nondeductible contributions to a Traditional IRA is a question on which reasonable people can hold different opinions. Be that as it may, nondeductible contributions to a Traditional IRA create (or add to) what is called the basis of an IRA. They are reported to the IRS on Form 8606 which is attached to the Federal Form 1040. Note that the IRA custodian or trustee is not told that the contributions are not deductible. Earnings on the basis accumulate tax-deferred within the IRA just as do the earnings on the deductible contributions. Now, when you make a withdrawal from your Traditional IRA, no matter which of your various IRA accounts you take the money from, part of the money is deemed to be taken from the basis (and is not subject to income tax) while the rest is pure taxable income. That is, none of the rest is eligible for the reduced taxation rates for Qualified Dividends or Capital Gains and since it does not count as investment income, it is not subject to the 3.8% Net Investment Tax of Form 8960 either. Computation of how much of your withdrawal is nontaxable basis and how much is taxable income is done on Form 8606. Note that you don't get to withdraw your entire basis until such time as when you close all your Traditional IRA accounts. How is all this reported? Well, your IRA custodian(s) will send you Form 1099-R reporting the total amount of the withdrawal, what income tax, if any, was withheld, etc. The custodian(s) don't know what your basis is, and so Box 2b will say that the taxable amount is not determined. You need to fill out Form 8606 to figure out what the taxable amount is, and then report the taxable amount on Line 15b of Form 1040. (The total withdrawal is reported on Line 15a which is not included in the AGI computations). Note that as far as the IRS is concerned, you have only one Traditional IRA. The A in IRA stands for Arrangement, not Account as most everybody thinks, and your Traditional IRA can invest in many different things, stocks, bonds, mutual funds, etc with different custodians if you choose, but your basis is in the IRA, not the specific investment that you made with your nondeductible contribution. That's why the total IRA contribution is limited, not the per-account contribution, and why you need to look that the total value of your IRA in determining the taxable portion, not the specific account(s) from which you withdrew the money. So, how much basis did you withdraw? Well, if you withdrew $W during 2016 and the total value of all your Traditional IRA accounts was $X at the end of 2016 and your total basis in your Traditional IRA is $B, then (assuming that you did not indulge in any Traditional-to-Roth rollovers for 2016), multiply W by B/(W+X) to get the amount of nontaxable basis in the withdrawal. B thus gets reduced for 2017 by amount of basis withdrawal. What if you never made a nondeductible contribution to your Traditional IRA, or you made some nondeductible contributions many years ago and have forgotten about them? Well, you could still fill out Form 8606 reporting a zero basis, but it will just tell you that your basis continues $0. Or, you could just enter the total amount of your withdrawal in Lines 15a and 15b, effectively saying that all of the withdrawal is taxable income to you. The IRS does not care if you choose to pay taxes on nontaxable income.","First of all, there are some differences between the retirement accounts that you mentioned regarding taxes. Traditional IRA and 401(k) accounts allow you to make pre-tax contributions, giving you an immediate tax deduction when you contribute. Roth IRA, Roth 401(k) are funded with after tax money, and a non-retirement account is, of course, also funded with after tax money. So if you are looking for the immediate tax deduction, this is a point in favor of the retirement accounts. Roth IRA & Roth 401(k) accounts allow the investment to grow tax-free, which means that the growth is not taxed, even when taking the investment out at retirement. With Traditional IRA and 401(k) accounts, you need to pay tax on the gains realized in the account when you withdraw the money, just as you do with a non-retirement account. This is a point in favor of the Roth retirement accounts. To answer your question about capital gains, yes, it is true that you do not have a capital gain until an investment is sold. So, discounting the contribution tax deductions of the retirement accounts, if you only bought individual stocks that never paid a dividend, and never sold them until retirement, you are correct that it really wouldn't matter if you had it in a regular brokerage account or in a traditional IRA. However, even people dedicated to buy-and-hold rarely actually buy only individual stocks and hold them for 30 years. There are several different circumstances that will generally happen in the time between now and when you want to withdraw the money in retirement that would be taxable events if you are not in a retirement account: If you sell an investment and buy a different one, the gains would be taxable. If you want to rebalance your holdings, this also involves selling a portion of your investments. For example, if you want to maintain an 80% stock/20% bond ratio, and your stock values have gone up to 90%, you might want to sell some stock and buy bonds. Or if you are getting closer to retirement, you might decide to go with a higher percentage of bonds. This would trigger capital gains. Inside a mutual fund, anytime the management sells investments inside the fund and realizes capital gains, these gains are passed on to the investors, and are taxable. (This happens more often with managed funds than index funds, but still happens occasionally with index funds.) Dividends earned by the investments are taxable. Any of these events in a non-retirement account would trigger taxes that need to be paid immediately, even if you don't withdraw a cent from your account.","\"First - Welcome to Money.SE. You gave a lot of detail, and it's tough to parse out the single question. Actually, you have multiple issues. $1300 is what you need to pay the tax? In the 25% bracket plus 10% penalty, you have a 65% net amount. $1300/.65 = Exactly $2000. You withdraw $2000, have them (the IRA holder) withhold $700 in federal tax, and you're done. All that said, don't do it. Nathan's answer - payment plan with IRS - is the way to go. You've shared with us a important issue. Your budget is running too tight. We have a post here, \"\"the correct order of investing\"\" which provides a great guideline that applies to most visitors. You are missing the part that requires a decent sized emergency fund. In your case, calling it that, may be a misnomer, as the tax bill isn't an unexpected emergency, but something that should have been foreseeable. We have had a number of posts here that advocate the paid in full house. And I always respond that the emergency fund comes first. With $70K of income, you should have $35K or so of liquidity, money readily available. Tax due in April shouldn't be causing you this grief. Please read that post I linked and others here to help you with the budgeting issue. Last - You are in an enviable position, A half million dollars, no mortgage, mid 40s. Easily doing better than most. So, please forgive the soapbox tone of the above, it was just my \"\"see, that's what I'm talking about\"\" moment from my tenure here.\"","You're misunderstanding the concept of retirement savings. IRA distributions are taxed, in their entirety, as ordinary income. If you withdraw before the retirement age, additional 10% penalty is added. Investment income has preferential treatment - long term capital gains and qualified dividends are taxed at lower rates than ordinary income. However, IRA contributions are tax deductible. I.e.: you don't pay taxes on the amounts contributed to the IRA when you earned the money, only when you withdraw. In the mean time, the money is growing, tax free, based on your investments. Anything inside the IRA is tax free, including dividends, distributions (from funds to your IRA, not from IRA to you), capital gains, etc. This is very powerful, when taking into account the compounding effect of reinvesting your dividends/sale proceeds without taking a chunk out for taxes. Consider you make an investment in a fund that appreciated 100% in half a year. You cash out to reinvest in something less volatile to lock the gains. In a regular account - you pay taxes when you sell, based on your brackets. In the IRA you reinvest all of your sale proceeds. That would be ~25-35% more of the gains to reinvest and continue working for you! However, if you decide to withdraw - you pay ordinary rate taxes on the whole amount. If you would invest in a single fund for 30 years in a regular account - you'd pay 20% capital gains tax (on the appreciation, not the dividends). In the IRA, if you invest in the same fund for the same period - you'll pay your ordinary income rates. However, the benefit of reinvesting dividends tax-free softens the blow somewhat, but that's much harder to quantify. Bottom line: if you want to plan for retirement - plan for retirment. Otherwise - IRA is not an investment vehicle. Also consider Roth IRA/conversions. Roth IRA has the benefit of tax free distributions at retirement. If your current tax bracket is at 20%, for example, contributing $5K to Roth IRA instead of a traditional will cost you $1K of taxes now, but will save you all the taxes during the retirement (for the distributions from the Roth IRA). It may be very much worth your while, especially if you can contribute directly to Roth IRA (there are some income limitations and phaseouts). You can withdraw contributions (but not earnings) from Roth IRA - something you cannot do with a traditional IRA.","I think you're misunderstanding how tax brackets work. If you make $1 more and that bumps you into a higher bracket, only THAT particular dollar will be taxed at the higher tax bracket rate... Not your entire income. Short term capital gains are treated as income. Long term capital gains have a special tax rate currently.","All money distributed from a Traditional IRA to which no nondeductible contributions have been made is taxed as ordinary income. It does not matter if you think of the money as the original contribution or gains; the taxation is the same. Money distributed from a Roth IRA is tax-free. In either case, penalties apply if the distribution is premature.","\"This is actually (to me) an interesting point to note. While the answer is \"\"that's what Congress wrote,\"\" there are implications to note. First, for many, the goal of tax deferral is to shift 25% or 28% income to 15% income at retirement. With long term gains at 15%, simply investing long term post tax can accomplish a similar goal, where all gain is taxed at 15%. Looking at this from another angle, an IRA (or 401(k) for that matter) effectively turns long term gains into ordinary income. It's a good observation, and shouldn't be ignored.\"","If you are inside of a ROTH IRA you are not getting taxed on any gain. Dividends, distributions, interest payment, or capital gains are never taxed. This, of course, assumes you wait until age 59.5 to do ROTH withdrawals on your gains.","As I commented, there's confusion on withholding. The 20% pertains to 401(k) accounts, not IRAs.","Indeed, there's no short term/long term issue trading inside the IRA, and in fact, no reporting. If you have a large IRA balance and trade 100 (for example) times per year, there's no reporting at all. As you note, long term gains outside the IRA are treated favorably in the tax code (as of now, 2012) but that's subject to change. Also to consider, The worst thing I did was to buy Apple in my IRA. A huge gain that will be taxed as ordinary income when I withdraw it. Had this been in my regular account, I could sell and pay the long term cap gain rate this year. Last, there's no concept of Wash sale in one's IRA, as there's no taking a loss for shares sold below cost. (To clarify, trading solely within an IRA won't trigger wash sale rules. A realized loss in a taxable account, combined with a purchase inside an IRA can trigger the wash sale rule if the stock is purchased inside the IRA 30 days before or after the sale at a loss. Thank you, Dilip, for the comment.) Aside from the warnings of trading too much or running afoul of frequency restrictions, your observation is correct.","No matter what, you owe taxes on the gains, known as capital gains. How much, depends on how long you invested it for. In your example, each month is treated separately - each month you contribute starts a new clock on that set of investments. If you hold it for longer than a year, the taxes are treated as long-term, and less than a year is short-term. Short term taxes are at your marginal rate, and long term taxes are different, usually 15%. https://www.irs.gov/taxtopics/tc400/tc409","\"Long-term capital gains, which is often the main element of investment income for investors who are not high-frequency day traders, are taxed at a single rate that is often substantially below the marginal rate they would otherwise be taxed at, particularly for wealthy individuals. There are a few rationales behind this treatment; the two most common are that the government wants to encourage long-term investments (as opposed to short-term speculation), and that capital gains are a kind of double taxation (from one point of view) as they are coming from income that has already been taxed once before (as wage or ordinary income). The latter in particular is highly controversial, but this is one of the more divisive political issues in the taxation front - one party would eliminate the tax entirely, the other would eliminate the difference. For most individuals, the majority of their long-term capital gains are taxed at 15% up to almost half of a million dollars total AGI, which is a fairly low rate - it's equivalent to the rate a taxpayer would pay on up to $37,000 in wage income (after deductions/exemptions/etc.). You can see from this table in Wikipedia that it is much preferred to pay long-term capital gains rates when possible - at every point it's at least 10% lower than the tax rate for ordinary income. Ordinary income includes wages and many other sources of income - basically, anything that is not long term capital gains. Wage income is taxed at this rate, and also subject to some non-income-tax taxes (FICA and Medicare in particular); other sources of ordinary income are not subject to those taxes (including IRA income). Short term capital gains are generally included in this bucket. Qualified Dividends are treated similarly to long-term capital gains (as they are of a similar nature), and taxed accordingly. The \"\"Net Investment Tax\"\" is basically applying the Medicare tax to investment income for higher-income taxpayers ($125k single, $250k joint). It's on top of capital gains rates for them. It came about through the Affordable Care Act, and is one of the first provisions likely to be repealed by the new Congress (as it can be repealed through the budgeting provision). It seems likely that 2017 taxes will not contain this provision.\"","There's no additional income tax burden created when you decide to make Roth IRA contributions, your Roth IRA contributions are taxed at the same time all your income is taxed. If you earned that $100 by working a job, then your employer likely withheld taxes when they paid you. If you earned it through self-employment, then you'll pay estimated taxes on that income quarterly, etc. In any case when you file your annual tax return the actual taxes owed vs taxes paid gets reconciled and you're left with a refund or owe an additional sum.","You can withdraw the principal of your Roth IRA account (i.e.: the amounts after tax deposited there) without a tax. However, in case of conversion - you have to wait for five years before you can do that. Otherwise, 10% penalty will apply. It is actually mentioned in the article you linked to. Taxable portion in that context is the portion you paid tax on when converting. In the case you described (converting your 401k) that would be the whole amount of the conversion.","(All for US.) Yes you (will) have a realized long-term capital gain, which is taxable. Long-term gains (including those distributed by a mutual fund or other RIC, and also 'qualified' dividends, both not relevant here) are taxed at lower rates than 'ordinary' income but are still bracketed almost (not quite) like ordinary income, not always 15%. Specifically if your ordinary taxable income (after deductions and exemptions, equivalent to line 43 minus LTCG/QD) 'ends' in the 25% to 33% brackets, your LTCG/QD income is taxed at 15% unless the total of ordinary+preferred reaches the top of those brackets, then any remainder at 20%. These brackets depend on your filing status and are adjusted yearly for inflation, for 2016 they are: * single 37,650 to 413,350 * married-joint or widow(er) 75,300 to 413,350 * head-of-household 50,400 to 441,000 (special) * married-separate 37,650 to 206,675 which I'd guess covers at least the middle three quintiles of the earning/taxpaying population. OTOH if your ordinary income ends below the 25% bracket, your LTCG/QD income that 'fits' in the lower bracket(s) is taxed at 0% (not at all) and only the portion that would be in the ordinary 25%-and-up brackets is taxed at 15%. IF your ordinary taxable income this year was below those brackets, or you expect next year it will be (possibly due to status/exemption/deduction changes as well as income change), then if all else is equal you are better off realizing the stock gain in the year(s) where some (or more) of it fits in the 0% bracket. If you're over about $400k a similar calculation applies, but you can afford more reliable advice than potential dogs on the Internet. (update) Near dupe found: see also How are long-term capital gains taxed if the gain pushes income into a new tax bracket? Also, a warning on estimated payments: in general you are required to pay most of your income tax liability during the year (not wait until April 15); if you underpay by more than 10% or $1000 (whichever is larger) you usually owe a penalty, computed on Form 2210 whose name(?) is frequently and roundly cursed. For most people, whose income is (mostly) from a job, this is handled by payroll withholding which normally comes out close enough to your liability. If you have other income, like investments (as here) or self-employment or pension/retirement/disability/etc, you are supposed to either make estimated payments each 'quarter' (the IRS' quarters are shifted slightly from everyone else's), or increase your withholding, or a combination. For a large income 'lump' in December that wasn't planned in advance, it won't be practical to adjust withholding. However, if this is the only year increased, there is a safe harbor: if your withholding this year (2016) is enough to pay last year's tax (2015) -- which for most people it is, unless you got a pay cut this year, or a (filed) status change like marrying or having a child -- you get until next April 15 (or next business day -- in 2017 it is actually April 18) to pay the additional amount of this year's tax (2016) without underpayment penalty. However, if you split the gain so that both 2016 and 2017 have income and (thus) taxes higher than normal for you, you will need to make estimated payment(s) and/or increase withholding for 2017. PS: congratulations on your gain -- and on the patience to hold anything for 10 years!","Consider doing things that will allow for tax deductions, such as short selling. The IRS has regulations on this as well. And consider that Futures are taxed more favorably than other kinds of investments. (60% taxed as long term, 40% taxed as short term)","First of all an IRA is a type of account that says nothing about how your money is invested. It seems like you are trying to compare an IRA with a market ETF (like Vanguard Total Market Admiral VTSAX), but the reality is that you can have both. Depending on your IRA some of the investment options may be limited, but you will probably be able to find some version of a passive fund following an index you are interested in. The IRA account is tax advantaged, but you may invest the money in your IRA in an ETF. As for how often a non-IRA account is taxed and how much, that depends on how often you sell. If you park your money in an ETF and do not sell, the IRS will not claim any taxes from it. The taxable event happens when you sell. But if you gain $1000 in a year and a day and you decide to sell, you will owe $150 (assuming 15% capital gains tax), bringing your earnings down to $850. If your investments go poorly and you lose money, there will be no capital gains tax to pay.","Assuming that what you want to do is to counter the capital gains tax on the short term and long term gains, and that doing so will avoid any underpayment penalties, it is relatively simple to do so. Figure out the tax on the capital gains by determining your tax bracket. Lets say 25% short term and 15% long term or (0.25x7K) + (0.15*8K) or $2950. If you donate to charities an additional amount of items or money to cover that tax. So taking the numbers in step 1 divide by the marginal tax rate $2950/0.25 or $11,800. Money is easier to donate because you will be contributing enough value that the IRS may ask for proof of the value, and that proof needs to be gathered either before the donation is given or at the time the donation is given. Also don't wait until December 31st, if you miss the deadline and the donation is counted for next year, the purpose will have been missed. Now if the goal is just to avoid the underpayment penalty, you have two other options. The safe harbor is the easiest of the two to determine. Look at last years tax form. Look for the amount of tax you paid last year. Not what was withheld, but what you actually paid. If all your withholding this year, is greater than 110% of the total tax from last year, you have reached the safe harbor. There are a few more twists depending on AGI Special rules for farmers, fishermen, and higher income taxpayers. If at least two-thirds of your gross income for tax year 2014 or 2015 is from farming or fishing, substitute 662/3% for 90% in (2a) under the General rule, earlier. If your AGI for 2014 was more than $150,000 ($75,000 if your filing status for 2015 is married filing a separate return), substitute 110% for 100% in (2b) under General rule , earlier. See Figure 4-A and Publication 505, chapter 2 for more information.","In addition to the other answers, which cover the risks of what is essentially leveraged investing, I'd like to point out that the 2.6% penalty is a flat rate. If you are responsible for withholding your own taxes then you are paying tax four times a year. So any underpayment on your first quarterly tax payment will have much more time to accrue in the stock market than your last payment, although each underpayment will be penalized by the 2.6%. It may make sense for someone to make full payments on later payments but underpay on earlier ones.","\"All transactions within an IRA are irrelevant as far as the taxation of the distributions from the IRA are concerned. You can only take cash from an IRA, and a (cash) distribution from a Traditional IRA is taxable as ordinary income (same as interest from a bank, say) without the advantage of any of the special tax rates for long-term capital gains or qualified dividends even if that cash was generated within the IRA from sales of stock etc. In short, just as with what is alleged to occur with respect to Las Vegas, what happens within the IRA stays within the IRA. Note: some IRA custodians are willing to make a distribution of stock or mutual fund shares to you, so that ownership of the 100 shares of GE, say, that you hold within your IRA is transferred to you in your personal (non-IRA) brokerage account. But, as far as the IRS is concerned, your IRA custodian sold the stock as the closing price on the day of the distribution, gave you the cash, and you promptly bought the 100 shares (at the closing price) in your personal brokerage account with the cash that you received from the IRA. It is just that your custodian saved the transaction fees involved in selling 100 shares of GE stock inside the IRA and you saved the transaction fee for buying 100 shares of GE stock in your personal brokerage account. Your basis in the 100 shares of GE stock is the \"\"cash_ that you imputedly received as a distribution from the IRA, so that when you sell the shares at some future time, your capital gains (or losses) will be with respect to this basis. The capital gains that occurred within the IRA when the shares were imputedly sold by your IRA custodian remain within the IRA, and you don't get to pay taxes on that at capital gains rates. That being said, I would like to add to what NathanL told you in his answer. Your mother passed away in 2011 and you are now 60 years old (so 54 or 55 in 2011?). It is likely that your mother was over 70.5 years old when she passed away, and so she likely had started taking Required Minimum Distributions from her IRA before her death. So, You should have been taking RMDs from the Inherited IRA starting with Year 2012. (The RMD for 2011, if not taken already by your mother before she passed away, should have been taken by her estate, and distributed to her heirs in accordance with her will, or, if she died intestate, in accordance with state law and/or probate court directives). There would not have been any 10% penalty tax due on the RMDs taken by you on the grounds that you were not 59.5 years old as yet; that rule applies to owners (your mom in this case) and not to beneficiaries (you in this case). So, have you taken the RMDs for 2012-2016? Or were you waiting to turn 59.5 before taking distributions in the mistaken belief that you would have to pay a 10% penalty for early wthdrawal? The penalty for not taking a RMD is 50% of the amount not distributed; yes, 50%. If you didn't take RMDs from the Inherited IRA for years 2012-2016, I recommend that you consult a CPA with expertise in tax law. Ask the CPA if he/she is an Enrolled Agent with the IRS: Enrolled Agents have to pass an exam administered by the IRS to show that they really understand tax law and are not just blowing smoke, and can represent you in front of the IRS in cases of audit etc,\"","\"I think there are several issues here. First, there's the contribution. As littleadv said, there is no excess contribution. Excess contribution is only if you exceed the contribution limit. The contribution limit for Traditional IRAs does not depend on how high your income goes or whether you have a 401(k). It's the deduction limit that may depend on those things. Not deducting it is perfectly legitimate, and is completely different than an \"\"excess contribution\"\", which has a penalty. Second, the withdrawal. You are allowed to withdraw contributions made during a year, plus any earnings from those contributions, before the tax filing deadline for the taxes of that year (which is April 15 of the following year, or even up to October 15 of the following year), and it will be treated as if the contribution never happened. No penalties. The earnings will be taxed as regular income (as if you put it in a bank account). That sounds like what you did. So the withdrawal was not an \"\"early withdrawal\"\", and the 1099-R should reflect that (what distribution code did they put?). Third, even if (and it does not sound like the case, but if) it doesn't qualify as a return of contributions before the tax due date as described above (maybe you withdrew it after October 15 of the following year), as littleadv mentioned, your contribution was a non-deductible contribution, and when withdrawing it, only the earnings portion (which after such a short time should only be a very small part of the distribution) would be subject to tax and penalty.\"","In the United States Short-term capital gains are taxed at rates similar to regular income which is 25% if you make less than $91,000 and 28% if you make more than that but less than $190,000. If you make more than $190,000 then the rate is 33%. If you hold the stock for a year or more than the tax rate is 15%, unless your income is less than $33,000 in which case there is no tax on long-term gains. As a general rule, the way to make money is to stay out of debt, so I cannot advise you to assume a mortgage. Financially you are better off investing your money. Much like you I bought a house with a mortgage using about $30,000 in a down payment about 20 years ago and I paid it off a few years ago. If I had to do it over again, I would have bought a shack (a steel building) for $30,000 and lived in that and invested my income. If I had done that, I would be about $500,000 richer today than I am now.","The safe harbor provision is based on the tax you or the prior year. So in 2016 this helped you as your tax was substantially increased from 2015. However, by the same token in 2017 your safe harbor amount is going to be very high. Therefore if 2017 is similar you will owe penalties. The solution here is to make estimated tax payments in the quarters that you realize large gains. This is exactly what the estimated tax payments are for. Your estimate tax payments do not have to be the same. In fact if you have a sudden boost in earnings in quarter 3, then the IRS expects that quarter 3 estimated tax payment to be boosted.","I'm not sure where you are, but in the United States capital gains are taxed at a lower rate than other types of income. On the 1040, captial gains income is separated from earned income, and income tax is calculated just on earned income. Then capital gains tax is calculated on capital gains income, and then added to income tax afterward.","For the Roth the earnings: interest, dividends, capital gains distributions and capital gains are tax deferred. Which means that as long as the money stays inside of a Roth or is transferred/rolled over to another Roth there are no taxes due. In December many mutual funds distribute their gains. Let's say people invested in S&P500index fund receive a dividend of 1% of their account value. The investor in a non-retirement fund will be paying tax on that dividend in the Spring with their tax form. The Roth and IRA investors will not be paying tax on those dividends. The Roth investor never will, and the regular IRA investor will only pay taxes on it when they pull the money out.","Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income.","My understanding (I've never filed one myself) is that the 1040ES is intended to allow you to file quarterly and report unpredictable income, and to pay estimated taxes on that income. I was in the same sort of boat for 2016 -- I had a big unexpected income source in 2015, and this took away my Safe Harbor for 2016. I adjusted my w-2 to zero exemptions (eventually) and will be getting a refund of about 1% of our income. So lets say you make 10000 in STG in March, and another 15000 in STG in April. File a quarterly 1040-ES between March 31 and April 15. Report the income, and pay some tax. You should be able to calculate the STCG Tax for 10k pretty easily. Just assume that it comes off the top and doesn't add at all to your deductions. Then for April, do the same by June 15. Just like your W-2 is used to estimate how much your employer should withhold, the 1040ES is designed to estimate how much extra you need to pay to the IRS to avoid penalties. It'll all get resolved after you file your final 1040 for the 2017 calendar year.","\"Welcome to the 'what should otherwise be a simple choice turns into a huge analysis' debate. If the choice were actually simple, we've have one 'golden answer' here and close others as duplicate. But, new questions continue to bring up different scenarios that impact the choice. 4 years ago, I wrote an article in which I discussed The Density of Your IRA. In that article, I acknowledge that, with no other tax favored savings, you can pack more value into the Roth. In hindsight, I failed to add some key points. First, let's go back to what I'd describe as my main thesis: A retired couple hits the top of the 15% bracket with an income of $96,700. (I include just the standard deduction and exemptions.) The tax on this gross sum is $10,452.50 for an 'average' rate of 10.8%. The tax, paid or avoided, upon deposit, is one's marginal rate. But, at retirement, the withdrawals first go through the zero bracket (i.e. the STD deduction and exemptions), then 10%, then 15%. The above is the simplest snapshot. I am retired, and our return this year included Sch A, itemized deductions. Property tax, mort interest, insurance, donations added up fast, and from a gross income (IRA withdrawal) well into the 25% bracket, the effective/average rate was reported as 7.3%. If we had saved in Roth accounts, it would have been subject to 25%. I'd suggest that it's this phenomenon, the \"\"save at marginal 25%, but withdraw at average sub-11%\"\" effect that account for much of the resulting tax savings that the IRA provides. The way you are asking this, you've been focusing on one aspect, I believe. The 'density' issue. That assumes the investor has no 401(k) option. If I were building a spreadsheet to address this, I'd be sure to consider the fact that in a taxable account, long term gains are taxed at 15% for higher earners (I take the liberty to ignore that wealthier taxpayers will pay a maximum 20% tax on long-term capital gains. This higher rate applies when your adjusted gross income falls into the top 39.6% tax bracket.) And those in the 10 or 15% bracket pay 0%. With median household income at $56K in 2016, and the 15% bracket top at $76K, this suggests that most people (gov data shows $75K is 80th percentile) have an effective unlimited Roth. So long as they invest in a way that avoids short term gains, they can rebalance often enough to realize LT gains and pay zero tax. It's likely the $80K+ earner does have access to a 401(k) or other higher deposit account. If they don't, I'd still favor pretax IRAs, with $11K for the couple still 10% or so of their earnings. It would be a shame to lose that zero bracket of that first $20K withdrawal at retirement. Again working backwards, the $78K withdrawal would take nearly $2M in pretax savings to generate. All in today's dollars.\"","If you qualify for the safe harbor, you are not required to pay additional quarterly taxes. Of course, you're still welcome to do so if you're sure you'll owe them; however, you will not be penalized. If your income is over $150k (joint) or $75k (single), your safe harbor is: Estimated tax safe harbor for higher income taxpayers. If your 2014 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2015 or 110% of the tax shown on your 2014 return to avoid an estimated tax penalty. Generally, if you're under that level, the following reasons suggest you will not owe the tax (from the IRS publication 505): The total of your withholding and timely estimated tax payments was at least as much as your 2013 tax. (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen.) The tax balance due on your 2014 return is no more than 10% of your total 2014 tax, and you paid all required estimated tax payments on time. Your total tax for 2014 (defined later) minus your withholding is less than $1,000. You did not have a tax liability for 2013. You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. If you paid one-fourth of your last year's taxes (or of 110% of your last-year's taxes) in estimated taxes for each quarter prior to this one, you should be fine as far as penalties go, and can simply add the excess you know you will owe to the next check.","\"IRA is a tax-deferred account. I.e.: you're not paying any taxes on the income within the account (as long as you don't withdraw it) and you can deduct the investment (with certain limitation on how much, depending on your total AGI). It is taxed when you withdraw it - at ordinary rates for the \"\"traditional\"\" IRA and with 0% rate for ROTH, as long as the withdrawal is qualified (if not qualified - you pay ordinary rate tax for ROTH and additional 10% tax for both on the taxable amounts). The details are a bit complicated (there's deductible IRA, non-deductible IRA, roll-overs, etc etc), but that's the basic. Regular investment accounts are taxed currently on any income, but you get the \"\"better\"\" capital gains rates on many things. So which one is better depends how long your investment is going to be, what is your tax situation now, and what you anticipate it to be later when you retire.\"","If you made a contribution to a Traditional IRA for Year X (whether made during Year X or made in Year X+1 before the due date of your tax return for Year X), then you can withdraw the contribution and any gains on that contribution by the due date of your tax return. If the contribution was deductible, then of course you must not take a deduction for it in on your tax return for Year X (or any other year for that matter). As for the gains (if any) that were withdrawn, they are taxable income to you for Year X (not X+1, even if the withdrawal occurred in Year X+1). Publication 590a says You generally can make a tax-free withdrawal of contributions if you do it before the due date for filing your tax return for the year in which you made them. This means that, even if you are under age 59-1/2, the 10% additional tax may not apply. and later in the same Publication If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. You can do this if, for each contribution you withdraw, both of the following conditions apply. - You did not take a deduction for the contribution. - You withdraw any interest or other income earned on the contribution. You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. If there was a loss, the net income earned on the contribution may be a negative amount. Later, the document says You must include in income any earnings on the contributions you withdraw. Include the earnings in income for the year in which you made the contributions, not the year in which you withdraw them. and The 10% additional tax on distributions made before you reach age 59-1/2 does not apply to these tax-free withdrawals of your contributions. However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59-1/2 rule, it will be subject to this tax. Since you have a loss on the contributions that you are withdrawing, there is no interest or other income that needs to be reported.","First of all depending on the type of IRA you may not have to pay taxes on withdrawals in the US at all. If you are withdrawing your principle from a Roth IRA then you don't owe taxes. Only when you withdraw the gains do you pay taxes on it. You have two options for withdrawals: Lump Sum Withdrawal: If you take a lump sum withdrawal you will owe taxes to the US (30% for non-resident aliens of the US), and according to DTAA; Article 23, you will file your taxes with India declaring your IRA or 401(k) withdrawal proceeds and claim credit on the taxes you paid to the US. Monthly Pension Withdrawal: You can also receive monthly pension payments and you will only be taxed in the country in which you are a resident of. This is according to DTAA, Article 20. You would then have to submit necessary documentation to your payer in the US so that they do not withhold any taxes in the US. Just as a side note it might be just better to keep the money where it is and let it grow or roll it over to a Roth IRA if you are currently in a lower tax bracket for maximum savings of your principle. Here is a link with more detailed information of what I provided you: http://articles.economictimes.indiatimes.com/2012-01-25/news/30663129_1_taxable-income-nri-401k-plan","The key for you this year (2015) be aggressive in paying the taxes quarterly so that you do not have to do the quarterly filings or pay penalties for owing too much in taxes in future years. The tax system has a safe harbor provision. If you have withheld or sent via the estimated quarterly taxes an amount equal to 100% of the previous years taxes then you are safe. That means that if you end to the IRS in 2015 an amount equal to 100% of your 2014 taxes then in April 2016 you can avoid the penalties. You should note that the required percentage is 110% for high income individual. Because you can never be sure about your side income, use your ability to adjust your W-4 to cover your taxes. You will know early in 2016 how much you need to cover via withholding, so make the adjustments. Yes the risk is what you over pay, but that may be what you need to do to avoid the quarterly filing requirements. From IRS PUB 17: If you owe additional tax for 2014, you may have to pay estimated tax for 2015. You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments. General rule. In most cases, you must pay estimated tax for 2015 if both of the following apply. You expect to owe at least $1,000 in tax for 2015, after subtracting your withholding and refundable credits. You expect your withholding plus your refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2015 tax return, or 100% of the tax shown on your 2014 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers , later). Your 2014 tax return must cover all 12 months. and Estimated tax safe harbor for higher income taxpayers. If your 2014 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2015 or 110% of the tax shown on your 2014 return to avoid an estimated tax penalty.","\"Since the deduction balances out the future tax (presumably), I am only paying tax on the gains, however over 20 years, those gains could be greater than the original $4000 itself. (Doubling would only take 3.6% annual return over 20 years ) If I put it into a Roth IRA, I don't get a tax deduction, but I get to withdraw the original $4000 and all the gains, tax free in about 20 years. It seems the Roth IRA is a better deal tax wise, but I would like to hear if I am missing something. You are missing the time value of money. $4000 now does not have the same value to you as $4000 years in the future. In fact, the $4000 now has the same value as the money it grows into (principal + earnings) in the future. So a certain percentage of tax on the $4000 now has the same effect to you as the same percentage of tax on the $4000 + earnings in the future, no matter how much \"\"earnings\"\" is. It's simple math. If you start with the same amount of pre-tax money, and have the same flat percentage tax rate, then both Traditional and Roth will leave you with the same amount of money, regardless of how many times the gains are. Try it for yourself.\"","You are missing something very significant. The money in a traditional IRA (specifically, a deductible traditional IRA; there is not really any reason to keep a nondeductible traditional IRA anymore) is pre-tax. That means when you pay tax on it when you take it out, you are paying tax on it for the first time. If you take ordinary money to invest it in stocks, and then pay capital gains tax on it when you take it out, that is post-tax money to begin with -- meaning that you have already paid (income) tax on it once. Then you have to pay tax again on the time-value growth of that money (i.e. that growth is earned from money that is already taxed). That means you are effectively paying tax twice on part of that money. If that doesn't make sense to you, and you think that interest, capital gains, etc. is the first time you're paying tax on the money because it's growth, then you have a very simplistic view of money. There's something called time value of money, which means that a certain amount of money is equivalent to a greater amount of money in the future. If you invest $100 now and end up with $150 in the future, that $150 in the future is effectively the same money as the $100 now. Let's consider a few examples. Let's say you have $1000 of pre-tax income you want to invest and withdraw a certain period of time later in retirement. Let's say you have an investment that grows 100% over this period of time. And let's say that your tax rate now and in the future is 25% (and for simplicity, assume that all income is taxed at that rate instead of the tax bracket system). And capital gains tax is 15%. You see a few things: Traditional IRA and Roth IRA are equivalent if the tax rates are the same. This is because, in both cases, you pay tax one time on the money (the only difference between paying tax now and later is the tax rate). It doesn't matter that you're paying tax only on the principal for the Roth and on the principal plus earnings for Traditional, because the principal now is equivalent to the principal plus earnings in the future. And you also see that investing money outside fares worse than both of them. That is because you are paying tax on the money once plus some more. When you compare it against the Roth IRA, the disadvantage is obvious -- in both cases you pay income tax on the principal, but for Roth IRA you pay nothing on the earnings, whereas for the outside stock, you pay some tax on the earnings. What may be less obvious is it is equally disadvantageous compared to a Traditional IRA; Traditional and Roth IRA are equivalent in this comparison. 401(k)s and IRAs have a fundamental tax benefit compared to normal money investment, because they allow money to be taxed only one time. No matter how low the capital gains tax rate it, it is still worse because it is a tax on time-value growth from money that is already taxed.","Long term gains are taxed at 15% maximum. Losses, up to the $3K/yr you cited, can offset ordinary income, so 25% or higher, depending on your income. Better to take the loss that way. With my usual disclaimer: Do not let the tax tail wag the investing dog.","\"You have several questions in your post so I'll deal with them individually: Is taking small sums from your IRA really that detrimental? I mean as far as tax is concerned? Percentage wise, you pay the tax on the amount plus a 10% penalty, plus the opportunity cost of the gains that the money would have gotten. At 6% growth annually, in 5 years that's more than a 34% loss. There are much cheaper ways to get funds than tapping your IRA. Isn't the 10% \"\"penalty\"\" really to cover SS and the medicare tax that you did not pay before putting money into your retirement? No - you still pay SS and medicare on your gross income - 401(k) contributions just reduce how much you pay in income tax. The 10% penalty is to dissuade you from using retirement money before you retire. If I ... contributed that to my IRA before taxes (including SS and medicare tax) that money would gain 6% interest. Again, you would still pay SS and Medicare, and like you say there's no guarantee that you'll earn 6% on your money. I don't think you can pay taxes up front when making an early withdrawal from an IRA can you? This one you got right. When you file your taxes, your IRA contributions for the year are totaled up and are deducted from your gross income for tax purposes. There's no tax effect when you make the contribution. Would it not be better to contribute that $5500 to my IRA and if I didn't need it, great, let it grow but if I did need it toward the end of the year, do an early withdrawal? So what do you plan your tax withholdings against? Do you plan on keeping it there (reducing your withholdings) and pay a big tax bill (plus possibly penalties) if you \"\"need it\"\"? Or do you plan to take it out and have a big refund when you file your taxes? You might be better off saving that up in a savings account during the year, and if at the end of the year you didn't use it, then make an IRA contribution, which will lower the taxes you pay. Don't use your IRA as a \"\"hopeful\"\" savings account. So if I needed to withdrawal $5500 and I am in the 25% tax bracket, I would owe the government $1925 in taxes+ 10% penalty. So if I withdrew $7425 to cover the tax and penalty, I would then be taxed $2600 (an additional $675). Sounds like a cat chasing it's tail trying to cover the tax. Yes if you take a withdrawal to pay the taxes. If you pay the tax with non-retirement money then the cycle stops. how can I make a withdrawal from an IRA without having to pay tax on tax. Pay cash for the tax and penalty rather then taking another withdrawal to pay the tax. If you can't afford the tax and penalty in cash, then don't withdraw at all. based on this year's W-2 form, I had an accountant do my taxes and the $27K loan was added as earned income then in another block there was the $2700 amount for the penalty. So you paid 25% in income tax for the earned income and an additional 10% penalty. So in your case it was a 35% overall \"\"tax\"\" instead of the 40% rule of thumb (since many people are in 28% and 35% tax brackets) The bottom line is it sounds like you are completely unorganized and have absolutely no margin to cover any unexpected expenses. I would stop contributing to retirement today until you can get control of your spending, get on a budget, and stop trying to use your IRA as a piggy bank. If you don't plan on using the money for retirement then don't put it in an IRA. Stop borrowing from it and getting into further binds that force you to make bad financial decisions. You don't go into detail about any other aspects (mortgage? car loans? consumer debt?) to even begin to know where the real problem is. So you need to write everything down that you own and you owe, write out your monthly expenses and income, and figure out what you can cut if needed in order to build up some cash savings. Until then, you're driving across country in a car with no tires, worrying about which highway will give you the best gas mileage.\"","You may be able to find the answers to your question on the IRS web site: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Specifically, using this form to estimate taxes for salary: http://www.irs.gov/pub/irs-pdf/f1120w.pdf and this form to estimate taxes for dividends: http://www.irs.gov/pub/irs-pdf/f1040es.pdf","Generally it is advisable to mention what country you're asking about, as tax laws differ. To the best of my knowledge, however, this particular issue is handled consistently in every tax jurisdiction I'm familiar with. You invested X, it appreciated and is now worth X + Y. In your example, X = $10,000 and Y = $40,000. Total X + Y = $50,000. When you withdraw an amount, say A (in your example A = $10,000), it is considered a withdrawal of both the earnings and the original capital, in proportion to the total of your account. Taxable portion of the withdrawal is proportional to the earnings. Lets mark it T. In your example, T = $10,000 - $10,000 * $10,000/$50,000 = $8,000. I.e.: 80% of the withdrawal will be attributed to earnings and would be taxable (short term in your case, if you're in the US), and 20% to the original capital. This will keep the proportion of the remained the same - 20% of the remaining amount will be attributed to the original capital (accidentally, it will be $8,000), and the remaining 80% will be attributed to the earnings. The withdrawn amount attributed to the capital ($2,000), and the remaining amount attributed to the capital ($8,000) will equal exactly to the invested amount.","You must pay your taxes at the quarterly intervals. For most people the withholding done by their employer satisfies this requirement. However, if your income does not have any withholding (or sufficient), then you must file quarterly estimated tax payments. Note that if you have a second job that does withhold, then you can adjust your W4 to request further withholding there and possibly reduce the need for estimated payments. Estimated tax payments also come into play with large investment earnings. The amount that you need to prepay the IRS is impacted by the safe harbor rule, which I am sure others will provide the exact details on.","If you have the cash on hand to pay the tax on the amount you are transferring I recommend moving to a Roth IRA An IRA is tax-deferred. You put in pretax contributions in to an IRA, and you are taxed on that money (your contributions and interest earned) when you withdraw it at retirement, age 59 1/2. The idea being that you will be taking less out per year in your retirement years, putting you into a lower tax bracket. The major problem is most people draw out as much or more a year in their retirement years than when they were working. A Roth IRA grows tax free You put after tax contributions into a Roth IRA, you have paid taxes on the contributions, and you are never taxed on the growth. When you draw the money out at retirement you don't pay any income taxes on that money. Let me give you an example: For this example we will use the following information for both scenario: We will invest $400 per month for a total of $4800. The current maximum is $5000 if you are under 50 years old $400 dollars after taxes is $300 Invest $300 a month, at age 65 you have 3,529,432 You owe no taxes on this money, it doesn't matter how much you take out a year. $400 dollars a month is taken pretax out of your paycheck. Invest $400 per month, at age 65 you have $4,705,909 You owe taxes of 25% as you draw that out for at total tax of 1,176,477 4,705,909 - 1,176,477 = 3,529,432 cash in your pocket The problem is if you draw out more than $82,400 (current 2010 filing single) per year you will be pushed to a higher tax bracket and take more of your money away. If you decide to buy a vacation home and you take out $250,000 to pay for it, that's counted as income for that year any you will be in the 33% tax bracket. Even if you can keep yourself to a low income the government forces your hand and makes you draw out more money at age 70, based on their tables, forcing you into a higher tax bracket","Yes, it really will hurt you to keep pulling your money from your IRA. Your best bet is to set up a payment plan with the IRS, and pay the taxes you owe now, as well as adjust your withholding (with a new W-4 to your payroll department) so that you don't have a large tax liability next year. These tax advantaged plans really are designed to penalize you if you pull the money out early to give you incentive to keep the money for retirement. Your best bet is to make a monthly budget that includes your tax payments for taxes owed this year, as well as higher deductions from your paycheck to properly withhold taxes for next year.","Post-tax (i.e. non-retirement account) investing is nothing to ignore. You don't mention a spouse, so for a start, you still have the $5500 to put in an IRA. The remaining investment funds will earn dividends, if any, at a tax preferred rate, and then the gain on sale will be taxed at 15% if the code doesn't change again. The gains accumulate tax deferred, and you control the timing of the sale. With a 401(k) all withdrawal are taxable as income. In your case, just the gain is taxed at a potential long term cap gain rate. Hopefully the new job pays more than the old one and the loss of 401(k) is compensated.","I don't understand the logic in the other answer, and I think it doesn't make sense, so here is my take: You pay taxes on income, not on sales price. So if you put X $ of your own money in the account and it becomes X + Y $ in the future, at the moment of liquidation, you will own taxes on the Y $. Never on the X $, as it was your own (already taxed) money to begin with. The difference between long-term and short-term gains just influences the tax rate on Y. If you donate the gain alone (the Y $) to charity, you can deduct Y from your tax base. So adding Y to your tax base and then deducting Y again obviously leaves your tax base at the old value, so you pay no extra taxes. Which seems logical, as you didn't make any money in the process. Aside from extreme cases where the deductible gain is too large a percentage from your income or negative, I don't see why this would ever be different. So you can take your original 100 $ back out and donate all gains, and be fine. Note that potential losses are seen different, as the IRA regulations are not symmetric.","Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.","The principal of the contribution can definitely be withdrawn tax-free and penalty-free. However, there is a section that makes me think that the earnings part may be subject to penalty in addition to tax. In Publication 590-A, under Traditional IRAs -> When Can You Withdraw or Use Assets? -> Contributions Returned Before Due Date of Return -> Early Distributions Tax, it says: The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. This section is only specifically about the return of contributions before the due date of return, not a general withdrawal (as you can see from the first sentence that the penalty doesn't apply to contributions, which wouldn't be true of general withdrawals). Therefore, the second sentence must be about the earnings part of the withdrawal that you must make together with the contribution part as part of the return of contributions before the due date of the return. If the penalty it is talking about is only about other types of withdrawals and doesn't apply to the earnings part of the return of contribution before the due date of the return, then this sentence wouldn't make sense as it's in a part that's only about return of contribution before the due date of the return.","The capital gain is either short-term or long-term and will be indicated on the 1099-DiV. You pay taxes on this amount as the capital gain was received in a taxable account (assuming since you received a 1099-DIV). More info here: https://www.mutualfundstore.com/brokerage-account/capital-gains-distributions-taxable","\"Hearing somewhere is a level or two worse than \"\"my friend told me.\"\" You need to do some planning to forecast your full year income and tax bill. In general, you should be filing a quarterly form and tax payment. You'll still reconcile the year with an April filing, but if you are looking to save up to pay a huge bill next year, you are looking at the potential of a penalty for under-withholding. The instructions and payment coupons are available at the IRS site. At this point I'm required to offer the following advice - If you are making enough money that this even concerns you, you should consider starting to save for the future. A Solo-401(k) or IRA, or both. Read more on these two accounts and ask separate questions, if you'd like.\"","She is very wrong. If the IRA is a traditional, i.e. A pretax IRA (not a Roth), all withdrawals are subject to tax at one's marginal rate. Read that to mean that a large sum can easily push her into higher brackets than normal. If it stayed with her, she'd take smaller withdrawals and be able to throttle her tax impact. Once she takes it all out, and gifts it to you, no gift tax is due, but there's form 709, where it's declared, and counts against her $5.5M lifetime estate exemption. There are a few things in the world of finance that offend me as much as lawyer malpractice, going into an area they are ignorant of.","In your entire question, the only time you mention that this is an investment inside an IRA is when you say Every quarter, six months, whatever Id have to rebalance my IRA while Vanguard would do this for the fund of funds without me needing to. Within an IRA, there are no tax implications to the rebalancing. But if this investment were not inside an IRA, then the rebalancing done by you will have tax implications. In particular, any gains realized when you sell shares in one fund and buy shares in another fund during the rebalancing process are subject to income tax. Similarly, losses also might be realized (and will affect your taxes). However, if you are invested in a fund of funds, there are no capital gains (or capital losses) when re-balancing is done; you have gains or losses only when you sell shares of the fund of funds for a price different than the price you paid for them.","I'm assuming your talking USA. There are two ways to look. If you know you should pay on the cap gains, the best way to handle that separately from your salary is to file a quarterly tax payment. That, I understand, is what the self-employed have to do. I'm in the situation where at some point, probably this year, the company that employs me will be bought out, and I will owe capital gains taxes on my shares gobbled up in the buy-out. It's a cash-for-stock transaction. So, in my case, I've just adjusted my W-4 to take advantage of the safe-harbor provision related to taxes I payed in 2016 and my salary. The details vary depending on your situation, but in my case, I've calculated what it will take in W-4 allowances to make sure I pay 110% of my 2016 tax payment (after refund). I'm not worrying about what the actual taxes on those shares of company stock will be, because I've met the rules for safe-harbor. Safe harbor just means that they can't penalize you for under-withholding or underpayment. It doesn't mean I won't have to write a check on april 15.","Why shouldn't I just keep my money in the savings account and earn the same amount (both accounts have the same APY in this case)? I will assume that you are transferring money from your savings account into a Traditional IRA and deducting the contribution from your income. While you may think that the money that is being transferred is yours already -- it is sitting in your savings account, for Pete's sake! -- you are deducting that amount in getting to your taxable income, and so you are effectively contributing it from current income and not paying taxes on the amount contributed. So, consider the same amount of money sitting in your savings account versus the same amount of money sitting in your Traditional IRA account. While you will earn the same amount of interest in both accounts, you will have to pay taxes each year on the interest earned in the savings account. You might choose, as most people do, to not take money out of the savings account to pay theses taxes but just pay them from ready cash/checking account/current income etc., or these taxes might just reduce the refund that you will getting from the IRS and your State income tax authority, but in either case, you have paid taxes on the interest earned in your non-IRA savings account, and of course, long ago, you also paid taxes on the original amount in the non-IRA savings account. So, if you take any money out of the non-IRA savings account, you don't pay any taxes on the amount withdrawn except possibly for the interest earned from January 1 till the date of withdrawal (which you are paying from ready cash). On the other hand, consider the Traditional IRA. The original deposit was not taxed in the sense that you got a deduction (reduced tax or increased refund) when you made the contribution. The annual interest earned was not taxed each year either. So when you make a qualified withdrawal (after age 59.5 or by meeting one of the other exceptions allowing withdrawal before age 59.5), you are taking money on which you have not paid any taxes at all, and the IRS wants its cut. The money withdrawn is taxable income to you. Furthermore, the money withdrawn is not eligible for any kind of favorable treatment such as having it count as qualified dividends or as long-term capital gains even if your IRA was invested in stocks and the money in the account is all qualified dividends or long-term capital gains. If you make an unqualified withdrawal, you owe a penalty (technically named an excise tax) in addition to income tax on the amount withdrawn. If you are investing in a Roth IRA, you will not be getting a deduction when you make the contribution, and qualified withdrawals are completely tax-free, and so the answer is completely different from the above.","\"The annualized method allows you to take a look at each quarter independently and pay the tax in the quarter that you earned it. -- According to Linda Durand, a certified public accountant with Drolet & Associates PLLC in Washington, D.C., from the Bankrate article \"\"Paying quarterly estimated taxes\"\" And after paying annualized quarterly estimates, you can still owe up to $1000 at tax time without penalty.\"",">I could be wrong but you will still get tax at 10% This isn't true for Roths. If I put 5k (post tax of course) money into a Roth 401k or a Roth IRA I can withdraw that 5k whenever I want penalty and tax free. Now lets say that 5k has grown to 7k and I take out all 7k the first 5k is penalty and tax free but the extra 2k is taxed (with the extra 10% penalty added on). So as long as you don't touch any growth in your roth accounts you can withdraw the principal amount with the same consequences you would experience if you were to take money out of your checking account at your bank. Also money in and IRA does not have to be invested it could be in a liquid position. Now a pre tax retirement account doesn't have the same luxury. If I stick 5k into a traditional IRA and it grows to 7k and I pull that money out the entire ammount gets taxed AND penalized (even the principal amount is subject the 10% penalty). Now if you do a Roth conversion (pre-tax to post-tax retirment account conversion) the principal ammount (the amount you paid taxes on) is still subject to the 10% penalty for 5 years. After the 5 years you can withdraw the converted ammount tax and penalty free (well you already paid the taxes) it would just be the growth that is subject to the penalty.","The penalty is 10% regardless of the tax. If your marginal rate is so low, I'd consider converting some to Roth each year, and not touching it for tuition.","The answer to this question requires looking at the mathematics of the Qualified Dividends and Capital Gains Worksheet (QDCGW). Start with Taxable Income which is the number that appears on Line 43 of Form 1040. This is after the Adjusted Gross Income has been reduced by the Standard Deduction or Itemized Deductions as the case may be, as well as the exemptions claimed. Then, subtract off the Qualified Dividends and the Net Long-Term Capital Gains (reduced by Net Short-Term Capital Losses, if any) to get the non-cap-gains part of the Taxable Income. Assigning somewhat different meanings to the numbers in the OPs' question, let's say that the Taxable Income is $74K of which $10K is Long-Term Capital Gains leaving $64K as the the non-cap-gains taxable income on Line 7 of the QDCGW. Since $64K is smaller than $72.5K (not $73.8K as stated by the OP) and this is a MFJ return, $72.5K - $64K = $8.5K of the long-term capital gains are taxed at 0%. The balance $1.5K is taxed at 15% giving $225 as the tax due on that part. The 64K of non-cap-gains taxable income has a tax of $8711 if I am reading the Tax Tables correctly, and so the total tax due is $8711+225 = $8936. This is as it should be; the non-gains income of $64K was assessed the tax due on it, $8.5K of the cap gains were taxed at 0%, and $1.5K at 15%. There are more complications to be worked out on the QDCGW for high earners who attract the 20% capital gains rate but those are not relevant here.","\"Your question does not say this explicitly, but I assume that you were once a W-2 employee. Each paycheck a certain amount was withheld from your check to pay income, social security, and medicare taxes. Just because you did not receive that amount of money earned does not mean it was immediately sent to the IRS. While I am not all that savvy on payroll procedures, I recall an article that indicated some companies only send in withheld taxes every quarter, much like you are doing now. They get a short term interest free loan. For example taxes withheld by a w-2 employee in the later months of the year may not be provided to the IRS until 15 January of the next year. You are correct in assuming that if you make 100K as a W-2 you will probably pay less in taxes than someone who is 100K self employed with 5K in expenses. However there are many factors. Provided you properly fill out a 1040ES, and pay the correct amount of quarterly payments, you will almost never owe taxes. In fact my experience has been the forms will probably allow you to receive a refund. Tax laws can change and one thing the form did not include last year was the .9% Medicare surcharge for high income earners catching some by surprise. As far as what you pay into is indicative of the games the politicians play. It all just goes into a big old bucket of money, and more is spent by congress than what is in the bucket. The notion of a \"\"social security lockbox\"\" is pure politics/fantasy as well as the notion of medicare and social security taxes. The latter were created to make the actual income tax rate more palatable. I'd recommend getting your taxes done as early as possible come 1 January 2017. While you may not have all the needed info, you could firm up an estimate by 15 Jan and modify the amount for your last estimated payment. Complete the taxes when all stuff comes in and even if you owe an amount you have time to save for anything additional. Keep in mind, between 1 Jan 17 and 15 Apr 17 you will earn and presumably save money to use towards taxes. You can always \"\"rob\"\" from that money to pay any owed tax for 2016 and make it up later. All that is to say you will be golden because you are showing concern and planning. When you hear horror stories of IRS dealings it is most often that people spent the money that should have been sent to the IRS.\"","Is that basically it? Trading off between withdrawing-anytime vs paying-capital-gain-tax? No. Another significant factor is dividends. In an IRA they incur no immediate tax and can be reinvested. This causes the account value to compound over the years. Historically, this compounding of dividends provides about half of the total return on investments. In a non-IRA account you have to pay taxes each year on all dividends received, whether you reinvest them or not. So outside of an IRA you have a tax drag on both capital gains and dividends.","Edited in response to JoeTaxpayer's comment and OP Tim's additional question. To add to and clarify a little what littleadv has said, and to answer OP Tim's next question: As far as the IRS is concerned, you have at most one Individual Retirement Account of each type (Traditional, Roth) though the money in each IRA can be invested with as many different custodians (brokerages, banks, etc.) and different investments as you like. Thus, the maximum $5000 ($6000 for older folks) that you can contribute each year can be split up and invested any which way you like, and when in later years you take a Required Minimum Distribution (RMD) from a Traditional IRA, you can get the money by selling just one of the investments, or from several investments; all that the IRS cares is that the total amount that is distributed to you is at least as large as the RMD. An important corollary is that the balance in your IRA is the sum total of the value of all the investments that various custodians are holding for you in IRA accounts. There is no loss in an IRA until every penny has been withdrawn from every investment in your IRA and distributed to you, thus making your IRA balance zero. As long as you have a positive balance, there is no loss: everything has to come out. After the last distribution from your Roth IRA (the one that empties your entire Roth IRA, no matter where it is invested and reduces your Roth IRA balance (see definition above) to zero), total up all the amounts that you have received as distributions from your Roth IRA. If this is less than the total amount of money you contributed to your Roth IRA (this includes rollovers from a Traditional IRA or Roth 401k etc., but not the earnings within the Roth IRA that you re-invested inside the Roth IRA), you have a loss that can be deducted on Schedule A as a Miscellaneous Deduction subject to the 2% AGI limit. This 2% is not a cap (in the sense that no more than 2% of your AGI can be deducted in this category) but rather a threshold: you can only deduct whatever part of your total Miscellaneous Deductions exceeds 2% of your AGI. Not many people have Miscellaneous Deductions whose total exceeds 2% of their AGI, and so they end up not being able to deduct anything in this category. If you ever made nondeductible contributions to your Traditional IRA because you were ineligible to make a deductible contribution (income too high, pension plan coverage at work etc), then the sum of all these contributions is your basis in your Traditional IRA. Note that your deductible contributions, if any, are not part of the basis. The above rules apply to your basis in your Traditional IRA as well. After the last distribution from your Traditional IRA (the one that empties all your Traditional IRA accounts and reduces your Traditional IRA balance to zero), total up all the distributions that you received (don't forget to include the nontaxable part of each distribution that represents a return of the basis). If the sum total is less than your basis, you have a loss that can be deducted on Schedule A as a Miscellaneous Deduction subject to the 2% AGI threshold. You can only deposit cash into an IRA and take a distribution in cash from an IRA. Now, as JoeTaxpayer points out, if your IRA owns stock, you can take a distribution by having the shares transferred from your IRA account in your brokerage to your personal account in the brokerage. However, the amount of the distribution, as reported by the brokerage to the IRS, is the value of the shares transferred as of the time of the transfer, (more generally the fair market value of the property that is transferred out of the IRA) and this is the amount you report on your income tax return. Any capital gain or loss on those shares remains inside the IRA because your basis (in your personal account) in the shares that came out of the IRA is the amount of the distribution. If you sell these shares at a later date, you will have a (taxable) gain or loss depending on whether you sold the shares for more or less than your basis. In effect, the share transfer transaction is as if you sold the shares in the IRA, took the proceeds as a cash distribution and immediately bought the same shares in your personal account, but you saved the transaction fees for the sale and the purchase and avoided paying the difference between the buying and selling price of the shares as well as any changes in these in the microseconds that would have elapsed between the execution of the sell-shares-in-Tim's-IRA-account, distribute-cash-to-Tim, and buy-shares-in-Tim's-personal account transactions. Of course, your broker will likely charge a fee for transferring ownership of the shares from your IRA to you. But the important point is that any capital gain or loss within the IRA cannot be used to offset a gain or loss in your taxable accounts. What happens inside the IRA stays inside the IRA.","\"There's currently not much reason to keep around a long-term non-deductible Traditional IRA in my opinion -- a Roth IRA is almost strictly better. Think about it: a non-deductible Traditional IRA vs. a Roth IRA of the same amount. In both cases, contributions are after-tax (so no tax deduction). But when you withdraw, for the Roth IRA you don't have to pay tax, and for the non-deductible Traditional IRA, you have to pay tax on the \"\"earnings\"\". A Roth IRA can be contributed to at pretty much any income level, thanks to the backdoor Roth IRA process (which uses a temporary non-deductible Traditional IRA in the process). So there is not much reason for a long-term non-deductible Traditional IRA. As for your question, a non-deductible Traditional IRA vs. a taxable account. Well, a non-deductible Traditional IRA is contributed to with after-tax money, and taxed on the earnings only on withdrawal. So the taxation is almost identical to things like stocks and homes, where the gain is not realized until the thing is sold. However, compared to things like savings accounts and bonds, where you get taxed on the interest yearly, it is much better. Every time you get taxed on gains like this, it is taxing gains earned from after-tax money, so if you think of an amount of money as being equivalent to the amount of money it grows to over time (time value of money), then it is taxing money that is (or grown from money that is) already taxed. So it is better to have this only happen at the end at withdrawal than every year.\"","Excise tax on the excess contribution is 6% a year on the amount of the contribution. In addition, gains will be taxable to you. By adding 20K over the limit, you added $1200 to your tax bill. Withdraw it ASAP. Whatever investment you have in your IRA - you can probably buy it (or a comparable) outside of the IRA.","The advantage of an IRA (or 401k) is you get taxed effectively one time on your income, whereas you get taxed effectively multiple times on some of the money in a taxable account. You have to consider it from the perspective of time value of money -- the concept that an amount of money now is the same value as a greater amount of money in the future. And in fact, if you put your money in an investment, the principal at the start can be considered the same value as the principal + earnings at the end. In both Traditional and Roth IRA, you pay taxes on the entire value of money once (remember that the principal when depositing is the same value as the principal + earnings when withdrawing). The only difference is when (year deposited or year withdrawn), so the main difference between the two is the tax rate when depositing vs. tax rate when withdrawing. I'll give you an example to demonstrate. We will assume you invest $1000 of pre-tax wages, it grows at 5% per year, there's a 25% flat tax now and in the future, you withdraw it after 20 years, and withdrawals are not subject to any penalty.","\"For example, if I have an income of $100,000 from my job and I also realize a $350,000 in long-term capital gains from a stock sale, will I pay 20% on the $350K or 15%? You'll pay 20% assuming filing single and no major offsets to taxable income. Capital gains count towards your income for determining tax bracket. They're on line 13 of the 1040 which is in the \"\"income\"\" section and aren't adjusted out/excluded from your taxable income, but since they are taxed at a different rate make sure to follow the instructions for line 44 when calculating your tax due.\"","Some of the expenses you describe may be eligible to be paid off by a 401(k) without incurring a penalty. As long as you do not mind paying tax on the extra income. If your tax bracket does not go up, then using your IRA may not be a bad idea. You should consult a tax expert and see which expenses can qualify for a withdrawal without penalty. I believe medical bills and medical insurance costs are eligible to be withdrawn without penalty in some instances.","You can't say I'm wrong and then go on to explain why exactly what I said is correct. :) You (and I) are in complete agreement that there's no LTCG on either Roth *or* Traditional 401ks, because you pay both as straight income - The former up front, the latter when you withdraw it. My point was that, for virtually everyone, their regular income tax rate is **higher** than their LTCG rate.","All of your 401k income is taxable and no more than 85% of your SS income. You can use the worksheets in IRS: Publication 915 to determine what percentage of your SS is taxable. Just as with ordinary income, deductions/exemptions apply and not all that is taxable will be taxed. When you begin drawing SS you'll have the option to have taxes withheld at various rates, more convenient than quarterly estimated payments in my opinion.","\"Basically, the idea of an IRA is that the money is earned by you and would normally be taxed at the individual rate, but the government is allowing you to avoid paying the taxes on it now by instead putting it in the account. This \"\"tax deferral\"\" encourages retirement savings by reducing your current taxable income (providing a short-term \"\"carrot\"\"). However, the government will want their cut; specifically, when you begin withdrawing from that account, the principal which wasn't taxed when you put it in will be taxed at the current individual rate when you take it out. When you think about it, that's only fair; you didn't pay taxes on it when it came out of your paycheck, so you should pay that tax once you're withdrawing it to live on. Here's the rub; the interest is also taxed at the individual rate. At the time, that was a good thing; the capital gains rate in 1976 (when the Regular IRA was established) was 35%, the highest it's ever been. Now, that's not looking so good because the current cap gains rate is only 15%. However, these rates rise and fall, cap gains more than individual rates, and so by contributing to a Traditional IRA you simplify your tax bill; the principal and interest is taxed at the individual rate as if you were still making a paycheck. A Roth IRA is basically the government trying to get money now by giving up money later. You pay the marginal individual rate on the contributions as you earn them (it becomes a \"\"post-tax deduction\"\") but then that money is completely yours, and the kicker is that the government won't tax the interest on it if you don't withdraw it before retirement age. This makes Roths very attractive to retirement investors as a hedge against higher overall tax rates later in life. If you think that, for any reason, you'll be paying more taxes in 30 years than you would be paying for the same money now, you should be investing in a Roth. A normal (non-IRA) investment account, at first, seems to be the worst of both worlds; you pay individual tax on all earned wages that you invest, then capital gains on the money your investment earns (stock gains and dividends, bond interest, etc) whenever you cash out. However, a traditional account has the most flexibility; you can keep your money in and take your money out on a timeline you choose. This means you can react both to market moves AND to tax changes; when a conservative administration slashes tax rates on capital gains, you can cash out, pay that low rate on the money you made from your account, and then the money's yours to spend or to reinvest. You can, if you're market- and tax-savvy, use all three of these instruments to your overall advantage. When tax rates are high now, contribute to a traditional IRA, and then withdraw the money during your retirement in times where individual tax rates are low. When tax rates are low (like right now), max out your Roth contributions, and use that money after retirement when tax rates are high. Use a regular investment account as an overage to Roth contributions when taxes are low; contribute when the individual rate is low, then capitalize and reinvest during times when capital gains taxes are low (perhaps replacing a paycheck deduction in annual contributions to a Roth, or you can simply fold it back into the investment account). This isn't as good as a Roth but is better than a Traditional; by capitalizing at an advantageous time, you turn interest earned into principal invested and pay a low tax on it at that time to avoid a higher tax later. However, the market and the tax structure have to coincide to make ordinary investing pay off; you may have bought in in the early 90s, taking advantage of the lowest individual rates since the Great Depression. While now, capital gains taxes are the lowest they've ever been, if you cash out you may not be realizing much of a gain in the first place.\"","The alternative isn't too bad. Invest in a regular account. The dividends and cap gains will see favorable tax treatment. In my opinion, much of the magic of the retirement account is with 401(k) matched deposits. The benefit you'll miss is the long term opportunity to skim income off the top, at say, 25%, have it grow, and then withdraw it at a much lower average tax rate. If that benefit doesn't outweigh the fear of the 10%, stick with my first thought above.","One additional note related to Roth vs regular: for a regular 401k or IRA, you pay the 10% penalty on any withdrawal. For a Roth, you can withdraw the contributions early (but not the earnings) without any penalty or tax. Of course, if this is a retirement account it's better to leave it that way. Personally it's one reason I avoid Roth - in addition to probably being in a higher bracket now, I also would prefer not to be able to touch my money. But for some there could be advantages in having that ability (such as in an emergency).","\"The answer to your first question is true. No tax on withdrawls. Under these circumstances, the withdrawl is \"\"qualified\"\". To your second question, as long as the withdrawl is qualified, it is not taxed, regardless of your additional income. http://www.investopedia.com/articles/retirement/03/030403.asp?lgl=rira-baseline-vertical has a very comprehensive, plain English, description of the IRS rules (as of today, anyway).\"","As littleadv suggested, you are mixing issues. If you have earned income and are able to deduct an IRA deposit, where those actual dollars came from is irrelevant. The fact that you are taking proceeds from one transaction to deposit to the IRA is a booking entry on your side, but the IRS doesn't care. By the way, when you get that $1000 gain, the broker doesn't withhold tax, so if you take the entire $1000 and put it in the IRA, you owe $150 on one line, but save $250 elsewhere, and are still $100 to the positive on your tax return.","\"I think the math is wrong. Note that in Scenario #1, you are only out of pocket $1000, while in Scenario #2, you are out of pocket $1250; the contribution and the tax you paid with respect to it. A better concept than tax rate is \"\"Retention Rate\"\". This is the fraction of your money that the Feds let you keep. And Growth Factor is the how much the investment grows. So In Scenario #1, you multiply $1000 by the investment Growth Factor and then by the retirement Retention Rate. And in Scenario #2, you multiply the same $1000 by the current Retention Rate and then by the Growth Factor. Since in your approximation, the two GFs are the same, there is no saving...\"","\"I wrote a brilliant guest post at Don't Mess With Taxes, titled Roth IRAs and Your Retirement Income. (Note - this article now reflects 2012 rates. Just updated) Simply put, it's an ongoing question of whether your taxes will be higher now than at any point in the future. If you are in the 25% bracket now, it would take quite of bit of money for your withdrawals to put you in that bracket at retirement. In the case of the IRA, you have the opportunity to convert in any year between now and retirement if your rate that year drops for whatever reason. The simplest case is if you are now in the 25% bracket. I say go pre-tax, and track, year by year what your withdrawal would be if you retired today. At 15%, but with a good chance for promotion to the 25% bracket, start with Roth flavor and then as you hit 25%, use a combination. This approach would smooth your marginal rate to stay at 15%. To give you a start to this puzzle, in 2012, a couple has a $11,900 standard deduction along with 2 exemptions of $3800 each. This means the first $19,500 in an IRA comes out tax free at retirement. If you believe in a 4% withdrawal rate, you need a retirement account containing $500K pretax to generate this much money. This tick up with inflation, 2 years ago, it was $18,700 and $467K respectively. This is why those who scream \"\"taxes will go up\"\" may be correct, but do you really believe the standard deduction and exemptions will go away? Edit - and as time passes, and I learn more, new info comes to my attention. The above thoughts not withstanding, there's an issue of taxation of Social Security benefits. This creates a The Phantom Tax Rate Zone which I recently wrote about. A single person with not really too high an income gets thrust into the 46% bracket. Not a typo, 46.25% to be exact.\"","Don't forget inflation. With a Roth 401k (or IRA), you don't pay any taxes on inflationary or real gains. You pay taxes at the beginning and then no more taxes (unless you invest money after you distributed from it). With a regular, taxable investment account (not a 401k or IRA), you pay taxes on the initial amount. And then you pay taxes on the gains, both inflationary and real. So you effectively pay taxes on the inflated principal twice. Once at initial earning and once when it shows up as inflationary gains. I'll give an example later. With a traditional 401k (or IRA), you pay no taxes on the initial amount. You pay taxes on the distributed amount. That includes taxes on gains, but it only taxes them once, not twice. All the taxes are paid at distribution time. Here's a semirealistic example. This is not a real example with real numbers, but the numbers shouldn't be ridiculously off. They could happen. I'm going to ignore variation and pretend that all the numbers will be the same each year so as to simplify the math. So you pay a 25% marginal tax rate and want to invest $12,000 plus any tax savings. Roth: $12,000 principal Traditional IRA (Trad): $16,000 principal with $4000 in tax savings Taxable Investment Account (TIA): $12,000 principal Let's assume that you make an 8% rate of return and inflation is 3%. Both numbers are possible, although higher and lower numbers have occurred in the past. That gives you returns of $960 for the Roth and TIA cases and a return of $1280 for the Trad case. Pay no annual taxes on the Roth or Trad cases. Pay 25% marginal tax on the TIA case, that's $240. Balances after one year: Roth: $12,960 Trad: $17,280 TIA: $12,720 Inflation decreases the value of the Roth and TIA cases by $360 in the Roth and TIA cases. And by $480 in the Trad case. Ten years of inflationary gains (cumulative): Roth: $5354 Trad: $7138 TIA: $4872 Net buildup (including inflationary gains): Roth: $25,907 Trad: $34,543 TIA: $23,168 Real value (minus inflation to maintain spending power): Roth: $20,554 Trad: $27,405 TIA: $18,109 Now take out $3000 per year, after taxes. That's $3000 in the the Roth and TIA cases, as you already paid the taxes. In the Trad case, that's $4000 because you have to pay 25% tax which will cost $1000. Do that for five years and the new balances are Roth: $9931 Trad: $13,241 TIA: $5973 The TIA will run out in the 8th year. The Roth and Trad will both run out in the 9th year. So to summarize. The Traditional IRA initially grows the most. The TIA grows the least. The TIA is tax-advantaged over the Traditional IRA at that point, but it still runs out first. The Roth IRA grows about the same as the Traditional after taxes are included. Note that I left out the matching contribution from a 401k. That would help both those options. I assumed that the marginal tax rate would be 25% on the Traditional IRA distributions. It might be only 15%, which would increase the advantage of the Traditional IRA. I assumed that the 15% rate on capital returns would still be true for the entire period. If that is increased, the TIA option gets a lot worse. Inflation could be higher or lower. As stated earlier, the TIA account is hit the worst by inflation.","Without more information about what tax bracket you are in, I cannot make a recommendation about what your best option is, but here are a few things to consider:","\"IRA contribution must be from your earned income in the sense that you cannot contribute to IRA more than you have in earned income. If all your income is capital gains - you cannot contribute anything to IRA. Once you're within the income limit restriction, it doesn't matter what other money you have, because as you said - once in your account, its all just money. But what you're describing is basically \"\"I deposit $850 from my salary into an IRA and then go pay for my gas with the $850 I have from the capital gains\"\", so you're not paying any less taxes here. If it makes you feel any better, you can describe it to yourself the way you did. It doesn't really matter.\"","The advantage of a Traditional IRA is: tax deduction today. The advantage of a Roth IRA: no tax on withdrawal. Both types are tax-deferred, and have no bearing on the question.","\"You have a sequence of questions here, so a sequence of answers: If you stopped at the point where you had multiple wins with a net profit of $72, then you would pay regular income tax on that $72. It's a short term capital gain, which does not get special tax treatment, and the fact that you made it on multiple transactions does not matter. When you enter your next transaction that takes the hypothetical loss the question gets more complicated. In either case, you are paying a percentage on net gains. If you took a two year view in the second case and you don't have anything to offset your loss in the second year, then I guess you could say that you paid more tax than you won in the total sequence of trades over the two years. Although you picked a sequence of trades where it does not appear to play, if you're going to pursue this type of strategy then you are likely at some point to run into a case where the \"\"wash sale\"\" rules apply, so you should be aware of that. You can find information on this elsewhere on this site and also, for example, here: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02 Basically these rules require you to defer recording a loss under some circumstances where you have rapid wins and losses on \"\"substantially identical\"\" securities. EDIT A slight correction, you can take part of your losses in the second year even if you have no off-setting gain. From the IRS: If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately)\"","\"You ask about \"\"traditional IRA VS taxable (non-retirement) investment account.\"\" You already know about tax deductible IRAs, which are similar, mostly, to your 401(k). A Traditional IRA can have a non-deducted component. In a sense, it then functions similar to the fully pre-tax IRA as it grows tax free, but then withdrawals are made and taxes paid on the pro-rated not-yet-taxed money. It also offers the simple conversion to a Roth IRA. For those who have no current IRA with pre-tax money, a conversion will be tax free, for those with an existing pretax IRA, conversions are prorated for tax due, if the account had say $10,000, and $5,000 was post-tax, any conversion will have half taxed at your marginal rate.\"","There is a shortcut you can use when calculating federal estimated taxes. Some states may allow the same type of estimation, but I know at least one (my own--Illinois) that does not. The shortcut: you can completely base your estimated taxes for this year on last year's tax return and avoid any underpayment penalty. A quick summary can be found here (emphasis mine): If your prior year Adjusted Gross Income was $150,000 or less, then you can avoid a penalty if you pay either 90 percent of this year's income tax liability or 100 percent of your income tax liability from last year (dividing what you paid last year into four quarterly payments). This rule helps if you have a big spike in income one year, say, because you sell an investment for a huge gain or win the lottery. If wage withholding for the year equals the amount of tax you owed in the previous year, then you wouldn't need to pay estimated taxes, no matter how much extra tax you owe on your windfall. Note that this does not mean you will not owe money when you file your return next April; this shortcut ensures that you pay at least the minimum allowed to avoid penalty. You can see this for yourself by filling out the worksheet on form 1040ES. Line 14a is what your expected tax this year will be, based on your estimated income. Line 14b is your total tax from last year, possibly with some other modifications. Line 14c then asks you to take the lesser of the two numbers. So even if your expected tax this year is one million dollars, you can still base your estimated payments on last year's tax.","You will not necessarily incur a penalty. You can potentially use the Annualized Income Installment method, which allows you to compute the tax due for each quarter based on income actually earned up to that point in the year. See Publication 505, in particular Worksheet 2-9. Form 2210 is also relevant as that is the form you will use when actually calculating whether you owe a penalty after the year is over. On my reading of Form 2210, if you had literally zero income during the first quarter, you won't be expected to make an estimated tax payment for that quarter (as long as you properly follow the Annualized Income Installment method for future quarters). However, you should go through the calculations yourself to see what the situation is with your actual numbers.","The earnings portion will be taxed at your marginal tax rate + 10% penalty. If the total is $100, then the earnings portion is probably not very significant for this to be a concern. But it's something you could put into a Roth IRA and let it compound with the rest of your retirement savings. Depending on your age, the compounding effect of $100 invested early enough tax free can be thousands of dollars at retirement. i.e. You have 60 days to deposit it into a Roth IRA. Don't let that pass you by.","\"IRA distributions are reported on line 15b on the standard form 1040. That is in the same Income section as most of your other income (including that 1099 income and W2 income, etc.). Its income is included in the Line 22 \"\"Total Income\"\", from which the Personal Exemption (calculated on 6d, subtracted from the total in line 42) and the Standard Deduction (line 40 - also Itemized Deduction total would be here) are later reduced to arrive at Line 43, \"\"Taxable Income\"\". As such, yes, he might owe only the 10% penalty (which is reported on line 59, and you do not reduce this by the deductions, as you surmised).\"","Using the default values for age and retirement and only making the changes you specified in the question. assumed ROR: 6%, current tax rate: 25%, retirement tax rate: 15%, married, have an employer retirement plan. The results from the two calculators are: Traditional IRA: 631,341 IRA before taxes 536,640 IRA after taxes. Roth IRA: 631,341 Roth IRA 450,207 Taxable Savings where: Total taxable savings The total amount you would have accumulated by retirement in a taxable savings account. your question: The (Traditional) IRA After Taxes value is 6.3% higher than the (Roth) Taxable Savings amount. (Both had an equal gross amount.) Does that mean I should put my money in a tIRA instead of a Roth? My percentages don't match your percentages because you didn't specify the numbers you used. In any case the 450K number shows you what you would have if the money was not invested in an IRA or 401K. To decide between a Roth and a traditional IRA ignore the taxable savings number, that only shows what happens if you decide not not use a retirement account.","\"Long term: Assuming you sold stock ABC through a registered stock exchange, e.g., the Bombay Stock Exchange or the National Stock Exchange of India, and you paid the Securities Transaction Tax (STT), you don't owe any other taxes on the long term capital gain of INR 100. If you buy stock BCD afterwards, this doesn't affect the long term capital gains from the sale of stock ABC. Short term: If you sell the BCD stock (or the ABC stock, or some combination therein) within one year of its purchase, you're required to pay short term capital gains on the net profit, in which case you pay the STT and the exchange fees and an additional flat rate of 15%. The Income Tax Department of India has a publication titled \"\"How to Compute your Capital Gains,\"\" which goes into more detail about a variety of relevant situations.\"","\"Investopedia probably should change the wording to \"\"tax free\"\" since all of the gains in a Roth IRA can be withdrawn without any additional taxes at retirement time. Tax deferred should only refer to the gains in a traditional IRA. \"\"Tax advantaged\"\" might be a reasonable term to use in both cases.\"","If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.","\"Here are the few scenarios that may be worth noting in terms of using different types of accounts: Traditional IRA. In this case, the monies would grow tax-deferred and all monies coming out will be taxed as ordinary income. Think of it as everything is in one big black box and the whole thing is coming out to be taxed. Roth IRA. In this case, you could withdraw the contributions anytime without penalty. (Source should one want it for further research.) Past 59.5, the withdrawals are tax-free in my understanding. Thus, one could access some monies earlier than retirement age if one considers all the contributions that are at least 5 years old. Taxable account. In this case, each year there will be distributions to pay taxes as well as anytime one sells shares as that will trigger capital gains. In this case, taxes are worth noting as depending on the index fund one may have various taxes to consider. For example, a bond index fund may have some interest that would be taxed that the IRA could shelter to some extent. While index funds can be a low-cost option, in some cases there may be capital gains each year to keep up with the index. For example, small-cap indices and value indices would have stocks that may \"\"outgrow\"\" the index by either becoming mid-cap or large-cap in the case of small-cap or the value stock's valuation rises enough that it becomes a growth stock that is pulled out of the index. This is why some people may prefer to use tax-advantaged accounts for those funds that may not be as tax-efficient. The Bogleheads have an article on various accounts that can also be useful as dg99's comment referenced. Disclosure: I'm not an accountant or work for the IRS.\"","Some more considerations: (1) Tax rates (both ordinary and capital gains) are likely to be different when you retire. (2) Your marginal tax rate may be different when you retire depending on how much income you have at the time. In retirement your income may be structured completely differently than when you are working. For example, you may also have a Roth IRA/401K to pull from.","He has included this on Schedule D line 1a, but I don't see any details on the actual transaction. It is reported on form 8949. However, if it is fully reported in 1099-B (with cost basis), then you don't have to actually detail every position. Turbotax asked me to fill in individual stock sales with proceeds and cost basis information. ... Again, it seems to be documented on Schedule D in boxes 1a and 8a. See above. I received a 1099-Q for a 529 distribution for a family member. It was used for qualified expenses, so should not be taxable. Then there's nothing to report. I believe I paid the correct amounts based on my (possibly flawed) understanding of estimated taxes. His initial draft had me paying a penalty. I explained my situation for the year, and his next draft had the penalties removed, with no documentation or explanation. IRS assesses the penalty. If you volunteer to pay the penalty, you can calculate it yourself and pay with the taxes due. Otherwise - leave it to the IRS to calculate and assess the penalty they deem right and send you a bill. You can then argue with the IRS about that assessment. Many times they don't even bother, if the amounts are small, so I'd suggest going with what the CPA did.","how is it double taxation when you didn't start off with that extra $100? it's double taxation if they taxed you on the total amount you pulled out of the market, not the profit you made. explain the math on your last part, please.","Your annual contributions are capped at the maximum of $5500 or your taxable income (wages, salary, tips, self employment income, alimony). You pay taxes by the regular calculations on Form 1040 on your earned income. In this scenario, you earn the income, pay taxes on the amount you earn, and put money in the Roth IRA. The alternative, a Traditional IRA, up to certain income levels, allows you to put the amount you contribute on line 32 of Form 1040, which subtracts the Traditional IRA contribution amount from your Adjusted Gross Income (line 37) before tax is calculated on line 44. In this scenario, you earn the income, put the money in the Traditional IRA, reduce your taxable income, and pay taxes on the reduced amount.","Well, whats the source of income from? Social security? Dividends? At 40k that's the good thing about a progressive tax, you wouldn't be taxed heavily. Even 40k of capital gains, which lets be honest is mostly high income individuals, is barely taxed at a higher level than that 40,000k from a fixed income source. Again, that's the gain (aka profit) one is receiving from selling shares of a company."],"string":"[\n \"\\\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed at 25%, plus a 10% penalty, for 35% total. Thus the bite on the IRA withdrawal is larger than that on a non-IRA withdrawal. As for the estimated tax issue, I don't think there will be a significant difference there. The reason is that (traditional) IRA withdrawals count as ordinary taxable income (see here). This means that, when you withdraw the funds from your IRA, you will increase your income. If that increase pushes you too far beyond what your withholding is accounting for, then you owe estimated tax. In other words, whether you get the money by selling stocks in a taxable account or by withdrawing them from an IRA, you still increase your taxable income, and thus potentially expose yourself to the estimated tax obligation. (In fact, there may be a difference. As you note, you will pay tax at the capital gains rate on gains from selling in a taxable account. But if you sell the stocks inside the IRA and withdraw, that is ordinary income. However, since ordinary income is taxed at a higher rate than long-term capital gains, you will potentially pay more tax on the IRA withdrawal, since it will be taxed at the higher rate, if your gains are long-term rather than short term. This is doubly true if you withdraw early, incurring the extra 10% penalty. See this question for some more discussion of this issue.) In addition, I think you may be somewhat misunderstanding the nature of estimated tax. The IRS will not \\\"\\\"ask\\\"\\\" you for a quarterly estimated tax when you sell stock. The IRS does not monitor your activity and send you a bill each quarter. They may indeed check whether your reported income jibes with info they received from your bank, etc., but they'll still do that regardless of whether you got that income by selling in a taxable account or withdrawing money from an IRA, because both of those increase your taxable income. Quarterly estimated tax is not an extra tax; it is just you paying your normal income tax over the course of the year instead of all at once. If your withholdings will not cover enough of your tax liability, you must figure that out yourself and pay the estimated tax (see here); if you don't do so, you may be assessed a penalty. It doesn't matter how you got the money; if your taxable income is too high relative to your withheld tax, then you have to pay the estimated tax. Typically tax will be withheld from your IRA distribution, but if it's not withheld, you'll still owe it as estimated tax.\\\"\",\n \"\\\"Bottom line is this: there's no \\\"\\\"short term capital gains tax\\\"\\\" in the US. There's only long term capital gains tax, which is lower than the regular (aka ordinary) tax rates. Short term capital gains are taxed using the ordinary tax rates, depending on your bracket. So if you're in the 25% bracket - your short term gains are taxed at 25%. You're describing two options: For the case #1 you'll pay 25% tax (your marginal rate) + 10% penalty (flat rate), total 35%. For the case #2 you'll pay 25% tax (your marginal rate) + 0% penalty. Total 25%. Thus, by withdrawing from IRA you'll be 10% worse than by realizing capital gains. In addition, if you need $10K - taking it from IRA will make the whole amount taxable. While realizing capital gains from a taxable account will make only the gains taxable, the original investment amount is yours and had been taxed before. So not only there's a 10% difference in the tax rate, there's also a significant difference in the amount being taxed. Thus, withdrawing from IRA is generally not a good idea, and you will never be better off with withdrawing from IRA than with cashing out taxable investments (from tax perspective). That's by design.\\\"\",\n \"First you need to distinguish between short-term and long-term capital gains. In an IRA you can use investment strategies that incur short-term capital gains without being taxed as ordinary income. As mentioned in a comment above, with a Roth IRA, you can invest now at your low income tax rates and withdraw all gains without incurring any taxes at retirement time. You can also pull out your contributions penalty free before retirement age (59 1/2) if you've had the account for more than 5 years. You only pay taxes and penalties on the earnings. You can also make withdrawals for education expenses and you have one lifetime exclusion of $10,000 for a down-payment on a house.\",\n \"I assume US as mhoran_psprep edited, although I'm not sure IRS necessarily means US. (It definitely used to also include Britain's Inland Revenue, but they changed.) (US) Stockbrokers do not normally withhold on either dividends/interest/distributions or realized capital gains, especially since gains might be reduced or eliminated by later losses. (They can be required to apply backup withholding to dividends and interest; don't ask how I know :-) You are normally required to pay most of your tax during the year, defined as within 10% or $1000 whichever is more, by withholding and/or estimated payments. Thus if the tax on your income including your recent gain will exceed your withholding by 10% and $1000, you should either adjust your withholding or make an estimated payment or some combination, although even if you have a job the last week of December is too late for you to adjust withholding significantly, or even to make a timely estimated payment if 'earlier in the year' means in an earlier quarter as defined for tax (Jan-Mar, Apr-May, June-Aug, Sept-Dec). See https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes and for details its link to Publication 505. But a 'safe harbor' may apply since you say this is your first time to have capital gains. If you did not owe any income tax for last year (and were a citizen or resident), or (except very high earners) if you did owe tax and your withholding plus estimated payments this year is enough to pay last year's tax, you are exempt from the Form 2210 penalty and you have until the filing deadline (normally April 15 but this year April 18 due to weekend and holiday) to pay. The latter is likely if your job and therefore payroll income and withholding this year was the same or nearly the same as last year and there was no other big change other than the new capital gain. Also note that gains on investments held more than one year are classified as long-term and taxed at lower rates, which reduces the tax you will owe (all else equal) and thus the payments you need to make. But your wording 'bought and sold ... earlier this year' suggests your holding was not long-term, and short-term gains are taxed as 'ordinary' income. Added: if the state you live in has a state income tax similar considerations apply but to smaller amounts. TTBOMK all states tax capital gains (and other investment income, other than interest on exempt bonds), and don't necessarily give the lower rates for long-term gains. And all states I have lived in have 'must have withholding or estimated payments' rules generally similar to the Federal ones, though not identical.\",\n \"In general, you are expected to pay all the money you owe in taxes by the end of the tax year, or you may have to pay a penalty. But you don't have to pay a penalty if: The amount you owe (i.e. total tax due minus what you paid in withholding and estimated taxes) is less than $1000. You paid at least 90% of your total tax bill. You paid at least 100% of last year's tax bill. https://www.irs.gov/taxtopics/tc306.html I think point #3 may work for you here. Suppose that last year your total tax liability was, say, $5,000. This year your tax on your regular income would be $5,500, but you have this additional capital gain that brings your total tax to $6,500. If your withholding was $5,000 -- the amount you owed last year -- than you'll owe the difference, $1,500, but you won't have to pay any penalties. If you normally get a refund every year, even a small one, then you should be fine. I'd check the numbers to be sure, of course. If you normally have to pay something every April 15, or if your income and therefore your withholding went down this year for whatever reason, then you should make an estimated payment. The IRS has a page explaining the rules in more detail: https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc\",\n \"It would be fairer to the average person if we paid our normal tax rate on the amount we contributed to the IRA and paid at the capital gains rate for the difference. The same as people that invest outside of the IRA. Most IRAs aren't that large and most people are going to have a rough time living on the reduced social security. It seems like we are taxing the average Joe at a higher rate than the rich.\",\n \"\\\"In a Traditional IRA contributions are often tax-deductible. For instance, if a taxpayer contributes $4,000 to a traditional IRA and is in the twenty-five percent marginal tax bracket, then a $1,000 benefit ($1,000 reduced tax liability) will be realized for the year. So that's why they tax you as income, because they didn't tax that income before. If a taxpayer expects to be in a lower tax bracket in retirement than during the working years, then this is one advantage for using a Traditional IRA vs a Roth. Distributions are taxed as ordinary income. So it depends on your tax bracket UPDATE FOR COMMENT: Currently you may have heard on the news about \\\"\\\"the fiscal cliff\\\"\\\" - CNBC at the end of the year. This is due to the fact that the Bush tax-cuts are set to expire and if they expire. Many tax rates will change. But here is the info as of right now: Dividends: From 2003 to 2007, qualified dividends were taxed at 15% or 5% depending on the individual's ordinary income tax bracket, and from 2008 to 2012, the tax rate on qualified dividends was reduced to 0% for taxpayers in the 10% and 15% ordinary income tax brackets. After 2012, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket. - If the Bush tax cuts are allowed to expire. - Reference - Wikipedia Capital Gains tax rates can be seen here - the Capital Gains tax rate is relative to your Ordinary Income tax rate For Example: this year long term gains will be 0% if you fall in the 15% ordinary tax bracket. NOTE: These rates can change every year so any future rates might be different from the current year.\\\"\",\n \"There are a few incorrect assumptions in your question but the TL;DR version is: All, or most, of the withdrawal is taxable income that is reported on Lines 15a (total distribution) and 15b (taxable amount) of Form 1040. None of the distribution is given special treatment as Qualified Dividends or Capital Gains regardless of what happened inside the IRA, and none of the distribution is subject to the 3.8% Net Investment Income Tax that some high-income people need to compute on Form 8960. If the withdrawal is not a Qualified Distribution, it will be subject to a 10% excise tax (tax penalty on premature withdrawal). Not all contributions to Traditional IRAs are deductible from income for the year for which the contribution was made. People with high income and/or coverage by a workplace retirement plan (pension plan, 401(k) plan, 403(b) plan, etc) cannot deduct any contributions that they choose to make to a Traditional IRA. Such people can always make a contribution (subject to them having compensation (earned income such as salary or wages, self-employment income, commissions on sales, etc), but they don't get a tax deduction for it (just as contributions to Roth IRAs are not deductible). Whether it is wise to make such nondeductible contributions to a Traditional IRA is a question on which reasonable people can hold different opinions. Be that as it may, nondeductible contributions to a Traditional IRA create (or add to) what is called the basis of an IRA. They are reported to the IRS on Form 8606 which is attached to the Federal Form 1040. Note that the IRA custodian or trustee is not told that the contributions are not deductible. Earnings on the basis accumulate tax-deferred within the IRA just as do the earnings on the deductible contributions. Now, when you make a withdrawal from your Traditional IRA, no matter which of your various IRA accounts you take the money from, part of the money is deemed to be taken from the basis (and is not subject to income tax) while the rest is pure taxable income. That is, none of the rest is eligible for the reduced taxation rates for Qualified Dividends or Capital Gains and since it does not count as investment income, it is not subject to the 3.8% Net Investment Tax of Form 8960 either. Computation of how much of your withdrawal is nontaxable basis and how much is taxable income is done on Form 8606. Note that you don't get to withdraw your entire basis until such time as when you close all your Traditional IRA accounts. How is all this reported? Well, your IRA custodian(s) will send you Form 1099-R reporting the total amount of the withdrawal, what income tax, if any, was withheld, etc. The custodian(s) don't know what your basis is, and so Box 2b will say that the taxable amount is not determined. You need to fill out Form 8606 to figure out what the taxable amount is, and then report the taxable amount on Line 15b of Form 1040. (The total withdrawal is reported on Line 15a which is not included in the AGI computations). Note that as far as the IRS is concerned, you have only one Traditional IRA. The A in IRA stands for Arrangement, not Account as most everybody thinks, and your Traditional IRA can invest in many different things, stocks, bonds, mutual funds, etc with different custodians if you choose, but your basis is in the IRA, not the specific investment that you made with your nondeductible contribution. That's why the total IRA contribution is limited, not the per-account contribution, and why you need to look that the total value of your IRA in determining the taxable portion, not the specific account(s) from which you withdrew the money. So, how much basis did you withdraw? Well, if you withdrew $W during 2016 and the total value of all your Traditional IRA accounts was $X at the end of 2016 and your total basis in your Traditional IRA is $B, then (assuming that you did not indulge in any Traditional-to-Roth rollovers for 2016), multiply W by B/(W+X) to get the amount of nontaxable basis in the withdrawal. B thus gets reduced for 2017 by amount of basis withdrawal. What if you never made a nondeductible contribution to your Traditional IRA, or you made some nondeductible contributions many years ago and have forgotten about them? Well, you could still fill out Form 8606 reporting a zero basis, but it will just tell you that your basis continues $0. Or, you could just enter the total amount of your withdrawal in Lines 15a and 15b, effectively saying that all of the withdrawal is taxable income to you. The IRS does not care if you choose to pay taxes on nontaxable income.\",\n \"First of all, there are some differences between the retirement accounts that you mentioned regarding taxes. Traditional IRA and 401(k) accounts allow you to make pre-tax contributions, giving you an immediate tax deduction when you contribute. Roth IRA, Roth 401(k) are funded with after tax money, and a non-retirement account is, of course, also funded with after tax money. So if you are looking for the immediate tax deduction, this is a point in favor of the retirement accounts. Roth IRA & Roth 401(k) accounts allow the investment to grow tax-free, which means that the growth is not taxed, even when taking the investment out at retirement. With Traditional IRA and 401(k) accounts, you need to pay tax on the gains realized in the account when you withdraw the money, just as you do with a non-retirement account. This is a point in favor of the Roth retirement accounts. To answer your question about capital gains, yes, it is true that you do not have a capital gain until an investment is sold. So, discounting the contribution tax deductions of the retirement accounts, if you only bought individual stocks that never paid a dividend, and never sold them until retirement, you are correct that it really wouldn't matter if you had it in a regular brokerage account or in a traditional IRA. However, even people dedicated to buy-and-hold rarely actually buy only individual stocks and hold them for 30 years. There are several different circumstances that will generally happen in the time between now and when you want to withdraw the money in retirement that would be taxable events if you are not in a retirement account: If you sell an investment and buy a different one, the gains would be taxable. If you want to rebalance your holdings, this also involves selling a portion of your investments. For example, if you want to maintain an 80% stock/20% bond ratio, and your stock values have gone up to 90%, you might want to sell some stock and buy bonds. Or if you are getting closer to retirement, you might decide to go with a higher percentage of bonds. This would trigger capital gains. Inside a mutual fund, anytime the management sells investments inside the fund and realizes capital gains, these gains are passed on to the investors, and are taxable. (This happens more often with managed funds than index funds, but still happens occasionally with index funds.) Dividends earned by the investments are taxable. Any of these events in a non-retirement account would trigger taxes that need to be paid immediately, even if you don't withdraw a cent from your account.\",\n \"\\\"First - Welcome to Money.SE. You gave a lot of detail, and it's tough to parse out the single question. Actually, you have multiple issues. $1300 is what you need to pay the tax? In the 25% bracket plus 10% penalty, you have a 65% net amount. $1300/.65 = Exactly $2000. You withdraw $2000, have them (the IRA holder) withhold $700 in federal tax, and you're done. All that said, don't do it. Nathan's answer - payment plan with IRS - is the way to go. You've shared with us a important issue. Your budget is running too tight. We have a post here, \\\"\\\"the correct order of investing\\\"\\\" which provides a great guideline that applies to most visitors. You are missing the part that requires a decent sized emergency fund. In your case, calling it that, may be a misnomer, as the tax bill isn't an unexpected emergency, but something that should have been foreseeable. We have had a number of posts here that advocate the paid in full house. And I always respond that the emergency fund comes first. With $70K of income, you should have $35K or so of liquidity, money readily available. Tax due in April shouldn't be causing you this grief. Please read that post I linked and others here to help you with the budgeting issue. Last - You are in an enviable position, A half million dollars, no mortgage, mid 40s. Easily doing better than most. So, please forgive the soapbox tone of the above, it was just my \\\"\\\"see, that's what I'm talking about\\\"\\\" moment from my tenure here.\\\"\",\n \"You're misunderstanding the concept of retirement savings. IRA distributions are taxed, in their entirety, as ordinary income. If you withdraw before the retirement age, additional 10% penalty is added. Investment income has preferential treatment - long term capital gains and qualified dividends are taxed at lower rates than ordinary income. However, IRA contributions are tax deductible. I.e.: you don't pay taxes on the amounts contributed to the IRA when you earned the money, only when you withdraw. In the mean time, the money is growing, tax free, based on your investments. Anything inside the IRA is tax free, including dividends, distributions (from funds to your IRA, not from IRA to you), capital gains, etc. This is very powerful, when taking into account the compounding effect of reinvesting your dividends/sale proceeds without taking a chunk out for taxes. Consider you make an investment in a fund that appreciated 100% in half a year. You cash out to reinvest in something less volatile to lock the gains. In a regular account - you pay taxes when you sell, based on your brackets. In the IRA you reinvest all of your sale proceeds. That would be ~25-35% more of the gains to reinvest and continue working for you! However, if you decide to withdraw - you pay ordinary rate taxes on the whole amount. If you would invest in a single fund for 30 years in a regular account - you'd pay 20% capital gains tax (on the appreciation, not the dividends). In the IRA, if you invest in the same fund for the same period - you'll pay your ordinary income rates. However, the benefit of reinvesting dividends tax-free softens the blow somewhat, but that's much harder to quantify. Bottom line: if you want to plan for retirement - plan for retirment. Otherwise - IRA is not an investment vehicle. Also consider Roth IRA/conversions. Roth IRA has the benefit of tax free distributions at retirement. If your current tax bracket is at 20%, for example, contributing $5K to Roth IRA instead of a traditional will cost you $1K of taxes now, but will save you all the taxes during the retirement (for the distributions from the Roth IRA). It may be very much worth your while, especially if you can contribute directly to Roth IRA (there are some income limitations and phaseouts). You can withdraw contributions (but not earnings) from Roth IRA - something you cannot do with a traditional IRA.\",\n \"I think you're misunderstanding how tax brackets work. If you make $1 more and that bumps you into a higher bracket, only THAT particular dollar will be taxed at the higher tax bracket rate... Not your entire income. Short term capital gains are treated as income. Long term capital gains have a special tax rate currently.\",\n \"All money distributed from a Traditional IRA to which no nondeductible contributions have been made is taxed as ordinary income. It does not matter if you think of the money as the original contribution or gains; the taxation is the same. Money distributed from a Roth IRA is tax-free. In either case, penalties apply if the distribution is premature.\",\n \"\\\"This is actually (to me) an interesting point to note. While the answer is \\\"\\\"that's what Congress wrote,\\\"\\\" there are implications to note. First, for many, the goal of tax deferral is to shift 25% or 28% income to 15% income at retirement. With long term gains at 15%, simply investing long term post tax can accomplish a similar goal, where all gain is taxed at 15%. Looking at this from another angle, an IRA (or 401(k) for that matter) effectively turns long term gains into ordinary income. It's a good observation, and shouldn't be ignored.\\\"\",\n \"If you are inside of a ROTH IRA you are not getting taxed on any gain. Dividends, distributions, interest payment, or capital gains are never taxed. This, of course, assumes you wait until age 59.5 to do ROTH withdrawals on your gains.\",\n \"As I commented, there's confusion on withholding. The 20% pertains to 401(k) accounts, not IRAs.\",\n \"Indeed, there's no short term/long term issue trading inside the IRA, and in fact, no reporting. If you have a large IRA balance and trade 100 (for example) times per year, there's no reporting at all. As you note, long term gains outside the IRA are treated favorably in the tax code (as of now, 2012) but that's subject to change. Also to consider, The worst thing I did was to buy Apple in my IRA. A huge gain that will be taxed as ordinary income when I withdraw it. Had this been in my regular account, I could sell and pay the long term cap gain rate this year. Last, there's no concept of Wash sale in one's IRA, as there's no taking a loss for shares sold below cost. (To clarify, trading solely within an IRA won't trigger wash sale rules. A realized loss in a taxable account, combined with a purchase inside an IRA can trigger the wash sale rule if the stock is purchased inside the IRA 30 days before or after the sale at a loss. Thank you, Dilip, for the comment.) Aside from the warnings of trading too much or running afoul of frequency restrictions, your observation is correct.\",\n \"No matter what, you owe taxes on the gains, known as capital gains. How much, depends on how long you invested it for. In your example, each month is treated separately - each month you contribute starts a new clock on that set of investments. If you hold it for longer than a year, the taxes are treated as long-term, and less than a year is short-term. Short term taxes are at your marginal rate, and long term taxes are different, usually 15%. https://www.irs.gov/taxtopics/tc400/tc409\",\n \"\\\"Long-term capital gains, which is often the main element of investment income for investors who are not high-frequency day traders, are taxed at a single rate that is often substantially below the marginal rate they would otherwise be taxed at, particularly for wealthy individuals. There are a few rationales behind this treatment; the two most common are that the government wants to encourage long-term investments (as opposed to short-term speculation), and that capital gains are a kind of double taxation (from one point of view) as they are coming from income that has already been taxed once before (as wage or ordinary income). The latter in particular is highly controversial, but this is one of the more divisive political issues in the taxation front - one party would eliminate the tax entirely, the other would eliminate the difference. For most individuals, the majority of their long-term capital gains are taxed at 15% up to almost half of a million dollars total AGI, which is a fairly low rate - it's equivalent to the rate a taxpayer would pay on up to $37,000 in wage income (after deductions/exemptions/etc.). You can see from this table in Wikipedia that it is much preferred to pay long-term capital gains rates when possible - at every point it's at least 10% lower than the tax rate for ordinary income. Ordinary income includes wages and many other sources of income - basically, anything that is not long term capital gains. Wage income is taxed at this rate, and also subject to some non-income-tax taxes (FICA and Medicare in particular); other sources of ordinary income are not subject to those taxes (including IRA income). Short term capital gains are generally included in this bucket. Qualified Dividends are treated similarly to long-term capital gains (as they are of a similar nature), and taxed accordingly. The \\\"\\\"Net Investment Tax\\\"\\\" is basically applying the Medicare tax to investment income for higher-income taxpayers ($125k single, $250k joint). It's on top of capital gains rates for them. It came about through the Affordable Care Act, and is one of the first provisions likely to be repealed by the new Congress (as it can be repealed through the budgeting provision). It seems likely that 2017 taxes will not contain this provision.\\\"\",\n \"There's no additional income tax burden created when you decide to make Roth IRA contributions, your Roth IRA contributions are taxed at the same time all your income is taxed. If you earned that $100 by working a job, then your employer likely withheld taxes when they paid you. If you earned it through self-employment, then you'll pay estimated taxes on that income quarterly, etc. In any case when you file your annual tax return the actual taxes owed vs taxes paid gets reconciled and you're left with a refund or owe an additional sum.\",\n \"You can withdraw the principal of your Roth IRA account (i.e.: the amounts after tax deposited there) without a tax. However, in case of conversion - you have to wait for five years before you can do that. Otherwise, 10% penalty will apply. It is actually mentioned in the article you linked to. Taxable portion in that context is the portion you paid tax on when converting. In the case you described (converting your 401k) that would be the whole amount of the conversion.\",\n \"(All for US.) Yes you (will) have a realized long-term capital gain, which is taxable. Long-term gains (including those distributed by a mutual fund or other RIC, and also 'qualified' dividends, both not relevant here) are taxed at lower rates than 'ordinary' income but are still bracketed almost (not quite) like ordinary income, not always 15%. Specifically if your ordinary taxable income (after deductions and exemptions, equivalent to line 43 minus LTCG/QD) 'ends' in the 25% to 33% brackets, your LTCG/QD income is taxed at 15% unless the total of ordinary+preferred reaches the top of those brackets, then any remainder at 20%. These brackets depend on your filing status and are adjusted yearly for inflation, for 2016 they are: * single 37,650 to 413,350 * married-joint or widow(er) 75,300 to 413,350 * head-of-household 50,400 to 441,000 (special) * married-separate 37,650 to 206,675 which I'd guess covers at least the middle three quintiles of the earning/taxpaying population. OTOH if your ordinary income ends below the 25% bracket, your LTCG/QD income that 'fits' in the lower bracket(s) is taxed at 0% (not at all) and only the portion that would be in the ordinary 25%-and-up brackets is taxed at 15%. IF your ordinary taxable income this year was below those brackets, or you expect next year it will be (possibly due to status/exemption/deduction changes as well as income change), then if all else is equal you are better off realizing the stock gain in the year(s) where some (or more) of it fits in the 0% bracket. If you're over about $400k a similar calculation applies, but you can afford more reliable advice than potential dogs on the Internet. (update) Near dupe found: see also How are long-term capital gains taxed if the gain pushes income into a new tax bracket? Also, a warning on estimated payments: in general you are required to pay most of your income tax liability during the year (not wait until April 15); if you underpay by more than 10% or $1000 (whichever is larger) you usually owe a penalty, computed on Form 2210 whose name(?) is frequently and roundly cursed. For most people, whose income is (mostly) from a job, this is handled by payroll withholding which normally comes out close enough to your liability. If you have other income, like investments (as here) or self-employment or pension/retirement/disability/etc, you are supposed to either make estimated payments each 'quarter' (the IRS' quarters are shifted slightly from everyone else's), or increase your withholding, or a combination. For a large income 'lump' in December that wasn't planned in advance, it won't be practical to adjust withholding. However, if this is the only year increased, there is a safe harbor: if your withholding this year (2016) is enough to pay last year's tax (2015) -- which for most people it is, unless you got a pay cut this year, or a (filed) status change like marrying or having a child -- you get until next April 15 (or next business day -- in 2017 it is actually April 18) to pay the additional amount of this year's tax (2016) without underpayment penalty. However, if you split the gain so that both 2016 and 2017 have income and (thus) taxes higher than normal for you, you will need to make estimated payment(s) and/or increase withholding for 2017. PS: congratulations on your gain -- and on the patience to hold anything for 10 years!\",\n \"Consider doing things that will allow for tax deductions, such as short selling. The IRS has regulations on this as well. And consider that Futures are taxed more favorably than other kinds of investments. (60% taxed as long term, 40% taxed as short term)\",\n \"First of all an IRA is a type of account that says nothing about how your money is invested. It seems like you are trying to compare an IRA with a market ETF (like Vanguard Total Market Admiral VTSAX), but the reality is that you can have both. Depending on your IRA some of the investment options may be limited, but you will probably be able to find some version of a passive fund following an index you are interested in. The IRA account is tax advantaged, but you may invest the money in your IRA in an ETF. As for how often a non-IRA account is taxed and how much, that depends on how often you sell. If you park your money in an ETF and do not sell, the IRS will not claim any taxes from it. The taxable event happens when you sell. But if you gain $1000 in a year and a day and you decide to sell, you will owe $150 (assuming 15% capital gains tax), bringing your earnings down to $850. If your investments go poorly and you lose money, there will be no capital gains tax to pay.\",\n \"Assuming that what you want to do is to counter the capital gains tax on the short term and long term gains, and that doing so will avoid any underpayment penalties, it is relatively simple to do so. Figure out the tax on the capital gains by determining your tax bracket. Lets say 25% short term and 15% long term or (0.25x7K) + (0.15*8K) or $2950. If you donate to charities an additional amount of items or money to cover that tax. So taking the numbers in step 1 divide by the marginal tax rate $2950/0.25 or $11,800. Money is easier to donate because you will be contributing enough value that the IRS may ask for proof of the value, and that proof needs to be gathered either before the donation is given or at the time the donation is given. Also don't wait until December 31st, if you miss the deadline and the donation is counted for next year, the purpose will have been missed. Now if the goal is just to avoid the underpayment penalty, you have two other options. The safe harbor is the easiest of the two to determine. Look at last years tax form. Look for the amount of tax you paid last year. Not what was withheld, but what you actually paid. If all your withholding this year, is greater than 110% of the total tax from last year, you have reached the safe harbor. There are a few more twists depending on AGI Special rules for farmers, fishermen, and higher income taxpayers. If at least two-thirds of your gross income for tax year 2014 or 2015 is from farming or fishing, substitute 662/3% for 90% in (2a) under the General rule, earlier. If your AGI for 2014 was more than $150,000 ($75,000 if your filing status for 2015 is married filing a separate return), substitute 110% for 100% in (2b) under General rule , earlier. See Figure 4-A and Publication 505, chapter 2 for more information.\",\n \"In addition to the other answers, which cover the risks of what is essentially leveraged investing, I'd like to point out that the 2.6% penalty is a flat rate. If you are responsible for withholding your own taxes then you are paying tax four times a year. So any underpayment on your first quarterly tax payment will have much more time to accrue in the stock market than your last payment, although each underpayment will be penalized by the 2.6%. It may make sense for someone to make full payments on later payments but underpay on earlier ones.\",\n \"\\\"All transactions within an IRA are irrelevant as far as the taxation of the distributions from the IRA are concerned. You can only take cash from an IRA, and a (cash) distribution from a Traditional IRA is taxable as ordinary income (same as interest from a bank, say) without the advantage of any of the special tax rates for long-term capital gains or qualified dividends even if that cash was generated within the IRA from sales of stock etc. In short, just as with what is alleged to occur with respect to Las Vegas, what happens within the IRA stays within the IRA. Note: some IRA custodians are willing to make a distribution of stock or mutual fund shares to you, so that ownership of the 100 shares of GE, say, that you hold within your IRA is transferred to you in your personal (non-IRA) brokerage account. But, as far as the IRS is concerned, your IRA custodian sold the stock as the closing price on the day of the distribution, gave you the cash, and you promptly bought the 100 shares (at the closing price) in your personal brokerage account with the cash that you received from the IRA. It is just that your custodian saved the transaction fees involved in selling 100 shares of GE stock inside the IRA and you saved the transaction fee for buying 100 shares of GE stock in your personal brokerage account. Your basis in the 100 shares of GE stock is the \\\"\\\"cash_ that you imputedly received as a distribution from the IRA, so that when you sell the shares at some future time, your capital gains (or losses) will be with respect to this basis. The capital gains that occurred within the IRA when the shares were imputedly sold by your IRA custodian remain within the IRA, and you don't get to pay taxes on that at capital gains rates. That being said, I would like to add to what NathanL told you in his answer. Your mother passed away in 2011 and you are now 60 years old (so 54 or 55 in 2011?). It is likely that your mother was over 70.5 years old when she passed away, and so she likely had started taking Required Minimum Distributions from her IRA before her death. So, You should have been taking RMDs from the Inherited IRA starting with Year 2012. (The RMD for 2011, if not taken already by your mother before she passed away, should have been taken by her estate, and distributed to her heirs in accordance with her will, or, if she died intestate, in accordance with state law and/or probate court directives). There would not have been any 10% penalty tax due on the RMDs taken by you on the grounds that you were not 59.5 years old as yet; that rule applies to owners (your mom in this case) and not to beneficiaries (you in this case). So, have you taken the RMDs for 2012-2016? Or were you waiting to turn 59.5 before taking distributions in the mistaken belief that you would have to pay a 10% penalty for early wthdrawal? The penalty for not taking a RMD is 50% of the amount not distributed; yes, 50%. If you didn't take RMDs from the Inherited IRA for years 2012-2016, I recommend that you consult a CPA with expertise in tax law. Ask the CPA if he/she is an Enrolled Agent with the IRS: Enrolled Agents have to pass an exam administered by the IRS to show that they really understand tax law and are not just blowing smoke, and can represent you in front of the IRS in cases of audit etc,\\\"\",\n \"\\\"I think there are several issues here. First, there's the contribution. As littleadv said, there is no excess contribution. Excess contribution is only if you exceed the contribution limit. The contribution limit for Traditional IRAs does not depend on how high your income goes or whether you have a 401(k). It's the deduction limit that may depend on those things. Not deducting it is perfectly legitimate, and is completely different than an \\\"\\\"excess contribution\\\"\\\", which has a penalty. Second, the withdrawal. You are allowed to withdraw contributions made during a year, plus any earnings from those contributions, before the tax filing deadline for the taxes of that year (which is April 15 of the following year, or even up to October 15 of the following year), and it will be treated as if the contribution never happened. No penalties. The earnings will be taxed as regular income (as if you put it in a bank account). That sounds like what you did. So the withdrawal was not an \\\"\\\"early withdrawal\\\"\\\", and the 1099-R should reflect that (what distribution code did they put?). Third, even if (and it does not sound like the case, but if) it doesn't qualify as a return of contributions before the tax due date as described above (maybe you withdrew it after October 15 of the following year), as littleadv mentioned, your contribution was a non-deductible contribution, and when withdrawing it, only the earnings portion (which after such a short time should only be a very small part of the distribution) would be subject to tax and penalty.\\\"\",\n \"In the United States Short-term capital gains are taxed at rates similar to regular income which is 25% if you make less than $91,000 and 28% if you make more than that but less than $190,000. If you make more than $190,000 then the rate is 33%. If you hold the stock for a year or more than the tax rate is 15%, unless your income is less than $33,000 in which case there is no tax on long-term gains. As a general rule, the way to make money is to stay out of debt, so I cannot advise you to assume a mortgage. Financially you are better off investing your money. Much like you I bought a house with a mortgage using about $30,000 in a down payment about 20 years ago and I paid it off a few years ago. If I had to do it over again, I would have bought a shack (a steel building) for $30,000 and lived in that and invested my income. If I had done that, I would be about $500,000 richer today than I am now.\",\n \"The safe harbor provision is based on the tax you or the prior year. So in 2016 this helped you as your tax was substantially increased from 2015. However, by the same token in 2017 your safe harbor amount is going to be very high. Therefore if 2017 is similar you will owe penalties. The solution here is to make estimated tax payments in the quarters that you realize large gains. This is exactly what the estimated tax payments are for. Your estimate tax payments do not have to be the same. In fact if you have a sudden boost in earnings in quarter 3, then the IRS expects that quarter 3 estimated tax payment to be boosted.\",\n \"I'm not sure where you are, but in the United States capital gains are taxed at a lower rate than other types of income. On the 1040, captial gains income is separated from earned income, and income tax is calculated just on earned income. Then capital gains tax is calculated on capital gains income, and then added to income tax afterward.\",\n \"For the Roth the earnings: interest, dividends, capital gains distributions and capital gains are tax deferred. Which means that as long as the money stays inside of a Roth or is transferred/rolled over to another Roth there are no taxes due. In December many mutual funds distribute their gains. Let's say people invested in S&P500index fund receive a dividend of 1% of their account value. The investor in a non-retirement fund will be paying tax on that dividend in the Spring with their tax form. The Roth and IRA investors will not be paying tax on those dividends. The Roth investor never will, and the regular IRA investor will only pay taxes on it when they pull the money out.\",\n \"Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income.\",\n \"My understanding (I've never filed one myself) is that the 1040ES is intended to allow you to file quarterly and report unpredictable income, and to pay estimated taxes on that income. I was in the same sort of boat for 2016 -- I had a big unexpected income source in 2015, and this took away my Safe Harbor for 2016. I adjusted my w-2 to zero exemptions (eventually) and will be getting a refund of about 1% of our income. So lets say you make 10000 in STG in March, and another 15000 in STG in April. File a quarterly 1040-ES between March 31 and April 15. Report the income, and pay some tax. You should be able to calculate the STCG Tax for 10k pretty easily. Just assume that it comes off the top and doesn't add at all to your deductions. Then for April, do the same by June 15. Just like your W-2 is used to estimate how much your employer should withhold, the 1040ES is designed to estimate how much extra you need to pay to the IRS to avoid penalties. It'll all get resolved after you file your final 1040 for the 2017 calendar year.\",\n \"\\\"Welcome to the 'what should otherwise be a simple choice turns into a huge analysis' debate. If the choice were actually simple, we've have one 'golden answer' here and close others as duplicate. But, new questions continue to bring up different scenarios that impact the choice. 4 years ago, I wrote an article in which I discussed The Density of Your IRA. In that article, I acknowledge that, with no other tax favored savings, you can pack more value into the Roth. In hindsight, I failed to add some key points. First, let's go back to what I'd describe as my main thesis: A retired couple hits the top of the 15% bracket with an income of $96,700. (I include just the standard deduction and exemptions.) The tax on this gross sum is $10,452.50 for an 'average' rate of 10.8%. The tax, paid or avoided, upon deposit, is one's marginal rate. But, at retirement, the withdrawals first go through the zero bracket (i.e. the STD deduction and exemptions), then 10%, then 15%. The above is the simplest snapshot. I am retired, and our return this year included Sch A, itemized deductions. Property tax, mort interest, insurance, donations added up fast, and from a gross income (IRA withdrawal) well into the 25% bracket, the effective/average rate was reported as 7.3%. If we had saved in Roth accounts, it would have been subject to 25%. I'd suggest that it's this phenomenon, the \\\"\\\"save at marginal 25%, but withdraw at average sub-11%\\\"\\\" effect that account for much of the resulting tax savings that the IRA provides. The way you are asking this, you've been focusing on one aspect, I believe. The 'density' issue. That assumes the investor has no 401(k) option. If I were building a spreadsheet to address this, I'd be sure to consider the fact that in a taxable account, long term gains are taxed at 15% for higher earners (I take the liberty to ignore that wealthier taxpayers will pay a maximum 20% tax on long-term capital gains. This higher rate applies when your adjusted gross income falls into the top 39.6% tax bracket.) And those in the 10 or 15% bracket pay 0%. With median household income at $56K in 2016, and the 15% bracket top at $76K, this suggests that most people (gov data shows $75K is 80th percentile) have an effective unlimited Roth. So long as they invest in a way that avoids short term gains, they can rebalance often enough to realize LT gains and pay zero tax. It's likely the $80K+ earner does have access to a 401(k) or other higher deposit account. If they don't, I'd still favor pretax IRAs, with $11K for the couple still 10% or so of their earnings. It would be a shame to lose that zero bracket of that first $20K withdrawal at retirement. Again working backwards, the $78K withdrawal would take nearly $2M in pretax savings to generate. All in today's dollars.\\\"\",\n \"If you qualify for the safe harbor, you are not required to pay additional quarterly taxes. Of course, you're still welcome to do so if you're sure you'll owe them; however, you will not be penalized. If your income is over $150k (joint) or $75k (single), your safe harbor is: Estimated tax safe harbor for higher income taxpayers. If your 2014 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2015 or 110% of the tax shown on your 2014 return to avoid an estimated tax penalty. Generally, if you're under that level, the following reasons suggest you will not owe the tax (from the IRS publication 505): The total of your withholding and timely estimated tax payments was at least as much as your 2013 tax. (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen.) The tax balance due on your 2014 return is no more than 10% of your total 2014 tax, and you paid all required estimated tax payments on time. Your total tax for 2014 (defined later) minus your withholding is less than $1,000. You did not have a tax liability for 2013. You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. If you paid one-fourth of your last year's taxes (or of 110% of your last-year's taxes) in estimated taxes for each quarter prior to this one, you should be fine as far as penalties go, and can simply add the excess you know you will owe to the next check.\",\n \"\\\"IRA is a tax-deferred account. I.e.: you're not paying any taxes on the income within the account (as long as you don't withdraw it) and you can deduct the investment (with certain limitation on how much, depending on your total AGI). It is taxed when you withdraw it - at ordinary rates for the \\\"\\\"traditional\\\"\\\" IRA and with 0% rate for ROTH, as long as the withdrawal is qualified (if not qualified - you pay ordinary rate tax for ROTH and additional 10% tax for both on the taxable amounts). The details are a bit complicated (there's deductible IRA, non-deductible IRA, roll-overs, etc etc), but that's the basic. Regular investment accounts are taxed currently on any income, but you get the \\\"\\\"better\\\"\\\" capital gains rates on many things. So which one is better depends how long your investment is going to be, what is your tax situation now, and what you anticipate it to be later when you retire.\\\"\",\n \"If you made a contribution to a Traditional IRA for Year X (whether made during Year X or made in Year X+1 before the due date of your tax return for Year X), then you can withdraw the contribution and any gains on that contribution by the due date of your tax return. If the contribution was deductible, then of course you must not take a deduction for it in on your tax return for Year X (or any other year for that matter). As for the gains (if any) that were withdrawn, they are taxable income to you for Year X (not X+1, even if the withdrawal occurred in Year X+1). Publication 590a says You generally can make a tax-free withdrawal of contributions if you do it before the due date for filing your tax return for the year in which you made them. This means that, even if you are under age 59-1/2, the 10% additional tax may not apply. and later in the same Publication If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. You can do this if, for each contribution you withdraw, both of the following conditions apply. - You did not take a deduction for the contribution. - You withdraw any interest or other income earned on the contribution. You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. If there was a loss, the net income earned on the contribution may be a negative amount. Later, the document says You must include in income any earnings on the contributions you withdraw. Include the earnings in income for the year in which you made the contributions, not the year in which you withdraw them. and The 10% additional tax on distributions made before you reach age 59-1/2 does not apply to these tax-free withdrawals of your contributions. However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59-1/2 rule, it will be subject to this tax. Since you have a loss on the contributions that you are withdrawing, there is no interest or other income that needs to be reported.\",\n \"First of all depending on the type of IRA you may not have to pay taxes on withdrawals in the US at all. If you are withdrawing your principle from a Roth IRA then you don't owe taxes. Only when you withdraw the gains do you pay taxes on it. You have two options for withdrawals: Lump Sum Withdrawal: If you take a lump sum withdrawal you will owe taxes to the US (30% for non-resident aliens of the US), and according to DTAA; Article 23, you will file your taxes with India declaring your IRA or 401(k) withdrawal proceeds and claim credit on the taxes you paid to the US. Monthly Pension Withdrawal: You can also receive monthly pension payments and you will only be taxed in the country in which you are a resident of. This is according to DTAA, Article 20. You would then have to submit necessary documentation to your payer in the US so that they do not withhold any taxes in the US. Just as a side note it might be just better to keep the money where it is and let it grow or roll it over to a Roth IRA if you are currently in a lower tax bracket for maximum savings of your principle. Here is a link with more detailed information of what I provided you: http://articles.economictimes.indiatimes.com/2012-01-25/news/30663129_1_taxable-income-nri-401k-plan\",\n \"The key for you this year (2015) be aggressive in paying the taxes quarterly so that you do not have to do the quarterly filings or pay penalties for owing too much in taxes in future years. The tax system has a safe harbor provision. If you have withheld or sent via the estimated quarterly taxes an amount equal to 100% of the previous years taxes then you are safe. That means that if you end to the IRS in 2015 an amount equal to 100% of your 2014 taxes then in April 2016 you can avoid the penalties. You should note that the required percentage is 110% for high income individual. Because you can never be sure about your side income, use your ability to adjust your W-4 to cover your taxes. You will know early in 2016 how much you need to cover via withholding, so make the adjustments. Yes the risk is what you over pay, but that may be what you need to do to avoid the quarterly filing requirements. From IRS PUB 17: If you owe additional tax for 2014, you may have to pay estimated tax for 2015. You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments. General rule. In most cases, you must pay estimated tax for 2015 if both of the following apply. You expect to owe at least $1,000 in tax for 2015, after subtracting your withholding and refundable credits. You expect your withholding plus your refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2015 tax return, or 100% of the tax shown on your 2014 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers , later). Your 2014 tax return must cover all 12 months. and Estimated tax safe harbor for higher income taxpayers. If your 2014 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2015 or 110% of the tax shown on your 2014 return to avoid an estimated tax penalty.\",\n \"\\\"Since the deduction balances out the future tax (presumably), I am only paying tax on the gains, however over 20 years, those gains could be greater than the original $4000 itself. (Doubling would only take 3.6% annual return over 20 years ) If I put it into a Roth IRA, I don't get a tax deduction, but I get to withdraw the original $4000 and all the gains, tax free in about 20 years. It seems the Roth IRA is a better deal tax wise, but I would like to hear if I am missing something. You are missing the time value of money. $4000 now does not have the same value to you as $4000 years in the future. In fact, the $4000 now has the same value as the money it grows into (principal + earnings) in the future. So a certain percentage of tax on the $4000 now has the same effect to you as the same percentage of tax on the $4000 + earnings in the future, no matter how much \\\"\\\"earnings\\\"\\\" is. It's simple math. If you start with the same amount of pre-tax money, and have the same flat percentage tax rate, then both Traditional and Roth will leave you with the same amount of money, regardless of how many times the gains are. Try it for yourself.\\\"\",\n \"You are missing something very significant. The money in a traditional IRA (specifically, a deductible traditional IRA; there is not really any reason to keep a nondeductible traditional IRA anymore) is pre-tax. That means when you pay tax on it when you take it out, you are paying tax on it for the first time. If you take ordinary money to invest it in stocks, and then pay capital gains tax on it when you take it out, that is post-tax money to begin with -- meaning that you have already paid (income) tax on it once. Then you have to pay tax again on the time-value growth of that money (i.e. that growth is earned from money that is already taxed). That means you are effectively paying tax twice on part of that money. If that doesn't make sense to you, and you think that interest, capital gains, etc. is the first time you're paying tax on the money because it's growth, then you have a very simplistic view of money. There's something called time value of money, which means that a certain amount of money is equivalent to a greater amount of money in the future. If you invest $100 now and end up with $150 in the future, that $150 in the future is effectively the same money as the $100 now. Let's consider a few examples. Let's say you have $1000 of pre-tax income you want to invest and withdraw a certain period of time later in retirement. Let's say you have an investment that grows 100% over this period of time. And let's say that your tax rate now and in the future is 25% (and for simplicity, assume that all income is taxed at that rate instead of the tax bracket system). And capital gains tax is 15%. You see a few things: Traditional IRA and Roth IRA are equivalent if the tax rates are the same. This is because, in both cases, you pay tax one time on the money (the only difference between paying tax now and later is the tax rate). It doesn't matter that you're paying tax only on the principal for the Roth and on the principal plus earnings for Traditional, because the principal now is equivalent to the principal plus earnings in the future. And you also see that investing money outside fares worse than both of them. That is because you are paying tax on the money once plus some more. When you compare it against the Roth IRA, the disadvantage is obvious -- in both cases you pay income tax on the principal, but for Roth IRA you pay nothing on the earnings, whereas for the outside stock, you pay some tax on the earnings. What may be less obvious is it is equally disadvantageous compared to a Traditional IRA; Traditional and Roth IRA are equivalent in this comparison. 401(k)s and IRAs have a fundamental tax benefit compared to normal money investment, because they allow money to be taxed only one time. No matter how low the capital gains tax rate it, it is still worse because it is a tax on time-value growth from money that is already taxed.\",\n \"Long term gains are taxed at 15% maximum. Losses, up to the $3K/yr you cited, can offset ordinary income, so 25% or higher, depending on your income. Better to take the loss that way. With my usual disclaimer: Do not let the tax tail wag the investing dog.\",\n \"\\\"You have several questions in your post so I'll deal with them individually: Is taking small sums from your IRA really that detrimental? I mean as far as tax is concerned? Percentage wise, you pay the tax on the amount plus a 10% penalty, plus the opportunity cost of the gains that the money would have gotten. At 6% growth annually, in 5 years that's more than a 34% loss. There are much cheaper ways to get funds than tapping your IRA. Isn't the 10% \\\"\\\"penalty\\\"\\\" really to cover SS and the medicare tax that you did not pay before putting money into your retirement? No - you still pay SS and medicare on your gross income - 401(k) contributions just reduce how much you pay in income tax. The 10% penalty is to dissuade you from using retirement money before you retire. If I ... contributed that to my IRA before taxes (including SS and medicare tax) that money would gain 6% interest. Again, you would still pay SS and Medicare, and like you say there's no guarantee that you'll earn 6% on your money. I don't think you can pay taxes up front when making an early withdrawal from an IRA can you? This one you got right. When you file your taxes, your IRA contributions for the year are totaled up and are deducted from your gross income for tax purposes. There's no tax effect when you make the contribution. Would it not be better to contribute that $5500 to my IRA and if I didn't need it, great, let it grow but if I did need it toward the end of the year, do an early withdrawal? So what do you plan your tax withholdings against? Do you plan on keeping it there (reducing your withholdings) and pay a big tax bill (plus possibly penalties) if you \\\"\\\"need it\\\"\\\"? Or do you plan to take it out and have a big refund when you file your taxes? You might be better off saving that up in a savings account during the year, and if at the end of the year you didn't use it, then make an IRA contribution, which will lower the taxes you pay. Don't use your IRA as a \\\"\\\"hopeful\\\"\\\" savings account. So if I needed to withdrawal $5500 and I am in the 25% tax bracket, I would owe the government $1925 in taxes+ 10% penalty. So if I withdrew $7425 to cover the tax and penalty, I would then be taxed $2600 (an additional $675). Sounds like a cat chasing it's tail trying to cover the tax. Yes if you take a withdrawal to pay the taxes. If you pay the tax with non-retirement money then the cycle stops. how can I make a withdrawal from an IRA without having to pay tax on tax. Pay cash for the tax and penalty rather then taking another withdrawal to pay the tax. If you can't afford the tax and penalty in cash, then don't withdraw at all. based on this year's W-2 form, I had an accountant do my taxes and the $27K loan was added as earned income then in another block there was the $2700 amount for the penalty. So you paid 25% in income tax for the earned income and an additional 10% penalty. So in your case it was a 35% overall \\\"\\\"tax\\\"\\\" instead of the 40% rule of thumb (since many people are in 28% and 35% tax brackets) The bottom line is it sounds like you are completely unorganized and have absolutely no margin to cover any unexpected expenses. I would stop contributing to retirement today until you can get control of your spending, get on a budget, and stop trying to use your IRA as a piggy bank. If you don't plan on using the money for retirement then don't put it in an IRA. Stop borrowing from it and getting into further binds that force you to make bad financial decisions. You don't go into detail about any other aspects (mortgage? car loans? consumer debt?) to even begin to know where the real problem is. So you need to write everything down that you own and you owe, write out your monthly expenses and income, and figure out what you can cut if needed in order to build up some cash savings. Until then, you're driving across country in a car with no tires, worrying about which highway will give you the best gas mileage.\\\"\",\n \"You may be able to find the answers to your question on the IRS web site: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Specifically, using this form to estimate taxes for salary: http://www.irs.gov/pub/irs-pdf/f1120w.pdf and this form to estimate taxes for dividends: http://www.irs.gov/pub/irs-pdf/f1040es.pdf\",\n \"Generally it is advisable to mention what country you're asking about, as tax laws differ. To the best of my knowledge, however, this particular issue is handled consistently in every tax jurisdiction I'm familiar with. You invested X, it appreciated and is now worth X + Y. In your example, X = $10,000 and Y = $40,000. Total X + Y = $50,000. When you withdraw an amount, say A (in your example A = $10,000), it is considered a withdrawal of both the earnings and the original capital, in proportion to the total of your account. Taxable portion of the withdrawal is proportional to the earnings. Lets mark it T. In your example, T = $10,000 - $10,000 * $10,000/$50,000 = $8,000. I.e.: 80% of the withdrawal will be attributed to earnings and would be taxable (short term in your case, if you're in the US), and 20% to the original capital. This will keep the proportion of the remained the same - 20% of the remaining amount will be attributed to the original capital (accidentally, it will be $8,000), and the remaining 80% will be attributed to the earnings. The withdrawn amount attributed to the capital ($2,000), and the remaining amount attributed to the capital ($8,000) will equal exactly to the invested amount.\",\n \"You must pay your taxes at the quarterly intervals. For most people the withholding done by their employer satisfies this requirement. However, if your income does not have any withholding (or sufficient), then you must file quarterly estimated tax payments. Note that if you have a second job that does withhold, then you can adjust your W4 to request further withholding there and possibly reduce the need for estimated payments. Estimated tax payments also come into play with large investment earnings. The amount that you need to prepay the IRS is impacted by the safe harbor rule, which I am sure others will provide the exact details on.\",\n \"If you have the cash on hand to pay the tax on the amount you are transferring I recommend moving to a Roth IRA An IRA is tax-deferred. You put in pretax contributions in to an IRA, and you are taxed on that money (your contributions and interest earned) when you withdraw it at retirement, age 59 1/2. The idea being that you will be taking less out per year in your retirement years, putting you into a lower tax bracket. The major problem is most people draw out as much or more a year in their retirement years than when they were working. A Roth IRA grows tax free You put after tax contributions into a Roth IRA, you have paid taxes on the contributions, and you are never taxed on the growth. When you draw the money out at retirement you don't pay any income taxes on that money. Let me give you an example: For this example we will use the following information for both scenario: We will invest $400 per month for a total of $4800. The current maximum is $5000 if you are under 50 years old $400 dollars after taxes is $300 Invest $300 a month, at age 65 you have 3,529,432 You owe no taxes on this money, it doesn't matter how much you take out a year. $400 dollars a month is taken pretax out of your paycheck. Invest $400 per month, at age 65 you have $4,705,909 You owe taxes of 25% as you draw that out for at total tax of 1,176,477 4,705,909 - 1,176,477 = 3,529,432 cash in your pocket The problem is if you draw out more than $82,400 (current 2010 filing single) per year you will be pushed to a higher tax bracket and take more of your money away. If you decide to buy a vacation home and you take out $250,000 to pay for it, that's counted as income for that year any you will be in the 33% tax bracket. Even if you can keep yourself to a low income the government forces your hand and makes you draw out more money at age 70, based on their tables, forcing you into a higher tax bracket\",\n \"Yes, it really will hurt you to keep pulling your money from your IRA. Your best bet is to set up a payment plan with the IRS, and pay the taxes you owe now, as well as adjust your withholding (with a new W-4 to your payroll department) so that you don't have a large tax liability next year. These tax advantaged plans really are designed to penalize you if you pull the money out early to give you incentive to keep the money for retirement. Your best bet is to make a monthly budget that includes your tax payments for taxes owed this year, as well as higher deductions from your paycheck to properly withhold taxes for next year.\",\n \"Post-tax (i.e. non-retirement account) investing is nothing to ignore. You don't mention a spouse, so for a start, you still have the $5500 to put in an IRA. The remaining investment funds will earn dividends, if any, at a tax preferred rate, and then the gain on sale will be taxed at 15% if the code doesn't change again. The gains accumulate tax deferred, and you control the timing of the sale. With a 401(k) all withdrawal are taxable as income. In your case, just the gain is taxed at a potential long term cap gain rate. Hopefully the new job pays more than the old one and the loss of 401(k) is compensated.\",\n \"I don't understand the logic in the other answer, and I think it doesn't make sense, so here is my take: You pay taxes on income, not on sales price. So if you put X $ of your own money in the account and it becomes X + Y $ in the future, at the moment of liquidation, you will own taxes on the Y $. Never on the X $, as it was your own (already taxed) money to begin with. The difference between long-term and short-term gains just influences the tax rate on Y. If you donate the gain alone (the Y $) to charity, you can deduct Y from your tax base. So adding Y to your tax base and then deducting Y again obviously leaves your tax base at the old value, so you pay no extra taxes. Which seems logical, as you didn't make any money in the process. Aside from extreme cases where the deductible gain is too large a percentage from your income or negative, I don't see why this would ever be different. So you can take your original 100 $ back out and donate all gains, and be fine. Note that potential losses are seen different, as the IRA regulations are not symmetric.\",\n \"Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.\",\n \"The principal of the contribution can definitely be withdrawn tax-free and penalty-free. However, there is a section that makes me think that the earnings part may be subject to penalty in addition to tax. In Publication 590-A, under Traditional IRAs -> When Can You Withdraw or Use Assets? -> Contributions Returned Before Due Date of Return -> Early Distributions Tax, it says: The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. This section is only specifically about the return of contributions before the due date of return, not a general withdrawal (as you can see from the first sentence that the penalty doesn't apply to contributions, which wouldn't be true of general withdrawals). Therefore, the second sentence must be about the earnings part of the withdrawal that you must make together with the contribution part as part of the return of contributions before the due date of the return. If the penalty it is talking about is only about other types of withdrawals and doesn't apply to the earnings part of the return of contribution before the due date of the return, then this sentence wouldn't make sense as it's in a part that's only about return of contribution before the due date of the return.\",\n \"The capital gain is either short-term or long-term and will be indicated on the 1099-DiV. You pay taxes on this amount as the capital gain was received in a taxable account (assuming since you received a 1099-DIV). More info here: https://www.mutualfundstore.com/brokerage-account/capital-gains-distributions-taxable\",\n \"\\\"Hearing somewhere is a level or two worse than \\\"\\\"my friend told me.\\\"\\\" You need to do some planning to forecast your full year income and tax bill. In general, you should be filing a quarterly form and tax payment. You'll still reconcile the year with an April filing, but if you are looking to save up to pay a huge bill next year, you are looking at the potential of a penalty for under-withholding. The instructions and payment coupons are available at the IRS site. At this point I'm required to offer the following advice - If you are making enough money that this even concerns you, you should consider starting to save for the future. A Solo-401(k) or IRA, or both. Read more on these two accounts and ask separate questions, if you'd like.\\\"\",\n \"She is very wrong. If the IRA is a traditional, i.e. A pretax IRA (not a Roth), all withdrawals are subject to tax at one's marginal rate. Read that to mean that a large sum can easily push her into higher brackets than normal. If it stayed with her, she'd take smaller withdrawals and be able to throttle her tax impact. Once she takes it all out, and gifts it to you, no gift tax is due, but there's form 709, where it's declared, and counts against her $5.5M lifetime estate exemption. There are a few things in the world of finance that offend me as much as lawyer malpractice, going into an area they are ignorant of.\",\n \"In your entire question, the only time you mention that this is an investment inside an IRA is when you say Every quarter, six months, whatever Id have to rebalance my IRA while Vanguard would do this for the fund of funds without me needing to. Within an IRA, there are no tax implications to the rebalancing. But if this investment were not inside an IRA, then the rebalancing done by you will have tax implications. In particular, any gains realized when you sell shares in one fund and buy shares in another fund during the rebalancing process are subject to income tax. Similarly, losses also might be realized (and will affect your taxes). However, if you are invested in a fund of funds, there are no capital gains (or capital losses) when re-balancing is done; you have gains or losses only when you sell shares of the fund of funds for a price different than the price you paid for them.\",\n \"I'm assuming your talking USA. There are two ways to look. If you know you should pay on the cap gains, the best way to handle that separately from your salary is to file a quarterly tax payment. That, I understand, is what the self-employed have to do. I'm in the situation where at some point, probably this year, the company that employs me will be bought out, and I will owe capital gains taxes on my shares gobbled up in the buy-out. It's a cash-for-stock transaction. So, in my case, I've just adjusted my W-4 to take advantage of the safe-harbor provision related to taxes I payed in 2016 and my salary. The details vary depending on your situation, but in my case, I've calculated what it will take in W-4 allowances to make sure I pay 110% of my 2016 tax payment (after refund). I'm not worrying about what the actual taxes on those shares of company stock will be, because I've met the rules for safe-harbor. Safe harbor just means that they can't penalize you for under-withholding or underpayment. It doesn't mean I won't have to write a check on april 15.\",\n \"Why shouldn't I just keep my money in the savings account and earn the same amount (both accounts have the same APY in this case)? I will assume that you are transferring money from your savings account into a Traditional IRA and deducting the contribution from your income. While you may think that the money that is being transferred is yours already -- it is sitting in your savings account, for Pete's sake! -- you are deducting that amount in getting to your taxable income, and so you are effectively contributing it from current income and not paying taxes on the amount contributed. So, consider the same amount of money sitting in your savings account versus the same amount of money sitting in your Traditional IRA account. While you will earn the same amount of interest in both accounts, you will have to pay taxes each year on the interest earned in the savings account. You might choose, as most people do, to not take money out of the savings account to pay theses taxes but just pay them from ready cash/checking account/current income etc., or these taxes might just reduce the refund that you will getting from the IRS and your State income tax authority, but in either case, you have paid taxes on the interest earned in your non-IRA savings account, and of course, long ago, you also paid taxes on the original amount in the non-IRA savings account. So, if you take any money out of the non-IRA savings account, you don't pay any taxes on the amount withdrawn except possibly for the interest earned from January 1 till the date of withdrawal (which you are paying from ready cash). On the other hand, consider the Traditional IRA. The original deposit was not taxed in the sense that you got a deduction (reduced tax or increased refund) when you made the contribution. The annual interest earned was not taxed each year either. So when you make a qualified withdrawal (after age 59.5 or by meeting one of the other exceptions allowing withdrawal before age 59.5), you are taking money on which you have not paid any taxes at all, and the IRS wants its cut. The money withdrawn is taxable income to you. Furthermore, the money withdrawn is not eligible for any kind of favorable treatment such as having it count as qualified dividends or as long-term capital gains even if your IRA was invested in stocks and the money in the account is all qualified dividends or long-term capital gains. If you make an unqualified withdrawal, you owe a penalty (technically named an excise tax) in addition to income tax on the amount withdrawn. If you are investing in a Roth IRA, you will not be getting a deduction when you make the contribution, and qualified withdrawals are completely tax-free, and so the answer is completely different from the above.\",\n \"\\\"The annualized method allows you to take a look at each quarter independently and pay the tax in the quarter that you earned it. -- According to Linda Durand, a certified public accountant with Drolet & Associates PLLC in Washington, D.C., from the Bankrate article \\\"\\\"Paying quarterly estimated taxes\\\"\\\" And after paying annualized quarterly estimates, you can still owe up to $1000 at tax time without penalty.\\\"\",\n \">I could be wrong but you will still get tax at 10% This isn't true for Roths. If I put 5k (post tax of course) money into a Roth 401k or a Roth IRA I can withdraw that 5k whenever I want penalty and tax free. Now lets say that 5k has grown to 7k and I take out all 7k the first 5k is penalty and tax free but the extra 2k is taxed (with the extra 10% penalty added on). So as long as you don't touch any growth in your roth accounts you can withdraw the principal amount with the same consequences you would experience if you were to take money out of your checking account at your bank. Also money in and IRA does not have to be invested it could be in a liquid position. Now a pre tax retirement account doesn't have the same luxury. If I stick 5k into a traditional IRA and it grows to 7k and I pull that money out the entire ammount gets taxed AND penalized (even the principal amount is subject the 10% penalty). Now if you do a Roth conversion (pre-tax to post-tax retirment account conversion) the principal ammount (the amount you paid taxes on) is still subject to the 10% penalty for 5 years. After the 5 years you can withdraw the converted ammount tax and penalty free (well you already paid the taxes) it would just be the growth that is subject to the penalty.\",\n \"The penalty is 10% regardless of the tax. If your marginal rate is so low, I'd consider converting some to Roth each year, and not touching it for tuition.\",\n \"The answer to this question requires looking at the mathematics of the Qualified Dividends and Capital Gains Worksheet (QDCGW). Start with Taxable Income which is the number that appears on Line 43 of Form 1040. This is after the Adjusted Gross Income has been reduced by the Standard Deduction or Itemized Deductions as the case may be, as well as the exemptions claimed. Then, subtract off the Qualified Dividends and the Net Long-Term Capital Gains (reduced by Net Short-Term Capital Losses, if any) to get the non-cap-gains part of the Taxable Income. Assigning somewhat different meanings to the numbers in the OPs' question, let's say that the Taxable Income is $74K of which $10K is Long-Term Capital Gains leaving $64K as the the non-cap-gains taxable income on Line 7 of the QDCGW. Since $64K is smaller than $72.5K (not $73.8K as stated by the OP) and this is a MFJ return, $72.5K - $64K = $8.5K of the long-term capital gains are taxed at 0%. The balance $1.5K is taxed at 15% giving $225 as the tax due on that part. The 64K of non-cap-gains taxable income has a tax of $8711 if I am reading the Tax Tables correctly, and so the total tax due is $8711+225 = $8936. This is as it should be; the non-gains income of $64K was assessed the tax due on it, $8.5K of the cap gains were taxed at 0%, and $1.5K at 15%. There are more complications to be worked out on the QDCGW for high earners who attract the 20% capital gains rate but those are not relevant here.\",\n \"\\\"Your question does not say this explicitly, but I assume that you were once a W-2 employee. Each paycheck a certain amount was withheld from your check to pay income, social security, and medicare taxes. Just because you did not receive that amount of money earned does not mean it was immediately sent to the IRS. While I am not all that savvy on payroll procedures, I recall an article that indicated some companies only send in withheld taxes every quarter, much like you are doing now. They get a short term interest free loan. For example taxes withheld by a w-2 employee in the later months of the year may not be provided to the IRS until 15 January of the next year. You are correct in assuming that if you make 100K as a W-2 you will probably pay less in taxes than someone who is 100K self employed with 5K in expenses. However there are many factors. Provided you properly fill out a 1040ES, and pay the correct amount of quarterly payments, you will almost never owe taxes. In fact my experience has been the forms will probably allow you to receive a refund. Tax laws can change and one thing the form did not include last year was the .9% Medicare surcharge for high income earners catching some by surprise. As far as what you pay into is indicative of the games the politicians play. It all just goes into a big old bucket of money, and more is spent by congress than what is in the bucket. The notion of a \\\"\\\"social security lockbox\\\"\\\" is pure politics/fantasy as well as the notion of medicare and social security taxes. The latter were created to make the actual income tax rate more palatable. I'd recommend getting your taxes done as early as possible come 1 January 2017. While you may not have all the needed info, you could firm up an estimate by 15 Jan and modify the amount for your last estimated payment. Complete the taxes when all stuff comes in and even if you owe an amount you have time to save for anything additional. Keep in mind, between 1 Jan 17 and 15 Apr 17 you will earn and presumably save money to use towards taxes. You can always \\\"\\\"rob\\\"\\\" from that money to pay any owed tax for 2016 and make it up later. All that is to say you will be golden because you are showing concern and planning. When you hear horror stories of IRS dealings it is most often that people spent the money that should have been sent to the IRS.\\\"\",\n \"Is that basically it? Trading off between withdrawing-anytime vs paying-capital-gain-tax? No. Another significant factor is dividends. In an IRA they incur no immediate tax and can be reinvested. This causes the account value to compound over the years. Historically, this compounding of dividends provides about half of the total return on investments. In a non-IRA account you have to pay taxes each year on all dividends received, whether you reinvest them or not. So outside of an IRA you have a tax drag on both capital gains and dividends.\",\n \"Edited in response to JoeTaxpayer's comment and OP Tim's additional question. To add to and clarify a little what littleadv has said, and to answer OP Tim's next question: As far as the IRS is concerned, you have at most one Individual Retirement Account of each type (Traditional, Roth) though the money in each IRA can be invested with as many different custodians (brokerages, banks, etc.) and different investments as you like. Thus, the maximum $5000 ($6000 for older folks) that you can contribute each year can be split up and invested any which way you like, and when in later years you take a Required Minimum Distribution (RMD) from a Traditional IRA, you can get the money by selling just one of the investments, or from several investments; all that the IRS cares is that the total amount that is distributed to you is at least as large as the RMD. An important corollary is that the balance in your IRA is the sum total of the value of all the investments that various custodians are holding for you in IRA accounts. There is no loss in an IRA until every penny has been withdrawn from every investment in your IRA and distributed to you, thus making your IRA balance zero. As long as you have a positive balance, there is no loss: everything has to come out. After the last distribution from your Roth IRA (the one that empties your entire Roth IRA, no matter where it is invested and reduces your Roth IRA balance (see definition above) to zero), total up all the amounts that you have received as distributions from your Roth IRA. If this is less than the total amount of money you contributed to your Roth IRA (this includes rollovers from a Traditional IRA or Roth 401k etc., but not the earnings within the Roth IRA that you re-invested inside the Roth IRA), you have a loss that can be deducted on Schedule A as a Miscellaneous Deduction subject to the 2% AGI limit. This 2% is not a cap (in the sense that no more than 2% of your AGI can be deducted in this category) but rather a threshold: you can only deduct whatever part of your total Miscellaneous Deductions exceeds 2% of your AGI. Not many people have Miscellaneous Deductions whose total exceeds 2% of their AGI, and so they end up not being able to deduct anything in this category. If you ever made nondeductible contributions to your Traditional IRA because you were ineligible to make a deductible contribution (income too high, pension plan coverage at work etc), then the sum of all these contributions is your basis in your Traditional IRA. Note that your deductible contributions, if any, are not part of the basis. The above rules apply to your basis in your Traditional IRA as well. After the last distribution from your Traditional IRA (the one that empties all your Traditional IRA accounts and reduces your Traditional IRA balance to zero), total up all the distributions that you received (don't forget to include the nontaxable part of each distribution that represents a return of the basis). If the sum total is less than your basis, you have a loss that can be deducted on Schedule A as a Miscellaneous Deduction subject to the 2% AGI threshold. You can only deposit cash into an IRA and take a distribution in cash from an IRA. Now, as JoeTaxpayer points out, if your IRA owns stock, you can take a distribution by having the shares transferred from your IRA account in your brokerage to your personal account in the brokerage. However, the amount of the distribution, as reported by the brokerage to the IRS, is the value of the shares transferred as of the time of the transfer, (more generally the fair market value of the property that is transferred out of the IRA) and this is the amount you report on your income tax return. Any capital gain or loss on those shares remains inside the IRA because your basis (in your personal account) in the shares that came out of the IRA is the amount of the distribution. If you sell these shares at a later date, you will have a (taxable) gain or loss depending on whether you sold the shares for more or less than your basis. In effect, the share transfer transaction is as if you sold the shares in the IRA, took the proceeds as a cash distribution and immediately bought the same shares in your personal account, but you saved the transaction fees for the sale and the purchase and avoided paying the difference between the buying and selling price of the shares as well as any changes in these in the microseconds that would have elapsed between the execution of the sell-shares-in-Tim's-IRA-account, distribute-cash-to-Tim, and buy-shares-in-Tim's-personal account transactions. Of course, your broker will likely charge a fee for transferring ownership of the shares from your IRA to you. But the important point is that any capital gain or loss within the IRA cannot be used to offset a gain or loss in your taxable accounts. What happens inside the IRA stays inside the IRA.\",\n \"\\\"There's currently not much reason to keep around a long-term non-deductible Traditional IRA in my opinion -- a Roth IRA is almost strictly better. Think about it: a non-deductible Traditional IRA vs. a Roth IRA of the same amount. In both cases, contributions are after-tax (so no tax deduction). But when you withdraw, for the Roth IRA you don't have to pay tax, and for the non-deductible Traditional IRA, you have to pay tax on the \\\"\\\"earnings\\\"\\\". A Roth IRA can be contributed to at pretty much any income level, thanks to the backdoor Roth IRA process (which uses a temporary non-deductible Traditional IRA in the process). So there is not much reason for a long-term non-deductible Traditional IRA. As for your question, a non-deductible Traditional IRA vs. a taxable account. Well, a non-deductible Traditional IRA is contributed to with after-tax money, and taxed on the earnings only on withdrawal. So the taxation is almost identical to things like stocks and homes, where the gain is not realized until the thing is sold. However, compared to things like savings accounts and bonds, where you get taxed on the interest yearly, it is much better. Every time you get taxed on gains like this, it is taxing gains earned from after-tax money, so if you think of an amount of money as being equivalent to the amount of money it grows to over time (time value of money), then it is taxing money that is (or grown from money that is) already taxed. So it is better to have this only happen at the end at withdrawal than every year.\\\"\",\n \"Excise tax on the excess contribution is 6% a year on the amount of the contribution. In addition, gains will be taxable to you. By adding 20K over the limit, you added $1200 to your tax bill. Withdraw it ASAP. Whatever investment you have in your IRA - you can probably buy it (or a comparable) outside of the IRA.\",\n \"The advantage of an IRA (or 401k) is you get taxed effectively one time on your income, whereas you get taxed effectively multiple times on some of the money in a taxable account. You have to consider it from the perspective of time value of money -- the concept that an amount of money now is the same value as a greater amount of money in the future. And in fact, if you put your money in an investment, the principal at the start can be considered the same value as the principal + earnings at the end. In both Traditional and Roth IRA, you pay taxes on the entire value of money once (remember that the principal when depositing is the same value as the principal + earnings when withdrawing). The only difference is when (year deposited or year withdrawn), so the main difference between the two is the tax rate when depositing vs. tax rate when withdrawing. I'll give you an example to demonstrate. We will assume you invest $1000 of pre-tax wages, it grows at 5% per year, there's a 25% flat tax now and in the future, you withdraw it after 20 years, and withdrawals are not subject to any penalty.\",\n \"\\\"For example, if I have an income of $100,000 from my job and I also realize a $350,000 in long-term capital gains from a stock sale, will I pay 20% on the $350K or 15%? You'll pay 20% assuming filing single and no major offsets to taxable income. Capital gains count towards your income for determining tax bracket. They're on line 13 of the 1040 which is in the \\\"\\\"income\\\"\\\" section and aren't adjusted out/excluded from your taxable income, but since they are taxed at a different rate make sure to follow the instructions for line 44 when calculating your tax due.\\\"\",\n \"Some of the expenses you describe may be eligible to be paid off by a 401(k) without incurring a penalty. As long as you do not mind paying tax on the extra income. If your tax bracket does not go up, then using your IRA may not be a bad idea. You should consult a tax expert and see which expenses can qualify for a withdrawal without penalty. I believe medical bills and medical insurance costs are eligible to be withdrawn without penalty in some instances.\",\n \"You can't say I'm wrong and then go on to explain why exactly what I said is correct. :) You (and I) are in complete agreement that there's no LTCG on either Roth *or* Traditional 401ks, because you pay both as straight income - The former up front, the latter when you withdraw it. My point was that, for virtually everyone, their regular income tax rate is **higher** than their LTCG rate.\",\n \"All of your 401k income is taxable and no more than 85% of your SS income. You can use the worksheets in IRS: Publication 915 to determine what percentage of your SS is taxable. Just as with ordinary income, deductions/exemptions apply and not all that is taxable will be taxed. When you begin drawing SS you'll have the option to have taxes withheld at various rates, more convenient than quarterly estimated payments in my opinion.\",\n \"\\\"Basically, the idea of an IRA is that the money is earned by you and would normally be taxed at the individual rate, but the government is allowing you to avoid paying the taxes on it now by instead putting it in the account. This \\\"\\\"tax deferral\\\"\\\" encourages retirement savings by reducing your current taxable income (providing a short-term \\\"\\\"carrot\\\"\\\"). However, the government will want their cut; specifically, when you begin withdrawing from that account, the principal which wasn't taxed when you put it in will be taxed at the current individual rate when you take it out. When you think about it, that's only fair; you didn't pay taxes on it when it came out of your paycheck, so you should pay that tax once you're withdrawing it to live on. Here's the rub; the interest is also taxed at the individual rate. At the time, that was a good thing; the capital gains rate in 1976 (when the Regular IRA was established) was 35%, the highest it's ever been. Now, that's not looking so good because the current cap gains rate is only 15%. However, these rates rise and fall, cap gains more than individual rates, and so by contributing to a Traditional IRA you simplify your tax bill; the principal and interest is taxed at the individual rate as if you were still making a paycheck. A Roth IRA is basically the government trying to get money now by giving up money later. You pay the marginal individual rate on the contributions as you earn them (it becomes a \\\"\\\"post-tax deduction\\\"\\\") but then that money is completely yours, and the kicker is that the government won't tax the interest on it if you don't withdraw it before retirement age. This makes Roths very attractive to retirement investors as a hedge against higher overall tax rates later in life. If you think that, for any reason, you'll be paying more taxes in 30 years than you would be paying for the same money now, you should be investing in a Roth. A normal (non-IRA) investment account, at first, seems to be the worst of both worlds; you pay individual tax on all earned wages that you invest, then capital gains on the money your investment earns (stock gains and dividends, bond interest, etc) whenever you cash out. However, a traditional account has the most flexibility; you can keep your money in and take your money out on a timeline you choose. This means you can react both to market moves AND to tax changes; when a conservative administration slashes tax rates on capital gains, you can cash out, pay that low rate on the money you made from your account, and then the money's yours to spend or to reinvest. You can, if you're market- and tax-savvy, use all three of these instruments to your overall advantage. When tax rates are high now, contribute to a traditional IRA, and then withdraw the money during your retirement in times where individual tax rates are low. When tax rates are low (like right now), max out your Roth contributions, and use that money after retirement when tax rates are high. Use a regular investment account as an overage to Roth contributions when taxes are low; contribute when the individual rate is low, then capitalize and reinvest during times when capital gains taxes are low (perhaps replacing a paycheck deduction in annual contributions to a Roth, or you can simply fold it back into the investment account). This isn't as good as a Roth but is better than a Traditional; by capitalizing at an advantageous time, you turn interest earned into principal invested and pay a low tax on it at that time to avoid a higher tax later. However, the market and the tax structure have to coincide to make ordinary investing pay off; you may have bought in in the early 90s, taking advantage of the lowest individual rates since the Great Depression. While now, capital gains taxes are the lowest they've ever been, if you cash out you may not be realizing much of a gain in the first place.\\\"\",\n \"The alternative isn't too bad. Invest in a regular account. The dividends and cap gains will see favorable tax treatment. In my opinion, much of the magic of the retirement account is with 401(k) matched deposits. The benefit you'll miss is the long term opportunity to skim income off the top, at say, 25%, have it grow, and then withdraw it at a much lower average tax rate. If that benefit doesn't outweigh the fear of the 10%, stick with my first thought above.\",\n \"One additional note related to Roth vs regular: for a regular 401k or IRA, you pay the 10% penalty on any withdrawal. For a Roth, you can withdraw the contributions early (but not the earnings) without any penalty or tax. Of course, if this is a retirement account it's better to leave it that way. Personally it's one reason I avoid Roth - in addition to probably being in a higher bracket now, I also would prefer not to be able to touch my money. But for some there could be advantages in having that ability (such as in an emergency).\",\n \"\\\"The answer to your first question is true. No tax on withdrawls. Under these circumstances, the withdrawl is \\\"\\\"qualified\\\"\\\". To your second question, as long as the withdrawl is qualified, it is not taxed, regardless of your additional income. http://www.investopedia.com/articles/retirement/03/030403.asp?lgl=rira-baseline-vertical has a very comprehensive, plain English, description of the IRS rules (as of today, anyway).\\\"\",\n \"As littleadv suggested, you are mixing issues. If you have earned income and are able to deduct an IRA deposit, where those actual dollars came from is irrelevant. The fact that you are taking proceeds from one transaction to deposit to the IRA is a booking entry on your side, but the IRS doesn't care. By the way, when you get that $1000 gain, the broker doesn't withhold tax, so if you take the entire $1000 and put it in the IRA, you owe $150 on one line, but save $250 elsewhere, and are still $100 to the positive on your tax return.\",\n \"\\\"I think the math is wrong. Note that in Scenario #1, you are only out of pocket $1000, while in Scenario #2, you are out of pocket $1250; the contribution and the tax you paid with respect to it. A better concept than tax rate is \\\"\\\"Retention Rate\\\"\\\". This is the fraction of your money that the Feds let you keep. And Growth Factor is the how much the investment grows. So In Scenario #1, you multiply $1000 by the investment Growth Factor and then by the retirement Retention Rate. And in Scenario #2, you multiply the same $1000 by the current Retention Rate and then by the Growth Factor. Since in your approximation, the two GFs are the same, there is no saving...\\\"\",\n \"\\\"I wrote a brilliant guest post at Don't Mess With Taxes, titled Roth IRAs and Your Retirement Income. (Note - this article now reflects 2012 rates. Just updated) Simply put, it's an ongoing question of whether your taxes will be higher now than at any point in the future. If you are in the 25% bracket now, it would take quite of bit of money for your withdrawals to put you in that bracket at retirement. In the case of the IRA, you have the opportunity to convert in any year between now and retirement if your rate that year drops for whatever reason. The simplest case is if you are now in the 25% bracket. I say go pre-tax, and track, year by year what your withdrawal would be if you retired today. At 15%, but with a good chance for promotion to the 25% bracket, start with Roth flavor and then as you hit 25%, use a combination. This approach would smooth your marginal rate to stay at 15%. To give you a start to this puzzle, in 2012, a couple has a $11,900 standard deduction along with 2 exemptions of $3800 each. This means the first $19,500 in an IRA comes out tax free at retirement. If you believe in a 4% withdrawal rate, you need a retirement account containing $500K pretax to generate this much money. This tick up with inflation, 2 years ago, it was $18,700 and $467K respectively. This is why those who scream \\\"\\\"taxes will go up\\\"\\\" may be correct, but do you really believe the standard deduction and exemptions will go away? Edit - and as time passes, and I learn more, new info comes to my attention. The above thoughts not withstanding, there's an issue of taxation of Social Security benefits. This creates a The Phantom Tax Rate Zone which I recently wrote about. A single person with not really too high an income gets thrust into the 46% bracket. Not a typo, 46.25% to be exact.\\\"\",\n \"Don't forget inflation. With a Roth 401k (or IRA), you don't pay any taxes on inflationary or real gains. You pay taxes at the beginning and then no more taxes (unless you invest money after you distributed from it). With a regular, taxable investment account (not a 401k or IRA), you pay taxes on the initial amount. And then you pay taxes on the gains, both inflationary and real. So you effectively pay taxes on the inflated principal twice. Once at initial earning and once when it shows up as inflationary gains. I'll give an example later. With a traditional 401k (or IRA), you pay no taxes on the initial amount. You pay taxes on the distributed amount. That includes taxes on gains, but it only taxes them once, not twice. All the taxes are paid at distribution time. Here's a semirealistic example. This is not a real example with real numbers, but the numbers shouldn't be ridiculously off. They could happen. I'm going to ignore variation and pretend that all the numbers will be the same each year so as to simplify the math. So you pay a 25% marginal tax rate and want to invest $12,000 plus any tax savings. Roth: $12,000 principal Traditional IRA (Trad): $16,000 principal with $4000 in tax savings Taxable Investment Account (TIA): $12,000 principal Let's assume that you make an 8% rate of return and inflation is 3%. Both numbers are possible, although higher and lower numbers have occurred in the past. That gives you returns of $960 for the Roth and TIA cases and a return of $1280 for the Trad case. Pay no annual taxes on the Roth or Trad cases. Pay 25% marginal tax on the TIA case, that's $240. Balances after one year: Roth: $12,960 Trad: $17,280 TIA: $12,720 Inflation decreases the value of the Roth and TIA cases by $360 in the Roth and TIA cases. And by $480 in the Trad case. Ten years of inflationary gains (cumulative): Roth: $5354 Trad: $7138 TIA: $4872 Net buildup (including inflationary gains): Roth: $25,907 Trad: $34,543 TIA: $23,168 Real value (minus inflation to maintain spending power): Roth: $20,554 Trad: $27,405 TIA: $18,109 Now take out $3000 per year, after taxes. That's $3000 in the the Roth and TIA cases, as you already paid the taxes. In the Trad case, that's $4000 because you have to pay 25% tax which will cost $1000. Do that for five years and the new balances are Roth: $9931 Trad: $13,241 TIA: $5973 The TIA will run out in the 8th year. The Roth and Trad will both run out in the 9th year. So to summarize. The Traditional IRA initially grows the most. The TIA grows the least. The TIA is tax-advantaged over the Traditional IRA at that point, but it still runs out first. The Roth IRA grows about the same as the Traditional after taxes are included. Note that I left out the matching contribution from a 401k. That would help both those options. I assumed that the marginal tax rate would be 25% on the Traditional IRA distributions. It might be only 15%, which would increase the advantage of the Traditional IRA. I assumed that the 15% rate on capital returns would still be true for the entire period. If that is increased, the TIA option gets a lot worse. Inflation could be higher or lower. As stated earlier, the TIA account is hit the worst by inflation.\",\n \"Without more information about what tax bracket you are in, I cannot make a recommendation about what your best option is, but here are a few things to consider:\",\n \"\\\"IRA contribution must be from your earned income in the sense that you cannot contribute to IRA more than you have in earned income. If all your income is capital gains - you cannot contribute anything to IRA. Once you're within the income limit restriction, it doesn't matter what other money you have, because as you said - once in your account, its all just money. But what you're describing is basically \\\"\\\"I deposit $850 from my salary into an IRA and then go pay for my gas with the $850 I have from the capital gains\\\"\\\", so you're not paying any less taxes here. If it makes you feel any better, you can describe it to yourself the way you did. It doesn't really matter.\\\"\",\n \"The advantage of a Traditional IRA is: tax deduction today. The advantage of a Roth IRA: no tax on withdrawal. Both types are tax-deferred, and have no bearing on the question.\",\n \"\\\"You have a sequence of questions here, so a sequence of answers: If you stopped at the point where you had multiple wins with a net profit of $72, then you would pay regular income tax on that $72. It's a short term capital gain, which does not get special tax treatment, and the fact that you made it on multiple transactions does not matter. When you enter your next transaction that takes the hypothetical loss the question gets more complicated. In either case, you are paying a percentage on net gains. If you took a two year view in the second case and you don't have anything to offset your loss in the second year, then I guess you could say that you paid more tax than you won in the total sequence of trades over the two years. Although you picked a sequence of trades where it does not appear to play, if you're going to pursue this type of strategy then you are likely at some point to run into a case where the \\\"\\\"wash sale\\\"\\\" rules apply, so you should be aware of that. You can find information on this elsewhere on this site and also, for example, here: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02 Basically these rules require you to defer recording a loss under some circumstances where you have rapid wins and losses on \\\"\\\"substantially identical\\\"\\\" securities. EDIT A slight correction, you can take part of your losses in the second year even if you have no off-setting gain. From the IRS: If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately)\\\"\",\n \"\\\"You ask about \\\"\\\"traditional IRA VS taxable (non-retirement) investment account.\\\"\\\" You already know about tax deductible IRAs, which are similar, mostly, to your 401(k). A Traditional IRA can have a non-deducted component. In a sense, it then functions similar to the fully pre-tax IRA as it grows tax free, but then withdrawals are made and taxes paid on the pro-rated not-yet-taxed money. It also offers the simple conversion to a Roth IRA. For those who have no current IRA with pre-tax money, a conversion will be tax free, for those with an existing pretax IRA, conversions are prorated for tax due, if the account had say $10,000, and $5,000 was post-tax, any conversion will have half taxed at your marginal rate.\\\"\",\n \"There is a shortcut you can use when calculating federal estimated taxes. Some states may allow the same type of estimation, but I know at least one (my own--Illinois) that does not. The shortcut: you can completely base your estimated taxes for this year on last year's tax return and avoid any underpayment penalty. A quick summary can be found here (emphasis mine): If your prior year Adjusted Gross Income was $150,000 or less, then you can avoid a penalty if you pay either 90 percent of this year's income tax liability or 100 percent of your income tax liability from last year (dividing what you paid last year into four quarterly payments). This rule helps if you have a big spike in income one year, say, because you sell an investment for a huge gain or win the lottery. If wage withholding for the year equals the amount of tax you owed in the previous year, then you wouldn't need to pay estimated taxes, no matter how much extra tax you owe on your windfall. Note that this does not mean you will not owe money when you file your return next April; this shortcut ensures that you pay at least the minimum allowed to avoid penalty. You can see this for yourself by filling out the worksheet on form 1040ES. Line 14a is what your expected tax this year will be, based on your estimated income. Line 14b is your total tax from last year, possibly with some other modifications. Line 14c then asks you to take the lesser of the two numbers. So even if your expected tax this year is one million dollars, you can still base your estimated payments on last year's tax.\",\n \"You will not necessarily incur a penalty. You can potentially use the Annualized Income Installment method, which allows you to compute the tax due for each quarter based on income actually earned up to that point in the year. See Publication 505, in particular Worksheet 2-9. Form 2210 is also relevant as that is the form you will use when actually calculating whether you owe a penalty after the year is over. On my reading of Form 2210, if you had literally zero income during the first quarter, you won't be expected to make an estimated tax payment for that quarter (as long as you properly follow the Annualized Income Installment method for future quarters). However, you should go through the calculations yourself to see what the situation is with your actual numbers.\",\n \"The earnings portion will be taxed at your marginal tax rate + 10% penalty. If the total is $100, then the earnings portion is probably not very significant for this to be a concern. But it's something you could put into a Roth IRA and let it compound with the rest of your retirement savings. Depending on your age, the compounding effect of $100 invested early enough tax free can be thousands of dollars at retirement. i.e. You have 60 days to deposit it into a Roth IRA. Don't let that pass you by.\",\n \"\\\"IRA distributions are reported on line 15b on the standard form 1040. That is in the same Income section as most of your other income (including that 1099 income and W2 income, etc.). Its income is included in the Line 22 \\\"\\\"Total Income\\\"\\\", from which the Personal Exemption (calculated on 6d, subtracted from the total in line 42) and the Standard Deduction (line 40 - also Itemized Deduction total would be here) are later reduced to arrive at Line 43, \\\"\\\"Taxable Income\\\"\\\". As such, yes, he might owe only the 10% penalty (which is reported on line 59, and you do not reduce this by the deductions, as you surmised).\\\"\",\n \"Using the default values for age and retirement and only making the changes you specified in the question. assumed ROR: 6%, current tax rate: 25%, retirement tax rate: 15%, married, have an employer retirement plan. The results from the two calculators are: Traditional IRA: 631,341 IRA before taxes 536,640 IRA after taxes. Roth IRA: 631,341 Roth IRA 450,207 Taxable Savings where: Total taxable savings The total amount you would have accumulated by retirement in a taxable savings account. your question: The (Traditional) IRA After Taxes value is 6.3% higher than the (Roth) Taxable Savings amount. (Both had an equal gross amount.) Does that mean I should put my money in a tIRA instead of a Roth? My percentages don't match your percentages because you didn't specify the numbers you used. In any case the 450K number shows you what you would have if the money was not invested in an IRA or 401K. To decide between a Roth and a traditional IRA ignore the taxable savings number, that only shows what happens if you decide not not use a retirement account.\",\n \"\\\"Long term: Assuming you sold stock ABC through a registered stock exchange, e.g., the Bombay Stock Exchange or the National Stock Exchange of India, and you paid the Securities Transaction Tax (STT), you don't owe any other taxes on the long term capital gain of INR 100. If you buy stock BCD afterwards, this doesn't affect the long term capital gains from the sale of stock ABC. Short term: If you sell the BCD stock (or the ABC stock, or some combination therein) within one year of its purchase, you're required to pay short term capital gains on the net profit, in which case you pay the STT and the exchange fees and an additional flat rate of 15%. The Income Tax Department of India has a publication titled \\\"\\\"How to Compute your Capital Gains,\\\"\\\" which goes into more detail about a variety of relevant situations.\\\"\",\n \"\\\"Investopedia probably should change the wording to \\\"\\\"tax free\\\"\\\" since all of the gains in a Roth IRA can be withdrawn without any additional taxes at retirement time. Tax deferred should only refer to the gains in a traditional IRA. \\\"\\\"Tax advantaged\\\"\\\" might be a reasonable term to use in both cases.\\\"\",\n \"If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.\",\n \"\\\"Here are the few scenarios that may be worth noting in terms of using different types of accounts: Traditional IRA. In this case, the monies would grow tax-deferred and all monies coming out will be taxed as ordinary income. Think of it as everything is in one big black box and the whole thing is coming out to be taxed. Roth IRA. In this case, you could withdraw the contributions anytime without penalty. (Source should one want it for further research.) Past 59.5, the withdrawals are tax-free in my understanding. Thus, one could access some monies earlier than retirement age if one considers all the contributions that are at least 5 years old. Taxable account. In this case, each year there will be distributions to pay taxes as well as anytime one sells shares as that will trigger capital gains. In this case, taxes are worth noting as depending on the index fund one may have various taxes to consider. For example, a bond index fund may have some interest that would be taxed that the IRA could shelter to some extent. While index funds can be a low-cost option, in some cases there may be capital gains each year to keep up with the index. For example, small-cap indices and value indices would have stocks that may \\\"\\\"outgrow\\\"\\\" the index by either becoming mid-cap or large-cap in the case of small-cap or the value stock's valuation rises enough that it becomes a growth stock that is pulled out of the index. This is why some people may prefer to use tax-advantaged accounts for those funds that may not be as tax-efficient. The Bogleheads have an article on various accounts that can also be useful as dg99's comment referenced. Disclosure: I'm not an accountant or work for the IRS.\\\"\",\n \"Some more considerations: (1) Tax rates (both ordinary and capital gains) are likely to be different when you retire. (2) Your marginal tax rate may be different when you retire depending on how much income you have at the time. In retirement your income may be structured completely differently than when you are working. For example, you may also have a Roth IRA/401K to pull from.\",\n \"He has included this on Schedule D line 1a, but I don't see any details on the actual transaction. It is reported on form 8949. However, if it is fully reported in 1099-B (with cost basis), then you don't have to actually detail every position. Turbotax asked me to fill in individual stock sales with proceeds and cost basis information. ... Again, it seems to be documented on Schedule D in boxes 1a and 8a. See above. I received a 1099-Q for a 529 distribution for a family member. It was used for qualified expenses, so should not be taxable. Then there's nothing to report. I believe I paid the correct amounts based on my (possibly flawed) understanding of estimated taxes. His initial draft had me paying a penalty. I explained my situation for the year, and his next draft had the penalties removed, with no documentation or explanation. IRS assesses the penalty. If you volunteer to pay the penalty, you can calculate it yourself and pay with the taxes due. Otherwise - leave it to the IRS to calculate and assess the penalty they deem right and send you a bill. You can then argue with the IRS about that assessment. Many times they don't even bother, if the amounts are small, so I'd suggest going with what the CPA did.\",\n \"how is it double taxation when you didn't start off with that extra $100? it's double taxation if they taxed you on the total amount you pulled out of the market, not the profit you made. explain the math on your last part, please.\",\n \"Your annual contributions are capped at the maximum of $5500 or your taxable income (wages, salary, tips, self employment income, alimony). You pay taxes by the regular calculations on Form 1040 on your earned income. In this scenario, you earn the income, pay taxes on the amount you earn, and put money in the Roth IRA. The alternative, a Traditional IRA, up to certain income levels, allows you to put the amount you contribute on line 32 of Form 1040, which subtracts the Traditional IRA contribution amount from your Adjusted Gross Income (line 37) before tax is calculated on line 44. In this scenario, you earn the income, put the money in the Traditional IRA, reduce your taxable income, and pay taxes on the reduced amount.\",\n \"Well, whats the source of income from? Social security? Dividends? At 40k that's the good thing about a progressive tax, you wouldn't be taxed heavily. Even 40k of capital gains, which lets be honest is mostly high income individuals, is barely taxed at a higher level than that 40,000k from a fixed income source. Again, that's the gain (aka profit) one is receiving from selling shares of a company.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed at 25%, plus a 10% penalty, for 35% total. Thus the bite on the IRA withdrawal is larger than that on a non-IRA withdrawal. As for the estimated tax issue, I don't think there will be a significant difference there. The reason is that (traditional) IRA withdrawals count as ordinary taxable income (see here). This means that, when you withdraw the funds from your IRA, you will increase your income. If that increase pushes you too far beyond what your withholding is accounting for, then you owe estimated tax. In other words, whether you get the money by selling stocks in a taxable account or by withdrawing them from an IRA, you still increase your taxable income, and thus potentially expose yourself to the estimated tax obligation. (In fact, there may be a difference. As you note, you will pay tax at the capital gains rate on gains from selling in a taxable account. But if you sell the stocks inside the IRA and withdraw, that is ordinary income. However, since ordinary income is taxed at a higher rate than long-term capital gains, you will potentially pay more tax on the IRA withdrawal, since it will be taxed at the higher rate, if your gains are long-term rather than short term. This is doubly true if you withdraw early, incurring the extra 10% penalty. See this question for some more discussion of this issue.) In addition, I think you may be somewhat misunderstanding the nature of estimated tax. The IRS will not \"\"ask\"\" you for a quarterly estimated tax when you sell stock. The IRS does not monitor your activity and send you a bill each quarter. They may indeed check whether your reported income jibes with info they received from your bank, etc., but they'll still do that regardless of whether you got that income by selling in a taxable account or withdrawing money from an IRA, because both of those increase your taxable income. Quarterly estimated tax is not an extra tax; it is just you paying your normal income tax over the course of the year instead of all at once. If your withholdings will not cover enough of your tax liability, you must figure that out yourself and pay the estimated tax (see here); if you don't do so, you may be assessed a penalty. It doesn't matter how you got the money; if your taxable income is too high relative to your withheld tax, then you have to pay the estimated tax. Typically tax will be withheld from your IRA distribution, but if it's not withheld, you'll still owe it as estimated tax.\"","\"Bottom line is this: there's no \"\"short term capital gains tax\"\" in the US. There's only long term capital gains tax, which is lower than the regular (aka ordinary) tax rates. Short term capital gains are taxed using the ordinary tax rates, depending on your bracket. So if you're in the 25% bracket - your short term gains are taxed at 25%. You're describing two options: For the case #1 you'll pay 25% tax (your marginal rate) + 10% penalty (flat rate), total 35%. For the case #2 you'll pay 25% tax (your marginal rate) + 0% penalty. Total 25%. Thus, by withdrawing from IRA you'll be 10% worse than by realizing capital gains. In addition, if you need $10K - taking it from IRA will make the whole amount taxable. While realizing capital gains from a taxable account will make only the gains taxable, the original investment amount is yours and had been taxed before. So not only there's a 10% difference in the tax rate, there's also a significant difference in the amount being taxed. Thus, withdrawing from IRA is generally not a good idea, and you will never be better off with withdrawing from IRA than with cashing out taxable investments (from tax perspective). That's by design.\""],"string":"[\n \"\\\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed at 25%, plus a 10% penalty, for 35% total. Thus the bite on the IRA withdrawal is larger than that on a non-IRA withdrawal. As for the estimated tax issue, I don't think there will be a significant difference there. The reason is that (traditional) IRA withdrawals count as ordinary taxable income (see here). This means that, when you withdraw the funds from your IRA, you will increase your income. If that increase pushes you too far beyond what your withholding is accounting for, then you owe estimated tax. In other words, whether you get the money by selling stocks in a taxable account or by withdrawing them from an IRA, you still increase your taxable income, and thus potentially expose yourself to the estimated tax obligation. (In fact, there may be a difference. As you note, you will pay tax at the capital gains rate on gains from selling in a taxable account. But if you sell the stocks inside the IRA and withdraw, that is ordinary income. However, since ordinary income is taxed at a higher rate than long-term capital gains, you will potentially pay more tax on the IRA withdrawal, since it will be taxed at the higher rate, if your gains are long-term rather than short term. This is doubly true if you withdraw early, incurring the extra 10% penalty. See this question for some more discussion of this issue.) In addition, I think you may be somewhat misunderstanding the nature of estimated tax. The IRS will not \\\"\\\"ask\\\"\\\" you for a quarterly estimated tax when you sell stock. The IRS does not monitor your activity and send you a bill each quarter. They may indeed check whether your reported income jibes with info they received from your bank, etc., but they'll still do that regardless of whether you got that income by selling in a taxable account or withdrawing money from an IRA, because both of those increase your taxable income. Quarterly estimated tax is not an extra tax; it is just you paying your normal income tax over the course of the year instead of all at once. If your withholdings will not cover enough of your tax liability, you must figure that out yourself and pay the estimated tax (see here); if you don't do so, you may be assessed a penalty. It doesn't matter how you got the money; if your taxable income is too high relative to your withheld tax, then you have to pay the estimated tax. Typically tax will be withheld from your IRA distribution, but if it's not withheld, you'll still owe it as estimated tax.\\\"\",\n \"\\\"Bottom line is this: there's no \\\"\\\"short term capital gains tax\\\"\\\" in the US. There's only long term capital gains tax, which is lower than the regular (aka ordinary) tax rates. Short term capital gains are taxed using the ordinary tax rates, depending on your bracket. So if you're in the 25% bracket - your short term gains are taxed at 25%. You're describing two options: For the case #1 you'll pay 25% tax (your marginal rate) + 10% penalty (flat rate), total 35%. For the case #2 you'll pay 25% tax (your marginal rate) + 0% penalty. Total 25%. Thus, by withdrawing from IRA you'll be 10% worse than by realizing capital gains. In addition, if you need $10K - taking it from IRA will make the whole amount taxable. While realizing capital gains from a taxable account will make only the gains taxable, the original investment amount is yours and had been taxed before. So not only there's a 10% difference in the tax rate, there's also a significant difference in the amount being taxed. Thus, withdrawing from IRA is generally not a good idea, and you will never be better off with withdrawing from IRA than with cashing out taxable investments (from tax perspective). That's by design.\\\"\"\n]","isConversational":false}}},{"rowIdx":275,"cells":{"_id":{"kind":"string","value":"6525"},"query":{"kind":"string","value":"Does it make sense to trade my GOOGL shares for GOOG and pocket the difference?"},"gt_ids":{"kind":"list like","value":["181985","98150","106541"],"string":"[\n \"181985\",\n \"98150\",\n \"106541\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["106541","98150","105542","550661","404224","147002","181985","156467","378906","290045","345404","127487","435407","502970","134892","531787","374867","251604","162804","268423","303001","204167","521133","304918","38287","186631","444405","481283","171025","468381","340264","492401","583080","55893","348922","474305","259904","414505","524940","263751","423929","135798","479824","373204","30070","492503","508286","483394","275297","501214","483191","267067","178614","30973","79410","137465","76330","295445","443354","287923","431610","291996","269129","30201","498561","363919","280611","580429","306688","581780","562481","221795","227064","469819","111568","528516","23217","550785","255097","39660","468047","71292","355089","212025","530146","539664","421992","546491","84045","204388","434252","12351","387035","343042","451314","546133","291548","481169","474981","498014"],"string":"[\n \"106541\",\n \"98150\",\n \"105542\",\n \"550661\",\n \"404224\",\n \"147002\",\n \"181985\",\n \"156467\",\n \"378906\",\n \"290045\",\n \"345404\",\n \"127487\",\n \"435407\",\n \"502970\",\n \"134892\",\n \"531787\",\n \"374867\",\n \"251604\",\n \"162804\",\n \"268423\",\n \"303001\",\n \"204167\",\n \"521133\",\n \"304918\",\n \"38287\",\n \"186631\",\n \"444405\",\n \"481283\",\n \"171025\",\n \"468381\",\n \"340264\",\n \"492401\",\n \"583080\",\n \"55893\",\n \"348922\",\n \"474305\",\n \"259904\",\n \"414505\",\n \"524940\",\n \"263751\",\n \"423929\",\n \"135798\",\n \"479824\",\n \"373204\",\n \"30070\",\n \"492503\",\n \"508286\",\n \"483394\",\n \"275297\",\n \"501214\",\n \"483191\",\n \"267067\",\n \"178614\",\n \"30973\",\n \"79410\",\n \"137465\",\n \"76330\",\n \"295445\",\n \"443354\",\n \"287923\",\n \"431610\",\n \"291996\",\n \"269129\",\n \"30201\",\n \"498561\",\n \"363919\",\n \"280611\",\n \"580429\",\n \"306688\",\n \"581780\",\n \"562481\",\n \"221795\",\n \"227064\",\n \"469819\",\n \"111568\",\n \"528516\",\n \"23217\",\n \"550785\",\n \"255097\",\n \"39660\",\n \"468047\",\n \"71292\",\n \"355089\",\n \"212025\",\n \"530146\",\n \"539664\",\n \"421992\",\n \"546491\",\n \"84045\",\n \"204388\",\n \"434252\",\n \"12351\",\n \"387035\",\n \"343042\",\n \"451314\",\n \"546133\",\n \"291548\",\n \"481169\",\n \"474981\",\n \"498014\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Too much fiddling with your portfolio if the difference is 3-4% or less (as it's become in recent months). Hands off is the better advice. As for buying shares, go for whichever is the cheapest (i.e. Goog rather than Googl) because the voting right with the latter is merely symbolic. And who attends shareholders' meetings, for Pete's sake? On the other hand, if your holdings in the company are way up in the triple (maybe even quadruple) figures, then it might make sense to do the math and take the time to squeeze an extra percentage point or two out of your Googl purchases. The idle rich occupying the exclusive club that includes only the top 1% of the population needs to have somethinng to do with its time. Meanwhile, the rest of us are scrambling to make a living--leaving only enough time to visit our portfolios as often as Buffett advises (about twice a year).","It appears very possible that Google will not have to pay any class C holders the settlement amount, given the structure of the settlement. This is precisely because of the arbitrage opportunity you've highlighted. This idea was mentioned last summer in Dealbreaker. As explained in a Dealbook article: The settlement requires Google to pay the following amounts if, one year from the issuance of the Class C shares, the value diverges according to the following formula: If the C share price is equal to or more than 1 percent, but less than 2 percent, below the A share price, 20 percent of the difference; If the C share price is equal to or more than 2 percent, but less than 3 percent, below the A share price, 40 percent of the difference; If the C share price is equal to or more than 3 percent, but less than 4 percent, below the A share price, 60 percent of the difference; If the C share price is equal to or more than 4 percent, but less than 5 percent, below the A share price, 80 percent of the difference.” If the C share price is equal to or more than 5 percent below the A share price, 100 percent of the difference, up to 5 percent. ... If the Class A shares trade around $450 (after the split/C issuance) and the C shares trade at a 4.5 percent discount during the year (or $429.75 per share), then investors expect a payment of: 80 percent times $450 times 4.5 percent = $16.20. The value of C shares would then be $445.95 ($429.75 plus $16.20). But if this is the new trading value during the year, that’s only a discount of less than 1 percent to the A shares. So no payment would be made. But if no payment is made, we are back to the full discount and this continues ad infinitum. In other words, the value of a stock can be displayed as: {equity value} + {dividend value} + {voting value} + {settlement value} = {total share value} If we ignore dividend and voting values, and ignore premiums and discounts for risk and so forth, then the value of a share is basic equity value plus anticipated settlement payoff. The Google Class C settlement is structured to reduce the payoff as the value converges. And the practice of arbitrage guarantees (if you buy into at least semi-strong EMH) that the price of C shares will be shored up by arbitrageurs that want the payoff. The voting value of GOOGL is effectively zero, since the non-traded Class B shares control all company decisions. So the value of the Class A GOOGL voting is virtually zero for the time being. The only divergence between GOOGL and GOOG price is dividends (which I believe is supposed to be the same) and the settlement payoff. Somebody who places zero value on the vote and who expects dividend difference to be zero should always prefer to buy GOOG to GOOGL until the price is equal, disregarding the settlement. So technically someone is better off owning GOOG, if dividends are the same and market prices are equal, just because the vote is worthless and the nonzero chance of a future settlement payoff is gravy. The arbitrage itself is present because a share that costs (as in the article) $429.75 is worth $445.95 if the settlement pays out at that rate. The stable equilibrium is probably either just before or just after the threshold where the settlement pays off, depending on how reliably arbitrageurs can predict the movement of GOOG and GOOGL. If I can buy a given stock for X but know that it's worth X+1, then I'm willing to pay up to X+1. In the google case, the GOOG stock is worth X+S, where S is an uncertain settlement payment that could be zero or could be substantial. We have six tiers of S (counting zero payoff), so that the price is likely to follow a pattern from X to X+S5 to X-S5+S4 to X-S4+S3, and climbing the tier ladder until it lands in the frontier between X+S1 and X+S0. Every time it jumps into X+S1, people should be willing to pay that new amount for GOOG, so the price moves out of payoff range and into X+S0, where people will only pay X. I'm actually simplifying here, since technically this is all based on future expectations. So the actual price you'd pay is expressed thus: {resale value of GOOG before settlement payoff = X} + ( {expectation that settlement payoff will pay 100% of difference = S5} * {expected nominal difference between GOOG and GOOGL = D} ) + ({S4} * {80% D}) + ({S3} * {60% D}) + ({S2} * {40% D}) + ({S1} * {20% D}) + ({S0} * {0% D}) = {price willing to pay for Class C GOOG = P} Plus you'd technically have to present value the whole thing for the time horizon, since the payoff is in a year. Note that I've shunted any voting/dividend analysis into X. It's reasonable to thing that S5, S4, S3, and maybe S2 are nearly zero, given the open arbitrage opportunity. And we know that S0 times 0% of D is zero. So the real analysis, again ignoring PV, is thus: P = X + (S1*D) Which is a long way of saying: what are the odds that GOOG will happen to be worth no more than 99% of GOOGL on the payoff determination date?","\"Note that these used to be a single \"\"common\"\" share that has \"\"split\"\" (actually a \"\"special dividend\"\" but effectively a split). If you owned one share of Google before the split, you had one share giving you X worth of equity in the company and 1 vote. After the split you have two shares giving you the same X worth of equity and 1 vote. In other words, zero change. Buy or sell either depending on how much you value the vote and how much you think others will pay (or not) for that vote in the future. As Google issues new shares, it'll likely issue more of the new non-voting shares meaning dilution of equity but not dilution of voting power. For most of us, our few votes count for nothing so evaluate this as you will. Google's founders believe they can do a better job running the company long-term when there are fewer pressures from outside holders who may have only short-term interests in mind. If you disagree, or if you are only interested in the short-term, you probably shouldn't be an owner of Google. As always, evaluate the facts for yourself, your situation, and your beliefs.\"","Google will be issuing Class C shares (under the ticker symbol GOOCV) to current GOOG holders in the beginning of April. The Class C shares and Class A shares will then change symbols, with the Class C shares trading under GOOG. This was announced on January 30th. Details are in this benzinga article: Projected Trading Timeline March 27 - April 2 Record Date - Payment Date Class C shares commence trading on March 27 as GOOCV on a when issued basis Class A shares continue to trade as GOOG, with entitlement to Class C shares Class A shares will also trade on an ex-distribution basis, without entitlement to the Class C shares, as GOOAV April 3 EX Date The ticker for the Class A shares will change from GOOG to GOOGL The ticker for the Class C shares will change from GOOCV to GOOG and commence regular way trading The ticker for the Class A shares that traded on an ex-distribution basis - GOOAV - will be suspended","Presumably you're talking about the different share class introduced in the recent stock split, which mean that there are now three Google share classes: Due to the voting rights, Class A shares should be worth more than class C, but how much only time will tell. Actually, one could very well argue that a non-voting share of a company that pays no dividends has no value at all. It's unlikely the markets will see it that way, though.","For each class A share (GOOGL) there's a class C share (GOOG), hence the missing half in your calculation. The almost comes from the slightly higher market price of the class A shares (due to them having voting powers) over class C (which have no voting powers). There's also class B share which is owned by the founders (Larry, Sergei, Eric and perhaps some to Stanford University and others) and differs from class A by the voting power. These are not publicly traded.","\"To keep it simple, let's say that A shares trade at 500 on average between April 2nd 2014 and April 1st 2015 (one year anniversary), then if C shares trade on average: The payment will be made either in cash or in shares within 90 days. The difficulties come from the fact that the formula is based on an average price over a year, which is not directly tradable, and that the spread is only covered between 1% and 5%. In practice, it is unlikely that the market will attribute a large premium to voting shares considering that Page&Brin keep the majority and any discount of Cs vs As above 2-3% (to include cost of trading + borrowing) will probably trigger some arbitrage which will prevent it to extend too much. But there is no guarantee. FYI here is what the spread has looked like since April 3rd: * details in the section called \"\"Class C Settlement Agreement\"\" in the S-3 filing\"","You are right: if the combined value of all outstanding GOOG shares was $495B, and the combined value of all GOOGL shares was $495B, then yes, Alphabet would have a market cap of at least $990B (where I say at least only because I myself don't know that there aren't other issues that should be in the count as well). The respective values of the total outstanding GOOG and GOOGL shares are significantly less than that at present though. Using numbers I just grabbed for those tickers from Google Finance (of course), they currently stand thus:","Short answer: No, it only matters if you want to use covered calls strategies. The price of a share is not important. Some companies make stock splits from time to time so that the price of their shares is more affordable to small investors. It is a decision of the company's board to keep the price high or low. More important is the capitalization for these shares. If you have lots of money to invest, the best is to divide and invest a fixed pourcentage of your portfolio in each company you choose. The only difference is if you eventually decide to use covered call strategies. To have a buy write on Google will cost you a lot of money and you will only be able to sell 1 option for every 100 shares. Bottom line: the price is not important, capitalization and estimated earnings are. Hope this answers your question.","You should get a 1099-MISC for the $5000 you got. And your broker should send you a 1099-B for the $5500 sale of Google stock. These are two totally separate things as far as the US IRS is concerned. 1) You made $5000 in wages. You will pay income tax on this as well as FICA and other state and local taxes. 2) You will report that you paid $5000 for stock, and sold it for $5500 without holding it for one year. Since this was short term, you will pay tax on the $500 in income you made. These numbers will go on different parts of your tax form. Essentially in your case, you'll have to pay regular income tax rates on the whole $5500, but that's only because short term capital gains are treated as income. There's always the possibility that could change (unlikely). It also helps to think of them separately because if you held the stock for a year, you would pay different tax on that $500. Regardless, you report them in different ways on your taxes.","The stock split, it is similar to what happened to Apple a little while back. When Google split 2 to 1, it means that each share holder got 2 shares for each 1 share they had and each share was 1/2 the price.","There is no difference between more shares of a relatively cheaper stock and less shares of a relatively more expensive stock. When you invest in a stock, the percentage increase (or decrease) in the share price results in gains (or losses). This is a fundamental concept of investing. Your question suggests that you would benefit from further research before investing your money. Trading real dollars can be difficult without a strong understanding of the principles involved. Investing your money without a good knowledge base will likely be stressful and could have a discouraging effect if it doesn't go well. Before you open an investment account, read up on investing fundamentals, particularly mutual funds as those can be a great place to start as a new investor. There are many sources of information including books, websites such as http://investor.gov/investing-basics and this website. Don't skip the sections on taxes, as those matter just as much and sometimes more than the simple buying and selling. You might look at tax advantaged accounts, such as 401k's, IRA's, etc. It shouldn't take long but it will be one of the most important things you do as a beginning investor. Everyone has to start here. Understanding the vocabulary and concepts will likely save you time and money throughout your investing life.","It seems at most a cosmetic difference - nothing keeps you from adding the 9$ cash to the fund the same day the fees are deducted from the shares.","It was actually a reverse split meaning that every 10 shares you had became 1 share and the price should be 10x higher. - Citigroup in reverse split The chart just accounts for the split. The big dip is Googles way of showing from what price it split from. If you remember before the split the stock was trading around $4-$5 after the reverse split the stock became 10x higher. Just to clear it up a 1:2(1 for 2) split would mean you get 1 share for every 2 shares you have. This is known as a reverse split. A 2:1(2 for 1) split means you get 2 shares for every 1 share you have. The first number represents the amount of shares you will receive and the second number represents how many shares you will be giving up.","http://mobile.nytimes.com/blogs/economix/2014/04/02/the-many-classes-of-google-stock/ Are you counting both class A and other share classes?","\"There's an expression, \"\"stock prices have no memory.\"\" Apple trades at about $115. Why would I carry my shares at anything but $115 even though I paid say $75 a share, while you just bought it at $115? The only difference, perhaps, is that if I hold them in a non retirement account, I might track the net I'd have, post tax.\"","Does this make sense? I'm concerned that by buying shares with post tax income, I'll have ended up being taxed twice or have increased my taxable income. ... The company will then re-reimburse me for the difference in stock price between the vesting and the purchase share price. Sure. Assuming you received a 100-share RSU for shares worth $10, and your marginal tax rate is 30% (all made up numbers), either: or So you're in the same spot either way. You paid $300 to get $1,000 worth of stock. Taxes are the same as well. The full value of the RSU will count as income either way, and you'll either pay tax on the gains of the 100 shares in your RSU our you'll pay tax on gains on the 70 shares in your RSU and the 30 shares you bought. Since they're reimbursing you for any difference the cost basis will be the same (although you might get taxed on the reimbursement, but that should be a relatively small amount). This first year I wanted to keep all of the shares, due to tax reasons and because believe the share price will go up. I don't see how this would make a difference from a tax standpoint. You're going to pay tax on the RSU either way - either in shares or in cash. how does the value of the shares going up make a difference in tax? Additionally I'm concerned that by doing this I'm going to be hit by my bank for GBP->USD exchange fees, foreign money transfer charges, broker purchase fees etc. That might be true - if that's the case then you need to decide whether to keep fighting or decide if it's worth the transaction costs.","They are 2 different class of shares belonging to the same company. Class A shares [par value of 0.01] have 100 voting rights per share. Class B shares [par value of 0.0002] have one voting rights. Both are listed separately with different ISN and trade at slightly different values. The Class A at higher value than Class B which looks right as it has more voting power.","the difference would be taxes... Lets say you have two lots, one with a 10 dollar gain, and one with a 20 dollar gain. And lets say you decide to sell one lot this year, and the other lot in 10 years. AND, lets say that it turns out the stock price is exactly the same in ten years as it is when you sell the first lot. In all likelyhood, you'll have more income, and therefore you are likely to be in a different marginal tax rate. If you believe that you're more likely to pay more taxes in 10 years, then sell the lot with the higher gain now. If you believe you're more likely to pay more taxes now, then sell the lot with the lower gain now.","Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that.","I agree that their tech incubator works great, but with so much extra cash, I can imagine how investors are frustrated with it just sitting there. If goog paid dividends the investore have the option to plough it back into the company to help fund r&d, or to invest it elsewhere. As it stands, the only options that the investors have are to stay for the ride, or do the wall street walk. Also, nice username. U wsb, bro?","If you aren't familiar with Norbert's Gambit, it's worth looking at. This is a mechanism using a Canadian brokerage account to simultaneously execute one stock trade in CAD and one in USD. The link I provided claims that it only starts potentially making sense somewhere in the 10,000+ range.","My broker offers a service to transfer the shares where you only pay commission once. Therefore say if standard commission is £10, then you don't end up paying £20 (10 for selling + 10 for buy back). You'll have to be okay with the spread though. Hope this helps.","If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?","I don't believe in letting the tax tail wag the investing dog. You have a stock you no longer wish to hold for whatever reason? Sell it. But to sell a loser, hoping it doesn't rise by the time you wish to re-buy it in 30 days is folly. This effort may gain you $50 if done right. No, it's not worth it either way.","Assuming you plan to buy a whole number of shares and have a maximum dollar value you intend to invest, it may be better to wait for the split if the figures don't quite work out nicely. For example, if you are going to invest $1,000 and the stock pre-split is $400 and the split is 2 for 1, then you'd buy 2 shares before the split unless you have an extra $200 to add. Meanwhile, after the split you could buy 5 shares at $200 so that you invest all that you intend. Aside from that case, it doesn't really make a difference since the split is similar to getting 2 nickels for a dime which in each case is still a total value of 10 cents.","Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it.","Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.","Alphabet has about 40% on shore or 60%. I know it is 60/40 but forget which way. So way, way more than they really need. What Apple does is borrow against the offshore money when needed, Apple now has over $90b in debt and Google less than $4b. So Google would not have any problem.","I have not looked in details but apparently the company has (at least) a dual listing in Hong Kong (its main listing, ticker 700) and in the US (ticker TCTZF). It also has an ADR (TCEHY), the underlying of which is the HK line. The two US listings essentially trade at the same price and will provide very similar returns but a major difference is that TCTZF pays dividends in HKD whereas TCEHY pays its dividends in USD. The latter may be more convenient depending on the account you use to trade the stock. The ADR line is also more liquid.","That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not want to exercise the options. However, what is not weird is the way income tax works, you are taxed on your income in the US. I assume you are talking about the US here. So if you exercise 10K shares, if under either option, you will be taxed on the profit from those share. Profit = (actual price - strike price) * shares - fees","All corporate gains are taxed at the same rate as corporate income, for the corporate entity, so this actually can be WORSE than the individual capital gains tax rates. There are a lot of things you can do with trading certain asset classes, like opening you up to like-kind re-investment tax perks, but I can't think of anything that helps with stocks. Also, in the US there is now a law against doing things solely to avoid tax if they have no other economic purpose. So be conscious about that, you'll need to be able to rationalize at least a thin excuse for why you jumped through all the hoops.","As yet another explanation of why it does not really matter, you can look at this from the valuation point of view. Stock price is the present value of its future cash flows (be it free cash flow of the firm or dividends, depending on the model). Let's have a look at the dividends case. Imagine, the price of the stock is based on only three dividends streams $5 dollars each: dividend to be paid today, in year 1, and in year 2. Each should be discounted back to today (say, at 10%), except today's dividend, since today is now. Once that dividend is paid, it is no longer in the stream of cash flows. So if we just delete that first $5 from the formula, the price will adjust itself down by the amount of the dividend to $8.68. NOTE that this is a very simple example, since in reality cash flows streams are arguably infinite and because there are many other factors affecting stock price. But simply for your understanding, this example should provide you with the reason simply from the valuation perspective.","Your three options are: Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have the same effect as option 2 with no transaction costs. The loss will likely also offset some of the other short term gains you mentioned.","There can be a good reason if you own shares issued in a different country: For example, if you are in the UK and own US shares and take the dividend payments, you get some check in US dollars that you will have to exchange to UK£, which means you pay fees - mostly these fees are fixed, so you lose a significant percentage of your dividends. By reinvesting and selling shares accumlated over some years, you got one much bigger check and pay only one fee.","No, there is no real advantage. The discrepancies in how they track the index will (generally) be so small that this provides very, very limited diversification, while increasing the complexity of your investments.","If you are looking to re-invest it in the same company, there is really no difference. Please be aware that when a company announces dividend, you are not the only person receiving the dividend. The millions of share holders receive the same amount that you did as dividend, and of course, that money is not falling from the sky. The company pays it from their profits. So the day a dividend is announced, it is adjusted in the price of the share. The only reason why you look for dividend in a company is when you need liquidity. If a company does not pay you dividend, it means that they are usually using the profits to re-invest it in the business which you are anyway going to do with the dividend that you receive. (Unless its some shady company which is only established on paper. Then they might use it to feed their dog:p). To make it simpler lets assume you have Rs.500 and you want to start a company which requires Rs 1000 in capital : - 1.) You issue 5 shares worth Rs 100 each to the public and take Rs 100 for each share. Now you have Rs 1000 to start your company. 2.) You make a profit of Rs 200. 3.) Since you own majority of the shares you get to make the call whether to pay Rs.200 in dividend, or re-invest it in the business. Case 1:- You had issued 10 shares and your profit is Rs 200. You pay Rs. 20 each to every share holder. Since you owned 5 shares, you get 5*20 that is Rs.100 and you distribute the remaining to your 5 shareholders and expect to make the same or higher profit next year. Your share price remains at Rs.100 and you have your profits in cash. Case 2:- You think that this business is awesome and you should put more money into it to make more. You decide not to pay any dividend and invest the entire profit into the business. That way your shareholders do not receive anything from you but they get to share profit in the amazing business that you are doing. In this case your share price is Rs. 120 ((1000+200)/10) and all your profits are re-invested in the business. Now put yourself in the shareholders shoes and see which case suits you more. That is the company you should invest in. Please note: - It is very important to understand the business model of the company before you buy anything! Cheers,","\"The key difference I've found between a stock split and a stock dividend – of the exact same stock and class, as opposed to a spin-off – seems to be from the company's own accounting perspective. There doesn't appear to be any actual transfer of value to the shareholder with either kind of transaction; i.e. in theory, each transaction would be immaterial to the value of your holdings. With respect to the company's accounting, a stock split affects the par value of the shares, whereas a stock dividend reduces the retained earnings account in order to increase paid-in or contributed capital. I found a good online source which explains the history behind this accounting difference: McGraw-Hill - Intermediate Accounting eBook, 6/e - Chapter 18 - Stock Dividends and Splits. Small quote: [...] Besides being based on fallacious reasoning, accounting for stock dividends by artificially reclassifying “earned” capital as “invested” capital conflicts with the reporting objective of reporting shareholders' equity by source. Despite these limitations, this outdated accounting standard still applies. Since neither the corporation nor its shareholders apparently benefits from stock dividends, why do companies declare them?23 Occasionally, a company tries to give shareholders the illusion that they are receiving a real dividend. Another reason is merely to enable the corporation to take advantage of the accepted accounting practice of capitalizing retained earnings. Specifically, a company might wish to reduce an existing balance in retained earnings—otherwise available for cash dividends—so it can reinvest the earned assets represented by that balance without carrying a large balance in retained earnings. [...] There's a lot more on that page, before and after, worth reading. From another book: Google Books - Comparative Income Taxation, a Structural Analysis - page 314 - Stock Dividends. Small quote: The distribution of dividends in the form of stock or \"\"bonus\"\" shares to existing shareholders typically involves a transfer for corporate law purposes of retained earnings into stated capital. It can been [sic] viewed as a deemed distribution of a cash dividend to the shareholders followed by a corresponding contribution to capital or as solely as an event at the corporate level which has no effect on the shareholders whose economic interest in the corporation is unchanged by the receipt of additional shares. The systems have taken varied approaches to the stock dividend problem. The treatment is in part a function of the rules dealing with distributions of stated capital. [emphases above are mine] [... continues w/descriptions of different countries' tax treatments of the kinds of stock dividends. Includes U.S., Sweden, Japan, Netherlands, Canada, Australia, U.K., France, Germany. ...] As far as why a corporation might want to capitalize earnings and reduce the equity otherwise available for dividends, I can only imagine that, ignoring taxes for a moment, that it may have something to do with capital ratios that need to be maintained for financing or regulatory purposes? Yet, I remain curious. If I discover more on this then I'll update my answer. Additional resources:\"","One difference is the bid/ask spread will cost you more in a lower cost stock than a higher cost one. Say you have two highly liquid stocks with tiny spreads: If you wanted to buy say $2,000 of stock: Now imagine these are almost identical ETFs tracking the S&P 500 index and extrapolate this to a trade of $2,000,000 and you can see there's some cost savings in the higher priced stock. As a practical example, recently a popular S&P 500 ETF (Vanguard's VOO) did a reverse split to help investors minimize this oft-missed cost.","I guess the answer lies in your tax jurisdiction (different countries tax capital gains and income differently) and your particular tax situation. If the price of the stock goes up or down between when you buy and sell then this counts for tax purposes as a capital gain or loss. If you receive a dividend then this counts as income. So, for instance, if you pay tax on income but not on capital gains (or perhaps at a lower rate on capital gains) then it would pay you to sell immediately before the stock goes ex-dividend and buy back immediately after thereby making a capital gain instead of receiving income.","If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.","\"It depends on how big the dilution is. Could be a good trade. Do the math yourself, many times nobody else has as all the employees think they are going to get rich because \"\"options\"\" :)\"","I'm not too sure tbh, i'm just getting my series 7 first before anything. But thank you for such a well thought out response. I'd probably trade something that has a bit more volatility like BAC or something though.","Unless your brokerage will sell you fractional shares, the most obvious difference (without us knowing the actual identify of the companies) is that with the $260 one, you will have 3 shares plus you will have $220 minus commission left over that you wanted to invest but weren't able to simply because of the mechanics of long division. You could put that $220 into one of the cheaper stocks, but now the multiple commissions will start to eat your returns. My personal opinion is you should go for a low cost index mutual fund or ETF, and wait to pick individual stocks until you have more than $1000 to work with (and even then, probably still go with the low cost index fund)","I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock. In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes buy the option and sell the one a year out. I prefer to do this in my IRA account as the trading creates no tax issue.","I will assume that you are not asking in the context of high frequency trading, as this is Personal Finance Stack Exchange. It is completely acceptable to trade odd lots for retail brokerage customers. The odd lot description that you provided in your link, from Interactive Brokers is correct. But even in that context, it says, regarding the acceptability of odd lots to stock exchanges: The exception is that odd lots can be routed to NYSE/ARCA/AMEX, but only as part of a basket order or as a market-on-close (MOC) order. Google GOOG is traded on the NASDAQ. Everything on the NASDAQ is electronic, and always has been. You will have no problem selling or buying less than 100 shares of Google. There is also an issue of higher commissions with odd lots: While trading commissions for odd lots may still be higher than for standard lots on a percentage basis, the popularity of online trading platforms and the consequent plunge in brokerage commissions means that it is no longer as difficult or expensive for investors to dispose of odd lots as it used to be in the past. Notice what it says about online trading making it easier, not more difficult, to trade odd lots.","\"While I'm sure there's some truth to the argument that unsophisticated retail investors index against the S&P 500 thinking that they're tracking \"\"the market,\"\" I don't think it makes sense to steer the S&P 500 in that direction to cater to that lowest common denominator. The *ad absurdum* conclusion of that course of action, of course, would be to abolish the S&P 500 entirely and move those assets into the S&P Total Market Index. But clearly there's value in having an index that tracks US large-caps with single share classes, just as there's value in having an index that tracks US large-caps in general. As for whether it will be a loss for passive investors...it will be interesting to see how that pans out. Maybe good corporate governance and direct accountability by managers really do contribute positively to returns in the long run and investors will benefit from this change as a result. Or maybe this will result in companies with multiple share classes being undervalued and create an opportunity to earn outsized returns by investing in them, and indexes that omit those companies will underperform. Only time will tell.\"","What might make more sense is to 'capture' your losses. Sell out the funds you have, move into something else that is different enough that the IRS won't consider it a wash sale, and you can then use those losses to offset gains (you can even carry them forward) You would still be in the market, just having made a sort of 'sideways move'. A month or two later (once you are clear of wash sale rules) you could shift back to your original choices. (this answer presumes you are in the US, or somewhere that lets you use losses to offset gains)","In the scenario you describe, the first thing I would look at would be liquidity. In other words, how easy is it to buy and sell shares. If the average daily volume of one share is low compared to the average daily volume of the other, then the more actively traded share would be the more attractive. Low volume shares will have larger bid-offer spreads than high volume shares, so if you need to get out of position quickly you will be at risk of being forced to take a lowball offer. Having said that, it is important to understand that high yielding shares have high yields for a reason. Namely, the market does not think much of the company's prospects and that it is likely that a cut in the dividend is coming in the near future. In general, the nominal price of a share is not important. If two companies have equal prospect, then the percentage movement in their share price will be about the same, so the net profit or loss you realise will be about the same.","This will work as intended, but there's another point to consider. In the US, the tax rate on proceeds from stock sales is higher for short term holdings, which are defined as held for less than one year. Both rates vary based on your income. Bracket numbers are for fiscal year 2014, filing as single. The difference between short and long term capital gains tax in the US is a minimum of ten percentage points, and works out to 15 percentage points on average. This is substantial. If you won't be reporting much income the year you move to the US (say because you only worked for a portion of the year) it is decidedly to your advantage to wait and sell the stocks in the US, to get that sweet 0% rate. At a minimum, you should hold the position for a year if you sell and rebuy, from a tax optimization perspective. Two caveats:","From their 10-K pulled directly from Edgar: As of October 22, 2015, there were 291,327,781 shares of Alphabet Inc.’s (the successor issuer pursuant to Rule 12g-3(a) under the Exchange Act as of October 2, 2015) (Alphabet) Class A common stock outstanding, 50,893,362 shares of Alphabet's Class B common stock outstanding, and 345,504,021 Alphabet's Class C capital stock outstanding. From here just do the math. The shares outstanding are listed on the first page of the 10-Q and 10-K reports. Edit: I believe Class B shares in this instance are not traded on the market and therefore would not be included.","In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different.","The difference is ordinary income. If the price drops and you sell for exactly what you paid, you have an income of D and a capital loss of D which usually cancel each other, but not always. For example, if you already have over $3000 in losses, this loss won't help you, it will carry forward. The above changes a bit if you hold the stock for 2 years after the beginning of the purchase period. If sold between your purchase price and fair market the day you bought, the gain is only the difference, no gain to fair market + loss. Pretty convoluted. Your company should have provided you with a brief FAQ / Q&A to explain this. My friends at Fairmark have an article that explains the ESPP process clearly, Tax Reporting for Qualifying Dispositions of ESPP Shares.","Yes, the net effect is zero. If you own zero shares by Nov 30, for example, and don't buy any more shares by 12/31, the year is done, and nothing left to account for.","On NYSE it isn't the equity which is listed but is an ADR(American Depositary Receipt). Source A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction. Else people would make a killing on the arbitrage opportunity. Frankly speaking arbitrage opportunities are more or less non existent. They occur for maybe seconds or milliseconds and the HFT firms and banks trade on it to remove the arbitrage.","I'm fairly convinced there is no difference whatsoever between dividend payment and capital appreciation. It only makes financial sense for the stock price to be decreased by the dividend payment so over the course of any specified time interval, without the dividend the stock price would have been that much higher were the dividends not paid. Total return is equal. I think this is like so many things in finance that seem different but actually aren't. If a stock does not pay a dividend, you can synthetically create a dividend by periodically selling shares. Doing this would incur periodic trade commissions, however. That does seem like a loss to the investor. For this reason, I do see some real benefit to a dividend. I'd rather get a check in the mail than I would have to pay a trade commission, which would offset a percentage of the dividend. Does anybody know if there are other hidden fees associated with dividend payments that might offset the trade commissions? One thought I had was fees to the company to establish and maintain a dividend-payment program. Are there significant administrative fees, banking fees, etc. to the company that materially decrease its value? Even if this were the case, I don't know how I'd detect or measure it because there's such a loose association between many corporate financials (e.g. cash on hand) and stock price.","You bought 1 share of Google at $67.05 while it has a current trading price of $1204.11. Now, if you bought a widget for under $70 and it currently sells for over $1200 that is quite the increase, no? Be careful of what prices you enter into a portfolio tool as some people may be able to use options to have a strike price different than the current trading price by a sizable difference. Take the gain of $1122.06 on an initial cost of $82.05 for seeing where the 1367% is coming. User error on the portfolio will lead to misleading statistics I think as you meant to put in something else, right?","Also important to keep in mind is the difference in liquidity. The stock could be very liquid in 1 exchange but not in another. When times get bad, liquidity could dry up 1 one exchange, which results in a trading discount.","Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.","\"Offset against taxable gains means that the amount - $25 million in this case - can be used to reduce another sum that the company would otherwise have to pay tax on. Suppose the company had made a profit of $100 million on some other investments. At some point, they are likely to have to pay corporation tax on that amount before being able to distribute it as a cash dividend to shareholders. However if they can offset the $25 million, then they will only have to pay tax on $75 million. This is quite normal as you usually only pay tax on the aggregate of your gains and losses. If corporation tax is about 32% that would explain the claimed saving of approximately $8 million. It sounds like the Plaintiffs want the stock to be sold on the market to get that tax saving. Presumably they believe that distributing it directly would not have the same effect because of the way the tax rules work. I don't know if the Plaintiffs are right or not, but if they are the difference would probably come about due to the stock being treated as a \"\"realized loss\"\" in the case where they sell it but not in the case where they distribute it. It's also possible - though this is all very speculative - that if the loss isn't realised when they distribute it directly, then the \"\"cost basis\"\" of the shareholders would be the price the company originally paid for the stock, rather than the value at the time they receive it. That in turn could mean a tax advantage for the shareholders.\"","You are still selling one investment and buying another - the fact that they are managed by the same company should be irrelevant. So yes, it would get the same tax treatment as if they were managed by different companies.","\"Dividends are a way of distributing profits from operating a business to the business owners. Why would you call it \"\"wasting money\"\" is beyond me. Decisions about dividend distribution are made by the company based on its net revenue and the needs of future capital. In some jurisdictions (the US, for example), the tax policy discourages companies from accumulating too much earnings without distributing dividends, unless they have a compelling reason to do so. Stock price is determined by the market. The price of a stock is neither expensive nor cheap on its own, you need to look at the underlying company and the share of it that the stock represents. In case of Google, according to some analysts, the price is actually quite cheap. The analyst consensus puts the target price for the next 12 months at $921 (vs. current $701).\"","Unless you suffer from the illusion that you can time the market, it honestly doesn't matter much; the difference is lost in the noise. That may be true even if you do suffer from that illusion. Also, as discussed here previously, the drop in a stock's price right after the dividend has been paid just reflects the fact that you aren't about to get an immediate refund in the form of a dividend. If you look at the real cost per share, it's meaningless and can/should be ignored. Buying after the dividend is paid may save you a tiny fraction of a cent of short-term income tax, but that's meaningless in real terms.","You're talking about NQO - non-qualified stock options. Even assuming the whole scheme is going to work, the way NQO are taxed is that the difference between the fair market value and the strike price is considered income to you and is taxed as salary. You'll save nothing, and will add a huge headache and additional costs of IPO and SEC regulations.","While my margin is not nearly as good as yours, I sell out early. I generally think it's a bad idea to hold any single stock, as they can vary wildly in value. However, as you mention, it's advantageous to hold for one year. Read more about Capital Gains Taxes here and here.","I buy or sell a few shares whenever I have a small amount of money to transfer into out of my mutual funds. Since I'm not paying transaction fees, there is no reason not to, when that is what makes sense. If you are paying a fee for each transaction, of course it makes sense to try to wait until you have a larger amount to move so the overhead per share is lower.","Is this right? The example is slightly off. Google would be running a cafeteria that can be subsidized. Employees pay an amount to buy food. Not every one spends the same amount or eats the same amount of food. If someone doesn't use cafeteria; he doesn't get more money. For example, suppose John Doe makes $100,000 a year taxed at a rate of 20%, for a take home pay of $80,000. He spends $10,000 on food. His employer Corporation decides to give him all of his food and deduct it as a business expense - costing them $10,000. But now they can pay John Doe an amount so his take home pay will be reduced by $10,000 - $87,500 The company is now spending $97500 employing John Doe, for a savings of $2500$. If a scheme is devised specifically to evade taxes; then it is invalid. In this case Bill may buy groceries worth only $5000. So keep track of which employee buys how much groceries in added cost of Google. Plus one can't really call it a business expense.","It looks like what you're calling a name change was registered as a merger that resulted in an exchange of stock. If that's the case, then what you've been told is correct. You've got one long-term sale and one short-term sale. Based a quick read of the Form 8937 that was filed, it looks like there were multiple entities involved in this event, more than one of which existed prior to it. https://www.mylan.com/-/media/mylancom/files/form%208937%20for%20mylan%20n%20v.pdf","Note that you're asking about withholding, not about taxing. Withholding doesn't mean this is exactly the tax you'll pay: it means they're withholding a certain amount to make sure you pay taxes on it, but the tax bill at the end of the year is the same regardless of how you choose to do the withholding. Your tax bill may be higher or lower than the withholding amount. As far as tax rate, that will be the same regardless - you're just moving the money from one place to the other. The only difference would be that your tax is based on total shares under the plan - meaning that if you buy 1k shares, for example, at $10, so $1,500 discounted income, if you go the payroll route you get (say) $375 withheld. If you go the share route, you either get $375 worth of stock (so 38 shares) withheld (and then you would lose out on selling that stock, meaning you don't get quite as much out of it at the end) or you would ask them to actually buy rather more shares to make up for it, meaning you'd have a slightly higher total gain. That would involve a slightly higher tax at the end of it, of course. Option 1: Buy and then sell $10000 worth, share-based withholding. Assuming 15% profit, and $10/share at both points, then buy/sell 1000 shares, $1500 in profit to take into account, 38 shares' worth (=$380) withheld. You put in $8500, you get back $9620, net $1120. Option 2: Buy and then sell $13500 worth, share based withholding. Same assumptions. You make about $2000 in pre-tax profit, meaning you owe about $500 in tax withholding. Put in $11475, get back $13000, net $1525. Owe 35% more tax at the end of the year, but you have the full $1500 to spend on whatever you are doing with it. Option 3: Buy and then sell $1000 worth, paycheck withholding. You get the full $10000-$8500 = $1500 up front, but your next paycheck is $375 lighter. Same taxes as Option 1 at the end of the year.","\"As Dilip said, if you want actual concrete, based in tax law, answers, please add the country (and if applicable, state) where you pay income tax. Also, knowing what tax bracket you're in would help as well, although I certainly understand if you're not comfortable sharing that. So, assuming the US... If you're in the 10% or 15% tax bracket, then you're already not paying any federal tax on the $3k long term gain, so purposely taking losses is pointless, and given that there's probably a cost to taking the loss (commission, SEC fee), you'd be losing money by doing so. Also, you won't be able to buy back the loser for 31 days without having the loss postponed due to the wash sale that would result. State tax is another matter, but (going by the table in this article), even using the highest low end tax rate (Tennessee at 6%), the $50 loss would only save you $3, which is probably less than the commission to sell the loser, so again you'd be losing money. And if you're in a state with no state income tax, then the loss wouldn't save you anything on taxes at the state level, but of course you'll still be paying to be able to take the loss. On the high end, you'd be saving 20% federal tax and 13.3% state tax (using the highest high end tax state, California, and ignoring (because I don't know :-) ) whether they tax long-term capital gains at the same rate as regular income or not), you'd be saving $50 * (20% + 13.3%) = $50 * 33.3% = $16.65. So for taxes, you're looking at saving between nothing and $16.65. And then you have to subtract from that the cost to achieve the loss, so even on the high end (which means (assuming a single filer)) you're making >$1 million), you're only saving about $10, and you're probably actually losing money. So I personally don't think taking a $50 loss to try to decrease taxes makes sense. However, if you really meant $500 or $5000, then it might (although if you're in the 10-15% brackets in a no income tax state, even then it wouldn't). So the answer to your final question is, \"\"It depends.\"\" The only way to say for sure is, based on the country and state you're in, calculate what it will save you (if anything). As a general rule, you want to avoid letting the tax tail wag the dog. That is, your financial goal should be to end up with the most money, not to pay the least taxes. So while looking at the tax consequences of a transaction is a good idea, don't look at just the tax consequences, look at the consequences for your overall net worth.\"","No, the reinvestment is done as a courtesy. Consider, one can have, say, 100 shares of a $50 stock. A 2% dividend is $100/yr or $25/quarter. It would be a pretty bad deal if brokers charged you even $5 for that trade. When cap gains and dividends are grouped as you suggest, it refers to Mutual Funds. My funds will have a year end dividend and cap gain distribution. In a non-retirement account, one has to pay the tax due, and be sure to add this to your cost basis, as it's money you are effectively adding to your account. It does not mean cap gain the same as when you sell your shares of Apple for a huge gain. Those check boxes seem to offer you a chance to put all your holding on the same reinvestment plan for div/cap gain. You should also be able to choose one by one what you'd like to do.","There are several problems with your reasoning: if I buy one share of GOOGLE now for $830, I could have $860 within the end of tonight -- totally possible and maybe even likely. You can do the same thing with 1,000,000 shares of google, and it's just as likely to go down as go up. if I were to invest $1,000.00 in gold to have $1,000.00 worth of gold, it's no different than keeping $1,000.00 in cash It's VERY different. Gold can be just as volatile as stocks, so it certainly is different as just keeping it in cash. Benefits of a larger portfolio:","You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.","While theoretically it works it's not a realistic trade because of market efficiency. It's realistic for brokers to advertise trades like this so they can earn more customers and commission. These sorts of trades will be priced in to highly liquid big ticket names like KO and the vast majority of the market. The possibility exists with small names with less liquidity, less trading volume; however, the very execution of this trade will alter the behavior of impending traders thus minimizing any potential profits.","With Apple the money is offshore. That is why they borrow and at now about $100B of debt but have about $250B in the bank offshore. But you do have to be careful because the money offshore is NOT yet taxed and so it is not really a 1:1. With Google it is less than $4B so not really a big deal but can not answer why not just use the onshore cash to pay it off. Google has plenty of money onshore to do this. I believe Apple over the last year had 4% onshore low point and high point was 7%. Google it is 40% or 60%. I know it is 40/60 split but can never remember which way.","Some companies like Royal Dutch Shell have multiple share classes to suit the tax regimes in Holland and the UK the A shares have dutch withholding tax applied and the B shares dont. Also some split capital investment trusts have multiple share classes http://www.trustnet.com/Education/Split.aspx?ms=1","It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).","Depends on your contract, cash or shares delivered? If shares, then you get 5 BIG shares. Theres no longer any options. If you sell instantly, theoretically you will net the $10 difference + profit above strike. If cash, same thing just that you get cash $50 less strike. Applies to cash and stock deals Options are binary, never pro-rated. if converted, basically you end up with BIG shares.","Liquidity on dual listed equities is rarely the same on both exchanges. More liquidity means you would typically get a better price assuming you execute the trades using the same order types. It's recommended to trade where the liquidity is greater unless your trading method benefits somehow from it being lower. It's important to remember that some ADRs (some European companies listed in US) have ADR fees which vary. USD/EUR transaction fees are low when using a decent broker but you're obviously participating in the currency risk.","Okay as long as you aren't dumb enough to actually think this would be worth pursuing. I don't want you to waste your money when it could go towards something nice, like your house budget. If you really do believe they are overvalued there are much better strategies.","Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.","Some financial planners would not advise one way or the other on a specific stock without knowing your investment strategy... if you didn't have one, their goal would be to help you develop one and introduce you to a portfolio management framework like Asset Allocation. Is a two of clubs a good card? Well, that all depends on what is in your hand (diversification) and what game you are playing(investing strategy). One possibility to reduce your basis over time if you would like to hold the stock is to sell calls against it, known as a 'covered-call'. It can be an intermediate-term (30-60+ months depending on option pricing) trading strategy that may require you to upgrade your brokerage account to allow option trades. Personally I like this strategy because it makes me feel proactive about my portfolio rather than sitting on the side lines and watching stocks move.","You might have to pay a premium for the stocks on the dividend tax–free exchanges. For example, HSBC on the NYSE yields 4.71% versus HSBC on the LSE which yields only 4.56%. Assuming the shares are truly identical, the only reason for this (aside from market fluctuations) is if the taxes are more favorable in the UK versus the US, thus increasing demand for HSBC on the LSE, raising the price, and reducing the yield. A difference of 0.15% in yield is pretty insignificant relative to a 30% versus 0% dividend tax. But a key question is, does your country have a foreign tax credit like the US does? If so you (usually) end up getting that 30% back, just delayed until you get your tax return, and the question of which exchange to buy on becomes not so clear cut. If your country doesn't have such a tax credit, then yes, you'll want to buy on an exchange where you won't get hit with the dividend tax. Note that I got this information from a great article I read several months back (site requires free registration to see it all unfortunately). They discuss the case of UN versus UL--both on the NYSE but ADRs for Unilever in the Netherlands and the UK, respectively. The logic is very similar to your situation.","The difference is whether your options qualify as incentive stock options (ISOs), or whether they are non-qualifying options. If your options meet all of the criteria for being ISOs (see here), then (a) you are not taxed when you exercise the options. You treat the sale of the underlying stock as a long term capital gain, with the basis being the exercise price (S). There is something about the alternative minimum tax (AMT) as they pertain to these kinds of options. Calculating your AMT basically means that your ISOs are treated as non-qualifying options. So if your exercise bumps you into AMT territory, too bad, so sad. If you exercise earlier, you do get a clock ticking, as you put it, because one of the caveats of having your options qualify as ISOs is that you hold the underlying stock (a) at least two years after you were granted the options and (b) at least one year after you exercise the options.","Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income.","No, I think you are misunderstanding the Math. Stock splits are a way to control relatively where the price per share can be for a company as companies can split or reverse split shares which would be similar to taking dimes and giving 2 nickels for each dime, each is 10 cents but the number of coins has varied. This doesn't create any additional value since it is still 10 cents whether it is 1 dime or 2 nickels. Share repurchase programs though are done to prevent dilution as executives and those with incentive-stock options may get shares in the company that increase the number of outstanding shares that would be something to note.","I was thinking that the value of the stock is the value of the stock...the actual number of shares really doesn't matter, but I'm not sure. You're correct. Share price is meaningless. Google is $700 per share, Apple is $100 per share, that doesn't say anything about either company and/or whether or not one is a better investment over the other. You should not evaluate an investment decision on price of a share. Look at the books decide if the company is worth owning, then decide if it's worth owning at it's current price.","I'll take the $9bn, the specific cash balance problem will get smaller, and we'll have a really interesting shareholder letter to read next year. I'll even make an appearance at the annual meeting and talk about what I'm doing with the money.","Less shares outstanding means that, holding the dividend per share constant you would have a lower total dividend expenditure. The more likely outcome is that, if you want to return capital to shareholders through a dividend, you just pay a higher amount per share.","You likely received the shares as ordinary income for services of $10k, since they withheld taxes at granting. Separately, you likely had a short term capital loss on sale of $2k, since your holding period seems to have been under one year.","You could use HBB and other similar funds that exchange distributions for capital gains. There's HXT and HXS which is Canada and US equity markets. The swap fee + mer is a little more than some funds except for HXT which is very cheap. There's a risk for long term holders that this may eventually get banned and you're forced to sell with a gain at the wrong time, but this won't matter much if you're planning on selling in a few years. You have to pay the capital gains tax eventually. Note, the tax on distributions is really a long term drag on performance and won't make a big difference in the short term.","I wrote a detailed article on Tax Loss Harvesting to show the impact on returns. For my example, I showed a person in the 15% bracket. In years with no loss, they trade to capture gains at 0% long term rate, thus bumping their basis up. In years with losses, they tax harvest for a 15% effective 'rebate' on that loss. I showed how for the lost decade 2000-2009, a buy and hold would have returned -1% CAGR, but the tax loss harvester would have gained 1% (just 1% for the decade, not CAGR), ending the decade with no loss. As one's portfolio grows, the math changes. You can only take $3000 capital loss against ordinary income, and my example relies on the difference between taking a gain for free but using a loss to offset income. Note, the higher earner would take gains at 15%, but losses at 25%, but only for the relatively small portfolio. The benefit for them is to use loss harvesting to offset gains, less so for ordinary income. As the other answer state, Wealthfront can aid you to do this with no math on your part.","Your gain is $1408. The difference between 32% of your gain and 15% of your gain is $236.36 or $1.60 per share. If you sell now, you have $3957.44 after taxes. Forget about the ESPP for a moment. Are you be willing to wager $4000 on the proposition that your company's stock price won't go down more than $1.60 or so over the next 18 months? I've never felt it was worth it. Also, I never thought it made much sense to own any of my employer's stock. If their business does poorly, I'd prefer not to have both my job and my money at risk. If you sell now: Now assuming you hold for 18 months, pay 15% capital gains tax, and the stock price drops by $1.60 to $23.40:","I work on a buy-side firm, so I know how these small data issues can drive us crazy. Hope my answer below can help you: Reason for price difference: 1. Vendor and data source Basically, data providers such as Google and Yahoo redistribute EOD data by aggregating data from their vendors. Although the raw data is taken from the same exchanges, different vendors tend to collect them through different trading platforms. For example, Yahoo, is getting stock data from Hemscott (which was acquired by Morningstar), which is not the most accurate source of EOD stocks. Google gets data from Deutsche Börse. To make the process more complicated, each vendor can choose to get EOD data from another EOD data provider or the exchange itself, or they can produce their own open, high, low, close and volume from the actual trade tick-data, and these data may come from any exchanges. 2. Price Adjustment For equities data, the re-distributor usually adjusts the raw data by applying certain customized procedures. This includes adjustment for corporate actions, such as dividends and splits. For futures data, rolling is required, and back-ward and for-warding rolling can be chosen. Different adjustment methods can lead to different price display. 3. Extended trading hours Along with the growth of electronic trading, many market tends to trade during extended hours, such as pre-open and post-close trading periods. Futures and FX markets even trade around the clock. This leads to another freedom in price reporting: whether to include the price movement during the extended trading hours. Conclusion To cross-verify the true price, we should always check the price from the Exchange where the asset is actually traded. Given the convenience of getting EOD data nowadays, this task should be easy to achieve. In fact, for professional traders and investors alike, they will never reply price on free providers such as Yahoo and Google, they will most likely choose Bloomberg, Reuters, etc. However, for personal use, Yahoo and Google should both be good choices, and the difference is small enough to ignore.","Without more information about what tax bracket you are in, I cannot make a recommendation about what your best option is, but here are a few things to consider:","Taxes Based on the numbers you quoted (-$360) it doesn't appear that you would have a taxable event if you sell all the shares in the account. If you only sell some of the shares, to fund the new account, you should specify which shares you want to sell. If you sell only the shares that you bought when share prices were high, then every share you sell could be considered a loss. This will increase your losses. These losses can be deducted from your taxes, though there are limits. Fees Make sure that you understand the fee structure. Some fund families look at the balance of all your accounts to determine your fee level, others treat each fund separately. Procedure If you were able to get the 10K into the new account in the next few months I would advise not selling the shares. Because it will be 6 to 18 months before you are able to contribute the new funds then rebalancing by selling shares makes more sense. It gets you to your goal quicker. All the funds you mentioned have low expense ratios, I wouldn't move funds just to chase a the lowest expense ratio. I would look at the steps necessary to get the mix you want in the next few weeks, and then what will be needed moving forward. If the 60/40 or 40/60 split makes you comfortable pick one of them. If you want to be able to control the balance via rebalancing or changing your contribution percentage, then go with two funds.","Let's assume that the bonds have a par value of $1,000. If conversion happens, then one bond would be converted into 500 shares. The price in the market is unimportant. Regardless of the share price in the market, the income per share would be increased by the absence of $70 in interest expense. It would be decreased by the lost tax deduction. It would be further diluted by the increase in 500 shares. Likewise, the debt would be extinguished and the equity section increased. Whether it increased or decreased on a per share basis would depend upon the average amount paid in per share in the currently existing structure, adjusted for changes in retained earnings since the initial offering and for any treasury shares. There would be a loss in value, generally, if it is trading far from $2.00 because it would be valued based on the market price. Had the bond not converted, it would trade in the market as a pure bond if the stock price is far below the strike price and as an ordinary pure bond plus a premium if near enough to the strike price in a manner that depends upon the time remaining under the conversion privilege. I cannot think of a general case where someone would want to convert below strike and indeed, barring a very strange tax, inheritance or legal situation (such as a weird divorce), I cannot think of a case where it would make sense. It often does not make sense to convert far from maturity either as the option premium only vanishes well above $2. The primary case for conversion would be where the after-tax dividend is greater than the after-tax interest payment.","Firstly a stock split is easy, for example each unit of stock is converted into 10 units. So if you owned 1% of the company before the stock split, you will still own 1% after the stock split, but have 10 times the number of shares. The company does not pay out any money when doing this and there is no effect on tax for the company or the share holder. Now onto stock dividend… When a company make a profit, the company gives some of the profit to the share holders as a dividend; this is normally paid in cash. An investor may then wish to buy more shares in the company using the money from the dividend. However buying shares used to have a large cost in broker charges etc. Therefore some companies allowed share holders to choose to have the dividend paid as shares. The company buys enough of their own shares to cover the payout, only having one set of broker charges and then sends the correct number of shares to each share holder that has opted for a stock dividend. (Along with any cash that was not enough to buy a complete share.) This made since when you had paper shares and admin costs where high for stock brokers. It does not make sense these days. A stock dividend is taxed as if you had been paid the dividend in cash and then brought the stock yourself.","\"You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule \"\"Don't let the tax tail wag the investing dog.\"\" For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense.\"","It looks like GOOG did not have a pre-market trade until 7:14 am ET, so Google Finance was still reporting the last trade it had, which was in the after-hours session yesterday. FB, on the other hand, was trading like crazy after-hours yesterday and pre-market today as it had an earnings report yesterday."],"string":"[\n \"Too much fiddling with your portfolio if the difference is 3-4% or less (as it's become in recent months). Hands off is the better advice. As for buying shares, go for whichever is the cheapest (i.e. Goog rather than Googl) because the voting right with the latter is merely symbolic. And who attends shareholders' meetings, for Pete's sake? On the other hand, if your holdings in the company are way up in the triple (maybe even quadruple) figures, then it might make sense to do the math and take the time to squeeze an extra percentage point or two out of your Googl purchases. The idle rich occupying the exclusive club that includes only the top 1% of the population needs to have somethinng to do with its time. Meanwhile, the rest of us are scrambling to make a living--leaving only enough time to visit our portfolios as often as Buffett advises (about twice a year).\",\n \"It appears very possible that Google will not have to pay any class C holders the settlement amount, given the structure of the settlement. This is precisely because of the arbitrage opportunity you've highlighted. This idea was mentioned last summer in Dealbreaker. As explained in a Dealbook article: The settlement requires Google to pay the following amounts if, one year from the issuance of the Class C shares, the value diverges according to the following formula: If the C share price is equal to or more than 1 percent, but less than 2 percent, below the A share price, 20 percent of the difference; If the C share price is equal to or more than 2 percent, but less than 3 percent, below the A share price, 40 percent of the difference; If the C share price is equal to or more than 3 percent, but less than 4 percent, below the A share price, 60 percent of the difference; If the C share price is equal to or more than 4 percent, but less than 5 percent, below the A share price, 80 percent of the difference.” If the C share price is equal to or more than 5 percent below the A share price, 100 percent of the difference, up to 5 percent. ... If the Class A shares trade around $450 (after the split/C issuance) and the C shares trade at a 4.5 percent discount during the year (or $429.75 per share), then investors expect a payment of: 80 percent times $450 times 4.5 percent = $16.20. The value of C shares would then be $445.95 ($429.75 plus $16.20). But if this is the new trading value during the year, that’s only a discount of less than 1 percent to the A shares. So no payment would be made. But if no payment is made, we are back to the full discount and this continues ad infinitum. In other words, the value of a stock can be displayed as: {equity value} + {dividend value} + {voting value} + {settlement value} = {total share value} If we ignore dividend and voting values, and ignore premiums and discounts for risk and so forth, then the value of a share is basic equity value plus anticipated settlement payoff. The Google Class C settlement is structured to reduce the payoff as the value converges. And the practice of arbitrage guarantees (if you buy into at least semi-strong EMH) that the price of C shares will be shored up by arbitrageurs that want the payoff. The voting value of GOOGL is effectively zero, since the non-traded Class B shares control all company decisions. So the value of the Class A GOOGL voting is virtually zero for the time being. The only divergence between GOOGL and GOOG price is dividends (which I believe is supposed to be the same) and the settlement payoff. Somebody who places zero value on the vote and who expects dividend difference to be zero should always prefer to buy GOOG to GOOGL until the price is equal, disregarding the settlement. So technically someone is better off owning GOOG, if dividends are the same and market prices are equal, just because the vote is worthless and the nonzero chance of a future settlement payoff is gravy. The arbitrage itself is present because a share that costs (as in the article) $429.75 is worth $445.95 if the settlement pays out at that rate. The stable equilibrium is probably either just before or just after the threshold where the settlement pays off, depending on how reliably arbitrageurs can predict the movement of GOOG and GOOGL. If I can buy a given stock for X but know that it's worth X+1, then I'm willing to pay up to X+1. In the google case, the GOOG stock is worth X+S, where S is an uncertain settlement payment that could be zero or could be substantial. We have six tiers of S (counting zero payoff), so that the price is likely to follow a pattern from X to X+S5 to X-S5+S4 to X-S4+S3, and climbing the tier ladder until it lands in the frontier between X+S1 and X+S0. Every time it jumps into X+S1, people should be willing to pay that new amount for GOOG, so the price moves out of payoff range and into X+S0, where people will only pay X. I'm actually simplifying here, since technically this is all based on future expectations. So the actual price you'd pay is expressed thus: {resale value of GOOG before settlement payoff = X} + ( {expectation that settlement payoff will pay 100% of difference = S5} * {expected nominal difference between GOOG and GOOGL = D} ) + ({S4} * {80% D}) + ({S3} * {60% D}) + ({S2} * {40% D}) + ({S1} * {20% D}) + ({S0} * {0% D}) = {price willing to pay for Class C GOOG = P} Plus you'd technically have to present value the whole thing for the time horizon, since the payoff is in a year. Note that I've shunted any voting/dividend analysis into X. It's reasonable to thing that S5, S4, S3, and maybe S2 are nearly zero, given the open arbitrage opportunity. And we know that S0 times 0% of D is zero. So the real analysis, again ignoring PV, is thus: P = X + (S1*D) Which is a long way of saying: what are the odds that GOOG will happen to be worth no more than 99% of GOOGL on the payoff determination date?\",\n \"\\\"Note that these used to be a single \\\"\\\"common\\\"\\\" share that has \\\"\\\"split\\\"\\\" (actually a \\\"\\\"special dividend\\\"\\\" but effectively a split). If you owned one share of Google before the split, you had one share giving you X worth of equity in the company and 1 vote. After the split you have two shares giving you the same X worth of equity and 1 vote. In other words, zero change. Buy or sell either depending on how much you value the vote and how much you think others will pay (or not) for that vote in the future. As Google issues new shares, it'll likely issue more of the new non-voting shares meaning dilution of equity but not dilution of voting power. For most of us, our few votes count for nothing so evaluate this as you will. Google's founders believe they can do a better job running the company long-term when there are fewer pressures from outside holders who may have only short-term interests in mind. If you disagree, or if you are only interested in the short-term, you probably shouldn't be an owner of Google. As always, evaluate the facts for yourself, your situation, and your beliefs.\\\"\",\n \"Google will be issuing Class C shares (under the ticker symbol GOOCV) to current GOOG holders in the beginning of April. The Class C shares and Class A shares will then change symbols, with the Class C shares trading under GOOG. This was announced on January 30th. Details are in this benzinga article: Projected Trading Timeline March 27 - April 2 Record Date - Payment Date Class C shares commence trading on March 27 as GOOCV on a when issued basis Class A shares continue to trade as GOOG, with entitlement to Class C shares Class A shares will also trade on an ex-distribution basis, without entitlement to the Class C shares, as GOOAV April 3 EX Date The ticker for the Class A shares will change from GOOG to GOOGL The ticker for the Class C shares will change from GOOCV to GOOG and commence regular way trading The ticker for the Class A shares that traded on an ex-distribution basis - GOOAV - will be suspended\",\n \"Presumably you're talking about the different share class introduced in the recent stock split, which mean that there are now three Google share classes: Due to the voting rights, Class A shares should be worth more than class C, but how much only time will tell. Actually, one could very well argue that a non-voting share of a company that pays no dividends has no value at all. It's unlikely the markets will see it that way, though.\",\n \"For each class A share (GOOGL) there's a class C share (GOOG), hence the missing half in your calculation. The almost comes from the slightly higher market price of the class A shares (due to them having voting powers) over class C (which have no voting powers). There's also class B share which is owned by the founders (Larry, Sergei, Eric and perhaps some to Stanford University and others) and differs from class A by the voting power. These are not publicly traded.\",\n \"\\\"To keep it simple, let's say that A shares trade at 500 on average between April 2nd 2014 and April 1st 2015 (one year anniversary), then if C shares trade on average: The payment will be made either in cash or in shares within 90 days. The difficulties come from the fact that the formula is based on an average price over a year, which is not directly tradable, and that the spread is only covered between 1% and 5%. In practice, it is unlikely that the market will attribute a large premium to voting shares considering that Page&Brin keep the majority and any discount of Cs vs As above 2-3% (to include cost of trading + borrowing) will probably trigger some arbitrage which will prevent it to extend too much. But there is no guarantee. FYI here is what the spread has looked like since April 3rd: * details in the section called \\\"\\\"Class C Settlement Agreement\\\"\\\" in the S-3 filing\\\"\",\n \"You are right: if the combined value of all outstanding GOOG shares was $495B, and the combined value of all GOOGL shares was $495B, then yes, Alphabet would have a market cap of at least $990B (where I say at least only because I myself don't know that there aren't other issues that should be in the count as well). The respective values of the total outstanding GOOG and GOOGL shares are significantly less than that at present though. Using numbers I just grabbed for those tickers from Google Finance (of course), they currently stand thus:\",\n \"Short answer: No, it only matters if you want to use covered calls strategies. The price of a share is not important. Some companies make stock splits from time to time so that the price of their shares is more affordable to small investors. It is a decision of the company's board to keep the price high or low. More important is the capitalization for these shares. If you have lots of money to invest, the best is to divide and invest a fixed pourcentage of your portfolio in each company you choose. The only difference is if you eventually decide to use covered call strategies. To have a buy write on Google will cost you a lot of money and you will only be able to sell 1 option for every 100 shares. Bottom line: the price is not important, capitalization and estimated earnings are. Hope this answers your question.\",\n \"You should get a 1099-MISC for the $5000 you got. And your broker should send you a 1099-B for the $5500 sale of Google stock. These are two totally separate things as far as the US IRS is concerned. 1) You made $5000 in wages. You will pay income tax on this as well as FICA and other state and local taxes. 2) You will report that you paid $5000 for stock, and sold it for $5500 without holding it for one year. Since this was short term, you will pay tax on the $500 in income you made. These numbers will go on different parts of your tax form. Essentially in your case, you'll have to pay regular income tax rates on the whole $5500, but that's only because short term capital gains are treated as income. There's always the possibility that could change (unlikely). It also helps to think of them separately because if you held the stock for a year, you would pay different tax on that $500. Regardless, you report them in different ways on your taxes.\",\n \"The stock split, it is similar to what happened to Apple a little while back. When Google split 2 to 1, it means that each share holder got 2 shares for each 1 share they had and each share was 1/2 the price.\",\n \"There is no difference between more shares of a relatively cheaper stock and less shares of a relatively more expensive stock. When you invest in a stock, the percentage increase (or decrease) in the share price results in gains (or losses). This is a fundamental concept of investing. Your question suggests that you would benefit from further research before investing your money. Trading real dollars can be difficult without a strong understanding of the principles involved. Investing your money without a good knowledge base will likely be stressful and could have a discouraging effect if it doesn't go well. Before you open an investment account, read up on investing fundamentals, particularly mutual funds as those can be a great place to start as a new investor. There are many sources of information including books, websites such as http://investor.gov/investing-basics and this website. Don't skip the sections on taxes, as those matter just as much and sometimes more than the simple buying and selling. You might look at tax advantaged accounts, such as 401k's, IRA's, etc. It shouldn't take long but it will be one of the most important things you do as a beginning investor. Everyone has to start here. Understanding the vocabulary and concepts will likely save you time and money throughout your investing life.\",\n \"It seems at most a cosmetic difference - nothing keeps you from adding the 9$ cash to the fund the same day the fees are deducted from the shares.\",\n \"It was actually a reverse split meaning that every 10 shares you had became 1 share and the price should be 10x higher. - Citigroup in reverse split The chart just accounts for the split. The big dip is Googles way of showing from what price it split from. If you remember before the split the stock was trading around $4-$5 after the reverse split the stock became 10x higher. Just to clear it up a 1:2(1 for 2) split would mean you get 1 share for every 2 shares you have. This is known as a reverse split. A 2:1(2 for 1) split means you get 2 shares for every 1 share you have. The first number represents the amount of shares you will receive and the second number represents how many shares you will be giving up.\",\n \"http://mobile.nytimes.com/blogs/economix/2014/04/02/the-many-classes-of-google-stock/ Are you counting both class A and other share classes?\",\n \"\\\"There's an expression, \\\"\\\"stock prices have no memory.\\\"\\\" Apple trades at about $115. Why would I carry my shares at anything but $115 even though I paid say $75 a share, while you just bought it at $115? The only difference, perhaps, is that if I hold them in a non retirement account, I might track the net I'd have, post tax.\\\"\",\n \"Does this make sense? I'm concerned that by buying shares with post tax income, I'll have ended up being taxed twice or have increased my taxable income. ... The company will then re-reimburse me for the difference in stock price between the vesting and the purchase share price. Sure. Assuming you received a 100-share RSU for shares worth $10, and your marginal tax rate is 30% (all made up numbers), either: or So you're in the same spot either way. You paid $300 to get $1,000 worth of stock. Taxes are the same as well. The full value of the RSU will count as income either way, and you'll either pay tax on the gains of the 100 shares in your RSU our you'll pay tax on gains on the 70 shares in your RSU and the 30 shares you bought. Since they're reimbursing you for any difference the cost basis will be the same (although you might get taxed on the reimbursement, but that should be a relatively small amount). This first year I wanted to keep all of the shares, due to tax reasons and because believe the share price will go up. I don't see how this would make a difference from a tax standpoint. You're going to pay tax on the RSU either way - either in shares or in cash. how does the value of the shares going up make a difference in tax? Additionally I'm concerned that by doing this I'm going to be hit by my bank for GBP->USD exchange fees, foreign money transfer charges, broker purchase fees etc. That might be true - if that's the case then you need to decide whether to keep fighting or decide if it's worth the transaction costs.\",\n \"They are 2 different class of shares belonging to the same company. Class A shares [par value of 0.01] have 100 voting rights per share. Class B shares [par value of 0.0002] have one voting rights. Both are listed separately with different ISN and trade at slightly different values. The Class A at higher value than Class B which looks right as it has more voting power.\",\n \"the difference would be taxes... Lets say you have two lots, one with a 10 dollar gain, and one with a 20 dollar gain. And lets say you decide to sell one lot this year, and the other lot in 10 years. AND, lets say that it turns out the stock price is exactly the same in ten years as it is when you sell the first lot. In all likelyhood, you'll have more income, and therefore you are likely to be in a different marginal tax rate. If you believe that you're more likely to pay more taxes in 10 years, then sell the lot with the higher gain now. If you believe you're more likely to pay more taxes now, then sell the lot with the lower gain now.\",\n \"Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that.\",\n \"I agree that their tech incubator works great, but with so much extra cash, I can imagine how investors are frustrated with it just sitting there. If goog paid dividends the investore have the option to plough it back into the company to help fund r&d, or to invest it elsewhere. As it stands, the only options that the investors have are to stay for the ride, or do the wall street walk. Also, nice username. U wsb, bro?\",\n \"If you aren't familiar with Norbert's Gambit, it's worth looking at. This is a mechanism using a Canadian brokerage account to simultaneously execute one stock trade in CAD and one in USD. The link I provided claims that it only starts potentially making sense somewhere in the 10,000+ range.\",\n \"My broker offers a service to transfer the shares where you only pay commission once. Therefore say if standard commission is £10, then you don't end up paying £20 (10 for selling + 10 for buy back). You'll have to be okay with the spread though. Hope this helps.\",\n \"If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?\",\n \"I don't believe in letting the tax tail wag the investing dog. You have a stock you no longer wish to hold for whatever reason? Sell it. But to sell a loser, hoping it doesn't rise by the time you wish to re-buy it in 30 days is folly. This effort may gain you $50 if done right. No, it's not worth it either way.\",\n \"Assuming you plan to buy a whole number of shares and have a maximum dollar value you intend to invest, it may be better to wait for the split if the figures don't quite work out nicely. For example, if you are going to invest $1,000 and the stock pre-split is $400 and the split is 2 for 1, then you'd buy 2 shares before the split unless you have an extra $200 to add. Meanwhile, after the split you could buy 5 shares at $200 so that you invest all that you intend. Aside from that case, it doesn't really make a difference since the split is similar to getting 2 nickels for a dime which in each case is still a total value of 10 cents.\",\n \"Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it.\",\n \"Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.\",\n \"Alphabet has about 40% on shore or 60%. I know it is 60/40 but forget which way. So way, way more than they really need. What Apple does is borrow against the offshore money when needed, Apple now has over $90b in debt and Google less than $4b. So Google would not have any problem.\",\n \"I have not looked in details but apparently the company has (at least) a dual listing in Hong Kong (its main listing, ticker 700) and in the US (ticker TCTZF). It also has an ADR (TCEHY), the underlying of which is the HK line. The two US listings essentially trade at the same price and will provide very similar returns but a major difference is that TCTZF pays dividends in HKD whereas TCEHY pays its dividends in USD. The latter may be more convenient depending on the account you use to trade the stock. The ADR line is also more liquid.\",\n \"That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not want to exercise the options. However, what is not weird is the way income tax works, you are taxed on your income in the US. I assume you are talking about the US here. So if you exercise 10K shares, if under either option, you will be taxed on the profit from those share. Profit = (actual price - strike price) * shares - fees\",\n \"All corporate gains are taxed at the same rate as corporate income, for the corporate entity, so this actually can be WORSE than the individual capital gains tax rates. There are a lot of things you can do with trading certain asset classes, like opening you up to like-kind re-investment tax perks, but I can't think of anything that helps with stocks. Also, in the US there is now a law against doing things solely to avoid tax if they have no other economic purpose. So be conscious about that, you'll need to be able to rationalize at least a thin excuse for why you jumped through all the hoops.\",\n \"As yet another explanation of why it does not really matter, you can look at this from the valuation point of view. Stock price is the present value of its future cash flows (be it free cash flow of the firm or dividends, depending on the model). Let's have a look at the dividends case. Imagine, the price of the stock is based on only three dividends streams $5 dollars each: dividend to be paid today, in year 1, and in year 2. Each should be discounted back to today (say, at 10%), except today's dividend, since today is now. Once that dividend is paid, it is no longer in the stream of cash flows. So if we just delete that first $5 from the formula, the price will adjust itself down by the amount of the dividend to $8.68. NOTE that this is a very simple example, since in reality cash flows streams are arguably infinite and because there are many other factors affecting stock price. But simply for your understanding, this example should provide you with the reason simply from the valuation perspective.\",\n \"Your three options are: Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have the same effect as option 2 with no transaction costs. The loss will likely also offset some of the other short term gains you mentioned.\",\n \"There can be a good reason if you own shares issued in a different country: For example, if you are in the UK and own US shares and take the dividend payments, you get some check in US dollars that you will have to exchange to UK£, which means you pay fees - mostly these fees are fixed, so you lose a significant percentage of your dividends. By reinvesting and selling shares accumlated over some years, you got one much bigger check and pay only one fee.\",\n \"No, there is no real advantage. The discrepancies in how they track the index will (generally) be so small that this provides very, very limited diversification, while increasing the complexity of your investments.\",\n \"If you are looking to re-invest it in the same company, there is really no difference. Please be aware that when a company announces dividend, you are not the only person receiving the dividend. The millions of share holders receive the same amount that you did as dividend, and of course, that money is not falling from the sky. The company pays it from their profits. So the day a dividend is announced, it is adjusted in the price of the share. The only reason why you look for dividend in a company is when you need liquidity. If a company does not pay you dividend, it means that they are usually using the profits to re-invest it in the business which you are anyway going to do with the dividend that you receive. (Unless its some shady company which is only established on paper. Then they might use it to feed their dog:p). To make it simpler lets assume you have Rs.500 and you want to start a company which requires Rs 1000 in capital : - 1.) You issue 5 shares worth Rs 100 each to the public and take Rs 100 for each share. Now you have Rs 1000 to start your company. 2.) You make a profit of Rs 200. 3.) Since you own majority of the shares you get to make the call whether to pay Rs.200 in dividend, or re-invest it in the business. Case 1:- You had issued 10 shares and your profit is Rs 200. You pay Rs. 20 each to every share holder. Since you owned 5 shares, you get 5*20 that is Rs.100 and you distribute the remaining to your 5 shareholders and expect to make the same or higher profit next year. Your share price remains at Rs.100 and you have your profits in cash. Case 2:- You think that this business is awesome and you should put more money into it to make more. You decide not to pay any dividend and invest the entire profit into the business. That way your shareholders do not receive anything from you but they get to share profit in the amazing business that you are doing. In this case your share price is Rs. 120 ((1000+200)/10) and all your profits are re-invested in the business. Now put yourself in the shareholders shoes and see which case suits you more. That is the company you should invest in. Please note: - It is very important to understand the business model of the company before you buy anything! Cheers,\",\n \"\\\"The key difference I've found between a stock split and a stock dividend – of the exact same stock and class, as opposed to a spin-off – seems to be from the company's own accounting perspective. There doesn't appear to be any actual transfer of value to the shareholder with either kind of transaction; i.e. in theory, each transaction would be immaterial to the value of your holdings. With respect to the company's accounting, a stock split affects the par value of the shares, whereas a stock dividend reduces the retained earnings account in order to increase paid-in or contributed capital. I found a good online source which explains the history behind this accounting difference: McGraw-Hill - Intermediate Accounting eBook, 6/e - Chapter 18 - Stock Dividends and Splits. Small quote: [...] Besides being based on fallacious reasoning, accounting for stock dividends by artificially reclassifying “earned” capital as “invested” capital conflicts with the reporting objective of reporting shareholders' equity by source. Despite these limitations, this outdated accounting standard still applies. Since neither the corporation nor its shareholders apparently benefits from stock dividends, why do companies declare them?23 Occasionally, a company tries to give shareholders the illusion that they are receiving a real dividend. Another reason is merely to enable the corporation to take advantage of the accepted accounting practice of capitalizing retained earnings. Specifically, a company might wish to reduce an existing balance in retained earnings—otherwise available for cash dividends—so it can reinvest the earned assets represented by that balance without carrying a large balance in retained earnings. [...] There's a lot more on that page, before and after, worth reading. From another book: Google Books - Comparative Income Taxation, a Structural Analysis - page 314 - Stock Dividends. Small quote: The distribution of dividends in the form of stock or \\\"\\\"bonus\\\"\\\" shares to existing shareholders typically involves a transfer for corporate law purposes of retained earnings into stated capital. It can been [sic] viewed as a deemed distribution of a cash dividend to the shareholders followed by a corresponding contribution to capital or as solely as an event at the corporate level which has no effect on the shareholders whose economic interest in the corporation is unchanged by the receipt of additional shares. The systems have taken varied approaches to the stock dividend problem. The treatment is in part a function of the rules dealing with distributions of stated capital. [emphases above are mine] [... continues w/descriptions of different countries' tax treatments of the kinds of stock dividends. Includes U.S., Sweden, Japan, Netherlands, Canada, Australia, U.K., France, Germany. ...] As far as why a corporation might want to capitalize earnings and reduce the equity otherwise available for dividends, I can only imagine that, ignoring taxes for a moment, that it may have something to do with capital ratios that need to be maintained for financing or regulatory purposes? Yet, I remain curious. If I discover more on this then I'll update my answer. Additional resources:\\\"\",\n \"One difference is the bid/ask spread will cost you more in a lower cost stock than a higher cost one. Say you have two highly liquid stocks with tiny spreads: If you wanted to buy say $2,000 of stock: Now imagine these are almost identical ETFs tracking the S&P 500 index and extrapolate this to a trade of $2,000,000 and you can see there's some cost savings in the higher priced stock. As a practical example, recently a popular S&P 500 ETF (Vanguard's VOO) did a reverse split to help investors minimize this oft-missed cost.\",\n \"I guess the answer lies in your tax jurisdiction (different countries tax capital gains and income differently) and your particular tax situation. If the price of the stock goes up or down between when you buy and sell then this counts for tax purposes as a capital gain or loss. If you receive a dividend then this counts as income. So, for instance, if you pay tax on income but not on capital gains (or perhaps at a lower rate on capital gains) then it would pay you to sell immediately before the stock goes ex-dividend and buy back immediately after thereby making a capital gain instead of receiving income.\",\n \"If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.\",\n \"\\\"It depends on how big the dilution is. Could be a good trade. Do the math yourself, many times nobody else has as all the employees think they are going to get rich because \\\"\\\"options\\\"\\\" :)\\\"\",\n \"I'm not too sure tbh, i'm just getting my series 7 first before anything. But thank you for such a well thought out response. I'd probably trade something that has a bit more volatility like BAC or something though.\",\n \"Unless your brokerage will sell you fractional shares, the most obvious difference (without us knowing the actual identify of the companies) is that with the $260 one, you will have 3 shares plus you will have $220 minus commission left over that you wanted to invest but weren't able to simply because of the mechanics of long division. You could put that $220 into one of the cheaper stocks, but now the multiple commissions will start to eat your returns. My personal opinion is you should go for a low cost index mutual fund or ETF, and wait to pick individual stocks until you have more than $1000 to work with (and even then, probably still go with the low cost index fund)\",\n \"I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock. In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes buy the option and sell the one a year out. I prefer to do this in my IRA account as the trading creates no tax issue.\",\n \"I will assume that you are not asking in the context of high frequency trading, as this is Personal Finance Stack Exchange. It is completely acceptable to trade odd lots for retail brokerage customers. The odd lot description that you provided in your link, from Interactive Brokers is correct. But even in that context, it says, regarding the acceptability of odd lots to stock exchanges: The exception is that odd lots can be routed to NYSE/ARCA/AMEX, but only as part of a basket order or as a market-on-close (MOC) order. Google GOOG is traded on the NASDAQ. Everything on the NASDAQ is electronic, and always has been. You will have no problem selling or buying less than 100 shares of Google. There is also an issue of higher commissions with odd lots: While trading commissions for odd lots may still be higher than for standard lots on a percentage basis, the popularity of online trading platforms and the consequent plunge in brokerage commissions means that it is no longer as difficult or expensive for investors to dispose of odd lots as it used to be in the past. Notice what it says about online trading making it easier, not more difficult, to trade odd lots.\",\n \"\\\"While I'm sure there's some truth to the argument that unsophisticated retail investors index against the S&P 500 thinking that they're tracking \\\"\\\"the market,\\\"\\\" I don't think it makes sense to steer the S&P 500 in that direction to cater to that lowest common denominator. The *ad absurdum* conclusion of that course of action, of course, would be to abolish the S&P 500 entirely and move those assets into the S&P Total Market Index. But clearly there's value in having an index that tracks US large-caps with single share classes, just as there's value in having an index that tracks US large-caps in general. As for whether it will be a loss for passive investors...it will be interesting to see how that pans out. Maybe good corporate governance and direct accountability by managers really do contribute positively to returns in the long run and investors will benefit from this change as a result. Or maybe this will result in companies with multiple share classes being undervalued and create an opportunity to earn outsized returns by investing in them, and indexes that omit those companies will underperform. Only time will tell.\\\"\",\n \"What might make more sense is to 'capture' your losses. Sell out the funds you have, move into something else that is different enough that the IRS won't consider it a wash sale, and you can then use those losses to offset gains (you can even carry them forward) You would still be in the market, just having made a sort of 'sideways move'. A month or two later (once you are clear of wash sale rules) you could shift back to your original choices. (this answer presumes you are in the US, or somewhere that lets you use losses to offset gains)\",\n \"In the scenario you describe, the first thing I would look at would be liquidity. In other words, how easy is it to buy and sell shares. If the average daily volume of one share is low compared to the average daily volume of the other, then the more actively traded share would be the more attractive. Low volume shares will have larger bid-offer spreads than high volume shares, so if you need to get out of position quickly you will be at risk of being forced to take a lowball offer. Having said that, it is important to understand that high yielding shares have high yields for a reason. Namely, the market does not think much of the company's prospects and that it is likely that a cut in the dividend is coming in the near future. In general, the nominal price of a share is not important. If two companies have equal prospect, then the percentage movement in their share price will be about the same, so the net profit or loss you realise will be about the same.\",\n \"This will work as intended, but there's another point to consider. In the US, the tax rate on proceeds from stock sales is higher for short term holdings, which are defined as held for less than one year. Both rates vary based on your income. Bracket numbers are for fiscal year 2014, filing as single. The difference between short and long term capital gains tax in the US is a minimum of ten percentage points, and works out to 15 percentage points on average. This is substantial. If you won't be reporting much income the year you move to the US (say because you only worked for a portion of the year) it is decidedly to your advantage to wait and sell the stocks in the US, to get that sweet 0% rate. At a minimum, you should hold the position for a year if you sell and rebuy, from a tax optimization perspective. Two caveats:\",\n \"From their 10-K pulled directly from Edgar: As of October 22, 2015, there were 291,327,781 shares of Alphabet Inc.’s (the successor issuer pursuant to Rule 12g-3(a) under the Exchange Act as of October 2, 2015) (Alphabet) Class A common stock outstanding, 50,893,362 shares of Alphabet's Class B common stock outstanding, and 345,504,021 Alphabet's Class C capital stock outstanding. From here just do the math. The shares outstanding are listed on the first page of the 10-Q and 10-K reports. Edit: I believe Class B shares in this instance are not traded on the market and therefore would not be included.\",\n \"In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different.\",\n \"The difference is ordinary income. If the price drops and you sell for exactly what you paid, you have an income of D and a capital loss of D which usually cancel each other, but not always. For example, if you already have over $3000 in losses, this loss won't help you, it will carry forward. The above changes a bit if you hold the stock for 2 years after the beginning of the purchase period. If sold between your purchase price and fair market the day you bought, the gain is only the difference, no gain to fair market + loss. Pretty convoluted. Your company should have provided you with a brief FAQ / Q&A to explain this. My friends at Fairmark have an article that explains the ESPP process clearly, Tax Reporting for Qualifying Dispositions of ESPP Shares.\",\n \"Yes, the net effect is zero. If you own zero shares by Nov 30, for example, and don't buy any more shares by 12/31, the year is done, and nothing left to account for.\",\n \"On NYSE it isn't the equity which is listed but is an ADR(American Depositary Receipt). Source A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction. Else people would make a killing on the arbitrage opportunity. Frankly speaking arbitrage opportunities are more or less non existent. They occur for maybe seconds or milliseconds and the HFT firms and banks trade on it to remove the arbitrage.\",\n \"I'm fairly convinced there is no difference whatsoever between dividend payment and capital appreciation. It only makes financial sense for the stock price to be decreased by the dividend payment so over the course of any specified time interval, without the dividend the stock price would have been that much higher were the dividends not paid. Total return is equal. I think this is like so many things in finance that seem different but actually aren't. If a stock does not pay a dividend, you can synthetically create a dividend by periodically selling shares. Doing this would incur periodic trade commissions, however. That does seem like a loss to the investor. For this reason, I do see some real benefit to a dividend. I'd rather get a check in the mail than I would have to pay a trade commission, which would offset a percentage of the dividend. Does anybody know if there are other hidden fees associated with dividend payments that might offset the trade commissions? One thought I had was fees to the company to establish and maintain a dividend-payment program. Are there significant administrative fees, banking fees, etc. to the company that materially decrease its value? Even if this were the case, I don't know how I'd detect or measure it because there's such a loose association between many corporate financials (e.g. cash on hand) and stock price.\",\n \"You bought 1 share of Google at $67.05 while it has a current trading price of $1204.11. Now, if you bought a widget for under $70 and it currently sells for over $1200 that is quite the increase, no? Be careful of what prices you enter into a portfolio tool as some people may be able to use options to have a strike price different than the current trading price by a sizable difference. Take the gain of $1122.06 on an initial cost of $82.05 for seeing where the 1367% is coming. User error on the portfolio will lead to misleading statistics I think as you meant to put in something else, right?\",\n \"Also important to keep in mind is the difference in liquidity. The stock could be very liquid in 1 exchange but not in another. When times get bad, liquidity could dry up 1 one exchange, which results in a trading discount.\",\n \"Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.\",\n \"\\\"Offset against taxable gains means that the amount - $25 million in this case - can be used to reduce another sum that the company would otherwise have to pay tax on. Suppose the company had made a profit of $100 million on some other investments. At some point, they are likely to have to pay corporation tax on that amount before being able to distribute it as a cash dividend to shareholders. However if they can offset the $25 million, then they will only have to pay tax on $75 million. This is quite normal as you usually only pay tax on the aggregate of your gains and losses. If corporation tax is about 32% that would explain the claimed saving of approximately $8 million. It sounds like the Plaintiffs want the stock to be sold on the market to get that tax saving. Presumably they believe that distributing it directly would not have the same effect because of the way the tax rules work. I don't know if the Plaintiffs are right or not, but if they are the difference would probably come about due to the stock being treated as a \\\"\\\"realized loss\\\"\\\" in the case where they sell it but not in the case where they distribute it. It's also possible - though this is all very speculative - that if the loss isn't realised when they distribute it directly, then the \\\"\\\"cost basis\\\"\\\" of the shareholders would be the price the company originally paid for the stock, rather than the value at the time they receive it. That in turn could mean a tax advantage for the shareholders.\\\"\",\n \"You are still selling one investment and buying another - the fact that they are managed by the same company should be irrelevant. So yes, it would get the same tax treatment as if they were managed by different companies.\",\n \"\\\"Dividends are a way of distributing profits from operating a business to the business owners. Why would you call it \\\"\\\"wasting money\\\"\\\" is beyond me. Decisions about dividend distribution are made by the company based on its net revenue and the needs of future capital. In some jurisdictions (the US, for example), the tax policy discourages companies from accumulating too much earnings without distributing dividends, unless they have a compelling reason to do so. Stock price is determined by the market. The price of a stock is neither expensive nor cheap on its own, you need to look at the underlying company and the share of it that the stock represents. In case of Google, according to some analysts, the price is actually quite cheap. The analyst consensus puts the target price for the next 12 months at $921 (vs. current $701).\\\"\",\n \"Unless you suffer from the illusion that you can time the market, it honestly doesn't matter much; the difference is lost in the noise. That may be true even if you do suffer from that illusion. Also, as discussed here previously, the drop in a stock's price right after the dividend has been paid just reflects the fact that you aren't about to get an immediate refund in the form of a dividend. If you look at the real cost per share, it's meaningless and can/should be ignored. Buying after the dividend is paid may save you a tiny fraction of a cent of short-term income tax, but that's meaningless in real terms.\",\n \"You're talking about NQO - non-qualified stock options. Even assuming the whole scheme is going to work, the way NQO are taxed is that the difference between the fair market value and the strike price is considered income to you and is taxed as salary. You'll save nothing, and will add a huge headache and additional costs of IPO and SEC regulations.\",\n \"While my margin is not nearly as good as yours, I sell out early. I generally think it's a bad idea to hold any single stock, as they can vary wildly in value. However, as you mention, it's advantageous to hold for one year. Read more about Capital Gains Taxes here and here.\",\n \"I buy or sell a few shares whenever I have a small amount of money to transfer into out of my mutual funds. Since I'm not paying transaction fees, there is no reason not to, when that is what makes sense. If you are paying a fee for each transaction, of course it makes sense to try to wait until you have a larger amount to move so the overhead per share is lower.\",\n \"Is this right? The example is slightly off. Google would be running a cafeteria that can be subsidized. Employees pay an amount to buy food. Not every one spends the same amount or eats the same amount of food. If someone doesn't use cafeteria; he doesn't get more money. For example, suppose John Doe makes $100,000 a year taxed at a rate of 20%, for a take home pay of $80,000. He spends $10,000 on food. His employer Corporation decides to give him all of his food and deduct it as a business expense - costing them $10,000. But now they can pay John Doe an amount so his take home pay will be reduced by $10,000 - $87,500 The company is now spending $97500 employing John Doe, for a savings of $2500$. If a scheme is devised specifically to evade taxes; then it is invalid. In this case Bill may buy groceries worth only $5000. So keep track of which employee buys how much groceries in added cost of Google. Plus one can't really call it a business expense.\",\n \"It looks like what you're calling a name change was registered as a merger that resulted in an exchange of stock. If that's the case, then what you've been told is correct. You've got one long-term sale and one short-term sale. Based a quick read of the Form 8937 that was filed, it looks like there were multiple entities involved in this event, more than one of which existed prior to it. https://www.mylan.com/-/media/mylancom/files/form%208937%20for%20mylan%20n%20v.pdf\",\n \"Note that you're asking about withholding, not about taxing. Withholding doesn't mean this is exactly the tax you'll pay: it means they're withholding a certain amount to make sure you pay taxes on it, but the tax bill at the end of the year is the same regardless of how you choose to do the withholding. Your tax bill may be higher or lower than the withholding amount. As far as tax rate, that will be the same regardless - you're just moving the money from one place to the other. The only difference would be that your tax is based on total shares under the plan - meaning that if you buy 1k shares, for example, at $10, so $1,500 discounted income, if you go the payroll route you get (say) $375 withheld. If you go the share route, you either get $375 worth of stock (so 38 shares) withheld (and then you would lose out on selling that stock, meaning you don't get quite as much out of it at the end) or you would ask them to actually buy rather more shares to make up for it, meaning you'd have a slightly higher total gain. That would involve a slightly higher tax at the end of it, of course. Option 1: Buy and then sell $10000 worth, share-based withholding. Assuming 15% profit, and $10/share at both points, then buy/sell 1000 shares, $1500 in profit to take into account, 38 shares' worth (=$380) withheld. You put in $8500, you get back $9620, net $1120. Option 2: Buy and then sell $13500 worth, share based withholding. Same assumptions. You make about $2000 in pre-tax profit, meaning you owe about $500 in tax withholding. Put in $11475, get back $13000, net $1525. Owe 35% more tax at the end of the year, but you have the full $1500 to spend on whatever you are doing with it. Option 3: Buy and then sell $1000 worth, paycheck withholding. You get the full $10000-$8500 = $1500 up front, but your next paycheck is $375 lighter. Same taxes as Option 1 at the end of the year.\",\n \"\\\"As Dilip said, if you want actual concrete, based in tax law, answers, please add the country (and if applicable, state) where you pay income tax. Also, knowing what tax bracket you're in would help as well, although I certainly understand if you're not comfortable sharing that. So, assuming the US... If you're in the 10% or 15% tax bracket, then you're already not paying any federal tax on the $3k long term gain, so purposely taking losses is pointless, and given that there's probably a cost to taking the loss (commission, SEC fee), you'd be losing money by doing so. Also, you won't be able to buy back the loser for 31 days without having the loss postponed due to the wash sale that would result. State tax is another matter, but (going by the table in this article), even using the highest low end tax rate (Tennessee at 6%), the $50 loss would only save you $3, which is probably less than the commission to sell the loser, so again you'd be losing money. And if you're in a state with no state income tax, then the loss wouldn't save you anything on taxes at the state level, but of course you'll still be paying to be able to take the loss. On the high end, you'd be saving 20% federal tax and 13.3% state tax (using the highest high end tax state, California, and ignoring (because I don't know :-) ) whether they tax long-term capital gains at the same rate as regular income or not), you'd be saving $50 * (20% + 13.3%) = $50 * 33.3% = $16.65. So for taxes, you're looking at saving between nothing and $16.65. And then you have to subtract from that the cost to achieve the loss, so even on the high end (which means (assuming a single filer)) you're making >$1 million), you're only saving about $10, and you're probably actually losing money. So I personally don't think taking a $50 loss to try to decrease taxes makes sense. However, if you really meant $500 or $5000, then it might (although if you're in the 10-15% brackets in a no income tax state, even then it wouldn't). So the answer to your final question is, \\\"\\\"It depends.\\\"\\\" The only way to say for sure is, based on the country and state you're in, calculate what it will save you (if anything). As a general rule, you want to avoid letting the tax tail wag the dog. That is, your financial goal should be to end up with the most money, not to pay the least taxes. So while looking at the tax consequences of a transaction is a good idea, don't look at just the tax consequences, look at the consequences for your overall net worth.\\\"\",\n \"No, the reinvestment is done as a courtesy. Consider, one can have, say, 100 shares of a $50 stock. A 2% dividend is $100/yr or $25/quarter. It would be a pretty bad deal if brokers charged you even $5 for that trade. When cap gains and dividends are grouped as you suggest, it refers to Mutual Funds. My funds will have a year end dividend and cap gain distribution. In a non-retirement account, one has to pay the tax due, and be sure to add this to your cost basis, as it's money you are effectively adding to your account. It does not mean cap gain the same as when you sell your shares of Apple for a huge gain. Those check boxes seem to offer you a chance to put all your holding on the same reinvestment plan for div/cap gain. You should also be able to choose one by one what you'd like to do.\",\n \"There are several problems with your reasoning: if I buy one share of GOOGLE now for $830, I could have $860 within the end of tonight -- totally possible and maybe even likely. You can do the same thing with 1,000,000 shares of google, and it's just as likely to go down as go up. if I were to invest $1,000.00 in gold to have $1,000.00 worth of gold, it's no different than keeping $1,000.00 in cash It's VERY different. Gold can be just as volatile as stocks, so it certainly is different as just keeping it in cash. Benefits of a larger portfolio:\",\n \"You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.\",\n \"While theoretically it works it's not a realistic trade because of market efficiency. It's realistic for brokers to advertise trades like this so they can earn more customers and commission. These sorts of trades will be priced in to highly liquid big ticket names like KO and the vast majority of the market. The possibility exists with small names with less liquidity, less trading volume; however, the very execution of this trade will alter the behavior of impending traders thus minimizing any potential profits.\",\n \"With Apple the money is offshore. That is why they borrow and at now about $100B of debt but have about $250B in the bank offshore. But you do have to be careful because the money offshore is NOT yet taxed and so it is not really a 1:1. With Google it is less than $4B so not really a big deal but can not answer why not just use the onshore cash to pay it off. Google has plenty of money onshore to do this. I believe Apple over the last year had 4% onshore low point and high point was 7%. Google it is 40% or 60%. I know it is 40/60 split but can never remember which way.\",\n \"Some companies like Royal Dutch Shell have multiple share classes to suit the tax regimes in Holland and the UK the A shares have dutch withholding tax applied and the B shares dont. Also some split capital investment trusts have multiple share classes http://www.trustnet.com/Education/Split.aspx?ms=1\",\n \"It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).\",\n \"Depends on your contract, cash or shares delivered? If shares, then you get 5 BIG shares. Theres no longer any options. If you sell instantly, theoretically you will net the $10 difference + profit above strike. If cash, same thing just that you get cash $50 less strike. Applies to cash and stock deals Options are binary, never pro-rated. if converted, basically you end up with BIG shares.\",\n \"Liquidity on dual listed equities is rarely the same on both exchanges. More liquidity means you would typically get a better price assuming you execute the trades using the same order types. It's recommended to trade where the liquidity is greater unless your trading method benefits somehow from it being lower. It's important to remember that some ADRs (some European companies listed in US) have ADR fees which vary. USD/EUR transaction fees are low when using a decent broker but you're obviously participating in the currency risk.\",\n \"Okay as long as you aren't dumb enough to actually think this would be worth pursuing. I don't want you to waste your money when it could go towards something nice, like your house budget. If you really do believe they are overvalued there are much better strategies.\",\n \"Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.\",\n \"Some financial planners would not advise one way or the other on a specific stock without knowing your investment strategy... if you didn't have one, their goal would be to help you develop one and introduce you to a portfolio management framework like Asset Allocation. Is a two of clubs a good card? Well, that all depends on what is in your hand (diversification) and what game you are playing(investing strategy). One possibility to reduce your basis over time if you would like to hold the stock is to sell calls against it, known as a 'covered-call'. It can be an intermediate-term (30-60+ months depending on option pricing) trading strategy that may require you to upgrade your brokerage account to allow option trades. Personally I like this strategy because it makes me feel proactive about my portfolio rather than sitting on the side lines and watching stocks move.\",\n \"You might have to pay a premium for the stocks on the dividend tax–free exchanges. For example, HSBC on the NYSE yields 4.71% versus HSBC on the LSE which yields only 4.56%. Assuming the shares are truly identical, the only reason for this (aside from market fluctuations) is if the taxes are more favorable in the UK versus the US, thus increasing demand for HSBC on the LSE, raising the price, and reducing the yield. A difference of 0.15% in yield is pretty insignificant relative to a 30% versus 0% dividend tax. But a key question is, does your country have a foreign tax credit like the US does? If so you (usually) end up getting that 30% back, just delayed until you get your tax return, and the question of which exchange to buy on becomes not so clear cut. If your country doesn't have such a tax credit, then yes, you'll want to buy on an exchange where you won't get hit with the dividend tax. Note that I got this information from a great article I read several months back (site requires free registration to see it all unfortunately). They discuss the case of UN versus UL--both on the NYSE but ADRs for Unilever in the Netherlands and the UK, respectively. The logic is very similar to your situation.\",\n \"The difference is whether your options qualify as incentive stock options (ISOs), or whether they are non-qualifying options. If your options meet all of the criteria for being ISOs (see here), then (a) you are not taxed when you exercise the options. You treat the sale of the underlying stock as a long term capital gain, with the basis being the exercise price (S). There is something about the alternative minimum tax (AMT) as they pertain to these kinds of options. Calculating your AMT basically means that your ISOs are treated as non-qualifying options. So if your exercise bumps you into AMT territory, too bad, so sad. If you exercise earlier, you do get a clock ticking, as you put it, because one of the caveats of having your options qualify as ISOs is that you hold the underlying stock (a) at least two years after you were granted the options and (b) at least one year after you exercise the options.\",\n \"Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income.\",\n \"No, I think you are misunderstanding the Math. Stock splits are a way to control relatively where the price per share can be for a company as companies can split or reverse split shares which would be similar to taking dimes and giving 2 nickels for each dime, each is 10 cents but the number of coins has varied. This doesn't create any additional value since it is still 10 cents whether it is 1 dime or 2 nickels. Share repurchase programs though are done to prevent dilution as executives and those with incentive-stock options may get shares in the company that increase the number of outstanding shares that would be something to note.\",\n \"I was thinking that the value of the stock is the value of the stock...the actual number of shares really doesn't matter, but I'm not sure. You're correct. Share price is meaningless. Google is $700 per share, Apple is $100 per share, that doesn't say anything about either company and/or whether or not one is a better investment over the other. You should not evaluate an investment decision on price of a share. Look at the books decide if the company is worth owning, then decide if it's worth owning at it's current price.\",\n \"I'll take the $9bn, the specific cash balance problem will get smaller, and we'll have a really interesting shareholder letter to read next year. I'll even make an appearance at the annual meeting and talk about what I'm doing with the money.\",\n \"Less shares outstanding means that, holding the dividend per share constant you would have a lower total dividend expenditure. The more likely outcome is that, if you want to return capital to shareholders through a dividend, you just pay a higher amount per share.\",\n \"You likely received the shares as ordinary income for services of $10k, since they withheld taxes at granting. Separately, you likely had a short term capital loss on sale of $2k, since your holding period seems to have been under one year.\",\n \"You could use HBB and other similar funds that exchange distributions for capital gains. There's HXT and HXS which is Canada and US equity markets. The swap fee + mer is a little more than some funds except for HXT which is very cheap. There's a risk for long term holders that this may eventually get banned and you're forced to sell with a gain at the wrong time, but this won't matter much if you're planning on selling in a few years. You have to pay the capital gains tax eventually. Note, the tax on distributions is really a long term drag on performance and won't make a big difference in the short term.\",\n \"I wrote a detailed article on Tax Loss Harvesting to show the impact on returns. For my example, I showed a person in the 15% bracket. In years with no loss, they trade to capture gains at 0% long term rate, thus bumping their basis up. In years with losses, they tax harvest for a 15% effective 'rebate' on that loss. I showed how for the lost decade 2000-2009, a buy and hold would have returned -1% CAGR, but the tax loss harvester would have gained 1% (just 1% for the decade, not CAGR), ending the decade with no loss. As one's portfolio grows, the math changes. You can only take $3000 capital loss against ordinary income, and my example relies on the difference between taking a gain for free but using a loss to offset income. Note, the higher earner would take gains at 15%, but losses at 25%, but only for the relatively small portfolio. The benefit for them is to use loss harvesting to offset gains, less so for ordinary income. As the other answer state, Wealthfront can aid you to do this with no math on your part.\",\n \"Your gain is $1408. The difference between 32% of your gain and 15% of your gain is $236.36 or $1.60 per share. If you sell now, you have $3957.44 after taxes. Forget about the ESPP for a moment. Are you be willing to wager $4000 on the proposition that your company's stock price won't go down more than $1.60 or so over the next 18 months? I've never felt it was worth it. Also, I never thought it made much sense to own any of my employer's stock. If their business does poorly, I'd prefer not to have both my job and my money at risk. If you sell now: Now assuming you hold for 18 months, pay 15% capital gains tax, and the stock price drops by $1.60 to $23.40:\",\n \"I work on a buy-side firm, so I know how these small data issues can drive us crazy. Hope my answer below can help you: Reason for price difference: 1. Vendor and data source Basically, data providers such as Google and Yahoo redistribute EOD data by aggregating data from their vendors. Although the raw data is taken from the same exchanges, different vendors tend to collect them through different trading platforms. For example, Yahoo, is getting stock data from Hemscott (which was acquired by Morningstar), which is not the most accurate source of EOD stocks. Google gets data from Deutsche Börse. To make the process more complicated, each vendor can choose to get EOD data from another EOD data provider or the exchange itself, or they can produce their own open, high, low, close and volume from the actual trade tick-data, and these data may come from any exchanges. 2. Price Adjustment For equities data, the re-distributor usually adjusts the raw data by applying certain customized procedures. This includes adjustment for corporate actions, such as dividends and splits. For futures data, rolling is required, and back-ward and for-warding rolling can be chosen. Different adjustment methods can lead to different price display. 3. Extended trading hours Along with the growth of electronic trading, many market tends to trade during extended hours, such as pre-open and post-close trading periods. Futures and FX markets even trade around the clock. This leads to another freedom in price reporting: whether to include the price movement during the extended trading hours. Conclusion To cross-verify the true price, we should always check the price from the Exchange where the asset is actually traded. Given the convenience of getting EOD data nowadays, this task should be easy to achieve. In fact, for professional traders and investors alike, they will never reply price on free providers such as Yahoo and Google, they will most likely choose Bloomberg, Reuters, etc. However, for personal use, Yahoo and Google should both be good choices, and the difference is small enough to ignore.\",\n \"Without more information about what tax bracket you are in, I cannot make a recommendation about what your best option is, but here are a few things to consider:\",\n \"Taxes Based on the numbers you quoted (-$360) it doesn't appear that you would have a taxable event if you sell all the shares in the account. If you only sell some of the shares, to fund the new account, you should specify which shares you want to sell. If you sell only the shares that you bought when share prices were high, then every share you sell could be considered a loss. This will increase your losses. These losses can be deducted from your taxes, though there are limits. Fees Make sure that you understand the fee structure. Some fund families look at the balance of all your accounts to determine your fee level, others treat each fund separately. Procedure If you were able to get the 10K into the new account in the next few months I would advise not selling the shares. Because it will be 6 to 18 months before you are able to contribute the new funds then rebalancing by selling shares makes more sense. It gets you to your goal quicker. All the funds you mentioned have low expense ratios, I wouldn't move funds just to chase a the lowest expense ratio. I would look at the steps necessary to get the mix you want in the next few weeks, and then what will be needed moving forward. If the 60/40 or 40/60 split makes you comfortable pick one of them. If you want to be able to control the balance via rebalancing or changing your contribution percentage, then go with two funds.\",\n \"Let's assume that the bonds have a par value of $1,000. If conversion happens, then one bond would be converted into 500 shares. The price in the market is unimportant. Regardless of the share price in the market, the income per share would be increased by the absence of $70 in interest expense. It would be decreased by the lost tax deduction. It would be further diluted by the increase in 500 shares. Likewise, the debt would be extinguished and the equity section increased. Whether it increased or decreased on a per share basis would depend upon the average amount paid in per share in the currently existing structure, adjusted for changes in retained earnings since the initial offering and for any treasury shares. There would be a loss in value, generally, if it is trading far from $2.00 because it would be valued based on the market price. Had the bond not converted, it would trade in the market as a pure bond if the stock price is far below the strike price and as an ordinary pure bond plus a premium if near enough to the strike price in a manner that depends upon the time remaining under the conversion privilege. I cannot think of a general case where someone would want to convert below strike and indeed, barring a very strange tax, inheritance or legal situation (such as a weird divorce), I cannot think of a case where it would make sense. It often does not make sense to convert far from maturity either as the option premium only vanishes well above $2. The primary case for conversion would be where the after-tax dividend is greater than the after-tax interest payment.\",\n \"Firstly a stock split is easy, for example each unit of stock is converted into 10 units. So if you owned 1% of the company before the stock split, you will still own 1% after the stock split, but have 10 times the number of shares. The company does not pay out any money when doing this and there is no effect on tax for the company or the share holder. Now onto stock dividend… When a company make a profit, the company gives some of the profit to the share holders as a dividend; this is normally paid in cash. An investor may then wish to buy more shares in the company using the money from the dividend. However buying shares used to have a large cost in broker charges etc. Therefore some companies allowed share holders to choose to have the dividend paid as shares. The company buys enough of their own shares to cover the payout, only having one set of broker charges and then sends the correct number of shares to each share holder that has opted for a stock dividend. (Along with any cash that was not enough to buy a complete share.) This made since when you had paper shares and admin costs where high for stock brokers. It does not make sense these days. A stock dividend is taxed as if you had been paid the dividend in cash and then brought the stock yourself.\",\n \"\\\"You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule \\\"\\\"Don't let the tax tail wag the investing dog.\\\"\\\" For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense.\\\"\",\n \"It looks like GOOG did not have a pre-market trade until 7:14 am ET, so Google Finance was still reporting the last trade it had, which was in the after-hours session yesterday. FB, on the other hand, was trading like crazy after-hours yesterday and pre-market today as it had an earnings report yesterday.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"To keep it simple, let's say that A shares trade at 500 on average between April 2nd 2014 and April 1st 2015 (one year anniversary), then if C shares trade on average: The payment will be made either in cash or in shares within 90 days. The difficulties come from the fact that the formula is based on an average price over a year, which is not directly tradable, and that the spread is only covered between 1% and 5%. In practice, it is unlikely that the market will attribute a large premium to voting shares considering that Page&Brin keep the majority and any discount of Cs vs As above 2-3% (to include cost of trading + borrowing) will probably trigger some arbitrage which will prevent it to extend too much. But there is no guarantee. FYI here is what the spread has looked like since April 3rd: * details in the section called \"\"Class C Settlement Agreement\"\" in the S-3 filing\"","It appears very possible that Google will not have to pay any class C holders the settlement amount, given the structure of the settlement. This is precisely because of the arbitrage opportunity you've highlighted. This idea was mentioned last summer in Dealbreaker. As explained in a Dealbook article: The settlement requires Google to pay the following amounts if, one year from the issuance of the Class C shares, the value diverges according to the following formula: If the C share price is equal to or more than 1 percent, but less than 2 percent, below the A share price, 20 percent of the difference; If the C share price is equal to or more than 2 percent, but less than 3 percent, below the A share price, 40 percent of the difference; If the C share price is equal to or more than 3 percent, but less than 4 percent, below the A share price, 60 percent of the difference; If the C share price is equal to or more than 4 percent, but less than 5 percent, below the A share price, 80 percent of the difference.” If the C share price is equal to or more than 5 percent below the A share price, 100 percent of the difference, up to 5 percent. ... If the Class A shares trade around $450 (after the split/C issuance) and the C shares trade at a 4.5 percent discount during the year (or $429.75 per share), then investors expect a payment of: 80 percent times $450 times 4.5 percent = $16.20. The value of C shares would then be $445.95 ($429.75 plus $16.20). But if this is the new trading value during the year, that’s only a discount of less than 1 percent to the A shares. So no payment would be made. But if no payment is made, we are back to the full discount and this continues ad infinitum. In other words, the value of a stock can be displayed as: {equity value} + {dividend value} + {voting value} + {settlement value} = {total share value} If we ignore dividend and voting values, and ignore premiums and discounts for risk and so forth, then the value of a share is basic equity value plus anticipated settlement payoff. The Google Class C settlement is structured to reduce the payoff as the value converges. And the practice of arbitrage guarantees (if you buy into at least semi-strong EMH) that the price of C shares will be shored up by arbitrageurs that want the payoff. The voting value of GOOGL is effectively zero, since the non-traded Class B shares control all company decisions. So the value of the Class A GOOGL voting is virtually zero for the time being. The only divergence between GOOGL and GOOG price is dividends (which I believe is supposed to be the same) and the settlement payoff. Somebody who places zero value on the vote and who expects dividend difference to be zero should always prefer to buy GOOG to GOOGL until the price is equal, disregarding the settlement. So technically someone is better off owning GOOG, if dividends are the same and market prices are equal, just because the vote is worthless and the nonzero chance of a future settlement payoff is gravy. The arbitrage itself is present because a share that costs (as in the article) $429.75 is worth $445.95 if the settlement pays out at that rate. The stable equilibrium is probably either just before or just after the threshold where the settlement pays off, depending on how reliably arbitrageurs can predict the movement of GOOG and GOOGL. If I can buy a given stock for X but know that it's worth X+1, then I'm willing to pay up to X+1. In the google case, the GOOG stock is worth X+S, where S is an uncertain settlement payment that could be zero or could be substantial. We have six tiers of S (counting zero payoff), so that the price is likely to follow a pattern from X to X+S5 to X-S5+S4 to X-S4+S3, and climbing the tier ladder until it lands in the frontier between X+S1 and X+S0. Every time it jumps into X+S1, people should be willing to pay that new amount for GOOG, so the price moves out of payoff range and into X+S0, where people will only pay X. I'm actually simplifying here, since technically this is all based on future expectations. So the actual price you'd pay is expressed thus: {resale value of GOOG before settlement payoff = X} + ( {expectation that settlement payoff will pay 100% of difference = S5} * {expected nominal difference between GOOG and GOOGL = D} ) + ({S4} * {80% D}) + ({S3} * {60% D}) + ({S2} * {40% D}) + ({S1} * {20% D}) + ({S0} * {0% D}) = {price willing to pay for Class C GOOG = P} Plus you'd technically have to present value the whole thing for the time horizon, since the payoff is in a year. Note that I've shunted any voting/dividend analysis into X. It's reasonable to thing that S5, S4, S3, and maybe S2 are nearly zero, given the open arbitrage opportunity. And we know that S0 times 0% of D is zero. So the real analysis, again ignoring PV, is thus: P = X + (S1*D) Which is a long way of saying: what are the odds that GOOG will happen to be worth no more than 99% of GOOGL on the payoff determination date?","Too much fiddling with your portfolio if the difference is 3-4% or less (as it's become in recent months). Hands off is the better advice. As for buying shares, go for whichever is the cheapest (i.e. Goog rather than Googl) because the voting right with the latter is merely symbolic. And who attends shareholders' meetings, for Pete's sake? On the other hand, if your holdings in the company are way up in the triple (maybe even quadruple) figures, then it might make sense to do the math and take the time to squeeze an extra percentage point or two out of your Googl purchases. The idle rich occupying the exclusive club that includes only the top 1% of the population needs to have somethinng to do with its time. Meanwhile, the rest of us are scrambling to make a living--leaving only enough time to visit our portfolios as often as Buffett advises (about twice a year)."],"string":"[\n \"\\\"To keep it simple, let's say that A shares trade at 500 on average between April 2nd 2014 and April 1st 2015 (one year anniversary), then if C shares trade on average: The payment will be made either in cash or in shares within 90 days. The difficulties come from the fact that the formula is based on an average price over a year, which is not directly tradable, and that the spread is only covered between 1% and 5%. In practice, it is unlikely that the market will attribute a large premium to voting shares considering that Page&Brin keep the majority and any discount of Cs vs As above 2-3% (to include cost of trading + borrowing) will probably trigger some arbitrage which will prevent it to extend too much. But there is no guarantee. FYI here is what the spread has looked like since April 3rd: * details in the section called \\\"\\\"Class C Settlement Agreement\\\"\\\" in the S-3 filing\\\"\",\n \"It appears very possible that Google will not have to pay any class C holders the settlement amount, given the structure of the settlement. This is precisely because of the arbitrage opportunity you've highlighted. This idea was mentioned last summer in Dealbreaker. As explained in a Dealbook article: The settlement requires Google to pay the following amounts if, one year from the issuance of the Class C shares, the value diverges according to the following formula: If the C share price is equal to or more than 1 percent, but less than 2 percent, below the A share price, 20 percent of the difference; If the C share price is equal to or more than 2 percent, but less than 3 percent, below the A share price, 40 percent of the difference; If the C share price is equal to or more than 3 percent, but less than 4 percent, below the A share price, 60 percent of the difference; If the C share price is equal to or more than 4 percent, but less than 5 percent, below the A share price, 80 percent of the difference.” If the C share price is equal to or more than 5 percent below the A share price, 100 percent of the difference, up to 5 percent. ... If the Class A shares trade around $450 (after the split/C issuance) and the C shares trade at a 4.5 percent discount during the year (or $429.75 per share), then investors expect a payment of: 80 percent times $450 times 4.5 percent = $16.20. The value of C shares would then be $445.95 ($429.75 plus $16.20). But if this is the new trading value during the year, that’s only a discount of less than 1 percent to the A shares. So no payment would be made. But if no payment is made, we are back to the full discount and this continues ad infinitum. In other words, the value of a stock can be displayed as: {equity value} + {dividend value} + {voting value} + {settlement value} = {total share value} If we ignore dividend and voting values, and ignore premiums and discounts for risk and so forth, then the value of a share is basic equity value plus anticipated settlement payoff. The Google Class C settlement is structured to reduce the payoff as the value converges. And the practice of arbitrage guarantees (if you buy into at least semi-strong EMH) that the price of C shares will be shored up by arbitrageurs that want the payoff. The voting value of GOOGL is effectively zero, since the non-traded Class B shares control all company decisions. So the value of the Class A GOOGL voting is virtually zero for the time being. The only divergence between GOOGL and GOOG price is dividends (which I believe is supposed to be the same) and the settlement payoff. Somebody who places zero value on the vote and who expects dividend difference to be zero should always prefer to buy GOOG to GOOGL until the price is equal, disregarding the settlement. So technically someone is better off owning GOOG, if dividends are the same and market prices are equal, just because the vote is worthless and the nonzero chance of a future settlement payoff is gravy. The arbitrage itself is present because a share that costs (as in the article) $429.75 is worth $445.95 if the settlement pays out at that rate. The stable equilibrium is probably either just before or just after the threshold where the settlement pays off, depending on how reliably arbitrageurs can predict the movement of GOOG and GOOGL. If I can buy a given stock for X but know that it's worth X+1, then I'm willing to pay up to X+1. In the google case, the GOOG stock is worth X+S, where S is an uncertain settlement payment that could be zero or could be substantial. We have six tiers of S (counting zero payoff), so that the price is likely to follow a pattern from X to X+S5 to X-S5+S4 to X-S4+S3, and climbing the tier ladder until it lands in the frontier between X+S1 and X+S0. Every time it jumps into X+S1, people should be willing to pay that new amount for GOOG, so the price moves out of payoff range and into X+S0, where people will only pay X. I'm actually simplifying here, since technically this is all based on future expectations. So the actual price you'd pay is expressed thus: {resale value of GOOG before settlement payoff = X} + ( {expectation that settlement payoff will pay 100% of difference = S5} * {expected nominal difference between GOOG and GOOGL = D} ) + ({S4} * {80% D}) + ({S3} * {60% D}) + ({S2} * {40% D}) + ({S1} * {20% D}) + ({S0} * {0% D}) = {price willing to pay for Class C GOOG = P} Plus you'd technically have to present value the whole thing for the time horizon, since the payoff is in a year. Note that I've shunted any voting/dividend analysis into X. It's reasonable to thing that S5, S4, S3, and maybe S2 are nearly zero, given the open arbitrage opportunity. And we know that S0 times 0% of D is zero. So the real analysis, again ignoring PV, is thus: P = X + (S1*D) Which is a long way of saying: what are the odds that GOOG will happen to be worth no more than 99% of GOOGL on the payoff determination date?\",\n \"Too much fiddling with your portfolio if the difference is 3-4% or less (as it's become in recent months). Hands off is the better advice. As for buying shares, go for whichever is the cheapest (i.e. Goog rather than Googl) because the voting right with the latter is merely symbolic. And who attends shareholders' meetings, for Pete's sake? On the other hand, if your holdings in the company are way up in the triple (maybe even quadruple) figures, then it might make sense to do the math and take the time to squeeze an extra percentage point or two out of your Googl purchases. The idle rich occupying the exclusive club that includes only the top 1% of the population needs to have somethinng to do with its time. Meanwhile, the rest of us are scrambling to make a living--leaving only enough time to visit our portfolios as often as Buffett advises (about twice a year).\"\n]","isConversational":false}}},{"rowIdx":276,"cells":{"_id":{"kind":"string","value":"7295"},"query":{"kind":"string","value":"Selling non-dividend for dividend stocks"},"gt_ids":{"kind":"list like","value":["244749"],"string":"[\n \"244749\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["542667","244754","335606","348922","222921","594047","263751","519073","412965","268423","598295","217837","352484","342379","292559","407551","501214","521133","568166","467575","55893","478291","481999","507117","434252","71292","219762","151871","384120","313248","163433","497060","509879","548705","584090","110983","25671","257274","138835","587689","352415","71511","517577","490620","501931","33562","443926","95948","304918","443354","88428","23217","355089","199642","120297","425641","519461","355662","115553","527997","106104","550319","51602","248853","38510","39478","183910","163290","5347","301757","322284","259904","404949","468047","231295","312154","119976","189874","42521","540292","487616","553856","481283","295082","413174","206442","267067","257833","376800","360716","28211","513942","559671","431386","81353","38287","30774","196939","330303","551286"],"string":"[\n \"542667\",\n \"244754\",\n \"335606\",\n \"348922\",\n \"222921\",\n \"594047\",\n \"263751\",\n \"519073\",\n \"412965\",\n \"268423\",\n \"598295\",\n \"217837\",\n \"352484\",\n \"342379\",\n \"292559\",\n \"407551\",\n \"501214\",\n \"521133\",\n \"568166\",\n \"467575\",\n \"55893\",\n \"478291\",\n \"481999\",\n \"507117\",\n \"434252\",\n \"71292\",\n \"219762\",\n \"151871\",\n \"384120\",\n \"313248\",\n \"163433\",\n \"497060\",\n \"509879\",\n \"548705\",\n \"584090\",\n \"110983\",\n \"25671\",\n \"257274\",\n \"138835\",\n \"587689\",\n \"352415\",\n \"71511\",\n \"517577\",\n \"490620\",\n \"501931\",\n \"33562\",\n \"443926\",\n \"95948\",\n \"304918\",\n \"443354\",\n \"88428\",\n \"23217\",\n \"355089\",\n \"199642\",\n \"120297\",\n \"425641\",\n \"519461\",\n \"355662\",\n \"115553\",\n \"527997\",\n \"106104\",\n \"550319\",\n \"51602\",\n \"248853\",\n \"38510\",\n \"39478\",\n \"183910\",\n \"163290\",\n \"5347\",\n \"301757\",\n \"322284\",\n \"259904\",\n \"404949\",\n \"468047\",\n \"231295\",\n \"312154\",\n \"119976\",\n \"189874\",\n \"42521\",\n \"540292\",\n \"487616\",\n \"553856\",\n \"481283\",\n \"295082\",\n \"413174\",\n \"206442\",\n \"267067\",\n \"257833\",\n \"376800\",\n \"360716\",\n \"28211\",\n \"513942\",\n \"559671\",\n \"431386\",\n \"81353\",\n \"38287\",\n \"30774\",\n \"196939\",\n \"330303\",\n \"551286\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["There are strategies based on yields. Dogs of the Dow being a specific example while Miller Howard has a few studies around dividends that may be of use if you additional material. Selling off a portion of the holding can run into problems as how could one hold 10 shares, selling a non-zero whole number every year for over 20 years if the stock doesn't ever pay a dividend in additional shares or cash?","You can use long-term options called LEAPS to increase dividend yield. Here's how it works: Let's say you buy a dividend-yielding stock for $38 that pays an annual dividend of $2 for a 5.3% yield. Next, you SELL a deep-in-the-money LEAPS options. In this hypothetical we'll sell the $25 call option for $13. That now reduces our cost basis from $38 to $25. Since the dividend remains @ $2, our yield is now $2/$25 = 8%. Now there are issues that may need to be dealt with like early assignment of the option where rolling the option may be necessary. More details of this strategy can be found on my website.","Remember that long term appreciation has tax advantages over short-term dividends. If you buy shares of a company, never earn any dividends, and then sell the stock for a profit in 20 years, you've essentially deferred all of the capital gains taxes (and thus your money has compounded faster) for a 20 year period. For this reason, I tend to favor non-dividend stocks, because I want to maximize my long-term gain. Another example, in estate planning, is something called a step-up basis:","There can be a good reason if you own shares issued in a different country: For example, if you are in the UK and own US shares and take the dividend payments, you get some check in US dollars that you will have to exchange to UK£, which means you pay fees - mostly these fees are fixed, so you lose a significant percentage of your dividends. By reinvesting and selling shares accumlated over some years, you got one much bigger check and pay only one fee.","You can buy dividend stocks, just buy and hold. you will get cash or extra stock every quarter. You can also sell covered calls on your dividend stocks, this will give you even more cash. you can also... actually this rabbit hole goes very deep. just stick with my first sentence.","Yes, one such strategy is dividend arbitrage using stock and in the money options. You have to find out which option is the most mispriced before the ex-dividend date.","I guess the answer lies in your tax jurisdiction (different countries tax capital gains and income differently) and your particular tax situation. If the price of the stock goes up or down between when you buy and sell then this counts for tax purposes as a capital gain or loss. If you receive a dividend then this counts as income. So, for instance, if you pay tax on income but not on capital gains (or perhaps at a lower rate on capital gains) then it would pay you to sell immediately before the stock goes ex-dividend and buy back immediately after thereby making a capital gain instead of receiving income.","Not a bad strategy. However: If you REALLY want tax efficiency you can buy stocks that don't pay a dividend, usually growth stocks like FB, GOOGL, and others. This way you will never have to pay any dividend tax - all your tax will be paid when you retire at a theoretically lower tax rate (<--- really a grey tax area here). *Also, check out Robin Hood. They offer commission free stock trading.","Although the market discussion by other answers is correct, the tax structure of many developed nations (I am familiar with Canada in particular) offers a preferred tax rate for dividend income compared to taxable gains. Consequently, if your portfolio is large enough to make transaction fees a very small percentage rate, this is a viable investment strategy. However, as the preferred tax rate for dividends typically will catch up to that for capital gains at some cut-off point, there is a natural limit on how much income can be favourably obtained in this way. If you believe your portfolio might be large enough to benefit from this investment strategy, talk to a qualified investment advisor, broker, or tax consultant for the specifics for your tax jurisdiction.","Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that.","Apart from making money from the price difference, some stocks also give dividends, or bonus issues. For long term investors whom are looking for steady income, they may be more interested with the dividend pay-out instead of the capital-appreciation.","why sell? Because the stock no longer fits your strategy. Or you've lost faith in the company. In our case, it's because we're taking our principal out and buying something else. Our strategy is, basically, to sell (or offer to sell) after the we can sell and get our principal out, after taxes. That includes dividends -- we reduce the sell price a little with every dividend collected.","\"In financial theory, there is no reason for a difference in investor return to exist between dividend paying and non-dividend paying stocks, except for tax consequences. This is because in theory, a company can either pay dividends to investors [who can reinvest the funds themselves], or reinvest its capital and earn the same return on that reinvestment [and the shareholder still has the choice to sell a fraction of their holdings, if they prefer to have cash]. That theory may not match reality, because often companies pay or don't pay dividends based on their stage of life. For example, early-stage mining companies often have no free cashflow to pay dividends [they are capital intensive until the mines are operational]. On the other side, longstanding companies may have no projects left that would be a good fit for further investment, and so they pay out dividends instead, effectively allowing the shareholder to decide where to reinvest the money. Therefore, saying \"\"dividend paying\"\"/\"\"growth stock\"\" can be a proxy for talking about the stage of life + risk and return of a company. Saying dividend paying implies \"\"long-standing blue chip company with relatively low capital requirements and a stable business\"\". Likewise \"\"growth stocks\"\" [/ non-dividend paying] implies \"\"new startup company that still needs capital and thus is somewhat unproven, with a chance for good return to match the higher risk\"\". So in theory, dividend payment policy makes no difference. In practice, it makes a difference for two reasons: (1) You will most likely be taxed differently on selling stock vs receiving dividends [Which one is better for you is a specific question relying on your jurisdiction, your current income, and things like what type of stock / how long you hold it]. For example in Canada, if you earn ~ < $40k, your dividends are very likely to have a preferential tax treatment to selling shares for capital gains [but your province and specific other numbers would influence this]. In the United States, I believe capital gains are usually preferential as long as you hold the shares for a long time [but I am not 100% on this without looking it up]. (2) Dividend policy implies differences in the stage of life / risk level of a stock. This implication is not guaranteed, so be sure you are using other considerations to determine whether this is the case. Therefore which dividend policy suits you better depends on your tax position and your risk tolerance.\"","Stocks aren't just paper -- they're ownership of a company. Getting cash from a stock that doesn't pay dividends basically means reducing your stake in the company. If the stock pays dividends, on the other hand, you still have the same shares, but now you have cash too. You can choose to buy more of the company...or, more importantly, to use it elsewhere if that's what you want to do.","The benefit is not in taxes. When you sell a portion of your stock, you no longer have a portion of your stock. When you get a dividend, you still have a portion of your stock. Dividends are distributed from the net profits of a company and as such usually don't affect its growth/earning potential much (although there may be cases when they do). So while the price takes a temporary dip due to the distribution, you're likely to get the same dividends again next year, if the company continues being similarly profitable. If you sell a portion of your stock, at some point you'll end up with no more stocks to sell.","\"Also note that a share of voting stock is a vote at the stockholder's meeting, whether it's dividend or non-dividend. That has value to the company and major stockholders in terms of protecting their own interests, and has value to anyone considering a takeover of the company or who otherwise wants to drive the company's policy. Similarly, if the company is bought out, the share will generally be replaced by shares in whatever the new owning company is. So it really does represent \"\"a slice of the company\"\" in several vary practical ways, and thus has fairly well-defined intrinsic value linked to the company's perceived value. If its price drops too low the company becomes more vulnerable to hostile takeover, which means the company itself will often be motivated to buy back shares to protect itself from that threat. One of the questions always asked when making an investment is whether you're looking for growth (are you hoping its intrinsic value will increase) or income (are you hoping it will pay you a premium for owning it). Non-dividend stocks are a pure growth bet. Dividend-paying stocks are typically a mixture of growth and income, at various trade-off points. What's right for you depends on your goals, timeframe, risk tolerance, and what else is already in your portfolio.\"","This will work as intended, but there's another point to consider. In the US, the tax rate on proceeds from stock sales is higher for short term holdings, which are defined as held for less than one year. Both rates vary based on your income. Bracket numbers are for fiscal year 2014, filing as single. The difference between short and long term capital gains tax in the US is a minimum of ten percentage points, and works out to 15 percentage points on average. This is substantial. If you won't be reporting much income the year you move to the US (say because you only worked for a portion of the year) it is decidedly to your advantage to wait and sell the stocks in the US, to get that sweet 0% rate. At a minimum, you should hold the position for a year if you sell and rebuy, from a tax optimization perspective. Two caveats:","My broker offers a service to transfer the shares where you only pay commission once. Therefore say if standard commission is £10, then you don't end up paying £20 (10 for selling + 10 for buy back). You'll have to be okay with the spread though. Hope this helps.","You could hold a long position in some company XXXX and then short your own shares (assuming your broker will let you do that). The dividend that would have gone to you would then go to whoever is holding the shares you short sold. You just don't get a dividend. If you're going to short in a smart way... do it on a stock you otherwise believe in, but use it to minimize the pull-backs on the way up.","There are ETFs and mutual funds that pay dividends. Mutual funds and ETFs are quite similar. Your advisor is correct regarding future funds you invest. But you already had incurred the risk of buying an individual stock. That is a 'sunk cost'. If you were satisfied with the returns you could have retained the HD stock you already owned and just put future moneys into an ETF or mutual fund. BTW: does your advisor receive a commission from your purchase of a mutual fund? That may have been his motivation to give you the advice to sell your existing holdings.","Your three options are: Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have the same effect as option 2 with no transaction costs. The loss will likely also offset some of the other short term gains you mentioned.","\"In the US, dividends are presently taxed at the same rates as capital gains, however selling stock could lead to less tax owed for the same amount of cash raised, because you are getting a return of basis or can elect to engage in a \"\"loss harvesting\"\" strategy. So to reply to the title question specifically, there are more tax \"\"benefits\"\" to selling stock to raise income versus receiving dividends. You have precise control of the realization of gains. However, the reason dividends (or dividend funds) are used for retirement income is for matching cash flow to expenses and preventing a liquidity crunch. One feature of retirement is that you're not working to earn a salary, yet you still have daily living expenses. Dividends are stable and more predictable than capital gains, and generate cash generally quarterly. While companies can reduce or suspend their dividend, you can generally budget for your portfolio to put a reliable amount of cash in your pocket on schedule. If you rely on selling shares quarterly for retirement living expenses, what would you have done (or how much of the total position would you have needed to sell) in order to eat during a decline in the market such as in 2007-2008?\"","I'd like to add that many companies offer Divident Re-Investment Plans or DRIPs, which is basically a regular automatic stock purchase program. More info here: http://en.wikipedia.org/wiki/Dividend_reinvestment_plan. While your stock broker may offer dividend reinvestment, this is not the same as a DRIP. DRIPs are offered directly by the company, rather than the stock broker. They have the added benefits that the stock purchases are almost always commission-free, and in some cases, the company even offers a discount on the stock price. It can take a little more effort to get enrolled in a DRIP, but if you are interested in holding the stock long-term, this is a good option to consider.","with the semi-strong form of the Efficient Market Hypothesis expected dividends are priced into the options and security already. If you are able to locate such an arbitrage opportunity then you should take it, but I suspect it will be more more difficult than you think. Remember that many dividends require you to have been a shareholder by a certain date prior to the dividend occurring.","You could use HBB and other similar funds that exchange distributions for capital gains. There's HXT and HXS which is Canada and US equity markets. The swap fee + mer is a little more than some funds except for HXT which is very cheap. There's a risk for long term holders that this may eventually get banned and you're forced to sell with a gain at the wrong time, but this won't matter much if you're planning on selling in a few years. You have to pay the capital gains tax eventually. Note, the tax on distributions is really a long term drag on performance and won't make a big difference in the short term.","Some financial planners would not advise one way or the other on a specific stock without knowing your investment strategy... if you didn't have one, their goal would be to help you develop one and introduce you to a portfolio management framework like Asset Allocation. Is a two of clubs a good card? Well, that all depends on what is in your hand (diversification) and what game you are playing(investing strategy). One possibility to reduce your basis over time if you would like to hold the stock is to sell calls against it, known as a 'covered-call'. It can be an intermediate-term (30-60+ months depending on option pricing) trading strategy that may require you to upgrade your brokerage account to allow option trades. Personally I like this strategy because it makes me feel proactive about my portfolio rather than sitting on the side lines and watching stocks move.","In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares. IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-). In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined.","\"Their is no arbitrage opportunity with \"\"buying dividends.\"\" You're buying a taxable event. This is a largely misunderstood topic. The stock always drops by the amount if the dividend on the ex date. The stock opens that day trading \"\"ex\"\" (excluding) the dividend. It then pays out later based in the shareholders on record. There is a lot of talk about price movement and value here. That can happen but it's from trading not from the dividend per se. Yes sometimes you do see a stock pop the day prior to ex date because people are buying the stock for the dividend but the trading aspect of a stock is determined by supply and demand from people trading the stock. The dividends are paid out from the owners equity section of the balance sheet. This is a return of equity to shareholders. The idea is to give owners of the company some of their investment back (from when they bought the stock) without having the owners sell the shares of the company. After all if it's a good company you want to keep holding it so it will appreciate. Another similar way to think of it is like a bonds interest payment. People sometimes forget when trading that these are actual companies meant to be invested in. Your buying an ownership in the company with your cash. It really makes no difference to buy the dividend or not, all other things constant. Though market activity can add or lose value from trading as normal.\"","Yes you can do that and it it wise to do so. However, you should make sure that the general trend of the stock is upwards and you buy during a trought in the uptrend. So basically if the stock is making higher highs and higher lows on the daily or weekly charts, then you would want to buy around one of the higher lows before the ex-dividend date. If the stock is making lower lows and lower highs, then it is in a downtrend, so never buy in this instance. It is better to miss out on a dividend of $1 rather than to buy just for this $1 dividend and lose $5 or more when the price continues to drop further.","Usually when a company is performing well both its share price and its dividends will increase over the medium to long term. Similarly, if the company is performing badly both the share price and dividends will fall over time. If you want to invest in higher dividend stocks over the medium term, you should look for companies that are performing well fundamentally and technically. Choose companies that are increasing earnings and dividends year after year and with earnings per share greater than dividends per share. Choose companies with share prices increasing over time (uptrending). Then once you have purchased your portfolio of high dividend stocks place a trailing stop loss on them. For a timeframe of 1 to 3 years I would choose a trailing stop loss of 20%. This means that if the share price continues going up you keep benefiting from the dividends and increasing share price, but if the share price drops by 20% below the recent high, then you get automatically taken out of that stock, leaving your emotions out of it. This will ensure your capital is protected over your investment timeframe and that you will profit from both capital growth and rising dividends from your portfolio.","There are many stategies with options that you have listed. The one I use frequently is buy in the money calls and sell at the money staddles. Do this ONLY on stocks you do not mind owning because that is the worse thing that can happen and if you like the company you stand less of a chance of being scared out of the trade. It works well with high quality resonable dividend paying stocks. Cat, GE, Mrk, PM etc. Good luck","One reason to prefer a dividend-paying stock is when you don't plan to reinvest the dividends. For example, if you're retired and living off the income from your investments, a dividend-paying stock can give you a relatively stable income.","You should never invest in a stock just for the dividend. Dividends are not guaranteed. I have seen some companies that are paying close to 10% dividends but are losing money and have to borrow funds just to maintain the dividends. How long can these companies continue paying dividends at this rate or at all. Would you keep investing in a stock paying 10% dividends per year where the share price is falling 20% per year? I know I wouldn't. Some high dividend paying stocks also tend to grow a lot slower than lower or non dividend paying stocks. You should look at the total return - both dividend yield and capital return combined to make a better decision. You should also never stay in a stock which is falling drastically just because it pays a dividend. I would never stay in a stock that falls 20%, 30%, 50% or more just because I am getting a 5% dividend. Regarding taxation, some countries may have special taxation rules when it comes to dividends just like they may have special taxation rules for longer term capital gains compared to shorter term capital gains. Again no one should use taxation as the main purpose to make an investment decision. You should factor taxation into your decision but it should never be the determining factor of your decisions. No one has ever become poor in making a gain and paying some tax, but many people have lost a great portion of their capital by not selling a stock when it has lost 50% or more of its value.","This investment strategy may have tax advantages. In some countries, income received from dividends is taxed as income, whereas profits on share trades are capital gains. If you have already exceeded your tax-free income limit for the year, but not your capital gains tax allowance, it may be preferable to make a dealing profit rather than an investment income. These arrangements are called a bed-and-breakfast.","An alternative options strategy to minimize loss of investment capital is to buy a put, near the money around your original buy price, with a premium less than the total dividend. The value of the put will increase if the stock price falls quickly. Likely, a large portion of your dividend will go towards paying the option premium, this will however ensure that your capital doesn't drop much lower than your buy price. Continued dividend distributions will continue to pay to buy future put options. Risks here are if the stock does not have a very large up or down movement from your original buy price causing most of the dividend to be spent on insuring your position. It may take a few cycles, but once the stock has appreciated in value say 10% above buying price, you can consider either skipping the put insurance so you can pocket the dividend, or you can bu ythe put with a higher strike price for additional insurance against a loss of gains. Again, this sacrifices much of the dividend in favor of price loss, and still is open to a risk of neutral price movement over time.","In the US, dividends have special tax treatment similar to, but not the same as Capital Gains. No easy way to transform one to the other, the very fact that you invested your money in a company that has returned part of your capital as income means it is just that, income. Also in the US, you could invest in Master Limited Partnerships. These are companies that make distributions that are treated as a return of capital, instead of dividends. Throughout the life of the investment you receive tax forms that assign part of the operating expense/loss of the company to you as a tax payer. Then at the end of the investment life you are required to recapture those losses as Capital Gains on sale of the stock. In some ways, these investments do exactly what you are asking about. They transform periodic income into later capital gains, basically deferring tax on the income until the sale of the security. Here is an article I found about MLPs coming to the UK through an ETF: Master Limited Partnerships in the UK","The main question is, how much money you want to make? With every transaction, you should calculate the real price as the price plus costs. For example, if you but 10 GreatCorp stock of £100 each, and the transaction cost is £20 , then the real cost of buying a single share is in fact buying price of stock + broker costs / amount bought, or £104 in this case. Now you want to make a profit so calculate your desired profit margin. You want to receive a sales price of buying price + profit margin + broker costs / amount bought. Suppose that you'd like 5%, then you'll need the price per stock of my example to increase to 100 + 5% + £40 / 10 = £109. So you it only becomes worth while if you feel confident that GreatCorp's stock will rise to that level. Read the yearly balance of that company to see if they don't have any debt, and are profitable. Look at their dividend earning history. Study the stock's candle graphs of the last ten years or so, to find out if there's no seasonal effects, and if the stock performs well overall. Get to know the company well. You should only buy GreatCorp shares after doing your homework. But what about switching to another stock of LovelyInc? Actually it doesn't matter, since it's best to separate transactions. Sell your GreatCorp's stock when it has reached the desired profit margin or if it seems it is underperforming. Cut your losses! Make the calculations for LovelyCorp's shares without reference to GreatCorp's, and decide like that if it's worth while to buy.","\"There are ways to mitigate, but since you're not protected by a tax-deferred/advantaged account, the realized income will be taxed. But you can do any of the followings to reduce the burden: Prefer selling either short positions that are at loss or long positions that are at gain. Do not invest in stocks, but rather in index funds that do the rebalancing for you without (significant) tax impact on you. If you are rebalancing portfolio that includes assets that are not stocks (real-estate, mainly) consider performing 1031 exchanges instead of plain sale and re-purchase. Maximize your IRA contributions, even if non-deductible, and convert them to Roth IRA. Hold your more volatile investments and individual stocks there - you will not be taxed when rebalancing. Maximize your 401K, HSA, SEP-IRA and any other tax-advantaged account you may be eligible for. On some accounts you'll pay taxes when withdrawing, on others - you won't. For example - Roth IRA/401k accounts are not taxed at all when withdrawing qualified distributions, while traditional IRA/401k are taxed as ordinary income. During the \"\"low income\"\" years, consider converting portions of traditional accounts to Roth.\"","If you expect to pay tax on dividends move dividend producing assets into your ISA. If have a lot of investments you can Look at Zeros (zero dividend preference share) issued by splits (split capital trusts), https://en.wikipedia.org/wiki/Split_capital_investment_trust","Yes, somebody could buy the shares, receive the dividend, and then sell the shares back. However, the price he would get when he sells the shares back is, ignoring other reasons for the price to change, exactly the amount he paid minus the dividend.","\"Not minutes, but hours. The \"\"ex-dividend\"\" date is the deadline for acquiring a stock to receive a dividend. If you hold a stock at the beginning of this day, you will receive the dividend. So you could buy a stock right at the end of the day on the day before the ex-dividend date, and sell it the next day (on the ex-dividend date), and you would get your dividend. See this page from the SEC for more information. The problem with this strategy, however, is that the value of the stock typically drops by the same amount as the dividend on that day. If you take a look at the historical price of the stock you are interested in, you'll see this. Of course, it makes sense why: a seller knows that selling before the date results in a loss of the dividend, so they want a higher price to compensate. Likewise, a buyer on or after the date knows that the dividend is already gone, so they want to pay a lower price.\"","\"You have to be the owner of record before the ex-dividend date, which is not the same day as the date the dividend is paid. This also implies that if you sell on or after the ex-dividend date, you'll still get the dividend, even if you no longer own the stock. Keep in mind, also, that the quoted price of the stock (and on any open orders that are not specifically marked as \"\"do not reduce\"\") on its ex-dividend date is dropped by the amount of the dividend, first thing in the morning before trading starts. If you happen to be the first order of the day, before market forces cause the price to move, you'll end up with zero gain, since the dividend is built into the price, and you got the same value out of it -- the dividend in cash, and the remaining value in stock. As pointed out in the comments (Thanks @Brick), you'll still get a market price for your trade, but the price reduction will have had some impact on the first trade of the day. Source: NYSE Rule 118.30 Also, remember that the dividend yield is expressed in annualized terms. So a 3% yield can only be fully realized by receiving all of the dividend payments made by the company for the year. You can, of course, forget about individual companies and just look for dividends to create your own effective yield over time. But, see the final point... Finally, if you keep buying and selling just to play games with the dividends, you're going to pay far more in transaction fees than you will earn in dividends. And, depending on your individual circumstances, you may end up paying more in capital gains taxes.\"","You sold all shares? The potential wash sale effect goes away after 30 days from the dividend date. Selling all shares of a stock where a wash existed effectively negates the wash and you can take the loss.","You sell any investment because you need to do something else with the money -- rebalance your investments, buy something, pay off a debt....","I believe this depends on the broker's policies. For example, here is Vanguard's policy (from https://personal.vanguard.com/us/whatweoffer/stocksbondscds/brokeragedividendprogram): Does selling shares affect a distribution? If you sell the entire position two days or more before the dividend-payable date, your distribution will be paid in cash. If, however, you sell an entire position within the two day time frame of the security's payable date, the dividend will be reinvested, resulting in additional shares. Selling these subsequent shares will require another sell order, which will incur additional commission charges. Dividends which would have been reinvested into less than one whole share will be automatically liquidated into cash. If you want to guarantee you receive no fractional shares, I'd call your broker and ask whether selling stock ABC on a particular date will result in the dividend being paid in shares.","I wouldn't recommend leveraged dividend fishing. Dividend stocks with such high dividends are highly volatile, you will run out of collateral to cover your trades very quickly","If there are no traded options in a company you can get your broker to write OTC options but this may not be possible given some restrictions on accounts. Going short on futures may also be an option. You can also open a downside CFD (contract for difference) on the stock but will have to have margin posted against it so will have to hold cash (or possibly liquid assets if your AUM is large enough) to cover the margin which is unutilized cash in the portfolio that needs to be factored into any portfolio calculations as a cost. Diversifying into uncorrelated stock or shorting correlated (but low div yield) stock would also have the same effect. stop loss orders would probably not be appropriate as it is not the price of the stock that you are concerned with but mitigating all price changes and just receiving the dividend on the stock. warning: in a crash (almost) all stocks become suddenly correlated so be aware that might cause you a short term loss. CFDs are complex and require a degree of sophistication before you can trade them well but as you seem to understand options they should not be too hard to understand.","If your criteria has changed but some of your existing holdings don't meet your new criteria you should eventually liquidate them, because they are not part of your new strategy. However, you don't want to just liquidate them right now if they are currently performing quite well (share price currently uptrending). One way you could handle this is to place a trailing stop loss on the stocks that don't meet your current criteria and let the market take you out when the stocks have stopped up trending.","If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?","Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.","Buying individual/small basket of high dividend shares is exposing you to 50%+ and very fast potential downswings in capital/margin calls. There is no free lunch in returns in this respect: nothing that pays enough to help you pay your mortgage at a high rate won’t expose you to a lot of potential volatility. Main issue here looks like you have very poorly performing rental investments you should consider selling or switching up rental usage/how you rent them (moving to shorter term, higher yield lets, ditching any agents/handymen that are taking up capital/try and refinance to lower mortgage rates etc etc). Trying to use leveraged stock returns to pay for poorly performing housing investments is like spraying gasoline all over a fire. Fixing the actual issue in hand first is virtually always the best course of action in these scenarios.","It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).","You might have to pay a premium for the stocks on the dividend tax–free exchanges. For example, HSBC on the NYSE yields 4.71% versus HSBC on the LSE which yields only 4.56%. Assuming the shares are truly identical, the only reason for this (aside from market fluctuations) is if the taxes are more favorable in the UK versus the US, thus increasing demand for HSBC on the LSE, raising the price, and reducing the yield. A difference of 0.15% in yield is pretty insignificant relative to a 30% versus 0% dividend tax. But a key question is, does your country have a foreign tax credit like the US does? If so you (usually) end up getting that 30% back, just delayed until you get your tax return, and the question of which exchange to buy on becomes not so clear cut. If your country doesn't have such a tax credit, then yes, you'll want to buy on an exchange where you won't get hit with the dividend tax. Note that I got this information from a great article I read several months back (site requires free registration to see it all unfortunately). They discuss the case of UN versus UL--both on the NYSE but ADRs for Unilever in the Netherlands and the UK, respectively. The logic is very similar to your situation.","By coincidence, I entered this position today. Ignore the stock itself, I am not recommending a particular stock, just looking at a strategy. The covered call. For this stock trading at $7.47, I am able, by selling an in-the-money call to be out of pocket $5.87/sh, and am obliged to let it go for $7.00 a year from now. A 19% return as long as the stock doesn't drop more than 6% over that time. The chart below shows maximum profit, and my loss starts if the stock trades 21% below current price. The risk is shifted a bit, but in return, I give up potential higher gains. The guy that paid $1.60 could triple his money if the stocks goes to $12, for example. In a flat market, this strategy can provide relatively high returns compared to holding only stocks.","How do you find good quality dividend stocks? That is an easy one. Past performance has always been my key to this answer. also remember why you are investing in the first place. Do you want cash flow, security or capital growth. Also let's not forget... how much time do you want to devote to this venture. There is going to be a balance in your investing and your returns. More time in... the higher returns you get. As for finding good dividend stocks, look to the Dividend Aristocrats or the Dividend Contenders. These companies have consistently increased their payouts to their investors for years. There is a trading strategy that could escalate your returns. Dividend Capturing, simply put... You buy the stock before the ex-date and sell after date of record. Thus collecting a dividend and moving on to the next one. Warning: though this is a profitable strategy, it only works with certain stocks so do your research or find a good source.","I would say the most important thing to consider is the quality of the company relative to the price you pay for it. No dividend also means that you will not pay taxes on dividends.","A specific strategy to make money on a potentially moderately decreasing stock price on a dividend paying stock is to write covered calls. There is a category on Money.SE about covered call writing, but in summary, a covered call is a contract to sell the shares at a set price within a defined time range; you gain a premium (called the time value) which, when I've done it, can be up to an additional 1%-3% return on the position. With this strategy you're collecting dividends and come out with the best return if the stock price stays in the middle: if the price does not shoot up high enough that your option is called, you still own the stock and made extra return; if the price drops moderately, you may still be positive.","There are many reasons for buying stock for dividends. You are right in the sense that in theory a stock's price will go down in value by the amount of the dividend. As the amount of dividend was adding to the value of the company, but now has been paid out to shareholder, so now the company is worth less by the value of the dividend. However, in real life this may or may not happen. Sometimes the price will drop by less than the value of the dividend. Sometimes the price will drop by more than the dividend. And other times the price will go up even though the stock has gone ex-dividend. We can say that if the price has dropped by exactly the amount of the dividend then there has been no change in the stockholders value, if the price has dropped by more than the value of the dividend then there has been a drop to the stockholder's value, and if the price has gone up or dropped by less than the value of the dividend then there has been a increase to the stockholder's value. Benefits of Buying Stocks with Good Dividends: What you shouldn't do however, is buy stocks solely due to the dividend. Be aware that if a company starts reducing its dividends, it could be an early warning sign that the company may be heading into financial troubles. That is why holding a stock that is dropping in price purely for its dividend can be a very dangerous practice.","No, the dividends can't be exploited like that. Dividends settlement are tied to an ex-dividend date. The ex-dividend, is the day that allows you to get a dividend if you own the stock. Since a buyer of the stock after this date won't get the dividend, the price usually drop by the amount of the dividend. In your case the price of a share would lose $2.65 and you will be credited by $2.65 in cash such that your portfolio won't change in value due to the dividend. Also, you can't exploit the drop in price by short-selling, as you would be owing the dividend to the person lending you the stock for the short sale. Finally, the price of the stock at the ex-dividend will also be affected by the supply and demand, such that you can't be precisely sure of the drop in price of the security.","There are indeed various strategies to make money from this. As Ben correctly said, the stock price drops correspondingly on the dividend date, so the straightforward way doesn't work. What does work are schemes that involve dividend taxation based on nationality, and schemes based on American Options where people can use market rules to their advantage if some options are not exercised.","\"If you sold the stock for a profit, you will owe tax on that profit. Whether it is taxed as short-term or long-term capital gains depends on how long you held the stock before selling it. Presumably you're going to invest this money into mutual funds or something of that sort. Those may pay dividends which can be reinvested, and will grow in value (you hope) just as the individual stock shares would (you hope). Assuming the advice you've been given is at all reasonable, there's no need for buyer's remorse here; you're just changing your investing style to a different point on the risk-versus-return curve. (If you have to ask this question, I tend to agree that you should do more homework before playing with shares in individual companieS ... unless you're getting thess shares at employee discount, in which case you should still seriously consider selling them fairly quickly and reinvesting the money in a more structured manner. In a very real sense your job is itself an \"\"investment\"\" in your employer; if they ever get into trouble you don't want that to hit both your income and investments.)\"","This depends on a lot actually - with the overall being your goals and how much you like risk. Question: What are your fees/commissions for selling? $8.95/trade will wipe out some gains on those trades. (.69% if all are sold with $8.95 commission - not including the commission payed when purchased that should be factored into the cost basis) Also, I would recommend doing commission free ETFs. You can get the same affect as a mutual fund without the fees associated with paying someone to invest in ETFs and stocks. On another note: Your portfolio looks rather risky. Although everyone has their own risk preference so this might be yours but if you are thinking about a mutual fund instead of individual stocks you probably are risk averse. I would suggest consulting with an adviser on how to set up for the future. Financial advice is free flowing from your local barber, dentist, and of course StackExchange but I would look towards a professional. Disclaimer: These are my thoughts and opinions only ;) Feel free to add comments below.","\"Dividends can also be automatically reinvested in your stock holding through a DRIP plan (see the wikipedia link for further details, wiki_DRIP). Rather than receiving the dividend money, you \"\"buy\"\" additional stock shares your with dividend money. The value in the DRIP strategy is twofold. 1) your number of shares increases without paying transaction fees, 2) you increase the value of your holding by increasing number of shares. In the end, the RIO can be quite substantial due to the law of compounding interest (though here in the form of dividends). Talk with your broker (brokerage service provider) to enroll your dividend receiving stocks in a DRIP.\"","The trend in ETFs is total return: where the ETF automatically reinvests dividends. This philosophy is undoubtedly influenced by that trend. The rich and retired receive nearly all income from interest, dividends, and capital gains; therefore, one who receives income exclusively from dividends and capital gains must fund by withdrawing dividends and/or liquidating holdings. For a total return ETF, the situation is even more limiting: income can only be funded by liquidation. The expected profit is lost for the dividend as well as liquidating since the dividend can merely be converted back into securities new or pre-existing. In this regard, dividends and investments are equal. One who withdraws dividends and liquidates holdings should be careful not to liquidate faster than the rate of growth.","1) Don't trade individual stocks. You expose yourself to unnecessary risk. 2) Pick a fund with low expenses that pays a dividend. Reinvest the dividend back into the fund. To quote Einstein: The greatest power on earth is compound interest. Something is wrong with the software of the site. It will not allow me to answer mark with another comment. So I have to edit this answer to be able to answer him. @mark No, I am not hoping the price will go up. The price is only relevant in comparison to the dividend. It is the dividend that is important, not the price. The price is irrelevant if you never sell. Dividend paying securities are what you buy and hold. Then you reinvest the dividend and buy more of the security. As I am buying the security with the dividend I am actually pleasantly surprised when the price goes down. When the price goes down, but the dividend remains the same, I am able to buy more shares of the security withwith that dividend. So if the price goes down, and the dividend remains the same, it is a good thing. Again, the site will not allow me to add another comment. @mark I profit from my investment, without selling, by receiving the dividend. I used to be a speculator, trying to get ahead of the market by 'buy low, sell high' but all that did was make money for the broker. I lost as much as I gained trying to do that. The broker made money on each transaction, regardless if I did or not. It took me decades to learn the lesson that 'buy and hold' of dividend paying securities is the way to go. Don't make my mistake. I now get, at least, 5.5% yeald on my investment (look at PGF, which forms the backbone of my investments). That is almost 0.5% per month. Each month that dividend is reinvested into PGF, with no commission. You can't beat that with a stick.","A lot of people use dividend stocks as a regular income, which is why dividend stocks are often associated with retirement. If your goal is growth and you're reinvesting capital gains and dividends then investing growth stocks or dividend stocks should have the same effect. The only difference would be if you are manually reinvesting dividends, which could incur extra trading fees.","The problem there is that there's a tax due on that dividend. So, if you wish, you can buy the ETF and specify to reinvest dividends, but you'll have to pay a bit of tax on them, and keep track of your basis, if the account isn't a retirement account.","The dividend goes to he who owns the stock when it goes ex-div. A buyer (the call buyer who exercises) will not exercise unless the stock plus dividend are in the money. Otherwise they'd be buying the stock at a premium. I like the scenario your friend doesn't. If I can find a high dividend stock and sell the call for a decent price, I may get a great return on a stock that's gone down 5% over a year's time. If it goes up and called away, that's fine too, it means a profit.","If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.","Simply if your stock is still rising in price keep it. If it is falling in price sell it and pay off your mortgage. To know when to do this is very easy. If it is currently rising you can put a trailing stop loss on it and sell it when it drops and hits your stop loss. A second easy method is to draw an uptrend line under the increasing price and then sell when the price drops down below the uptrend line, as per the chart below. This will enable you to capture the bulk of the price movement upward and sell before the price drops too far down. You can then use the profits (after tax) to pay down your mortgage. Of course if the price is currently in a downtrend sell it ASAP.","\"You have to calculate the total value of all shares and then ask yourself \"\"Would I invest that amount of money in this stock?\"\" If the answer is yes, then only sell what you need to sell. Take the $3k loss against your income, if you have no other gains. If you would not invest that amount of cash in that stock, then sell it all right now and carry forward the excess loss every year. Note at any point you have capital gains you can offset all of them with your loss carryover (not just $3k).\"","If you are looking to re-invest it in the same company, there is really no difference. Please be aware that when a company announces dividend, you are not the only person receiving the dividend. The millions of share holders receive the same amount that you did as dividend, and of course, that money is not falling from the sky. The company pays it from their profits. So the day a dividend is announced, it is adjusted in the price of the share. The only reason why you look for dividend in a company is when you need liquidity. If a company does not pay you dividend, it means that they are usually using the profits to re-invest it in the business which you are anyway going to do with the dividend that you receive. (Unless its some shady company which is only established on paper. Then they might use it to feed their dog:p). To make it simpler lets assume you have Rs.500 and you want to start a company which requires Rs 1000 in capital : - 1.) You issue 5 shares worth Rs 100 each to the public and take Rs 100 for each share. Now you have Rs 1000 to start your company. 2.) You make a profit of Rs 200. 3.) Since you own majority of the shares you get to make the call whether to pay Rs.200 in dividend, or re-invest it in the business. Case 1:- You had issued 10 shares and your profit is Rs 200. You pay Rs. 20 each to every share holder. Since you owned 5 shares, you get 5*20 that is Rs.100 and you distribute the remaining to your 5 shareholders and expect to make the same or higher profit next year. Your share price remains at Rs.100 and you have your profits in cash. Case 2:- You think that this business is awesome and you should put more money into it to make more. You decide not to pay any dividend and invest the entire profit into the business. That way your shareholders do not receive anything from you but they get to share profit in the amazing business that you are doing. In this case your share price is Rs. 120 ((1000+200)/10) and all your profits are re-invested in the business. Now put yourself in the shareholders shoes and see which case suits you more. That is the company you should invest in. Please note: - It is very important to understand the business model of the company before you buy anything! Cheers,","First, what Daniel Carson said. Second, if you're getting started, just make sure you are well diversified. Lots of growth stocks turn into dividend stocks over time-- Microsoft and Apple are the classic examples in this era. Someday, Google will pay a dividend too. If you're investing for the long haul, diversify and watch your taxes, and you'll make out better than nearly everyone else.","Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.","The stock tends to drop by the amount of the dividend -- or if you prefer to think of it this way, the stock price has been pushed up by the amount of the dividend before it was paid out. Really, all this shift does is factor out the impending dividend's effect on the real purchase cost of the stock. As such it's pretty much irrelevant except that, of course, the dividend is short-term gain that you have to pay taxes on almost immediately. Which also tends to get figured into the price folks are willing to pay for the stock. Conclusion: no, there's no real opportunity here. There's a slight tax reason to avoid buying right before dividends are paid, but that's about it. Basic principle: If it's simple and obvious,the market has already accounted for it.","One of my university professors suggested doing this systematically to get access to shareholder meetings where there is typically a nice dinner involved. As long as the stock price + commission is less than the price of a nice restaurant it's actually not a bad idea.","\"One alternative strategy you may want to consider is writing covered calls on the stock you have \"\"just sitting there\"\". This will allow you to earn a return (the premium from the calls) without necessarily having to give up your holding. As a brief overview, \"\"options\"\" are derivatives that give the holder the right (or option) to buy or sell shares at a specified price. Holders of call options with a strike prike $x on a particular security have the right to purchase that security at the strike price $x. Conversely, holders of put options with a strike price of $x have the right to sell that security at the strike price $x. Always on the other side of a call or put option is a person that has sold the option, which is called \"\"writing\"\" the option. If this person writes a call option, then he will be obligated to sell a certain amount of stock (100 shares per contract) at the strike price if that option is exercised. A writer of a put option will be obligated to by 100 shares per contract at the strike price if that option is exercised. Covered calls involve writing call contracts on stock that you own. For example, say you own 100 shares of AAPL, and that AAPL is currently trading for $330. You decide to write a Jan 21, 2012 call on these shares at a strike price of $340, earning you a premium of say $300. Two things can now happen: if the price of AAPL is not at least $340 on January 21, then the options are \"\"out of the money\"\" and will expire unexercised (why exercise an option to buy at $340 when you can buy at the currently cheaper market price?). You keep your AAPL stock plus the $300 premium you earn. If, however, the price of AAPL is greater than $340, the option will be exercised and you will now be required to sell the shares you own at $340. You will earn a return of $10/share ($340-$330), plus the $300 premium from the call option. You still make out in the end, but have unfortunately incurred an opportunity cost, as had you not written the call option you would have been able to sell at the market price, which is higher than the $340 strike price. Covered calls are considered relatively safe and conservative, however the strategy is most effective for stocks that are expected to stay within a relatively narrow price range for the duration of the contract. They do provide one option of earning additional money on stocks you are currently holding, albeit at the risk of giving up some returns if the stock price rises above the strike price.\"","The market is not stupid. It realises that a company is worth less after paying out dividends than before paying them. (It's obvious, since that company has just given out part of its earnings.) So after a company pays out dividends, its stock price normally drops approximately by the amount paid. Therefore if you buy, get the dividend, and immediately sell, under normal conditions you won't make any profit.","\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \"\"otherwise\"\" is substantial and far-ranging.\"","Is this possible and will it have the intended effect? From the US tax perspective, it most definitely is and will. Is my plan not very similar to Wash Sale? Yes, except that wash sale rules apply for losses, not gains. In any case, since you're not a US tax resident, the US wash sale rules won't apply to you.","Maximizing income could mean a lot of things. What you really want is to maximize wealth. Doesn't matter if it comes from your bond appreciating in value or as dividends. In order to maximize your wealth (that's today's wealth), you need to make decisions based on the net present value of these bonds. The market is fairly priced, especially for a tight market like government bonds. That means if your bond falls in price, it has fallen by precisely the amount necessary so that an investor would be indifferent between purchasing it now, at its current price, and purchasing a new bond with a higher dividend. The bonds with higher dividends will simply have a higher price, so more of the money comes as dividends than as price appreciation (at maturity it will sell for face value). In other words, the animals are out of the barn and you have lost (or made) money already. Changing from one bond to another will not change your wealth one way or the other. The only potential effect of changing bonds will be changing the risk of your portfolio. If you buy a bond that matures later or has a lower dividend than your current bond, you will be adding additional interest rate risk to your portfolio. That risk should be compensated, so you will have a higher expected return as well. But regardless of your choice you will not be made wealthier or less wealthy by changing from one bond to another. Should you buy bonds that will earn you the most possible? Sure, if you are below your risk tolerance. Even among default free bonds, the longer the maturity and the lower the dividend, the greater the effect of future changes in interest rates on your bond. That makes them riskier, but also makes them earn more money on average. TL;DR: In terms of your wealth, which is what matters, it doesn't matter whether you hold your bond or buy a new one.","Some investors (pension funds or insurance companies) need to pay out a certain amount of money to their clients. They need cash on a periodical basis, and thus prefer dividend paying stock more.","Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.","Dividends indicate that a business is making more profit than it can effectively invest into expansion or needs to regulate cash-flow. This generally indicates that the business is well established and has stabilized in a dominant market position. This can be contrasted against businesses that: Dividends are also given preferential tax treatment. Specifically, if I buy a stock and sell it 30 days later, I will be taxed on the capital gains at the regular income rate (typically 25-33%), but the dividends would be taxed at the lower long-term capital gains rate (typically 15%).","Since you reference SS, I surmise you are in the US. Stock you inherit gets a stepped up basis when it's inherited. (so long as it was not contained within a tax deffered retirement account.) When you sell, the new basis is taken from that day you inherited it. It should be minimal compared to your desire to diversify.","\"It is important to remember that the stock price in principle reflects the value of the company, so the market cap should drop upon issuance of the the dividend. However, the above reasoning neglects to consider taxes, which make the question a bit more interesting. The key fact is that different investors are going to get taxed on the dividend to varying degrees, ranging from 20% for qualified dividends in the USA for a high-income individual in a taxable account (and even worse for non-qualified dividends) to 0% for tax-exempt nonprofits, retirement accounts, and low-income individuals. The high-tax investors are going to be a bit averse to paying tax on that dividend, whereas the tax-free investors are not. Hence in a tax-rational market the tax-free investors are going to be the ones buying right before a dividend and the tax-paying investors will be buying right afterwards. Tax-exempt investors could in principle make some amount of money buying dividends to keep them off the tax-paying investors' books. (Of course, the strategy could backfire if too many people did it all at once.) That said, the tax-payers have the tax disincentive to prevent them from fully exploiting the opposite strategy of selling just before a dividend. In particular, they are subject to capital gains tax when they sell at a profit (unless they have enough compensating capital losses), and it is to their after-tax profit to defer taxation by not trading. That said, the stock market has well-known irrationality when it comes to considering tax consequences, so logic based on assumed rationality of the market does not always apply to the extent one would expect. The foremost example of tax-irrationality is the so-called \"\"dividend paradox\"\", which basically states that corporations should favor stock buybacks (or perhaps loan repayment) to the complete exclusion of dividends because capital gains are taxed less harshly than dividends in a variety of ways, some of which are subtle: 1) Historically (although not currently in the USA for qualified dividends) the tax rate was higher for dividends. (In Canada, for example, dividends are taxed at twice the rate of capital gains.) 2) If you die holding appreciated stock then you (meaning your heirs) completely escape US the capital gains tax on the accrual during your lifetime. 3) Capital gains tax can be deferred by simply not selling. In comparison to dividends, this is roughly equivalent to getting a tax-free loan from the government which is invested for profit and paid at a later date after inflation has eaten away at the real value of the loan. For example, if all your stock investments increase by 10%/year but you sell every year, in a high-tax bracket situation you're total after-tax return will be only 8% per year. In contrast, if you hold the same investments for many many years and then sell, your total return will be nearly 10% per year, because you only pay 20% once (at the end). 4) A capital gain can often be neutralized by a capital loss in another stock, so that no tax results. If you loose money on a stock that is paying dividends, you're still going to have to pay tax on that dividend. There are companies that borrow money to pay out that taxable-dividend each quarter, which seems like gross tax malpractice on the part of the CFO. (If the dividend paradox doesn't make sense, first consider the case that you owned ALL the shares of a company. It wouldn't matter to you at all on a pre-tax basis whether you got a $1000 company buyback or a $1000 dividend, because after the buyback/dividend you'd still own the entire company and $1000. The number of shares would be reduced, but objecting that you owned fewer shares after the buyback would be like saying you have become shorter if your height is measured in inches rather than centimeters.) [Of course, in the case of many shareholders you can get burned by failing to sell into the buyback when the share price is too high, but that is another matter.]\"","In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different.","For XOM if you were lucky enough to purchase on 20 Jan 16, at 73.18/share and sold on 15 July at 94.95 you would achieve a 29% return in six months. Awesome. You'd also get a dividend payment or two adding another percentage point per to your returns. The one year chart for FB shows it increasing from ~95/share to ~129. Yet no dividend was paid. However, the 35.7% YTD for 2016 should make anyone happy. Both of these require excellent timing, and those kind of returns are unsustainable over the long haul. Many people simply hold stocks. Having the dividend is a nice bonus to some growth. Why to people buy stocks? For profit. Sometimes dividend payers offer the best option, sometimes not.","The top long-term capital gains tax rate will rise to 20% effective 1 Jan, 2011, unless Congress decides to do something about it before then. (Will they? Who knows!! There's been talk about it, but, well, it's Congress. They don't even know what they're going to do.) Anyway. The rules about when you can sell stock are mostly concerned with when you can realize a capital loss: if you sell a stock at a loss and then re-buy it for tax purposes within 30 days, it's a wash sale and not eligible for a deduction. However, I don't believe this applies to any stocks once you realize a gain - once you've realized the gain and paid your tax for it, it's all yours, locked in at whatever rate. Your replacement stock will be subject to short-term capital gains for the next year afterwards, and you might need to be careful with identifying the holding period on different lots of your stock, but I don't believe there will be any particular trouble. Please do not rely entirely on my advice and consult also with your tax preparer or lawyer. :) And the IRS documentation: Special Addendum for Nov/Dec 2012! Spoiler alert! Congress did indeed act: they extended the rates, but only temporarily, so now we're looking at tax hikes starting in 2013 instead, only the new top rate++ will be something like 23.8% on account of an extra 3.8% medicare tax on passive earnings (brought to you via Obamacare legislation). But the year and the rates' specifics aside, same thing still applies. And the Republican house and Democratic senate/President are still duking it out. Have fun. ++ 3.8% surtax applies to the lesser of (a) net investment income (b) income over $200,000 ($250k if married). 20% tax rate applies to people in the 15% income tax bracket for ordinary income or higher. Additional tax discounts for property held over 5 years may be available. Consult tax law and your favorite tax professional and prepare to be confused.","\"What you seem to want is a dividend reinvestment plan (DRIP). That's typically offered by the broker, not by the ETF itself. Essentially this is a discounted purchase of new shares when you're dividend comes out. As noted in the answer by JoeTaxpayer, you'll still need to pay tax on the dividend, but that probably won't be a big problem unless you've got a lot of dividends. You'll pay that out of some other funds when it's due. All DRIPs (not just for ETFs) have potential to complicate computation of your tax basis for eventual sale, so be aware of that. It doesn't have to be a show-stopper for you, but it's something to consider before you start. It's probably less of a problem now than it used to be since brokers now have to report your basis on the 1099-B in the year of sale, reducing your administrative burden (if you trust them to get it right). Here's a list of brokerages that were offering this from a top-of-the-search-list article that I found online: Some brokerages, including TD Ameritrade, Vanguard, Scottrade, Schwab and, to a lesser extent, Etrade, offer ETF DRIPs—no-cost dividend reinvestment programs. This is very helpful for busy clients. Other brokerages, such as Fidelity, leave ETF dividend reinvestment to their clients. Source: http://www.etf.com/sections/blog/23595-your-etf-has-drip-drag.html?nopaging=1 Presumably the list is not constant. I almost didn't included but I thought the wide availability (at least as of the time of the article's posting) was more interesting than any specific broker on it. You'll want to do some research before you choose a broker to do this. Compare fees for sure, but also take into account other factors like how soon after the dividend they do the purchase (is it the ex-date, the pay date, or something else?). A quick search online should net you several decent articles with more information. I just searched on \"\"ETF DRIP\"\" to check it out.\"","\"The strategy is right. As pointed out by you, will the \"\" volatility cause the premium on the price of the options to be too high to make this worthwhile\"\" ... this is subjective and depends on how the markets feels about the volatility and the trend ... ie if the market believes that the stock will go up, the option at 45 would cost quite a bit less. However if the market believes the stock would go down, the option at 45 would be quite high [and may not even be available]. There is no generic right or wrong, the strategy is right [with out without putting dividend into equation] it depends what options are available at what prices.\"","\"The broker will charge borrowing fees and sometimes a charge called \"\"hard-to-borrow fee\"\". Other than that you will earn interest on the cash you get from selling the stocks, but you will have to pay dividends. This is because someone else (the party you sold the stocks off to) will now get the dividends and the party who lent you the stocks will miss out on these, that's why you have to remunerate them. The type of account you need is entirely up to your broker (and besides, it depends on what a 'normal' account for you is, you should at least mention your country or your broker).\"","Your back of the envelope calculation shows an income of about 5.5% per year, which is much better than a bank. The risk of course is that in a few years when you want to sell the stock, the price may not be at the level you want. The question is what are you giving up with this plan. You have 80K in cash, will cutting it to 30K in cash make it harder for your business to survive? If your income from the business starts slowly, having that 50K in cash may be better. Selling the stock when the business is desperate for money may lock in losses.","\"TL;DR: If your currently held bond's bid yield is smaller than another bonds' ask yield. You can swap your bond for bigger returns. Let's imagine you buy a long bond for $12000 (face value of $10000) and it has 6% coupon. The cash flows will have an internal return rate of 4.37%, this is the published \"\"ask yield\"\" in 2014 of the bond. After six years, prices have fallen, inflation and yields went up. So you can sell it for only $10000. If you would do it, the IRR will be only 2.55%, so there will be less return, than if you keep it. But if you would \"\"undo\"\" the transaction, then the future cash flows would yield 6.38%. This is the \"\"bid yield\"\" in 2020 of the bond. If you can find an offer that yields more than 6.38%, you have better returns if you sell your bond and invest that $10000 in the other bond. But as other answers pointed it out, you rarely have this opportunity as the market is very effective. (Assuming everything else is equal.)\"","When you sell a stock that you own, you realize gains, or losses. Short-term gains, realized within a year of buying and selling an asset, are taxed at your maximum (or marginal) tax rate. Long term-gains, realized after a year, are taxed at a lower, preferential rate. The first thing to consider is losses. Losses can be cancelled against gains, reducing your tax liability. Losses can also be carried over to the next tax year and be redeemed against those gains. When you own a bunch of the same type of stock, bought at different times and prices, you can choose which shares to sell. This allows you to decide whether you realize short- or long-term gains (or losses). This is known as lot matching (or order matching). You want to sell the shares that lost value before selling the ones that gained value. Booking losses reduces your taxes; booking gains increases them. If faced with a choice between booking short term and long term losses, I'd go with the former. Since net short-term gains are taxed at a higher rate, I'd want to minimize the short-term tax liability before moving on to long-term tax liability. If my remaining shares had gains, I'd sell the ones purchased earliest since long-term gains are taxed at a lower rate, and delaying the booking of gains converts short-term gains into long-term ones. If there's a formula for this, I'd say it's (profit - loss) x (tax bracket) = tax paid","I don't believe in letting the tax tail wag the investing dog. You have a stock you no longer wish to hold for whatever reason? Sell it. But to sell a loser, hoping it doesn't rise by the time you wish to re-buy it in 30 days is folly. This effort may gain you $50 if done right. No, it's not worth it either way.","The biggest challenge with owning any individual stock is price fluctuation, which is called risk. The scenarios you describe assume that the stock behaves exactly as you predict (price/portfolio doubles) and you need to consider risk. One way to measure risk in a stock or in a portfolio is Sharpe Ratio (risk adjusted return), or the related Sortino ratio. One piece of advice that is often offered to individual investors is to diversify, and the stated reason for diversification is to reduce risk. But that is not telling the whole story. When you are able to identify stocks that are not price correlated, you can construct a portfolio that reduces risk. You are trying to avoid 10% tax on the stock grant (25%-15%), but need to accept significant risk to avoid the 10% differential tax ($1000). An alternative to a single stock is to invest in an ETF (much lower risk), which you can buy and hold for a long time, and the price/growth of an ETF (ex. SPY) can be charted versus your stock to visualize the difference in growth/fluctuation. Look up the beta (volatility) of your stock compared to SPY (for example, IBM). Compare the beta of IBM and TSLA and note that you may accept higher volatility when you invest in a stock like Tesla over IBM. What is the beta of your stock? And how willing are you to accept that risk? When you can identify stocks that move in opposite directions, and mix your portfolio (look up beta balanced portolio), you can smooth out the variability (reduce the risk), although you may reduce your absolute return. This cannot be done with a single stock, but if you have more money to invest you could compose the rest of your portfolio to balance the risk for this stock grant, keep the grant shares, and still effectively manage risk. Some years ago I had accumulated over 10,000 shares (grants, options) in a company where I worked. During the time I worked there, their price varied between $30/share and < $1/share. I was able to liquidate at $3/share.","In an ideal world Say on 24th July the share price of Apple was $600. Everyone knows that they will get the $ 2.65 on 16th August. There is not other news that is affecting the price. You want to go in and buy the shares on 16th Morning at $600 and then sell it on 17th August at $600. Now in this process you have earned sure shot $2.65/- Or in an ideal world when the announcement is made on 24th July, why would I sell it at $600, when I know if I wait for few more days I will get $2.65/- so i will be more inclined to sell it at $602.65 /- ... so on 16th Aug after the dividend is paid out, the share price will be back to $600/- In a real world, dividend or no dividend the share price would be moving up or down ... Notice that the dividend amount is less than 1% of the stock price ... stock prices change more than this percentage ... so if you are trying to do what is described in paragraph one, then you may be disappointed as the share price may go down as well by more than $2.65 you have made","There are two main ways you can make money through shares: through dividends and through capital gains. If the company is performing well and increasing profits year after year, its Net Worth will increase, and if the company continues to beat expectations, then over the long term the share price will follow and increase as well. On the other hand, if the company performs poorly, has a lot of debt and is losing money, it may well stop paying dividends. There will be more demand for stocks that perform well than those that perform badly, thus driving the share price of these stocks up even if they don't pay out dividends. There are many market participants that will use different information to make their decisions to buy or sell a particular stock. Some will be long term buy and hold, others will be day traders, and there is everything in between. Some will use fundamentals to make their decisions, others will use charts and technicals, some will use a combination, and others will use completely different information and methods. These different market participants will create demand at various times, thus driving the share price of good companies up over time. The annual returns from dividends are often between 1% and 6%, and, in some cases, up to 10%. However, annual returns from capital gains can be 20%, 50%, 100% or more. That is the main reason why people still buy stocks that pay no dividends. It is my reason for buying them too.","The person may just want to get out of that position in order to buy a different stock, he or she feels may go up faster. There is really a lot of reasons."],"string":"[\n \"There are strategies based on yields. Dogs of the Dow being a specific example while Miller Howard has a few studies around dividends that may be of use if you additional material. Selling off a portion of the holding can run into problems as how could one hold 10 shares, selling a non-zero whole number every year for over 20 years if the stock doesn't ever pay a dividend in additional shares or cash?\",\n \"You can use long-term options called LEAPS to increase dividend yield. Here's how it works: Let's say you buy a dividend-yielding stock for $38 that pays an annual dividend of $2 for a 5.3% yield. Next, you SELL a deep-in-the-money LEAPS options. In this hypothetical we'll sell the $25 call option for $13. That now reduces our cost basis from $38 to $25. Since the dividend remains @ $2, our yield is now $2/$25 = 8%. Now there are issues that may need to be dealt with like early assignment of the option where rolling the option may be necessary. More details of this strategy can be found on my website.\",\n \"Remember that long term appreciation has tax advantages over short-term dividends. If you buy shares of a company, never earn any dividends, and then sell the stock for a profit in 20 years, you've essentially deferred all of the capital gains taxes (and thus your money has compounded faster) for a 20 year period. For this reason, I tend to favor non-dividend stocks, because I want to maximize my long-term gain. Another example, in estate planning, is something called a step-up basis:\",\n \"There can be a good reason if you own shares issued in a different country: For example, if you are in the UK and own US shares and take the dividend payments, you get some check in US dollars that you will have to exchange to UK£, which means you pay fees - mostly these fees are fixed, so you lose a significant percentage of your dividends. By reinvesting and selling shares accumlated over some years, you got one much bigger check and pay only one fee.\",\n \"You can buy dividend stocks, just buy and hold. you will get cash or extra stock every quarter. You can also sell covered calls on your dividend stocks, this will give you even more cash. you can also... actually this rabbit hole goes very deep. just stick with my first sentence.\",\n \"Yes, one such strategy is dividend arbitrage using stock and in the money options. You have to find out which option is the most mispriced before the ex-dividend date.\",\n \"I guess the answer lies in your tax jurisdiction (different countries tax capital gains and income differently) and your particular tax situation. If the price of the stock goes up or down between when you buy and sell then this counts for tax purposes as a capital gain or loss. If you receive a dividend then this counts as income. So, for instance, if you pay tax on income but not on capital gains (or perhaps at a lower rate on capital gains) then it would pay you to sell immediately before the stock goes ex-dividend and buy back immediately after thereby making a capital gain instead of receiving income.\",\n \"Not a bad strategy. However: If you REALLY want tax efficiency you can buy stocks that don't pay a dividend, usually growth stocks like FB, GOOGL, and others. This way you will never have to pay any dividend tax - all your tax will be paid when you retire at a theoretically lower tax rate (<--- really a grey tax area here). *Also, check out Robin Hood. They offer commission free stock trading.\",\n \"Although the market discussion by other answers is correct, the tax structure of many developed nations (I am familiar with Canada in particular) offers a preferred tax rate for dividend income compared to taxable gains. Consequently, if your portfolio is large enough to make transaction fees a very small percentage rate, this is a viable investment strategy. However, as the preferred tax rate for dividends typically will catch up to that for capital gains at some cut-off point, there is a natural limit on how much income can be favourably obtained in this way. If you believe your portfolio might be large enough to benefit from this investment strategy, talk to a qualified investment advisor, broker, or tax consultant for the specifics for your tax jurisdiction.\",\n \"Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that.\",\n \"Apart from making money from the price difference, some stocks also give dividends, or bonus issues. For long term investors whom are looking for steady income, they may be more interested with the dividend pay-out instead of the capital-appreciation.\",\n \"why sell? Because the stock no longer fits your strategy. Or you've lost faith in the company. In our case, it's because we're taking our principal out and buying something else. Our strategy is, basically, to sell (or offer to sell) after the we can sell and get our principal out, after taxes. That includes dividends -- we reduce the sell price a little with every dividend collected.\",\n \"\\\"In financial theory, there is no reason for a difference in investor return to exist between dividend paying and non-dividend paying stocks, except for tax consequences. This is because in theory, a company can either pay dividends to investors [who can reinvest the funds themselves], or reinvest its capital and earn the same return on that reinvestment [and the shareholder still has the choice to sell a fraction of their holdings, if they prefer to have cash]. That theory may not match reality, because often companies pay or don't pay dividends based on their stage of life. For example, early-stage mining companies often have no free cashflow to pay dividends [they are capital intensive until the mines are operational]. On the other side, longstanding companies may have no projects left that would be a good fit for further investment, and so they pay out dividends instead, effectively allowing the shareholder to decide where to reinvest the money. Therefore, saying \\\"\\\"dividend paying\\\"\\\"/\\\"\\\"growth stock\\\"\\\" can be a proxy for talking about the stage of life + risk and return of a company. Saying dividend paying implies \\\"\\\"long-standing blue chip company with relatively low capital requirements and a stable business\\\"\\\". Likewise \\\"\\\"growth stocks\\\"\\\" [/ non-dividend paying] implies \\\"\\\"new startup company that still needs capital and thus is somewhat unproven, with a chance for good return to match the higher risk\\\"\\\". So in theory, dividend payment policy makes no difference. In practice, it makes a difference for two reasons: (1) You will most likely be taxed differently on selling stock vs receiving dividends [Which one is better for you is a specific question relying on your jurisdiction, your current income, and things like what type of stock / how long you hold it]. For example in Canada, if you earn ~ < $40k, your dividends are very likely to have a preferential tax treatment to selling shares for capital gains [but your province and specific other numbers would influence this]. In the United States, I believe capital gains are usually preferential as long as you hold the shares for a long time [but I am not 100% on this without looking it up]. (2) Dividend policy implies differences in the stage of life / risk level of a stock. This implication is not guaranteed, so be sure you are using other considerations to determine whether this is the case. Therefore which dividend policy suits you better depends on your tax position and your risk tolerance.\\\"\",\n \"Stocks aren't just paper -- they're ownership of a company. Getting cash from a stock that doesn't pay dividends basically means reducing your stake in the company. If the stock pays dividends, on the other hand, you still have the same shares, but now you have cash too. You can choose to buy more of the company...or, more importantly, to use it elsewhere if that's what you want to do.\",\n \"The benefit is not in taxes. When you sell a portion of your stock, you no longer have a portion of your stock. When you get a dividend, you still have a portion of your stock. Dividends are distributed from the net profits of a company and as such usually don't affect its growth/earning potential much (although there may be cases when they do). So while the price takes a temporary dip due to the distribution, you're likely to get the same dividends again next year, if the company continues being similarly profitable. If you sell a portion of your stock, at some point you'll end up with no more stocks to sell.\",\n \"\\\"Also note that a share of voting stock is a vote at the stockholder's meeting, whether it's dividend or non-dividend. That has value to the company and major stockholders in terms of protecting their own interests, and has value to anyone considering a takeover of the company or who otherwise wants to drive the company's policy. Similarly, if the company is bought out, the share will generally be replaced by shares in whatever the new owning company is. So it really does represent \\\"\\\"a slice of the company\\\"\\\" in several vary practical ways, and thus has fairly well-defined intrinsic value linked to the company's perceived value. If its price drops too low the company becomes more vulnerable to hostile takeover, which means the company itself will often be motivated to buy back shares to protect itself from that threat. One of the questions always asked when making an investment is whether you're looking for growth (are you hoping its intrinsic value will increase) or income (are you hoping it will pay you a premium for owning it). Non-dividend stocks are a pure growth bet. Dividend-paying stocks are typically a mixture of growth and income, at various trade-off points. What's right for you depends on your goals, timeframe, risk tolerance, and what else is already in your portfolio.\\\"\",\n \"This will work as intended, but there's another point to consider. In the US, the tax rate on proceeds from stock sales is higher for short term holdings, which are defined as held for less than one year. Both rates vary based on your income. Bracket numbers are for fiscal year 2014, filing as single. The difference between short and long term capital gains tax in the US is a minimum of ten percentage points, and works out to 15 percentage points on average. This is substantial. If you won't be reporting much income the year you move to the US (say because you only worked for a portion of the year) it is decidedly to your advantage to wait and sell the stocks in the US, to get that sweet 0% rate. At a minimum, you should hold the position for a year if you sell and rebuy, from a tax optimization perspective. Two caveats:\",\n \"My broker offers a service to transfer the shares where you only pay commission once. Therefore say if standard commission is £10, then you don't end up paying £20 (10 for selling + 10 for buy back). You'll have to be okay with the spread though. Hope this helps.\",\n \"You could hold a long position in some company XXXX and then short your own shares (assuming your broker will let you do that). The dividend that would have gone to you would then go to whoever is holding the shares you short sold. You just don't get a dividend. If you're going to short in a smart way... do it on a stock you otherwise believe in, but use it to minimize the pull-backs on the way up.\",\n \"There are ETFs and mutual funds that pay dividends. Mutual funds and ETFs are quite similar. Your advisor is correct regarding future funds you invest. But you already had incurred the risk of buying an individual stock. That is a 'sunk cost'. If you were satisfied with the returns you could have retained the HD stock you already owned and just put future moneys into an ETF or mutual fund. BTW: does your advisor receive a commission from your purchase of a mutual fund? That may have been his motivation to give you the advice to sell your existing holdings.\",\n \"Your three options are: Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have the same effect as option 2 with no transaction costs. The loss will likely also offset some of the other short term gains you mentioned.\",\n \"\\\"In the US, dividends are presently taxed at the same rates as capital gains, however selling stock could lead to less tax owed for the same amount of cash raised, because you are getting a return of basis or can elect to engage in a \\\"\\\"loss harvesting\\\"\\\" strategy. So to reply to the title question specifically, there are more tax \\\"\\\"benefits\\\"\\\" to selling stock to raise income versus receiving dividends. You have precise control of the realization of gains. However, the reason dividends (or dividend funds) are used for retirement income is for matching cash flow to expenses and preventing a liquidity crunch. One feature of retirement is that you're not working to earn a salary, yet you still have daily living expenses. Dividends are stable and more predictable than capital gains, and generate cash generally quarterly. While companies can reduce or suspend their dividend, you can generally budget for your portfolio to put a reliable amount of cash in your pocket on schedule. If you rely on selling shares quarterly for retirement living expenses, what would you have done (or how much of the total position would you have needed to sell) in order to eat during a decline in the market such as in 2007-2008?\\\"\",\n \"I'd like to add that many companies offer Divident Re-Investment Plans or DRIPs, which is basically a regular automatic stock purchase program. More info here: http://en.wikipedia.org/wiki/Dividend_reinvestment_plan. While your stock broker may offer dividend reinvestment, this is not the same as a DRIP. DRIPs are offered directly by the company, rather than the stock broker. They have the added benefits that the stock purchases are almost always commission-free, and in some cases, the company even offers a discount on the stock price. It can take a little more effort to get enrolled in a DRIP, but if you are interested in holding the stock long-term, this is a good option to consider.\",\n \"with the semi-strong form of the Efficient Market Hypothesis expected dividends are priced into the options and security already. If you are able to locate such an arbitrage opportunity then you should take it, but I suspect it will be more more difficult than you think. Remember that many dividends require you to have been a shareholder by a certain date prior to the dividend occurring.\",\n \"You could use HBB and other similar funds that exchange distributions for capital gains. There's HXT and HXS which is Canada and US equity markets. The swap fee + mer is a little more than some funds except for HXT which is very cheap. There's a risk for long term holders that this may eventually get banned and you're forced to sell with a gain at the wrong time, but this won't matter much if you're planning on selling in a few years. You have to pay the capital gains tax eventually. Note, the tax on distributions is really a long term drag on performance and won't make a big difference in the short term.\",\n \"Some financial planners would not advise one way or the other on a specific stock without knowing your investment strategy... if you didn't have one, their goal would be to help you develop one and introduce you to a portfolio management framework like Asset Allocation. Is a two of clubs a good card? Well, that all depends on what is in your hand (diversification) and what game you are playing(investing strategy). One possibility to reduce your basis over time if you would like to hold the stock is to sell calls against it, known as a 'covered-call'. It can be an intermediate-term (30-60+ months depending on option pricing) trading strategy that may require you to upgrade your brokerage account to allow option trades. Personally I like this strategy because it makes me feel proactive about my portfolio rather than sitting on the side lines and watching stocks move.\",\n \"In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares. IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-). In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined.\",\n \"\\\"Their is no arbitrage opportunity with \\\"\\\"buying dividends.\\\"\\\" You're buying a taxable event. This is a largely misunderstood topic. The stock always drops by the amount if the dividend on the ex date. The stock opens that day trading \\\"\\\"ex\\\"\\\" (excluding) the dividend. It then pays out later based in the shareholders on record. There is a lot of talk about price movement and value here. That can happen but it's from trading not from the dividend per se. Yes sometimes you do see a stock pop the day prior to ex date because people are buying the stock for the dividend but the trading aspect of a stock is determined by supply and demand from people trading the stock. The dividends are paid out from the owners equity section of the balance sheet. This is a return of equity to shareholders. The idea is to give owners of the company some of their investment back (from when they bought the stock) without having the owners sell the shares of the company. After all if it's a good company you want to keep holding it so it will appreciate. Another similar way to think of it is like a bonds interest payment. People sometimes forget when trading that these are actual companies meant to be invested in. Your buying an ownership in the company with your cash. It really makes no difference to buy the dividend or not, all other things constant. Though market activity can add or lose value from trading as normal.\\\"\",\n \"Yes you can do that and it it wise to do so. However, you should make sure that the general trend of the stock is upwards and you buy during a trought in the uptrend. So basically if the stock is making higher highs and higher lows on the daily or weekly charts, then you would want to buy around one of the higher lows before the ex-dividend date. If the stock is making lower lows and lower highs, then it is in a downtrend, so never buy in this instance. It is better to miss out on a dividend of $1 rather than to buy just for this $1 dividend and lose $5 or more when the price continues to drop further.\",\n \"Usually when a company is performing well both its share price and its dividends will increase over the medium to long term. Similarly, if the company is performing badly both the share price and dividends will fall over time. If you want to invest in higher dividend stocks over the medium term, you should look for companies that are performing well fundamentally and technically. Choose companies that are increasing earnings and dividends year after year and with earnings per share greater than dividends per share. Choose companies with share prices increasing over time (uptrending). Then once you have purchased your portfolio of high dividend stocks place a trailing stop loss on them. For a timeframe of 1 to 3 years I would choose a trailing stop loss of 20%. This means that if the share price continues going up you keep benefiting from the dividends and increasing share price, but if the share price drops by 20% below the recent high, then you get automatically taken out of that stock, leaving your emotions out of it. This will ensure your capital is protected over your investment timeframe and that you will profit from both capital growth and rising dividends from your portfolio.\",\n \"There are many stategies with options that you have listed. The one I use frequently is buy in the money calls and sell at the money staddles. Do this ONLY on stocks you do not mind owning because that is the worse thing that can happen and if you like the company you stand less of a chance of being scared out of the trade. It works well with high quality resonable dividend paying stocks. Cat, GE, Mrk, PM etc. Good luck\",\n \"One reason to prefer a dividend-paying stock is when you don't plan to reinvest the dividends. For example, if you're retired and living off the income from your investments, a dividend-paying stock can give you a relatively stable income.\",\n \"You should never invest in a stock just for the dividend. Dividends are not guaranteed. I have seen some companies that are paying close to 10% dividends but are losing money and have to borrow funds just to maintain the dividends. How long can these companies continue paying dividends at this rate or at all. Would you keep investing in a stock paying 10% dividends per year where the share price is falling 20% per year? I know I wouldn't. Some high dividend paying stocks also tend to grow a lot slower than lower or non dividend paying stocks. You should look at the total return - both dividend yield and capital return combined to make a better decision. You should also never stay in a stock which is falling drastically just because it pays a dividend. I would never stay in a stock that falls 20%, 30%, 50% or more just because I am getting a 5% dividend. Regarding taxation, some countries may have special taxation rules when it comes to dividends just like they may have special taxation rules for longer term capital gains compared to shorter term capital gains. Again no one should use taxation as the main purpose to make an investment decision. You should factor taxation into your decision but it should never be the determining factor of your decisions. No one has ever become poor in making a gain and paying some tax, but many people have lost a great portion of their capital by not selling a stock when it has lost 50% or more of its value.\",\n \"This investment strategy may have tax advantages. In some countries, income received from dividends is taxed as income, whereas profits on share trades are capital gains. If you have already exceeded your tax-free income limit for the year, but not your capital gains tax allowance, it may be preferable to make a dealing profit rather than an investment income. These arrangements are called a bed-and-breakfast.\",\n \"An alternative options strategy to minimize loss of investment capital is to buy a put, near the money around your original buy price, with a premium less than the total dividend. The value of the put will increase if the stock price falls quickly. Likely, a large portion of your dividend will go towards paying the option premium, this will however ensure that your capital doesn't drop much lower than your buy price. Continued dividend distributions will continue to pay to buy future put options. Risks here are if the stock does not have a very large up or down movement from your original buy price causing most of the dividend to be spent on insuring your position. It may take a few cycles, but once the stock has appreciated in value say 10% above buying price, you can consider either skipping the put insurance so you can pocket the dividend, or you can bu ythe put with a higher strike price for additional insurance against a loss of gains. Again, this sacrifices much of the dividend in favor of price loss, and still is open to a risk of neutral price movement over time.\",\n \"In the US, dividends have special tax treatment similar to, but not the same as Capital Gains. No easy way to transform one to the other, the very fact that you invested your money in a company that has returned part of your capital as income means it is just that, income. Also in the US, you could invest in Master Limited Partnerships. These are companies that make distributions that are treated as a return of capital, instead of dividends. Throughout the life of the investment you receive tax forms that assign part of the operating expense/loss of the company to you as a tax payer. Then at the end of the investment life you are required to recapture those losses as Capital Gains on sale of the stock. In some ways, these investments do exactly what you are asking about. They transform periodic income into later capital gains, basically deferring tax on the income until the sale of the security. Here is an article I found about MLPs coming to the UK through an ETF: Master Limited Partnerships in the UK\",\n \"The main question is, how much money you want to make? With every transaction, you should calculate the real price as the price plus costs. For example, if you but 10 GreatCorp stock of £100 each, and the transaction cost is £20 , then the real cost of buying a single share is in fact buying price of stock + broker costs / amount bought, or £104 in this case. Now you want to make a profit so calculate your desired profit margin. You want to receive a sales price of buying price + profit margin + broker costs / amount bought. Suppose that you'd like 5%, then you'll need the price per stock of my example to increase to 100 + 5% + £40 / 10 = £109. So you it only becomes worth while if you feel confident that GreatCorp's stock will rise to that level. Read the yearly balance of that company to see if they don't have any debt, and are profitable. Look at their dividend earning history. Study the stock's candle graphs of the last ten years or so, to find out if there's no seasonal effects, and if the stock performs well overall. Get to know the company well. You should only buy GreatCorp shares after doing your homework. But what about switching to another stock of LovelyInc? Actually it doesn't matter, since it's best to separate transactions. Sell your GreatCorp's stock when it has reached the desired profit margin or if it seems it is underperforming. Cut your losses! Make the calculations for LovelyCorp's shares without reference to GreatCorp's, and decide like that if it's worth while to buy.\",\n \"\\\"There are ways to mitigate, but since you're not protected by a tax-deferred/advantaged account, the realized income will be taxed. But you can do any of the followings to reduce the burden: Prefer selling either short positions that are at loss or long positions that are at gain. Do not invest in stocks, but rather in index funds that do the rebalancing for you without (significant) tax impact on you. If you are rebalancing portfolio that includes assets that are not stocks (real-estate, mainly) consider performing 1031 exchanges instead of plain sale and re-purchase. Maximize your IRA contributions, even if non-deductible, and convert them to Roth IRA. Hold your more volatile investments and individual stocks there - you will not be taxed when rebalancing. Maximize your 401K, HSA, SEP-IRA and any other tax-advantaged account you may be eligible for. On some accounts you'll pay taxes when withdrawing, on others - you won't. For example - Roth IRA/401k accounts are not taxed at all when withdrawing qualified distributions, while traditional IRA/401k are taxed as ordinary income. During the \\\"\\\"low income\\\"\\\" years, consider converting portions of traditional accounts to Roth.\\\"\",\n \"If you expect to pay tax on dividends move dividend producing assets into your ISA. If have a lot of investments you can Look at Zeros (zero dividend preference share) issued by splits (split capital trusts), https://en.wikipedia.org/wiki/Split_capital_investment_trust\",\n \"Yes, somebody could buy the shares, receive the dividend, and then sell the shares back. However, the price he would get when he sells the shares back is, ignoring other reasons for the price to change, exactly the amount he paid minus the dividend.\",\n \"\\\"Not minutes, but hours. The \\\"\\\"ex-dividend\\\"\\\" date is the deadline for acquiring a stock to receive a dividend. If you hold a stock at the beginning of this day, you will receive the dividend. So you could buy a stock right at the end of the day on the day before the ex-dividend date, and sell it the next day (on the ex-dividend date), and you would get your dividend. See this page from the SEC for more information. The problem with this strategy, however, is that the value of the stock typically drops by the same amount as the dividend on that day. If you take a look at the historical price of the stock you are interested in, you'll see this. Of course, it makes sense why: a seller knows that selling before the date results in a loss of the dividend, so they want a higher price to compensate. Likewise, a buyer on or after the date knows that the dividend is already gone, so they want to pay a lower price.\\\"\",\n \"\\\"You have to be the owner of record before the ex-dividend date, which is not the same day as the date the dividend is paid. This also implies that if you sell on or after the ex-dividend date, you'll still get the dividend, even if you no longer own the stock. Keep in mind, also, that the quoted price of the stock (and on any open orders that are not specifically marked as \\\"\\\"do not reduce\\\"\\\") on its ex-dividend date is dropped by the amount of the dividend, first thing in the morning before trading starts. If you happen to be the first order of the day, before market forces cause the price to move, you'll end up with zero gain, since the dividend is built into the price, and you got the same value out of it -- the dividend in cash, and the remaining value in stock. As pointed out in the comments (Thanks @Brick), you'll still get a market price for your trade, but the price reduction will have had some impact on the first trade of the day. Source: NYSE Rule 118.30 Also, remember that the dividend yield is expressed in annualized terms. So a 3% yield can only be fully realized by receiving all of the dividend payments made by the company for the year. You can, of course, forget about individual companies and just look for dividends to create your own effective yield over time. But, see the final point... Finally, if you keep buying and selling just to play games with the dividends, you're going to pay far more in transaction fees than you will earn in dividends. And, depending on your individual circumstances, you may end up paying more in capital gains taxes.\\\"\",\n \"You sold all shares? The potential wash sale effect goes away after 30 days from the dividend date. Selling all shares of a stock where a wash existed effectively negates the wash and you can take the loss.\",\n \"You sell any investment because you need to do something else with the money -- rebalance your investments, buy something, pay off a debt....\",\n \"I believe this depends on the broker's policies. For example, here is Vanguard's policy (from https://personal.vanguard.com/us/whatweoffer/stocksbondscds/brokeragedividendprogram): Does selling shares affect a distribution? If you sell the entire position two days or more before the dividend-payable date, your distribution will be paid in cash. If, however, you sell an entire position within the two day time frame of the security's payable date, the dividend will be reinvested, resulting in additional shares. Selling these subsequent shares will require another sell order, which will incur additional commission charges. Dividends which would have been reinvested into less than one whole share will be automatically liquidated into cash. If you want to guarantee you receive no fractional shares, I'd call your broker and ask whether selling stock ABC on a particular date will result in the dividend being paid in shares.\",\n \"I wouldn't recommend leveraged dividend fishing. Dividend stocks with such high dividends are highly volatile, you will run out of collateral to cover your trades very quickly\",\n \"If there are no traded options in a company you can get your broker to write OTC options but this may not be possible given some restrictions on accounts. Going short on futures may also be an option. You can also open a downside CFD (contract for difference) on the stock but will have to have margin posted against it so will have to hold cash (or possibly liquid assets if your AUM is large enough) to cover the margin which is unutilized cash in the portfolio that needs to be factored into any portfolio calculations as a cost. Diversifying into uncorrelated stock or shorting correlated (but low div yield) stock would also have the same effect. stop loss orders would probably not be appropriate as it is not the price of the stock that you are concerned with but mitigating all price changes and just receiving the dividend on the stock. warning: in a crash (almost) all stocks become suddenly correlated so be aware that might cause you a short term loss. CFDs are complex and require a degree of sophistication before you can trade them well but as you seem to understand options they should not be too hard to understand.\",\n \"If your criteria has changed but some of your existing holdings don't meet your new criteria you should eventually liquidate them, because they are not part of your new strategy. However, you don't want to just liquidate them right now if they are currently performing quite well (share price currently uptrending). One way you could handle this is to place a trailing stop loss on the stocks that don't meet your current criteria and let the market take you out when the stocks have stopped up trending.\",\n \"If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?\",\n \"Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.\",\n \"Buying individual/small basket of high dividend shares is exposing you to 50%+ and very fast potential downswings in capital/margin calls. There is no free lunch in returns in this respect: nothing that pays enough to help you pay your mortgage at a high rate won’t expose you to a lot of potential volatility. Main issue here looks like you have very poorly performing rental investments you should consider selling or switching up rental usage/how you rent them (moving to shorter term, higher yield lets, ditching any agents/handymen that are taking up capital/try and refinance to lower mortgage rates etc etc). Trying to use leveraged stock returns to pay for poorly performing housing investments is like spraying gasoline all over a fire. Fixing the actual issue in hand first is virtually always the best course of action in these scenarios.\",\n \"It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).\",\n \"You might have to pay a premium for the stocks on the dividend tax–free exchanges. For example, HSBC on the NYSE yields 4.71% versus HSBC on the LSE which yields only 4.56%. Assuming the shares are truly identical, the only reason for this (aside from market fluctuations) is if the taxes are more favorable in the UK versus the US, thus increasing demand for HSBC on the LSE, raising the price, and reducing the yield. A difference of 0.15% in yield is pretty insignificant relative to a 30% versus 0% dividend tax. But a key question is, does your country have a foreign tax credit like the US does? If so you (usually) end up getting that 30% back, just delayed until you get your tax return, and the question of which exchange to buy on becomes not so clear cut. If your country doesn't have such a tax credit, then yes, you'll want to buy on an exchange where you won't get hit with the dividend tax. Note that I got this information from a great article I read several months back (site requires free registration to see it all unfortunately). They discuss the case of UN versus UL--both on the NYSE but ADRs for Unilever in the Netherlands and the UK, respectively. The logic is very similar to your situation.\",\n \"By coincidence, I entered this position today. Ignore the stock itself, I am not recommending a particular stock, just looking at a strategy. The covered call. For this stock trading at $7.47, I am able, by selling an in-the-money call to be out of pocket $5.87/sh, and am obliged to let it go for $7.00 a year from now. A 19% return as long as the stock doesn't drop more than 6% over that time. The chart below shows maximum profit, and my loss starts if the stock trades 21% below current price. The risk is shifted a bit, but in return, I give up potential higher gains. The guy that paid $1.60 could triple his money if the stocks goes to $12, for example. In a flat market, this strategy can provide relatively high returns compared to holding only stocks.\",\n \"How do you find good quality dividend stocks? That is an easy one. Past performance has always been my key to this answer. also remember why you are investing in the first place. Do you want cash flow, security or capital growth. Also let's not forget... how much time do you want to devote to this venture. There is going to be a balance in your investing and your returns. More time in... the higher returns you get. As for finding good dividend stocks, look to the Dividend Aristocrats or the Dividend Contenders. These companies have consistently increased their payouts to their investors for years. There is a trading strategy that could escalate your returns. Dividend Capturing, simply put... You buy the stock before the ex-date and sell after date of record. Thus collecting a dividend and moving on to the next one. Warning: though this is a profitable strategy, it only works with certain stocks so do your research or find a good source.\",\n \"I would say the most important thing to consider is the quality of the company relative to the price you pay for it. No dividend also means that you will not pay taxes on dividends.\",\n \"A specific strategy to make money on a potentially moderately decreasing stock price on a dividend paying stock is to write covered calls. There is a category on Money.SE about covered call writing, but in summary, a covered call is a contract to sell the shares at a set price within a defined time range; you gain a premium (called the time value) which, when I've done it, can be up to an additional 1%-3% return on the position. With this strategy you're collecting dividends and come out with the best return if the stock price stays in the middle: if the price does not shoot up high enough that your option is called, you still own the stock and made extra return; if the price drops moderately, you may still be positive.\",\n \"There are many reasons for buying stock for dividends. You are right in the sense that in theory a stock's price will go down in value by the amount of the dividend. As the amount of dividend was adding to the value of the company, but now has been paid out to shareholder, so now the company is worth less by the value of the dividend. However, in real life this may or may not happen. Sometimes the price will drop by less than the value of the dividend. Sometimes the price will drop by more than the dividend. And other times the price will go up even though the stock has gone ex-dividend. We can say that if the price has dropped by exactly the amount of the dividend then there has been no change in the stockholders value, if the price has dropped by more than the value of the dividend then there has been a drop to the stockholder's value, and if the price has gone up or dropped by less than the value of the dividend then there has been a increase to the stockholder's value. Benefits of Buying Stocks with Good Dividends: What you shouldn't do however, is buy stocks solely due to the dividend. Be aware that if a company starts reducing its dividends, it could be an early warning sign that the company may be heading into financial troubles. That is why holding a stock that is dropping in price purely for its dividend can be a very dangerous practice.\",\n \"No, the dividends can't be exploited like that. Dividends settlement are tied to an ex-dividend date. The ex-dividend, is the day that allows you to get a dividend if you own the stock. Since a buyer of the stock after this date won't get the dividend, the price usually drop by the amount of the dividend. In your case the price of a share would lose $2.65 and you will be credited by $2.65 in cash such that your portfolio won't change in value due to the dividend. Also, you can't exploit the drop in price by short-selling, as you would be owing the dividend to the person lending you the stock for the short sale. Finally, the price of the stock at the ex-dividend will also be affected by the supply and demand, such that you can't be precisely sure of the drop in price of the security.\",\n \"There are indeed various strategies to make money from this. As Ben correctly said, the stock price drops correspondingly on the dividend date, so the straightforward way doesn't work. What does work are schemes that involve dividend taxation based on nationality, and schemes based on American Options where people can use market rules to their advantage if some options are not exercised.\",\n \"\\\"If you sold the stock for a profit, you will owe tax on that profit. Whether it is taxed as short-term or long-term capital gains depends on how long you held the stock before selling it. Presumably you're going to invest this money into mutual funds or something of that sort. Those may pay dividends which can be reinvested, and will grow in value (you hope) just as the individual stock shares would (you hope). Assuming the advice you've been given is at all reasonable, there's no need for buyer's remorse here; you're just changing your investing style to a different point on the risk-versus-return curve. (If you have to ask this question, I tend to agree that you should do more homework before playing with shares in individual companieS ... unless you're getting thess shares at employee discount, in which case you should still seriously consider selling them fairly quickly and reinvesting the money in a more structured manner. In a very real sense your job is itself an \\\"\\\"investment\\\"\\\" in your employer; if they ever get into trouble you don't want that to hit both your income and investments.)\\\"\",\n \"This depends on a lot actually - with the overall being your goals and how much you like risk. Question: What are your fees/commissions for selling? $8.95/trade will wipe out some gains on those trades. (.69% if all are sold with $8.95 commission - not including the commission payed when purchased that should be factored into the cost basis) Also, I would recommend doing commission free ETFs. You can get the same affect as a mutual fund without the fees associated with paying someone to invest in ETFs and stocks. On another note: Your portfolio looks rather risky. Although everyone has their own risk preference so this might be yours but if you are thinking about a mutual fund instead of individual stocks you probably are risk averse. I would suggest consulting with an adviser on how to set up for the future. Financial advice is free flowing from your local barber, dentist, and of course StackExchange but I would look towards a professional. Disclaimer: These are my thoughts and opinions only ;) Feel free to add comments below.\",\n \"\\\"Dividends can also be automatically reinvested in your stock holding through a DRIP plan (see the wikipedia link for further details, wiki_DRIP). Rather than receiving the dividend money, you \\\"\\\"buy\\\"\\\" additional stock shares your with dividend money. The value in the DRIP strategy is twofold. 1) your number of shares increases without paying transaction fees, 2) you increase the value of your holding by increasing number of shares. In the end, the RIO can be quite substantial due to the law of compounding interest (though here in the form of dividends). Talk with your broker (brokerage service provider) to enroll your dividend receiving stocks in a DRIP.\\\"\",\n \"The trend in ETFs is total return: where the ETF automatically reinvests dividends. This philosophy is undoubtedly influenced by that trend. The rich and retired receive nearly all income from interest, dividends, and capital gains; therefore, one who receives income exclusively from dividends and capital gains must fund by withdrawing dividends and/or liquidating holdings. For a total return ETF, the situation is even more limiting: income can only be funded by liquidation. The expected profit is lost for the dividend as well as liquidating since the dividend can merely be converted back into securities new or pre-existing. In this regard, dividends and investments are equal. One who withdraws dividends and liquidates holdings should be careful not to liquidate faster than the rate of growth.\",\n \"1) Don't trade individual stocks. You expose yourself to unnecessary risk. 2) Pick a fund with low expenses that pays a dividend. Reinvest the dividend back into the fund. To quote Einstein: The greatest power on earth is compound interest. Something is wrong with the software of the site. It will not allow me to answer mark with another comment. So I have to edit this answer to be able to answer him. @mark No, I am not hoping the price will go up. The price is only relevant in comparison to the dividend. It is the dividend that is important, not the price. The price is irrelevant if you never sell. Dividend paying securities are what you buy and hold. Then you reinvest the dividend and buy more of the security. As I am buying the security with the dividend I am actually pleasantly surprised when the price goes down. When the price goes down, but the dividend remains the same, I am able to buy more shares of the security withwith that dividend. So if the price goes down, and the dividend remains the same, it is a good thing. Again, the site will not allow me to add another comment. @mark I profit from my investment, without selling, by receiving the dividend. I used to be a speculator, trying to get ahead of the market by 'buy low, sell high' but all that did was make money for the broker. I lost as much as I gained trying to do that. The broker made money on each transaction, regardless if I did or not. It took me decades to learn the lesson that 'buy and hold' of dividend paying securities is the way to go. Don't make my mistake. I now get, at least, 5.5% yeald on my investment (look at PGF, which forms the backbone of my investments). That is almost 0.5% per month. Each month that dividend is reinvested into PGF, with no commission. You can't beat that with a stick.\",\n \"A lot of people use dividend stocks as a regular income, which is why dividend stocks are often associated with retirement. If your goal is growth and you're reinvesting capital gains and dividends then investing growth stocks or dividend stocks should have the same effect. The only difference would be if you are manually reinvesting dividends, which could incur extra trading fees.\",\n \"The problem there is that there's a tax due on that dividend. So, if you wish, you can buy the ETF and specify to reinvest dividends, but you'll have to pay a bit of tax on them, and keep track of your basis, if the account isn't a retirement account.\",\n \"The dividend goes to he who owns the stock when it goes ex-div. A buyer (the call buyer who exercises) will not exercise unless the stock plus dividend are in the money. Otherwise they'd be buying the stock at a premium. I like the scenario your friend doesn't. If I can find a high dividend stock and sell the call for a decent price, I may get a great return on a stock that's gone down 5% over a year's time. If it goes up and called away, that's fine too, it means a profit.\",\n \"If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.\",\n \"Simply if your stock is still rising in price keep it. If it is falling in price sell it and pay off your mortgage. To know when to do this is very easy. If it is currently rising you can put a trailing stop loss on it and sell it when it drops and hits your stop loss. A second easy method is to draw an uptrend line under the increasing price and then sell when the price drops down below the uptrend line, as per the chart below. This will enable you to capture the bulk of the price movement upward and sell before the price drops too far down. You can then use the profits (after tax) to pay down your mortgage. Of course if the price is currently in a downtrend sell it ASAP.\",\n \"\\\"You have to calculate the total value of all shares and then ask yourself \\\"\\\"Would I invest that amount of money in this stock?\\\"\\\" If the answer is yes, then only sell what you need to sell. Take the $3k loss against your income, if you have no other gains. If you would not invest that amount of cash in that stock, then sell it all right now and carry forward the excess loss every year. Note at any point you have capital gains you can offset all of them with your loss carryover (not just $3k).\\\"\",\n \"If you are looking to re-invest it in the same company, there is really no difference. Please be aware that when a company announces dividend, you are not the only person receiving the dividend. The millions of share holders receive the same amount that you did as dividend, and of course, that money is not falling from the sky. The company pays it from their profits. So the day a dividend is announced, it is adjusted in the price of the share. The only reason why you look for dividend in a company is when you need liquidity. If a company does not pay you dividend, it means that they are usually using the profits to re-invest it in the business which you are anyway going to do with the dividend that you receive. (Unless its some shady company which is only established on paper. Then they might use it to feed their dog:p). To make it simpler lets assume you have Rs.500 and you want to start a company which requires Rs 1000 in capital : - 1.) You issue 5 shares worth Rs 100 each to the public and take Rs 100 for each share. Now you have Rs 1000 to start your company. 2.) You make a profit of Rs 200. 3.) Since you own majority of the shares you get to make the call whether to pay Rs.200 in dividend, or re-invest it in the business. Case 1:- You had issued 10 shares and your profit is Rs 200. You pay Rs. 20 each to every share holder. Since you owned 5 shares, you get 5*20 that is Rs.100 and you distribute the remaining to your 5 shareholders and expect to make the same or higher profit next year. Your share price remains at Rs.100 and you have your profits in cash. Case 2:- You think that this business is awesome and you should put more money into it to make more. You decide not to pay any dividend and invest the entire profit into the business. That way your shareholders do not receive anything from you but they get to share profit in the amazing business that you are doing. In this case your share price is Rs. 120 ((1000+200)/10) and all your profits are re-invested in the business. Now put yourself in the shareholders shoes and see which case suits you more. That is the company you should invest in. Please note: - It is very important to understand the business model of the company before you buy anything! Cheers,\",\n \"First, what Daniel Carson said. Second, if you're getting started, just make sure you are well diversified. Lots of growth stocks turn into dividend stocks over time-- Microsoft and Apple are the classic examples in this era. Someday, Google will pay a dividend too. If you're investing for the long haul, diversify and watch your taxes, and you'll make out better than nearly everyone else.\",\n \"Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.\",\n \"The stock tends to drop by the amount of the dividend -- or if you prefer to think of it this way, the stock price has been pushed up by the amount of the dividend before it was paid out. Really, all this shift does is factor out the impending dividend's effect on the real purchase cost of the stock. As such it's pretty much irrelevant except that, of course, the dividend is short-term gain that you have to pay taxes on almost immediately. Which also tends to get figured into the price folks are willing to pay for the stock. Conclusion: no, there's no real opportunity here. There's a slight tax reason to avoid buying right before dividends are paid, but that's about it. Basic principle: If it's simple and obvious,the market has already accounted for it.\",\n \"One of my university professors suggested doing this systematically to get access to shareholder meetings where there is typically a nice dinner involved. As long as the stock price + commission is less than the price of a nice restaurant it's actually not a bad idea.\",\n \"\\\"One alternative strategy you may want to consider is writing covered calls on the stock you have \\\"\\\"just sitting there\\\"\\\". This will allow you to earn a return (the premium from the calls) without necessarily having to give up your holding. As a brief overview, \\\"\\\"options\\\"\\\" are derivatives that give the holder the right (or option) to buy or sell shares at a specified price. Holders of call options with a strike prike $x on a particular security have the right to purchase that security at the strike price $x. Conversely, holders of put options with a strike price of $x have the right to sell that security at the strike price $x. Always on the other side of a call or put option is a person that has sold the option, which is called \\\"\\\"writing\\\"\\\" the option. If this person writes a call option, then he will be obligated to sell a certain amount of stock (100 shares per contract) at the strike price if that option is exercised. A writer of a put option will be obligated to by 100 shares per contract at the strike price if that option is exercised. Covered calls involve writing call contracts on stock that you own. For example, say you own 100 shares of AAPL, and that AAPL is currently trading for $330. You decide to write a Jan 21, 2012 call on these shares at a strike price of $340, earning you a premium of say $300. Two things can now happen: if the price of AAPL is not at least $340 on January 21, then the options are \\\"\\\"out of the money\\\"\\\" and will expire unexercised (why exercise an option to buy at $340 when you can buy at the currently cheaper market price?). You keep your AAPL stock plus the $300 premium you earn. If, however, the price of AAPL is greater than $340, the option will be exercised and you will now be required to sell the shares you own at $340. You will earn a return of $10/share ($340-$330), plus the $300 premium from the call option. You still make out in the end, but have unfortunately incurred an opportunity cost, as had you not written the call option you would have been able to sell at the market price, which is higher than the $340 strike price. Covered calls are considered relatively safe and conservative, however the strategy is most effective for stocks that are expected to stay within a relatively narrow price range for the duration of the contract. They do provide one option of earning additional money on stocks you are currently holding, albeit at the risk of giving up some returns if the stock price rises above the strike price.\\\"\",\n \"The market is not stupid. It realises that a company is worth less after paying out dividends than before paying them. (It's obvious, since that company has just given out part of its earnings.) So after a company pays out dividends, its stock price normally drops approximately by the amount paid. Therefore if you buy, get the dividend, and immediately sell, under normal conditions you won't make any profit.\",\n \"\\\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \\\"\\\"otherwise\\\"\\\" is substantial and far-ranging.\\\"\",\n \"Is this possible and will it have the intended effect? From the US tax perspective, it most definitely is and will. Is my plan not very similar to Wash Sale? Yes, except that wash sale rules apply for losses, not gains. In any case, since you're not a US tax resident, the US wash sale rules won't apply to you.\",\n \"Maximizing income could mean a lot of things. What you really want is to maximize wealth. Doesn't matter if it comes from your bond appreciating in value or as dividends. In order to maximize your wealth (that's today's wealth), you need to make decisions based on the net present value of these bonds. The market is fairly priced, especially for a tight market like government bonds. That means if your bond falls in price, it has fallen by precisely the amount necessary so that an investor would be indifferent between purchasing it now, at its current price, and purchasing a new bond with a higher dividend. The bonds with higher dividends will simply have a higher price, so more of the money comes as dividends than as price appreciation (at maturity it will sell for face value). In other words, the animals are out of the barn and you have lost (or made) money already. Changing from one bond to another will not change your wealth one way or the other. The only potential effect of changing bonds will be changing the risk of your portfolio. If you buy a bond that matures later or has a lower dividend than your current bond, you will be adding additional interest rate risk to your portfolio. That risk should be compensated, so you will have a higher expected return as well. But regardless of your choice you will not be made wealthier or less wealthy by changing from one bond to another. Should you buy bonds that will earn you the most possible? Sure, if you are below your risk tolerance. Even among default free bonds, the longer the maturity and the lower the dividend, the greater the effect of future changes in interest rates on your bond. That makes them riskier, but also makes them earn more money on average. TL;DR: In terms of your wealth, which is what matters, it doesn't matter whether you hold your bond or buy a new one.\",\n \"Some investors (pension funds or insurance companies) need to pay out a certain amount of money to their clients. They need cash on a periodical basis, and thus prefer dividend paying stock more.\",\n \"Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.\",\n \"Dividends indicate that a business is making more profit than it can effectively invest into expansion or needs to regulate cash-flow. This generally indicates that the business is well established and has stabilized in a dominant market position. This can be contrasted against businesses that: Dividends are also given preferential tax treatment. Specifically, if I buy a stock and sell it 30 days later, I will be taxed on the capital gains at the regular income rate (typically 25-33%), but the dividends would be taxed at the lower long-term capital gains rate (typically 15%).\",\n \"Since you reference SS, I surmise you are in the US. Stock you inherit gets a stepped up basis when it's inherited. (so long as it was not contained within a tax deffered retirement account.) When you sell, the new basis is taken from that day you inherited it. It should be minimal compared to your desire to diversify.\",\n \"\\\"It is important to remember that the stock price in principle reflects the value of the company, so the market cap should drop upon issuance of the the dividend. However, the above reasoning neglects to consider taxes, which make the question a bit more interesting. The key fact is that different investors are going to get taxed on the dividend to varying degrees, ranging from 20% for qualified dividends in the USA for a high-income individual in a taxable account (and even worse for non-qualified dividends) to 0% for tax-exempt nonprofits, retirement accounts, and low-income individuals. The high-tax investors are going to be a bit averse to paying tax on that dividend, whereas the tax-free investors are not. Hence in a tax-rational market the tax-free investors are going to be the ones buying right before a dividend and the tax-paying investors will be buying right afterwards. Tax-exempt investors could in principle make some amount of money buying dividends to keep them off the tax-paying investors' books. (Of course, the strategy could backfire if too many people did it all at once.) That said, the tax-payers have the tax disincentive to prevent them from fully exploiting the opposite strategy of selling just before a dividend. In particular, they are subject to capital gains tax when they sell at a profit (unless they have enough compensating capital losses), and it is to their after-tax profit to defer taxation by not trading. That said, the stock market has well-known irrationality when it comes to considering tax consequences, so logic based on assumed rationality of the market does not always apply to the extent one would expect. The foremost example of tax-irrationality is the so-called \\\"\\\"dividend paradox\\\"\\\", which basically states that corporations should favor stock buybacks (or perhaps loan repayment) to the complete exclusion of dividends because capital gains are taxed less harshly than dividends in a variety of ways, some of which are subtle: 1) Historically (although not currently in the USA for qualified dividends) the tax rate was higher for dividends. (In Canada, for example, dividends are taxed at twice the rate of capital gains.) 2) If you die holding appreciated stock then you (meaning your heirs) completely escape US the capital gains tax on the accrual during your lifetime. 3) Capital gains tax can be deferred by simply not selling. In comparison to dividends, this is roughly equivalent to getting a tax-free loan from the government which is invested for profit and paid at a later date after inflation has eaten away at the real value of the loan. For example, if all your stock investments increase by 10%/year but you sell every year, in a high-tax bracket situation you're total after-tax return will be only 8% per year. In contrast, if you hold the same investments for many many years and then sell, your total return will be nearly 10% per year, because you only pay 20% once (at the end). 4) A capital gain can often be neutralized by a capital loss in another stock, so that no tax results. If you loose money on a stock that is paying dividends, you're still going to have to pay tax on that dividend. There are companies that borrow money to pay out that taxable-dividend each quarter, which seems like gross tax malpractice on the part of the CFO. (If the dividend paradox doesn't make sense, first consider the case that you owned ALL the shares of a company. It wouldn't matter to you at all on a pre-tax basis whether you got a $1000 company buyback or a $1000 dividend, because after the buyback/dividend you'd still own the entire company and $1000. The number of shares would be reduced, but objecting that you owned fewer shares after the buyback would be like saying you have become shorter if your height is measured in inches rather than centimeters.) [Of course, in the case of many shareholders you can get burned by failing to sell into the buyback when the share price is too high, but that is another matter.]\\\"\",\n \"In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different.\",\n \"For XOM if you were lucky enough to purchase on 20 Jan 16, at 73.18/share and sold on 15 July at 94.95 you would achieve a 29% return in six months. Awesome. You'd also get a dividend payment or two adding another percentage point per to your returns. The one year chart for FB shows it increasing from ~95/share to ~129. Yet no dividend was paid. However, the 35.7% YTD for 2016 should make anyone happy. Both of these require excellent timing, and those kind of returns are unsustainable over the long haul. Many people simply hold stocks. Having the dividend is a nice bonus to some growth. Why to people buy stocks? For profit. Sometimes dividend payers offer the best option, sometimes not.\",\n \"The top long-term capital gains tax rate will rise to 20% effective 1 Jan, 2011, unless Congress decides to do something about it before then. (Will they? Who knows!! There's been talk about it, but, well, it's Congress. They don't even know what they're going to do.) Anyway. The rules about when you can sell stock are mostly concerned with when you can realize a capital loss: if you sell a stock at a loss and then re-buy it for tax purposes within 30 days, it's a wash sale and not eligible for a deduction. However, I don't believe this applies to any stocks once you realize a gain - once you've realized the gain and paid your tax for it, it's all yours, locked in at whatever rate. Your replacement stock will be subject to short-term capital gains for the next year afterwards, and you might need to be careful with identifying the holding period on different lots of your stock, but I don't believe there will be any particular trouble. Please do not rely entirely on my advice and consult also with your tax preparer or lawyer. :) And the IRS documentation: Special Addendum for Nov/Dec 2012! Spoiler alert! Congress did indeed act: they extended the rates, but only temporarily, so now we're looking at tax hikes starting in 2013 instead, only the new top rate++ will be something like 23.8% on account of an extra 3.8% medicare tax on passive earnings (brought to you via Obamacare legislation). But the year and the rates' specifics aside, same thing still applies. And the Republican house and Democratic senate/President are still duking it out. Have fun. ++ 3.8% surtax applies to the lesser of (a) net investment income (b) income over $200,000 ($250k if married). 20% tax rate applies to people in the 15% income tax bracket for ordinary income or higher. Additional tax discounts for property held over 5 years may be available. Consult tax law and your favorite tax professional and prepare to be confused.\",\n \"\\\"What you seem to want is a dividend reinvestment plan (DRIP). That's typically offered by the broker, not by the ETF itself. Essentially this is a discounted purchase of new shares when you're dividend comes out. As noted in the answer by JoeTaxpayer, you'll still need to pay tax on the dividend, but that probably won't be a big problem unless you've got a lot of dividends. You'll pay that out of some other funds when it's due. All DRIPs (not just for ETFs) have potential to complicate computation of your tax basis for eventual sale, so be aware of that. It doesn't have to be a show-stopper for you, but it's something to consider before you start. It's probably less of a problem now than it used to be since brokers now have to report your basis on the 1099-B in the year of sale, reducing your administrative burden (if you trust them to get it right). Here's a list of brokerages that were offering this from a top-of-the-search-list article that I found online: Some brokerages, including TD Ameritrade, Vanguard, Scottrade, Schwab and, to a lesser extent, Etrade, offer ETF DRIPs—no-cost dividend reinvestment programs. This is very helpful for busy clients. Other brokerages, such as Fidelity, leave ETF dividend reinvestment to their clients. Source: http://www.etf.com/sections/blog/23595-your-etf-has-drip-drag.html?nopaging=1 Presumably the list is not constant. I almost didn't included but I thought the wide availability (at least as of the time of the article's posting) was more interesting than any specific broker on it. You'll want to do some research before you choose a broker to do this. Compare fees for sure, but also take into account other factors like how soon after the dividend they do the purchase (is it the ex-date, the pay date, or something else?). A quick search online should net you several decent articles with more information. I just searched on \\\"\\\"ETF DRIP\\\"\\\" to check it out.\\\"\",\n \"\\\"The strategy is right. As pointed out by you, will the \\\"\\\" volatility cause the premium on the price of the options to be too high to make this worthwhile\\\"\\\" ... this is subjective and depends on how the markets feels about the volatility and the trend ... ie if the market believes that the stock will go up, the option at 45 would cost quite a bit less. However if the market believes the stock would go down, the option at 45 would be quite high [and may not even be available]. There is no generic right or wrong, the strategy is right [with out without putting dividend into equation] it depends what options are available at what prices.\\\"\",\n \"\\\"The broker will charge borrowing fees and sometimes a charge called \\\"\\\"hard-to-borrow fee\\\"\\\". Other than that you will earn interest on the cash you get from selling the stocks, but you will have to pay dividends. This is because someone else (the party you sold the stocks off to) will now get the dividends and the party who lent you the stocks will miss out on these, that's why you have to remunerate them. The type of account you need is entirely up to your broker (and besides, it depends on what a 'normal' account for you is, you should at least mention your country or your broker).\\\"\",\n \"Your back of the envelope calculation shows an income of about 5.5% per year, which is much better than a bank. The risk of course is that in a few years when you want to sell the stock, the price may not be at the level you want. The question is what are you giving up with this plan. You have 80K in cash, will cutting it to 30K in cash make it harder for your business to survive? If your income from the business starts slowly, having that 50K in cash may be better. Selling the stock when the business is desperate for money may lock in losses.\",\n \"\\\"TL;DR: If your currently held bond's bid yield is smaller than another bonds' ask yield. You can swap your bond for bigger returns. Let's imagine you buy a long bond for $12000 (face value of $10000) and it has 6% coupon. The cash flows will have an internal return rate of 4.37%, this is the published \\\"\\\"ask yield\\\"\\\" in 2014 of the bond. After six years, prices have fallen, inflation and yields went up. So you can sell it for only $10000. If you would do it, the IRR will be only 2.55%, so there will be less return, than if you keep it. But if you would \\\"\\\"undo\\\"\\\" the transaction, then the future cash flows would yield 6.38%. This is the \\\"\\\"bid yield\\\"\\\" in 2020 of the bond. If you can find an offer that yields more than 6.38%, you have better returns if you sell your bond and invest that $10000 in the other bond. But as other answers pointed it out, you rarely have this opportunity as the market is very effective. (Assuming everything else is equal.)\\\"\",\n \"When you sell a stock that you own, you realize gains, or losses. Short-term gains, realized within a year of buying and selling an asset, are taxed at your maximum (or marginal) tax rate. Long term-gains, realized after a year, are taxed at a lower, preferential rate. The first thing to consider is losses. Losses can be cancelled against gains, reducing your tax liability. Losses can also be carried over to the next tax year and be redeemed against those gains. When you own a bunch of the same type of stock, bought at different times and prices, you can choose which shares to sell. This allows you to decide whether you realize short- or long-term gains (or losses). This is known as lot matching (or order matching). You want to sell the shares that lost value before selling the ones that gained value. Booking losses reduces your taxes; booking gains increases them. If faced with a choice between booking short term and long term losses, I'd go with the former. Since net short-term gains are taxed at a higher rate, I'd want to minimize the short-term tax liability before moving on to long-term tax liability. If my remaining shares had gains, I'd sell the ones purchased earliest since long-term gains are taxed at a lower rate, and delaying the booking of gains converts short-term gains into long-term ones. If there's a formula for this, I'd say it's (profit - loss) x (tax bracket) = tax paid\",\n \"I don't believe in letting the tax tail wag the investing dog. You have a stock you no longer wish to hold for whatever reason? Sell it. But to sell a loser, hoping it doesn't rise by the time you wish to re-buy it in 30 days is folly. This effort may gain you $50 if done right. No, it's not worth it either way.\",\n \"The biggest challenge with owning any individual stock is price fluctuation, which is called risk. The scenarios you describe assume that the stock behaves exactly as you predict (price/portfolio doubles) and you need to consider risk. One way to measure risk in a stock or in a portfolio is Sharpe Ratio (risk adjusted return), or the related Sortino ratio. One piece of advice that is often offered to individual investors is to diversify, and the stated reason for diversification is to reduce risk. But that is not telling the whole story. When you are able to identify stocks that are not price correlated, you can construct a portfolio that reduces risk. You are trying to avoid 10% tax on the stock grant (25%-15%), but need to accept significant risk to avoid the 10% differential tax ($1000). An alternative to a single stock is to invest in an ETF (much lower risk), which you can buy and hold for a long time, and the price/growth of an ETF (ex. SPY) can be charted versus your stock to visualize the difference in growth/fluctuation. Look up the beta (volatility) of your stock compared to SPY (for example, IBM). Compare the beta of IBM and TSLA and note that you may accept higher volatility when you invest in a stock like Tesla over IBM. What is the beta of your stock? And how willing are you to accept that risk? When you can identify stocks that move in opposite directions, and mix your portfolio (look up beta balanced portolio), you can smooth out the variability (reduce the risk), although you may reduce your absolute return. This cannot be done with a single stock, but if you have more money to invest you could compose the rest of your portfolio to balance the risk for this stock grant, keep the grant shares, and still effectively manage risk. Some years ago I had accumulated over 10,000 shares (grants, options) in a company where I worked. During the time I worked there, their price varied between $30/share and < $1/share. I was able to liquidate at $3/share.\",\n \"In an ideal world Say on 24th July the share price of Apple was $600. Everyone knows that they will get the $ 2.65 on 16th August. There is not other news that is affecting the price. You want to go in and buy the shares on 16th Morning at $600 and then sell it on 17th August at $600. Now in this process you have earned sure shot $2.65/- Or in an ideal world when the announcement is made on 24th July, why would I sell it at $600, when I know if I wait for few more days I will get $2.65/- so i will be more inclined to sell it at $602.65 /- ... so on 16th Aug after the dividend is paid out, the share price will be back to $600/- In a real world, dividend or no dividend the share price would be moving up or down ... Notice that the dividend amount is less than 1% of the stock price ... stock prices change more than this percentage ... so if you are trying to do what is described in paragraph one, then you may be disappointed as the share price may go down as well by more than $2.65 you have made\",\n \"There are two main ways you can make money through shares: through dividends and through capital gains. If the company is performing well and increasing profits year after year, its Net Worth will increase, and if the company continues to beat expectations, then over the long term the share price will follow and increase as well. On the other hand, if the company performs poorly, has a lot of debt and is losing money, it may well stop paying dividends. There will be more demand for stocks that perform well than those that perform badly, thus driving the share price of these stocks up even if they don't pay out dividends. There are many market participants that will use different information to make their decisions to buy or sell a particular stock. Some will be long term buy and hold, others will be day traders, and there is everything in between. Some will use fundamentals to make their decisions, others will use charts and technicals, some will use a combination, and others will use completely different information and methods. These different market participants will create demand at various times, thus driving the share price of good companies up over time. The annual returns from dividends are often between 1% and 6%, and, in some cases, up to 10%. However, annual returns from capital gains can be 20%, 50%, 100% or more. That is the main reason why people still buy stocks that pay no dividends. It is my reason for buying them too.\",\n \"The person may just want to get out of that position in order to buy a different stock, he or she feels may go up faster. There is really a lot of reasons.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Is selling Vested RSU is the same as selling a regular stock? Yes. Your basis (to calculate the gain) is what you've been taxed on when the RSUs vested. Check your payslips/W2 for that period, and the employer should probably have sent you detailed information about that. I'm not a US citizen, my account is in ETrade and my stocks are of a US company, what pre arrangements I need to take to avoid tax issues? You will pay capital gains taxes on the sale in Israel. Depending on where you were when you earned the stocks and what taxes you paid then - it may open additional issues with the Israeli tax authority. Check with an Israeli tax adviser/accountant."],"string":"[\n \"Is selling Vested RSU is the same as selling a regular stock? Yes. Your basis (to calculate the gain) is what you've been taxed on when the RSUs vested. Check your payslips/W2 for that period, and the employer should probably have sent you detailed information about that. I'm not a US citizen, my account is in ETrade and my stocks are of a US company, what pre arrangements I need to take to avoid tax issues? You will pay capital gains taxes on the sale in Israel. Depending on where you were when you earned the stocks and what taxes you paid then - it may open additional issues with the Israeli tax authority. Check with an Israeli tax adviser/accountant.\"\n]","isConversational":false}}},{"rowIdx":277,"cells":{"_id":{"kind":"string","value":"4306"},"query":{"kind":"string","value":"How do currency markets work? What factors are behind why currencies go up or down?"},"gt_ids":{"kind":"list like","value":["450694","221435","233718","61819"],"string":"[\n \"450694\",\n \"221435\",\n \"233718\",\n \"61819\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["450694","233718","499875","79777","87057","319996","61819","134239","19618","116921","104480","489509","221435","228787","293777","540451","215708","490113","363421","460755","582063","531953","429460","321842","310016","93518","248794","445943","576632","195506","124254","167717","157376","127434","452434","133440","215189","580757","487162","17906","301570","510363","157907","90589","273478","422989","378390","343489","10726","443511","536689","264067","99797","486159","405276","165767","357103","39696","375199","283473","67069","517345","124862","565568","336618","523864","68462","450922","114439","103536","177264","379547","305346","542098","126431","96211","367137","208907","205585","429704","137184","525231","351154","190347","316497","302699","10558","554996","416975","512564","401818","152910","245355","484891","115087","105343","16090","387194","285648","24881"],"string":"[\n \"450694\",\n \"233718\",\n \"499875\",\n \"79777\",\n \"87057\",\n \"319996\",\n \"61819\",\n \"134239\",\n \"19618\",\n \"116921\",\n \"104480\",\n \"489509\",\n \"221435\",\n \"228787\",\n \"293777\",\n \"540451\",\n \"215708\",\n \"490113\",\n \"363421\",\n \"460755\",\n \"582063\",\n \"531953\",\n \"429460\",\n \"321842\",\n \"310016\",\n \"93518\",\n \"248794\",\n \"445943\",\n \"576632\",\n \"195506\",\n \"124254\",\n \"167717\",\n \"157376\",\n \"127434\",\n \"452434\",\n \"133440\",\n \"215189\",\n \"580757\",\n \"487162\",\n \"17906\",\n \"301570\",\n \"510363\",\n \"157907\",\n \"90589\",\n \"273478\",\n \"422989\",\n \"378390\",\n \"343489\",\n \"10726\",\n \"443511\",\n \"536689\",\n \"264067\",\n \"99797\",\n \"486159\",\n \"405276\",\n \"165767\",\n \"357103\",\n \"39696\",\n \"375199\",\n \"283473\",\n \"67069\",\n \"517345\",\n \"124862\",\n \"565568\",\n \"336618\",\n \"523864\",\n \"68462\",\n \"450922\",\n \"114439\",\n \"103536\",\n \"177264\",\n \"379547\",\n \"305346\",\n \"542098\",\n \"126431\",\n \"96211\",\n \"367137\",\n \"208907\",\n \"205585\",\n \"429704\",\n \"137184\",\n \"525231\",\n \"351154\",\n \"190347\",\n \"316497\",\n \"302699\",\n \"10558\",\n \"554996\",\n \"416975\",\n \"512564\",\n \"401818\",\n \"152910\",\n \"245355\",\n \"484891\",\n \"115087\",\n \"105343\",\n \"16090\",\n \"387194\",\n \"285648\",\n \"24881\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Q: How do currency markets work? A: The FX (foreign exchange) market works very much like the stock market where potential buying parties bid $Y of country 1's currency to buy $1 in country 2's currency. Potential selling parties sell (ask) $1 of country 2's currency for $Y of country 1's currency. Like the stock market, there are also a swaps, futures and options in this market. Q: What factors are behind why currencies go up or down? A: Just like any open market, currencies go up and down based on supply and demand. Many factors affect the supply and demand of a particular currency. Some were listed well by the other posts. Q: What roles do governments, central banks, institutions, and traders have in the process? A: It's common practice that gov'ts intervene to \"\"control\"\" the value of currencies. For example, although it's not general public knowledge, the Canadian gov't is actively purchasing up US dollars in the FX market in an effort to stop the US/Canadian exchange rate from dropping further. This has dramatic economic consequences for the Canadian ecomony if the Canadian dollar were to strengthen too far and too quickly.\"","The fiat currency is the basis for currency markets - that is, currency that is not made of precious metals. The factors that influence what the value of a fiat currency are the state of the country's economy, what the gov't says the value should be, their fiscal policies, as well as what the currency is trading at. And what the currency is trading at is a product of these factors as well as the typical factors which would affect any stock trading. eHow has a great outline, here, which describes them.","Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.)","\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless there's someone willing to sell you Euros for dollars, you can't get any. There are millions of people trying to exchange currency all over the world. If more want to buy USD, than that demand will positively influence the price of the USD (as measured in Euros). If more people want to buy Euros, well, vice versa. There are so many of these transactions globally, and the number of people and the nature of these transactions change so continuously, that the prices (exchange rates) for these currencies fluctuate continuously and smoothly. Demand is also impacted by what people want to buy and how much they want to buy it. If people generally want to invest their savings in stocks instead of dollars, i.e., if lots of people are attempting to buy stocks (by exchanging their dollars for stock), then the demand for the dollar is lower and the demand for stocks is higher. When the stock market crashes, you'll often see a spike in the exchange rate for the dollar, because people are trying to exchange stocks for dollars (this represents a lot of demand for dollars). Then there's \"\"Supply:\"\" It may seem like there are a fixed number of bills out there, or that supply only changes when Bernanke prints money, but there's actually a lot more to it than that. If you're coming from Europe and want to buy some USD from the bank, well, how much USD does the bank \"\"have\"\" and what does it mean for them to have money? The bank gets money from depositors, or from lenders. If one person puts money in a deposit account, and then the bank borrows that money from the account and lends it to a home buyer in the form of a mortgage, the same dollar is being used by two people. The home buyer might use that money to hire a carpenter, and the carpenter might put the dollar back into a bank account, and the same dollar might get lent out again. In economics this is called the \"\"multiplier effect.\"\" The full supply of money being used ends up becoming harder to calculate with this kind of debt and re-lending. Since money is something used and needed for conducting of transactions, the number of transactions being conducted (sometimes on credit) affects the \"\"supply\"\" of money. Demand and supply blur a bit when you consider people who hoard cash. If I fear the stock market, I might keep all my money in dollars. This takes cash away from companies who could invest it, takes the cash out of the pool of money being used for transactions, and leaves it waiting under my mattress. You could think of my hoarding as a type of demand for currency, or you could think of it as a reduction in the supply of currency available to conduct transactions. The full picture can be a bit more complicated, if you look at every way currencies are used globally, with swaps and various exchange contracts and futures, but this gives the basic story of where prices come from, that they are not set by some price fixer but are driven by market forces. The bank just facilitates transactions. If the last price (exchange rate) is 1.2 Dollars per Euro, and the bank gets more requests to buy USD for Euros than Euros for USD, it adjusts the rate downwards until the buying pressure is even. If the USD gets more expensive, at some point fewer people will want to buy it (or want to buy products from the US that cost USD). The bank maintains a spread (like buy for 1.19 and sell for 1.21) so it can take a profit. You should think of currency like any other commodity, and consider purchases for currency as a form of barter. The value of currency is merely a convention, but it works. The currency is needed in transactions, so it maintains value in this global market of bartering goods/services and other currencies. As supply and demand for this and other commodities/goods/services fluctuate, so does the quantity of any particular currency necessary to conduct any of these transactions. A official \"\"basket of goods\"\" and the price of those goods is used to determine consumer price indexes / inflation etc. The official price of this particular basket of goods is not a fundamental driver of exchange rates on a day to day basis.\"","The currency market, more often referred as Forex or FX, is the decentralized market through which the currencies are exchanged. To trade currencies, you have to go through a broker or an ECN. There are a lot's of them, you can find a (small) list of brokers here on Forex Factory. They will allow you to take very simple position on currencies. For example, you can buy EUR/USD. By doing so, you will make money if the EUR/USD rate goes up (ie: Euro getting stronger against the US dollar) and lose money if the EUR/USD rate goes down (ie: US dollar getting stronger against the Euro). In reality, when you are doing such transaction the broker: borrows USD, sell it to buy EUR, and place it into an Euro account. They will charge you the interest rate on the borrowed currency (USD) and gives you the interest and the bought currency (EUR). So, if you bought a currency with high interest rate against one with low interest rate, you will gain the interest rate differential. But if you sold, you will lose the differential. The fees from the brokers are likely to be included in the prices at which you buy and sell currencies and in the interest rates that they will charge/give you. They are also likely to gives you big leverage to invest far more than the money that you deposited in their accounts. Now, about how to make money out of this market... that's speculation, there are no sure gains about it. And telling you what you should do is purely subjective. But, the Forex market, as any market, is directed by the law of supply and demand. Amongst what impacts supply and demands there are: Also, and I don't want to judge your friends, but from experience, peoples are likely to tell you about their winning transaction and not about their loosing ones.","Anything related to the central bank will have a large impact, as they are the ones who determine interest rates, and interest rates have a big effect on currency flows. GDP is also important, as when there is an economic slowdown it may result in the central bank reducing rates to boost economic activity. The opposite is also true, large increases in GDP may mean that an interest rate hike might be needed. Inflation data is also very important. Again, large changes in inflation either way may push the central bank towards changing rates. This data typically is in the form of CPI Note that each central bank is different. They all have specific mandates and specific pieces of economic data that they place emphasis on. The Federal Reserve as of late has closely been watching inflation data, especially wage inflation data, and employment. Significant deviations in these data points from whats expected by investors can greatly move the market. However, these specific factors are a little less important for, say, Mexico, which is mostly concerned with headline inflation. Read the statements issued by the central banks to find out whats important to them. Central banks also issue expectations for things like growth, CPI, etc. If these expectations are not met, it may result in a policy change, or at least talk of a policy change, at the next meeting of the central bank. Anticipating these policy changes and trading accordingly is one strategy to be a profitable forex trader Also, there are several forex news calendars online that indicate what is likely to be high impact news. These can be helpful starting out.","\"According to Soros in \"\"The Alchemy of Finance\"\", exchange rates fluctuations are mostly influenced by: (sorry I do not have the quote here, and I am paraphrasing from the top of my head what I read about a week ago). I mention his point of view as he is one of the most successful hedge fund manager ever, proved his skills, and dealt a lot with currencies. This is not just theory as he actively used the above points when managing his fund (as explained in the book). What I find interesting is that, according to him, the fundamental reason (the balance of trade) is not the most influential. Speculation on future value of currencies is the most influential, and these can set trends that can last years. Also it is key to notice that Soros thought foreign exchange markets are \"\"wrong\"\" most of the time, just like he thought stock markets are \"\"wrong\"\" most of the time (a point on which Warren Buffet and Jim Rogers also agree from my understanding).\"","\"The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to \"\"buy\"\" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a \"\"basket\"\" of things they produce that another country will want, and a \"\"shopping list\"\" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency.\"","It depends on the currency pair since it is much harder to move a liquid market like Fiber (EURUSD) or Cable (GBPUSD) than it is to move illiquid markets such as USDTRY, however, it will mostly be big banks and big hedge funds adjusting their positions or speculating (not just on the currency or market making but also speculating in foreign instruments). I once was involved in a one-off USD 56 million FX trade without which the hedge fund could not trade as its subscriptions were in a different currency to the fund currency. Although it was big by their standards it was small compared with the volumes we expected from other clients. Governments and big companies who need to pay costs in a foreign currency or receive income in one will also do this but less frequently and will almost always do this through a nominated bank (in the case of large firms). Because they need the foreign currency immediately; if you've ever tried to pay a bill in the US denominated in Dollars using Euros you'll know that they aren't widely accepted. So if I need to pay a large bill to a supplier in Dollars and all I have is Euros I may move the market. Similarly if I am trying to buy a large number of shares in a US company and all I have is Euros I'll lose the opportunity.","Because we need energy in the form of oil. If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves. Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?","The exchange rate between two currencies is simply the price that the most recent market participants were able to agree on, when trading. ie: if the USDCAD is 1.36, it's because the last trade that happened where someone bought 1 USD cost 1.36 CAD. There is no one person/organization which 'decides' the rate between two currencies. The rate moves you see is just the reality of money changing hands as people in various situations trade currencies for various reasons. Just like with stocks or any other market product, foreign exchange rates can fluctuate wildly based on many things. It is very difficult to forecast where rates will go, because the biggest changes in rates can often be unpredictable news events. For example, when Brexit happened, the value of the GBP plummeted relative to other currencies, because the market traders had less faith in the UK economy, and therefore weren't willing to pay as much to buy GBP. See more here: https://money.stackexchange.com/a/76482/44232. There is a very high level of risk in the foreign exchange market; for your sake, don't get involved in any trading that you do not well understand, first.","currency's central bank or treasury/finance department speeches that can announce a significant change in policy. That includes: Particularly when it is a high level figure within the department such as the President or Prime Minister making the announcement. Macroeconomic stats: GeoPolitical considerations, such as: Economic calendars, such as ForexFactory and MyFxBook track planned economic news releases. Obviously, a coup d'etat or war declaration may not be well known in advance.","\"From my limited experience with foreign exchange... Money is a commodity.. people buy it and sell it like other products.. if \"\"money\"\" is in demand the price goes up.. this is the case when a countries stocks are hot, and you need to purchase that countries currency to buy that stock... I've also seen the currency rise on news and speculation. Many years ago, I administered foreign receivables... My job was to settle letters of credit from Britain... I remember on one ocassion Margaret Thatcher said something to upset the markets.. her remark caused the price of the UK pound to fluctuate.\"","Brilliant fact-based objective reality explanation of the world currency markets. I'm into bitcoin and physical gold investments (yeah, I know, it's like being gay and straight at the same time without being bi), may I ask you a few things later?","The increase of currency value in relation to another is a critical determinant of the economic health. It plays an important part in the level of trade and affects the world’s free market economy. But, they also effect on smaller scale as they create an impact on the portfolio of investors. So, it is suggested that the investors should make their trades wisely keeping in mind the value of other currencies that might your trade. Also, you should check the news daily to get regular updates and be well-informed of any changes happening in the market","\"Money is money because people believe it is money. By \"\"believe it is money\"\", I mean that they expect they will be able to turn it into useful goods or services (food, rent, houses, truckloads full of iron ore, mining equipment, massages at the spa, helicopter rides, iPads, greenhouses, income streams to support your future retirement, etc). Foreign exchange rates change because people's ideas about how much useful goods or services they can get with various currencies change. For example: if the Zimbabwe government suddenly printed 10 times as much money as used to exist, you probably couldn't use that money to buy as much food at the Zimbabwe-Mart, so you wouldn't be willing to give people as many US-dollars (which can buy food at the US-Mart) for a Zimbabwe-dollar as you used to be able to. (It's not exactly that easy, because - for instance - food in the US is more useful to me than food in Zimbabwe. But people still move around all sorts of things, like oil, or agricultural products, or minerals, or electronics components.) The two main things that affect the value of a currency are the size of the economy that it's tied to (how much stuff there is to get), and how much of the currency there is / how fast it's moving around the economy (which tells you how much money there is to get it with). So most exchange rate shifts reflect a change in people's expectations for a regional economy, or the size of a money supply. (Also, Zimbabwe is doing much better now that it's ditched their own currency - they kept printing trillions of dollars' worth - and just trade in US dollars. Their economy still needs some work, but... better.)\"","I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies.","\"The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are \"\"weak\"\" and some \"\"strong\"\". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona.\"","\"Feel free to educate man. Everything I can find says the same thing. [Investopedia](http://www.investopedia.com/ask/answers/100314/what-are-key-factors-cause-market-go-and-down.asp) >If there are a greater number of buyers than sellers (more demand), the buyers bid up the prices of the stocks to entice sellers to get rid of them. Conversely, a larger number of sellers bids down the price of stocks hoping to entice buyers to purchase. Yes, if a company is performing well, you might find that more people want to buy then sale. That would cause it to go up. But if no one wants to buy, it doesn't matter how well the company is doing. I mean really, how would that work? Someone in the company notices they had more sales today then yesterday, email someone on wallstreet and they just mouse wheel the stock price up to something higher? Say the stock is $1.00 right now. But the lowest buy order is $.90. and the highest sale order is $1.10. (I guess there is some math there making is $1.) As soon as someone says, yeah. I'll sale at 90 cents, it'll go down. If someone says yeah, I'll buy at $1.10 it'll go up. I'm sure there is more to it than that. But everything I can find. It 100% has to have people more people wanting to buy then sale for it to go up. If more want to sale then buy, it'll go down. But hey, if this is way off base. Go ahead and fill me in. I'm open to CMV. This was all found after a short amount of time researching [\"\"What makes stock prices go up?\"\"](https://www.google.com/search?q=What+makes+stock+prices+go+up%3F&oq=What+makes+stock+prices+go+up%3F&gs_l=psy-ab.3..0i71k1l4.43421.43421.0.43882.0.0.0.0.0.0.0.0..0.0....0...1.1.64.psy-ab..0.0.0....0.6Crfejzb3XY)\"","From Indian context, there are a number of factors that are influencing the economic condition and the exchange rate, interest rate etc. are reflection of the situation. I shall try and answer the question through the above Indian example. India is running a budget deficit of 4 odd % for last 6-7 years, which means that gov.in is spending more than their revenue collection, this money is not in the system, so the govt. has to print the money, either the direct 4% or the interest it has to pay on the money it borrows to cover the 4% (don't confuse this with US printing post 2008). After printing, the supply of INR is more compared to USD in the market (INR is current A/C convertible), value of INR w.r.t. USD falls (in simplistic terms). There is another impact of this printing, it increases the money supply in domestic market leading to inflation and overall price rise. To contain this price rise, Reserve Bank of India (RBI) increases the interest rates and increases Compulsory Reserve Ratio (CRR), thus trying to pull/lock-up money, so that overall money supply decreases, but there is a limit to which RBI can do this as overall growth rate keeps falling as money is more expensive to borrow to invest. The above (in simplistic term) how this is working. However, there are many factors in economy and the above should be treated as it is intended to, a simplistic view only.","Look for unsustainable policies and actions by policy makers, both before and possibly during, when looking at the ForEx markets. Consider some examples: Each of those events could be seen in the growing unsustainability of local policies. ForEx markets and local policies can appear to stay on an unsustainable path for a long time, but equilibrium will force itself on everything in the long run. In two of the above cases, the initial response wasn't enough to offset the mess, and more and more intervention had to be done, only making matters worse. When you know how unsustainable policies are and how big the corrections need to be, you can quickly ascertain whether an action by policy makers will be enough.","Rates are arrived at by the cumulative buying and selling on the foreign exchange market, much the same way that stock prices are arrived at. If there are more people wanting to buy dollars with euros, EUR/USD goes down. If more people want to buy euros with dollars, then EUR/USD goes up. The initial rate was about $1.18 per euro when it began trading on January 1st, 1999. It replaced the European Currency Unit at that time, which was a weighted basket of currencies of (more or less) the participating countries. You're correct about the printing press in the US and other countries. The exchange rates do reflect in part how much of a relative workout those printing presses get.","Many people trade the currency markets via brokers who have developed online apps with live forex prices and many currency pairs. You can trade on your phone, iPad or PC / Mac.","Today the rates are arrived simply on the basis of demand and supply. Historically rates were pegged to Gold, when all currencies were printed depending on the Gold reserves. So if one country printed 100 units of currency of a 1gm of gold and other country 10 units of currency for 1 gm of gold, the rate would be 1:10. However In the seventies with shortages of Gold and other reasons, USD became the default standard, so the rate started being pegged to the USD reserves the countries started maintaining. However later in the early eighties, US backing out, the rate purely started getting pegged to market demand and supply. So for most currencies there was a default rate to begin with and today its changed ... Incase of USD/EUR, the initial rate was determined by the weighted average of the currencies that it sought to replace. After that its been market supply and demand. Since most of the trade in international market is US denominated, largest being Oil, each country has created a huge reserves of USD. So technically if China were to bank half its USD denominated treasury bills, the USD would come crashing down, but then China itself would be at disadvantage as its value of USD its holding would become less and it cannot buy the same items. Hence all countries keep hording USD and this means US if they print more money, the value will not come down, because it that happens, all countries holding USD would loose their value of reserve. In essence a country can print as much as currency it wants if all(majority) its debts and trades are denominated in local currencies. This is 100% true for US and hence it can get away by printing money. This is also true to a large extent for Japan as bulk of its Debts are denominated in JPY.","To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold. So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.","\"It may seem weird but interest rates are set by a market. Risk is a very large component of the price that a saver will accept to deposit their money in a bank but not the only one. Essentially you are \"\"lending\"\" deposited cash to the bank that you put it in and they will lend it out at a certain risk to themselves and a certain risk to you. By diversifying who they lend to (corporations, home-buyers each other etc.) the banks mitigate a lot of the risk but lending to the bank is still a risky endeavour for the \"\"saver\"\" and the saver accepts a given interest rate for the amount of risk there is in having the money in that particular bank. The bank is also unable to diversify away all possible risk, but tries to do the best job it can. If a bank is seen to take bigger risks and therefore be in greater risk of failing (having a run on deposits) it must have a requisitely higher interest rates on deposits compared to a lower risk bank. \"\"Savers\"\" therefore \"\"shop around\"\" for the best interest rate for a given level of risk which sets the viable interest rate for that bank; any higher and the bank would not make a profit on the money that it lends out and so would not be viable as a business, any lower and savers would not deposit their money as the risk would be too high for the reward. Hence competition (or lack of it) will set the rate as a trade off between risk and return. Note that governments are also customers of the banking industry when they are issuing fixed income securities (bonds) and a good deal of the lending done by any bank is to various governments so the price that they borrow money at is a key determinant of what interest rate the bank can afford to give and are part of the competitive banking industry whether they want to be or not. Since governments in most (westernised) countries provide insurance for deposits the basic level of (perceived) risk for all of the banks in any given country is about the same. That these banks lend to each other on an incredibly regular basis (look into the overnight or repo money market if you want to see exactly how much, the rates that these banks pay to and receive from each other are governed by interbank lending rates called Libor and Euribor and are even more complicated than this answer) simply compounds this effect because it makes all of the banks reliant on each other and therefore they help each other to stay liquid (to some extent). Note that I haven't mentioned currency at all so far but this market in every country applies over a number of currencies. The way that this occurs is due to arbitrage; if I can put foreign money into a bank in a country at a rate that is higher than the rate in its native country after exchange costs and exchange rate risk I will convert all of my money to that currency and take the higher interest rate. For an ordinary individual's savings that is not really possible but remember that the large multinational banks can do exactly the same thing with billions of dollars of deposits and effectively get free money. This means that either the bank's interest rate will fall to a risk adjusted level or the exchange rate will move. Either of those moves will remove the potential for making money for nothing. In this case, therefore it is both the exchange rate risk (and costs) as well as the loan market in that country that set the interest rate in foreign currencies. Demand for loans in the foreign currency is not a major mover for the same reason. Companies importing from foreign entities need cash in foreign currencies to pay their bills and so will borrow money in other currencies to fulfil these operations which could come from deposits in the foreign currency if they were available at a lower interest rate than a loan in local currency plus the costs of exchange but the banks will be unwilling to loan to them for less than the highest return that they can get so will push up interest rates to their risk level in the same way that they did in the market before currencies were taken into account. Freedom of movement of foreign currencies, however, does move interest rates in foreign currencies as the banks want to be able to lend as much of currencies that are not freely deliverable as they can so will pay a premium for these currencies. Other political moves such as the government wanting to borrow large amounts of foreign currency etc. will also move the interest rate given for foreign currencies not just because loaning to the government is less risky but also because they sometimes pay a premium (in interest) for being able to borrow foreign currency which may balance this out. Speculation that a country may change its base interest rate will move short term rates, and can move long term rates if it is seen to be a part of a country's economic strategy. The theory behind this is deep and involved but the tl;dr answer would be the standard \"\"invisible hand\"\" response when anything market or arbitrage related is involved. references: I work in credit risk and got a colleague who is also a credit risk consultant and economist to look over it. Arbitrage theory and the repo markets are both fascinating so worth reading about!\"","Forex is really not that volatile compared to other major asset classes like stocks and commodities. But still markets are generally unencumbered in the major pairs and therefore spikes in volatility can happen. Take what happened with the Swiss Franc a few years ago for example, or GBPUSD recently with news of Brexit. This is less the case with highly regulated currencies like the Chinese Yuan (CNY) Volatility is caused by excessive buy or sell pressure in relation to the available liquidity at the current price. This is usually caused by large buy or sell orders placed with interbank desks by institutions (often including other banks) and central banks. News can also sometimes have a dramatic impact and cause traders to adjust their prices significantly and very quickly.","\"Supply and Demand, pure and simple! There are two basic forms of this - a change in the quantity demanded/supplied at any given price, and a true change in the amount of demand/supply itself. Please note that this can be distinct from the underlying change in the value of the company and/or its expected future cash flows, which are a function of both financial performance and future expectations. If more people want the stock that are willing to sell it at a given price at a given point in time, sellers will begin to offer the stocks at higher prices until the market is no longer willing to bear the new price, and vice versa. This will reduce the quantity of stocks demanded by buyers until the quantity demanded and the quantity supplied once again reach an equilibrium, at which point a transaction occurs. Because people are motivated to buy and sell for different reasons at different times, and because people have different opinions on a constant flow of new information, prices change frequently. This is one of the reasons why executives of a recent IPO don't typically sell all of their stock at once. In addition to legal restrictions and the message this would send to the market, if they flooded the market with additional quantities of stock supplied, all else being equal, since there is no corresponding increase in the quantity demanded, the price would drop significantly. Sometimes, the demand itself for a company's stock shifts. Unlike a simple change in price driven by quantity supplied versus quantity demanded, this is a more fundamental shift. For example, let's suppose that the current demand for rare earth metals is driven by their commercial applications in consumer electronics. Now if new devices are developed that no longer require these metals, the demand for them will fall, regardless of the actions of individual buyers and sellers in the market. Another example is when the \"\"rules of the game\"\" for an industry change dramatically. Markets are behavioral. In this sense prices are most directly driven by human behavior, which hopefully is based on well-informed opinions and facts. This is why sometimes the price keeps going up when financial performance decreases, and why sometimes it does not rise even while performance is improving. This is also why some companies' stock continues to rise even when they lose huge sums of money year after year. The key to understanding these scenarios is the opinions and expectations that buyers and sellers have of that information, which is expressed in their market behavior.\"","\"If I really understood it, you bet that a quote/currency/stock market/anything will rise or fall within a period of time. So, what is the relationship with trading ? I see no trading at all since I don't buy or sell quotes. You are not betting as in \"\"betting on the outcome of an horse race\"\" where the money of the participants is redistributed to the winners of the bet. You are betting on the price movement of a security. To do that you have to buy/sell the option that will give you the profit or the loss. In your case, you would be buying or selling an option, which is a financial contract. That's trading. Then, since anyone should have the same technic (call when a currency rises and put when it falls)[...] How can you know what will be the future rate of exchange of currencies? It's not because the price went up for the last minutes/hours/days/months/years that it will continue like that. Because of that everyone won't have the same strategy. Also, not everyone is using currencies to speculate, there are firms with real needs that affect the market too, like importers and exporters, they will use financial products to protect themselves from Forex rates, not to make profits from them. [...] how the brokers (websites) can make money ? The broker (or bank) will either: I'm really afraid to bet because I think that they can bankrupt at any time! Are my fears correct ? There is always a probability that a company can go bankrupt. But that's can be very low probability. Brokers are usually not taking risks and are just being intermediaries in financial transactions (but sometime their computer systems have troubles.....), thanks to that, they are not likely to go bankrupt you after you buy your option. Also, they are regulated to insure that they are solid. Last thing, if you fear losing money, don't trade. If you do trade, only play with money you can afford to lose as you are likely to lose some (maybe all) money in the process.\"","\"Without going into minor details, an FX transaction works essentially like this. Let's assume you have SEK 100 on your account. If you buy 100 USD/RUB at 1.00, then that transaction creates a positive cash balance on your account of USD 100 and a negative cash balance (an overdraft) of RUB 100. So right after the transaction (assuming there is not transaction cost), the \"\"net equity\"\" of your account is: 100 SEK + 100 USD - 100 RUB = 100 + 100 - 100 = 100 SEK. Let's say that, the day after, the RUB has gone down by 10% and the RUB 100 is now worth SEK 90 only. Your new equity is: 100 SEK + 100 USD - 100 RUB = 100 + 100 - 90 = 110 SEK and you've made 10%(*): congrats! Had you instead bought 100 SEK/RUB, the result would have been the same (assuming the USD/SEK rate constant). In practice the USD/SEK rate would probably not be constant and you would need to also account for: (*) in your example, the USD/RUB has gone up 10% but the RUB has gone down 9.09%, hence the result you find. In my example, the RUB has gone down 10% (i.e. the USD has gone up 11%).\"","It's impossible to determine which event will cause a major shift for a certain currency pair. However, this does not mean that it's not possible to identify events that are important to the overall market sentiment and direction. There are numerous sites that provide a calendar for upcoming and past events and their impact which is most of the time indicated as low, medium and high. Such sites are: Edit: I would like to add to that, that while these are major market movers, you cannot forget that they mainly provide a certain direction for the market but that it's not always clear in which direction the market will go. A recent and prime example of a major event that triggered opposite effects of what you would expect, is the ECB meeting that took place the 3rd of December. Due to the fact that the market already priced in further easing by the ECB the euro strengthened instead of weakening compared to the dollar. This strengthening happened even though the ECB did in fact adjust the deposit by 10 base points to -0.30 % and increased the duration of the QE. Taking above example into consideration it's important to always remember that fundamentals are hard to grasp and that it will take a while to make it a second nature and become truly successful in this line of trading. Lastly, fundamentals are only a part of the complete picture. Don't lose sight of support and resistance levels as well as price action to determine when and how to enter a trade.","\"As you say, the currency carry trade shouldn't work. The deluge of new cash into a high-interest currency should result in falling exchange rates. A November 2009 paper by Òscar Jordà and Alan Taylor of the University of California, Davis, may be offer one approach which is more stable. According to The Economist: They find that a refined carry-trade strategy—one that incorporates a measure of long-term value—produces more consistent profits and is less prone to huge losses than one that targets the highest yield. However, exchange rates, central bank interest rates, as well as money supply are all political as well as economic constructs. An economic driver for arbitrage may be offset by political will (such as US quantative easing) or even social malaise (Japanese continual low inward investment). I wouldn't go so far as calling the carry trade \"\"free money\"\" - currencies have proven far too unstable for that - but state interference in markets tends to be clearly telegraphed and a trader with nerves of steel may take advantage of it.\"","Yes traders, living or algorithmic, are the only direct factors that can cause a change in the price of a marketable item. Traders can be affected by news, broken exchanges ;), emotional cycles, lunar cycles, time the trader goes to lunch (or a power cycle if you are an algo running on that unfortunate OS), anything.","You’ve really got three or four questions going here… and it’s clear that a gap in understanding one component of how bonds work (pricing) is having a ripple effect across the other facets of your question. The reality is that everybody’s answers so far touch on various pieces of your general question, but maybe I can help by integrating. So, let’s start by nailing down what your actual questions are: 1. Why do mortgage rates (tend to) increase when the published treasury bond rate increases? I’m going to come back to this, because it requires a lot of building blocks. 2. What’s the math behind a bond yield increasing (price falling?) This gets complicated, fast. Especially when you start talking about selling the bond in the middle of its time period. Many people that trade in bonds use financial calculators, Excel, or pre-calculated tables to simplify or even just approximate the value of a bond. But here’s a simple example that shows the math. Let’s say we’ve got a bond that is issued by… Dell for $10,000. The company will pay it back in 5 years, and it is offering an 8% rate. Interest payments will only be paid annually. Remember that the amount Dell has promised to pay in interest is fixed for the life of the bond, and is called the ‘coupon’ rate. We can think about the way the payouts will be paid in the following table: As I’m sure you know, the value of a bond (its yield) comes from two sources: the interest payments, and the return of the principal. But, if you as an investor paid $14,000 for this bond, you would usually be wrong. You need to ‘discount’ those amounts to take into account the ‘time value of money’. This is why when you are dealing in bonds it is important to know the ‘coupon rate’ (what is Dell paying each period?). But it is also important to know your sellers’/buyers’ own personal discount rates. This will vary from person to person and institution to institution, but it is what actually sets the PRICE you would buy this bond for. There are three general cases for the discount rate (or the MARKET rate). First, where the market rate == the coupon rate. This is known as “par” in bond parlance. Second, where the market rate < the coupon rate. This is known as “premium” in bond parlance. Third, where the market rate > coupon rate. This is known as a ‘discount’ bond. But before we get into those in too much depth, how does discounting work? The idea behind discounting is that you need to account for the idea that a dollar today is not worth the same as a dollar tomorrow. (It’s usually worth ‘more’ tomorrow.) You discount a lump sum, like the return of the principal, differently than you do a series of equal cash flows, like the stream of $800 interest payments. The formula for discounting a lump sum is: Present Value=Future Value* (1/(1+interest rate))^((# of periods)) The formula for discounting a stream of equal payments is: Present Value=(Single Payment)* (〖1-(1+i)〗^((-n))/i) (i = interest rate and n = number of periods) **cite investopedia So let’s look at how this would look in pricing the pretend Dell bond as a par bond. First, we discount the return of the $10,000 principal as (10,000 * (1 / 1.08)^5). That equals $6,807.82. Next we discount the 5 equal payments of $800 as (800* (3.9902)). I just plugged and chugged but you can do that yourself. That equals $3,192.18. You may get slightly different numbers with rounding. So you add the two together, and it says that you would be willing to pay ($6,807.82 + $3,192.18) = $10,000. Surprise! When the bond is a par bond you’re basically being compensated for the time value of money with the interest payments. You purchase the bond at the ‘face value’, which is the principal that will be returned at the end. If you worked through the math for a 6% discount rate on an 8% coupon bond, you would see that it’s “premium”, because you would pay more than the principal that is returned to obtain the bond [10,842.87 vs 10,000]. Similarly, if you work through the math for a 10% discount rate on an 8% coupon bond, it’s a ‘discount’ bond because you will pay less than the principal that is returned for the bond [9,241.84 vs 10,000]. It’s easy to see how an investor could hold our imaginary Dell bond for one year, collect the first interest payment, and then sell the bond on to another investor. The mechanics of the calculations are the same, except that one less interest payment is available, and the principal will be returned one year sooner… so N=4 in both formulae. Still with me? Now that we’re on the same page about how a bond is priced, we can talk about “Yield To Maturity”, which is at the heart of your main question. Bond “yields” like the ones you can access on CNBC or Yahoo!Finance or wherever you may be looking are actually taking the reverse approach to this. In these cases the prices are ‘fixed’ in that the sellers have listed the bonds for sale, and specified the price. Since the coupon values are fixed already by whatever organization issued the bond, the rate of return can be imputed from those values. To do that, you just do a bit of algebra and swap “present value” and “future value” in our two equations. Let’s say that Dell has gone private, had an awesome year, and figured out how to make robot unicorns that do wonderful things for all mankind. You decide that now would be a great time to sell your bond after holding it for one year… and collecting that $800 interest payment. You think you’d like to sell it for $10,500. (Since the principal return is fixed (+10,000); the number of periods is fixed (4); and the interest payments are fixed ($800); but you’ve changed the price... something else has to adjust and that is the discount rate.) It’s kind of tricky to actually use those equations to solve for this by hand… you end up with two equations… one unknown, and set them equal. So, the easiest way to solve for this rate is actually in Excel, using the function =RATE(NPER, PMT, PV, FV). NPER = 4, PMT = 800, PV=-10500, and FV=10000. Hint to make sure that you catch the minus sign in front of the present value… buyer pays now for the positive return of 10,000 in the future. That shows 6.54% as the effective discount rate (or rate of return) for the investor. That is the same thing as the yield to maturity. It specifies the return that a bond investor would see if he or she purchased the bond today and held it to maturity. 3. What factors (in terms of supply and demand) drive changes in the bond market? I hope it’s clear now how the tradeoff works between yields going UP when prices go DOWN, and vice versa. It happens because the COUPON rate, the number of periods, and the return of principal for a bond are fixed. So when someone sells a bond in the middle of its term, the only things that can change are the price and corresponding yield/discount rate. Other commenters… including you… have touched on some of the reasons why the prices go up and down. Generally speaking, it’s because of the basics of supply and demand… higher level of bonds for sale to be purchased by same level of demand will mean prices go down. But it’s not ‘just because interest rates are going up and down’. It has a lot more to do with the expectations for 1) risk, 2) return and 3) future inflation. Sometimes it is action by the Fed, as Joe Taxpayer has pointed out. If they sell a lot of bonds, then the basics of higher supply for a set level of demand imply that the prices should go down. Prices going down on a bond imply that yields will go up. (I really hope that’s clear by now). This is a common monetary lever that the government uses to ‘remove money’ from the system, in that they receive payments from an investor up front when the investor buys the bond from the Fed, and then the Fed gradually return that cash back into the system over time. Sometimes it is due to uncertainty about the future. If investors at large believe that inflation is coming, then bonds become a less attractive investment, as the dollars received for future payments will be less valuable. This could lead to a sell-off in the bond markets, because investors want to cash out their bonds and transfer that capital to something that will preserve their value under inflation. Here again an increase in supply of bonds for sale will lead to decreased prices and higher yields. At the end of the day it is really hard to predict exactly which direction bond markets will be moving, and more importantly WHY. If you figure it out, move to New York or Chicago or London and work as a trader in the bond markets. You’ll make a killing, and if you’d like I will be glad to drive your cars for you. 4. How does the availability of money supply for banks drive changes in other lending rates? When any investment organization forms, it builds its portfolio to try to deliver a set return at the lowest risk possible. As a corollary to that, it tries to deliver the maximum return possible for a given level of risk. When we’re talking about a bank, DumbCoder’s answer is dead on. Banks have various options to choose from, and a 10-year T-bond is broadly seen as one of the least risky investments. Thus, it is a benchmark for other investments. 5. So… now, why do mortgage rates tend to increase when the published treasury bond yield rate increases? The traditional, residential 30-year mortgage is VERY similar to a bond investment. There is a long-term investment horizon, with fixed cash payments over the term of the note. But the principal is returned incrementally during the life of the loan. So, since mortgages are ‘more risky’ than the 10-year treasury bond, they will carry a certain premium that is tied to how much more risky an individual is as a borrower than the US government. And here it is… no one actually directly changes the interest rate on 10-year treasuries. Not even the Fed. The Fed sets a price constraint that it will sell bonds at during its periodic auctions. Buyers bid for those, and the resulting prices imply the yield rate. If the yield rate for current 10-year bonds increases, then banks take it as a sign that everyone in the investment community sees some sign of increased risk in the future. This might be from inflation. This might be from uncertain economic performance. But whatever it is, they operate with some rule of thumb that their 30-year mortgage rate for excellent credit borrowers will be the 10-year plus 1.5% or something. And they publish their rates.","Sometimes the market has to be left alone. Too much interference of the policy makers to stabilize the falling market can actually result in a major crisis. Every change stabilises after sometime and it is also applicable in the Forex trading market. So, the eager investors should learn to have some patience and wait for the market to stabilise itself rather than make random predictions on the policies released by policy makers","\"At any moment, the price is where the supply (seller) and demand (buyer) intersect. This occurs fast enough you don't see it as anything other than bid/ask. What moves it? News of a new drug, device, sandwich, etc. Earning release, whether above or below expectations, or even dead-on, will often impact the price. Every night, the talking heads try to explain the day's price moves. When they can't, they often report \"\"profit taking\"\" for a market drop, or other similar nonsense. Some moves are simple random change.\"","\"All of the other answers here are accurate, but (I think) are missing the point as to the question, which rests on how Bonds work in the first place. The bond specifies a payback AMOUNT and DATE. Let's say it is $10,000 and one year from today. If you buy that today for $9900, your yield will be 1%. If you buy it today for $11,000, your yield will be less than 0% (please don't make me do the math - it's just under negative 1%). You might be willing to pay that 1% (rather than receive 1%) for the certainty that you will definitely get your money back. The combined actions of all the people who may be willing to pay a little more or a little less for the safety of a US Treasury Bond is what people call \"\"the Market.\"\" Market forces (generally, investor confidence) will drive the price up and down, which affects the yield. All the other stuff - coupons and inflation and whatnot - all of that only makes sense if you understand that you aren't buying a rate of return, you are buying a payback amount and date.\"","If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands). Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market. 3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news. I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are].","\"Switzerland is presumably where one moves the money in case of an apocalypse; although, they have lost some of that appeal now with the tax reporting to the EU and USA. Switzerland has a very old, stable banking industry, but this isn't the only appeal. Their reputation for safeguarding money, be it despot or Nazi, is most of the attraction. Low to no taxes is the second. Also, there isn't much financially illegal despite recent changes. Put that all together, and if a country is about to go to hell in handbasket because it borrowed too much or goes to war while Switzerland stays stable and very strict about paying depositors, those residents are going to try to move as much money to Switzerland as possible before its confiscated for one reason or another, sending the CHF up. Japan is a different duck. They have persistently ~0% inflation thus low nominal and real interest rates. With them, the so-called \"\"cash & carry trade\"\" or more ubiquitous \"\"carry trade\"\" dominates. Many investors choose to borrow in JPY to buy investments denominated in other currencies. If the countries of those other currencies are about to take their residents' money or go to war, putting money at jeopardy, the residents doing the carry trading will try to unwind their levered investments to reduce risk, sending the JPY up.\"","\"This is my two cents (pun intended). It was too long for a comment, so I tried to make it more of an answer. I am no expert with investments or Islam: Anything on a server exists 'physically'. It exists on a hard drive, tape drive, and/or a combination thereof. It is stored as data, which on a hard drive are small particles that are electrically charged, where each bit is represented by that electric charge. That data exists physically. It also depends on your definition of physically. This data is stored on a hard drive, which I deem physical, though is transferred via electric pulses often via fiber cable. Don't fall for marketing words like cloud. Data must be stored somewhere, and is often redundant and backed up. To me, money is just paper with an amount attached to it. It tells me nothing about its value in a market. A $1 bill was worth a lot more 3 decades ago (you could buy more goods because it had a higher value) than it is today. Money is simply an indication of the value of a good you traded at the time you traded. At a simplistic level, you could accomplish the same thing with a friend, saying \"\"If you buy lunch today, I'll buy lunch next time\"\". There was no exchange in money between me and you, but there was an exchange in the value of the lunch, if that makes sense. The same thing could have been accomplished by me and you exchanging half the lunch costs in physical money (or credit/debit card or check). Any type of investment can be considered gambling. Though you do get some sort of proof that the investment exists somewhere Investments may go up or down in value at any given time. Perhaps with enough research you can make educated investments, but that just makes it a smaller gamble. Nothing is guaranteed. Currency investment is akin to stock market investment, in that it may go up or down in value, in comparison to other currencies; though it doesn't make you an owner of the money's issuer, generally, it's similar. I find if you keep all your money in U.S. dollars without considering other nations, that's a sort of ignorant way of gambling, you're betting your money will lose value less slowly than if you had it elsewhere or in multiple places. Back on track to your question: [A]m I really buying that currency? You are trading a currency. You are giving one currency and exchanging it for another. I guess you could consider that buying, since you can consider trading currency for a piece of software as buying something. Or is the situation more like playing with the live rates? It depends on your perception of playing with the live rates. Investments to me are long-term commitments with reputable research attached to it that I intend to keep, through highs and lows, unless something triggers me to change my investment elsewhere. If by playing you mean risk, as described above, you will have a level of risk. If by playing you mean not taking it seriously, then do thorough research before investing and don't be trading every few seconds for minor returns, trying to make major returns out of minor returns (my opinion), or doing anything based on a whim. Was that money created out of thin air? I suggest you do more research before starting to trade currency into how markets and trading works. Simplistically, think of a market as a closed system with other markets, such as UK market, French market, etc. Each can interact with each other. The U.S. [or any market] has a set number of dollars in the pool. $100 for example's sake. Each $1 has a certain value associated with it. If for some reason, the country decides to create more paper that is green, says $1, and stamps presidents on them (money), and adds 15 $1 to the pool (making it $115), each one of these dollars' value goes down. This can also happen with goods. This, along with the trading of goods between markets, peoples' attachment of value to goods of the market, and peoples' perception of the market, is what fluctates currency trading, in simple terms. So essentially, no, money is not made out of thin air. Money is a medium for value though values are always changing and money is a static amount. You are attempting to trade values and own the medium that has the most value, if that makes sense. Values of goods are constantly changing. This is a learning process for me as well so I hope this helps answers your questions you seem to have. As stated above, I'm no expert; I'm actually quite new to this, so I probably missed a few things here and there.\"","No. The long-term valuation of currencies has to do with Purchasing Power Parity. The long-term valuation of stocks has to do with revenues, expenses, market sizes, growth rates, and interest rates. In the short term, currency and stock prices change for many reasons, including interest rate changes, demand for goods and services, asset price changes, political fears, and momentum investing. In any given time window, a currency or stock might be: The Relative Strength Index tries to say whether a currency or stock has recently been rising or falling; it does not inherently say anything about whether the current value is high or low.","International exchange rates are arbitraged. If I exchange A for B for C and then back to A again, I'll end up with the same amount ex trade fees. Assume this isn't the case. Clearly if I'd gain, someone else loses and I'd make millions by rapidly exchanging. Now assume that I'd lose money on that route. That must be because the reverse route, A->C->B->A gains money. (Again, assuming no fees) So in this case you'd just look at fees. (And as Ganesh points out, that may include future fees)","\"Currencies that are pegged or fixed require that foreign currencies are held by the central issuer at a proportional amount. This is analogous to having a portfolio of currencies that the central bank issues shares from - in the form of its own currency. We will continue with this analogy, if the central bank says these \"\"shares\"\" are worth $1, but the underlying components of the portfolio are worth $0.80 and decreasing, then it is expensive for the central bank to maintain its peg, and eventually they will have to disregard the peg as people start questioning the central bank's solvency. (People will know the $1 they hold is not really worth what the central bank says it is, because of the price changes people experience in buying goods and services, especially when it comes to imports. Shadow economies will also trade using a currency more reflective of labor, which happens no matter what the government's punishments are for doing so). Swiss National Bank (central bank) did this in early 2015, as it experienced volatility in the Euro which it had previously been trying to keep it's currency pegged to. It became too expensive for it to keep this peg on its own. The central bank can devalue its currency by adjusting the proportions of the reserve, such as selling a lot of foreign currency X, buying more of currency Y. They can and do take losses doing this. (Swiss National Bank is maintaining a large loss) They can also flood their economy with more of their currency, diluting the value of each individual 1 dollar equivalent. This is done by issuing bonds or monetizing goods and services from the private sector in exchange for bonds. People colloquially call this \"\"printing money\"\" but it is a misnomer in this day and age where printers are not relevant tools. The good and service goes onto the central bank's balance book, and the company/entity that provided the service now has a bond on its book which can be immediately sold to someone else for cash (another reading is that the bond is as good as cash). The bond didn't previously exist until the central bank said it did, and central banks can infinitely exchange goods and services for bonds. Bond monetization (also called Quantitative Easing) is practiced by the Federal Reserve in the United States, Bank of Japan, European Central Bank and now the Central Bank of the Republic of China\"","If the fact that currency is based on fiat, something that has been the case with currency somewhere on Earth since the Tang Dynasty of China discovered paper money a long, long time ago, leaves you up in arms, then I shudder to think what an explanation of how the price of money can be derived from plotting IS and LM together and extending it's meeting point into the money market to determine the price of currency would do to your notion of control by powerful offices in government. My good sir, have you ever considered that YOU might be the smug moron? That YOU might be the one who just found out what everyone in the room already learned years ago and lack the foundation the rest of us have to understand that information in context? That it might be YOU who are uninformed? I'll quote you right here: >people who have no clue what the fuck they are talking about go off and lecture other people, bringing up facts that have no thought behind them, and are merely definitions posing as an argument. Making a statement, then getting corrected, then coming back and simply lengthening the original answer is not an argument. >I'll say it again: our currency is fiat. It is backed by nothing You don't seem to understand just what it is backed by. It is backed by trust, steady demand, and the assurance of powerful national and international bodies. As is the price of everything, including gold and literally every other commodity on the planet. Your utter shock and outrage upon discovering this minute fact does not indicate a revolutionary zeitgeist or that you are some kind of free spirit, it indicates that you are uneducated on the context of basic and well understood facts that the rest of the educated world is already caught up on.","The current FED's spend is to encourage spends by putting in more liquidity, SOME of this funds [directly or indirectly] reach emerging markets and get invested in stocks ... so without these forex inflows, the Balance of Payments would be under pressure ... so these forex are artificially keeping the Exchange rate down. For example the USD vs INR rate was in the range of 1 USD to around INR 50 for nearly 4-5 years. In the period the inflation in India was around 10-15%, so ideally the rate should have slowly moved towards INR 60, however it took a news of FED cut-back to more the rates in the range of INR 65 before stabilizing to Rs 60","Having trouble understanding currency arbitrage for one example. Conditions: US 3% interest per 6 months Germany 3.6% interest per 6 months Spot rate is $1.09/euro 6-month Forward is $1.04/euro How do I make this into an arbitrage opportunity? There is supposed to be a profit but I keep getting negatives. Any help would be greatly appreciated.","Which of these two factors is likely to be more significant? There is long term trend that puts one favourable with other. .... I realise that I could just as easily have lost 5% on the LSE and made 5% back on the currency, leaving me with my original investment minus various fees; or to have lost 5% on both. Yes that is true. Either of the 3 scenarios are possible. Those issues aside, am I looking at this in remotely the right way? Yes. You are looking at it the right way. Generally one invests in Foreign markets for;","\"The prices quoted are for currency pairs traded on the foreign exchange market. For currencies traded on these exchanges, the exchange rates of a given currency pair are determined by the market, so supply and demand, investor confidence, etc. all play a role. EBS and Reuters are the two primary trading platforms in the foreign exchange market, and much of the data on exchange rates comes from them. Websites will usually get their data either from these sources directly or from a data provider that in turn gets it from EBS, Reuters, or another data source like Bloomberg or Haver Analytics. These data sources aren't free, however. In the US, many contracts, transactions, etc. that involve exchange rates use the exchange rate data published by the Federal Reserve. You might see this in contracts that specify to use \"\"the exchange rate published by the Federal Reserve at 12 pm (noon) on date --some date--\"\". You can also look at the Federal Reserve Economic Data, which maintains data series of historical daily, weekly, and monthly exchange rates for major currency pairs. These data are free, although they aren't realtime. Data for each business day is mostly updated the next business day.\"","Is my observation that the currency exchange market is indirect correct? Is there a particular reason for this? Why isn't currency traded like stocks? I guess yes. In Stocks its pretty simple where the stock is held with a depository. Hence listing matching is simple and the exchange of money is via local clearing. Currency markets are more global and there is no one place where trades happen. There are multiple places where it happens and is loosely called Fx market place. Building a matching engine is also complex and confusing. If we go with your example of currency pair, matches would be difficult. Say; If we were to say all transactions happen in USD say, and list every currency as item to be purchased or sold. I could put a trade Sell Trade for Quantity 100 Stock Code EUR at Price 1.13 [Price in USD]. So there has to be a buy at a price and we can match. Similarly we would have Stock Code for GBP, AUD, JPY, etc. Since not every thing would be USD based, say I need to convert GBP to EUR, I would have to have a different set of Base currency say GBP. So here the quantity would All currencies except GBP which would be price. Even then we have issues, someone using USD as base currency has quoted for Stock GBP. While someone else using GBP has quoted for Stock USD. Plus moving money internationally is expensive and doing this for small trades removes the advantages. The kind of guarantees required are difficult to achieve without established correspondence bank relationships. One heavily traded currency pair, the exchange for funds happens via CLS Bank.","\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as whether or not the person is studying at a foreign university. If the citizen wants to exchange more dollars than legally allowed, that person must buy or sell at the \"\"black\"\" market rate, rather than through the official/government market.\"","I usually look at the high and low exchange rates for the last five years. If the current rate is fairly close to the high for a trade over the past five years, then I do the trade. If the current exchange rate is close to the low, then I wait.","well you had it a bit backwards. the more liquid a market is, the less important the idea of insider information becomes. this is the opposite in less liquid markets - such as low volatile stocks about to announce earnings. knowing the earnings would net you a much larger percentage than, say, knowing if the ECB will cut rates of not. the change will be a much larger % and as with currencies, it is more important to know what the major players are planning - as in, central banks and reserves, carry trades, etc.","\"I think the important fact here is that all of our currencies are Fiat Currencies. So currency technically means nothing, because (as you mentioned) the country could print more any time it wants. Now what makes it useful is the combination of two big things: So I would say, we know they owe us 100 \"\"dollars\"\", and the dollar is just a word we use to represent value. It is not technically worth anything, beyond the fact that the government controls the amount of that currency in circulation and you trust that people still want more of that currency.\"","Now, is there any clever way to combine FOREX transactions so that you receive the US interest on $100K instead of the $2K you deposited as margin? Yes, absolutely. But think about it -- why would the interest rates be different? Imagine you're making two loans, one for 10,000 USD and one for 10,000 CHF, and you're going to charge a different interest rate on the two loans. Why would you do that? There is really only one reason -- you would charge more interest for the currency that you think is less likely to hold its value such that the expected value of the money you are repaid is the same. In other words, currencies pay a higher interest when their value is expected to go down and currencies pay a lower interest when their value is expected to go up. So yes, you could do this. But the profits you make in interest would have to equal the expected loss you would take in the devaluation of the currency. People will only offer you these interest rates if they think the loss will exceed the profit. Unless you know better than them, you will take a loss.","One interpretation of the above is that Pound (alongside US Dollar, Euro and other major curriencies), which forms the Forex basket of countries has dropped to less than 10% weightage in case of China's Forex holding. Now the question is where did this money go, this money probably have gone into Forex market to buy Yuan against Pound/Dollar etc. to bolster or strengthen Yuan. The currency reserve management is the 'wealth' management part and the 'currency' management part is what is known as 'central bank intervention' to stabilize the currency.","\"You may as well ask why a piece of wood is 25 centimeters long but only 10 inches. Most units of measure are very arbitrary. Somebody decides that this amount of heat or distance or money is a convenient unit, and so that's what they use. Suppose that tomorrow the government issued a whole new currency that had 10 times the value of the old currency. So if you used to make 10,000 foobars a year, now you make 1,000 new foobars. And likewise the price of everything you buy is divided by 10. If a certain model car used to cost 2,000 foobars, now it costs 200 new foobars. Are you better or worse off? Clearly if ALL prices change by the same percentage, then it makes absolutely no difference. (Aside from the hassle of making the switch and getting used to the new numbers.) A currency where 1 unit of money buys more is not necessarily a \"\"stronger currency\"\". Any more than inches are \"\"better\"\" than centimeters because you get more wood for an inch than you get for a centimeter. A currency is said to be \"\"strong\"\" when it's value is stable or increasing relative to other currencies. If yesterday I could trade 10 foobars for 1 plugh, but today I only need 9 foobars to buy 1 plugh, then foobars are stronger than plughs. Even though I still need more foobars than plughs to buy the same item.\"","\"My answer is specific to the US because you mentioned the Federal Reserve, but a similar system is in place in most countries. Do interest rates increase based on what the market is doing, or do they solely increase based on what the Federal Reserve sets them at? There are actually two rates in question here; the Wikipedia article on the federal funds rate has a nice description that I'll summarize here. The interest rate that's usually referred to is the federal funds rate, and it's the rate at which banks can lend money to each other through the Federal Reserve. The nominal federal funds rate - this is a target set by the Board of Governors of the Federal Reserve at each meeting of the Federal Open Market Committee (FOMC). When you hear in the media that the Fed is changing interest rates, this is almost always what they're referring to. The actual federal funds rate - through the trading desk of the New York Federal Reserve, the FOMC conducts open market operations to enforce the federal funds rate, thus leading to the actual rate, which is the rate determined by market forces as a result of the Fed's operations. Open market operations involve buying and selling short-term securities in order to influence the rate. As an example, the current nominal federal funds rate is 0% (in economic parlance, this is known as the Zero Lower Bound (ZLB)), while the actual rate is approximately 25 basis points, or 0.25%. Why is it assumed that interest rates are going to increase when the Federal Reserve ends QE3? I don't understand why interest rates are going to increase. In the United States, quantitative easing is actually a little different from the usual open market operations the Fed conducts. Open market operations usually involve the buying and selling of short-term Treasury securities; in QE, however (especially the latest and ongoing round, QE3), the Fed has been purchasing longer-term Treasury securities and mortgage-backed securities (MBS). By purchasing MBS, the Fed is trying to reduce the overall risk of the commercial housing debt market. Furthermore, the demand created by these purchases drives up prices on the debt, which drives down interest rates in the commercial housing market. To clarify: the debt market I'm referring to is the market for mortgage-backed securities and other debt derivatives (CDO's, for instance). I'll use MBS as an example. The actual mortgages are sold to companies that securitize them by pooling them and issuing securities based on the value of the pool. This process may happen numerous times, since derivatives can be created based on the value of the MBS themselves, which in turn are based on housing debt. In other words, MBS aren't exactly the same thing as housing debt, but they're based on housing debt. It's these packaged securities the Fed is purchasing, not the mortgages themselves. Once the Fed draws down QE3, however, this demand will probably decrease. As the Fed unloads its balance sheet over several years, and demand decreases throughout the market, prices will fall and interest rates in the commercial housing market will fall. Ideally, the Fed will wait until the economy is healthy enough to absorb the unloading of these securities. Just to be clear, the interest rates that QE3 are targeting are different from the interest rates you usually hear about. It's possible for the Fed to unwind QE3, while still keeping the \"\"interest rate\"\", i.e. the federal funds rate, near zero. although this is considered unlikely. Also, the Fed can target long-term vs. short-term interest rates as well, which is once again slightly different from what I talked about above. This was the goal of the Operation Twist program in 2011 (and in the 1960's). Kirill Fuchs gave a great description of the program in this answer, but basically, the Fed purchased long-term securities and sold short-term securities, with the goal of twisting the yield curve to lower long-term interest rates relative to short-term rates. The goal is to encourage people and businesses to take on long-term debt, e.g. mortgages, capital investments, etc. My main question that I'm trying to understand is why interest rates are what they are. Is it more of an arbitrary number set by central banks or is it due to market activity? Hopefully I addressed much of this above, but I'll give a quick summary. There are many \"\"interest rates\"\" in numerous different financial markets. The rate most commonly talked about is the nominal federal funds rate that I mentioned above; although it's a target set by the Board of Governors, it's not arbitrary. There's a reason the Federal Reserve hires hundreds of research economists. No central bank arbitrarily sets the interest rate; it's determined as part of an effort to reach certain economic benchmarks for the foreseeable future, whatever those may be. In the US, current Fed policy maintains that the federal funds rate should be approximately zero until the economy surpasses the unemployment and inflation benchmarks set forth by the Evans Rule (named after Charles Evans, the president of the Federal Reserve Bank of Chicago, who pushed for the rule). The effective federal funds rate, as well as other rates the Fed has targeted like interest rates on commercial housing debt, long-term rates on Treasury securities, etc. are market driven. The Fed may enter the market, but the same forces of supply and demand are still at work. Although the Fed's actions are controversial, the effects of their actions are still bound by market forces, so the policies and their effects are anything but arbitrary.\"","\"The market price of a stock is based on nothing at all more than what two parties were last willing to transact for it. The stock has a \"\"bid\"\" and an \"\"ask\"\" each is the value placed by a counterparty. For the sale to occur, one party must meet the other. The stock transacts and that is the price. For a stock to \"\"go up\"\" people must be willing to pay more for it. Likewise, for it to \"\"go down\"\" people must be willing to accept less for it.\"","Currencies are a zero-sum game. If you make money, someone else will lose it. Because bank notes sitting in a pile don't create anything useful. But shares in companies are different, because companies actually do useful things and make money, so it's possible for all investors to make money. The best way to benefit is generally to put your money into a low-cost index fund and then forget about it for at least five years.","The general idea is that if the statement wasn't true there would be an arbitrage opportunity. You'll probably want to do the math yourself to believe me. But theoretically you could borrow money in country A at their real interest rate, exchange it, then invest the money in the other country at Country B's interest rate. Generating a profit without any risk. There are a lot of assumptions that go along with the statement (like borrowing and lending have the same costs, but I'm sure that is assumed wherever you read that statement.)","If you look at a trade grid you can see how this happens. If there are enough bids to cover all shares currently on the sell side at a certain price, those shares will be bought and increased price quotes will be shown for the bids and ask. If there are enough bids to cover this price, those will get bought and higher prices will be shown and this process will repeat until the sell side has more power than the buy side. It seems like this process is going on all day long with momentum either on the upside or downside. But I think that much of this bidding and selling is automatic and is being done by large trading firms and high tech computers. I also feel that many of these bids and asks are already programmed to appear once there is a price change. So once one price gets bought, computers will put in higher bids to take over asks. It's like a virtual war between trading firms and their computers. When more money is on the buy side the stock will go up, and vice versa. I sort of feel like this high-frequency trading is detrimental to the markets and doesn't really give everyone a fair shot. Retail investors do not have the resources and knowledge in order to do this sort of high frequency trading. It also seems to go against certain free market principles in my opinion.","\"This is actually a fairly hard question to answer well as much of the currency trading that is done in financial markets is actually done directly with banks and other financial institutions instead of on a centralized market and the banks are understandably not always excited to part with information on how exactly they do their business. Other methods of currency exchange have much, much less volume though so it is important to understand the trading through markets as best as possible. Some banks do give information on how much is traded so surveys can give a reasonable indication of relative volume by currency. Note the U.S. Dollar is by far the largest volume of currency traded partially because people often covert one currency to another in the markets by trading \"\"through\"\" the Dollar. Wikipedia has a good explanation and a nicely formatted table of information as well.\"","\"To speak to this a little more broadly: apart from groups like hedge funds and other investors investing for purely speculative purposes, one of the major purposes of forwards (and, for that matter, futures) for companies in the \"\"real economy\"\" is to \"\"lock in\"\" a particular price in advance (or to reduce the risk of some kind of investment or transaction). Investopedia defines a currency forward as follows (with a few key points emphasized): [A currency forward is] a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment. The other major benefit of a currency forward is that it can be tailored to a particular amount and delivery period, unlike standardized currency futures. This can be a major advantage for planning and risk management purposes. For example, if I know I'm going to have to pay $1 million USD in the future and most of my revenue is in Euros, the actual amount I'll have to pay will vary based on the exchange rate between Euros and dollars. Thus, it's very worthwhile for me to be able to \"\"lock in\"\" a particular exchange rate so that I know exactly how much I'm going to pay relative to my projected revenue. The goal isn't necessarily to make money off the transaction (maybe they do, maybe they don't) as much as to reduce risk and improve planning ability. The fact that it doesn't involve an up-front payment is also a major advantage. It's usually a bad practice to \"\"sit on\"\" cash for a year if you can avoid it. Another key point: savings accounts pay less interest than inflation. If inflation is 3% and your savings account pays 1%, that looks remarkably like a guaranteed 2% loss to me.\"","\"The Auction Market is where investors such you and me, as well as Market Makers, buy and sell securities. The Auction Markets operate with the familiar bid-ask pricing that you see on financial pages such as Google and Yahoo. The Market Makers are institutions that are there to provide liquidity so that investors can easily buy and sell shares at a \"\"fair\"\" price. Market Makers need to have on hand a suitable supply of shares to meet investor demands. When Market Makers feel the need to either increase or decrease their supply of a particular security quickly, they turn to the Dealer Market. In order to participate in a Dealer Market, you must be designated a Market Maker. As noted already, Market Makers are dedicated to providing liquidity for the Auction Market in certain securities and therefore require that they have on hand a suitable supply of those securities which they support. For example, if a Market Maker for Apple shares is low on their supply of Apple shares, then will go the Dealer Market to purchase more Apple shares. Conversely, if they are holding what they feel are too many Apple shares, they will go to the Dealer Market to sell Apple shares. The Dealer Market does operate on a bid-ask basis, contrary to your stated understanding. The bid-ask prices quoted on the Dealer Market are more or less identical to those on the Auction Market, except the quote sizes will be generally much larger. This is the case because otherwise, why would a Market Maker offer to sell shares to another Market Maker at a price well below what they could themselves sell them for in the Auction Market. (And similarly with buy orders.) If Market Makers are generally holding low quantities of a particular security, this will drive up the price in both the Dealer Market and the Auction Market. Similarly, if Market Makers are generally holding too much of a particular security, this may drive down prices on both the Auction Market and the Dealer Market.\"","If I understand what you're asking, I think you're looking at the relationship wrong. Yes, when one currency has a higher interest rate relative to another, it's value should, theoretically, appreciate. For example, if the USD interest rate is 10% and the EUR is 5%, the USD should appreciate in value against the EUR. However, the parity relationship tells you the price at which an investor would be indifferent to the difference in interest rates. So using the formula for interest rate parity: (1+r(USD))/(1+r(EUR)) = F/S and plugging in the interest rates from above and a spot rate of $1.5/EUR: (1.1)/(1.05) = F/(1.5) The 1 year forward rate would have to be $1.5714/EUR in order for the investor to be INDIFFERENT between holding USD or EUR. All this assuming interest rate parity holds. I'm not big on Econ but this is how I understood it when studying for the CFA exam the past few months. So please, someone correct me if I'm wrong.","Ultimately no one really knows what causes the markets to rise and fall beyond supply and demand. If more people want to buy then sell, prices go up. And if more people want to sell, prices go down. The news channels will often try to attribute a specific reason to the price move, but that is largely just guess work to fill up the news pages so people have something to read. You may find it interesting to read up on the Elliot wave principle. The crash of 2008 was a perfect Elliot Wave fit. Elliot Wave theory states that social moods (which ultimately drive the stock market) generally occur in a relatively predictable pattern. The crash in September was a Wave 3 down. This is where the majority of people give up hope. However there are still a few people who are still holding on. The markets tend to meander about during wave 4. Finally the last few people give up hope and sell out. This causes the final crash of wave 5. Only when the last person has given up hope can the markets start to go up again..","\"As the European crisis worsened the Swiss Franc (CHF) was seen as a safe currency so Europeans attempted to exchange their Euros for Francs. This caused the Franc to appreciate in value, against the Euro, through the summer and fall of 2011. The Swiss government and Swiss Central Bank (SNB) believe mercantilism will create wealth for the citizens of Switzerland. The Swiss central planners believe that having an abundance of export businesses in Switzerland will create wealth for the citizens of Switzerland as the exporters sell their good and services abroad and pocket a bunch of cash. Thus, the central planners tend to favor exporters. From the article: At the start of the year, when exporters urged for government and SNB action, ... The Swiss Central bank continued to intervene in currency markets in 2011 to prevent the CHF from appreciating. This was done to prevent a decrease in export business. Finally after many failed attempts they announced the 1.20 peg in September. The central planners give little consideration to imports, however, since manufacturers in foreign countries don't vote or contribute to the campaign funds of the central planners in Switzerland. As the CHF strengthened many imported items became very cheap for Swiss citizens. This was of little concern to the central planners. Currencies are like other goods in a market in that they respond to supply and demand. Their value can change daily or even hourly based on the continually varying demands of people. This can cause the exchange rate to rise and fall against other currencies and goods. Central planners mistakenly believe that the price of certain market items (like currency) should not fluctuate. The believe there is some magical number that will cause the market to operate \"\"better\"\" or \"\"more correctly\"\". How does the SNB maintain the peg? They maintain the peg by printing Francs and purchasing euros.\"","I think you are asking a few questions here. Why is gold chosen as money? In a free market there are five characteristics of a good money: Gold and silver meet all five characteristics. Diamonds are not easily divisible which is why they are not normally used as money. Copper, Iron, and lead are not scarce enough - you would need a lot of these metals to make weekly or daily purchases. Paper is also way too plentiful to be used as money. By the way, historically silver has been used for money more than gold. How does international trade work with gold as money (is this what you are asking with your hypothetical example of 10 countries each with y amount of gold?) Typically a government will issue a currency that is backed by gold. This means you can redeem your currency for actual gold. Then when an American spends 5 US dollars (USD) to purchase a Chinese good the Chinese man now owns 5 USDs. The Chinese man can either redeem the 5 USD for gold or spend the 5 USD in the US. If a government issues more currency then they have gold for then the gold will start to flow from that country to other countries as the citizens of the other countries redeem the over-issued currency for gold. This outflow of gold restricts governments from over-issuing paper currency. Who creates the procedures and who supervises them in modern worldwide economy? The Federal Reserve, IMF, and Bank of International Settlements all are involved in the current system where the US dollar (see Bretton Woods agreement) is the reserve currency used by central banks throughout the world. Some think this system is coming to an end. I tend to agree.","You may simply be asking why stocks 'gap up' or 'gap down' when the stock market opens. This is because the price adjusts to news that occurred while the exchanges were closed overnight. Perhaps Asian stocks crashed, or perhaps a news story was released in the New York Times about some major company. There are thousands of factors that affect market sentiment, and the big gaps that happen at the open of every trading day is the price of the stocks catching up to those factors.","\"Um no. Easy google. \"\"What makes stock prices go up?\"\" >This is how it works with stocks; supply is the amount of shares that people want to sell, and demand is the amount of shares that people want to purchase. If there are a greater number of buyers than sellers (more demand), the buyers bid up the prices of the stocks to entice sellers to get rid of them. So sure, if a company is performing well, people will want to buy the stock. Causing it to go up. But even if a company was performing well and no one wanted to buy the stock. There would be only sellers and the price would go down.\"","\"I suspect that to \"\"make money\"\" it isn't enough to know the current value (\"\"high currency\"\"): to make money you'd need to know/guess/predict/bet on the future change in value: will the currency value go higher in the future? Or will it come down again? Or will it stay the same? Everybody knows the current value, so that by itself isn't enough knowledge to make money from. That said, if you know you're going to need American dollars in the future (if you have future expenses which need to be paid in American dollars), then now might be a good time to buy those dollars.\"","Trading Speeches can be difficult, 1 comment can be bullish then next phrase bearish. However language algorithms can process the tone of the entire message before you can read the first word or have even finished downloading the text of the statement. The biggest news is the 1st Friday of the month, the non-farm payrolls out of the USA. You used to be able to get the news before the price moved, but high-frequency algos changed all that, essentially the exchanges get quote stuffed, so good luck unless you are using a bucketshop. Better to wait for a pull back from the initial reaction if the numbers are good, otherwise you will get a fill at the peak. If the numbers are a big deviation from expectations then you can just jump in. Back in 2006 the Bank of England raised interest rates when it wasn't expected and the GBPUSD flew 500 pips. This Forex calendar has charts of every news release, so you can see what to expected based on what has happened in the past with a certain bit of economic news. http://www.fasteconomicnews.com/fx_calendar.aspx","Since 2007 the world has seen a period of striking economic and financial volatility featuring the deepest recession since the 1930s despite this gold has performed strongly with its price roughly doubling since the global financial crisis began in mid-2007. 1. Gold and real interest rates: One of the factor that influences gold prices is real interest rate which is to some extent related to inflation. Since gold lacks a yield of its own, the opportunity cost of holding gold increases with a real interest rate increase and decreases with a fall in real interest rates. 2. Gold and the US dollar: The external value of the US dollar has been a significant influence on short-term gold price movements. The IMF estimated6 in 2008 that 40-50% of the moves in the gold price since 2002 were dollar-related, with a 1% change in the effective external value of the dollar leading to a more than 1% change in the gold price (Source). 3. Gold and financial stress: It is a significant and commonly observed influence on the short-term price of gold. In periods of financial stress gold demand may rise for a number of reasons: 4. Gold and political instability: It is another factor that can boost gold prices. Investor concerns about wars, civil conflicts and international tensions can boost demand for gold for similar reasons to those noted above for periods of financial stress. Gold‟s potential function as a „currency of last resort‟ in case of serious system collapse provides a particular incentive to hold it in case the political situation is especially severe. (Source) 5. Gold and official sector activity: The behaviour of central banks and other parts of the official sector can have an important impact on gold prices. One reason for this is that central banks are big holders of gold, possessing some 30,500 metric tons in 2010, which is approximately 15% of all above-ground gold stocks. As a result, central bank policies on gold sales and purchases can have significant effects, and these policies have been subject to considerable shifts over the decades. (Source) (Source of above graphs)","\"In addition to the information in the other answer, I would suggest looking at an economic calendar. These provide the dates and values of many economic announcements, e.g. existing home sales, durable orders, consumer confidence, etc. Yahoo, Bloomberg, and the Wall Street Journal all provide such calendars. Yahoo provides links to the raw data where available; Bloomberg and the WSJ provide links to their article where appropriate. You could also look at a global economic calendar; both xe.com and livecharts.co.uk provide these. If you're only interested in the US, the Yahoo, Bloomberg, and WSJ calendars may provide a higher signal-to-noise ratio, but foreign announcements also affect US markets, so it's important to get as much perspective as possible. I like the global economic calendars I linked to above because they rate announcements on \"\"priority\"\", which is a quick way to learn which announcements have the greatest effect. Economic calendars are especially important in the context of an interview because you may be asked a follow-up question. For example, the US markets jumped in early trading today (5/28/2013) because the consumer confidence numbers exceeded forecasts (from the WSJ calendar, 76.2 vs 2.3). As SRKX stated, it's important to know more than the numbers; being able to analyze the numbers in the context of the wider market and being aware of the fundamentals driving them is what's most important. An economic calendar is a good way to see this information quickly and succinctly. (I'm paraphrasing part of my answer to another question, so you may or may not find some of that information helpful as well; I'm certainly not suggesting you look at the website of every central bank in the morning. That's what an economic calendar is for!)\"","\"Other things equal is sometimes referred to as \"\"ceteris paribus\"\" - the scenario where you compare two currencies (or things) under the assumption that all other factors that could effect those currencies (earthquakes, revolutions, currency crises ect) are not ocurring. Its like using a control group in a lab. \"\"Real interest rates\"\" means the rate of that countries interest rate, accounting for inflation. \"\"Proportional to the strength of its home currency\"\" is referring to how countries with higher rates of interest tend to have stronger currencies (relative to other currencies) because foreign investment/capital will flood into the country seeking those higher rates of return - excess demand for the currency will cause it to appreciate. So this is also true in reverse, as capital will tend to leave a country will ultra-low interest rates.\"","\"the Yen is *the source* of **\"\"carry trades\"\"**. It means whichever savvy people with means who want to borrow money to invest on a leveraged basis anywhere in the world, come running to borrow in yen. Why? Because (1) Japan is an advanced economy whose currency is freely convertible to many many currencies/countries who are happy to convert yen back and forth. (2) Japanese interest rates are low, lower than in the west b/c of their earlier deflationary crises due to too much debt and due to west requiring Yen to be too strong after the Plaza accords; so it's cheap to borrow there. So a lot of investment around the world has, in origin, come from borrowing in japan. As long as that investment is \"\"on\"\", the loan to japan remains outstanding. But the investor earns the \"\"carry\"\": the rate of difference between the cost of borrowing in Yen, and earning the return from whatever investment it is. When scary things happen (like war, disaster, coups etc) the big money bags/investors pull their money out of their investments and put it in their banks. This means they sell their investments, wherever they are, convert some of that money back into yent ( BUY YEN ) to return their yen loans. yen goes up.\"","Imagine that the existing interest rate is 5%. So on a bond with face value of 100, you would be getting a $5 coupon implying a 5% yield. Now, if let's say the interest rates go up to 10%, then a new bond issued with a face value of 100 will give you a coupon of $10 implying a 10% yield. If someone in the bond market buys your bond after interest price adjustment, in order to make the 10% yield (which means that an investor typically targets at least the risk-free rate on his investments) he needs to buy your bond at $50 so that a $5 coupon can give a 10% yield. The reverse happens when interest rates go down. I hope this somewhat clears the picture. Yield = Coupon/Investment Amount Update: Since the interest rate of the bond does not change after its issuance, the arbitrage in the interest rate is reflected in the market price of the bond. This helps in bringing back the yields of old bonds in-line with the freshly issued bonds.","That is mostly true, in most situations when there are more buy orders than sell orders (higher buy volume orders than sell volume orders), the price will generally move upwards and vice versa, when there are more sell orders than buy orders (higher sell volume orders than buy volume orders), the price will generally move downwards. Note that this does not always happen, but usually it does. You are also correct that for a trade to take place a buyer has to be matched with a seller (or the buy volume matched with the sell volume). But not all orders get executed as trades. Say there are 50 buy orders in the order book with a total volume of 100,000 shares and the highest buy order is currently at $10.00. On the other side there are only 10 sell orders in the order book with total volume of 10,000 shares and the lowest sell order is currently $10.05. At the moment there won't be a trade unless a new buyer or seller enters the market to match the opposing side, or an existing order gets amended upper or lower to match the opposing side. With more demand than supply in the order books what will be the most likely direction that this stock moves in? Most likely the price will move upwards. If a new buyer sees the price moving higher and then looks at the market depth, they would most likely place an order closer to the lowest sell order than the current highest buy order, say $10.01, to be first in line in case a market sell order is placed on the market. As new buy orders enter the market it drives the price higher and higher until the buy orders dry up.","\"Here's an answer to a related question I once wrote. I'm reposting here. I can, but it takes a significant amount of time. I'll do a short version which unfortunatley might leave more holes than you like. Basically, traders don't want to barter because it is hard to find the person with precisely the goods you want who wants to trade for the goods you have. Thus the need for \"\"coupons\"\" that represent value in a marketplace. Then you need to decide who gets to create coupons. If too many can issue them, problems arise, and no one trusts the coupons will be good later. Eventually you want one large bank/nation/trader to be able to issue them so everyone has the same level of trust in them, and you don't have the economic inefficiencies of many coupon issuers. Next, the number of coupons needs to be enough to facilitate trade. If the amount of trade increases a lot, and the number of coupons doesn't increase similarly they become worth more, and people start to hoard them. This causes deflation, which causes less investment, which causes less growth, which hurts everyone in the long run. If there are too many coupons added, this causes inflation, which causes people to spent them quicker instead of holding them. For reasons I won't cover here slight, predictable inflation is much better than deflation, so remember inflation is slightly preferred. Note that inflation is often caused not by the number of coupons but by external price changes. Now, for a modern economy to do well, somone has to watch the economy, measure it carefully, and add/subtract coupons into the system as needed. Coupons, like all money, have no real value (whatever that means), but only have value because the holder expects to be able to trade them *later* for goods and services. You cannot eat coupons, use them for shelter (usually!), or wear them, but you want to trade them for such needs. The same is true for paper money, gold, stones, or almost whatever money system one uses. Money in all these forms is merely an IOU tradable for future goods. The Fed is tasked (among other things) with making sure there is precisely enough coupons in the economy to keep trade functioning as well as possible. This is very hard to do since there are external and internal shocks to an economy (think disaster, foreign govts shutting off resources, rapid changes in people's tastes, etc.). Central banks such as the Fed need to be independent of political control, since empirical evidence has shown that politicians tend to add more money to the system than is needed, because the short term gains give them votes, but the long term consequences (rapid inflation, unemployment, lower economic growth) are bad for society. This is why the Fed is largely out of congressional control, and large amounts of empirical evidence across hundreds of years and dozens of cultures shows this to be good. Note: another function of the Fed is to be a lender of last resort to help prevent bank panics that were widespread in the 18th and early 19th century, something that none of us now remember, but it was a real problem. I'll skip that part for now. So now we're at the point where the Fed needs to add/subtract coupons from society. To do this part justice takes significant time to cover all the reasons why various rules are in place (banking reserve requirements, for example), and you cannot learn it from one pass of reading. But I'll try. Instead of being like the majority of internet fools that rail against the system, try to learn the *why* of all this, and you'll be much wiser and understand that it is all a pretty good system. One method they use is the interbank lending rate. Banks have a reserve requirement, which is the ratio of coupons they need to have on hand as a ratio compared to the total coupons depositors lent them. This is usually around 1:10. The amount deposited that they can lend goes to business loans, school loans, mortgage loans, etc., and helps economies grow. Now when a bank on a given day falls short due to too many withdrawals, other banks (or the Fed) offers an overnight loan to meet reserve requirements, and the Fed sets the interest rate, which in turn drives other interest rates in the system. This does not change the money supply very much. Secondly, the Fed sets the reserve requirement, which vastly can change the amount of money available to society. But they change this rate so rarely (all the historical data is on the St. Loius Fed site, among others) that it is not usually an issue. I'll explain below how this can drastically change the money supply though the money multiplier. Thirdly, and this is the part the poster above seems upset about, they conduct open market operations. This is the primary means by which the Fed exercises control over the number of coupons in play. The government, like businesses, like individuals, often needs to borrow money, in theory to invest in wise causes like infrastructure or perhaps money making enterprises such as technology investmeny (and I know what they often use the money for causes many to complain). The government, like companies, offers the sale of various contracts such as bonds to investors, who want a place to park some accumulated coupons for safety, and they get a return plus some interest. So the government sells bonds on the open market to investors, banks, pensions, foreign governments, basically to whomever wishes to purchase them at the market rate, and the government, like many individuals and banks, uses these loans to perform day to day functioning and possible smooth out volatility in spending needs. By law the Fed cannot purchase directly from Treasury. Now, once on the market, these bonds are traded, packaged, resold, etc., since they have inherent value, and since those owning them want to buy/sell them, perhaps before maturity date. This \"\"liquidity\"\" (ability to sell your goods) is necessary - fewer would purchase an item if they could not sell it when they desire. Thus bonds are bought, sold, and traded, and their prices fluctuate based on what the market thinks they are worth, just like any good. Now, the Fed can buy/sell these bonds on the *open market*, like anyone else. So when the Fed wishes to increase the money supply, they can buy bonds that are not \"\"spendable\"\" money and inject money into the system. Note they now hold a bond that had at the time of transaction the same value as the money they injected. Note investors freely bought these from Treasury, meaning the market thought at the time of purchase that this was a good invesement. It is *not* the government merely wishing more money into existance. It is market forces that require more money for trades and is selling goods from the marketplace of (presumably) equal value to the Fed. This increases liquidity, but takes valuable assets from circulation. When the Fed wishes to shrink the money supply, they sell these bonds back into circulation basically by offering better terms than Treasury. In fact, you can find graphs of the Fed operations and see how every December they inject money for more Christmas shpping (need more coupons for more trade) and every January they extract some. So open market transactions, buying and selling goods at market prices in the marketplace along with other traders, is how the Fed injects and removes money from the money supply. This is the primary mechanism that the Fed uses to control the number of coupons in the economy. Finally, a little about reserve requirements and the money multiplier, since it affects so much of the number of coupons in play. This also I must simplify drastically. Each bank needs to hold 1/10 of all deposits in cash. The rest can be lent, which lands in another bank, which again can be lent, etc... Thus each $1 deposited can result in loans totalling 9/10 + (9/10)^2 + (9/10)^3 +... = 9 more dollars. Many people claim that banks are printing money, which is nonsense, since each also has an equal debt to pay to the person they borrowed from. When all loans are paid back there is no net money gain. However, this allows for each $1 the Fed injects by buying bonds for there to be up to $9 in the economy, *if banks all loan to the fullest extent*. Banks tend to want to loan since loaned money makes them profit. Banks used to loan too much and runs on the banks caused significant problems, which is why laws were made to require *all* banks to have the same reserve requirement. Now, when banks get scared and stop loaning, this 9 fold multiplier dries up, and the Fed has much less inpact on being able to target the proper number of coupons to keep the economy smooth. During the recent crash when banks stopped loaning, as each dollar was paid back on debts, there was significant shrinkage of available money for transactions, and this kills the economy. This is the \"\"liquidity crisis\"\". Hope this helps. As I said, this is vastly simplified and I cannot go into all the reasons and historical items needed to understand it fully. It is a vastly complex (and necessarily so) and takes significant study to grasp the genius of it. It's similar to not being able to understand nuances of particle physics in one go, but as you study and work at it you see *why* things go as they do, and you learn all the failed methods (the gold standard is one example) that were thrown out for many good reasons. Cheers.\"","\"First it is worth noting the two sided nature of the contracts (long one currency/short a second) make leverage in currencies over a diverse set of clients generally less of a problem. In equities, since most margin investors are long \"\"equities\"\" making it more likely that large margin calls will all be made at the same time. Also, it's worth noting that high-frequency traders often highly levered make up a large portion of all volume in all liquid markets ~70% in equity markets for instance. Would you call that grossly artificial? What is that volume number really telling us anyway in that case? The major players holding long-term positions in the FX markets are large banks (non-investment arm), central banks and corporations and unlike equity markets which can nearly slow to a trickle currency markets need to keep trading just for many of those corporations/banks to do business. This kind of depth allows these brokers to even consider offering 400-to-1 leverage. I'm not suggesting that it is a good idea for these brokers, but the liquidity in currency markets is much deeper than their costumers.\"","What you were told isn't an absolute truth, so trying to counter something fundamentally flawed won't get you anywhere. For example: chinese midcap equities are up 20% this year, even from their high of 100%. While the BSE Sensex in India is down several percentage points on the year. Your portfolio would have lost money this year taking advice from your peers. The fluctuation in the rupees and remnibi would not have changed this fact. What you are asking is a pretty common area of research, as in several people will write their dissertation on the exact same topic every year, and you should be able to find various analysis and theories on the subject. But the macroeconomic landscape changes, a lot.","\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\"\"at market\"\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,100@180.03), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\"\"limit up\"\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \"\"market impact\"\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\"","\"You might want to read about about the Coase Theorem. \"\"In law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining.\"\" This is similar to what you are asking. Each country has an endowment of gold, and they must create a set amount of money to represent their endowment of gold. This will establish an exchange rate. If I have 5 tons of gold and you have 5 tons, and I print 10 dollars and you print 20, then one of my dollars is worth two of your dollars. Thus, the amount of money is not relevant- it's the exchange rate between the countries. If all the nations know each other's gold endowment, then we will have a perfect exchange rate. If we don't, then currency printing will vary but arbitrage should drive it to an accurate price. Gold and diamonds are both valuable in part due to scarcity, but gold has been used as a measure of value because it's been historically used as a medium of exchange. People just realized that swapping paper was safer and cheaper than physically transporting gold, but the idea of gold as a measure of value is present because \"\"that's how it's always been.\"\" Nobody \"\"creates/supervises\"\" these procedures, but organizations like the IMF, ECB, Fed Reserve, etc implement monetary policy to regulate the money supply and arbitrage drives exchange rates to fair values.\"","\"Well there are a couple reasons that people from various countries use specific currencies: 1. Government courts will recognize the settlement of contracts if they are paid with their local currency. So even if you wanted to be paid in Swiss Francs, your contracting partner can choose to pay you in USD instead. This artificially inflates the value of the local currency by increasing demand for it. 2. You're only allowed to pay your taxes in the local currency. This also artificially increases the demand for it, and it's the \"\"root value\"\" of the currency - people clamor for bits of green paper because if they don't have enough of it to pay off the tax man, they'll go to jail.\"","\"When trading Forex each currency is traded relative to another. So when shorting a currency you must go long another currency vs the currency you are shorting, it seems a little odd and can be a bit confusing, but here is the explanation that Wikipedia provides: An example of this is as follows: Let us say a trader wants to trade with the US dollar and the Indian rupee currencies. Assume that the current market rate is USD 1 to Rs.50 and the trader borrows Rs.100. With this, he buys USD 2. If the next day, the conversion rate becomes USD 1 to Rs.51, then the trader sells his USD 2 and gets Rs.102. He returns Rs.100 and keeps the Rs.2 profit (minus fees). So in this example the trader is shorting the rupee vs the dollar. Does this article add up all other currency crosses to get the 'net' figure? So they don't care what it is depreciating against? This data is called the Commitment of Traders (COT) which is issued by the Commodity Futures Trading Commission (CFTC) In the WSJ article it is actually referring to Forex Futures. In an another article from CountingPips it explains a bit clearer as to how a news organization comes up with these type of numbers. according to the CFTC COT data and calculations by Reuters which calculates the dollar positions against the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc. So this article is not talking about futures but it does tell us they got data from the COT and in addition Reuters added additional calculations from adding up \"\"X\"\" currency positions. No subscription needed: Speculators Pile Up Largest Net Dollar Long Position Since June 2010 - CFTC Here is some additional reading on the topic if you're interested: CFTC Commitment of the Traders Data – COT Report FOREX : What Is It And How Does It Work? Futures vs. Forex Options Forex - Wiki\"","\"Does some official tell the Foreign Exchange the the new exchange rate for the yuan is 0.98 * the current exchange rate? For China (and other countries with fixed/controlled exchange rates) - that's exactly how it happens. Does it just print more? This is the way to go for fully convertible currencies (like the USD, EUR, GBP, and handful of others, there're about 20 in the world). Flood the market and as with any commodity - flooding the market leads to a price drop. Obviously \"\"just print more\"\" is much harder to do than picking up the phone and saying \"\"Now you're buying/selling dollars at this price and if you don't I'll have you executed\"\".\"","\"At the most fundamental level, every market is comprised of buyers and selling trading securities. These buyers and sellers decide what and how to trade based on the probability of future events, as they see it. That's a simple statement, but an example demonstrates how complicated it can be. Picture a company that's about to announce earnings. Some investors/traders (from here on, \"\"agents\"\") will have purchased the company's stock a while ago, with the expectation that the company will have strong earnings and grow going forward. Other agents will have sold the stock short, bought put options, etc. with the expectation that the company won't do as well in the future. Still others may be unsure about the future of the company, but still expecting a lot of volatility around the earnings announcement, so they'll have bought/sold the stock, options, futures, etc. to take advantage of that volatility. All of these various predictions, expectations, etc. factor into what agents are bidding and asking for the stock, its associated derivatives, and other securities, which in turn determines its price (along with overall economic factors, like the sector's performance, interest rates, etc.) It can be very difficult to determine exactly how markets are factoring in information about an event, though. Take the example in your question. The article states that if market expectations of higher interest rates tightened credit conditions... In this case, lenders could expect higher interest rates in the future, so they may be less willing to lend money now because they expect to earn a higher interest rate in the future. You could also see this reflected in bond prices, because since interest rates are inversely related to bond prices, higher interest rates could decrease the value of bond portfolios. This could lead agents to sell bonds now in order to lock in their profits, while other agents could wait to buy bonds because they expect to be able to purchase bonds with a higher rate in the future. Furthermore, higher interest rates make taking out loans more expensive for individuals and businesses. This potential decline in investment could lead to decreased revenue/profits for businesses, which could in turn cause declines in the stock market. Agents expecting these declines could sell now in order to lock in their profits, buy derivatives to hedge against or ride out possible declines, etc. However, the current low interest rate environment makes it cheaper for businesses to obtain loans, which can in turn drive investment and lead to increases in the stock market. This is one criticism of the easy money/quantitative easing policies of the US Federal Reserve, i.e. the low interest rates are driving a bubble in the stock market. One quick example of how tricky this can be. The usual assumption is that positive economic news, e.g. low unemployment numbers, strong business/residential investment, etc. will lead to price increases in the stock market as more agents see growth in the future and buy accordingly. However, in the US, positive economic news has recently led to declines in the market because agents are worried that positive news will lead the Federal Reserve to taper/stop quantitative easing sooner rather than later, thus ending the low interest rate environment and possibly tampering growth. Summary: In short, markets incorporate information about an event because the buyers and sellers trade securities based on the likelihood of that event, its possible effects, and the behavior of other buyers and sellers as they react to the same information. Information may lead agents to buy and sell in multiple markets, e.g. equity and fixed-income, different types of derivatives, etc. which can in turn affect prices and yields throughout numerous markets.\"","\"First, note that a share represents a % of ownership of a company. In addition to the right to vote in the management of the company [by voting on the board of directors, who hires the CEO, who hires the VPs, etc...], this gives you the right to all future value of the company after paying off expenses and debts. You will receive this money in two forms: dividends approved by the board of directors, and the final liquidation value if the company closes shop. There are many ways to attempt to determine the value of a company, but the basic theory is that the company is worth a cashflow stream equal to all future dividends + the liquidation value. So, the market's \"\"goal\"\" is to attempt to determine what that future cash flow stream is, and what the risk related to it is. Depending on who you talk to, a typical stock market has some degree of 'market efficiency'. Market efficiency is basically a comment about how quickly the market reacts to news. In a regulated marketplace with a high degree of information available, market efficiency should be quite high. This basically means that stock markets in developed countries have enough traders and enough news reporting that as soon as something public is known about a company, there are many, many people who take that information and attempt to predict the impact on future earnings of the company. For example, if Starbucks announces earnings that were 10% less than estimated previously, the market will quickly respond with people buying Starbucks shares lowering their price on the assumption that the total value of the Starbucks company has decreased. Most of this trading analysis is done by institutional investors. It isn't simply office workers selling shares on their break in the coffee room, it's mostly people in the finance industry who specialize in various areas for their firms, and work to quickly react to news like this. Is the market perfectly efficient? No. The psychology of trading [ie: people panicking, or reacting based on emotion instead of logic], as well as any inadequacy of information, means that not all news is perfectly acted upon immediately. However, my personal opinion is that for large markets, the market is roughly efficient enough that you can assume that you won't be able to read the newspaper and analyze stock news in a way better than the institutional investors. If a market is generally efficient, then it would be very difficult for a group of people to manipulate it, because someone else would quickly take advantage of that. For example, you suggest that some people might collectively 'short AMZN' [a company worth half a trillion dollars, so your nefarious group would need to have $5 Billion of capital just to trade 1% of the company]. If someone did that, the rest of the market would happily buy up AMZN at reduced prices, and the people who shorted it would be left holding the bag. However, when you deal with smaller items, some more likely market manipulation can occur. For example, when trading penny stocks, there are people who attempt to manipulate the stock price and then make a profitable trade afterwards. This takes advantage of the low amount of information available for tiny companies, as well as the limited number of institutional investors who pay attention to them. Effectively it attempts to manipulate people who are not very sophisticated. So, some manipulation can occur in markets with limited information, but for the most part prices are determined by the 'market consensus' on what the future profits of a company will be. Additional example of what a share really is: Imagine your neighbor has a treasure chest on his driveway: He gathers the neighborhood together, and asks if anyone wants to buy a % of the value he will get from opening the treasure chest. Perhaps it's a glass treasure chest, and you can mostly see inside it. You see that it is mostly gold and silver, and you weigh the chest and can see that it's about 100 lbs all together. So in your head, you take the price of gold and silver, and estimate how much gold is in the chest, and how much silver is there. You estimate that the chest has roughly $1,000,000 of value inside. So, you offer to buy 10% of the chest, for $90k [you don't want to pay exactly 10% of the value of the company, because you aren't completely sure of the value; you are taking on some risk, so you want to be compensated for that risk]. Now assume all your neighbors value the chest themselves, and they come up with the same approximate value as you. So your neighbor hands out little certificates to 10 of you, and they each say \"\"this person has a right to 10% of the value of the treasure chest\"\". He then calls for a vote from all the new 'shareholders', and asks if you want to get the money back as soon as he sells the chest, or if you want him to buy a ship and try and find more chests. It seems you're all impatient, because you all vote to fully pay out the money as soon as he has it. So your neighbor collects his $900k [$90k for each 10% share, * 10], and heads to the goldsmith to sell the chest. But before he gets there, a news report comes out that the price of gold has gone up. Because you own a share of something based on the price of gold, you know that your 10% treasure chest investment has increased in value. You now believe that your 10% is worth $105k. You put a flyer up around the neighborhood, saying you will sell your share for $105k. Because other flyers are going up to sell for about $103-$106k, it seems your valuation was mostly consistent with the market. Eventually someone driving by sees your flyer, and offers you $104k for your shares. You agree, because you want the cash now and don't want to wait for the treasure chest to be sold. Now, when the treasure chest gets sold to the goldsmith, assume it sells for $1,060,000 [turns out you underestimated the value of the company]. The person who bought your 10% share will get $106k [he gained $2k]. Your neighbor who found the chest got $900k [because he sold the shares earlier, when the value of the chest was less clear], and you got $104k, which for you was a gain of $14k above what you paid for it. This is basically what happens with shares. Buy owning a portion of the company, you have a right to get a dividend of future earnings. But, it could take a long time for you to get those earnings, and they might not be exactly what you expect. So some people do buy and sell shares to try and earn money, but the reason they are able to do that is because the shares are inherently worth something - they are worth a small % of the company and its earnings.\"","There are no flat fees but typically banks and money exchangers will use a the current market rate, up to the minute for some powerful exchangers. They then add a little on top depending on many variables. Those variables can be related to the quantity of currency that organization holds, the average amount they hold, the market trend for that currency, the stability of the currency, the location of that currency exchange, etc. As for the one stop shop for currency exchange providers, you can try moneysupermarket.com Hope that helps.","Have an upvote. I don't really understand the issue of money competition. There really isn't anything stopping me from putting my wealth in any other currency, or any other store of value for that matter (gold, stocks, bonds, lollipops, prison cigarettes). The value of a domestic currency is affected by the relative value of these others.","There are many things that can make a company's share price go up or down. Generally, over the long term, the more consistently profitable a company is the more its share price will go up. However, there are times when a company may not be making any profits yet but its share price still goes up. This can be due to forecasts that the company will start making profits in the near future. Sometimes a company may report increased profits from the previous year but makes less than what the market was expecting it to make. This can cause its share price to fall, as the market is disappointed in the results. In the shorter term greed, fear and speculation can make a company's share price move irrationally. When you think the share price should be going up it suddenly falls, and Vis-versa. When interest rates are low, companies with higher dividend yields (compared to bank account interest rates) become high in demand and their shares generally go up in price. As the share price goes up the dividend yield will be reduced unless the company continues to increase the dividend it distributes to shareholders. When interest rates start to rise these companies become less favourable as they are seen as higher risk comparable to similar returns from having one's money in the safety of the bank. This can cause the share prices to fall. These are just some of the reasons that make a company's share price move up or down. As humans are an irrational bunch often ruled by emotions, sometimes the reasons share prices move in a particular direction can be quite confusing, but that is the nature of the financial markets.","The mechanism of supply and demand is imperfect. Producers don't know exactly how many purchasers/consumers for a good there are. Some goods, by their nature, are in short supply, and some are plentiful. The process of price discovery is one where (in a nominally free market) producers and purchasers make offers and counter-offers to assess what the price should be. As they do this the historical price changes, usually floating around some long-term average. As it goes up, we experience inflation. As it goes down, deflation. However, there isn't a fixed supply of producers and purchasers, so as new ones arrive and old ones leave, this too has an impact on supply and prices. Money (either in electronic or physical form) needs to be available to reflect the transactions and underpin the economy. Most central banks (at least in more established economies) aim for inflation of 2-4% by controlling the availability of money and the cost of borrowing new money. There are numerous ways they can do this (printing, issuing bonds, etc.). The reason one wants some degree of inflation is because employees will never accept a pay cut even when one would significantly improve the overall economy. Companies often decrease their prices in order to match lower demand, but employees don't usually accept decreased wages for decreased labour demand. A nominal degree of overall money inflation therefore solves this problem. Employees who get a below-inflation wage increase are actually getting a wage cut. Supply and demand must be matched and some inflation is the inevitable consequence of this.","\"I can, but it takes a significant amount of time. I'll do a short version which unfortunatley might leave more holes than you like. Basically, traders don't want to barter because it is hard to find the person with precisely the goods you want who wants to trade for the goods you have. Thus the need for \"\"coupons\"\" that represent value in a marketplace. Then you need to decide who gets to create coupons. If too many can issue them, problems arise, and no one trusts the coupons will be good later. Eventually you want one large bank/nation/trader to be able to issue them so everyone has the same level of trust in them, and you don't have the economic inefficiencies of many coupon issuers. Next, the number of coupons needs to be enough to facilitate trade. If the amount of trade increases a lot, and the number of coupons doesn't increase similarly they become worth more, and people start to hoard them. This causes deflation, which causes less investment, which causes less growth, which hurts everyone in the long run. If there are too many coupons added, this causes inflation, which causes people to spent them quicker instead of holding them. For reasons I won't cover here slight, predictable inflation is much better than deflation, so remember inflation is slightly preferred. Note that inflation is often caused not by the number of coupons but by external price changes. Now, for a modern economy to do well, somone has to watch the economy, measure it carefully, and add/subtract coupons into the system as needed. Coupons, like all money, have no real value (whatever that means), but only have value because the holder expects to be able to trade them *later* for goods and services. You cannot eat coupons, use them for shelter (usually!), or wear them, but you want to trade them for such needs. The same is true for paper money, gold, stones, or almost whatever money system one uses. Money in all these forms is merely an IOU tradable for future goods. The Fed is tasked (among other things) with making sure there is precisely enough coupons in the economy to keep trade functioning as well as possible. This is very hard to do since there are external and internal shocks to an economy (think disaster, foreign govts shutting off resources, rapid changes in people's tastes, etc.). Central banks such as the Fed need to be independent of political control, since empirical evidence has shown that politicians tend to add more money to the system than is needed, because the short term gains give them votes, but the long term consequences (rapid inflation, unemployment, lower economic growth) are bad for society. This is why the Fed is largely out of congressional control, and large amounts of empirical evidence across hundreds of years and dozens of cultures shows this to be good. Note: another function of the Fed is to be a lender of last resort to help prevent bank panics that were widespread in the 18th and early 19th century, something that none of us now remember, but it was a real problem. I'll skip that part for now. So now we're at the point where the Fed needs to add/subtract coupons from society. To do this part justice takes significant time to cover all the reasons why various rules are in place (banking reserve requirements, for example), and you cannot learn it from one pass of reading. But I'll try. Instead of being like the majority of internet fools that rail against the system, try to learn the *why* of all this, and you'll be much wiser and understand that it is all a pretty good system. One method they use is the interbank lending rate. Banks have a reserve requirement, which is the ratio of coupons they need to have on hand as a ratio compared to the total coupons depositors lent them. This is usually around 1:10. The amount deposited that they can lend goes to business loans, school loans, mortgage loans, etc., and helps economies grow. Now when a bank on a given day falls short due to too many withdrawals, other banks (or the Fed) offers an overnight loan to meet reserve requirements, and the Fed sets the interest rate, which in turn drives other interest rates in the system. This does not change the money supply very much. Secondly, the Fed sets the reserve requirement, which vastly can change the amount of money available to society. But they change this rate so rarely (all the historical data is on the St. Loius Fed site, among others) that it is not usually an issue. I'll explain below how this can drastically change the money supply though the money multiplier. Thirdly, and this is the part the poster above seems upset about, they conduct open market operations. This is the primary means by which the Fed exercises control over the number of coupons in play. The government, like businesses, like individuals, often needs to borrow money, in theory to invest in wise causes like infrastructure or perhaps money making enterprises such as technology investmeny (and I know what they often use the money for causes many to complain). The government, like companies, offers the sale of various contracts such as bonds to investors, who want a place to park some accumulated coupons for safety, and they get a return plus some interest. So the government sells bonds on the open market to investors, banks, pensions, foreign governments, basically to whomever wishes to purchase them at the market rate, and the government, like many individuals and banks, uses these loans to perform day to day functioning and possible smooth out volatility in spending needs. By law the Fed cannot purchase directly from Treasury. Now, once on the market, these bonds are traded, packaged, resold, etc., since they have inherent value, and since those owning them want to buy/sell them, perhaps before maturity date. This \"\"liquidity\"\" (ability to sell your goods) is necessary - fewer would purchase an item if they could not sell it when they desire. Thus bonds are bought, sold, and traded, and their prices fluctuate based on what the market thinks they are worth, just like any good. Now, the Fed can buy/sell these bonds on the *open market*, like anyone else. So when the Fed wishes to increase the money supply, they can buy bonds that are not \"\"spendable\"\" money and inject money into the system. Note they now hold a bond that had at the time of transaction the same value as the money they injected. Note investors freely bought these from Treasury, meaning the market thought at the time of purchase that this was a good invesement. It is *not* the government merely wishing more money into existance. It is market forces that require more money for trades and is selling goods from the marketplace of (presumably) equal value to the Fed. This increases liquidity, but takes valuable assets from circulation. When the Fed wishes to shrink the money supply, they sell these bonds back into circulation basically by offering better terms than Treasury. In fact, you can find graphs of the Fed operations and see how every December they inject money for more Christmas shpping (need more coupons for more trade) and every January they extract some. So open market transactions, buying and selling goods at market prices in the marketplace along with other traders, is how the Fed injects and removes money from the money supply. This is the primary mechanism that the Fed uses to control the number of coupons in the economy. Finally, a little about reserve requirements and the money multiplier, since it affects so much of the number of coupons in play. This also I must simplify drastically. Each bank needs to hold 1/10 of all deposits in cash. The rest can be lent, which lands in another bank, which again can be lent, etc... Thus each $1 deposited can result in loans totalling 9/10 + (9/10)^2 + (9/10)^3 +... = 9 more dollars. Many people claim that banks are printing money, which is nonsense, since each also has an equal debt to pay to the person they borrowed from. When all loans are paid back there is no net money gain. However, this allows for each $1 the Fed injects by buying bonds for there to be up to $9 in the economy, *if banks all loan to the fullest extent*. Banks tend to want to loan since loaned money makes them profit. Banks used to loan too much and runs on the banks caused significant problems, which is why laws were made to require *all* banks to have the same reserve requirement. Now, when banks get scared and stop loaning, this 9 fold multiplier dries up, and the Fed has much less inpact on being able to target the proper number of coupons to keep the economy smooth. During the recent crash when banks stopped loaning, as each dollar was paid back on debts, there was significant shrinkage of available money for transactions, and this kills the economy. This is the \"\"liquidity crisis\"\". Hope this helps. As I said, this is vastly simplified and I cannot go into all the reasons and historical items needed to understand it fully. It is a vastly complex (and necessarily so) and takes significant study to grasp the genius of it. It's similar to not being able to understand nuances of particle physics in one go, but as you study and work at it you see *why* things go as they do, and you learn all the failed methods (the gold standard is one example) that were thrown out for many good reasons. Cheers.\"","\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (such as nationalising businesses) or general instability / scarcity. The governments act to manage that uncertainty by limiting the availability of foreign exchange and pegging the exchange rate. Since there is an inadequate supply of trusted foreign currency people turn to informal exchanges in order to hedge their currency risk. This creates a negative feedback loop. People in government who have access to foreign exchange start to trade on informal markets, pocketing the difference in the official and unofficial rates. The increasing gap between the two rates drives increasing informal market exchange and can result in speculative bubbles. Driving instability (or economic contradiction) is that the massive and increasing difference between the official and market exchange rates becomes a powerful form of rent for government officials. This drives further state-led rent-seeking behaviour and causes the economy to become even more unstable. If you're interested in a more formal academic study of how such parallel markets in currency arise, \"\"Zimbabwe’s Black Market for Foreign Exchange\"\" by Albert Makochekanwa at the University of Pretoria is a useful source.\"","I think it depends where you live in the world, but I guess the most common would be: Major Equity Indices I would say major currency exchange rate: And have a look at the Libors for USD and EUR. I guess the intent of the question is more to see how implicated you are in the daily market analysis, not really to see if you managed to learn everything by heart in the morning.","\"This is a complicated subject, because professional traders don't rely on brokers for stock quotes. They have access to market data using Level II terminals, which show them all of the prices (buy and sell) for a given stock. Every publicly traded stock (at least in the U.S.) relies on firms called \"\"market makers\"\". Market makers are the ones who ultimately actually buy and sell the shares of companies, making their money on the difference between what they bought the stock at and what they can sell it for. Sometimes those margins can be in hundreds of a cent per share, but if you trade enough shares...well, it adds up. The most widely traded stocks (Apple, Microsoft, BP, etc) may have hundreds of market makers who are willing to handle share trades. Each market maker sets their own price on what they'll pay (the \"\"bid\"\") to buy someone's stock who wants to sell and what they'll sell (the \"\"ask\"\") that share for to someone who wants to buy it. When a market maker wants to be competitive, he may price his bid/ask pretty aggressively, because automated trading systems are designed to seek out the best bid/ask prices for their trade executions. As such, you might get a huge chunk of market makers in a popular stock to all set their prices almost identically to one another. Other market makers who aren't as enthusiastic will set less competitive prices, so they don't get much (maybe no) business. In any case, what you see when you pull up a stock quote is called the \"\"best bid/ask\"\" price. In other words, you're seeing the highest price a market maker will pay to buy that stock, and the lowest price that a market maker will sell that stock. You may get a best bid from one market maker and a best ask from a different one. In any case, consumers must be given best bid/ask prices. Market makers actually control the prices of shares. They can see what's out there in terms of what people want to buy or sell, and they modify their prices accordingly. If they see a bunch of sell orders coming into the system, they'll start dropping prices, and if people are in a buying mood then they'll raise prices. Market makers can actually ignore requests for trades (whether buy or sell) if they choose to, and sometimes they do, which is why a limit order (a request to buy/sell a stock at a specific price, regardless of its current actual price) that someone places may go unfilled and die at the end of the trading session. No market maker is willing to fill the order. Nowadays, these systems are largely automated, so they operate according to complex rules defined by their owners. Very few trades actually involve human intervention, because people can't digest the information at a fast enough pace to keep up with automated platforms. So that's the basics of how share prices work. I hope this answered your question without being too confusing! Good luck!\"","A currency that is strong right now is one that is expensive for you to buy. The perfect one would be a currency that is weak now but will get stronger; the worst currency is one that is strong today and gets weak. If a currency stays unchanged it doesn't matter whether it is weak or strong today as long as it doesn't get weaker / stronger. (While this advice is correct, it is useless for investing since you don't know which currencies will get weaker / stronger in the future). Investing in your own currency means less risk. Your local prices are usually not affected by currency change. If you safe for retirement and want to retire in a foreign country, you might consider in that country's currency.",">IOW, everyone is perfectly free to instantaneously decide that a dollar is worth only 1/1,000,000,000th of an orange, and oranges would instantly cost a billion dollars. Oranges cost less than that not because the government sets the price of oranges, but purely because that's what the market agrees to. This shows a profound misunderstanding of how fiat currencies work. The demand for fiat currencies comes from the fact they are necessary to pay taxes and debts. Other currencies/commodities will not be recognized as settlement of debts in court disputes, so they would first need to be sold onto the market in exchange for the fiat currency. Individuals can't simply *decide* what the relative value of certain goods and services are. The market does that, collectively via voluntary trade. >I'm explaining internal combustion for a 5-year-old, and you're calling it inaccurate and misleading because it doesn't address the sociological implications of American car-culture. Hahah, you're confusing the oil for the gasoline!","Don't really know much about futures but I'll give you a couple of options: Assuming that you are just looking around right now about currency investing, are you sure (I mean, really sure) that you want to do it?","\"Relative changes in rates are significant. Why? Exchange rates encourage cross-border trade. For example, I live in an area that is now popular with Canadian tourists, mostly due to the favorable exchange rates. Changes in exchange rates between trading partners can affect trade balance as well. The US \"\"strong dollar\"\" policy made US exports expensive and imports cheaper, which encouraged more imports.\""],"string":"[\n \"\\\"Q: How do currency markets work? A: The FX (foreign exchange) market works very much like the stock market where potential buying parties bid $Y of country 1's currency to buy $1 in country 2's currency. Potential selling parties sell (ask) $1 of country 2's currency for $Y of country 1's currency. Like the stock market, there are also a swaps, futures and options in this market. Q: What factors are behind why currencies go up or down? A: Just like any open market, currencies go up and down based on supply and demand. Many factors affect the supply and demand of a particular currency. Some were listed well by the other posts. Q: What roles do governments, central banks, institutions, and traders have in the process? A: It's common practice that gov'ts intervene to \\\"\\\"control\\\"\\\" the value of currencies. For example, although it's not general public knowledge, the Canadian gov't is actively purchasing up US dollars in the FX market in an effort to stop the US/Canadian exchange rate from dropping further. This has dramatic economic consequences for the Canadian ecomony if the Canadian dollar were to strengthen too far and too quickly.\\\"\",\n \"The fiat currency is the basis for currency markets - that is, currency that is not made of precious metals. The factors that influence what the value of a fiat currency are the state of the country's economy, what the gov't says the value should be, their fiscal policies, as well as what the currency is trading at. And what the currency is trading at is a product of these factors as well as the typical factors which would affect any stock trading. eHow has a great outline, here, which describes them.\",\n \"Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.)\",\n \"\\\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless there's someone willing to sell you Euros for dollars, you can't get any. There are millions of people trying to exchange currency all over the world. If more want to buy USD, than that demand will positively influence the price of the USD (as measured in Euros). If more people want to buy Euros, well, vice versa. There are so many of these transactions globally, and the number of people and the nature of these transactions change so continuously, that the prices (exchange rates) for these currencies fluctuate continuously and smoothly. Demand is also impacted by what people want to buy and how much they want to buy it. If people generally want to invest their savings in stocks instead of dollars, i.e., if lots of people are attempting to buy stocks (by exchanging their dollars for stock), then the demand for the dollar is lower and the demand for stocks is higher. When the stock market crashes, you'll often see a spike in the exchange rate for the dollar, because people are trying to exchange stocks for dollars (this represents a lot of demand for dollars). Then there's \\\"\\\"Supply:\\\"\\\" It may seem like there are a fixed number of bills out there, or that supply only changes when Bernanke prints money, but there's actually a lot more to it than that. If you're coming from Europe and want to buy some USD from the bank, well, how much USD does the bank \\\"\\\"have\\\"\\\" and what does it mean for them to have money? The bank gets money from depositors, or from lenders. If one person puts money in a deposit account, and then the bank borrows that money from the account and lends it to a home buyer in the form of a mortgage, the same dollar is being used by two people. The home buyer might use that money to hire a carpenter, and the carpenter might put the dollar back into a bank account, and the same dollar might get lent out again. In economics this is called the \\\"\\\"multiplier effect.\\\"\\\" The full supply of money being used ends up becoming harder to calculate with this kind of debt and re-lending. Since money is something used and needed for conducting of transactions, the number of transactions being conducted (sometimes on credit) affects the \\\"\\\"supply\\\"\\\" of money. Demand and supply blur a bit when you consider people who hoard cash. If I fear the stock market, I might keep all my money in dollars. This takes cash away from companies who could invest it, takes the cash out of the pool of money being used for transactions, and leaves it waiting under my mattress. You could think of my hoarding as a type of demand for currency, or you could think of it as a reduction in the supply of currency available to conduct transactions. The full picture can be a bit more complicated, if you look at every way currencies are used globally, with swaps and various exchange contracts and futures, but this gives the basic story of where prices come from, that they are not set by some price fixer but are driven by market forces. The bank just facilitates transactions. If the last price (exchange rate) is 1.2 Dollars per Euro, and the bank gets more requests to buy USD for Euros than Euros for USD, it adjusts the rate downwards until the buying pressure is even. If the USD gets more expensive, at some point fewer people will want to buy it (or want to buy products from the US that cost USD). The bank maintains a spread (like buy for 1.19 and sell for 1.21) so it can take a profit. You should think of currency like any other commodity, and consider purchases for currency as a form of barter. The value of currency is merely a convention, but it works. The currency is needed in transactions, so it maintains value in this global market of bartering goods/services and other currencies. As supply and demand for this and other commodities/goods/services fluctuate, so does the quantity of any particular currency necessary to conduct any of these transactions. A official \\\"\\\"basket of goods\\\"\\\" and the price of those goods is used to determine consumer price indexes / inflation etc. The official price of this particular basket of goods is not a fundamental driver of exchange rates on a day to day basis.\\\"\",\n \"The currency market, more often referred as Forex or FX, is the decentralized market through which the currencies are exchanged. To trade currencies, you have to go through a broker or an ECN. There are a lot's of them, you can find a (small) list of brokers here on Forex Factory. They will allow you to take very simple position on currencies. For example, you can buy EUR/USD. By doing so, you will make money if the EUR/USD rate goes up (ie: Euro getting stronger against the US dollar) and lose money if the EUR/USD rate goes down (ie: US dollar getting stronger against the Euro). In reality, when you are doing such transaction the broker: borrows USD, sell it to buy EUR, and place it into an Euro account. They will charge you the interest rate on the borrowed currency (USD) and gives you the interest and the bought currency (EUR). So, if you bought a currency with high interest rate against one with low interest rate, you will gain the interest rate differential. But if you sold, you will lose the differential. The fees from the brokers are likely to be included in the prices at which you buy and sell currencies and in the interest rates that they will charge/give you. They are also likely to gives you big leverage to invest far more than the money that you deposited in their accounts. Now, about how to make money out of this market... that's speculation, there are no sure gains about it. And telling you what you should do is purely subjective. But, the Forex market, as any market, is directed by the law of supply and demand. Amongst what impacts supply and demands there are: Also, and I don't want to judge your friends, but from experience, peoples are likely to tell you about their winning transaction and not about their loosing ones.\",\n \"Anything related to the central bank will have a large impact, as they are the ones who determine interest rates, and interest rates have a big effect on currency flows. GDP is also important, as when there is an economic slowdown it may result in the central bank reducing rates to boost economic activity. The opposite is also true, large increases in GDP may mean that an interest rate hike might be needed. Inflation data is also very important. Again, large changes in inflation either way may push the central bank towards changing rates. This data typically is in the form of CPI Note that each central bank is different. They all have specific mandates and specific pieces of economic data that they place emphasis on. The Federal Reserve as of late has closely been watching inflation data, especially wage inflation data, and employment. Significant deviations in these data points from whats expected by investors can greatly move the market. However, these specific factors are a little less important for, say, Mexico, which is mostly concerned with headline inflation. Read the statements issued by the central banks to find out whats important to them. Central banks also issue expectations for things like growth, CPI, etc. If these expectations are not met, it may result in a policy change, or at least talk of a policy change, at the next meeting of the central bank. Anticipating these policy changes and trading accordingly is one strategy to be a profitable forex trader Also, there are several forex news calendars online that indicate what is likely to be high impact news. These can be helpful starting out.\",\n \"\\\"According to Soros in \\\"\\\"The Alchemy of Finance\\\"\\\", exchange rates fluctuations are mostly influenced by: (sorry I do not have the quote here, and I am paraphrasing from the top of my head what I read about a week ago). I mention his point of view as he is one of the most successful hedge fund manager ever, proved his skills, and dealt a lot with currencies. This is not just theory as he actively used the above points when managing his fund (as explained in the book). What I find interesting is that, according to him, the fundamental reason (the balance of trade) is not the most influential. Speculation on future value of currencies is the most influential, and these can set trends that can last years. Also it is key to notice that Soros thought foreign exchange markets are \\\"\\\"wrong\\\"\\\" most of the time, just like he thought stock markets are \\\"\\\"wrong\\\"\\\" most of the time (a point on which Warren Buffet and Jim Rogers also agree from my understanding).\\\"\",\n \"\\\"The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to \\\"\\\"buy\\\"\\\" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a \\\"\\\"basket\\\"\\\" of things they produce that another country will want, and a \\\"\\\"shopping list\\\"\\\" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency.\\\"\",\n \"It depends on the currency pair since it is much harder to move a liquid market like Fiber (EURUSD) or Cable (GBPUSD) than it is to move illiquid markets such as USDTRY, however, it will mostly be big banks and big hedge funds adjusting their positions or speculating (not just on the currency or market making but also speculating in foreign instruments). I once was involved in a one-off USD 56 million FX trade without which the hedge fund could not trade as its subscriptions were in a different currency to the fund currency. Although it was big by their standards it was small compared with the volumes we expected from other clients. Governments and big companies who need to pay costs in a foreign currency or receive income in one will also do this but less frequently and will almost always do this through a nominated bank (in the case of large firms). Because they need the foreign currency immediately; if you've ever tried to pay a bill in the US denominated in Dollars using Euros you'll know that they aren't widely accepted. So if I need to pay a large bill to a supplier in Dollars and all I have is Euros I may move the market. Similarly if I am trying to buy a large number of shares in a US company and all I have is Euros I'll lose the opportunity.\",\n \"Because we need energy in the form of oil. If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves. Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?\",\n \"The exchange rate between two currencies is simply the price that the most recent market participants were able to agree on, when trading. ie: if the USDCAD is 1.36, it's because the last trade that happened where someone bought 1 USD cost 1.36 CAD. There is no one person/organization which 'decides' the rate between two currencies. The rate moves you see is just the reality of money changing hands as people in various situations trade currencies for various reasons. Just like with stocks or any other market product, foreign exchange rates can fluctuate wildly based on many things. It is very difficult to forecast where rates will go, because the biggest changes in rates can often be unpredictable news events. For example, when Brexit happened, the value of the GBP plummeted relative to other currencies, because the market traders had less faith in the UK economy, and therefore weren't willing to pay as much to buy GBP. See more here: https://money.stackexchange.com/a/76482/44232. There is a very high level of risk in the foreign exchange market; for your sake, don't get involved in any trading that you do not well understand, first.\",\n \"currency's central bank or treasury/finance department speeches that can announce a significant change in policy. That includes: Particularly when it is a high level figure within the department such as the President or Prime Minister making the announcement. Macroeconomic stats: GeoPolitical considerations, such as: Economic calendars, such as ForexFactory and MyFxBook track planned economic news releases. Obviously, a coup d'etat or war declaration may not be well known in advance.\",\n \"\\\"From my limited experience with foreign exchange... Money is a commodity.. people buy it and sell it like other products.. if \\\"\\\"money\\\"\\\" is in demand the price goes up.. this is the case when a countries stocks are hot, and you need to purchase that countries currency to buy that stock... I've also seen the currency rise on news and speculation. Many years ago, I administered foreign receivables... My job was to settle letters of credit from Britain... I remember on one ocassion Margaret Thatcher said something to upset the markets.. her remark caused the price of the UK pound to fluctuate.\\\"\",\n \"Brilliant fact-based objective reality explanation of the world currency markets. I'm into bitcoin and physical gold investments (yeah, I know, it's like being gay and straight at the same time without being bi), may I ask you a few things later?\",\n \"The increase of currency value in relation to another is a critical determinant of the economic health. It plays an important part in the level of trade and affects the world’s free market economy. But, they also effect on smaller scale as they create an impact on the portfolio of investors. So, it is suggested that the investors should make their trades wisely keeping in mind the value of other currencies that might your trade. Also, you should check the news daily to get regular updates and be well-informed of any changes happening in the market\",\n \"\\\"Money is money because people believe it is money. By \\\"\\\"believe it is money\\\"\\\", I mean that they expect they will be able to turn it into useful goods or services (food, rent, houses, truckloads full of iron ore, mining equipment, massages at the spa, helicopter rides, iPads, greenhouses, income streams to support your future retirement, etc). Foreign exchange rates change because people's ideas about how much useful goods or services they can get with various currencies change. For example: if the Zimbabwe government suddenly printed 10 times as much money as used to exist, you probably couldn't use that money to buy as much food at the Zimbabwe-Mart, so you wouldn't be willing to give people as many US-dollars (which can buy food at the US-Mart) for a Zimbabwe-dollar as you used to be able to. (It's not exactly that easy, because - for instance - food in the US is more useful to me than food in Zimbabwe. But people still move around all sorts of things, like oil, or agricultural products, or minerals, or electronics components.) The two main things that affect the value of a currency are the size of the economy that it's tied to (how much stuff there is to get), and how much of the currency there is / how fast it's moving around the economy (which tells you how much money there is to get it with). So most exchange rate shifts reflect a change in people's expectations for a regional economy, or the size of a money supply. (Also, Zimbabwe is doing much better now that it's ditched their own currency - they kept printing trillions of dollars' worth - and just trade in US dollars. Their economy still needs some work, but... better.)\\\"\",\n \"I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies.\",\n \"\\\"The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are \\\"\\\"weak\\\"\\\" and some \\\"\\\"strong\\\"\\\". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona.\\\"\",\n \"\\\"Feel free to educate man. Everything I can find says the same thing. [Investopedia](http://www.investopedia.com/ask/answers/100314/what-are-key-factors-cause-market-go-and-down.asp) >If there are a greater number of buyers than sellers (more demand), the buyers bid up the prices of the stocks to entice sellers to get rid of them. Conversely, a larger number of sellers bids down the price of stocks hoping to entice buyers to purchase. Yes, if a company is performing well, you might find that more people want to buy then sale. That would cause it to go up. But if no one wants to buy, it doesn't matter how well the company is doing. I mean really, how would that work? Someone in the company notices they had more sales today then yesterday, email someone on wallstreet and they just mouse wheel the stock price up to something higher? Say the stock is $1.00 right now. But the lowest buy order is $.90. and the highest sale order is $1.10. (I guess there is some math there making is $1.) As soon as someone says, yeah. I'll sale at 90 cents, it'll go down. If someone says yeah, I'll buy at $1.10 it'll go up. I'm sure there is more to it than that. But everything I can find. It 100% has to have people more people wanting to buy then sale for it to go up. If more want to sale then buy, it'll go down. But hey, if this is way off base. Go ahead and fill me in. I'm open to CMV. This was all found after a short amount of time researching [\\\"\\\"What makes stock prices go up?\\\"\\\"](https://www.google.com/search?q=What+makes+stock+prices+go+up%3F&oq=What+makes+stock+prices+go+up%3F&gs_l=psy-ab.3..0i71k1l4.43421.43421.0.43882.0.0.0.0.0.0.0.0..0.0....0...1.1.64.psy-ab..0.0.0....0.6Crfejzb3XY)\\\"\",\n \"From Indian context, there are a number of factors that are influencing the economic condition and the exchange rate, interest rate etc. are reflection of the situation. I shall try and answer the question through the above Indian example. India is running a budget deficit of 4 odd % for last 6-7 years, which means that gov.in is spending more than their revenue collection, this money is not in the system, so the govt. has to print the money, either the direct 4% or the interest it has to pay on the money it borrows to cover the 4% (don't confuse this with US printing post 2008). After printing, the supply of INR is more compared to USD in the market (INR is current A/C convertible), value of INR w.r.t. USD falls (in simplistic terms). There is another impact of this printing, it increases the money supply in domestic market leading to inflation and overall price rise. To contain this price rise, Reserve Bank of India (RBI) increases the interest rates and increases Compulsory Reserve Ratio (CRR), thus trying to pull/lock-up money, so that overall money supply decreases, but there is a limit to which RBI can do this as overall growth rate keeps falling as money is more expensive to borrow to invest. The above (in simplistic term) how this is working. However, there are many factors in economy and the above should be treated as it is intended to, a simplistic view only.\",\n \"Look for unsustainable policies and actions by policy makers, both before and possibly during, when looking at the ForEx markets. Consider some examples: Each of those events could be seen in the growing unsustainability of local policies. ForEx markets and local policies can appear to stay on an unsustainable path for a long time, but equilibrium will force itself on everything in the long run. In two of the above cases, the initial response wasn't enough to offset the mess, and more and more intervention had to be done, only making matters worse. When you know how unsustainable policies are and how big the corrections need to be, you can quickly ascertain whether an action by policy makers will be enough.\",\n \"Rates are arrived at by the cumulative buying and selling on the foreign exchange market, much the same way that stock prices are arrived at. If there are more people wanting to buy dollars with euros, EUR/USD goes down. If more people want to buy euros with dollars, then EUR/USD goes up. The initial rate was about $1.18 per euro when it began trading on January 1st, 1999. It replaced the European Currency Unit at that time, which was a weighted basket of currencies of (more or less) the participating countries. You're correct about the printing press in the US and other countries. The exchange rates do reflect in part how much of a relative workout those printing presses get.\",\n \"Many people trade the currency markets via brokers who have developed online apps with live forex prices and many currency pairs. You can trade on your phone, iPad or PC / Mac.\",\n \"Today the rates are arrived simply on the basis of demand and supply. Historically rates were pegged to Gold, when all currencies were printed depending on the Gold reserves. So if one country printed 100 units of currency of a 1gm of gold and other country 10 units of currency for 1 gm of gold, the rate would be 1:10. However In the seventies with shortages of Gold and other reasons, USD became the default standard, so the rate started being pegged to the USD reserves the countries started maintaining. However later in the early eighties, US backing out, the rate purely started getting pegged to market demand and supply. So for most currencies there was a default rate to begin with and today its changed ... Incase of USD/EUR, the initial rate was determined by the weighted average of the currencies that it sought to replace. After that its been market supply and demand. Since most of the trade in international market is US denominated, largest being Oil, each country has created a huge reserves of USD. So technically if China were to bank half its USD denominated treasury bills, the USD would come crashing down, but then China itself would be at disadvantage as its value of USD its holding would become less and it cannot buy the same items. Hence all countries keep hording USD and this means US if they print more money, the value will not come down, because it that happens, all countries holding USD would loose their value of reserve. In essence a country can print as much as currency it wants if all(majority) its debts and trades are denominated in local currencies. This is 100% true for US and hence it can get away by printing money. This is also true to a large extent for Japan as bulk of its Debts are denominated in JPY.\",\n \"To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold. So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.\",\n \"\\\"It may seem weird but interest rates are set by a market. Risk is a very large component of the price that a saver will accept to deposit their money in a bank but not the only one. Essentially you are \\\"\\\"lending\\\"\\\" deposited cash to the bank that you put it in and they will lend it out at a certain risk to themselves and a certain risk to you. By diversifying who they lend to (corporations, home-buyers each other etc.) the banks mitigate a lot of the risk but lending to the bank is still a risky endeavour for the \\\"\\\"saver\\\"\\\" and the saver accepts a given interest rate for the amount of risk there is in having the money in that particular bank. The bank is also unable to diversify away all possible risk, but tries to do the best job it can. If a bank is seen to take bigger risks and therefore be in greater risk of failing (having a run on deposits) it must have a requisitely higher interest rates on deposits compared to a lower risk bank. \\\"\\\"Savers\\\"\\\" therefore \\\"\\\"shop around\\\"\\\" for the best interest rate for a given level of risk which sets the viable interest rate for that bank; any higher and the bank would not make a profit on the money that it lends out and so would not be viable as a business, any lower and savers would not deposit their money as the risk would be too high for the reward. Hence competition (or lack of it) will set the rate as a trade off between risk and return. Note that governments are also customers of the banking industry when they are issuing fixed income securities (bonds) and a good deal of the lending done by any bank is to various governments so the price that they borrow money at is a key determinant of what interest rate the bank can afford to give and are part of the competitive banking industry whether they want to be or not. Since governments in most (westernised) countries provide insurance for deposits the basic level of (perceived) risk for all of the banks in any given country is about the same. That these banks lend to each other on an incredibly regular basis (look into the overnight or repo money market if you want to see exactly how much, the rates that these banks pay to and receive from each other are governed by interbank lending rates called Libor and Euribor and are even more complicated than this answer) simply compounds this effect because it makes all of the banks reliant on each other and therefore they help each other to stay liquid (to some extent). Note that I haven't mentioned currency at all so far but this market in every country applies over a number of currencies. The way that this occurs is due to arbitrage; if I can put foreign money into a bank in a country at a rate that is higher than the rate in its native country after exchange costs and exchange rate risk I will convert all of my money to that currency and take the higher interest rate. For an ordinary individual's savings that is not really possible but remember that the large multinational banks can do exactly the same thing with billions of dollars of deposits and effectively get free money. This means that either the bank's interest rate will fall to a risk adjusted level or the exchange rate will move. Either of those moves will remove the potential for making money for nothing. In this case, therefore it is both the exchange rate risk (and costs) as well as the loan market in that country that set the interest rate in foreign currencies. Demand for loans in the foreign currency is not a major mover for the same reason. Companies importing from foreign entities need cash in foreign currencies to pay their bills and so will borrow money in other currencies to fulfil these operations which could come from deposits in the foreign currency if they were available at a lower interest rate than a loan in local currency plus the costs of exchange but the banks will be unwilling to loan to them for less than the highest return that they can get so will push up interest rates to their risk level in the same way that they did in the market before currencies were taken into account. Freedom of movement of foreign currencies, however, does move interest rates in foreign currencies as the banks want to be able to lend as much of currencies that are not freely deliverable as they can so will pay a premium for these currencies. Other political moves such as the government wanting to borrow large amounts of foreign currency etc. will also move the interest rate given for foreign currencies not just because loaning to the government is less risky but also because they sometimes pay a premium (in interest) for being able to borrow foreign currency which may balance this out. Speculation that a country may change its base interest rate will move short term rates, and can move long term rates if it is seen to be a part of a country's economic strategy. The theory behind this is deep and involved but the tl;dr answer would be the standard \\\"\\\"invisible hand\\\"\\\" response when anything market or arbitrage related is involved. references: I work in credit risk and got a colleague who is also a credit risk consultant and economist to look over it. Arbitrage theory and the repo markets are both fascinating so worth reading about!\\\"\",\n \"Forex is really not that volatile compared to other major asset classes like stocks and commodities. But still markets are generally unencumbered in the major pairs and therefore spikes in volatility can happen. Take what happened with the Swiss Franc a few years ago for example, or GBPUSD recently with news of Brexit. This is less the case with highly regulated currencies like the Chinese Yuan (CNY) Volatility is caused by excessive buy or sell pressure in relation to the available liquidity at the current price. This is usually caused by large buy or sell orders placed with interbank desks by institutions (often including other banks) and central banks. News can also sometimes have a dramatic impact and cause traders to adjust their prices significantly and very quickly.\",\n \"\\\"Supply and Demand, pure and simple! There are two basic forms of this - a change in the quantity demanded/supplied at any given price, and a true change in the amount of demand/supply itself. Please note that this can be distinct from the underlying change in the value of the company and/or its expected future cash flows, which are a function of both financial performance and future expectations. If more people want the stock that are willing to sell it at a given price at a given point in time, sellers will begin to offer the stocks at higher prices until the market is no longer willing to bear the new price, and vice versa. This will reduce the quantity of stocks demanded by buyers until the quantity demanded and the quantity supplied once again reach an equilibrium, at which point a transaction occurs. Because people are motivated to buy and sell for different reasons at different times, and because people have different opinions on a constant flow of new information, prices change frequently. This is one of the reasons why executives of a recent IPO don't typically sell all of their stock at once. In addition to legal restrictions and the message this would send to the market, if they flooded the market with additional quantities of stock supplied, all else being equal, since there is no corresponding increase in the quantity demanded, the price would drop significantly. Sometimes, the demand itself for a company's stock shifts. Unlike a simple change in price driven by quantity supplied versus quantity demanded, this is a more fundamental shift. For example, let's suppose that the current demand for rare earth metals is driven by their commercial applications in consumer electronics. Now if new devices are developed that no longer require these metals, the demand for them will fall, regardless of the actions of individual buyers and sellers in the market. Another example is when the \\\"\\\"rules of the game\\\"\\\" for an industry change dramatically. Markets are behavioral. In this sense prices are most directly driven by human behavior, which hopefully is based on well-informed opinions and facts. This is why sometimes the price keeps going up when financial performance decreases, and why sometimes it does not rise even while performance is improving. This is also why some companies' stock continues to rise even when they lose huge sums of money year after year. The key to understanding these scenarios is the opinions and expectations that buyers and sellers have of that information, which is expressed in their market behavior.\\\"\",\n \"\\\"If I really understood it, you bet that a quote/currency/stock market/anything will rise or fall within a period of time. So, what is the relationship with trading ? I see no trading at all since I don't buy or sell quotes. You are not betting as in \\\"\\\"betting on the outcome of an horse race\\\"\\\" where the money of the participants is redistributed to the winners of the bet. You are betting on the price movement of a security. To do that you have to buy/sell the option that will give you the profit or the loss. In your case, you would be buying or selling an option, which is a financial contract. That's trading. Then, since anyone should have the same technic (call when a currency rises and put when it falls)[...] How can you know what will be the future rate of exchange of currencies? It's not because the price went up for the last minutes/hours/days/months/years that it will continue like that. Because of that everyone won't have the same strategy. Also, not everyone is using currencies to speculate, there are firms with real needs that affect the market too, like importers and exporters, they will use financial products to protect themselves from Forex rates, not to make profits from them. [...] how the brokers (websites) can make money ? The broker (or bank) will either: I'm really afraid to bet because I think that they can bankrupt at any time! Are my fears correct ? There is always a probability that a company can go bankrupt. But that's can be very low probability. Brokers are usually not taking risks and are just being intermediaries in financial transactions (but sometime their computer systems have troubles.....), thanks to that, they are not likely to go bankrupt you after you buy your option. Also, they are regulated to insure that they are solid. Last thing, if you fear losing money, don't trade. If you do trade, only play with money you can afford to lose as you are likely to lose some (maybe all) money in the process.\\\"\",\n \"\\\"Without going into minor details, an FX transaction works essentially like this. Let's assume you have SEK 100 on your account. If you buy 100 USD/RUB at 1.00, then that transaction creates a positive cash balance on your account of USD 100 and a negative cash balance (an overdraft) of RUB 100. So right after the transaction (assuming there is not transaction cost), the \\\"\\\"net equity\\\"\\\" of your account is: 100 SEK + 100 USD - 100 RUB = 100 + 100 - 100 = 100 SEK. Let's say that, the day after, the RUB has gone down by 10% and the RUB 100 is now worth SEK 90 only. Your new equity is: 100 SEK + 100 USD - 100 RUB = 100 + 100 - 90 = 110 SEK and you've made 10%(*): congrats! Had you instead bought 100 SEK/RUB, the result would have been the same (assuming the USD/SEK rate constant). In practice the USD/SEK rate would probably not be constant and you would need to also account for: (*) in your example, the USD/RUB has gone up 10% but the RUB has gone down 9.09%, hence the result you find. In my example, the RUB has gone down 10% (i.e. the USD has gone up 11%).\\\"\",\n \"It's impossible to determine which event will cause a major shift for a certain currency pair. However, this does not mean that it's not possible to identify events that are important to the overall market sentiment and direction. There are numerous sites that provide a calendar for upcoming and past events and their impact which is most of the time indicated as low, medium and high. Such sites are: Edit: I would like to add to that, that while these are major market movers, you cannot forget that they mainly provide a certain direction for the market but that it's not always clear in which direction the market will go. A recent and prime example of a major event that triggered opposite effects of what you would expect, is the ECB meeting that took place the 3rd of December. Due to the fact that the market already priced in further easing by the ECB the euro strengthened instead of weakening compared to the dollar. This strengthening happened even though the ECB did in fact adjust the deposit by 10 base points to -0.30 % and increased the duration of the QE. Taking above example into consideration it's important to always remember that fundamentals are hard to grasp and that it will take a while to make it a second nature and become truly successful in this line of trading. Lastly, fundamentals are only a part of the complete picture. Don't lose sight of support and resistance levels as well as price action to determine when and how to enter a trade.\",\n \"\\\"As you say, the currency carry trade shouldn't work. The deluge of new cash into a high-interest currency should result in falling exchange rates. A November 2009 paper by Òscar Jordà and Alan Taylor of the University of California, Davis, may be offer one approach which is more stable. According to The Economist: They find that a refined carry-trade strategy—one that incorporates a measure of long-term value—produces more consistent profits and is less prone to huge losses than one that targets the highest yield. However, exchange rates, central bank interest rates, as well as money supply are all political as well as economic constructs. An economic driver for arbitrage may be offset by political will (such as US quantative easing) or even social malaise (Japanese continual low inward investment). I wouldn't go so far as calling the carry trade \\\"\\\"free money\\\"\\\" - currencies have proven far too unstable for that - but state interference in markets tends to be clearly telegraphed and a trader with nerves of steel may take advantage of it.\\\"\",\n \"Yes traders, living or algorithmic, are the only direct factors that can cause a change in the price of a marketable item. Traders can be affected by news, broken exchanges ;), emotional cycles, lunar cycles, time the trader goes to lunch (or a power cycle if you are an algo running on that unfortunate OS), anything.\",\n \"You’ve really got three or four questions going here… and it’s clear that a gap in understanding one component of how bonds work (pricing) is having a ripple effect across the other facets of your question. The reality is that everybody’s answers so far touch on various pieces of your general question, but maybe I can help by integrating. So, let’s start by nailing down what your actual questions are: 1. Why do mortgage rates (tend to) increase when the published treasury bond rate increases? I’m going to come back to this, because it requires a lot of building blocks. 2. What’s the math behind a bond yield increasing (price falling?) This gets complicated, fast. Especially when you start talking about selling the bond in the middle of its time period. Many people that trade in bonds use financial calculators, Excel, or pre-calculated tables to simplify or even just approximate the value of a bond. But here’s a simple example that shows the math. Let’s say we’ve got a bond that is issued by… Dell for $10,000. The company will pay it back in 5 years, and it is offering an 8% rate. Interest payments will only be paid annually. Remember that the amount Dell has promised to pay in interest is fixed for the life of the bond, and is called the ‘coupon’ rate. We can think about the way the payouts will be paid in the following table: As I’m sure you know, the value of a bond (its yield) comes from two sources: the interest payments, and the return of the principal. But, if you as an investor paid $14,000 for this bond, you would usually be wrong. You need to ‘discount’ those amounts to take into account the ‘time value of money’. This is why when you are dealing in bonds it is important to know the ‘coupon rate’ (what is Dell paying each period?). But it is also important to know your sellers’/buyers’ own personal discount rates. This will vary from person to person and institution to institution, but it is what actually sets the PRICE you would buy this bond for. There are three general cases for the discount rate (or the MARKET rate). First, where the market rate == the coupon rate. This is known as “par” in bond parlance. Second, where the market rate < the coupon rate. This is known as “premium” in bond parlance. Third, where the market rate > coupon rate. This is known as a ‘discount’ bond. But before we get into those in too much depth, how does discounting work? The idea behind discounting is that you need to account for the idea that a dollar today is not worth the same as a dollar tomorrow. (It’s usually worth ‘more’ tomorrow.) You discount a lump sum, like the return of the principal, differently than you do a series of equal cash flows, like the stream of $800 interest payments. The formula for discounting a lump sum is: Present Value=Future Value* (1/(1+interest rate))^((# of periods)) The formula for discounting a stream of equal payments is: Present Value=(Single Payment)* (〖1-(1+i)〗^((-n))/i) (i = interest rate and n = number of periods) **cite investopedia So let’s look at how this would look in pricing the pretend Dell bond as a par bond. First, we discount the return of the $10,000 principal as (10,000 * (1 / 1.08)^5). That equals $6,807.82. Next we discount the 5 equal payments of $800 as (800* (3.9902)). I just plugged and chugged but you can do that yourself. That equals $3,192.18. You may get slightly different numbers with rounding. So you add the two together, and it says that you would be willing to pay ($6,807.82 + $3,192.18) = $10,000. Surprise! When the bond is a par bond you’re basically being compensated for the time value of money with the interest payments. You purchase the bond at the ‘face value’, which is the principal that will be returned at the end. If you worked through the math for a 6% discount rate on an 8% coupon bond, you would see that it’s “premium”, because you would pay more than the principal that is returned to obtain the bond [10,842.87 vs 10,000]. Similarly, if you work through the math for a 10% discount rate on an 8% coupon bond, it’s a ‘discount’ bond because you will pay less than the principal that is returned for the bond [9,241.84 vs 10,000]. It’s easy to see how an investor could hold our imaginary Dell bond for one year, collect the first interest payment, and then sell the bond on to another investor. The mechanics of the calculations are the same, except that one less interest payment is available, and the principal will be returned one year sooner… so N=4 in both formulae. Still with me? Now that we’re on the same page about how a bond is priced, we can talk about “Yield To Maturity”, which is at the heart of your main question. Bond “yields” like the ones you can access on CNBC or Yahoo!Finance or wherever you may be looking are actually taking the reverse approach to this. In these cases the prices are ‘fixed’ in that the sellers have listed the bonds for sale, and specified the price. Since the coupon values are fixed already by whatever organization issued the bond, the rate of return can be imputed from those values. To do that, you just do a bit of algebra and swap “present value” and “future value” in our two equations. Let’s say that Dell has gone private, had an awesome year, and figured out how to make robot unicorns that do wonderful things for all mankind. You decide that now would be a great time to sell your bond after holding it for one year… and collecting that $800 interest payment. You think you’d like to sell it for $10,500. (Since the principal return is fixed (+10,000); the number of periods is fixed (4); and the interest payments are fixed ($800); but you’ve changed the price... something else has to adjust and that is the discount rate.) It’s kind of tricky to actually use those equations to solve for this by hand… you end up with two equations… one unknown, and set them equal. So, the easiest way to solve for this rate is actually in Excel, using the function =RATE(NPER, PMT, PV, FV). NPER = 4, PMT = 800, PV=-10500, and FV=10000. Hint to make sure that you catch the minus sign in front of the present value… buyer pays now for the positive return of 10,000 in the future. That shows 6.54% as the effective discount rate (or rate of return) for the investor. That is the same thing as the yield to maturity. It specifies the return that a bond investor would see if he or she purchased the bond today and held it to maturity. 3. What factors (in terms of supply and demand) drive changes in the bond market? I hope it’s clear now how the tradeoff works between yields going UP when prices go DOWN, and vice versa. It happens because the COUPON rate, the number of periods, and the return of principal for a bond are fixed. So when someone sells a bond in the middle of its term, the only things that can change are the price and corresponding yield/discount rate. Other commenters… including you… have touched on some of the reasons why the prices go up and down. Generally speaking, it’s because of the basics of supply and demand… higher level of bonds for sale to be purchased by same level of demand will mean prices go down. But it’s not ‘just because interest rates are going up and down’. It has a lot more to do with the expectations for 1) risk, 2) return and 3) future inflation. Sometimes it is action by the Fed, as Joe Taxpayer has pointed out. If they sell a lot of bonds, then the basics of higher supply for a set level of demand imply that the prices should go down. Prices going down on a bond imply that yields will go up. (I really hope that’s clear by now). This is a common monetary lever that the government uses to ‘remove money’ from the system, in that they receive payments from an investor up front when the investor buys the bond from the Fed, and then the Fed gradually return that cash back into the system over time. Sometimes it is due to uncertainty about the future. If investors at large believe that inflation is coming, then bonds become a less attractive investment, as the dollars received for future payments will be less valuable. This could lead to a sell-off in the bond markets, because investors want to cash out their bonds and transfer that capital to something that will preserve their value under inflation. Here again an increase in supply of bonds for sale will lead to decreased prices and higher yields. At the end of the day it is really hard to predict exactly which direction bond markets will be moving, and more importantly WHY. If you figure it out, move to New York or Chicago or London and work as a trader in the bond markets. You’ll make a killing, and if you’d like I will be glad to drive your cars for you. 4. How does the availability of money supply for banks drive changes in other lending rates? When any investment organization forms, it builds its portfolio to try to deliver a set return at the lowest risk possible. As a corollary to that, it tries to deliver the maximum return possible for a given level of risk. When we’re talking about a bank, DumbCoder’s answer is dead on. Banks have various options to choose from, and a 10-year T-bond is broadly seen as one of the least risky investments. Thus, it is a benchmark for other investments. 5. So… now, why do mortgage rates tend to increase when the published treasury bond yield rate increases? The traditional, residential 30-year mortgage is VERY similar to a bond investment. There is a long-term investment horizon, with fixed cash payments over the term of the note. But the principal is returned incrementally during the life of the loan. So, since mortgages are ‘more risky’ than the 10-year treasury bond, they will carry a certain premium that is tied to how much more risky an individual is as a borrower than the US government. And here it is… no one actually directly changes the interest rate on 10-year treasuries. Not even the Fed. The Fed sets a price constraint that it will sell bonds at during its periodic auctions. Buyers bid for those, and the resulting prices imply the yield rate. If the yield rate for current 10-year bonds increases, then banks take it as a sign that everyone in the investment community sees some sign of increased risk in the future. This might be from inflation. This might be from uncertain economic performance. But whatever it is, they operate with some rule of thumb that their 30-year mortgage rate for excellent credit borrowers will be the 10-year plus 1.5% or something. And they publish their rates.\",\n \"Sometimes the market has to be left alone. Too much interference of the policy makers to stabilize the falling market can actually result in a major crisis. Every change stabilises after sometime and it is also applicable in the Forex trading market. So, the eager investors should learn to have some patience and wait for the market to stabilise itself rather than make random predictions on the policies released by policy makers\",\n \"\\\"At any moment, the price is where the supply (seller) and demand (buyer) intersect. This occurs fast enough you don't see it as anything other than bid/ask. What moves it? News of a new drug, device, sandwich, etc. Earning release, whether above or below expectations, or even dead-on, will often impact the price. Every night, the talking heads try to explain the day's price moves. When they can't, they often report \\\"\\\"profit taking\\\"\\\" for a market drop, or other similar nonsense. Some moves are simple random change.\\\"\",\n \"\\\"All of the other answers here are accurate, but (I think) are missing the point as to the question, which rests on how Bonds work in the first place. The bond specifies a payback AMOUNT and DATE. Let's say it is $10,000 and one year from today. If you buy that today for $9900, your yield will be 1%. If you buy it today for $11,000, your yield will be less than 0% (please don't make me do the math - it's just under negative 1%). You might be willing to pay that 1% (rather than receive 1%) for the certainty that you will definitely get your money back. The combined actions of all the people who may be willing to pay a little more or a little less for the safety of a US Treasury Bond is what people call \\\"\\\"the Market.\\\"\\\" Market forces (generally, investor confidence) will drive the price up and down, which affects the yield. All the other stuff - coupons and inflation and whatnot - all of that only makes sense if you understand that you aren't buying a rate of return, you are buying a payback amount and date.\\\"\",\n \"If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands). Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market. 3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news. I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are].\",\n \"\\\"Switzerland is presumably where one moves the money in case of an apocalypse; although, they have lost some of that appeal now with the tax reporting to the EU and USA. Switzerland has a very old, stable banking industry, but this isn't the only appeal. Their reputation for safeguarding money, be it despot or Nazi, is most of the attraction. Low to no taxes is the second. Also, there isn't much financially illegal despite recent changes. Put that all together, and if a country is about to go to hell in handbasket because it borrowed too much or goes to war while Switzerland stays stable and very strict about paying depositors, those residents are going to try to move as much money to Switzerland as possible before its confiscated for one reason or another, sending the CHF up. Japan is a different duck. They have persistently ~0% inflation thus low nominal and real interest rates. With them, the so-called \\\"\\\"cash & carry trade\\\"\\\" or more ubiquitous \\\"\\\"carry trade\\\"\\\" dominates. Many investors choose to borrow in JPY to buy investments denominated in other currencies. If the countries of those other currencies are about to take their residents' money or go to war, putting money at jeopardy, the residents doing the carry trading will try to unwind their levered investments to reduce risk, sending the JPY up.\\\"\",\n \"\\\"This is my two cents (pun intended). It was too long for a comment, so I tried to make it more of an answer. I am no expert with investments or Islam: Anything on a server exists 'physically'. It exists on a hard drive, tape drive, and/or a combination thereof. It is stored as data, which on a hard drive are small particles that are electrically charged, where each bit is represented by that electric charge. That data exists physically. It also depends on your definition of physically. This data is stored on a hard drive, which I deem physical, though is transferred via electric pulses often via fiber cable. Don't fall for marketing words like cloud. Data must be stored somewhere, and is often redundant and backed up. To me, money is just paper with an amount attached to it. It tells me nothing about its value in a market. A $1 bill was worth a lot more 3 decades ago (you could buy more goods because it had a higher value) than it is today. Money is simply an indication of the value of a good you traded at the time you traded. At a simplistic level, you could accomplish the same thing with a friend, saying \\\"\\\"If you buy lunch today, I'll buy lunch next time\\\"\\\". There was no exchange in money between me and you, but there was an exchange in the value of the lunch, if that makes sense. The same thing could have been accomplished by me and you exchanging half the lunch costs in physical money (or credit/debit card or check). Any type of investment can be considered gambling. Though you do get some sort of proof that the investment exists somewhere Investments may go up or down in value at any given time. Perhaps with enough research you can make educated investments, but that just makes it a smaller gamble. Nothing is guaranteed. Currency investment is akin to stock market investment, in that it may go up or down in value, in comparison to other currencies; though it doesn't make you an owner of the money's issuer, generally, it's similar. I find if you keep all your money in U.S. dollars without considering other nations, that's a sort of ignorant way of gambling, you're betting your money will lose value less slowly than if you had it elsewhere or in multiple places. Back on track to your question: [A]m I really buying that currency? You are trading a currency. You are giving one currency and exchanging it for another. I guess you could consider that buying, since you can consider trading currency for a piece of software as buying something. Or is the situation more like playing with the live rates? It depends on your perception of playing with the live rates. Investments to me are long-term commitments with reputable research attached to it that I intend to keep, through highs and lows, unless something triggers me to change my investment elsewhere. If by playing you mean risk, as described above, you will have a level of risk. If by playing you mean not taking it seriously, then do thorough research before investing and don't be trading every few seconds for minor returns, trying to make major returns out of minor returns (my opinion), or doing anything based on a whim. Was that money created out of thin air? I suggest you do more research before starting to trade currency into how markets and trading works. Simplistically, think of a market as a closed system with other markets, such as UK market, French market, etc. Each can interact with each other. The U.S. [or any market] has a set number of dollars in the pool. $100 for example's sake. Each $1 has a certain value associated with it. If for some reason, the country decides to create more paper that is green, says $1, and stamps presidents on them (money), and adds 15 $1 to the pool (making it $115), each one of these dollars' value goes down. This can also happen with goods. This, along with the trading of goods between markets, peoples' attachment of value to goods of the market, and peoples' perception of the market, is what fluctates currency trading, in simple terms. So essentially, no, money is not made out of thin air. Money is a medium for value though values are always changing and money is a static amount. You are attempting to trade values and own the medium that has the most value, if that makes sense. Values of goods are constantly changing. This is a learning process for me as well so I hope this helps answers your questions you seem to have. As stated above, I'm no expert; I'm actually quite new to this, so I probably missed a few things here and there.\\\"\",\n \"No. The long-term valuation of currencies has to do with Purchasing Power Parity. The long-term valuation of stocks has to do with revenues, expenses, market sizes, growth rates, and interest rates. In the short term, currency and stock prices change for many reasons, including interest rate changes, demand for goods and services, asset price changes, political fears, and momentum investing. In any given time window, a currency or stock might be: The Relative Strength Index tries to say whether a currency or stock has recently been rising or falling; it does not inherently say anything about whether the current value is high or low.\",\n \"International exchange rates are arbitraged. If I exchange A for B for C and then back to A again, I'll end up with the same amount ex trade fees. Assume this isn't the case. Clearly if I'd gain, someone else loses and I'd make millions by rapidly exchanging. Now assume that I'd lose money on that route. That must be because the reverse route, A->C->B->A gains money. (Again, assuming no fees) So in this case you'd just look at fees. (And as Ganesh points out, that may include future fees)\",\n \"\\\"Currencies that are pegged or fixed require that foreign currencies are held by the central issuer at a proportional amount. This is analogous to having a portfolio of currencies that the central bank issues shares from - in the form of its own currency. We will continue with this analogy, if the central bank says these \\\"\\\"shares\\\"\\\" are worth $1, but the underlying components of the portfolio are worth $0.80 and decreasing, then it is expensive for the central bank to maintain its peg, and eventually they will have to disregard the peg as people start questioning the central bank's solvency. (People will know the $1 they hold is not really worth what the central bank says it is, because of the price changes people experience in buying goods and services, especially when it comes to imports. Shadow economies will also trade using a currency more reflective of labor, which happens no matter what the government's punishments are for doing so). Swiss National Bank (central bank) did this in early 2015, as it experienced volatility in the Euro which it had previously been trying to keep it's currency pegged to. It became too expensive for it to keep this peg on its own. The central bank can devalue its currency by adjusting the proportions of the reserve, such as selling a lot of foreign currency X, buying more of currency Y. They can and do take losses doing this. (Swiss National Bank is maintaining a large loss) They can also flood their economy with more of their currency, diluting the value of each individual 1 dollar equivalent. This is done by issuing bonds or monetizing goods and services from the private sector in exchange for bonds. People colloquially call this \\\"\\\"printing money\\\"\\\" but it is a misnomer in this day and age where printers are not relevant tools. The good and service goes onto the central bank's balance book, and the company/entity that provided the service now has a bond on its book which can be immediately sold to someone else for cash (another reading is that the bond is as good as cash). The bond didn't previously exist until the central bank said it did, and central banks can infinitely exchange goods and services for bonds. Bond monetization (also called Quantitative Easing) is practiced by the Federal Reserve in the United States, Bank of Japan, European Central Bank and now the Central Bank of the Republic of China\\\"\",\n \"If the fact that currency is based on fiat, something that has been the case with currency somewhere on Earth since the Tang Dynasty of China discovered paper money a long, long time ago, leaves you up in arms, then I shudder to think what an explanation of how the price of money can be derived from plotting IS and LM together and extending it's meeting point into the money market to determine the price of currency would do to your notion of control by powerful offices in government. My good sir, have you ever considered that YOU might be the smug moron? That YOU might be the one who just found out what everyone in the room already learned years ago and lack the foundation the rest of us have to understand that information in context? That it might be YOU who are uninformed? I'll quote you right here: >people who have no clue what the fuck they are talking about go off and lecture other people, bringing up facts that have no thought behind them, and are merely definitions posing as an argument. Making a statement, then getting corrected, then coming back and simply lengthening the original answer is not an argument. >I'll say it again: our currency is fiat. It is backed by nothing You don't seem to understand just what it is backed by. It is backed by trust, steady demand, and the assurance of powerful national and international bodies. As is the price of everything, including gold and literally every other commodity on the planet. Your utter shock and outrage upon discovering this minute fact does not indicate a revolutionary zeitgeist or that you are some kind of free spirit, it indicates that you are uneducated on the context of basic and well understood facts that the rest of the educated world is already caught up on.\",\n \"The current FED's spend is to encourage spends by putting in more liquidity, SOME of this funds [directly or indirectly] reach emerging markets and get invested in stocks ... so without these forex inflows, the Balance of Payments would be under pressure ... so these forex are artificially keeping the Exchange rate down. For example the USD vs INR rate was in the range of 1 USD to around INR 50 for nearly 4-5 years. In the period the inflation in India was around 10-15%, so ideally the rate should have slowly moved towards INR 60, however it took a news of FED cut-back to more the rates in the range of INR 65 before stabilizing to Rs 60\",\n \"Having trouble understanding currency arbitrage for one example. Conditions: US 3% interest per 6 months Germany 3.6% interest per 6 months Spot rate is $1.09/euro 6-month Forward is $1.04/euro How do I make this into an arbitrage opportunity? There is supposed to be a profit but I keep getting negatives. Any help would be greatly appreciated.\",\n \"Which of these two factors is likely to be more significant? There is long term trend that puts one favourable with other. .... I realise that I could just as easily have lost 5% on the LSE and made 5% back on the currency, leaving me with my original investment minus various fees; or to have lost 5% on both. Yes that is true. Either of the 3 scenarios are possible. Those issues aside, am I looking at this in remotely the right way? Yes. You are looking at it the right way. Generally one invests in Foreign markets for;\",\n \"\\\"The prices quoted are for currency pairs traded on the foreign exchange market. For currencies traded on these exchanges, the exchange rates of a given currency pair are determined by the market, so supply and demand, investor confidence, etc. all play a role. EBS and Reuters are the two primary trading platforms in the foreign exchange market, and much of the data on exchange rates comes from them. Websites will usually get their data either from these sources directly or from a data provider that in turn gets it from EBS, Reuters, or another data source like Bloomberg or Haver Analytics. These data sources aren't free, however. In the US, many contracts, transactions, etc. that involve exchange rates use the exchange rate data published by the Federal Reserve. You might see this in contracts that specify to use \\\"\\\"the exchange rate published by the Federal Reserve at 12 pm (noon) on date --some date--\\\"\\\". You can also look at the Federal Reserve Economic Data, which maintains data series of historical daily, weekly, and monthly exchange rates for major currency pairs. These data are free, although they aren't realtime. Data for each business day is mostly updated the next business day.\\\"\",\n \"Is my observation that the currency exchange market is indirect correct? Is there a particular reason for this? Why isn't currency traded like stocks? I guess yes. In Stocks its pretty simple where the stock is held with a depository. Hence listing matching is simple and the exchange of money is via local clearing. Currency markets are more global and there is no one place where trades happen. There are multiple places where it happens and is loosely called Fx market place. Building a matching engine is also complex and confusing. If we go with your example of currency pair, matches would be difficult. Say; If we were to say all transactions happen in USD say, and list every currency as item to be purchased or sold. I could put a trade Sell Trade for Quantity 100 Stock Code EUR at Price 1.13 [Price in USD]. So there has to be a buy at a price and we can match. Similarly we would have Stock Code for GBP, AUD, JPY, etc. Since not every thing would be USD based, say I need to convert GBP to EUR, I would have to have a different set of Base currency say GBP. So here the quantity would All currencies except GBP which would be price. Even then we have issues, someone using USD as base currency has quoted for Stock GBP. While someone else using GBP has quoted for Stock USD. Plus moving money internationally is expensive and doing this for small trades removes the advantages. The kind of guarantees required are difficult to achieve without established correspondence bank relationships. One heavily traded currency pair, the exchange for funds happens via CLS Bank.\",\n \"\\\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as whether or not the person is studying at a foreign university. If the citizen wants to exchange more dollars than legally allowed, that person must buy or sell at the \\\"\\\"black\\\"\\\" market rate, rather than through the official/government market.\\\"\",\n \"I usually look at the high and low exchange rates for the last five years. If the current rate is fairly close to the high for a trade over the past five years, then I do the trade. If the current exchange rate is close to the low, then I wait.\",\n \"well you had it a bit backwards. the more liquid a market is, the less important the idea of insider information becomes. this is the opposite in less liquid markets - such as low volatile stocks about to announce earnings. knowing the earnings would net you a much larger percentage than, say, knowing if the ECB will cut rates of not. the change will be a much larger % and as with currencies, it is more important to know what the major players are planning - as in, central banks and reserves, carry trades, etc.\",\n \"\\\"I think the important fact here is that all of our currencies are Fiat Currencies. So currency technically means nothing, because (as you mentioned) the country could print more any time it wants. Now what makes it useful is the combination of two big things: So I would say, we know they owe us 100 \\\"\\\"dollars\\\"\\\", and the dollar is just a word we use to represent value. It is not technically worth anything, beyond the fact that the government controls the amount of that currency in circulation and you trust that people still want more of that currency.\\\"\",\n \"Now, is there any clever way to combine FOREX transactions so that you receive the US interest on $100K instead of the $2K you deposited as margin? Yes, absolutely. But think about it -- why would the interest rates be different? Imagine you're making two loans, one for 10,000 USD and one for 10,000 CHF, and you're going to charge a different interest rate on the two loans. Why would you do that? There is really only one reason -- you would charge more interest for the currency that you think is less likely to hold its value such that the expected value of the money you are repaid is the same. In other words, currencies pay a higher interest when their value is expected to go down and currencies pay a lower interest when their value is expected to go up. So yes, you could do this. But the profits you make in interest would have to equal the expected loss you would take in the devaluation of the currency. People will only offer you these interest rates if they think the loss will exceed the profit. Unless you know better than them, you will take a loss.\",\n \"One interpretation of the above is that Pound (alongside US Dollar, Euro and other major curriencies), which forms the Forex basket of countries has dropped to less than 10% weightage in case of China's Forex holding. Now the question is where did this money go, this money probably have gone into Forex market to buy Yuan against Pound/Dollar etc. to bolster or strengthen Yuan. The currency reserve management is the 'wealth' management part and the 'currency' management part is what is known as 'central bank intervention' to stabilize the currency.\",\n \"\\\"You may as well ask why a piece of wood is 25 centimeters long but only 10 inches. Most units of measure are very arbitrary. Somebody decides that this amount of heat or distance or money is a convenient unit, and so that's what they use. Suppose that tomorrow the government issued a whole new currency that had 10 times the value of the old currency. So if you used to make 10,000 foobars a year, now you make 1,000 new foobars. And likewise the price of everything you buy is divided by 10. If a certain model car used to cost 2,000 foobars, now it costs 200 new foobars. Are you better or worse off? Clearly if ALL prices change by the same percentage, then it makes absolutely no difference. (Aside from the hassle of making the switch and getting used to the new numbers.) A currency where 1 unit of money buys more is not necessarily a \\\"\\\"stronger currency\\\"\\\". Any more than inches are \\\"\\\"better\\\"\\\" than centimeters because you get more wood for an inch than you get for a centimeter. A currency is said to be \\\"\\\"strong\\\"\\\" when it's value is stable or increasing relative to other currencies. If yesterday I could trade 10 foobars for 1 plugh, but today I only need 9 foobars to buy 1 plugh, then foobars are stronger than plughs. Even though I still need more foobars than plughs to buy the same item.\\\"\",\n \"\\\"My answer is specific to the US because you mentioned the Federal Reserve, but a similar system is in place in most countries. Do interest rates increase based on what the market is doing, or do they solely increase based on what the Federal Reserve sets them at? There are actually two rates in question here; the Wikipedia article on the federal funds rate has a nice description that I'll summarize here. The interest rate that's usually referred to is the federal funds rate, and it's the rate at which banks can lend money to each other through the Federal Reserve. The nominal federal funds rate - this is a target set by the Board of Governors of the Federal Reserve at each meeting of the Federal Open Market Committee (FOMC). When you hear in the media that the Fed is changing interest rates, this is almost always what they're referring to. The actual federal funds rate - through the trading desk of the New York Federal Reserve, the FOMC conducts open market operations to enforce the federal funds rate, thus leading to the actual rate, which is the rate determined by market forces as a result of the Fed's operations. Open market operations involve buying and selling short-term securities in order to influence the rate. As an example, the current nominal federal funds rate is 0% (in economic parlance, this is known as the Zero Lower Bound (ZLB)), while the actual rate is approximately 25 basis points, or 0.25%. Why is it assumed that interest rates are going to increase when the Federal Reserve ends QE3? I don't understand why interest rates are going to increase. In the United States, quantitative easing is actually a little different from the usual open market operations the Fed conducts. Open market operations usually involve the buying and selling of short-term Treasury securities; in QE, however (especially the latest and ongoing round, QE3), the Fed has been purchasing longer-term Treasury securities and mortgage-backed securities (MBS). By purchasing MBS, the Fed is trying to reduce the overall risk of the commercial housing debt market. Furthermore, the demand created by these purchases drives up prices on the debt, which drives down interest rates in the commercial housing market. To clarify: the debt market I'm referring to is the market for mortgage-backed securities and other debt derivatives (CDO's, for instance). I'll use MBS as an example. The actual mortgages are sold to companies that securitize them by pooling them and issuing securities based on the value of the pool. This process may happen numerous times, since derivatives can be created based on the value of the MBS themselves, which in turn are based on housing debt. In other words, MBS aren't exactly the same thing as housing debt, but they're based on housing debt. It's these packaged securities the Fed is purchasing, not the mortgages themselves. Once the Fed draws down QE3, however, this demand will probably decrease. As the Fed unloads its balance sheet over several years, and demand decreases throughout the market, prices will fall and interest rates in the commercial housing market will fall. Ideally, the Fed will wait until the economy is healthy enough to absorb the unloading of these securities. Just to be clear, the interest rates that QE3 are targeting are different from the interest rates you usually hear about. It's possible for the Fed to unwind QE3, while still keeping the \\\"\\\"interest rate\\\"\\\", i.e. the federal funds rate, near zero. although this is considered unlikely. Also, the Fed can target long-term vs. short-term interest rates as well, which is once again slightly different from what I talked about above. This was the goal of the Operation Twist program in 2011 (and in the 1960's). Kirill Fuchs gave a great description of the program in this answer, but basically, the Fed purchased long-term securities and sold short-term securities, with the goal of twisting the yield curve to lower long-term interest rates relative to short-term rates. The goal is to encourage people and businesses to take on long-term debt, e.g. mortgages, capital investments, etc. My main question that I'm trying to understand is why interest rates are what they are. Is it more of an arbitrary number set by central banks or is it due to market activity? Hopefully I addressed much of this above, but I'll give a quick summary. There are many \\\"\\\"interest rates\\\"\\\" in numerous different financial markets. The rate most commonly talked about is the nominal federal funds rate that I mentioned above; although it's a target set by the Board of Governors, it's not arbitrary. There's a reason the Federal Reserve hires hundreds of research economists. No central bank arbitrarily sets the interest rate; it's determined as part of an effort to reach certain economic benchmarks for the foreseeable future, whatever those may be. In the US, current Fed policy maintains that the federal funds rate should be approximately zero until the economy surpasses the unemployment and inflation benchmarks set forth by the Evans Rule (named after Charles Evans, the president of the Federal Reserve Bank of Chicago, who pushed for the rule). The effective federal funds rate, as well as other rates the Fed has targeted like interest rates on commercial housing debt, long-term rates on Treasury securities, etc. are market driven. The Fed may enter the market, but the same forces of supply and demand are still at work. Although the Fed's actions are controversial, the effects of their actions are still bound by market forces, so the policies and their effects are anything but arbitrary.\\\"\",\n \"\\\"The market price of a stock is based on nothing at all more than what two parties were last willing to transact for it. The stock has a \\\"\\\"bid\\\"\\\" and an \\\"\\\"ask\\\"\\\" each is the value placed by a counterparty. For the sale to occur, one party must meet the other. The stock transacts and that is the price. For a stock to \\\"\\\"go up\\\"\\\" people must be willing to pay more for it. Likewise, for it to \\\"\\\"go down\\\"\\\" people must be willing to accept less for it.\\\"\",\n \"Currencies are a zero-sum game. If you make money, someone else will lose it. Because bank notes sitting in a pile don't create anything useful. But shares in companies are different, because companies actually do useful things and make money, so it's possible for all investors to make money. The best way to benefit is generally to put your money into a low-cost index fund and then forget about it for at least five years.\",\n \"The general idea is that if the statement wasn't true there would be an arbitrage opportunity. You'll probably want to do the math yourself to believe me. But theoretically you could borrow money in country A at their real interest rate, exchange it, then invest the money in the other country at Country B's interest rate. Generating a profit without any risk. There are a lot of assumptions that go along with the statement (like borrowing and lending have the same costs, but I'm sure that is assumed wherever you read that statement.)\",\n \"If you look at a trade grid you can see how this happens. If there are enough bids to cover all shares currently on the sell side at a certain price, those shares will be bought and increased price quotes will be shown for the bids and ask. If there are enough bids to cover this price, those will get bought and higher prices will be shown and this process will repeat until the sell side has more power than the buy side. It seems like this process is going on all day long with momentum either on the upside or downside. But I think that much of this bidding and selling is automatic and is being done by large trading firms and high tech computers. I also feel that many of these bids and asks are already programmed to appear once there is a price change. So once one price gets bought, computers will put in higher bids to take over asks. It's like a virtual war between trading firms and their computers. When more money is on the buy side the stock will go up, and vice versa. I sort of feel like this high-frequency trading is detrimental to the markets and doesn't really give everyone a fair shot. Retail investors do not have the resources and knowledge in order to do this sort of high frequency trading. It also seems to go against certain free market principles in my opinion.\",\n \"\\\"This is actually a fairly hard question to answer well as much of the currency trading that is done in financial markets is actually done directly with banks and other financial institutions instead of on a centralized market and the banks are understandably not always excited to part with information on how exactly they do their business. Other methods of currency exchange have much, much less volume though so it is important to understand the trading through markets as best as possible. Some banks do give information on how much is traded so surveys can give a reasonable indication of relative volume by currency. Note the U.S. Dollar is by far the largest volume of currency traded partially because people often covert one currency to another in the markets by trading \\\"\\\"through\\\"\\\" the Dollar. Wikipedia has a good explanation and a nicely formatted table of information as well.\\\"\",\n \"\\\"To speak to this a little more broadly: apart from groups like hedge funds and other investors investing for purely speculative purposes, one of the major purposes of forwards (and, for that matter, futures) for companies in the \\\"\\\"real economy\\\"\\\" is to \\\"\\\"lock in\\\"\\\" a particular price in advance (or to reduce the risk of some kind of investment or transaction). Investopedia defines a currency forward as follows (with a few key points emphasized): [A currency forward is] a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment. The other major benefit of a currency forward is that it can be tailored to a particular amount and delivery period, unlike standardized currency futures. This can be a major advantage for planning and risk management purposes. For example, if I know I'm going to have to pay $1 million USD in the future and most of my revenue is in Euros, the actual amount I'll have to pay will vary based on the exchange rate between Euros and dollars. Thus, it's very worthwhile for me to be able to \\\"\\\"lock in\\\"\\\" a particular exchange rate so that I know exactly how much I'm going to pay relative to my projected revenue. The goal isn't necessarily to make money off the transaction (maybe they do, maybe they don't) as much as to reduce risk and improve planning ability. The fact that it doesn't involve an up-front payment is also a major advantage. It's usually a bad practice to \\\"\\\"sit on\\\"\\\" cash for a year if you can avoid it. Another key point: savings accounts pay less interest than inflation. If inflation is 3% and your savings account pays 1%, that looks remarkably like a guaranteed 2% loss to me.\\\"\",\n \"\\\"The Auction Market is where investors such you and me, as well as Market Makers, buy and sell securities. The Auction Markets operate with the familiar bid-ask pricing that you see on financial pages such as Google and Yahoo. The Market Makers are institutions that are there to provide liquidity so that investors can easily buy and sell shares at a \\\"\\\"fair\\\"\\\" price. Market Makers need to have on hand a suitable supply of shares to meet investor demands. When Market Makers feel the need to either increase or decrease their supply of a particular security quickly, they turn to the Dealer Market. In order to participate in a Dealer Market, you must be designated a Market Maker. As noted already, Market Makers are dedicated to providing liquidity for the Auction Market in certain securities and therefore require that they have on hand a suitable supply of those securities which they support. For example, if a Market Maker for Apple shares is low on their supply of Apple shares, then will go the Dealer Market to purchase more Apple shares. Conversely, if they are holding what they feel are too many Apple shares, they will go to the Dealer Market to sell Apple shares. The Dealer Market does operate on a bid-ask basis, contrary to your stated understanding. The bid-ask prices quoted on the Dealer Market are more or less identical to those on the Auction Market, except the quote sizes will be generally much larger. This is the case because otherwise, why would a Market Maker offer to sell shares to another Market Maker at a price well below what they could themselves sell them for in the Auction Market. (And similarly with buy orders.) If Market Makers are generally holding low quantities of a particular security, this will drive up the price in both the Dealer Market and the Auction Market. Similarly, if Market Makers are generally holding too much of a particular security, this may drive down prices on both the Auction Market and the Dealer Market.\\\"\",\n \"If I understand what you're asking, I think you're looking at the relationship wrong. Yes, when one currency has a higher interest rate relative to another, it's value should, theoretically, appreciate. For example, if the USD interest rate is 10% and the EUR is 5%, the USD should appreciate in value against the EUR. However, the parity relationship tells you the price at which an investor would be indifferent to the difference in interest rates. So using the formula for interest rate parity: (1+r(USD))/(1+r(EUR)) = F/S and plugging in the interest rates from above and a spot rate of $1.5/EUR: (1.1)/(1.05) = F/(1.5) The 1 year forward rate would have to be $1.5714/EUR in order for the investor to be INDIFFERENT between holding USD or EUR. All this assuming interest rate parity holds. I'm not big on Econ but this is how I understood it when studying for the CFA exam the past few months. So please, someone correct me if I'm wrong.\",\n \"Ultimately no one really knows what causes the markets to rise and fall beyond supply and demand. If more people want to buy then sell, prices go up. And if more people want to sell, prices go down. The news channels will often try to attribute a specific reason to the price move, but that is largely just guess work to fill up the news pages so people have something to read. You may find it interesting to read up on the Elliot wave principle. The crash of 2008 was a perfect Elliot Wave fit. Elliot Wave theory states that social moods (which ultimately drive the stock market) generally occur in a relatively predictable pattern. The crash in September was a Wave 3 down. This is where the majority of people give up hope. However there are still a few people who are still holding on. The markets tend to meander about during wave 4. Finally the last few people give up hope and sell out. This causes the final crash of wave 5. Only when the last person has given up hope can the markets start to go up again..\",\n \"\\\"As the European crisis worsened the Swiss Franc (CHF) was seen as a safe currency so Europeans attempted to exchange their Euros for Francs. This caused the Franc to appreciate in value, against the Euro, through the summer and fall of 2011. The Swiss government and Swiss Central Bank (SNB) believe mercantilism will create wealth for the citizens of Switzerland. The Swiss central planners believe that having an abundance of export businesses in Switzerland will create wealth for the citizens of Switzerland as the exporters sell their good and services abroad and pocket a bunch of cash. Thus, the central planners tend to favor exporters. From the article: At the start of the year, when exporters urged for government and SNB action, ... The Swiss Central bank continued to intervene in currency markets in 2011 to prevent the CHF from appreciating. This was done to prevent a decrease in export business. Finally after many failed attempts they announced the 1.20 peg in September. The central planners give little consideration to imports, however, since manufacturers in foreign countries don't vote or contribute to the campaign funds of the central planners in Switzerland. As the CHF strengthened many imported items became very cheap for Swiss citizens. This was of little concern to the central planners. Currencies are like other goods in a market in that they respond to supply and demand. Their value can change daily or even hourly based on the continually varying demands of people. This can cause the exchange rate to rise and fall against other currencies and goods. Central planners mistakenly believe that the price of certain market items (like currency) should not fluctuate. The believe there is some magical number that will cause the market to operate \\\"\\\"better\\\"\\\" or \\\"\\\"more correctly\\\"\\\". How does the SNB maintain the peg? They maintain the peg by printing Francs and purchasing euros.\\\"\",\n \"I think you are asking a few questions here. Why is gold chosen as money? In a free market there are five characteristics of a good money: Gold and silver meet all five characteristics. Diamonds are not easily divisible which is why they are not normally used as money. Copper, Iron, and lead are not scarce enough - you would need a lot of these metals to make weekly or daily purchases. Paper is also way too plentiful to be used as money. By the way, historically silver has been used for money more than gold. How does international trade work with gold as money (is this what you are asking with your hypothetical example of 10 countries each with y amount of gold?) Typically a government will issue a currency that is backed by gold. This means you can redeem your currency for actual gold. Then when an American spends 5 US dollars (USD) to purchase a Chinese good the Chinese man now owns 5 USDs. The Chinese man can either redeem the 5 USD for gold or spend the 5 USD in the US. If a government issues more currency then they have gold for then the gold will start to flow from that country to other countries as the citizens of the other countries redeem the over-issued currency for gold. This outflow of gold restricts governments from over-issuing paper currency. Who creates the procedures and who supervises them in modern worldwide economy? The Federal Reserve, IMF, and Bank of International Settlements all are involved in the current system where the US dollar (see Bretton Woods agreement) is the reserve currency used by central banks throughout the world. Some think this system is coming to an end. I tend to agree.\",\n \"You may simply be asking why stocks 'gap up' or 'gap down' when the stock market opens. This is because the price adjusts to news that occurred while the exchanges were closed overnight. Perhaps Asian stocks crashed, or perhaps a news story was released in the New York Times about some major company. There are thousands of factors that affect market sentiment, and the big gaps that happen at the open of every trading day is the price of the stocks catching up to those factors.\",\n \"\\\"Um no. Easy google. \\\"\\\"What makes stock prices go up?\\\"\\\" >This is how it works with stocks; supply is the amount of shares that people want to sell, and demand is the amount of shares that people want to purchase. If there are a greater number of buyers than sellers (more demand), the buyers bid up the prices of the stocks to entice sellers to get rid of them. So sure, if a company is performing well, people will want to buy the stock. Causing it to go up. But even if a company was performing well and no one wanted to buy the stock. There would be only sellers and the price would go down.\\\"\",\n \"\\\"I suspect that to \\\"\\\"make money\\\"\\\" it isn't enough to know the current value (\\\"\\\"high currency\\\"\\\"): to make money you'd need to know/guess/predict/bet on the future change in value: will the currency value go higher in the future? Or will it come down again? Or will it stay the same? Everybody knows the current value, so that by itself isn't enough knowledge to make money from. That said, if you know you're going to need American dollars in the future (if you have future expenses which need to be paid in American dollars), then now might be a good time to buy those dollars.\\\"\",\n \"Trading Speeches can be difficult, 1 comment can be bullish then next phrase bearish. However language algorithms can process the tone of the entire message before you can read the first word or have even finished downloading the text of the statement. The biggest news is the 1st Friday of the month, the non-farm payrolls out of the USA. You used to be able to get the news before the price moved, but high-frequency algos changed all that, essentially the exchanges get quote stuffed, so good luck unless you are using a bucketshop. Better to wait for a pull back from the initial reaction if the numbers are good, otherwise you will get a fill at the peak. If the numbers are a big deviation from expectations then you can just jump in. Back in 2006 the Bank of England raised interest rates when it wasn't expected and the GBPUSD flew 500 pips. This Forex calendar has charts of every news release, so you can see what to expected based on what has happened in the past with a certain bit of economic news. http://www.fasteconomicnews.com/fx_calendar.aspx\",\n \"Since 2007 the world has seen a period of striking economic and financial volatility featuring the deepest recession since the 1930s despite this gold has performed strongly with its price roughly doubling since the global financial crisis began in mid-2007. 1. Gold and real interest rates: One of the factor that influences gold prices is real interest rate which is to some extent related to inflation. Since gold lacks a yield of its own, the opportunity cost of holding gold increases with a real interest rate increase and decreases with a fall in real interest rates. 2. Gold and the US dollar: The external value of the US dollar has been a significant influence on short-term gold price movements. The IMF estimated6 in 2008 that 40-50% of the moves in the gold price since 2002 were dollar-related, with a 1% change in the effective external value of the dollar leading to a more than 1% change in the gold price (Source). 3. Gold and financial stress: It is a significant and commonly observed influence on the short-term price of gold. In periods of financial stress gold demand may rise for a number of reasons: 4. Gold and political instability: It is another factor that can boost gold prices. Investor concerns about wars, civil conflicts and international tensions can boost demand for gold for similar reasons to those noted above for periods of financial stress. Gold‟s potential function as a „currency of last resort‟ in case of serious system collapse provides a particular incentive to hold it in case the political situation is especially severe. (Source) 5. Gold and official sector activity: The behaviour of central banks and other parts of the official sector can have an important impact on gold prices. One reason for this is that central banks are big holders of gold, possessing some 30,500 metric tons in 2010, which is approximately 15% of all above-ground gold stocks. As a result, central bank policies on gold sales and purchases can have significant effects, and these policies have been subject to considerable shifts over the decades. (Source) (Source of above graphs)\",\n \"\\\"In addition to the information in the other answer, I would suggest looking at an economic calendar. These provide the dates and values of many economic announcements, e.g. existing home sales, durable orders, consumer confidence, etc. Yahoo, Bloomberg, and the Wall Street Journal all provide such calendars. Yahoo provides links to the raw data where available; Bloomberg and the WSJ provide links to their article where appropriate. You could also look at a global economic calendar; both xe.com and livecharts.co.uk provide these. If you're only interested in the US, the Yahoo, Bloomberg, and WSJ calendars may provide a higher signal-to-noise ratio, but foreign announcements also affect US markets, so it's important to get as much perspective as possible. I like the global economic calendars I linked to above because they rate announcements on \\\"\\\"priority\\\"\\\", which is a quick way to learn which announcements have the greatest effect. Economic calendars are especially important in the context of an interview because you may be asked a follow-up question. For example, the US markets jumped in early trading today (5/28/2013) because the consumer confidence numbers exceeded forecasts (from the WSJ calendar, 76.2 vs 2.3). As SRKX stated, it's important to know more than the numbers; being able to analyze the numbers in the context of the wider market and being aware of the fundamentals driving them is what's most important. An economic calendar is a good way to see this information quickly and succinctly. (I'm paraphrasing part of my answer to another question, so you may or may not find some of that information helpful as well; I'm certainly not suggesting you look at the website of every central bank in the morning. That's what an economic calendar is for!)\\\"\",\n \"\\\"Other things equal is sometimes referred to as \\\"\\\"ceteris paribus\\\"\\\" - the scenario where you compare two currencies (or things) under the assumption that all other factors that could effect those currencies (earthquakes, revolutions, currency crises ect) are not ocurring. Its like using a control group in a lab. \\\"\\\"Real interest rates\\\"\\\" means the rate of that countries interest rate, accounting for inflation. \\\"\\\"Proportional to the strength of its home currency\\\"\\\" is referring to how countries with higher rates of interest tend to have stronger currencies (relative to other currencies) because foreign investment/capital will flood into the country seeking those higher rates of return - excess demand for the currency will cause it to appreciate. So this is also true in reverse, as capital will tend to leave a country will ultra-low interest rates.\\\"\",\n \"\\\"the Yen is *the source* of **\\\"\\\"carry trades\\\"\\\"**. It means whichever savvy people with means who want to borrow money to invest on a leveraged basis anywhere in the world, come running to borrow in yen. Why? Because (1) Japan is an advanced economy whose currency is freely convertible to many many currencies/countries who are happy to convert yen back and forth. (2) Japanese interest rates are low, lower than in the west b/c of their earlier deflationary crises due to too much debt and due to west requiring Yen to be too strong after the Plaza accords; so it's cheap to borrow there. So a lot of investment around the world has, in origin, come from borrowing in japan. As long as that investment is \\\"\\\"on\\\"\\\", the loan to japan remains outstanding. But the investor earns the \\\"\\\"carry\\\"\\\": the rate of difference between the cost of borrowing in Yen, and earning the return from whatever investment it is. When scary things happen (like war, disaster, coups etc) the big money bags/investors pull their money out of their investments and put it in their banks. This means they sell their investments, wherever they are, convert some of that money back into yent ( BUY YEN ) to return their yen loans. yen goes up.\\\"\",\n \"Imagine that the existing interest rate is 5%. So on a bond with face value of 100, you would be getting a $5 coupon implying a 5% yield. Now, if let's say the interest rates go up to 10%, then a new bond issued with a face value of 100 will give you a coupon of $10 implying a 10% yield. If someone in the bond market buys your bond after interest price adjustment, in order to make the 10% yield (which means that an investor typically targets at least the risk-free rate on his investments) he needs to buy your bond at $50 so that a $5 coupon can give a 10% yield. The reverse happens when interest rates go down. I hope this somewhat clears the picture. Yield = Coupon/Investment Amount Update: Since the interest rate of the bond does not change after its issuance, the arbitrage in the interest rate is reflected in the market price of the bond. This helps in bringing back the yields of old bonds in-line with the freshly issued bonds.\",\n \"That is mostly true, in most situations when there are more buy orders than sell orders (higher buy volume orders than sell volume orders), the price will generally move upwards and vice versa, when there are more sell orders than buy orders (higher sell volume orders than buy volume orders), the price will generally move downwards. Note that this does not always happen, but usually it does. You are also correct that for a trade to take place a buyer has to be matched with a seller (or the buy volume matched with the sell volume). But not all orders get executed as trades. Say there are 50 buy orders in the order book with a total volume of 100,000 shares and the highest buy order is currently at $10.00. On the other side there are only 10 sell orders in the order book with total volume of 10,000 shares and the lowest sell order is currently $10.05. At the moment there won't be a trade unless a new buyer or seller enters the market to match the opposing side, or an existing order gets amended upper or lower to match the opposing side. With more demand than supply in the order books what will be the most likely direction that this stock moves in? Most likely the price will move upwards. If a new buyer sees the price moving higher and then looks at the market depth, they would most likely place an order closer to the lowest sell order than the current highest buy order, say $10.01, to be first in line in case a market sell order is placed on the market. As new buy orders enter the market it drives the price higher and higher until the buy orders dry up.\",\n \"\\\"Here's an answer to a related question I once wrote. I'm reposting here. I can, but it takes a significant amount of time. I'll do a short version which unfortunatley might leave more holes than you like. Basically, traders don't want to barter because it is hard to find the person with precisely the goods you want who wants to trade for the goods you have. Thus the need for \\\"\\\"coupons\\\"\\\" that represent value in a marketplace. Then you need to decide who gets to create coupons. If too many can issue them, problems arise, and no one trusts the coupons will be good later. Eventually you want one large bank/nation/trader to be able to issue them so everyone has the same level of trust in them, and you don't have the economic inefficiencies of many coupon issuers. Next, the number of coupons needs to be enough to facilitate trade. If the amount of trade increases a lot, and the number of coupons doesn't increase similarly they become worth more, and people start to hoard them. This causes deflation, which causes less investment, which causes less growth, which hurts everyone in the long run. If there are too many coupons added, this causes inflation, which causes people to spent them quicker instead of holding them. For reasons I won't cover here slight, predictable inflation is much better than deflation, so remember inflation is slightly preferred. Note that inflation is often caused not by the number of coupons but by external price changes. Now, for a modern economy to do well, somone has to watch the economy, measure it carefully, and add/subtract coupons into the system as needed. Coupons, like all money, have no real value (whatever that means), but only have value because the holder expects to be able to trade them *later* for goods and services. You cannot eat coupons, use them for shelter (usually!), or wear them, but you want to trade them for such needs. The same is true for paper money, gold, stones, or almost whatever money system one uses. Money in all these forms is merely an IOU tradable for future goods. The Fed is tasked (among other things) with making sure there is precisely enough coupons in the economy to keep trade functioning as well as possible. This is very hard to do since there are external and internal shocks to an economy (think disaster, foreign govts shutting off resources, rapid changes in people's tastes, etc.). Central banks such as the Fed need to be independent of political control, since empirical evidence has shown that politicians tend to add more money to the system than is needed, because the short term gains give them votes, but the long term consequences (rapid inflation, unemployment, lower economic growth) are bad for society. This is why the Fed is largely out of congressional control, and large amounts of empirical evidence across hundreds of years and dozens of cultures shows this to be good. Note: another function of the Fed is to be a lender of last resort to help prevent bank panics that were widespread in the 18th and early 19th century, something that none of us now remember, but it was a real problem. I'll skip that part for now. So now we're at the point where the Fed needs to add/subtract coupons from society. To do this part justice takes significant time to cover all the reasons why various rules are in place (banking reserve requirements, for example), and you cannot learn it from one pass of reading. But I'll try. Instead of being like the majority of internet fools that rail against the system, try to learn the *why* of all this, and you'll be much wiser and understand that it is all a pretty good system. One method they use is the interbank lending rate. Banks have a reserve requirement, which is the ratio of coupons they need to have on hand as a ratio compared to the total coupons depositors lent them. This is usually around 1:10. The amount deposited that they can lend goes to business loans, school loans, mortgage loans, etc., and helps economies grow. Now when a bank on a given day falls short due to too many withdrawals, other banks (or the Fed) offers an overnight loan to meet reserve requirements, and the Fed sets the interest rate, which in turn drives other interest rates in the system. This does not change the money supply very much. Secondly, the Fed sets the reserve requirement, which vastly can change the amount of money available to society. But they change this rate so rarely (all the historical data is on the St. Loius Fed site, among others) that it is not usually an issue. I'll explain below how this can drastically change the money supply though the money multiplier. Thirdly, and this is the part the poster above seems upset about, they conduct open market operations. This is the primary means by which the Fed exercises control over the number of coupons in play. The government, like businesses, like individuals, often needs to borrow money, in theory to invest in wise causes like infrastructure or perhaps money making enterprises such as technology investmeny (and I know what they often use the money for causes many to complain). The government, like companies, offers the sale of various contracts such as bonds to investors, who want a place to park some accumulated coupons for safety, and they get a return plus some interest. So the government sells bonds on the open market to investors, banks, pensions, foreign governments, basically to whomever wishes to purchase them at the market rate, and the government, like many individuals and banks, uses these loans to perform day to day functioning and possible smooth out volatility in spending needs. By law the Fed cannot purchase directly from Treasury. Now, once on the market, these bonds are traded, packaged, resold, etc., since they have inherent value, and since those owning them want to buy/sell them, perhaps before maturity date. This \\\"\\\"liquidity\\\"\\\" (ability to sell your goods) is necessary - fewer would purchase an item if they could not sell it when they desire. Thus bonds are bought, sold, and traded, and their prices fluctuate based on what the market thinks they are worth, just like any good. Now, the Fed can buy/sell these bonds on the *open market*, like anyone else. So when the Fed wishes to increase the money supply, they can buy bonds that are not \\\"\\\"spendable\\\"\\\" money and inject money into the system. Note they now hold a bond that had at the time of transaction the same value as the money they injected. Note investors freely bought these from Treasury, meaning the market thought at the time of purchase that this was a good invesement. It is *not* the government merely wishing more money into existance. It is market forces that require more money for trades and is selling goods from the marketplace of (presumably) equal value to the Fed. This increases liquidity, but takes valuable assets from circulation. When the Fed wishes to shrink the money supply, they sell these bonds back into circulation basically by offering better terms than Treasury. In fact, you can find graphs of the Fed operations and see how every December they inject money for more Christmas shpping (need more coupons for more trade) and every January they extract some. So open market transactions, buying and selling goods at market prices in the marketplace along with other traders, is how the Fed injects and removes money from the money supply. This is the primary mechanism that the Fed uses to control the number of coupons in the economy. Finally, a little about reserve requirements and the money multiplier, since it affects so much of the number of coupons in play. This also I must simplify drastically. Each bank needs to hold 1/10 of all deposits in cash. The rest can be lent, which lands in another bank, which again can be lent, etc... Thus each $1 deposited can result in loans totalling 9/10 + (9/10)^2 + (9/10)^3 +... = 9 more dollars. Many people claim that banks are printing money, which is nonsense, since each also has an equal debt to pay to the person they borrowed from. When all loans are paid back there is no net money gain. However, this allows for each $1 the Fed injects by buying bonds for there to be up to $9 in the economy, *if banks all loan to the fullest extent*. Banks tend to want to loan since loaned money makes them profit. Banks used to loan too much and runs on the banks caused significant problems, which is why laws were made to require *all* banks to have the same reserve requirement. Now, when banks get scared and stop loaning, this 9 fold multiplier dries up, and the Fed has much less inpact on being able to target the proper number of coupons to keep the economy smooth. During the recent crash when banks stopped loaning, as each dollar was paid back on debts, there was significant shrinkage of available money for transactions, and this kills the economy. This is the \\\"\\\"liquidity crisis\\\"\\\". Hope this helps. As I said, this is vastly simplified and I cannot go into all the reasons and historical items needed to understand it fully. It is a vastly complex (and necessarily so) and takes significant study to grasp the genius of it. It's similar to not being able to understand nuances of particle physics in one go, but as you study and work at it you see *why* things go as they do, and you learn all the failed methods (the gold standard is one example) that were thrown out for many good reasons. Cheers.\\\"\",\n \"\\\"First it is worth noting the two sided nature of the contracts (long one currency/short a second) make leverage in currencies over a diverse set of clients generally less of a problem. In equities, since most margin investors are long \\\"\\\"equities\\\"\\\" making it more likely that large margin calls will all be made at the same time. Also, it's worth noting that high-frequency traders often highly levered make up a large portion of all volume in all liquid markets ~70% in equity markets for instance. Would you call that grossly artificial? What is that volume number really telling us anyway in that case? The major players holding long-term positions in the FX markets are large banks (non-investment arm), central banks and corporations and unlike equity markets which can nearly slow to a trickle currency markets need to keep trading just for many of those corporations/banks to do business. This kind of depth allows these brokers to even consider offering 400-to-1 leverage. I'm not suggesting that it is a good idea for these brokers, but the liquidity in currency markets is much deeper than their costumers.\\\"\",\n \"What you were told isn't an absolute truth, so trying to counter something fundamentally flawed won't get you anywhere. For example: chinese midcap equities are up 20% this year, even from their high of 100%. While the BSE Sensex in India is down several percentage points on the year. Your portfolio would have lost money this year taking advice from your peers. The fluctuation in the rupees and remnibi would not have changed this fact. What you are asking is a pretty common area of research, as in several people will write their dissertation on the exact same topic every year, and you should be able to find various analysis and theories on the subject. But the macroeconomic landscape changes, a lot.\",\n \"\\\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\\\"\\\"at market\\\"\\\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,100@180.03), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\\\"\\\"limit up\\\"\\\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \\\"\\\"market impact\\\"\\\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\\\"\",\n \"\\\"You might want to read about about the Coase Theorem. \\\"\\\"In law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining.\\\"\\\" This is similar to what you are asking. Each country has an endowment of gold, and they must create a set amount of money to represent their endowment of gold. This will establish an exchange rate. If I have 5 tons of gold and you have 5 tons, and I print 10 dollars and you print 20, then one of my dollars is worth two of your dollars. Thus, the amount of money is not relevant- it's the exchange rate between the countries. If all the nations know each other's gold endowment, then we will have a perfect exchange rate. If we don't, then currency printing will vary but arbitrage should drive it to an accurate price. Gold and diamonds are both valuable in part due to scarcity, but gold has been used as a measure of value because it's been historically used as a medium of exchange. People just realized that swapping paper was safer and cheaper than physically transporting gold, but the idea of gold as a measure of value is present because \\\"\\\"that's how it's always been.\\\"\\\" Nobody \\\"\\\"creates/supervises\\\"\\\" these procedures, but organizations like the IMF, ECB, Fed Reserve, etc implement monetary policy to regulate the money supply and arbitrage drives exchange rates to fair values.\\\"\",\n \"\\\"Well there are a couple reasons that people from various countries use specific currencies: 1. Government courts will recognize the settlement of contracts if they are paid with their local currency. So even if you wanted to be paid in Swiss Francs, your contracting partner can choose to pay you in USD instead. This artificially inflates the value of the local currency by increasing demand for it. 2. You're only allowed to pay your taxes in the local currency. This also artificially increases the demand for it, and it's the \\\"\\\"root value\\\"\\\" of the currency - people clamor for bits of green paper because if they don't have enough of it to pay off the tax man, they'll go to jail.\\\"\",\n \"\\\"When trading Forex each currency is traded relative to another. So when shorting a currency you must go long another currency vs the currency you are shorting, it seems a little odd and can be a bit confusing, but here is the explanation that Wikipedia provides: An example of this is as follows: Let us say a trader wants to trade with the US dollar and the Indian rupee currencies. Assume that the current market rate is USD 1 to Rs.50 and the trader borrows Rs.100. With this, he buys USD 2. If the next day, the conversion rate becomes USD 1 to Rs.51, then the trader sells his USD 2 and gets Rs.102. He returns Rs.100 and keeps the Rs.2 profit (minus fees). So in this example the trader is shorting the rupee vs the dollar. Does this article add up all other currency crosses to get the 'net' figure? So they don't care what it is depreciating against? This data is called the Commitment of Traders (COT) which is issued by the Commodity Futures Trading Commission (CFTC) In the WSJ article it is actually referring to Forex Futures. In an another article from CountingPips it explains a bit clearer as to how a news organization comes up with these type of numbers. according to the CFTC COT data and calculations by Reuters which calculates the dollar positions against the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc. So this article is not talking about futures but it does tell us they got data from the COT and in addition Reuters added additional calculations from adding up \\\"\\\"X\\\"\\\" currency positions. No subscription needed: Speculators Pile Up Largest Net Dollar Long Position Since June 2010 - CFTC Here is some additional reading on the topic if you're interested: CFTC Commitment of the Traders Data – COT Report FOREX : What Is It And How Does It Work? Futures vs. Forex Options Forex - Wiki\\\"\",\n \"\\\"Does some official tell the Foreign Exchange the the new exchange rate for the yuan is 0.98 * the current exchange rate? For China (and other countries with fixed/controlled exchange rates) - that's exactly how it happens. Does it just print more? This is the way to go for fully convertible currencies (like the USD, EUR, GBP, and handful of others, there're about 20 in the world). Flood the market and as with any commodity - flooding the market leads to a price drop. Obviously \\\"\\\"just print more\\\"\\\" is much harder to do than picking up the phone and saying \\\"\\\"Now you're buying/selling dollars at this price and if you don't I'll have you executed\\\"\\\".\\\"\",\n \"\\\"At the most fundamental level, every market is comprised of buyers and selling trading securities. These buyers and sellers decide what and how to trade based on the probability of future events, as they see it. That's a simple statement, but an example demonstrates how complicated it can be. Picture a company that's about to announce earnings. Some investors/traders (from here on, \\\"\\\"agents\\\"\\\") will have purchased the company's stock a while ago, with the expectation that the company will have strong earnings and grow going forward. Other agents will have sold the stock short, bought put options, etc. with the expectation that the company won't do as well in the future. Still others may be unsure about the future of the company, but still expecting a lot of volatility around the earnings announcement, so they'll have bought/sold the stock, options, futures, etc. to take advantage of that volatility. All of these various predictions, expectations, etc. factor into what agents are bidding and asking for the stock, its associated derivatives, and other securities, which in turn determines its price (along with overall economic factors, like the sector's performance, interest rates, etc.) It can be very difficult to determine exactly how markets are factoring in information about an event, though. Take the example in your question. The article states that if market expectations of higher interest rates tightened credit conditions... In this case, lenders could expect higher interest rates in the future, so they may be less willing to lend money now because they expect to earn a higher interest rate in the future. You could also see this reflected in bond prices, because since interest rates are inversely related to bond prices, higher interest rates could decrease the value of bond portfolios. This could lead agents to sell bonds now in order to lock in their profits, while other agents could wait to buy bonds because they expect to be able to purchase bonds with a higher rate in the future. Furthermore, higher interest rates make taking out loans more expensive for individuals and businesses. This potential decline in investment could lead to decreased revenue/profits for businesses, which could in turn cause declines in the stock market. Agents expecting these declines could sell now in order to lock in their profits, buy derivatives to hedge against or ride out possible declines, etc. However, the current low interest rate environment makes it cheaper for businesses to obtain loans, which can in turn drive investment and lead to increases in the stock market. This is one criticism of the easy money/quantitative easing policies of the US Federal Reserve, i.e. the low interest rates are driving a bubble in the stock market. One quick example of how tricky this can be. The usual assumption is that positive economic news, e.g. low unemployment numbers, strong business/residential investment, etc. will lead to price increases in the stock market as more agents see growth in the future and buy accordingly. However, in the US, positive economic news has recently led to declines in the market because agents are worried that positive news will lead the Federal Reserve to taper/stop quantitative easing sooner rather than later, thus ending the low interest rate environment and possibly tampering growth. Summary: In short, markets incorporate information about an event because the buyers and sellers trade securities based on the likelihood of that event, its possible effects, and the behavior of other buyers and sellers as they react to the same information. Information may lead agents to buy and sell in multiple markets, e.g. equity and fixed-income, different types of derivatives, etc. which can in turn affect prices and yields throughout numerous markets.\\\"\",\n \"\\\"First, note that a share represents a % of ownership of a company. In addition to the right to vote in the management of the company [by voting on the board of directors, who hires the CEO, who hires the VPs, etc...], this gives you the right to all future value of the company after paying off expenses and debts. You will receive this money in two forms: dividends approved by the board of directors, and the final liquidation value if the company closes shop. There are many ways to attempt to determine the value of a company, but the basic theory is that the company is worth a cashflow stream equal to all future dividends + the liquidation value. So, the market's \\\"\\\"goal\\\"\\\" is to attempt to determine what that future cash flow stream is, and what the risk related to it is. Depending on who you talk to, a typical stock market has some degree of 'market efficiency'. Market efficiency is basically a comment about how quickly the market reacts to news. In a regulated marketplace with a high degree of information available, market efficiency should be quite high. This basically means that stock markets in developed countries have enough traders and enough news reporting that as soon as something public is known about a company, there are many, many people who take that information and attempt to predict the impact on future earnings of the company. For example, if Starbucks announces earnings that were 10% less than estimated previously, the market will quickly respond with people buying Starbucks shares lowering their price on the assumption that the total value of the Starbucks company has decreased. Most of this trading analysis is done by institutional investors. It isn't simply office workers selling shares on their break in the coffee room, it's mostly people in the finance industry who specialize in various areas for their firms, and work to quickly react to news like this. Is the market perfectly efficient? No. The psychology of trading [ie: people panicking, or reacting based on emotion instead of logic], as well as any inadequacy of information, means that not all news is perfectly acted upon immediately. However, my personal opinion is that for large markets, the market is roughly efficient enough that you can assume that you won't be able to read the newspaper and analyze stock news in a way better than the institutional investors. If a market is generally efficient, then it would be very difficult for a group of people to manipulate it, because someone else would quickly take advantage of that. For example, you suggest that some people might collectively 'short AMZN' [a company worth half a trillion dollars, so your nefarious group would need to have $5 Billion of capital just to trade 1% of the company]. If someone did that, the rest of the market would happily buy up AMZN at reduced prices, and the people who shorted it would be left holding the bag. However, when you deal with smaller items, some more likely market manipulation can occur. For example, when trading penny stocks, there are people who attempt to manipulate the stock price and then make a profitable trade afterwards. This takes advantage of the low amount of information available for tiny companies, as well as the limited number of institutional investors who pay attention to them. Effectively it attempts to manipulate people who are not very sophisticated. So, some manipulation can occur in markets with limited information, but for the most part prices are determined by the 'market consensus' on what the future profits of a company will be. Additional example of what a share really is: Imagine your neighbor has a treasure chest on his driveway: He gathers the neighborhood together, and asks if anyone wants to buy a % of the value he will get from opening the treasure chest. Perhaps it's a glass treasure chest, and you can mostly see inside it. You see that it is mostly gold and silver, and you weigh the chest and can see that it's about 100 lbs all together. So in your head, you take the price of gold and silver, and estimate how much gold is in the chest, and how much silver is there. You estimate that the chest has roughly $1,000,000 of value inside. So, you offer to buy 10% of the chest, for $90k [you don't want to pay exactly 10% of the value of the company, because you aren't completely sure of the value; you are taking on some risk, so you want to be compensated for that risk]. Now assume all your neighbors value the chest themselves, and they come up with the same approximate value as you. So your neighbor hands out little certificates to 10 of you, and they each say \\\"\\\"this person has a right to 10% of the value of the treasure chest\\\"\\\". He then calls for a vote from all the new 'shareholders', and asks if you want to get the money back as soon as he sells the chest, or if you want him to buy a ship and try and find more chests. It seems you're all impatient, because you all vote to fully pay out the money as soon as he has it. So your neighbor collects his $900k [$90k for each 10% share, * 10], and heads to the goldsmith to sell the chest. But before he gets there, a news report comes out that the price of gold has gone up. Because you own a share of something based on the price of gold, you know that your 10% treasure chest investment has increased in value. You now believe that your 10% is worth $105k. You put a flyer up around the neighborhood, saying you will sell your share for $105k. Because other flyers are going up to sell for about $103-$106k, it seems your valuation was mostly consistent with the market. Eventually someone driving by sees your flyer, and offers you $104k for your shares. You agree, because you want the cash now and don't want to wait for the treasure chest to be sold. Now, when the treasure chest gets sold to the goldsmith, assume it sells for $1,060,000 [turns out you underestimated the value of the company]. The person who bought your 10% share will get $106k [he gained $2k]. Your neighbor who found the chest got $900k [because he sold the shares earlier, when the value of the chest was less clear], and you got $104k, which for you was a gain of $14k above what you paid for it. This is basically what happens with shares. Buy owning a portion of the company, you have a right to get a dividend of future earnings. But, it could take a long time for you to get those earnings, and they might not be exactly what you expect. So some people do buy and sell shares to try and earn money, but the reason they are able to do that is because the shares are inherently worth something - they are worth a small % of the company and its earnings.\\\"\",\n \"There are no flat fees but typically banks and money exchangers will use a the current market rate, up to the minute for some powerful exchangers. They then add a little on top depending on many variables. Those variables can be related to the quantity of currency that organization holds, the average amount they hold, the market trend for that currency, the stability of the currency, the location of that currency exchange, etc. As for the one stop shop for currency exchange providers, you can try moneysupermarket.com Hope that helps.\",\n \"Have an upvote. I don't really understand the issue of money competition. There really isn't anything stopping me from putting my wealth in any other currency, or any other store of value for that matter (gold, stocks, bonds, lollipops, prison cigarettes). The value of a domestic currency is affected by the relative value of these others.\",\n \"There are many things that can make a company's share price go up or down. Generally, over the long term, the more consistently profitable a company is the more its share price will go up. However, there are times when a company may not be making any profits yet but its share price still goes up. This can be due to forecasts that the company will start making profits in the near future. Sometimes a company may report increased profits from the previous year but makes less than what the market was expecting it to make. This can cause its share price to fall, as the market is disappointed in the results. In the shorter term greed, fear and speculation can make a company's share price move irrationally. When you think the share price should be going up it suddenly falls, and Vis-versa. When interest rates are low, companies with higher dividend yields (compared to bank account interest rates) become high in demand and their shares generally go up in price. As the share price goes up the dividend yield will be reduced unless the company continues to increase the dividend it distributes to shareholders. When interest rates start to rise these companies become less favourable as they are seen as higher risk comparable to similar returns from having one's money in the safety of the bank. This can cause the share prices to fall. These are just some of the reasons that make a company's share price move up or down. As humans are an irrational bunch often ruled by emotions, sometimes the reasons share prices move in a particular direction can be quite confusing, but that is the nature of the financial markets.\",\n \"The mechanism of supply and demand is imperfect. Producers don't know exactly how many purchasers/consumers for a good there are. Some goods, by their nature, are in short supply, and some are plentiful. The process of price discovery is one where (in a nominally free market) producers and purchasers make offers and counter-offers to assess what the price should be. As they do this the historical price changes, usually floating around some long-term average. As it goes up, we experience inflation. As it goes down, deflation. However, there isn't a fixed supply of producers and purchasers, so as new ones arrive and old ones leave, this too has an impact on supply and prices. Money (either in electronic or physical form) needs to be available to reflect the transactions and underpin the economy. Most central banks (at least in more established economies) aim for inflation of 2-4% by controlling the availability of money and the cost of borrowing new money. There are numerous ways they can do this (printing, issuing bonds, etc.). The reason one wants some degree of inflation is because employees will never accept a pay cut even when one would significantly improve the overall economy. Companies often decrease their prices in order to match lower demand, but employees don't usually accept decreased wages for decreased labour demand. A nominal degree of overall money inflation therefore solves this problem. Employees who get a below-inflation wage increase are actually getting a wage cut. Supply and demand must be matched and some inflation is the inevitable consequence of this.\",\n \"\\\"I can, but it takes a significant amount of time. I'll do a short version which unfortunatley might leave more holes than you like. Basically, traders don't want to barter because it is hard to find the person with precisely the goods you want who wants to trade for the goods you have. Thus the need for \\\"\\\"coupons\\\"\\\" that represent value in a marketplace. Then you need to decide who gets to create coupons. If too many can issue them, problems arise, and no one trusts the coupons will be good later. Eventually you want one large bank/nation/trader to be able to issue them so everyone has the same level of trust in them, and you don't have the economic inefficiencies of many coupon issuers. Next, the number of coupons needs to be enough to facilitate trade. If the amount of trade increases a lot, and the number of coupons doesn't increase similarly they become worth more, and people start to hoard them. This causes deflation, which causes less investment, which causes less growth, which hurts everyone in the long run. If there are too many coupons added, this causes inflation, which causes people to spent them quicker instead of holding them. For reasons I won't cover here slight, predictable inflation is much better than deflation, so remember inflation is slightly preferred. Note that inflation is often caused not by the number of coupons but by external price changes. Now, for a modern economy to do well, somone has to watch the economy, measure it carefully, and add/subtract coupons into the system as needed. Coupons, like all money, have no real value (whatever that means), but only have value because the holder expects to be able to trade them *later* for goods and services. You cannot eat coupons, use them for shelter (usually!), or wear them, but you want to trade them for such needs. The same is true for paper money, gold, stones, or almost whatever money system one uses. Money in all these forms is merely an IOU tradable for future goods. The Fed is tasked (among other things) with making sure there is precisely enough coupons in the economy to keep trade functioning as well as possible. This is very hard to do since there are external and internal shocks to an economy (think disaster, foreign govts shutting off resources, rapid changes in people's tastes, etc.). Central banks such as the Fed need to be independent of political control, since empirical evidence has shown that politicians tend to add more money to the system than is needed, because the short term gains give them votes, but the long term consequences (rapid inflation, unemployment, lower economic growth) are bad for society. This is why the Fed is largely out of congressional control, and large amounts of empirical evidence across hundreds of years and dozens of cultures shows this to be good. Note: another function of the Fed is to be a lender of last resort to help prevent bank panics that were widespread in the 18th and early 19th century, something that none of us now remember, but it was a real problem. I'll skip that part for now. So now we're at the point where the Fed needs to add/subtract coupons from society. To do this part justice takes significant time to cover all the reasons why various rules are in place (banking reserve requirements, for example), and you cannot learn it from one pass of reading. But I'll try. Instead of being like the majority of internet fools that rail against the system, try to learn the *why* of all this, and you'll be much wiser and understand that it is all a pretty good system. One method they use is the interbank lending rate. Banks have a reserve requirement, which is the ratio of coupons they need to have on hand as a ratio compared to the total coupons depositors lent them. This is usually around 1:10. The amount deposited that they can lend goes to business loans, school loans, mortgage loans, etc., and helps economies grow. Now when a bank on a given day falls short due to too many withdrawals, other banks (or the Fed) offers an overnight loan to meet reserve requirements, and the Fed sets the interest rate, which in turn drives other interest rates in the system. This does not change the money supply very much. Secondly, the Fed sets the reserve requirement, which vastly can change the amount of money available to society. But they change this rate so rarely (all the historical data is on the St. Loius Fed site, among others) that it is not usually an issue. I'll explain below how this can drastically change the money supply though the money multiplier. Thirdly, and this is the part the poster above seems upset about, they conduct open market operations. This is the primary means by which the Fed exercises control over the number of coupons in play. The government, like businesses, like individuals, often needs to borrow money, in theory to invest in wise causes like infrastructure or perhaps money making enterprises such as technology investmeny (and I know what they often use the money for causes many to complain). The government, like companies, offers the sale of various contracts such as bonds to investors, who want a place to park some accumulated coupons for safety, and they get a return plus some interest. So the government sells bonds on the open market to investors, banks, pensions, foreign governments, basically to whomever wishes to purchase them at the market rate, and the government, like many individuals and banks, uses these loans to perform day to day functioning and possible smooth out volatility in spending needs. By law the Fed cannot purchase directly from Treasury. Now, once on the market, these bonds are traded, packaged, resold, etc., since they have inherent value, and since those owning them want to buy/sell them, perhaps before maturity date. This \\\"\\\"liquidity\\\"\\\" (ability to sell your goods) is necessary - fewer would purchase an item if they could not sell it when they desire. Thus bonds are bought, sold, and traded, and their prices fluctuate based on what the market thinks they are worth, just like any good. Now, the Fed can buy/sell these bonds on the *open market*, like anyone else. So when the Fed wishes to increase the money supply, they can buy bonds that are not \\\"\\\"spendable\\\"\\\" money and inject money into the system. Note they now hold a bond that had at the time of transaction the same value as the money they injected. Note investors freely bought these from Treasury, meaning the market thought at the time of purchase that this was a good invesement. It is *not* the government merely wishing more money into existance. It is market forces that require more money for trades and is selling goods from the marketplace of (presumably) equal value to the Fed. This increases liquidity, but takes valuable assets from circulation. When the Fed wishes to shrink the money supply, they sell these bonds back into circulation basically by offering better terms than Treasury. In fact, you can find graphs of the Fed operations and see how every December they inject money for more Christmas shpping (need more coupons for more trade) and every January they extract some. So open market transactions, buying and selling goods at market prices in the marketplace along with other traders, is how the Fed injects and removes money from the money supply. This is the primary mechanism that the Fed uses to control the number of coupons in the economy. Finally, a little about reserve requirements and the money multiplier, since it affects so much of the number of coupons in play. This also I must simplify drastically. Each bank needs to hold 1/10 of all deposits in cash. The rest can be lent, which lands in another bank, which again can be lent, etc... Thus each $1 deposited can result in loans totalling 9/10 + (9/10)^2 + (9/10)^3 +... = 9 more dollars. Many people claim that banks are printing money, which is nonsense, since each also has an equal debt to pay to the person they borrowed from. When all loans are paid back there is no net money gain. However, this allows for each $1 the Fed injects by buying bonds for there to be up to $9 in the economy, *if banks all loan to the fullest extent*. Banks tend to want to loan since loaned money makes them profit. Banks used to loan too much and runs on the banks caused significant problems, which is why laws were made to require *all* banks to have the same reserve requirement. Now, when banks get scared and stop loaning, this 9 fold multiplier dries up, and the Fed has much less inpact on being able to target the proper number of coupons to keep the economy smooth. During the recent crash when banks stopped loaning, as each dollar was paid back on debts, there was significant shrinkage of available money for transactions, and this kills the economy. This is the \\\"\\\"liquidity crisis\\\"\\\". Hope this helps. As I said, this is vastly simplified and I cannot go into all the reasons and historical items needed to understand it fully. It is a vastly complex (and necessarily so) and takes significant study to grasp the genius of it. It's similar to not being able to understand nuances of particle physics in one go, but as you study and work at it you see *why* things go as they do, and you learn all the failed methods (the gold standard is one example) that were thrown out for many good reasons. Cheers.\\\"\",\n \"\\\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (such as nationalising businesses) or general instability / scarcity. The governments act to manage that uncertainty by limiting the availability of foreign exchange and pegging the exchange rate. Since there is an inadequate supply of trusted foreign currency people turn to informal exchanges in order to hedge their currency risk. This creates a negative feedback loop. People in government who have access to foreign exchange start to trade on informal markets, pocketing the difference in the official and unofficial rates. The increasing gap between the two rates drives increasing informal market exchange and can result in speculative bubbles. Driving instability (or economic contradiction) is that the massive and increasing difference between the official and market exchange rates becomes a powerful form of rent for government officials. This drives further state-led rent-seeking behaviour and causes the economy to become even more unstable. If you're interested in a more formal academic study of how such parallel markets in currency arise, \\\"\\\"Zimbabwe’s Black Market for Foreign Exchange\\\"\\\" by Albert Makochekanwa at the University of Pretoria is a useful source.\\\"\",\n \"I think it depends where you live in the world, but I guess the most common would be: Major Equity Indices I would say major currency exchange rate: And have a look at the Libors for USD and EUR. I guess the intent of the question is more to see how implicated you are in the daily market analysis, not really to see if you managed to learn everything by heart in the morning.\",\n \"\\\"This is a complicated subject, because professional traders don't rely on brokers for stock quotes. They have access to market data using Level II terminals, which show them all of the prices (buy and sell) for a given stock. Every publicly traded stock (at least in the U.S.) relies on firms called \\\"\\\"market makers\\\"\\\". Market makers are the ones who ultimately actually buy and sell the shares of companies, making their money on the difference between what they bought the stock at and what they can sell it for. Sometimes those margins can be in hundreds of a cent per share, but if you trade enough shares...well, it adds up. The most widely traded stocks (Apple, Microsoft, BP, etc) may have hundreds of market makers who are willing to handle share trades. Each market maker sets their own price on what they'll pay (the \\\"\\\"bid\\\"\\\") to buy someone's stock who wants to sell and what they'll sell (the \\\"\\\"ask\\\"\\\") that share for to someone who wants to buy it. When a market maker wants to be competitive, he may price his bid/ask pretty aggressively, because automated trading systems are designed to seek out the best bid/ask prices for their trade executions. As such, you might get a huge chunk of market makers in a popular stock to all set their prices almost identically to one another. Other market makers who aren't as enthusiastic will set less competitive prices, so they don't get much (maybe no) business. In any case, what you see when you pull up a stock quote is called the \\\"\\\"best bid/ask\\\"\\\" price. In other words, you're seeing the highest price a market maker will pay to buy that stock, and the lowest price that a market maker will sell that stock. You may get a best bid from one market maker and a best ask from a different one. In any case, consumers must be given best bid/ask prices. Market makers actually control the prices of shares. They can see what's out there in terms of what people want to buy or sell, and they modify their prices accordingly. If they see a bunch of sell orders coming into the system, they'll start dropping prices, and if people are in a buying mood then they'll raise prices. Market makers can actually ignore requests for trades (whether buy or sell) if they choose to, and sometimes they do, which is why a limit order (a request to buy/sell a stock at a specific price, regardless of its current actual price) that someone places may go unfilled and die at the end of the trading session. No market maker is willing to fill the order. Nowadays, these systems are largely automated, so they operate according to complex rules defined by their owners. Very few trades actually involve human intervention, because people can't digest the information at a fast enough pace to keep up with automated platforms. So that's the basics of how share prices work. I hope this answered your question without being too confusing! Good luck!\\\"\",\n \"A currency that is strong right now is one that is expensive for you to buy. The perfect one would be a currency that is weak now but will get stronger; the worst currency is one that is strong today and gets weak. If a currency stays unchanged it doesn't matter whether it is weak or strong today as long as it doesn't get weaker / stronger. (While this advice is correct, it is useless for investing since you don't know which currencies will get weaker / stronger in the future). Investing in your own currency means less risk. Your local prices are usually not affected by currency change. If you safe for retirement and want to retire in a foreign country, you might consider in that country's currency.\",\n \">IOW, everyone is perfectly free to instantaneously decide that a dollar is worth only 1/1,000,000,000th of an orange, and oranges would instantly cost a billion dollars. Oranges cost less than that not because the government sets the price of oranges, but purely because that's what the market agrees to. This shows a profound misunderstanding of how fiat currencies work. The demand for fiat currencies comes from the fact they are necessary to pay taxes and debts. Other currencies/commodities will not be recognized as settlement of debts in court disputes, so they would first need to be sold onto the market in exchange for the fiat currency. Individuals can't simply *decide* what the relative value of certain goods and services are. The market does that, collectively via voluntary trade. >I'm explaining internal combustion for a 5-year-old, and you're calling it inaccurate and misleading because it doesn't address the sociological implications of American car-culture. Hahah, you're confusing the oil for the gasoline!\",\n \"Don't really know much about futures but I'll give you a couple of options: Assuming that you are just looking around right now about currency investing, are you sure (I mean, really sure) that you want to do it?\",\n \"\\\"Relative changes in rates are significant. Why? Exchange rates encourage cross-border trade. For example, I live in an area that is now popular with Canadian tourists, mostly due to the favorable exchange rates. Changes in exchange rates between trading partners can affect trade balance as well. The US \\\"\\\"strong dollar\\\"\\\" policy made US exports expensive and imports cheaper, which encouraged more imports.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Q: How do currency markets work? A: The FX (foreign exchange) market works very much like the stock market where potential buying parties bid $Y of country 1's currency to buy $1 in country 2's currency. Potential selling parties sell (ask) $1 of country 2's currency for $Y of country 1's currency. Like the stock market, there are also a swaps, futures and options in this market. Q: What factors are behind why currencies go up or down? A: Just like any open market, currencies go up and down based on supply and demand. Many factors affect the supply and demand of a particular currency. Some were listed well by the other posts. Q: What roles do governments, central banks, institutions, and traders have in the process? A: It's common practice that gov'ts intervene to \"\"control\"\" the value of currencies. For example, although it's not general public knowledge, the Canadian gov't is actively purchasing up US dollars in the FX market in an effort to stop the US/Canadian exchange rate from dropping further. This has dramatic economic consequences for the Canadian ecomony if the Canadian dollar were to strengthen too far and too quickly.\"","\"From my limited experience with foreign exchange... Money is a commodity.. people buy it and sell it like other products.. if \"\"money\"\" is in demand the price goes up.. this is the case when a countries stocks are hot, and you need to purchase that countries currency to buy that stock... I've also seen the currency rise on news and speculation. Many years ago, I administered foreign receivables... My job was to settle letters of credit from Britain... I remember on one ocassion Margaret Thatcher said something to upset the markets.. her remark caused the price of the UK pound to fluctuate.\"","The fiat currency is the basis for currency markets - that is, currency that is not made of precious metals. The factors that influence what the value of a fiat currency are the state of the country's economy, what the gov't says the value should be, their fiscal policies, as well as what the currency is trading at. And what the currency is trading at is a product of these factors as well as the typical factors which would affect any stock trading. eHow has a great outline, here, which describes them.","\"According to Soros in \"\"The Alchemy of Finance\"\", exchange rates fluctuations are mostly influenced by: (sorry I do not have the quote here, and I am paraphrasing from the top of my head what I read about a week ago). I mention his point of view as he is one of the most successful hedge fund manager ever, proved his skills, and dealt a lot with currencies. This is not just theory as he actively used the above points when managing his fund (as explained in the book). What I find interesting is that, according to him, the fundamental reason (the balance of trade) is not the most influential. Speculation on future value of currencies is the most influential, and these can set trends that can last years. Also it is key to notice that Soros thought foreign exchange markets are \"\"wrong\"\" most of the time, just like he thought stock markets are \"\"wrong\"\" most of the time (a point on which Warren Buffet and Jim Rogers also agree from my understanding).\""],"string":"[\n \"\\\"Q: How do currency markets work? A: The FX (foreign exchange) market works very much like the stock market where potential buying parties bid $Y of country 1's currency to buy $1 in country 2's currency. Potential selling parties sell (ask) $1 of country 2's currency for $Y of country 1's currency. Like the stock market, there are also a swaps, futures and options in this market. Q: What factors are behind why currencies go up or down? A: Just like any open market, currencies go up and down based on supply and demand. Many factors affect the supply and demand of a particular currency. Some were listed well by the other posts. Q: What roles do governments, central banks, institutions, and traders have in the process? A: It's common practice that gov'ts intervene to \\\"\\\"control\\\"\\\" the value of currencies. For example, although it's not general public knowledge, the Canadian gov't is actively purchasing up US dollars in the FX market in an effort to stop the US/Canadian exchange rate from dropping further. This has dramatic economic consequences for the Canadian ecomony if the Canadian dollar were to strengthen too far and too quickly.\\\"\",\n \"\\\"From my limited experience with foreign exchange... Money is a commodity.. people buy it and sell it like other products.. if \\\"\\\"money\\\"\\\" is in demand the price goes up.. this is the case when a countries stocks are hot, and you need to purchase that countries currency to buy that stock... I've also seen the currency rise on news and speculation. Many years ago, I administered foreign receivables... My job was to settle letters of credit from Britain... I remember on one ocassion Margaret Thatcher said something to upset the markets.. her remark caused the price of the UK pound to fluctuate.\\\"\",\n \"The fiat currency is the basis for currency markets - that is, currency that is not made of precious metals. The factors that influence what the value of a fiat currency are the state of the country's economy, what the gov't says the value should be, their fiscal policies, as well as what the currency is trading at. And what the currency is trading at is a product of these factors as well as the typical factors which would affect any stock trading. eHow has a great outline, here, which describes them.\",\n \"\\\"According to Soros in \\\"\\\"The Alchemy of Finance\\\"\\\", exchange rates fluctuations are mostly influenced by: (sorry I do not have the quote here, and I am paraphrasing from the top of my head what I read about a week ago). I mention his point of view as he is one of the most successful hedge fund manager ever, proved his skills, and dealt a lot with currencies. This is not just theory as he actively used the above points when managing his fund (as explained in the book). What I find interesting is that, according to him, the fundamental reason (the balance of trade) is not the most influential. Speculation on future value of currencies is the most influential, and these can set trends that can last years. Also it is key to notice that Soros thought foreign exchange markets are \\\"\\\"wrong\\\"\\\" most of the time, just like he thought stock markets are \\\"\\\"wrong\\\"\\\" most of the time (a point on which Warren Buffet and Jim Rogers also agree from my understanding).\\\"\"\n]","isConversational":false}}},{"rowIdx":278,"cells":{"_id":{"kind":"string","value":"10482"},"query":{"kind":"string","value":"Rollover into bond fund to do dollar cost averaging [duplicate]"},"gt_ids":{"kind":"list like","value":["549072"],"string":"[\n \"549072\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["434466","330023","18436","397976","535732","175576","120266","291015","447567","374284","598478","153178","145458","537603","406192","505597","225536","135031","250530","109455","268772","530425","41905","354291","67220","439757","525089","464264","229364","333961","24846","293320","31581","237052","278607","224782","476517","51331","34925","240975","569948","466403","31139","134005","127401","384893","500815","553318","586851","186538","342485","265817","341102","349621","361010","34688","546133","505993","335294","436622","404261","280992","201495","481312","155242","193396","57457","83860","565517","346474","329497","5710","551122","71510","41130","179282","193648","83230","263784","296426","394814","187039","506298","327556","222485","24404","269550","400356","349668","473042","104254","215296","458843","549270","347823","381104","506302","100341","465439","304804"],"string":"[\n \"434466\",\n \"330023\",\n \"18436\",\n \"397976\",\n \"535732\",\n \"175576\",\n \"120266\",\n \"291015\",\n \"447567\",\n \"374284\",\n \"598478\",\n \"153178\",\n \"145458\",\n \"537603\",\n \"406192\",\n \"505597\",\n \"225536\",\n \"135031\",\n \"250530\",\n \"109455\",\n \"268772\",\n \"530425\",\n \"41905\",\n \"354291\",\n \"67220\",\n \"439757\",\n \"525089\",\n \"464264\",\n \"229364\",\n \"333961\",\n \"24846\",\n \"293320\",\n \"31581\",\n \"237052\",\n \"278607\",\n \"224782\",\n \"476517\",\n \"51331\",\n \"34925\",\n \"240975\",\n \"569948\",\n \"466403\",\n \"31139\",\n \"134005\",\n \"127401\",\n \"384893\",\n \"500815\",\n \"553318\",\n \"586851\",\n \"186538\",\n \"342485\",\n \"265817\",\n \"341102\",\n \"349621\",\n \"361010\",\n \"34688\",\n \"546133\",\n \"505993\",\n \"335294\",\n \"436622\",\n \"404261\",\n \"280992\",\n \"201495\",\n \"481312\",\n \"155242\",\n \"193396\",\n \"57457\",\n \"83860\",\n \"565517\",\n \"346474\",\n \"329497\",\n \"5710\",\n \"551122\",\n \"71510\",\n \"41130\",\n \"179282\",\n \"193648\",\n \"83230\",\n \"263784\",\n \"296426\",\n \"394814\",\n \"187039\",\n \"506298\",\n \"327556\",\n \"222485\",\n \"24404\",\n \"269550\",\n \"400356\",\n \"349668\",\n \"473042\",\n \"104254\",\n \"215296\",\n \"458843\",\n \"549270\",\n \"347823\",\n \"381104\",\n \"506302\",\n \"100341\",\n \"465439\",\n \"304804\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"I assume by that you mean gradually buying the same mix of funds over time. If that's the case, there is no rational reason to do this. Dollar-cost averaging is an artifact of the way most people fund their 401(k). I would not consider it a viable \"\"strategy\"\". (Neither does Wikipedia) Let's say you have $100,000 that you add $10,000 at a time. When you add money, one of three things can happen: Since you can't predict the future, there's no mathematical justification for buying in segments. There's just as much chance that your funds will be worth more or less, so on average it should make little to no difference. In fact, given the time value of money there is a slight advantage to investing it all now so you can capture any future returns. You can always rebalance later to capture gains on some funds and purchase funds that are down to (hopefully) catch them on a rebound.\"","\"Dollar cost averaging is a fancy name someone came up with to say \"\"Invest all of the time\"\". I would not bother with spreading out purchases. If the market is too expensive right now ...so what? The items you sell will bring top dollar. The fund you buy will cost top dollar. It all evens out. You could sell your assets and just sit on cash, but that would require knowing when the next market drop is coming..which no one knows. Also, it never really is cash; it goes into a money market fund which is not guaranteed. I would rather own companies(VSTAX) and collect the dividend.\"","Dollar cost averaging is an great way to diversify your investment risk. There's mainly 2 things you want to achieve when you're saving for retirement: 1) Keep your principal investment; 2) Grow it. The best methods recommended by most financial institutions are as follows: 1) Diversification; 2) Re-balance. There are a lot of additional recommendations, but these are my main take away. When you dollar cost average, you're essentially diversifying your exchange risk between the value of the funds you're investing. Including the ups and downs of the value of the underlying asset, may actually be re-balancing. Picking your asset portfolio: 1) You generally want to include within your 401k or any other invest, classes of investments that do not always move in total correlation as this allows you to diversify risk; 2) I'm making a lot of assumptions here - since you may have already picked your asset classes. Consider utilizing the following to tell you when to buy or sell your underlying investment: 1) Google re-balance excel sheet to find several examples of re-balance tools to help you always buy low and sell high; 2) Enter your portfolio investment; 3) Utilize the movement to invest in the underlying assets based on market movement; and 4) Execute in an emotionless way and stick to your plan. Example - Facts 1) I have 1 CAD and 1 USD in my 401k. Plan I will invest 1 dollar in the ratio of 50/50 - forever. Let's start in 2011 since we were closer to par: 2010 - 1 CAD (value 1 USD) and 1 USD (value 1 USD) = 50/50 ratio 2011 start - 1 CAD ( value .8 USD) and 1 USD (value 1 USD) = 40/60 ratio 2011 - rebalance - invest 1 USD as follows purchase .75 CAD (.60 USD) and purchase .40 USD = total of 1 USD reinvested 2011 end - 1.75 CAD (value 1.4USD) and 1.4 USD (value 1.4 USD) - 50/50 ratio As long as the fundamentals of your underlying assets (i.e. you're not expecting hyperinflation or your asset to approach 0), this approach will always build value over time since you're always buying low and selling high while dollar averaging. Keep in mind it does reduce your potential gains - but if you're looking to max gain, it may mean you're also max potential loss - unless you're able to find A symmetrical investments. I hope this helps.","You are suggesting something called dollar cost averaging (or its cousin, dollar value averaging) - http://www.investopedia.com/articles/stocks/07/dcavsva.asp This is certainly a valid investment strategy, although personally, I feel that for long term investment, it is not necessary unless you plan on being an active trader. I still strongly encourage you to research these two methods and see if they would work well for your personal investment strategy and goals. As far as what sorts of investments for a taxable account, I have three general recommendations: As far as which company to use for your brokerage, I personally have accounts at Voya, TRowe Price and Fidelity. I would strongly recommend Fidelity out of those three, mostly due to customer service and quality and ease of use of their website. Vanguard is a great brokerage, but you don't have to choose them just because you plan to mostly invest in Vanguard funds. I also recommend you research how capital gains and dividend taxing works (and things like lost harvesting), so that you can structure your investments with taxes in mind. Do this ahead of time, don't wait until April of 2016 because it will be too late to save on taxes by then.","There have been studies which show that Dollar Cost Averaging (DCA) underperforms Lump Sum Investing (LSI). Vanguard, in particular, has published one such study. Of course, reading about advice in a study is one thing; acting on that advice can be something else entirely. We rolled over my wife's 401(k) to an IRA back in early 2007 and just did it as a lump sum. You know what happened after that. But our horizon was 25+ years at that time, so we didn't lose too much sleep over it (we haven't sold or gone to cash, either).","If you have a lump sum, you could put it into a low risk investment (which should also have low fluctuations) right away to avoid the risk of buying at a down point. Then move it into a higher risk investment over a period of time. That way you'll buy more units when the price is lower than when it's higher. Usually I hear dollar cost averaging applied to the practice of purchasing a fixed dollar amount of an investment every week or month right out of your salary. The effect is pretty minimal though, except on the highest growth portfolios, and is generally just used as a sales tool by investment councilors (in my opinion).","You shouldn't. The Dow has gained 7% annually on average since October 1915(inflation-adjusted). It has also lost 73% of its inflation-adjusted value from 1966 to 1982 meaning that it would have lost you 4.5% annually for 16 years. Furthermore, past performance is not indicative of future results. If stock markets keep performing like they have for the past 100 years, you can expect there will be a point within the next 60-or-so years your stocks will be higher in value than they were when you bought them. With funds you are paying the people managing them which means you are guaranteed to have pyramiding losses that your gains will have to offset. In your case, you are betting with no fundamental knowledge that S&P will be higher than now whenever you need the money which is not even supported by the above assumption. Dollar averaging just means you will be placing many bets which will reduce your expected losses(and your expected gains) when compared to just buying $100K worth of S&P right now. Whatever you invest in, and whatever your time-frame, don't gamble. If you can't say this company(ies) will be $X more valuable than now in X months with probability > Y, then you shouldn't be investing in it. Nobody ever made money by losing money. There are also safer investments than the stock market, like treasury bonds, even if the returns are lousy.","Dollar Cost Averaging isn't usually the best idea for lump sum investment unless your risk tolerance is very low or your time horizons are low (in which case is the stock market the right place for your money). Usually you will do better by investing immediately. There are lots of articles around on the web about why DCA doesn't work over the long term. http://en.wikipedia.org/wiki/Dollar_cost_averaging http://www.efmoody.com/planning/dollarcost.html","That doesn't sound like dollar cost averaging. That sounds like a form of day trading. Dollar cost averaging is how most people add money to their 401K, or how they add money to some IRA accounts. You are proposing a form of day trading.","Dollar cost averaging doesn't (or shouldn't) apply here. DCA is the natural way we invest in the market, buying in by a steady dollar amount each pay period, so over time we can buy more shares when the market is down, and fewer when it's higher. It's more psychological than financial. The fact is that given the market rises, on average, over time, if one has a lump sum to invest, it should be deployed based on other factors, not just DCA'd in. As I said, DCA is just how we all naturally invest from our income. The above has nothing to do with your situation. You are invested and wish to swap funds. If the funds are with the same broker, you should be able to execute this at the closing price. The sell and buy happen after hours and you wake up the next day with the newly invested portfolio. If funds are getting transferred from broker to broker, you do have a risk. The risk that they take time, say even 2 days when funds are not invested. A shame to lose a 2% market move as the cost of moving brokers. In this case, I'd do mine and my wife's at different times. To reduce that risk.","\"I up voted JoeTaxpayer but i would like add a couple of things. Dollar Cost averaging over a 5 day period is in no way practical. If you get a 1% swing in that time that would be quite a lot. Personally I think 5 years is way to long. When markets go down they go down fast. I would suggest 1 to 2 years investing quarterly. I would hate seeing you miss out on market gains for a 5 year period on the last of your money. The whole point of Dollar Cost averaging instead of market timing is the mantra \"\"Its about time in the market not timing the market\"\" So if you have money on the sidelines for years you are missing out on your time in the market.\"","Its best to dollar cost average adding say 5%-10% a quarter into the fund. That's what Clark Howard would suggest. Also make sure you do not need the money for 5 years, then you should be okay. Its tough to lose money if you keep your money there for a long period of time.","If you are investing for 10 years, then you just keep buying at whatever price the fund is at. This is called dollar-cost averaging. If the fund is declining in value from when you first bought it, then when you buy more, the AVERAGE price you bought in at is now lower. So therefore your losses are lower AND when it goes back up you will make more. Even if it continues to decline in value then you keep adding more money in periodically, eventually your position will be so large that on the first uptick you will have a huge percent gain. Anyway this is only suggested because you are in it for 10 years. Other people's investment goals vary.","If I invest X each month, where does X go - an existing (low yield) bond, or a new bond (at the current interest rate)? This has to be viewed in a larger context. If the fund has outflows greater than or equal to inflows then chances are there isn't any buying being done with your money as that cash is going to those selling their shares in the fund. If though inflows are greater than outflows, there may be some new purchases or not. Don't forget that the new purchase could be an existing bond as the fund has to maintain the duration of being a short-term, intermediate-term or long-term bond fund though there are some exceptions like convertibles or high yield where duration isn't likely a factor. Does that just depend on what the fund manager is doing at the time (buying/selling)? No, it depends on the shares being created or redeemed as well as the manager's discretion. If I put Y into a fund, and leave it there for 50 years, where does Y go when all of the bonds at the time I made the purchase mature? You're missing that the fund may buy and sell bonds at various times as for example a long-term bond fund may not have issues nearing maturity because of what part of the yield curve it is to mimic. Does Y just get reinvested in new bonds at the interest rate at that time? Y gets mixed with the other money in the fund that may increase or decrease in value over time. This is part of the risk in a bond fund where NAV can fluctuate versus a money market mutual fund where the NAV is somewhat fixed at $1/share.","As mentioned by others, dollar cost averaging is just a fancy term for how many shares your individual purchases get when you are initially adding money to your investment accounts. Once the money is invested, annual or quarterly rebalancing serves the purpose of taking advantage of higher rates of growth in particular market sectors. You define the asset allocation based on your risk profile, time to retirement, etc., then you periodically sell the shares of the investments that have grown faster than the rest and buy more shares of the investments that are relatively cheaper.","\"The iShares Barclays Aggregate Bond - ticker AGG, is a ETF that may fit the bill for you. It's an intermediate term fund with annual expenses of .20%. It \"\"seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. Aggregate Bond Index\"\"\"","You should definitely favor holding bonds in tax-advantaged accounts, because bonds are not tax-efficient. The reason is that more of their value comes in the form of regular, periodic distributions, rather than an increase in value as is the case with stocks or stock funds. With stocks, you can choose to realize all that appreciation when it is most advantageous for you from a tax perspective. Additionally, stock dividends often receive lower tax rates. For much more detail, see Tax-efficient fund placement.","Dollar cost averaging can be done in a retirement plan, and can be done for individual stock purchases, as this will increase your returns by reducing your risk, especially if you are buying a particular stock for the first time. How many time have I purchased a stock, bottom fishing, thinking I was buying at the low, only to find out there was a new low. Sitting with a thousand shares that are now down $3-$4K. I have a choice to sell at a loss, hold what I've got or double down. I usually add more shares if I'm thinking I'll recover, but at that time I'd wished I'd eased into my investment. That way I would have owned more shares at a smaller cost basis. Anything can happen in the market, not knowing whether the price will increase or decrease. In the example above a $3,000 loss is equal to the brokerage cost of about 300 trades, so trading cost should not be a factor. Now I'm not saying to slowly get into the market and miss the bull, like we're having today with Trump, but get into individual stocks slowly, being fully invested in the market. Also DCA means you do not buy equal number of shares per period, say monthly, but that you buy with the same amount of money a different number of shares, reducing your total costs. Let's say you spend $2000 on a stock trading at $10 (200 shares), if the stock rose to $20 you would spend $2000 and buy 100 shares, and if the stock dropped to $5 you would spend $2000 and buy 400 shares, by now having amassed 700 shares for $6,000. On the other hand and in contrast to DCA had you purchased 200 shares for $2000 at $10/share, then 200 shares for $4000 at $20/share, and finally 200 more shares for $1000 at $5/share, you would have amassed only 600 shares for $7000 investment.","Canadian Couch Potato has an article which is somewhat related. Ask the Spud: Can You Time the Markets? The argument roughly boils down to the following: That said, I didn't follow the advice. I inherited a sum of money, more than I had dealt with before, and I did not feel I was emotionally capable of immediately dumping it into my portfolio (Canadian stocks, US stocks, world stocks, Canadian bonds, all passive indexed mutual funds), and so I decided to add the money into my portfolio over the course of a year, twice a month. The money that I had not yet invested, I put into a money market account. That worked for me because I was purchasing mutual funds with no transaction costs. If you are buying ETFs, this strategy makes less sense. In hindsight, this was not financially prudent; I'd have been financially better off to buy all the mutual funds right at the beginning. But I was satisfied with the tradeoff, knowing that I did not have hindsight and I would have been emotionally hurt had the stock market crashed. There must be research that would prove, based on past performance, the statistically optimal time frame for dollar-cost averaging. However, I strongly suppose that the time frame is rather small, and so I would advise that you either invest the money immediately, or dollar-cost average your investment over the course of the year. This answer is not an ideal answer to your question because it is lacking such a citation.","\"You have heard the old adage \"\"Buy low, sell high\"\", right? That sounds so obvious that you'd have to wonder why they would ever bother coining such an expression. It should rank up there with \"\"Don't walk in front of a moving car\"\" on the Duh scale of advice. Well, your question demonstrates exactly why it isn't quite so obvious in the real world and that people need to be reminded of it. So, in your example, the stock prices are currently low (relative to what they have been). So per that adage, do you sell or buy when prices are low? Hint: It isn't sell. Yes. Your gut is going to tell you the exact opposite thanks to the fact that our brains are unfortunately wired to make us susceptible to the loss aversion fallacy. When the market has undergone a big drop is the WORST time to stop contributing (buying stocks). This example might help get your brain and gut to agree a little more easily: If you were talking about any other non-investment commodity, cars for instance. Your question equates to.. I really need a car, but the prices have been dropping like crazy lately. Maybe I should wait until the car dealers start raising their prices again before I buy one. Dollar Cost Averaging As littleadv suggested, if you have an automatic payroll deduction for your retirement account, you are getting the benefit of Dollar Cost Averaging. Because you are investing the same amount on a scheduled interval, you are buying more shares when they are cheap and fewer when they are expensive. It is like an automatic buy low strategy is built into the account. The alternative, which you are implying, is a market timing strategy. Under this strategy, instead of investing regularly you try to get in and out of investments right before they go up/drop. There are two MAJOR flaws with this approach: 1) Your brain will work against you (see above) and encourage you to do the exact opposite of what you should be doing. 2) Unless you are clairvoyant, this strategy isn't much better than gambling. If you are lucky it can work, but because of #1, the odds are stacked against you.\"","I'm staring at this chart and asking myself, How long a period is enough to have an average I'd be happy with regardless of the direction the market goes? 3 years? 4 years? Clearly, a lump sum investment risks a 2000 buy at 1500. Not good. Honestly, I love the question, and find it interesting, but there's likely no exact answer, just some back and forth analysis. You're investing about $40K/yr anyway. I'd suggest a 4 year timeframe is a good time to invest the new money as well. Other folk want to offer opinions? Edit - with the OP's additional info, he expects these bonuses to continue, my updated advice is to DCA quarterly if going into assets with a transaction fee or monthly if into a no-fee fund, over just a one year period.","\"You are overthinking it. Yes there is overlap between them, and you want to understand how much overlap there is so you don't end up with a concentration in one area when you were trying to avoid it. Pick two, put your money in those two; and then put your new money into those two until you want to expand into other funds. The advantage of having the money in an IRA held by a single fund family, is that moving some or all of the money from one Mutual fund/ETF to another is painless. The fact it is a retirement account means that selling a fund to move the money doesn't trigger taxes. The fact that you have about $10,000 for the IRA means that hopefully you have decades left before you need the money and that this $10,00 is just the start. You are not committed to these investment choices. With periodic re-balancing the allocations you make now will be adjusted over the decades. One potential issue. You said: \"\"I'm saving right not but haven't actually opened the account.\"\" I take it to mean that you have money in a Roth TRA account but it isn't invested into a stock fund, or that you have the money ready to go in a regular bank account and will be making a 2015 contribution into the actual IRA before tax day this year, and the 2016 contribution either at the same time or soon after. If it is the second case make sure you get the money for 2015 into the IRA before the deadline.\"","Dollar cost averaging is beneficial if you don't have the money to make large investments but are able to add to your holding over time. If you can buy the same monetary amount at regular intervals over time, your average cost per share will be lower than the stock's average value over that time. This won't necessarily get you the best price, but it will get you, on the whole, a good price and will enable you to increase your holdings over time. If you're doing frequent trading on a highly volatile stock, you don't want to use this method. A better strategy is to buy the dips: Know the range, and place limit orders toward the bottom of the range. Then place limit orders to sell toward the high end of the range. If you do it right, you might be able to build up enough money to buy and sell increasing numbers of shares over time. But like any frequent trader, you'll have to deal with transaction fees; you'll need to be sure the fees don't eat all your profit.","There is no reason to ever do DCA. You'll notice that no asset managers would ever dream of it. You should invest your money as soon as you get it. Throughout history, this is the utility maximizing choice. The market rises on average. Why would you keep money out of it?","rollover funds only mean the funds one was foolish enough to first roll into this 401(k). With no matching, and need for cash, I'd stop depositing to that account. But, from details you gave, you can't withdraw that money.","Dollar cost averaging moderates risk. But you pay for this by giving up the chance for higher gains. If you took a hundred people and randomly had them fully buy into the market over a decade period, some of those people will do very well (relative to the rest) while others will do very poorly (relatively). If you dollar cost average, your performance would fall into the middle so you don't fall into the bottom (but you won't fall into the top either).","Sounds like you're doing fine, though somewhat fuzzy: how are you allocating the $500/month? Are you doing dollar cost averaging into funds, accumulating enough $$ to buy round lots of individual stocks, market timing, etc. The summary suggestion: max out the ROTH first, then with $$$ left over, do the after tax, low-cost fund, monthly dollar cost averaging approach.","Dollar cost averaging is a great strategy to use for investment vehicles where you can't invest it in a lump sum. A 401K is perfect for this. You take a specific amount out of each paycheck and invest it either in a single fund, or multiple funds, or some programs let you invest it in a brokerage account so you can invest in virtually any mutual fund or stock. With annual or semi-annual re-balancing of your investments dollar cost averaging is the way to invest in these programs. If you have a lump sum to invest, then dollar cost averaging is not the best way to invest. Imagine you want to invest 10K and you want to be 50% bonds and 50% stocks. Under dollar cost averaging you would take months to move the money from 100% cash to 50/50 bonds/stocks. While you are slowly moving towards the allocation you want, you will spend months not in the allocation you want. You will spend way too long in the heavy cash position you were trying to change. The problem works the other way also. Somebody trying to switch from stocks to gold a few years ago, would not have wanted to stay in limbo for months. Obviously day traders don't use dollar cost averaging. If you will will be a frequent trader, DCA is not the way to go. No particular stock type is better for DCA. It is dependent on how long you plan on keeping the investment, and if you will be working with a lump sum or not. EDIT: There have be comments regarding DCA and 401Ks. When experts discuss why people should invest via a 401K, they mention DCA as a plus along with the company match. Many participants walk away with the belief that DCA is the BEST strategy. Many articles have been written about how to invest an inheritance or tax refund, many people want to use DCA because they believe that it is good. In fact in the last few years the experts have begun to discourage ever using DCA unless there is no other way.","Dollar-Cost averaging will allow you to reduce your risk while the stock prices falls provided: You must invest a fixed amount $X on a fixed time scale (i.e. every Y days). By doing this you will be able to take advantage of the lowering price by obtaining more shares per period as the price falls. But at the same time, if it starts to rise, you will already have your pig in the race. Example: Suppose you wanted to invest $300 in a company. We will do so over 3 periods. As the price falls, your average dollar cost will as well. But since you don't know where the bottom is, you cannot wait until the bottom. By trying to guess the bottom and dumping all of your investment at once you expose yourself to a higher level of risk.","\"Trying to \"\"time the market\"\" is usually a bad idea. People who do this every day for a living have a hard time doing that, and I'm guessing you don't have that kind of time and knowledge. So that leaves you with your first and third options, commonly called lump-sum and dollar cost averaging respectively. Which one to use depends on where your preferences lie on the risk/reward scpectrum. Dollar cost averaging (DCA) has lower risk and lower reward than lump sum investing. In my opinion, I don't like it. DCA only works better than lump sum investing if the price drops. But if you think the price is going to drop, why are you buying the stock in the first place? Example: Your uncle wins the lottery and gives you $50,000. Do you buy $50,000 worth of Apple now, or do you buy $10,000 now and $10,000 a quarter for the next four quarters? If the stock goes up, you will make more with lump-sum(LS) than you will with DCA. If the stock goes down, you will lose more with LS than you will with DCA. If the stock goes up then down, you will lose more with DCA than you will with LS. If the stock goes down then up, you will make more with DCA than you will with LS. So it's a trade-off. But, like I said, the whole point of you buying the stock is that you think it's going to go up, which is especially true with an index fund! So why pick the strategy that performs worse in that scenario?\"","\"If you are like most people, your timing is kind of awful. What I mean by most, is all. Psychologically we have strong tendencies to buy when the market is high and avoid buying when it is low. One of the easiest to implement strategies to avoid this is Dollar Cost Averaging. In most cases you are far better off making small investments regularly. Having said that, you may need to \"\"save\"\" a bit in order to make subsequent investments because of minimums. For me there is also a positive psychological effect of putting money to work sooner and more often. I find it enjoyable to purchase shares of a mutual fund or stock and the days that I do so are a bit better than the others. An added benefit to doing regular investing is to have them be automated. Many wealthy people describe this as a key to success as they can focused on the business of earning money in their chosen profession as opposed to investing money they have already earned. Additionally the author of I will Teach You to be Rich cites this as a easy, free, and key step in building wealth.\"","The short term bond fund, which you are pretty certain to have as an option, functions in this capacity. Its return will be low, but positive, in all but the most dramatic of rising rate scenarios. I recall a year in the 90's when rates rose enough that the bond fund return was zero or very slightly negative. It's not likely that you'd have access to simple money market or cash option.","When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that.","If you define dollar cost cost averaging as investing a specific dollar amount over a certain fixed time frame then it does not work statistically better than any other strategy for getting that money in the market. (IE Aunt Ruth wants to invest $60,000 in the stock market and does it $5000 a month for a year.) It will work better on some markets and worse on others, but on average it won't be any better. Dollar cost averaging of this form is effectively a bet that gains will occur at the end of the time period rather than the beginning, sometimes this bet will pay off, other times it won't. A regular investment contribution of what you can afford over an indefinite time period (IE 401k contribution) is NOT Dollar Cost Averaging but it is an effective investment strategy.","To optimize your return on investment, you need to buy low and sell high. If you knew that one stock had hit rock bottom, and the others had not, buying the low stock would be the best. However, unless you can predict the future, you don't know if any individual stock has hit the bottom, or if it will continue to drop. If you decide to spend the same amount of money each month on stock purchases, then when the price is low, you will automatically buy more shares, and when the price is high, you will buy fewer shares. This strategy is sometimes called dollar cost averaging. It eliminates the need to predict the future to optimize your buying. All that having been said, I agree with @Powers that at the investment amount that you are talking about and the per transaction fee you listed, a monthly investment in several stocks will cause you to lose quite a bit to transaction fees. It sounds like you need a different strategy.","The optimal time period is unambiguously zero seconds. Put it all in immediately. Dollar cost averaging reduces the risk that you will be buying at a bad time (no one knows whether now is a bad or great time), but brings with it reduction in expected return because you will be keeping a lot of money in cash for a long time. You are reducing your risk and your expected return by dollar cost averaging. It's not crazy to trade expected returns for lower risk. People do it all the time. However, if you have a pot of money you intend to invest and you do so over a period of time, then you are changing your risk profile over time in a way that doesn't correspond to changes in your risk preferences. This is contrary to finance theory and is not optimal. The optimal percentage of your wealth invested in risky assets is proportional to your tolerance for risk and should not change over time unless that tolerance changes. Dollar cost averaging makes sense if you are setting aside some of your income each month to invest. In that case it is simply a way of being invested for as long as possible. Having a pile of money sitting around while you invest it little by little over time is a misuse of dollar-cost averaging. Bottom line: forcing dollar cost averaging on a pile of money you intend to invest is not based in sound finance theory. If you want to invest all that money, do so now. If you are too risk averse to put it all in, then decide how much you will invest, invest that much now, and keep the rest in a savings account indefinitely. Don't change your investment allocation proportion unless your risk aversion changes. There are many people on the internet and elsewhere who preach the gospel of dollar cost averaging, but their belief in it is not based on sound principles. It's just a dogma. The language of your question implies that you may be interested in sound principles, so I have given you the real answer.","Your idea is a good one, but, as usual, the devil is in the details, and implementation might not be as easy as you think. The comments on the question have pointed out your Steps 2 and 4 are not necessarily the best way of doing things, and that perhaps keeping the principal amount invested in the same fund instead of taking it all out and re-investing it in a similar, but different, fund might be better. The other points for you to consider are as follows. How do you identify which of the thousands of conventional mutual funds and ETFs is the average-risk / high-gain mutual fund into which you will place your initial investment? Broadly speaking, most actively managed mutual fund with average risk are likely to give you less-than-average gains over long periods of time. The unfortunate truth, to which many pay only Lipper service, is that X% of actively managed mutual funds in a specific category failed to beat the average gain of all funds in that category, or the corresponding index, e.g. S&P 500 Index for large-stock mutual funds, over the past N years, where X is generally between 70 and 100, and N is 5, 10, 15 etc. Indeed, one of the arguments in favor of investing in a very low-cost index fund is that you are effectively guaranteed the average gain (or loss :-(, don't forget the possibility of loss). This, of course, is also the argument used against investing in index funds. Why invest in boring index funds and settle for average gains (at essentially no risk of not getting the average performance: average performance is close to guaranteed) when you can get much more out of your investments by investing in a fund that is among the (100-X)% funds that had better than average returns? The difficulty is that which funds are X-rated and which non-X-rated (i.e. rated G = good or PG = pretty good), is known only in hindsight whereas what you need is foresight. As everyone will tell you, past performance does not guarantee future results. As someone (John Bogle?) said, when you invest in a mutual fund, you are in the position of a rower in rowboat: you can see where you have been but not where you are going. In summary, implementation of your strategy needs a good crystal ball to look into the future. There is no such things as a guaranteed bond fund. They also have risks though not necessarily the same as in a stock mutual fund. You need to have a Plan B in mind in case your chosen mutual fund takes a longer time than expected to return the 10% gain that you want to use to trigger profit-taking and investment of the gain into a low-risk bond fund, and also maybe a Plan C in case the vagaries of the market cause your chosen mutual fund to have negative return for some time. What is the exit strategy?","\"I used the term \"\"bond fund\"\" to mean a mutual fund which invests in bonds. Vanguard has a list. If you live in PA, OH, MA, FL, CA, NJ, or NY there are tax free funds you can invest in on that list.\"","One thing to note before buying bond funds. The value of bonds you hold will drop when interest rates go up. Interest rates are at historical lows and pretty much have nowhere to go but up. If you are buying bonds to hold to maturity this is probably not a major concern, but for a bond fund it might impair performance if things suddenly shift in the interest rate market.","First, you should diversify your portfolio. If your entire portfolio is in the Roth IRA, then you should eventually diversify that. However, if you have an IRA and a 401k, then it's perfectly fine for the IRA to be in a single fund. For example, I used my IRA to buy a riskier REIT that my 401k doesn't support. Second, if you only have a small amount currently invested, e.g. $5500, it may make sense to put everything in a single fund until you have enough to get past the low balance fees. It's not uncommon for funds to charge lower fees to someone who has $8000, $10,000, or $12,000 invested. Note that if you deposit $10,000 and the fund loses money, they'll usually charge you the rate for less than $10,000. So try to exceed the minimum with a decent cushion. A balanced fund may make sense as a first fund. That way they handle the diversification for you. A targeted fund is a special kind of balanced fund that changes the balance over time. Some have reported that targeted funds charge higher fees. Commissions on those higher fees may explain why your bank wants you to buy. I personally don't like the asset mixes that I've seen from targeted funds. They often change the stock/bond ratio, which is not really correct. The stock/bond ratio should stay the same. It's the securities (stocks and bonds) to monetary equivalents that should change, and that only starting five to ten years before retirement. Prior to that the only reason to put money into monetary equivalents is to provide time to pick the right securities fund. Retirees should maintain about a five year cushion in monetary equivalents so as not to be forced to sell into a bad market. Long term, I'd prefer low-load index funds. A bond fund and two or three stock funds. You might want to build your balance first though. It doesn't really make sense to have a separate fund until you have enough money to get the best fees. 70-75% stocks and 25-30% bonds (should add to 100%, e.g. 73% and 27%). Balance annually when you make your new deposit.","A mutual fund that purchases bonds is a bond fund. Bond funds are considered to be less risk than a traditional stock mutual fund. The cost of this less risk is that they have earned (on average) less than mutual funds investing in stocks. Sometimes, bonds have different tax consequences than stocks.","It looks like an improvement to me, if for no other reason than lowering the expenses. But if you are around 35 years away from retirement you could consider eliminating all bond funds for now. They will pay better in a few years. And the stock market(s) will definitely go up more than bonds over the next 35 years.","Yes, you're absolutely right. For such small amounts and such large fees, almost any investment choice is pointless. Some brokers allow for commission free ETF trading. Seek them out. As you've noticed, bond interest rates are almost 0%. This is a far cry from the days of Benjamin Graham, where the USD acted more like gold, with much more frequent booms and busts. During Graham's heyday, one could sell one's bonds at super low interest rates and buy them back again when high. In his day, interest rates would be very high one year like in 2008 and next to nothing the next like in 2009, cycling back and forth, until the 1960s hit, and he didn't know what to do. Graham preferred to wait for the reversion to the mean, and act only when far from it. Those opportunities are few and far between now since fiat currencies are far better managed than they were then, the Fed-caused 2009 total destruction as an outlier to recent times. In your case, it's best to leave the bonds to the insurance companies and buy equities. If you want less volatility, buy a buy-write ETF. Bonds will surely disappoint unless one is lucky enough to hold bonds while interest rates fall from ~6% to ~3%, an eventuality that shouldn't be expected to occur again, as Bill Gross is painfully discovering.","\"Vanguard released an analysis paper in 2013 titled \"\"Dollar-cost averaging just means taking risk later.\"\" This paper explores the performance difference(s) between a dollar-cost averaging strategy and a lump sum strategy when you already possess the funds. This paper is an excellent read but the conclusion from the executive summary is: We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible. The caveat to the conclusion is weighing your emotions. If you are primarily concerned with minimizing the possibility of a loss then you should use a dollar cost averaging strategy with the understanding that, on a purely mathematical basis, the dollar cost averaging strategy is likely to under-perform a lump sum investment of the funds. The paper explores a 10 year holding period with either: The analysis includes various portfolio blends and is backtested against the United States, United Kingdom and Australian markets. Based on this, as far as I'm concerned, the rule of thumb is invest the lump sum if you're going to invest at all.\"","You are right about the stock and index funds, with dollar cost averaging over several years, the daily price of the security (especially a dividend paying security) will not matter* because your position will have accumulated larger over several entry points, some entries with cheaper shares and some entries with more expensive shares. In the future your position will be so large that any uptick will net you large gains on your original equity. *not matter being a reference to even extreme forms of volatility. But if you had all your equity in a poor company and tanked, never to rise again, then you would still be in a losing position even with dollar cost averaging. If your only other holdings are bonds, then you MAY want to sell those to free up capital.","The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.","How much money do you have in your money market fund and what in your mind is the purpose of this money? If it is your six-months-of-living-expenses emergency fund, then you might want to consider bank CDs in addition to bond funds as an alternative to your money-market fund investment. Most (though not necessarily all, so be sure to check) bank CDs can be cashed in at any time with a penalty of three months of interest, and so unless you anticipate being laid off very soon, you might get a slightly better rate of interest, FDIC insurance (which mutual funds do not have), and with any luck you may never have to break a CD and lose the interest. Building a ladder of CDs with one maturing each month might be another way to reduce the risk of loss. On the other hand, bond mutual funds are a risky bet now because your investment will lose value if interest rate go up, and as JohnFx points out, interest rates have nowhere to go but up. Finally, the amount of the investment is something that you might want to consider before making changes. If you have $50K put away as your six-month fund, you are talking of $500 versus $350 per annum in changing to a riskier investment with a 1% yield from a safer investment with a 0.7% yield. Whether bragging rights at neighborhood parties are worth the trouble is something for you to decide.","Avoiding fees would not be the primary reason to buy bonds yourself. No, the reason to buy bonds yourself in a retirement account is that you can hold them to maturity. Bond funds can and do lose value if interest rates rise (and gain it if interest rates fall). Of course the same happens with the bond that you hold, but you can hang on to it until maturity and get the face value out of it. That said, it would take some effort to put together a decent bond portfolio, especially if you were going to buy anything rated lower than the absolute best. I think it'd be fun to do, but I'm weird that way.","@JoeTaxpayer gave a great response to your first question. Here are some thoughts on the other two... 2) Transaction fees for mutual funds are tied to the class of shares you're buying and will be the same no matter where you buy them. A-shares have a front-end 'load' (the fee charged), and the lowest expenses, and can be liquidated without any fees. B-shares have no up-front load, but come with a 4-7 year period where they will charge you a fee to liquidate (technically called Contingent Deferred Sales Charge, CDSC), and slightly higher management fees, after which they often will convert to A-shares. C-shares have the highest management fees, and usually a 12- to 18-month period where they will charge a small percentage fee if you liquidate. There are lots of other share classes available, but they are tied to special accounts such as managed accounts and 401-K plans. Not all companies offer all share classes. C-shares are intended for shorter timeframes, eg 2-5 years. A and B shares work best for longer times. Use a B share if you're sure you won't need to take the money out until after the fee period ends. Most fund companies will allow you to exchange funds within the same fund family without charging the CDSC. EDIT: No-load funds don't charge a fee in or out (usually). They are a great option if they are available to you. Most self-service brokerages offer them. Few full-service brokerages offer them. The advantage of a brokerage versus personal accounts at each fund is the brokerage gives you a single view of things and a single statement, and buying and selling is easy and convenient. 3) High turnover rates in bond funds... depending on how actively the portfolio is managed, the fund company may deliver returns as a mix of both interest and capital gains, and the management expenses may be high with a lot of churn in the underlying portfolio. Bond values fall as interest rates rise, so (at least in the USA) be prepared to see the share values of the fund fall in the next few years. The biggest risk of a bond fund is that there is no maturity date, so there is no point in time that you have an assurance that your original investment will be returned to you.","\"How often should one use dollar-cost averaging? Trivially, a dollar cost averaging (DCA) strategy must be used at least twice! More seriously, DCA is a discipline that people (typically investors with relatively small amounts of money to invest each month or each quarter) use to avoid succumbing to the temptation to \"\"time the market\"\". As mhoran_psprep points out, it is well-suited to 401k plans and the like (e.g. 403b plans for educational and non-profit institutions, 457 plans for State employees, etc), and indeed is actually the default option in such plans, since a fixed amount of money gets invested each week, or every two weeks, or every month depending on the payroll schedule. Many plans offer just a few mutual funds in which to invest, though far too many people, having little knowledge or understanding of investments, simply opt for the money-market fund or guaranteed annuity fund in their 4xx plans. In any case, all your money goes to work immediately since all mutual funds let you invest in thousandths of a share. Some 401k/403b/457 plans allow investments in stocks through a brokerage, but I think that using DCA to buy individual stocks in a retirement plan is not a good idea at all. The reasons for this are that not only must shares must be bought in whole numbers (integers) but it is generally cheaper to buy stocks in round lots of 100 (or multiples of 100) shares rather than in odd lots of, say, 37 shares. So buying stocks weekly, or biweekly or monthly in a 401k plan means paying more or having the money sit idle until enough is accumulated to buy 100 shares of a stock at which point the brokerage executes the order to buy the stock; and this is really not DCA at all. Worse yet, if you let the money accumulate but you are the one calling the shots \"\"Buy 100 shares of APPL today\"\" instead of letting the brokerage execute the order when there is enough money, you are likely to be timing the market instead of doing DCA. So, are brokerages useless in retirement fund accounts? No, they can be useful but they are not suitable for DCA strategies involving buying stocks. Stick to mutual funds for DCA. Do people use it across the board on all stock investments? As indicated above, using DCA to buy individual stocks is not the best idea, regardless of whether it is done inside a retirement plan or outside. DCA outside a retirement plan works best if you not trust yourself to stick with the strategy (\"\"Ooops, I forgot to mail the check yesterday; oh, well, I will do it next week\"\") but rather, arrange for your mutual fund company to take the money out of your checking account each week/month/quarter etc, and invest it in whatever fund(s) you have chosen. Most companies have such programs under names such as Automatic Investment Program (AIP) etc. Why not have your bank send the money to the mutual fund company instead? Well, that works too, but my bank charges me for sending the money whereas my mutual fund company does AIP for free. But YMMV. Dollar-cost averaging generally means investing a fixed amount of money on a periodic basis. An alternative strategy, if one has decided that owning 1200 shares of FlyByKnight Co is a good investment to have, is to buy round lots of 100 shares of FBKCO each month. The amount of money invested each month varies, but at the end of the year, the average cost of the 1200 shares is the average of the prices on the 12 days on which the investments were made. Of course, by the end of the year, you might not think FBKCO is worth holding any more. This technique worked best in the \"\"good old days\"\" when blue-chip stocks paid what was for all practical purposes a guaranteed dividend each year, and people bought these stocks with the intention of passing them on to their widows and children.\"","just pick a good bond and invest all your money there (since they're fairly low risk) No. That is basically throwing away your money and why would you do that. And who told you they are low risk. That is a very wrong premise. What factors should I consider in picking a bond and how would they weigh against each other? Quite a number of them to say, assuming these aren't government bonds(US, UK etc) How safe is the institution issuing the bond. Their income, business they are in, their past performance business wise and the bonds issued by them, if any. Check for the bond ratings issued by the rating agencies. Read the prospectus and check for any specific conditions i.e. bonds are callable, bonds can be retired under certain conditions, what happens if they default and what order will you be reimbursed(senior debt take priority). Where are interest rates heading, which will decide the price you are paying for the bond. And also the yield you will derive from the bond. How do you intend to invest the income, coupon, you will derive from the bonds. What is your time horizon to invest in bonds and similarly the bond's life. I have invested in stocks previously but realized that it isn't for me Bonds are much more difficult than equities. Stick to government bonds if you can, but they don't generate much income, considering the low interest rates environment. Now that QE is over you might expect interest rates to rise, but you can only wait. Or go for bonds from stable companies i.e. GE, Walmart. And no I am not saying you buy their bonds in any imaginable way.","Dollar cost averaging works if the stuff you're buying goes up within your time horizon. It won't protect you from losing money if it doesn't. Also consider that the person (or company, or industry) that suggests dollar-cost averaging might want you to start up a regular investment program and put it on auto-pilot, which subsequently increases the chance that you won't give due attention to the fact that you're sending them money every paycheck to buy an investment that make them money regardless of whether you make money or not.","I believe that the Wikipedia article is attempting to draw a difference between dollar cost averaging as a result of investing when money becomes available (i.e. 401k contributions from your paycheck) and spreading out a lump sum investment. For the former you want to continuously invest as the money becomes available following your predetermined plan for allocation. For the later it may be reasonable to consider the market as you decide how and the timing for investing.","\"Option 1 is out. There are no \"\"safe returns\"\" that make much money. Besides, if a correction does come along how will you know when to invest? There is no signal that says when the bottom is reached, and you emotions could keep you from acting. Option 2 (dollar cost averaging) is prudent and comforting. There are always some bargains about. You could start with an energy ETF or a few \"\"big oil\"\" company stocks right now.\"","Dollar cost averaging is a method of regularly investing money as it is available. For example, $100 from each paycheck. It has been shown to bet better, on average, than collecting the money and investing it all at once. It is not intended to be used when you have the entire amount up front. See this link. Dollar cost averaging a lump sum would only be beneficial if the market was just as likely to go up as is to go down. Since, over time, the market (historically) has always gone up, your best bet is to invest all of your money right away. Anything else is just trying to time the market.","\"The bond funds should tell you their duration. My 401(k) has similar choices, and right now, I'm at the short maturity, i.e. under 1 year. The current return is awful, but better than the drop the longer term funds will experience as rates come back up. Not quite mathematically correct, but close enough, \"\"duration\"\" gives you the time-weighted average maturity in a way that tells you how the value responds to a rate change. If a fund has a 10 year duration, a .1% rate rise will cause the fund value to drop 1.0%.\"","Taxes Based on the numbers you quoted (-$360) it doesn't appear that you would have a taxable event if you sell all the shares in the account. If you only sell some of the shares, to fund the new account, you should specify which shares you want to sell. If you sell only the shares that you bought when share prices were high, then every share you sell could be considered a loss. This will increase your losses. These losses can be deducted from your taxes, though there are limits. Fees Make sure that you understand the fee structure. Some fund families look at the balance of all your accounts to determine your fee level, others treat each fund separately. Procedure If you were able to get the 10K into the new account in the next few months I would advise not selling the shares. Because it will be 6 to 18 months before you are able to contribute the new funds then rebalancing by selling shares makes more sense. It gets you to your goal quicker. All the funds you mentioned have low expense ratios, I wouldn't move funds just to chase a the lowest expense ratio. I would look at the steps necessary to get the mix you want in the next few weeks, and then what will be needed moving forward. If the 60/40 or 40/60 split makes you comfortable pick one of them. If you want to be able to control the balance via rebalancing or changing your contribution percentage, then go with two funds.","Buy the minimum of one fund now. (Eg total bond market) Buy the minimum of the next fund next time you have $2500. (Eg large-cap stocks.) Continue with those until you have enough to buy the next fund (eg small-cap stocks). Adjust as you go to balance these funds according to your planned ratios, or as close as you can reasonably get without having to actually transfer money between the funds more than once a year or so. Build up to your targets over time. If you can't easily afford to tie up that first $2500, stay with banks and CDs and maybe money market accounts until you can. And don't try to invest (except maybe through a matched 401k) before you have adequate savings both for normal life and for an emergency reserve. Note too that the 401k can be a way to buy into funds without a minimum. Check with your employer. If you haven't maxed out your 401k yet, and it has matching funds, that is usually the place to start saving for retirement; otherwise you are leaving free money on the table.","\"Since you have emphasized that you don't mind about variability, and that you have other funds you could liquidate, then I think a solution is to do with this money the same thing that you are already doing with those other funds. Then when you need the money, if the market has gone up sell the lots that were part of your original \"\"other funds\"\", which presumably have aged enough to qualify for long term gains rates, and let the newly purchased shares take their place.\"","More often than not the market will rise year on year. Your best move is to put the $5000 in on Jan 2. Are you in the 15% bracket? If not, that is, if higher, I'd suggest the traditional, deductible, IRA.","The fee representing the expense ratio is charged as long as you hold the investment. It is deducted daily from the fund assets, and thus reduces the price per share (NAV per share) that is calculated each day after the markets close. The investment fee is charged only when you make an investment in the fund. So, invest in the fund in one swell foop (all $5500 or $6500 for older people, all invested in a single transaction) rather than make monthly investments into the fund (hold the money in a money-market within your Roth IRA if need be). But, do check if there are back-end loads or 12b1 fees associated with the fund. The former often disappear after a few years; the latter are another permanent drain on performance. Also, please check whether reinvestment of dividends and capital gains incur the $75 transaction fee.","Here is a deliberately simple example of Dollar Cost averaging: Day 1: Buy 100 shares at $10. Total value = $1,000. Average cost per share = $10.00/share (easy). Day 2: Buy 100 more shares at $9. Total value = $1,900. Average cost per share = $9.50/share (1,900/200). Notice how your average cost per share went from $10.00 to $9.50. Now instead of hoping the stock rises above $10.00 a share to make a profit, you only need it to go to $9.50 a share (assuming no commissions or transaction fees). It's easy to see how this could work to your advantage. The only catch is that you need buy more of a stock that is dropping (people might think you're crazy). This could easily backfire if the stock continues to drop.","You will maximize your expected wealth by investing all the money you intend to invest, as soon as you have it available. Don't let the mythos of dollar cost averaging induce you to allocate more much money to a savings account than is optimal. If you want the positive expected return of the market, don't put your money in a savings account. That's especially true now, when you are certainly earning a negative real interest rate on your savings account. Dollar cost averaging and putting all your money in at the beginning would have the same expected return except that if you put all your money in earlier, it spends more time in the market, so your expected return is higher. Your volatility is also higher (because your savings account would have very low volatility) but your preference for investment tells me that you view the expected return and volatility tradeoff of the stock market as acceptable. If you need something to help you feel less stress about investing right away, think of it as dollar cost averaging on a yearly basis instead of monthly. Further, you take take comfort in knowing that you have allocated your wealth as you can instead of letting it fizzle away in real terms in a bank account.","\"A bond fund will typically own a range of bonds of various durations, in your specific fund: The fund holds high-quality long-term New York municipal bonds with an average duration of approximately 6–10 years So through this fund you get to own a range of bonds and the fund price will behave similar to you owning the bonds directly. The fund gives you a little diversification in terms of durations and typically a bit more liquidity. It also may continuously buy bonds over time so you get some averaging vs. just buying a bond at a given time and holding it to maturity. This last bit is important, over long durations the bond fund may perform quite differently than owning a bond to maturity due to this ongoing refresh. Another thing to remember is that you're paying management fees for the fund's management. As with any bond investment, the longer the duration the more sensitive the price is to change in interest rates because when interest rates change the price will track it. (i.e. compare a change of 1% for a one year duration vs. 1% yearly over 10 years) If I'm correct, why would anyone in the U.S. buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? That is the multi-trillion dollar question. Bond prices today reflect what \"\"people\"\" are willing to pay for them. Those \"\"people\"\" include the Federal Reserve which through various programs (QE, Operate Twist etc.) has been forcing the interest rates to where they want to see them. If no one believed the Fed would be able to keep interest rates where they want them then the prices would be different but given that investors know the Fed has access to an infinite supply of money it becomes a more difficult decision to bet against that. (aka \"\"Don't fight the Fed\"\"). My personal belief is that rates will come up but I haven't been able to translate that belief into making money ;-) This question is very complex and has to do not only with US policies and economy but with the status of the US currency in the world and the world economy in general. The other saying that comes to mind in this context is that the market can remain irrational (and it certainly seems to be that) longer than you can remain solvent.\"","You have to look at the market conditions and make decisions based on them. Ideally, you may want to have 30% of your portfolio in bonds. But from a practical point of view, it's probably not so smart to invest in bond funds right at this moment given the interest rate market. Styles of funds tend to go into and out of style. I personally do asset allocation two ways in my 457 plan (like a 401k for government workers): In my IRA, I invest in a portfolio of 5-6 stocks. The approach you take is dependent on what you are able to put into it. I invest about 10 hours a week into investment related research. If you can't do that, you want a strategy that is simpler -- but you still need to be cognizant of market conditions.","I think you're not applying the right time scale here. ESPP (Employee Stock Purchase Plan) is usually vesting every 6 months. So every half a year you receive a chunk of stocks based on your salary deduction, with the 15% discount. Every half a year you have a chunk of money from the sale of these stocks that you're going to put into your long term investment portfolio. That is dollar cost averaging. You're investing periodically (every 6 months in this case), same (based on your salary deferral) amount of money, regardless of the stock market behavior. That is precisely what dollar cost averaging is.","Since you are paying taxes on the distributions from your mutual funds anyway, instead of reinvesting the distributions back into the mutual funds, you could receive them as cash, then contribute them to your Roth IRA once you are able to open one.","The Vanguard Emerging Market Bond Index has a SEC yield of 4.62%, an expense ratio of 0.34%, a purchase fee of 0.75%, and an average duration of 6.7 years. The Vanguard Emerging Market Bond Index only invests in US Dollar denominated securities, so it is not exposed to currency risk. The US Intermediate Term Bond Index Fund has a SEC yield of 2.59%, an expense ratio of 0.1% and an average duration of 6.5 years. So after expenses, the emerging market bond fund gives you 1.04% of extra yield (more in subsequent years as the purchase fee is only paid once). Here are the results of a study by Vanguard: Based on our findings, we believe that most investors should consider adding [currency risked] hedged foreign bonds to their existing diversified portfolios. I think a globally diversified bond portfolio results in a portfolio that's more diversified.","If it had immediate purchase power of $525, can I use that to buy more $500 bonds over and over again? Your idea is flawed. You can't just make money out of thin air, unless you are running a Ponzi scheme.","I'm looking for ways to geared to save for retirement, not general investment. Many mutual fund companies offer a range of target retirement funds for different retirement dates (usually in increments of 5 years). These are funds of funds, that is, a Target 2040 Fund, say, will be invested in five or six different stock and bond mutual funds offered by the same company. Over the years and as the target date approaches closer, the investment mix will change from extra weight given to stock mutual funds towards extra weight being given to bond mutual funds. The disadvantage to these funds is that the Target Fund charges its own expense ratio over and above the expense ratios charged by the mutual funds it invests in: you could do the same investments yourself (or pick your own mix and weighting of various funds) and save the extra expense ratio. However, over the years, as the Target Fund changes its mix, withdrawing money from the stock mutual funds and investing the proceeds into bond mutual funds, you do not have to pay taxes on the profits generated by these transactions except insofar as some part of the profits become distributions from the Target Fund itself. If you were doing the same transactions outside the Target Fund, you would be liable for taxes on the profits when you withdrew money from a stock fund and invested the proceeds into the bond fund.","You are right; Rollover is a process, and not an account type; the result is a Traditional IRA. There is no such thing as a 'Rollover IRA Account'. Rolling a 401(k) over to a Traditional IRA makes sense if a) you have to, because you leave the employer the 401(k) is with; b) because you Traditional IRA is cheaper or more flexible or in other ways 'better' for you, or c) if your next step is a backdoor rollover to a Roth IRA. Most of the time, it doesn't make sense, because employer 401(k) are often better and cheaper. Of course, for the investment company where you roll it too, it makes a lot of sense, because they get your money, so they recommend it. But that's only good for them, not for you. Of course you can roll into an existing account, if you want to roll. Making a new account has no advantage. I cannot imagine any IRA custodian wouldn't take rollovers; they would shoot themselves in the foot by that. What can happen - and you should consider this - that your IRA only accepts cash, and does not allow to transfer the shares you have in the 401(k). That means you have to sell and then re-buy, and you might lose a lot in fees there.","\"As Michael Pryor answered, a bond fund is a mutual fund that invests in bonds. I'd also consider an ETF based on bonds to be a bond fund, but I'm not sure that all investors would consider these as \"\"bond funds\"\". Not all bond funds are the same -- just like stock funds. You can classify bond funds based on the issuer of the bonds: You can also classify funds based on the time to maturity: In general, bond funds have lower risk and lower expected return than stock funds. Sometimes bond funds have price movements that are not tightly correlated to the price movements in the equity markets. This can make them a decent hedge against declines in your equity investments. See Michal Pryor's answer for some info on how you can get tax free treatment for your bond fund investments.\"","If you have other savings, the diversification occurs across the accounts. e.g. my 401(k) has access to the insanely low .02% fee VIIIX (Vanguard S&P fund) You can bet it's 100% in. My IRAs are the other assets that make the full picture look better allocated. A new investor has the issue you suggest, although right now, you can deposit $5500 for 2013, and $5500 for 2014, so with $11K available, you can start with $6 or $9K and start with 2 or 3 funds. Or $9K now, but with $500 left over for the '14 deposit, you can deposit $6K in early '15. The disparity of $3K min/$5500 annual limit is annoying, I agree, but shouldn't be a detriment to your planning.","\"Value averaging has you shift the balance of your portfolio over time, not the amount of contributions. So you can only do it if you have a portfolio holding both risky assets (shares etc) and some cash. You start out by making a plan about how much you will contribute every month and at what rate you expect the share part of the portfolio to grow. Perhaps based on 20th century data you think an 8% growth rate is reasonable. Or alternatively if you know your desired final amount obviously you can work backwards to a desired rate from that. If in any month the share part is falling below its expected growth path, you would put more money into it: possibly your whole paycheck contribution plus some from the savings cash account. On the other hand if the share component is growing \"\"too fast\"\" you would put all your additional savings into cash. So if your investments are doing well, you're not supposed to spend the excess money, but rather to put it aside into a dedicated cash account to top up your share component when prices fall. In theory, this has the auto-levelling benefit of Dollar Cost Averaging, but even better: when prices are high, you'll automatically buy fewer shares, or even sell some; conversely when prices are low you'll buy extra shares from your reserve account. If it turns out your estimate was unreasonably optimistic, and over your lifetime shares only ever average 3%, you'll end up with an entirely share portfolio, and a bumpier ride than you might have liked. If you have horrible luck and over your entire investing life shares return less than cash (which has happened, though not yet in the USA), then this will be worse than a standard balanced portfolio. The original book Value Averaging by Edelson has a pretty good explanation of various cases, though I would say some of the examples are worked in excessive detail. I have not implemented this myself, one reason being that the amount I'm able to save from year to year varies, as it probably does for you, and so predicting a path is not quite so simple as he assumes. You could still do it I suppose. I think you could get a very crude approximation to this by simply directing your savings into cash when the share market's rate of growth over the last several years is above what you think is the long term average.\"","\"First, do you get charged a commission or other fee for reinvesting? Second, why would capital gains and dividends be grouped together? If the broker charges you for that run away. As Joe explained, it is done as a courtesy. Doesn't this mean if I sell the stock, the profit will be used to buy that stock right back? No, this is only the capital gains distributions of funds. Lastly, there are two additional checkbox options I was hoping somebody could explain: \"\"All equity positions currently held in this account\"\" and \"\"Future equity purchases, transfers, and deposits to this account\"\". \"\"All equity positions\"\" means your selection will be valid for all the positions you already have. \"\"Future positions\"\" means it will only affect future positions, not the ones you already have. For example: FOLLOW-UP: Looking around, some people suggest not doing this for taxable accounts because it complicates cost basis reporting. Is this a valid concern? Doesn't the brokerage handle that and send you the information when you sell the stock? Yes, because you end up with tons of positions and you need to track the cost basis for each. Brokers are required to report cost-basis on 1099-B now, so its less of a problem, but before 2011 you'd have 10's of positions each year (if you have a monthly dividend, for example) each with different cost basis, and you'd usually sell them all at once. Go figure the gain. So the new 1099-B reporting regulations help a little on this, but it only kicks in for everything starting of 2013 IIRC. Fortunately, for some investments (mutual funds, mainly) you may chose averaging, but it has drawbacks as well.\"","\"In general, I'd try to keep things as simple as possible. If your plan is to have a three-fund portfolio (like Total Market, Total International, and Bond), and keep those three funds in general, then having it separated now and adding them all as you invest more is fine. (And upgrade to Admiral Shares once you hit the threshold for it.) Likewise, just putting it all into Total Market as suggested in another answer, or into something like a Target Retirement fund, is just fine too for that amount. While I'm all in favor of as low expense ratios as possible, and it's the kind of question I might have worried about myself not that long ago, look at the actual dollar amount here. You're comparing 0.04% to 0.14% on $10,000. That 0.1% difference is $10 per year. Any amount of market fluctuation, or buying on an \"\"up\"\" day or selling on a \"\"down\"\" day, is going to pretty much dwarf that amount. By the time that difference in expense ratios actually amounts to something that's worth worrying about, you should have enough to get Admiral Shares in all or at least most of your funds. In the long run, the amount you manage to invest and your asset allocation is worth much much more than a 0.1% expense ratio difference. (Now, if you're going to talk about some crazy investment with a 2% expense ratio or something, that's another story, but it's hard to go wrong at Vanguard in that respect.)\"","It may be true for a bond fund. But it is not true for bond etf. Bond etf will drop by the same amount when it distribute dividend on ex-dividend date.","What is the question? A total return fund seeks to just maximize total returns, as opposed to benchmark tracking, low vol, high vol, sectoral, whatever, this is just a name you gotta read the long prospectus to see how they are supposed to go about doing it. Fixed income investing DOES NOT rely on on interest rates, it relies on the movements of interest rates (this is a key difference). When economies are doing poorly, there is a flight to quality (everyone is scared and lends only to governments) driving government interest rate downs and increasing the spread between government rates and corporates. My usual advice is There is never a good time to buy a mutual fund :P, better to buy an ETF or a portfolio of ETF's that correspond to your views. You need to sit down and ask yourself what type of risk tolerances you're willing to take as mutual funds by construction deliver negative alpha due to fees.","I personally invest in 4 different ETFs. I have $1000 to invest every month. To save on transaction costs, I invest that sum in only one ETF each month, the one that is most underweight at the time. For example, I invest in XIC (30%), VTI (30%), VEA (30%), and VWO (10%). One month, I'll buy XIC, next month VTA, next month, VEA, then XIC again. Eventually I'll buy VWO when it's $1000 underweight. If one ETF tanks, I may buy it twice in a row to reach my target allocation, or if it shoots up, I may skip buying it for a while. My actual asset allocation never ends up looking exactly like the target, but it trends towards it. And I only pay one commission a month. If this is in a tax-sheltered account (main TFSA or RRSP), another option is to invest in no-load index mutual funds that match the ETFs each month (assuming there's no commission to buy them). Once they reach a certain amount, sell and buy the equivalent ETFs. This is not a good approach in a non-registered account because you will have to pay tax on any capital gains when selling the mutual funds.","It's important to remember that upward trending things spend the vast majority of their time at all time highs - intelligent, well meaning people have been regularly saying the Dow Jones has been too expensive since about 2010, often because it was now at 'all time highs': Sitting on the sidelines can end up just as expensive (if not more so) than avoiding big drops. If you are worried about a large down swing straight after investing just drip it in over a period you feel comfortable with - no one can really answer this better than that without more info on your risk tolerance and exactly what you want to invest in. Worth noting that buying anything other than transaction free funds when split into small transactions also adds a lot more fees (~£10 entry and exit in a UK ISA for example). Split these over 12 months say, and it will cost you £240 straight out of the gate (2 fund purchases per month for 12 months @£10 each) and another £240 to exit before any holding fees from the ISA platform: that's over 1% of your capital gone just to your stockbroker employing this strategy. Both the products you mention are also quite high cost in ongoing charges, so unless you have very high convictions about the management quality, will also probably lag cheaper investment types over the long run as well due to the dire performance of virtually all higher cost, active management over time.","well, you know the problem lies with bonds maturing. The issue is not the function COMP but the security itself. You have to use existing total return indices that reflect a constant 10yr maturity position. >perpetually rolled the principal once the bond matured until the present? That would mean your 10y becomes 7y, 5y, 3y, 1y, matured then you reinvest. Not the same. Use SECF to find something like MLT1US10 Index or go to the IND page to see Merrill Lynch's bond indices. They're some of the best.","\"The person who told you \"\"no-load funds\"\" had the right idea. Since you are risk-averse, you tend to want a \"\"value\"\" fund; that is, it's not likely to grow in value (that would be a \"\"growth\"\" fund), but it isn't like to fall either. To pick an example more-or-less at random, Fidelity Blue Chip Value Fund \"\"usually\"\" returns around 8% a year, which in your case would have meant about $20,000 every year -- but it's lost 4.35% in the last year. I like Fidelity, as a brokerage as well as a fund-manager. Their brokers are salaried, so they have no incentive to push load funds or other things that make them, but not you, money. For intermediate investors like you and me, they seem like a good choice. Be careful of \"\"short term\"\". Most funds have some small penalty if you sell within 90 days. Carve off whatever amount you think you might need and keep that in your cash account. And a piece of personal advice: don't be too risk-averse. You don't need this money. For you, the cost of losing it completely is exactly equal as the benefit of doubling it. You can afford to be aggressive. Think of it this way: the expected return of a no-load fund is around 5%-7%. For a savings account, the return is within rounding error of zero. Do you spend that much, $15,000, on anything in your life right now? Any recreation or hobby or activity. Maybe your rent or your tuition. Why spend it for a vague sense of \"\"safety\"\", when you are in no danger of losing anything that you need?\"","This is just a pedestrian (my) opinion: Yes, It is wise to invest in bond funds even in a low interest environment. Check out the lazy man's portfolio on bogleheads. The reason is:","\"You are asking multiple questions here, pieces of which may have been addressed in other questions. A bond (I'm using US Government bonds in this example, and making the 'zero risk of default' assumption) will be priced based on today's interest rate. This is true whether it's a 10% bond with 10 years left (say rates were 10% on the 30 yr bond 20 years ago) a 2% bond with 10 years, or a new 3% 10 year bond. The rate I use above is the 'coupon' rate, i.e. the amount the bond will pay each year in interest. What's the same for each bond is called the \"\"Yield to Maturity.\"\" The price adjusts, by the market, so the return over the next ten years is the same. A bond fund simply contains a mix of bonds, but in aggregate, has a yield as well as a duration, the time-and-interest-weighted maturity. When rates rise, the bond fund will drop in value based on this factor (duration). Does this begin to answer your question?\"","You will be rolling over the proceeds, since you can only deposit cash into an IRA. However, this should probably not affect your considerations much since the pre-rollover sale is non-taxable within the 401k and the period of roll-over itself (when the cash is uninvested) is relatively short. So, whatever investments you choose in your 401k, you'll just sell them and then buy them (or similar investments) back after the rollover to the IRA. If you're worrying about a flash crash right on the day when you want to cash out - that can definitely happen, but it is not really something you can prepare for. You can consider moving to money market several weeks before the potential date of your withdrawal, if you think it will make you feel safer, otherwise I don't think it really matters.","For the rollover, you should probably talk to the recipient manager. This would be your broker or whomever (your new employer if rolling into another 401k). They should be able to update you on progress and let you know if you need to do anything. In a comment, you say I could be putting in money but instead im lossing. There is no requirement that an IRA have 401k money in it. Just put the money in without the existing money. Eventually the rollover will complete and add that money to whatever you contribute to the IRA. The rollover should not affect your future contributions in any way.","Buy a fund of bonds, there are plenty and are registered on your stockbroker account as 'funds' rather than shares. Otherwise, to the individual investor, they can be considered as the same thing. Funds (of bonds, rather than funds that contain property or shares or other investments) are often high yield, low volatility. You buy the fund, and let the manager work it for you. He buys bonds in accordance to the specification of the fund (ie some funds will say 'European only', or 'global high yield' etc) and he will buy and sell the bonds regularly. You never hold to maturity as this is handled for you - in many cases, the manager will be buying and selling bonds all the time in order to give you a stable fund that returns you a dividend. Private investors can buy bonds directly, but its not common. Should you do it? Up to you. Bonds return, the company issuing a corporate bond will do so at a fixed price with a fixed yield. At the end of the term, they return the principal. So a 20-year bond with a 5% yield will return someone who invests £10k, £500 a year and at the end of the 20 years will return the £10k. The corporate doesn't care who holds the bond, so you can happily sell it to someone else, probably for £10km give or take. People say to invest in bonds because they do not move much in value. In financially difficult times, this means bonds are more attractive to investors as they are a safe place to hold money while stocks drop, but in good times the opposite applies, no-one wants a fund returning 5% when they think they can get 20% growth from a stock.","\"Your funds are in a retirement account. Withdrawals from your IRA will be penalized if you withdraw before you turn 59.5 years old, and you appear to be decades away from that age. The general advice I would give you is to pick a \"\"target year fund\"\" that targets the year you turn 59.5. The stock market is more volatile, but its average gains will protect you from inflation just eating your funds. Bonds are in counterpoint to your stocks - more stable, and protecting you from the chance that stocks dip right before you want to withdraw. Target year funds start with higher amounts of stock, and gradually rebalance towards bonds over time. Thus, you take your market risks earlier while you can benefit from the market's gains, and then have stability when you actually would want to retire and depend on the savings.\"","This is more than likely a thing about your financial institution and the exchanges where they trade shares. Some exchanges cannot/will not handle odd lot transactions. Most established brokerages have software and accounting systems that will deal in round lots with the exchanges, but can track your shares individually. Sometimes specific stocks cannot be purchased in odd lots due to circumstances specific to that stock (trading only on a specific exchange, for example). Most brokerages offer dollar-cost averaging programs, but may limit which stocks are eligible, due to odd lot and partial share purchases. Check with your brokerage to see if they can support odd lot and/or DCA purchases. You may find another similar ETF with similar holdings that has better trading conditions, or might consider an open-end mutual fund with similar objectives. Mutual funds allow partial share purchases (you have $100 to invest today, and they issue you 35.2 shares, for example).","There was a time that a rule of thumb stated your stock allocation should be 100-your age. That rule suggests that you are at 65%stock/35% bond/cash. If you are comfortable having this money 100% invested, the best advice would be dollar cost averaging, anything more specific would suggest market timing.","Many folks use bonds to diversify their portfolio since bonds rise and fall in value at different times and for different reasons than stocks. Bonds pay interest on a regular basis (usually monthly or quarterly) and so some people invest in bonds in order to match the interest payments to some regular expense they might have. The interest payment does not change (fixed income). For individual bonds, there is a maturity date at which you can expect to receive the face value of the bond (the issuer's creditworthiness is important here). You can make a little money on a bond by buying it when its value is lower than its face value and either selling later for a higher value, or waiting for it to mature. Often the minimum investment for a single bond is high, so if you don't have a large enough amount, you can still get the performance of bonds through a bond fund. These do not mature, so you don't have a guarantee of a return of your investment. However, they have access to more bonds than retail investors, so the funds can keep your money more fully invested. If you don't need the income, you can reinvest the dividends and have a little extra capital growth this way.","If you have the money put it in, and invest the money over a few months. Always keep a modest reserve of cash to give you the flexibility to take advantage of market opportunities.","The following advice assumes that you have a significant amount already in the account in cash equivalents. If you are only talking a few hundred bucks or so, then just jump in at the next dip (like today's). If you have a larger amount to move into equities, the safest approach is to gradually move it into investments over some period of time at regular intervals regardless of what is going on in the market. This mitigates the risk of investing it all into an fund that is peaking at the exact moment you buy. So, for example, you might invest 20% of the total amount each month for 5 months to gradually get into the market. The larger the amount you are investing, the more you probably want to spread it out, but don't spread it out much further than a year or you are losing opportunity cost by leaving your money in cash-type investments with likely a very poor rate of return. This strategy is called dollar-cost averaging if you want to research it more.","For most people, you don't want individual bonds. Unless you are investing very significant amounts of money, you are best off with bond funds (or ETFs). Here in Canada, I chose TDB909, a mutual fund which seeks to roughly track the DEX Universe Bond index. See the Canadian Couch Potato's recommended funds. Now, you live in the U.S. so would most likely want to look at a similar bond fund tracking U.S. bonds. You won't care much about Canadian bonds. In fact, you probably don't want to consider foreign bonds at all, due to currency risk. Most recommendations say you want to stick to your home country for your bond investments. Some people suggest investing in junk bonds, as these are likely to pay a higher rate of return, though with an increased risk of default. You could also do fancy stuff with bond maturities, too. But in general, if you are just looking at an 80/20 split, if you are just looking for fairly simple investments, you really shouldn't. Go for a bond fund that just mirrors a big, low-risk bond index in your home country. I mean, that's the implication when someone recommends a 60/40 split or an 80/20 split. Should you go with a bond mutual fund or with a bond ETF? That's a separate question, and the answer will likely be the same as for stock mutual funds vs stock ETFs, so I'll mostly ignore the question and just say stick with mutual funds unless you are investing at least $50,000 in bonds.","You report what you contributed (sum of monthly investments that you made) to the bond fund. Distributions are the earnings in the account that stay in the account and have no tax consequences (in particular, you don't report them as income on your tax returns) until you withdraw the money later.","Since you already have twice your target in that emergency fund, putting that overage to work is a good idea. The impression that I get is that you'd still like to stay on the safe side. What you're looking for is a Balanced Fund. In a balanced fund the managers invest in both stocks and bonds (and cash). Since you have that diversification between those two asset classes, their returns tend to be much less volatile than other funds. Also, because of their intended audience and the traditions from that class of funds' long history, they tend to invest somewhat more conservatively in both asset classes. There are two general types of balanced funds: Conservative Allocation funds and Moderate Allocation funds. Conservative allocation funds invest in more fixed income than equity (the classic mix is 60% bonds, 40% stocks). Moderate allocation funds invest in more equity than fixed income (classic mix: 40% bonds, 60% stocks). A good pair of funds that are similar but exemplify the difference between conservative allocation and moderate allocation are Vanguard's Wellesley Income Fund (VWINX) for the former and Vanguard's Wellington Fund (VWELX) for the latter. (Disclaimer: though both funds are broadly considered excellent, this is not a recommendation.) Good luck sorting this out!","2%? I would put in just what it takes to share in the profit sharing, not a dime more. My S&P fund cost is .02% (edited, as it dropped to .02 since original post), 1/100 of the cost of most funds you list. Doesn't take too many years of this fee to negate the potential tax savings, and not many more to make this a real loser.","According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.","That would be my suggestion (and what I've personally done), but I can't tell you what's right for you. As an aside, you don't usually need to manually fund an IRA (traditional *or* Roth) to open it for a rollover - Just tell them you're doing a rollover, and they'll set you up and tell you where to have the 401k checks sent (and sometimes even arrange it all *for* you).","I am understanding the OP to mean that this is for an emergency fund savings account meant to cover 3 to 6 months of living expenses, not a 3-6 month investment horizon. Assuming this is the case, I would recommend keeping these funds in a Money Market account and not in an investment-grade bond fund for three reasons:"],"string":"[\n \"\\\"I assume by that you mean gradually buying the same mix of funds over time. If that's the case, there is no rational reason to do this. Dollar-cost averaging is an artifact of the way most people fund their 401(k). I would not consider it a viable \\\"\\\"strategy\\\"\\\". (Neither does Wikipedia) Let's say you have $100,000 that you add $10,000 at a time. When you add money, one of three things can happen: Since you can't predict the future, there's no mathematical justification for buying in segments. There's just as much chance that your funds will be worth more or less, so on average it should make little to no difference. In fact, given the time value of money there is a slight advantage to investing it all now so you can capture any future returns. You can always rebalance later to capture gains on some funds and purchase funds that are down to (hopefully) catch them on a rebound.\\\"\",\n \"\\\"Dollar cost averaging is a fancy name someone came up with to say \\\"\\\"Invest all of the time\\\"\\\". I would not bother with spreading out purchases. If the market is too expensive right now ...so what? The items you sell will bring top dollar. The fund you buy will cost top dollar. It all evens out. You could sell your assets and just sit on cash, but that would require knowing when the next market drop is coming..which no one knows. Also, it never really is cash; it goes into a money market fund which is not guaranteed. I would rather own companies(VSTAX) and collect the dividend.\\\"\",\n \"Dollar cost averaging is an great way to diversify your investment risk. There's mainly 2 things you want to achieve when you're saving for retirement: 1) Keep your principal investment; 2) Grow it. The best methods recommended by most financial institutions are as follows: 1) Diversification; 2) Re-balance. There are a lot of additional recommendations, but these are my main take away. When you dollar cost average, you're essentially diversifying your exchange risk between the value of the funds you're investing. Including the ups and downs of the value of the underlying asset, may actually be re-balancing. Picking your asset portfolio: 1) You generally want to include within your 401k or any other invest, classes of investments that do not always move in total correlation as this allows you to diversify risk; 2) I'm making a lot of assumptions here - since you may have already picked your asset classes. Consider utilizing the following to tell you when to buy or sell your underlying investment: 1) Google re-balance excel sheet to find several examples of re-balance tools to help you always buy low and sell high; 2) Enter your portfolio investment; 3) Utilize the movement to invest in the underlying assets based on market movement; and 4) Execute in an emotionless way and stick to your plan. Example - Facts 1) I have 1 CAD and 1 USD in my 401k. Plan I will invest 1 dollar in the ratio of 50/50 - forever. Let's start in 2011 since we were closer to par: 2010 - 1 CAD (value 1 USD) and 1 USD (value 1 USD) = 50/50 ratio 2011 start - 1 CAD ( value .8 USD) and 1 USD (value 1 USD) = 40/60 ratio 2011 - rebalance - invest 1 USD as follows purchase .75 CAD (.60 USD) and purchase .40 USD = total of 1 USD reinvested 2011 end - 1.75 CAD (value 1.4USD) and 1.4 USD (value 1.4 USD) - 50/50 ratio As long as the fundamentals of your underlying assets (i.e. you're not expecting hyperinflation or your asset to approach 0), this approach will always build value over time since you're always buying low and selling high while dollar averaging. Keep in mind it does reduce your potential gains - but if you're looking to max gain, it may mean you're also max potential loss - unless you're able to find A symmetrical investments. I hope this helps.\",\n \"You are suggesting something called dollar cost averaging (or its cousin, dollar value averaging) - http://www.investopedia.com/articles/stocks/07/dcavsva.asp This is certainly a valid investment strategy, although personally, I feel that for long term investment, it is not necessary unless you plan on being an active trader. I still strongly encourage you to research these two methods and see if they would work well for your personal investment strategy and goals. As far as what sorts of investments for a taxable account, I have three general recommendations: As far as which company to use for your brokerage, I personally have accounts at Voya, TRowe Price and Fidelity. I would strongly recommend Fidelity out of those three, mostly due to customer service and quality and ease of use of their website. Vanguard is a great brokerage, but you don't have to choose them just because you plan to mostly invest in Vanguard funds. I also recommend you research how capital gains and dividend taxing works (and things like lost harvesting), so that you can structure your investments with taxes in mind. Do this ahead of time, don't wait until April of 2016 because it will be too late to save on taxes by then.\",\n \"There have been studies which show that Dollar Cost Averaging (DCA) underperforms Lump Sum Investing (LSI). Vanguard, in particular, has published one such study. Of course, reading about advice in a study is one thing; acting on that advice can be something else entirely. We rolled over my wife's 401(k) to an IRA back in early 2007 and just did it as a lump sum. You know what happened after that. But our horizon was 25+ years at that time, so we didn't lose too much sleep over it (we haven't sold or gone to cash, either).\",\n \"If you have a lump sum, you could put it into a low risk investment (which should also have low fluctuations) right away to avoid the risk of buying at a down point. Then move it into a higher risk investment over a period of time. That way you'll buy more units when the price is lower than when it's higher. Usually I hear dollar cost averaging applied to the practice of purchasing a fixed dollar amount of an investment every week or month right out of your salary. The effect is pretty minimal though, except on the highest growth portfolios, and is generally just used as a sales tool by investment councilors (in my opinion).\",\n \"You shouldn't. The Dow has gained 7% annually on average since October 1915(inflation-adjusted). It has also lost 73% of its inflation-adjusted value from 1966 to 1982 meaning that it would have lost you 4.5% annually for 16 years. Furthermore, past performance is not indicative of future results. If stock markets keep performing like they have for the past 100 years, you can expect there will be a point within the next 60-or-so years your stocks will be higher in value than they were when you bought them. With funds you are paying the people managing them which means you are guaranteed to have pyramiding losses that your gains will have to offset. In your case, you are betting with no fundamental knowledge that S&P will be higher than now whenever you need the money which is not even supported by the above assumption. Dollar averaging just means you will be placing many bets which will reduce your expected losses(and your expected gains) when compared to just buying $100K worth of S&P right now. Whatever you invest in, and whatever your time-frame, don't gamble. If you can't say this company(ies) will be $X more valuable than now in X months with probability > Y, then you shouldn't be investing in it. Nobody ever made money by losing money. There are also safer investments than the stock market, like treasury bonds, even if the returns are lousy.\",\n \"Dollar Cost Averaging isn't usually the best idea for lump sum investment unless your risk tolerance is very low or your time horizons are low (in which case is the stock market the right place for your money). Usually you will do better by investing immediately. There are lots of articles around on the web about why DCA doesn't work over the long term. http://en.wikipedia.org/wiki/Dollar_cost_averaging http://www.efmoody.com/planning/dollarcost.html\",\n \"That doesn't sound like dollar cost averaging. That sounds like a form of day trading. Dollar cost averaging is how most people add money to their 401K, or how they add money to some IRA accounts. You are proposing a form of day trading.\",\n \"Dollar cost averaging doesn't (or shouldn't) apply here. DCA is the natural way we invest in the market, buying in by a steady dollar amount each pay period, so over time we can buy more shares when the market is down, and fewer when it's higher. It's more psychological than financial. The fact is that given the market rises, on average, over time, if one has a lump sum to invest, it should be deployed based on other factors, not just DCA'd in. As I said, DCA is just how we all naturally invest from our income. The above has nothing to do with your situation. You are invested and wish to swap funds. If the funds are with the same broker, you should be able to execute this at the closing price. The sell and buy happen after hours and you wake up the next day with the newly invested portfolio. If funds are getting transferred from broker to broker, you do have a risk. The risk that they take time, say even 2 days when funds are not invested. A shame to lose a 2% market move as the cost of moving brokers. In this case, I'd do mine and my wife's at different times. To reduce that risk.\",\n \"\\\"I up voted JoeTaxpayer but i would like add a couple of things. Dollar Cost averaging over a 5 day period is in no way practical. If you get a 1% swing in that time that would be quite a lot. Personally I think 5 years is way to long. When markets go down they go down fast. I would suggest 1 to 2 years investing quarterly. I would hate seeing you miss out on market gains for a 5 year period on the last of your money. The whole point of Dollar Cost averaging instead of market timing is the mantra \\\"\\\"Its about time in the market not timing the market\\\"\\\" So if you have money on the sidelines for years you are missing out on your time in the market.\\\"\",\n \"Its best to dollar cost average adding say 5%-10% a quarter into the fund. That's what Clark Howard would suggest. Also make sure you do not need the money for 5 years, then you should be okay. Its tough to lose money if you keep your money there for a long period of time.\",\n \"If you are investing for 10 years, then you just keep buying at whatever price the fund is at. This is called dollar-cost averaging. If the fund is declining in value from when you first bought it, then when you buy more, the AVERAGE price you bought in at is now lower. So therefore your losses are lower AND when it goes back up you will make more. Even if it continues to decline in value then you keep adding more money in periodically, eventually your position will be so large that on the first uptick you will have a huge percent gain. Anyway this is only suggested because you are in it for 10 years. Other people's investment goals vary.\",\n \"If I invest X each month, where does X go - an existing (low yield) bond, or a new bond (at the current interest rate)? This has to be viewed in a larger context. If the fund has outflows greater than or equal to inflows then chances are there isn't any buying being done with your money as that cash is going to those selling their shares in the fund. If though inflows are greater than outflows, there may be some new purchases or not. Don't forget that the new purchase could be an existing bond as the fund has to maintain the duration of being a short-term, intermediate-term or long-term bond fund though there are some exceptions like convertibles or high yield where duration isn't likely a factor. Does that just depend on what the fund manager is doing at the time (buying/selling)? No, it depends on the shares being created or redeemed as well as the manager's discretion. If I put Y into a fund, and leave it there for 50 years, where does Y go when all of the bonds at the time I made the purchase mature? You're missing that the fund may buy and sell bonds at various times as for example a long-term bond fund may not have issues nearing maturity because of what part of the yield curve it is to mimic. Does Y just get reinvested in new bonds at the interest rate at that time? Y gets mixed with the other money in the fund that may increase or decrease in value over time. This is part of the risk in a bond fund where NAV can fluctuate versus a money market mutual fund where the NAV is somewhat fixed at $1/share.\",\n \"As mentioned by others, dollar cost averaging is just a fancy term for how many shares your individual purchases get when you are initially adding money to your investment accounts. Once the money is invested, annual or quarterly rebalancing serves the purpose of taking advantage of higher rates of growth in particular market sectors. You define the asset allocation based on your risk profile, time to retirement, etc., then you periodically sell the shares of the investments that have grown faster than the rest and buy more shares of the investments that are relatively cheaper.\",\n \"\\\"The iShares Barclays Aggregate Bond - ticker AGG, is a ETF that may fit the bill for you. It's an intermediate term fund with annual expenses of .20%. It \\\"\\\"seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. Aggregate Bond Index\\\"\\\"\\\"\",\n \"You should definitely favor holding bonds in tax-advantaged accounts, because bonds are not tax-efficient. The reason is that more of their value comes in the form of regular, periodic distributions, rather than an increase in value as is the case with stocks or stock funds. With stocks, you can choose to realize all that appreciation when it is most advantageous for you from a tax perspective. Additionally, stock dividends often receive lower tax rates. For much more detail, see Tax-efficient fund placement.\",\n \"Dollar cost averaging can be done in a retirement plan, and can be done for individual stock purchases, as this will increase your returns by reducing your risk, especially if you are buying a particular stock for the first time. How many time have I purchased a stock, bottom fishing, thinking I was buying at the low, only to find out there was a new low. Sitting with a thousand shares that are now down $3-$4K. I have a choice to sell at a loss, hold what I've got or double down. I usually add more shares if I'm thinking I'll recover, but at that time I'd wished I'd eased into my investment. That way I would have owned more shares at a smaller cost basis. Anything can happen in the market, not knowing whether the price will increase or decrease. In the example above a $3,000 loss is equal to the brokerage cost of about 300 trades, so trading cost should not be a factor. Now I'm not saying to slowly get into the market and miss the bull, like we're having today with Trump, but get into individual stocks slowly, being fully invested in the market. Also DCA means you do not buy equal number of shares per period, say monthly, but that you buy with the same amount of money a different number of shares, reducing your total costs. Let's say you spend $2000 on a stock trading at $10 (200 shares), if the stock rose to $20 you would spend $2000 and buy 100 shares, and if the stock dropped to $5 you would spend $2000 and buy 400 shares, by now having amassed 700 shares for $6,000. On the other hand and in contrast to DCA had you purchased 200 shares for $2000 at $10/share, then 200 shares for $4000 at $20/share, and finally 200 more shares for $1000 at $5/share, you would have amassed only 600 shares for $7000 investment.\",\n \"Canadian Couch Potato has an article which is somewhat related. Ask the Spud: Can You Time the Markets? The argument roughly boils down to the following: That said, I didn't follow the advice. I inherited a sum of money, more than I had dealt with before, and I did not feel I was emotionally capable of immediately dumping it into my portfolio (Canadian stocks, US stocks, world stocks, Canadian bonds, all passive indexed mutual funds), and so I decided to add the money into my portfolio over the course of a year, twice a month. The money that I had not yet invested, I put into a money market account. That worked for me because I was purchasing mutual funds with no transaction costs. If you are buying ETFs, this strategy makes less sense. In hindsight, this was not financially prudent; I'd have been financially better off to buy all the mutual funds right at the beginning. But I was satisfied with the tradeoff, knowing that I did not have hindsight and I would have been emotionally hurt had the stock market crashed. There must be research that would prove, based on past performance, the statistically optimal time frame for dollar-cost averaging. However, I strongly suppose that the time frame is rather small, and so I would advise that you either invest the money immediately, or dollar-cost average your investment over the course of the year. This answer is not an ideal answer to your question because it is lacking such a citation.\",\n \"\\\"You have heard the old adage \\\"\\\"Buy low, sell high\\\"\\\", right? That sounds so obvious that you'd have to wonder why they would ever bother coining such an expression. It should rank up there with \\\"\\\"Don't walk in front of a moving car\\\"\\\" on the Duh scale of advice. Well, your question demonstrates exactly why it isn't quite so obvious in the real world and that people need to be reminded of it. So, in your example, the stock prices are currently low (relative to what they have been). So per that adage, do you sell or buy when prices are low? Hint: It isn't sell. Yes. Your gut is going to tell you the exact opposite thanks to the fact that our brains are unfortunately wired to make us susceptible to the loss aversion fallacy. When the market has undergone a big drop is the WORST time to stop contributing (buying stocks). This example might help get your brain and gut to agree a little more easily: If you were talking about any other non-investment commodity, cars for instance. Your question equates to.. I really need a car, but the prices have been dropping like crazy lately. Maybe I should wait until the car dealers start raising their prices again before I buy one. Dollar Cost Averaging As littleadv suggested, if you have an automatic payroll deduction for your retirement account, you are getting the benefit of Dollar Cost Averaging. Because you are investing the same amount on a scheduled interval, you are buying more shares when they are cheap and fewer when they are expensive. It is like an automatic buy low strategy is built into the account. The alternative, which you are implying, is a market timing strategy. Under this strategy, instead of investing regularly you try to get in and out of investments right before they go up/drop. There are two MAJOR flaws with this approach: 1) Your brain will work against you (see above) and encourage you to do the exact opposite of what you should be doing. 2) Unless you are clairvoyant, this strategy isn't much better than gambling. If you are lucky it can work, but because of #1, the odds are stacked against you.\\\"\",\n \"I'm staring at this chart and asking myself, How long a period is enough to have an average I'd be happy with regardless of the direction the market goes? 3 years? 4 years? Clearly, a lump sum investment risks a 2000 buy at 1500. Not good. Honestly, I love the question, and find it interesting, but there's likely no exact answer, just some back and forth analysis. You're investing about $40K/yr anyway. I'd suggest a 4 year timeframe is a good time to invest the new money as well. Other folk want to offer opinions? Edit - with the OP's additional info, he expects these bonuses to continue, my updated advice is to DCA quarterly if going into assets with a transaction fee or monthly if into a no-fee fund, over just a one year period.\",\n \"\\\"You are overthinking it. Yes there is overlap between them, and you want to understand how much overlap there is so you don't end up with a concentration in one area when you were trying to avoid it. Pick two, put your money in those two; and then put your new money into those two until you want to expand into other funds. The advantage of having the money in an IRA held by a single fund family, is that moving some or all of the money from one Mutual fund/ETF to another is painless. The fact it is a retirement account means that selling a fund to move the money doesn't trigger taxes. The fact that you have about $10,000 for the IRA means that hopefully you have decades left before you need the money and that this $10,00 is just the start. You are not committed to these investment choices. With periodic re-balancing the allocations you make now will be adjusted over the decades. One potential issue. You said: \\\"\\\"I'm saving right not but haven't actually opened the account.\\\"\\\" I take it to mean that you have money in a Roth TRA account but it isn't invested into a stock fund, or that you have the money ready to go in a regular bank account and will be making a 2015 contribution into the actual IRA before tax day this year, and the 2016 contribution either at the same time or soon after. If it is the second case make sure you get the money for 2015 into the IRA before the deadline.\\\"\",\n \"Dollar cost averaging is beneficial if you don't have the money to make large investments but are able to add to your holding over time. If you can buy the same monetary amount at regular intervals over time, your average cost per share will be lower than the stock's average value over that time. This won't necessarily get you the best price, but it will get you, on the whole, a good price and will enable you to increase your holdings over time. If you're doing frequent trading on a highly volatile stock, you don't want to use this method. A better strategy is to buy the dips: Know the range, and place limit orders toward the bottom of the range. Then place limit orders to sell toward the high end of the range. If you do it right, you might be able to build up enough money to buy and sell increasing numbers of shares over time. But like any frequent trader, you'll have to deal with transaction fees; you'll need to be sure the fees don't eat all your profit.\",\n \"There is no reason to ever do DCA. You'll notice that no asset managers would ever dream of it. You should invest your money as soon as you get it. Throughout history, this is the utility maximizing choice. The market rises on average. Why would you keep money out of it?\",\n \"rollover funds only mean the funds one was foolish enough to first roll into this 401(k). With no matching, and need for cash, I'd stop depositing to that account. But, from details you gave, you can't withdraw that money.\",\n \"Dollar cost averaging moderates risk. But you pay for this by giving up the chance for higher gains. If you took a hundred people and randomly had them fully buy into the market over a decade period, some of those people will do very well (relative to the rest) while others will do very poorly (relatively). If you dollar cost average, your performance would fall into the middle so you don't fall into the bottom (but you won't fall into the top either).\",\n \"Sounds like you're doing fine, though somewhat fuzzy: how are you allocating the $500/month? Are you doing dollar cost averaging into funds, accumulating enough $$ to buy round lots of individual stocks, market timing, etc. The summary suggestion: max out the ROTH first, then with $$$ left over, do the after tax, low-cost fund, monthly dollar cost averaging approach.\",\n \"Dollar cost averaging is a great strategy to use for investment vehicles where you can't invest it in a lump sum. A 401K is perfect for this. You take a specific amount out of each paycheck and invest it either in a single fund, or multiple funds, or some programs let you invest it in a brokerage account so you can invest in virtually any mutual fund or stock. With annual or semi-annual re-balancing of your investments dollar cost averaging is the way to invest in these programs. If you have a lump sum to invest, then dollar cost averaging is not the best way to invest. Imagine you want to invest 10K and you want to be 50% bonds and 50% stocks. Under dollar cost averaging you would take months to move the money from 100% cash to 50/50 bonds/stocks. While you are slowly moving towards the allocation you want, you will spend months not in the allocation you want. You will spend way too long in the heavy cash position you were trying to change. The problem works the other way also. Somebody trying to switch from stocks to gold a few years ago, would not have wanted to stay in limbo for months. Obviously day traders don't use dollar cost averaging. If you will will be a frequent trader, DCA is not the way to go. No particular stock type is better for DCA. It is dependent on how long you plan on keeping the investment, and if you will be working with a lump sum or not. EDIT: There have be comments regarding DCA and 401Ks. When experts discuss why people should invest via a 401K, they mention DCA as a plus along with the company match. Many participants walk away with the belief that DCA is the BEST strategy. Many articles have been written about how to invest an inheritance or tax refund, many people want to use DCA because they believe that it is good. In fact in the last few years the experts have begun to discourage ever using DCA unless there is no other way.\",\n \"Dollar-Cost averaging will allow you to reduce your risk while the stock prices falls provided: You must invest a fixed amount $X on a fixed time scale (i.e. every Y days). By doing this you will be able to take advantage of the lowering price by obtaining more shares per period as the price falls. But at the same time, if it starts to rise, you will already have your pig in the race. Example: Suppose you wanted to invest $300 in a company. We will do so over 3 periods. As the price falls, your average dollar cost will as well. But since you don't know where the bottom is, you cannot wait until the bottom. By trying to guess the bottom and dumping all of your investment at once you expose yourself to a higher level of risk.\",\n \"\\\"Trying to \\\"\\\"time the market\\\"\\\" is usually a bad idea. People who do this every day for a living have a hard time doing that, and I'm guessing you don't have that kind of time and knowledge. So that leaves you with your first and third options, commonly called lump-sum and dollar cost averaging respectively. Which one to use depends on where your preferences lie on the risk/reward scpectrum. Dollar cost averaging (DCA) has lower risk and lower reward than lump sum investing. In my opinion, I don't like it. DCA only works better than lump sum investing if the price drops. But if you think the price is going to drop, why are you buying the stock in the first place? Example: Your uncle wins the lottery and gives you $50,000. Do you buy $50,000 worth of Apple now, or do you buy $10,000 now and $10,000 a quarter for the next four quarters? If the stock goes up, you will make more with lump-sum(LS) than you will with DCA. If the stock goes down, you will lose more with LS than you will with DCA. If the stock goes up then down, you will lose more with DCA than you will with LS. If the stock goes down then up, you will make more with DCA than you will with LS. So it's a trade-off. But, like I said, the whole point of you buying the stock is that you think it's going to go up, which is especially true with an index fund! So why pick the strategy that performs worse in that scenario?\\\"\",\n \"\\\"If you are like most people, your timing is kind of awful. What I mean by most, is all. Psychologically we have strong tendencies to buy when the market is high and avoid buying when it is low. One of the easiest to implement strategies to avoid this is Dollar Cost Averaging. In most cases you are far better off making small investments regularly. Having said that, you may need to \\\"\\\"save\\\"\\\" a bit in order to make subsequent investments because of minimums. For me there is also a positive psychological effect of putting money to work sooner and more often. I find it enjoyable to purchase shares of a mutual fund or stock and the days that I do so are a bit better than the others. An added benefit to doing regular investing is to have them be automated. Many wealthy people describe this as a key to success as they can focused on the business of earning money in their chosen profession as opposed to investing money they have already earned. Additionally the author of I will Teach You to be Rich cites this as a easy, free, and key step in building wealth.\\\"\",\n \"The short term bond fund, which you are pretty certain to have as an option, functions in this capacity. Its return will be low, but positive, in all but the most dramatic of rising rate scenarios. I recall a year in the 90's when rates rose enough that the bond fund return was zero or very slightly negative. It's not likely that you'd have access to simple money market or cash option.\",\n \"When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that.\",\n \"If you define dollar cost cost averaging as investing a specific dollar amount over a certain fixed time frame then it does not work statistically better than any other strategy for getting that money in the market. (IE Aunt Ruth wants to invest $60,000 in the stock market and does it $5000 a month for a year.) It will work better on some markets and worse on others, but on average it won't be any better. Dollar cost averaging of this form is effectively a bet that gains will occur at the end of the time period rather than the beginning, sometimes this bet will pay off, other times it won't. A regular investment contribution of what you can afford over an indefinite time period (IE 401k contribution) is NOT Dollar Cost Averaging but it is an effective investment strategy.\",\n \"To optimize your return on investment, you need to buy low and sell high. If you knew that one stock had hit rock bottom, and the others had not, buying the low stock would be the best. However, unless you can predict the future, you don't know if any individual stock has hit the bottom, or if it will continue to drop. If you decide to spend the same amount of money each month on stock purchases, then when the price is low, you will automatically buy more shares, and when the price is high, you will buy fewer shares. This strategy is sometimes called dollar cost averaging. It eliminates the need to predict the future to optimize your buying. All that having been said, I agree with @Powers that at the investment amount that you are talking about and the per transaction fee you listed, a monthly investment in several stocks will cause you to lose quite a bit to transaction fees. It sounds like you need a different strategy.\",\n \"The optimal time period is unambiguously zero seconds. Put it all in immediately. Dollar cost averaging reduces the risk that you will be buying at a bad time (no one knows whether now is a bad or great time), but brings with it reduction in expected return because you will be keeping a lot of money in cash for a long time. You are reducing your risk and your expected return by dollar cost averaging. It's not crazy to trade expected returns for lower risk. People do it all the time. However, if you have a pot of money you intend to invest and you do so over a period of time, then you are changing your risk profile over time in a way that doesn't correspond to changes in your risk preferences. This is contrary to finance theory and is not optimal. The optimal percentage of your wealth invested in risky assets is proportional to your tolerance for risk and should not change over time unless that tolerance changes. Dollar cost averaging makes sense if you are setting aside some of your income each month to invest. In that case it is simply a way of being invested for as long as possible. Having a pile of money sitting around while you invest it little by little over time is a misuse of dollar-cost averaging. Bottom line: forcing dollar cost averaging on a pile of money you intend to invest is not based in sound finance theory. If you want to invest all that money, do so now. If you are too risk averse to put it all in, then decide how much you will invest, invest that much now, and keep the rest in a savings account indefinitely. Don't change your investment allocation proportion unless your risk aversion changes. There are many people on the internet and elsewhere who preach the gospel of dollar cost averaging, but their belief in it is not based on sound principles. It's just a dogma. The language of your question implies that you may be interested in sound principles, so I have given you the real answer.\",\n \"Your idea is a good one, but, as usual, the devil is in the details, and implementation might not be as easy as you think. The comments on the question have pointed out your Steps 2 and 4 are not necessarily the best way of doing things, and that perhaps keeping the principal amount invested in the same fund instead of taking it all out and re-investing it in a similar, but different, fund might be better. The other points for you to consider are as follows. How do you identify which of the thousands of conventional mutual funds and ETFs is the average-risk / high-gain mutual fund into which you will place your initial investment? Broadly speaking, most actively managed mutual fund with average risk are likely to give you less-than-average gains over long periods of time. The unfortunate truth, to which many pay only Lipper service, is that X% of actively managed mutual funds in a specific category failed to beat the average gain of all funds in that category, or the corresponding index, e.g. S&P 500 Index for large-stock mutual funds, over the past N years, where X is generally between 70 and 100, and N is 5, 10, 15 etc. Indeed, one of the arguments in favor of investing in a very low-cost index fund is that you are effectively guaranteed the average gain (or loss :-(, don't forget the possibility of loss). This, of course, is also the argument used against investing in index funds. Why invest in boring index funds and settle for average gains (at essentially no risk of not getting the average performance: average performance is close to guaranteed) when you can get much more out of your investments by investing in a fund that is among the (100-X)% funds that had better than average returns? The difficulty is that which funds are X-rated and which non-X-rated (i.e. rated G = good or PG = pretty good), is known only in hindsight whereas what you need is foresight. As everyone will tell you, past performance does not guarantee future results. As someone (John Bogle?) said, when you invest in a mutual fund, you are in the position of a rower in rowboat: you can see where you have been but not where you are going. In summary, implementation of your strategy needs a good crystal ball to look into the future. There is no such things as a guaranteed bond fund. They also have risks though not necessarily the same as in a stock mutual fund. You need to have a Plan B in mind in case your chosen mutual fund takes a longer time than expected to return the 10% gain that you want to use to trigger profit-taking and investment of the gain into a low-risk bond fund, and also maybe a Plan C in case the vagaries of the market cause your chosen mutual fund to have negative return for some time. What is the exit strategy?\",\n \"\\\"I used the term \\\"\\\"bond fund\\\"\\\" to mean a mutual fund which invests in bonds. Vanguard has a list. If you live in PA, OH, MA, FL, CA, NJ, or NY there are tax free funds you can invest in on that list.\\\"\",\n \"One thing to note before buying bond funds. The value of bonds you hold will drop when interest rates go up. Interest rates are at historical lows and pretty much have nowhere to go but up. If you are buying bonds to hold to maturity this is probably not a major concern, but for a bond fund it might impair performance if things suddenly shift in the interest rate market.\",\n \"First, you should diversify your portfolio. If your entire portfolio is in the Roth IRA, then you should eventually diversify that. However, if you have an IRA and a 401k, then it's perfectly fine for the IRA to be in a single fund. For example, I used my IRA to buy a riskier REIT that my 401k doesn't support. Second, if you only have a small amount currently invested, e.g. $5500, it may make sense to put everything in a single fund until you have enough to get past the low balance fees. It's not uncommon for funds to charge lower fees to someone who has $8000, $10,000, or $12,000 invested. Note that if you deposit $10,000 and the fund loses money, they'll usually charge you the rate for less than $10,000. So try to exceed the minimum with a decent cushion. A balanced fund may make sense as a first fund. That way they handle the diversification for you. A targeted fund is a special kind of balanced fund that changes the balance over time. Some have reported that targeted funds charge higher fees. Commissions on those higher fees may explain why your bank wants you to buy. I personally don't like the asset mixes that I've seen from targeted funds. They often change the stock/bond ratio, which is not really correct. The stock/bond ratio should stay the same. It's the securities (stocks and bonds) to monetary equivalents that should change, and that only starting five to ten years before retirement. Prior to that the only reason to put money into monetary equivalents is to provide time to pick the right securities fund. Retirees should maintain about a five year cushion in monetary equivalents so as not to be forced to sell into a bad market. Long term, I'd prefer low-load index funds. A bond fund and two or three stock funds. You might want to build your balance first though. It doesn't really make sense to have a separate fund until you have enough money to get the best fees. 70-75% stocks and 25-30% bonds (should add to 100%, e.g. 73% and 27%). Balance annually when you make your new deposit.\",\n \"A mutual fund that purchases bonds is a bond fund. Bond funds are considered to be less risk than a traditional stock mutual fund. The cost of this less risk is that they have earned (on average) less than mutual funds investing in stocks. Sometimes, bonds have different tax consequences than stocks.\",\n \"It looks like an improvement to me, if for no other reason than lowering the expenses. But if you are around 35 years away from retirement you could consider eliminating all bond funds for now. They will pay better in a few years. And the stock market(s) will definitely go up more than bonds over the next 35 years.\",\n \"Yes, you're absolutely right. For such small amounts and such large fees, almost any investment choice is pointless. Some brokers allow for commission free ETF trading. Seek them out. As you've noticed, bond interest rates are almost 0%. This is a far cry from the days of Benjamin Graham, where the USD acted more like gold, with much more frequent booms and busts. During Graham's heyday, one could sell one's bonds at super low interest rates and buy them back again when high. In his day, interest rates would be very high one year like in 2008 and next to nothing the next like in 2009, cycling back and forth, until the 1960s hit, and he didn't know what to do. Graham preferred to wait for the reversion to the mean, and act only when far from it. Those opportunities are few and far between now since fiat currencies are far better managed than they were then, the Fed-caused 2009 total destruction as an outlier to recent times. In your case, it's best to leave the bonds to the insurance companies and buy equities. If you want less volatility, buy a buy-write ETF. Bonds will surely disappoint unless one is lucky enough to hold bonds while interest rates fall from ~6% to ~3%, an eventuality that shouldn't be expected to occur again, as Bill Gross is painfully discovering.\",\n \"\\\"Vanguard released an analysis paper in 2013 titled \\\"\\\"Dollar-cost averaging just means taking risk later.\\\"\\\" This paper explores the performance difference(s) between a dollar-cost averaging strategy and a lump sum strategy when you already possess the funds. This paper is an excellent read but the conclusion from the executive summary is: We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible. The caveat to the conclusion is weighing your emotions. If you are primarily concerned with minimizing the possibility of a loss then you should use a dollar cost averaging strategy with the understanding that, on a purely mathematical basis, the dollar cost averaging strategy is likely to under-perform a lump sum investment of the funds. The paper explores a 10 year holding period with either: The analysis includes various portfolio blends and is backtested against the United States, United Kingdom and Australian markets. Based on this, as far as I'm concerned, the rule of thumb is invest the lump sum if you're going to invest at all.\\\"\",\n \"You are right about the stock and index funds, with dollar cost averaging over several years, the daily price of the security (especially a dividend paying security) will not matter* because your position will have accumulated larger over several entry points, some entries with cheaper shares and some entries with more expensive shares. In the future your position will be so large that any uptick will net you large gains on your original equity. *not matter being a reference to even extreme forms of volatility. But if you had all your equity in a poor company and tanked, never to rise again, then you would still be in a losing position even with dollar cost averaging. If your only other holdings are bonds, then you MAY want to sell those to free up capital.\",\n \"The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.\",\n \"How much money do you have in your money market fund and what in your mind is the purpose of this money? If it is your six-months-of-living-expenses emergency fund, then you might want to consider bank CDs in addition to bond funds as an alternative to your money-market fund investment. Most (though not necessarily all, so be sure to check) bank CDs can be cashed in at any time with a penalty of three months of interest, and so unless you anticipate being laid off very soon, you might get a slightly better rate of interest, FDIC insurance (which mutual funds do not have), and with any luck you may never have to break a CD and lose the interest. Building a ladder of CDs with one maturing each month might be another way to reduce the risk of loss. On the other hand, bond mutual funds are a risky bet now because your investment will lose value if interest rate go up, and as JohnFx points out, interest rates have nowhere to go but up. Finally, the amount of the investment is something that you might want to consider before making changes. If you have $50K put away as your six-month fund, you are talking of $500 versus $350 per annum in changing to a riskier investment with a 1% yield from a safer investment with a 0.7% yield. Whether bragging rights at neighborhood parties are worth the trouble is something for you to decide.\",\n \"Avoiding fees would not be the primary reason to buy bonds yourself. No, the reason to buy bonds yourself in a retirement account is that you can hold them to maturity. Bond funds can and do lose value if interest rates rise (and gain it if interest rates fall). Of course the same happens with the bond that you hold, but you can hang on to it until maturity and get the face value out of it. That said, it would take some effort to put together a decent bond portfolio, especially if you were going to buy anything rated lower than the absolute best. I think it'd be fun to do, but I'm weird that way.\",\n \"@JoeTaxpayer gave a great response to your first question. Here are some thoughts on the other two... 2) Transaction fees for mutual funds are tied to the class of shares you're buying and will be the same no matter where you buy them. A-shares have a front-end 'load' (the fee charged), and the lowest expenses, and can be liquidated without any fees. B-shares have no up-front load, but come with a 4-7 year period where they will charge you a fee to liquidate (technically called Contingent Deferred Sales Charge, CDSC), and slightly higher management fees, after which they often will convert to A-shares. C-shares have the highest management fees, and usually a 12- to 18-month period where they will charge a small percentage fee if you liquidate. There are lots of other share classes available, but they are tied to special accounts such as managed accounts and 401-K plans. Not all companies offer all share classes. C-shares are intended for shorter timeframes, eg 2-5 years. A and B shares work best for longer times. Use a B share if you're sure you won't need to take the money out until after the fee period ends. Most fund companies will allow you to exchange funds within the same fund family without charging the CDSC. EDIT: No-load funds don't charge a fee in or out (usually). They are a great option if they are available to you. Most self-service brokerages offer them. Few full-service brokerages offer them. The advantage of a brokerage versus personal accounts at each fund is the brokerage gives you a single view of things and a single statement, and buying and selling is easy and convenient. 3) High turnover rates in bond funds... depending on how actively the portfolio is managed, the fund company may deliver returns as a mix of both interest and capital gains, and the management expenses may be high with a lot of churn in the underlying portfolio. Bond values fall as interest rates rise, so (at least in the USA) be prepared to see the share values of the fund fall in the next few years. The biggest risk of a bond fund is that there is no maturity date, so there is no point in time that you have an assurance that your original investment will be returned to you.\",\n \"\\\"How often should one use dollar-cost averaging? Trivially, a dollar cost averaging (DCA) strategy must be used at least twice! More seriously, DCA is a discipline that people (typically investors with relatively small amounts of money to invest each month or each quarter) use to avoid succumbing to the temptation to \\\"\\\"time the market\\\"\\\". As mhoran_psprep points out, it is well-suited to 401k plans and the like (e.g. 403b plans for educational and non-profit institutions, 457 plans for State employees, etc), and indeed is actually the default option in such plans, since a fixed amount of money gets invested each week, or every two weeks, or every month depending on the payroll schedule. Many plans offer just a few mutual funds in which to invest, though far too many people, having little knowledge or understanding of investments, simply opt for the money-market fund or guaranteed annuity fund in their 4xx plans. In any case, all your money goes to work immediately since all mutual funds let you invest in thousandths of a share. Some 401k/403b/457 plans allow investments in stocks through a brokerage, but I think that using DCA to buy individual stocks in a retirement plan is not a good idea at all. The reasons for this are that not only must shares must be bought in whole numbers (integers) but it is generally cheaper to buy stocks in round lots of 100 (or multiples of 100) shares rather than in odd lots of, say, 37 shares. So buying stocks weekly, or biweekly or monthly in a 401k plan means paying more or having the money sit idle until enough is accumulated to buy 100 shares of a stock at which point the brokerage executes the order to buy the stock; and this is really not DCA at all. Worse yet, if you let the money accumulate but you are the one calling the shots \\\"\\\"Buy 100 shares of APPL today\\\"\\\" instead of letting the brokerage execute the order when there is enough money, you are likely to be timing the market instead of doing DCA. So, are brokerages useless in retirement fund accounts? No, they can be useful but they are not suitable for DCA strategies involving buying stocks. Stick to mutual funds for DCA. Do people use it across the board on all stock investments? As indicated above, using DCA to buy individual stocks is not the best idea, regardless of whether it is done inside a retirement plan or outside. DCA outside a retirement plan works best if you not trust yourself to stick with the strategy (\\\"\\\"Ooops, I forgot to mail the check yesterday; oh, well, I will do it next week\\\"\\\") but rather, arrange for your mutual fund company to take the money out of your checking account each week/month/quarter etc, and invest it in whatever fund(s) you have chosen. Most companies have such programs under names such as Automatic Investment Program (AIP) etc. Why not have your bank send the money to the mutual fund company instead? Well, that works too, but my bank charges me for sending the money whereas my mutual fund company does AIP for free. But YMMV. Dollar-cost averaging generally means investing a fixed amount of money on a periodic basis. An alternative strategy, if one has decided that owning 1200 shares of FlyByKnight Co is a good investment to have, is to buy round lots of 100 shares of FBKCO each month. The amount of money invested each month varies, but at the end of the year, the average cost of the 1200 shares is the average of the prices on the 12 days on which the investments were made. Of course, by the end of the year, you might not think FBKCO is worth holding any more. This technique worked best in the \\\"\\\"good old days\\\"\\\" when blue-chip stocks paid what was for all practical purposes a guaranteed dividend each year, and people bought these stocks with the intention of passing them on to their widows and children.\\\"\",\n \"just pick a good bond and invest all your money there (since they're fairly low risk) No. That is basically throwing away your money and why would you do that. And who told you they are low risk. That is a very wrong premise. What factors should I consider in picking a bond and how would they weigh against each other? Quite a number of them to say, assuming these aren't government bonds(US, UK etc) How safe is the institution issuing the bond. Their income, business they are in, their past performance business wise and the bonds issued by them, if any. Check for the bond ratings issued by the rating agencies. Read the prospectus and check for any specific conditions i.e. bonds are callable, bonds can be retired under certain conditions, what happens if they default and what order will you be reimbursed(senior debt take priority). Where are interest rates heading, which will decide the price you are paying for the bond. And also the yield you will derive from the bond. How do you intend to invest the income, coupon, you will derive from the bonds. What is your time horizon to invest in bonds and similarly the bond's life. I have invested in stocks previously but realized that it isn't for me Bonds are much more difficult than equities. Stick to government bonds if you can, but they don't generate much income, considering the low interest rates environment. Now that QE is over you might expect interest rates to rise, but you can only wait. Or go for bonds from stable companies i.e. GE, Walmart. And no I am not saying you buy their bonds in any imaginable way.\",\n \"Dollar cost averaging works if the stuff you're buying goes up within your time horizon. It won't protect you from losing money if it doesn't. Also consider that the person (or company, or industry) that suggests dollar-cost averaging might want you to start up a regular investment program and put it on auto-pilot, which subsequently increases the chance that you won't give due attention to the fact that you're sending them money every paycheck to buy an investment that make them money regardless of whether you make money or not.\",\n \"I believe that the Wikipedia article is attempting to draw a difference between dollar cost averaging as a result of investing when money becomes available (i.e. 401k contributions from your paycheck) and spreading out a lump sum investment. For the former you want to continuously invest as the money becomes available following your predetermined plan for allocation. For the later it may be reasonable to consider the market as you decide how and the timing for investing.\",\n \"\\\"Option 1 is out. There are no \\\"\\\"safe returns\\\"\\\" that make much money. Besides, if a correction does come along how will you know when to invest? There is no signal that says when the bottom is reached, and you emotions could keep you from acting. Option 2 (dollar cost averaging) is prudent and comforting. There are always some bargains about. You could start with an energy ETF or a few \\\"\\\"big oil\\\"\\\" company stocks right now.\\\"\",\n \"Dollar cost averaging is a method of regularly investing money as it is available. For example, $100 from each paycheck. It has been shown to bet better, on average, than collecting the money and investing it all at once. It is not intended to be used when you have the entire amount up front. See this link. Dollar cost averaging a lump sum would only be beneficial if the market was just as likely to go up as is to go down. Since, over time, the market (historically) has always gone up, your best bet is to invest all of your money right away. Anything else is just trying to time the market.\",\n \"\\\"The bond funds should tell you their duration. My 401(k) has similar choices, and right now, I'm at the short maturity, i.e. under 1 year. The current return is awful, but better than the drop the longer term funds will experience as rates come back up. Not quite mathematically correct, but close enough, \\\"\\\"duration\\\"\\\" gives you the time-weighted average maturity in a way that tells you how the value responds to a rate change. If a fund has a 10 year duration, a .1% rate rise will cause the fund value to drop 1.0%.\\\"\",\n \"Taxes Based on the numbers you quoted (-$360) it doesn't appear that you would have a taxable event if you sell all the shares in the account. If you only sell some of the shares, to fund the new account, you should specify which shares you want to sell. If you sell only the shares that you bought when share prices were high, then every share you sell could be considered a loss. This will increase your losses. These losses can be deducted from your taxes, though there are limits. Fees Make sure that you understand the fee structure. Some fund families look at the balance of all your accounts to determine your fee level, others treat each fund separately. Procedure If you were able to get the 10K into the new account in the next few months I would advise not selling the shares. Because it will be 6 to 18 months before you are able to contribute the new funds then rebalancing by selling shares makes more sense. It gets you to your goal quicker. All the funds you mentioned have low expense ratios, I wouldn't move funds just to chase a the lowest expense ratio. I would look at the steps necessary to get the mix you want in the next few weeks, and then what will be needed moving forward. If the 60/40 or 40/60 split makes you comfortable pick one of them. If you want to be able to control the balance via rebalancing or changing your contribution percentage, then go with two funds.\",\n \"Buy the minimum of one fund now. (Eg total bond market) Buy the minimum of the next fund next time you have $2500. (Eg large-cap stocks.) Continue with those until you have enough to buy the next fund (eg small-cap stocks). Adjust as you go to balance these funds according to your planned ratios, or as close as you can reasonably get without having to actually transfer money between the funds more than once a year or so. Build up to your targets over time. If you can't easily afford to tie up that first $2500, stay with banks and CDs and maybe money market accounts until you can. And don't try to invest (except maybe through a matched 401k) before you have adequate savings both for normal life and for an emergency reserve. Note too that the 401k can be a way to buy into funds without a minimum. Check with your employer. If you haven't maxed out your 401k yet, and it has matching funds, that is usually the place to start saving for retirement; otherwise you are leaving free money on the table.\",\n \"\\\"Since you have emphasized that you don't mind about variability, and that you have other funds you could liquidate, then I think a solution is to do with this money the same thing that you are already doing with those other funds. Then when you need the money, if the market has gone up sell the lots that were part of your original \\\"\\\"other funds\\\"\\\", which presumably have aged enough to qualify for long term gains rates, and let the newly purchased shares take their place.\\\"\",\n \"More often than not the market will rise year on year. Your best move is to put the $5000 in on Jan 2. Are you in the 15% bracket? If not, that is, if higher, I'd suggest the traditional, deductible, IRA.\",\n \"The fee representing the expense ratio is charged as long as you hold the investment. It is deducted daily from the fund assets, and thus reduces the price per share (NAV per share) that is calculated each day after the markets close. The investment fee is charged only when you make an investment in the fund. So, invest in the fund in one swell foop (all $5500 or $6500 for older people, all invested in a single transaction) rather than make monthly investments into the fund (hold the money in a money-market within your Roth IRA if need be). But, do check if there are back-end loads or 12b1 fees associated with the fund. The former often disappear after a few years; the latter are another permanent drain on performance. Also, please check whether reinvestment of dividends and capital gains incur the $75 transaction fee.\",\n \"Here is a deliberately simple example of Dollar Cost averaging: Day 1: Buy 100 shares at $10. Total value = $1,000. Average cost per share = $10.00/share (easy). Day 2: Buy 100 more shares at $9. Total value = $1,900. Average cost per share = $9.50/share (1,900/200). Notice how your average cost per share went from $10.00 to $9.50. Now instead of hoping the stock rises above $10.00 a share to make a profit, you only need it to go to $9.50 a share (assuming no commissions or transaction fees). It's easy to see how this could work to your advantage. The only catch is that you need buy more of a stock that is dropping (people might think you're crazy). This could easily backfire if the stock continues to drop.\",\n \"You will maximize your expected wealth by investing all the money you intend to invest, as soon as you have it available. Don't let the mythos of dollar cost averaging induce you to allocate more much money to a savings account than is optimal. If you want the positive expected return of the market, don't put your money in a savings account. That's especially true now, when you are certainly earning a negative real interest rate on your savings account. Dollar cost averaging and putting all your money in at the beginning would have the same expected return except that if you put all your money in earlier, it spends more time in the market, so your expected return is higher. Your volatility is also higher (because your savings account would have very low volatility) but your preference for investment tells me that you view the expected return and volatility tradeoff of the stock market as acceptable. If you need something to help you feel less stress about investing right away, think of it as dollar cost averaging on a yearly basis instead of monthly. Further, you take take comfort in knowing that you have allocated your wealth as you can instead of letting it fizzle away in real terms in a bank account.\",\n \"\\\"A bond fund will typically own a range of bonds of various durations, in your specific fund: The fund holds high-quality long-term New York municipal bonds with an average duration of approximately 6–10 years So through this fund you get to own a range of bonds and the fund price will behave similar to you owning the bonds directly. The fund gives you a little diversification in terms of durations and typically a bit more liquidity. It also may continuously buy bonds over time so you get some averaging vs. just buying a bond at a given time and holding it to maturity. This last bit is important, over long durations the bond fund may perform quite differently than owning a bond to maturity due to this ongoing refresh. Another thing to remember is that you're paying management fees for the fund's management. As with any bond investment, the longer the duration the more sensitive the price is to change in interest rates because when interest rates change the price will track it. (i.e. compare a change of 1% for a one year duration vs. 1% yearly over 10 years) If I'm correct, why would anyone in the U.S. buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? That is the multi-trillion dollar question. Bond prices today reflect what \\\"\\\"people\\\"\\\" are willing to pay for them. Those \\\"\\\"people\\\"\\\" include the Federal Reserve which through various programs (QE, Operate Twist etc.) has been forcing the interest rates to where they want to see them. If no one believed the Fed would be able to keep interest rates where they want them then the prices would be different but given that investors know the Fed has access to an infinite supply of money it becomes a more difficult decision to bet against that. (aka \\\"\\\"Don't fight the Fed\\\"\\\"). My personal belief is that rates will come up but I haven't been able to translate that belief into making money ;-) This question is very complex and has to do not only with US policies and economy but with the status of the US currency in the world and the world economy in general. The other saying that comes to mind in this context is that the market can remain irrational (and it certainly seems to be that) longer than you can remain solvent.\\\"\",\n \"You have to look at the market conditions and make decisions based on them. Ideally, you may want to have 30% of your portfolio in bonds. But from a practical point of view, it's probably not so smart to invest in bond funds right at this moment given the interest rate market. Styles of funds tend to go into and out of style. I personally do asset allocation two ways in my 457 plan (like a 401k for government workers): In my IRA, I invest in a portfolio of 5-6 stocks. The approach you take is dependent on what you are able to put into it. I invest about 10 hours a week into investment related research. If you can't do that, you want a strategy that is simpler -- but you still need to be cognizant of market conditions.\",\n \"I think you're not applying the right time scale here. ESPP (Employee Stock Purchase Plan) is usually vesting every 6 months. So every half a year you receive a chunk of stocks based on your salary deduction, with the 15% discount. Every half a year you have a chunk of money from the sale of these stocks that you're going to put into your long term investment portfolio. That is dollar cost averaging. You're investing periodically (every 6 months in this case), same (based on your salary deferral) amount of money, regardless of the stock market behavior. That is precisely what dollar cost averaging is.\",\n \"Since you are paying taxes on the distributions from your mutual funds anyway, instead of reinvesting the distributions back into the mutual funds, you could receive them as cash, then contribute them to your Roth IRA once you are able to open one.\",\n \"The Vanguard Emerging Market Bond Index has a SEC yield of 4.62%, an expense ratio of 0.34%, a purchase fee of 0.75%, and an average duration of 6.7 years. The Vanguard Emerging Market Bond Index only invests in US Dollar denominated securities, so it is not exposed to currency risk. The US Intermediate Term Bond Index Fund has a SEC yield of 2.59%, an expense ratio of 0.1% and an average duration of 6.5 years. So after expenses, the emerging market bond fund gives you 1.04% of extra yield (more in subsequent years as the purchase fee is only paid once). Here are the results of a study by Vanguard: Based on our findings, we believe that most investors should consider adding [currency risked] hedged foreign bonds to their existing diversified portfolios. I think a globally diversified bond portfolio results in a portfolio that's more diversified.\",\n \"If it had immediate purchase power of $525, can I use that to buy more $500 bonds over and over again? Your idea is flawed. You can't just make money out of thin air, unless you are running a Ponzi scheme.\",\n \"I'm looking for ways to geared to save for retirement, not general investment. Many mutual fund companies offer a range of target retirement funds for different retirement dates (usually in increments of 5 years). These are funds of funds, that is, a Target 2040 Fund, say, will be invested in five or six different stock and bond mutual funds offered by the same company. Over the years and as the target date approaches closer, the investment mix will change from extra weight given to stock mutual funds towards extra weight being given to bond mutual funds. The disadvantage to these funds is that the Target Fund charges its own expense ratio over and above the expense ratios charged by the mutual funds it invests in: you could do the same investments yourself (or pick your own mix and weighting of various funds) and save the extra expense ratio. However, over the years, as the Target Fund changes its mix, withdrawing money from the stock mutual funds and investing the proceeds into bond mutual funds, you do not have to pay taxes on the profits generated by these transactions except insofar as some part of the profits become distributions from the Target Fund itself. If you were doing the same transactions outside the Target Fund, you would be liable for taxes on the profits when you withdrew money from a stock fund and invested the proceeds into the bond fund.\",\n \"You are right; Rollover is a process, and not an account type; the result is a Traditional IRA. There is no such thing as a 'Rollover IRA Account'. Rolling a 401(k) over to a Traditional IRA makes sense if a) you have to, because you leave the employer the 401(k) is with; b) because you Traditional IRA is cheaper or more flexible or in other ways 'better' for you, or c) if your next step is a backdoor rollover to a Roth IRA. Most of the time, it doesn't make sense, because employer 401(k) are often better and cheaper. Of course, for the investment company where you roll it too, it makes a lot of sense, because they get your money, so they recommend it. But that's only good for them, not for you. Of course you can roll into an existing account, if you want to roll. Making a new account has no advantage. I cannot imagine any IRA custodian wouldn't take rollovers; they would shoot themselves in the foot by that. What can happen - and you should consider this - that your IRA only accepts cash, and does not allow to transfer the shares you have in the 401(k). That means you have to sell and then re-buy, and you might lose a lot in fees there.\",\n \"\\\"As Michael Pryor answered, a bond fund is a mutual fund that invests in bonds. I'd also consider an ETF based on bonds to be a bond fund, but I'm not sure that all investors would consider these as \\\"\\\"bond funds\\\"\\\". Not all bond funds are the same -- just like stock funds. You can classify bond funds based on the issuer of the bonds: You can also classify funds based on the time to maturity: In general, bond funds have lower risk and lower expected return than stock funds. Sometimes bond funds have price movements that are not tightly correlated to the price movements in the equity markets. This can make them a decent hedge against declines in your equity investments. See Michal Pryor's answer for some info on how you can get tax free treatment for your bond fund investments.\\\"\",\n \"If you have other savings, the diversification occurs across the accounts. e.g. my 401(k) has access to the insanely low .02% fee VIIIX (Vanguard S&P fund) You can bet it's 100% in. My IRAs are the other assets that make the full picture look better allocated. A new investor has the issue you suggest, although right now, you can deposit $5500 for 2013, and $5500 for 2014, so with $11K available, you can start with $6 or $9K and start with 2 or 3 funds. Or $9K now, but with $500 left over for the '14 deposit, you can deposit $6K in early '15. The disparity of $3K min/$5500 annual limit is annoying, I agree, but shouldn't be a detriment to your planning.\",\n \"\\\"Value averaging has you shift the balance of your portfolio over time, not the amount of contributions. So you can only do it if you have a portfolio holding both risky assets (shares etc) and some cash. You start out by making a plan about how much you will contribute every month and at what rate you expect the share part of the portfolio to grow. Perhaps based on 20th century data you think an 8% growth rate is reasonable. Or alternatively if you know your desired final amount obviously you can work backwards to a desired rate from that. If in any month the share part is falling below its expected growth path, you would put more money into it: possibly your whole paycheck contribution plus some from the savings cash account. On the other hand if the share component is growing \\\"\\\"too fast\\\"\\\" you would put all your additional savings into cash. So if your investments are doing well, you're not supposed to spend the excess money, but rather to put it aside into a dedicated cash account to top up your share component when prices fall. In theory, this has the auto-levelling benefit of Dollar Cost Averaging, but even better: when prices are high, you'll automatically buy fewer shares, or even sell some; conversely when prices are low you'll buy extra shares from your reserve account. If it turns out your estimate was unreasonably optimistic, and over your lifetime shares only ever average 3%, you'll end up with an entirely share portfolio, and a bumpier ride than you might have liked. If you have horrible luck and over your entire investing life shares return less than cash (which has happened, though not yet in the USA), then this will be worse than a standard balanced portfolio. The original book Value Averaging by Edelson has a pretty good explanation of various cases, though I would say some of the examples are worked in excessive detail. I have not implemented this myself, one reason being that the amount I'm able to save from year to year varies, as it probably does for you, and so predicting a path is not quite so simple as he assumes. You could still do it I suppose. I think you could get a very crude approximation to this by simply directing your savings into cash when the share market's rate of growth over the last several years is above what you think is the long term average.\\\"\",\n \"\\\"First, do you get charged a commission or other fee for reinvesting? Second, why would capital gains and dividends be grouped together? If the broker charges you for that run away. As Joe explained, it is done as a courtesy. Doesn't this mean if I sell the stock, the profit will be used to buy that stock right back? No, this is only the capital gains distributions of funds. Lastly, there are two additional checkbox options I was hoping somebody could explain: \\\"\\\"All equity positions currently held in this account\\\"\\\" and \\\"\\\"Future equity purchases, transfers, and deposits to this account\\\"\\\". \\\"\\\"All equity positions\\\"\\\" means your selection will be valid for all the positions you already have. \\\"\\\"Future positions\\\"\\\" means it will only affect future positions, not the ones you already have. For example: FOLLOW-UP: Looking around, some people suggest not doing this for taxable accounts because it complicates cost basis reporting. Is this a valid concern? Doesn't the brokerage handle that and send you the information when you sell the stock? Yes, because you end up with tons of positions and you need to track the cost basis for each. Brokers are required to report cost-basis on 1099-B now, so its less of a problem, but before 2011 you'd have 10's of positions each year (if you have a monthly dividend, for example) each with different cost basis, and you'd usually sell them all at once. Go figure the gain. So the new 1099-B reporting regulations help a little on this, but it only kicks in for everything starting of 2013 IIRC. Fortunately, for some investments (mutual funds, mainly) you may chose averaging, but it has drawbacks as well.\\\"\",\n \"\\\"In general, I'd try to keep things as simple as possible. If your plan is to have a three-fund portfolio (like Total Market, Total International, and Bond), and keep those three funds in general, then having it separated now and adding them all as you invest more is fine. (And upgrade to Admiral Shares once you hit the threshold for it.) Likewise, just putting it all into Total Market as suggested in another answer, or into something like a Target Retirement fund, is just fine too for that amount. While I'm all in favor of as low expense ratios as possible, and it's the kind of question I might have worried about myself not that long ago, look at the actual dollar amount here. You're comparing 0.04% to 0.14% on $10,000. That 0.1% difference is $10 per year. Any amount of market fluctuation, or buying on an \\\"\\\"up\\\"\\\" day or selling on a \\\"\\\"down\\\"\\\" day, is going to pretty much dwarf that amount. By the time that difference in expense ratios actually amounts to something that's worth worrying about, you should have enough to get Admiral Shares in all or at least most of your funds. In the long run, the amount you manage to invest and your asset allocation is worth much much more than a 0.1% expense ratio difference. (Now, if you're going to talk about some crazy investment with a 2% expense ratio or something, that's another story, but it's hard to go wrong at Vanguard in that respect.)\\\"\",\n \"It may be true for a bond fund. But it is not true for bond etf. Bond etf will drop by the same amount when it distribute dividend on ex-dividend date.\",\n \"What is the question? A total return fund seeks to just maximize total returns, as opposed to benchmark tracking, low vol, high vol, sectoral, whatever, this is just a name you gotta read the long prospectus to see how they are supposed to go about doing it. Fixed income investing DOES NOT rely on on interest rates, it relies on the movements of interest rates (this is a key difference). When economies are doing poorly, there is a flight to quality (everyone is scared and lends only to governments) driving government interest rate downs and increasing the spread between government rates and corporates. My usual advice is There is never a good time to buy a mutual fund :P, better to buy an ETF or a portfolio of ETF's that correspond to your views. You need to sit down and ask yourself what type of risk tolerances you're willing to take as mutual funds by construction deliver negative alpha due to fees.\",\n \"I personally invest in 4 different ETFs. I have $1000 to invest every month. To save on transaction costs, I invest that sum in only one ETF each month, the one that is most underweight at the time. For example, I invest in XIC (30%), VTI (30%), VEA (30%), and VWO (10%). One month, I'll buy XIC, next month VTA, next month, VEA, then XIC again. Eventually I'll buy VWO when it's $1000 underweight. If one ETF tanks, I may buy it twice in a row to reach my target allocation, or if it shoots up, I may skip buying it for a while. My actual asset allocation never ends up looking exactly like the target, but it trends towards it. And I only pay one commission a month. If this is in a tax-sheltered account (main TFSA or RRSP), another option is to invest in no-load index mutual funds that match the ETFs each month (assuming there's no commission to buy them). Once they reach a certain amount, sell and buy the equivalent ETFs. This is not a good approach in a non-registered account because you will have to pay tax on any capital gains when selling the mutual funds.\",\n \"It's important to remember that upward trending things spend the vast majority of their time at all time highs - intelligent, well meaning people have been regularly saying the Dow Jones has been too expensive since about 2010, often because it was now at 'all time highs': Sitting on the sidelines can end up just as expensive (if not more so) than avoiding big drops. If you are worried about a large down swing straight after investing just drip it in over a period you feel comfortable with - no one can really answer this better than that without more info on your risk tolerance and exactly what you want to invest in. Worth noting that buying anything other than transaction free funds when split into small transactions also adds a lot more fees (~£10 entry and exit in a UK ISA for example). Split these over 12 months say, and it will cost you £240 straight out of the gate (2 fund purchases per month for 12 months @£10 each) and another £240 to exit before any holding fees from the ISA platform: that's over 1% of your capital gone just to your stockbroker employing this strategy. Both the products you mention are also quite high cost in ongoing charges, so unless you have very high convictions about the management quality, will also probably lag cheaper investment types over the long run as well due to the dire performance of virtually all higher cost, active management over time.\",\n \"well, you know the problem lies with bonds maturing. The issue is not the function COMP but the security itself. You have to use existing total return indices that reflect a constant 10yr maturity position. >perpetually rolled the principal once the bond matured until the present? That would mean your 10y becomes 7y, 5y, 3y, 1y, matured then you reinvest. Not the same. Use SECF to find something like MLT1US10 Index or go to the IND page to see Merrill Lynch's bond indices. They're some of the best.\",\n \"\\\"The person who told you \\\"\\\"no-load funds\\\"\\\" had the right idea. Since you are risk-averse, you tend to want a \\\"\\\"value\\\"\\\" fund; that is, it's not likely to grow in value (that would be a \\\"\\\"growth\\\"\\\" fund), but it isn't like to fall either. To pick an example more-or-less at random, Fidelity Blue Chip Value Fund \\\"\\\"usually\\\"\\\" returns around 8% a year, which in your case would have meant about $20,000 every year -- but it's lost 4.35% in the last year. I like Fidelity, as a brokerage as well as a fund-manager. Their brokers are salaried, so they have no incentive to push load funds or other things that make them, but not you, money. For intermediate investors like you and me, they seem like a good choice. Be careful of \\\"\\\"short term\\\"\\\". Most funds have some small penalty if you sell within 90 days. Carve off whatever amount you think you might need and keep that in your cash account. And a piece of personal advice: don't be too risk-averse. You don't need this money. For you, the cost of losing it completely is exactly equal as the benefit of doubling it. You can afford to be aggressive. Think of it this way: the expected return of a no-load fund is around 5%-7%. For a savings account, the return is within rounding error of zero. Do you spend that much, $15,000, on anything in your life right now? Any recreation or hobby or activity. Maybe your rent or your tuition. Why spend it for a vague sense of \\\"\\\"safety\\\"\\\", when you are in no danger of losing anything that you need?\\\"\",\n \"This is just a pedestrian (my) opinion: Yes, It is wise to invest in bond funds even in a low interest environment. Check out the lazy man's portfolio on bogleheads. The reason is:\",\n \"\\\"You are asking multiple questions here, pieces of which may have been addressed in other questions. A bond (I'm using US Government bonds in this example, and making the 'zero risk of default' assumption) will be priced based on today's interest rate. This is true whether it's a 10% bond with 10 years left (say rates were 10% on the 30 yr bond 20 years ago) a 2% bond with 10 years, or a new 3% 10 year bond. The rate I use above is the 'coupon' rate, i.e. the amount the bond will pay each year in interest. What's the same for each bond is called the \\\"\\\"Yield to Maturity.\\\"\\\" The price adjusts, by the market, so the return over the next ten years is the same. A bond fund simply contains a mix of bonds, but in aggregate, has a yield as well as a duration, the time-and-interest-weighted maturity. When rates rise, the bond fund will drop in value based on this factor (duration). Does this begin to answer your question?\\\"\",\n \"You will be rolling over the proceeds, since you can only deposit cash into an IRA. However, this should probably not affect your considerations much since the pre-rollover sale is non-taxable within the 401k and the period of roll-over itself (when the cash is uninvested) is relatively short. So, whatever investments you choose in your 401k, you'll just sell them and then buy them (or similar investments) back after the rollover to the IRA. If you're worrying about a flash crash right on the day when you want to cash out - that can definitely happen, but it is not really something you can prepare for. You can consider moving to money market several weeks before the potential date of your withdrawal, if you think it will make you feel safer, otherwise I don't think it really matters.\",\n \"For the rollover, you should probably talk to the recipient manager. This would be your broker or whomever (your new employer if rolling into another 401k). They should be able to update you on progress and let you know if you need to do anything. In a comment, you say I could be putting in money but instead im lossing. There is no requirement that an IRA have 401k money in it. Just put the money in without the existing money. Eventually the rollover will complete and add that money to whatever you contribute to the IRA. The rollover should not affect your future contributions in any way.\",\n \"Buy a fund of bonds, there are plenty and are registered on your stockbroker account as 'funds' rather than shares. Otherwise, to the individual investor, they can be considered as the same thing. Funds (of bonds, rather than funds that contain property or shares or other investments) are often high yield, low volatility. You buy the fund, and let the manager work it for you. He buys bonds in accordance to the specification of the fund (ie some funds will say 'European only', or 'global high yield' etc) and he will buy and sell the bonds regularly. You never hold to maturity as this is handled for you - in many cases, the manager will be buying and selling bonds all the time in order to give you a stable fund that returns you a dividend. Private investors can buy bonds directly, but its not common. Should you do it? Up to you. Bonds return, the company issuing a corporate bond will do so at a fixed price with a fixed yield. At the end of the term, they return the principal. So a 20-year bond with a 5% yield will return someone who invests £10k, £500 a year and at the end of the 20 years will return the £10k. The corporate doesn't care who holds the bond, so you can happily sell it to someone else, probably for £10km give or take. People say to invest in bonds because they do not move much in value. In financially difficult times, this means bonds are more attractive to investors as they are a safe place to hold money while stocks drop, but in good times the opposite applies, no-one wants a fund returning 5% when they think they can get 20% growth from a stock.\",\n \"\\\"Your funds are in a retirement account. Withdrawals from your IRA will be penalized if you withdraw before you turn 59.5 years old, and you appear to be decades away from that age. The general advice I would give you is to pick a \\\"\\\"target year fund\\\"\\\" that targets the year you turn 59.5. The stock market is more volatile, but its average gains will protect you from inflation just eating your funds. Bonds are in counterpoint to your stocks - more stable, and protecting you from the chance that stocks dip right before you want to withdraw. Target year funds start with higher amounts of stock, and gradually rebalance towards bonds over time. Thus, you take your market risks earlier while you can benefit from the market's gains, and then have stability when you actually would want to retire and depend on the savings.\\\"\",\n \"This is more than likely a thing about your financial institution and the exchanges where they trade shares. Some exchanges cannot/will not handle odd lot transactions. Most established brokerages have software and accounting systems that will deal in round lots with the exchanges, but can track your shares individually. Sometimes specific stocks cannot be purchased in odd lots due to circumstances specific to that stock (trading only on a specific exchange, for example). Most brokerages offer dollar-cost averaging programs, but may limit which stocks are eligible, due to odd lot and partial share purchases. Check with your brokerage to see if they can support odd lot and/or DCA purchases. You may find another similar ETF with similar holdings that has better trading conditions, or might consider an open-end mutual fund with similar objectives. Mutual funds allow partial share purchases (you have $100 to invest today, and they issue you 35.2 shares, for example).\",\n \"There was a time that a rule of thumb stated your stock allocation should be 100-your age. That rule suggests that you are at 65%stock/35% bond/cash. If you are comfortable having this money 100% invested, the best advice would be dollar cost averaging, anything more specific would suggest market timing.\",\n \"Many folks use bonds to diversify their portfolio since bonds rise and fall in value at different times and for different reasons than stocks. Bonds pay interest on a regular basis (usually monthly or quarterly) and so some people invest in bonds in order to match the interest payments to some regular expense they might have. The interest payment does not change (fixed income). For individual bonds, there is a maturity date at which you can expect to receive the face value of the bond (the issuer's creditworthiness is important here). You can make a little money on a bond by buying it when its value is lower than its face value and either selling later for a higher value, or waiting for it to mature. Often the minimum investment for a single bond is high, so if you don't have a large enough amount, you can still get the performance of bonds through a bond fund. These do not mature, so you don't have a guarantee of a return of your investment. However, they have access to more bonds than retail investors, so the funds can keep your money more fully invested. If you don't need the income, you can reinvest the dividends and have a little extra capital growth this way.\",\n \"If you have the money put it in, and invest the money over a few months. Always keep a modest reserve of cash to give you the flexibility to take advantage of market opportunities.\",\n \"The following advice assumes that you have a significant amount already in the account in cash equivalents. If you are only talking a few hundred bucks or so, then just jump in at the next dip (like today's). If you have a larger amount to move into equities, the safest approach is to gradually move it into investments over some period of time at regular intervals regardless of what is going on in the market. This mitigates the risk of investing it all into an fund that is peaking at the exact moment you buy. So, for example, you might invest 20% of the total amount each month for 5 months to gradually get into the market. The larger the amount you are investing, the more you probably want to spread it out, but don't spread it out much further than a year or you are losing opportunity cost by leaving your money in cash-type investments with likely a very poor rate of return. This strategy is called dollar-cost averaging if you want to research it more.\",\n \"For most people, you don't want individual bonds. Unless you are investing very significant amounts of money, you are best off with bond funds (or ETFs). Here in Canada, I chose TDB909, a mutual fund which seeks to roughly track the DEX Universe Bond index. See the Canadian Couch Potato's recommended funds. Now, you live in the U.S. so would most likely want to look at a similar bond fund tracking U.S. bonds. You won't care much about Canadian bonds. In fact, you probably don't want to consider foreign bonds at all, due to currency risk. Most recommendations say you want to stick to your home country for your bond investments. Some people suggest investing in junk bonds, as these are likely to pay a higher rate of return, though with an increased risk of default. You could also do fancy stuff with bond maturities, too. But in general, if you are just looking at an 80/20 split, if you are just looking for fairly simple investments, you really shouldn't. Go for a bond fund that just mirrors a big, low-risk bond index in your home country. I mean, that's the implication when someone recommends a 60/40 split or an 80/20 split. Should you go with a bond mutual fund or with a bond ETF? That's a separate question, and the answer will likely be the same as for stock mutual funds vs stock ETFs, so I'll mostly ignore the question and just say stick with mutual funds unless you are investing at least $50,000 in bonds.\",\n \"You report what you contributed (sum of monthly investments that you made) to the bond fund. Distributions are the earnings in the account that stay in the account and have no tax consequences (in particular, you don't report them as income on your tax returns) until you withdraw the money later.\",\n \"Since you already have twice your target in that emergency fund, putting that overage to work is a good idea. The impression that I get is that you'd still like to stay on the safe side. What you're looking for is a Balanced Fund. In a balanced fund the managers invest in both stocks and bonds (and cash). Since you have that diversification between those two asset classes, their returns tend to be much less volatile than other funds. Also, because of their intended audience and the traditions from that class of funds' long history, they tend to invest somewhat more conservatively in both asset classes. There are two general types of balanced funds: Conservative Allocation funds and Moderate Allocation funds. Conservative allocation funds invest in more fixed income than equity (the classic mix is 60% bonds, 40% stocks). Moderate allocation funds invest in more equity than fixed income (classic mix: 40% bonds, 60% stocks). A good pair of funds that are similar but exemplify the difference between conservative allocation and moderate allocation are Vanguard's Wellesley Income Fund (VWINX) for the former and Vanguard's Wellington Fund (VWELX) for the latter. (Disclaimer: though both funds are broadly considered excellent, this is not a recommendation.) Good luck sorting this out!\",\n \"2%? I would put in just what it takes to share in the profit sharing, not a dime more. My S&P fund cost is .02% (edited, as it dropped to .02 since original post), 1/100 of the cost of most funds you list. Doesn't take too many years of this fee to negate the potential tax savings, and not many more to make this a real loser.\",\n \"According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.\",\n \"That would be my suggestion (and what I've personally done), but I can't tell you what's right for you. As an aside, you don't usually need to manually fund an IRA (traditional *or* Roth) to open it for a rollover - Just tell them you're doing a rollover, and they'll set you up and tell you where to have the 401k checks sent (and sometimes even arrange it all *for* you).\",\n \"I am understanding the OP to mean that this is for an emergency fund savings account meant to cover 3 to 6 months of living expenses, not a 3-6 month investment horizon. Assuming this is the case, I would recommend keeping these funds in a Money Market account and not in an investment-grade bond fund for three reasons:\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Many would recommend lump sum investing because of the interest gains, and general upward historical trend of the market. After introducing DCA in A Random Walk Down Wall Street, Malkiel says the following: But remember, because there is a long-term uptrend in common-stock prices, this technique is not necessarily appropriate if you need to invest a lump sum such as a bequest. If possible, keep a small reserve (in a money fund) to take advantage of market declines and buy a few extra shares if the market is down sharply. I’m not suggesting for a minute that you try to forecast the market. However, it’s usually a good time to buy after the market has fallen out of bed. Just as hope and greed can sometimes feed on themselves to produce speculative bubbles, so do pessimism and despair react to produce market panics. - A Random Walk Down Wall Street, Burton G. Malkiel He goes on from there to recommend a rebalancing strategy."],"string":"[\n \"Many would recommend lump sum investing because of the interest gains, and general upward historical trend of the market. After introducing DCA in A Random Walk Down Wall Street, Malkiel says the following: But remember, because there is a long-term uptrend in common-stock prices, this technique is not necessarily appropriate if you need to invest a lump sum such as a bequest. If possible, keep a small reserve (in a money fund) to take advantage of market declines and buy a few extra shares if the market is down sharply. I’m not suggesting for a minute that you try to forecast the market. However, it’s usually a good time to buy after the market has fallen out of bed. Just as hope and greed can sometimes feed on themselves to produce speculative bubbles, so do pessimism and despair react to produce market panics. - A Random Walk Down Wall Street, Burton G. Malkiel He goes on from there to recommend a rebalancing strategy.\"\n]","isConversational":false}}},{"rowIdx":279,"cells":{"_id":{"kind":"string","value":"1832"},"query":{"kind":"string","value":"Warren Buffett and Charles Munger advice for small investors?"},"gt_ids":{"kind":"list like","value":["590276"],"string":"[\n \"590276\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["411084","133487","209843","590276","359229","323660","485092","3533","299284","14748","145140","474296","380612","556913","157038","331553","288073","70558","245728","404341","163590","195222","501395","245168","253374","404732","550252","565827","328477","278369","538086","136825","338962","63158","596537","312591","444261","509064","446948","42960","419038","559768","363719","134722","460643","329466","213435","323067","133935","35093","190264","191566","117801","24846","552707","302315","283733","384893","580313","276778","269384","320587","379914","182511","479697","98704","137852","458740","234640","41809","142320","38510","171189","276082","224816","396537","458244","551590","524030","236218","31139","339864","423745","217437","243457","153348","320320","160922","339332","144030","148348","229271","215296","231195","35971","371579","113099","334491","68270","262180"],"string":"[\n \"411084\",\n \"133487\",\n \"209843\",\n \"590276\",\n \"359229\",\n \"323660\",\n \"485092\",\n \"3533\",\n \"299284\",\n \"14748\",\n \"145140\",\n \"474296\",\n \"380612\",\n \"556913\",\n \"157038\",\n \"331553\",\n \"288073\",\n \"70558\",\n \"245728\",\n \"404341\",\n \"163590\",\n \"195222\",\n \"501395\",\n \"245168\",\n \"253374\",\n \"404732\",\n \"550252\",\n \"565827\",\n \"328477\",\n \"278369\",\n \"538086\",\n \"136825\",\n \"338962\",\n \"63158\",\n \"596537\",\n \"312591\",\n \"444261\",\n \"509064\",\n \"446948\",\n \"42960\",\n \"419038\",\n \"559768\",\n \"363719\",\n \"134722\",\n \"460643\",\n \"329466\",\n \"213435\",\n \"323067\",\n \"133935\",\n \"35093\",\n \"190264\",\n \"191566\",\n \"117801\",\n \"24846\",\n \"552707\",\n \"302315\",\n \"283733\",\n \"384893\",\n \"580313\",\n \"276778\",\n \"269384\",\n \"320587\",\n \"379914\",\n \"182511\",\n \"479697\",\n \"98704\",\n \"137852\",\n \"458740\",\n \"234640\",\n \"41809\",\n \"142320\",\n \"38510\",\n \"171189\",\n \"276082\",\n \"224816\",\n \"396537\",\n \"458244\",\n \"551590\",\n \"524030\",\n \"236218\",\n \"31139\",\n \"339864\",\n \"423745\",\n \"217437\",\n \"243457\",\n \"153348\",\n \"320320\",\n \"160922\",\n \"339332\",\n \"144030\",\n \"148348\",\n \"229271\",\n \"215296\",\n \"231195\",\n \"35971\",\n \"371579\",\n \"113099\",\n \"334491\",\n \"68270\",\n \"262180\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Consultant, I commend you for thinking about your financial future at such an early age. Warren Buffet, arguably the most successful investor ever lived, and the best known student of Ben Graham has a very simple advice for non-professional investors: \"\"Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)\"\" This quote is from his 2013 letter to shareholders. Source: http://www.berkshirehathaway.com/letters/2013ltr.pdf Buffet's annual letters to shareholders are the wealth of useful and practical wisdom for building one's financial future. The logic behind his advice is that most investors cannot consistently pick stock \"\"winners\"\", additionally, they are not able to predict timing of the market; hence, one has to simply stay in the market, and win over in the long run.\"","\"You can't get much better advice for a young investor than from Warren Buffet. And his advice for investors young and old, is \"\"Put 10% of the cash in short‑term government bonds, and 90% in a very low‑cost S&P 500 index fund.\"\" Or as he said at a different time, \"\"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees\"\". You are not going to beat the market. So just save as much money as you can, and invest it in something like a Vanguard no-load, low-cost mutual fund. Picking individual stocks is fun, but treat it as fun. Never put in more money than you would waste on fun. Then any upside is pure gravy.\"","\"I tell you how I started as an investor: read the writings of probably the best investor of the history and become familiarized with it: Warren Buffett. I highly recommend \"\"The Essays of Warren Buffett\"\", where he provides a wise insight on how a company generates value, and his investment philosophy. You won't regret it! And also, specially in finance, don't follow the advice from people that you don't know, like me.\"","\"Warren Buffett: 'Investing Advice For You--And My Wife' (And Other Quotes Of The Week): What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit…My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors… Similarly from Will Warren Buffett's investment advice work for you?: Specifically, Buffett wants the trustee of his estate to put 10 percent of his wife's cash inheritance in short-term government bonds and 90 percent in a low-cost S&P index fund - and he tips his hat specifically to Bogle's Vanguard in doing so. Says Buffett: \"\"I believe the trust's long-term results from this policy will be superior to those attained by most investors - whether pension funds, institutions or individuals.\"\"\"","As a corollary to this; the average investor will never know more than the market. Buffett can buy mispriced securities because he runs a multi-billion dollar company dedicated to finding these mispricings. My advice for the common man: 1. Invest in both Stocks (for growth) & Bonds (for wealth preservation) 2. Stocks should be almost exclusively Index Funds That's it. The stock market has a 'random walk with a positive drift' which means that in general, the market will increase in value. Index funds capture this value and will protect you against the inevitable BoA, AIG, Enron, etc. It's fine to invest in index funds with a strategy as well, for instance emerging market ETFs could capture the growth of a particular region. Bear ETFs are attractive if you think the market is going to hit a downturn in the future.","\"I don't know really is the best investment strategy. People think that they have to know everything to make money. But realistically, out of the hundreds of thousands of publicly traded securities, you really can only invest in a tiny number of them. Of the course of a week, you literally have more than a million \"\"buy\"\" or \"\"don't buy\"\" decisions, because the prices of those securities fluctuate every day. Simply due to the fact that there are so many securities, you cannot know what everything is going to do. You have to say \"\"I don't know\"\". Also, when you do understand something, it is usually fairly priced. So will you make money on it? \"\"I don't know\"\". Only very rarely will you find something that you actually understand well and it is significantly undervalued. You can be looking at a company a day for two years before you find it. But people get trigger happy. They bet on 51%/49% odds when they should only bet on 90%/10% odds or higher. If you are forced to bet on everything, it makes sense that you bet on everything you believe is greater than 50% chance of winning. But since you cannot bet on everything, you should only bet on the highest quality bets, those with greater than 90% chance of winning. To find such a bet, you may have to shuffle through 100 different companies and only make 2-3 bets. You are looking for something that is at least 2 standard deviations away from the mean. People are not good at doing a lot of work, most of which yields nothing, to find one big payoff. They are wired to only look at the present, so they take the best bet they can see at the moment, which is often barely above 50% (and with any misjudgment, it may actually be well below 50%). And people are not good at understanding compound/geometric growth. You can keep multipling 10% gains (1.10 * 1.10 * 1.10 ...), but that can all be wiped out by multiplying by one zero, which is why taking a 51%/49% bet is so dangerous (even though technically it is an advantageous one). They forget to adjust for the geometric aspect of compounding. A 99%/1% bet is one you should take, but if you are allowed to repeat it and you keep going all-in, you will eventually lose and have $0, which is the same as if you took a single all-in bet that has 0% chance of winning. As Buffett says, if you are only allowed to make 20 investments over a lifetime, you will most likely do better because it prevents you from making many of these mistakes.\"","A couple points, first you don't point out what investors you want to invest with, and second BRK.B does not track anything; it is just a very small slice of his entire holdings BRK.A minus the voting rights. One solid way to go would be to buy BRK.B and also a tech ETF like QQQ, or XLK, ..or both.","\"Warren Buffet isn't using any special sauce. He looks for value and ignores hype, greed, and fear. He buys what he knows and looks for companies that generate cash and/or are available for a discount of their true value. He explains what he looks for in a company and his reasons for buying it. He has said on numerous occasions, \"\"I look for intrinsic value.\"\" (So there's your formula.) Human nature is often irrational and investing seems to bring out the fear and greed. I've always been a bit surprised when people ascribe some sort of sixth sense to Warren Buffet's success. He just works hard and doesn't deviate from a sound strategy. \"\"Be fearful when others are greedy and greedy when others are fearful.\"\" And of course, rule one: \"\"Don't lose money.\"\" It's not a joke. How many people buy high and sell low because of fear and greed? When the market tanks, buy more. Finally, anyone can invest with Buffet without all the work. Just buy a few shares of BRK.A or BRK.B.\"","The advice I have is short and sweet. Be an investor, not a speculator. Adopt the philosophy of Warren Buffet which is the 'buy and hold' philosophy. Avoid individual stocks and buy mutual funds or ETFs. Pick something that pays dividends and reinvest those dividends. Don't become a speculator, meaning avoid the 'buy low, sell high' philosophy. EDIT:For some reason I cannot add a comment, so I am putting my response here. @jad The 'buy low, sell high' approach makes money for the stock broker, not necessarily you. As we learn in the movie Trading Places, each buy or sell creates a commission for the broker. It is those commission expenses that eat away at your nestegg. Just don't sell. If a security is trading at $10 a share and pays $0.25 a share each quarter then you are getting 10% ROI if you buy that security (and if it continues to pay $0.25 a share each quarter). If the price goes up then the ROI for new buyers will go down, but your ROI will still be the same. You will continue to get 10% for as long as you hold that security. A mutual fund buys the individual stocks for you. The value of the fund is only calculated at the end of the day. An ETF is like a mutual fund but the value of the ETF is calculated moment by moment.","\"That's great that you have saved up money. You are ahead of your peers. I would advise against investing in an index fund. The attraction of the idea is that you will get the same return as the base item. For example, an index fund of gold would supposedly give you the same return as if you bought gold. In reality this is not true. The return of an index fund is always significantly below the return of the underlying commodity. Your best strategy is to invest in something you know and understand. There are two books that can help you learn how to do this: \"\"One Up on Wall Street\"\" by Peter Lynch and \"\"The Intelligent Investor\"\" by Benjamin Graham. Buying, reading and following the guidance in these two books is your best investment of time and money.\"","That is absolute rubbish. Warren Buffet follows simple value and GARP tenants that literally anyone could follow if they had the discipline to do so. I have never once heard of an investment made by Warren Buffet that wasn't rooted in fundamentals and easy to understand. The concept is fairly simple as is the math, buying great companies trading at discounts to what they are worth due to market fluctuations, emotionality, or overreactions to key sectors etc. If I buy ABC corp at $10 knowing it is worth $20, it could go down or trade sideways for FIVE YEARS doing seemingly nothing and then one day catch up with its worth due to any number of factors. In that case, my 100% return which took five years to actualize accounts for an average 20% return per year. Also (and this should be obvious), but diversification is a double edged sword. Every year, hundreds of stocks individually beat the market return. Owning any one of these stocks as your only holding would mean that YOU beat the market. As you buy more stocks and diversify your return will get closer and closer to that of an index or mutual fund. My advice is to stick to fundamentals like value and GARP investing, learn to separate when the market is being silly from when it is responding to a genuine concern, do your own homework and analysis on the stocks you buy, BE PATIENT after buying stock that your analysis gives you confidence in, and don't over diversify. If you do these things, congrats. YOU ARE Warren Buffet.","\"Spend your first 50 euros on research materials. Warren Buffett got started as a boy by reading every book in the Library of Congress on investing and stock market analysis. You can research the company filings for Canadian companies at http://www.sedar.com, U.S companies at http://www.edgar.com, and European companies at https://www.gov.uk/government/organisations/companies-house. Find conflicting arguments and strategies and decide for yourself which ones are right. The Motley Fool http://www.fool.ca offers articles on good stocks to add to your portfolio and why, as well as why not. They provide a balanced judgement instead of just hype. They also sell advice through their newsletter. In Canada the Globe & Mail runs a daily column on screening stocks. Every day they present a different stock-picking strategy and the filters used to reach their end list. They then show how much that portfolio would have increased or decreased as well as talking about some of the good & bad points of the stocks in the list. It's interesting to see over time a very few stocks show up on multiple lists for different strategies. These ones in my opinion are the stocks to be investing in. While the Globe's stock picks focus on Canadian and US exchanges, you might find the strategies worthwhile. You can subscribe to the digital version at http://www.theglobeandmail.com Once you have your analytical tools ready, pick any bank or stock house that offers a free practice account. Use that account and their screening tools to try out your strategies and see if you can make money picking stocks. My personal stock-picking strategy is to look for companies with: - a long uninterrupted history of paying dividends, - that are regularly increased, - and do not exceed the net profit per share of the company - and whose share price has a long history of increasing These are called unicorn companies, because there are so very few of them. Another great read is, \"\"Do Stocks Outperform Treasury Bills?\"\" by Hendrik Bessembinder. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 In this paper the author looks at the entire history of the U.S. stock universe and finds that less than 4% of stocks are responsible for 100% of the wealth creation in the U.S. stock market. He discusses his strategies for picking the winners, but it also suggests that if you don't want to do any research, you could pick pretty much any stock at random, short it, and wait. I avoid mutual funds because they are a winner only for the fellas selling them. A great description on why the mutual fund industry is skewed against the investor can be found in a book called \"\"The RRSP Secret\"\" by Greg Habstritt. \"\"Unshakeable\"\" by Tony Robbins also discusses why mutual funds are not the best way to invest in stocks. The investor puts up 100% of the money, takes 100% of the risk, and gets at best 30% of the return. Rich people don't invest like that.\"","\"Two main points to answer this in my opinion. First, most people don't start with say half a million dollar to buy all the stocks they need in one shot but rather they accumulate this money gradually. So they must make many Buys in their lifetime. Similarly, most people don't need to withdraw all their investment in one day (and shouldn't do this anyway as it cuts the time of investment). So there will be many Sells. Performing a single buy or sell per year is not efficient since it means you have lots of cash sitting doing nothing. So in this sense, low cost indexing lets you quickly invest your money (and withdraw it when needed after say you retire) without worrying about commission costs each time. The second and most important point to me to answer this is that we should make a very clear distinction between strategy and outcome. Today's stock prices and all the ups and downs of the market are just one possible outcome that materialized from a virtually uncountable number of possible outcomes. It's not too hard to imagine that tomorrow we hear all iPhones explode and Apple stock comes crashing down. Or that in a parallel universe Amazon never takes off and somehow Sears is the king of online commerce. Another item in the \"\"outcome\"\" category is your decisions as a human being of when to buy and sell. If that exploding iPhone event does occur, would you hold on to your stocks? Would you sell and cut your losses? Does the average person make the same decision if they had $1000 invested in Apple alone vs $1M? Index investing offers a low cost strategy that mitigates these uncertainties for the average person. Again here the key is the word \"\"average\"\". Picking a handful of the heavyweight stocks as you mention might give you better returns in 30 years, but it could just as easily give you worse. And the current data suggest the latter is more likely. \"\"Heavyweights\"\" come and go (who were they 30 years ago?) and just like how the other 450 companies may seem right now as dragging down the portfolio, just as easily a handful of them can emerge as the new heavyweights. Guaranteed? No. Possible? Yes. Jack Bogle is simply saying low cost indexing is one of the better strategies for the average person, given the data. But nowhere is it guaranteed that in this lifetime (e.g. next 30 years) will provide the best outcome. Berkshire on the other hand are in the business of chasing maximum outcomes (mid or short term returns). It's two different concepts that shouldn't be mixed together in my opinion.\"","Keep in mind that it's a cliche statement used as non-controversial filler in articles, not some universal truth. When you were young, did you mom tell you to eat your vegetables because children are starving in Ethiopia? This is the personal finance article equivalent of that. Generally speaking, the statement as an air of truth about it. If you're living hand to mouth, you probably shouldn't be thinking about the stock market. If you're a typical middle class individual investor, you probably shouldn't be messing around with very speculative investments. That said, be careful about looking for some deeper meaning that just isn't there. If the secret of investment success is hidden in that statement, I have a bridge to sell you that has a great view of Brooklyn.","It is only wise to invest in what you understand (ala Warren Buffet style). Depending on how much money you have, you might see fit to consult a good independent financial advisor instead of seeking advice from this website. A famous quote goes: “Those who say, do not know. Those who know, do not say”","Don't invest in regular mutual funds. They are a rip-off. And, most investment professionals will not do much to help your financial future. Here's the advice:","I think the list could have added: - Save in regular intervals using the same strategy. Just to make sure that good old dollar cost averaging is thrown in. That's probably where most people go way wrong. Save money all year, dump it on a stock they like because some family friend investment expert said that 'apple prices will go up' with out explaining that you need to take advantage of mean reversion to help spread the risk.","This is all very basic and general advice, that works for most, but not all. You are unique with your own special needs and desires. Good luck! P.S.: not exactly related to your question, but when you get more familiar with investing and utilizing your money, find more ways to save more. For example, change phone plan, cut the cable, home made food in bulk, etc.","I would encourage you to read The Warren Buffett Way. Its a short read and available from most libraries as an audio book. It should address most of the ignorance that your post displays. Short term prices, offered in the market, do not necessarily reflect the future value of a company. In the short term the market is a popularity contest, in the long run prices increases based on the performance of the company. How much free cash flow (and related metrics) does the company generate. You seem way overly concerned with short term price fluctuations and as such you are more speculating. Expecting a 10 bagger in 2-3 years is unrealistic. Has it happened, sure, but it is a rare thing. Most would be happy to have a 2 bagger in that time frame. If I was in your shoes I'd buy the stock, and watch it. Provided management meet my expectations and made good business decisions I would hold it and add to my position as I was able and the market was willing to sell me the company at a good price. It is good to look at index funds as a diversification. Assuming everything goes perfectly, in 2-3 years, you would have an extra 1K dollars. Big deal. How much money could you earn during that time period? Simply by working at a fairly humble job you should be able to earn between 60K and 90K during that time. If you stuck 10% of that income into a savings account you would be far better off (6K to 9K) then if this stock actually does double. Hopefully that gets you thinking. Staring out is about earning and saving/investing. Start building funds that can compound. Very early on, the rate of return (provided it is not negative) is very unimportant. The key is to get money to compound!","Read Warren Buffett's letters to his shareholders - they are such an interesting read and I guarantee you'll learn more than financial modelling - you will learn how to think about these businesses. Must be what 700-800 pages in total?","\"So, I've read the article in question, \"\"Basically, It's Over\"\". Here's my opinion: I respect Charlie Munger but I think his parable misses the mark. If he's trying to convince the average person (or at least the average Slate-reading person) that America is overspending and headed for trouble, the parable could have been told better. I wasn't sure how to follow some of the analogies he was making, and didn't experience the clear \"\"aha\"\" I was hoping for. Nevertheless, I agree with his point of view, which I see as: In the long run, the United States is going to have serious difficulty in supporting its debt habit, energy consumption habit, and its currency. In terms of an investment strategy to protect oneself, here are some thoughts. These don't constitute a complete strategy, but are some points to consider as part of an overall strategy: If the U.S. is going to continue amassing debt fast, it would stand to reason it will become a worse credit risk, requiring it to pay higher interest rates on its debt. Long-term treasury bonds would decline as rates increase, and so wouldn't be a great place to be invested today. In order to pay the mounting debt and debt servicing costs, the U.S. will continue to run the printing presses, to inflate itself out of debt. This increase in the money supply will put downward pressure on the U.S. dollar relative to the currencies of better-run economies. U.S. cash and short-term treasuries might not be a great place to be invested today. Hedge with inflation-indexed bonds (e.g. TIPS) or the bonds of stronger major economies – but diversify; don't just pick one. If you agree that energy prices are headed higher, especially relative to U.S. dollars, then a good sector to invest a portion of one's portfolio would be world energy producing companies. (Send some of your money over to Canada, we have lots of oil and we're right next door :-) Anybody who has already been practicing broad, global diversification is already reasonably protected. Clearly, \"\"diversification\"\" across just U.S. stocks and bonds is not enough. Finally: I don't underestimate the ability of the U.S. to get out of this rut. U.S. history has impressed upon me (as a Canadian) two things in particular: it is highly capable of both innovating and of overcoming challenges. I'm keeping a small part of my portfolio invested in strong U.S. companies that are proven innovators – not of the \"\"financial\"\"-innovation variety – and with global reach.\"","\"As foundational material, read \"\"The Intelligent Investor\"\" by Benjamin Graham. It will help prepare you to digest and critically evaluate other investing advice as you form your strategy.\"","\"Those who say a person should invest in riskier assets when young are those who equate higher returns with higher risk. I would argue that any investment you do not understand is risky and allows you to lose money at a more rapid rate than someone who understands the investment. The way to reduce risk is to learn about what you want to invest in before you invest in it. Learning afterward can be a very expensive proposition, possibly costing you your retirement. Warren Buffet told the story on Bloomberg Radio in late 2013 of how he read everything in his local library on investing as a teenager and when his family moved to Washington he realized he had the entire Library of Congress at his disposal. One of Mr. Buffett's famous quotes when asked why he doesn't invest in the tech sector was: \"\"I don't invest in what I do not understand.\"\". There are several major asset classes: Paper (stocks, bonds, mutual funds, currency), Commodities (silver, gold, oil), Businesses (creation, purchase or partnership as opposed to common stock ownership) and Real Estate (rental properties, flips, land development). Pick one that interests you and learn everything about it that you can before investing. This will allow you to minimize and mitigate risks while increasing the rewards.\"","Warren Buffett answered this question very well at the 2009 Berkshire Hathaway annual meeting. He said that it was important to read everything you can about investing. What you will find is that you will have a number of competing ideas in your head. You will need to think these through and find the best way to solve them that fits you. You will mostly learn how to invest through good examples. There are fewer good examples out there than you might think, given how many books there are and how many people get paid to give advice in this area. If you want to see how professional investors actually think about specific investments, over a thousand investment examples can be found at www.valueinvestorsclub.com, just login as a guest. The site is run by Joel Greenblatt (you would benefit from reading his books also), and it will give you a sense of the work that investors put into their research. Good luck.","\"Despite Buffett's nearly perfect consistent advice over the past few decades, they don't reflect his earliest days. His modern philosophy seemed to solidify in the 1970s. You can see that Buffett's earliest days grew faster, at 29.5 % for those partners willing to take on leverage with Buffett, than the last half century, at 19.7%. Not only is Buffett limited by size, as its quite difficult to squeeze one half trillion USD into sub-billion USD investments, but the economy thus market is far different than it was before the 1980s. He would have to acquire at least 500 billion USD companies outright, and there simply aren't that many available that satisfy all of his modern conditions. The market is much different now than it was when he first started at Graham-Newman because before the 1960s, the economy thus market would collapse and rebound about every few years. This sort of variance can actually help a value investor because a true value investor will abandon investments when valuations are high and go all in when valuations are low. The most extreme example was when he tried to as quietly as possible buy up an insurance company selling for something like a P/E of 1 during one of the collapses. These kinds of opportunities are seldom available anymore, not even during the 2009 collapse. As he became larger, those investments became off limits because it simply wasn't worth his time to find such a high returner if it's only a bare fraction of his wealth. Also, he started to deviate from Benjamin Graham's methods and started to incorporate Philip Fisher's. By the 1970s, his investment philosophy was more or less cemented. He tried to balance Graham's avarice for price with Fisher's for value. All of the commentary that special tax dodges or cheap financing are central to his returns are false. They contributed, but they are ancillary. As one can see by comparing the limited vs general partners, leverage helps enormously, but this is still a tangent. Buffett has undoubtedly built his wealth from the nature of his investments. The exact blueprint can be constructed by reading every word he has published and any quotes he has not disavowed. Simply, he buys the highest quality companies in terms of risk-adjusted growth at the best available prices. Quantitatively, it is a simple strategy to replicate. NFLX was selling very cheaply during the mid-2000s, WDC sells frequently at low valuations, up and coming retailers frequently sell at low valuations, etc. The key to Buffett's method is emotional control and removing the mental block that price equals value; price is cost, value is revenue, and that concept is the hardest for most to imbibe. Quoting from the first link: One sidelight here: it is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately to people or it doesn't take at all. It's like an inoculation. If it doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference. They just don't seem able to grasp the concept, simple as it is. A fellow like Rick Guerin, who had no formal education in business, understands immediately the value approach to investing and he's applying it five minutes later. I've never seen anyone who became a gradual convert over a ten-year period to this approach. It doesn't seem to be a matter of IQ or academic training. It's instant recognition, or it is nothing. and I'm convinced that there is much inefficiency in the market. These Graham-and-Doddsville investors have successfully exploited gaps between price and value. When the price of a stock can be influenced by a \"\"herd\"\" on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical. and finally Success in investing doesn’t correlate with I.Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing. There is almost no information on any who has helped Buffett internally or even managed Berkshire's investments aside from Louis Simpson. It is unlikely that Buffett has allowed anyone to manage much of Berkshire's investments considering the consistent stream of commentary from him claiming that he nearly does nothing except read annual reports all day to the extent that he may have neglected his family to some degree and that listening to others will more likely hurt performance than help with the most striking example being his father's recommendation that he not open a hedge fund after retiring from Graham-Newman because he believed the market was topping, and he absolutely idolized his father.\"","As a young investor, you should know that the big secret is that profitable long term investing is boring. It is is not buying one day and selling the next and keeping very close tabs on your investments and jumping on the computer and going 'Buy!' , 'Sell'. That makes brokers rich, but not you. So look at investments but not everyday and find something else that's exciting, whether it's dirt biking or WOW or competitive python coding. As a 19 year old, you have a ton of time and you don't need to swing for the fences and make 50% or 30% or even 20% returns every year to do well. And you don't have to pick the best performing stocks, and if you do, you don;t have to buy them at their lowest or sell them at their highest. Go read A Random Walk's guide to Investing by Burton Malkiel and The only Investment Guide you'll ever need by Andrew Tobias. Buy them at used bookstores because it's cheaper that way. And if you want more excitement read You Can Be a Stock Market Genius by Joel GreenBlatt, One up On Wall Street By Peter Lynch, something by Warren Buffet and if you want to be really whacked, read Fooled By Randomness by Nassim Nicholas Talib, But never forget about Tobias and Malkiel, invest a regular amount of money every month from 19 to 65 according to what they write and you'll be a wealthy guy by 65.","\"Invest in productive assets and by that I mean companies. Edit: I'll elaborate on \"\"productive assets\"\": any asset that produces something; whether it produces cash or a commodity, you'll automatically accumulate more of its byproduct in the future. The rest is self explanatory\"","\"If you can afford the time and are looking for more deep, and fun, investment tips, check out http://gurufocus.com. Great for more fundamental analysis of \"\"Intelligent Investor\"\" type Benjamin Graham-style businesses. No use scatter-shooting the stock exchange hoping to find good value businesses. Even blue-chips have an increasingly uncertain future (except IMHO certain world dominators like KO, WMT, XO and MCD).\"","\"Don't do it until you have educated yourself enough to know what you are doing. I hope you won't take this personally, but given that you are wandering around asking random strangers on the Internet how to \"\"get into investing,\"\" I feel safe in concluding that you are by no means a sophisticated enough investor to be choosing individual investments, nor should you be trusting financial advisors to choose investments for you. Believe me, they do not have your interests at heart. I usually advise people in your position to start by reading one book: A Random Walk Down Wall Street by Burton Malkiel. Once you've read the book by Malkiel you'll understand that the best strategy for all but the most sophisticated investors is to buy an index fund, which simply purchases a portfolio of ALL available stocks without trying to pick winners and losers. The best index funds are at Vanguard (there is also a Vanguard site for non-US residents). Vanguard is one of the very, very, very few honest players in the business. Unlike almost any other mutual fund, Vanguard is owned by its investors, so it has no profit motive. They never try to pick individual stocks, so they don't have to pay fancy high-priced analysts to pick stocks. If you find it impossible to open a Vanguard account from wherever you're living, find a local brokerage account that will allow you to invest in the US stock market. Many Vanguard mutual funds are available as ETFs which means that you buy and sell them just like any other stock on the US market, which should be easy to do from any reasonably civilized place.\"","\"Everything you are doing is fine. Here are a few practical notes in performing this analysis: Find all the primary filing information on EDGAR. For NYSE:MEI, you can use https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000065270&type=10-K&dateb=&owner=exclude&count=40 This is the original 10-K. To evaluate earnings growth you need per share earnings for the past three years and 10,11,12 years ago. You do NOT need diluted earnings (because in the long term share dilution comes out anyway, just like \"\"normalized\"\" earnings). The formula is avg(Y_-1+Y_-2+Y_-3) / is avg(Y_-10+Y_-11+Y_-12) Be careful with the pricing rules you are using, the asset one gets complicated. I recommend NOT using the pricing rules #6 and #7 to select the stock. Instead you can use them to set a maximum price for the stock and then you can compare the current price to your maximum price. I am also working to understand these rules and have cited Graham's rules into a checklist and worksheet to find all companies that meet his criteria. Basically my goal is to bottom feed the deals that Warren Buffett is not interested in. If you are interested to invest time into this project, please see https://docs.google.com/document/d/1vuFmoJDktMYtS64od2HUTV9I351AxvhyjAaC0N3TXrA\"","If you see something that looks like a sales pitch, be skeptical, even if they sound informed, say things which resonate with your concerns and promise to alleviate your problems. Watch out in particular for people who pontificate about matters which are tangentially related to the investment (e.g. populist anti-Wall-Street sentiment). Beware limited-time opportunities, offers, and discounts. I'm specifically talking about your email pitches, Motley Fool. They're shameful. Remember you're allowed to change your mind and go back on something that you've said a few minutes ago. If anyone tries to trick you into agreeing to go along with them by taking what something you've said and manipulating it, or uses logic to demonstrate that you must buy something based on things you've said, tell them you're not comfortable, head for the door and don't look back. Don't be afraid of embarrassment or anything like that. (You can investigate whether your position is in fact logically consistent later.) Run away from anyone who resents or deprecates the notion of a second opinion. Don't ever go along with anything that seems shady: it may be shadier than you know. Some people thought Bernie Maddoff was doing some front-running on the side; turns out it was a Ponzi scheme. (Likewise the Ponzi scheme that devastated Albania's economy was widely suspected of being dirty, but people suspected more of a black-market angle.) Beware of anyone who is promising stability and protection. Insurance companies can sell you products (especially annuities) which can deliver it, but they're very expensive for what you get. Don't buy it unless you seriously need it.","For the mechanices/terms of stock investing, I recommend Learn to Earn by Peter Lynch. I also like The Little Book of Common Sense Investing by John Bogle. It explains why indexing is the best choice for most people. For stock picking, a good intro is The Little Book of Value Investing by Chris Brown. And then there is The Intelligent Investor by Ben Graham. IMO, this is the bible of investing.","Commonly recommended books: Intelligent Investor - Graham One Up On Wall Street - Lynch The Essays of Warren Buffett : Lessons for Corporate America - Cunningham Graham's book should be mandatory reading for this sub. Lynch's book talks about leveraging your personal expertise to make intelligent investment choices. Cunningham's is a compilation of Warren Buffett's letters to shareholders of BH with some commentary. It covers a wider range of material, but the lessons on corporate governance are very useful when doing valuation.","A guy I used to work with would buy some shares in certain companies on a regular basis. The guy in question chose Coke, Pepsi, GE, Disney and some other old stable stocks. He just kept buying a few shared ($50 or so at a time) year after year after year. He worked his entire life, but by the time he was ready to retire, he had a pretty sizable investment; he was worth a rather tidy sum. The moral of the story is, it is very much worth it to invest a bit at a time. Don't bother with the idea of buying low and selling high; not right now. Just go ahead and buy stable stocks (or shares of index funds) and wait them out. This strategy (mixed with other retirement tactics like a 401K from work, and IRA of your own, Social Security in the US) is a good way to build wealth. Don't spend money you don't have, be ready for a long term investment and I think it makes great sense, regardless of what country you live in.","I think small sums invested regularly over long-term can do good for you, things to consider: I would go with an index fund and contribute there there regularly.","\"Funds - especially index funds - are a safe way for beginning investors to get a diversified investment across a lot of the stock market. They are not the perfect investment, but they are better than the majority of mutual funds, and you do not spend a lot of money in fees. Compared to the alternative - buying individual stocks based on what a friend tells you or buying a \"\"hot\"\" mutual fund - it's a great choice for a lot of people. If you are willing to do some study, you can do better - quite a bit better - with common stocks. As an individual investor, you have some structural advantages; you can take significant (to you) positions in small-cap companies, while this is not practical for large institutional investors or mutual fund managers. However, you can also lose a lot of money quickly in individual stocks. It pays to go slow and to your homework, however, and make sure that you are investing, not speculating. I like fool.com as a good place to start, and subscribe to a couple of their newsletters. I will note that investing is not for the faint of heart; to do well, you may need to do the opposite of what everybody else is doing; buying when the market is down and selling when the market is high. A few people mentioned the efficient market hypothesis. There is ample evidence that the market is not efficient; the existence of the .com and mortgage bubbles makes it pretty obvious that the market is often not rationally valued, and a couple of hedge funds profited in the billions from this.\"","The key to good investing is you need to understand what you are investing in. That is, if you are buying a company that makes product X, you need to understand that. It is a good idea to buy stock in good companies but that is not sufficient. You need to buy stock in good companies at good prices. That means you need to understand things like price to earnings, price to revenue and price to book. Bob","I recommend you two things: I like these investments because they are not high risk. I hope this helps.","Powers makes a good point: trading costs may eat up a significant portion of your ROI. A fee as little as 2% can consume more than 50% of your long-term ROI! A rule of thumb is keep your fees to less than 1%. One way to do that is to buy stock in companies that have a DRIP with a Share Purchase Plan (SPP). Often the SPP allows investors to purchase shares for low fees or free. Once you have the ability to purchase shares for (virtually) free, you can use InvestMete. Roughly, you send more money to the companies whose share prices are near their 52-week low, and less money to those who are near their 52-week high. Getting back to your original question...","Benjamin Grahams strategy was to invest in REALLY SAFE stocks. In his time lean businesses weren't as common as they are now and he found many companies with assets greater than the value of their shares. Putting a number figure on it isn't really necessary but the concept is useful. Its the idea that bigger companies are less turbulent (Which is something to avoid for an investor). Most companies in the top 500 or whatever will satisfy this.","\"JoeTaxpayer's answer is dead on... but let me give my own two cents with a little bit of math. Otherwise, I personally find that people talking about diversified portfolios tends to be full of buzzwords. Let's say that Buffett's investments are $10 million. He would like to earn ≥7% this year, or $700,000. He can invest that money in coca-cola//underwear, which might return: Or he can invest in \"\"genius moves\"\" that will make headlines: (like buying huge stakes in Goldman Sachs), which might return: And he makes plays for the long haul based on the expected value of the investments. So if he splits it 50/50... ($5 million/ $5 million), then his expected value is 822,250: By diversifying, he does reduce the expected value of the portfolio... (He is not giving $10 M the chance to turn into $1.5 million or $2 million for him!). The expected value of that shock-and-awe portfolio with all $10 million invested in it is $1.2M. By taking less risk... for less reward... his expected return is lower. But his risk is lower too. Scale this example back up into the $100 million or billion range that Buffett invests in and that extra margin makes the difference. In the context of your original article, the lower-risk 'cake and underwear' investments let Buffett go big on the things that will make 20%+ returns on billions of dollars, without completely destroying his investment capital when things take a turn for the worse.\"","\"What you are seeking is termed \"\"Alpha\"\", the mispricing in the market. Specifically, Alpha is the price error when compared to the market return and beta of the stock. Modern portfolio theory suggests that a portfolio with good Alpha will maximize profits for a given risk tolerance. The efficient market hypotheses suggests that Alpha is always zero. The EMH also suggests that taxes, human effort and information propagation delays don't exist (i.e. it is wrong). For someone who is right, the best specific answer to your question is presented Ben Graham's book \"\"The Intelligent Investor\"\" (starting on page 280). And even still, that book is better summarized by Warren Buffet (see Berkshire Hathaway Letters to Shareholders). In a great disservice to the geniuses above it can be summarized much further: closely follow the company to estimate its true earnings potential... and ignore the prices the market is quoting. ADDENDUM: And when you have earnings potential, calculate value with: NPV = sum(each income piece/(1+cost of capital)^time) Update: See http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/ \"\"When Charlie Munger and I buy stocks...\"\" for these same ideas right from the horse's mouth\"","\"As ChrisInEdmonton describes, shorting has an asymmetric risk/reward ratio. And put options have a time cost, if you think the market is overvalued and buy lots of puts, but they expire before the market finally corrects, you can lose your entire investment. Betting on market timing of any kind is extremely difficult to do, some would argue it's impossible. \"\"The market can remain irrational longer than you can remain solvent\"\" is a favorite wall street trader saying. Instead of playing a game that's difficult to win, the better option is to play one you can win. That's to learn how to value individual investments well and accumulate cash until you can find investments that are under-valued to invest in. The best way to learn to value investments is to read Graham and Buffett. \"\"The Intelligent Investor\"\" is a good starting point, and you can read all of Buffett's investor letters for the last 30 years + for free on the Berkshire Hathaway web site. Finally the textbook on valuing stocks and other investments is \"\"Securities Analysis\"\" the 6th edition is only version to get, it was updated with Buffett and other leading value investors oversight. A basic overview of valuing investments is that every investment has an \"\"intrinsic value\"\" consisting of it's future cash flows, discounted for the time it takes to receive them. The skill is being able to estimate how likely those cash flows are to happen. a) Is it a good business? Does it have a moat, i.e. barriers that make it hard for competitors to duplicate it? b) Will management invest or distribute those cash flows wisely? Then your strategy is to not even worry about the market, spend your time looking at individual stocks and investments and wait until some come along that's well undervalued. That may be during a market correction, or it may be tomorrow. And it's not just good enough to intelligently value your investments, you also have to have psychological fortitude to not panic and to think for yourself. Buffett describes it best. Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him. Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. Lastly learning to value investments isn't just useful in the stock market, they are applicable to investing in any investment such as bonds, real estate, and even buying your home or running a business.\"","Buffet is in a different league from other value investors. He looks for stable companies with no debt and good management. Then he looks to deeply understand the industries of candidate companies, and looks for companies that are not in commodity businesses or sell commodities that can be bought for 25% of the valuation that he believes reflects the true value of the company. Deeply understanding the market is really the key. Consider the Burlington Northern Santa Fe Railroad, which Buffet purchased last year. Railroads benefit from higher oil prices, as they can transport cargo much cheaper than trucks. They also tend to have natural monopolies in the regions they operate in. Buffet bought the railroad just as production of oil and natural gas in North Dakota started picking up. Since pipeline capacity between North Dakota and refineries in Texas/Oklahoma is very limited, the railroad is making alot of money transporting crude.","This fortune article is referenced in his either 2003 or 2004 annual report in which he does say that the market will not likely return much in the future and generally talks numbers. I am also a value investor, such that I can be in this environment and believe there is a bit of value in knowing where you think the market is headed but the real value is in underwriting each deal. In long, I agree with you","If you are going to the frenzy of individual stock picking, like almost everyone initially, I suggest you to write your plan to paper. Like, I want an orthogonal set of assets and limit single investments to 10%. If with such limitations the percentage of brokerage fees rise to unbearable large, you should not invest that way in the first hand. You may find better to invest in already diversified fund, to skip stupid fees. There are screeners like in morningstar that allow you to see overlapping items in funds but in stocks it becomes trickier and much errorsome. I know you are going to the stock market frenzy, even if you are saying to want to be long-term or contrarian investor, most investors are convex, i.e. they follow their peers, despite it would better to be a concave investor (but as we know it can be hard). If the last part confused you, fire up a spreadsheet and do a balance. It is a very motivating activity, really. You will immediately notice things important to you, not just to providers such as morningstar, but alert it may take some time. And Bogleheads become to your rescue, ready spreadsheets here.","\"The power of compounding interest and returns is an amazing thing. Start educating yourself about investing, and do it -- there are great Q&As on this site, numerous books (I recommend \"\"The Intelligent Investor\"\", tools for small investors (like Sharebuilder.com) and other resources out there to get you started. Your portfolio doesn't need to include every dime you have either. But you do need to develop the discipline to save money -- even if that savings is $20 while you're in school. How you split between cash/deposit account savings and other investment vehicles is a decision that needs to make sense to you.\"","As a matter of fact, I invest small sums in stable stocks every month (in fact, much lesser than the $50 you are talking about). More than the return on investment, I gained a lot of knowledge keeping track of my stocks and this now helps me pick my stocks better. And the portfolio is doing great too. So, it is a good idea to start small and invest regularly.","\"I have money to invest. Where should I put it? Anyone who answers with \"\"Give it to me, I'll invest it for you, don't worry.\"\" needs to be avoided. If your financial advisor gives you this line or equivalent, fire him/her and find another. Before you think about where you should put your money, learn about investing. Take courses, read books, consume blogs and videos on investing in stocks, businesses, real estate, and precious metals. Learn what the risks and rewards are for each, and make an informed decision based on what you learned. Find differing opinions on each type of investment and come to your own conclusions for each. I for example, do not understand stocks, and so do not seriously work the stock market. Mutual funds make money for the folks selling them whether or not the price goes up or down. You assume all the risk while the mutual fund advisor gets the reward. If you find a mutual fund advisor who cannot recommend the purchase of a product he doesn't sell, he's not an advisor, he's a salesman. Investing in business requires you either to intimately understand businesses and how to fund them, or to hire someone who can make an objective evaluation for you. Again this requires training. I have no such training, and avoid investing in businesses. Investing in real estate also requires you to know what to look for in a property that produces cash flow or capital gains. I took a course, read some books, gained experience and have a knowledgeable team at my disposal so my wins are greater than my losses. Do not be fooled by people telling you that higher risk means higher reward. Risks that you understand and have a detailed plan to mitigate are not risks. It is possible to have higher reward without increasing risk. Again, do your own research. The richest people in the world do not own mutual funds or IRAs or RRSPs or TFSAs, they do their own research and invest in the things I mentioned above.\"","\"I'm a senior majoring in accounting and management information systems. Here is a question I answered a while back about financial statements and employee retention. In the answer that I provided at the bottom it was to assess a company's ability to pay by use of ratios. Likewise, similar accounting methods need to be understood and implemented when assessing stocks(which is where I believe Mr. Buffet was going with this). As we can see the severity of the questions decreases, but if you can not answer question 3 then you should study accounting principles. So how much is enough just to get started? You will never have enough knowledge to start, period. You will have to continuously be learning, so start sooner than later. However you need neither economics or accounting knowledge if you were to learn technical analysis, many doubt the workings of this technique, but in my experience it is easier to learn and practise. A comment on @Veronica's post. Understanding economics and accounting are fundamental. Analysis, seeing trends, and copying are instinctual human traits that helped us evolve (we are very good at pattern recognition). Taking an intro economic and accounting course at a local community college is an excellent place to start when breaking the mold of pattern-thinking. You have to be critical in understanding what elements move a company's A/R in the statement of cash flows. Read. Literally, don't stop reading. Latest edition of of Kesio's accounting principles? Read it. Cover to cover. Tax policies on Section 874, 222, 534? Read it. Take a class, read a book, ask questions! Good Luck, \"\"Welcome to [the] Science [of Business], you're gonna like it here\"\" - Phil Plait\"","Read the Security Analysis. I believe if you read it completely, you will have a real good chance of succeeding at making good money. If you find the book hard to read just go through it and underline under the text as you read it.","I would always recommend the intelligent investor by Benjamin Graham the mentor of warren buffet once you have a basic knowledge ie what is a share bond guilt etc In terms of pure investment the UK is fairly similar the major difference is the simpler tax structure, ISA allowance and the more generous CGT regime.","Adding to the very good advises above - Concentrate on costs related to investment activity. Note all expenses and costs that you pay. Keep it low.","\"If you are like most people, your timing is kind of awful. What I mean by most, is all. Psychologically we have strong tendencies to buy when the market is high and avoid buying when it is low. One of the easiest to implement strategies to avoid this is Dollar Cost Averaging. In most cases you are far better off making small investments regularly. Having said that, you may need to \"\"save\"\" a bit in order to make subsequent investments because of minimums. For me there is also a positive psychological effect of putting money to work sooner and more often. I find it enjoyable to purchase shares of a mutual fund or stock and the days that I do so are a bit better than the others. An added benefit to doing regular investing is to have them be automated. Many wealthy people describe this as a key to success as they can focused on the business of earning money in their chosen profession as opposed to investing money they have already earned. Additionally the author of I will Teach You to be Rich cites this as a easy, free, and key step in building wealth.\"","\"The psychology of investing is fascinating. I buy a stock that's out of favor at $10, and sell half at a 400% profit, $50/share. Then another half at $100, figuring you don't ever lose taking a profit. Now my Apple shares are over $500, but I only have 100. The $10 purchase was risky as Apple pre-iPod wasn't a company that was guaranteed to survive. The only intelligent advice I can offer is to look at your holdings frequently, and ask, \"\"would I buy this stock today given its fundamentals and price?\"\" If you wouldn't buy it, you shouldn't hold it. (This is in contrast to the company ratings you see of buy, hold, sell. If I should hold it, but you shouldn't buy it to hold, that makes no sense to me.) Disclaimer - I am old and have decided stock picking is tough. Most of our retirement accounts are indexed to the S&P. Maybe 10% is in individual stocks. The amount my stocks lag the index is less than my friends spend going to Vegas, so I'm happy with the results. Most people would be far better off indexing than picking stocks.\"","Lots of good advice so far. Here's some meta-advice. Read through everything here twice, and distill out what the big picture ideas are. Learn about what you need to know about them. Pick a strategy and/or long term goals. Work toward them. Get advice from many many places and distill it. This is currently known as crowd-sourcing but I've been doing it all my life. It's very effective. No one will ever care as much about your money as you. Some specific things I haven't seen mentioned (or not mentioned much):","Value investing is an investment approach that relies on buying securities below their intrinsic values. There are two main concepts; one is the Intrinsic Value and the other is Margin of Safety. Intrinsic value is the value of the underlying business - if we are talking about stocks - that can be calculated through carefully analyzing the business looking at all aspects of it. If there is an intrinsic value exists for a company then there is a price tag we can put on its shares as well. Value investing is looking to buy shares well below its intrinsic value. It is important to know that there is no correct intrinsic value exists for a company and two people can come up with different figures, if they were presented the same data. Calculating the intrinsic value for a business is the hardest part of value investing. Margin of Safety is the difference between the buying price of a stock and its intrinsic value. Value investors are insisting on buying stocks well below their intrinsic value, where the margin of safety is 20%-30% or even more. This concepts is protecting them from poor decisions and market downturns. It is also providing a room for error, when calculating the intrinsic value. The approach was introduced by Benjamin Graham and David Dodd in a book called Security Analysis in 1934. Other famous investor using this approach is Warren Buffet Books to read: I would start to read the first two book first.","The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.","you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.","You have received much good advice, but based on 53 years investing and the first 25 getting my nose bloodied and breaking even I very strongly offer the following. Before doing so let me first offer this caveat: I am not questioning your broker or the advice, but it is only valuable to you if history proves correct. No one, not even Bernanke can predict how stock will perform in the future. Maybe if he sees a depression. My advice to someone new to stock investing is to purchase a index fund from a discount broker, e.g. Fidelity or Vanguard, and then study the market and economics. The Wall Street Journal and the web are my favorites. I started with a hell of a lot less than you have saved, I would not turn $200K over to anyone until you know exactly the risk and cost involved. Also, I wouldn't depend on one person or firm to advise or manage my money. I like to balance one against the other. I do not recall different firms recommending the same stocks. One must remember everyone in the business of recommending stock or any investment is selling something and must be compensated. That's how they earn a living.","\"First off, monozok is right, at the end of the day, you should not accept what anyone says to do without your money - take their suggestions as directions to research and decide for yourself. I also do not think what you have is too little to invest, but that depends on how liquid you need to be. Often in order to make a small amount of money grow via investments, you have to be willing to take all the investment profits from that principle and reinvest it. Thus, can you see how your investment ability is governed by the time you plan to spend without that money? They mantra that I have heard from many people is that the longer you are able to wait, the more 'risk' you can take. As someone who is about the same age as you (I'm 24) I can't exactly say yet that what I have done is sure fire for the long term, but I suggest you adopt a few principles: 1) Go read \"\"A Random Walk Down Wall Street\"\" by Burton G. Malkiel. A key point for you might be that you can do better than most of these professional investors for hire simply by putting more money in a well selected index fund. For example, Vanguard is a nice online service to buy indexes through, but they may require a minimum. 2) Since you are young, if you go into any firm, bank, or \"\"financial planner,\"\" they will just think you are naive and try to get you to buy whatever is best for them (one of their mutual funds, money market accounts, annuities, some flashy cd). Don't. You can do better on your own and while it might be tempting because these options look more secure or well managed, most of the time you will barely make above inflation, and you will not have learned very much. 3) One exciting thin you should start learning now is about algorithmic trading because it is cool and super efficient. quantopian.com is a good platform for this. It is a fun community and it is also free. 4) One of the best ways I have found to watch the stock market is actually through a stock game app on my phone that has realtime stock price feed. Seeking Alpha has a good mobile app interface and it also connects you to news that has to do with the companies you are interested in.\"","\"I'm 39 and have been investing since my very early 20's, and the advice I'd like to go back and give myself is the following: 1) Time is your friend. Compounding interest is a powerful force and is probably the most important factor to how much money you are going to wind up with in the end. Save as much as you possibly can as early as you can. You have to run twice as hard to catch up if you start late, and you will still probably wind up with less in the end for the extra effort. 2) Don't invest 100% of your investment money It always bugged me to let my cash sit idle in an investment account because the niggling notion of inflation eating up my money and I felt I was wasting opportunity cost by not being fully invested in something. However, not having enough investable cash around to buy into the fire-sale dips in the market made me miss out on opportunities. 3) Diversify The dot.com bubble taught me this in a big, hairy painful way. I had this idea that as a technologist I really understood the tech bubble and fearlessly over-invested in Tech stocks. I just knew that I was on top of things as an \"\"industry insider\"\" and would know when to jump. Yeah. That didn't work out so well. I lost more than 6 figures, at least on paper. Diversification will attenuate the ups and downs somewhat and make the market a lot less scary in the long run. 4) Mind your expenses It took me years of paying huge full-service broker fees to realize that those clowns don't seem to do any better than anyone else at picking stocks. Even when they do, the transaction costs are a lead weight on your returns. The same holds true for mutual funds/ETFs. Shop for low expense ratios aggressively. It is really hard for a fund manager to consistently beat the indexes especially when you burden the returns with expense ratios that skim an extra 1% or so off the top. The expense ratio/broker fees are among the very few things that you can predict reliably when it comes to investments, take advantage of this knowledge. 5) Have an exit strategy for every investment People are emotional creatures. It is hard to be logical when you have skin in the game and most people aren't disciplined enough to just admit when they have a loser and bail out while they are in the red or conversely admit when they have a winner and take profits before the party is over. It helps to counteract this instinct to have an exit strategy for each investment you buy. That is, you will get out if it drops by x% or grows by y%. In fact, it is probably a good idea to just enter those sell limit orders right after you buy the investment so you don't have to convince yourself to press the eject button in the heat of a big move in the price of that investment. Don't try to predict tops or bottoms. They are extremely hard to guess and things often turn so fast that you can't act on them in time anyway. Get out of an investment when it has met your goal or is going to far in the wrong direction. If you find yourself saying \"\"It has to come back eventually\"\", slap yourself. When you are trying to decide whether to stay in the investment or bail, the most important question is \"\"If I had the current cash value of the stock instead of shares, would I buy it today?\"\" because essentially that is what you are doing when you stick with an investment. 6) Don't invest in fads When you are investing you become acutely sensitive to everyone's opinions on what investment is hot and what is not. If everyone is talking about a particular investment, avoid it. The more enthusiastic people are about it (even experts) the MORE you should avoid it. When everyone starts forming investment clubs at work and the stock market seems to be the preferred topic of conversation at every party you go to. Get out! I'm a big fan of contrarian investing. Take profits when it feels like all the momentum is going into the market, and buy in when everyone seems to be running for the doors.\"","I am a bit at a loss as to how you can read the same book, that inspired Warren Buffet, and take away that trading 600 contracts per month is a way to prosperity. As a fellow engineer I can say with assurance this speculation scheme is doomed to failure. Crossing out the word gamble was a mistake. Instead you should focus on two things. The first is your core business, which is signal processing. Work and strive to be the best you can. Seek out opportunities to increase your income while keeping your costs low. As an engineer you have an opportunity to earn an above average salary with very low costs. Second would be to warehouse some of those earning and let others who are good at other things work for you. You may want to read the Jack Bogle books and seek an asset allocation model. I tend to be more aggressive then he would suggest, but that is a matter of preference. You don't really have the time, when you focus on your core business, to manage 6 trades a month let alone 600. Put your contributions on auto pilot and a surprisingly short time you will have a pile of cash.","\"Read \"\"The intelligent Investor\"\" book before you do anything. I started when I really didn't understand anything about stocks. I bought an internet stock for $150 per share which sold at 75cents a year later. I sold it for a profit but would've been a disaster.\"","Investing requires capital, and the fastest way to get the capital is to develop good saving habits. Investing is an ongoing process to help you accumulate wealth, so to take advantage of compounding, the earlier you start, the better. I can suggest a few pointers to get you started on the investing journey. Godspeed! :)","\"When you hear advice to buy index funds, that usually comes with two additional pieces of investment discipline advice that are important: These two elements are important to give you relative predictability in your outcome 20 years from now. In this old blog post of mine I linked to Warren Buffett talking about this, also mentioned it in a comment on another answer: http://blog.ometer.com/2008/03/27/index-funds/ It's perfectly plausible to do poorly over 20 years if you buy 100% stocks at once, without dollar-cost averaging or rebalancing. It's very very very plausible to do poorly over 10 years, such as the last 10 in fact. Can you really say you know your financial situation in 20-30 years, and for sure won't need that money? Because predictability is important, I like buying a balanced fund and not \"\"pure stocks\"\": http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ (feel a little bad linking to my blog, but retyping all that into this answer seems dumb!) Here's another tip. You can go one step past dollar cost averaging and try value averaging: http://www.amazon.com/Value-Averaging-Strategy-Investment-Classics/dp/0470049774 However, chances are you aren't even going to be good about rebalancing if it's done \"\"by hand,\"\" so personally I would not do value averaging unless you can find either a fund or a financial advisor to do it for you automatically. (Finance Buff blog makes a case for a financial advisor, in case you like that more than my balanced fund suggestion: http://thefinancebuff.com/the-average-investor-should-use-an-investment-advisor-how-to-find-one.html) Like rebalancing, value averaging makes you buy more when you're depressed about the market and less when it's exciting. It's hard. (Dollar cost averaging is easily done by setting up automatic investment, of course, so you don't have to do it manually in the way you would with value averaging.) If you read the usual canonical books on index funds and efficient markets it's easy to remember the takeaway that nobody knows whether the market will go up or down, and yes you won't successfully time the market. But what you can do successfully is use an investment discipline with risk control: assume that the market will fluctuate, that both up and down are likely and possible, and optimize for predictability in light of that. Most importantly, optimize to take your emotions and behavior out of the picture. Some disciplines for example are: there are dozens out there, many of them snake oil, I think these I mentioned are valid. Anyway, you need some form of risk control, and putting all your money in stocks at once doesn't give you a lot of risk control. There's no real need to get creative. A balanced fund that uses index funds for equity and bond portions is a great choice.\"","I think the advice Bob is being given is good. Bob shouldn't sell his investments just because their price has gone down. Selling cheap is almost never a good idea. In fact, he should do the opposite: When his investments become cheaper, he should buy more of them, or at least hold on to them. Always remember this rule: Buy low, sell high. This might sound illogical at first, why would someone keep an investment that is losing value? Well, the truth is that Bob doesn't lose or gain any money until he sells. If he holds on to his investments, eventually their value will raise again and offset any temporary losses. But if he sells as soon as his investments go down, he makes the temporary losses permanent. If Bob expects his investments to keep going down in the future, naturally he feels tempted to sell them. But a true investor doesn't try to anticipate what the market will do. Trying to anticipate market fluctuations is speculating, not investing. Quoting Benjamin Graham: The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell. Assuming that the fund in question is well-managed, I would refrain from selling it until it goes up again.","Don't be too scared of investing in the market. It has ups and downs, but over the long haul you make money in it. You can't jump in and out, just consistently add money to investments that you 1) understand and 2) trust. When I say understand, what I mean is you can follow how the money is generated, either because a company sells products, a government promises to pay back the bond, or compounding interest makes sense. You don't need to worry about the day to day details, but if you don't understand how the money is made, it isn't transparent enough and a danger could be afoot. Here are some basic rules I try (!) to follow The biggest trick is to invest what you can, and do so consistently. You can build wealth by earning more and spending less. I personally find spending less a lot easier, but earning more is pretty easy with some simple investment tools.","I would say that the three most important skills are: Note that some costs are hidden. So, for example, a mutual fund investing in other countries than where you live in may mean the investment target country charges a certain percentage of dividends going to the mutual fund. The mutual fund company doesn't usually want to tell you this. There may be clever financial instruments (derivatives) that can be used to avoid this, but they are not without their problems. If you diversify into equities at low cost, you will have a very wealthy future. I would recommend you to compare two options: ...and pick from these options the cheaper one. If your time has a high value, and you wish to take this value into account, I would say it is almost always far better option to choose an index fund. Whatever you do, don't pay for active management! It is a mathematical truth that before costs, actively managed investments will yield the same return than indexed investments. However, the costs are higher in active management, so you will have less total return. Don't believe that good historical return would imply good future return. However, if for some reason you see an index fund that continuously loses to the index more than by the amount of stated costs, beware!","Warren Buffet and Berkshire Hathaway took a 50% loss in each of the last two bear markets. His stock even lost 10% in 2015 when the S&P lost 8%. He doesn't have a track record to support the claim that his stock performs relatively better in a bear market, so perhaps it's best to take his letter with a grain of salt. Edit: As one commenter points out, Mr. Buffett is comparing the book performance of his fund to the market performance of an index. That is an apples to oranges comparison. It's deceptive at best.","\"Most articles on investing recommend that investors that are just starting out to invest in index stock or bonds funds. This is the easiest way to get rolling and limit risk by investing in bonds and stocks, and not either one of the asset classes alone. When you start to look deeper into investing there are so many options: Small Cap, Large Cap, technical analysis, fundamental analysis, option strategies, and on and on. This can end up being a full time job or chewing into a lot of personal time. It is a great challenge to learn various investment strategies frankly for the average person that works full time it is a huge effort. I would recommend also reading \"\"The Intelligent Asset Allocator\"\" to get a wider perspective on how asset allocation can help grow a portfolio and reduce risk. This book covers a simple process.\"","1) Don't trade individual stocks. You expose yourself to unnecessary risk. 2) Pick a fund with low expenses that pays a dividend. Reinvest the dividend back into the fund. To quote Einstein: The greatest power on earth is compound interest. Something is wrong with the software of the site. It will not allow me to answer mark with another comment. So I have to edit this answer to be able to answer him. @mark No, I am not hoping the price will go up. The price is only relevant in comparison to the dividend. It is the dividend that is important, not the price. The price is irrelevant if you never sell. Dividend paying securities are what you buy and hold. Then you reinvest the dividend and buy more of the security. As I am buying the security with the dividend I am actually pleasantly surprised when the price goes down. When the price goes down, but the dividend remains the same, I am able to buy more shares of the security withwith that dividend. So if the price goes down, and the dividend remains the same, it is a good thing. Again, the site will not allow me to add another comment. @mark I profit from my investment, without selling, by receiving the dividend. I used to be a speculator, trying to get ahead of the market by 'buy low, sell high' but all that did was make money for the broker. I lost as much as I gained trying to do that. The broker made money on each transaction, regardless if I did or not. It took me decades to learn the lesson that 'buy and hold' of dividend paying securities is the way to go. Don't make my mistake. I now get, at least, 5.5% yeald on my investment (look at PGF, which forms the backbone of my investments). That is almost 0.5% per month. Each month that dividend is reinvested into PGF, with no commission. You can't beat that with a stick.","\"Say you have $15,000 of capital to invest. You want to put the majority of your capital into low risk investments that will yield positive gains over the course of your working career. $5,000: Government bonds and mutual funds, split how you want. $9,500: Low risk, trusted companies with positive historical growth. If the stock market is very unfamiliar for you, I recommend Google Finance, Yahoo Finance, and Zack's to learn about smart investments you can make. You can also research the investments that hedge fund managers and top investors are making. Google \"\"Warren Buffett or Carl Icahn portfolio\"\", and this will give you an idea of stocks you can put your money into. Do not leave your money into a certain company for more than 25 years. Rebalance your portfolio and take the gains when you feel you need them. You have no idea when to take your profits now, but 5 years from now, you will be a smart and experienced investor. A safe investment strategy to start is to put your money into an ETF that mimics the S&P 500. Over the past 20 years, the S&P 500 has yielded gains of about 270%. During the financial crisis a few years back, the S&P 500 had lost over 50% of its value when it reached its low point. However, from when it hit rock bottom in 2009, it has had as high percentage gains in six years as it did in 12 years from 1995 to 2007, which about 200%. The market is very strong and will treat your money well if you invest wisely. $500: Medium - High risk Speculative Stocks There is a reason this category accounts for only approximately 3% of your portfolio. This may take some research on the weekend, but the returns that may result can be extraordinary. Speculative companies are often innovative, low priced stocks that see high volatility, gains or losses of more than 10% over a single month. The likelihood of your $500 investment being completely evaporated is very slim, but if you lose $300 here, the thousands invested in the S&P 500, low risk stocks, government bonds, and mutual funds will more than recuperate the losses. If your pick is a winner, however, expect that the $500 investment could easily double, triple, or gain even more in a single year or over the course of just a few, perhaps, 2-4 years will see a very large return. I hope this advice helps and happy investing! Sending your money to smart investments is the key to financial security, freedom, and later, a comfortable retirement. Good luck, Matt McLaughlin\"","Patience is the key to success. If you hold strong without falling to temptations like seeing a small surge in the price. If it goes down it comes up after a period of time. Just invest on the share when it reaches low bottom and you could see you money multiplying year after year","Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.","In general, the better advice I've heard is to spend only on things that matter to you and scrimp on the rest. It's an easy way to budget without having to stick to a strict set of rules. Otherwise keep 3-6 months of living expenses in liquid accounts (money market, savings) and invest the rest.","\"'Buy and Hold' Is Still a Winner: An investor who used index funds and stayed the course could have earned satisfactory returns even during the first decade of the 21st century. by By Burton G. Malkiel in The Wall Street Journal on November 18, 2010: \"\"The other useful technique is \"\"rebalancing,\"\" keeping the portfolio asset allocation consistent with the investor's risk tolerance. For example, suppose an investor was most comfortable choosing an initial allocation of 60% equities, 40% bonds. As stock and bond prices change, these proportions will change as well. Rebalancing involves selling some of the asset class whose share is above the desired allocation and putting the money into the other asset class. From 1996 through 1999, annually rebalancing such a portfolio improved its return by 1 and 1/3 percentage points per year versus a strategy of making no changes.\"\" Mr. Malkiel is a professor of economics at Princeton University. This op-ed was adapted from the upcoming 10th edition of his book \"\"A Random Walk Down Wall Street,\"\" out in December by W.W. Norton. http://online.wsj.com/article/SB10001424052748703848204575608623469465624.html\"","\"From http://blog.ometer.com/2008/03/27/index-funds/ , Lots of sensible advisers will tell you to buy index funds, but importantly, the advice is not simply \"\"buy index funds.\"\" There are at least two other critical details: 1) asset allocation across multiple well-chosen indexes, maintained through regular rebalancing, and 2) dollar cost averaging (or, much-more-complex-but-probably-slightly-better, value averaging). The advice is not to take your single lump sum and buy and hold a cap-weighted index forever. The advice is an investment discipline which involves action over time, and an initial choice among indexes. An index-fund-based strategy is not completely passive, it involves some active risk control through rebalancing and averaging. If you'd held a balanced portfolio over the last ten years and rebalanced, and even better if you'd dollar cost averaged, you'd have done fine. Your reaction to the last 10 years incidentally is why I don't believe an almost-all-stocks allocation makes sense for most people even if they're pretty young. More detail in this answer: How would bonds fare if interest rates rose? I think some index fund advocacy and books do people a disservice by focusing too much on the extra cost of active management and why index funds are a good deal. That point is true, but for most investors, asset allocation, rebalancing, and \"\"autopilotness\"\" of their setup are more important to outcome than the expense ratio.\"","John Bogle never said only buy the S&P 500 or any single index Q:Do you think the average person could safely invest for retirement and other goals without expert advice -- just by indexing? A: Yes, there is a rule of thumb I add to that. You should start out heavily invested in equities. Hold some bond index funds as well as stock index funds. By the time you get closer to retirement or into your retirement, you should have a significant position in bond index funds as well as stock index funds. As we get older, we have less time to recoup. We have more money to protect and our nervousness increases with age. We get a little bit worried about that nest egg when it's large and we have little time to recoup it, so we pay too much attention to the fluctuations in the market, which in the long run mean nothing. How much to pay Q: What's the highest expense ratio that one should pay for a domestic equity fund? A: I'd say three-quarters of 1 percent maybe. Q: For an international fund? A: I'd say three-quarters of 1 percent. Q: For a bond fund? A: One-half of 1 percent. But I'd shave that a little bit. For example, if you can buy a no-load bond fund or a no-load stock fund, you can afford a little more expense ratio, because you're not paying any commission. You've eliminated cost No. 2....","\"If you're not rich, investing money will produce very small return, and is a waste of your resources. If you want to save until you die, then go for it (that's what investment companies want you to do). I suggest invest your money in building a network of friends who will be future asset for you. A group of friends helping each other have a much higher prospect of success. It has been proven that approximately 70% of jobs have been obtained through networking. Either through family, or friends, this is the vast majority. I will reiterate, invest on friends and family, not on strangers who want to tie down your money so they can have fun for the moment, while you wait to have fun when you're almost dead. Added source for those who are questioning the most well known fact within organizations, I'm baffled by the level of ignorance. Linkedin Recruitment Blog ...companies want to hire from within first; only when there are no appropriate internal candidates will they rely on referrals from employees (who get a bonus for a successful hire) and people who will approach them through informational meetings. The latter category of jobseekers (you) have the benefit of getting known before the job is \"\"officially posted.\"\" For those who believe loaning money to friends and family is a way of losing money -> this is a risk well worth taking -> and the risk is much lower than loaning your money to strangers -> and the reward is much higher than loaning your money to strangers.\"","Yes, you're absolutely right. For such small amounts and such large fees, almost any investment choice is pointless. Some brokers allow for commission free ETF trading. Seek them out. As you've noticed, bond interest rates are almost 0%. This is a far cry from the days of Benjamin Graham, where the USD acted more like gold, with much more frequent booms and busts. During Graham's heyday, one could sell one's bonds at super low interest rates and buy them back again when high. In his day, interest rates would be very high one year like in 2008 and next to nothing the next like in 2009, cycling back and forth, until the 1960s hit, and he didn't know what to do. Graham preferred to wait for the reversion to the mean, and act only when far from it. Those opportunities are few and far between now since fiat currencies are far better managed than they were then, the Fed-caused 2009 total destruction as an outlier to recent times. In your case, it's best to leave the bonds to the insurance companies and buy equities. If you want less volatility, buy a buy-write ETF. Bonds will surely disappoint unless one is lucky enough to hold bonds while interest rates fall from ~6% to ~3%, an eventuality that shouldn't be expected to occur again, as Bill Gross is painfully discovering.","A note on the article: I thought this article by Buffet on market level was particularly appropriate now, given the seemingly daily new highs, current level of interest rates (hint: they are incredibly low), and corporate profits (hint: they are incredibly high). If you believe the market will eventually revert to the mean, that implies substandard results over an extended period of time into the future.","Save enough to build an emergency cushion of 4-6 months total expenses. After that, invest everything you can in areas where you are well researched and have carefully formed your own opinion on the subject. Those who save do not reach financial freedom, those who learn to invest and make their money work for them do. Invest in learning how to invest.","\"no way -- he suggests that if you don't have an edge, no one needs to play the game. He doesn't like the idea of a \"\"lesser bad\"\" way to invest (MPT). If you do decide to get involved in investing, then it's about absolute performance, not relative. He believes that the whole relative performance thing -- beating some arbitrary benchmark -- is just an artificial construct.\"","\"First: what's your risk tolerance? How long is your investment going to last? If it's a short-term investment (a few years) and you expect to break even (or better) then your risk tolerance is low. You should not invest much money in stocks, even index funds and \"\"defensive\"\" stocks. If, however, you're looking for a long-term investment which you will put money into continually over the next 30 years, the amount of stock you purchase at any given time is pretty small, so the money you might lose by timing the market wrong will also be rather small. Also, you probably do a remarkably poor job of knowing when to buy stocks. If you actually knew how to time the market to materially improve your risk-adjusted returns, you've missed your calling; you should be making six figures or more on Wall Street. :)\"","You can try paper trading to sharpen your investing skills(identifying stocks to invest, how much money to allocate and stuff) but nothing compares to getting beaten black and blue in the real world. When virtual money is involved you mayn't care, because you don't loose anything, but when your hard earned money disappears or grows, no paper trading can incite those feelings in you. So there is no guarantee that doing paper trading will make you a better investor, but can help you a lot in terms of learning. Secondly educate yourself on the ways of investing. It is hard work and realize that there is no substitute for hard work. India is a growing economy and your friends maybe safe in the short term but take it from any INVESTOR, not in the long run. And moreover as all economies are recovering from the recession there are ample opportunities to invest money in India both good and bad. Calculate your returns and compare it with your friends maybe a year or two down the lane to compare the returns generated from both sides. Maybe they would come trumps but remember selecting a good investment from a bad investment will surely pay out in the long run. Not sure what you do not understand what Buffet says. It cannot get more simpler than that. If you can drill those rules into your blood, you mayn't become a billionaire but surely you will make a killing, but in the long run. Read and read as much as you can. Buy books, browse the net. This might help. One more guy like you.","You can never depend ONLY on pension. You must get financial education and invest your money. I recommend you to read The Intelligent Investor by Benjamin Graham...it's the bible of Warren Buffet. Besides, you don't need to be a Billionaire for retiring and be happy. I recommend you to get education in ETFs. I quote The Intelligent Investor by Benjamin Graham p. 131. According to Ibboston Associates, the leading financial research firm, if you had invested $12,000 in the Standard & Poor's 500-stock index at the beginning of september 1929, 10 years later you would have had only $7,223 left. But if you had started with a paltry $100 and simply invested another $100 every single month, then by August 1939, your money would have grown to $15,571! That's the power of disciplined buying-even in the face of the Great Depression and the worst bear market of all time. You are still young to make even bolder investments. But seriously you can never depend ONLY on pension. You won't regret learning how to invest your money, it doesn't matter if it's in the stock market, real state market, whatever market... Knowing what to do with your money is priceless. I hope this helps. Happy profits!","You might want to consider 'investing' a portion of that money into educating yourself. The payoff might not be as immediately obvious or gratifying but with appropriate determination, in the long term it will generate you a much greater return. If you would like to learn about investing, a great starting point would be to buy and read the book 'The Intelligent Investor' by Benjamin Graham. This will be a great barometer for how ready you are to invest in the stock market. If you are able to understand the concepts discussed and comprehend why they are important, you will have gone far in ensuring that you will make adequate returns over your lifetime and will - more importantly - increase the odds of safeguarding your capital.","The advice to invest in yourself is good advice. But the stock market can be very rewarding over the long pull. You have about 45 years to retirement now and that is plenty long enough that each dollar put into the market now will be many dollars then. A simple way to do this might be to open a brokerage account at a reputable broker and put a grand into a very broad based all market ETF and then doing nothing with it. The price of the ETF will go up and down with the usual market gyrations, but over the decades it will grow nicely. Make sure the ETF has low fees so that you aren't being overcharged. It's good that you are thinking about investing at a young age. A rational and consistent investment strategy will lead to wealth over the long pull.","\"There are many questions and good answers here regarding investment choices. The first decision you need to make is how involved do you intend to be in investment activity. If you plan to be actively investing by yourself, you should look for questions here about making investment choices. If you intend to be a more passive investor, look for posts by \"\"Bogleheads\"\", who focus on broad-focused, low cost investments. This is the optimal choice for many people. If you are not comfortable managing investments at all, you need to figure out how to find a competent and reasonably priced financial advisor to meet with and guide your investment strategy. This advice generally costs about 1-2% of your total managed assets annually.\"","Just don't buy any kind of paper and you will be fine :-) And don't forget most of these 'blue-chip companies' sell marketing garbage which have no real market. Finally, make all decissions slooooowly and after extensive research.","\"There is only one book worth reading in my opinion: One Up on Wall Street. It's short and no other book even comes close to it for honesty, correctness and good sense. Also, it is written by the second most successful investor of all time, Peter Lynch. The Intelligent Investor has some good technical content, but the book is dated and a lot of it is irrelevant to the modern investment environment. When I was younger I used to ready books like this and when a friend of mine asked for investment advice. I said \"\"Look at stocks with a PE ratio of 5-10\"\". A few days later he comes back to me and says \"\"There are none\"\". Right. That pretty much sums up the problem with the I.I. Graham himself in interviews during the 1970s said that his book was obsolete and he no longer recommended those methods.\"","If you have the money put it in, and invest the money over a few months. Always keep a modest reserve of cash to give you the flexibility to take advantage of market opportunities.","I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs.","Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.","\"The Investment Entertainment Pricing Theory (INEPT) has this bit to note: The returns of small growth stocks are ridiculously low—just 2.18 percent per year since 1927 (versus 17.47 percent for small value, 10.06 percent for large growth, and 13.99 percent for large value). Where the S & P 500 would be a blend of large-cap growth and value so does that meet your \"\"beat the market over the long term\"\" as 1927-1999 would be long for most people.\"","\"If you're investing for the long term your best strategy is going to be a buy-and-hold strategy, or even just buying a few index funds in several major asset classes and forgetting about it. Following \"\"market conditions\"\" is about as useful to the long term trader as checking the weather in Anchorage, Alaska every day (assuming that you don't live in Anchorage, Alaska). Let me suggest treating yourself to a subscription to The Economist and read it once a week. You'll learn a lot more about investing, economics, and world trends, and you won't be completely in the dark if there are major structural changes in the world (like gigantic housing bubbles) that you might want to know about.\"","\"The most important thing is to start. Don't waste months and years trying to figure out the \"\"optimal\"\" strategy or trying to read all the best books before you start. Pick a solid, simple choice, like investing in your company sponsored 401(k), and do it today. This I Will Teach You To Be Rich post on barriers has some good insight on this.\"","I like Keshlam's answer and would like to add a few notes: While your enthusiasm to invest is admirable learning patience is a key aspect of wealth building and keeping.","\"Put the whole lot into a couple of low-cost broad index funds with dividends reinvested (also known as accumulation funds) and then don't look at them. Invest through a low-cost broker. There are a number to choose from and once you start googling around the theme of \"\"index fund investing\"\" you'll find them. The S&P 500 is a popular index to start with.\""],"string":"[\n \"\\\"Consultant, I commend you for thinking about your financial future at such an early age. Warren Buffet, arguably the most successful investor ever lived, and the best known student of Ben Graham has a very simple advice for non-professional investors: \\\"\\\"Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)\\\"\\\" This quote is from his 2013 letter to shareholders. Source: http://www.berkshirehathaway.com/letters/2013ltr.pdf Buffet's annual letters to shareholders are the wealth of useful and practical wisdom for building one's financial future. The logic behind his advice is that most investors cannot consistently pick stock \\\"\\\"winners\\\"\\\", additionally, they are not able to predict timing of the market; hence, one has to simply stay in the market, and win over in the long run.\\\"\",\n \"\\\"You can't get much better advice for a young investor than from Warren Buffet. And his advice for investors young and old, is \\\"\\\"Put 10% of the cash in short‑term government bonds, and 90% in a very low‑cost S&P 500 index fund.\\\"\\\" Or as he said at a different time, \\\"\\\"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees\\\"\\\". You are not going to beat the market. So just save as much money as you can, and invest it in something like a Vanguard no-load, low-cost mutual fund. Picking individual stocks is fun, but treat it as fun. Never put in more money than you would waste on fun. Then any upside is pure gravy.\\\"\",\n \"\\\"I tell you how I started as an investor: read the writings of probably the best investor of the history and become familiarized with it: Warren Buffett. I highly recommend \\\"\\\"The Essays of Warren Buffett\\\"\\\", where he provides a wise insight on how a company generates value, and his investment philosophy. You won't regret it! And also, specially in finance, don't follow the advice from people that you don't know, like me.\\\"\",\n \"\\\"Warren Buffett: 'Investing Advice For You--And My Wife' (And Other Quotes Of The Week): What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit…My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors… Similarly from Will Warren Buffett's investment advice work for you?: Specifically, Buffett wants the trustee of his estate to put 10 percent of his wife's cash inheritance in short-term government bonds and 90 percent in a low-cost S&P index fund - and he tips his hat specifically to Bogle's Vanguard in doing so. Says Buffett: \\\"\\\"I believe the trust's long-term results from this policy will be superior to those attained by most investors - whether pension funds, institutions or individuals.\\\"\\\"\\\"\",\n \"As a corollary to this; the average investor will never know more than the market. Buffett can buy mispriced securities because he runs a multi-billion dollar company dedicated to finding these mispricings. My advice for the common man: 1. Invest in both Stocks (for growth) & Bonds (for wealth preservation) 2. Stocks should be almost exclusively Index Funds That's it. The stock market has a 'random walk with a positive drift' which means that in general, the market will increase in value. Index funds capture this value and will protect you against the inevitable BoA, AIG, Enron, etc. It's fine to invest in index funds with a strategy as well, for instance emerging market ETFs could capture the growth of a particular region. Bear ETFs are attractive if you think the market is going to hit a downturn in the future.\",\n \"\\\"I don't know really is the best investment strategy. People think that they have to know everything to make money. But realistically, out of the hundreds of thousands of publicly traded securities, you really can only invest in a tiny number of them. Of the course of a week, you literally have more than a million \\\"\\\"buy\\\"\\\" or \\\"\\\"don't buy\\\"\\\" decisions, because the prices of those securities fluctuate every day. Simply due to the fact that there are so many securities, you cannot know what everything is going to do. You have to say \\\"\\\"I don't know\\\"\\\". Also, when you do understand something, it is usually fairly priced. So will you make money on it? \\\"\\\"I don't know\\\"\\\". Only very rarely will you find something that you actually understand well and it is significantly undervalued. You can be looking at a company a day for two years before you find it. But people get trigger happy. They bet on 51%/49% odds when they should only bet on 90%/10% odds or higher. If you are forced to bet on everything, it makes sense that you bet on everything you believe is greater than 50% chance of winning. But since you cannot bet on everything, you should only bet on the highest quality bets, those with greater than 90% chance of winning. To find such a bet, you may have to shuffle through 100 different companies and only make 2-3 bets. You are looking for something that is at least 2 standard deviations away from the mean. People are not good at doing a lot of work, most of which yields nothing, to find one big payoff. They are wired to only look at the present, so they take the best bet they can see at the moment, which is often barely above 50% (and with any misjudgment, it may actually be well below 50%). And people are not good at understanding compound/geometric growth. You can keep multipling 10% gains (1.10 * 1.10 * 1.10 ...), but that can all be wiped out by multiplying by one zero, which is why taking a 51%/49% bet is so dangerous (even though technically it is an advantageous one). They forget to adjust for the geometric aspect of compounding. A 99%/1% bet is one you should take, but if you are allowed to repeat it and you keep going all-in, you will eventually lose and have $0, which is the same as if you took a single all-in bet that has 0% chance of winning. As Buffett says, if you are only allowed to make 20 investments over a lifetime, you will most likely do better because it prevents you from making many of these mistakes.\\\"\",\n \"A couple points, first you don't point out what investors you want to invest with, and second BRK.B does not track anything; it is just a very small slice of his entire holdings BRK.A minus the voting rights. One solid way to go would be to buy BRK.B and also a tech ETF like QQQ, or XLK, ..or both.\",\n \"\\\"Warren Buffet isn't using any special sauce. He looks for value and ignores hype, greed, and fear. He buys what he knows and looks for companies that generate cash and/or are available for a discount of their true value. He explains what he looks for in a company and his reasons for buying it. He has said on numerous occasions, \\\"\\\"I look for intrinsic value.\\\"\\\" (So there's your formula.) Human nature is often irrational and investing seems to bring out the fear and greed. I've always been a bit surprised when people ascribe some sort of sixth sense to Warren Buffet's success. He just works hard and doesn't deviate from a sound strategy. \\\"\\\"Be fearful when others are greedy and greedy when others are fearful.\\\"\\\" And of course, rule one: \\\"\\\"Don't lose money.\\\"\\\" It's not a joke. How many people buy high and sell low because of fear and greed? When the market tanks, buy more. Finally, anyone can invest with Buffet without all the work. Just buy a few shares of BRK.A or BRK.B.\\\"\",\n \"The advice I have is short and sweet. Be an investor, not a speculator. Adopt the philosophy of Warren Buffet which is the 'buy and hold' philosophy. Avoid individual stocks and buy mutual funds or ETFs. Pick something that pays dividends and reinvest those dividends. Don't become a speculator, meaning avoid the 'buy low, sell high' philosophy. EDIT:For some reason I cannot add a comment, so I am putting my response here. @jad The 'buy low, sell high' approach makes money for the stock broker, not necessarily you. As we learn in the movie Trading Places, each buy or sell creates a commission for the broker. It is those commission expenses that eat away at your nestegg. Just don't sell. If a security is trading at $10 a share and pays $0.25 a share each quarter then you are getting 10% ROI if you buy that security (and if it continues to pay $0.25 a share each quarter). If the price goes up then the ROI for new buyers will go down, but your ROI will still be the same. You will continue to get 10% for as long as you hold that security. A mutual fund buys the individual stocks for you. The value of the fund is only calculated at the end of the day. An ETF is like a mutual fund but the value of the ETF is calculated moment by moment.\",\n \"\\\"That's great that you have saved up money. You are ahead of your peers. I would advise against investing in an index fund. The attraction of the idea is that you will get the same return as the base item. For example, an index fund of gold would supposedly give you the same return as if you bought gold. In reality this is not true. The return of an index fund is always significantly below the return of the underlying commodity. Your best strategy is to invest in something you know and understand. There are two books that can help you learn how to do this: \\\"\\\"One Up on Wall Street\\\"\\\" by Peter Lynch and \\\"\\\"The Intelligent Investor\\\"\\\" by Benjamin Graham. Buying, reading and following the guidance in these two books is your best investment of time and money.\\\"\",\n \"That is absolute rubbish. Warren Buffet follows simple value and GARP tenants that literally anyone could follow if they had the discipline to do so. I have never once heard of an investment made by Warren Buffet that wasn't rooted in fundamentals and easy to understand. The concept is fairly simple as is the math, buying great companies trading at discounts to what they are worth due to market fluctuations, emotionality, or overreactions to key sectors etc. If I buy ABC corp at $10 knowing it is worth $20, it could go down or trade sideways for FIVE YEARS doing seemingly nothing and then one day catch up with its worth due to any number of factors. In that case, my 100% return which took five years to actualize accounts for an average 20% return per year. Also (and this should be obvious), but diversification is a double edged sword. Every year, hundreds of stocks individually beat the market return. Owning any one of these stocks as your only holding would mean that YOU beat the market. As you buy more stocks and diversify your return will get closer and closer to that of an index or mutual fund. My advice is to stick to fundamentals like value and GARP investing, learn to separate when the market is being silly from when it is responding to a genuine concern, do your own homework and analysis on the stocks you buy, BE PATIENT after buying stock that your analysis gives you confidence in, and don't over diversify. If you do these things, congrats. YOU ARE Warren Buffet.\",\n \"\\\"Spend your first 50 euros on research materials. Warren Buffett got started as a boy by reading every book in the Library of Congress on investing and stock market analysis. You can research the company filings for Canadian companies at http://www.sedar.com, U.S companies at http://www.edgar.com, and European companies at https://www.gov.uk/government/organisations/companies-house. Find conflicting arguments and strategies and decide for yourself which ones are right. The Motley Fool http://www.fool.ca offers articles on good stocks to add to your portfolio and why, as well as why not. They provide a balanced judgement instead of just hype. They also sell advice through their newsletter. In Canada the Globe & Mail runs a daily column on screening stocks. Every day they present a different stock-picking strategy and the filters used to reach their end list. They then show how much that portfolio would have increased or decreased as well as talking about some of the good & bad points of the stocks in the list. It's interesting to see over time a very few stocks show up on multiple lists for different strategies. These ones in my opinion are the stocks to be investing in. While the Globe's stock picks focus on Canadian and US exchanges, you might find the strategies worthwhile. You can subscribe to the digital version at http://www.theglobeandmail.com Once you have your analytical tools ready, pick any bank or stock house that offers a free practice account. Use that account and their screening tools to try out your strategies and see if you can make money picking stocks. My personal stock-picking strategy is to look for companies with: - a long uninterrupted history of paying dividends, - that are regularly increased, - and do not exceed the net profit per share of the company - and whose share price has a long history of increasing These are called unicorn companies, because there are so very few of them. Another great read is, \\\"\\\"Do Stocks Outperform Treasury Bills?\\\"\\\" by Hendrik Bessembinder. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 In this paper the author looks at the entire history of the U.S. stock universe and finds that less than 4% of stocks are responsible for 100% of the wealth creation in the U.S. stock market. He discusses his strategies for picking the winners, but it also suggests that if you don't want to do any research, you could pick pretty much any stock at random, short it, and wait. I avoid mutual funds because they are a winner only for the fellas selling them. A great description on why the mutual fund industry is skewed against the investor can be found in a book called \\\"\\\"The RRSP Secret\\\"\\\" by Greg Habstritt. \\\"\\\"Unshakeable\\\"\\\" by Tony Robbins also discusses why mutual funds are not the best way to invest in stocks. The investor puts up 100% of the money, takes 100% of the risk, and gets at best 30% of the return. Rich people don't invest like that.\\\"\",\n \"\\\"Two main points to answer this in my opinion. First, most people don't start with say half a million dollar to buy all the stocks they need in one shot but rather they accumulate this money gradually. So they must make many Buys in their lifetime. Similarly, most people don't need to withdraw all their investment in one day (and shouldn't do this anyway as it cuts the time of investment). So there will be many Sells. Performing a single buy or sell per year is not efficient since it means you have lots of cash sitting doing nothing. So in this sense, low cost indexing lets you quickly invest your money (and withdraw it when needed after say you retire) without worrying about commission costs each time. The second and most important point to me to answer this is that we should make a very clear distinction between strategy and outcome. Today's stock prices and all the ups and downs of the market are just one possible outcome that materialized from a virtually uncountable number of possible outcomes. It's not too hard to imagine that tomorrow we hear all iPhones explode and Apple stock comes crashing down. Or that in a parallel universe Amazon never takes off and somehow Sears is the king of online commerce. Another item in the \\\"\\\"outcome\\\"\\\" category is your decisions as a human being of when to buy and sell. If that exploding iPhone event does occur, would you hold on to your stocks? Would you sell and cut your losses? Does the average person make the same decision if they had $1000 invested in Apple alone vs $1M? Index investing offers a low cost strategy that mitigates these uncertainties for the average person. Again here the key is the word \\\"\\\"average\\\"\\\". Picking a handful of the heavyweight stocks as you mention might give you better returns in 30 years, but it could just as easily give you worse. And the current data suggest the latter is more likely. \\\"\\\"Heavyweights\\\"\\\" come and go (who were they 30 years ago?) and just like how the other 450 companies may seem right now as dragging down the portfolio, just as easily a handful of them can emerge as the new heavyweights. Guaranteed? No. Possible? Yes. Jack Bogle is simply saying low cost indexing is one of the better strategies for the average person, given the data. But nowhere is it guaranteed that in this lifetime (e.g. next 30 years) will provide the best outcome. Berkshire on the other hand are in the business of chasing maximum outcomes (mid or short term returns). It's two different concepts that shouldn't be mixed together in my opinion.\\\"\",\n \"Keep in mind that it's a cliche statement used as non-controversial filler in articles, not some universal truth. When you were young, did you mom tell you to eat your vegetables because children are starving in Ethiopia? This is the personal finance article equivalent of that. Generally speaking, the statement as an air of truth about it. If you're living hand to mouth, you probably shouldn't be thinking about the stock market. If you're a typical middle class individual investor, you probably shouldn't be messing around with very speculative investments. That said, be careful about looking for some deeper meaning that just isn't there. If the secret of investment success is hidden in that statement, I have a bridge to sell you that has a great view of Brooklyn.\",\n \"It is only wise to invest in what you understand (ala Warren Buffet style). Depending on how much money you have, you might see fit to consult a good independent financial advisor instead of seeking advice from this website. A famous quote goes: “Those who say, do not know. Those who know, do not say”\",\n \"Don't invest in regular mutual funds. They are a rip-off. And, most investment professionals will not do much to help your financial future. Here's the advice:\",\n \"I think the list could have added: - Save in regular intervals using the same strategy. Just to make sure that good old dollar cost averaging is thrown in. That's probably where most people go way wrong. Save money all year, dump it on a stock they like because some family friend investment expert said that 'apple prices will go up' with out explaining that you need to take advantage of mean reversion to help spread the risk.\",\n \"This is all very basic and general advice, that works for most, but not all. You are unique with your own special needs and desires. Good luck! P.S.: not exactly related to your question, but when you get more familiar with investing and utilizing your money, find more ways to save more. For example, change phone plan, cut the cable, home made food in bulk, etc.\",\n \"I would encourage you to read The Warren Buffett Way. Its a short read and available from most libraries as an audio book. It should address most of the ignorance that your post displays. Short term prices, offered in the market, do not necessarily reflect the future value of a company. In the short term the market is a popularity contest, in the long run prices increases based on the performance of the company. How much free cash flow (and related metrics) does the company generate. You seem way overly concerned with short term price fluctuations and as such you are more speculating. Expecting a 10 bagger in 2-3 years is unrealistic. Has it happened, sure, but it is a rare thing. Most would be happy to have a 2 bagger in that time frame. If I was in your shoes I'd buy the stock, and watch it. Provided management meet my expectations and made good business decisions I would hold it and add to my position as I was able and the market was willing to sell me the company at a good price. It is good to look at index funds as a diversification. Assuming everything goes perfectly, in 2-3 years, you would have an extra 1K dollars. Big deal. How much money could you earn during that time period? Simply by working at a fairly humble job you should be able to earn between 60K and 90K during that time. If you stuck 10% of that income into a savings account you would be far better off (6K to 9K) then if this stock actually does double. Hopefully that gets you thinking. Staring out is about earning and saving/investing. Start building funds that can compound. Very early on, the rate of return (provided it is not negative) is very unimportant. The key is to get money to compound!\",\n \"Read Warren Buffett's letters to his shareholders - they are such an interesting read and I guarantee you'll learn more than financial modelling - you will learn how to think about these businesses. Must be what 700-800 pages in total?\",\n \"\\\"So, I've read the article in question, \\\"\\\"Basically, It's Over\\\"\\\". Here's my opinion: I respect Charlie Munger but I think his parable misses the mark. If he's trying to convince the average person (or at least the average Slate-reading person) that America is overspending and headed for trouble, the parable could have been told better. I wasn't sure how to follow some of the analogies he was making, and didn't experience the clear \\\"\\\"aha\\\"\\\" I was hoping for. Nevertheless, I agree with his point of view, which I see as: In the long run, the United States is going to have serious difficulty in supporting its debt habit, energy consumption habit, and its currency. In terms of an investment strategy to protect oneself, here are some thoughts. These don't constitute a complete strategy, but are some points to consider as part of an overall strategy: If the U.S. is going to continue amassing debt fast, it would stand to reason it will become a worse credit risk, requiring it to pay higher interest rates on its debt. Long-term treasury bonds would decline as rates increase, and so wouldn't be a great place to be invested today. In order to pay the mounting debt and debt servicing costs, the U.S. will continue to run the printing presses, to inflate itself out of debt. This increase in the money supply will put downward pressure on the U.S. dollar relative to the currencies of better-run economies. U.S. cash and short-term treasuries might not be a great place to be invested today. Hedge with inflation-indexed bonds (e.g. TIPS) or the bonds of stronger major economies – but diversify; don't just pick one. If you agree that energy prices are headed higher, especially relative to U.S. dollars, then a good sector to invest a portion of one's portfolio would be world energy producing companies. (Send some of your money over to Canada, we have lots of oil and we're right next door :-) Anybody who has already been practicing broad, global diversification is already reasonably protected. Clearly, \\\"\\\"diversification\\\"\\\" across just U.S. stocks and bonds is not enough. Finally: I don't underestimate the ability of the U.S. to get out of this rut. U.S. history has impressed upon me (as a Canadian) two things in particular: it is highly capable of both innovating and of overcoming challenges. I'm keeping a small part of my portfolio invested in strong U.S. companies that are proven innovators – not of the \\\"\\\"financial\\\"\\\"-innovation variety – and with global reach.\\\"\",\n \"\\\"As foundational material, read \\\"\\\"The Intelligent Investor\\\"\\\" by Benjamin Graham. It will help prepare you to digest and critically evaluate other investing advice as you form your strategy.\\\"\",\n \"\\\"Those who say a person should invest in riskier assets when young are those who equate higher returns with higher risk. I would argue that any investment you do not understand is risky and allows you to lose money at a more rapid rate than someone who understands the investment. The way to reduce risk is to learn about what you want to invest in before you invest in it. Learning afterward can be a very expensive proposition, possibly costing you your retirement. Warren Buffet told the story on Bloomberg Radio in late 2013 of how he read everything in his local library on investing as a teenager and when his family moved to Washington he realized he had the entire Library of Congress at his disposal. One of Mr. Buffett's famous quotes when asked why he doesn't invest in the tech sector was: \\\"\\\"I don't invest in what I do not understand.\\\"\\\". There are several major asset classes: Paper (stocks, bonds, mutual funds, currency), Commodities (silver, gold, oil), Businesses (creation, purchase or partnership as opposed to common stock ownership) and Real Estate (rental properties, flips, land development). Pick one that interests you and learn everything about it that you can before investing. This will allow you to minimize and mitigate risks while increasing the rewards.\\\"\",\n \"Warren Buffett answered this question very well at the 2009 Berkshire Hathaway annual meeting. He said that it was important to read everything you can about investing. What you will find is that you will have a number of competing ideas in your head. You will need to think these through and find the best way to solve them that fits you. You will mostly learn how to invest through good examples. There are fewer good examples out there than you might think, given how many books there are and how many people get paid to give advice in this area. If you want to see how professional investors actually think about specific investments, over a thousand investment examples can be found at www.valueinvestorsclub.com, just login as a guest. The site is run by Joel Greenblatt (you would benefit from reading his books also), and it will give you a sense of the work that investors put into their research. Good luck.\",\n \"\\\"Despite Buffett's nearly perfect consistent advice over the past few decades, they don't reflect his earliest days. His modern philosophy seemed to solidify in the 1970s. You can see that Buffett's earliest days grew faster, at 29.5 % for those partners willing to take on leverage with Buffett, than the last half century, at 19.7%. Not only is Buffett limited by size, as its quite difficult to squeeze one half trillion USD into sub-billion USD investments, but the economy thus market is far different than it was before the 1980s. He would have to acquire at least 500 billion USD companies outright, and there simply aren't that many available that satisfy all of his modern conditions. The market is much different now than it was when he first started at Graham-Newman because before the 1960s, the economy thus market would collapse and rebound about every few years. This sort of variance can actually help a value investor because a true value investor will abandon investments when valuations are high and go all in when valuations are low. The most extreme example was when he tried to as quietly as possible buy up an insurance company selling for something like a P/E of 1 during one of the collapses. These kinds of opportunities are seldom available anymore, not even during the 2009 collapse. As he became larger, those investments became off limits because it simply wasn't worth his time to find such a high returner if it's only a bare fraction of his wealth. Also, he started to deviate from Benjamin Graham's methods and started to incorporate Philip Fisher's. By the 1970s, his investment philosophy was more or less cemented. He tried to balance Graham's avarice for price with Fisher's for value. All of the commentary that special tax dodges or cheap financing are central to his returns are false. They contributed, but they are ancillary. As one can see by comparing the limited vs general partners, leverage helps enormously, but this is still a tangent. Buffett has undoubtedly built his wealth from the nature of his investments. The exact blueprint can be constructed by reading every word he has published and any quotes he has not disavowed. Simply, he buys the highest quality companies in terms of risk-adjusted growth at the best available prices. Quantitatively, it is a simple strategy to replicate. NFLX was selling very cheaply during the mid-2000s, WDC sells frequently at low valuations, up and coming retailers frequently sell at low valuations, etc. The key to Buffett's method is emotional control and removing the mental block that price equals value; price is cost, value is revenue, and that concept is the hardest for most to imbibe. Quoting from the first link: One sidelight here: it is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately to people or it doesn't take at all. It's like an inoculation. If it doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference. They just don't seem able to grasp the concept, simple as it is. A fellow like Rick Guerin, who had no formal education in business, understands immediately the value approach to investing and he's applying it five minutes later. I've never seen anyone who became a gradual convert over a ten-year period to this approach. It doesn't seem to be a matter of IQ or academic training. It's instant recognition, or it is nothing. and I'm convinced that there is much inefficiency in the market. These Graham-and-Doddsville investors have successfully exploited gaps between price and value. When the price of a stock can be influenced by a \\\"\\\"herd\\\"\\\" on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical. and finally Success in investing doesn’t correlate with I.Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing. There is almost no information on any who has helped Buffett internally or even managed Berkshire's investments aside from Louis Simpson. It is unlikely that Buffett has allowed anyone to manage much of Berkshire's investments considering the consistent stream of commentary from him claiming that he nearly does nothing except read annual reports all day to the extent that he may have neglected his family to some degree and that listening to others will more likely hurt performance than help with the most striking example being his father's recommendation that he not open a hedge fund after retiring from Graham-Newman because he believed the market was topping, and he absolutely idolized his father.\\\"\",\n \"As a young investor, you should know that the big secret is that profitable long term investing is boring. It is is not buying one day and selling the next and keeping very close tabs on your investments and jumping on the computer and going 'Buy!' , 'Sell'. That makes brokers rich, but not you. So look at investments but not everyday and find something else that's exciting, whether it's dirt biking or WOW or competitive python coding. As a 19 year old, you have a ton of time and you don't need to swing for the fences and make 50% or 30% or even 20% returns every year to do well. And you don't have to pick the best performing stocks, and if you do, you don;t have to buy them at their lowest or sell them at their highest. Go read A Random Walk's guide to Investing by Burton Malkiel and The only Investment Guide you'll ever need by Andrew Tobias. Buy them at used bookstores because it's cheaper that way. And if you want more excitement read You Can Be a Stock Market Genius by Joel GreenBlatt, One up On Wall Street By Peter Lynch, something by Warren Buffet and if you want to be really whacked, read Fooled By Randomness by Nassim Nicholas Talib, But never forget about Tobias and Malkiel, invest a regular amount of money every month from 19 to 65 according to what they write and you'll be a wealthy guy by 65.\",\n \"\\\"Invest in productive assets and by that I mean companies. Edit: I'll elaborate on \\\"\\\"productive assets\\\"\\\": any asset that produces something; whether it produces cash or a commodity, you'll automatically accumulate more of its byproduct in the future. The rest is self explanatory\\\"\",\n \"\\\"If you can afford the time and are looking for more deep, and fun, investment tips, check out http://gurufocus.com. Great for more fundamental analysis of \\\"\\\"Intelligent Investor\\\"\\\" type Benjamin Graham-style businesses. No use scatter-shooting the stock exchange hoping to find good value businesses. Even blue-chips have an increasingly uncertain future (except IMHO certain world dominators like KO, WMT, XO and MCD).\\\"\",\n \"\\\"Don't do it until you have educated yourself enough to know what you are doing. I hope you won't take this personally, but given that you are wandering around asking random strangers on the Internet how to \\\"\\\"get into investing,\\\"\\\" I feel safe in concluding that you are by no means a sophisticated enough investor to be choosing individual investments, nor should you be trusting financial advisors to choose investments for you. Believe me, they do not have your interests at heart. I usually advise people in your position to start by reading one book: A Random Walk Down Wall Street by Burton Malkiel. Once you've read the book by Malkiel you'll understand that the best strategy for all but the most sophisticated investors is to buy an index fund, which simply purchases a portfolio of ALL available stocks without trying to pick winners and losers. The best index funds are at Vanguard (there is also a Vanguard site for non-US residents). Vanguard is one of the very, very, very few honest players in the business. Unlike almost any other mutual fund, Vanguard is owned by its investors, so it has no profit motive. They never try to pick individual stocks, so they don't have to pay fancy high-priced analysts to pick stocks. If you find it impossible to open a Vanguard account from wherever you're living, find a local brokerage account that will allow you to invest in the US stock market. Many Vanguard mutual funds are available as ETFs which means that you buy and sell them just like any other stock on the US market, which should be easy to do from any reasonably civilized place.\\\"\",\n \"\\\"Everything you are doing is fine. Here are a few practical notes in performing this analysis: Find all the primary filing information on EDGAR. For NYSE:MEI, you can use https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000065270&type=10-K&dateb=&owner=exclude&count=40 This is the original 10-K. To evaluate earnings growth you need per share earnings for the past three years and 10,11,12 years ago. You do NOT need diluted earnings (because in the long term share dilution comes out anyway, just like \\\"\\\"normalized\\\"\\\" earnings). The formula is avg(Y_-1+Y_-2+Y_-3) / is avg(Y_-10+Y_-11+Y_-12) Be careful with the pricing rules you are using, the asset one gets complicated. I recommend NOT using the pricing rules #6 and #7 to select the stock. Instead you can use them to set a maximum price for the stock and then you can compare the current price to your maximum price. I am also working to understand these rules and have cited Graham's rules into a checklist and worksheet to find all companies that meet his criteria. Basically my goal is to bottom feed the deals that Warren Buffett is not interested in. If you are interested to invest time into this project, please see https://docs.google.com/document/d/1vuFmoJDktMYtS64od2HUTV9I351AxvhyjAaC0N3TXrA\\\"\",\n \"If you see something that looks like a sales pitch, be skeptical, even if they sound informed, say things which resonate with your concerns and promise to alleviate your problems. Watch out in particular for people who pontificate about matters which are tangentially related to the investment (e.g. populist anti-Wall-Street sentiment). Beware limited-time opportunities, offers, and discounts. I'm specifically talking about your email pitches, Motley Fool. They're shameful. Remember you're allowed to change your mind and go back on something that you've said a few minutes ago. If anyone tries to trick you into agreeing to go along with them by taking what something you've said and manipulating it, or uses logic to demonstrate that you must buy something based on things you've said, tell them you're not comfortable, head for the door and don't look back. Don't be afraid of embarrassment or anything like that. (You can investigate whether your position is in fact logically consistent later.) Run away from anyone who resents or deprecates the notion of a second opinion. Don't ever go along with anything that seems shady: it may be shadier than you know. Some people thought Bernie Maddoff was doing some front-running on the side; turns out it was a Ponzi scheme. (Likewise the Ponzi scheme that devastated Albania's economy was widely suspected of being dirty, but people suspected more of a black-market angle.) Beware of anyone who is promising stability and protection. Insurance companies can sell you products (especially annuities) which can deliver it, but they're very expensive for what you get. Don't buy it unless you seriously need it.\",\n \"For the mechanices/terms of stock investing, I recommend Learn to Earn by Peter Lynch. I also like The Little Book of Common Sense Investing by John Bogle. It explains why indexing is the best choice for most people. For stock picking, a good intro is The Little Book of Value Investing by Chris Brown. And then there is The Intelligent Investor by Ben Graham. IMO, this is the bible of investing.\",\n \"Commonly recommended books: Intelligent Investor - Graham One Up On Wall Street - Lynch The Essays of Warren Buffett : Lessons for Corporate America - Cunningham Graham's book should be mandatory reading for this sub. Lynch's book talks about leveraging your personal expertise to make intelligent investment choices. Cunningham's is a compilation of Warren Buffett's letters to shareholders of BH with some commentary. It covers a wider range of material, but the lessons on corporate governance are very useful when doing valuation.\",\n \"A guy I used to work with would buy some shares in certain companies on a regular basis. The guy in question chose Coke, Pepsi, GE, Disney and some other old stable stocks. He just kept buying a few shared ($50 or so at a time) year after year after year. He worked his entire life, but by the time he was ready to retire, he had a pretty sizable investment; he was worth a rather tidy sum. The moral of the story is, it is very much worth it to invest a bit at a time. Don't bother with the idea of buying low and selling high; not right now. Just go ahead and buy stable stocks (or shares of index funds) and wait them out. This strategy (mixed with other retirement tactics like a 401K from work, and IRA of your own, Social Security in the US) is a good way to build wealth. Don't spend money you don't have, be ready for a long term investment and I think it makes great sense, regardless of what country you live in.\",\n \"I think small sums invested regularly over long-term can do good for you, things to consider: I would go with an index fund and contribute there there regularly.\",\n \"\\\"Funds - especially index funds - are a safe way for beginning investors to get a diversified investment across a lot of the stock market. They are not the perfect investment, but they are better than the majority of mutual funds, and you do not spend a lot of money in fees. Compared to the alternative - buying individual stocks based on what a friend tells you or buying a \\\"\\\"hot\\\"\\\" mutual fund - it's a great choice for a lot of people. If you are willing to do some study, you can do better - quite a bit better - with common stocks. As an individual investor, you have some structural advantages; you can take significant (to you) positions in small-cap companies, while this is not practical for large institutional investors or mutual fund managers. However, you can also lose a lot of money quickly in individual stocks. It pays to go slow and to your homework, however, and make sure that you are investing, not speculating. I like fool.com as a good place to start, and subscribe to a couple of their newsletters. I will note that investing is not for the faint of heart; to do well, you may need to do the opposite of what everybody else is doing; buying when the market is down and selling when the market is high. A few people mentioned the efficient market hypothesis. There is ample evidence that the market is not efficient; the existence of the .com and mortgage bubbles makes it pretty obvious that the market is often not rationally valued, and a couple of hedge funds profited in the billions from this.\\\"\",\n \"The key to good investing is you need to understand what you are investing in. That is, if you are buying a company that makes product X, you need to understand that. It is a good idea to buy stock in good companies but that is not sufficient. You need to buy stock in good companies at good prices. That means you need to understand things like price to earnings, price to revenue and price to book. Bob\",\n \"I recommend you two things: I like these investments because they are not high risk. I hope this helps.\",\n \"Powers makes a good point: trading costs may eat up a significant portion of your ROI. A fee as little as 2% can consume more than 50% of your long-term ROI! A rule of thumb is keep your fees to less than 1%. One way to do that is to buy stock in companies that have a DRIP with a Share Purchase Plan (SPP). Often the SPP allows investors to purchase shares for low fees or free. Once you have the ability to purchase shares for (virtually) free, you can use InvestMete. Roughly, you send more money to the companies whose share prices are near their 52-week low, and less money to those who are near their 52-week high. Getting back to your original question...\",\n \"Benjamin Grahams strategy was to invest in REALLY SAFE stocks. In his time lean businesses weren't as common as they are now and he found many companies with assets greater than the value of their shares. Putting a number figure on it isn't really necessary but the concept is useful. Its the idea that bigger companies are less turbulent (Which is something to avoid for an investor). Most companies in the top 500 or whatever will satisfy this.\",\n \"\\\"JoeTaxpayer's answer is dead on... but let me give my own two cents with a little bit of math. Otherwise, I personally find that people talking about diversified portfolios tends to be full of buzzwords. Let's say that Buffett's investments are $10 million. He would like to earn ≥7% this year, or $700,000. He can invest that money in coca-cola//underwear, which might return: Or he can invest in \\\"\\\"genius moves\\\"\\\" that will make headlines: (like buying huge stakes in Goldman Sachs), which might return: And he makes plays for the long haul based on the expected value of the investments. So if he splits it 50/50... ($5 million/ $5 million), then his expected value is 822,250: By diversifying, he does reduce the expected value of the portfolio... (He is not giving $10 M the chance to turn into $1.5 million or $2 million for him!). The expected value of that shock-and-awe portfolio with all $10 million invested in it is $1.2M. By taking less risk... for less reward... his expected return is lower. But his risk is lower too. Scale this example back up into the $100 million or billion range that Buffett invests in and that extra margin makes the difference. In the context of your original article, the lower-risk 'cake and underwear' investments let Buffett go big on the things that will make 20%+ returns on billions of dollars, without completely destroying his investment capital when things take a turn for the worse.\\\"\",\n \"\\\"What you are seeking is termed \\\"\\\"Alpha\\\"\\\", the mispricing in the market. Specifically, Alpha is the price error when compared to the market return and beta of the stock. Modern portfolio theory suggests that a portfolio with good Alpha will maximize profits for a given risk tolerance. The efficient market hypotheses suggests that Alpha is always zero. The EMH also suggests that taxes, human effort and information propagation delays don't exist (i.e. it is wrong). For someone who is right, the best specific answer to your question is presented Ben Graham's book \\\"\\\"The Intelligent Investor\\\"\\\" (starting on page 280). And even still, that book is better summarized by Warren Buffet (see Berkshire Hathaway Letters to Shareholders). In a great disservice to the geniuses above it can be summarized much further: closely follow the company to estimate its true earnings potential... and ignore the prices the market is quoting. ADDENDUM: And when you have earnings potential, calculate value with: NPV = sum(each income piece/(1+cost of capital)^time) Update: See http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/ \\\"\\\"When Charlie Munger and I buy stocks...\\\"\\\" for these same ideas right from the horse's mouth\\\"\",\n \"\\\"As ChrisInEdmonton describes, shorting has an asymmetric risk/reward ratio. And put options have a time cost, if you think the market is overvalued and buy lots of puts, but they expire before the market finally corrects, you can lose your entire investment. Betting on market timing of any kind is extremely difficult to do, some would argue it's impossible. \\\"\\\"The market can remain irrational longer than you can remain solvent\\\"\\\" is a favorite wall street trader saying. Instead of playing a game that's difficult to win, the better option is to play one you can win. That's to learn how to value individual investments well and accumulate cash until you can find investments that are under-valued to invest in. The best way to learn to value investments is to read Graham and Buffett. \\\"\\\"The Intelligent Investor\\\"\\\" is a good starting point, and you can read all of Buffett's investor letters for the last 30 years + for free on the Berkshire Hathaway web site. Finally the textbook on valuing stocks and other investments is \\\"\\\"Securities Analysis\\\"\\\" the 6th edition is only version to get, it was updated with Buffett and other leading value investors oversight. A basic overview of valuing investments is that every investment has an \\\"\\\"intrinsic value\\\"\\\" consisting of it's future cash flows, discounted for the time it takes to receive them. The skill is being able to estimate how likely those cash flows are to happen. a) Is it a good business? Does it have a moat, i.e. barriers that make it hard for competitors to duplicate it? b) Will management invest or distribute those cash flows wisely? Then your strategy is to not even worry about the market, spend your time looking at individual stocks and investments and wait until some come along that's well undervalued. That may be during a market correction, or it may be tomorrow. And it's not just good enough to intelligently value your investments, you also have to have psychological fortitude to not panic and to think for yourself. Buffett describes it best. Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him. Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. Lastly learning to value investments isn't just useful in the stock market, they are applicable to investing in any investment such as bonds, real estate, and even buying your home or running a business.\\\"\",\n \"Buffet is in a different league from other value investors. He looks for stable companies with no debt and good management. Then he looks to deeply understand the industries of candidate companies, and looks for companies that are not in commodity businesses or sell commodities that can be bought for 25% of the valuation that he believes reflects the true value of the company. Deeply understanding the market is really the key. Consider the Burlington Northern Santa Fe Railroad, which Buffet purchased last year. Railroads benefit from higher oil prices, as they can transport cargo much cheaper than trucks. They also tend to have natural monopolies in the regions they operate in. Buffet bought the railroad just as production of oil and natural gas in North Dakota started picking up. Since pipeline capacity between North Dakota and refineries in Texas/Oklahoma is very limited, the railroad is making alot of money transporting crude.\",\n \"This fortune article is referenced in his either 2003 or 2004 annual report in which he does say that the market will not likely return much in the future and generally talks numbers. I am also a value investor, such that I can be in this environment and believe there is a bit of value in knowing where you think the market is headed but the real value is in underwriting each deal. In long, I agree with you\",\n \"If you are going to the frenzy of individual stock picking, like almost everyone initially, I suggest you to write your plan to paper. Like, I want an orthogonal set of assets and limit single investments to 10%. If with such limitations the percentage of brokerage fees rise to unbearable large, you should not invest that way in the first hand. You may find better to invest in already diversified fund, to skip stupid fees. There are screeners like in morningstar that allow you to see overlapping items in funds but in stocks it becomes trickier and much errorsome. I know you are going to the stock market frenzy, even if you are saying to want to be long-term or contrarian investor, most investors are convex, i.e. they follow their peers, despite it would better to be a concave investor (but as we know it can be hard). If the last part confused you, fire up a spreadsheet and do a balance. It is a very motivating activity, really. You will immediately notice things important to you, not just to providers such as morningstar, but alert it may take some time. And Bogleheads become to your rescue, ready spreadsheets here.\",\n \"\\\"The power of compounding interest and returns is an amazing thing. Start educating yourself about investing, and do it -- there are great Q&As on this site, numerous books (I recommend \\\"\\\"The Intelligent Investor\\\"\\\", tools for small investors (like Sharebuilder.com) and other resources out there to get you started. Your portfolio doesn't need to include every dime you have either. But you do need to develop the discipline to save money -- even if that savings is $20 while you're in school. How you split between cash/deposit account savings and other investment vehicles is a decision that needs to make sense to you.\\\"\",\n \"As a matter of fact, I invest small sums in stable stocks every month (in fact, much lesser than the $50 you are talking about). More than the return on investment, I gained a lot of knowledge keeping track of my stocks and this now helps me pick my stocks better. And the portfolio is doing great too. So, it is a good idea to start small and invest regularly.\",\n \"\\\"I have money to invest. Where should I put it? Anyone who answers with \\\"\\\"Give it to me, I'll invest it for you, don't worry.\\\"\\\" needs to be avoided. If your financial advisor gives you this line or equivalent, fire him/her and find another. Before you think about where you should put your money, learn about investing. Take courses, read books, consume blogs and videos on investing in stocks, businesses, real estate, and precious metals. Learn what the risks and rewards are for each, and make an informed decision based on what you learned. Find differing opinions on each type of investment and come to your own conclusions for each. I for example, do not understand stocks, and so do not seriously work the stock market. Mutual funds make money for the folks selling them whether or not the price goes up or down. You assume all the risk while the mutual fund advisor gets the reward. If you find a mutual fund advisor who cannot recommend the purchase of a product he doesn't sell, he's not an advisor, he's a salesman. Investing in business requires you either to intimately understand businesses and how to fund them, or to hire someone who can make an objective evaluation for you. Again this requires training. I have no such training, and avoid investing in businesses. Investing in real estate also requires you to know what to look for in a property that produces cash flow or capital gains. I took a course, read some books, gained experience and have a knowledgeable team at my disposal so my wins are greater than my losses. Do not be fooled by people telling you that higher risk means higher reward. Risks that you understand and have a detailed plan to mitigate are not risks. It is possible to have higher reward without increasing risk. Again, do your own research. The richest people in the world do not own mutual funds or IRAs or RRSPs or TFSAs, they do their own research and invest in the things I mentioned above.\\\"\",\n \"\\\"I'm a senior majoring in accounting and management information systems. Here is a question I answered a while back about financial statements and employee retention. In the answer that I provided at the bottom it was to assess a company's ability to pay by use of ratios. Likewise, similar accounting methods need to be understood and implemented when assessing stocks(which is where I believe Mr. Buffet was going with this). As we can see the severity of the questions decreases, but if you can not answer question 3 then you should study accounting principles. So how much is enough just to get started? You will never have enough knowledge to start, period. You will have to continuously be learning, so start sooner than later. However you need neither economics or accounting knowledge if you were to learn technical analysis, many doubt the workings of this technique, but in my experience it is easier to learn and practise. A comment on @Veronica's post. Understanding economics and accounting are fundamental. Analysis, seeing trends, and copying are instinctual human traits that helped us evolve (we are very good at pattern recognition). Taking an intro economic and accounting course at a local community college is an excellent place to start when breaking the mold of pattern-thinking. You have to be critical in understanding what elements move a company's A/R in the statement of cash flows. Read. Literally, don't stop reading. Latest edition of of Kesio's accounting principles? Read it. Cover to cover. Tax policies on Section 874, 222, 534? Read it. Take a class, read a book, ask questions! Good Luck, \\\"\\\"Welcome to [the] Science [of Business], you're gonna like it here\\\"\\\" - Phil Plait\\\"\",\n \"Read the Security Analysis. I believe if you read it completely, you will have a real good chance of succeeding at making good money. If you find the book hard to read just go through it and underline under the text as you read it.\",\n \"I would always recommend the intelligent investor by Benjamin Graham the mentor of warren buffet once you have a basic knowledge ie what is a share bond guilt etc In terms of pure investment the UK is fairly similar the major difference is the simpler tax structure, ISA allowance and the more generous CGT regime.\",\n \"Adding to the very good advises above - Concentrate on costs related to investment activity. Note all expenses and costs that you pay. Keep it low.\",\n \"\\\"If you are like most people, your timing is kind of awful. What I mean by most, is all. Psychologically we have strong tendencies to buy when the market is high and avoid buying when it is low. One of the easiest to implement strategies to avoid this is Dollar Cost Averaging. In most cases you are far better off making small investments regularly. Having said that, you may need to \\\"\\\"save\\\"\\\" a bit in order to make subsequent investments because of minimums. For me there is also a positive psychological effect of putting money to work sooner and more often. I find it enjoyable to purchase shares of a mutual fund or stock and the days that I do so are a bit better than the others. An added benefit to doing regular investing is to have them be automated. Many wealthy people describe this as a key to success as they can focused on the business of earning money in their chosen profession as opposed to investing money they have already earned. Additionally the author of I will Teach You to be Rich cites this as a easy, free, and key step in building wealth.\\\"\",\n \"\\\"The psychology of investing is fascinating. I buy a stock that's out of favor at $10, and sell half at a 400% profit, $50/share. Then another half at $100, figuring you don't ever lose taking a profit. Now my Apple shares are over $500, but I only have 100. The $10 purchase was risky as Apple pre-iPod wasn't a company that was guaranteed to survive. The only intelligent advice I can offer is to look at your holdings frequently, and ask, \\\"\\\"would I buy this stock today given its fundamentals and price?\\\"\\\" If you wouldn't buy it, you shouldn't hold it. (This is in contrast to the company ratings you see of buy, hold, sell. If I should hold it, but you shouldn't buy it to hold, that makes no sense to me.) Disclaimer - I am old and have decided stock picking is tough. Most of our retirement accounts are indexed to the S&P. Maybe 10% is in individual stocks. The amount my stocks lag the index is less than my friends spend going to Vegas, so I'm happy with the results. Most people would be far better off indexing than picking stocks.\\\"\",\n \"Lots of good advice so far. Here's some meta-advice. Read through everything here twice, and distill out what the big picture ideas are. Learn about what you need to know about them. Pick a strategy and/or long term goals. Work toward them. Get advice from many many places and distill it. This is currently known as crowd-sourcing but I've been doing it all my life. It's very effective. No one will ever care as much about your money as you. Some specific things I haven't seen mentioned (or not mentioned much):\",\n \"Value investing is an investment approach that relies on buying securities below their intrinsic values. There are two main concepts; one is the Intrinsic Value and the other is Margin of Safety. Intrinsic value is the value of the underlying business - if we are talking about stocks - that can be calculated through carefully analyzing the business looking at all aspects of it. If there is an intrinsic value exists for a company then there is a price tag we can put on its shares as well. Value investing is looking to buy shares well below its intrinsic value. It is important to know that there is no correct intrinsic value exists for a company and two people can come up with different figures, if they were presented the same data. Calculating the intrinsic value for a business is the hardest part of value investing. Margin of Safety is the difference between the buying price of a stock and its intrinsic value. Value investors are insisting on buying stocks well below their intrinsic value, where the margin of safety is 20%-30% or even more. This concepts is protecting them from poor decisions and market downturns. It is also providing a room for error, when calculating the intrinsic value. The approach was introduced by Benjamin Graham and David Dodd in a book called Security Analysis in 1934. Other famous investor using this approach is Warren Buffet Books to read: I would start to read the first two book first.\",\n \"The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.\",\n \"you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.\",\n \"You have received much good advice, but based on 53 years investing and the first 25 getting my nose bloodied and breaking even I very strongly offer the following. Before doing so let me first offer this caveat: I am not questioning your broker or the advice, but it is only valuable to you if history proves correct. No one, not even Bernanke can predict how stock will perform in the future. Maybe if he sees a depression. My advice to someone new to stock investing is to purchase a index fund from a discount broker, e.g. Fidelity or Vanguard, and then study the market and economics. The Wall Street Journal and the web are my favorites. I started with a hell of a lot less than you have saved, I would not turn $200K over to anyone until you know exactly the risk and cost involved. Also, I wouldn't depend on one person or firm to advise or manage my money. I like to balance one against the other. I do not recall different firms recommending the same stocks. One must remember everyone in the business of recommending stock or any investment is selling something and must be compensated. That's how they earn a living.\",\n \"\\\"First off, monozok is right, at the end of the day, you should not accept what anyone says to do without your money - take their suggestions as directions to research and decide for yourself. I also do not think what you have is too little to invest, but that depends on how liquid you need to be. Often in order to make a small amount of money grow via investments, you have to be willing to take all the investment profits from that principle and reinvest it. Thus, can you see how your investment ability is governed by the time you plan to spend without that money? They mantra that I have heard from many people is that the longer you are able to wait, the more 'risk' you can take. As someone who is about the same age as you (I'm 24) I can't exactly say yet that what I have done is sure fire for the long term, but I suggest you adopt a few principles: 1) Go read \\\"\\\"A Random Walk Down Wall Street\\\"\\\" by Burton G. Malkiel. A key point for you might be that you can do better than most of these professional investors for hire simply by putting more money in a well selected index fund. For example, Vanguard is a nice online service to buy indexes through, but they may require a minimum. 2) Since you are young, if you go into any firm, bank, or \\\"\\\"financial planner,\\\"\\\" they will just think you are naive and try to get you to buy whatever is best for them (one of their mutual funds, money market accounts, annuities, some flashy cd). Don't. You can do better on your own and while it might be tempting because these options look more secure or well managed, most of the time you will barely make above inflation, and you will not have learned very much. 3) One exciting thin you should start learning now is about algorithmic trading because it is cool and super efficient. quantopian.com is a good platform for this. It is a fun community and it is also free. 4) One of the best ways I have found to watch the stock market is actually through a stock game app on my phone that has realtime stock price feed. Seeking Alpha has a good mobile app interface and it also connects you to news that has to do with the companies you are interested in.\\\"\",\n \"\\\"I'm 39 and have been investing since my very early 20's, and the advice I'd like to go back and give myself is the following: 1) Time is your friend. Compounding interest is a powerful force and is probably the most important factor to how much money you are going to wind up with in the end. Save as much as you possibly can as early as you can. You have to run twice as hard to catch up if you start late, and you will still probably wind up with less in the end for the extra effort. 2) Don't invest 100% of your investment money It always bugged me to let my cash sit idle in an investment account because the niggling notion of inflation eating up my money and I felt I was wasting opportunity cost by not being fully invested in something. However, not having enough investable cash around to buy into the fire-sale dips in the market made me miss out on opportunities. 3) Diversify The dot.com bubble taught me this in a big, hairy painful way. I had this idea that as a technologist I really understood the tech bubble and fearlessly over-invested in Tech stocks. I just knew that I was on top of things as an \\\"\\\"industry insider\\\"\\\" and would know when to jump. Yeah. That didn't work out so well. I lost more than 6 figures, at least on paper. Diversification will attenuate the ups and downs somewhat and make the market a lot less scary in the long run. 4) Mind your expenses It took me years of paying huge full-service broker fees to realize that those clowns don't seem to do any better than anyone else at picking stocks. Even when they do, the transaction costs are a lead weight on your returns. The same holds true for mutual funds/ETFs. Shop for low expense ratios aggressively. It is really hard for a fund manager to consistently beat the indexes especially when you burden the returns with expense ratios that skim an extra 1% or so off the top. The expense ratio/broker fees are among the very few things that you can predict reliably when it comes to investments, take advantage of this knowledge. 5) Have an exit strategy for every investment People are emotional creatures. It is hard to be logical when you have skin in the game and most people aren't disciplined enough to just admit when they have a loser and bail out while they are in the red or conversely admit when they have a winner and take profits before the party is over. It helps to counteract this instinct to have an exit strategy for each investment you buy. That is, you will get out if it drops by x% or grows by y%. In fact, it is probably a good idea to just enter those sell limit orders right after you buy the investment so you don't have to convince yourself to press the eject button in the heat of a big move in the price of that investment. Don't try to predict tops or bottoms. They are extremely hard to guess and things often turn so fast that you can't act on them in time anyway. Get out of an investment when it has met your goal or is going to far in the wrong direction. If you find yourself saying \\\"\\\"It has to come back eventually\\\"\\\", slap yourself. When you are trying to decide whether to stay in the investment or bail, the most important question is \\\"\\\"If I had the current cash value of the stock instead of shares, would I buy it today?\\\"\\\" because essentially that is what you are doing when you stick with an investment. 6) Don't invest in fads When you are investing you become acutely sensitive to everyone's opinions on what investment is hot and what is not. If everyone is talking about a particular investment, avoid it. The more enthusiastic people are about it (even experts) the MORE you should avoid it. When everyone starts forming investment clubs at work and the stock market seems to be the preferred topic of conversation at every party you go to. Get out! I'm a big fan of contrarian investing. Take profits when it feels like all the momentum is going into the market, and buy in when everyone seems to be running for the doors.\\\"\",\n \"I am a bit at a loss as to how you can read the same book, that inspired Warren Buffet, and take away that trading 600 contracts per month is a way to prosperity. As a fellow engineer I can say with assurance this speculation scheme is doomed to failure. Crossing out the word gamble was a mistake. Instead you should focus on two things. The first is your core business, which is signal processing. Work and strive to be the best you can. Seek out opportunities to increase your income while keeping your costs low. As an engineer you have an opportunity to earn an above average salary with very low costs. Second would be to warehouse some of those earning and let others who are good at other things work for you. You may want to read the Jack Bogle books and seek an asset allocation model. I tend to be more aggressive then he would suggest, but that is a matter of preference. You don't really have the time, when you focus on your core business, to manage 6 trades a month let alone 600. Put your contributions on auto pilot and a surprisingly short time you will have a pile of cash.\",\n \"\\\"Read \\\"\\\"The intelligent Investor\\\"\\\" book before you do anything. I started when I really didn't understand anything about stocks. I bought an internet stock for $150 per share which sold at 75cents a year later. I sold it for a profit but would've been a disaster.\\\"\",\n \"Investing requires capital, and the fastest way to get the capital is to develop good saving habits. Investing is an ongoing process to help you accumulate wealth, so to take advantage of compounding, the earlier you start, the better. I can suggest a few pointers to get you started on the investing journey. Godspeed! :)\",\n \"\\\"When you hear advice to buy index funds, that usually comes with two additional pieces of investment discipline advice that are important: These two elements are important to give you relative predictability in your outcome 20 years from now. In this old blog post of mine I linked to Warren Buffett talking about this, also mentioned it in a comment on another answer: http://blog.ometer.com/2008/03/27/index-funds/ It's perfectly plausible to do poorly over 20 years if you buy 100% stocks at once, without dollar-cost averaging or rebalancing. It's very very very plausible to do poorly over 10 years, such as the last 10 in fact. Can you really say you know your financial situation in 20-30 years, and for sure won't need that money? Because predictability is important, I like buying a balanced fund and not \\\"\\\"pure stocks\\\"\\\": http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ (feel a little bad linking to my blog, but retyping all that into this answer seems dumb!) Here's another tip. You can go one step past dollar cost averaging and try value averaging: http://www.amazon.com/Value-Averaging-Strategy-Investment-Classics/dp/0470049774 However, chances are you aren't even going to be good about rebalancing if it's done \\\"\\\"by hand,\\\"\\\" so personally I would not do value averaging unless you can find either a fund or a financial advisor to do it for you automatically. (Finance Buff blog makes a case for a financial advisor, in case you like that more than my balanced fund suggestion: http://thefinancebuff.com/the-average-investor-should-use-an-investment-advisor-how-to-find-one.html) Like rebalancing, value averaging makes you buy more when you're depressed about the market and less when it's exciting. It's hard. (Dollar cost averaging is easily done by setting up automatic investment, of course, so you don't have to do it manually in the way you would with value averaging.) If you read the usual canonical books on index funds and efficient markets it's easy to remember the takeaway that nobody knows whether the market will go up or down, and yes you won't successfully time the market. But what you can do successfully is use an investment discipline with risk control: assume that the market will fluctuate, that both up and down are likely and possible, and optimize for predictability in light of that. Most importantly, optimize to take your emotions and behavior out of the picture. Some disciplines for example are: there are dozens out there, many of them snake oil, I think these I mentioned are valid. Anyway, you need some form of risk control, and putting all your money in stocks at once doesn't give you a lot of risk control. There's no real need to get creative. A balanced fund that uses index funds for equity and bond portions is a great choice.\\\"\",\n \"I think the advice Bob is being given is good. Bob shouldn't sell his investments just because their price has gone down. Selling cheap is almost never a good idea. In fact, he should do the opposite: When his investments become cheaper, he should buy more of them, or at least hold on to them. Always remember this rule: Buy low, sell high. This might sound illogical at first, why would someone keep an investment that is losing value? Well, the truth is that Bob doesn't lose or gain any money until he sells. If he holds on to his investments, eventually their value will raise again and offset any temporary losses. But if he sells as soon as his investments go down, he makes the temporary losses permanent. If Bob expects his investments to keep going down in the future, naturally he feels tempted to sell them. But a true investor doesn't try to anticipate what the market will do. Trying to anticipate market fluctuations is speculating, not investing. Quoting Benjamin Graham: The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell. Assuming that the fund in question is well-managed, I would refrain from selling it until it goes up again.\",\n \"Don't be too scared of investing in the market. It has ups and downs, but over the long haul you make money in it. You can't jump in and out, just consistently add money to investments that you 1) understand and 2) trust. When I say understand, what I mean is you can follow how the money is generated, either because a company sells products, a government promises to pay back the bond, or compounding interest makes sense. You don't need to worry about the day to day details, but if you don't understand how the money is made, it isn't transparent enough and a danger could be afoot. Here are some basic rules I try (!) to follow The biggest trick is to invest what you can, and do so consistently. You can build wealth by earning more and spending less. I personally find spending less a lot easier, but earning more is pretty easy with some simple investment tools.\",\n \"I would say that the three most important skills are: Note that some costs are hidden. So, for example, a mutual fund investing in other countries than where you live in may mean the investment target country charges a certain percentage of dividends going to the mutual fund. The mutual fund company doesn't usually want to tell you this. There may be clever financial instruments (derivatives) that can be used to avoid this, but they are not without their problems. If you diversify into equities at low cost, you will have a very wealthy future. I would recommend you to compare two options: ...and pick from these options the cheaper one. If your time has a high value, and you wish to take this value into account, I would say it is almost always far better option to choose an index fund. Whatever you do, don't pay for active management! It is a mathematical truth that before costs, actively managed investments will yield the same return than indexed investments. However, the costs are higher in active management, so you will have less total return. Don't believe that good historical return would imply good future return. However, if for some reason you see an index fund that continuously loses to the index more than by the amount of stated costs, beware!\",\n \"Warren Buffet and Berkshire Hathaway took a 50% loss in each of the last two bear markets. His stock even lost 10% in 2015 when the S&P lost 8%. He doesn't have a track record to support the claim that his stock performs relatively better in a bear market, so perhaps it's best to take his letter with a grain of salt. Edit: As one commenter points out, Mr. Buffett is comparing the book performance of his fund to the market performance of an index. That is an apples to oranges comparison. It's deceptive at best.\",\n \"\\\"Most articles on investing recommend that investors that are just starting out to invest in index stock or bonds funds. This is the easiest way to get rolling and limit risk by investing in bonds and stocks, and not either one of the asset classes alone. When you start to look deeper into investing there are so many options: Small Cap, Large Cap, technical analysis, fundamental analysis, option strategies, and on and on. This can end up being a full time job or chewing into a lot of personal time. It is a great challenge to learn various investment strategies frankly for the average person that works full time it is a huge effort. I would recommend also reading \\\"\\\"The Intelligent Asset Allocator\\\"\\\" to get a wider perspective on how asset allocation can help grow a portfolio and reduce risk. This book covers a simple process.\\\"\",\n \"1) Don't trade individual stocks. You expose yourself to unnecessary risk. 2) Pick a fund with low expenses that pays a dividend. Reinvest the dividend back into the fund. To quote Einstein: The greatest power on earth is compound interest. Something is wrong with the software of the site. It will not allow me to answer mark with another comment. So I have to edit this answer to be able to answer him. @mark No, I am not hoping the price will go up. The price is only relevant in comparison to the dividend. It is the dividend that is important, not the price. The price is irrelevant if you never sell. Dividend paying securities are what you buy and hold. Then you reinvest the dividend and buy more of the security. As I am buying the security with the dividend I am actually pleasantly surprised when the price goes down. When the price goes down, but the dividend remains the same, I am able to buy more shares of the security withwith that dividend. So if the price goes down, and the dividend remains the same, it is a good thing. Again, the site will not allow me to add another comment. @mark I profit from my investment, without selling, by receiving the dividend. I used to be a speculator, trying to get ahead of the market by 'buy low, sell high' but all that did was make money for the broker. I lost as much as I gained trying to do that. The broker made money on each transaction, regardless if I did or not. It took me decades to learn the lesson that 'buy and hold' of dividend paying securities is the way to go. Don't make my mistake. I now get, at least, 5.5% yeald on my investment (look at PGF, which forms the backbone of my investments). That is almost 0.5% per month. Each month that dividend is reinvested into PGF, with no commission. You can't beat that with a stick.\",\n \"\\\"Say you have $15,000 of capital to invest. You want to put the majority of your capital into low risk investments that will yield positive gains over the course of your working career. $5,000: Government bonds and mutual funds, split how you want. $9,500: Low risk, trusted companies with positive historical growth. If the stock market is very unfamiliar for you, I recommend Google Finance, Yahoo Finance, and Zack's to learn about smart investments you can make. You can also research the investments that hedge fund managers and top investors are making. Google \\\"\\\"Warren Buffett or Carl Icahn portfolio\\\"\\\", and this will give you an idea of stocks you can put your money into. Do not leave your money into a certain company for more than 25 years. Rebalance your portfolio and take the gains when you feel you need them. You have no idea when to take your profits now, but 5 years from now, you will be a smart and experienced investor. A safe investment strategy to start is to put your money into an ETF that mimics the S&P 500. Over the past 20 years, the S&P 500 has yielded gains of about 270%. During the financial crisis a few years back, the S&P 500 had lost over 50% of its value when it reached its low point. However, from when it hit rock bottom in 2009, it has had as high percentage gains in six years as it did in 12 years from 1995 to 2007, which about 200%. The market is very strong and will treat your money well if you invest wisely. $500: Medium - High risk Speculative Stocks There is a reason this category accounts for only approximately 3% of your portfolio. This may take some research on the weekend, but the returns that may result can be extraordinary. Speculative companies are often innovative, low priced stocks that see high volatility, gains or losses of more than 10% over a single month. The likelihood of your $500 investment being completely evaporated is very slim, but if you lose $300 here, the thousands invested in the S&P 500, low risk stocks, government bonds, and mutual funds will more than recuperate the losses. If your pick is a winner, however, expect that the $500 investment could easily double, triple, or gain even more in a single year or over the course of just a few, perhaps, 2-4 years will see a very large return. I hope this advice helps and happy investing! Sending your money to smart investments is the key to financial security, freedom, and later, a comfortable retirement. Good luck, Matt McLaughlin\\\"\",\n \"Patience is the key to success. If you hold strong without falling to temptations like seeing a small surge in the price. If it goes down it comes up after a period of time. Just invest on the share when it reaches low bottom and you could see you money multiplying year after year\",\n \"Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.\",\n \"In general, the better advice I've heard is to spend only on things that matter to you and scrimp on the rest. It's an easy way to budget without having to stick to a strict set of rules. Otherwise keep 3-6 months of living expenses in liquid accounts (money market, savings) and invest the rest.\",\n \"\\\"'Buy and Hold' Is Still a Winner: An investor who used index funds and stayed the course could have earned satisfactory returns even during the first decade of the 21st century. by By Burton G. Malkiel in The Wall Street Journal on November 18, 2010: \\\"\\\"The other useful technique is \\\"\\\"rebalancing,\\\"\\\" keeping the portfolio asset allocation consistent with the investor's risk tolerance. For example, suppose an investor was most comfortable choosing an initial allocation of 60% equities, 40% bonds. As stock and bond prices change, these proportions will change as well. Rebalancing involves selling some of the asset class whose share is above the desired allocation and putting the money into the other asset class. From 1996 through 1999, annually rebalancing such a portfolio improved its return by 1 and 1/3 percentage points per year versus a strategy of making no changes.\\\"\\\" Mr. Malkiel is a professor of economics at Princeton University. This op-ed was adapted from the upcoming 10th edition of his book \\\"\\\"A Random Walk Down Wall Street,\\\"\\\" out in December by W.W. Norton. http://online.wsj.com/article/SB10001424052748703848204575608623469465624.html\\\"\",\n \"\\\"From http://blog.ometer.com/2008/03/27/index-funds/ , Lots of sensible advisers will tell you to buy index funds, but importantly, the advice is not simply \\\"\\\"buy index funds.\\\"\\\" There are at least two other critical details: 1) asset allocation across multiple well-chosen indexes, maintained through regular rebalancing, and 2) dollar cost averaging (or, much-more-complex-but-probably-slightly-better, value averaging). The advice is not to take your single lump sum and buy and hold a cap-weighted index forever. The advice is an investment discipline which involves action over time, and an initial choice among indexes. An index-fund-based strategy is not completely passive, it involves some active risk control through rebalancing and averaging. If you'd held a balanced portfolio over the last ten years and rebalanced, and even better if you'd dollar cost averaged, you'd have done fine. Your reaction to the last 10 years incidentally is why I don't believe an almost-all-stocks allocation makes sense for most people even if they're pretty young. More detail in this answer: How would bonds fare if interest rates rose? I think some index fund advocacy and books do people a disservice by focusing too much on the extra cost of active management and why index funds are a good deal. That point is true, but for most investors, asset allocation, rebalancing, and \\\"\\\"autopilotness\\\"\\\" of their setup are more important to outcome than the expense ratio.\\\"\",\n \"John Bogle never said only buy the S&P 500 or any single index Q:Do you think the average person could safely invest for retirement and other goals without expert advice -- just by indexing? A: Yes, there is a rule of thumb I add to that. You should start out heavily invested in equities. Hold some bond index funds as well as stock index funds. By the time you get closer to retirement or into your retirement, you should have a significant position in bond index funds as well as stock index funds. As we get older, we have less time to recoup. We have more money to protect and our nervousness increases with age. We get a little bit worried about that nest egg when it's large and we have little time to recoup it, so we pay too much attention to the fluctuations in the market, which in the long run mean nothing. How much to pay Q: What's the highest expense ratio that one should pay for a domestic equity fund? A: I'd say three-quarters of 1 percent maybe. Q: For an international fund? A: I'd say three-quarters of 1 percent. Q: For a bond fund? A: One-half of 1 percent. But I'd shave that a little bit. For example, if you can buy a no-load bond fund or a no-load stock fund, you can afford a little more expense ratio, because you're not paying any commission. You've eliminated cost No. 2....\",\n \"\\\"If you're not rich, investing money will produce very small return, and is a waste of your resources. If you want to save until you die, then go for it (that's what investment companies want you to do). I suggest invest your money in building a network of friends who will be future asset for you. A group of friends helping each other have a much higher prospect of success. It has been proven that approximately 70% of jobs have been obtained through networking. Either through family, or friends, this is the vast majority. I will reiterate, invest on friends and family, not on strangers who want to tie down your money so they can have fun for the moment, while you wait to have fun when you're almost dead. Added source for those who are questioning the most well known fact within organizations, I'm baffled by the level of ignorance. Linkedin Recruitment Blog ...companies want to hire from within first; only when there are no appropriate internal candidates will they rely on referrals from employees (who get a bonus for a successful hire) and people who will approach them through informational meetings. The latter category of jobseekers (you) have the benefit of getting known before the job is \\\"\\\"officially posted.\\\"\\\" For those who believe loaning money to friends and family is a way of losing money -> this is a risk well worth taking -> and the risk is much lower than loaning your money to strangers -> and the reward is much higher than loaning your money to strangers.\\\"\",\n \"Yes, you're absolutely right. For such small amounts and such large fees, almost any investment choice is pointless. Some brokers allow for commission free ETF trading. Seek them out. As you've noticed, bond interest rates are almost 0%. This is a far cry from the days of Benjamin Graham, where the USD acted more like gold, with much more frequent booms and busts. During Graham's heyday, one could sell one's bonds at super low interest rates and buy them back again when high. In his day, interest rates would be very high one year like in 2008 and next to nothing the next like in 2009, cycling back and forth, until the 1960s hit, and he didn't know what to do. Graham preferred to wait for the reversion to the mean, and act only when far from it. Those opportunities are few and far between now since fiat currencies are far better managed than they were then, the Fed-caused 2009 total destruction as an outlier to recent times. In your case, it's best to leave the bonds to the insurance companies and buy equities. If you want less volatility, buy a buy-write ETF. Bonds will surely disappoint unless one is lucky enough to hold bonds while interest rates fall from ~6% to ~3%, an eventuality that shouldn't be expected to occur again, as Bill Gross is painfully discovering.\",\n \"A note on the article: I thought this article by Buffet on market level was particularly appropriate now, given the seemingly daily new highs, current level of interest rates (hint: they are incredibly low), and corporate profits (hint: they are incredibly high). If you believe the market will eventually revert to the mean, that implies substandard results over an extended period of time into the future.\",\n \"Save enough to build an emergency cushion of 4-6 months total expenses. After that, invest everything you can in areas where you are well researched and have carefully formed your own opinion on the subject. Those who save do not reach financial freedom, those who learn to invest and make their money work for them do. Invest in learning how to invest.\",\n \"\\\"no way -- he suggests that if you don't have an edge, no one needs to play the game. He doesn't like the idea of a \\\"\\\"lesser bad\\\"\\\" way to invest (MPT). If you do decide to get involved in investing, then it's about absolute performance, not relative. He believes that the whole relative performance thing -- beating some arbitrary benchmark -- is just an artificial construct.\\\"\",\n \"\\\"First: what's your risk tolerance? How long is your investment going to last? If it's a short-term investment (a few years) and you expect to break even (or better) then your risk tolerance is low. You should not invest much money in stocks, even index funds and \\\"\\\"defensive\\\"\\\" stocks. If, however, you're looking for a long-term investment which you will put money into continually over the next 30 years, the amount of stock you purchase at any given time is pretty small, so the money you might lose by timing the market wrong will also be rather small. Also, you probably do a remarkably poor job of knowing when to buy stocks. If you actually knew how to time the market to materially improve your risk-adjusted returns, you've missed your calling; you should be making six figures or more on Wall Street. :)\\\"\",\n \"You can try paper trading to sharpen your investing skills(identifying stocks to invest, how much money to allocate and stuff) but nothing compares to getting beaten black and blue in the real world. When virtual money is involved you mayn't care, because you don't loose anything, but when your hard earned money disappears or grows, no paper trading can incite those feelings in you. So there is no guarantee that doing paper trading will make you a better investor, but can help you a lot in terms of learning. Secondly educate yourself on the ways of investing. It is hard work and realize that there is no substitute for hard work. India is a growing economy and your friends maybe safe in the short term but take it from any INVESTOR, not in the long run. And moreover as all economies are recovering from the recession there are ample opportunities to invest money in India both good and bad. Calculate your returns and compare it with your friends maybe a year or two down the lane to compare the returns generated from both sides. Maybe they would come trumps but remember selecting a good investment from a bad investment will surely pay out in the long run. Not sure what you do not understand what Buffet says. It cannot get more simpler than that. If you can drill those rules into your blood, you mayn't become a billionaire but surely you will make a killing, but in the long run. Read and read as much as you can. Buy books, browse the net. This might help. One more guy like you.\",\n \"You can never depend ONLY on pension. You must get financial education and invest your money. I recommend you to read The Intelligent Investor by Benjamin Graham...it's the bible of Warren Buffet. Besides, you don't need to be a Billionaire for retiring and be happy. I recommend you to get education in ETFs. I quote The Intelligent Investor by Benjamin Graham p. 131. According to Ibboston Associates, the leading financial research firm, if you had invested $12,000 in the Standard & Poor's 500-stock index at the beginning of september 1929, 10 years later you would have had only $7,223 left. But if you had started with a paltry $100 and simply invested another $100 every single month, then by August 1939, your money would have grown to $15,571! That's the power of disciplined buying-even in the face of the Great Depression and the worst bear market of all time. You are still young to make even bolder investments. But seriously you can never depend ONLY on pension. You won't regret learning how to invest your money, it doesn't matter if it's in the stock market, real state market, whatever market... Knowing what to do with your money is priceless. I hope this helps. Happy profits!\",\n \"You might want to consider 'investing' a portion of that money into educating yourself. The payoff might not be as immediately obvious or gratifying but with appropriate determination, in the long term it will generate you a much greater return. If you would like to learn about investing, a great starting point would be to buy and read the book 'The Intelligent Investor' by Benjamin Graham. This will be a great barometer for how ready you are to invest in the stock market. If you are able to understand the concepts discussed and comprehend why they are important, you will have gone far in ensuring that you will make adequate returns over your lifetime and will - more importantly - increase the odds of safeguarding your capital.\",\n \"The advice to invest in yourself is good advice. But the stock market can be very rewarding over the long pull. You have about 45 years to retirement now and that is plenty long enough that each dollar put into the market now will be many dollars then. A simple way to do this might be to open a brokerage account at a reputable broker and put a grand into a very broad based all market ETF and then doing nothing with it. The price of the ETF will go up and down with the usual market gyrations, but over the decades it will grow nicely. Make sure the ETF has low fees so that you aren't being overcharged. It's good that you are thinking about investing at a young age. A rational and consistent investment strategy will lead to wealth over the long pull.\",\n \"\\\"There are many questions and good answers here regarding investment choices. The first decision you need to make is how involved do you intend to be in investment activity. If you plan to be actively investing by yourself, you should look for questions here about making investment choices. If you intend to be a more passive investor, look for posts by \\\"\\\"Bogleheads\\\"\\\", who focus on broad-focused, low cost investments. This is the optimal choice for many people. If you are not comfortable managing investments at all, you need to figure out how to find a competent and reasonably priced financial advisor to meet with and guide your investment strategy. This advice generally costs about 1-2% of your total managed assets annually.\\\"\",\n \"Just don't buy any kind of paper and you will be fine :-) And don't forget most of these 'blue-chip companies' sell marketing garbage which have no real market. Finally, make all decissions slooooowly and after extensive research.\",\n \"\\\"There is only one book worth reading in my opinion: One Up on Wall Street. It's short and no other book even comes close to it for honesty, correctness and good sense. Also, it is written by the second most successful investor of all time, Peter Lynch. The Intelligent Investor has some good technical content, but the book is dated and a lot of it is irrelevant to the modern investment environment. When I was younger I used to ready books like this and when a friend of mine asked for investment advice. I said \\\"\\\"Look at stocks with a PE ratio of 5-10\\\"\\\". A few days later he comes back to me and says \\\"\\\"There are none\\\"\\\". Right. That pretty much sums up the problem with the I.I. Graham himself in interviews during the 1970s said that his book was obsolete and he no longer recommended those methods.\\\"\",\n \"If you have the money put it in, and invest the money over a few months. Always keep a modest reserve of cash to give you the flexibility to take advantage of market opportunities.\",\n \"I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs.\",\n \"Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.\",\n \"\\\"The Investment Entertainment Pricing Theory (INEPT) has this bit to note: The returns of small growth stocks are ridiculously low—just 2.18 percent per year since 1927 (versus 17.47 percent for small value, 10.06 percent for large growth, and 13.99 percent for large value). Where the S & P 500 would be a blend of large-cap growth and value so does that meet your \\\"\\\"beat the market over the long term\\\"\\\" as 1927-1999 would be long for most people.\\\"\",\n \"\\\"If you're investing for the long term your best strategy is going to be a buy-and-hold strategy, or even just buying a few index funds in several major asset classes and forgetting about it. Following \\\"\\\"market conditions\\\"\\\" is about as useful to the long term trader as checking the weather in Anchorage, Alaska every day (assuming that you don't live in Anchorage, Alaska). Let me suggest treating yourself to a subscription to The Economist and read it once a week. You'll learn a lot more about investing, economics, and world trends, and you won't be completely in the dark if there are major structural changes in the world (like gigantic housing bubbles) that you might want to know about.\\\"\",\n \"\\\"The most important thing is to start. Don't waste months and years trying to figure out the \\\"\\\"optimal\\\"\\\" strategy or trying to read all the best books before you start. Pick a solid, simple choice, like investing in your company sponsored 401(k), and do it today. This I Will Teach You To Be Rich post on barriers has some good insight on this.\\\"\",\n \"I like Keshlam's answer and would like to add a few notes: While your enthusiasm to invest is admirable learning patience is a key aspect of wealth building and keeping.\",\n \"\\\"Put the whole lot into a couple of low-cost broad index funds with dividends reinvested (also known as accumulation funds) and then don't look at them. Invest through a low-cost broker. There are a number to choose from and once you start googling around the theme of \\\"\\\"index fund investing\\\"\\\" you'll find them. The S&P 500 is a popular index to start with.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Warren Buffett: 'Investing Advice For You--And My Wife' (And Other Quotes Of The Week): What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit…My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors… Similarly from Will Warren Buffett's investment advice work for you?: Specifically, Buffett wants the trustee of his estate to put 10 percent of his wife's cash inheritance in short-term government bonds and 90 percent in a low-cost S&P index fund - and he tips his hat specifically to Bogle's Vanguard in doing so. Says Buffett: \"\"I believe the trust's long-term results from this policy will be superior to those attained by most investors - whether pension funds, institutions or individuals.\"\"\""],"string":"[\n \"\\\"Warren Buffett: 'Investing Advice For You--And My Wife' (And Other Quotes Of The Week): What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit…My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors… Similarly from Will Warren Buffett's investment advice work for you?: Specifically, Buffett wants the trustee of his estate to put 10 percent of his wife's cash inheritance in short-term government bonds and 90 percent in a low-cost S&P index fund - and he tips his hat specifically to Bogle's Vanguard in doing so. Says Buffett: \\\"\\\"I believe the trust's long-term results from this policy will be superior to those attained by most investors - whether pension funds, institutions or individuals.\\\"\\\"\\\"\"\n]","isConversational":false}}},{"rowIdx":280,"cells":{"_id":{"kind":"string","value":"2423"},"query":{"kind":"string","value":"At what age should I start or stop saving money?"},"gt_ids":{"kind":"list like","value":["81106","396127","553288","551954","529444","305946","538023"],"string":"[\n \"81106\",\n \"396127\",\n \"553288\",\n \"551954\",\n \"529444\",\n \"305946\",\n \"538023\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["396127","551954","104457","529444","337561","463043","102395","305946","59965","417787","468010","553288","295637","81106","489480","234846","421535","398731","35680","319760","247132","538023","431203","47614","519856","361623","504940","484819","272328","413266","434190","486095","415432","399543","213435","109061","142209","13602","223872","81343","85977","383102","423745","60093","99987","275223","300047","441518","599075","184243","524912","440628","328157","430014","287991","38269","335248","147745","55513","433371","462113","119165","308130","199970","416743","73811","421455","283635","231246","280967","85368","479697","488015","88095","47184","292615","81554","16388","32833","56924","326560","91215","511506","5673","131852","194080","328076","129509","516782","334491","70730","202208","478242","293179","118880","85837","294676","515440","86304","476078"],"string":"[\n \"396127\",\n \"551954\",\n \"104457\",\n \"529444\",\n \"337561\",\n \"463043\",\n \"102395\",\n \"305946\",\n \"59965\",\n \"417787\",\n \"468010\",\n \"553288\",\n \"295637\",\n \"81106\",\n \"489480\",\n \"234846\",\n \"421535\",\n \"398731\",\n \"35680\",\n \"319760\",\n \"247132\",\n \"538023\",\n \"431203\",\n \"47614\",\n \"519856\",\n \"361623\",\n \"504940\",\n \"484819\",\n \"272328\",\n \"413266\",\n \"434190\",\n \"486095\",\n \"415432\",\n \"399543\",\n \"213435\",\n \"109061\",\n \"142209\",\n \"13602\",\n \"223872\",\n \"81343\",\n \"85977\",\n \"383102\",\n \"423745\",\n \"60093\",\n \"99987\",\n \"275223\",\n \"300047\",\n \"441518\",\n \"599075\",\n \"184243\",\n \"524912\",\n \"440628\",\n \"328157\",\n \"430014\",\n \"287991\",\n \"38269\",\n \"335248\",\n \"147745\",\n \"55513\",\n \"433371\",\n \"462113\",\n \"119165\",\n \"308130\",\n \"199970\",\n \"416743\",\n \"73811\",\n \"421455\",\n \"283635\",\n \"231246\",\n \"280967\",\n \"85368\",\n \"479697\",\n \"488015\",\n \"88095\",\n \"47184\",\n \"292615\",\n \"81554\",\n \"16388\",\n \"32833\",\n \"56924\",\n \"326560\",\n \"91215\",\n \"511506\",\n \"5673\",\n \"131852\",\n \"194080\",\n \"328076\",\n \"129509\",\n \"516782\",\n \"334491\",\n \"70730\",\n \"202208\",\n \"478242\",\n \"293179\",\n \"118880\",\n \"85837\",\n \"294676\",\n \"515440\",\n \"86304\",\n \"476078\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["While there is no age limit, bear in mind that saving money makes sense only if it doesn't delay your paying off expensive debt. If you have credit cards or expensive loans you would be best placed to focus on paying them down before saving a lot. If you save and keep debt, you'll effectively lose money as the interest on your debt will usually be higher than you can earn on savings. Having said that, it's worth saving a small amount anyway to have as an emergency fund. As you pay off your debt, start saving the money you no longer have to pay out and it will soon pay dividends.","There is no age-limit, in fact the sooner you start the better - the sooner the money starts to compound.","I would say start now, its never too early! It does add up over time and even if it is just a tiny amount, just getting in the habit of setting aside money is great. Looking back i wish i had started earlier instead of pushing it back. There will always be something to spend it on pushing it back whether its college or a car ect. Start now and thank yourself later.","As all said, the age limitation thing is nothing, and saving money not necessarily means to live poor nor Skimpy, spend your needs and try to get what you need instead of what you want, the 24 years old is a good start for saving money, the whole life still in front of you Good luck!","\"The only time to stop saving money for retirement is when you have enough money to retire tomorrow. Not all of your \"\"retirement savings\"\" need to be in a 401k, it is just better if you can. Be sure to get as much as you can from the employer matching program. Unfortunately some employer matching programs discourage you from putting in too much. I've been able to max out the 401k contribution a number of times, which helps. Remember: you are likely to live to 100, so you better save enough to live that long. I don't trust social security to be there. I recommend saving so that you end up with \"\"enough to be comfortable\"\" -- this is usually about 25x your current income - PLUS inflation between now and when you plan to retire (age 62 is a good target). It is worth knowing your \"\"retirement savings number\"\". If you are making $100K per year now, you need to target $2.5M - PLUS allowance for inflation between now and when you plan to retire. This usually means you need to also arrange to make more money as well as save as much as you can and to use passive investing. Finance advisors are not worth it if you have less than $1M to invest.\"","Start now. It's a lot easier to save now than it is to start to save later.","You should be trying to save 10% of your income from an early age. You can live well now and enjoy life within your means now, instead of trying to keep up with the Jones. Do you need to live in a larger house (when you can't really afford it) because it is more comfortable or because you want to show it off in front of your family and friends? You can live and enjoy life and eat well now and still save enough to have a comfortable retirement, just spend your money now on the things you enjoy, not things you see others enjoying.","It's nearly always a good idea to save for your future, if you don't already have sufficient funds to see out the rest of your days. The hardest part of the saving decision is knowing exactly what portion of your funds to save. If we save too aggressively, we risk having an adverse impact on our everyday life and, of course, there's always the possibility that we'll never make it to old age. But if we don't save, we risk the prospect of a poverty stricken retirement. It's not always easy to find a balance. The best solution is to make so much money that we cannot possibly spend it all!","The stock market at large has about a 4.5% long-term real-real (inflation-fees-etc-adjusted) rate of return. Yes: even in light of the recent crashes. That means your money invested in stocks doubles every 16 years. So savings when you're 25 and right out of college are worth double what savings are worth when you're 41, and four times what they're worth when you're 57. You're probably going to be making more money when you're 41, but are you really going to be making two times as much? (In real terms?) And at 57, will you be making four times as much? And if you haven't been saving at all in your life, do you think you're going to be able to start, and make the sacrifices in your lifestyle that you may need? And will you save enough in 10 years to live for another 20-30 years after retirement? And what if the economy tanks (again) and your company goes under and you're out of a job when you turn 58? Having tons of money at retirement isn't the only worthy goal you can pursue with your money (ask anyone who saves money to send kids to college), but having some money at retirement is a rather important goal, and you're much more at risk of saving too little than you are of saving too much. In the US, most retirement planners suggest 10-15% as a good savings rate. Coincidentally, the standard US 401(k) plan provides a tax-deferred vehicle for you to put away up to 15% of your income for retirement. If you can save 15% from the age of 20-something onward, you probably will be at least as well-off when you retire as you are during the rest of your life. That means you can spend the rest on things which are meaningful to you. (Well, you should also keep around some cash in case of emergencies or sudden unemployment, and it's never a good idea to waste money, but your responsibilities to your future have at least been satisfied.) And in the UK you get tax relief on your pension contribution at your income tax rate and most employers will match your contributions.","Start as early as possible and you will want to kiss your younger self when you get to retirement age. I know you (and everyone else at that age) thinks that they don't make enough to start saving and leans towards waiting until you get established in your career and start making better money. Don't put it off. Save some money out of each paycheck even if it is only $50. Trust me, as little as you make now, you probably have more disposable income than you will when you make twice as much. Your lifestyle always seems to keep up with your income and you will likely ALWAYS feel like you don't have money left over to save. The longer you wait, the more you are going to have to stuff away to make up for that lost time you could have been compounding your returns as shown in this table (assuming 9.4 percent average gain annually, which has been the average return on the stock market from 1926-2010). I also suggest reading this article when explains it in more detail: Who Wants to be a millionaire?","Start as soon as you can and make your saving routine. Start with whatever you feel comfortable with and be consistent. Increase that amount with raises, income gains, and whenever you want.","Are you working? Does your employer offer a 401(k) and if so, is there any match? Saving should be taught to kids at the same time they are old enough to get an allowance. There are many numbers tossed around, but 10% is a start for any new saver. If a college graduate can start by saving even 15%, better still. If you find that the 10% is too much, just start with what you can spare, and work to build that up over time, perhaps by splitting any future raises, half going toward savings, half to spending. Good luck. Edit - my 12 yr old made good money this summer baby sitting. I'm opening a Roth IRA for her. A 10 yr head start on her retirement savings. Edit (Jan-2013) - she's 14 now, 3 deposits to the Roth total $6000, and she's planning to up the number this year. Her goal is to have $50K saved in her Roth by the time she graduates college. Edit, by request (July-2017) 18, and off to college next month. Just under $24K, all invested in an S&P low cost index. We are planning to continue deposits of $4-$5K/yr, so the $50K is still a good goal.","Saving some money for the future is a good idea. But how much to save is a tough question. I retired with a small fraction of what the experts said I would need. Three years later, I can confidently say I did not even need what I had saved.","As AskAboutGadgets notes, there's no lower age limit. You current age (24) is a pretty good one; you'll have four decades or so for your money to grow and compound, allowing it to become a veritable fortune when you're ready to retire if you invest it fairly aggressively.","You will find lots of rules of thumb but there is no universal truth to how much you should save. There are factors you DO need to consider though: you should start as early as possible to set money aside for retirement. You should then use a retirement calculator to at least get an understanding of the amount you need to set aside each month to achieve the desired retirement income; your default should be not to spend money and only spend money when you must. Leisure, travel and eating out should come last after you have saved up; you should have funds for different terms. For example, my wife and I have an emergency fund for unexpected expenses or losses in income. The rule of thumb here generally is to have 3-6 months of salary saved up. A longer term fund should be created for larger expenses like buying a car or preparing the cashdown on a property. Finally, the retirement fund which should cover your needs after you have retired.",">But on the bright side, the most common decade for people to start saving is in their 20s. Twice as many 30 to 49 year olds said they started saving in their 20s instead of their 30s, while the 50 to 64 age group was “only slightly more likely” to have started saving in their 20s over their 30s, according to the report, which surveyed 1,003 adults living in the continental U.S. So they are basing their analysis of how early people start saving purely by studying people in their 30s and 40s with those in their 50s and 60s. They don't compare either of those age groups with those in their 20s and 30s to see how things have changed?","There is no absolute answer to this as it depends on your particular situation, but some tips: As to investing versus saving, you need to do some of both: Be careful about stockpiling too much in bank accounts. Inflation will eat that money up over time to the tune of 3-4%/year. You are young and have a longer investment horizon for retirement, take advantage of that and accept a little more risk while you can.","Saving for retirement is important. So is living within one's means. Also--wear your sunscreen every day, rain or shine, never stop going to the gym, stay the same weight you were in high school, and eat your vegetables if you want to pass for 30 when you are 50.","Yes, you should be saving for retirement. There are a million ideas out there on how much is a reasonable amount, but I think most advisor would say at least 6 to 10% of your income, which in your case is around $15,000 per year. You give amounts in dollars. Are you in the U.S.? If so, there are at least two very good reasons to put money into a 401k or IRA rather than ordinary savings or investments: (a) Often your employer will make matching contributions. 50% up to 6% of your salary is pretty common, i.e. if you put in 6% they put in 3%. If either of your employers has such a plan, that's an instant 50% profit on your investment. (b) Any profits on money invested in an IRA or 401k are tax free. (Effectively, the mechanics differ depending on the type of account.) So if you put $100,000 into an IRA today and left it there until you retire 30 years later, it would likely earn something like $600,000 over that time (assuming 7% per year growth). So you'd pay takes on your initial $100,000 but none on the $600,000. With your income you are likely in a high tax bracket, that would make a huge difference. If you're saying that you just can't find a way to put money away for retirement, may I suggest that you cut back on your spending. I understand that the average American family makes about $45,000 per year and somehow manages to live on that. If you were to put 10% of your income toward retirement, then you would be living on the remaining $171,000, which is still almost 4 times what the average family has. Yeah, I make more than $45,000 a year too and there are times when I think, How could anyone possibly live on that? But then I think about what I spend my money on. Did I really need to buy two new computer printers the last couple of months? I certainly could do my own cleaning rather than hiring a cleaning lady to come in twice a month. Etc. A tough decision to make can be paying off debt versus putting money into an investment account. If the likely return on investment is less than the interest rate on the loan, you should certainly concentrate on paying off the loan. But if the reverse is true, then you need to decide between likely returns and risk.","Great question and great of you to be paying attention to this. Right now having the ability to save $2K per year might seem very out of reach. However with the right career path and by paying attention to personal finance saving 2K per month will become possible sooner than you may think. As a student you are already investing in your future, by building your greatest wealth building tool: your income. Right now concentrate on that. If you have extra money throw it in a boring old savings account and don't touch it other than emergencies. An emergency is defined as something that will preclude you from completing your education. It is not paying for the latest xbox game/skateboard/once in a lifetime trip. An important precursor to investing is having an emergency fund that sits in a boring old savings account earning almost nothing. Think of it as an insurance policy that prevents you from liquidating your investments in case of and emergency. Emergencies often come during economic downturns. If you have to liquidate your investment to cover these times then you will lock in negative returns. Once you are done with school, moved into a place of your own, and have your first job you will have a nice start on your emergency fund. Then you can start investing. Doing it in the right order you will be amazed how quickly your savings can accumulate. I'd be shooting for that 2 million by the time you are 40, not 65.","So don't retire. But plan like you will retire. I am sure that some billionaire put some money away into a pension, 401K, or IRA for their retirement when they were young. It turns out they never had to worry about outliving their money. The next few paragraphs use United States examples. What happens if you have to retire, but you never saved. All the matching funds you could have collected in a 401K are gone, they disappeared with every paycheck you didn't contribute. Every year you didn't contribute to an IRA can never be replayed. You gave up the magic of compounding, because you thought you would never want to retire. If you save but don't need it, you will have more money to play with as you cut back your hours to part time. If you skip all the plans that make it hard to spend the money until you are 59 1/2, you can still save, but it takes even more discipline to not spend it before you are old.","You've never saved money? Have you ever bought anything? There probably was a small window of time that you had to pool some cash to buy something. In my experience, if you make it more interesting by 'allocating money for specific purposes' you'll have better results than just arbitrarily saving for a rainy day. Allocate your money for different things (ie- new car, emergency, travel, or starting a new business) by isolating your money into different places. Ex- your new car allocation could be in a savings account at your bank. Your emergency allocation can be in cash under your bed. Your new business allocation could be in an investment vehicle like a stocks where it could potentially see significant gains by the time you are ready to use it. The traditional concept of savings is gone. There is very little money to be earned in a savings account and any gains will be most certainly wiped out by inflation anyway. Allocate your money, allocate more with new income, and then use it to buy real things and fund new adventures when the time is right.","James, money saved over the long term will typically beat inflation. There are many articles that discuss the advantage of starting young, and offer: A 21 year old who puts away $1000/yr for 10 years and stops depositing will be ahead of the 31 yr old who starts the $1000/yr deposit and continues through retirement. If any of us can get a message to our younger selves (time travel, anyone?) we would deliver two messages: Start out by living beneath your means, never take on credit card debt, and save at least 10%/yr as soon as you start working. I'd add, put half your raises to savings until your rate is 15%. I can't comment on the pension companies. Here in the US, our accounts are somewhat guaranteed, not for value, but against theft. We invest in stocks and bonds, our funds are not mingled with the assets of the investment plan company.","If you can afford it, there are very few reasons not to save for retirement. The biggest reason I can think of is that, simply, you are saving in general. The tax advantages of 401k and IRA accounts help increase your wealth, but the most important thing is to start saving at an early age in your career (as you are doing) and making sure to continue contributing throughout your life. Compound interest serves you well. If you are really concerned that saving for retirement in your situation would equate to putting money away for no good reason, you can do a couple of things: Save in a Roth IRA account which does not require minimum distributions when you get past a certain age. Additionally, your contributions only (that is, not your interest earnings) to a Roth can be withdrawn tax and penalty free at any time while you are under the age of 59.5. And once you are older than that you can take distributions as however you need. Save by investing in a balanced portfolio of stocks and bonds. You won't get the tax advantages of a retirement account, but you will still benefit from the time value of money. The bonus here is that you can withdraw your money whenever you want without penalty. Both IRA accounts and mutual fund/brokerage accounts will give you a choice of many securities that you can invest in. In comparison, 401k plans (below) often have limited choices for you. Most people choose to use their company's 401k plan for retirement savings. In general you do not want to be in a position where you have to borrow from your 401k. As such it's not a great option for savings that you think you'd need before you retire. Additionally 401k plans have minimum distributions, so you will have to periodically take some money from the account when you are in retirement. The biggest advantage of 401k plans is that often employers will match contributions to a certain extent, which is basically free money for you. In the end, these are just some suggestions. Probably best to consult with a financial planner to hammer out all the details.","One opinion related to savings is to save 30% of your take home salary every month, split the amount into two parts depending on your age (29) one part would be 30% of 30% and another 70% of 30%. Take the 70% and buy blue chip stock and take the 30% and buy govt. bonds. Each 10 years adjust the percentages at 40, 40% on bonds and 60% on stock. Only cash out on the day you retire, otherwise ignore all market/economic movements. With this and the statutory savings (employment retirement) you should be ok.","\"The most important thing is not to tell yourself \"\"I'll save more later in my career when I have more disposable income,\"\" because of two factors. 1) You will get raises over your career, but unless you make it big, it will never really feel like you have extra money. You may double or triple your salary over a career, but it usually happens in small increments which your lifestyle tends to adjust upwards to meet even though it doesn't feel like it. 2) Later in your career you may have more money to save, but now the commodity you have is time. Your total savings at retirement are going to be influenced in a massive way by both of these factors. A good strategy is save SOMETHING early in your career even if it feels like an insignificant amount. Then save larger amounts later in your career when you are earning more, but have less time for your investments to grow and less tolerance for high risk/high growth investments.\"","Are you sure the question even makes sense? In the present-day world economy, it's unlikely that someone young who just started working has the means to put away any significant amount of money as savings, and attempting to do so might actually preclude making the financial choices that actually lead to stability - things like purchasing [the right types and amounts of] insurance, buying outright rather than using credit to compensate for the fact that you committed to keep some portion of your income as savings, spending money in ways that enrich your experience and expand your professional opportunities, etc. There's also the ethical question of how viable/sustainable saving is. The mechanism by which saving ensures financial stability is by everyone hoarding enough resources to deal with some level of worst-case scenario that might happen in their future. This worked for past generations in the US because we had massive amounts (relative to the population) of (stolen) natural resources, infrastructure built on enslaved labor, etc. It doesn't scale with modern changes the world is undergoing and it inherently only works for some people when it's not working for others. From my perspective, much more valuable financial skills for the next generation are:","Similarly, too much long term investment seems unproductive, but what would be too much? In 1900, the life expectancy of someone in the United States was less than 50. It is now in the 70s. My grandparents were born around that time and all lived into their 80s and 90s. Life expectancy in India is currently about 66. You should expect that to increase into the 70s if not the 80s in the next fifty years. You should plan on living until 120. Why? If you die earlier than that, you may have wasted some money that you could have used for a better living standard. However, if you do live that long and you spent all your savings by the time that you were 66, you'll have a hard retirement. You've already said that you won't have descendants to take care of you. You'll need your investments to do so. You need long term investments more than someone with a family, not less. You need to able to afford a house for retirement. You need to be able to maintain it, buy food, etc. on your savings. In order to be sure it lasts, you need to build your long term investments until they produce a steady income that comes close to matching your preretirement income. There are some costs that you won't have in retirement. You won't need to save for retirement. You won't need to commute to work. So your retirement income doesn't need to support that. If I were you, I'd save like everyone else until income from investments matched my current expenses minus commuting. At that time, you can readjust. Overall, you are far more likely not to save enough than too much. I wouldn't worry about oversaving in your twenties. No one actually does so.","It's never too early, but age 3 is when we started a piggy bank. Age 4 is when we opened a bank account. When you go shopping with your children, discuss what items cost (such as bread, milk, books, etc.) Start teaching them that everything has a value...then relate it to how much they have saved. Kids need to learn 3 basic things from their parents: how to save/invest, how to spend wisely, how to share/donate","For a more philosophical way to approach this, consider money saved as the opposite of money owed: This philosophy works for things which you may be able to borrow for (computer, car, house), but also for things you can't borrow for (retirement, giving to your kids, etc.). As others have mentioned, the 10% suggestion is for retirement, but the actual number depends on your lifestyle. As you can see in this chart, saving 10% of your income means you'll need to work for 51.4 years.","The compound interest argument is a good one. While you are young, it is important to save, since time is on your side for compounding of interest. I think the 401K is a good idea, but not for all of your savings. Think about saving a percentage of your income, but put it in a couple places. Your Roth is also a great thing, since you'll be able to remove money without paying tax again. The 401k (tax deferred) is a good idea if your company matches any of it (FREE MONEY!), and because it lowers your taxable income now, and it's taken out of your check before you see it, so you don't miss it. It's still important to save other money that you can have for ready cash (unexpected dead car, for example, or medical bills, or what have you.) I find that I don't want to be managing my investments from minute to minute, or doing my own trades (I'd rather do other things), so I have a mix (Roth, 401k, cash savings) of automated contributions for savings, and I think hard before buying new stuff. The point is to save, and if possible, try to save at least 10% of your income.","\"There is a basic difference between saving for voluntary retirement (i.e. choosing to do things other than work even though you could still work) and the need to save for later in life in general. Regardless of how much you like your job, a time will eventually come when you are no longer able to work, and you will need an alternate source of income to live from at that point. Unfortuately, this is also the time when most people generally have the highest medical bills as well, and may need other services such as long-term nursing home care. So even if you plan to work as long as possible, a retirement fund is an excellent way to plan for these needs as it is tax-advantaged and many companies offer matching contributions. I would simply recommend that you see \"\"retirement accounts\"\" as a good way to accomplish your goals - you don't have to use them to create a \"\"typical\"\" retirement. Once you've taken advantages of the match and tax subsidies, you may also wish to consider saving for an annuity. Fees can be high, so you will need to do your homework (generally, you want to wait and buy an immediate annuity), but this is another way to turn savings into guaranteed income once you need to stop working. Best of luck!\"","On average, you should be saving at least 10-15% of your income in order to be financially secure when you retire. Different people will tell you different things, but really this can be split between short term savings (cash), long term savings (401ks, IRAs, stocks & bonds), and paying down debt. That $5k is a good start on an emergency fund, but you probably want a little more. As justkt said, 6 months' worth is what you want to aim for. Put this in a Money Market account, where you'll earn a little more interest but won't be penalized from withdrawing it when its needed (you may have to live off it, after all). Beyond that, I would split things up; if possible, have payroll deductions going to a broker (sharebuilder is a good one to start with if you can't spare much change), as well as an IRA at a bank. Set up a separate checking account just for rent and utilities, put a month's worth of cash in there, and have another payroll deduction that covers your living expenses + maybe 5% put in there automatically. Then, set up automatic bill payments, so you don't even have to think about it. Check it once a month to make sure there aren't any surprises. Pay off your credit cards every month. These are, by far, the most expensive forms of credit that most people have. You shouldn't be financing large purchases with them (you'll get better rates by taking a personal loan from a bank). Set specific goals for savings, and set up automatic payroll deductions to work towards them. Especially for buying a house; most responsible lenders will ask for 20% down. In today's market, that means you need to write a check for $40k or $50k. While it's tempting to finance up to 100% of the property value, it's also risky considering how volatile markets can be. You don't want to end up owing more on the property than it's worth two years down the road. If you find yourself at the end of the month with an extra $50 or so, consider your savings goals or your current debt instead of blowing it on a toy. Especially if you have long term debt (high balance credit cards, vehicle or property loans), applying that money directly to principal can save you months (or years) paying it back, and hundreds or thousands of dollars of interest (all depending on the details of the loan, of course). Above all, have fun with it :) Think of your personal net worth as you do your Gamer score on the XBox, and look for ways to maximize it with a minimum of effort or investment on your part! Investing in yourself and your future can be incredibly rewarding emotionally :)","Does your employer provide a matching contribution to your 401k? If so, contribute enough to the 401k that you can fully take advantage of the 401k match (e.g. if you employer matches 3% of your income, contribute 3% of your income). It's free money, take advantage of it. Next up, max out your Roth IRA. The limit is $5000 currently a year. After maxing your Roth, revisit your 401k. You can contribute up to 16,500 per year. You savings account is a good place to keep a rainy day fund (do you have one?), but it lacks the tax advantages of a Roth IRA or 401k, so it is not really suitable for retirement savings (unless you have maxed out both your 401k and Roth IRA). Once you have take care of getting money into your 401k and Roth IRA accounts, the next step is investing it. The specific investment options available to you will vary depending on who provides your retirement account(s), so these are general guidelines. Generally, you want to invest in higher-risk, higher-return investments when you are young. This includes things like stocks and developing countries. As you get older (>30), you should look at moving some of your investments into things that less volatile. Bond funds are the usual choice. They tend to be safer than stocks (assuming you don't invest in Junk bonds), but your investment grows at a slower rate. Now this doesn't mean you immediately dump all of your stock and buy bonds. Rather, it is a gradual transition over time. As you get older and older, you gradually shift your investments to bond funds. A general rule of thumb I have seen: 100 - (YOUR AGE) = Percentage of your portfolio that should be in stocks Someone that is 30 would have 70% of their portfolio in stock, someone that is 40 would have 60% in stock, etc. As you get closer to retirement (50s-60s), you will want to start looking at investments that are more conservatie than bonds. Start to look at fixed-income and money market funds.","\"The power of compounding interest and returns is an amazing thing. Start educating yourself about investing, and do it -- there are great Q&As on this site, numerous books (I recommend \"\"The Intelligent Investor\"\", tools for small investors (like Sharebuilder.com) and other resources out there to get you started. Your portfolio doesn't need to include every dime you have either. But you do need to develop the discipline to save money -- even if that savings is $20 while you're in school. How you split between cash/deposit account savings and other investment vehicles is a decision that needs to make sense to you.\"","In addition to what others have said, I think it is important to consider that government retirement assistance (whatever it is called in each instance) is basically a promise that can be revoked. I talked to a retired friend of mine just yesterday and we got onto that subject; she mentioned that when she was young, the promise was for 90% of one's pay, paid by the government after retiring. It is very different today. Yes, you can gamble that you won't need the saved money, and thus decide not to save anything. What then if you do end up needing the money you did not set aside, but rather spent? You are just now graduating college, and assuming of course that you get a decently-paying job, are likely going to have loads more money than you are used to. If you make an agreement with yourself to set aside even just 10-15% of the difference in income right from the start, that is going to grow into a pretty sizable nest egg by the time you approach retirement age. Then, you will have the option of continuing to work (maybe part-time) or quitting in a way you would not have had otherwise. Now I'm going to pull numbers out of thin air, but suppose that you currently have $1000/month net, before expenses, and can get a job that pays $1800/month net starting out. 10-15% of the difference means you'll be saving around $100/month for retirement. In 35 years, assuming no return on investment (pessimistic, but works if returns match inflation) and no pay rises, that will still be over $40K. That's somewhere on the order of $150/month added to your retirement income for 25 years. Multiply with whatever inflation rate you think is likely if you prefer nominal values. It becomes even more noticable if you save a significant fraction of the additional pay; if you save 1/3 of the additional money (note that you still effectively get a 50% raise compared to what you have been living on before), that gives you a net income of $1500/month instead of $1800 ($500/month more rather than $800/month more) which grows into about $110K in 35 years assuming no return on investment. Nearly $400 per month for 25 years. $100 per week is hardly chump change in retirement, and it is still quite realistic for most people to save 30% of the money they did not have before.","As a 20 year old who has just started earning enough to save, I suggest showing them the different types of lifestyles they could live in the future if they started saving now versus what their life would be like if they didn't save at all. Try showing them actual dollar values as well so it's not just an arbitrary idea.","Save what you can. Due to compounding of interest, saving early is much more advantageous than saving the same amount later. Obviously you need money to live on, and you're entitled to spend some money on entertainment -- but set a budget on that and stick to that budget. Buying toys now deprives you of better toys later. You aren't saving for an uncertain future; you are saving for a certain future!","Lets imagine two scenarios: 1) You make 10.4k (40% of total income) yearly contributions to a savings account that earns 1% interest for 10 years. In this scenario, you put in 104k and earned 5.89k in interest, for a total of 109.9k. 2) You make the same 10.4k yearly contribution to an index fund that earns 7% on average for 10 years. In this scenario you put in the same 104k, but earned 49.7k in interest*, for a total of 153.7k. The main advantage is option 1) has more liquidity -- you can get the money out faster. Option 2) requires time to divest any stocks / bonds. So you need enough savings to get you through that divestment period. Imagine another two scenarios where you stop earning income: 1-b) You stop working and have only your 109.9k principal amount in a 1% savings account. If you withdraw 15.6k yearly for your current cost of living, you will run through your savings in 7 years. 2-b) You stop working and have only 20k (2 years of savings) in savings that earns 1% with 153.7k in stocks that earns 7%. If you withdraw your cost of living currently at 15.6k, you will run through your investments in 15 years and your savings in 2 years, for a total of 17 years. The two years of income in savings is extremely generous for how long it starts the divestment process. In summary, invest your money. It wasn't specified what currency we are talking about, but you can easily find access to an investment company no matter where you are in the world. Keep a small amount for a rainy day.","\"I disagree with the selected answer. There's no one rule of thumb and certainly not simple ones like \"\"20 cents of every dollar if you're 35\"\". You've made a good start by making a budget of your expected expenses. If you read the Mr. Money Mustache blogpost titled The Shockingly Simple Math Behind Early Retirement, you will understand that it is usually a mistake to think of your expenses as a fixed percentage of your income. In most cases, it makes more sense to keep your expenses as low as possible, regardless of your actual income. In the financial independence community, it is a common principle that one typically needs 25-30 times one's annual spending to have enough money to sustain oneself forever off the investment returns that those savings generate (this is based on the assumption of a 7% average annual return, 4% after inflation). So the real answer to your question is this: UPDATE Keats brought to my attention that this formula doesn't work that well when the savings rates are low (20% range). This is because it assumes that money you save earns no returns for the entire period that you are saving. This is obviously not true; investment returns should also count toward your 25-times annual spending goal. For that reason, it's probably better to refer to the blog post that I linked to in the answer above for precise calculations. That's where I got the \"\"37 years at 20% savings rate\"\" figure from. Depending on how large and small x and y are, you could have enough saved up to retire in 7 years (at a 75% savings rate), 17 years (at a 50% savings rate), or 37 years! (at the suggested 20% savings rate for 35-year olds). As you go through life, your expenses may increase (eg. starting a family, starting a new business, unexpected health event etc) or decrease (kid wins full scholarship to college). So could your income. However, in general, you should negotiate the highest salary possible (if you are salaried), use the 25x rule, and consider your life and career goals to decide how much you want to save. And stop thinking of expenses as a percentage of income.\"","Chances are since college is your next likely step I would recommend saving up for it. Start building an emergency fund. Recommended $1,000 minimum. To start building your credit rating (when 18) get a low interest low limit credit. Pay off the balance every month. Starting to build your credit rating now can save you hundreds of thousands when buying a house over the course of paying it off. ie. cheaper interest rate. As for investing, the sooner you can get started the better. Acquire preferred/stocks/bonds/REITs/ETFs/etc that pay you to own them (they pay you dividends monthly/quarterly/etc). Stick with solid stocks that have a history of consistently increasing their dividends over time and that are solid companies. I personally follow the work/advice of Derek Foster. He's not a professional but he retired at 34. His first book (Stop working - Here's how you can) is great and recommend it to anyone who is looking to get started. Also check out Ramit Sethi's blog I Will Teach You to be Rich. He focuses on big wins which save you a lot over the long term. He's also got some great advice for students as well. Best of luck!","\"I am pretty sure you could find a number of financial planners whom you could pay to give you a very accurate number, but the rule of thumb I like best is Save a dime of every dollar. 10% (Savings means save for retirement, not vacations.) Here is a nice article from radio personality Clark Howard with some adjustments based on your age: Saving for retirement later in life? If you're getting started saving for retirement later in life, the dime out of every dollar rule won't cut it for you. So for you, The Baltimore Sun has crunched the following numbers: Jayraj has a particularly good and just as simple bit of math. https://money.stackexchange.com/a/30751/91 Your retirement and financial planning should not end with a flat percentage. In fact, the chances that any simple math formula is adequate are very low. My percentages (or Jayraj's simple math) are only starting places. If you are at the point where you are asking \"\"where do I start\"\", starting with this super easy no-brainer approach is great because the key is starting and doing it.\"","Save enough to build an emergency cushion of 4-6 months total expenses. After that, invest everything you can in areas where you are well researched and have carefully formed your own opinion on the subject. Those who save do not reach financial freedom, those who learn to invest and make their money work for them do. Invest in learning how to invest.","What you put that money into is quite relevant. It depends on how soon you will need some, or all, of that money. It has been very useful to me to divide my savings into three areas... 1) very short term 'oops' funds. This is for when you forget to put something in your budget or when a monthly bill is very high this month. Put this money into passbook savings. 2) Emergency funds that are needed quite infrequently. Used for such things as when you go to the hospital or an appliance breaks down. Put this money in higher yeald savings, but where it can be accessed. 3) Retirement savings. Put this money into a 401-K. Never draw on it till you retire. Make no loans against it. When you change jobs roll over into a self-directed IRA and invest in an ETF that pays dividends. Reinvest the dividend each month. So, like I said, where you put that money depends on how soon you will need it.","\"The suggestions towards retirement and emergency savings outlined by the other posters are absolute must-dos. The donations towards charitable causes are also extremely valuable considerations. If you are concerned about your savings, consider making some goals. If you plan on staying in an area long term (at least five years), consider beginning to save for a down payment to own a home. A rent-versus-buy calculator can help you figure out how long you'd need to stay in an area to make owning a home cost effective, but five years is usually a minimum to cover closing costs and such compared to rending. Other goals that might be worthwhile are a fully funded new car fund for when you need new wheels, the ability to take a longer or nicer vacation, a future wedding if you'd like to get married some day, and so on. Think of your savings not as a slush fund of money sitting around doing nothing, but as the seed of something worthwhile. Yes, you will only be young once. However being young does not mean you have to be Carrie from Sex in the City buying extremely expensive designer shoes or live like a rapper on Cribs. Dave Ramsey is attributed as saying something like, \"\"Live like no one else so that you can live like no one else.\"\" Many people in their 30s and 40s are struggling under mortgages, perhaps long-left-over student loan debt, credit card debt, auto loans, and not enough retirement savings because they had \"\"fun\"\" while they were young. Do you have any remaining debt? Pay it off early instead of saving so much. Perhaps you'll find that you prefer to hit that age with a fully paid off home and car, savings for your future goals (kids' college tuitions, early retirement, etc.). Maybe you want to be able to afford some land or a place in a very high cost of living city. In other words - now is the time to set your dreams and allocate your spare cash towards them. Life's only going to get more expensive if you choose to have a family, so save what you can as early as possible.\"","\"Ultimately, money derives its value from being spend on a good or service. Investing it is an act of denying your present-self a good or service so that your future-self can obtain (hopefully more) goods or services. Investing is a sensible and responsible default position, but you clearly have passed the point at which the opportunity cost of the dollar not spent today is greater than its benefit in the future. Not all dollars are the same. Remember that money is a temporary store of value but you have to spend it to realize that value. In your search, learn about the \"\"psychology of money.\"\" What are you saving it for? How much do you want left over when you die? If you die tomorrow, will you regret not having spend a little more? I'm sorry to get morbid on you, but saving for the future requires answering the question \"\"How long?\"\" and it's never forever. This may be tangential but it shaped my behaviour towards money nonetheless: Frank Zimbardo on The Psychology of Time. I would hazard a guess and say that you land in the future-oriented camp.\"","Start a Roth IRA. Keep it in low risk, short term money market or CDs. At this stage, stocks may be premature. As you build up the account, up to $5000/year, at some point, you should start buying an index mutual fund, say one following the S&P. When you are out of school and working for real money, save an emergency account outside the IRA and shift that Roth IRA to be fully invested. My 13 year old has her emergency account, and her Roth IRA to deposit her baby sitting money. It's never too soon to start.","\"A good question -- there are many good tactical points in other answers but I wanted to emphasize two strategic points to think about in your \"\"5-year plan\"\", both of which involve around diversification: Expense allocation: You have several potential expenses. Actually, expenses isn't the right word, it's more like \"\"applications\"\". Think of the money you have as a resource that you can \"\"pour\"\" (because money has liquidity!) into multiple \"\"buckets\"\" depending on time horizon and risk tolerance. An ultra-short-term cushion for extreme emergencies -- e.g. things go really wrong -- this should be something you can access at a moment's notice from a bank account. For example, your car has been towed and they need cash. A short-term cushion for emergencies -- something bad happens and you need the money in a few days or weeks. (A CD ladder is good for this -- it pays better interest and you can get the money out quick with a minimal penalty.) A long-term savings cushion -- you might want to make a down payment on a house or a car, but you know it's some years off. For this, an investment account is good; there are quite a few index funds out there which have very low expenses and will get you a better return than CDs / savings account, with some risk tolerance. Retirement savings -- $1 now can be worth a huge amount of money to you in 40 years if you invest it wisely. Here's where the IRA (or 401K if you get a job) comes in. You need to put these in this order of priority. Put enough money in your short-term cushions to be 99% confident you have enough. Then with the remainder, put most of it in an investment account but some of it in a retirement account. The thing to realize is that you need to make the retirement account off-limits, so you don't want to put too much money there, but the earlier you can get started in a retirement account, the better. I'm 38, and I started both an investment and a retirement account at age 24. They're now to the point where I save more income, on average, from the returns in my investments, than I can save from my salary. But I wish I had started a few years earlier. Income: You need to come up with some idea of what your range of net income (after living expenses) is likely to be over the next five years, so that you can make decisions about your savings allocation. Are you in good health or bad? Are you single or do you have a family? Are you working towards law school or medical school, and need to borrow money? Are you planning on getting a job with a dependable salary, or do you plan on being self-employed, where there is more uncertainty in your income? These are all factors that will help you decide how important short-term and long term savings are to your 5-year plan. In short, there is no one place you should put your money. But be smart about it and you'll give yourself a good head start in your personal finances. Good luck!\"","I don't have a reference, but I think it depends on when you entered the workforce: If you finished school at age 24, your primary goals are to pay down expensive debt and to save up enough for a down payment. So essentially not much. Maybe $5k to $10k at the most. On the other hand if you entered the workforce at age 20, with no debts and no significant expenses, it should have been easy to sock away 20% of your income for 6 years, so $40k to $50k would be reasonable. The difference is that the first person's income earning potential should be higher, so eventually they'd be able to make up the difference and pass them.","A person who always saves and appropriately invests 20% of their income can expect to have a secure retirement. If you start early enough, you don't need anything close to 20%. Now, there are many good reasons to save for things other than just retirement, of course. You say that you can save 80% of your income, and you expect most people could save at least 50% without problems. That's just unrealistic for most people. Taxes, rent (or mortgage payments), utilities, food, and other such mandatory expenses take far more than 50% of your income. Most people simply don't have the ability to save (or invest) 50% of their income. Or even 25% of their income.","\"What percent of my salary should I save? is tightly coupled with its companion, What size “nest egg” should my husband and I have, and by what age? Interestingly, Mr.Christer's answer, 10%, is the number that plugs into the equation that I reference. Jay's 25X rule is part of this. We start with the assumption that one's required income at retirement will be 80% of their pre-retirement income. That's high by some observations, low by others. A quick look at the expenses that go away in retirement - The above can total 35-40% It would be great if it ended there, but there are costs that go up. The above extra spending is tough to nail down, after all, you knew what you spent, and what's going away, but the new items? Crapshoot. (For non-native speakers - this refers to a game with dice, meaning a random event) Again, referencing Mr Christer's answer \"\"financial planners whom you could pay to give you a very accurate number,\"\" I'm going to disagree with that soundbyte. Consider, when retirement is 30 years away, you don't know much If I can offer an analogy. I once had the pleasure of hearing Jim Lovell (The astronaut played by Tom Hanks in Apollo 13) give a speech. He said that for the first 99% of the trip to the moon, they simply aimed ahead of their target, never directly at the moon. In this manner, I suggest that with so many variables, accuracy is impossible, it's a moving target. Start young, take the 10% MrC offered, and keep saving. Every few years, stop and see if you are on target, if not, bump the number a bit. Better to turn 50 and find that after a good decade you've reached your number and can drop your savings to a minimum, perhaps just to capture a 401(k) match, than to turn 50 and realize you've undersaved and need to bump to an unsustainable level. Imagine planning ahead in 1999. You've seen 2 great decades of returns, and even realizing that 18%/yr couldn't continue, you plan for a below average 7%, this would double your 1999 balance in 10 years. Instead you saw zero return. For a decade. In sum, when each variable has an accuracy of +/-50% you are not going to combine them all and get a number with even 10% accuracy (as if MrC were wrong, but the pro would tell you 11% is right for you?). This is as absurd as packaging up a bunch of C rated debt, and thinking that enough of this paper would yield a final product that was AAA.\"","To make this more general: should you save for retirement or for education? The answer is simple: save for your education first. A PriceWaterhouseCoopers report on behalf Universities UK in 2006 and another by the Washington-based College Board in 2007 indicate that graduates of higher education can earn anywhere from $400,000 to $1 million more, after tax and education loans are paid, than do those who start work with only a high-school qualification. [From my blog...] Over your lifetime your higher education will earn you far more than any other income and investments you forego while attaining that education. Make those sacrifices now to reap greater rewards later.","Assume you will need to retire with a few million in the bank to maintain an average lifestyle. I had an analysis done for me (at 33) that shows my family, to keep it up lifestyle will need to have 3.4MM in the bank so in retirement I can draw down enough cash. This number reflects inflation. Now that you are 18, if you make consistent but small savings you will achieve that financial stability. Try to make it automatic so you aren't tempted to spend. There is more you can do but since you have such an early start, you can do less than most people and still have plenty. Even thought it is great you are thinking about it, don't forget to be young, move around lots and have fun. Just pay yourself first and have fun second. Also, thank whoever guided you to this point. If you did it all on your own, be proud.","\"My basic rule I tell everyone who will listen is to always live like you're a college student - if you could make it on $20k a year, when you get your first \"\"real\"\" job at $40k (eg), put all the rest into savings to start (401(k), IRA, etc). Gradually increase your lifestyle expenses after you hit major savings goals (3+ month emergency fund, house down payment, etc). Any time you get a raise, start by socking it all into your employer's 401(k) or similar. And repeat the above advice.\"","I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year. The general rule of thumb is that you should have six months income as an emergency fund. So your savings should be around $5k. Build that first. Some argue that the standard should be six months of living expenses rather than income. Personally, I think that this example is exactly why it is income rather than living expenses. Six months of living expenses in this case would only be $1250, which won't pay for much. And note that living expenses can only be calculated after the fact. If your estimate of $50 a week is overly optimistic, you might not notice for months (until some large living expense pops up). Another problem with using living expenses as the measure is that if you hold down your living expenses to maximize your savings, this helps both measures. Then you hit your savings target, and your living expenses increase. So you need more savings. By contrast, if your income increases but your living expenses do not, you still need more savings but you can also save more money. Doesn't really change the basic analysis though. Either way you have an emergency savings target that you should hit before starting your retirement savings. If you save $150 per week, then you should have around $4k in savings at the beginning of next year. That's still low for an emergency fund by the income standard. So you probably shouldn't invest next year. With a living expenses standard, you could have $6250 in savings by April 15th (deadline for an IRA contribution that appears in the previous tax year). That's $5000 more than the $1250 emergency fund, so you could afford an IRA (probably a Roth) that year. If you save $7500 next year and start with $4k in savings (under the income standard for emergency savings), that would leave you with $11,500. Take $5500 of that and invest in an IRA, probably a Roth. After that, you could make a $100 deposit per week for the next year. Or just wait until the end. If you invested in an IRA the previous year because you decided use the living expenses standard, you would only have $6500 at the end of the year. If you wait until you have $6750, you could max out your IRA contribution. At that point, your excess income for each year would be larger than the maximum IRA contribution, so you could max it out until your circumstances change. If you don't actually save $3k this year and $7500 next year, don't sweat it. A college education is enough of an investment at your age. Do that first, then emergency savings, then retirement. That will flip around once you get a better paying, long term job. Then you should include retirement savings as an expected cost. So you'd pay the minimum required for your education loans and other required living expenses, then dedicate an amount for retirement savings, then build your emergency savings, then pay off your education loans (above the minimum payment). This is where it can pay to use the more aggressive living expenses standard, as that allows you to pay off your education loans faster. I would invest retirement savings in a nice, diversified index fund (or two since maintaining the correct stock/bond mix of 70%-75% stocks is less risky than investing in just bonds much less just stocks). Investing in individual stocks is something you should do with excess money that you can afford to lose. Secure your retirement first. Then stock investments are gravy if they pan out. If they don't, you're still all right. But if they do, you can make bigger decisions, e.g. buying a house. Realize that buying individual stocks is about more than just buying an app. You have to both check the fundamentals (which the app can help you do) and find other reasons to buy a stock. If you rely on an app, then you're essentially joining everyone else using that app. You'll make the same profit as everyone else, which won't be much because you all share the profit opportunities with the app's system. If you want to use someone else's system, stick with mutual funds. The app system is actually more dangerous in the long term. Early in the app's life cycle, its system can produce positive returns because a small number of people are sharing the benefits of that system. As more people adopt it though, the total possible returns stay the same. At some point, users saturate the app. All the possible returns are realized. Then users are competing with each other for returns. The per user returns will shrink as usage grows. If you have your own system, then you are competing with fewer people for the returns from it. Share the fundamental analysis, but pick your stocks based on other criteria. Fundamental analysis will tell you if a stock is overvalued. The other criteria will tell you which undervalued stock to buy.","\"It really depends a lot on you and how much time you are putting into it. Since you're saying you want your money to work for you I'm going to assume you want as little hassle as possible. A few general tips: Save a fixed percentage of your monthly income Don't try to save \"\"whenever you have money left over\"\", you will just end up spending it somehow. Invest long term - don't trade Don't try to beat the market - it will just take up too much time and statistically you will end up making less. Hedge If you invest in the company/industry you work in, you will be double screwed if the sector drops (lose job + savings at the same time). Optimally you should invest in something that will benefit when the company you work for is doing bad. Pay off high interest debt Usually debt will have a higher interest than any safe investment you can make. Spend money to save/make money Sometimes the best investment you can make is on stuff that will save you money in the long run. Like buy an apartment close to work (less transport costs) or get a more expensive car that will save you money on gas, insurance etc.\"","Take a certain percentage of your income (say, 10%, but more is better if you can) and put it aside with every paycheck. Some employers will even allow you to direct deposit your paycheck into two different accounts and you can specify a certain amount or percentage for the second account. Your savings will go directly into a separate account as if you never had it in the first place. Consider your savings untouchable as spending money. Watch it grow. There's no other secret, you just have to do it!","First pay yourself. When you get salary, send some parts of that (for example 10%) to your saving account. Step by step you'll save nice money ;)","Conventional wisdom says (100-age) percentage of your saving should go to Equity and (age) percentage should go to debt. My advice to you is to invest (100-age) into index fund through SIP and rest in FD. You can re-balance your investment once a year. Stock picking is very risky. And so is market timing. Of cource you can change the 100 into a other number according to your risk tolerance.","BrenBarn did a great job explaining your options so I won't rehash any of that. I know you said that you don't want to save for retirement yet, but I'm going to risk answering that you should anyway. Specifically, I think you should consider a Roth IRA. When it comes to tax advantaged retirement accounts, once the contribution period for a tax year ends, there's no way to make up for it. For example in 2015 you may contribute up to $5,500 to your IRA. You can make those contributions up until tax day of the following year (April 15th, 2016). After that, you cannot contribute money towards 2015 again. So each year that goes by, you're losing out on some potential to contribute. As for why I think a Roth IRA specifically could work well for you: I'm advocating this because I think it's a good balance. You put away some money in a retirement account now, when it will have the most impact on your future retirement assets, taking advantage of a time you will never have again. At a low cost custodian like Vanguard, you can open an IRA with as little as $1,000 to start and choose from excellent fund options that meet your risk requirements. If you end up deciding that you really want that money for a car or a house or beer money, you can withdraw any of the contributions without fear of penalty or additional tax. But if you decide you don't really need to take that money back out, you've contributed to your retirement for a tax year you likely wouldn't have otherwise, and wouldn't be able to make up for later when you have more than enough to max out an IRA each year. I also want to stress that you should have a liquid emergency fund (in a savings or checking account) to deal with unexpected emergencies before funding something like this. But after that, if you have no specific goal for your savings and you don't know for sure you'll actually need to spend it in the near future, funding a Roth IRA is worth considering in my opinion.","IMO almost any sensible decision is better than parking money in a retirement account, when you are young. Some better choices: 1) Invest in yourself, your skills, your education. Grad school is one option within that. 2) Start a small business, build a customer base. 3) Travel, adventure, see the world. Meet and talk to lots of different people. Note that all my advice revolves around investing in YOURSELF, growing your skills and/or your experiences. This is worth FAR more to you than a few percent a year. Take big risks when you are young. You will need maybe $1m+ (valued at today's money) to retire comfortably. How will you get there? Most people can only achieve that by taking bigger risks, and investing in themselves.","I don't like your strategy. Don't wait. Open an investment account today with a low cost providers and put those funds into a low cost investment that represents as much of the market as you can find. I am going to start by assuming you are a really smart person. With that assumption I am going to assume you can see details and trends and read into the lines. As a computer programmer I am going to assume you are pretty task oriented, and that you look for optimal solutions. Now I am going to ask you to step back. You are clearly very good at managing your money, but I believe you are over-thinking your opportunity. Reading your question, you need a starting place (and some managed expectations), so here is your plan: Now that you have a personal retirement account (IRA, Roth IRA, MyRA?) and perhaps a 401(k) (or equivalent) at work, you can start to select which investments go into that account. I know that was your question, but things you said in your question made me wonder if you had all of that clear in your head. The key point here is don't wait. You won't be able to time the market; certainly not consistently. Get in NOW and stay in. You adjust your investments based on your risk tolerance as you age, and you adjust your investments based on your wealth and needs. But get in NOW. Over the course of 40 years you are likely to be working, sometimes the market will be up, and sometimes the market will be down; but keep buying in. Because every day you are in, you money can grow; and over 40 years the chances that you will grow substantially is pretty high. No need to wait, start growing today. Things I didn't discuss but are important to you:","I recommend pulling up a retirement calculator and having an honest conversation about how long term savings works, and the power of compound interest. Just by playing around with the sliders on an online calculator, you can demonstrate how the early years are the most important. Depending on how much they make now and are considering saving, delaying 5-10 years can easily leave 6-7 figures on the table. If it's specifically a child or close family member, I recommend pulling up your retirement account. Talk with them about how you managed it, and how much you were putting in. Perhaps show them how much is the principal and how much is interest. If you did well, tell them how. If you didn't do as well as you liked, tell them what you would have done differently. Finally, discuss a bit of psychology. Even if they don't have a professional job and are making minimum wage, getting into the habit of saving makes it easier when they eventually make more. A couple of dollars a month isn't much, but getting into the habit makes it easier to save a couple hundred dollars a month later on.","Definitely not. You are too young. Let me explain: Your money will be locked up for at least 40 years, and you will have to navigate some really quirky and trap-laden rules in order to get money for simple things. Let's say you want to buy a house. You won't be able to leverage the 401K for that. College Tuition? Limits. Your money is locked in and you may get some match, but that assumes your smartest decision at your age is to save money for retirement. At your age, you should be investing in your career, and that requires cash at hand. If you want to withdraw early you pay more of a penalty than just the tax rate. Put differently: investing in your human capital, at a young age, can yield stronger results than just squirreling money. I'd say don't worry until you are 30. BTW: I'm 24 now. I used to save money in a 401K for a few months, before I understood the rules. Since then, I decided against 401K and just saved the money in a bank. After a few years, I had enough to start my business :) the 401K couldn't give me that opportunity. Further Explanation: I am in the NYC area. Many of my friends and I had to decide between living in manhattan or choosing to live in the outer boroughs or NJ. One thing I noticed was that, while the people in manhattan were burning much more money (to the tune of 1500 per month), they were actually much more productive and were promoted more often. Having lived in brooklyn and in manhattan, even though it is less expensive, you actually lose at least an hour a day thanks to the commute (and have to deal with crap like the 6 train). Personally, after moving in, I invested the extra time in myself (i.e. sleeping more, working longer hours, side projects). Now, when all is said and done, the people who decided to invest in themselves in the short term are financially more secure (both job-wise and economically, thanks to a few bonus cycles) than those who decided to save on rent and put it in a 401K. As far as the traps are concerned, my dad tried to take out a student loan and was denied thanks to a Vanguard quirk which didnt allow more than 50K to be borrowed (even though the account had over 500K to begin with).","Everybody else has given great answers on what to do, but I just want to add some encouragement. Keep saving. Learn to live within your means while saving, and things like houses and cars and new electronics will come. You can always wait a year and save money up for that new TV, but when retirement hits you are out of time. (I sure wish I had). Keep that retirement money out of sight and (mostly) out of mind. Great job saving and keep up the good work.","Excellent responses so far. Because I am a math guy, I wanted to stress the power of compounding. It's great that you are thinking about saving and your future when you are so young. Definitely be displined about your saving and investing. You would be surprised how just a small amount can compound over the years. For example, if you were to start with $5000 and contribute $100 per month. Assuming that you can get 5% ROR (hard in today's world but shouldn't be down the road), your final principal after 28 years (when you are 50 years old) will be over $90,000, which of only $38,000 is what you contributed yourself. The rest is interest. You can play with the numbers here: http://www.math.com/students/calculators/source/compound.htm","\"The policy you quoted suggests you deposit 6% minimum. That $6,000 will cost you $4,500 due to the tax effect, yet after the match, you'll have $9,000 in the account. Taxable on withdrawal, but a great boost to the account. The question of where is less clear. There must be more than the 2 choices you mention. Most plans have 'too many' choices. This segues into my focus on expenses. A few years back, PBS Frontline aired a program titled The Retirement Gamble, in which fund expenses were discussed, with a focus on how an extra 1% in expenses will wipe out an extra 1/3 of your wealth in a 40 year period. Very simple to illustrate this - go to a calculator and enter .99 raised to the power of 40. .669 is the result. My 401(k) has an expense of .02% (that's 1/50 of 1%) .9998 raised to the same 40 gives .992, in other words, a cost of .8% over the full 40 years. My wife and I are just retired, and will have less in expenses for the rest of our lives than the average account cost for just 1 year. In your situation, the knee-jerk reaction is to tell you to maximize the 401(k) deposit at the current (2016) $18,000. That might be appropriate, but I'd suggest you look at the expense of the S&P index (sometime called Large Cap Fund, but see the prospectus) and if it's costing much more than .75%/yr, I'd go with an IRA (Roth, if you can't deduct the traditional IRA). Much of the value of the 401(k) beyond the match is the tax differential, i.e. depositing while in the 25% bracket, but withdrawing the funds at retirement, hopefully at 15%. It doesn't take long for the extra expense and the \"\"holy cow, my 401(k) just turned decades of dividends and long term cap gains into ordinary income\"\" effect to take over. Understand this now, not 30 years hence. Last - to answer your question, 'how much'? I often recommend what may seem a cliche \"\"continue to live like a student.\"\" Half the country lives on $54K or less. There's certainly a wide gray area, but in general, a person starting out will choose one of 2 paths, living just at, or even above his means, or living way below, and saving, say, 30-40% off the top. Even 30% doesn't hit the extreme saver level. If you do this, you'll find that if/when you get married, buy a house, have kids, etc. you'll still be able to save a reasonable percent of your income toward retirement. In response to your comment, what counts as retirement savings? There's a concept used as part of the budgeting process known as the envelope system. For those who have an income where there's little discretionary money left over each month, the method of putting money aside into small buckets is a great idea. In your case, say you take me up on the 30-40% challenge. 15% of it goes to a hard and fast retirement account. The rest, to savings, according to the general order of emergency fund, 6-12 months expenses, to cover a job loss, another fund for random expenses, such as new transmission (I've never needed one, but I hear they are expensive), and then the bucket towards house down payment. Keep in mind, I have no idea where you live or what a reasonable house would cost. Regardless, a 20-25% downpayment on even a $250K house is $60K. That will take some time to save up. If the housing in your area is more, bump it accordingly. If the savings starts to grow beyond any short term needs, it gets invested towards the long term, and is treated as \"\"retirement\"\" money. There is no such thing as Saving too much. When I turned 50 and was let go from a 30 year job, I wasn't unhappy that I saved too much and could call it quits that day. Had I been saving just right, I'd have been 10 years shy of my target.\"","By not saving some of your income you put yourself at risk of the following: If you are comfortable taking on those risks, then continue what you are doing (I'm not being sarcastic here...some people are perfectly comfortable taking on these risks). I plan on working until I die so I am not as concerned with saving for retirement but I do save some money for temporary job loss situations. Saving money presents its own set of issues (e.g. Where should I put the money?, Should I invest the money?, What type of investments?). If you have no interest in researching answers to these type of questions then I would suggest what others have already suggested: have part of your paycheck automatically siphoned into an account that can only be accessed by a trusted family member.","If I were you, I would save 200 euros for retirement each month and another 800 I would stash away with the hope to start investing soon. I think you have to invest a bigger lump sum, then 1000 euros. It makes sense to invest at least 30K to see any tangible results. My acquaintances started from 50K and now see pretty handsome returns. Investing is profitable, as long as you approach it smartly. Also, do not ever hire an overly expensive financial consultant - this expenses will never pay off. Of course, check their credentials and reputation... But never pay much to these guys. Not worth it.","Invest in kids, not pension - they never inflate. Without kids your retirement will be miserable anyway. And with them you'll be good. Personally, I do not believe that that our current savings will be worth it in 30 years in these times.","I'm assuming you're in Germany or Europe based on your question, but here's an American's perspective that should pertain you you as well: Once you have a steady income and an emergency fund large enough to keep you from going bankrupt, then start learning about retirement and investment options.","Investing requires capital, and the fastest way to get the capital is to develop good saving habits. Investing is an ongoing process to help you accumulate wealth, so to take advantage of compounding, the earlier you start, the better. I can suggest a few pointers to get you started on the investing journey. Godspeed! :)","\"IMHO It is definitively not too early to start learning and thinking about personal finances and also about investing. If you like to try stock market games, make sure to use one that includes a realistic fee structure simulation as well - otherwise there'll be a very unpleasant awakening when switching to reality... I'd like to stress the need for low fees with the brokerage account! Sit down and calculate how much fees different brokers take for a \"\"portfolio\"\" of say, 1 ETF, 1 bond, 1 share of about $500 or $1000 each (e.g. order fee, annual fee, fee for paying out interest/dividend). In my experience, it is good if you can manage to make the first small investing steps before starting your career. Real jobs tend to need lots of time (particularly at the beginning), so time to learn investing is extremely scarce right at the time when you for the first time in your life earn money that could/should be invested. I'm talking of very slowly starting with a single purchase of say an ETF, a single bond next time you have saved up a suitable amount of toy money, then maybe a single share (and essentially not doing anything with them in order to avoid further fees). While such a \"\"portfolio\"\" is terrible with respect to diversification and relative fees*, this gives you the possibility to learn the procedures, to see how the fees cut in, what to do wrt taxes etc. This is why I speak about toy money and why I consider this money an investment in education. * An order fee of, say, $10 on a $500 position are terrible 4% (2 x $10) for buying + selling - depending on your local taxes, that would be several years of dividend yield for say some arbitrary Dow Jones ETF. Nevertheless, purchase + sale together are less than 3 cinema tickets.\"","\"The answer is, there are a lot of answers! It always seems so daunting to start saving when you're living paycheck to paycheck and anticipate more bills on the way (kids are expensive!!). Start small, and make it automatic if you can. If you can take $25 out of every paycheck and put it into a savings account, and do this automatically using your bank's Bill Pay system, that will go a long way. It's about setting up a new habit for yourself, and increasing as you can. One way I've heard it phrased is \"\"Pay yourself first\"\". Don't set unrealistic expectations for yourself, either. You need to start building a savings account to cover emergencies, not just future purchases. If something happens and you can't get a paycheck for a week, a month, 2 months, how will you pay your bills? Set up a savings account just for that purpose and don't touch it unless it's a true emergency. There are several banks out there that will let you set up multiple savings accounts and mark them for specific purposes, like CapitalOne's 360 accounts. Set one up for the emergency account that gets your automatic per-paycheck deposit, then set up another one for \"\"fun money\"\" or \"\"new home fund\"\" or whatever else you want to save up for. Starting the savings process is hard, no doubt about it. You need to learn how to budget with the money you have after \"\"paying yourself first\"\". But the important part is to stick with it. Consider your savings account as another \"\"mandatory\"\" utility. You have to pay it $25/mo or risk...I don't know...a smack on the back of the head. If you wait until the end of the month to see what you have left after everything else, you'll find you don't have anything left. If you can set it up through your bank so when you get your paycheck it automatically puts $25 into a savings account, then you'll never have that $25 burning a hole in your pocket. If your paychecks aren't direct deposit, and you're physically cashing them when you receive them, then tell the bank teller to put $25 into your savings account. You can do it! Make sure your wife is on board and you communicate the importance of setting up a savings account and work together to make it happen. Be patient, and realize that $25 may seem like a trivial amount to put away now, but after 24 paychecks (1 year depending on pay schedule), that's $600! (Plus interest but rates are too low now to worth noting that).\"","Establish good saving and spending habits. Build up your savings so that when you do buy a car, you can pay cash. Make spending decisions, especially for housing, transportation and entertainment, that allow you to save a substantial portion of your income. The goal is to get yourself to a place where you have enough net worth that the return on your assets is greater than the amount you can earn by working. (BTW, this is basically what I did. I put my two sons through top colleges on my dime and retired six years ago at the age of 56).","While it’s your personal choice on HOW you save for later its essential that you save. My sister works in a bank and recommended me not to put any money into retirement plans since the tax-advances seem fine but have to paid back when you take the money out of the accounts (in Switzerland, don't know about the united states). Many reasons exist that you suddenly need the money: Buying a house, needing a new car, health issues or just leaving the country forever (and the government trying to make it as hard as possible for you to get your money back). I recommend putting it on a savings account on a different bank that you normally use, without any cards and so on. In short: It can be dangerous to have money locked away – especially if you could easily have it at your hands and you know you're able to manage it.","Heck no, don't spend more! I saved a ton of money when I got my first real job. You won't always be able to do this. Save a bundle while you can.","I recommend saving for retirement first to leverage compound interest over a long time horizon. The historical real return on the stock market has been about 7%. Assuming returns stay at 7% in the future (big assumption, but don't have any better numbers to go off of), then $8,000 saved today will be worth $119,795 in 40 years (1.07^40*8000). Having a sizable retirement portfolio will give you peace of mind as you progress through life and make other expenditures. If you buy assets that pay you money and appreciate, you will be in a better financial position than if you buy assets that require significant cash outflows (i.e. property taxes, interest you pay to the bank, etc.) or assets that ultimately depreciate to zero (a car). As a young person, you are well positioned to pay yourself (not the bank or the car dealership) and leverage compound interest over a long time horizon.","In addition to the issues discussed in BrenBarn's answer, I think you need to consider your medium term saving needs and existing savings. In particular, do you have a sufficient rainy day fund, a fund you will spend if things go wrong? For example, if you are dependent on a vehicle that is not covered by a guarantee or service plan, you should have enough money saved for a couple of major repairs. Depending on how secure your job is, whether it carries sick leave and long term disability, and how easy or difficult it would be to find another job in the event e.g. of your employer going bankrupt due to a downturn in your industry, you should have months to years of minimal living expenses in your rainy day fund. If you don't have those things covered, you should urgently save as much as you can until they are covered. If you do, then the next savings priority is to put money by for retirement. Of course, if all goes well the rainy day fund will ultimately get folded into retirement, but it needs to exist now, in a form you can access quickly.","Your gut feeling is absolutely spot on - you shouldn't be worrying about pension now, not at the age of 25. Assuming that you're not a footballer in the middle of the most productive part of your career and already have a fat wad of crunchy banknotes under your pillow that you're looking to set aside for a rainy day when you won't be able to play at your prime any longer. That doesn't mean you shouldn't invest, nor that means that you mustn't save. There are several factors at play here. First of all as a young person you are likely to have a high tolerance for risk, there is still plenty of time to recover should expected returns not materialise. Even a pension fund with the most aggressive risk / return strategy might just not quite do it for you. You could invest into education instead, improve health, obtain a profitable skill, create social capital by building connections, pay for experience, buy a house, start a family or even a business. Next, as a young professional you're unlikely to have reached your full earning potential yet and due to the law of diminishing marginal utility a hundred pounds per month now have greater utility (i.e. positive impact on your lifestyle) than a seven hundred pounds will in 7-10 years time once your earnings plateaued. That is to say it's easier to save £700 month from £3000 and maintain a reasonable level of personal comfort than carve £100 from £1300 monthly income. And last, but not the least, lets face it from a human point of view - forty years is a very long investment horizon and many things might and will change. One of the downsides of UK pensions is that you have very little control over the money until you reach a certain age. Tactically I suggest saving up to build a cushion consisting of cash or near cash assets; the size of the stash should be such that it is enough to cover all of your expenses from a minimum of 2 months to a maximum of a year. The exact size will depend on your personal comfort level, whatever social net you have (parents, wife, partner) and how hard it will be to find a new source of income should the current cease to produce cash. On a strategic level you can start looking into investing any surplus cash into the foundation of what will bring joy and happiness into the next 40 years of your life. Your or your partners training and education is one of the most sensible choices whilst you're young. Starting a family is another one. Both might help you reach you full earning potential much quicker. Finding what you love to do and learning how to do it really well - cash can accelerate this process bringing you quicker there you want to be. If you were a start-up business in front of a huge uncaptured market would you rather use cash to pay dividends or finance growth?","Though I do think it is important to have a diversified portfolio for your retirement, I also think it's more important to make sure you are at no point touching this money until you retire. Taking money out of your retirement early is a sure fire way to get in a bad habit of spending this money when you need a little help. Here's a tip: If you consider this money gone, you will find another way to figure out your situation. With that said, I also would rather not put a percentage on this. Start by building your emergency fund. You'll want to treat this like a bill and make a monthly payment to your savings account each month or paycheck. When you have a good nine times your monthly income in here, stop contributing to this fund. Instead start putting the same amount into your IRA instead. At this point you should no longer have to add to your emergency fund unless there is a true emergency and you are replacing that money. Keep in mind that the amount of money in your emergency fund changes significantly in each situation. Sit down with your bills and think about how much money you would need in the event you lost your job. How long would you be out of work? How many bills do you have each month that would need to be covered?","That's up to you, but I wouldn't play around with my retirement money if I was in your situation. Your earning potential during your retirement years will likely be at its nadir. Do you really want to risk being forced to be a Wal-Mart greeter when you are 80? Also, considering your earning potential now is probably at or near the peak, your opportunity cost for each hour of your life is much higher now than it will be later. So ultimately you'd be working a little harder now or a lot harder later for less money.","\"Don't mind the percentages. They are highly misleading. First, \"\"saving\"\" is making available for future use. It might be \"\"hoarding\"\", \"\"investing\"\" or a combination thereof. It might be for a specific use (a car, a college education, retirement, etc.), or for a non-specific use (for an emergency, for when you decide to spend some of those savings, or just for lack of a compelling use as of the moment). In first case, whatever you save should be available by the date you intend to use it. In second case, it might be prudent to have savings (and investments, see below) of various liquidity (cash you have at hand, bank account you can draw next day, mutual fund account you can draw in a month, maybe something you can only cash in a year etc.). You will see that the actual percentages you \"\"save\"\" fluctuate enormously throughout your life, varying with the progress of your career, changes of marital status and family cmposition, etc., etc. What you should really do is to come up with a rough plan of how you expect, from right now and to the end of your life at whatever age, have enough money for whatever level of comfort you plan for each period of your life, allowing for some specified level of perturbations. Then you just execute that plan or change it as you go.\"","\"I wrote a spreadsheet (<< it may not be obvious - this is a link to pull down the spreadsheet) a while back that might help you. You can start by putting your current salary next to your age, adjust the percent of income saved (14% for you) and put in the current total. The sheet basically shows that if one saves 15% from day one of working and averages an 8% return, they are on track to save over 20X their final income, and at the 4% withdrawal rate, will replace 80% of their income. (Remember, if they save 15% and at retirement the 7.65% FICA /medicare goes away, so it's 100% of what they had anyway.) For what it's worth, a 10% average return drops what you need to save down to 9%. I say to a young person - try to start at 15%. Better that when you're 40, you realize you're well ahead of schedule and can relax a bit, than to assume that 8-9% is enough to save and find you need a large increase to catch up. To answer specifically here - there are those who concluded that 4% is a safe withdrawal rate, so by targeting 20X your final income as retirement savings, you'll be able to retire well. Retirement spending needs are not the same for everyone. When I cite an 80% replacement rate, it's a guess, a rule of thumb that many point out is flawed. The 'real' number is your true spending need, which of course can be far higher or lower. The younger investor is going to have a far tougher time guessing this number than someone a decade away from retiring. The 80% is just a target to get started, it should shift to the real number in your 40s or 50s as that number becomes clear. Next, I see my original answer didn't address Social Security benefits. The benefit isn't linear, a lower wage earner can see a benefit of as much as 50% of what they earned each year while a very high earner would see far less as the benefit has a maximum. A $90k earner will see 30% or less. The social security site does a great job of giving you your projected benefit, and you can adjust target savings accordingly. 2016 update - the prior 20 years returned 8.18% CAGR. Considering there were 2 crashes one of which was called a mini-depression, 8.18% is pretty remarkable. For what it's worth, my adult investing life started in 1984, and I've seen a CAGR of 10.90%. For forecasting purposes, I think 8% long term is a conservative number. To answer member \"\"doobop\"\" comment - the 10 years from 2006-2015 had a CAGR of 7.29%. Time has a way of averaging that lost decade, the 00's, to a more reasonable number.\"","There is no right answer here, one has to make the choice himself. Its best to have an emergency fund before you start to commit funds to other reasons. The plan looks good. Keep following it and revise the plan often.","I was asking myself the exact same thing. And i have come to the conclusion that most of your money should be invested, In index etfs and maybe some bond etfs too. If Inflation is about 2% and the interest you make in a savings account is less than 1%. Your actually loosing money in a savings account. Keep a few thousand bucks in your savings account and the majority invested and working for you.","The 10K in savings and money market is equal to about 1.5 months of income for emergency funds. You should add additional funds to this account over the next few years to let that increase to 3 to 6 months of monthly expenses. This money should be kept secure so that it will be there when you need it. Growth is not the primary function for this account. Investment at this stage should be for retirement. This means take advantage of 401K matching if it is available. You will have to determine if Roth or regular makes the most sense for you. In general the lower your current tax bracket the more sense Roth makes for you. If you want an IRA again decide which type. Also remember that you have until the tax deadline to make a contribution so you can decide to use a refund to fund the IRA. IRAs and 401Ks are just account types with some rules attached. They can be invested in everything from CD's to individual stocks depending on how aggressive you want to be.","It's time she look into what employer provided retirement plan she can use. She's at the point where she should think about investing for the long term, with retirement in mind.","Not 100% related, but the #1 thing you need to avoid is CREDIT CARD DEBT. Trust me on this one. I'm 31, and finally got out of credit card debt about eight months ago. For just about my entire 20s, I racked up credit card debt and saved zero. Invested zero. It pains me to realize that I basically wasted ten years of possible interest, and instead bought a lot of dumb things and paid 25% interest on it. So yes, put money into your 401k and an IRA. Max them out.","\"The most important thing is to start. Don't waste months and years trying to figure out the \"\"optimal\"\" strategy or trying to read all the best books before you start. Pick a solid, simple choice, like investing in your company sponsored 401(k), and do it today. This I Will Teach You To Be Rich post on barriers has some good insight on this.\"","With $800/month extra? Do both. (I am ethnocentric enough to assume you live in the same country as me) First, figure out what your emergency fund should look like. Put this money in a high yield checking or savings account. Add to it monthly until you reach your goal. It should be 3 to 6 months of your total monthly expenses. It will be a lot more than $2k I suspect. You will earn bubkis in interest, but the point of the emergency fund is a highly liquid asset for emergencies so you can choose cheaper car insurance and not buy warranties on stuff. With your $800/month, split it up this way: $416/month into a Roth IRA account at Vanguard (or Schwab or Fidelity) in the Star Fund (or similar low cost, diversified fund). The star is $1000 to open, pretty diversified. $416 is a lazy number that comes close to the $5000 annual limit for a Roth IRA in the US. Contribute like clockwork, directly from your paycheck if you can. This will make it easy to do and get you the benefit of dollar cost averaging. $200 or $300 into your savings account until you reach your emergency fund goal. $85 - $100. Live a little. Speculate in stocks with your vanguard account. Or rent fancy cars. Or taken a vacation or go party. If you are saving $800/month in your early 20 be proud of yourself, but have a little fun too so you can let off steam. It isn't much but you know you can play with it. Once you reach your emergency fund, save up for your future house or car or plane tickets to Paris. Ask another question for how to save up for these kinds of goals.","Does anyone have any good resources for starting up learning about savings, finances, etc? I'm 20 years old and want to begin really saving consistently and learning about 401Ks, IRAs, savings accounts, how to grow your money safely and slowly, etc. I'm mainly looking for a website or application that will help me budget and organize things. A phone app would be nice. And any subreddit where I could learn about these things would be extremely helpful too.","At twenty-two, you can have anywhere between 100%-70% of your securities portfolio in equities. It is reasonable to start at 100% and reduce over time. The one thing that I would mention with that is that your target at retirement should be 70% stocks/30% bonds. You should NEVER have more than 30% bonds. Why? Because a 70/30 mix is both safer than 100% bonds and will give a higher return. Absent some market timing strategy (which as an amateur investor, you should absolutely avoid) or some complicated balancing scheme, there is never a reason to be at more than 30% bonds. A 50/50 mix of stocks and bonds or a 100% bonds ratio not only returns less than the 70/30 mix, it is actually riskier. Why? Because sometimes bonds fall. And when they do, stocks generally gain. And vice versa. Because of this behavior, the 70/30 mix is less likely to fall than 50% or 100% bonds. Does that mean that your stock percentage should never drop below 70%? No. If your portfolio contains things other than stocks and bonds, it is reasonable for stocks to fall below 70%. The problem is that when you drop stocks below 70%, you should drop bonds below 30% as well. So you keep the stock to bond ratio at 7:3. If you want to get a lower risk than a 70/30 mix, then you should move into cash equivalents. Cash equivalents are actually safer than stocks and bonds either individually or in combination. But at twenty-two, you don't really need more safety. At twenty-two, the first thing to do is to build your emergency fund. This should be able to handle six months of expenses without income. I recommend making it equal to six months of your income. The reason being that it is easy to calculate your income and difficult to be sure of expenses. Also, you can save six months of income at twenty-two. Are you going to stay where you are for the next five years? At twenty-two, the answer is almost certainly no. But the standard is the five year time frame. If you want a bigger place or one that is closer to work, then no. If you stay somewhere at least five years, then it is likely that the advantages to owning rather than renting will outweigh the costs of switching houses. Less than five years, the reverse is true. So you should probably rent now. You can max out your 401k and IRA now. Doing so even with a conservative strategy will produce big returns by sixty-seven. And perhaps more importantly, it helps keep your spending down. The less you do spend, the less you will feel that you need to spend. Once you fill your emergency fund, start building savings for a house. I would consider putting them in a Real Estate Investment Trust (REIT). A REIT will tend to track real estate. Since you want to buy real estate with the results, this is its own kind of safety. It fell in value? Houses are probably cheap. Houses increasing in price rapidly? A REIT is probably growing by leaps and bounds. You do this outside your retirement accounts, as you want to be able to access it without penalty.","For a young person with good income, 50k sitting in a savings account earning nothing is really bad. You're losing money because of inflation, and losing on the growth potential of investing. Please rethink your aversion to retirement accounts. You will make more money in the long run through lower taxes by taking advantage of these accounts. At a minimum, make a Roth IRA contribution every year and max it out ($5500/yr right now). Time is of the essence! You have until April 15th to make your 2014 contribution! Equities (stocks) do very well in the long run. If you don't want to actively manage your portfolio, there is nothing wrong (and you could do a lot worse) than simply investing in a low-fee S&P 500 index fund.","You don't have to retire. But the US government and other national governments have programs that allow you to set aside money when you are young to be used when you are older. To encourage you to do this, they reduce your taxes either now or when your are older. They also allow your employer to match your funds. In the US they have IRAs, 401Ks, and Social Security. You are not required to stop working while tapping into these funds. Having a job and using these funds will impact your taxes, but your are not forbidden from doing both. Decades ago most retirement funds come from pensions and Social Security. Most people are going to reach their senior years without a pension, or with only a very small pension because they had one in one of their early jobs. So go ahead, gamble that you will not need to save for retirement. Then hope that decades later you were right about it, because you can't go back in time and fix your choice. Some never save for retirement, either because they can't or they think they can't. Many that don't save end up working longer than they imagined. Some work everyday until they die, or are physically unable to work. Sometimes it is because they love the job, but often it is because they cannot afford to quit.","You are asking all the right questions. I predict a bright future! In addition to the excellent advice from Phil, I would add that NOW is the time to think about investing. If you have not yet started a retirement account, open up a Roth IRA and max it out ($5.5k in 2014) every year. The time value of money is strong and you will be thanking yourself in 40 years for starting now. Yes, paying down debt is important, and you should do that, too. It's a balance. If you get converted to a full-time employee, take part in any retirement plan they offer, and max out any matching because it's free money.","If you are earning a salary, go for Roth IRA. You can contribute $5500 (2013 limits) every year . Once you open a account , let say Fidelity or Vanguard, you should invest based on risk appetite into some funds. the advantage is that your money grows tax free and when you are 25- 30 years old and need money for down payment of house, you can pull the money out with out any penalty. The gains you have made will continue to be in that account till the time your retire, growing every year.","\"My father imparted this advice to me when I was a teenager, and it hasn't failed me yet. > Pay yourself first What this means is that the first \"\"bill\"\" you pay should always be your savings. Preferably in a way that automatically comes out of your paycheck or account without requiring you to take an active step to make it happen. I save a ton of money, but I am no more disciplined than anyone else. I just realized that over the years of progressing in my career that I gradually got higher and higher salaries, yet never had a substantial increase in the money I had leftover in my bank at the end of the month despite the fact that I make about 8x the money I used to live reasonably comfortably on. Therein is the point, we spend whatever money we see, so you almost have to hide it from yourself. First, participate to the fullest in your company's 401k if they offer it. After a while you will adjust naturally to the net take home pay and won't miss the savings you are accumulating. Absent that, or in addition to that, set up a separate bank or investment account and arrange an automatic transfer from your checking account every month. Then set up automatic investing in CD's or some other less-liquid-than-cash investment so you it is just enough hassle to get at the money that you won't do it on a whim. It sounds too simple, but it works.\"","\"Your question is very broad. Whole books can and have been written on this topic. The right place to start is for you and your wife to sit down together and figure out your goals. Where do you want to be in 5 years, 25 years, 50 years? To quote Yogi Berra \"\"If you don't know where you are going, you'll end up someplace else.\"\" Let's go backwards. 50 Years I'm guessing the answer is \"\"retired, living comfortably and not having to worry about money\"\". You say you work an unskilled government job. Does that job have a pension program? How about other retirement savings options? Will the pension be enough or do you need to start putting money into the other retirement savings options? Career wise, do you want to be working as in unskilled government jobs until you retire, or do you want to retire from something else? If so, how do you get there? Your goals here will affect both your 25 year plan and your 5 year plan. Finally, as you plan for death, which will happen eventually. What do you want to leave for your children? Likely the pension will not be transferred to your children, so if you want to leave them something, you need to start planning ahead. 25 Years At this stage in your life, you are likely talking, college for the children and possibly your wife back at work (could happen much earlier than this, e.g., when the kids are all in school). What do you want for your children in college? Do you want them to have the opportunity to go without having to take on debt? What savings options are there for your children's college? Also, likely with all your children out of the house at college, what do you and your wife want to do? Travel? Give to charity? Own your own home? 5 Years You mention having children and your wife staying at home with them. Can your family live on just your income? Can you do that and still achieve your 50 and 25 year goals? If not, further education or training on your part may be needed. Are you in debt? Would you like to be out of debt in the next 5-10 years? I know I've raised more questions than answers. This is due mostly to the nature of the question you've asked. It is very personal, and I don't know you. What I find most useful is to look at where I want to be in the near, mid and long term and then start to build a plan for how I get there. If you have older friends or family who are where you want to be when you reach their age, talk to them. Ask them how they got there. Also, there are tons of resources out there to help you. I won't suggest any specific books, but look around at the local library or look online. Read reviews of personal finance books. Read many and see how they can give you the advice you need to reach your specific goals. Good luck!\"","I encourage using it as a buffer. After h.s. I had a thousand or so dollars saved up in my savings account. After college it was maybe 5 thousand and it's remained roughly like that ever since. I figure any modest emergency or spending splurge may cost, at most, a couple thousand bucks. I'm talking about a new couch, a car accident, hospital bill, vacation to wherever, etc. It's nice to have an idea of a buffer. Financial advisors say to have a buffer of about 3 months of salary. This is in case of unemployment and such. It was smart for me. I wouldn't try to spend money to make money at this point. It's not enough money to try to see a significant gain unless you're lucky. I tried Sharebuilder a while ago with $200 to see what stocks were like. They gave you several free trades to see how you liked it. At first I was shuffling stuff a little too much and once the fees start kicking in it's 7 bucks here, 7 bucks there- eventually I realized you have to invest enough to offset the transfer fees and the fact that you have your money tied up in something going up and down all the time. But yeah. Start with a buffer and scale it up as your lifestyle changes. Anything beyond your buffer is spending money, investing money, fun money."],"string":"[\n \"While there is no age limit, bear in mind that saving money makes sense only if it doesn't delay your paying off expensive debt. If you have credit cards or expensive loans you would be best placed to focus on paying them down before saving a lot. If you save and keep debt, you'll effectively lose money as the interest on your debt will usually be higher than you can earn on savings. Having said that, it's worth saving a small amount anyway to have as an emergency fund. As you pay off your debt, start saving the money you no longer have to pay out and it will soon pay dividends.\",\n \"There is no age-limit, in fact the sooner you start the better - the sooner the money starts to compound.\",\n \"I would say start now, its never too early! It does add up over time and even if it is just a tiny amount, just getting in the habit of setting aside money is great. Looking back i wish i had started earlier instead of pushing it back. There will always be something to spend it on pushing it back whether its college or a car ect. Start now and thank yourself later.\",\n \"As all said, the age limitation thing is nothing, and saving money not necessarily means to live poor nor Skimpy, spend your needs and try to get what you need instead of what you want, the 24 years old is a good start for saving money, the whole life still in front of you Good luck!\",\n \"\\\"The only time to stop saving money for retirement is when you have enough money to retire tomorrow. Not all of your \\\"\\\"retirement savings\\\"\\\" need to be in a 401k, it is just better if you can. Be sure to get as much as you can from the employer matching program. Unfortunately some employer matching programs discourage you from putting in too much. I've been able to max out the 401k contribution a number of times, which helps. Remember: you are likely to live to 100, so you better save enough to live that long. I don't trust social security to be there. I recommend saving so that you end up with \\\"\\\"enough to be comfortable\\\"\\\" -- this is usually about 25x your current income - PLUS inflation between now and when you plan to retire (age 62 is a good target). It is worth knowing your \\\"\\\"retirement savings number\\\"\\\". If you are making $100K per year now, you need to target $2.5M - PLUS allowance for inflation between now and when you plan to retire. This usually means you need to also arrange to make more money as well as save as much as you can and to use passive investing. Finance advisors are not worth it if you have less than $1M to invest.\\\"\",\n \"Start now. It's a lot easier to save now than it is to start to save later.\",\n \"You should be trying to save 10% of your income from an early age. You can live well now and enjoy life within your means now, instead of trying to keep up with the Jones. Do you need to live in a larger house (when you can't really afford it) because it is more comfortable or because you want to show it off in front of your family and friends? You can live and enjoy life and eat well now and still save enough to have a comfortable retirement, just spend your money now on the things you enjoy, not things you see others enjoying.\",\n \"It's nearly always a good idea to save for your future, if you don't already have sufficient funds to see out the rest of your days. The hardest part of the saving decision is knowing exactly what portion of your funds to save. If we save too aggressively, we risk having an adverse impact on our everyday life and, of course, there's always the possibility that we'll never make it to old age. But if we don't save, we risk the prospect of a poverty stricken retirement. It's not always easy to find a balance. The best solution is to make so much money that we cannot possibly spend it all!\",\n \"The stock market at large has about a 4.5% long-term real-real (inflation-fees-etc-adjusted) rate of return. Yes: even in light of the recent crashes. That means your money invested in stocks doubles every 16 years. So savings when you're 25 and right out of college are worth double what savings are worth when you're 41, and four times what they're worth when you're 57. You're probably going to be making more money when you're 41, but are you really going to be making two times as much? (In real terms?) And at 57, will you be making four times as much? And if you haven't been saving at all in your life, do you think you're going to be able to start, and make the sacrifices in your lifestyle that you may need? And will you save enough in 10 years to live for another 20-30 years after retirement? And what if the economy tanks (again) and your company goes under and you're out of a job when you turn 58? Having tons of money at retirement isn't the only worthy goal you can pursue with your money (ask anyone who saves money to send kids to college), but having some money at retirement is a rather important goal, and you're much more at risk of saving too little than you are of saving too much. In the US, most retirement planners suggest 10-15% as a good savings rate. Coincidentally, the standard US 401(k) plan provides a tax-deferred vehicle for you to put away up to 15% of your income for retirement. If you can save 15% from the age of 20-something onward, you probably will be at least as well-off when you retire as you are during the rest of your life. That means you can spend the rest on things which are meaningful to you. (Well, you should also keep around some cash in case of emergencies or sudden unemployment, and it's never a good idea to waste money, but your responsibilities to your future have at least been satisfied.) And in the UK you get tax relief on your pension contribution at your income tax rate and most employers will match your contributions.\",\n \"Start as early as possible and you will want to kiss your younger self when you get to retirement age. I know you (and everyone else at that age) thinks that they don't make enough to start saving and leans towards waiting until you get established in your career and start making better money. Don't put it off. Save some money out of each paycheck even if it is only $50. Trust me, as little as you make now, you probably have more disposable income than you will when you make twice as much. Your lifestyle always seems to keep up with your income and you will likely ALWAYS feel like you don't have money left over to save. The longer you wait, the more you are going to have to stuff away to make up for that lost time you could have been compounding your returns as shown in this table (assuming 9.4 percent average gain annually, which has been the average return on the stock market from 1926-2010). I also suggest reading this article when explains it in more detail: Who Wants to be a millionaire?\",\n \"Start as soon as you can and make your saving routine. Start with whatever you feel comfortable with and be consistent. Increase that amount with raises, income gains, and whenever you want.\",\n \"Are you working? Does your employer offer a 401(k) and if so, is there any match? Saving should be taught to kids at the same time they are old enough to get an allowance. There are many numbers tossed around, but 10% is a start for any new saver. If a college graduate can start by saving even 15%, better still. If you find that the 10% is too much, just start with what you can spare, and work to build that up over time, perhaps by splitting any future raises, half going toward savings, half to spending. Good luck. Edit - my 12 yr old made good money this summer baby sitting. I'm opening a Roth IRA for her. A 10 yr head start on her retirement savings. Edit (Jan-2013) - she's 14 now, 3 deposits to the Roth total $6000, and she's planning to up the number this year. Her goal is to have $50K saved in her Roth by the time she graduates college. Edit, by request (July-2017) 18, and off to college next month. Just under $24K, all invested in an S&P low cost index. We are planning to continue deposits of $4-$5K/yr, so the $50K is still a good goal.\",\n \"Saving some money for the future is a good idea. But how much to save is a tough question. I retired with a small fraction of what the experts said I would need. Three years later, I can confidently say I did not even need what I had saved.\",\n \"As AskAboutGadgets notes, there's no lower age limit. You current age (24) is a pretty good one; you'll have four decades or so for your money to grow and compound, allowing it to become a veritable fortune when you're ready to retire if you invest it fairly aggressively.\",\n \"You will find lots of rules of thumb but there is no universal truth to how much you should save. There are factors you DO need to consider though: you should start as early as possible to set money aside for retirement. You should then use a retirement calculator to at least get an understanding of the amount you need to set aside each month to achieve the desired retirement income; your default should be not to spend money and only spend money when you must. Leisure, travel and eating out should come last after you have saved up; you should have funds for different terms. For example, my wife and I have an emergency fund for unexpected expenses or losses in income. The rule of thumb here generally is to have 3-6 months of salary saved up. A longer term fund should be created for larger expenses like buying a car or preparing the cashdown on a property. Finally, the retirement fund which should cover your needs after you have retired.\",\n \">But on the bright side, the most common decade for people to start saving is in their 20s. Twice as many 30 to 49 year olds said they started saving in their 20s instead of their 30s, while the 50 to 64 age group was “only slightly more likely” to have started saving in their 20s over their 30s, according to the report, which surveyed 1,003 adults living in the continental U.S. So they are basing their analysis of how early people start saving purely by studying people in their 30s and 40s with those in their 50s and 60s. They don't compare either of those age groups with those in their 20s and 30s to see how things have changed?\",\n \"There is no absolute answer to this as it depends on your particular situation, but some tips: As to investing versus saving, you need to do some of both: Be careful about stockpiling too much in bank accounts. Inflation will eat that money up over time to the tune of 3-4%/year. You are young and have a longer investment horizon for retirement, take advantage of that and accept a little more risk while you can.\",\n \"Saving for retirement is important. So is living within one's means. Also--wear your sunscreen every day, rain or shine, never stop going to the gym, stay the same weight you were in high school, and eat your vegetables if you want to pass for 30 when you are 50.\",\n \"Yes, you should be saving for retirement. There are a million ideas out there on how much is a reasonable amount, but I think most advisor would say at least 6 to 10% of your income, which in your case is around $15,000 per year. You give amounts in dollars. Are you in the U.S.? If so, there are at least two very good reasons to put money into a 401k or IRA rather than ordinary savings or investments: (a) Often your employer will make matching contributions. 50% up to 6% of your salary is pretty common, i.e. if you put in 6% they put in 3%. If either of your employers has such a plan, that's an instant 50% profit on your investment. (b) Any profits on money invested in an IRA or 401k are tax free. (Effectively, the mechanics differ depending on the type of account.) So if you put $100,000 into an IRA today and left it there until you retire 30 years later, it would likely earn something like $600,000 over that time (assuming 7% per year growth). So you'd pay takes on your initial $100,000 but none on the $600,000. With your income you are likely in a high tax bracket, that would make a huge difference. If you're saying that you just can't find a way to put money away for retirement, may I suggest that you cut back on your spending. I understand that the average American family makes about $45,000 per year and somehow manages to live on that. If you were to put 10% of your income toward retirement, then you would be living on the remaining $171,000, which is still almost 4 times what the average family has. Yeah, I make more than $45,000 a year too and there are times when I think, How could anyone possibly live on that? But then I think about what I spend my money on. Did I really need to buy two new computer printers the last couple of months? I certainly could do my own cleaning rather than hiring a cleaning lady to come in twice a month. Etc. A tough decision to make can be paying off debt versus putting money into an investment account. If the likely return on investment is less than the interest rate on the loan, you should certainly concentrate on paying off the loan. But if the reverse is true, then you need to decide between likely returns and risk.\",\n \"Great question and great of you to be paying attention to this. Right now having the ability to save $2K per year might seem very out of reach. However with the right career path and by paying attention to personal finance saving 2K per month will become possible sooner than you may think. As a student you are already investing in your future, by building your greatest wealth building tool: your income. Right now concentrate on that. If you have extra money throw it in a boring old savings account and don't touch it other than emergencies. An emergency is defined as something that will preclude you from completing your education. It is not paying for the latest xbox game/skateboard/once in a lifetime trip. An important precursor to investing is having an emergency fund that sits in a boring old savings account earning almost nothing. Think of it as an insurance policy that prevents you from liquidating your investments in case of and emergency. Emergencies often come during economic downturns. If you have to liquidate your investment to cover these times then you will lock in negative returns. Once you are done with school, moved into a place of your own, and have your first job you will have a nice start on your emergency fund. Then you can start investing. Doing it in the right order you will be amazed how quickly your savings can accumulate. I'd be shooting for that 2 million by the time you are 40, not 65.\",\n \"So don't retire. But plan like you will retire. I am sure that some billionaire put some money away into a pension, 401K, or IRA for their retirement when they were young. It turns out they never had to worry about outliving their money. The next few paragraphs use United States examples. What happens if you have to retire, but you never saved. All the matching funds you could have collected in a 401K are gone, they disappeared with every paycheck you didn't contribute. Every year you didn't contribute to an IRA can never be replayed. You gave up the magic of compounding, because you thought you would never want to retire. If you save but don't need it, you will have more money to play with as you cut back your hours to part time. If you skip all the plans that make it hard to spend the money until you are 59 1/2, you can still save, but it takes even more discipline to not spend it before you are old.\",\n \"You've never saved money? Have you ever bought anything? There probably was a small window of time that you had to pool some cash to buy something. In my experience, if you make it more interesting by 'allocating money for specific purposes' you'll have better results than just arbitrarily saving for a rainy day. Allocate your money for different things (ie- new car, emergency, travel, or starting a new business) by isolating your money into different places. Ex- your new car allocation could be in a savings account at your bank. Your emergency allocation can be in cash under your bed. Your new business allocation could be in an investment vehicle like a stocks where it could potentially see significant gains by the time you are ready to use it. The traditional concept of savings is gone. There is very little money to be earned in a savings account and any gains will be most certainly wiped out by inflation anyway. Allocate your money, allocate more with new income, and then use it to buy real things and fund new adventures when the time is right.\",\n \"James, money saved over the long term will typically beat inflation. There are many articles that discuss the advantage of starting young, and offer: A 21 year old who puts away $1000/yr for 10 years and stops depositing will be ahead of the 31 yr old who starts the $1000/yr deposit and continues through retirement. If any of us can get a message to our younger selves (time travel, anyone?) we would deliver two messages: Start out by living beneath your means, never take on credit card debt, and save at least 10%/yr as soon as you start working. I'd add, put half your raises to savings until your rate is 15%. I can't comment on the pension companies. Here in the US, our accounts are somewhat guaranteed, not for value, but against theft. We invest in stocks and bonds, our funds are not mingled with the assets of the investment plan company.\",\n \"If you can afford it, there are very few reasons not to save for retirement. The biggest reason I can think of is that, simply, you are saving in general. The tax advantages of 401k and IRA accounts help increase your wealth, but the most important thing is to start saving at an early age in your career (as you are doing) and making sure to continue contributing throughout your life. Compound interest serves you well. If you are really concerned that saving for retirement in your situation would equate to putting money away for no good reason, you can do a couple of things: Save in a Roth IRA account which does not require minimum distributions when you get past a certain age. Additionally, your contributions only (that is, not your interest earnings) to a Roth can be withdrawn tax and penalty free at any time while you are under the age of 59.5. And once you are older than that you can take distributions as however you need. Save by investing in a balanced portfolio of stocks and bonds. You won't get the tax advantages of a retirement account, but you will still benefit from the time value of money. The bonus here is that you can withdraw your money whenever you want without penalty. Both IRA accounts and mutual fund/brokerage accounts will give you a choice of many securities that you can invest in. In comparison, 401k plans (below) often have limited choices for you. Most people choose to use their company's 401k plan for retirement savings. In general you do not want to be in a position where you have to borrow from your 401k. As such it's not a great option for savings that you think you'd need before you retire. Additionally 401k plans have minimum distributions, so you will have to periodically take some money from the account when you are in retirement. The biggest advantage of 401k plans is that often employers will match contributions to a certain extent, which is basically free money for you. In the end, these are just some suggestions. Probably best to consult with a financial planner to hammer out all the details.\",\n \"One opinion related to savings is to save 30% of your take home salary every month, split the amount into two parts depending on your age (29) one part would be 30% of 30% and another 70% of 30%. Take the 70% and buy blue chip stock and take the 30% and buy govt. bonds. Each 10 years adjust the percentages at 40, 40% on bonds and 60% on stock. Only cash out on the day you retire, otherwise ignore all market/economic movements. With this and the statutory savings (employment retirement) you should be ok.\",\n \"\\\"The most important thing is not to tell yourself \\\"\\\"I'll save more later in my career when I have more disposable income,\\\"\\\" because of two factors. 1) You will get raises over your career, but unless you make it big, it will never really feel like you have extra money. You may double or triple your salary over a career, but it usually happens in small increments which your lifestyle tends to adjust upwards to meet even though it doesn't feel like it. 2) Later in your career you may have more money to save, but now the commodity you have is time. Your total savings at retirement are going to be influenced in a massive way by both of these factors. A good strategy is save SOMETHING early in your career even if it feels like an insignificant amount. Then save larger amounts later in your career when you are earning more, but have less time for your investments to grow and less tolerance for high risk/high growth investments.\\\"\",\n \"Are you sure the question even makes sense? In the present-day world economy, it's unlikely that someone young who just started working has the means to put away any significant amount of money as savings, and attempting to do so might actually preclude making the financial choices that actually lead to stability - things like purchasing [the right types and amounts of] insurance, buying outright rather than using credit to compensate for the fact that you committed to keep some portion of your income as savings, spending money in ways that enrich your experience and expand your professional opportunities, etc. There's also the ethical question of how viable/sustainable saving is. The mechanism by which saving ensures financial stability is by everyone hoarding enough resources to deal with some level of worst-case scenario that might happen in their future. This worked for past generations in the US because we had massive amounts (relative to the population) of (stolen) natural resources, infrastructure built on enslaved labor, etc. It doesn't scale with modern changes the world is undergoing and it inherently only works for some people when it's not working for others. From my perspective, much more valuable financial skills for the next generation are:\",\n \"Similarly, too much long term investment seems unproductive, but what would be too much? In 1900, the life expectancy of someone in the United States was less than 50. It is now in the 70s. My grandparents were born around that time and all lived into their 80s and 90s. Life expectancy in India is currently about 66. You should expect that to increase into the 70s if not the 80s in the next fifty years. You should plan on living until 120. Why? If you die earlier than that, you may have wasted some money that you could have used for a better living standard. However, if you do live that long and you spent all your savings by the time that you were 66, you'll have a hard retirement. You've already said that you won't have descendants to take care of you. You'll need your investments to do so. You need long term investments more than someone with a family, not less. You need to able to afford a house for retirement. You need to be able to maintain it, buy food, etc. on your savings. In order to be sure it lasts, you need to build your long term investments until they produce a steady income that comes close to matching your preretirement income. There are some costs that you won't have in retirement. You won't need to save for retirement. You won't need to commute to work. So your retirement income doesn't need to support that. If I were you, I'd save like everyone else until income from investments matched my current expenses minus commuting. At that time, you can readjust. Overall, you are far more likely not to save enough than too much. I wouldn't worry about oversaving in your twenties. No one actually does so.\",\n \"It's never too early, but age 3 is when we started a piggy bank. Age 4 is when we opened a bank account. When you go shopping with your children, discuss what items cost (such as bread, milk, books, etc.) Start teaching them that everything has a value...then relate it to how much they have saved. Kids need to learn 3 basic things from their parents: how to save/invest, how to spend wisely, how to share/donate\",\n \"For a more philosophical way to approach this, consider money saved as the opposite of money owed: This philosophy works for things which you may be able to borrow for (computer, car, house), but also for things you can't borrow for (retirement, giving to your kids, etc.). As others have mentioned, the 10% suggestion is for retirement, but the actual number depends on your lifestyle. As you can see in this chart, saving 10% of your income means you'll need to work for 51.4 years.\",\n \"The compound interest argument is a good one. While you are young, it is important to save, since time is on your side for compounding of interest. I think the 401K is a good idea, but not for all of your savings. Think about saving a percentage of your income, but put it in a couple places. Your Roth is also a great thing, since you'll be able to remove money without paying tax again. The 401k (tax deferred) is a good idea if your company matches any of it (FREE MONEY!), and because it lowers your taxable income now, and it's taken out of your check before you see it, so you don't miss it. It's still important to save other money that you can have for ready cash (unexpected dead car, for example, or medical bills, or what have you.) I find that I don't want to be managing my investments from minute to minute, or doing my own trades (I'd rather do other things), so I have a mix (Roth, 401k, cash savings) of automated contributions for savings, and I think hard before buying new stuff. The point is to save, and if possible, try to save at least 10% of your income.\",\n \"\\\"There is a basic difference between saving for voluntary retirement (i.e. choosing to do things other than work even though you could still work) and the need to save for later in life in general. Regardless of how much you like your job, a time will eventually come when you are no longer able to work, and you will need an alternate source of income to live from at that point. Unfortuately, this is also the time when most people generally have the highest medical bills as well, and may need other services such as long-term nursing home care. So even if you plan to work as long as possible, a retirement fund is an excellent way to plan for these needs as it is tax-advantaged and many companies offer matching contributions. I would simply recommend that you see \\\"\\\"retirement accounts\\\"\\\" as a good way to accomplish your goals - you don't have to use them to create a \\\"\\\"typical\\\"\\\" retirement. Once you've taken advantages of the match and tax subsidies, you may also wish to consider saving for an annuity. Fees can be high, so you will need to do your homework (generally, you want to wait and buy an immediate annuity), but this is another way to turn savings into guaranteed income once you need to stop working. Best of luck!\\\"\",\n \"On average, you should be saving at least 10-15% of your income in order to be financially secure when you retire. Different people will tell you different things, but really this can be split between short term savings (cash), long term savings (401ks, IRAs, stocks & bonds), and paying down debt. That $5k is a good start on an emergency fund, but you probably want a little more. As justkt said, 6 months' worth is what you want to aim for. Put this in a Money Market account, where you'll earn a little more interest but won't be penalized from withdrawing it when its needed (you may have to live off it, after all). Beyond that, I would split things up; if possible, have payroll deductions going to a broker (sharebuilder is a good one to start with if you can't spare much change), as well as an IRA at a bank. Set up a separate checking account just for rent and utilities, put a month's worth of cash in there, and have another payroll deduction that covers your living expenses + maybe 5% put in there automatically. Then, set up automatic bill payments, so you don't even have to think about it. Check it once a month to make sure there aren't any surprises. Pay off your credit cards every month. These are, by far, the most expensive forms of credit that most people have. You shouldn't be financing large purchases with them (you'll get better rates by taking a personal loan from a bank). Set specific goals for savings, and set up automatic payroll deductions to work towards them. Especially for buying a house; most responsible lenders will ask for 20% down. In today's market, that means you need to write a check for $40k or $50k. While it's tempting to finance up to 100% of the property value, it's also risky considering how volatile markets can be. You don't want to end up owing more on the property than it's worth two years down the road. If you find yourself at the end of the month with an extra $50 or so, consider your savings goals or your current debt instead of blowing it on a toy. Especially if you have long term debt (high balance credit cards, vehicle or property loans), applying that money directly to principal can save you months (or years) paying it back, and hundreds or thousands of dollars of interest (all depending on the details of the loan, of course). Above all, have fun with it :) Think of your personal net worth as you do your Gamer score on the XBox, and look for ways to maximize it with a minimum of effort or investment on your part! Investing in yourself and your future can be incredibly rewarding emotionally :)\",\n \"Does your employer provide a matching contribution to your 401k? If so, contribute enough to the 401k that you can fully take advantage of the 401k match (e.g. if you employer matches 3% of your income, contribute 3% of your income). It's free money, take advantage of it. Next up, max out your Roth IRA. The limit is $5000 currently a year. After maxing your Roth, revisit your 401k. You can contribute up to 16,500 per year. You savings account is a good place to keep a rainy day fund (do you have one?), but it lacks the tax advantages of a Roth IRA or 401k, so it is not really suitable for retirement savings (unless you have maxed out both your 401k and Roth IRA). Once you have take care of getting money into your 401k and Roth IRA accounts, the next step is investing it. The specific investment options available to you will vary depending on who provides your retirement account(s), so these are general guidelines. Generally, you want to invest in higher-risk, higher-return investments when you are young. This includes things like stocks and developing countries. As you get older (>30), you should look at moving some of your investments into things that less volatile. Bond funds are the usual choice. They tend to be safer than stocks (assuming you don't invest in Junk bonds), but your investment grows at a slower rate. Now this doesn't mean you immediately dump all of your stock and buy bonds. Rather, it is a gradual transition over time. As you get older and older, you gradually shift your investments to bond funds. A general rule of thumb I have seen: 100 - (YOUR AGE) = Percentage of your portfolio that should be in stocks Someone that is 30 would have 70% of their portfolio in stock, someone that is 40 would have 60% in stock, etc. As you get closer to retirement (50s-60s), you will want to start looking at investments that are more conservatie than bonds. Start to look at fixed-income and money market funds.\",\n \"\\\"The power of compounding interest and returns is an amazing thing. Start educating yourself about investing, and do it -- there are great Q&As on this site, numerous books (I recommend \\\"\\\"The Intelligent Investor\\\"\\\", tools for small investors (like Sharebuilder.com) and other resources out there to get you started. Your portfolio doesn't need to include every dime you have either. But you do need to develop the discipline to save money -- even if that savings is $20 while you're in school. How you split between cash/deposit account savings and other investment vehicles is a decision that needs to make sense to you.\\\"\",\n \"In addition to what others have said, I think it is important to consider that government retirement assistance (whatever it is called in each instance) is basically a promise that can be revoked. I talked to a retired friend of mine just yesterday and we got onto that subject; she mentioned that when she was young, the promise was for 90% of one's pay, paid by the government after retiring. It is very different today. Yes, you can gamble that you won't need the saved money, and thus decide not to save anything. What then if you do end up needing the money you did not set aside, but rather spent? You are just now graduating college, and assuming of course that you get a decently-paying job, are likely going to have loads more money than you are used to. If you make an agreement with yourself to set aside even just 10-15% of the difference in income right from the start, that is going to grow into a pretty sizable nest egg by the time you approach retirement age. Then, you will have the option of continuing to work (maybe part-time) or quitting in a way you would not have had otherwise. Now I'm going to pull numbers out of thin air, but suppose that you currently have $1000/month net, before expenses, and can get a job that pays $1800/month net starting out. 10-15% of the difference means you'll be saving around $100/month for retirement. In 35 years, assuming no return on investment (pessimistic, but works if returns match inflation) and no pay rises, that will still be over $40K. That's somewhere on the order of $150/month added to your retirement income for 25 years. Multiply with whatever inflation rate you think is likely if you prefer nominal values. It becomes even more noticable if you save a significant fraction of the additional pay; if you save 1/3 of the additional money (note that you still effectively get a 50% raise compared to what you have been living on before), that gives you a net income of $1500/month instead of $1800 ($500/month more rather than $800/month more) which grows into about $110K in 35 years assuming no return on investment. Nearly $400 per month for 25 years. $100 per week is hardly chump change in retirement, and it is still quite realistic for most people to save 30% of the money they did not have before.\",\n \"As a 20 year old who has just started earning enough to save, I suggest showing them the different types of lifestyles they could live in the future if they started saving now versus what their life would be like if they didn't save at all. Try showing them actual dollar values as well so it's not just an arbitrary idea.\",\n \"Save what you can. Due to compounding of interest, saving early is much more advantageous than saving the same amount later. Obviously you need money to live on, and you're entitled to spend some money on entertainment -- but set a budget on that and stick to that budget. Buying toys now deprives you of better toys later. You aren't saving for an uncertain future; you are saving for a certain future!\",\n \"Lets imagine two scenarios: 1) You make 10.4k (40% of total income) yearly contributions to a savings account that earns 1% interest for 10 years. In this scenario, you put in 104k and earned 5.89k in interest, for a total of 109.9k. 2) You make the same 10.4k yearly contribution to an index fund that earns 7% on average for 10 years. In this scenario you put in the same 104k, but earned 49.7k in interest*, for a total of 153.7k. The main advantage is option 1) has more liquidity -- you can get the money out faster. Option 2) requires time to divest any stocks / bonds. So you need enough savings to get you through that divestment period. Imagine another two scenarios where you stop earning income: 1-b) You stop working and have only your 109.9k principal amount in a 1% savings account. If you withdraw 15.6k yearly for your current cost of living, you will run through your savings in 7 years. 2-b) You stop working and have only 20k (2 years of savings) in savings that earns 1% with 153.7k in stocks that earns 7%. If you withdraw your cost of living currently at 15.6k, you will run through your investments in 15 years and your savings in 2 years, for a total of 17 years. The two years of income in savings is extremely generous for how long it starts the divestment process. In summary, invest your money. It wasn't specified what currency we are talking about, but you can easily find access to an investment company no matter where you are in the world. Keep a small amount for a rainy day.\",\n \"\\\"I disagree with the selected answer. There's no one rule of thumb and certainly not simple ones like \\\"\\\"20 cents of every dollar if you're 35\\\"\\\". You've made a good start by making a budget of your expected expenses. If you read the Mr. Money Mustache blogpost titled The Shockingly Simple Math Behind Early Retirement, you will understand that it is usually a mistake to think of your expenses as a fixed percentage of your income. In most cases, it makes more sense to keep your expenses as low as possible, regardless of your actual income. In the financial independence community, it is a common principle that one typically needs 25-30 times one's annual spending to have enough money to sustain oneself forever off the investment returns that those savings generate (this is based on the assumption of a 7% average annual return, 4% after inflation). So the real answer to your question is this: UPDATE Keats brought to my attention that this formula doesn't work that well when the savings rates are low (20% range). This is because it assumes that money you save earns no returns for the entire period that you are saving. This is obviously not true; investment returns should also count toward your 25-times annual spending goal. For that reason, it's probably better to refer to the blog post that I linked to in the answer above for precise calculations. That's where I got the \\\"\\\"37 years at 20% savings rate\\\"\\\" figure from. Depending on how large and small x and y are, you could have enough saved up to retire in 7 years (at a 75% savings rate), 17 years (at a 50% savings rate), or 37 years! (at the suggested 20% savings rate for 35-year olds). As you go through life, your expenses may increase (eg. starting a family, starting a new business, unexpected health event etc) or decrease (kid wins full scholarship to college). So could your income. However, in general, you should negotiate the highest salary possible (if you are salaried), use the 25x rule, and consider your life and career goals to decide how much you want to save. And stop thinking of expenses as a percentage of income.\\\"\",\n \"Chances are since college is your next likely step I would recommend saving up for it. Start building an emergency fund. Recommended $1,000 minimum. To start building your credit rating (when 18) get a low interest low limit credit. Pay off the balance every month. Starting to build your credit rating now can save you hundreds of thousands when buying a house over the course of paying it off. ie. cheaper interest rate. As for investing, the sooner you can get started the better. Acquire preferred/stocks/bonds/REITs/ETFs/etc that pay you to own them (they pay you dividends monthly/quarterly/etc). Stick with solid stocks that have a history of consistently increasing their dividends over time and that are solid companies. I personally follow the work/advice of Derek Foster. He's not a professional but he retired at 34. His first book (Stop working - Here's how you can) is great and recommend it to anyone who is looking to get started. Also check out Ramit Sethi's blog I Will Teach You to be Rich. He focuses on big wins which save you a lot over the long term. He's also got some great advice for students as well. Best of luck!\",\n \"\\\"I am pretty sure you could find a number of financial planners whom you could pay to give you a very accurate number, but the rule of thumb I like best is Save a dime of every dollar. 10% (Savings means save for retirement, not vacations.) Here is a nice article from radio personality Clark Howard with some adjustments based on your age: Saving for retirement later in life? If you're getting started saving for retirement later in life, the dime out of every dollar rule won't cut it for you. So for you, The Baltimore Sun has crunched the following numbers: Jayraj has a particularly good and just as simple bit of math. https://money.stackexchange.com/a/30751/91 Your retirement and financial planning should not end with a flat percentage. In fact, the chances that any simple math formula is adequate are very low. My percentages (or Jayraj's simple math) are only starting places. If you are at the point where you are asking \\\"\\\"where do I start\\\"\\\", starting with this super easy no-brainer approach is great because the key is starting and doing it.\\\"\",\n \"Save enough to build an emergency cushion of 4-6 months total expenses. After that, invest everything you can in areas where you are well researched and have carefully formed your own opinion on the subject. Those who save do not reach financial freedom, those who learn to invest and make their money work for them do. Invest in learning how to invest.\",\n \"What you put that money into is quite relevant. It depends on how soon you will need some, or all, of that money. It has been very useful to me to divide my savings into three areas... 1) very short term 'oops' funds. This is for when you forget to put something in your budget or when a monthly bill is very high this month. Put this money into passbook savings. 2) Emergency funds that are needed quite infrequently. Used for such things as when you go to the hospital or an appliance breaks down. Put this money in higher yeald savings, but where it can be accessed. 3) Retirement savings. Put this money into a 401-K. Never draw on it till you retire. Make no loans against it. When you change jobs roll over into a self-directed IRA and invest in an ETF that pays dividends. Reinvest the dividend each month. So, like I said, where you put that money depends on how soon you will need it.\",\n \"\\\"The suggestions towards retirement and emergency savings outlined by the other posters are absolute must-dos. The donations towards charitable causes are also extremely valuable considerations. If you are concerned about your savings, consider making some goals. If you plan on staying in an area long term (at least five years), consider beginning to save for a down payment to own a home. A rent-versus-buy calculator can help you figure out how long you'd need to stay in an area to make owning a home cost effective, but five years is usually a minimum to cover closing costs and such compared to rending. Other goals that might be worthwhile are a fully funded new car fund for when you need new wheels, the ability to take a longer or nicer vacation, a future wedding if you'd like to get married some day, and so on. Think of your savings not as a slush fund of money sitting around doing nothing, but as the seed of something worthwhile. Yes, you will only be young once. However being young does not mean you have to be Carrie from Sex in the City buying extremely expensive designer shoes or live like a rapper on Cribs. Dave Ramsey is attributed as saying something like, \\\"\\\"Live like no one else so that you can live like no one else.\\\"\\\" Many people in their 30s and 40s are struggling under mortgages, perhaps long-left-over student loan debt, credit card debt, auto loans, and not enough retirement savings because they had \\\"\\\"fun\\\"\\\" while they were young. Do you have any remaining debt? Pay it off early instead of saving so much. Perhaps you'll find that you prefer to hit that age with a fully paid off home and car, savings for your future goals (kids' college tuitions, early retirement, etc.). Maybe you want to be able to afford some land or a place in a very high cost of living city. In other words - now is the time to set your dreams and allocate your spare cash towards them. Life's only going to get more expensive if you choose to have a family, so save what you can as early as possible.\\\"\",\n \"\\\"Ultimately, money derives its value from being spend on a good or service. Investing it is an act of denying your present-self a good or service so that your future-self can obtain (hopefully more) goods or services. Investing is a sensible and responsible default position, but you clearly have passed the point at which the opportunity cost of the dollar not spent today is greater than its benefit in the future. Not all dollars are the same. Remember that money is a temporary store of value but you have to spend it to realize that value. In your search, learn about the \\\"\\\"psychology of money.\\\"\\\" What are you saving it for? How much do you want left over when you die? If you die tomorrow, will you regret not having spend a little more? I'm sorry to get morbid on you, but saving for the future requires answering the question \\\"\\\"How long?\\\"\\\" and it's never forever. This may be tangential but it shaped my behaviour towards money nonetheless: Frank Zimbardo on The Psychology of Time. I would hazard a guess and say that you land in the future-oriented camp.\\\"\",\n \"Start a Roth IRA. Keep it in low risk, short term money market or CDs. At this stage, stocks may be premature. As you build up the account, up to $5000/year, at some point, you should start buying an index mutual fund, say one following the S&P. When you are out of school and working for real money, save an emergency account outside the IRA and shift that Roth IRA to be fully invested. My 13 year old has her emergency account, and her Roth IRA to deposit her baby sitting money. It's never too soon to start.\",\n \"\\\"A good question -- there are many good tactical points in other answers but I wanted to emphasize two strategic points to think about in your \\\"\\\"5-year plan\\\"\\\", both of which involve around diversification: Expense allocation: You have several potential expenses. Actually, expenses isn't the right word, it's more like \\\"\\\"applications\\\"\\\". Think of the money you have as a resource that you can \\\"\\\"pour\\\"\\\" (because money has liquidity!) into multiple \\\"\\\"buckets\\\"\\\" depending on time horizon and risk tolerance. An ultra-short-term cushion for extreme emergencies -- e.g. things go really wrong -- this should be something you can access at a moment's notice from a bank account. For example, your car has been towed and they need cash. A short-term cushion for emergencies -- something bad happens and you need the money in a few days or weeks. (A CD ladder is good for this -- it pays better interest and you can get the money out quick with a minimal penalty.) A long-term savings cushion -- you might want to make a down payment on a house or a car, but you know it's some years off. For this, an investment account is good; there are quite a few index funds out there which have very low expenses and will get you a better return than CDs / savings account, with some risk tolerance. Retirement savings -- $1 now can be worth a huge amount of money to you in 40 years if you invest it wisely. Here's where the IRA (or 401K if you get a job) comes in. You need to put these in this order of priority. Put enough money in your short-term cushions to be 99% confident you have enough. Then with the remainder, put most of it in an investment account but some of it in a retirement account. The thing to realize is that you need to make the retirement account off-limits, so you don't want to put too much money there, but the earlier you can get started in a retirement account, the better. I'm 38, and I started both an investment and a retirement account at age 24. They're now to the point where I save more income, on average, from the returns in my investments, than I can save from my salary. But I wish I had started a few years earlier. Income: You need to come up with some idea of what your range of net income (after living expenses) is likely to be over the next five years, so that you can make decisions about your savings allocation. Are you in good health or bad? Are you single or do you have a family? Are you working towards law school or medical school, and need to borrow money? Are you planning on getting a job with a dependable salary, or do you plan on being self-employed, where there is more uncertainty in your income? These are all factors that will help you decide how important short-term and long term savings are to your 5-year plan. In short, there is no one place you should put your money. But be smart about it and you'll give yourself a good head start in your personal finances. Good luck!\\\"\",\n \"I don't have a reference, but I think it depends on when you entered the workforce: If you finished school at age 24, your primary goals are to pay down expensive debt and to save up enough for a down payment. So essentially not much. Maybe $5k to $10k at the most. On the other hand if you entered the workforce at age 20, with no debts and no significant expenses, it should have been easy to sock away 20% of your income for 6 years, so $40k to $50k would be reasonable. The difference is that the first person's income earning potential should be higher, so eventually they'd be able to make up the difference and pass them.\",\n \"A person who always saves and appropriately invests 20% of their income can expect to have a secure retirement. If you start early enough, you don't need anything close to 20%. Now, there are many good reasons to save for things other than just retirement, of course. You say that you can save 80% of your income, and you expect most people could save at least 50% without problems. That's just unrealistic for most people. Taxes, rent (or mortgage payments), utilities, food, and other such mandatory expenses take far more than 50% of your income. Most people simply don't have the ability to save (or invest) 50% of their income. Or even 25% of their income.\",\n \"\\\"What percent of my salary should I save? is tightly coupled with its companion, What size “nest egg” should my husband and I have, and by what age? Interestingly, Mr.Christer's answer, 10%, is the number that plugs into the equation that I reference. Jay's 25X rule is part of this. We start with the assumption that one's required income at retirement will be 80% of their pre-retirement income. That's high by some observations, low by others. A quick look at the expenses that go away in retirement - The above can total 35-40% It would be great if it ended there, but there are costs that go up. The above extra spending is tough to nail down, after all, you knew what you spent, and what's going away, but the new items? Crapshoot. (For non-native speakers - this refers to a game with dice, meaning a random event) Again, referencing Mr Christer's answer \\\"\\\"financial planners whom you could pay to give you a very accurate number,\\\"\\\" I'm going to disagree with that soundbyte. Consider, when retirement is 30 years away, you don't know much If I can offer an analogy. I once had the pleasure of hearing Jim Lovell (The astronaut played by Tom Hanks in Apollo 13) give a speech. He said that for the first 99% of the trip to the moon, they simply aimed ahead of their target, never directly at the moon. In this manner, I suggest that with so many variables, accuracy is impossible, it's a moving target. Start young, take the 10% MrC offered, and keep saving. Every few years, stop and see if you are on target, if not, bump the number a bit. Better to turn 50 and find that after a good decade you've reached your number and can drop your savings to a minimum, perhaps just to capture a 401(k) match, than to turn 50 and realize you've undersaved and need to bump to an unsustainable level. Imagine planning ahead in 1999. You've seen 2 great decades of returns, and even realizing that 18%/yr couldn't continue, you plan for a below average 7%, this would double your 1999 balance in 10 years. Instead you saw zero return. For a decade. In sum, when each variable has an accuracy of +/-50% you are not going to combine them all and get a number with even 10% accuracy (as if MrC were wrong, but the pro would tell you 11% is right for you?). This is as absurd as packaging up a bunch of C rated debt, and thinking that enough of this paper would yield a final product that was AAA.\\\"\",\n \"To make this more general: should you save for retirement or for education? The answer is simple: save for your education first. A PriceWaterhouseCoopers report on behalf Universities UK in 2006 and another by the Washington-based College Board in 2007 indicate that graduates of higher education can earn anywhere from $400,000 to $1 million more, after tax and education loans are paid, than do those who start work with only a high-school qualification. [From my blog...] Over your lifetime your higher education will earn you far more than any other income and investments you forego while attaining that education. Make those sacrifices now to reap greater rewards later.\",\n \"Assume you will need to retire with a few million in the bank to maintain an average lifestyle. I had an analysis done for me (at 33) that shows my family, to keep it up lifestyle will need to have 3.4MM in the bank so in retirement I can draw down enough cash. This number reflects inflation. Now that you are 18, if you make consistent but small savings you will achieve that financial stability. Try to make it automatic so you aren't tempted to spend. There is more you can do but since you have such an early start, you can do less than most people and still have plenty. Even thought it is great you are thinking about it, don't forget to be young, move around lots and have fun. Just pay yourself first and have fun second. Also, thank whoever guided you to this point. If you did it all on your own, be proud.\",\n \"\\\"My basic rule I tell everyone who will listen is to always live like you're a college student - if you could make it on $20k a year, when you get your first \\\"\\\"real\\\"\\\" job at $40k (eg), put all the rest into savings to start (401(k), IRA, etc). Gradually increase your lifestyle expenses after you hit major savings goals (3+ month emergency fund, house down payment, etc). Any time you get a raise, start by socking it all into your employer's 401(k) or similar. And repeat the above advice.\\\"\",\n \"I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year. The general rule of thumb is that you should have six months income as an emergency fund. So your savings should be around $5k. Build that first. Some argue that the standard should be six months of living expenses rather than income. Personally, I think that this example is exactly why it is income rather than living expenses. Six months of living expenses in this case would only be $1250, which won't pay for much. And note that living expenses can only be calculated after the fact. If your estimate of $50 a week is overly optimistic, you might not notice for months (until some large living expense pops up). Another problem with using living expenses as the measure is that if you hold down your living expenses to maximize your savings, this helps both measures. Then you hit your savings target, and your living expenses increase. So you need more savings. By contrast, if your income increases but your living expenses do not, you still need more savings but you can also save more money. Doesn't really change the basic analysis though. Either way you have an emergency savings target that you should hit before starting your retirement savings. If you save $150 per week, then you should have around $4k in savings at the beginning of next year. That's still low for an emergency fund by the income standard. So you probably shouldn't invest next year. With a living expenses standard, you could have $6250 in savings by April 15th (deadline for an IRA contribution that appears in the previous tax year). That's $5000 more than the $1250 emergency fund, so you could afford an IRA (probably a Roth) that year. If you save $7500 next year and start with $4k in savings (under the income standard for emergency savings), that would leave you with $11,500. Take $5500 of that and invest in an IRA, probably a Roth. After that, you could make a $100 deposit per week for the next year. Or just wait until the end. If you invested in an IRA the previous year because you decided use the living expenses standard, you would only have $6500 at the end of the year. If you wait until you have $6750, you could max out your IRA contribution. At that point, your excess income for each year would be larger than the maximum IRA contribution, so you could max it out until your circumstances change. If you don't actually save $3k this year and $7500 next year, don't sweat it. A college education is enough of an investment at your age. Do that first, then emergency savings, then retirement. That will flip around once you get a better paying, long term job. Then you should include retirement savings as an expected cost. So you'd pay the minimum required for your education loans and other required living expenses, then dedicate an amount for retirement savings, then build your emergency savings, then pay off your education loans (above the minimum payment). This is where it can pay to use the more aggressive living expenses standard, as that allows you to pay off your education loans faster. I would invest retirement savings in a nice, diversified index fund (or two since maintaining the correct stock/bond mix of 70%-75% stocks is less risky than investing in just bonds much less just stocks). Investing in individual stocks is something you should do with excess money that you can afford to lose. Secure your retirement first. Then stock investments are gravy if they pan out. If they don't, you're still all right. But if they do, you can make bigger decisions, e.g. buying a house. Realize that buying individual stocks is about more than just buying an app. You have to both check the fundamentals (which the app can help you do) and find other reasons to buy a stock. If you rely on an app, then you're essentially joining everyone else using that app. You'll make the same profit as everyone else, which won't be much because you all share the profit opportunities with the app's system. If you want to use someone else's system, stick with mutual funds. The app system is actually more dangerous in the long term. Early in the app's life cycle, its system can produce positive returns because a small number of people are sharing the benefits of that system. As more people adopt it though, the total possible returns stay the same. At some point, users saturate the app. All the possible returns are realized. Then users are competing with each other for returns. The per user returns will shrink as usage grows. If you have your own system, then you are competing with fewer people for the returns from it. Share the fundamental analysis, but pick your stocks based on other criteria. Fundamental analysis will tell you if a stock is overvalued. The other criteria will tell you which undervalued stock to buy.\",\n \"\\\"It really depends a lot on you and how much time you are putting into it. Since you're saying you want your money to work for you I'm going to assume you want as little hassle as possible. A few general tips: Save a fixed percentage of your monthly income Don't try to save \\\"\\\"whenever you have money left over\\\"\\\", you will just end up spending it somehow. Invest long term - don't trade Don't try to beat the market - it will just take up too much time and statistically you will end up making less. Hedge If you invest in the company/industry you work in, you will be double screwed if the sector drops (lose job + savings at the same time). Optimally you should invest in something that will benefit when the company you work for is doing bad. Pay off high interest debt Usually debt will have a higher interest than any safe investment you can make. Spend money to save/make money Sometimes the best investment you can make is on stuff that will save you money in the long run. Like buy an apartment close to work (less transport costs) or get a more expensive car that will save you money on gas, insurance etc.\\\"\",\n \"Take a certain percentage of your income (say, 10%, but more is better if you can) and put it aside with every paycheck. Some employers will even allow you to direct deposit your paycheck into two different accounts and you can specify a certain amount or percentage for the second account. Your savings will go directly into a separate account as if you never had it in the first place. Consider your savings untouchable as spending money. Watch it grow. There's no other secret, you just have to do it!\",\n \"First pay yourself. When you get salary, send some parts of that (for example 10%) to your saving account. Step by step you'll save nice money ;)\",\n \"Conventional wisdom says (100-age) percentage of your saving should go to Equity and (age) percentage should go to debt. My advice to you is to invest (100-age) into index fund through SIP and rest in FD. You can re-balance your investment once a year. Stock picking is very risky. And so is market timing. Of cource you can change the 100 into a other number according to your risk tolerance.\",\n \"BrenBarn did a great job explaining your options so I won't rehash any of that. I know you said that you don't want to save for retirement yet, but I'm going to risk answering that you should anyway. Specifically, I think you should consider a Roth IRA. When it comes to tax advantaged retirement accounts, once the contribution period for a tax year ends, there's no way to make up for it. For example in 2015 you may contribute up to $5,500 to your IRA. You can make those contributions up until tax day of the following year (April 15th, 2016). After that, you cannot contribute money towards 2015 again. So each year that goes by, you're losing out on some potential to contribute. As for why I think a Roth IRA specifically could work well for you: I'm advocating this because I think it's a good balance. You put away some money in a retirement account now, when it will have the most impact on your future retirement assets, taking advantage of a time you will never have again. At a low cost custodian like Vanguard, you can open an IRA with as little as $1,000 to start and choose from excellent fund options that meet your risk requirements. If you end up deciding that you really want that money for a car or a house or beer money, you can withdraw any of the contributions without fear of penalty or additional tax. But if you decide you don't really need to take that money back out, you've contributed to your retirement for a tax year you likely wouldn't have otherwise, and wouldn't be able to make up for later when you have more than enough to max out an IRA each year. I also want to stress that you should have a liquid emergency fund (in a savings or checking account) to deal with unexpected emergencies before funding something like this. But after that, if you have no specific goal for your savings and you don't know for sure you'll actually need to spend it in the near future, funding a Roth IRA is worth considering in my opinion.\",\n \"IMO almost any sensible decision is better than parking money in a retirement account, when you are young. Some better choices: 1) Invest in yourself, your skills, your education. Grad school is one option within that. 2) Start a small business, build a customer base. 3) Travel, adventure, see the world. Meet and talk to lots of different people. Note that all my advice revolves around investing in YOURSELF, growing your skills and/or your experiences. This is worth FAR more to you than a few percent a year. Take big risks when you are young. You will need maybe $1m+ (valued at today's money) to retire comfortably. How will you get there? Most people can only achieve that by taking bigger risks, and investing in themselves.\",\n \"I don't like your strategy. Don't wait. Open an investment account today with a low cost providers and put those funds into a low cost investment that represents as much of the market as you can find. I am going to start by assuming you are a really smart person. With that assumption I am going to assume you can see details and trends and read into the lines. As a computer programmer I am going to assume you are pretty task oriented, and that you look for optimal solutions. Now I am going to ask you to step back. You are clearly very good at managing your money, but I believe you are over-thinking your opportunity. Reading your question, you need a starting place (and some managed expectations), so here is your plan: Now that you have a personal retirement account (IRA, Roth IRA, MyRA?) and perhaps a 401(k) (or equivalent) at work, you can start to select which investments go into that account. I know that was your question, but things you said in your question made me wonder if you had all of that clear in your head. The key point here is don't wait. You won't be able to time the market; certainly not consistently. Get in NOW and stay in. You adjust your investments based on your risk tolerance as you age, and you adjust your investments based on your wealth and needs. But get in NOW. Over the course of 40 years you are likely to be working, sometimes the market will be up, and sometimes the market will be down; but keep buying in. Because every day you are in, you money can grow; and over 40 years the chances that you will grow substantially is pretty high. No need to wait, start growing today. Things I didn't discuss but are important to you:\",\n \"I recommend pulling up a retirement calculator and having an honest conversation about how long term savings works, and the power of compound interest. Just by playing around with the sliders on an online calculator, you can demonstrate how the early years are the most important. Depending on how much they make now and are considering saving, delaying 5-10 years can easily leave 6-7 figures on the table. If it's specifically a child or close family member, I recommend pulling up your retirement account. Talk with them about how you managed it, and how much you were putting in. Perhaps show them how much is the principal and how much is interest. If you did well, tell them how. If you didn't do as well as you liked, tell them what you would have done differently. Finally, discuss a bit of psychology. Even if they don't have a professional job and are making minimum wage, getting into the habit of saving makes it easier when they eventually make more. A couple of dollars a month isn't much, but getting into the habit makes it easier to save a couple hundred dollars a month later on.\",\n \"Definitely not. You are too young. Let me explain: Your money will be locked up for at least 40 years, and you will have to navigate some really quirky and trap-laden rules in order to get money for simple things. Let's say you want to buy a house. You won't be able to leverage the 401K for that. College Tuition? Limits. Your money is locked in and you may get some match, but that assumes your smartest decision at your age is to save money for retirement. At your age, you should be investing in your career, and that requires cash at hand. If you want to withdraw early you pay more of a penalty than just the tax rate. Put differently: investing in your human capital, at a young age, can yield stronger results than just squirreling money. I'd say don't worry until you are 30. BTW: I'm 24 now. I used to save money in a 401K for a few months, before I understood the rules. Since then, I decided against 401K and just saved the money in a bank. After a few years, I had enough to start my business :) the 401K couldn't give me that opportunity. Further Explanation: I am in the NYC area. Many of my friends and I had to decide between living in manhattan or choosing to live in the outer boroughs or NJ. One thing I noticed was that, while the people in manhattan were burning much more money (to the tune of 1500 per month), they were actually much more productive and were promoted more often. Having lived in brooklyn and in manhattan, even though it is less expensive, you actually lose at least an hour a day thanks to the commute (and have to deal with crap like the 6 train). Personally, after moving in, I invested the extra time in myself (i.e. sleeping more, working longer hours, side projects). Now, when all is said and done, the people who decided to invest in themselves in the short term are financially more secure (both job-wise and economically, thanks to a few bonus cycles) than those who decided to save on rent and put it in a 401K. As far as the traps are concerned, my dad tried to take out a student loan and was denied thanks to a Vanguard quirk which didnt allow more than 50K to be borrowed (even though the account had over 500K to begin with).\",\n \"Everybody else has given great answers on what to do, but I just want to add some encouragement. Keep saving. Learn to live within your means while saving, and things like houses and cars and new electronics will come. You can always wait a year and save money up for that new TV, but when retirement hits you are out of time. (I sure wish I had). Keep that retirement money out of sight and (mostly) out of mind. Great job saving and keep up the good work.\",\n \"Excellent responses so far. Because I am a math guy, I wanted to stress the power of compounding. It's great that you are thinking about saving and your future when you are so young. Definitely be displined about your saving and investing. You would be surprised how just a small amount can compound over the years. For example, if you were to start with $5000 and contribute $100 per month. Assuming that you can get 5% ROR (hard in today's world but shouldn't be down the road), your final principal after 28 years (when you are 50 years old) will be over $90,000, which of only $38,000 is what you contributed yourself. The rest is interest. You can play with the numbers here: http://www.math.com/students/calculators/source/compound.htm\",\n \"\\\"The policy you quoted suggests you deposit 6% minimum. That $6,000 will cost you $4,500 due to the tax effect, yet after the match, you'll have $9,000 in the account. Taxable on withdrawal, but a great boost to the account. The question of where is less clear. There must be more than the 2 choices you mention. Most plans have 'too many' choices. This segues into my focus on expenses. A few years back, PBS Frontline aired a program titled The Retirement Gamble, in which fund expenses were discussed, with a focus on how an extra 1% in expenses will wipe out an extra 1/3 of your wealth in a 40 year period. Very simple to illustrate this - go to a calculator and enter .99 raised to the power of 40. .669 is the result. My 401(k) has an expense of .02% (that's 1/50 of 1%) .9998 raised to the same 40 gives .992, in other words, a cost of .8% over the full 40 years. My wife and I are just retired, and will have less in expenses for the rest of our lives than the average account cost for just 1 year. In your situation, the knee-jerk reaction is to tell you to maximize the 401(k) deposit at the current (2016) $18,000. That might be appropriate, but I'd suggest you look at the expense of the S&P index (sometime called Large Cap Fund, but see the prospectus) and if it's costing much more than .75%/yr, I'd go with an IRA (Roth, if you can't deduct the traditional IRA). Much of the value of the 401(k) beyond the match is the tax differential, i.e. depositing while in the 25% bracket, but withdrawing the funds at retirement, hopefully at 15%. It doesn't take long for the extra expense and the \\\"\\\"holy cow, my 401(k) just turned decades of dividends and long term cap gains into ordinary income\\\"\\\" effect to take over. Understand this now, not 30 years hence. Last - to answer your question, 'how much'? I often recommend what may seem a cliche \\\"\\\"continue to live like a student.\\\"\\\" Half the country lives on $54K or less. There's certainly a wide gray area, but in general, a person starting out will choose one of 2 paths, living just at, or even above his means, or living way below, and saving, say, 30-40% off the top. Even 30% doesn't hit the extreme saver level. If you do this, you'll find that if/when you get married, buy a house, have kids, etc. you'll still be able to save a reasonable percent of your income toward retirement. In response to your comment, what counts as retirement savings? There's a concept used as part of the budgeting process known as the envelope system. For those who have an income where there's little discretionary money left over each month, the method of putting money aside into small buckets is a great idea. In your case, say you take me up on the 30-40% challenge. 15% of it goes to a hard and fast retirement account. The rest, to savings, according to the general order of emergency fund, 6-12 months expenses, to cover a job loss, another fund for random expenses, such as new transmission (I've never needed one, but I hear they are expensive), and then the bucket towards house down payment. Keep in mind, I have no idea where you live or what a reasonable house would cost. Regardless, a 20-25% downpayment on even a $250K house is $60K. That will take some time to save up. If the housing in your area is more, bump it accordingly. If the savings starts to grow beyond any short term needs, it gets invested towards the long term, and is treated as \\\"\\\"retirement\\\"\\\" money. There is no such thing as Saving too much. When I turned 50 and was let go from a 30 year job, I wasn't unhappy that I saved too much and could call it quits that day. Had I been saving just right, I'd have been 10 years shy of my target.\\\"\",\n \"By not saving some of your income you put yourself at risk of the following: If you are comfortable taking on those risks, then continue what you are doing (I'm not being sarcastic here...some people are perfectly comfortable taking on these risks). I plan on working until I die so I am not as concerned with saving for retirement but I do save some money for temporary job loss situations. Saving money presents its own set of issues (e.g. Where should I put the money?, Should I invest the money?, What type of investments?). If you have no interest in researching answers to these type of questions then I would suggest what others have already suggested: have part of your paycheck automatically siphoned into an account that can only be accessed by a trusted family member.\",\n \"If I were you, I would save 200 euros for retirement each month and another 800 I would stash away with the hope to start investing soon. I think you have to invest a bigger lump sum, then 1000 euros. It makes sense to invest at least 30K to see any tangible results. My acquaintances started from 50K and now see pretty handsome returns. Investing is profitable, as long as you approach it smartly. Also, do not ever hire an overly expensive financial consultant - this expenses will never pay off. Of course, check their credentials and reputation... But never pay much to these guys. Not worth it.\",\n \"Invest in kids, not pension - they never inflate. Without kids your retirement will be miserable anyway. And with them you'll be good. Personally, I do not believe that that our current savings will be worth it in 30 years in these times.\",\n \"I'm assuming you're in Germany or Europe based on your question, but here's an American's perspective that should pertain you you as well: Once you have a steady income and an emergency fund large enough to keep you from going bankrupt, then start learning about retirement and investment options.\",\n \"Investing requires capital, and the fastest way to get the capital is to develop good saving habits. Investing is an ongoing process to help you accumulate wealth, so to take advantage of compounding, the earlier you start, the better. I can suggest a few pointers to get you started on the investing journey. Godspeed! :)\",\n \"\\\"IMHO It is definitively not too early to start learning and thinking about personal finances and also about investing. If you like to try stock market games, make sure to use one that includes a realistic fee structure simulation as well - otherwise there'll be a very unpleasant awakening when switching to reality... I'd like to stress the need for low fees with the brokerage account! Sit down and calculate how much fees different brokers take for a \\\"\\\"portfolio\\\"\\\" of say, 1 ETF, 1 bond, 1 share of about $500 or $1000 each (e.g. order fee, annual fee, fee for paying out interest/dividend). In my experience, it is good if you can manage to make the first small investing steps before starting your career. Real jobs tend to need lots of time (particularly at the beginning), so time to learn investing is extremely scarce right at the time when you for the first time in your life earn money that could/should be invested. I'm talking of very slowly starting with a single purchase of say an ETF, a single bond next time you have saved up a suitable amount of toy money, then maybe a single share (and essentially not doing anything with them in order to avoid further fees). While such a \\\"\\\"portfolio\\\"\\\" is terrible with respect to diversification and relative fees*, this gives you the possibility to learn the procedures, to see how the fees cut in, what to do wrt taxes etc. This is why I speak about toy money and why I consider this money an investment in education. * An order fee of, say, $10 on a $500 position are terrible 4% (2 x $10) for buying + selling - depending on your local taxes, that would be several years of dividend yield for say some arbitrary Dow Jones ETF. Nevertheless, purchase + sale together are less than 3 cinema tickets.\\\"\",\n \"\\\"The answer is, there are a lot of answers! It always seems so daunting to start saving when you're living paycheck to paycheck and anticipate more bills on the way (kids are expensive!!). Start small, and make it automatic if you can. If you can take $25 out of every paycheck and put it into a savings account, and do this automatically using your bank's Bill Pay system, that will go a long way. It's about setting up a new habit for yourself, and increasing as you can. One way I've heard it phrased is \\\"\\\"Pay yourself first\\\"\\\". Don't set unrealistic expectations for yourself, either. You need to start building a savings account to cover emergencies, not just future purchases. If something happens and you can't get a paycheck for a week, a month, 2 months, how will you pay your bills? Set up a savings account just for that purpose and don't touch it unless it's a true emergency. There are several banks out there that will let you set up multiple savings accounts and mark them for specific purposes, like CapitalOne's 360 accounts. Set one up for the emergency account that gets your automatic per-paycheck deposit, then set up another one for \\\"\\\"fun money\\\"\\\" or \\\"\\\"new home fund\\\"\\\" or whatever else you want to save up for. Starting the savings process is hard, no doubt about it. You need to learn how to budget with the money you have after \\\"\\\"paying yourself first\\\"\\\". But the important part is to stick with it. Consider your savings account as another \\\"\\\"mandatory\\\"\\\" utility. You have to pay it $25/mo or risk...I don't know...a smack on the back of the head. If you wait until the end of the month to see what you have left after everything else, you'll find you don't have anything left. If you can set it up through your bank so when you get your paycheck it automatically puts $25 into a savings account, then you'll never have that $25 burning a hole in your pocket. If your paychecks aren't direct deposit, and you're physically cashing them when you receive them, then tell the bank teller to put $25 into your savings account. You can do it! Make sure your wife is on board and you communicate the importance of setting up a savings account and work together to make it happen. Be patient, and realize that $25 may seem like a trivial amount to put away now, but after 24 paychecks (1 year depending on pay schedule), that's $600! (Plus interest but rates are too low now to worth noting that).\\\"\",\n \"Establish good saving and spending habits. Build up your savings so that when you do buy a car, you can pay cash. Make spending decisions, especially for housing, transportation and entertainment, that allow you to save a substantial portion of your income. The goal is to get yourself to a place where you have enough net worth that the return on your assets is greater than the amount you can earn by working. (BTW, this is basically what I did. I put my two sons through top colleges on my dime and retired six years ago at the age of 56).\",\n \"While it’s your personal choice on HOW you save for later its essential that you save. My sister works in a bank and recommended me not to put any money into retirement plans since the tax-advances seem fine but have to paid back when you take the money out of the accounts (in Switzerland, don't know about the united states). Many reasons exist that you suddenly need the money: Buying a house, needing a new car, health issues or just leaving the country forever (and the government trying to make it as hard as possible for you to get your money back). I recommend putting it on a savings account on a different bank that you normally use, without any cards and so on. In short: It can be dangerous to have money locked away – especially if you could easily have it at your hands and you know you're able to manage it.\",\n \"Heck no, don't spend more! I saved a ton of money when I got my first real job. You won't always be able to do this. Save a bundle while you can.\",\n \"I recommend saving for retirement first to leverage compound interest over a long time horizon. The historical real return on the stock market has been about 7%. Assuming returns stay at 7% in the future (big assumption, but don't have any better numbers to go off of), then $8,000 saved today will be worth $119,795 in 40 years (1.07^40*8000). Having a sizable retirement portfolio will give you peace of mind as you progress through life and make other expenditures. If you buy assets that pay you money and appreciate, you will be in a better financial position than if you buy assets that require significant cash outflows (i.e. property taxes, interest you pay to the bank, etc.) or assets that ultimately depreciate to zero (a car). As a young person, you are well positioned to pay yourself (not the bank or the car dealership) and leverage compound interest over a long time horizon.\",\n \"In addition to the issues discussed in BrenBarn's answer, I think you need to consider your medium term saving needs and existing savings. In particular, do you have a sufficient rainy day fund, a fund you will spend if things go wrong? For example, if you are dependent on a vehicle that is not covered by a guarantee or service plan, you should have enough money saved for a couple of major repairs. Depending on how secure your job is, whether it carries sick leave and long term disability, and how easy or difficult it would be to find another job in the event e.g. of your employer going bankrupt due to a downturn in your industry, you should have months to years of minimal living expenses in your rainy day fund. If you don't have those things covered, you should urgently save as much as you can until they are covered. If you do, then the next savings priority is to put money by for retirement. Of course, if all goes well the rainy day fund will ultimately get folded into retirement, but it needs to exist now, in a form you can access quickly.\",\n \"Your gut feeling is absolutely spot on - you shouldn't be worrying about pension now, not at the age of 25. Assuming that you're not a footballer in the middle of the most productive part of your career and already have a fat wad of crunchy banknotes under your pillow that you're looking to set aside for a rainy day when you won't be able to play at your prime any longer. That doesn't mean you shouldn't invest, nor that means that you mustn't save. There are several factors at play here. First of all as a young person you are likely to have a high tolerance for risk, there is still plenty of time to recover should expected returns not materialise. Even a pension fund with the most aggressive risk / return strategy might just not quite do it for you. You could invest into education instead, improve health, obtain a profitable skill, create social capital by building connections, pay for experience, buy a house, start a family or even a business. Next, as a young professional you're unlikely to have reached your full earning potential yet and due to the law of diminishing marginal utility a hundred pounds per month now have greater utility (i.e. positive impact on your lifestyle) than a seven hundred pounds will in 7-10 years time once your earnings plateaued. That is to say it's easier to save £700 month from £3000 and maintain a reasonable level of personal comfort than carve £100 from £1300 monthly income. And last, but not the least, lets face it from a human point of view - forty years is a very long investment horizon and many things might and will change. One of the downsides of UK pensions is that you have very little control over the money until you reach a certain age. Tactically I suggest saving up to build a cushion consisting of cash or near cash assets; the size of the stash should be such that it is enough to cover all of your expenses from a minimum of 2 months to a maximum of a year. The exact size will depend on your personal comfort level, whatever social net you have (parents, wife, partner) and how hard it will be to find a new source of income should the current cease to produce cash. On a strategic level you can start looking into investing any surplus cash into the foundation of what will bring joy and happiness into the next 40 years of your life. Your or your partners training and education is one of the most sensible choices whilst you're young. Starting a family is another one. Both might help you reach you full earning potential much quicker. Finding what you love to do and learning how to do it really well - cash can accelerate this process bringing you quicker there you want to be. If you were a start-up business in front of a huge uncaptured market would you rather use cash to pay dividends or finance growth?\",\n \"Though I do think it is important to have a diversified portfolio for your retirement, I also think it's more important to make sure you are at no point touching this money until you retire. Taking money out of your retirement early is a sure fire way to get in a bad habit of spending this money when you need a little help. Here's a tip: If you consider this money gone, you will find another way to figure out your situation. With that said, I also would rather not put a percentage on this. Start by building your emergency fund. You'll want to treat this like a bill and make a monthly payment to your savings account each month or paycheck. When you have a good nine times your monthly income in here, stop contributing to this fund. Instead start putting the same amount into your IRA instead. At this point you should no longer have to add to your emergency fund unless there is a true emergency and you are replacing that money. Keep in mind that the amount of money in your emergency fund changes significantly in each situation. Sit down with your bills and think about how much money you would need in the event you lost your job. How long would you be out of work? How many bills do you have each month that would need to be covered?\",\n \"That's up to you, but I wouldn't play around with my retirement money if I was in your situation. Your earning potential during your retirement years will likely be at its nadir. Do you really want to risk being forced to be a Wal-Mart greeter when you are 80? Also, considering your earning potential now is probably at or near the peak, your opportunity cost for each hour of your life is much higher now than it will be later. So ultimately you'd be working a little harder now or a lot harder later for less money.\",\n \"\\\"Don't mind the percentages. They are highly misleading. First, \\\"\\\"saving\\\"\\\" is making available for future use. It might be \\\"\\\"hoarding\\\"\\\", \\\"\\\"investing\\\"\\\" or a combination thereof. It might be for a specific use (a car, a college education, retirement, etc.), or for a non-specific use (for an emergency, for when you decide to spend some of those savings, or just for lack of a compelling use as of the moment). In first case, whatever you save should be available by the date you intend to use it. In second case, it might be prudent to have savings (and investments, see below) of various liquidity (cash you have at hand, bank account you can draw next day, mutual fund account you can draw in a month, maybe something you can only cash in a year etc.). You will see that the actual percentages you \\\"\\\"save\\\"\\\" fluctuate enormously throughout your life, varying with the progress of your career, changes of marital status and family cmposition, etc., etc. What you should really do is to come up with a rough plan of how you expect, from right now and to the end of your life at whatever age, have enough money for whatever level of comfort you plan for each period of your life, allowing for some specified level of perturbations. Then you just execute that plan or change it as you go.\\\"\",\n \"\\\"I wrote a spreadsheet (<< it may not be obvious - this is a link to pull down the spreadsheet) a while back that might help you. You can start by putting your current salary next to your age, adjust the percent of income saved (14% for you) and put in the current total. The sheet basically shows that if one saves 15% from day one of working and averages an 8% return, they are on track to save over 20X their final income, and at the 4% withdrawal rate, will replace 80% of their income. (Remember, if they save 15% and at retirement the 7.65% FICA /medicare goes away, so it's 100% of what they had anyway.) For what it's worth, a 10% average return drops what you need to save down to 9%. I say to a young person - try to start at 15%. Better that when you're 40, you realize you're well ahead of schedule and can relax a bit, than to assume that 8-9% is enough to save and find you need a large increase to catch up. To answer specifically here - there are those who concluded that 4% is a safe withdrawal rate, so by targeting 20X your final income as retirement savings, you'll be able to retire well. Retirement spending needs are not the same for everyone. When I cite an 80% replacement rate, it's a guess, a rule of thumb that many point out is flawed. The 'real' number is your true spending need, which of course can be far higher or lower. The younger investor is going to have a far tougher time guessing this number than someone a decade away from retiring. The 80% is just a target to get started, it should shift to the real number in your 40s or 50s as that number becomes clear. Next, I see my original answer didn't address Social Security benefits. The benefit isn't linear, a lower wage earner can see a benefit of as much as 50% of what they earned each year while a very high earner would see far less as the benefit has a maximum. A $90k earner will see 30% or less. The social security site does a great job of giving you your projected benefit, and you can adjust target savings accordingly. 2016 update - the prior 20 years returned 8.18% CAGR. Considering there were 2 crashes one of which was called a mini-depression, 8.18% is pretty remarkable. For what it's worth, my adult investing life started in 1984, and I've seen a CAGR of 10.90%. For forecasting purposes, I think 8% long term is a conservative number. To answer member \\\"\\\"doobop\\\"\\\" comment - the 10 years from 2006-2015 had a CAGR of 7.29%. Time has a way of averaging that lost decade, the 00's, to a more reasonable number.\\\"\",\n \"There is no right answer here, one has to make the choice himself. Its best to have an emergency fund before you start to commit funds to other reasons. The plan looks good. Keep following it and revise the plan often.\",\n \"I was asking myself the exact same thing. And i have come to the conclusion that most of your money should be invested, In index etfs and maybe some bond etfs too. If Inflation is about 2% and the interest you make in a savings account is less than 1%. Your actually loosing money in a savings account. Keep a few thousand bucks in your savings account and the majority invested and working for you.\",\n \"The 10K in savings and money market is equal to about 1.5 months of income for emergency funds. You should add additional funds to this account over the next few years to let that increase to 3 to 6 months of monthly expenses. This money should be kept secure so that it will be there when you need it. Growth is not the primary function for this account. Investment at this stage should be for retirement. This means take advantage of 401K matching if it is available. You will have to determine if Roth or regular makes the most sense for you. In general the lower your current tax bracket the more sense Roth makes for you. If you want an IRA again decide which type. Also remember that you have until the tax deadline to make a contribution so you can decide to use a refund to fund the IRA. IRAs and 401Ks are just account types with some rules attached. They can be invested in everything from CD's to individual stocks depending on how aggressive you want to be.\",\n \"It's time she look into what employer provided retirement plan she can use. She's at the point where she should think about investing for the long term, with retirement in mind.\",\n \"Not 100% related, but the #1 thing you need to avoid is CREDIT CARD DEBT. Trust me on this one. I'm 31, and finally got out of credit card debt about eight months ago. For just about my entire 20s, I racked up credit card debt and saved zero. Invested zero. It pains me to realize that I basically wasted ten years of possible interest, and instead bought a lot of dumb things and paid 25% interest on it. So yes, put money into your 401k and an IRA. Max them out.\",\n \"\\\"The most important thing is to start. Don't waste months and years trying to figure out the \\\"\\\"optimal\\\"\\\" strategy or trying to read all the best books before you start. Pick a solid, simple choice, like investing in your company sponsored 401(k), and do it today. This I Will Teach You To Be Rich post on barriers has some good insight on this.\\\"\",\n \"With $800/month extra? Do both. (I am ethnocentric enough to assume you live in the same country as me) First, figure out what your emergency fund should look like. Put this money in a high yield checking or savings account. Add to it monthly until you reach your goal. It should be 3 to 6 months of your total monthly expenses. It will be a lot more than $2k I suspect. You will earn bubkis in interest, but the point of the emergency fund is a highly liquid asset for emergencies so you can choose cheaper car insurance and not buy warranties on stuff. With your $800/month, split it up this way: $416/month into a Roth IRA account at Vanguard (or Schwab or Fidelity) in the Star Fund (or similar low cost, diversified fund). The star is $1000 to open, pretty diversified. $416 is a lazy number that comes close to the $5000 annual limit for a Roth IRA in the US. Contribute like clockwork, directly from your paycheck if you can. This will make it easy to do and get you the benefit of dollar cost averaging. $200 or $300 into your savings account until you reach your emergency fund goal. $85 - $100. Live a little. Speculate in stocks with your vanguard account. Or rent fancy cars. Or taken a vacation or go party. If you are saving $800/month in your early 20 be proud of yourself, but have a little fun too so you can let off steam. It isn't much but you know you can play with it. Once you reach your emergency fund, save up for your future house or car or plane tickets to Paris. Ask another question for how to save up for these kinds of goals.\",\n \"Does anyone have any good resources for starting up learning about savings, finances, etc? I'm 20 years old and want to begin really saving consistently and learning about 401Ks, IRAs, savings accounts, how to grow your money safely and slowly, etc. I'm mainly looking for a website or application that will help me budget and organize things. A phone app would be nice. And any subreddit where I could learn about these things would be extremely helpful too.\",\n \"At twenty-two, you can have anywhere between 100%-70% of your securities portfolio in equities. It is reasonable to start at 100% and reduce over time. The one thing that I would mention with that is that your target at retirement should be 70% stocks/30% bonds. You should NEVER have more than 30% bonds. Why? Because a 70/30 mix is both safer than 100% bonds and will give a higher return. Absent some market timing strategy (which as an amateur investor, you should absolutely avoid) or some complicated balancing scheme, there is never a reason to be at more than 30% bonds. A 50/50 mix of stocks and bonds or a 100% bonds ratio not only returns less than the 70/30 mix, it is actually riskier. Why? Because sometimes bonds fall. And when they do, stocks generally gain. And vice versa. Because of this behavior, the 70/30 mix is less likely to fall than 50% or 100% bonds. Does that mean that your stock percentage should never drop below 70%? No. If your portfolio contains things other than stocks and bonds, it is reasonable for stocks to fall below 70%. The problem is that when you drop stocks below 70%, you should drop bonds below 30% as well. So you keep the stock to bond ratio at 7:3. If you want to get a lower risk than a 70/30 mix, then you should move into cash equivalents. Cash equivalents are actually safer than stocks and bonds either individually or in combination. But at twenty-two, you don't really need more safety. At twenty-two, the first thing to do is to build your emergency fund. This should be able to handle six months of expenses without income. I recommend making it equal to six months of your income. The reason being that it is easy to calculate your income and difficult to be sure of expenses. Also, you can save six months of income at twenty-two. Are you going to stay where you are for the next five years? At twenty-two, the answer is almost certainly no. But the standard is the five year time frame. If you want a bigger place or one that is closer to work, then no. If you stay somewhere at least five years, then it is likely that the advantages to owning rather than renting will outweigh the costs of switching houses. Less than five years, the reverse is true. So you should probably rent now. You can max out your 401k and IRA now. Doing so even with a conservative strategy will produce big returns by sixty-seven. And perhaps more importantly, it helps keep your spending down. The less you do spend, the less you will feel that you need to spend. Once you fill your emergency fund, start building savings for a house. I would consider putting them in a Real Estate Investment Trust (REIT). A REIT will tend to track real estate. Since you want to buy real estate with the results, this is its own kind of safety. It fell in value? Houses are probably cheap. Houses increasing in price rapidly? A REIT is probably growing by leaps and bounds. You do this outside your retirement accounts, as you want to be able to access it without penalty.\",\n \"For a young person with good income, 50k sitting in a savings account earning nothing is really bad. You're losing money because of inflation, and losing on the growth potential of investing. Please rethink your aversion to retirement accounts. You will make more money in the long run through lower taxes by taking advantage of these accounts. At a minimum, make a Roth IRA contribution every year and max it out ($5500/yr right now). Time is of the essence! You have until April 15th to make your 2014 contribution! Equities (stocks) do very well in the long run. If you don't want to actively manage your portfolio, there is nothing wrong (and you could do a lot worse) than simply investing in a low-fee S&P 500 index fund.\",\n \"You don't have to retire. But the US government and other national governments have programs that allow you to set aside money when you are young to be used when you are older. To encourage you to do this, they reduce your taxes either now or when your are older. They also allow your employer to match your funds. In the US they have IRAs, 401Ks, and Social Security. You are not required to stop working while tapping into these funds. Having a job and using these funds will impact your taxes, but your are not forbidden from doing both. Decades ago most retirement funds come from pensions and Social Security. Most people are going to reach their senior years without a pension, or with only a very small pension because they had one in one of their early jobs. So go ahead, gamble that you will not need to save for retirement. Then hope that decades later you were right about it, because you can't go back in time and fix your choice. Some never save for retirement, either because they can't or they think they can't. Many that don't save end up working longer than they imagined. Some work everyday until they die, or are physically unable to work. Sometimes it is because they love the job, but often it is because they cannot afford to quit.\",\n \"You are asking all the right questions. I predict a bright future! In addition to the excellent advice from Phil, I would add that NOW is the time to think about investing. If you have not yet started a retirement account, open up a Roth IRA and max it out ($5.5k in 2014) every year. The time value of money is strong and you will be thanking yourself in 40 years for starting now. Yes, paying down debt is important, and you should do that, too. It's a balance. If you get converted to a full-time employee, take part in any retirement plan they offer, and max out any matching because it's free money.\",\n \"If you are earning a salary, go for Roth IRA. You can contribute $5500 (2013 limits) every year . Once you open a account , let say Fidelity or Vanguard, you should invest based on risk appetite into some funds. the advantage is that your money grows tax free and when you are 25- 30 years old and need money for down payment of house, you can pull the money out with out any penalty. The gains you have made will continue to be in that account till the time your retire, growing every year.\",\n \"\\\"My father imparted this advice to me when I was a teenager, and it hasn't failed me yet. > Pay yourself first What this means is that the first \\\"\\\"bill\\\"\\\" you pay should always be your savings. Preferably in a way that automatically comes out of your paycheck or account without requiring you to take an active step to make it happen. I save a ton of money, but I am no more disciplined than anyone else. I just realized that over the years of progressing in my career that I gradually got higher and higher salaries, yet never had a substantial increase in the money I had leftover in my bank at the end of the month despite the fact that I make about 8x the money I used to live reasonably comfortably on. Therein is the point, we spend whatever money we see, so you almost have to hide it from yourself. First, participate to the fullest in your company's 401k if they offer it. After a while you will adjust naturally to the net take home pay and won't miss the savings you are accumulating. Absent that, or in addition to that, set up a separate bank or investment account and arrange an automatic transfer from your checking account every month. Then set up automatic investing in CD's or some other less-liquid-than-cash investment so you it is just enough hassle to get at the money that you won't do it on a whim. It sounds too simple, but it works.\\\"\",\n \"\\\"Your question is very broad. Whole books can and have been written on this topic. The right place to start is for you and your wife to sit down together and figure out your goals. Where do you want to be in 5 years, 25 years, 50 years? To quote Yogi Berra \\\"\\\"If you don't know where you are going, you'll end up someplace else.\\\"\\\" Let's go backwards. 50 Years I'm guessing the answer is \\\"\\\"retired, living comfortably and not having to worry about money\\\"\\\". You say you work an unskilled government job. Does that job have a pension program? How about other retirement savings options? Will the pension be enough or do you need to start putting money into the other retirement savings options? Career wise, do you want to be working as in unskilled government jobs until you retire, or do you want to retire from something else? If so, how do you get there? Your goals here will affect both your 25 year plan and your 5 year plan. Finally, as you plan for death, which will happen eventually. What do you want to leave for your children? Likely the pension will not be transferred to your children, so if you want to leave them something, you need to start planning ahead. 25 Years At this stage in your life, you are likely talking, college for the children and possibly your wife back at work (could happen much earlier than this, e.g., when the kids are all in school). What do you want for your children in college? Do you want them to have the opportunity to go without having to take on debt? What savings options are there for your children's college? Also, likely with all your children out of the house at college, what do you and your wife want to do? Travel? Give to charity? Own your own home? 5 Years You mention having children and your wife staying at home with them. Can your family live on just your income? Can you do that and still achieve your 50 and 25 year goals? If not, further education or training on your part may be needed. Are you in debt? Would you like to be out of debt in the next 5-10 years? I know I've raised more questions than answers. This is due mostly to the nature of the question you've asked. It is very personal, and I don't know you. What I find most useful is to look at where I want to be in the near, mid and long term and then start to build a plan for how I get there. If you have older friends or family who are where you want to be when you reach their age, talk to them. Ask them how they got there. Also, there are tons of resources out there to help you. I won't suggest any specific books, but look around at the local library or look online. Read reviews of personal finance books. Read many and see how they can give you the advice you need to reach your specific goals. Good luck!\\\"\",\n \"I encourage using it as a buffer. After h.s. I had a thousand or so dollars saved up in my savings account. After college it was maybe 5 thousand and it's remained roughly like that ever since. I figure any modest emergency or spending splurge may cost, at most, a couple thousand bucks. I'm talking about a new couch, a car accident, hospital bill, vacation to wherever, etc. It's nice to have an idea of a buffer. Financial advisors say to have a buffer of about 3 months of salary. This is in case of unemployment and such. It was smart for me. I wouldn't try to spend money to make money at this point. It's not enough money to try to see a significant gain unless you're lucky. I tried Sharebuilder a while ago with $200 to see what stocks were like. They gave you several free trades to see how you liked it. At first I was shuffling stuff a little too much and once the fees start kicking in it's 7 bucks here, 7 bucks there- eventually I realized you have to invest enough to offset the transfer fees and the fact that you have your money tied up in something going up and down all the time. But yeah. Start with a buffer and scale it up as your lifestyle changes. Anything beyond your buffer is spending money, investing money, fun money.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["As AskAboutGadgets notes, there's no lower age limit. You current age (24) is a pretty good one; you'll have four decades or so for your money to grow and compound, allowing it to become a veritable fortune when you're ready to retire if you invest it fairly aggressively.","While there is no age limit, bear in mind that saving money makes sense only if it doesn't delay your paying off expensive debt. If you have credit cards or expensive loans you would be best placed to focus on paying them down before saving a lot. If you save and keep debt, you'll effectively lose money as the interest on your debt will usually be higher than you can earn on savings. Having said that, it's worth saving a small amount anyway to have as an emergency fund. As you pay off your debt, start saving the money you no longer have to pay out and it will soon pay dividends.","Are you working? Does your employer offer a 401(k) and if so, is there any match? Saving should be taught to kids at the same time they are old enough to get an allowance. There are many numbers tossed around, but 10% is a start for any new saver. If a college graduate can start by saving even 15%, better still. If you find that the 10% is too much, just start with what you can spare, and work to build that up over time, perhaps by splitting any future raises, half going toward savings, half to spending. Good luck. Edit - my 12 yr old made good money this summer baby sitting. I'm opening a Roth IRA for her. A 10 yr head start on her retirement savings. Edit (Jan-2013) - she's 14 now, 3 deposits to the Roth total $6000, and she's planning to up the number this year. Her goal is to have $50K saved in her Roth by the time she graduates college. Edit, by request (July-2017) 18, and off to college next month. Just under $24K, all invested in an S&P low cost index. We are planning to continue deposits of $4-$5K/yr, so the $50K is still a good goal.","There is no age-limit, in fact the sooner you start the better - the sooner the money starts to compound.","As all said, the age limitation thing is nothing, and saving money not necessarily means to live poor nor Skimpy, spend your needs and try to get what you need instead of what you want, the 24 years old is a good start for saving money, the whole life still in front of you Good luck!","It's nearly always a good idea to save for your future, if you don't already have sufficient funds to see out the rest of your days. The hardest part of the saving decision is knowing exactly what portion of your funds to save. If we save too aggressively, we risk having an adverse impact on our everyday life and, of course, there's always the possibility that we'll never make it to old age. But if we don't save, we risk the prospect of a poverty stricken retirement. It's not always easy to find a balance. The best solution is to make so much money that we cannot possibly spend it all!","You've never saved money? Have you ever bought anything? There probably was a small window of time that you had to pool some cash to buy something. In my experience, if you make it more interesting by 'allocating money for specific purposes' you'll have better results than just arbitrarily saving for a rainy day. Allocate your money for different things (ie- new car, emergency, travel, or starting a new business) by isolating your money into different places. Ex- your new car allocation could be in a savings account at your bank. Your emergency allocation can be in cash under your bed. Your new business allocation could be in an investment vehicle like a stocks where it could potentially see significant gains by the time you are ready to use it. The traditional concept of savings is gone. There is very little money to be earned in a savings account and any gains will be most certainly wiped out by inflation anyway. Allocate your money, allocate more with new income, and then use it to buy real things and fund new adventures when the time is right."],"string":"[\n \"As AskAboutGadgets notes, there's no lower age limit. You current age (24) is a pretty good one; you'll have four decades or so for your money to grow and compound, allowing it to become a veritable fortune when you're ready to retire if you invest it fairly aggressively.\",\n \"While there is no age limit, bear in mind that saving money makes sense only if it doesn't delay your paying off expensive debt. If you have credit cards or expensive loans you would be best placed to focus on paying them down before saving a lot. If you save and keep debt, you'll effectively lose money as the interest on your debt will usually be higher than you can earn on savings. Having said that, it's worth saving a small amount anyway to have as an emergency fund. As you pay off your debt, start saving the money you no longer have to pay out and it will soon pay dividends.\",\n \"Are you working? Does your employer offer a 401(k) and if so, is there any match? Saving should be taught to kids at the same time they are old enough to get an allowance. There are many numbers tossed around, but 10% is a start for any new saver. If a college graduate can start by saving even 15%, better still. If you find that the 10% is too much, just start with what you can spare, and work to build that up over time, perhaps by splitting any future raises, half going toward savings, half to spending. Good luck. Edit - my 12 yr old made good money this summer baby sitting. I'm opening a Roth IRA for her. A 10 yr head start on her retirement savings. Edit (Jan-2013) - she's 14 now, 3 deposits to the Roth total $6000, and she's planning to up the number this year. Her goal is to have $50K saved in her Roth by the time she graduates college. Edit, by request (July-2017) 18, and off to college next month. Just under $24K, all invested in an S&P low cost index. We are planning to continue deposits of $4-$5K/yr, so the $50K is still a good goal.\",\n \"There is no age-limit, in fact the sooner you start the better - the sooner the money starts to compound.\",\n \"As all said, the age limitation thing is nothing, and saving money not necessarily means to live poor nor Skimpy, spend your needs and try to get what you need instead of what you want, the 24 years old is a good start for saving money, the whole life still in front of you Good luck!\",\n \"It's nearly always a good idea to save for your future, if you don't already have sufficient funds to see out the rest of your days. The hardest part of the saving decision is knowing exactly what portion of your funds to save. If we save too aggressively, we risk having an adverse impact on our everyday life and, of course, there's always the possibility that we'll never make it to old age. But if we don't save, we risk the prospect of a poverty stricken retirement. It's not always easy to find a balance. The best solution is to make so much money that we cannot possibly spend it all!\",\n \"You've never saved money? Have you ever bought anything? There probably was a small window of time that you had to pool some cash to buy something. In my experience, if you make it more interesting by 'allocating money for specific purposes' you'll have better results than just arbitrarily saving for a rainy day. Allocate your money for different things (ie- new car, emergency, travel, or starting a new business) by isolating your money into different places. Ex- your new car allocation could be in a savings account at your bank. Your emergency allocation can be in cash under your bed. Your new business allocation could be in an investment vehicle like a stocks where it could potentially see significant gains by the time you are ready to use it. The traditional concept of savings is gone. There is very little money to be earned in a savings account and any gains will be most certainly wiped out by inflation anyway. Allocate your money, allocate more with new income, and then use it to buy real things and fund new adventures when the time is right.\"\n]","isConversational":false}}},{"rowIdx":281,"cells":{"_id":{"kind":"string","value":"7431"},"query":{"kind":"string","value":"Pay off mortgage or invest in high value saving account"},"gt_ids":{"kind":"list like","value":["372921"],"string":"[\n \"372921\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["154449","2393","63883","251642","372921","493336","557734","468831","589256","220733","426215","81906","387722","115717","340209","393857","431811","109903","241073","494148","377814","441512","477907","529954","560915","157414","100136","400567","131365","364099","160105","74497","561056","473427","78361","361717","341837","440719","247449","476068","586626","463260","403314","552383","323475","286466","472200","39716","394474","435576","98294","368590","249054","449294","91504","78447","290631","373554","50964","311558","202527","595436","402950","106215","552792","310780","459705","411206","461937","278626","123971","452474","310361","63427","470716","326542","457945","423628","439995","263546","209963","304277","101589","395099","568784","198251","524018","200900","107068","284318","85745","141059","331093","422142","90927","556072","564638","30808","175305","488638"],"string":"[\n \"154449\",\n \"2393\",\n \"63883\",\n \"251642\",\n \"372921\",\n \"493336\",\n \"557734\",\n \"468831\",\n \"589256\",\n \"220733\",\n \"426215\",\n \"81906\",\n \"387722\",\n \"115717\",\n \"340209\",\n \"393857\",\n \"431811\",\n \"109903\",\n \"241073\",\n \"494148\",\n \"377814\",\n \"441512\",\n \"477907\",\n \"529954\",\n \"560915\",\n \"157414\",\n \"100136\",\n \"400567\",\n \"131365\",\n \"364099\",\n \"160105\",\n \"74497\",\n \"561056\",\n \"473427\",\n \"78361\",\n \"361717\",\n \"341837\",\n \"440719\",\n \"247449\",\n \"476068\",\n \"586626\",\n \"463260\",\n \"403314\",\n \"552383\",\n \"323475\",\n \"286466\",\n \"472200\",\n \"39716\",\n \"394474\",\n \"435576\",\n \"98294\",\n \"368590\",\n \"249054\",\n \"449294\",\n \"91504\",\n \"78447\",\n \"290631\",\n \"373554\",\n \"50964\",\n \"311558\",\n \"202527\",\n \"595436\",\n \"402950\",\n \"106215\",\n \"552792\",\n \"310780\",\n \"459705\",\n \"411206\",\n \"461937\",\n \"278626\",\n \"123971\",\n \"452474\",\n \"310361\",\n \"63427\",\n \"470716\",\n \"326542\",\n \"457945\",\n \"423628\",\n \"439995\",\n \"263546\",\n \"209963\",\n \"304277\",\n \"101589\",\n \"395099\",\n \"568784\",\n \"198251\",\n \"524018\",\n \"200900\",\n \"107068\",\n \"284318\",\n \"85745\",\n \"141059\",\n \"331093\",\n \"422142\",\n \"90927\",\n \"556072\",\n \"564638\",\n \"30808\",\n \"175305\",\n \"488638\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["In all likelihood, the best thing you can do, if these really are your only two options (ie no other debt at all), paying-down your mortgage will shorten the term of the mortgage, and mean you spend less on your house in the long run. Investing is should be a long-term activity - so yes, the likelihood is that, given a modest investment, it will gain at historical averages over the life of the investment vehicle. However, that is not a guarantee, and is an inherent risk. Whereas paying-down a mortgage lowers your financial obligations and risk, investing increases your risk. I want to know how you got a 2.1% interest rate on a mortgage, though - the lowest I've seen anywhere is 3.25%.","\"If you don't want to take any risk and you want your money to be liquid, then the best place to \"\"invest\"\" such money is in an insured bank deposit, such as a high interest savings account. However, you aren't likely to find a savings account interest rate that comes close to that charged by your mortgage, so the better decision from a numbers perspective is to pay down more on your mortgage or other debt. Paying down your debt has almost no risk, but has a better payoff than simply saving the money in a bank account. However, if you choose to pay down more debt, I suggest you still keep aside enough cash to have an adequate emergency fund. Since you want safety and liquidity, don't expect high returns from such money.\"","It's six of one a half dozen of another. Investing the cash is a little more risky. You know exactly what you'll get by paying down your mortgage. If you have a solid emergency fund it's probably most advisable to pay down your mortgage. If your mortgage is 3% and your investment makes 3.5% you're talking about a taxable gain of 0.5% on the additional cash. Is that worth it to you? Sure, the S&P has been on a tear but remember, past results are not a guarantee of future performance.","Paying down your mortgage saves lots of interest. With a long term mortgage you end up paying twice us much to the bank than the sales price of the house. Even low mortgage interests are higher than short term bonds. The saving of those interest are as much an investment as the interest you get from a bond. However, before paying off a mortgage other higher interest loans should be paid off. Also it should be considered if the mortgage interest create a tax reduction in the comparison with any other options.","\"Basically, the easiest way to do this is to chart out the \"\"what-ifs\"\". Applying the amortization formula (see here) using the numbers you supplied and a little guesswork, I calculated an interest rate of 3.75% (which is good) and that you've already made 17 semi-monthly payments (8 and a half months' worth) of $680.04, out of a 30-year, 720-payment loan term. These are the numbers I will use. Let's now suppose that tomorrow, you found $100 extra every two weeks in your budget, and decided to put it toward your mortgage starting with the next payment. That makes the semi-monthly payments $780 each. You would pay off the mortgage in 23 years (making 557 more payments instead of 703 more). Your total payments will be $434,460, down from $478.040, so your interest costs on the loan were reduced by $43,580 (but, my mistake, we can't count this amount as money in the bank; it's included in the next amount of money to come in). Now, after the mortgage is paid off, you have $780 semi-monthly for the remaining 73 months of your original 30-year loan (a total of $113,880) which you can now do something else with. If you stuffed it in your mattress, you'd earn 0% and so that's the worst-case scenario. For anything else to be worth it, you must be getting a rate of return such that $100 payments, 24 times a year for a total of 703 payments must equal $113,880. We use the future value annuity formula (here): v = p*((i+1)n-1)/i, plugging in v ($113880, our FV goal), $100 for P (the monthly payment) and 703 for n (total number of payments. We're looking for i, the interest rate. We're making 24 payments per year, so the value of i we find will be 1/24 of the stated annual interest rate of any account you put it into. We find that in order to make the same amount of money on an annuity that you save by paying off the loan, the interest rate on the account must average 3.07%. However, you're probably not going to stuff the savings from the mortgage in your mattress and sleep on it for 6 years. What if you invest it, in the same security you're considering now? That would be 146 payments of $780 into an interest-bearing account, plus the interest savings. Now, the interest rate on the security must be greater, because you're not only saving money on the mortgage, you're making money on the savings. Assuming the annuity APR stays the same now vs later, we find that the APR on the annuity must equal, surprise, 3.75% in order to end up with the same amount of money. Why is that? Well, the interest growing on your $100 semi-monthly exactly offsets the interest you would save on the mortgage by reducing the principal by $100. Both the loan balance you would remove and the annuity balance you increase would accrue the same interest over the same time if they had the same rate. The main difference, to you, is that by paying into the annuity now, you have cash now; by paying into the mortgage now, you don't have money now, but you have WAY more money later. The actual real time-values of the money, however, are the same; the future value of $200/mo for 30 years is equal to $0/mo for 24 years and then $1560/mo for 6 years, but the real money paid in over 30 years is $72,000 vs $112,320. That kind of math is why analysts encourage people to start retirement saving early. One more thing. If you live in the United States, the interest charges on your mortgage are tax-deductible. So, that $43,580 you saved by paying down the mortgage? Take 25% of it and throw it away as taxes (assuming you're in the most common wage-earner tax bracket). That's $10895 in potential tax savings that you don't get over the life of the loan. If you penalize the \"\"pay-off-early\"\" track by subtracting those extra taxes, you find that the break-even APR on the annuity account is about 3.095%.\"","At the moment the interest rate... implies a variable rate mortgage. I believe rates are only going to go up from here. So, if I were in your position, I would pay off the mortgage first. If you don't have 3-6 months in savings for an emergency, I would invest that much money in low risk investments. Anything remaining I would invest in a balanced portfolio of mutual funds. The biggest benefit to this is the flexibility it gives you. Not being burdened by a monthly mortgage frees you up to invest. This may be in your stock portfolio each month or it may be in your community or charitable causes. You have financial margin.","Yes, you will come out ahead slightly by putting the money in the savings account, then paying off your mortgage later. However, we don't know what will happen to these interest rates after 1 year. If you put the £300 per month into the savings account for a year, then put the money into you mortgage, you will save about £78 for the year over just putting the money toward your mortgage in the first place. For me, I'm more concerned about longer term strategy. What happens to your mortgage rate after 2 years? What happens to your savings account rate after 1 year? The mortgage rate likely goes up and the savings account rate likely goes down, making the savings of this strategy even less after the first year. Instead, you may want to put this £300 per month toward retirement investments (assuming you have no other debt), which should, over the long term, earn more than the savings account.","First of all, you should absolutely put money into savings until you have at least a 6 month cushion, and preferably longer. It doesn't matter if you get 0% interest in your savings and have a high interest rate mortgage, the cushion is still more important. Once you have a nice emergency fund, you can then consider the question of whether to pay more towards the mortgage if the numbers make sense. However, in my opinion, it's not just a straight comparison of interest rates. In other words, if your savings account gives you 1% and your mortgage is 5%, that's still not an automatic win for the mortgage. The reason is that by putting the money into your mortgage, you're locking it up and can't access it. To me, money in the hand is worth a lot more than money that's yours on paper but not easily accessible. I don't know the math well enough, but you don't really need the math. Just keep in mind that you have to weight the present value of putting that money into savings vs the future value of putting it into your mortgage and paying less interest at some point in the future. Do the math and see how much you will save by paying the mortgage down faster, but also keep in mind that future money is worth less than present money. A LOT less if you suddenly have an emergency or decide on a major purchase and need the money, but then have to jump through hoops to get to it. To me, you need to save a considerable amount by paying down the mortgage, and also understand that your money is getting locked away, for it to make sense.","\"For some people, it should be a top priority. For others, there are higher priorities. What it should be for you depends on a number of things, including your overall financial situation (both your current finances and how stable you expect them to be over time), your level of financial \"\"education\"\", the costs of your mortgage, the alternative investments available to you, your investing goals, and your tolerance for risk. Your #1 priority should be to ensure that your basic needs (including making the required monthly payment on your mortgage) are met, both now and in the near future, which includes paying off high-interest (i.e. credit card) debt and building up an emergency fund in a savings or money-market account or some other low-risk and liquid account. If you haven't done those things, do not pass Go, do not collect $200, and do not consider making advance payments on your mortgage. Mason Wheeler's statements that the bank can't take your house if you've paid it off are correct, but it's going to be a long time till you get there and they can take it if you're partway to paying it off early and then something bad happens to you and you start missing payments. (If you're not underwater, you should be able to get some of your money back by selling - possibly at a loss - before it gets to the point of foreclosure, but you'll still have to move, which can be costly and unappealing.) So make sure you've got what you need to handle your basic needs even if you hit a rough patch, and make sure you're not financing the paying off of your house by taking a loan from Visa at 27% annually. Once you've gotten through all of those more-important things, you finally get to decide what else to invest your extra money in. Different investments will provide different rewards, both financial and emotional (and Mason Wheeler has clearly demonstrated that he gets a strong emotional payoff from not having a mortgage, which may or may not be how you feel about it). On the financial side of any potential investment, you'll want to consider things like the expected rate of return, the risk it carries (both on its own and whether it balances out or unbalances the overall risk profile of all your investments in total), its expected costs (including its - and your - tax rate and any preferred tax treatment), and any other potential factors (such as an employer match on 401(k) contributions, which are basically free money to you). Then you weigh the pros and cons (financial and emotional) of each option against your imperfect forecast of what the future holds, take your best guess, and then keep adjusting as you go through life and things change. But I want to come back to one of the factors I mentioned in the first paragraph. Which options you should even be considering is in part influenced by the degree to which you understand your finances and the wide variety of options available to you as well as all the subtleties of how different things can make them more or less advantageous than one another. The fact that you're posting this question here indicates that you're still early in the process of learning those things, and although it's great that you're educating yourself on them (and keep doing it!), it means that you're probably not ready to worry about some of the things other posters have talked about, such as Cost of Capital and ROI. So keep reading blog posts and articles online (there's no shortage of them), and keep developing your understanding of the options available to you and their pros and cons, and wait to tackle the full suite of investment options till you fully understand them. However, there's still the question of what to do between now and then. Paying the mortgage down isn't an unreasonable thing for you to do for now, since it's a guaranteed rate of return that also provides some degree of emotional payoff. But I'd say the higher priority should be getting money into a tax-advantaged retirement account (a 401(k)/403(b)/IRA), because the tax-advantaged growth of those accounts makes their long-term return far greater than whatever you're paying on your mortgage, and they provide more benefit (tax-advantaged growth) the earlier you invest in them, so doing that now instead of paying off the house quicker is probably going to be better for you financially, even if it doesn't provide the emotional payoff. If your employer will match your contributions into that account, then it's a no-brainer, but it's probably still a better idea than the mortgage unless the emotional payoff is very very important to you or unless you're nearing retirement age (so the tax-free growth period is small). If you're not sure what to invest in, just choose something that's broad-market and low-cost (total-market index funds are a great choice), and you can diversify into other things as you gain more savvy as an investor; what matters more is that you start investing in something now, not exactly what it is. Disclaimer: I'm not a personal advisor, and this does not constitute investing advice. Understand your choices and make your own decisions.\"","I would not recommend using your own money to pay off something that is not a strong asset. Use the savings where it will have the maximum return. Why not put (some of) the savings into another investment mortgage? Thanks to the leverage your return would be much higher than 5.5%, plus you would have more income.","\"Understand your own risk tolerance and discipline. From Moneychimp we can see different market results - This is a 15 year span, containing what was arguably one of the most awful decades going. A full 10 year period with a negative return. Yet, the 15 year return was a 6.65% CAGR. You'd net 5.65% after long term cap gains. Your mortgage is likely costing ~4% or 3% after tax (This is not applicable to my Canadian friends, I understand you don't deduct interest). In my not so humble opinion, I'd pay off the highest rate debts first (unlike The David followers who are happy to pay off tens of thousands of dollars in 0% interest debt before the large 18% debt) and invest at the highest rate I'd get long term. The problem is knowing when to flip from one to the other. Here's food for thought - The David insists on his use of the 12% long term market return. The last 100 years have had an average 11.96% return, but you can't spend average, the CAGR, the real compound rate was 10.06%. Why would he recommend paying off a sub 3% loan while using 12% for his long term planning (All my David remarks are not applicable to Canadian members, you all probably know better than to listen to US entertainers)? I am retired, and put my money where my mouth is. The $200K I still owe on my mortgage is offset by over $400K in my 401(k). The money went in at 25%/28% pretax, has grown over these past 20 years, and comes out at 15% to pay my mortgage each month. No regrets. Anyone starting out now, and taking a 30 year mortgage, but putting the delta to a 15 year mortgage payment into their 401(k) is nearly certain to have far more in the retirement account 15 years hence than their remaining balance on the loan, even after taxes are considered. Even more if this money helps them to get the full matching, which too many miss. All that said, keep in mind, the market is likely to see a correction or two in the next 15 years, one of which may be painful. If that would keep you up at night, don't listen to me. If a fixed return of 4% seems more appealing than a 10% return with a 15% standard deviation, pay the mortgage first. Last - if you have a paid off house but no job, the town still wants its property tax, and the utilities still need to be paid. If you lose your job with $400K in your 401(k)/IRA but have a $200K mortgage, you have a lot of time to find a new job or sell the house with little pressure from the debt collectors. (To answer the question in advance - \"\"Joe, at what mortgage rate do you pay it off first?\"\" Good question. I'd deposit to my 401(k) to grab matching deposits first, and then if the mortgage was anywhere north of 6%, prioritize that. This would keep my chances at near 100% of coming out ahead.)\"","Aggressively paying of Mortgage is better. If you have more cash available [assuming you have covered all other aspects i.e. emergency funds, retirement etc], the only question you need to ask is where will you invest and what returns would you get. So if your mortgage is say at 5%, if the spare money can get you more than this, its beneficial, if its in Bank CD with say near zero interest, its not worth it. However if you are sure you can make 10% returns on the investments, then go ahead and don't pay the mortgage aggressively.","\"The mortgage has a higher interest rate, how can it make sense to pay off the HELOC first?? As for the mutual fund, it comes down to what returns you are expecting. If the after-tax return is higher than the mortgage rate then invest, otherwise \"\"invest\"\" in paying down the mortgage. Note that paying down debt is usually the best investment you have.\"","Simply, you should put your money into whatever has the higher interest rate, savings or repayment of debt. Let's say at the beginning of month A you put $1000 into each account. In the case of the savings, at the end of month A you will have $1001.6 ($1000 + 1000 x 2% annual interest / 12) In the case of a loan, at the end of month A you will have $1005.7. ($17000 plus 6.8 interest for one month is 17096.3. On $16000, the new value is 16090.6. The difference between these is $1005.7. 5.7 / 1.6 = 3.56 Therefore, using your money to repay your loan nets you a return about 3.5 times greater.","\"I think the basic question you're asking is whether you'd be better off putting the $20K into an IRA or similar investment, or if your best bet is to pay down your mortgage. The answer is...that depends. What you didn't share is what your mortgage balance is so that we can understand how using that money to pay down the mortgage would affect you. The lower your remaining balance on the mortgage, the more impact paying it down will affect your long-term finances. For example, if your remaining principal balance is more than $200k, paying down $20k in principal will not have as significant an effect as if you only have $100k principal balance and were paying down $20k of that. To me, one option is to put the $20k toward mortgage principal, then perhaps do a refinance on your remaining mortgage with the goal of getting a better interest rate. This would double the benefit to you. First, your mortgage payment would be lower by virtue of a lower principal balance (assuming you keep the same term period in your refinanced mortgage as you have now. In other words, if you have a 15-year now, your new mortgage should be 15 years also to see the best effect on your payment). Further, if you can obtain a lower interest rate on the new loan, now you have the dual benefit of a lower principal balance to pay down plus the reduced interest cost on that principal balance. This would put money into your pocket immediately, which I think is part of your goal, although the question does hinge on what you'd pay in points and fees for a refinance. You can invest, but with that comes risk, and right now may not be the ideal time to enter the markets given all of the uncertainties with the \"\"Brexit\"\" issue. By paying down your mortgage principal, even if you do nothing else, you can save yourself considerable interest in the long term which might be more beneficial than the return you'd get from the markets or an IRA at this point. I hope this helps. Good luck!\"","The short answer is that it depends on the taxation laws in your country. The long answer is that there are usually tax avoidance mechanisms that you can use which may make it more economically feasible for you to go one way or the other. Consider the following: The long term average growth rate of the stock market in Australia is around 7%. The average interest on a mortgage is 4.75%. Assuming you have money left over from a 20% deposit, you have a few options. You could: 1) Put that money into an index fund for the long term, understanding that the market may not move for a decade, or even move downwards; 2) Dump that money straight into the mortgage; 3) Put that money in an offset account Option 1 will get you (over the course of 30-40 years) around 7% return. If and when that profit is realised it will be taxed at a minimum of half your marginal tax rate (probably around 20%, netting you around 5.25%) Option 2 will effectively earn you 4.75% pa tax free Option 3 will effectively earn you 4.75% pa tax free with the added bonus that the money is ready for you to draw upon on short notice. Of the three options, until you have a good 3+ months of living expenses covered, I'd go with the offset account every single time. Once you have a few months worth of living expenses covered, I would the adopt a policy of spreading your risk. In Australia, that would mean extra contributions to my Super (401k in the US) and possibly purchasing an investment property as well (once I had the capital to positively gear it). Of course, you should find out more about the tax laws in your country and do your own maths.","The mathematically correct answer is to invest, because you'll get a higher rate of return. I think that answer is bunk -- owning your home free and clear is a huge burden lifted off of your shoulders. You're at an age where you may find a new job, business, personal or other opportunities will be easier to take advantage of without that burden.","It depends on the relative rates and relative risk. Ignore the deduction. You want to compare the rates of the investment and the mortgage, either both after-tax or both before-tax. Your mortgage costs you 5% (a bit less after-tax), and prepayments effectively yield a guaranteed 5% return. If you can earn more than that in your IRA with a risk-free investment, invest. If you can earn more than that in your IRA while taking on a degree of risk that you are comfortable with, invest. If not, pay down your mortgage. See this article: Mortgage Prepayment as Investment: For example, the borrower with a 6% mortgage who has excess cash flow would do well to use it to pay down the mortgage balance if the alternative is investment in assets that yield 2%. But if two years down the road the same assets yield 7%, the borrower can stop allocating excess cash flow to the mortgage and start accumulating financial assets. Note that he's not comparing the relative risk of the investments. Paying down your mortgage has a guaranteed return. You're talking about CDs, which are low risk, so your comparison is simple. If your alternative investment is stocks, then there's an element of risk that it won't earn enough to outpace the mortgage cost. Update: hopefully this example makes it clearer: For example, lets compare investing $100,000 in repayment of a 6% mortgage with investing it in a fund that pays 5% before-tax, and taxes are deferred for 10 years. For the mortgage, we enter 10 years for the period, 3.6% (if that is the applicable rate) for the after tax return, $100,000 as the present value, and we obtain a future value of $142,429. For the alternative investment, we do the same except we enter 5% as the return, and we get a future value of $162,889. However, taxes are now due on the $62,889 of interest, which reduces the future value to $137,734. The mortgage repayment does a little better. So if your marginal tax rate is 30%, you have $10k extra cash to do something with right now, mortgage rate is 5%, IRA CD APY is 1%, and assuming retirement in 30 years: If you want to plug it into a spreadsheet, the formula to use is (substitute your own values): (Note the minus sign before the cash amount.) Make sure you use after tax rates for both so that you're comparing apples to apples. Then multiply your IRA amount by (1-taxrate) to get the value after you pay future taxes on IRA withdrawals.","I think there are a few facets to this, namely: Overall, I wouldn't concentrate on paying off the house if I didn't have any other money parked and invested, but I'd still try to get rid of the mortgage ASAP as it'll give you more money that you can invest, too. At the end of the day, if you save out paying $20k in interest, that's almost $20k you can invest. Yes, I realise there's a time component to this as well and you might well get a better return overall if you invested the $20k now that in 5 years' time. But I'd still rather pay off the house.","My figuring (and I'm not an expert here, but I think this is basic math) is: Let's say you had a windfall of $1000 extra dollars today that you could either: a. Use to pay down your mortgage b. Put into some kind of equity mutual fund Maybe you have 20 years left on your mortgage. So your return on investment with choice A is whatever your mortgage interest rate is, compounded monthly or daily. Interest rates are low now, but who knows what they'll be in the future. On the other hand, you should get more return out of an equity mutual fund investment, so I'd say B is your better choice, except: But that's also the other reason why I favour B over A. Let's say you lose your job a year from now. Your bank won't be too lenient with you paying your mortgage, even if you paid it off quicker than originally agreed. But if that money is in mutual funds, you have access to it, and it buys you time when you really need it. People might say that you can always get a second mortgage to get the equity out of it, but try getting a second mortgage when you've just lost your job.","pay off loans first, then invest. it's a guaranteed benefit. you could invest it and make great returns, or you could watch the market crash the next day and there goes your savings. no guarantee exists there. take the sure thing. that's my two cents.","\"There is no formula to answer the question. You have to balance return on investment with risk. There's also the question of whether you have any children or other heirs that you would like to leave money to. The mortgage is presumably a guaranteed thing: you know exactly how much the payments will be for the rest of the loan. I think most annuities have a fixed rate of return, but they terminate when you both die. There are annuities with a variable return, but usually with a guaranteed minimum. So if you got an annuity with a fixed 3.85% return, and you lived exactly 18 more years, then (ignoring tax implications), there'd be no practical difference between the two choices. If you lived longer than 18 years, the annuity would be better. If less, paying off the mortgage would be better. Another option to consider is doing neither, but keeping the money in the 401k or some other investment. This will usually give better than 3.85% return, and the principal will be available to leave to your heirs. The big drawback to this is risk: investments in the stock market and the like usually do better than 3 or 4%, but not always, and sometimes they lose money. Earlier I said \"\"ignoring tax implications\"\". Of course that can be a significant factor. Mortgages get special tax treatment, so the effective interest rate on a mortgage is less than the nominal rate. 401ks also get special tax treatment. So this complicates up calculations trying to compare. I can't give definitive numbers without knowing the returns you might get on an annuity and your tax situation.\"","In general, saving money should be prioritized over extra debt payments. Every dollar that you spend paying down a debt will decrease the amount of principal owed; this will directly decrease the future interest payments you will make. However, as time goes on, you are dealing with a smaller and smaller set of principal; additionally, it is assumed that your income will grow (or at least keep pace with inflation), making the debt more bearable. On the other hand, every dollar you save (or invest) now will increase your future income - also making the future debt more bearable. Not only that, but the longer you save, the more value to you get from having saved, meaning you should save as early as possible. Finally, the benefits of paying down the mortgage early end when the mortgage is completely paid off, while the benefits of saving will continue (and even grow) after the house is owned free and clear. That is, if you have an extra $100,000 to put into the mortgage during the life of the loan, you could sink that into the mortgage and see it disappear, or you could invest it, and reap the dividends for the rest of your life. Caveat emptor: behavior trumps numbers. This only works if you will actually be disciplined about saving the extra money rather than paying off debt. If you're the kind of person for whom money burns a hole in your pocket until you spend it, then use it on debt. But if you are able to save and invest that money, you will be better off in the long run.","The answer can depend greatly on whether the interest on a mortgage for the house you live in is tax deductible in the country you are in (I assume the mortgage is on the house you live in and not an investment property). It will also depend on the difference between the mortgage interest rate and the return of the unit trust, your income and your tax rates. In essence you would need to do a cost-benefit analysis to figure out which option would provide the bigest financial benefit, considering the different rates, your income and your tax rates. Basically, if you can get a better return from the unit trust than the mortgage interest rate and you can claim a tax deduction for the mortgage interest payments, then you may be better off investing in the unit trust rather than putting extra repayments into the mortgage.","\"I'm assuming when you say \"\"…put it towards our mortgage payment?\"\", you mean make additional payments on top of your scheduled payment. Strictly speaking, if the interest on your mortgage is higher than the return you can expect by saving, then yes, your excess savings should be put toward your mortgage. This assumes that there are no pre-payment penalties, that you really won't miss that money in the short term (i.e. you say you have enough savings for emergencies, so that's good), and that both choices would use after-tax dollars (i.e. mortgage payment vs RRSP contribution in Canada is a huge discussion).\"","Let's look at some of your options: In a savings account, your $40,000 might be earning maybe 0.5%, if you are lucky. In a year, you'll have earned $200. On the plus side, you'll have your $40,000 easily accessible to you to pay for moving, closing costs on your new house, etc. If you apply it to your mortgage, you are effectively saving the interest on the amount for the life of the loan. Let's say that the interest rate on your mortgage is 4%. If you were staying in the house long-term, this interest would be compounded, but since you are only going to be there for 1 year, this move will save you $1600 in interest this year, which means that when you sell the house and pay off this mortgage, you'll have $1600 extra in your pocket. You said that you don't like to dabble in stocks. I wouldn't recommend investing in individual stocks anyway. A stock mutual fund, however, is a great option for investing, but only as a long-term investment. You should be able to beat your 4% mortgage, but only over the long term. If you want to have the $40,000 available to you in a year, don't invest in a mutual fund now. I would lean toward option #2, applying the money to the mortgage. However, there are some other considerations: Do you have any other debts, maybe a car loan, student loan, or a credit card balance? If so, I would forget everything else and put everything toward one or more of these loans first. Do you have an emergency fund in place, or is this $40,000 all of the cash that you have available to you? One rule of thumb is that you have 3 to 6 months of expenses set aside in a safe, easily accessible account ready to go if something comes up. Are you saving for retirement? If you don't already have retirement savings in place and are adding to it regularly, some of this cash would be a great start to a Roth IRA or something like that, invested in a stock mutual fund. If you are already debt free except for this mortgage, you might want to do some of each: Keep $10,000 in a savings account for an emergency fund (if you don't already have an emergency fund), put $5,000 in a Roth IRA (if you aren't already contributing a satisfactory amount to a retirement account), and apply the rest toward your mortgage.","\"From what I've read, paying down your mortgage -- above and beyond what you'd normally pay -- is indeed an investment but a very poor form of investment. In other words, you could take that extra money you'd apply towards your mortgage and put it in something that has a much higher rate of return than a house. As an extreme example, consider: if I took $6k extra I would have paid toward my mortgage in a single year, and bought a nice performing stock, I could see returns of 2x or 3x. Now, that implies I know which stock to pick, etcetera.. I found a \"\"mortgage or investment\"\" calculator which could be of use as well: http://www.planningtips.com/cgi-bin/prepay_v_invest.pl (scroll to bottom to see the summary and whether or not prepay or invest wins for the numbers you plugged in)\"","If it's either/or, I'd pay down the mortgage, no question. I know I'm in the minority, but I'm not a fan of tax-advantaged retirement accounts. There are too many things that can change between now and the next 30 years (the time frame that you'll be able to withdraw from your IRA account without penalty). The rules governing these accounts can change at any time, and I don't think they'll be changes for the better. Putting the money toward your mortgage will relieve you of that monthly payment faster. The benefits of IRAs come retirement age are too uncertain for my taste.","but then they make suggestions such as paying extra each month on your mortgage. How else does one pay off his mortgage early other than by paying extra each month? The principal and interest are fixed, no matter how much money you throw at them. The interest rate is fixed. The total interest paid varies depending on how much extra you pay towards the principal. You'll pay the same amount every month regardless. That's factually incorrect. just put the extra money into savings At 1.2%, if you're smart enough to put it in an on-line savings account. until you have enough to pay off the mortgage Which costs you 3.5%. This way, the money is locked up in your home. Who says that all of your money must be locked up in your home? (I'm sure that there are financial advisors who recommend that you throw every single spare dime into extra mortgage payments, but they're rare.) Am I missing something? Yes: the mathematical sense to see that a 3.5% loan costs more than than 1.2% savings earns you","Certainly, paying off the mortgage is better than doing nothing with the money. But it gets interesting when you consider keeping the mortgage and investing the money. If the mortgage rate is 5% and you expect >5% returns from stocks or some other investment, then it might make sense to seek those higher returns. If you expect the same 5% return from stocks, keeping the mortgage and investing the money can still be more tax-efficient. Assuming a marginal tax rate of 30%, the real cost of mortgage interest (in terms of post-tax money) is 3.5%*. If your investment results in long-term capital gains taxed at 15%, the real rate of growth of your post-tax money would be 4.25%. So in post-tax terms, your rate of gain is greater than your rate of loss. On the other hand, paying off the mortgage is safer than investing borrowed money, so doing so might be more appropriate for the risk-averse. * I'm oversimplifying a bit by assuming the deduction doesn't change your marginal tax rate.","\"I was going to ask, \"\"Do you feel lucky, punk?\"\" but then it occurred to me that the film this quote came from, Dirty Harry, starring Clint Eastwood, is 43 years old. And yet, the question remains. The stock market, as measured by the S&P has returned 9.67% compounded over the last 100 years. But with a standard deviation just under 20%, there are years when you'll do better and years you'll lose. And I'd not ignore the last decade which was pretty bad, a loss for the decade. There are clearly two schools of thought. One says that no one ever lost sleep over not having a mortgage payment. The other school states that at the very beginning, you have a long investing horizon, and the chances are very good that the 30 years to come will bring a return north of 6%. The two decades prior to the last were so good that these past 30 years were still pretty good, 11.39% compounded. There is no right or wrong here. My gut says fund your retirement accounts to the maximum. Build your emergency fund. You see, if you pay down your mortgage, but lose your job, you'll still need to make those payments. Once you build your security, think of the mortgage as the cash side of your investing, i.e. focus less on the relatively low rate of return (4.3%) and more on the eventual result, once paid, your cash flow goes up nicely. Edit - in light of the extra information you provided, your profile reads that you have a high risk tolerance. Low overhead, no dependents, and secure employment combine to lead me to this conclusion. At 23, I'd not be investing at 4.3%. I'd learn how to invest in a way I was comfortable with, and take it from there. Disclosure (Updated) - I am older, and am semi-retired. I still have some time left on the mortgage, but it doesn't bother me, not at 3.5%. I also have a 16 year old to put through college but her college account i fully funded.\"","Yes, one is certainly better than the other. Which one depends on your priorities and the interest and tax rates on your student loan, your savings, and your (future) mortgage plus how much you can afford to save and still enjoy the lifestyle you want as well as how soon you want to move out. Basically, you havn't given enough information.","you should always invest if your investment rate of return is higher than your interest rate Your next line, about standard deviation is dead on. There are too many variables to give an exact answer here, in my opinion. The main reason is that one variable isn't easy to quantify - One's risk tolerance. Clearly, there's one extreme, the 18% credit card. Unless you are funding loanshark type rates of 2%/week, it's safe to say that 18% debt should take priority over any investments, except for the matched 401(k) deposits. What I think you're talking about is something we've addressed here in multiple threads. Do I prepay my sub 4% mortgage or invest? In this case, (and to Noah's comment) the question is whether you can expect a post-tax return of over 3% during your time horizon. I look at the return for 15 years from 1998-2013 and see a 6% CAGR for the S&P. I chose 15 years, as the choice is often one of paying a 30 year mortgage faster, as fast as 15. The last 15 years offer a pretty bad scenario, 2 crashes and a mortgage crisis. 6% after long term gains would get you 5.1% net. You can pull the data back to 1871 and run CAGR numbers for the timeframe of your choosing. I haven't done it yet, but I imagine there's no 15 year span that lags the 3% target I cite. What makes it more complex is that the investment isn't lump sum. It may not be obvious, but CAGR is a dollar invested at T=0, and returns calculated to T=final year. It would take a bit of spreadsheeting to invest the extra funds every month/year over your period of analysis. In the end, there are still those who will choose to pay off their 4% mortgage regardless of what the numbers show. Even if the 15 year result showed worst case 3.5% (almost no profit) and an average 10%, the feeling of risk is more than many will want.","I read your question that you have a comfortable amount toward retirement. If not, pad your retirement accounts if possible. If your loan rate is locked at 2.67%, invest that money in the market and pay the loan as agreed. So long as you feel comfortable in your employment and income status for the next few years, I would bet you will get a lot more out of your cash investing in diversified, low cost funds or ETFs that you will save in interest on that loan. Finally, if you decide to lower your debt instead of increasing investments (based on your tolerance for risk) why not pay more on the mortgage? If you owe most of your mortgage and it is typically long term, you might cut many years off of the mortgage with a large payment.","The chances are good that the interest you are going to pay on the debt is going to be higher than the interest you are going to receive on any type of short term investments. That would make the paying off of the debt worth more to you in the long run than saving your money. Note that without the particulars of your situation this is all just theory crafting so consult the details of you loan agreements. I cannot imagine that a credit provider did not discuss this with you before you put pen on paper.","First off, this is a post for /r/personalfinance. Second off, if you want to think of this like an accountant/financier, those are the bank's 10233 dollars, not your's, and you are paying them 6% to keep that money. If you are confident that you are going to make more than 6% interest on any investments you make with that money, it makes sense to do so, although your return will be 6% less in reality. You also assume the risk of losing money on the investment and not having enough money to repay your loans. tl;dr Pay off the loan.","It is important to consider your overall financial goals (especially in the 3-5 year range). If you have another financial goal which cannot be met without that additional money then meeting that financial goal might take priority over what I am about to say. Your mortgage rate is another important factor to consider when answering this question. Extra mortgage payments are equivalent to investing that money in a VERY low risk investment with an equivalent yield of the mortgage rate because you will be paying that much less per year in interest. (Actually, when you consider that mortgage interest is often tax-deductible the equivalent yield should be reduced by your income tax rate.) Typically it is not possible to find such a low risk investment with a yield as high as your mortgage rate. For example current mortgage rates are over twice as high as the yield of a one year CD. Also keep in mind that additional mortgage payments help you build equity. This equity will most likely be applied to your next home purchase. If so their effect will be in place throughout the life of your next mortgage too.","There are a lot of open questions about if this is your only accessible money or if you have other emergency funds, and if you have any retirements savings and when do you plan to retire, but leaving this all aside: You currently pay 2.65% on the mortgage, and you make less on savings (maybe 1 or 1.5%). So putting the savings into the mortgage makes you the difference, which is a good deal. However, you need to reflect this with your risk-averisty, and your long term goals, and look at potential even better deals. For example, you could put the savings into higher risk/higher gain investments (let’s assume index funds), and make 6 - 10% per year in average. That obviously is a lot more. Why would you not want to do that? Investing like this is a long term plan. If this is your only savings/emergency fund, or if you need the money within the next five years, you should not do it; it could catch you in a bad market situation, and then it might be a severe loss. If you are sure you don’t need it for at least five if not ten years, invest it and keep the mortgage, you will easily beat its interest rate. If you are risk-averse, and can’t sleep with your savings doing loopings while you watch, that is also not a plan for you. There are many things to consider, and your personal situation is relevant for the decision. Consider all options, and be sure to always have a emergency fund remaining. It is also not black and white - there are options in between of your two propositions - pay some in, and keep some for emergencies.","\"I'll assume you live in the US for the start of my answer - Do you maximize your retirement savings at work, at least getting your employer's match in full, if they do this. Do you have any other debt that's at a higher rate? Is your emergency account funded to your satisfaction? If you lost your job and tenant on the same day, how long before you were in trouble? The \"\"pay early\"\" question seems to hit an emotional nerve with most people. While I start with the above and then segue to \"\"would you be happy with a long term 5% return?\"\" there's one major point not to miss - money paid to either mortgage isn't liquid. The idea of owing out no money at all is great, but paying anything less than \"\"paid in full\"\" leaves you still owing that monthly payment. You can send $400K against your $500K mortgage, and still owe $3K per month until paid. And if you lose your job, you may not so easily refinance the remaining $100K to a lower payment so easily. If your goal is to continue with real estate, you don't prepay, you save cash for the next deal. Don't know if that was your intent at some point. Disclosure - my situation - Maxing out retirement accounts was my priority, then saving for college. Over the years, I had multiple refinances, each of which was a no-cost deal. The first refi saved with a lower rate. The second, was in early 2000s when back interest was so low I took a chunk of cash, paid principal down and went to a 20yr from the original 30. The kid starts college, and we target retirement in 6 years. I am paying the mortgage (now 2 years into a 10yr) to be done the month before the kid flies out. If I were younger, I'd be at the start of a new 30 yr at the recent 4.5% bottom. I think that a cost of near 3% after tax, and inflation soon to near/exceed 3% makes borrowing free, and I can invest conservatively in stocks that will have a dividend yield above this. Jane and I discussed the plan, and agree to retire mortgage free.\"","\"I doubt you will get an answer equal to \"\"You can't save when you have debt\"\". Because most mortgages are for decades, very few people would be able to save for retirement if they had to wait to be mortgage free. The difficulty in saving occurs when the interest rate is very high (18% or more) and the interest is not deductible. Such as with credit cards. The minimum payment for your mortgage is 30% of your income. If that doesn't include taxes and homeowners insurance in the 30%, then for the United States that would be considered too large. While the general plan to pay down the mortgage is a good idea, make sure that you are able to handle the minimum payments before starting to increase the payments. Try the minimum for a year or two before getting aggressive The calculation is based on the interest rate of the mortgage, the interest rate of the savings account, and the potential tax deduction of the mortgage and the tax rate on the earned interest. Putting extra money into a mortgage, but missing out on matching retirement money would also have to be figured into the calculation. Make sure you do save for retirement , kids education, and emergencies. Unless your country has a complex system where the money can flow in and out of the mortgage, then once you put extra money into the mortgage you can't get it back when the car dies. The nice thing about putting extra money into a mortgage is that you can do it either in an organized way, or only when you feel comfortable. So it is not urgent for you to commit to a plan immediately. One thing to avoid is a plan that charges you a fee to add extra money, or charges a fee to switch to a bi-weekly mortgage. While your ideas is good, these plans should never cost any money to start, and may be a scam if a 3rd party gets between you and the lender.\"","You mention only two debts, mortgage and student loan, but you mention $19K in savings, which suggests that you are a saver, and likely do not have other debts. You did not mention your (net) income and expenses (income statement), but since you have substantial savings, you likely live within your means (income > expenses). Since you mention $38K in retirement, we might conclude you are regularly saving for retirement (are you saving 10% toward retirement)? You did not mention any medical condition or other debts, that might require a large savings, so I would suggest having 6 months savings ($2.5K x 6 = $15K) but should your net expenses be less, you might reduce this ($2K x 6 = $12K). You do not mention any investment you might want to make, but since you did not mention any candidate investments, we can assume you have no (specific) investments you find particularly attractive. You did not mention anything you were saving to purchase that you might want to purchase. You have combined $19K + $50K = $69K savings, and $15K would be a comfortable emergency savings, leaving $54K you could use to reduce mortgage or student loan debt. The mortgage debt interest @4.5%, is higher, so paying that debt off would be like earning 4.5% guaranteed return on your money, tax-free. At your income, your marginal tax rate is low enough that the mortgage interest deduction (if you do itemize) would not reduce this return much (15% if you itemize). The student loan debt interest @2.8%, would be like earning 2.8% guaranteed return on your money, tax-free. Clearly the higher return on your 'investment' in paying off debt would be reducing your mortgage balance (over 50% higher return on investment, compared to the student loan debt). You did not mention any circumstance that might cause the student loan rate to increase, the mortgage rate to increase, nor did you mention any difficulty making both the mortgage and student loan payments, the amounts of either payment, nor the number of years remaining to pay on either. Should you need (or desire) to reduce your payments, you could choose to payoff the student loan to eliminate one payment, and thus decrease your expenses. Or you could choose to pay down the mortgage, and refinance (or refactor) the mortgage to obtain a smaller payment. Another strategy (assuming you have had your house for 5-7 years), might be to pay the mortgage down enough to refinance into a 15 year loan, and (assuming you have a good credit score) obtain a lower (3%) rate. But I am going to suggest you consider a blended approach. Combine the Dave Ramsey Debt Snowball approach with the reduce the interest rate approach. Take the $54K ($57K?) available (after reserving 6 months emergency fund), and split between both. You pay your mortgage down by $27K and your student loan debt down by $27K. Your blended return on investment is (2.8+4.5)/2 = 3.65%, and you have the following Balance Sheet: Assets: Debts: The next steps would be to, There are two great reasons for paying off the student loan debt. One is the Dave Ramsey Debt Snowball approach which is that this is the smaller debt, and thus represents a psychological win, and the other is that student loan debt has special treatment even in bankruptcy.","The answer will vary person to person and situation to situation. But the basic concept to always consider is this: What interest rate am I paying on my debt? 10%? 18%? And what interest rate am I making on my savings/investment, etc? 3%? 7%? It won't give you a hard and fast answer, but will definitely let you know if you should take a closer look at it. I'd suggest talking to a financial planner about it. Find a fee-based planner that you can turn to intermittently to make sure you are on the right track...not a commission-based planner, a fee-based one. (with respectful apologies to any commission-based planners who may read this.) My instinct is usually to pay off the debt, try to clean everything up so you don't have anything outstanding that is charging you interest. Debt is clutter, it's stressful, it can be a reminder of money you wish you hadn't spent. As long as you have access to money in case of emergency, job loss, etc, get your debt paid off and keep it paid off. You'll sleep much better.","I want to start investing money, as low risk as possible, but with a percentage growth of at least 4% over 10 - 15 years. ...I do have a mortgage, Then there's your answer. You get a risk-free return of the interest rate on your mortgage (I'm assuming it's more than 4%). Every bit you put toward your mortgage reduces the amount of interest you pay by the interest rate, helping you to pay it off faster. Then, once your mortgage is paid off, you can look at other investments that fit your risk tolerance and return requirements. That said, make sure you have enough emergency savings to reduce cash flow interruptions, and make sure you don't have any other debts to pay. I'm not saying that everyone with a mortgage should pay it off before other investments. You asked for a low-risk 4% investment, which paying your mortgage would accomplish. If you want more return (and more risk) then other investments would be appropriate. Other factors that might change your decision might be:","\"Aside from employer 401(k) matches (which may double your money immediately), paying off debts is almost always the best place to start. Paying off a debt early is a zero-risk operation and will earn you N% (where N is your interest rate). Is that a good deal for a zero-risk return? The closest equivalent today (Aug 24, 2012) is that you can earn about 2.68% on 10-year Treasury bonds. Unless you have a really, really good interest rate (or the interest is tax-deductible), paying off your loan will offer an excellent risk-adjusted return, so you should do that. The \"\"really good\"\" interest rate is typically a mortgage or student loans. (Mortgage interest is also tax-deductible, at least for now.) In those cases, you're not going to gain nearly as much by paying the loan early, and the loan is large - larger than the amount you want to have in risk-free investments. You want to invest for returns, as well! So you can save for retirement instead (in a 401(k) or similar account) and take on a little risk.\"","First off, putting extra cash toward a mortgage early on, when most of the payments are going to interest, is the BEST time. If you pay an extra $1 on your mortgage today, you will save 30 years worth of interest (assuming a 30 year mortgage). If in 29 years you pay an extra dollar, you will only save 1 year worth of interest. That said, there are lots of things that go into a decision like this. Do you have other debts? How stable is your income? What is the interest rate on your mortgage compared to any other debts you may have or potential investments you might make? How much risk are you willing to take? Etc. Mortgages tend to be very low interest, and, at least in the U.S., the interest on them is tax-deductible, making the effective interest rate even lower. If you have some other loan, you are almost always better to pay the other loan off first. If you don't mind a little risk, you are usually better off to invest your money rather than pay off the mortgage. Suppose your mortgage is 5%. The average return on the stock market is something like 7% (according to my buddy who works for Wells Fargo). So if you put $1000 toward your mortgage, you'd save $50 the first year. (Ignoring compounding for simplicity, changes the exact numbers but not the basic idea.) If you put that same $1000 in the stock market, than if it's a typical year you'd make $70. You could put $50 of that toward paying the interest on your mortgage and you'd have $20 left to go on a wild spending spree. The catch is that the interest on a mortgage is fixed, while the return on an investment is highly variable. In an AVERAGE year the stock market might return 7%, but this year it might return 20% or it might lose 10% or a wide range of other possible numbers. (Well, you might have a variable rate mortgage, but there are still usually some defined limits on how much it can vary.)","Gosh don't do either! Unless you are fully funding you ROTH accounts and even then I wouldn't do it. Those interest rates are free money. You are giving away the best bargain in the history of home mortgages. Don't you think you can make more than 4% on your money invested? Don't you think in 5 years you will be able to make 4% on bond/cd's/ and other low risk investments? Don't forget money you pay in the 2020's on beyond to your mortgage are inflationary dollars. Do you think that money will be more valuable in the 20's and beyond? I don't. Roths are free money too. Think if you put 11k in there a year how much would you have at the end of it tax free. There is a reason you can only put $5,500 in them, they are too good a deal tax wise to let people put too much in there. Think about this my parents bought their home in 1967 their mortgage was $170 a month. Inflation hits and the interest they are paying at 8%! mind you, it was still a laughable amount of money each month for mortgage payment from 1977 and on. Also I bought a $450,000 house 38 months ago. Instead of putting down 180 I put down 80 I let the other 100k in my investment account and moved 5.5k over to Roth every year. I now have a roth worth $38k and an investment account worth $105k. I made 40k on my money those three years and the 38k is tax free! If you don't believe me call the help line at clarkhoward.com Get over the emotional need to be debt free and make a logical finical choice. I am begging you to think about this. This post could save you tens of thousands of dollars. Let me put it one more way. 100k in debt with 100k in investments is debt free living. Especially when you debt is under 4% and a tax write off.","Without knowing actual numbers it's tough to say. Personally, I would pay off the car then, going forward, use the money that would have been paid on your car note toward your mortgage. I always think of things in the worst possible scenario. It's easier, and faster, to repossess a car than to foreclose on real estate. Also, in an emergency situation, depleting your fund for your car loan and your mortgage would be significantly more detrimental than only paying a mortgage with a car owned outright. Fewer obligations means fewer things to draw down your funds in an emergency. Whether the tax deductability of the mortgage interest outweighs the lower rate on your car loan will depend on a lot of factors that haven't been shared. I think it's safe to assume with only 1% of separation the real difference isn't significant. I think when determining which credit cards to pay off, choosing the one with the highest rate is smart. But that's not the situation you're in. If you don't have foreclosure concerns I'd still pay off the car then start investing.","As weird as it seems, 5 years is not a long term investment. Furthermore investing is about accepting risk. Based on your criteria for the alternative to a down payment, I think your only choice is to make the larger down payment. If however, you were willing to invest that money for the long term (in a retirement account or an educational account for example) then I would definitely encourage you to invest. I think the chance that a long term investment in a diversified investment account will exceed 3.25% is pretty high. However, that is only my opinion, and I am not clairvoyant, so your let your personal tolerance to risk be your guide. But again, based on the way you asked it, down payment all the way. Your time frame means you are not an investor. Therefore your only option for risk free storage of money is an FDIC insured account, which might pay a little less than 1% for the next 5 years. A bigger down payment will have a 3.25% return in this case. In that order. #4 and #5 could be swapped if the interest rate on the loans is really low.","Others have suggested paying off the student loan, mostly for the satisfaction of one less payment, but I suggest you do the math on how much interest you would save by paying early on each of the loans: When you do the calculations I think you'll see why paying toward the debt with the highest interest rate is almost always the best advice. Whether you can refinance the mortgage to a lower rate is a separate question, but the above calculation would still apply, just with different amortization schedules.","\"You seem to really have your financial act together. Your combination of assets, and ongoing savings makes you the ideal candidate for paying it off. One way to look at it is that your mortgage offers you a place to 'invest' at a fixed 2-7/8% rate. \"\"I'd really like to not have a house payment\"\" is all I need to hear. The flip side is the lecture that talks about long term market returns, the fact that the combination of your deductible mortgage, but 15% cap gain rate means you need 2.5% return to break even, and odds are pretty high that will occur over the next 15 years. \"\"pretty high\"\" does not equal \"\"guaranteed\"\". And I won't debate the value of sleeping soundly vs an excess 5-8% return on this money that you'd maybe achieve. You haven't missed anything. In fact, though I advocate saving first, you are already doing that. This is above and beyond. Good work.\"","Pay off the Highest interest loan rate first. You must be doing something funky with how long your terms are... If you give a bit more info about your loan's such as the term and how much extra you have right now to spend it could be explained in detail why that would be the better choice using your numbers. You have to make sure when you are analyzing your different loan options that you make sure you are comparing apples to apples. IE make sure that you are either comparing the present value, future value or amortization payments... EDIT: using some of your numbers lets say you have 5000 dollars in your pocket you have 3 options. excel makes these calculations easier... Do nothing: in 80 months your Student Loan will be payed in full and you will have 54676.08 owing on your mortgage and 5000 in your pocket(assuming no bank interest) for mortgage: Pay off Student loan and allocate Student loans amortization to Mortgage: in 80 months you will have $47,910.65 owing on mortgage and student loan will be paid in full For mortgage: Pay 5000 on Mortgage: in 80 months student loan will be paid in full and you will have $48,204.92 owing on mortgage For mortgage:","what other pieces of info should I consider If you don't have liquid case available for unexpected repairs, then you probably don't want to use this money for either option. The 7% return on the stocks is absolutely not guaranteed. There is a good amount of risk involved with any stock investment. Paying down the mortgage, by contrast, has a much lower risk. In the case of the mortgage, you know you'll get a 2.1% annual return until it adjusts, and then you can put some constraints on the return you'll get after it adjusts. In the case of stocks, it's reasonable to guess that it will return more than 2.1% annually if you hold it long enough. But there will be huge swings from month to month and from year to year. The sooner you need it, the more guaranteed you will want the return to be. If you have few or no stock (or bond)-like assets, then (nearly) all of your wealth is in your house, and that is independent of the remaining balance on your mortgage. If you are going to sell the house soon, then you will want to diversify your assets to protect you against a drop in home value. If you are going to stay in the house forever, then you will eventually need non-house assets to consume. Ultimately, neither option is inherently better; it really depends on what you need.","\"You have 1998-2011 income-contingent student loans, where the interest rate is the lower of (1% + base rate) or RPI (retail price inflation). For the next few years the it's likely to be (1% + base rate) as interest rates stay low and inflation shoots up. These loans only need to be repaid in proportion to your salary, and if they aren't repaid for long enough (e.g. the holder takes a career break for children) they are written off. So all-in-all, they are pretty good debt to have: low interest rate, and you might not have to repay them ever. It's likely that your mortgage will have a significantly higher rate than the student loan, so you'd be better off reducing your mortgage. Also, the higher deposit might mean you can get a lower interest rate on the whole mortgage because the lender will see you as a lower risk, so the return from \"\"investing\"\" it in your mortgage would be even greater than the raw interest rate. Having the student loan outstanding might make some difference to the \"\"affordability\"\" check for your mortgage payments, but lenders will be very familiar with how they work. Reducing your mortgage payments with the higher deposit should easily counterbalance that. Your own suggestion is to invest the £30K in a \"\"reasonably safe portfolio\"\" making 5%. There'll inevitably be some risk in that - 5% is a relatively high return in today's climate - but if you're willing to take that risk, you can investigate the effect on your mortgage to see if it's worth it or not.\"","If you can get a rate of savings that is higher than your debt, you save. If you can't then you pay off your debt. That makes the most of the money you have. Also to think about: what are you goals? Do you want to own a home, start a family, further your education, move to a new town? All of these you would need to save up for. If you can do these large transactions in cash you will be better off. If it were me I would do what I think is a parroting of Dave Ramsay's advice Congratulations by the way. It isn't easy to do what you have accomplished and you will lead a simpler life if you don't have to worry about money everyday.","You are weighting a certain cost of the mortgage interest versus the possible gain of the value of the house. Take the interest you pay per month and divide it by the current value of the house. Say your interest is 3% of the value of the house (may be more or less depending on the balance owed and the interest rate of your mortgage). Say the average appreciation in your area is also 3%. But that means that there's only a 50% chance that the actual appreciation will be more than that (assuming the odds are equal either way), and there's a 50% change that you'll be worse off. Generally, trading a risk-free loss for a risky gain of equal size is not a good investment; you generally can find better average returns on risky investments, so your best bet is to sell now and pay of the mortgage.","This is opinion, no right or wrong. Two schools of thought, one saying you should aim to be debt free, ASAP, the other suggests that when your borrowing expense is so much lower than expected market return, just keep investing. With your mortgage, a variable, I trust the payment is recalculated so if you pay down half the loan, it will drop to half when the rate changes and new payment calculated, right? If not, you still have a high payment due until it's paid in full. Me, I like the flexibility of going with the full term, and saving the money as long as rates are low. Even moderate inflation will make that payment fell like less over time, and there are funds whose dividends are above the mortgage rate. If/when rates rise, you can always pay down aggressively. I'm concerned that you don't have a good sense of your saving goals. You have less than a years income saved for the long term. To replace 80% of your income you need about 20 times your current income, or $4M. Of course, you get to subtract pension income or whatever Canada's social security system is (forgive my ignorance on this).","Morpheus, I think you are approaching this question the wrong way. The interest rate is not the most important consideration; you also need to consider the other characteristics of the investment. Money in a bank account is very liquid; you can do anything you want with it. Equity in a house is very illiquid; it is hard and expensive to access. Let's say you have $25,000 to either go towards a bigger downpayment or to invest. What happens if you lose your job? If you have $25,000 in the bank, you have a lot of flexibility; you can pay a mortgage for a number of months, or you could use it to relocate. If you put the money in the house, you cannot access it at all; without a job you can't refi or get a home equity loan. Your only recourse would be to sell the house, which might not be possible if there are systemic issues (such as the ones in the real estate crash). Even if you can refi or get a home equity loan, you will have to pay fees. My advice is to put the money somewhere else. If your term is long (say, 10 years or so), I would put the money in an index fund.","If what you are paying in interest on the debt is a higher percentage than what your investments are returning, the best investment you can make is to pay off the debt. If you're lucky enough to be paying historically low rates (as I am on my mortgage) and getting good returns on the investments so the latter is the higher percentage, the balance goes the other way and you'd want to continue paying off the debt relatively slowly -- essentially treating it as a leveraged investment. If you aren't sure, paying off the debt should probably be the default prefrence.","Put yourself in this position - if you had no debts and no investments, would you borrow money at those rates to invest in the stock market? If no, then pay off the debts. If yes, then keep them.","If you have (other) high interest debt, say over 8%, pay it back first. Else, you are likely best off paying this loan back and getting the money working for you long term.","Look at my answer here, and then calculate again. If you keep on saving and keep on paying off your highest interest rate loan, you'll be 'making' money. Also look at this answer here for saving or paying back. Basically, you should always calculate whether the money you have is better 'spend' in a savings account or as a return payment to your loan. Always tackle the highest interest loan first. My 0,02€","I like this option, rather than exposing all 600k to market risk, I'd think of paying off the mortgage as a way to diversify my portfolio. Expose 400k to market risk, and get a guaranteed 3.75% return on that 200k (in essence). Then you can invest the money you were putting towards your mortgage each month. The potential disadvantage, is that the extra 200k investment could earn significantly more than 3.75%, and you'd lose out on some money. Historically, the market beats 3.75%, and you'd come out ahead investing everything. There's no guarantee. You also don't have to keep your money invested, you can change your position down the road and pay off the house. I feel best about a paid off house, but I know that my sense of security carries opportunity cost. Up to you to decide how much risk you're willing to accept. Also, if you don't have an emergency fund, I'd set up that first and then go from there with investing/paying off house.","\"Math says invest in the Market (But paying off your mortgage early is a valid option if you are very risk averse.) You are going to get a better return by investing in the stock market. In the US in 2015/2016, mortgages are 3%-4%, and give you a tax break. The rate of return on the stock market is ~10%, (closer to 6% after you subtract out inflation, taxes, fees, etc.) Since 10 > 3, (or 6% > 4%, to use the pessimistic numbers) investing in the market is the better deal. But... The market has risk, and your mortgage does not. If you are very risk averse paying off the mortgage may make sense. As an example: Family A has a single \"\"breadwinner\"\", who works a low skilled job. Family B has 2 working spouses, both in high skill white collar positions. These two families are going to have wildly different risk tolerances. It may make sense for family A to \"\"invest\"\" its extra money in paying off the mortgage, after they have tackled high interest debt, built an emergency fund, maxed the 401k, etc. Personally I would not: in the US you cannot recoup pre-payments if you lose your job. If I was very risk averse, I would keep my extra money as cash, so I could pay my mortgage after I lost my job. It is never going to make sense for family B to pay the mortgage early. At that point, any decision to pre-pay is going to be based on emotion and not logic.\"","See my recent answer to a similar question on prepaying a mortgage versus investing in IRA. The issue here is similar: you want to compare the relative rates of funding your retirement account versus paying down your debt. If you can invest at a better rate than you are paying on your debt, with similar risk, then you should invest. Otherwise, pay down your debt. The big difference with your situation is that you have a variable rate loan, so there's a significant risk that the rate on it will go up. If I was in your shoes, I would do the following: But that's me. If you're more debt-averse, you may decide to prepay that fixed rate loan too.","\"Aside from the calculations of \"\"how much you save through reducing interest\"\", you have two different types of loan here. The house that is mortgaged is not a wasting asset. You can reasonably expect that in 2045 it will have retained its worth measured in \"\"houses\"\", against the other houses in the same neighbourhood. In money terms, it is likely to be worth more than its current value, if only because of inflation. To judge the real cost or benefit of the mortgage, you need to consider those factors. You didn't say whether the 3.625% is a fixed or variable rate, but you also need to consider how the rate might compare with inflation in the long term. If you have a fixed rate mortgage and inflation rises above 3.625% in future, you are making money from the loan in the long term, not losing what you pay in interest. On the other hand, your car is a wasting asset, and your car loans are just a way of \"\"paying by installments\"\" over the life of the car. If there are no penalties for early repayment, the obvious choice there is to pay off the highest interest rates first. You might also want to consider what happens if you need to \"\"get the $11,000 back\"\" to use for some other (unplanned, or emergency) purpose. If you pay it into your mortgage now, there is no easy way to get it back before 2045. On the other hand, if you pay down your car loans, most likely you now have a car that is worth more than the loans on it. In an emergency, you could sell the car and recover at least some of the $11,000. Of course you should keep enough cash available to cover \"\"normal emergencies\"\" without having to take this sort of action, but \"\"abnormal emergencies\"\" do sometimes happen!\"","\"I'm an American so I don't claim to know anything about Scottish tax law. But just based on what you say above: First, think about how it would work if there were no taxes. If you make a payment against the mortgage, you save 5% in interest. If you put money into a retirement account, you make whatever the profits are on the investment. If that amount comes to more than 5%, then you are better of investing in the retirement account. If it's less than 5%, you are better off paying off the mortgage. As most investments pay significantly better than 5%, this is the superior strategy. On the other hand, apparently you are paying a variable-rate mortgage, but still, mortgage rates are relatively stable. Investment returns vary all over the place and can be negative. So if you are very cautious, that's a reason to pay off the mortgage rather than invest. The younger you are, the less of a concern this should be, as in the long term, investments pretty much always recover lost ground. If you were planning to retire next year I'd have very different advice than if you are planning to retire in 30 years. But sadly, you do have to pay taxes, and that needs to be factored in. So you say that you would have to pay 25% dividend tax on any money you used to pay the mortgage. But the effective tax rate on the retirement money is 15%. So in effect money put against the mortgage pays a 25% tax, and so effectively generates only 5% * .75 = 3.75%. But money invested in the retirement plan pays only 15% tax, and so if the investment returns 3.75% / .85 = 4.4% it would give the same effective return. So if you can invest in something that gives returns of at least 4.4% per year, you're better off putting into the retirement plan than paying off the mortgage. There may be other Scottish tax implications I don't know about. As to \"\"Substantially less paperwork\"\", I have no idea how much paperwork is involved in putting money into a retirement account in Scotland. Here in the U.S., you basically call a financial management company of one sort or another and say \"\"hey, I want to open a retirement account with your company\"\", and they'll prepare most of the forms for you and you just sign them. It could be done with half an hour of your time. Of course the more you research different investment options, etc, the more time it will take. \"\"More flexible e.g. if I want to retire early\"\" If there are restrictions on when you can withdraw money from a retirement account and receive that 25% freebie you mentioned, yes, this could be a factor. Again, I don't know Scottish tax law, there may be other considerations. Here in the U.S., there's a 10% tax penalty if you withdraw money from a retirement account before the legal retirement age. Realistically that's a minor issue, if you have money in there for several years the tax benefits will be more than 10%. But yeah, it would be stupid to put money in in December and then take it out the following January and have to pay the 10% penalty. \"\"Doesn't incur the risk that the government will change the pension rules between now and when I retire\"\" Maybe. But then laws might change in your favor, too. And as you indicated that your mortgage interest rate could change, there could be risk on that side too. That all comes down to what you think the risks are all around.\"","Pay it off....I've only ever paid interest on mortgages to buy the houses I've lived in (I paid both mortgages of years ahead of schedule) & as a result my credit rating's way above average, I use credit cards for everything, pay 'em off in full every month unless I'm paid not to (currently have around 8,000 sitting interest free while the cash earns 6% elsewhere). Life's sweet if you understand the system. Hell if you don't. Keep saving...","Can you wait until you retire before needing the money? Will you buy your first house sometime in the future? If yes, then favour an RRSP. Remember that you are rewarded by paying less tax for having the foresight and commitment to defer income taxes until your retirement, when you are presumably earning less income. Are your household expenses higher than 28% of your gross income? 35% of your net income? Does making your mortgage payments stress you? Are interest rates lower than their historical norm and an increase would cause you difficulty? If yes, then favour your mortgage. Do you need this money before your retire? Does your TFSA earn more interest than your mortgage costs your? If yes, then favour a TFSA. Does an alternative investment earn more than your TFSA? Can you handle an uptick in your mortgage interest rate? If yes, then favour the alternative investment and not your RRSP, mortgage or TFSA.","If it were me, I'd pour my entire savings into paying down the mortgage. I'd also get a HELOC and a personal LOC to use as my emergency fund if I didn't have one already. I personally don't like paying interest on loans when I have cash in the bank to cover it.","At the area where I live (Finland), banks typically charge a lot more for additional mortgage credit taken after purchasing the house. So, if you are planning to purchase a house, and pay it with a mortgage, you get a very good rate, but if you pay back the mortgage and then realize you need additional credit, you get a much worse rate. So, if this is applicable to your area as well, I would simply buy stocks after you have paid enough of the mortgage that it is only 50% of the house price or so. This is especially good advice if you are young. Also, if your mortgage is a fixed rate and not an adjustable rate mortgage, you probably have a very low permanent interest rate on it as interest rates are low currently (adjustable rate mortgages will also have a low rate but it will surely go up). Some people say there's a bubble currently in the stock market, but actually the bubble is in the bond market. Stocks are expensive because the other alternatives (bonds) are expensive as well. Paying back your mortgage is equivalent to investing money in bonds. I don't invest in bonds at the current ridiculously low interest rates; I merely invest in stocks and have a small cash reserve that will become even smaller as I discover new investment opportunities. I could pay back a significant percentage (about 50%) of the loans I have by selling my stocks and using my cash reserves. I don't do that; I invest in stocks instead, and am planning to increase my exposure to the stock market at a healthy pace. Also, consider the fact that mortgage is cheap credit. If you need additional credit for consumption due to e.g. becoming suddenly unemployed, you will get it only at very expensive rates, if at all. If you're very near the retirement age (I'm not), this advice may not be applicable to you. Edit: and oh, if your mortgage is fixed rate, and interest rates have come down, the bank will require you to pay the opportunity cost of the unpaid interests. So, you may need to pay more than you owe the bank. Edit2: let's assume the bank offered you a 4% fixed rate for a 10-year loan, which you agreed to. Now let's also assume interest rates of new agreements have come down to 2%. It would be a loss to the bank to pay back the amount of the loan (because the bank cannot get 4% by offering somebody else a new loan, only 2%), unless you paid also 10 years * (4% - 2%) * amount = 20% * amount of lost interest income. At least where I live, in fixed rate loans, one needs to pay back the bank this opportunity cost of unpaid interests.","You're in the same situation I'm in (bought new house, didn't sell old house, now renting out old house). Assuming that everything is stable, right now I'd do something besides pay down your new mortgage. If you pay down the mortgage at your old house, that mortgage payment will go away faster than if you paid down the one on the new house. Then, things start to get fun. You then have a lot more free cash flow available to do whatever you like. I'd tend to do that before searching for other investments. Then, once you have the free cash flow, you can look for other investments (probably a wise risk) or retire the mortgage on your residence earlier.","Personally, I would split the difference, putting about half into each. Simply because it balances out the problem and I don't have to fret about whether one or the other will provide a significant difference. As bstpierre points out, the one which will make you more in the end is the one which you can grow the fastest. The mortgage payment is locked at 5% growth, which, while modest, is also essentially guaranteed at this point. The CD in your IRA is likely less than that amount, even after tax consideration. A couple additional points to consider:","It has to do with return. I don't know if Canada has a matching feature on retirement accounts, but in the US many companies will match the first X% you put in. So for me, my first $5000 or so is matched 100%. I'll take that match over paying down any debt. Beyond that, of course it's a simple matter of rate of return. Why save in the bank at 2% when you owe at 10-18%? One can make this as simple or convoluted as they like. My mortgage is a tax deduction so my 5% mortgage costs me 3.6%. I've continued to invest rather than pay the mortgage too early, as my retirement account is with pre-tax dollars. So $72 will put $100 in that account. Even in this last decade, bad as it was, I got more than 3.6% return.","You have to have 9% ROI for your investment to break even. That's pretty steep. I'd pay the loan, where you have 9% promised return. Just make sure that there are no pre-payment penalties, and that you're comfortable enough with not having that money available.","If the savings rate is the same as the loan rate, mathematically it doesn't make any difference whether you pay down the loan more and save less or vice versa. However, if the loan rate is higher than the savings rate it's better to pay it down as fast as possible. The chart below compares paying down the loan and saving equally (the gradual scenario), versus paying down the loan quickly at 2 x $193 and then saving 2 x $193. The savings rate, for illustration, is 2%. Paying quickly pays down the loan completely by month 51. On the other hand, in the gradual scheme the loan can't be paid down (with the savings) until month 54, which then leaves 3 months less for saving. In conclusion, it's better to pay down the higher rate loan first. Practically speaking, it may be useful to have some savings available.","The main factors you have to consider are: Could you get a better return on that money by investing it somewhere? The investment rate should basically be more than the mortgage rate. If you find yourself suddenly in need of money (eg, loss of job) do you have enough savings to ride that out? If not, investing the extra money in an instant access investment, even at a lower rate, may make sense as it gives you future flexibility. Do you have any other debts that are at a higher rate? If so, pay those off first as you will get more bang for your buck.","Depends upon the debt cost. Assuming it is consumer debt or credit card debt, it is better to pay that off first, it is the best investment you can make. Let's say it is credit card debt. If you pay 18% interst and have for example a $1,000 amount. If you pay it off you save $180 in interest ($1,000 times 18%). You would have to earn 18% on 1,000 to generate $180 if it was in aninvestment. Here is a link discussing ways of reducing debt Once you have debt paid off you have the cashflow to begin building wealth. The key is in the cashflow.","A: Rollover the cash from the previous account into the new one a low-cost IRA like Vanguard. This, and only this. Because your mortgage is, less than 4%, while your retirement plan will earn 7% over the long term. I have no 'retirement' plans because Because you're 28. and essentially will be happy working until I die Unless circumstances change. but as far as I see it this is not such a bad deal because it is like paying taxes on income. (Principal says I will lose up to 30%) You're ignoring the 10% early withdrawal penalty. I am wise with my money for the most part Then don't piss away $3,000 just for a temporary feel good. I earn a high salary in a tech job. As a result of being under 20%, I am paying mortgage insurance of about $300/mo. So -- after building up an Emergency Fund -- throw as much as possible of your high salary against your mortgage to get rid of the PMI.","It depends on your tax rate. Multiply your marginal rate (including state, if applicable) by your 3.1% to figure out how much you are saving through the deduction, then subtract that from the 3.1% to get the effective rate on the mortgage. For example, if you are in the 28% bracket with no state tax impact from the mortgage, your effective rate on the mortgage is 2.232%. This also assumes you'd still itemize deductions without the mortgage, otherwise, the effective deduction is less. Others have pointed out more behavioral reasons for wanting to pay off the car first, but from a purely financial impact, this is the way to analyze it. This is also your risk-free rate to compare additional investing to (after taking into account taxes on investments).","According to Dave Ramsey you should pay off the house. What I've found is that I'm willing to work a lot harder at saving money to put toward the house when I have that specific goal in mind. If I were to put the money in the market instead then I would be less likely to make as many sacrifices and would inevitability end up putting less money away.","The short answer is to invest it since the rate of return is higher than your mortgage. (Assuming that you can withstand interest rate hikes, meet short term liquidity needs and don't need your $10K in the short or near term). The long answer is if you're comfortable leveraging your house and can put that $10K away for the long term you can reduce your taxes via the Smith Manoeuvre: Alternatively, if you have kids or grandkids and will help them through school, take the government's money by putting it away in an RESP.","You didn't mention how much is the interest rate of your debts. It is a very simple rule. If you think you can make more money by investing (the best way you can) in spite of having debts then go ahead and invest. Else, if you donno what you're doing and can't make sure you earn more than what you're paying off for interest then may be you should focus on clearing up the debts first. You can read more about similar topic discussion here Now, that you've presented the interest rate of your loans i.e. 11% which is your average, then I suggest you to clear up the high interest rate loans first i.e. which are above 11% because it is very difficult to make an investment and get returns more than 11% of what you invest. What ever be it, now that you won't be having big events in the coming 5 years, I suggest you to clear up all your loans and stay debt free i.e. tr to become stable and tension free. You know, because you can't run away anywhere with all those loans up on your shoulders, you HAVE to clear them today or tomorrow. So, now that you're free (in the next 5 yrs) and burden less, so why not clear them up today?","the math makes sense to invest instead of paying down, but... how much would you borrow at 3.5%, to invest the money into the stock market? It's the same question, just turned around.","\"I love the idea of #1, keep that going. I don't think #2 is very realistic. Given the short time frame putting money at risk for a higher yield may not work in your favor. If it was me, I'd stick to a \"\"high interest\"\" savings account (around 1%). I don't mind #3 either, however, I'd be socking whatever you could to mortgage principle so you can get out of PMI sooner rather than later. That would be my top priority. Given the status of interest rates, you may end up saving money in the long run. I doubt it, but you may. If you choose to go with #3, don't settle for a house that you really don't like. Get something that you want. Who knows it may take you a year or so to find something!\"","\"Can is fine, and other answered that. I'd suggest that you consider the \"\"should.\"\" Does your employer offer a matched retirement account, typically a 401(k)? Are you depositing up to the match? Do you have any higher interest short term debt, credit cards, car loan, student loan, etc? Do you have 6 months worth of living expenses in liquid funds? One point I like to beat a dead horse over is this - for most normal mortgages, the extra you pay goes to principal, but regardless of how much extra you pay, the next payment is still due next month. So it's possible that you are feeling pretty good that for 5 years you pay so much that you have just 10 left on the 30 year loan, but if you lose your job, you still risk losing the house to foreclosure. It's not like you can ask the bank for that money back. If you are as disciplined as you sound, put the extra money aside, and only when you have well over the recommended 6 months, then make those prepayments if you choose. To pull my comment to @MikeKale into my answer - I avoided this aspect of the discussion. But here I'll suggest that a 4% mortgage costs 3% after tax (in 25% bracket), and I'd bet cap gain rates will stay 15% for non-1%ers. So, with the break-even return of 3.5% (to return 3 after tax) and DVY yielding 3.33%, the questions becomes - do you think the DVY top yielders will be flat over the next 15 years? Any return over .17%/yr is profit. That said, the truly risk averse should heed the advise in original answer, then pre-pay. Update - when asked,in April 2012, the DVY I suggested as an example of an investment that beats the mortgage cost, traded at $56. It's now $83 and still yields 3.84%. To put numbers to this, a lump sum $100K would be worth $148K (this doesn't include dividends), and giving off $5700/yr in dividends for an after-tax $4800/yr. We happened to have a good 4 years, overall. The time horizon (15 years) makes the strategy low risk if one sticks to it.\"","Forgive me as I do not know much about your fine country, but I do know one thing. You can make 5% risk free guaranteed. How, from your link: If you make a voluntary repayment of $500 or more, you will receive a bonus of 5 per cent. This means your account will be credited with an additional 5 per cent of the value of your payment. I'd take 20.900 of that amount saved and pay off her loan tomorrow and increase my net worth by 22.000. I'd also do the same thing for your loan. In fact in someways it is more important to pay off your loan first. As I understand it, you will eventually have to pay your loan back once your income rises above a threshold. Psychologically you make attempt to retard your future income in order to avoid payback. Those decisions may not be made overtly but it is likely they will be made. So by the end of the day (or as soon as possible), I'd have a bank balance of 113,900 and no student loan debt. This amounts to a net increase in net worth of 1900. It is a great, safe, first investment.","\"First off, the \"\"mortgage interest is tax deductible\"\" argument is a red herring. What \"\"tax deductible\"\" sounds like it means is \"\"if I pay $100 on X, I can pay $100 less on my taxes\"\". If that were true, you're still not saving any money overall, so it doesn't help you any in the immediate term, and it's actually a bad idea long-term because that mortgage interest compounds, but you don't pay compound interest on taxes. But that's not what it actually means. What it actually means is that you can deduct some percentage of that $100, (usually not all of it,) from your gross income, (not from the final amount of tax you pay,) which reduces your top-line \"\"income subject to taxation.\"\" Unless you're just barely over the line of a tax bracket, spending money on something \"\"tax deductible\"\" is rarely a net gain. Having gotten that out of the way, pay down the mortgage first. It's a very simple matter of numbers: Anything you pay on a long-term debt is money you would have paid anyway, but it eliminates interest on that payment (and all compoundings thereof) from the equation for the entire duration of the loan. So--ignoring for the moment the possibility of extreme situations like default and bank failure--you can consider it to be essentially a guaranteed, risk-free investment that will pay you dividends equal to the rate of interest on the loan, for the entire duration of the loan. The mortgage is 3.9%, presumably for 30 years. The car loan is 1.9% for a lot less than that. Not sure how long; let's just pull a number out of a hat and say \"\"5 years.\"\" If you were given the option to invest at a guaranteed 3.9% for 30 years, or a guaranteed 1.9% for 5 years, which would you choose? It's a no-brainer when you look at it that way.\"","If its deductible, the IRA is a no-brainer. You're netting a positive return just from the tax deduction, and you'll have years of tax-free appreciation. You're already on track to pay off your mortgage in 5 years, the impact of $10,000 on the balance now is not very consequential. On the other hand, you won't have an opportunity to make additional IRA contributions.","I'm also a UK, Ltd company contractor that has pondered the same topic. I afraid, however, that I don't understand the maths in the original question. Mortgage interest is flat for the term of the mortgage rather than compounded, so, ignoring the tapering at the end of the lifespan of the mortgage, I get the amount of interest to something like £9,300 (7500 x 0.05 x 25). Does this make the decision any easier for you? As you point out, the total cost of this overpayment from your company account is £12,500. Using the above figure, it would take over 13 years to recoup the £5,000 difference (at £375 interest a year). I used to be of the same opinion that the mortgage should be paid off at all costs first. But now I'm coming round to the American way of thinking; £12,500 invested in a pension with a 5% yield will easily outstrip the interest saved by making the over payment - 12500 x 1.05 ^ 25 = £43,300 - over 250% better off (£43,300 / (£9,300 + £7,500)). I now make no mortgage overpayments at all and instead pay all the money into my pension. This (amongst other things) keeps me below the upper earnings tax threshold, so I'm only paying corporation tax for the money I'm drawing as dividends. There's a massive caveat to this though; I'm 49. I should be able to draw the tax free element of my pension pot in six years time and pay my mortgage off and it's quite unlikely that the government will be changing pensions policy in that time (but drawing 25% tax free has been a feature of pensions for quite some time). I can then chose to keep working or retire. If my pension is still doing well (9% ish pa at the moment), I could chose to not pay my mortgage off at all. In the next twenty or so years, however, all this could change. In your position I would do a bit of both. Make a regular overpayment to pay down your mortgage (even a small amount that you'll barely notice will make quite a difference to the end date of your mortgage - £100 a month will take years off). I didn't start paying properly into my pension until fairly recently and so If you're not already, I'd also make quite substantial, regular payments into one now, directly from your company, 15-17.5% of your gross drawings. Leaving it until later will only make it more painful. Then when you get to retirement age, no matter what, you'll have a decent pension pot. An actuary I worked with pointed out that if you pay something into a pension, when you retire you should have some sort of pot; if you pay nothing, you are absolutely guaranteed to have nothing. And finally, if you haven't already, fix your mortgage. We're three years into a five year fix. The variable rate we were going to be transferred to was 3.99%. We fixed, not because of wanting any sense of security, but because the fixed rate was 2.59% with no fee. There are much better rates than that about now. Rates are starting to rise, so it's a good time.","Excellent answers so far, so I will just add one additional consideration: liquidity. Money invested in a mutual fund (exclusive of retirement accounts with early withdrawal penalties) has a relatively high liquidity. Whereas excess equity in your home from paying down early has very low liquidity. To put it simply: If you get in a desperate situation (long term unemployment) it is better to have to cash in a mutual fund than try to sell your house on the quick and move in with your mother. Liquidity becomes less of an issue if you also manage to fund a decent sized rainy-day fund (6-9 months of living expenses).","There are two components to any non-trivial financial decision: Assuming that all things remain equal, borrowing money at a low rate while investing for a higher return is a no-brainer. The problem is, all things do not remain equal. For example: I think that you need to assess your position and preferences. I'd err on the side of being in less debt.","I would prioritize paying off the heloc first. Paying off the heloc has a guaranteed rate of return and will reduce the size of savings cushion you'll need in the future. However, you shouldn't assume your heloc funds will remain available indefinitely. If you read your fine print, you are not guaranteed access to your unused credit by the bank. If you lose your job or your home value significantly declines, the bank could refuse to let you take more money out on your heloc. Recently, I've seen people's available credit be reset to 0 on open helocs by banks trying to reduce their exposure. Planning on the future of available credit via a heloc is not a good safety net.","\"But in the debt-payoff-first scenario, I'd be wiping out my debt in two years. It would take several more years if I were to just pay the minimums and put the extra money toward investing instead. Right. The idea is that in 2 years, you are likely to have more in the savings/stock account than you owe on the loan. But. The range of returns for X years has a smaller standard deviation the greater X is. e.g. any year has about a 1 in 3 chance of being negative. A 10 year period had a negative return (-1% CAGR) in the '00s recently, but the 15 year return even around that decade would have been successful. Jan 1 '96 - Dec 31 2010 returned 6.76% CAGR, Jan 1 2001 - Dec 31 2015 returned 4.96% CAGR. This tells you that the time frame is as important as your sleep factor. Your 2 years? I'd just kill the loans. A 10-15 year horizon? I'd ask how you \"\"feel\"\" about that debt. The cost of going after a potential higher return may not be worth the risk to many. For some, it's fine. I retired, with a mortgage still in place, but the money in my 401(k) that could have paid off the mortgage is now about twice the remaining balance. So I sleep like a baby. In the end, I'm a fan of investing for the long term vs paying off low rate debt, but it's a choice based on the individual.\"","The long term growth is not 6.5%, it's 10% give or take. But, that return comes with risk. A standard deviation of 14%. Does the 401(k) have a match? And are you getting the full match? If no match, or you already top it off, the 6.5% is a rate that I'd be happy to get on my money. So, I would pay it off faster. My highest rate debt is my 3.5% mortgage, which is 2.5% after tax. At 2.5%, I prefer to be a borrower, as that gap 2.5%-10% is pretty appealing, long term.","Hard to give an answer without knowing more details (interest rates, remaining principle on loans, especially how soon the new roof is needed). Maintaining the value in your home (unless you are planning to walk away from it or short-sell or something) is of paramount importance, and the cost of a leak should it happen can be substantial. If the roof is a few years out, and you have loans with interest rates about oh I'd say around 6%or more then I would pay off those loans and take the money you were paying there and start putting it into a fund to pay for the roof. I am also a huge fan of doing whatever you can to max out your 401K contributions. Money put into a 401K early has a LOT more value than money put in later, and since you don't pay taxes on it, the cost out of your pocket is much lower (eg. at a 20% tax rate it costs you only $80 out of pocket to put $100 into your 401.. (look at that, you just made like 25% return on that $80) Paying off loans is pretty much equivalent to making a risk free return on the money equal to the interest rate on the loan. But to REALLY make that work, what you need to do is in a virtual sense, keep making the loan payment just now pay it to yourself, putting that money into a savings account, or towards your 401K or whatever. If you just torn around and start spending that money, then you are not really getting as much value to paying off the loan early.","It depends what rate mortgage you can get for any extra loans... If you remortgage you are likely to get a rate of 3.5-4%... depending who you go with. With deposit accounts in the UK maying around 1% (yes, you can get more by tying it up for longer but not a huge amount more) clearly you're better off not having a mortgage rather than money in the bank. Does your 8k income allow for tax? If it does, you are getting 6% return on the money tied up in the flat. If you are getting 6% after tax on the invested money, that's way better than you would get on any left over cash paid into an investment. Borrowing money on a mortgage would cost you less than 6%... so you are better off borrowing rather than selling the flat. If you are getting 6% before tax... depending on your tax rate... it probably makes very little difference. You'd need to work out how much an extra 80k mortgage would cost you, how much the 50k on deposit would earn you and how much you make after tax. There is a different route. Set up a mortgage on the rental flat. You can claim the interest payment off the flat's income... reduce your tax bill so the effective mortgage rate on the flat would be less than what you could get with a mortgage on the new house. Use the money from the flat's mortgage to finance the difference in house price. In fact from a tax view, you may be better off having a mortgage free house and maxing out the mortgage on the flat so you can write off as much as possible against your tax bill. All of the above assume ... that the flat is rented all the time. The odd dry spell on the flat could influence the sums a lot. All of the above assume that your cash flow works whichever route you choose. As no-one on stack exchange has all of the numbers for your specific circumstances it may be worth talking to a tax accountant. They could advise you properly, knowing the numbers, which makes the best sense for you in terms of overall cost, cash flow, risk and so on.","I would lean towards making a smaller down payment and hanging onto savings for flexibility. Questions to think about: If you have enough cash that you can make a huge down payment and still have all the other bases covered, then it comes down to your risk tolerance and personal style. You can almost definitely build a portfolio that will beat your mortgage rate on average over the long term, but with more risk and volatility. Heck, you could make a 20% down payment on another house and rent it out.","\"I think your analysis is very clear, it's a sensible approach, and the numbers sound about right to me. A few other things you might want to think about: Tax In some jurisdictions you can deduct mortgage interest against your income tax. I see from your profile that you're in Texas, but I don't know the exact situation there and I think it's better to keep this answer general anyway. If that's the case for you, then you should re-run your numbers taking that into account. You may also be able to make your investments tax-advantaged, for example if you save them in a retirement account. You'll need to apply the appropriate limits for your specific situation and take an educated guess as to how that might change over the next 30 years. Liquidity The money you're not spending on your mortgage is money that's available to you for other spending or emergencies - i.e. even though your default assumption is to invest it and that's a sensible way to compare with the mortgage, you might still place some extra value on having more free access to it. Overpayments Would you have the option to pay extra on the mortgage? That's another way of \"\"investing\"\" your money that gets you a guaranteed return of the mortgage rate. You might want to consider if you'd want to send some of your excess money that way.\"","Mortgage rates are at record lows. The 30 yr fixed is now below 4%, if you are in the 25% bracket and itemize (state income tax, property tax, donations, easy to pass the minimum) it costs you 3% post tax. This is the rate of long term inflation, effectively making this money free. You are likely to be able to average a far greater return than this mortgage is costing you. These rates may last another year or two, but long term, they are an anomaly. ETFs such as DVY (the Dow high dividend stocks) are yielding over 3.75%, 3.2% after the 15% cap gain tax. i.e. you get a small positive return, and the potential for capital gains. If this ETF rises just 3%/yr it's all profit above your cost of money. That said, there are those who sleep better with a paid in full house, regardless of the rate. To that extreme, I've read those who make paying their mortgage a priority ahead of funding their matched 401(k). While I can guess what the market will return, but can't know what will actual happen, it's foolish to skip one's match. They reason that the market can crash, I reply the 401(k) has to have a short term fund, money market or T-bill type returns, but a 100% match is a no-brainer. Using an estimated 4% for the 30 and 3.5% for the 15, the payment on the 15 yr mortgage will be 50% higher, $1430 (15yr) for $200K vs $955 for the 30. How does this play in your budget? Do you have an adequate emergency fund? Are you funding your retirement plan at a decent level? In the end, there is no right answer, just what's right for you. Understanding the rest of your financial picture will get you more detailed advice. Not knowing your situation limits the answers. Edit 6/30/2015 - When I wrote this answer, the DVY was trading at $48.24. $100,000 invested would have given off $3187/yr after a 15% dividend tax rate. At $75/share now, the $100,000 investment would be worth $155,472 and yielding $5597 for a net $4757 after tax. The choice to go DVY would have been profitable from the start, with room now for a 35% crash before losing any money.","\"Really this is no different from any kind of large lump sum and having a mortgage. There are probably many questions and answers on this subject. It really doesn't matter that the proceeds were the result of a sale, an inheritance would not change the answer. I think it is important to note that the proceeds will not eliminate the house 2 mortgage. A high level choice of investment one makes is between equity (such as stock) and debt investments (such as bonds and mortgages). You are in a unique case of being able to invest in your own mortgage with no investment fee. This may tip the scales in favor of paying down the mortgage. It is difficult to answer in your specific case as we don't know the rest of your finances. Do you have a sizable 401K that is heavily invested in stocks? Do you have the need for a college fund? Do you have an emergency fund? Do you have a desire to own several homes generating income property? If it was me I'd do the following in order, skipping steps I may have already completed: I've heard that the bank may agree to a \"\"one time adjustment\"\" to lower the payments on Mortgage #2 because of paying a very large payment. Is this something that really happens? I really kind of hate this attitude. Your goal is to get rid of the mortgage in a timely manner. Doing such makes paying for kids college a snap, reduces the income one might need in retirement, basically eliminates the need for life insurance, and gives one a whole lot of money to have fun with.\""],"string":"[\n \"In all likelihood, the best thing you can do, if these really are your only two options (ie no other debt at all), paying-down your mortgage will shorten the term of the mortgage, and mean you spend less on your house in the long run. Investing is should be a long-term activity - so yes, the likelihood is that, given a modest investment, it will gain at historical averages over the life of the investment vehicle. However, that is not a guarantee, and is an inherent risk. Whereas paying-down a mortgage lowers your financial obligations and risk, investing increases your risk. I want to know how you got a 2.1% interest rate on a mortgage, though - the lowest I've seen anywhere is 3.25%.\",\n \"\\\"If you don't want to take any risk and you want your money to be liquid, then the best place to \\\"\\\"invest\\\"\\\" such money is in an insured bank deposit, such as a high interest savings account. However, you aren't likely to find a savings account interest rate that comes close to that charged by your mortgage, so the better decision from a numbers perspective is to pay down more on your mortgage or other debt. Paying down your debt has almost no risk, but has a better payoff than simply saving the money in a bank account. However, if you choose to pay down more debt, I suggest you still keep aside enough cash to have an adequate emergency fund. Since you want safety and liquidity, don't expect high returns from such money.\\\"\",\n \"It's six of one a half dozen of another. Investing the cash is a little more risky. You know exactly what you'll get by paying down your mortgage. If you have a solid emergency fund it's probably most advisable to pay down your mortgage. If your mortgage is 3% and your investment makes 3.5% you're talking about a taxable gain of 0.5% on the additional cash. Is that worth it to you? Sure, the S&P has been on a tear but remember, past results are not a guarantee of future performance.\",\n \"Paying down your mortgage saves lots of interest. With a long term mortgage you end up paying twice us much to the bank than the sales price of the house. Even low mortgage interests are higher than short term bonds. The saving of those interest are as much an investment as the interest you get from a bond. However, before paying off a mortgage other higher interest loans should be paid off. Also it should be considered if the mortgage interest create a tax reduction in the comparison with any other options.\",\n \"\\\"Basically, the easiest way to do this is to chart out the \\\"\\\"what-ifs\\\"\\\". Applying the amortization formula (see here) using the numbers you supplied and a little guesswork, I calculated an interest rate of 3.75% (which is good) and that you've already made 17 semi-monthly payments (8 and a half months' worth) of $680.04, out of a 30-year, 720-payment loan term. These are the numbers I will use. Let's now suppose that tomorrow, you found $100 extra every two weeks in your budget, and decided to put it toward your mortgage starting with the next payment. That makes the semi-monthly payments $780 each. You would pay off the mortgage in 23 years (making 557 more payments instead of 703 more). Your total payments will be $434,460, down from $478.040, so your interest costs on the loan were reduced by $43,580 (but, my mistake, we can't count this amount as money in the bank; it's included in the next amount of money to come in). Now, after the mortgage is paid off, you have $780 semi-monthly for the remaining 73 months of your original 30-year loan (a total of $113,880) which you can now do something else with. If you stuffed it in your mattress, you'd earn 0% and so that's the worst-case scenario. For anything else to be worth it, you must be getting a rate of return such that $100 payments, 24 times a year for a total of 703 payments must equal $113,880. We use the future value annuity formula (here): v = p*((i+1)n-1)/i, plugging in v ($113880, our FV goal), $100 for P (the monthly payment) and 703 for n (total number of payments. We're looking for i, the interest rate. We're making 24 payments per year, so the value of i we find will be 1/24 of the stated annual interest rate of any account you put it into. We find that in order to make the same amount of money on an annuity that you save by paying off the loan, the interest rate on the account must average 3.07%. However, you're probably not going to stuff the savings from the mortgage in your mattress and sleep on it for 6 years. What if you invest it, in the same security you're considering now? That would be 146 payments of $780 into an interest-bearing account, plus the interest savings. Now, the interest rate on the security must be greater, because you're not only saving money on the mortgage, you're making money on the savings. Assuming the annuity APR stays the same now vs later, we find that the APR on the annuity must equal, surprise, 3.75% in order to end up with the same amount of money. Why is that? Well, the interest growing on your $100 semi-monthly exactly offsets the interest you would save on the mortgage by reducing the principal by $100. Both the loan balance you would remove and the annuity balance you increase would accrue the same interest over the same time if they had the same rate. The main difference, to you, is that by paying into the annuity now, you have cash now; by paying into the mortgage now, you don't have money now, but you have WAY more money later. The actual real time-values of the money, however, are the same; the future value of $200/mo for 30 years is equal to $0/mo for 24 years and then $1560/mo for 6 years, but the real money paid in over 30 years is $72,000 vs $112,320. That kind of math is why analysts encourage people to start retirement saving early. One more thing. If you live in the United States, the interest charges on your mortgage are tax-deductible. So, that $43,580 you saved by paying down the mortgage? Take 25% of it and throw it away as taxes (assuming you're in the most common wage-earner tax bracket). That's $10895 in potential tax savings that you don't get over the life of the loan. If you penalize the \\\"\\\"pay-off-early\\\"\\\" track by subtracting those extra taxes, you find that the break-even APR on the annuity account is about 3.095%.\\\"\",\n \"At the moment the interest rate... implies a variable rate mortgage. I believe rates are only going to go up from here. So, if I were in your position, I would pay off the mortgage first. If you don't have 3-6 months in savings for an emergency, I would invest that much money in low risk investments. Anything remaining I would invest in a balanced portfolio of mutual funds. The biggest benefit to this is the flexibility it gives you. Not being burdened by a monthly mortgage frees you up to invest. This may be in your stock portfolio each month or it may be in your community or charitable causes. You have financial margin.\",\n \"Yes, you will come out ahead slightly by putting the money in the savings account, then paying off your mortgage later. However, we don't know what will happen to these interest rates after 1 year. If you put the £300 per month into the savings account for a year, then put the money into you mortgage, you will save about £78 for the year over just putting the money toward your mortgage in the first place. For me, I'm more concerned about longer term strategy. What happens to your mortgage rate after 2 years? What happens to your savings account rate after 1 year? The mortgage rate likely goes up and the savings account rate likely goes down, making the savings of this strategy even less after the first year. Instead, you may want to put this £300 per month toward retirement investments (assuming you have no other debt), which should, over the long term, earn more than the savings account.\",\n \"First of all, you should absolutely put money into savings until you have at least a 6 month cushion, and preferably longer. It doesn't matter if you get 0% interest in your savings and have a high interest rate mortgage, the cushion is still more important. Once you have a nice emergency fund, you can then consider the question of whether to pay more towards the mortgage if the numbers make sense. However, in my opinion, it's not just a straight comparison of interest rates. In other words, if your savings account gives you 1% and your mortgage is 5%, that's still not an automatic win for the mortgage. The reason is that by putting the money into your mortgage, you're locking it up and can't access it. To me, money in the hand is worth a lot more than money that's yours on paper but not easily accessible. I don't know the math well enough, but you don't really need the math. Just keep in mind that you have to weight the present value of putting that money into savings vs the future value of putting it into your mortgage and paying less interest at some point in the future. Do the math and see how much you will save by paying the mortgage down faster, but also keep in mind that future money is worth less than present money. A LOT less if you suddenly have an emergency or decide on a major purchase and need the money, but then have to jump through hoops to get to it. To me, you need to save a considerable amount by paying down the mortgage, and also understand that your money is getting locked away, for it to make sense.\",\n \"\\\"For some people, it should be a top priority. For others, there are higher priorities. What it should be for you depends on a number of things, including your overall financial situation (both your current finances and how stable you expect them to be over time), your level of financial \\\"\\\"education\\\"\\\", the costs of your mortgage, the alternative investments available to you, your investing goals, and your tolerance for risk. Your #1 priority should be to ensure that your basic needs (including making the required monthly payment on your mortgage) are met, both now and in the near future, which includes paying off high-interest (i.e. credit card) debt and building up an emergency fund in a savings or money-market account or some other low-risk and liquid account. If you haven't done those things, do not pass Go, do not collect $200, and do not consider making advance payments on your mortgage. Mason Wheeler's statements that the bank can't take your house if you've paid it off are correct, but it's going to be a long time till you get there and they can take it if you're partway to paying it off early and then something bad happens to you and you start missing payments. (If you're not underwater, you should be able to get some of your money back by selling - possibly at a loss - before it gets to the point of foreclosure, but you'll still have to move, which can be costly and unappealing.) So make sure you've got what you need to handle your basic needs even if you hit a rough patch, and make sure you're not financing the paying off of your house by taking a loan from Visa at 27% annually. Once you've gotten through all of those more-important things, you finally get to decide what else to invest your extra money in. Different investments will provide different rewards, both financial and emotional (and Mason Wheeler has clearly demonstrated that he gets a strong emotional payoff from not having a mortgage, which may or may not be how you feel about it). On the financial side of any potential investment, you'll want to consider things like the expected rate of return, the risk it carries (both on its own and whether it balances out or unbalances the overall risk profile of all your investments in total), its expected costs (including its - and your - tax rate and any preferred tax treatment), and any other potential factors (such as an employer match on 401(k) contributions, which are basically free money to you). Then you weigh the pros and cons (financial and emotional) of each option against your imperfect forecast of what the future holds, take your best guess, and then keep adjusting as you go through life and things change. But I want to come back to one of the factors I mentioned in the first paragraph. Which options you should even be considering is in part influenced by the degree to which you understand your finances and the wide variety of options available to you as well as all the subtleties of how different things can make them more or less advantageous than one another. The fact that you're posting this question here indicates that you're still early in the process of learning those things, and although it's great that you're educating yourself on them (and keep doing it!), it means that you're probably not ready to worry about some of the things other posters have talked about, such as Cost of Capital and ROI. So keep reading blog posts and articles online (there's no shortage of them), and keep developing your understanding of the options available to you and their pros and cons, and wait to tackle the full suite of investment options till you fully understand them. However, there's still the question of what to do between now and then. Paying the mortgage down isn't an unreasonable thing for you to do for now, since it's a guaranteed rate of return that also provides some degree of emotional payoff. But I'd say the higher priority should be getting money into a tax-advantaged retirement account (a 401(k)/403(b)/IRA), because the tax-advantaged growth of those accounts makes their long-term return far greater than whatever you're paying on your mortgage, and they provide more benefit (tax-advantaged growth) the earlier you invest in them, so doing that now instead of paying off the house quicker is probably going to be better for you financially, even if it doesn't provide the emotional payoff. If your employer will match your contributions into that account, then it's a no-brainer, but it's probably still a better idea than the mortgage unless the emotional payoff is very very important to you or unless you're nearing retirement age (so the tax-free growth period is small). If you're not sure what to invest in, just choose something that's broad-market and low-cost (total-market index funds are a great choice), and you can diversify into other things as you gain more savvy as an investor; what matters more is that you start investing in something now, not exactly what it is. Disclaimer: I'm not a personal advisor, and this does not constitute investing advice. Understand your choices and make your own decisions.\\\"\",\n \"I would not recommend using your own money to pay off something that is not a strong asset. Use the savings where it will have the maximum return. Why not put (some of) the savings into another investment mortgage? Thanks to the leverage your return would be much higher than 5.5%, plus you would have more income.\",\n \"\\\"Understand your own risk tolerance and discipline. From Moneychimp we can see different market results - This is a 15 year span, containing what was arguably one of the most awful decades going. A full 10 year period with a negative return. Yet, the 15 year return was a 6.65% CAGR. You'd net 5.65% after long term cap gains. Your mortgage is likely costing ~4% or 3% after tax (This is not applicable to my Canadian friends, I understand you don't deduct interest). In my not so humble opinion, I'd pay off the highest rate debts first (unlike The David followers who are happy to pay off tens of thousands of dollars in 0% interest debt before the large 18% debt) and invest at the highest rate I'd get long term. The problem is knowing when to flip from one to the other. Here's food for thought - The David insists on his use of the 12% long term market return. The last 100 years have had an average 11.96% return, but you can't spend average, the CAGR, the real compound rate was 10.06%. Why would he recommend paying off a sub 3% loan while using 12% for his long term planning (All my David remarks are not applicable to Canadian members, you all probably know better than to listen to US entertainers)? I am retired, and put my money where my mouth is. The $200K I still owe on my mortgage is offset by over $400K in my 401(k). The money went in at 25%/28% pretax, has grown over these past 20 years, and comes out at 15% to pay my mortgage each month. No regrets. Anyone starting out now, and taking a 30 year mortgage, but putting the delta to a 15 year mortgage payment into their 401(k) is nearly certain to have far more in the retirement account 15 years hence than their remaining balance on the loan, even after taxes are considered. Even more if this money helps them to get the full matching, which too many miss. All that said, keep in mind, the market is likely to see a correction or two in the next 15 years, one of which may be painful. If that would keep you up at night, don't listen to me. If a fixed return of 4% seems more appealing than a 10% return with a 15% standard deviation, pay the mortgage first. Last - if you have a paid off house but no job, the town still wants its property tax, and the utilities still need to be paid. If you lose your job with $400K in your 401(k)/IRA but have a $200K mortgage, you have a lot of time to find a new job or sell the house with little pressure from the debt collectors. (To answer the question in advance - \\\"\\\"Joe, at what mortgage rate do you pay it off first?\\\"\\\" Good question. I'd deposit to my 401(k) to grab matching deposits first, and then if the mortgage was anywhere north of 6%, prioritize that. This would keep my chances at near 100% of coming out ahead.)\\\"\",\n \"Aggressively paying of Mortgage is better. If you have more cash available [assuming you have covered all other aspects i.e. emergency funds, retirement etc], the only question you need to ask is where will you invest and what returns would you get. So if your mortgage is say at 5%, if the spare money can get you more than this, its beneficial, if its in Bank CD with say near zero interest, its not worth it. However if you are sure you can make 10% returns on the investments, then go ahead and don't pay the mortgage aggressively.\",\n \"\\\"The mortgage has a higher interest rate, how can it make sense to pay off the HELOC first?? As for the mutual fund, it comes down to what returns you are expecting. If the after-tax return is higher than the mortgage rate then invest, otherwise \\\"\\\"invest\\\"\\\" in paying down the mortgage. Note that paying down debt is usually the best investment you have.\\\"\",\n \"Simply, you should put your money into whatever has the higher interest rate, savings or repayment of debt. Let's say at the beginning of month A you put $1000 into each account. In the case of the savings, at the end of month A you will have $1001.6 ($1000 + 1000 x 2% annual interest / 12) In the case of a loan, at the end of month A you will have $1005.7. ($17000 plus 6.8 interest for one month is 17096.3. On $16000, the new value is 16090.6. The difference between these is $1005.7. 5.7 / 1.6 = 3.56 Therefore, using your money to repay your loan nets you a return about 3.5 times greater.\",\n \"\\\"I think the basic question you're asking is whether you'd be better off putting the $20K into an IRA or similar investment, or if your best bet is to pay down your mortgage. The answer is...that depends. What you didn't share is what your mortgage balance is so that we can understand how using that money to pay down the mortgage would affect you. The lower your remaining balance on the mortgage, the more impact paying it down will affect your long-term finances. For example, if your remaining principal balance is more than $200k, paying down $20k in principal will not have as significant an effect as if you only have $100k principal balance and were paying down $20k of that. To me, one option is to put the $20k toward mortgage principal, then perhaps do a refinance on your remaining mortgage with the goal of getting a better interest rate. This would double the benefit to you. First, your mortgage payment would be lower by virtue of a lower principal balance (assuming you keep the same term period in your refinanced mortgage as you have now. In other words, if you have a 15-year now, your new mortgage should be 15 years also to see the best effect on your payment). Further, if you can obtain a lower interest rate on the new loan, now you have the dual benefit of a lower principal balance to pay down plus the reduced interest cost on that principal balance. This would put money into your pocket immediately, which I think is part of your goal, although the question does hinge on what you'd pay in points and fees for a refinance. You can invest, but with that comes risk, and right now may not be the ideal time to enter the markets given all of the uncertainties with the \\\"\\\"Brexit\\\"\\\" issue. By paying down your mortgage principal, even if you do nothing else, you can save yourself considerable interest in the long term which might be more beneficial than the return you'd get from the markets or an IRA at this point. I hope this helps. Good luck!\\\"\",\n \"The short answer is that it depends on the taxation laws in your country. The long answer is that there are usually tax avoidance mechanisms that you can use which may make it more economically feasible for you to go one way or the other. Consider the following: The long term average growth rate of the stock market in Australia is around 7%. The average interest on a mortgage is 4.75%. Assuming you have money left over from a 20% deposit, you have a few options. You could: 1) Put that money into an index fund for the long term, understanding that the market may not move for a decade, or even move downwards; 2) Dump that money straight into the mortgage; 3) Put that money in an offset account Option 1 will get you (over the course of 30-40 years) around 7% return. If and when that profit is realised it will be taxed at a minimum of half your marginal tax rate (probably around 20%, netting you around 5.25%) Option 2 will effectively earn you 4.75% pa tax free Option 3 will effectively earn you 4.75% pa tax free with the added bonus that the money is ready for you to draw upon on short notice. Of the three options, until you have a good 3+ months of living expenses covered, I'd go with the offset account every single time. Once you have a few months worth of living expenses covered, I would the adopt a policy of spreading your risk. In Australia, that would mean extra contributions to my Super (401k in the US) and possibly purchasing an investment property as well (once I had the capital to positively gear it). Of course, you should find out more about the tax laws in your country and do your own maths.\",\n \"The mathematically correct answer is to invest, because you'll get a higher rate of return. I think that answer is bunk -- owning your home free and clear is a huge burden lifted off of your shoulders. You're at an age where you may find a new job, business, personal or other opportunities will be easier to take advantage of without that burden.\",\n \"It depends on the relative rates and relative risk. Ignore the deduction. You want to compare the rates of the investment and the mortgage, either both after-tax or both before-tax. Your mortgage costs you 5% (a bit less after-tax), and prepayments effectively yield a guaranteed 5% return. If you can earn more than that in your IRA with a risk-free investment, invest. If you can earn more than that in your IRA while taking on a degree of risk that you are comfortable with, invest. If not, pay down your mortgage. See this article: Mortgage Prepayment as Investment: For example, the borrower with a 6% mortgage who has excess cash flow would do well to use it to pay down the mortgage balance if the alternative is investment in assets that yield 2%. But if two years down the road the same assets yield 7%, the borrower can stop allocating excess cash flow to the mortgage and start accumulating financial assets. Note that he's not comparing the relative risk of the investments. Paying down your mortgage has a guaranteed return. You're talking about CDs, which are low risk, so your comparison is simple. If your alternative investment is stocks, then there's an element of risk that it won't earn enough to outpace the mortgage cost. Update: hopefully this example makes it clearer: For example, lets compare investing $100,000 in repayment of a 6% mortgage with investing it in a fund that pays 5% before-tax, and taxes are deferred for 10 years. For the mortgage, we enter 10 years for the period, 3.6% (if that is the applicable rate) for the after tax return, $100,000 as the present value, and we obtain a future value of $142,429. For the alternative investment, we do the same except we enter 5% as the return, and we get a future value of $162,889. However, taxes are now due on the $62,889 of interest, which reduces the future value to $137,734. The mortgage repayment does a little better. So if your marginal tax rate is 30%, you have $10k extra cash to do something with right now, mortgage rate is 5%, IRA CD APY is 1%, and assuming retirement in 30 years: If you want to plug it into a spreadsheet, the formula to use is (substitute your own values): (Note the minus sign before the cash amount.) Make sure you use after tax rates for both so that you're comparing apples to apples. Then multiply your IRA amount by (1-taxrate) to get the value after you pay future taxes on IRA withdrawals.\",\n \"I think there are a few facets to this, namely: Overall, I wouldn't concentrate on paying off the house if I didn't have any other money parked and invested, but I'd still try to get rid of the mortgage ASAP as it'll give you more money that you can invest, too. At the end of the day, if you save out paying $20k in interest, that's almost $20k you can invest. Yes, I realise there's a time component to this as well and you might well get a better return overall if you invested the $20k now that in 5 years' time. But I'd still rather pay off the house.\",\n \"My figuring (and I'm not an expert here, but I think this is basic math) is: Let's say you had a windfall of $1000 extra dollars today that you could either: a. Use to pay down your mortgage b. Put into some kind of equity mutual fund Maybe you have 20 years left on your mortgage. So your return on investment with choice A is whatever your mortgage interest rate is, compounded monthly or daily. Interest rates are low now, but who knows what they'll be in the future. On the other hand, you should get more return out of an equity mutual fund investment, so I'd say B is your better choice, except: But that's also the other reason why I favour B over A. Let's say you lose your job a year from now. Your bank won't be too lenient with you paying your mortgage, even if you paid it off quicker than originally agreed. But if that money is in mutual funds, you have access to it, and it buys you time when you really need it. People might say that you can always get a second mortgage to get the equity out of it, but try getting a second mortgage when you've just lost your job.\",\n \"pay off loans first, then invest. it's a guaranteed benefit. you could invest it and make great returns, or you could watch the market crash the next day and there goes your savings. no guarantee exists there. take the sure thing. that's my two cents.\",\n \"\\\"There is no formula to answer the question. You have to balance return on investment with risk. There's also the question of whether you have any children or other heirs that you would like to leave money to. The mortgage is presumably a guaranteed thing: you know exactly how much the payments will be for the rest of the loan. I think most annuities have a fixed rate of return, but they terminate when you both die. There are annuities with a variable return, but usually with a guaranteed minimum. So if you got an annuity with a fixed 3.85% return, and you lived exactly 18 more years, then (ignoring tax implications), there'd be no practical difference between the two choices. If you lived longer than 18 years, the annuity would be better. If less, paying off the mortgage would be better. Another option to consider is doing neither, but keeping the money in the 401k or some other investment. This will usually give better than 3.85% return, and the principal will be available to leave to your heirs. The big drawback to this is risk: investments in the stock market and the like usually do better than 3 or 4%, but not always, and sometimes they lose money. Earlier I said \\\"\\\"ignoring tax implications\\\"\\\". Of course that can be a significant factor. Mortgages get special tax treatment, so the effective interest rate on a mortgage is less than the nominal rate. 401ks also get special tax treatment. So this complicates up calculations trying to compare. I can't give definitive numbers without knowing the returns you might get on an annuity and your tax situation.\\\"\",\n \"In general, saving money should be prioritized over extra debt payments. Every dollar that you spend paying down a debt will decrease the amount of principal owed; this will directly decrease the future interest payments you will make. However, as time goes on, you are dealing with a smaller and smaller set of principal; additionally, it is assumed that your income will grow (or at least keep pace with inflation), making the debt more bearable. On the other hand, every dollar you save (or invest) now will increase your future income - also making the future debt more bearable. Not only that, but the longer you save, the more value to you get from having saved, meaning you should save as early as possible. Finally, the benefits of paying down the mortgage early end when the mortgage is completely paid off, while the benefits of saving will continue (and even grow) after the house is owned free and clear. That is, if you have an extra $100,000 to put into the mortgage during the life of the loan, you could sink that into the mortgage and see it disappear, or you could invest it, and reap the dividends for the rest of your life. Caveat emptor: behavior trumps numbers. This only works if you will actually be disciplined about saving the extra money rather than paying off debt. If you're the kind of person for whom money burns a hole in your pocket until you spend it, then use it on debt. But if you are able to save and invest that money, you will be better off in the long run.\",\n \"The answer can depend greatly on whether the interest on a mortgage for the house you live in is tax deductible in the country you are in (I assume the mortgage is on the house you live in and not an investment property). It will also depend on the difference between the mortgage interest rate and the return of the unit trust, your income and your tax rates. In essence you would need to do a cost-benefit analysis to figure out which option would provide the bigest financial benefit, considering the different rates, your income and your tax rates. Basically, if you can get a better return from the unit trust than the mortgage interest rate and you can claim a tax deduction for the mortgage interest payments, then you may be better off investing in the unit trust rather than putting extra repayments into the mortgage.\",\n \"\\\"I'm assuming when you say \\\"\\\"…put it towards our mortgage payment?\\\"\\\", you mean make additional payments on top of your scheduled payment. Strictly speaking, if the interest on your mortgage is higher than the return you can expect by saving, then yes, your excess savings should be put toward your mortgage. This assumes that there are no pre-payment penalties, that you really won't miss that money in the short term (i.e. you say you have enough savings for emergencies, so that's good), and that both choices would use after-tax dollars (i.e. mortgage payment vs RRSP contribution in Canada is a huge discussion).\\\"\",\n \"Let's look at some of your options: In a savings account, your $40,000 might be earning maybe 0.5%, if you are lucky. In a year, you'll have earned $200. On the plus side, you'll have your $40,000 easily accessible to you to pay for moving, closing costs on your new house, etc. If you apply it to your mortgage, you are effectively saving the interest on the amount for the life of the loan. Let's say that the interest rate on your mortgage is 4%. If you were staying in the house long-term, this interest would be compounded, but since you are only going to be there for 1 year, this move will save you $1600 in interest this year, which means that when you sell the house and pay off this mortgage, you'll have $1600 extra in your pocket. You said that you don't like to dabble in stocks. I wouldn't recommend investing in individual stocks anyway. A stock mutual fund, however, is a great option for investing, but only as a long-term investment. You should be able to beat your 4% mortgage, but only over the long term. If you want to have the $40,000 available to you in a year, don't invest in a mutual fund now. I would lean toward option #2, applying the money to the mortgage. However, there are some other considerations: Do you have any other debts, maybe a car loan, student loan, or a credit card balance? If so, I would forget everything else and put everything toward one or more of these loans first. Do you have an emergency fund in place, or is this $40,000 all of the cash that you have available to you? One rule of thumb is that you have 3 to 6 months of expenses set aside in a safe, easily accessible account ready to go if something comes up. Are you saving for retirement? If you don't already have retirement savings in place and are adding to it regularly, some of this cash would be a great start to a Roth IRA or something like that, invested in a stock mutual fund. If you are already debt free except for this mortgage, you might want to do some of each: Keep $10,000 in a savings account for an emergency fund (if you don't already have an emergency fund), put $5,000 in a Roth IRA (if you aren't already contributing a satisfactory amount to a retirement account), and apply the rest toward your mortgage.\",\n \"\\\"From what I've read, paying down your mortgage -- above and beyond what you'd normally pay -- is indeed an investment but a very poor form of investment. In other words, you could take that extra money you'd apply towards your mortgage and put it in something that has a much higher rate of return than a house. As an extreme example, consider: if I took $6k extra I would have paid toward my mortgage in a single year, and bought a nice performing stock, I could see returns of 2x or 3x. Now, that implies I know which stock to pick, etcetera.. I found a \\\"\\\"mortgage or investment\\\"\\\" calculator which could be of use as well: http://www.planningtips.com/cgi-bin/prepay_v_invest.pl (scroll to bottom to see the summary and whether or not prepay or invest wins for the numbers you plugged in)\\\"\",\n \"If it's either/or, I'd pay down the mortgage, no question. I know I'm in the minority, but I'm not a fan of tax-advantaged retirement accounts. There are too many things that can change between now and the next 30 years (the time frame that you'll be able to withdraw from your IRA account without penalty). The rules governing these accounts can change at any time, and I don't think they'll be changes for the better. Putting the money toward your mortgage will relieve you of that monthly payment faster. The benefits of IRAs come retirement age are too uncertain for my taste.\",\n \"but then they make suggestions such as paying extra each month on your mortgage. How else does one pay off his mortgage early other than by paying extra each month? The principal and interest are fixed, no matter how much money you throw at them. The interest rate is fixed. The total interest paid varies depending on how much extra you pay towards the principal. You'll pay the same amount every month regardless. That's factually incorrect. just put the extra money into savings At 1.2%, if you're smart enough to put it in an on-line savings account. until you have enough to pay off the mortgage Which costs you 3.5%. This way, the money is locked up in your home. Who says that all of your money must be locked up in your home? (I'm sure that there are financial advisors who recommend that you throw every single spare dime into extra mortgage payments, but they're rare.) Am I missing something? Yes: the mathematical sense to see that a 3.5% loan costs more than than 1.2% savings earns you\",\n \"Certainly, paying off the mortgage is better than doing nothing with the money. But it gets interesting when you consider keeping the mortgage and investing the money. If the mortgage rate is 5% and you expect >5% returns from stocks or some other investment, then it might make sense to seek those higher returns. If you expect the same 5% return from stocks, keeping the mortgage and investing the money can still be more tax-efficient. Assuming a marginal tax rate of 30%, the real cost of mortgage interest (in terms of post-tax money) is 3.5%*. If your investment results in long-term capital gains taxed at 15%, the real rate of growth of your post-tax money would be 4.25%. So in post-tax terms, your rate of gain is greater than your rate of loss. On the other hand, paying off the mortgage is safer than investing borrowed money, so doing so might be more appropriate for the risk-averse. * I'm oversimplifying a bit by assuming the deduction doesn't change your marginal tax rate.\",\n \"\\\"I was going to ask, \\\"\\\"Do you feel lucky, punk?\\\"\\\" but then it occurred to me that the film this quote came from, Dirty Harry, starring Clint Eastwood, is 43 years old. And yet, the question remains. The stock market, as measured by the S&P has returned 9.67% compounded over the last 100 years. But with a standard deviation just under 20%, there are years when you'll do better and years you'll lose. And I'd not ignore the last decade which was pretty bad, a loss for the decade. There are clearly two schools of thought. One says that no one ever lost sleep over not having a mortgage payment. The other school states that at the very beginning, you have a long investing horizon, and the chances are very good that the 30 years to come will bring a return north of 6%. The two decades prior to the last were so good that these past 30 years were still pretty good, 11.39% compounded. There is no right or wrong here. My gut says fund your retirement accounts to the maximum. Build your emergency fund. You see, if you pay down your mortgage, but lose your job, you'll still need to make those payments. Once you build your security, think of the mortgage as the cash side of your investing, i.e. focus less on the relatively low rate of return (4.3%) and more on the eventual result, once paid, your cash flow goes up nicely. Edit - in light of the extra information you provided, your profile reads that you have a high risk tolerance. Low overhead, no dependents, and secure employment combine to lead me to this conclusion. At 23, I'd not be investing at 4.3%. I'd learn how to invest in a way I was comfortable with, and take it from there. Disclosure (Updated) - I am older, and am semi-retired. I still have some time left on the mortgage, but it doesn't bother me, not at 3.5%. I also have a 16 year old to put through college but her college account i fully funded.\\\"\",\n \"Yes, one is certainly better than the other. Which one depends on your priorities and the interest and tax rates on your student loan, your savings, and your (future) mortgage plus how much you can afford to save and still enjoy the lifestyle you want as well as how soon you want to move out. Basically, you havn't given enough information.\",\n \"you should always invest if your investment rate of return is higher than your interest rate Your next line, about standard deviation is dead on. There are too many variables to give an exact answer here, in my opinion. The main reason is that one variable isn't easy to quantify - One's risk tolerance. Clearly, there's one extreme, the 18% credit card. Unless you are funding loanshark type rates of 2%/week, it's safe to say that 18% debt should take priority over any investments, except for the matched 401(k) deposits. What I think you're talking about is something we've addressed here in multiple threads. Do I prepay my sub 4% mortgage or invest? In this case, (and to Noah's comment) the question is whether you can expect a post-tax return of over 3% during your time horizon. I look at the return for 15 years from 1998-2013 and see a 6% CAGR for the S&P. I chose 15 years, as the choice is often one of paying a 30 year mortgage faster, as fast as 15. The last 15 years offer a pretty bad scenario, 2 crashes and a mortgage crisis. 6% after long term gains would get you 5.1% net. You can pull the data back to 1871 and run CAGR numbers for the timeframe of your choosing. I haven't done it yet, but I imagine there's no 15 year span that lags the 3% target I cite. What makes it more complex is that the investment isn't lump sum. It may not be obvious, but CAGR is a dollar invested at T=0, and returns calculated to T=final year. It would take a bit of spreadsheeting to invest the extra funds every month/year over your period of analysis. In the end, there are still those who will choose to pay off their 4% mortgage regardless of what the numbers show. Even if the 15 year result showed worst case 3.5% (almost no profit) and an average 10%, the feeling of risk is more than many will want.\",\n \"I read your question that you have a comfortable amount toward retirement. If not, pad your retirement accounts if possible. If your loan rate is locked at 2.67%, invest that money in the market and pay the loan as agreed. So long as you feel comfortable in your employment and income status for the next few years, I would bet you will get a lot more out of your cash investing in diversified, low cost funds or ETFs that you will save in interest on that loan. Finally, if you decide to lower your debt instead of increasing investments (based on your tolerance for risk) why not pay more on the mortgage? If you owe most of your mortgage and it is typically long term, you might cut many years off of the mortgage with a large payment.\",\n \"The chances are good that the interest you are going to pay on the debt is going to be higher than the interest you are going to receive on any type of short term investments. That would make the paying off of the debt worth more to you in the long run than saving your money. Note that without the particulars of your situation this is all just theory crafting so consult the details of you loan agreements. I cannot imagine that a credit provider did not discuss this with you before you put pen on paper.\",\n \"First off, this is a post for /r/personalfinance. Second off, if you want to think of this like an accountant/financier, those are the bank's 10233 dollars, not your's, and you are paying them 6% to keep that money. If you are confident that you are going to make more than 6% interest on any investments you make with that money, it makes sense to do so, although your return will be 6% less in reality. You also assume the risk of losing money on the investment and not having enough money to repay your loans. tl;dr Pay off the loan.\",\n \"It is important to consider your overall financial goals (especially in the 3-5 year range). If you have another financial goal which cannot be met without that additional money then meeting that financial goal might take priority over what I am about to say. Your mortgage rate is another important factor to consider when answering this question. Extra mortgage payments are equivalent to investing that money in a VERY low risk investment with an equivalent yield of the mortgage rate because you will be paying that much less per year in interest. (Actually, when you consider that mortgage interest is often tax-deductible the equivalent yield should be reduced by your income tax rate.) Typically it is not possible to find such a low risk investment with a yield as high as your mortgage rate. For example current mortgage rates are over twice as high as the yield of a one year CD. Also keep in mind that additional mortgage payments help you build equity. This equity will most likely be applied to your next home purchase. If so their effect will be in place throughout the life of your next mortgage too.\",\n \"There are a lot of open questions about if this is your only accessible money or if you have other emergency funds, and if you have any retirements savings and when do you plan to retire, but leaving this all aside: You currently pay 2.65% on the mortgage, and you make less on savings (maybe 1 or 1.5%). So putting the savings into the mortgage makes you the difference, which is a good deal. However, you need to reflect this with your risk-averisty, and your long term goals, and look at potential even better deals. For example, you could put the savings into higher risk/higher gain investments (let’s assume index funds), and make 6 - 10% per year in average. That obviously is a lot more. Why would you not want to do that? Investing like this is a long term plan. If this is your only savings/emergency fund, or if you need the money within the next five years, you should not do it; it could catch you in a bad market situation, and then it might be a severe loss. If you are sure you don’t need it for at least five if not ten years, invest it and keep the mortgage, you will easily beat its interest rate. If you are risk-averse, and can’t sleep with your savings doing loopings while you watch, that is also not a plan for you. There are many things to consider, and your personal situation is relevant for the decision. Consider all options, and be sure to always have a emergency fund remaining. It is also not black and white - there are options in between of your two propositions - pay some in, and keep some for emergencies.\",\n \"\\\"I'll assume you live in the US for the start of my answer - Do you maximize your retirement savings at work, at least getting your employer's match in full, if they do this. Do you have any other debt that's at a higher rate? Is your emergency account funded to your satisfaction? If you lost your job and tenant on the same day, how long before you were in trouble? The \\\"\\\"pay early\\\"\\\" question seems to hit an emotional nerve with most people. While I start with the above and then segue to \\\"\\\"would you be happy with a long term 5% return?\\\"\\\" there's one major point not to miss - money paid to either mortgage isn't liquid. The idea of owing out no money at all is great, but paying anything less than \\\"\\\"paid in full\\\"\\\" leaves you still owing that monthly payment. You can send $400K against your $500K mortgage, and still owe $3K per month until paid. And if you lose your job, you may not so easily refinance the remaining $100K to a lower payment so easily. If your goal is to continue with real estate, you don't prepay, you save cash for the next deal. Don't know if that was your intent at some point. Disclosure - my situation - Maxing out retirement accounts was my priority, then saving for college. Over the years, I had multiple refinances, each of which was a no-cost deal. The first refi saved with a lower rate. The second, was in early 2000s when back interest was so low I took a chunk of cash, paid principal down and went to a 20yr from the original 30. The kid starts college, and we target retirement in 6 years. I am paying the mortgage (now 2 years into a 10yr) to be done the month before the kid flies out. If I were younger, I'd be at the start of a new 30 yr at the recent 4.5% bottom. I think that a cost of near 3% after tax, and inflation soon to near/exceed 3% makes borrowing free, and I can invest conservatively in stocks that will have a dividend yield above this. Jane and I discussed the plan, and agree to retire mortgage free.\\\"\",\n \"\\\"I doubt you will get an answer equal to \\\"\\\"You can't save when you have debt\\\"\\\". Because most mortgages are for decades, very few people would be able to save for retirement if they had to wait to be mortgage free. The difficulty in saving occurs when the interest rate is very high (18% or more) and the interest is not deductible. Such as with credit cards. The minimum payment for your mortgage is 30% of your income. If that doesn't include taxes and homeowners insurance in the 30%, then for the United States that would be considered too large. While the general plan to pay down the mortgage is a good idea, make sure that you are able to handle the minimum payments before starting to increase the payments. Try the minimum for a year or two before getting aggressive The calculation is based on the interest rate of the mortgage, the interest rate of the savings account, and the potential tax deduction of the mortgage and the tax rate on the earned interest. Putting extra money into a mortgage, but missing out on matching retirement money would also have to be figured into the calculation. Make sure you do save for retirement , kids education, and emergencies. Unless your country has a complex system where the money can flow in and out of the mortgage, then once you put extra money into the mortgage you can't get it back when the car dies. The nice thing about putting extra money into a mortgage is that you can do it either in an organized way, or only when you feel comfortable. So it is not urgent for you to commit to a plan immediately. One thing to avoid is a plan that charges you a fee to add extra money, or charges a fee to switch to a bi-weekly mortgage. While your ideas is good, these plans should never cost any money to start, and may be a scam if a 3rd party gets between you and the lender.\\\"\",\n \"You mention only two debts, mortgage and student loan, but you mention $19K in savings, which suggests that you are a saver, and likely do not have other debts. You did not mention your (net) income and expenses (income statement), but since you have substantial savings, you likely live within your means (income > expenses). Since you mention $38K in retirement, we might conclude you are regularly saving for retirement (are you saving 10% toward retirement)? You did not mention any medical condition or other debts, that might require a large savings, so I would suggest having 6 months savings ($2.5K x 6 = $15K) but should your net expenses be less, you might reduce this ($2K x 6 = $12K). You do not mention any investment you might want to make, but since you did not mention any candidate investments, we can assume you have no (specific) investments you find particularly attractive. You did not mention anything you were saving to purchase that you might want to purchase. You have combined $19K + $50K = $69K savings, and $15K would be a comfortable emergency savings, leaving $54K you could use to reduce mortgage or student loan debt. The mortgage debt interest @4.5%, is higher, so paying that debt off would be like earning 4.5% guaranteed return on your money, tax-free. At your income, your marginal tax rate is low enough that the mortgage interest deduction (if you do itemize) would not reduce this return much (15% if you itemize). The student loan debt interest @2.8%, would be like earning 2.8% guaranteed return on your money, tax-free. Clearly the higher return on your 'investment' in paying off debt would be reducing your mortgage balance (over 50% higher return on investment, compared to the student loan debt). You did not mention any circumstance that might cause the student loan rate to increase, the mortgage rate to increase, nor did you mention any difficulty making both the mortgage and student loan payments, the amounts of either payment, nor the number of years remaining to pay on either. Should you need (or desire) to reduce your payments, you could choose to payoff the student loan to eliminate one payment, and thus decrease your expenses. Or you could choose to pay down the mortgage, and refinance (or refactor) the mortgage to obtain a smaller payment. Another strategy (assuming you have had your house for 5-7 years), might be to pay the mortgage down enough to refinance into a 15 year loan, and (assuming you have a good credit score) obtain a lower (3%) rate. But I am going to suggest you consider a blended approach. Combine the Dave Ramsey Debt Snowball approach with the reduce the interest rate approach. Take the $54K ($57K?) available (after reserving 6 months emergency fund), and split between both. You pay your mortgage down by $27K and your student loan debt down by $27K. Your blended return on investment is (2.8+4.5)/2 = 3.65%, and you have the following Balance Sheet: Assets: Debts: The next steps would be to, There are two great reasons for paying off the student loan debt. One is the Dave Ramsey Debt Snowball approach which is that this is the smaller debt, and thus represents a psychological win, and the other is that student loan debt has special treatment even in bankruptcy.\",\n \"The answer will vary person to person and situation to situation. But the basic concept to always consider is this: What interest rate am I paying on my debt? 10%? 18%? And what interest rate am I making on my savings/investment, etc? 3%? 7%? It won't give you a hard and fast answer, but will definitely let you know if you should take a closer look at it. I'd suggest talking to a financial planner about it. Find a fee-based planner that you can turn to intermittently to make sure you are on the right track...not a commission-based planner, a fee-based one. (with respectful apologies to any commission-based planners who may read this.) My instinct is usually to pay off the debt, try to clean everything up so you don't have anything outstanding that is charging you interest. Debt is clutter, it's stressful, it can be a reminder of money you wish you hadn't spent. As long as you have access to money in case of emergency, job loss, etc, get your debt paid off and keep it paid off. You'll sleep much better.\",\n \"I want to start investing money, as low risk as possible, but with a percentage growth of at least 4% over 10 - 15 years. ...I do have a mortgage, Then there's your answer. You get a risk-free return of the interest rate on your mortgage (I'm assuming it's more than 4%). Every bit you put toward your mortgage reduces the amount of interest you pay by the interest rate, helping you to pay it off faster. Then, once your mortgage is paid off, you can look at other investments that fit your risk tolerance and return requirements. That said, make sure you have enough emergency savings to reduce cash flow interruptions, and make sure you don't have any other debts to pay. I'm not saying that everyone with a mortgage should pay it off before other investments. You asked for a low-risk 4% investment, which paying your mortgage would accomplish. If you want more return (and more risk) then other investments would be appropriate. Other factors that might change your decision might be:\",\n \"\\\"Aside from employer 401(k) matches (which may double your money immediately), paying off debts is almost always the best place to start. Paying off a debt early is a zero-risk operation and will earn you N% (where N is your interest rate). Is that a good deal for a zero-risk return? The closest equivalent today (Aug 24, 2012) is that you can earn about 2.68% on 10-year Treasury bonds. Unless you have a really, really good interest rate (or the interest is tax-deductible), paying off your loan will offer an excellent risk-adjusted return, so you should do that. The \\\"\\\"really good\\\"\\\" interest rate is typically a mortgage or student loans. (Mortgage interest is also tax-deductible, at least for now.) In those cases, you're not going to gain nearly as much by paying the loan early, and the loan is large - larger than the amount you want to have in risk-free investments. You want to invest for returns, as well! So you can save for retirement instead (in a 401(k) or similar account) and take on a little risk.\\\"\",\n \"First off, putting extra cash toward a mortgage early on, when most of the payments are going to interest, is the BEST time. If you pay an extra $1 on your mortgage today, you will save 30 years worth of interest (assuming a 30 year mortgage). If in 29 years you pay an extra dollar, you will only save 1 year worth of interest. That said, there are lots of things that go into a decision like this. Do you have other debts? How stable is your income? What is the interest rate on your mortgage compared to any other debts you may have or potential investments you might make? How much risk are you willing to take? Etc. Mortgages tend to be very low interest, and, at least in the U.S., the interest on them is tax-deductible, making the effective interest rate even lower. If you have some other loan, you are almost always better to pay the other loan off first. If you don't mind a little risk, you are usually better off to invest your money rather than pay off the mortgage. Suppose your mortgage is 5%. The average return on the stock market is something like 7% (according to my buddy who works for Wells Fargo). So if you put $1000 toward your mortgage, you'd save $50 the first year. (Ignoring compounding for simplicity, changes the exact numbers but not the basic idea.) If you put that same $1000 in the stock market, than if it's a typical year you'd make $70. You could put $50 of that toward paying the interest on your mortgage and you'd have $20 left to go on a wild spending spree. The catch is that the interest on a mortgage is fixed, while the return on an investment is highly variable. In an AVERAGE year the stock market might return 7%, but this year it might return 20% or it might lose 10% or a wide range of other possible numbers. (Well, you might have a variable rate mortgage, but there are still usually some defined limits on how much it can vary.)\",\n \"Gosh don't do either! Unless you are fully funding you ROTH accounts and even then I wouldn't do it. Those interest rates are free money. You are giving away the best bargain in the history of home mortgages. Don't you think you can make more than 4% on your money invested? Don't you think in 5 years you will be able to make 4% on bond/cd's/ and other low risk investments? Don't forget money you pay in the 2020's on beyond to your mortgage are inflationary dollars. Do you think that money will be more valuable in the 20's and beyond? I don't. Roths are free money too. Think if you put 11k in there a year how much would you have at the end of it tax free. There is a reason you can only put $5,500 in them, they are too good a deal tax wise to let people put too much in there. Think about this my parents bought their home in 1967 their mortgage was $170 a month. Inflation hits and the interest they are paying at 8%! mind you, it was still a laughable amount of money each month for mortgage payment from 1977 and on. Also I bought a $450,000 house 38 months ago. Instead of putting down 180 I put down 80 I let the other 100k in my investment account and moved 5.5k over to Roth every year. I now have a roth worth $38k and an investment account worth $105k. I made 40k on my money those three years and the 38k is tax free! If you don't believe me call the help line at clarkhoward.com Get over the emotional need to be debt free and make a logical finical choice. I am begging you to think about this. This post could save you tens of thousands of dollars. Let me put it one more way. 100k in debt with 100k in investments is debt free living. Especially when you debt is under 4% and a tax write off.\",\n \"Without knowing actual numbers it's tough to say. Personally, I would pay off the car then, going forward, use the money that would have been paid on your car note toward your mortgage. I always think of things in the worst possible scenario. It's easier, and faster, to repossess a car than to foreclose on real estate. Also, in an emergency situation, depleting your fund for your car loan and your mortgage would be significantly more detrimental than only paying a mortgage with a car owned outright. Fewer obligations means fewer things to draw down your funds in an emergency. Whether the tax deductability of the mortgage interest outweighs the lower rate on your car loan will depend on a lot of factors that haven't been shared. I think it's safe to assume with only 1% of separation the real difference isn't significant. I think when determining which credit cards to pay off, choosing the one with the highest rate is smart. But that's not the situation you're in. If you don't have foreclosure concerns I'd still pay off the car then start investing.\",\n \"As weird as it seems, 5 years is not a long term investment. Furthermore investing is about accepting risk. Based on your criteria for the alternative to a down payment, I think your only choice is to make the larger down payment. If however, you were willing to invest that money for the long term (in a retirement account or an educational account for example) then I would definitely encourage you to invest. I think the chance that a long term investment in a diversified investment account will exceed 3.25% is pretty high. However, that is only my opinion, and I am not clairvoyant, so your let your personal tolerance to risk be your guide. But again, based on the way you asked it, down payment all the way. Your time frame means you are not an investor. Therefore your only option for risk free storage of money is an FDIC insured account, which might pay a little less than 1% for the next 5 years. A bigger down payment will have a 3.25% return in this case. In that order. #4 and #5 could be swapped if the interest rate on the loans is really low.\",\n \"Others have suggested paying off the student loan, mostly for the satisfaction of one less payment, but I suggest you do the math on how much interest you would save by paying early on each of the loans: When you do the calculations I think you'll see why paying toward the debt with the highest interest rate is almost always the best advice. Whether you can refinance the mortgage to a lower rate is a separate question, but the above calculation would still apply, just with different amortization schedules.\",\n \"\\\"You seem to really have your financial act together. Your combination of assets, and ongoing savings makes you the ideal candidate for paying it off. One way to look at it is that your mortgage offers you a place to 'invest' at a fixed 2-7/8% rate. \\\"\\\"I'd really like to not have a house payment\\\"\\\" is all I need to hear. The flip side is the lecture that talks about long term market returns, the fact that the combination of your deductible mortgage, but 15% cap gain rate means you need 2.5% return to break even, and odds are pretty high that will occur over the next 15 years. \\\"\\\"pretty high\\\"\\\" does not equal \\\"\\\"guaranteed\\\"\\\". And I won't debate the value of sleeping soundly vs an excess 5-8% return on this money that you'd maybe achieve. You haven't missed anything. In fact, though I advocate saving first, you are already doing that. This is above and beyond. Good work.\\\"\",\n \"Pay off the Highest interest loan rate first. You must be doing something funky with how long your terms are... If you give a bit more info about your loan's such as the term and how much extra you have right now to spend it could be explained in detail why that would be the better choice using your numbers. You have to make sure when you are analyzing your different loan options that you make sure you are comparing apples to apples. IE make sure that you are either comparing the present value, future value or amortization payments... EDIT: using some of your numbers lets say you have 5000 dollars in your pocket you have 3 options. excel makes these calculations easier... Do nothing: in 80 months your Student Loan will be payed in full and you will have 54676.08 owing on your mortgage and 5000 in your pocket(assuming no bank interest) for mortgage: Pay off Student loan and allocate Student loans amortization to Mortgage: in 80 months you will have $47,910.65 owing on mortgage and student loan will be paid in full For mortgage: Pay 5000 on Mortgage: in 80 months student loan will be paid in full and you will have $48,204.92 owing on mortgage For mortgage:\",\n \"what other pieces of info should I consider If you don't have liquid case available for unexpected repairs, then you probably don't want to use this money for either option. The 7% return on the stocks is absolutely not guaranteed. There is a good amount of risk involved with any stock investment. Paying down the mortgage, by contrast, has a much lower risk. In the case of the mortgage, you know you'll get a 2.1% annual return until it adjusts, and then you can put some constraints on the return you'll get after it adjusts. In the case of stocks, it's reasonable to guess that it will return more than 2.1% annually if you hold it long enough. But there will be huge swings from month to month and from year to year. The sooner you need it, the more guaranteed you will want the return to be. If you have few or no stock (or bond)-like assets, then (nearly) all of your wealth is in your house, and that is independent of the remaining balance on your mortgage. If you are going to sell the house soon, then you will want to diversify your assets to protect you against a drop in home value. If you are going to stay in the house forever, then you will eventually need non-house assets to consume. Ultimately, neither option is inherently better; it really depends on what you need.\",\n \"\\\"You have 1998-2011 income-contingent student loans, where the interest rate is the lower of (1% + base rate) or RPI (retail price inflation). For the next few years the it's likely to be (1% + base rate) as interest rates stay low and inflation shoots up. These loans only need to be repaid in proportion to your salary, and if they aren't repaid for long enough (e.g. the holder takes a career break for children) they are written off. So all-in-all, they are pretty good debt to have: low interest rate, and you might not have to repay them ever. It's likely that your mortgage will have a significantly higher rate than the student loan, so you'd be better off reducing your mortgage. Also, the higher deposit might mean you can get a lower interest rate on the whole mortgage because the lender will see you as a lower risk, so the return from \\\"\\\"investing\\\"\\\" it in your mortgage would be even greater than the raw interest rate. Having the student loan outstanding might make some difference to the \\\"\\\"affordability\\\"\\\" check for your mortgage payments, but lenders will be very familiar with how they work. Reducing your mortgage payments with the higher deposit should easily counterbalance that. Your own suggestion is to invest the £30K in a \\\"\\\"reasonably safe portfolio\\\"\\\" making 5%. There'll inevitably be some risk in that - 5% is a relatively high return in today's climate - but if you're willing to take that risk, you can investigate the effect on your mortgage to see if it's worth it or not.\\\"\",\n \"If you can get a rate of savings that is higher than your debt, you save. If you can't then you pay off your debt. That makes the most of the money you have. Also to think about: what are you goals? Do you want to own a home, start a family, further your education, move to a new town? All of these you would need to save up for. If you can do these large transactions in cash you will be better off. If it were me I would do what I think is a parroting of Dave Ramsay's advice Congratulations by the way. It isn't easy to do what you have accomplished and you will lead a simpler life if you don't have to worry about money everyday.\",\n \"You are weighting a certain cost of the mortgage interest versus the possible gain of the value of the house. Take the interest you pay per month and divide it by the current value of the house. Say your interest is 3% of the value of the house (may be more or less depending on the balance owed and the interest rate of your mortgage). Say the average appreciation in your area is also 3%. But that means that there's only a 50% chance that the actual appreciation will be more than that (assuming the odds are equal either way), and there's a 50% change that you'll be worse off. Generally, trading a risk-free loss for a risky gain of equal size is not a good investment; you generally can find better average returns on risky investments, so your best bet is to sell now and pay of the mortgage.\",\n \"This is opinion, no right or wrong. Two schools of thought, one saying you should aim to be debt free, ASAP, the other suggests that when your borrowing expense is so much lower than expected market return, just keep investing. With your mortgage, a variable, I trust the payment is recalculated so if you pay down half the loan, it will drop to half when the rate changes and new payment calculated, right? If not, you still have a high payment due until it's paid in full. Me, I like the flexibility of going with the full term, and saving the money as long as rates are low. Even moderate inflation will make that payment fell like less over time, and there are funds whose dividends are above the mortgage rate. If/when rates rise, you can always pay down aggressively. I'm concerned that you don't have a good sense of your saving goals. You have less than a years income saved for the long term. To replace 80% of your income you need about 20 times your current income, or $4M. Of course, you get to subtract pension income or whatever Canada's social security system is (forgive my ignorance on this).\",\n \"Morpheus, I think you are approaching this question the wrong way. The interest rate is not the most important consideration; you also need to consider the other characteristics of the investment. Money in a bank account is very liquid; you can do anything you want with it. Equity in a house is very illiquid; it is hard and expensive to access. Let's say you have $25,000 to either go towards a bigger downpayment or to invest. What happens if you lose your job? If you have $25,000 in the bank, you have a lot of flexibility; you can pay a mortgage for a number of months, or you could use it to relocate. If you put the money in the house, you cannot access it at all; without a job you can't refi or get a home equity loan. Your only recourse would be to sell the house, which might not be possible if there are systemic issues (such as the ones in the real estate crash). Even if you can refi or get a home equity loan, you will have to pay fees. My advice is to put the money somewhere else. If your term is long (say, 10 years or so), I would put the money in an index fund.\",\n \"If what you are paying in interest on the debt is a higher percentage than what your investments are returning, the best investment you can make is to pay off the debt. If you're lucky enough to be paying historically low rates (as I am on my mortgage) and getting good returns on the investments so the latter is the higher percentage, the balance goes the other way and you'd want to continue paying off the debt relatively slowly -- essentially treating it as a leveraged investment. If you aren't sure, paying off the debt should probably be the default prefrence.\",\n \"Put yourself in this position - if you had no debts and no investments, would you borrow money at those rates to invest in the stock market? If no, then pay off the debts. If yes, then keep them.\",\n \"If you have (other) high interest debt, say over 8%, pay it back first. Else, you are likely best off paying this loan back and getting the money working for you long term.\",\n \"Look at my answer here, and then calculate again. If you keep on saving and keep on paying off your highest interest rate loan, you'll be 'making' money. Also look at this answer here for saving or paying back. Basically, you should always calculate whether the money you have is better 'spend' in a savings account or as a return payment to your loan. Always tackle the highest interest loan first. My 0,02€\",\n \"I like this option, rather than exposing all 600k to market risk, I'd think of paying off the mortgage as a way to diversify my portfolio. Expose 400k to market risk, and get a guaranteed 3.75% return on that 200k (in essence). Then you can invest the money you were putting towards your mortgage each month. The potential disadvantage, is that the extra 200k investment could earn significantly more than 3.75%, and you'd lose out on some money. Historically, the market beats 3.75%, and you'd come out ahead investing everything. There's no guarantee. You also don't have to keep your money invested, you can change your position down the road and pay off the house. I feel best about a paid off house, but I know that my sense of security carries opportunity cost. Up to you to decide how much risk you're willing to accept. Also, if you don't have an emergency fund, I'd set up that first and then go from there with investing/paying off house.\",\n \"\\\"Math says invest in the Market (But paying off your mortgage early is a valid option if you are very risk averse.) You are going to get a better return by investing in the stock market. In the US in 2015/2016, mortgages are 3%-4%, and give you a tax break. The rate of return on the stock market is ~10%, (closer to 6% after you subtract out inflation, taxes, fees, etc.) Since 10 > 3, (or 6% > 4%, to use the pessimistic numbers) investing in the market is the better deal. But... The market has risk, and your mortgage does not. If you are very risk averse paying off the mortgage may make sense. As an example: Family A has a single \\\"\\\"breadwinner\\\"\\\", who works a low skilled job. Family B has 2 working spouses, both in high skill white collar positions. These two families are going to have wildly different risk tolerances. It may make sense for family A to \\\"\\\"invest\\\"\\\" its extra money in paying off the mortgage, after they have tackled high interest debt, built an emergency fund, maxed the 401k, etc. Personally I would not: in the US you cannot recoup pre-payments if you lose your job. If I was very risk averse, I would keep my extra money as cash, so I could pay my mortgage after I lost my job. It is never going to make sense for family B to pay the mortgage early. At that point, any decision to pre-pay is going to be based on emotion and not logic.\\\"\",\n \"See my recent answer to a similar question on prepaying a mortgage versus investing in IRA. The issue here is similar: you want to compare the relative rates of funding your retirement account versus paying down your debt. If you can invest at a better rate than you are paying on your debt, with similar risk, then you should invest. Otherwise, pay down your debt. The big difference with your situation is that you have a variable rate loan, so there's a significant risk that the rate on it will go up. If I was in your shoes, I would do the following: But that's me. If you're more debt-averse, you may decide to prepay that fixed rate loan too.\",\n \"\\\"Aside from the calculations of \\\"\\\"how much you save through reducing interest\\\"\\\", you have two different types of loan here. The house that is mortgaged is not a wasting asset. You can reasonably expect that in 2045 it will have retained its worth measured in \\\"\\\"houses\\\"\\\", against the other houses in the same neighbourhood. In money terms, it is likely to be worth more than its current value, if only because of inflation. To judge the real cost or benefit of the mortgage, you need to consider those factors. You didn't say whether the 3.625% is a fixed or variable rate, but you also need to consider how the rate might compare with inflation in the long term. If you have a fixed rate mortgage and inflation rises above 3.625% in future, you are making money from the loan in the long term, not losing what you pay in interest. On the other hand, your car is a wasting asset, and your car loans are just a way of \\\"\\\"paying by installments\\\"\\\" over the life of the car. If there are no penalties for early repayment, the obvious choice there is to pay off the highest interest rates first. You might also want to consider what happens if you need to \\\"\\\"get the $11,000 back\\\"\\\" to use for some other (unplanned, or emergency) purpose. If you pay it into your mortgage now, there is no easy way to get it back before 2045. On the other hand, if you pay down your car loans, most likely you now have a car that is worth more than the loans on it. In an emergency, you could sell the car and recover at least some of the $11,000. Of course you should keep enough cash available to cover \\\"\\\"normal emergencies\\\"\\\" without having to take this sort of action, but \\\"\\\"abnormal emergencies\\\"\\\" do sometimes happen!\\\"\",\n \"\\\"I'm an American so I don't claim to know anything about Scottish tax law. But just based on what you say above: First, think about how it would work if there were no taxes. If you make a payment against the mortgage, you save 5% in interest. If you put money into a retirement account, you make whatever the profits are on the investment. If that amount comes to more than 5%, then you are better of investing in the retirement account. If it's less than 5%, you are better off paying off the mortgage. As most investments pay significantly better than 5%, this is the superior strategy. On the other hand, apparently you are paying a variable-rate mortgage, but still, mortgage rates are relatively stable. Investment returns vary all over the place and can be negative. So if you are very cautious, that's a reason to pay off the mortgage rather than invest. The younger you are, the less of a concern this should be, as in the long term, investments pretty much always recover lost ground. If you were planning to retire next year I'd have very different advice than if you are planning to retire in 30 years. But sadly, you do have to pay taxes, and that needs to be factored in. So you say that you would have to pay 25% dividend tax on any money you used to pay the mortgage. But the effective tax rate on the retirement money is 15%. So in effect money put against the mortgage pays a 25% tax, and so effectively generates only 5% * .75 = 3.75%. But money invested in the retirement plan pays only 15% tax, and so if the investment returns 3.75% / .85 = 4.4% it would give the same effective return. So if you can invest in something that gives returns of at least 4.4% per year, you're better off putting into the retirement plan than paying off the mortgage. There may be other Scottish tax implications I don't know about. As to \\\"\\\"Substantially less paperwork\\\"\\\", I have no idea how much paperwork is involved in putting money into a retirement account in Scotland. Here in the U.S., you basically call a financial management company of one sort or another and say \\\"\\\"hey, I want to open a retirement account with your company\\\"\\\", and they'll prepare most of the forms for you and you just sign them. It could be done with half an hour of your time. Of course the more you research different investment options, etc, the more time it will take. \\\"\\\"More flexible e.g. if I want to retire early\\\"\\\" If there are restrictions on when you can withdraw money from a retirement account and receive that 25% freebie you mentioned, yes, this could be a factor. Again, I don't know Scottish tax law, there may be other considerations. Here in the U.S., there's a 10% tax penalty if you withdraw money from a retirement account before the legal retirement age. Realistically that's a minor issue, if you have money in there for several years the tax benefits will be more than 10%. But yeah, it would be stupid to put money in in December and then take it out the following January and have to pay the 10% penalty. \\\"\\\"Doesn't incur the risk that the government will change the pension rules between now and when I retire\\\"\\\" Maybe. But then laws might change in your favor, too. And as you indicated that your mortgage interest rate could change, there could be risk on that side too. That all comes down to what you think the risks are all around.\\\"\",\n \"Pay it off....I've only ever paid interest on mortgages to buy the houses I've lived in (I paid both mortgages of years ahead of schedule) & as a result my credit rating's way above average, I use credit cards for everything, pay 'em off in full every month unless I'm paid not to (currently have around 8,000 sitting interest free while the cash earns 6% elsewhere). Life's sweet if you understand the system. Hell if you don't. Keep saving...\",\n \"Can you wait until you retire before needing the money? Will you buy your first house sometime in the future? If yes, then favour an RRSP. Remember that you are rewarded by paying less tax for having the foresight and commitment to defer income taxes until your retirement, when you are presumably earning less income. Are your household expenses higher than 28% of your gross income? 35% of your net income? Does making your mortgage payments stress you? Are interest rates lower than their historical norm and an increase would cause you difficulty? If yes, then favour your mortgage. Do you need this money before your retire? Does your TFSA earn more interest than your mortgage costs your? If yes, then favour a TFSA. Does an alternative investment earn more than your TFSA? Can you handle an uptick in your mortgage interest rate? If yes, then favour the alternative investment and not your RRSP, mortgage or TFSA.\",\n \"If it were me, I'd pour my entire savings into paying down the mortgage. I'd also get a HELOC and a personal LOC to use as my emergency fund if I didn't have one already. I personally don't like paying interest on loans when I have cash in the bank to cover it.\",\n \"At the area where I live (Finland), banks typically charge a lot more for additional mortgage credit taken after purchasing the house. So, if you are planning to purchase a house, and pay it with a mortgage, you get a very good rate, but if you pay back the mortgage and then realize you need additional credit, you get a much worse rate. So, if this is applicable to your area as well, I would simply buy stocks after you have paid enough of the mortgage that it is only 50% of the house price or so. This is especially good advice if you are young. Also, if your mortgage is a fixed rate and not an adjustable rate mortgage, you probably have a very low permanent interest rate on it as interest rates are low currently (adjustable rate mortgages will also have a low rate but it will surely go up). Some people say there's a bubble currently in the stock market, but actually the bubble is in the bond market. Stocks are expensive because the other alternatives (bonds) are expensive as well. Paying back your mortgage is equivalent to investing money in bonds. I don't invest in bonds at the current ridiculously low interest rates; I merely invest in stocks and have a small cash reserve that will become even smaller as I discover new investment opportunities. I could pay back a significant percentage (about 50%) of the loans I have by selling my stocks and using my cash reserves. I don't do that; I invest in stocks instead, and am planning to increase my exposure to the stock market at a healthy pace. Also, consider the fact that mortgage is cheap credit. If you need additional credit for consumption due to e.g. becoming suddenly unemployed, you will get it only at very expensive rates, if at all. If you're very near the retirement age (I'm not), this advice may not be applicable to you. Edit: and oh, if your mortgage is fixed rate, and interest rates have come down, the bank will require you to pay the opportunity cost of the unpaid interests. So, you may need to pay more than you owe the bank. Edit2: let's assume the bank offered you a 4% fixed rate for a 10-year loan, which you agreed to. Now let's also assume interest rates of new agreements have come down to 2%. It would be a loss to the bank to pay back the amount of the loan (because the bank cannot get 4% by offering somebody else a new loan, only 2%), unless you paid also 10 years * (4% - 2%) * amount = 20% * amount of lost interest income. At least where I live, in fixed rate loans, one needs to pay back the bank this opportunity cost of unpaid interests.\",\n \"You're in the same situation I'm in (bought new house, didn't sell old house, now renting out old house). Assuming that everything is stable, right now I'd do something besides pay down your new mortgage. If you pay down the mortgage at your old house, that mortgage payment will go away faster than if you paid down the one on the new house. Then, things start to get fun. You then have a lot more free cash flow available to do whatever you like. I'd tend to do that before searching for other investments. Then, once you have the free cash flow, you can look for other investments (probably a wise risk) or retire the mortgage on your residence earlier.\",\n \"Personally, I would split the difference, putting about half into each. Simply because it balances out the problem and I don't have to fret about whether one or the other will provide a significant difference. As bstpierre points out, the one which will make you more in the end is the one which you can grow the fastest. The mortgage payment is locked at 5% growth, which, while modest, is also essentially guaranteed at this point. The CD in your IRA is likely less than that amount, even after tax consideration. A couple additional points to consider:\",\n \"It has to do with return. I don't know if Canada has a matching feature on retirement accounts, but in the US many companies will match the first X% you put in. So for me, my first $5000 or so is matched 100%. I'll take that match over paying down any debt. Beyond that, of course it's a simple matter of rate of return. Why save in the bank at 2% when you owe at 10-18%? One can make this as simple or convoluted as they like. My mortgage is a tax deduction so my 5% mortgage costs me 3.6%. I've continued to invest rather than pay the mortgage too early, as my retirement account is with pre-tax dollars. So $72 will put $100 in that account. Even in this last decade, bad as it was, I got more than 3.6% return.\",\n \"You have to have 9% ROI for your investment to break even. That's pretty steep. I'd pay the loan, where you have 9% promised return. Just make sure that there are no pre-payment penalties, and that you're comfortable enough with not having that money available.\",\n \"If the savings rate is the same as the loan rate, mathematically it doesn't make any difference whether you pay down the loan more and save less or vice versa. However, if the loan rate is higher than the savings rate it's better to pay it down as fast as possible. The chart below compares paying down the loan and saving equally (the gradual scenario), versus paying down the loan quickly at 2 x $193 and then saving 2 x $193. The savings rate, for illustration, is 2%. Paying quickly pays down the loan completely by month 51. On the other hand, in the gradual scheme the loan can't be paid down (with the savings) until month 54, which then leaves 3 months less for saving. In conclusion, it's better to pay down the higher rate loan first. Practically speaking, it may be useful to have some savings available.\",\n \"The main factors you have to consider are: Could you get a better return on that money by investing it somewhere? The investment rate should basically be more than the mortgage rate. If you find yourself suddenly in need of money (eg, loss of job) do you have enough savings to ride that out? If not, investing the extra money in an instant access investment, even at a lower rate, may make sense as it gives you future flexibility. Do you have any other debts that are at a higher rate? If so, pay those off first as you will get more bang for your buck.\",\n \"Depends upon the debt cost. Assuming it is consumer debt or credit card debt, it is better to pay that off first, it is the best investment you can make. Let's say it is credit card debt. If you pay 18% interst and have for example a $1,000 amount. If you pay it off you save $180 in interest ($1,000 times 18%). You would have to earn 18% on 1,000 to generate $180 if it was in aninvestment. Here is a link discussing ways of reducing debt Once you have debt paid off you have the cashflow to begin building wealth. The key is in the cashflow.\",\n \"A: Rollover the cash from the previous account into the new one a low-cost IRA like Vanguard. This, and only this. Because your mortgage is, less than 4%, while your retirement plan will earn 7% over the long term. I have no 'retirement' plans because Because you're 28. and essentially will be happy working until I die Unless circumstances change. but as far as I see it this is not such a bad deal because it is like paying taxes on income. (Principal says I will lose up to 30%) You're ignoring the 10% early withdrawal penalty. I am wise with my money for the most part Then don't piss away $3,000 just for a temporary feel good. I earn a high salary in a tech job. As a result of being under 20%, I am paying mortgage insurance of about $300/mo. So -- after building up an Emergency Fund -- throw as much as possible of your high salary against your mortgage to get rid of the PMI.\",\n \"It depends on your tax rate. Multiply your marginal rate (including state, if applicable) by your 3.1% to figure out how much you are saving through the deduction, then subtract that from the 3.1% to get the effective rate on the mortgage. For example, if you are in the 28% bracket with no state tax impact from the mortgage, your effective rate on the mortgage is 2.232%. This also assumes you'd still itemize deductions without the mortgage, otherwise, the effective deduction is less. Others have pointed out more behavioral reasons for wanting to pay off the car first, but from a purely financial impact, this is the way to analyze it. This is also your risk-free rate to compare additional investing to (after taking into account taxes on investments).\",\n \"According to Dave Ramsey you should pay off the house. What I've found is that I'm willing to work a lot harder at saving money to put toward the house when I have that specific goal in mind. If I were to put the money in the market instead then I would be less likely to make as many sacrifices and would inevitability end up putting less money away.\",\n \"The short answer is to invest it since the rate of return is higher than your mortgage. (Assuming that you can withstand interest rate hikes, meet short term liquidity needs and don't need your $10K in the short or near term). The long answer is if you're comfortable leveraging your house and can put that $10K away for the long term you can reduce your taxes via the Smith Manoeuvre: Alternatively, if you have kids or grandkids and will help them through school, take the government's money by putting it away in an RESP.\",\n \"You didn't mention how much is the interest rate of your debts. It is a very simple rule. If you think you can make more money by investing (the best way you can) in spite of having debts then go ahead and invest. Else, if you donno what you're doing and can't make sure you earn more than what you're paying off for interest then may be you should focus on clearing up the debts first. You can read more about similar topic discussion here Now, that you've presented the interest rate of your loans i.e. 11% which is your average, then I suggest you to clear up the high interest rate loans first i.e. which are above 11% because it is very difficult to make an investment and get returns more than 11% of what you invest. What ever be it, now that you won't be having big events in the coming 5 years, I suggest you to clear up all your loans and stay debt free i.e. tr to become stable and tension free. You know, because you can't run away anywhere with all those loans up on your shoulders, you HAVE to clear them today or tomorrow. So, now that you're free (in the next 5 yrs) and burden less, so why not clear them up today?\",\n \"the math makes sense to invest instead of paying down, but... how much would you borrow at 3.5%, to invest the money into the stock market? It's the same question, just turned around.\",\n \"\\\"I love the idea of #1, keep that going. I don't think #2 is very realistic. Given the short time frame putting money at risk for a higher yield may not work in your favor. If it was me, I'd stick to a \\\"\\\"high interest\\\"\\\" savings account (around 1%). I don't mind #3 either, however, I'd be socking whatever you could to mortgage principle so you can get out of PMI sooner rather than later. That would be my top priority. Given the status of interest rates, you may end up saving money in the long run. I doubt it, but you may. If you choose to go with #3, don't settle for a house that you really don't like. Get something that you want. Who knows it may take you a year or so to find something!\\\"\",\n \"\\\"Can is fine, and other answered that. I'd suggest that you consider the \\\"\\\"should.\\\"\\\" Does your employer offer a matched retirement account, typically a 401(k)? Are you depositing up to the match? Do you have any higher interest short term debt, credit cards, car loan, student loan, etc? Do you have 6 months worth of living expenses in liquid funds? One point I like to beat a dead horse over is this - for most normal mortgages, the extra you pay goes to principal, but regardless of how much extra you pay, the next payment is still due next month. So it's possible that you are feeling pretty good that for 5 years you pay so much that you have just 10 left on the 30 year loan, but if you lose your job, you still risk losing the house to foreclosure. It's not like you can ask the bank for that money back. If you are as disciplined as you sound, put the extra money aside, and only when you have well over the recommended 6 months, then make those prepayments if you choose. To pull my comment to @MikeKale into my answer - I avoided this aspect of the discussion. But here I'll suggest that a 4% mortgage costs 3% after tax (in 25% bracket), and I'd bet cap gain rates will stay 15% for non-1%ers. So, with the break-even return of 3.5% (to return 3 after tax) and DVY yielding 3.33%, the questions becomes - do you think the DVY top yielders will be flat over the next 15 years? Any return over .17%/yr is profit. That said, the truly risk averse should heed the advise in original answer, then pre-pay. Update - when asked,in April 2012, the DVY I suggested as an example of an investment that beats the mortgage cost, traded at $56. It's now $83 and still yields 3.84%. To put numbers to this, a lump sum $100K would be worth $148K (this doesn't include dividends), and giving off $5700/yr in dividends for an after-tax $4800/yr. We happened to have a good 4 years, overall. The time horizon (15 years) makes the strategy low risk if one sticks to it.\\\"\",\n \"Forgive me as I do not know much about your fine country, but I do know one thing. You can make 5% risk free guaranteed. How, from your link: If you make a voluntary repayment of $500 or more, you will receive a bonus of 5 per cent. This means your account will be credited with an additional 5 per cent of the value of your payment. I'd take 20.900 of that amount saved and pay off her loan tomorrow and increase my net worth by 22.000. I'd also do the same thing for your loan. In fact in someways it is more important to pay off your loan first. As I understand it, you will eventually have to pay your loan back once your income rises above a threshold. Psychologically you make attempt to retard your future income in order to avoid payback. Those decisions may not be made overtly but it is likely they will be made. So by the end of the day (or as soon as possible), I'd have a bank balance of 113,900 and no student loan debt. This amounts to a net increase in net worth of 1900. It is a great, safe, first investment.\",\n \"\\\"First off, the \\\"\\\"mortgage interest is tax deductible\\\"\\\" argument is a red herring. What \\\"\\\"tax deductible\\\"\\\" sounds like it means is \\\"\\\"if I pay $100 on X, I can pay $100 less on my taxes\\\"\\\". If that were true, you're still not saving any money overall, so it doesn't help you any in the immediate term, and it's actually a bad idea long-term because that mortgage interest compounds, but you don't pay compound interest on taxes. But that's not what it actually means. What it actually means is that you can deduct some percentage of that $100, (usually not all of it,) from your gross income, (not from the final amount of tax you pay,) which reduces your top-line \\\"\\\"income subject to taxation.\\\"\\\" Unless you're just barely over the line of a tax bracket, spending money on something \\\"\\\"tax deductible\\\"\\\" is rarely a net gain. Having gotten that out of the way, pay down the mortgage first. It's a very simple matter of numbers: Anything you pay on a long-term debt is money you would have paid anyway, but it eliminates interest on that payment (and all compoundings thereof) from the equation for the entire duration of the loan. So--ignoring for the moment the possibility of extreme situations like default and bank failure--you can consider it to be essentially a guaranteed, risk-free investment that will pay you dividends equal to the rate of interest on the loan, for the entire duration of the loan. The mortgage is 3.9%, presumably for 30 years. The car loan is 1.9% for a lot less than that. Not sure how long; let's just pull a number out of a hat and say \\\"\\\"5 years.\\\"\\\" If you were given the option to invest at a guaranteed 3.9% for 30 years, or a guaranteed 1.9% for 5 years, which would you choose? It's a no-brainer when you look at it that way.\\\"\",\n \"If its deductible, the IRA is a no-brainer. You're netting a positive return just from the tax deduction, and you'll have years of tax-free appreciation. You're already on track to pay off your mortgage in 5 years, the impact of $10,000 on the balance now is not very consequential. On the other hand, you won't have an opportunity to make additional IRA contributions.\",\n \"I'm also a UK, Ltd company contractor that has pondered the same topic. I afraid, however, that I don't understand the maths in the original question. Mortgage interest is flat for the term of the mortgage rather than compounded, so, ignoring the tapering at the end of the lifespan of the mortgage, I get the amount of interest to something like £9,300 (7500 x 0.05 x 25). Does this make the decision any easier for you? As you point out, the total cost of this overpayment from your company account is £12,500. Using the above figure, it would take over 13 years to recoup the £5,000 difference (at £375 interest a year). I used to be of the same opinion that the mortgage should be paid off at all costs first. But now I'm coming round to the American way of thinking; £12,500 invested in a pension with a 5% yield will easily outstrip the interest saved by making the over payment - 12500 x 1.05 ^ 25 = £43,300 - over 250% better off (£43,300 / (£9,300 + £7,500)). I now make no mortgage overpayments at all and instead pay all the money into my pension. This (amongst other things) keeps me below the upper earnings tax threshold, so I'm only paying corporation tax for the money I'm drawing as dividends. There's a massive caveat to this though; I'm 49. I should be able to draw the tax free element of my pension pot in six years time and pay my mortgage off and it's quite unlikely that the government will be changing pensions policy in that time (but drawing 25% tax free has been a feature of pensions for quite some time). I can then chose to keep working or retire. If my pension is still doing well (9% ish pa at the moment), I could chose to not pay my mortgage off at all. In the next twenty or so years, however, all this could change. In your position I would do a bit of both. Make a regular overpayment to pay down your mortgage (even a small amount that you'll barely notice will make quite a difference to the end date of your mortgage - £100 a month will take years off). I didn't start paying properly into my pension until fairly recently and so If you're not already, I'd also make quite substantial, regular payments into one now, directly from your company, 15-17.5% of your gross drawings. Leaving it until later will only make it more painful. Then when you get to retirement age, no matter what, you'll have a decent pension pot. An actuary I worked with pointed out that if you pay something into a pension, when you retire you should have some sort of pot; if you pay nothing, you are absolutely guaranteed to have nothing. And finally, if you haven't already, fix your mortgage. We're three years into a five year fix. The variable rate we were going to be transferred to was 3.99%. We fixed, not because of wanting any sense of security, but because the fixed rate was 2.59% with no fee. There are much better rates than that about now. Rates are starting to rise, so it's a good time.\",\n \"Excellent answers so far, so I will just add one additional consideration: liquidity. Money invested in a mutual fund (exclusive of retirement accounts with early withdrawal penalties) has a relatively high liquidity. Whereas excess equity in your home from paying down early has very low liquidity. To put it simply: If you get in a desperate situation (long term unemployment) it is better to have to cash in a mutual fund than try to sell your house on the quick and move in with your mother. Liquidity becomes less of an issue if you also manage to fund a decent sized rainy-day fund (6-9 months of living expenses).\",\n \"There are two components to any non-trivial financial decision: Assuming that all things remain equal, borrowing money at a low rate while investing for a higher return is a no-brainer. The problem is, all things do not remain equal. For example: I think that you need to assess your position and preferences. I'd err on the side of being in less debt.\",\n \"I would prioritize paying off the heloc first. Paying off the heloc has a guaranteed rate of return and will reduce the size of savings cushion you'll need in the future. However, you shouldn't assume your heloc funds will remain available indefinitely. If you read your fine print, you are not guaranteed access to your unused credit by the bank. If you lose your job or your home value significantly declines, the bank could refuse to let you take more money out on your heloc. Recently, I've seen people's available credit be reset to 0 on open helocs by banks trying to reduce their exposure. Planning on the future of available credit via a heloc is not a good safety net.\",\n \"\\\"But in the debt-payoff-first scenario, I'd be wiping out my debt in two years. It would take several more years if I were to just pay the minimums and put the extra money toward investing instead. Right. The idea is that in 2 years, you are likely to have more in the savings/stock account than you owe on the loan. But. The range of returns for X years has a smaller standard deviation the greater X is. e.g. any year has about a 1 in 3 chance of being negative. A 10 year period had a negative return (-1% CAGR) in the '00s recently, but the 15 year return even around that decade would have been successful. Jan 1 '96 - Dec 31 2010 returned 6.76% CAGR, Jan 1 2001 - Dec 31 2015 returned 4.96% CAGR. This tells you that the time frame is as important as your sleep factor. Your 2 years? I'd just kill the loans. A 10-15 year horizon? I'd ask how you \\\"\\\"feel\\\"\\\" about that debt. The cost of going after a potential higher return may not be worth the risk to many. For some, it's fine. I retired, with a mortgage still in place, but the money in my 401(k) that could have paid off the mortgage is now about twice the remaining balance. So I sleep like a baby. In the end, I'm a fan of investing for the long term vs paying off low rate debt, but it's a choice based on the individual.\\\"\",\n \"The long term growth is not 6.5%, it's 10% give or take. But, that return comes with risk. A standard deviation of 14%. Does the 401(k) have a match? And are you getting the full match? If no match, or you already top it off, the 6.5% is a rate that I'd be happy to get on my money. So, I would pay it off faster. My highest rate debt is my 3.5% mortgage, which is 2.5% after tax. At 2.5%, I prefer to be a borrower, as that gap 2.5%-10% is pretty appealing, long term.\",\n \"Hard to give an answer without knowing more details (interest rates, remaining principle on loans, especially how soon the new roof is needed). Maintaining the value in your home (unless you are planning to walk away from it or short-sell or something) is of paramount importance, and the cost of a leak should it happen can be substantial. If the roof is a few years out, and you have loans with interest rates about oh I'd say around 6%or more then I would pay off those loans and take the money you were paying there and start putting it into a fund to pay for the roof. I am also a huge fan of doing whatever you can to max out your 401K contributions. Money put into a 401K early has a LOT more value than money put in later, and since you don't pay taxes on it, the cost out of your pocket is much lower (eg. at a 20% tax rate it costs you only $80 out of pocket to put $100 into your 401.. (look at that, you just made like 25% return on that $80) Paying off loans is pretty much equivalent to making a risk free return on the money equal to the interest rate on the loan. But to REALLY make that work, what you need to do is in a virtual sense, keep making the loan payment just now pay it to yourself, putting that money into a savings account, or towards your 401K or whatever. If you just torn around and start spending that money, then you are not really getting as much value to paying off the loan early.\",\n \"It depends what rate mortgage you can get for any extra loans... If you remortgage you are likely to get a rate of 3.5-4%... depending who you go with. With deposit accounts in the UK maying around 1% (yes, you can get more by tying it up for longer but not a huge amount more) clearly you're better off not having a mortgage rather than money in the bank. Does your 8k income allow for tax? If it does, you are getting 6% return on the money tied up in the flat. If you are getting 6% after tax on the invested money, that's way better than you would get on any left over cash paid into an investment. Borrowing money on a mortgage would cost you less than 6%... so you are better off borrowing rather than selling the flat. If you are getting 6% before tax... depending on your tax rate... it probably makes very little difference. You'd need to work out how much an extra 80k mortgage would cost you, how much the 50k on deposit would earn you and how much you make after tax. There is a different route. Set up a mortgage on the rental flat. You can claim the interest payment off the flat's income... reduce your tax bill so the effective mortgage rate on the flat would be less than what you could get with a mortgage on the new house. Use the money from the flat's mortgage to finance the difference in house price. In fact from a tax view, you may be better off having a mortgage free house and maxing out the mortgage on the flat so you can write off as much as possible against your tax bill. All of the above assume ... that the flat is rented all the time. The odd dry spell on the flat could influence the sums a lot. All of the above assume that your cash flow works whichever route you choose. As no-one on stack exchange has all of the numbers for your specific circumstances it may be worth talking to a tax accountant. They could advise you properly, knowing the numbers, which makes the best sense for you in terms of overall cost, cash flow, risk and so on.\",\n \"I would lean towards making a smaller down payment and hanging onto savings for flexibility. Questions to think about: If you have enough cash that you can make a huge down payment and still have all the other bases covered, then it comes down to your risk tolerance and personal style. You can almost definitely build a portfolio that will beat your mortgage rate on average over the long term, but with more risk and volatility. Heck, you could make a 20% down payment on another house and rent it out.\",\n \"\\\"I think your analysis is very clear, it's a sensible approach, and the numbers sound about right to me. A few other things you might want to think about: Tax In some jurisdictions you can deduct mortgage interest against your income tax. I see from your profile that you're in Texas, but I don't know the exact situation there and I think it's better to keep this answer general anyway. If that's the case for you, then you should re-run your numbers taking that into account. You may also be able to make your investments tax-advantaged, for example if you save them in a retirement account. You'll need to apply the appropriate limits for your specific situation and take an educated guess as to how that might change over the next 30 years. Liquidity The money you're not spending on your mortgage is money that's available to you for other spending or emergencies - i.e. even though your default assumption is to invest it and that's a sensible way to compare with the mortgage, you might still place some extra value on having more free access to it. Overpayments Would you have the option to pay extra on the mortgage? That's another way of \\\"\\\"investing\\\"\\\" your money that gets you a guaranteed return of the mortgage rate. You might want to consider if you'd want to send some of your excess money that way.\\\"\",\n \"Mortgage rates are at record lows. The 30 yr fixed is now below 4%, if you are in the 25% bracket and itemize (state income tax, property tax, donations, easy to pass the minimum) it costs you 3% post tax. This is the rate of long term inflation, effectively making this money free. You are likely to be able to average a far greater return than this mortgage is costing you. These rates may last another year or two, but long term, they are an anomaly. ETFs such as DVY (the Dow high dividend stocks) are yielding over 3.75%, 3.2% after the 15% cap gain tax. i.e. you get a small positive return, and the potential for capital gains. If this ETF rises just 3%/yr it's all profit above your cost of money. That said, there are those who sleep better with a paid in full house, regardless of the rate. To that extreme, I've read those who make paying their mortgage a priority ahead of funding their matched 401(k). While I can guess what the market will return, but can't know what will actual happen, it's foolish to skip one's match. They reason that the market can crash, I reply the 401(k) has to have a short term fund, money market or T-bill type returns, but a 100% match is a no-brainer. Using an estimated 4% for the 30 and 3.5% for the 15, the payment on the 15 yr mortgage will be 50% higher, $1430 (15yr) for $200K vs $955 for the 30. How does this play in your budget? Do you have an adequate emergency fund? Are you funding your retirement plan at a decent level? In the end, there is no right answer, just what's right for you. Understanding the rest of your financial picture will get you more detailed advice. Not knowing your situation limits the answers. Edit 6/30/2015 - When I wrote this answer, the DVY was trading at $48.24. $100,000 invested would have given off $3187/yr after a 15% dividend tax rate. At $75/share now, the $100,000 investment would be worth $155,472 and yielding $5597 for a net $4757 after tax. The choice to go DVY would have been profitable from the start, with room now for a 35% crash before losing any money.\",\n \"\\\"Really this is no different from any kind of large lump sum and having a mortgage. There are probably many questions and answers on this subject. It really doesn't matter that the proceeds were the result of a sale, an inheritance would not change the answer. I think it is important to note that the proceeds will not eliminate the house 2 mortgage. A high level choice of investment one makes is between equity (such as stock) and debt investments (such as bonds and mortgages). You are in a unique case of being able to invest in your own mortgage with no investment fee. This may tip the scales in favor of paying down the mortgage. It is difficult to answer in your specific case as we don't know the rest of your finances. Do you have a sizable 401K that is heavily invested in stocks? Do you have the need for a college fund? Do you have an emergency fund? Do you have a desire to own several homes generating income property? If it was me I'd do the following in order, skipping steps I may have already completed: I've heard that the bank may agree to a \\\"\\\"one time adjustment\\\"\\\" to lower the payments on Mortgage #2 because of paying a very large payment. Is this something that really happens? I really kind of hate this attitude. Your goal is to get rid of the mortgage in a timely manner. Doing such makes paying for kids college a snap, reduces the income one might need in retirement, basically eliminates the need for life insurance, and gives one a whole lot of money to have fun with.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Basically, the easiest way to do this is to chart out the \"\"what-ifs\"\". Applying the amortization formula (see here) using the numbers you supplied and a little guesswork, I calculated an interest rate of 3.75% (which is good) and that you've already made 17 semi-monthly payments (8 and a half months' worth) of $680.04, out of a 30-year, 720-payment loan term. These are the numbers I will use. Let's now suppose that tomorrow, you found $100 extra every two weeks in your budget, and decided to put it toward your mortgage starting with the next payment. That makes the semi-monthly payments $780 each. You would pay off the mortgage in 23 years (making 557 more payments instead of 703 more). Your total payments will be $434,460, down from $478.040, so your interest costs on the loan were reduced by $43,580 (but, my mistake, we can't count this amount as money in the bank; it's included in the next amount of money to come in). Now, after the mortgage is paid off, you have $780 semi-monthly for the remaining 73 months of your original 30-year loan (a total of $113,880) which you can now do something else with. If you stuffed it in your mattress, you'd earn 0% and so that's the worst-case scenario. For anything else to be worth it, you must be getting a rate of return such that $100 payments, 24 times a year for a total of 703 payments must equal $113,880. We use the future value annuity formula (here): v = p*((i+1)n-1)/i, plugging in v ($113880, our FV goal), $100 for P (the monthly payment) and 703 for n (total number of payments. We're looking for i, the interest rate. We're making 24 payments per year, so the value of i we find will be 1/24 of the stated annual interest rate of any account you put it into. We find that in order to make the same amount of money on an annuity that you save by paying off the loan, the interest rate on the account must average 3.07%. However, you're probably not going to stuff the savings from the mortgage in your mattress and sleep on it for 6 years. What if you invest it, in the same security you're considering now? That would be 146 payments of $780 into an interest-bearing account, plus the interest savings. Now, the interest rate on the security must be greater, because you're not only saving money on the mortgage, you're making money on the savings. Assuming the annuity APR stays the same now vs later, we find that the APR on the annuity must equal, surprise, 3.75% in order to end up with the same amount of money. Why is that? Well, the interest growing on your $100 semi-monthly exactly offsets the interest you would save on the mortgage by reducing the principal by $100. Both the loan balance you would remove and the annuity balance you increase would accrue the same interest over the same time if they had the same rate. The main difference, to you, is that by paying into the annuity now, you have cash now; by paying into the mortgage now, you don't have money now, but you have WAY more money later. The actual real time-values of the money, however, are the same; the future value of $200/mo for 30 years is equal to $0/mo for 24 years and then $1560/mo for 6 years, but the real money paid in over 30 years is $72,000 vs $112,320. That kind of math is why analysts encourage people to start retirement saving early. One more thing. If you live in the United States, the interest charges on your mortgage are tax-deductible. So, that $43,580 you saved by paying down the mortgage? Take 25% of it and throw it away as taxes (assuming you're in the most common wage-earner tax bracket). That's $10895 in potential tax savings that you don't get over the life of the loan. If you penalize the \"\"pay-off-early\"\" track by subtracting those extra taxes, you find that the break-even APR on the annuity account is about 3.095%.\""],"string":"[\n \"\\\"Basically, the easiest way to do this is to chart out the \\\"\\\"what-ifs\\\"\\\". Applying the amortization formula (see here) using the numbers you supplied and a little guesswork, I calculated an interest rate of 3.75% (which is good) and that you've already made 17 semi-monthly payments (8 and a half months' worth) of $680.04, out of a 30-year, 720-payment loan term. These are the numbers I will use. Let's now suppose that tomorrow, you found $100 extra every two weeks in your budget, and decided to put it toward your mortgage starting with the next payment. That makes the semi-monthly payments $780 each. You would pay off the mortgage in 23 years (making 557 more payments instead of 703 more). Your total payments will be $434,460, down from $478.040, so your interest costs on the loan were reduced by $43,580 (but, my mistake, we can't count this amount as money in the bank; it's included in the next amount of money to come in). Now, after the mortgage is paid off, you have $780 semi-monthly for the remaining 73 months of your original 30-year loan (a total of $113,880) which you can now do something else with. If you stuffed it in your mattress, you'd earn 0% and so that's the worst-case scenario. For anything else to be worth it, you must be getting a rate of return such that $100 payments, 24 times a year for a total of 703 payments must equal $113,880. We use the future value annuity formula (here): v = p*((i+1)n-1)/i, plugging in v ($113880, our FV goal), $100 for P (the monthly payment) and 703 for n (total number of payments. We're looking for i, the interest rate. We're making 24 payments per year, so the value of i we find will be 1/24 of the stated annual interest rate of any account you put it into. We find that in order to make the same amount of money on an annuity that you save by paying off the loan, the interest rate on the account must average 3.07%. However, you're probably not going to stuff the savings from the mortgage in your mattress and sleep on it for 6 years. What if you invest it, in the same security you're considering now? That would be 146 payments of $780 into an interest-bearing account, plus the interest savings. Now, the interest rate on the security must be greater, because you're not only saving money on the mortgage, you're making money on the savings. Assuming the annuity APR stays the same now vs later, we find that the APR on the annuity must equal, surprise, 3.75% in order to end up with the same amount of money. Why is that? Well, the interest growing on your $100 semi-monthly exactly offsets the interest you would save on the mortgage by reducing the principal by $100. Both the loan balance you would remove and the annuity balance you increase would accrue the same interest over the same time if they had the same rate. The main difference, to you, is that by paying into the annuity now, you have cash now; by paying into the mortgage now, you don't have money now, but you have WAY more money later. The actual real time-values of the money, however, are the same; the future value of $200/mo for 30 years is equal to $0/mo for 24 years and then $1560/mo for 6 years, but the real money paid in over 30 years is $72,000 vs $112,320. That kind of math is why analysts encourage people to start retirement saving early. One more thing. If you live in the United States, the interest charges on your mortgage are tax-deductible. So, that $43,580 you saved by paying down the mortgage? Take 25% of it and throw it away as taxes (assuming you're in the most common wage-earner tax bracket). That's $10895 in potential tax savings that you don't get over the life of the loan. If you penalize the \\\"\\\"pay-off-early\\\"\\\" track by subtracting those extra taxes, you find that the break-even APR on the annuity account is about 3.095%.\\\"\"\n]","isConversational":false}}},{"rowIdx":282,"cells":{"_id":{"kind":"string","value":"2334"},"query":{"kind":"string","value":"How do you determine “excess cash” for Enterprise Value calculations from a balance sheet?"},"gt_ids":{"kind":"list like","value":["228403","2304","150650"],"string":"[\n \"228403\",\n \"2304\",\n \"150650\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["150650","228403","346760","2304","598908","72666","413566","342025","105949","507903","552343","298779","141221","482884","358686","591247","369816","563732","339524","220269","284843","192515","527230","280895","322459","333360","446652","98947","419479","587966","76661","241308","91576","189680","366249","257093","258306","371012","301998","110163","473963","204917","447509","407449","380851","393838","314919","466430","400738","274358","582537","514276","517083","551029","11263","490077","115294","559363","495066","355554","158063","486421","456222","374510","583234","227019","446877","387250","112821","167753","430120","240252","535300","296006","131957","379299","27797","135164","217904","209838","497699","82479","416297","188982","314110","306255","410450","587462","509939","555915","77963","477860","407372","599411","405166","220898","3315","276927","159012","113693"],"string":"[\n \"150650\",\n \"228403\",\n \"346760\",\n \"2304\",\n \"598908\",\n \"72666\",\n \"413566\",\n \"342025\",\n \"105949\",\n \"507903\",\n \"552343\",\n \"298779\",\n \"141221\",\n \"482884\",\n \"358686\",\n \"591247\",\n \"369816\",\n \"563732\",\n \"339524\",\n \"220269\",\n \"284843\",\n \"192515\",\n \"527230\",\n \"280895\",\n \"322459\",\n \"333360\",\n \"446652\",\n \"98947\",\n \"419479\",\n \"587966\",\n \"76661\",\n \"241308\",\n \"91576\",\n \"189680\",\n \"366249\",\n \"257093\",\n \"258306\",\n \"371012\",\n \"301998\",\n \"110163\",\n \"473963\",\n \"204917\",\n \"447509\",\n \"407449\",\n \"380851\",\n \"393838\",\n \"314919\",\n \"466430\",\n \"400738\",\n \"274358\",\n \"582537\",\n \"514276\",\n \"517083\",\n \"551029\",\n \"11263\",\n \"490077\",\n \"115294\",\n \"559363\",\n \"495066\",\n \"355554\",\n \"158063\",\n \"486421\",\n \"456222\",\n \"374510\",\n \"583234\",\n \"227019\",\n \"446877\",\n \"387250\",\n \"112821\",\n \"167753\",\n \"430120\",\n \"240252\",\n \"535300\",\n \"296006\",\n \"131957\",\n \"379299\",\n \"27797\",\n \"135164\",\n \"217904\",\n \"209838\",\n \"497699\",\n \"82479\",\n \"416297\",\n \"188982\",\n \"314110\",\n \"306255\",\n \"410450\",\n \"587462\",\n \"509939\",\n \"555915\",\n \"77963\",\n \"477860\",\n \"407372\",\n \"599411\",\n \"405166\",\n \"220898\",\n \"3315\",\n \"276927\",\n \"159012\",\n \"113693\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Excess Cash = Cash & Equivalents + Long-Term Investments - Current Liabilities The problem this calculation of excess cash is that \"\"long-term investments\"\" can be illiquid things like real estate. Another flaw is that it gives no credit for Current Assets, like receivables, which can be used to offset Current Liabilities. The first thing I'd do is \"\"net out\"\" Current Assets and Current Liabilities, then add Cash back in. Excess Cash = Current Assets - Current Liabilities + Cash & Equivalents. It would be nice if GAAP would require Long-Term Investments to be broken out as a) liquid long-term investments (stocks, bonds) b) illiquid long-term investments (real estate, private equity, etc)\"","You're not missing anything. Excess cash is somewhat of a nebulous concept. To different people it means different things. The answer is that excess cash varies for each company depending on their business. For instance, some companies need very high amounts of working capital. A company may be increasing their inventories and therefore will require more cash on their balance sheet to fund growth. If a company always needs this extra cash, some investors prefer to leave that cash out of a valuation because the company cannot run profitably without it. Think about what happens to your calculation of Enterprise Value if you subtract excess cash as opposed to cash. Excess cash is always less than cash. Therefore by subtracting excess cash you increase EV. Since one common valuation metric is EV/EBITDA, a higher numerator will make the stock seem more expensive - that is the EV/EBITDA ratio will seem higher when using excess cash as opposed to cash. So using excess cash in your valuation methodology is basically a conservative concept. Depending on the business 20% of revenues seem way too high as a reserve for excess cash. 2% is a much better rule of thumb.","\"Read again what I said in my original post. \"\"Enterprise Value is the sort of \"\"bare bones\"\" total firm value. It doesn't include any cash because you'd basically be paying cash for cash. Also, this makes analysis of transaction multiples more streamlined, as some firms may have a ton of excess cash on their balance sheet, skewing multiples.\"\" I said that that is WHY we use enterprise value. Because if you didn't it would skew multiples.\"","20% is almost certainly too high. I agree with 2%, as a very rough rule. It will vary significantly depending on the industry. I generally calculate an average of the previous 2-3 years working capital, and deduct that from cash. Working capital is Current Assets less Current Liabilities. Current Assets is comprised of cash, prepaid expenses, and significantly, accounts receivable. This means that CA is likely to be much higher than just cash, which leaves more excess cash after liabilities are deducted. Which reduces EV, which makes the EV/EBITDA ratio look even more pricey, as Dimitri noted. But a balance sheet is just a snapshot of the final day of the quarter. As such, and because of seasonal effects, it's critical to smooth this by averaging several periods. After calculating this for a few companies, compare to revenue. Is it close to 2%?","cash isn't part of changes in working capital calculation - dont include it in current assets. *edit - Also to answer a question you didn't ask, subtracting cash doesn't skew the multiples. If cash really is that excess, the market cap will reflect a large cash position, thus adding it all back into EV. Think of apple as a good example. If they theoretically would dividend out all the cash, market cap would drop and so would EV.","I think the most concise way to understand EV is the value of the *operating assets* of the firm. It's most generally used when using income statement or cash flow ratios that are unlevered - before applying interest expense (which if the firm is optimally financed, in theory should only impact the equity). Examples include revenue, EBIT, EBITDA, unlevered FCF, etc. In your hypothetical scenario, you would expect the equity value of the firm to increase linearly as cash builds up. In other words, in some implausible, ceteris paribus formulation of the firm, the enterprise value should remain constant.","Generally you don't exclude cash that is needed to keep working capital going. A firm's need to cash will vary based upon it's AR and AP policies. Some companies that have beat up their vendors and extract harsh payment terms, like Dell and Walmart, often have negative working capital and can therefore be thought of as funding growth on their suppliers cash. Most companies require some amount of cash in their working capital to connect the dots from when they pay their suppliers and when their customers pay them. You need to leave that cash in your working capital calculation and on your DCF.","You can think of a free cash flow as dividends from operations. FCF = cash from operations - investment in operations. The present value of these cash flows into the future is the value of the firm (DCF is very much like the dividend discount model). Now why does a DCF produce enterprise value and not equity value? Because a DCF values the firm's operating assets. To find the equity value, you use the accounting relation: assets = liabilities + equity (or in financial terms net operating assets = net financial obligations + common stockholders equity). This means you take away net debt from the value produced by the DCF to find equity. Now all your excess cash is netted off against your financial obligations (debt) to find the net debt. Cash used for day to day operations is an operating asset and should be treated as such, operating cash should not deducted from value of assets when finding the value of equity. At least that's what they're teaching at university now (i'm a uni student who's just finished my business valuation subject).","\"Oh, I understand now -- we're having an absurd, meaningless conversation about an obscure theoretical point. When you can tell me how you can determine a \"\"minimum cash\"\" level from a public company's filings, we can continue the discussion. Otherwise, make a simplifying assumption and move on. I misunderstood -- I thought we were actually trying to understand the difference between enterprise value and equity value / understand the implication of an enterprise value multiple.\"","Yep, but it you didn't answer my question (edit: I know it was phrased as a question, but I do know youre supposed to model changes in cash). When bankers calculate all three approaches, how do they compare them? From what I see, the conclusion of each approach gives us: * Public Company Approach: Enterprise Value * Transaction Approach: Enterprise Value * Discounted Cash Flow Approach: Enterprise Value + Minimum Level of Operating Cash Does an investment banker subtract out that minimum level of operating cash at the end of the calculation to get to a value that he can then compare?","This is a tough question SFun28. Let's try and debug the metric. First, let's expand upon the notion share price is determined in an efficient market where prospective buyers and sellers have access to info on an enterprises' cash balance and they may weigh that into their decision making. Therefore, a desirable/undesirable cash balance may raise or lower the share price, to what extent, we do not know. We must ask How significant is cash/debt balance in determining the market price of a stock? As you noted, we have limited info, which may decrease the weight of these account balances in our decision process. Using a materiality level of 5% of net income of operations, cash/debt may be immaterial or not considered by an investor. investors oftentimes interpret the same information differently (e.g. Microsoft's large cash balance may show they no longer have innovative ideas worth investing in, or they are well positioned to acquire innovative companies, or weather a contraction in the sector) My guess is a math mind would ignore the affect of account balances on the equity portion of the enterprise value calculation because it may not be a factor, or because the affect is subjective.","Ok - what's your starting point? Are you starting with equity value and then working your way back to an enterprise value? Then yes, you must subtract cash and add debt. If you're doing a DCF, you don't have to make any changes to the values at the end if you're looking for an enterprise value. If you're looking for an equity value, you would need to add cash and subtract debt. If you're simply applying a enterprise value multiple (such as EV / EBITDA) you don't need to make any changes. Just multiply the Company's EBITDA by the multiple in question. Enterprise values are supposed to be capital structure independent because they are only valuing the company on metrics that occur before the impact of the Company's capital structure.","Sure let's say we're starting with the equity value of a public company. Fully diluted shares times market price. We add debt and subtract all cash to give us enterprise value. Calculate a multiple on that. Look what we did up there, we subtracted out all cash. The DCF approach assumes we have an operating level of cash when it calculates a value. You're saying that the DCF spits out an enterprise value. It cannot be an enterprise value if the DCF approach assumes we hold cash. We would have to subtract out an operating level of cash from the DCF concluded value to compare it apples to apples to the cashless enterprise values we derived from the market approach multiples.","\"A DCF includes changes in working capital which is a source or use of cash. I also don't like your characterization of enterprise value as \"\"cashless\"\" because it's also \"\"debtless\"\". It's capital structure independent -- just like a DCF is. **That's the common theme.**\"","\"Look, as my final comment. You're overthinking this. Companies routinely have waaaay more cash on their books than they \"\"need\"\" because they keep a rainy day fund. Yes, there are extreme examples like Apple that has about 60 billion more than they need but practically all companies are going to maintain excess cash for emergencies, acquisitions, etc. As I said in another comment, the common theme between a DCF and an EV multiple is that they are both capital structure independent. Even here there are going to be differences, companies with a really shitty capital structure (read: too much debt) will trade publicly at a lower enterprise value multiple because of the risk that they go bankrupt. In an acquisition, this (probably) would not be the case. In the case of a DCF, you would probably raise your discount rate to account for the risk of bankruptcy.\"","I believe you are missing knowledge of how to conduct a ratio analysis. Understanding liquidity ratios, specifically the quick or acid-test ratio will be of interest and help your understanding. http://www.investopedia.com/terms/a/acidtest.asp Help with conducting a ratio analysis. http://www.demonstratingvalue.org/resources/financial-ratio-analysis Finally, after working through the definitions, this website will be of use. https://www.stock-analysis-on.net/NYSE/Company/Exxon-Mobil-Corp/Ratios/Liquidity","i cannot directly tell from the provided information if it is already included in Net A/R but if there is a balance sheet you can check yourself if the Total Cash Flow matches the difference between cash position year 0&1 and see if it is net or still to be included.","Take a look at apple. It has no debt. So the ev is basically mkt cap - cash. Also remember market cap is the float * share price nothing else. Obviously share price takes into account the assets of the firm into perpituituy but the way you phrased it, adding debt , didnt sound quite right to me. We remove cash since someone buying a company isn't going to pay for your cash. In the transaction cash is distributed to share holders then the company is sold.","You can get really nerdy with the EV calc, but I would just add that it's important to deduct any non-operating, non-consolidated assets in addition to the minority interest adjustment - e.g. unconsolidated subsidiaries, excess real estate, excess working capital, etc.","Makes sense. I typed the previous reply on an ipad and was too lazy to go into the fact that as you point out the cash exits the balance sheet so in a DCF it doesn't get any weight in the terminal value calculation which makes up a significant chunk of an EV normally.","You're buying the operations of firm A for $450, or 4.5x EBITDA. You're buying the operations of firm B for $500, or 5.0x EBITDA. You're paying a higher multiple for firm B. Of couse subtracting cash 'skews multiples' - but you need to pull it out. You're paying for a business' ability generate that EBITDA over time. Cash is a one-shot deal. You need to pull it out to get the value of what you're actually investing in.","Enterprise Value is supposed to be the price you would be willing to pay to acquire the company. Typically, companies are delivered debt-free and cash-free, so the cash on the balance sheet at the time of the transaction is distributed to the original owners. So, for instance, a company like Apple would have a lower EV than Market Value because the cash on the balance sheet is not going to be included in an acquisition. And you are right, there are plenty of instances where you see Enterprise Value lower than Market Value (Cap). If you are solely looking at equity valuation (equity investing), then use market cap. If you are looking at firm valuation for M&A, then EV is more important.","Agree with mjvcaj, it is rare. Larger cap examples include Nokia and NII Holdings (Nextel). If cash exceeds market cap, that means total debt is greater than EV, the value of the operating assets. If the debt is partially repaid / matures, the equity is ok. BUT if management is crap and the cash is spent at an ROIC below the interest rate on the debt, now you have a situation where the net debt exceeds the value of the operating assets, the credit quality suffers, debt trades down, you need to recapitalize in order to avoid bankruptcy. The above assumes debt is greater than cash. Situations where cash exceeds market cap and debt is less than cash (i.e. a negative EV) are exceedingly rare in larger companies and are either a) a wonderfully attractive mispricing or b) market views management as so awful that the cash will get burnt up by the business and the value of that cash will be destroyed.","no interest expense (no debt in the capital structure) and an income tax benefit is one possible scenario. you determine this through the financial statement by looking for the differences between the E and EBIT in those calculations (interest and taxes). of course, extraordinary items and discontinued operations could also be present, and result in the difference noted.","\"Finance is ALL about obscure theoretical points. This one actually isn't even that obscure, kind of like a big gaping whole that nobody addresses. So to address your \"\"minimum cash\"\" level point. That's what I'm working towards. Check this: So if you are selling your company, and all of the potential buyers are public companies, you would adjust your working capital balances in your model to match the public company market benchmark (ie: days payable outstanding, days receivable outstanding). This would be some sort of \"\"added value\"\" that a public company would bring to the mix. You should do the same for cash. You would benchmark what level of cash the comparable public companies hold (possibly as a % of revenue?), and apply that as the level of operating cash. You're counter argument would be that some firms may choose to hold on to excess levels of cash for a period of time (Apple), skewing \"\"minimum cash levels\"\" upward. That's true, but over a period of time, investors would either (1). demand the excess cash back or (2) investors would sell shares because the company is not earning a sufficient return on equity. My second point is half baked and not fully thought through but it goes along with the idea that a company will dividend out excess cash if it cannot reach the hurdle rate demanded by investors. Thank you for continuing the conversation with me, I think you're the only one that gets it.\"","\"A lot of financial software will calculate the value of operating leasess for you (bullet 2). E.g. Capital IQ, BB. What a lot of professionals do is \"\"reverse\"\" out EBITDA/EBIT etc. for: - non-recurring expenses (think big accounting changes, some impairments) - change operating expenses into capital leases to adjust the capital structure - occasionally change some operating expenses (e.g. options) because you are under the assumption if you take a company private that those expenses will not be relevant The whole point is simply to see the operating revenues/expenses of the firm\"","I think I understand what I am doing wrong. To provide some clarity, I am trying to determine what the value of a project is to a firm. To do this I am taking FCF, not including interest or principal payments, and discounting back to get an NPV enterprise value. I then back off net debt to get to equity value. I believe what I am doing wrong is that I show that initial $50M as a cash outflow in period 0 and then back it off again when I go from enterprise value to equity value. Does this make any sense? Thanks for your help.","\"Market cap is synonymous with equity value, which is one way of thinking of a company's \"\"worth.\"\" The alternative would be enterprise value, which is calculated as follows: Enterprise Value = Market Value of Equity + Market Value of Debt - Cash and Equivalents - Non-Operating Assets Enterprise value is essentially \"\"how much is the firm worth to ALL providers of capital.\"\" It can be viewed as \"\"if I wanted to buy the *entire* company, debt and all, what would I have to pay?\"\"\"","This is in the balance sheet, but the info is not usually that detailed. It is safe to assume that at least some portion of the cash/cash equivalents will be in liquid bonds. You may find more specific details in the company SEC filings (annual reports etc).","Here's the original academic backbone that it's based on and expanded upon. https://en.m.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem I think thats it's overly conservative in this case (I fully accept academic theories only go so far in the real world) as Damodaran (NYU professor) has made a pretty solid case that cash on balance sheet at large cap tech companies is valued by the markets at less than its after tax $ value.","\"> Or does it differ between every company what non-cash charges they have? This. Here's a hint: the FCFF *can* be calculated from Cash Flow from Operations (CFO). Think of FCFF this way: \"\"after the business has operated *and* made *all* investments needed to grow, both short and long-term, how much is left over for providers of capital?\"\" [Here's a good resource for you.](https://www.cfainstitute.org/learning/products/publications/inv/Documents/equity_chapter6.ppt)\"","The three places you want to focus on are the income statement, the balance sheet, and cash flow statement. The standard measure for multiple of income is the P/E or price earnings ratio For the balance sheet, the debt to equity or debt to capital (debt+equity) ratio. For cash generation, price to cash flow, or price to free cash flow. (The lower the better, all other things being equal, for all three ratios.)","Yes that is the case for the public company approach, but I was referring to the transaction approach: Firm A and Firm B both have $100 in EBITDA. Firm A has $50 in cash, Firm B has $100 in cash. Firm A sells for $500, Firm B sells for $600. If we didn't subtract cash before calculating the multiple: Firm A: 5x Firm B: 6x If we DO subtract cash before calculating the multiple: Firm A: 4.5x Firm B: 5x So yea, subtracting cash does skew the multiple.","\"This is an example from another field, real estate. Suppose you buy a $100,000 house with a 20 percent down payment, or $20,000, and borrow the other $80,000. In this example, your \"\"equity\"\" or \"\"market cap\"\" is $20,000. But the total value, or \"\"enterprise value\"\" of the house, is actually $100,000, counting the $80,000 mortgage. \"\"Enterprise value\"\" is what a buyer would have to pay to own the company or the house \"\"free and clear,\"\" counting the debt.\"","You wouldn't know it's value (Enterprise Value) without knowing its cash balance. The equation: EV = Market Cap + Minority Interest + Preferred Stock + Debt - Cash Enterprise Value is the value of the company to ALL shareholders (creditors, preferred stock holders, common stock holders). So, taking on debt could either increase or decrease the EV depending on the cash balance of the company. This will have no effect, directly, on the market cap. It will, however effect the present value of its future cash flows as the WACC will increase due to the new cost of debt (interest payments, higher risk of bankruptcy, less flexibility by management).","The primary drivers of cash flow in a software firm is the productivity and skill of your employees. How is that reflected in a balance sheet? Well, take a company like Adobe or Salesforce, or even Microsoft. What would you be able to tell about each from their balance sheets? You can look at their cash level, and what else would matter?","Reading and analyzing financial statements is one of the most important tasks of Equity Analysts which look at a company from a fundamental perspective. However, analyzing a company and its financial statements is much more than just reading the absolute dollar figures provided in financial statements: You need to calculate financial ratios which can be compared over multiple periods and companies to be able to gauge the development of a company over time and compare it to its competitors. For instance, for an Equity Analyst, the absolute dollar figures of a company's operating profit is less important than the ratio of the operating profit to revenue, which is called the operating margin. Another very important figure is Free Cash Flow which can be set in relation to sales (= Free Cash Flow / Sales). The following working capital related metrics can be used as a health check for a company and give you early warning signs when they deviate too much: You can either calculate those metrics yourself using a spreadsheet (e.g. Excel) or use a professional solution, e.g. Bloomberg Professional, Reuters Eikon or WorldCap.","I was merely trying to be helpful - Conceptually, you have dump this idea that something is skewed. It isn't. Firm A sold for $500 (equity value aka purchase price to shareholders) + debt (zero) - cash (50) for 450. Enterprise value is the cash free, debt free sale price. The implied ev multiple is 4.5x on A - that is the answer. The other business sold for a higher multiple of 5x. If you would pile on more cash onto A, the purchase price would increase, but the EV wouldn't. The idea is to think hard about the difference between equity value and enterprise value when examining a transaction.","\"I heard today while listening to an accounting podcast that a balance sheet... can be used to determine if a company has enough money to pay its employees. The \"\"money\"\" that you're looking at is specifically cash on the balance sheet. The cash flows document mentioned is just a more-finance-related document that explains how we ended at cash on the balance sheet. ...even looking for a job This is critical, that i don't believe many people look at when searching for a job. Using the ratios listed below can (and many others), one can determine if the business they are applying for will be around in the next five years. Can someone provide me a pair of examples (one good)? My favorite example of a high cash company is Nintendo. Rolling at 570 Billion USD IN CASH ALONE is astonishing. Using the ratios we can see how well they are doing. Can someone provide me a pair of examples (one bad)? Tesla is a good example of the later on being cash poor. Walk me though how to understand such a document? *Note: This question is highly complex and will take months of reading to fully comprehend the components that make up the financial statements. I would recommend that this question be posted completely separate.\"","Your best bet is to just look at comparative balance sheets or contact the company itself. Otherwise, you will need access to a service like PrivCo to get data.","\"I was wondering how do we calculate the total capital of a company? Which items should I look for in the financial statements? Total capital usually refers to the sum of long-term debt and total shareholder equity; both of these items can be found on the company's balance sheet. This is one of the calculations that's traditionally used when determining a company's return on capital. I'll use the balance sheet from Gilead Sciences' (GILD) 2012 10-K form as an example. Net long-term debt was $7,054,555,000 and total stockholder equity was $9,550,869,000 which should give a grand total of $16,605,424,000 for total capital. (I know you can do the math, but I always find an example helpful if it uses realistic numbers). You may sometimes hear the term \"\"total capital\"\" referring to \"\"total capital stock\"\" or \"\"total capital assets,\"\" in which case it may be referring to physical capital, i.e. assets like inventory, PP&E, etc., instead of financial capital/leverage. And how do I calculate notes payable? Is the same as accounts payable? As the word \"\"payable\"\" suggests, both are liabilities. However, I've always been taught that accounts payable are debts a business owes to its suppliers, while notes payable are debts a business owes to banks and other institutions with which it has signed a formal agreement and which use formal debt instruments, e.g. a loan contract. This definition seems to match various articles I found online. On a balance sheet, you can usually determine notes payable by combining the short-term debt of the company with the current portion of the long-term debt. These pieces comprise the debt that is due within the fiscal year. In the balance sheet for Gilead Sciences, I would only include the $1,169,490,000 categorized as \"\"Current portion of long-term debt and other obligations, net\"\" term, since the other current liabilities don't look like they would involve formal debt contracts. Since the notes payable section of GILD's balance sheet doesn't seem that diverse and therefore might not make the best example, I'll include the most recent balance sheet Monsanto as well.1 Monsanto's balance sheet lists a term called \"\"Short-term debt, including current portion of long-term debt\"\" with a value of $36 million. This looks like almost the exact definition of notes payable. 1. Note that this financial statement is called a Statement of Consolidated Financial Position on Monsanto's 10-K.\"","\"This formula is not calculating \"\"Earnings\"\". Instead, it is calculating \"\"Free Cash Flow from Operations\"\". As the original poster notes, the \"\"Earnings\"\" calculation subtracted out depreciation and amortization. The \"\"Free Cash Flow from Operations\"\" adds these values back, but for two different reasons:\"","\"You are comparing \"\"market caps\"\" and \"\"enterprise value\"\". If the company has four billion dollars cash in the bank, then the value would be four billion plus whatever the business itself is worth as a business. If the business itself is only worth 400 million, then you would have 4.4bn market caps and 400 million enterprise value. The \"\"enterprise value\"\" is basically how much the business would be worth if it had no cash or no debt. These numbers would be a very unusual situation. It could happen for example if a big company has sold 90% of its business for cash. When you buy a share of the company, you get a tiny share of the business and you own a tiny share of the cash. This stock will very likely keep its value, but won't make much money. On the other hand, more common would be a company where the business is worth 4bn, but the company has also 4bn debt. So it is worth exactly zero. Market caps close to zero, but enterprise value $4bn, because you ignore the debt in the enterprise value. Edit: Sorry, got the \"\"enterprise value\"\" totally wrong, read millions instead of billions: Your numbers would mean that you have a huge, huge company with close to 440bn debt. Most likely someone made a mistake here. A \"\"normal\"\" situation would be say a company with a business that is worth $500 million, but they have $100 million debt, so market caps = $400 million but enterprise value = $500 million. PS. Yahoo has the same nonsense numbers on their UK site, and for other companies (I just checked Marks and Spencer's which apparently has an enterprise value of 800 billion pound with a totally ridiculous P/E ratio.\"","\"Umm, it depends on the transaction but a lot of transactions get done on a \"\"cash free / debt free\"\" basis. Meaning, I'll pay you 5x EBITDA (or $500) and you deliver the company without any cash or debt subject to a \"\"standard\"\" amount of working capital. Ultimately, you're confusing enterprise value and equity value. The two companies may have different purchase prices (equity values) but they should have very similar enterprise values (given the hypothetical scenario you put together).\"","\"From Wikipedia: Usage Because EV is a capital structure-neutral metric, it is useful when comparing companies with diverse capital structures. Price/earnings ratios, for example, will be significantly more volatile in companies that are highly leveraged. Stock market investors use EV/EBITDA to compare returns between equivalent companies on a risk-adjusted basis. They can then superimpose their own choice of debt levels. In practice, equity investors may have difficulty accurately assessing EV if they do not have access to the market quotations of the company debt. It is not sufficient to substitute the book value of the debt because a) the market interest rates may have changed, and b) the market's perception of the risk of the loan may have changed since the debt was issued. Remember, the point of EV is to neutralize the different risks, and costs of different capital structures. Buyers of controlling interests in a business use EV to compare returns between businesses, as above. They also use the EV valuation (or a debt free cash free valuation) to determine how much to pay for the whole entity (not just the equity). They may want to change the capital structure once in control. Technical considerations Data availability Unlike market capitalization, where both the market price and the outstanding number of shares in issue are readily available and easy to find, it is virtually impossible to calculate an EV without making a number of adjustments to published data, including often subjective estimations of value: In practice, EV calculations rely on reasonable estimates of the market value of these components. For example, in many professional valuations: Avoiding temporal mismatches When using valuation multiples such as EV/EBITDA and EV/EBIT, the numerator should correspond to the denominator. The EV should, therefore, correspond to the market value of the assets that were used to generate the profits in question, excluding assets acquired (and including assets disposed) during a different financial reporting period. This requires restating EV for any mergers and acquisitions (whether paid in cash or equity), significant capital investments or significant changes in working capital occurring after or during the reporting period being examined. Ideally, multiples should be calculated using the market value of the weighted average capital employed of the company during the comparable financial period. When calculating multiples over different time periods (e.g. historic multiples vs forward multiples), EV should be adjusted to reflect the weighted average invested capital of the company in each period. In your question, you stated: The Market Cap is driven by the share price and the share price is determined by buyers and sellers who have access to data on cash and debts and factor that into their decision to buy or sell. Note the first point under \"\"Technical Considerations\"\" there and you will see that the \"\"access to data on cash and debts\"\" isn't quite accurate here so that is worth noting. As for alternatives, there are many other price ratios one could use such as price/earnings, price/book value, price/sales and others depending on how one wants to model the company. The better question is what kind of investing strategy is one wanting to use where there are probably hundreds of strategies at least. Let's take Apple as an example. Back on April 23, 2014 they announced earnings through March 29, 2014 which is nearly a month old when it was announced. Now a month later, one would have to estimate what changes would be made to things there. Thus, getting accurate real-time values isn't realistic. Discounted Cash Flow is another approach one can take of valuing a company in terms of its future earnings computed back to a present day lump sum.\"","\"tl;dr It's a difference between cash and cash equivalents and net cash and cash equivalents. Download the 2016 annual report from http://www.diageo.com/en-us/investor/Pages/financialreports.aspx On page 99 is the Consolidated Statement of Cash Flows at the bottom is a section \"\"Net cash and cash equivalents consist of:\"\" Net cash and cash equivalents consist of: 2016-06-30 2015-06-30 Cash and cash equivalents 1,089 472 Bank overdrafts (280) (90) 809 382 The difference between net cash of 809 million and 382 million is 427 million, matching the \"\"Change in Cash and Cash Equivalents\"\" from Yahoo. I do not know that bank overdrafts mean in this situation, but appears to cause cash to show up on balance sheet without being reflected in the net cash portions of the cash flow statement. And the numbers seem like balances, not year of year changes like the rest of the statement of cash flows. 2015 net CCE 382 2016 cash flow + 427 ---- 2016 net CCE 809 Cash from overdrafts + 280 ---- 2015 balance sheet cash 1,089\"","\"Morningstar's definition of cash includes \"\"cash equivalents (fixed-income securities with a maturity of one year or less)\"\". So I'm guessing 81% of its holdings are short-term enough to fall into this category.\"","This comment makes zero sense. No one values equities from the balance sheet, unless you're trying to justify why you'd invest in sears or something (i.e. b/s vastly understates market value of real estate holdings and you're hoping for a liquidity event). Certainly not a tech company or really anything as a going concern.","Capital surplus is used to account for that amount which a firm raises in excess of the par value (nominal value) of the shares (common stock).. Investopedia has a much simpler answer. Somebody has tried to be smart on wikipedia and have done the calculations without much explanation. The portion of the surplus of a business arising from sources other than earnings : all surplus other than earned surplus usually including amounts received from sale or exchange of capital stock in excess of par or stated value, profits on resale of treasury stock, donations to capital by stockholders or others, or increment arising from revaluation of fixed or other assets The number of shares a company wants to issue is decided and agreed with the regulators. They decide the par value and then decide how much premium will be charged, extra money above the par value. Take out any RHP of an issue and you find all these details. Par Value = 1 Issue price(Price at which investors buy) = 10 Premium = 9 For a single share the capital surplus is 9, multiply it by the number of shares issued and you have the total capital surplus.","Yea good points and they definitely should not be overlooked. The whole point of the EV calculation is to get the analyst to look at what the true underlying business is and what one is really paying for when buying securities in a company. Market Cap can be misleading for many reasons and get real annoyed when people say things like, I own XYZ company because its cash account is greater than its market cap....","Just so everyone knows. A core model refers to a forecast of the Balance Sheet, income statement, and Statement of Cash Flows. From this you can solve for Free Cash Flow to Equity and solve for some more price values, like Sum of Parts.","It's hard to say for smaller cap firms because they are all so different. Take a look at SandP or other rating agencies at about the BB range. Then decide how much of a buffer you'd like. If all goes to hell, do you want to be able to cover all you salaries, debt etc for three months? Six? What kind of seasonal volatility does your industry face? Do you plan on any significant investment or FTE uplift any time soon? This will all play into how much retained earnings you will chose to have.","\"It does depend, but in the effort to be efficient we usually just add back Depreciation, Amortization, and Stock Based Comp. [Although adding back SBC is hotly debated](https://www.wallstreetprep.com/blog/stock-based-compensation-treatment-dcf-almost-always-wrong/), we usually still add it back at my firm. Keep in mind I'm in M&A, so we don't really concern ourselves with creating the \"\"purest\"\" valuation... * EBIAT * Add Depreciation * Add Amort * Add SBC * Subtract Capex * Add the decrease in NWC * Subtract the increase in NWC * = FCFF\"","It is difficult to reconcile historical balance sheets with historical cash flow statements because there are adjustments that are not always clearly disclosed. Practitioners consider activity on historical cash flow statements but generally don't invest time reconciling historical accounts, instead focusing on balancing projected balance sheets / cash flow statements. If you had non-public internal books, you could reconcile the figures (presuming they are accurate). In regards to Mike Haskel's comment, there's also a section pertaining to operating capital, not just effects on net income.","The actual financial statements should always be referenced first before opening or closing a position. For US companies, they are freely available on EDGAR. Annual reports are called 10-Ks, and quarterly reports are called 10-Qs. YHOO and GOOG do a great job of posting financials that are quickly available, but money.msn has the best. These should be starting point, quick references. As you can see, they may all have the same strange accounting. Sometimes, it's difficult to find the information one seeks in the consolidated financial statements as in this case, so searching through the filing is necessary. The notes can be helpful, but Ctrl-F seems to do everything I need when I want something in a report. In AAPL's case, the Interest expense can be found in Note 3.","Different stakeholders receive cash flows at different times. The easiest way for me to remember is if you're a debt holder vs equity owner on an income statement. Interest payments are made before net income, so debt holders are repaid before any residual cash flows go to equity owners.","This is something I love about only investing in tech. Every company I'd want to invest in has a great balance sheet anyway, that's just how their economics work, so I don't have to worry about this. I actually work in reverse. Like with AAPL, I'm deducting their cash from their market cap to get an even more attractive valuation*. As opposed to trying to work out all the complex debt and liabilities of a bank or something. *AAPL actually does have some debt now but it's dead simple to deduct and only a workaround to their offshore cash.","I've spent enough time researching this question where I feel comfortable enough providing an answer. I'll start with the high level fundamentals and work my way down to the specific question that I had. So point #5 is really the starting point for my answer. We want to find companies that are investing their money. A good company should be reinvesting most of its excess assets so that it can make more money off of them. If a company has too much working capital, then it is not being efficiently reinvested. That explains why excess working capital can have a negative impact on Return on Capital. But what about the fact that current liabilities in excess of current assets has a positive impact on the Return on Capital calculation? That is a problem, period. If current liabilities exceed current assets then the company may have a hard time meeting their short term financial obligations. This could mean borrowing more money, or it could mean something worse - like bankruptcy. If the company borrows money, then it will have to repay it in the future at higher costs. This approach could be fine if the company can invest money at a rate of return exceeding the cost of their debt, but to favor debt in the Return on Capital calculation is wrong. That scenario would skew the metric. The company has to overcome this debt. Anyways, this is my understanding, as the amateur investor. My credibility is not even comparable to Greenblatt's credibility, so I have no business calling any part of his calculation wrong. But, in defense of my explanation, Greenblatt doesn't get into these gritty details so I don't know that he allowed current liabilities in excess of current assets to have a positive impact on his Return on Capital calculation.","\"Market Capitalization is the value the market attributes to the company shares calculated by multiplying the current trading price of these shares by the total amount of shares outstanding. So a company with 100 shares trading at $10 has a market cap of $1000. It is technically not the same as the value of a company (in the sense of how much someone would need to pay to acquire the company), Enterprise value is what you want to determine the net value of a company which is calculated as the market capitalization + company debt (as the acquirer has to take on this debt) - company cash (as the acquirer can pocket this for itself). The exact boundary for when a company belongs to a certain \"\"cap\"\" is up for debate. For a \"\"large cap\"\" a market capitalization of $10 billion+ is usually considered the cutoff (with $100+ billion behemoths being called \"\"mega caps\"\"). Anything between $10 billion and ~$1 billion is considered \"\"mid cap\"\", from ~$1billion to ~$200 million it's called a \"\"small cap\"\" and below $200 million is \"\"nano cap\"\". Worth noting that these boundaries change quite dramatically over time as the overall average market capitalization increases as companies grow, for example in the 80s a company with a market cap of $1 billion would be considered \"\"large cap\"\". The market \"\"determines\"\" what the market cap of company should be based (usually but certainly not always!) on the historical and expected profit a company makes, for a simple example let's say that our $1000 market cap company makes $100 a year, this means that this company's earnings per share is $1. If the company grows to make $200 a year you can reasonably expect the share price to rise from $10 to ~$20 with the corresponding increase in market cap. (this is all extremely simplified of course).\"","It just had less cash. That doesn't necessarily mean that the company had a net loss for the year. Just like having more cash doesn't mean the company made a profit. What if a company had revenue of $1 million, expenses of $2 million, and took out a loan of $5 million? They had a net loss of $1 million, but they have $4 million more in cash.","\"In the Income Statement that you've linked to, look for the line labeled \"\"Net Income\"\". That's followed by a line labeled \"\"Preferred Dividends\"\", which is followed by \"\"Income Available to Common Excl. Extra Items\"\" and \"\"Income Available to Common Incl. Extra Items\"\". Those last two are the ones to look at. The key is that these lines reflect income minus dividends paid to preferred stockholders (of which there are none here), and that's income that's available to ordinary shareholders, i.e., \"\"earnings for the common stock\"\".\"","\"I like this explanation the best. EV is trying to get at the value of the underlying business, excluding the capital structure you currently have on the company. If your lemonade stand is worth $100, but the business also comes with $50 in cash lying around (and no debt), then the EV is $100. But the price you'd pay the owner (the \"\"market cap\"\") is $150, because it's like you get an immediate cash rebate.\"","O boy you can take an entire on this. Here are the basics. Project future cash flows on a series of underlying assumptions such as growth rate and risk free rate. You then have to adjust top line items such as depreciation and come up with FCF. Then discount everything back with a terminal value.","Talk to almost any large cap CFO or read any corporate finance textbook. McKinsey's Valuation is a great one to own: though yes McKinsey consultants can take a good idea and turn it bad by overdoing it to an extreme. Why would universal corporate finance principles not apply to large cap tech? Why is having $XXb of unutilized cash for a company with durable cash flow a good thing for equity investors?","It is. The outstanding value is the net cash flow, but it will always be higher than cash outflow due to a constant growth rate/expected return. I was slightly confused when my manager told me to find the IRR before and after cash inflows (the whole life of the investment). Especially as IRR after cash inflows is higher than the former.","This is fine, but I'd probably spend a moment introducing WACC and it's estimation. It's also useful to link up the enterprise value to share price, so just also mentioning the debt subtraction to get equity value and division by shares for price. Keep in mind you're usually given like a minute to answer this, so you can afford to be a bit more detailed in some parts.","How you use the metric is super important. Because it subtracts cash, it does not represent 'value'. It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash. So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0. If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless.","Theoretically there is always a time value of money. You'll need to keep your cash in a Money Market Fund to realize its potential (I'm not saying MMFs are the best investment strategy, they are the best kind of account for liquid cash). Choose an accounts that's flexible with regard to its minimum required so you can always keep this extra money in it and remove it when you need to make a payment.","You can add $262,500 worth of notes payable (assuming that you use the cash to buy inventory immediately). Any more and you would push the current ratio below 2. In case this ratio is the trouble, the formula for current ratio is current assets over current liabilities. Notes payable is a current liability and inventory is a current asset so you add the number to both of them. I used Excel to do this. With this addition the quick ratio is 1.19. The formula for this is (current assets - inventory)/Current liabilities. So you take ($1,312,500 + $262,500 - $262,500 - $375,000)/($525,000 + $262,500) = 1.19","Excess capital is the primary means of navigating around a trade which is moving against you. In a very basic case, consider a long position moving against you. With additional capital you could average in as the price drops or you could write options against your position. If you don't have the capital to handle when (not if) a trade move against you then you're at a significant disadvantage as your only option may be a liquidation.","\"I don't know how much finance you know, but a fundamental idea is that something's value is the present value of all its future cash flows. Basically what those cash flows are worth today. So if we can predict the cash flows the equity holders will get in the future (not easy), and determine at what rate to discount the cash flows (not easy), we can value the equity. So a company will have cash flows coming in. But not all go to the equity holders. Some will go to debt holders, if any (interest payments). Some will go to preferred equity holders (dividends), if any. What's left over is what the equity holders will get. If there's no debt, preferred equity or other things like that, then the equity holders get all the cash flows. This doesn't mean the equity holders literally receive the cash - they'll get whatever is given out via dividends. But, they \"\"own\"\" the cash and it may be reinvested in the business to generate more cash in the future.\"","Thanks for this, great in depth answer. I had previously calculated a WACC and have used it for my discount rate. As part of your last point on revenue vs. cash, I've set a accounts receivable period of 30 days, and then applied a factor of 30/365 * revenue to understand what portion of my revenue is not cash in hand. Does that make sense?","Simply put, expansionary capex is seen as an investment and maintenance capex is seen as a cost. In terms of valuation, free cash flow will not include expansionary capex because you are valuing the company as its current business. It's important to note that this approach will usually undervalue companies with strong investment opportunities. Also, like /u/scarletham said, please edit out the identifying information to avoid any disclosure problems.","I'm a big believer in pulling the quarterly and or annual statements and deriving your own analysis. The automated parsing systems at Google, Yahoo, and others are a good starting point and they'll let you generally compare various metrics of different companies or market segments. With that in mind, there are any number of reasons Google's scripts could have broken out or combined a couple of cash flow line items. If you're digging this deep in the weeds on this company you should pull the SEC filings and build out your own data.","Are you trying to figure out if a project would increase the market value of equity? I think your issue is that the Market value of Equity will not be updated with the NPV of 40M (Assuming it is truly +, not sure if it's true with 50M of debt). EV = Market Value of Equity + Debt - Cash and CE Ev - Debt + Cash and CE = Market equity value. So I think you would have to update the market value of Equity up with 40M. This would then lead to EV = Equity Value + future income stream discounted + debt - Cash and Cash Equivalents.","You could create your own spreadsheet of Cash Flows and use the XIRR function in Excel: The formula is:","Hi all Started my MBA studies recently. We have a simulation project and I've taken the VP Finance Role as I didn't have much experience in this and wanted to learn more. Unfortunately I don't have accounting until next semester, so I'm trying to make up the cap with my career experience so far as an engineer + youtube tutorials. I built a discounted cashflow model. I'm trying to now determine the amount of loan to take in my first year of business. Basically the equity financing doesn't cover our first year capital expenditure, let alone any other costs. My question is how do I determine what an appropriate loan amount is to take. My first thoughts are enough to cover my capital expenses + 1st half of the year operating expenses before I start seeing a revenue. Right now my balance sheet would lead me to believe I have a 0.52 Debt Ratio and 1.23 Debt-to-Equity ratio. Is that ok?","Reports -> I&E -> Cash Flow Select the Mutual Fund account only.","Adding assets (equity) and liabilities (debt) never gives you anything useful. The value of a company is its assets (including equity) minus its liabilities (including debt). However this is a purely theoretical calculation. In the real world things are much more complicated, and this isn't going to give you a good idea of much a company's shares are worth in the real world","The short answer is that you would want to use the net inflow or net outflow, aka profit or loss. In my experience, you've got a couple different uses for IRR and that may be driving the confusion. Pretty much the same formula, but just coming at it from different angles. Thinking about a stock or mutual fund investment, you could project a scenario with an up-front investment (net outflow) in the first period and then positive returns (dividends, then final sale proceeds, each a net inflow) in subsequent periods. This is a model that more closely follows some of the logic you laid out. Thinking about a business project or investment, you tend to see more complicated and less smooth cashflows. For example, you may have a large up-front capital expenditure in the first period, then have net profit (revenue less ongoing maintenance expense), then another large capital outlay, and so on. In both cases you would want to base your analysis on the net inflow or net outflow in each period. It just depends on the complexity of the cashflows trend as to whether you see a straightforward example (initial payment, then ongoing net inflows), or a less straightforward example with both inflows and outflows. One other thing to note - you would only want to include those costs that are applicable to the project. So you would not want to include the cost of overhead that would exist even if you did not undertake the project.","I'm not a finance guy by trade, I'm an accountant, so I'm not 100% sure, but I'm going to say no. EBITDA is your accounting profit before interest, taxes, depreciation and amortization. So it's already free of many non-cash items, and is closer to a cash-basis measure of profit, but still includes many non-cash revenues. As far as I know, the discounting is to take the time value of money into account so you can make a decision on whether the present value of the expected future cash flows are greater than the present value of the cash outflow being asked today. If it is, then you buy. If not, then you don't.","Too calculate these values, information contained in the company's financial statements (income, balance, or cashflow) will be needed along with the price. Google finance does not maintain this information for BME. You will need to find another source for this information or analyze another another symbol's financial section (BAC for example).","\"fair enough, but I wasn't sure if you actually get it or not because your question seemed to revolved around cash and transaction value. You are really just said \"\"skewing\"\" is if you didn't add net debt the multiple wouldn't be a valid muliptle. If you understand it, why start out with this mental exercise of saying \"\"we shouldn't calculate multiples wrong, because then they would be wrong\"\"?\"","If I understand you right, what you need is the minimum amount in the account until your next deposit. So for example, if today is the 10th and you get paid on the 15th, how much do I need to have in the account, so I know how much I can spend? That amount should be all of the bills that will be paid between today and the 15th. An alternative would just to keep a running balance and see what the minimum value is. My personal finance software does that for me, but it's possible, although a little more complicated, in Excel. You'd have to find the date of the next deposit, and do a SUMIF looking for dates between today and that date. That's about as far as I can get without getting off-topic.","\"Free Cash Flow (FCF) is not a metric/data point which represents any ACTUAL cash flow of a company. FCF is a data point which communicates how much cash a company has after Operating cash requirements and cash expenditures \"\"required\"\" to grow and maintain the existing business. FCF can be used to pay dividends, buy back stock, purchase companies, et cetera. None of which are REQUIRED to run the business.\"","Not quite the usual DCF or valuation question, but more FP&A: any ideas how to bridge cash forecast to financial forecast? To clarify, financial forecast is mostly done on an accrual basis whereas cash is outflows and inflows. Trying to figure out how to have better visibility into cash discrepancies","With a lot excess cash you eventually have two goals: Since interest on cash bank deposits does not exceed inflation and you have currency risk, you may want to get into other asset classes. Options that might be, but not limited to are:","\"Thanks for the response. I am using WRDS database and we are currently filtering through various variables like operating income, free cash flow etc. Main issue right now is that the database seems to only go up to 2015...is there a similar database that has 2016 info? filtering out the \"\"recent equity issuance or M&A activity exceeding 10% of total assets\"\" is another story, namely, how can I identify M&A activity? I suppose we can filter it with algorithm stating if company's equity suddenly jumps 10% or more, it get's flagged\"","Shareholder's Equity consists of two main things: The initial capitalization of the company (when the shares were first sold, plus extra share issues) and retained earnings, which is the amount of money the company has made over and above capitalization, which has not been re-distributed back to shareholders. So yes, it is the firm's total equity financing-- the initial capitalization is the equity that was put into the company when it was founded plus subsequent increases in equity due to share issues, and retained earnings is the increase in equity that has occurred since then which has not yet been re-distributed to shareholders (though it belongs to them, as the residual claimants). Both accounts are credited when they increase, because they represent an increase in cash, that is debited, so in order to make credits = debits they must be credits. (It doesn't mean that the company has that much cash on hand, as the cash will likely be re-invested). Shareholder's Equity is neither an asset nor a liability: it is used to purchase assets and to reduce liabilities, and is simply a measure of assets minus liabilities that is necessary to make the accounting equation balance: Since the book value of stocks doesn't change that often (because it represents the price the company sold it for, not the current value on the stock market, and would therefore only change when there were new share issues), almost all changes in total assets or in total liabilities are reflected in Retained Earnings.","You haven't mentioned how much debt your example company has. Rarely does a company not carry any kind of debt (credit facilities, outstanding bonds or debentures, accounts payable, etc.) Might it owe, for instance, $1B in outstanding loans or bonds? Looking at debt too is critically important if you want to conduct the kind of analysis you're talking about. Consider that the fundamental accounting equation says: or, But in your example you're assuming the assets and equity ought to be equal, discounting the possibility of debt. Debt changes everything. You need to look at the value of the net assets of the company (i.e. subtracting the debt), not just the value of its assets alone. Shareholders are residual claimants on the assets of the company, i.e. after all debt claims have been satisfied. This means the government (taxes owed), the bank (loans to repay), and bondholders are due their payback before determining what is leftover for the shareholders.","In order to calculate the ratio you are looking for, just divide total debt by the market capitalization of the stock. Both values can be found on the link you provided. The market capitalization is the market value of equity.","I understand it could be cash converts. I was an accounting major. I'm just pointing out some possible reasons for why they might borrow instead of using cash on hand. They might not have enough cash on hand because of the fact that they might be holding cash equivalents.","\"QUICK ANSWER What @Mike Haskel wrote is generally correct that the indirect method for cash flow statement reporting, which most US companies use, can sometimes produce different results that don't clearly reconcile with balance sheet shifts. With regards to accounts receivables, this is especially so when there is a major increase or decrease in the company's allowances for doubtful accounts. In this case, there is more to the company's balance sheet and cash flow statements differences per its accounts receivables than its allowances for doubtful accounts seems responsible for. As explained below, the difference, $1.25bn, is likely owing more to currency shifts and how they are accounted for than to other factors. = = = = = = = = = = DIRTY DETAILS Microsoft Corp. generally sells to high-quality / high-credit buyers; mostly PC, server and other devices manufacturers and licensees. It hence made doubtful accounts provisions of $16mn for its $86,833mn (0.018%) of 2014 sales and wrote off $51mn of its carrying balance during the year. Its accounting for \"\"Other comprehensive income\"\" captures the primary differences of many accounts; specifically in this case, the \"\"foreign currency translation\"\" figure that comprises many balance sheet accounts and net out against shareholders' equity (i.e. those assets and liabilities bypass the income statement). The footnotes include this explanation: Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (“OCI”) What all this means is that those two balance sheet figures are computed by translating all the accounts with foreign currency balances (in this case, accounts receivables) into the reporting currency, US dollars (USD), at the date of the balance sheets, June 30 of the years 2013 and 2014. The change in accounts receivables cash flow figure is computed by first determining the average exchange rates for all the currencies it uses to conduct business and applying them respectively to the changes in each non-USD accounts receivables during the periods. For this reason, almost all multinational companies that report using indirect cash flow statements will have discrepancies between the changes in their reported working capital changes during a period and the dates of their balance sheet and it's usually because of currency shifts during the period.\"","Assuming there are no other liabilities... The enterprise value is $5mm. $1mm loan + $4mm equity. The proforma enterprise value will be the same, but the equity will now represent all of it at $5mm. Your 4% will now be 3.2%, but equal the same value; $160,000.","\"Total Capital This is a very old fashioned term that really is mostly only used in the finance industry today, like when everyone was obsessed with \"\"bank capital\"\". Total Capital = Preferred Equity + Common Equity + Liabilities True blue preferred shares are almost only used by financial companies, banks specifically. The more modern ones that convert to common are used by all other companies. Notes Payable This is another old fashioned term that now carries a different meaning in Generally Accepted Account Principles (GAAP). The oldest definition of a note or a promissory note is a promise to pay a fixed amount of money on a specific date. This has been modified to resemble more a bond and evolved into the zero coupon bond, a bond that makes no cash interest payments but makes one final payment that includes principal & interest. A bank note, like a One Dollar bill, is a note that pays something, in this case One Dollar, never (technically, the repayment date is simply not specified in the contract). While it pays One Dollar, it never pays it back, so it has a constant value of One Dollar. The constant nature, inflation notwithstanding, is what makes bank notes the preferred medium of exchange. GAAP has taken its' own definition to mean any debt payable within 12 months, as it is a current (<12 months) liability.\"","Opening capital = opening assests-opening liabilities","I'll have to think it through, but at the very least unless your debt is a pure discount instrument and you are using cash flows, some if that money IS getting paid during those 5 years. As in if you are using earnings, they pay p&i. Or if earnings and pure discount instruments, then amortized interest (I think, been a while). You see the actual numbers and know what you are trying to do, but I'm a little lost. Are you building a discount model with a multiple terminal and using ev as the multiple? Are you using free cash flow to firm for the discounting? I'm guessing that's the case.","\"First, don't use Yahoo's mangling of the XBRL data to do financial analysis. Get it from the horse's mouth: http://www.sec.gov/edgar/searchedgar/companysearch.html Search for Facebook, select the latest 10-Q, and look at the income statement on pg. 6 (helpfully linked in the table of contents). This is what humans do. When you do this, you see that Yahoo omitted FB's (admittedly trivial) interest expense. I've seen much worse errors. If you're trying to scrape Yahoo... well do what you must. You'll do better getting the XBRL data straight from EDGAR and mangling it yourself, but there's a learning curve, and if you're trying to compare lots of companies there's a problem of mapping everybody to a common chart of accounts. Second, assuming you're not using FCF as a valuation metric (which has got some problems)... you don't want to exclude interest expense from the calculation of free cash flow. This becomes significant for heavily indebted firms. You might as well just start from net income and adjust from there... which, as it happens, is exactly the approach taken by the normal \"\"indirect\"\" form of the statement of cash flows. That's what this statement is for. Essentially you want to take cash flow from operations and subtract capital expenditures (from the cash flow from investments section). It's not an encouraging sign that Yahoo's lines on the cash flow statement don't sum to the totals. As far as definitions go... working capital is not assets - liabilities, it is current assets - current liabilities. Furthermore, you want to calculate changes in working capital, i.e. the difference in net current assets from the previous quarter. What you're doing here is subtracting the company's accumulated equity capital from a single quarter's operating results, which is why you're getting an insane result that in no way resembles what appears in the statement of cash flows. Also you seem to be using the numbers for the wrong quarter - 2014q4 instead of 2015q3. I can't figure out where you're getting your depreciation number from, but the statement of cash flows shows they booked $486M in depreciation for 2015q3; your number is high. FB doesn't have negative FCF.\"","Corporate debt isn't an iou. Large corporations sell bonds and make annual or semiannual payments in those bonds. Cash is often held in a country with favorable tax condition, like Ireland.. Depending on the industry, this cash is invested in money market funds, fixed income securities, and maybe stocks or other funds. Because of the low interest rates that have prevailed since the recession, it's most economical to invest most cash and borrow for larger investments. However, the cash that ends up overseas is net of expenses. Internet is paid from operating income. I'm by no means an expert though, so take this with a grain of salt.","Could be misunderstanding your context. But ev = equity + debt - cash. So don't think it makes sense for an equity holder to have an individual ev/ebitda different from the company's. Are you asking in context of valuing equity and debt from an ev/ebitda multiple?"],"string":"[\n \"\\\"Excess Cash = Cash & Equivalents + Long-Term Investments - Current Liabilities The problem this calculation of excess cash is that \\\"\\\"long-term investments\\\"\\\" can be illiquid things like real estate. Another flaw is that it gives no credit for Current Assets, like receivables, which can be used to offset Current Liabilities. The first thing I'd do is \\\"\\\"net out\\\"\\\" Current Assets and Current Liabilities, then add Cash back in. Excess Cash = Current Assets - Current Liabilities + Cash & Equivalents. It would be nice if GAAP would require Long-Term Investments to be broken out as a) liquid long-term investments (stocks, bonds) b) illiquid long-term investments (real estate, private equity, etc)\\\"\",\n \"You're not missing anything. Excess cash is somewhat of a nebulous concept. To different people it means different things. The answer is that excess cash varies for each company depending on their business. For instance, some companies need very high amounts of working capital. A company may be increasing their inventories and therefore will require more cash on their balance sheet to fund growth. If a company always needs this extra cash, some investors prefer to leave that cash out of a valuation because the company cannot run profitably without it. Think about what happens to your calculation of Enterprise Value if you subtract excess cash as opposed to cash. Excess cash is always less than cash. Therefore by subtracting excess cash you increase EV. Since one common valuation metric is EV/EBITDA, a higher numerator will make the stock seem more expensive - that is the EV/EBITDA ratio will seem higher when using excess cash as opposed to cash. So using excess cash in your valuation methodology is basically a conservative concept. Depending on the business 20% of revenues seem way too high as a reserve for excess cash. 2% is a much better rule of thumb.\",\n \"\\\"Read again what I said in my original post. \\\"\\\"Enterprise Value is the sort of \\\"\\\"bare bones\\\"\\\" total firm value. It doesn't include any cash because you'd basically be paying cash for cash. Also, this makes analysis of transaction multiples more streamlined, as some firms may have a ton of excess cash on their balance sheet, skewing multiples.\\\"\\\" I said that that is WHY we use enterprise value. Because if you didn't it would skew multiples.\\\"\",\n \"20% is almost certainly too high. I agree with 2%, as a very rough rule. It will vary significantly depending on the industry. I generally calculate an average of the previous 2-3 years working capital, and deduct that from cash. Working capital is Current Assets less Current Liabilities. Current Assets is comprised of cash, prepaid expenses, and significantly, accounts receivable. This means that CA is likely to be much higher than just cash, which leaves more excess cash after liabilities are deducted. Which reduces EV, which makes the EV/EBITDA ratio look even more pricey, as Dimitri noted. But a balance sheet is just a snapshot of the final day of the quarter. As such, and because of seasonal effects, it's critical to smooth this by averaging several periods. After calculating this for a few companies, compare to revenue. Is it close to 2%?\",\n \"cash isn't part of changes in working capital calculation - dont include it in current assets. *edit - Also to answer a question you didn't ask, subtracting cash doesn't skew the multiples. If cash really is that excess, the market cap will reflect a large cash position, thus adding it all back into EV. Think of apple as a good example. If they theoretically would dividend out all the cash, market cap would drop and so would EV.\",\n \"I think the most concise way to understand EV is the value of the *operating assets* of the firm. It's most generally used when using income statement or cash flow ratios that are unlevered - before applying interest expense (which if the firm is optimally financed, in theory should only impact the equity). Examples include revenue, EBIT, EBITDA, unlevered FCF, etc. In your hypothetical scenario, you would expect the equity value of the firm to increase linearly as cash builds up. In other words, in some implausible, ceteris paribus formulation of the firm, the enterprise value should remain constant.\",\n \"Generally you don't exclude cash that is needed to keep working capital going. A firm's need to cash will vary based upon it's AR and AP policies. Some companies that have beat up their vendors and extract harsh payment terms, like Dell and Walmart, often have negative working capital and can therefore be thought of as funding growth on their suppliers cash. Most companies require some amount of cash in their working capital to connect the dots from when they pay their suppliers and when their customers pay them. You need to leave that cash in your working capital calculation and on your DCF.\",\n \"You can think of a free cash flow as dividends from operations. FCF = cash from operations - investment in operations. The present value of these cash flows into the future is the value of the firm (DCF is very much like the dividend discount model). Now why does a DCF produce enterprise value and not equity value? Because a DCF values the firm's operating assets. To find the equity value, you use the accounting relation: assets = liabilities + equity (or in financial terms net operating assets = net financial obligations + common stockholders equity). This means you take away net debt from the value produced by the DCF to find equity. Now all your excess cash is netted off against your financial obligations (debt) to find the net debt. Cash used for day to day operations is an operating asset and should be treated as such, operating cash should not deducted from value of assets when finding the value of equity. At least that's what they're teaching at university now (i'm a uni student who's just finished my business valuation subject).\",\n \"\\\"Oh, I understand now -- we're having an absurd, meaningless conversation about an obscure theoretical point. When you can tell me how you can determine a \\\"\\\"minimum cash\\\"\\\" level from a public company's filings, we can continue the discussion. Otherwise, make a simplifying assumption and move on. I misunderstood -- I thought we were actually trying to understand the difference between enterprise value and equity value / understand the implication of an enterprise value multiple.\\\"\",\n \"Yep, but it you didn't answer my question (edit: I know it was phrased as a question, but I do know youre supposed to model changes in cash). When bankers calculate all three approaches, how do they compare them? From what I see, the conclusion of each approach gives us: * Public Company Approach: Enterprise Value * Transaction Approach: Enterprise Value * Discounted Cash Flow Approach: Enterprise Value + Minimum Level of Operating Cash Does an investment banker subtract out that minimum level of operating cash at the end of the calculation to get to a value that he can then compare?\",\n \"This is a tough question SFun28. Let's try and debug the metric. First, let's expand upon the notion share price is determined in an efficient market where prospective buyers and sellers have access to info on an enterprises' cash balance and they may weigh that into their decision making. Therefore, a desirable/undesirable cash balance may raise or lower the share price, to what extent, we do not know. We must ask How significant is cash/debt balance in determining the market price of a stock? As you noted, we have limited info, which may decrease the weight of these account balances in our decision process. Using a materiality level of 5% of net income of operations, cash/debt may be immaterial or not considered by an investor. investors oftentimes interpret the same information differently (e.g. Microsoft's large cash balance may show they no longer have innovative ideas worth investing in, or they are well positioned to acquire innovative companies, or weather a contraction in the sector) My guess is a math mind would ignore the affect of account balances on the equity portion of the enterprise value calculation because it may not be a factor, or because the affect is subjective.\",\n \"Ok - what's your starting point? Are you starting with equity value and then working your way back to an enterprise value? Then yes, you must subtract cash and add debt. If you're doing a DCF, you don't have to make any changes to the values at the end if you're looking for an enterprise value. If you're looking for an equity value, you would need to add cash and subtract debt. If you're simply applying a enterprise value multiple (such as EV / EBITDA) you don't need to make any changes. Just multiply the Company's EBITDA by the multiple in question. Enterprise values are supposed to be capital structure independent because they are only valuing the company on metrics that occur before the impact of the Company's capital structure.\",\n \"Sure let's say we're starting with the equity value of a public company. Fully diluted shares times market price. We add debt and subtract all cash to give us enterprise value. Calculate a multiple on that. Look what we did up there, we subtracted out all cash. The DCF approach assumes we have an operating level of cash when it calculates a value. You're saying that the DCF spits out an enterprise value. It cannot be an enterprise value if the DCF approach assumes we hold cash. We would have to subtract out an operating level of cash from the DCF concluded value to compare it apples to apples to the cashless enterprise values we derived from the market approach multiples.\",\n \"\\\"A DCF includes changes in working capital which is a source or use of cash. I also don't like your characterization of enterprise value as \\\"\\\"cashless\\\"\\\" because it's also \\\"\\\"debtless\\\"\\\". It's capital structure independent -- just like a DCF is. **That's the common theme.**\\\"\",\n \"\\\"Look, as my final comment. You're overthinking this. Companies routinely have waaaay more cash on their books than they \\\"\\\"need\\\"\\\" because they keep a rainy day fund. Yes, there are extreme examples like Apple that has about 60 billion more than they need but practically all companies are going to maintain excess cash for emergencies, acquisitions, etc. As I said in another comment, the common theme between a DCF and an EV multiple is that they are both capital structure independent. Even here there are going to be differences, companies with a really shitty capital structure (read: too much debt) will trade publicly at a lower enterprise value multiple because of the risk that they go bankrupt. In an acquisition, this (probably) would not be the case. In the case of a DCF, you would probably raise your discount rate to account for the risk of bankruptcy.\\\"\",\n \"I believe you are missing knowledge of how to conduct a ratio analysis. Understanding liquidity ratios, specifically the quick or acid-test ratio will be of interest and help your understanding. http://www.investopedia.com/terms/a/acidtest.asp Help with conducting a ratio analysis. http://www.demonstratingvalue.org/resources/financial-ratio-analysis Finally, after working through the definitions, this website will be of use. https://www.stock-analysis-on.net/NYSE/Company/Exxon-Mobil-Corp/Ratios/Liquidity\",\n \"i cannot directly tell from the provided information if it is already included in Net A/R but if there is a balance sheet you can check yourself if the Total Cash Flow matches the difference between cash position year 0&1 and see if it is net or still to be included.\",\n \"Take a look at apple. It has no debt. So the ev is basically mkt cap - cash. Also remember market cap is the float * share price nothing else. Obviously share price takes into account the assets of the firm into perpituituy but the way you phrased it, adding debt , didnt sound quite right to me. We remove cash since someone buying a company isn't going to pay for your cash. In the transaction cash is distributed to share holders then the company is sold.\",\n \"You can get really nerdy with the EV calc, but I would just add that it's important to deduct any non-operating, non-consolidated assets in addition to the minority interest adjustment - e.g. unconsolidated subsidiaries, excess real estate, excess working capital, etc.\",\n \"Makes sense. I typed the previous reply on an ipad and was too lazy to go into the fact that as you point out the cash exits the balance sheet so in a DCF it doesn't get any weight in the terminal value calculation which makes up a significant chunk of an EV normally.\",\n \"You're buying the operations of firm A for $450, or 4.5x EBITDA. You're buying the operations of firm B for $500, or 5.0x EBITDA. You're paying a higher multiple for firm B. Of couse subtracting cash 'skews multiples' - but you need to pull it out. You're paying for a business' ability generate that EBITDA over time. Cash is a one-shot deal. You need to pull it out to get the value of what you're actually investing in.\",\n \"Enterprise Value is supposed to be the price you would be willing to pay to acquire the company. Typically, companies are delivered debt-free and cash-free, so the cash on the balance sheet at the time of the transaction is distributed to the original owners. So, for instance, a company like Apple would have a lower EV than Market Value because the cash on the balance sheet is not going to be included in an acquisition. And you are right, there are plenty of instances where you see Enterprise Value lower than Market Value (Cap). If you are solely looking at equity valuation (equity investing), then use market cap. If you are looking at firm valuation for M&A, then EV is more important.\",\n \"Agree with mjvcaj, it is rare. Larger cap examples include Nokia and NII Holdings (Nextel). If cash exceeds market cap, that means total debt is greater than EV, the value of the operating assets. If the debt is partially repaid / matures, the equity is ok. BUT if management is crap and the cash is spent at an ROIC below the interest rate on the debt, now you have a situation where the net debt exceeds the value of the operating assets, the credit quality suffers, debt trades down, you need to recapitalize in order to avoid bankruptcy. The above assumes debt is greater than cash. Situations where cash exceeds market cap and debt is less than cash (i.e. a negative EV) are exceedingly rare in larger companies and are either a) a wonderfully attractive mispricing or b) market views management as so awful that the cash will get burnt up by the business and the value of that cash will be destroyed.\",\n \"no interest expense (no debt in the capital structure) and an income tax benefit is one possible scenario. you determine this through the financial statement by looking for the differences between the E and EBIT in those calculations (interest and taxes). of course, extraordinary items and discontinued operations could also be present, and result in the difference noted.\",\n \"\\\"Finance is ALL about obscure theoretical points. This one actually isn't even that obscure, kind of like a big gaping whole that nobody addresses. So to address your \\\"\\\"minimum cash\\\"\\\" level point. That's what I'm working towards. Check this: So if you are selling your company, and all of the potential buyers are public companies, you would adjust your working capital balances in your model to match the public company market benchmark (ie: days payable outstanding, days receivable outstanding). This would be some sort of \\\"\\\"added value\\\"\\\" that a public company would bring to the mix. You should do the same for cash. You would benchmark what level of cash the comparable public companies hold (possibly as a % of revenue?), and apply that as the level of operating cash. You're counter argument would be that some firms may choose to hold on to excess levels of cash for a period of time (Apple), skewing \\\"\\\"minimum cash levels\\\"\\\" upward. That's true, but over a period of time, investors would either (1). demand the excess cash back or (2) investors would sell shares because the company is not earning a sufficient return on equity. My second point is half baked and not fully thought through but it goes along with the idea that a company will dividend out excess cash if it cannot reach the hurdle rate demanded by investors. Thank you for continuing the conversation with me, I think you're the only one that gets it.\\\"\",\n \"\\\"A lot of financial software will calculate the value of operating leasess for you (bullet 2). E.g. Capital IQ, BB. What a lot of professionals do is \\\"\\\"reverse\\\"\\\" out EBITDA/EBIT etc. for: - non-recurring expenses (think big accounting changes, some impairments) - change operating expenses into capital leases to adjust the capital structure - occasionally change some operating expenses (e.g. options) because you are under the assumption if you take a company private that those expenses will not be relevant The whole point is simply to see the operating revenues/expenses of the firm\\\"\",\n \"I think I understand what I am doing wrong. To provide some clarity, I am trying to determine what the value of a project is to a firm. To do this I am taking FCF, not including interest or principal payments, and discounting back to get an NPV enterprise value. I then back off net debt to get to equity value. I believe what I am doing wrong is that I show that initial $50M as a cash outflow in period 0 and then back it off again when I go from enterprise value to equity value. Does this make any sense? Thanks for your help.\",\n \"\\\"Market cap is synonymous with equity value, which is one way of thinking of a company's \\\"\\\"worth.\\\"\\\" The alternative would be enterprise value, which is calculated as follows: Enterprise Value = Market Value of Equity + Market Value of Debt - Cash and Equivalents - Non-Operating Assets Enterprise value is essentially \\\"\\\"how much is the firm worth to ALL providers of capital.\\\"\\\" It can be viewed as \\\"\\\"if I wanted to buy the *entire* company, debt and all, what would I have to pay?\\\"\\\"\\\"\",\n \"This is in the balance sheet, but the info is not usually that detailed. It is safe to assume that at least some portion of the cash/cash equivalents will be in liquid bonds. You may find more specific details in the company SEC filings (annual reports etc).\",\n \"Here's the original academic backbone that it's based on and expanded upon. https://en.m.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem I think thats it's overly conservative in this case (I fully accept academic theories only go so far in the real world) as Damodaran (NYU professor) has made a pretty solid case that cash on balance sheet at large cap tech companies is valued by the markets at less than its after tax $ value.\",\n \"\\\"> Or does it differ between every company what non-cash charges they have? This. Here's a hint: the FCFF *can* be calculated from Cash Flow from Operations (CFO). Think of FCFF this way: \\\"\\\"after the business has operated *and* made *all* investments needed to grow, both short and long-term, how much is left over for providers of capital?\\\"\\\" [Here's a good resource for you.](https://www.cfainstitute.org/learning/products/publications/inv/Documents/equity_chapter6.ppt)\\\"\",\n \"The three places you want to focus on are the income statement, the balance sheet, and cash flow statement. The standard measure for multiple of income is the P/E or price earnings ratio For the balance sheet, the debt to equity or debt to capital (debt+equity) ratio. For cash generation, price to cash flow, or price to free cash flow. (The lower the better, all other things being equal, for all three ratios.)\",\n \"Yes that is the case for the public company approach, but I was referring to the transaction approach: Firm A and Firm B both have $100 in EBITDA. Firm A has $50 in cash, Firm B has $100 in cash. Firm A sells for $500, Firm B sells for $600. If we didn't subtract cash before calculating the multiple: Firm A: 5x Firm B: 6x If we DO subtract cash before calculating the multiple: Firm A: 4.5x Firm B: 5x So yea, subtracting cash does skew the multiple.\",\n \"\\\"This is an example from another field, real estate. Suppose you buy a $100,000 house with a 20 percent down payment, or $20,000, and borrow the other $80,000. In this example, your \\\"\\\"equity\\\"\\\" or \\\"\\\"market cap\\\"\\\" is $20,000. But the total value, or \\\"\\\"enterprise value\\\"\\\" of the house, is actually $100,000, counting the $80,000 mortgage. \\\"\\\"Enterprise value\\\"\\\" is what a buyer would have to pay to own the company or the house \\\"\\\"free and clear,\\\"\\\" counting the debt.\\\"\",\n \"You wouldn't know it's value (Enterprise Value) without knowing its cash balance. The equation: EV = Market Cap + Minority Interest + Preferred Stock + Debt - Cash Enterprise Value is the value of the company to ALL shareholders (creditors, preferred stock holders, common stock holders). So, taking on debt could either increase or decrease the EV depending on the cash balance of the company. This will have no effect, directly, on the market cap. It will, however effect the present value of its future cash flows as the WACC will increase due to the new cost of debt (interest payments, higher risk of bankruptcy, less flexibility by management).\",\n \"The primary drivers of cash flow in a software firm is the productivity and skill of your employees. How is that reflected in a balance sheet? Well, take a company like Adobe or Salesforce, or even Microsoft. What would you be able to tell about each from their balance sheets? You can look at their cash level, and what else would matter?\",\n \"Reading and analyzing financial statements is one of the most important tasks of Equity Analysts which look at a company from a fundamental perspective. However, analyzing a company and its financial statements is much more than just reading the absolute dollar figures provided in financial statements: You need to calculate financial ratios which can be compared over multiple periods and companies to be able to gauge the development of a company over time and compare it to its competitors. For instance, for an Equity Analyst, the absolute dollar figures of a company's operating profit is less important than the ratio of the operating profit to revenue, which is called the operating margin. Another very important figure is Free Cash Flow which can be set in relation to sales (= Free Cash Flow / Sales). The following working capital related metrics can be used as a health check for a company and give you early warning signs when they deviate too much: You can either calculate those metrics yourself using a spreadsheet (e.g. Excel) or use a professional solution, e.g. Bloomberg Professional, Reuters Eikon or WorldCap.\",\n \"I was merely trying to be helpful - Conceptually, you have dump this idea that something is skewed. It isn't. Firm A sold for $500 (equity value aka purchase price to shareholders) + debt (zero) - cash (50) for 450. Enterprise value is the cash free, debt free sale price. The implied ev multiple is 4.5x on A - that is the answer. The other business sold for a higher multiple of 5x. If you would pile on more cash onto A, the purchase price would increase, but the EV wouldn't. The idea is to think hard about the difference between equity value and enterprise value when examining a transaction.\",\n \"\\\"I heard today while listening to an accounting podcast that a balance sheet... can be used to determine if a company has enough money to pay its employees. The \\\"\\\"money\\\"\\\" that you're looking at is specifically cash on the balance sheet. The cash flows document mentioned is just a more-finance-related document that explains how we ended at cash on the balance sheet. ...even looking for a job This is critical, that i don't believe many people look at when searching for a job. Using the ratios listed below can (and many others), one can determine if the business they are applying for will be around in the next five years. Can someone provide me a pair of examples (one good)? My favorite example of a high cash company is Nintendo. Rolling at 570 Billion USD IN CASH ALONE is astonishing. Using the ratios we can see how well they are doing. Can someone provide me a pair of examples (one bad)? Tesla is a good example of the later on being cash poor. Walk me though how to understand such a document? *Note: This question is highly complex and will take months of reading to fully comprehend the components that make up the financial statements. I would recommend that this question be posted completely separate.\\\"\",\n \"Your best bet is to just look at comparative balance sheets or contact the company itself. Otherwise, you will need access to a service like PrivCo to get data.\",\n \"\\\"I was wondering how do we calculate the total capital of a company? Which items should I look for in the financial statements? Total capital usually refers to the sum of long-term debt and total shareholder equity; both of these items can be found on the company's balance sheet. This is one of the calculations that's traditionally used when determining a company's return on capital. I'll use the balance sheet from Gilead Sciences' (GILD) 2012 10-K form as an example. Net long-term debt was $7,054,555,000 and total stockholder equity was $9,550,869,000 which should give a grand total of $16,605,424,000 for total capital. (I know you can do the math, but I always find an example helpful if it uses realistic numbers). You may sometimes hear the term \\\"\\\"total capital\\\"\\\" referring to \\\"\\\"total capital stock\\\"\\\" or \\\"\\\"total capital assets,\\\"\\\" in which case it may be referring to physical capital, i.e. assets like inventory, PP&E, etc., instead of financial capital/leverage. And how do I calculate notes payable? Is the same as accounts payable? As the word \\\"\\\"payable\\\"\\\" suggests, both are liabilities. However, I've always been taught that accounts payable are debts a business owes to its suppliers, while notes payable are debts a business owes to banks and other institutions with which it has signed a formal agreement and which use formal debt instruments, e.g. a loan contract. This definition seems to match various articles I found online. On a balance sheet, you can usually determine notes payable by combining the short-term debt of the company with the current portion of the long-term debt. These pieces comprise the debt that is due within the fiscal year. In the balance sheet for Gilead Sciences, I would only include the $1,169,490,000 categorized as \\\"\\\"Current portion of long-term debt and other obligations, net\\\"\\\" term, since the other current liabilities don't look like they would involve formal debt contracts. Since the notes payable section of GILD's balance sheet doesn't seem that diverse and therefore might not make the best example, I'll include the most recent balance sheet Monsanto as well.1 Monsanto's balance sheet lists a term called \\\"\\\"Short-term debt, including current portion of long-term debt\\\"\\\" with a value of $36 million. This looks like almost the exact definition of notes payable. 1. Note that this financial statement is called a Statement of Consolidated Financial Position on Monsanto's 10-K.\\\"\",\n \"\\\"This formula is not calculating \\\"\\\"Earnings\\\"\\\". Instead, it is calculating \\\"\\\"Free Cash Flow from Operations\\\"\\\". As the original poster notes, the \\\"\\\"Earnings\\\"\\\" calculation subtracted out depreciation and amortization. The \\\"\\\"Free Cash Flow from Operations\\\"\\\" adds these values back, but for two different reasons:\\\"\",\n \"\\\"You are comparing \\\"\\\"market caps\\\"\\\" and \\\"\\\"enterprise value\\\"\\\". If the company has four billion dollars cash in the bank, then the value would be four billion plus whatever the business itself is worth as a business. If the business itself is only worth 400 million, then you would have 4.4bn market caps and 400 million enterprise value. The \\\"\\\"enterprise value\\\"\\\" is basically how much the business would be worth if it had no cash or no debt. These numbers would be a very unusual situation. It could happen for example if a big company has sold 90% of its business for cash. When you buy a share of the company, you get a tiny share of the business and you own a tiny share of the cash. This stock will very likely keep its value, but won't make much money. On the other hand, more common would be a company where the business is worth 4bn, but the company has also 4bn debt. So it is worth exactly zero. Market caps close to zero, but enterprise value $4bn, because you ignore the debt in the enterprise value. Edit: Sorry, got the \\\"\\\"enterprise value\\\"\\\" totally wrong, read millions instead of billions: Your numbers would mean that you have a huge, huge company with close to 440bn debt. Most likely someone made a mistake here. A \\\"\\\"normal\\\"\\\" situation would be say a company with a business that is worth $500 million, but they have $100 million debt, so market caps = $400 million but enterprise value = $500 million. PS. Yahoo has the same nonsense numbers on their UK site, and for other companies (I just checked Marks and Spencer's which apparently has an enterprise value of 800 billion pound with a totally ridiculous P/E ratio.\\\"\",\n \"\\\"Umm, it depends on the transaction but a lot of transactions get done on a \\\"\\\"cash free / debt free\\\"\\\" basis. Meaning, I'll pay you 5x EBITDA (or $500) and you deliver the company without any cash or debt subject to a \\\"\\\"standard\\\"\\\" amount of working capital. Ultimately, you're confusing enterprise value and equity value. The two companies may have different purchase prices (equity values) but they should have very similar enterprise values (given the hypothetical scenario you put together).\\\"\",\n \"\\\"From Wikipedia: Usage Because EV is a capital structure-neutral metric, it is useful when comparing companies with diverse capital structures. Price/earnings ratios, for example, will be significantly more volatile in companies that are highly leveraged. Stock market investors use EV/EBITDA to compare returns between equivalent companies on a risk-adjusted basis. They can then superimpose their own choice of debt levels. In practice, equity investors may have difficulty accurately assessing EV if they do not have access to the market quotations of the company debt. It is not sufficient to substitute the book value of the debt because a) the market interest rates may have changed, and b) the market's perception of the risk of the loan may have changed since the debt was issued. Remember, the point of EV is to neutralize the different risks, and costs of different capital structures. Buyers of controlling interests in a business use EV to compare returns between businesses, as above. They also use the EV valuation (or a debt free cash free valuation) to determine how much to pay for the whole entity (not just the equity). They may want to change the capital structure once in control. Technical considerations Data availability Unlike market capitalization, where both the market price and the outstanding number of shares in issue are readily available and easy to find, it is virtually impossible to calculate an EV without making a number of adjustments to published data, including often subjective estimations of value: In practice, EV calculations rely on reasonable estimates of the market value of these components. For example, in many professional valuations: Avoiding temporal mismatches When using valuation multiples such as EV/EBITDA and EV/EBIT, the numerator should correspond to the denominator. The EV should, therefore, correspond to the market value of the assets that were used to generate the profits in question, excluding assets acquired (and including assets disposed) during a different financial reporting period. This requires restating EV for any mergers and acquisitions (whether paid in cash or equity), significant capital investments or significant changes in working capital occurring after or during the reporting period being examined. Ideally, multiples should be calculated using the market value of the weighted average capital employed of the company during the comparable financial period. When calculating multiples over different time periods (e.g. historic multiples vs forward multiples), EV should be adjusted to reflect the weighted average invested capital of the company in each period. In your question, you stated: The Market Cap is driven by the share price and the share price is determined by buyers and sellers who have access to data on cash and debts and factor that into their decision to buy or sell. Note the first point under \\\"\\\"Technical Considerations\\\"\\\" there and you will see that the \\\"\\\"access to data on cash and debts\\\"\\\" isn't quite accurate here so that is worth noting. As for alternatives, there are many other price ratios one could use such as price/earnings, price/book value, price/sales and others depending on how one wants to model the company. The better question is what kind of investing strategy is one wanting to use where there are probably hundreds of strategies at least. Let's take Apple as an example. Back on April 23, 2014 they announced earnings through March 29, 2014 which is nearly a month old when it was announced. Now a month later, one would have to estimate what changes would be made to things there. Thus, getting accurate real-time values isn't realistic. Discounted Cash Flow is another approach one can take of valuing a company in terms of its future earnings computed back to a present day lump sum.\\\"\",\n \"\\\"tl;dr It's a difference between cash and cash equivalents and net cash and cash equivalents. Download the 2016 annual report from http://www.diageo.com/en-us/investor/Pages/financialreports.aspx On page 99 is the Consolidated Statement of Cash Flows at the bottom is a section \\\"\\\"Net cash and cash equivalents consist of:\\\"\\\" Net cash and cash equivalents consist of: 2016-06-30 2015-06-30 Cash and cash equivalents 1,089 472 Bank overdrafts (280) (90) 809 382 The difference between net cash of 809 million and 382 million is 427 million, matching the \\\"\\\"Change in Cash and Cash Equivalents\\\"\\\" from Yahoo. I do not know that bank overdrafts mean in this situation, but appears to cause cash to show up on balance sheet without being reflected in the net cash portions of the cash flow statement. And the numbers seem like balances, not year of year changes like the rest of the statement of cash flows. 2015 net CCE 382 2016 cash flow + 427 ---- 2016 net CCE 809 Cash from overdrafts + 280 ---- 2015 balance sheet cash 1,089\\\"\",\n \"\\\"Morningstar's definition of cash includes \\\"\\\"cash equivalents (fixed-income securities with a maturity of one year or less)\\\"\\\". So I'm guessing 81% of its holdings are short-term enough to fall into this category.\\\"\",\n \"This comment makes zero sense. No one values equities from the balance sheet, unless you're trying to justify why you'd invest in sears or something (i.e. b/s vastly understates market value of real estate holdings and you're hoping for a liquidity event). Certainly not a tech company or really anything as a going concern.\",\n \"Capital surplus is used to account for that amount which a firm raises in excess of the par value (nominal value) of the shares (common stock).. Investopedia has a much simpler answer. Somebody has tried to be smart on wikipedia and have done the calculations without much explanation. The portion of the surplus of a business arising from sources other than earnings : all surplus other than earned surplus usually including amounts received from sale or exchange of capital stock in excess of par or stated value, profits on resale of treasury stock, donations to capital by stockholders or others, or increment arising from revaluation of fixed or other assets The number of shares a company wants to issue is decided and agreed with the regulators. They decide the par value and then decide how much premium will be charged, extra money above the par value. Take out any RHP of an issue and you find all these details. Par Value = 1 Issue price(Price at which investors buy) = 10 Premium = 9 For a single share the capital surplus is 9, multiply it by the number of shares issued and you have the total capital surplus.\",\n \"Yea good points and they definitely should not be overlooked. The whole point of the EV calculation is to get the analyst to look at what the true underlying business is and what one is really paying for when buying securities in a company. Market Cap can be misleading for many reasons and get real annoyed when people say things like, I own XYZ company because its cash account is greater than its market cap....\",\n \"Just so everyone knows. A core model refers to a forecast of the Balance Sheet, income statement, and Statement of Cash Flows. From this you can solve for Free Cash Flow to Equity and solve for some more price values, like Sum of Parts.\",\n \"It's hard to say for smaller cap firms because they are all so different. Take a look at SandP or other rating agencies at about the BB range. Then decide how much of a buffer you'd like. If all goes to hell, do you want to be able to cover all you salaries, debt etc for three months? Six? What kind of seasonal volatility does your industry face? Do you plan on any significant investment or FTE uplift any time soon? This will all play into how much retained earnings you will chose to have.\",\n \"\\\"It does depend, but in the effort to be efficient we usually just add back Depreciation, Amortization, and Stock Based Comp. [Although adding back SBC is hotly debated](https://www.wallstreetprep.com/blog/stock-based-compensation-treatment-dcf-almost-always-wrong/), we usually still add it back at my firm. Keep in mind I'm in M&A, so we don't really concern ourselves with creating the \\\"\\\"purest\\\"\\\" valuation... * EBIAT * Add Depreciation * Add Amort * Add SBC * Subtract Capex * Add the decrease in NWC * Subtract the increase in NWC * = FCFF\\\"\",\n \"It is difficult to reconcile historical balance sheets with historical cash flow statements because there are adjustments that are not always clearly disclosed. Practitioners consider activity on historical cash flow statements but generally don't invest time reconciling historical accounts, instead focusing on balancing projected balance sheets / cash flow statements. If you had non-public internal books, you could reconcile the figures (presuming they are accurate). In regards to Mike Haskel's comment, there's also a section pertaining to operating capital, not just effects on net income.\",\n \"The actual financial statements should always be referenced first before opening or closing a position. For US companies, they are freely available on EDGAR. Annual reports are called 10-Ks, and quarterly reports are called 10-Qs. YHOO and GOOG do a great job of posting financials that are quickly available, but money.msn has the best. These should be starting point, quick references. As you can see, they may all have the same strange accounting. Sometimes, it's difficult to find the information one seeks in the consolidated financial statements as in this case, so searching through the filing is necessary. The notes can be helpful, but Ctrl-F seems to do everything I need when I want something in a report. In AAPL's case, the Interest expense can be found in Note 3.\",\n \"Different stakeholders receive cash flows at different times. The easiest way for me to remember is if you're a debt holder vs equity owner on an income statement. Interest payments are made before net income, so debt holders are repaid before any residual cash flows go to equity owners.\",\n \"This is something I love about only investing in tech. Every company I'd want to invest in has a great balance sheet anyway, that's just how their economics work, so I don't have to worry about this. I actually work in reverse. Like with AAPL, I'm deducting their cash from their market cap to get an even more attractive valuation*. As opposed to trying to work out all the complex debt and liabilities of a bank or something. *AAPL actually does have some debt now but it's dead simple to deduct and only a workaround to their offshore cash.\",\n \"I've spent enough time researching this question where I feel comfortable enough providing an answer. I'll start with the high level fundamentals and work my way down to the specific question that I had. So point #5 is really the starting point for my answer. We want to find companies that are investing their money. A good company should be reinvesting most of its excess assets so that it can make more money off of them. If a company has too much working capital, then it is not being efficiently reinvested. That explains why excess working capital can have a negative impact on Return on Capital. But what about the fact that current liabilities in excess of current assets has a positive impact on the Return on Capital calculation? That is a problem, period. If current liabilities exceed current assets then the company may have a hard time meeting their short term financial obligations. This could mean borrowing more money, or it could mean something worse - like bankruptcy. If the company borrows money, then it will have to repay it in the future at higher costs. This approach could be fine if the company can invest money at a rate of return exceeding the cost of their debt, but to favor debt in the Return on Capital calculation is wrong. That scenario would skew the metric. The company has to overcome this debt. Anyways, this is my understanding, as the amateur investor. My credibility is not even comparable to Greenblatt's credibility, so I have no business calling any part of his calculation wrong. But, in defense of my explanation, Greenblatt doesn't get into these gritty details so I don't know that he allowed current liabilities in excess of current assets to have a positive impact on his Return on Capital calculation.\",\n \"\\\"Market Capitalization is the value the market attributes to the company shares calculated by multiplying the current trading price of these shares by the total amount of shares outstanding. So a company with 100 shares trading at $10 has a market cap of $1000. It is technically not the same as the value of a company (in the sense of how much someone would need to pay to acquire the company), Enterprise value is what you want to determine the net value of a company which is calculated as the market capitalization + company debt (as the acquirer has to take on this debt) - company cash (as the acquirer can pocket this for itself). The exact boundary for when a company belongs to a certain \\\"\\\"cap\\\"\\\" is up for debate. For a \\\"\\\"large cap\\\"\\\" a market capitalization of $10 billion+ is usually considered the cutoff (with $100+ billion behemoths being called \\\"\\\"mega caps\\\"\\\"). Anything between $10 billion and ~$1 billion is considered \\\"\\\"mid cap\\\"\\\", from ~$1billion to ~$200 million it's called a \\\"\\\"small cap\\\"\\\" and below $200 million is \\\"\\\"nano cap\\\"\\\". Worth noting that these boundaries change quite dramatically over time as the overall average market capitalization increases as companies grow, for example in the 80s a company with a market cap of $1 billion would be considered \\\"\\\"large cap\\\"\\\". The market \\\"\\\"determines\\\"\\\" what the market cap of company should be based (usually but certainly not always!) on the historical and expected profit a company makes, for a simple example let's say that our $1000 market cap company makes $100 a year, this means that this company's earnings per share is $1. If the company grows to make $200 a year you can reasonably expect the share price to rise from $10 to ~$20 with the corresponding increase in market cap. (this is all extremely simplified of course).\\\"\",\n \"It just had less cash. That doesn't necessarily mean that the company had a net loss for the year. Just like having more cash doesn't mean the company made a profit. What if a company had revenue of $1 million, expenses of $2 million, and took out a loan of $5 million? They had a net loss of $1 million, but they have $4 million more in cash.\",\n \"\\\"In the Income Statement that you've linked to, look for the line labeled \\\"\\\"Net Income\\\"\\\". That's followed by a line labeled \\\"\\\"Preferred Dividends\\\"\\\", which is followed by \\\"\\\"Income Available to Common Excl. Extra Items\\\"\\\" and \\\"\\\"Income Available to Common Incl. Extra Items\\\"\\\". Those last two are the ones to look at. The key is that these lines reflect income minus dividends paid to preferred stockholders (of which there are none here), and that's income that's available to ordinary shareholders, i.e., \\\"\\\"earnings for the common stock\\\"\\\".\\\"\",\n \"\\\"I like this explanation the best. EV is trying to get at the value of the underlying business, excluding the capital structure you currently have on the company. If your lemonade stand is worth $100, but the business also comes with $50 in cash lying around (and no debt), then the EV is $100. But the price you'd pay the owner (the \\\"\\\"market cap\\\"\\\") is $150, because it's like you get an immediate cash rebate.\\\"\",\n \"O boy you can take an entire on this. Here are the basics. Project future cash flows on a series of underlying assumptions such as growth rate and risk free rate. You then have to adjust top line items such as depreciation and come up with FCF. Then discount everything back with a terminal value.\",\n \"Talk to almost any large cap CFO or read any corporate finance textbook. McKinsey's Valuation is a great one to own: though yes McKinsey consultants can take a good idea and turn it bad by overdoing it to an extreme. Why would universal corporate finance principles not apply to large cap tech? Why is having $XXb of unutilized cash for a company with durable cash flow a good thing for equity investors?\",\n \"It is. The outstanding value is the net cash flow, but it will always be higher than cash outflow due to a constant growth rate/expected return. I was slightly confused when my manager told me to find the IRR before and after cash inflows (the whole life of the investment). Especially as IRR after cash inflows is higher than the former.\",\n \"This is fine, but I'd probably spend a moment introducing WACC and it's estimation. It's also useful to link up the enterprise value to share price, so just also mentioning the debt subtraction to get equity value and division by shares for price. Keep in mind you're usually given like a minute to answer this, so you can afford to be a bit more detailed in some parts.\",\n \"How you use the metric is super important. Because it subtracts cash, it does not represent 'value'. It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash. So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0. If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless.\",\n \"Theoretically there is always a time value of money. You'll need to keep your cash in a Money Market Fund to realize its potential (I'm not saying MMFs are the best investment strategy, they are the best kind of account for liquid cash). Choose an accounts that's flexible with regard to its minimum required so you can always keep this extra money in it and remove it when you need to make a payment.\",\n \"You can add $262,500 worth of notes payable (assuming that you use the cash to buy inventory immediately). Any more and you would push the current ratio below 2. In case this ratio is the trouble, the formula for current ratio is current assets over current liabilities. Notes payable is a current liability and inventory is a current asset so you add the number to both of them. I used Excel to do this. With this addition the quick ratio is 1.19. The formula for this is (current assets - inventory)/Current liabilities. So you take ($1,312,500 + $262,500 - $262,500 - $375,000)/($525,000 + $262,500) = 1.19\",\n \"Excess capital is the primary means of navigating around a trade which is moving against you. In a very basic case, consider a long position moving against you. With additional capital you could average in as the price drops or you could write options against your position. If you don't have the capital to handle when (not if) a trade move against you then you're at a significant disadvantage as your only option may be a liquidation.\",\n \"\\\"I don't know how much finance you know, but a fundamental idea is that something's value is the present value of all its future cash flows. Basically what those cash flows are worth today. So if we can predict the cash flows the equity holders will get in the future (not easy), and determine at what rate to discount the cash flows (not easy), we can value the equity. So a company will have cash flows coming in. But not all go to the equity holders. Some will go to debt holders, if any (interest payments). Some will go to preferred equity holders (dividends), if any. What's left over is what the equity holders will get. If there's no debt, preferred equity or other things like that, then the equity holders get all the cash flows. This doesn't mean the equity holders literally receive the cash - they'll get whatever is given out via dividends. But, they \\\"\\\"own\\\"\\\" the cash and it may be reinvested in the business to generate more cash in the future.\\\"\",\n \"Thanks for this, great in depth answer. I had previously calculated a WACC and have used it for my discount rate. As part of your last point on revenue vs. cash, I've set a accounts receivable period of 30 days, and then applied a factor of 30/365 * revenue to understand what portion of my revenue is not cash in hand. Does that make sense?\",\n \"Simply put, expansionary capex is seen as an investment and maintenance capex is seen as a cost. In terms of valuation, free cash flow will not include expansionary capex because you are valuing the company as its current business. It's important to note that this approach will usually undervalue companies with strong investment opportunities. Also, like /u/scarletham said, please edit out the identifying information to avoid any disclosure problems.\",\n \"I'm a big believer in pulling the quarterly and or annual statements and deriving your own analysis. The automated parsing systems at Google, Yahoo, and others are a good starting point and they'll let you generally compare various metrics of different companies or market segments. With that in mind, there are any number of reasons Google's scripts could have broken out or combined a couple of cash flow line items. If you're digging this deep in the weeds on this company you should pull the SEC filings and build out your own data.\",\n \"Are you trying to figure out if a project would increase the market value of equity? I think your issue is that the Market value of Equity will not be updated with the NPV of 40M (Assuming it is truly +, not sure if it's true with 50M of debt). EV = Market Value of Equity + Debt - Cash and CE Ev - Debt + Cash and CE = Market equity value. So I think you would have to update the market value of Equity up with 40M. This would then lead to EV = Equity Value + future income stream discounted + debt - Cash and Cash Equivalents.\",\n \"You could create your own spreadsheet of Cash Flows and use the XIRR function in Excel: The formula is:\",\n \"Hi all Started my MBA studies recently. We have a simulation project and I've taken the VP Finance Role as I didn't have much experience in this and wanted to learn more. Unfortunately I don't have accounting until next semester, so I'm trying to make up the cap with my career experience so far as an engineer + youtube tutorials. I built a discounted cashflow model. I'm trying to now determine the amount of loan to take in my first year of business. Basically the equity financing doesn't cover our first year capital expenditure, let alone any other costs. My question is how do I determine what an appropriate loan amount is to take. My first thoughts are enough to cover my capital expenses + 1st half of the year operating expenses before I start seeing a revenue. Right now my balance sheet would lead me to believe I have a 0.52 Debt Ratio and 1.23 Debt-to-Equity ratio. Is that ok?\",\n \"Reports -> I&E -> Cash Flow Select the Mutual Fund account only.\",\n \"Adding assets (equity) and liabilities (debt) never gives you anything useful. The value of a company is its assets (including equity) minus its liabilities (including debt). However this is a purely theoretical calculation. In the real world things are much more complicated, and this isn't going to give you a good idea of much a company's shares are worth in the real world\",\n \"The short answer is that you would want to use the net inflow or net outflow, aka profit or loss. In my experience, you've got a couple different uses for IRR and that may be driving the confusion. Pretty much the same formula, but just coming at it from different angles. Thinking about a stock or mutual fund investment, you could project a scenario with an up-front investment (net outflow) in the first period and then positive returns (dividends, then final sale proceeds, each a net inflow) in subsequent periods. This is a model that more closely follows some of the logic you laid out. Thinking about a business project or investment, you tend to see more complicated and less smooth cashflows. For example, you may have a large up-front capital expenditure in the first period, then have net profit (revenue less ongoing maintenance expense), then another large capital outlay, and so on. In both cases you would want to base your analysis on the net inflow or net outflow in each period. It just depends on the complexity of the cashflows trend as to whether you see a straightforward example (initial payment, then ongoing net inflows), or a less straightforward example with both inflows and outflows. One other thing to note - you would only want to include those costs that are applicable to the project. So you would not want to include the cost of overhead that would exist even if you did not undertake the project.\",\n \"I'm not a finance guy by trade, I'm an accountant, so I'm not 100% sure, but I'm going to say no. EBITDA is your accounting profit before interest, taxes, depreciation and amortization. So it's already free of many non-cash items, and is closer to a cash-basis measure of profit, but still includes many non-cash revenues. As far as I know, the discounting is to take the time value of money into account so you can make a decision on whether the present value of the expected future cash flows are greater than the present value of the cash outflow being asked today. If it is, then you buy. If not, then you don't.\",\n \"Too calculate these values, information contained in the company's financial statements (income, balance, or cashflow) will be needed along with the price. Google finance does not maintain this information for BME. You will need to find another source for this information or analyze another another symbol's financial section (BAC for example).\",\n \"\\\"fair enough, but I wasn't sure if you actually get it or not because your question seemed to revolved around cash and transaction value. You are really just said \\\"\\\"skewing\\\"\\\" is if you didn't add net debt the multiple wouldn't be a valid muliptle. If you understand it, why start out with this mental exercise of saying \\\"\\\"we shouldn't calculate multiples wrong, because then they would be wrong\\\"\\\"?\\\"\",\n \"If I understand you right, what you need is the minimum amount in the account until your next deposit. So for example, if today is the 10th and you get paid on the 15th, how much do I need to have in the account, so I know how much I can spend? That amount should be all of the bills that will be paid between today and the 15th. An alternative would just to keep a running balance and see what the minimum value is. My personal finance software does that for me, but it's possible, although a little more complicated, in Excel. You'd have to find the date of the next deposit, and do a SUMIF looking for dates between today and that date. That's about as far as I can get without getting off-topic.\",\n \"\\\"Free Cash Flow (FCF) is not a metric/data point which represents any ACTUAL cash flow of a company. FCF is a data point which communicates how much cash a company has after Operating cash requirements and cash expenditures \\\"\\\"required\\\"\\\" to grow and maintain the existing business. FCF can be used to pay dividends, buy back stock, purchase companies, et cetera. None of which are REQUIRED to run the business.\\\"\",\n \"Not quite the usual DCF or valuation question, but more FP&A: any ideas how to bridge cash forecast to financial forecast? To clarify, financial forecast is mostly done on an accrual basis whereas cash is outflows and inflows. Trying to figure out how to have better visibility into cash discrepancies\",\n \"With a lot excess cash you eventually have two goals: Since interest on cash bank deposits does not exceed inflation and you have currency risk, you may want to get into other asset classes. Options that might be, but not limited to are:\",\n \"\\\"Thanks for the response. I am using WRDS database and we are currently filtering through various variables like operating income, free cash flow etc. Main issue right now is that the database seems to only go up to 2015...is there a similar database that has 2016 info? filtering out the \\\"\\\"recent equity issuance or M&A activity exceeding 10% of total assets\\\"\\\" is another story, namely, how can I identify M&A activity? I suppose we can filter it with algorithm stating if company's equity suddenly jumps 10% or more, it get's flagged\\\"\",\n \"Shareholder's Equity consists of two main things: The initial capitalization of the company (when the shares were first sold, plus extra share issues) and retained earnings, which is the amount of money the company has made over and above capitalization, which has not been re-distributed back to shareholders. So yes, it is the firm's total equity financing-- the initial capitalization is the equity that was put into the company when it was founded plus subsequent increases in equity due to share issues, and retained earnings is the increase in equity that has occurred since then which has not yet been re-distributed to shareholders (though it belongs to them, as the residual claimants). Both accounts are credited when they increase, because they represent an increase in cash, that is debited, so in order to make credits = debits they must be credits. (It doesn't mean that the company has that much cash on hand, as the cash will likely be re-invested). Shareholder's Equity is neither an asset nor a liability: it is used to purchase assets and to reduce liabilities, and is simply a measure of assets minus liabilities that is necessary to make the accounting equation balance: Since the book value of stocks doesn't change that often (because it represents the price the company sold it for, not the current value on the stock market, and would therefore only change when there were new share issues), almost all changes in total assets or in total liabilities are reflected in Retained Earnings.\",\n \"You haven't mentioned how much debt your example company has. Rarely does a company not carry any kind of debt (credit facilities, outstanding bonds or debentures, accounts payable, etc.) Might it owe, for instance, $1B in outstanding loans or bonds? Looking at debt too is critically important if you want to conduct the kind of analysis you're talking about. Consider that the fundamental accounting equation says: or, But in your example you're assuming the assets and equity ought to be equal, discounting the possibility of debt. Debt changes everything. You need to look at the value of the net assets of the company (i.e. subtracting the debt), not just the value of its assets alone. Shareholders are residual claimants on the assets of the company, i.e. after all debt claims have been satisfied. This means the government (taxes owed), the bank (loans to repay), and bondholders are due their payback before determining what is leftover for the shareholders.\",\n \"In order to calculate the ratio you are looking for, just divide total debt by the market capitalization of the stock. Both values can be found on the link you provided. The market capitalization is the market value of equity.\",\n \"I understand it could be cash converts. I was an accounting major. I'm just pointing out some possible reasons for why they might borrow instead of using cash on hand. They might not have enough cash on hand because of the fact that they might be holding cash equivalents.\",\n \"\\\"QUICK ANSWER What @Mike Haskel wrote is generally correct that the indirect method for cash flow statement reporting, which most US companies use, can sometimes produce different results that don't clearly reconcile with balance sheet shifts. With regards to accounts receivables, this is especially so when there is a major increase or decrease in the company's allowances for doubtful accounts. In this case, there is more to the company's balance sheet and cash flow statements differences per its accounts receivables than its allowances for doubtful accounts seems responsible for. As explained below, the difference, $1.25bn, is likely owing more to currency shifts and how they are accounted for than to other factors. = = = = = = = = = = DIRTY DETAILS Microsoft Corp. generally sells to high-quality / high-credit buyers; mostly PC, server and other devices manufacturers and licensees. It hence made doubtful accounts provisions of $16mn for its $86,833mn (0.018%) of 2014 sales and wrote off $51mn of its carrying balance during the year. Its accounting for \\\"\\\"Other comprehensive income\\\"\\\" captures the primary differences of many accounts; specifically in this case, the \\\"\\\"foreign currency translation\\\"\\\" figure that comprises many balance sheet accounts and net out against shareholders' equity (i.e. those assets and liabilities bypass the income statement). The footnotes include this explanation: Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (“OCI”) What all this means is that those two balance sheet figures are computed by translating all the accounts with foreign currency balances (in this case, accounts receivables) into the reporting currency, US dollars (USD), at the date of the balance sheets, June 30 of the years 2013 and 2014. The change in accounts receivables cash flow figure is computed by first determining the average exchange rates for all the currencies it uses to conduct business and applying them respectively to the changes in each non-USD accounts receivables during the periods. For this reason, almost all multinational companies that report using indirect cash flow statements will have discrepancies between the changes in their reported working capital changes during a period and the dates of their balance sheet and it's usually because of currency shifts during the period.\\\"\",\n \"Assuming there are no other liabilities... The enterprise value is $5mm. $1mm loan + $4mm equity. The proforma enterprise value will be the same, but the equity will now represent all of it at $5mm. Your 4% will now be 3.2%, but equal the same value; $160,000.\",\n \"\\\"Total Capital This is a very old fashioned term that really is mostly only used in the finance industry today, like when everyone was obsessed with \\\"\\\"bank capital\\\"\\\". Total Capital = Preferred Equity + Common Equity + Liabilities True blue preferred shares are almost only used by financial companies, banks specifically. The more modern ones that convert to common are used by all other companies. Notes Payable This is another old fashioned term that now carries a different meaning in Generally Accepted Account Principles (GAAP). The oldest definition of a note or a promissory note is a promise to pay a fixed amount of money on a specific date. This has been modified to resemble more a bond and evolved into the zero coupon bond, a bond that makes no cash interest payments but makes one final payment that includes principal & interest. A bank note, like a One Dollar bill, is a note that pays something, in this case One Dollar, never (technically, the repayment date is simply not specified in the contract). While it pays One Dollar, it never pays it back, so it has a constant value of One Dollar. The constant nature, inflation notwithstanding, is what makes bank notes the preferred medium of exchange. GAAP has taken its' own definition to mean any debt payable within 12 months, as it is a current (<12 months) liability.\\\"\",\n \"Opening capital = opening assests-opening liabilities\",\n \"I'll have to think it through, but at the very least unless your debt is a pure discount instrument and you are using cash flows, some if that money IS getting paid during those 5 years. As in if you are using earnings, they pay p&i. Or if earnings and pure discount instruments, then amortized interest (I think, been a while). You see the actual numbers and know what you are trying to do, but I'm a little lost. Are you building a discount model with a multiple terminal and using ev as the multiple? Are you using free cash flow to firm for the discounting? I'm guessing that's the case.\",\n \"\\\"First, don't use Yahoo's mangling of the XBRL data to do financial analysis. Get it from the horse's mouth: http://www.sec.gov/edgar/searchedgar/companysearch.html Search for Facebook, select the latest 10-Q, and look at the income statement on pg. 6 (helpfully linked in the table of contents). This is what humans do. When you do this, you see that Yahoo omitted FB's (admittedly trivial) interest expense. I've seen much worse errors. If you're trying to scrape Yahoo... well do what you must. You'll do better getting the XBRL data straight from EDGAR and mangling it yourself, but there's a learning curve, and if you're trying to compare lots of companies there's a problem of mapping everybody to a common chart of accounts. Second, assuming you're not using FCF as a valuation metric (which has got some problems)... you don't want to exclude interest expense from the calculation of free cash flow. This becomes significant for heavily indebted firms. You might as well just start from net income and adjust from there... which, as it happens, is exactly the approach taken by the normal \\\"\\\"indirect\\\"\\\" form of the statement of cash flows. That's what this statement is for. Essentially you want to take cash flow from operations and subtract capital expenditures (from the cash flow from investments section). It's not an encouraging sign that Yahoo's lines on the cash flow statement don't sum to the totals. As far as definitions go... working capital is not assets - liabilities, it is current assets - current liabilities. Furthermore, you want to calculate changes in working capital, i.e. the difference in net current assets from the previous quarter. What you're doing here is subtracting the company's accumulated equity capital from a single quarter's operating results, which is why you're getting an insane result that in no way resembles what appears in the statement of cash flows. Also you seem to be using the numbers for the wrong quarter - 2014q4 instead of 2015q3. I can't figure out where you're getting your depreciation number from, but the statement of cash flows shows they booked $486M in depreciation for 2015q3; your number is high. FB doesn't have negative FCF.\\\"\",\n \"Corporate debt isn't an iou. Large corporations sell bonds and make annual or semiannual payments in those bonds. Cash is often held in a country with favorable tax condition, like Ireland.. Depending on the industry, this cash is invested in money market funds, fixed income securities, and maybe stocks or other funds. Because of the low interest rates that have prevailed since the recession, it's most economical to invest most cash and borrow for larger investments. However, the cash that ends up overseas is net of expenses. Internet is paid from operating income. I'm by no means an expert though, so take this with a grain of salt.\",\n \"Could be misunderstanding your context. But ev = equity + debt - cash. So don't think it makes sense for an equity holder to have an individual ev/ebitda different from the company's. Are you asking in context of valuing equity and debt from an ev/ebitda multiple?\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["You're not missing anything. Excess cash is somewhat of a nebulous concept. To different people it means different things. The answer is that excess cash varies for each company depending on their business. For instance, some companies need very high amounts of working capital. A company may be increasing their inventories and therefore will require more cash on their balance sheet to fund growth. If a company always needs this extra cash, some investors prefer to leave that cash out of a valuation because the company cannot run profitably without it. Think about what happens to your calculation of Enterprise Value if you subtract excess cash as opposed to cash. Excess cash is always less than cash. Therefore by subtracting excess cash you increase EV. Since one common valuation metric is EV/EBITDA, a higher numerator will make the stock seem more expensive - that is the EV/EBITDA ratio will seem higher when using excess cash as opposed to cash. So using excess cash in your valuation methodology is basically a conservative concept. Depending on the business 20% of revenues seem way too high as a reserve for excess cash. 2% is a much better rule of thumb.","20% is almost certainly too high. I agree with 2%, as a very rough rule. It will vary significantly depending on the industry. I generally calculate an average of the previous 2-3 years working capital, and deduct that from cash. Working capital is Current Assets less Current Liabilities. Current Assets is comprised of cash, prepaid expenses, and significantly, accounts receivable. This means that CA is likely to be much higher than just cash, which leaves more excess cash after liabilities are deducted. Which reduces EV, which makes the EV/EBITDA ratio look even more pricey, as Dimitri noted. But a balance sheet is just a snapshot of the final day of the quarter. As such, and because of seasonal effects, it's critical to smooth this by averaging several periods. After calculating this for a few companies, compare to revenue. Is it close to 2%?","\"Excess Cash = Cash & Equivalents + Long-Term Investments - Current Liabilities The problem this calculation of excess cash is that \"\"long-term investments\"\" can be illiquid things like real estate. Another flaw is that it gives no credit for Current Assets, like receivables, which can be used to offset Current Liabilities. The first thing I'd do is \"\"net out\"\" Current Assets and Current Liabilities, then add Cash back in. Excess Cash = Current Assets - Current Liabilities + Cash & Equivalents. It would be nice if GAAP would require Long-Term Investments to be broken out as a) liquid long-term investments (stocks, bonds) b) illiquid long-term investments (real estate, private equity, etc)\""],"string":"[\n \"You're not missing anything. Excess cash is somewhat of a nebulous concept. To different people it means different things. The answer is that excess cash varies for each company depending on their business. For instance, some companies need very high amounts of working capital. A company may be increasing their inventories and therefore will require more cash on their balance sheet to fund growth. If a company always needs this extra cash, some investors prefer to leave that cash out of a valuation because the company cannot run profitably without it. Think about what happens to your calculation of Enterprise Value if you subtract excess cash as opposed to cash. Excess cash is always less than cash. Therefore by subtracting excess cash you increase EV. Since one common valuation metric is EV/EBITDA, a higher numerator will make the stock seem more expensive - that is the EV/EBITDA ratio will seem higher when using excess cash as opposed to cash. So using excess cash in your valuation methodology is basically a conservative concept. Depending on the business 20% of revenues seem way too high as a reserve for excess cash. 2% is a much better rule of thumb.\",\n \"20% is almost certainly too high. I agree with 2%, as a very rough rule. It will vary significantly depending on the industry. I generally calculate an average of the previous 2-3 years working capital, and deduct that from cash. Working capital is Current Assets less Current Liabilities. Current Assets is comprised of cash, prepaid expenses, and significantly, accounts receivable. This means that CA is likely to be much higher than just cash, which leaves more excess cash after liabilities are deducted. Which reduces EV, which makes the EV/EBITDA ratio look even more pricey, as Dimitri noted. But a balance sheet is just a snapshot of the final day of the quarter. As such, and because of seasonal effects, it's critical to smooth this by averaging several periods. After calculating this for a few companies, compare to revenue. Is it close to 2%?\",\n \"\\\"Excess Cash = Cash & Equivalents + Long-Term Investments - Current Liabilities The problem this calculation of excess cash is that \\\"\\\"long-term investments\\\"\\\" can be illiquid things like real estate. Another flaw is that it gives no credit for Current Assets, like receivables, which can be used to offset Current Liabilities. The first thing I'd do is \\\"\\\"net out\\\"\\\" Current Assets and Current Liabilities, then add Cash back in. Excess Cash = Current Assets - Current Liabilities + Cash & Equivalents. It would be nice if GAAP would require Long-Term Investments to be broken out as a) liquid long-term investments (stocks, bonds) b) illiquid long-term investments (real estate, private equity, etc)\\\"\"\n]","isConversational":false}}},{"rowIdx":283,"cells":{"_id":{"kind":"string","value":"3995"},"query":{"kind":"string","value":"I have more than $250,000 in a US Bank account… mistake?"},"gt_ids":{"kind":"list like","value":["427032","278734","297900","506909","230208"],"string":"[\n \"427032\",\n \"278734\",\n \"297900\",\n \"506909\",\n \"230208\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["427032","404954","479918","62019","463608","304411","14349","270866","297900","230208","312358","186332","190539","527597","278734","480827","320969","537394","171720","21420","556519","535566","506909","550339","508895","394276","460008","411143","599563","214755","493158","345091","238833","76515","399590","241035","203201","410450","171345","489278","549773","98344","430216","351109","254937","423883","558628","301745","320652","485507","534670","12781","282663","53244","136212","486675","325218","422477","400631","494666","583803","499354","267627","401807","490831","488366","345741","323154","310112","589103","336965","314850","472094","505611","294614","29399","293179","507000","395246","352883","82482","433817","498719","575794","535931","577134","323228","570960","249558","165378","248243","385344","355792","477630","560622","373697","238786","496857","505461","457989"],"string":"[\n \"427032\",\n \"404954\",\n \"479918\",\n \"62019\",\n \"463608\",\n \"304411\",\n \"14349\",\n \"270866\",\n \"297900\",\n \"230208\",\n \"312358\",\n \"186332\",\n \"190539\",\n \"527597\",\n \"278734\",\n \"480827\",\n \"320969\",\n \"537394\",\n \"171720\",\n \"21420\",\n \"556519\",\n \"535566\",\n \"506909\",\n \"550339\",\n \"508895\",\n \"394276\",\n \"460008\",\n \"411143\",\n \"599563\",\n \"214755\",\n \"493158\",\n \"345091\",\n \"238833\",\n \"76515\",\n \"399590\",\n \"241035\",\n \"203201\",\n \"410450\",\n \"171345\",\n \"489278\",\n \"549773\",\n \"98344\",\n \"430216\",\n \"351109\",\n \"254937\",\n \"423883\",\n \"558628\",\n \"301745\",\n \"320652\",\n \"485507\",\n \"534670\",\n \"12781\",\n \"282663\",\n \"53244\",\n \"136212\",\n \"486675\",\n \"325218\",\n \"422477\",\n \"400631\",\n \"494666\",\n \"583803\",\n \"499354\",\n \"267627\",\n \"401807\",\n \"490831\",\n \"488366\",\n \"345741\",\n \"323154\",\n \"310112\",\n \"589103\",\n \"336965\",\n \"314850\",\n \"472094\",\n \"505611\",\n \"294614\",\n \"29399\",\n \"293179\",\n \"507000\",\n \"395246\",\n \"352883\",\n \"82482\",\n \"433817\",\n \"498719\",\n \"575794\",\n \"535931\",\n \"577134\",\n \"323228\",\n \"570960\",\n \"249558\",\n \"165378\",\n \"248243\",\n \"385344\",\n \"355792\",\n \"477630\",\n \"560622\",\n \"373697\",\n \"238786\",\n \"496857\",\n \"505461\",\n \"457989\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["First, what's the reason? Why do you have that much in cash at all - are you concerned about market volatility, are you planning to buy a house, do you have tens of millions of dollars and this is your slush fund? Are you a house flipper and this is part of business for you? If you need the money for short term use - ie, you're buying a house in cash next month - then as long as you're in a sound bank (one of the big national ones, for example) it seems reasonable. You can never predict a crash like 2008, but it seems unlikely that Chase or Citibank will go under in the next few weeks. If you like to have a cash position, then split the money among multiple banks. Buy a CD at one major bank with some of the amount. My in-laws have a trust which is partially invested in CDs, and they use multiple banks for this purpose to keep their accounts fully insured. Each separate bank you're covered up to 250k, so if you have $150k at Chase and $150k at a local bank, you're covered. (You're also covered in a much larger amount - up to 1MM potentially - if you are married, as you can have a separate account each for $250k and a joint account up to $500k.) Otherwise, why do you have that much in cash? You should invest it in something that will return more than inflation, at a minimum... Edit post-clarifications: $350k is around my level of 'Maybe, maybe not'. You're risking $100k on a pretty low risk (assuming this isn't a small local bank, and even those are pretty low still). In order to remove that risk you have to do something active - ie, take 100k somewhere else, open a new bank account, etc. - which isn't exactly the hardest thing in the world, but it does take effort. Is it worth the 0.001% chance (entirely made up) you lose the 100k? That's $10, if you agree with that risk chance. Up to you. It wouldn't be particularly hard, though, to open an account with an online bank, deposit $100k in there in a 6 month CD, then pay the IRS from your other account and when the 6 month CD expires take the cash back into your active account. Assuming you're not planning on buying a house in the next six months this should be fine, I'd think (and even then you'd still have $150k for the downpayment up front, which is enough to buy a $750k house w/o PMI). Additionally, as several commenters note: if you can reasonably do so, and your money won't be making significant interest, you might choose to pay your taxes now rather than later. This removes the risk entirely; the likely small interest you earn over 3 months may be similar to the amount you'd spend (mostly of your time, plus possibly actual expenses) moving it to another bank. If you're making 2% or 3% this may not be true, but if you're in a 0.25% account like my accounts are, $100k * 0.25% * 0.25 is $62.50, after all.","Most people who have over $250,000 in liquid cash savings would not want to start putting their money into regular savings accounts in different banks, especially with interest rates as ridiculously low as they are now in 2014-15. People with money will want to diversify their investments in ways that will potentially earn them more money, and they can also afford to seek the advice of financial planners who can help them do this wisely. Even if you decide to put $250,000 into various accounts at different banks, I wouldn't necessarily trust that the FDIC will be able to help you recover your money in the event that your banks go under. The amount of money available to the FDIC to cover such losses pales in comparison to the actual amount of money that Americans have in their bank accounts.","\"For personal accounts, I can't imagine that this is too much of a problem. The only concern that I can think of (for American banks) is that FDIC only insures you up to $100,000 if the bank were to go belly-up. If you're getting over that amount of money, you may want to \"\"diversify\"\" a little more.\"","A better answer is to put the money in a Dodd-Frank qualified non interest bearing checking account. FDIC covers the entire balance, there is no upper limit on the insurance. This will only be good till the end of 2012 but for short term landing spot this works well. Forget the interest you will earn and go for the safety of the principal.","\"You can store millions of dollars in deposit accounts, you just lose the explicit FDIC guarantee. So you look for rock-solid banks. Bankrate.com has \"\"Safe and Sound Ratings\"\" that show the relative strength of various banks. You put your excess deposits in those banks, and you are pretty safe. Note that in addition to the explicit FDIC guarantee, there is now an implicit guarantee that certain institutions have been deemed too \"\"big to fail\"\", and will be backed by the full faith and credit of the US Government, without regard to the capitalization of the bank. Bank of America, for example, is not well capitalized and is carrying billions of dollars of \"\"assets\"\" that have little or no value. Yet government policy keeps the bank afloat and your deposits secure. Another strategy is to use municipal money market accounts, which provide secure (but not guaranteed) deposit-like accounts as well as a tax benefit. If you have > $1M in liquid assets, you probably need a financial professional and attorney advising you to make sure that you are aware of and are controlling for risk in a way consistent with your longer-term goals.\"","Even assuming hypothetically that you are able to split money in different bank accounts to get full coverage and all your accounts are in top ranking financial institutions in USA, you can not rely on FDIC if all or most of those banks go broke. Because FDIC just has a meagre 25 billion dollars to cover all bank accounts in the USA. And you know the amount of bank deposits in USA run in at least a trillion of dollars. US Deposits & FDIC Insurance figures","If you want to store that much money, find a good hiding place. (E-mail me the location. I'll keep it a secret. I promise!) But I think instead you want to invest that much money, in a cash-like liquid form. You can do $250,000 in a bank (beyond 2012) and then spread the rest over some big-name brokerages with money market accounts. But, as JohnFx pointed out, with that much cash you can do amazing things with it. Think bigger.","http://www.fdic.gov/deposit/deposits/index.html FDIC currently insures up to $250,000. (I would have put that as a comment to Jeffery but it says it was locked.) You don't want to put all your eggs in one basket. If you shop around, and keep shopping all the time you can keep your accounts in a single place so long as that single place provides the best deal. Don't have any loyalty to your banking institutions because they don't have any loyalty to you. Also, having lots of accounts means you are familiar with lots of institutions, so you are likely better at shopping around. Things I consider. For fewer institutions: For more institutions:","If you were married the 250K protection can be expanded by the use of joint and individual accounts. A separate limit also exists for IRA accounts. With out those options you will have to put some additional money into another banking institution. This could be a bank or credit union. You have to be careful to make sure that any additional accounts have FDIC or NCUA (for Credit Unions) coverage. Some banking institutions try and turn customers to non-covered accounts that are either investment accounts or use a 3rd party to protect them. You could also use it to invest in US government bonds through Treasury direct. Though for just the few months that you will be in the excess position it probably isn't worth the hassle of treasury direct.","Build a trust. I have a trust account under my name and 3 dependents, FDIC confirmed we're good to 1m. Then I have personal accounts for the 4 of us and a corp account, all at the same bank, each also insured.","\"But it's also true that the FDIC (or equivalent) insurance account doesn't have enough to cover all deposits. The FDIC may come in handy if your local FDIC member bank goes belly up and a few hundred depositors need to be made whole. However, in a national crisis, where the government is \"\"legally\"\" stealing funds, that FDIC insurance is a joke. I do agree though, if you have more than the insured amount in a single account, split it up.\"","Exactly. And I'm diversified in other ways. I have a money collection that includes lots of silver and some gold, a rental property. In terms of actual cash accounts it's closer to 750K. Protip: I always keep actual cash dollars in a safe in the house as well. I learned that trick from my neighbor who said she needed it twice in her life. Even a safe deposit box isn't good enough as the government can get in there, too. She and her husband owned a gas station and unbeknownst to them the Sunoco gas trucks were leaking when filling their tanks so they had a big ecological problem. The government took every bit of liquid assets they had... that they could find. Then when he died a few years ago something similar thing happened and she needed to dip into it.","The FDIC guarantee is up to $250,000 per depositor per insured bank. If your goal is primarily to protect your money, you may want to consider depositing your money in multiple insured banks. I'll leave it to someone else to accurately define money market accounts and how they function, and the (very low) risks you take with them. Don't forget that inflation will eat into your money. It's unlikely you'll make enough interest either in a savings account or in a money market account to cover the inflation. You should factor this in to your overall investment plan.","You don't mention how much money you are talking about but one option is to use reward checking accounts that are FDIC/NCUA insured. They pay 3-4% interest but generally have a few requirements such as 10-12 debit card transactions and sometimes require direct deposit as well as a limit of 10-50k deposits earning the top rate.","Yes. Although I imagine the risk is small, you can remove the risk by splitting your money amongst multiple accounts at different banks so that none of the account totals exceed the FDIC Insurance limit. There are several banks or financial institutions that deposit money in multiple banks to double or triple the effective insurance limit (Fidelity has an account like this, for example)","So basically, if you have a large savings account and are not investing... (because banks are actually a very poor way to get returns on capital), they will invest it for you... The take home I'm getting is... invest your money, and leave it out of the banks.","It depends on your situation. For families with small amounts over the FDIC limit, there's account structures that let you get multiple coverages. Things like holding 100k in an account in joint with your wife, each of you holding 100k in individual accounts etc. For larger sums and institutions, there's CDARS. This system spreads your money out to multiple institutions with an eye to FDIC insurance limits. Some people feel this system is abusing FDIC, so I suppose it's possible it gets outlawed / shut down some day. Alternatively, you can just invest it yourself. Treasury Direct allows small buyers to buy US govt bonds at finished auction rates, or submit a qualified bid at auction. You won't get great rates, but Treasuries are about as good as dollars.","If you are concerned about FDIC coverage, then yes, you can spread your money across multiple banks. The limit is $250k, so after you invest in property, 4 banks should do it. That having been said, in my opinion, it would be a waste to keep all this money in a bank's savings account. You will slowly lose value over time due to inflation. I suggest you spend a little money on an independent fee-based investment advisor. Choose someone who will teach you about investing in mutual funds, so you can feel comfortable with it. He or she should take into account your tolerance for risk, look at your goals, and help you come up with a low cost plan for investing your money. It's certainly okay to keep the money in a bank short-term, but don't wait too long; take steps toward putting that money to work for you.","There's no limit, from the legal perspective (with regards to the US law, that is), to how much you can keep on your bank accounts anywhere in the world. FBAR requirements are reporting requirements, they don't limit how much you can keep in the accounts, they only make you report the accounts to the government. There's no such requirement with regards to the US domestic accounts. That is for the US government, your own government (of the country of which you're a citizen of) may have limitations on what accounts you may have outside of that country, or have reporting requirements of their own. That said, keep in mind that FDIC only insures up to $250K per person (i.e.: on all your accounts) in each institution. So if you have more than $250K in a FDIC insured account - you better spread it across different banks.","There is no accounting reason that it should be different, there are likely psychological reasons that it should be, however. Assuming that you live in a western country with good banking regulation, you likely have deposit insurance or a similar scheme. Here in Canada we are covered up to $100,000 in a single account with various limitations. At least my rainy-day account plus savings is nowhere near that, so I'm good to go. That said, however, having a large lump of money in an account you regularly use may tempt you more than you can stand. That iPad, car, home improvement, etc., might be too easy to buy knowing you have relatively easy access to that money. So it really becomes a self-discipline question. Good Luck","Searching for Banks or Credit Unions based on their high interest accounts is likely to be a giant waste of your time. The highest you might find is 1.5% not clearing inflation. For anything less than 100k youre better off putting it in a money market fund until you know what you want to do with it, which you can find anywhere.","For small amounts I wouldn't be too concerned. There are two factors I can think of: For relatively small amounts and when dealing with reputable banking institutions there should be little concern of banking with a single bank. It's what most people do.","Many brokerage accounts for trading stocks are covered under SIPC insurance, which is up to $500,000 You can also have multiple checking and savings accounts with the $250,000 balance split up. You can also check your bank's capital ratio on the FDIC website, somewhere. The FDIC won't move on them unless it falls under 3% and even then FDIC will force them into receivership and sell them to a bigger bank before they go bust and experience losses of customer deposits. This is what mostly happened when hundreds of banks failed during the crisis from 2008-2010. There were very isolated events where customers actually lost their cash balances, and that was mostly because those customers had completely uninsured accounts. As that was the most extreme moment in US and global financial history, you should be able to judge risk with the aforementioned information in mind. You can stay in a cash balance easily and be fully insured.","\"Yes you should worry and take care not to violate the law or provide any appearance of impropriety. Every bank in the USA is required under the Bank Secrecy Act to report cash transactions over $10,000 the same day to the IRS -- and here's the fun secret part -- without notification to the depositor. But splitting the deposits up into smaller amounts is also a crime, called \"\"structuring\"\". On occasion there is a news story where a retail business that naturally must deposit cash from customers will be (falsely?) accused of structuring, e.g.: Feds seize grocery store's entire bank account -- Institute for Justice defends grocer Under the legal doctrine of civil asset forfeiture, your money can be accused of a crime, seized, and tried separately from its owner. The actual cases indicate the money as defendant, i.e. \"\"US v $124,700\"\" In this somewhat bizarre system of \"\"justice\"\", the owner need not be charged with a crime, and is not in immediate peril of going to prison (about the only upside in this, but might be temporary because the authorities haven't charged the owner yet). When only the money is charged with a crime, there is no requirement for the government to supply a public defender for the owners who can not afford a lawyer.... can not afford a lawyer, because the government took all their money....\"","U.S. citizens are allowed to own foreign bank and investment accounts. However, there are various financial and tax reporting requirements for owners of such accounts. Even when there is no foreign income involved. For example famous FBAR (Fincen Report Form 114), Form 8938, and even more forms if your assets/activities abroad become more complicated. Penalties, even for unintentional non-compliance can be Draconian. So just keep in mind, that once you start having foreign accounts, you will start having additional obligations and might spend more money and time on tax preparation. If you are ok with that, then its cool. But... assuming your gloomy predictions on Trump presidency come true. They might be accompanied by more strict capital control, reporting requirements, and may become even greater pain in the neck for people with foreign assets. Regarding recommendations, I am not sure about banks, but there are some foreign precious metal investing companies that are completely online based such as https://www.bullionvault.com/ and https://www.goldmoney.com/. These might also guard you from potential problems with US dollar.","I found out there is something called CDARS that allows a person to open a multi-million dollar certificate of deposit account with a single financial institution, who provides FDIC coverage for the entire account. This financial institution spreads the person's money across multiple banks, so that each bank holds less than $250K and can provide the standard FDIC coverage. The account holder doesn't have to worry about any of those details as the main financial institution handles everything. From the account holder's perspective, he/she just has a single account with the main financial institution.","They might not have to open accounts at 12 bank because the coverage does allow multiple accounts at one institution if the accounts are joint accounts. It also treats retirement accounts a separate account. The bigger issue is that most millionaires don't have all their money siting in the bank. They invest in stocks, bonds, government bonds, international funds, and their own companies. Most of these carry risk, but they are diversified. They also can afford advisers to help them manage and protect their assets.","In October 2011 in the United States, you just don't have any options. Save your money in a savings account and that is the best you can do. Your desire to buy a house means you are a saver not an investor, and you risk tolerance on this pile of money is 0. Save it in a bank account; I highly doubt chasing an interest rate will pay off with any significance. (being highly dependent on your opinion of significant)","The FDIC has been pretty good at recovery lost money from failed banks. The problem is the temporary loss from immediate needs. The best thing for anyone to do is diversify in investments and banks with adequate covered insurance for all accounts. Immediate access to available cash is always a priority that should be governed by the money manager in this case yourself.","Anything over a $10,000 deposit is reported to the IRS. I'm not sure if you need to fill out a form or if the bank does it automatically. As long as it's legit I don't see that there would be any issues. The worst that would happen is somebody would have to talk to the IRS and explain that it was their money and not a gift of some sort. Edit it is reported to the FinCEN not the IRS https://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_017.htm","This: I was told by my broker that the amount of money I invest would be spread across multiple banks (which are FDIC insured) so that at each bank the amount would not exceed $250K. Has nothing to do with this: Is this how CDs offered by brokerage houses (that are not themselves FDIC insured) offer protection? If you want a CD, get the CD from a bank itself.","You should ensure that your broker is a member of the Securities Investor Protection Corporation (SIPC). SIPC protects the cash and securities in your brokerage account much like the Federal Deposit Insurance Corporation (FDIC) protects bank deposits. Securities are protected with a limit of $500,000 USD. Cash is protected with a limit of $250,000 USD. It should be noted that SIPC does not protect investors against loss of value or bad advice. As far as having multiple brokerage accounts for security, I personally don’t think it’s necessary to have multiple accounts for that reason. Depending on account or transaction fees, it might not hurt to have multiple accounts. It can actually be beneficial to have multiple accounts so long as each account serves a purpose in your overall financial plan. For example, I have three brokerage accounts, each of which serves a specific purpose. One provides low cost stock and bond transactions, another provides superior market data, and the third provides low cost mutual fund transactions. If you’re worried about asset security, there are a few things you can do to protect yourself. I would recommend you begin by consulting a qualified financial advisor about your risk profile. You stated that a considerable portion of your total assets are in securities. Depending on your risk profile and the amount of your net worth held in securities, you might be better served by moving your money into lower risk asset classes. I’m not an attorney or a financial advisor. This is not legal advice or financial advice. You can and should consult your own attorney and financial advisor.","I would suggest a high interest checking account if you qualify, or if you don't, an Investor's Deposit Account (IDA).","Don't worry. The Cyprus situation could only occur because those banks were paying interest rates well above EU market rates, and the government did not tax them at all. Even the one-time 6.75% tax discussed is comparable to e.g. Germany and the Netherlands, if you average over the last 5 years. The simple solution is to just spread your money over multiple banks, with assets at each bank staying below EUR 100.000. There are more than 100 banks large enough that they'll come under ECB supervision this year; you'd be able to squirrel away over 10 million there. (Each branch of the Dutch Rabobank is insured individually, so you could even save 14 million there alone, and they're collectively AAA-rated.) Additionally, those savings will then be backed by more than 10 governments, many of which are still AAA-rated. Once you have to worry about those limits, you should really talk to an independent advisor. Investing in AAA government bonds is also pretty safe. The examples given by littleadv all involve known risky bonds. E.g. Argentina was on a credit watch, and paying 16% interest rates.","IMO, QE2 will likely have no perceptible impact in the near term. Keeping all of your savings in a bank guarantees that you will lose money to inflation & taxes. I'd suggest consulting a financial advisor -- preferably someone who understands issues facing someone with assets in the US and Canada. In terms of what portion of your savings should be in USD vs. CAD, that's going to depend on your situation. I'd probably want more assets in the place that I'm living in for the next several years.","They've already taken your money, and your purchasing power. The Fed's balance sheets is filled with $4 trillion worth of toxic mortgage derivatives and US treasuries that were purchased at all time highs. Move your money to a credit union.","I spent some time comparing banks' interest rates until I realized that it didn't actually matter (to me). The only money I keep in checking and savings accounts is money that I'm going to spend shortly or is part of an emergency fund, and in both those cases convenience of liquidity is far more important than small differences in interest (I want to be able to go to a nearby branch, even if traveling, and pull out large sums of money). The majority of our money goes into investment accounts, where it's earning much more than even the best savings account. Most of your 100k would be much better served in a stock/bonds mix. Are standard taxable investment accounts one of those things you can't open? What about if you opened one in your home country?","With a lot excess cash you eventually have two goals: Since interest on cash bank deposits does not exceed inflation and you have currency risk, you may want to get into other asset classes. Options that might be, but not limited to are:","You would need to look at all aspects: - Current Rate of Interest in US compare to China - Current Exchange rate and the rate in Future when you want the money back - Any tax / Regulatory implications of keeping the money in US - Any furture regulations that may hamper your access to these funds If you are planning to stay in China and at some point in time want to get the money back, In my opinion it would make more sense to do it today like you are doing, rather than take the risk of exchange rate and regulations. Further the current low risk returns in US are near zero. The inflation in US is of no concern to you. On the other hand you have a decent return in China. If you know that at some point in future you would need USD [either moving to US, or large purchase in USD], then it would make sense to keep the funds in USD.","The deposit insurance isn't provided by the bank; it's provided by the Singapore Deposit Insurance Corporation (SDIC). In the event that the bank fails or is declared insolvent, the SDIC will pay deposit holders their total balance in all accounts with that bank, up to S$50,000. If you hold S$60,000 in all of your insured accounts, you'll only receive S$50,000 if the bank fails. The SDIC provides an example page with sample calculations, and this is exactly what they show. If you deposit an amount greater than $S50,000, it's only insured up to S$50,000. So does it mean one should open multiple accounts under different banks to spread the money around and maintain only S$50,000 in one deposit account? This is one option. The calculations page I linked to above gives this reminder: Deposits are not insured separately in each branch office of a DI Scheme member i.e. all your eligible accounts maintained with different branches of a DI Scheme member are aggregated and insured up to S$50,000. This seems like common sense, but it's important to remember that if you open an account with two branch offices of Bank A, your deposits are aggregated and insured up to S$50,000. The SDIC insurance is per institution (called a Deposit Insurance Member), not per branch. If you hold S$45,000 in each branch office, for a total of S$90,000, you're still only insured up to S$50,000 for that bank. If you want to spread out your accounts between multiple banks, make sure they're different banks, not just different branches. Another option, if it applies to you, is to open a joint account with your spouse. In the FAQ page, the SDIC gives this example under point 14: if you and your husband have a joint account with S$70,000, and you have a separate account of S$20,000, your total deposits of S$55,000 will be covered to the maximum of S$50,000. The deposit of $S70,000 is split evenly between the spouses, so in the eyes of the SDIC, each are holding S$35,000. Then, the husband's additional S$20,000 is added to S$35,000 for a total of S$50,000. This is then insured up to S$50,000 as usual. I'm sure there are other options specific to Singapore that I'm not aware of; if you're well above the limit, i.e. holding millions of dollars, I'm sure a professional accountant in Singapore could guide you further.","Would it be a reasonable idea to open a savings account in an overseas bank? For the risks you mention, this may not be a good idea for individual. Note HNI / Companies routinely keep funds in various overseas account. For individual the amount of paperwork [reporting in US etc] and fees etc would be high. Plus in adverse conditions, access to this funds would still be stringent and restricted. Some of the other options you can try are Generally for the risks you mention, there is very little an individual can do except to take it if & when it comes.","Do you have a good reason for keeping a US bank account? If not, I would close it and transfer to your Canadian bank account just to simplify your life. Unless you are investing on the scale of George Soros you shouldn't be worrying too much about exchange rates.","Houses burn down a lot more frequently than banks fail. Also, I'll bet the odds that FDIC will insure the loss of money in a bank is much higher than the odds of a homeowner's policy believing a huge pile of cash burned up in your house AND even then your policy probably wouldn't have coverage limits high enough to reimburse you for substantial cash losses. Oh yeah, then there is theft, floods,etc. The biggest danger is that routine inflation will eat up that money faster than the rats in the basement. Now, having some cash for a small emergency on hand isn't a terrible idea, but using your closet as a personal bank doesn't seem very smart.","Lets make some assumptions. You are not close to retirement. You have no other debts. You have a job. You have no big need for the money. You should invest that. Do not invest with a bank, they are not as competitive on fees as a brokerage account. You can get specific answers that are different from every person, (so you should dig in and research a lot more if you care (and you should). Personally, I would suggest you open an account with one of the low cost providers. Then, with that new investment account, put your money into a target retirement account. File your statements away and tend to it once a year. (Make sure it is there, that you can access it, that nothing alarming is going on). You certainly have enough to start an investment account. If you want to get more into it, ask a phone adviser what you should open. Finally, before you start investing, make sure you follow the advice of radix07 and have no debt, saving the most you can for retirement. A rule of thumb is your money will double every 72 months. Congratulations, you are a saver. Investing isn't for you as the risk of investing is in conflict with your desire to preserver you money. Open a savings account or high interest checking account with a credit union, online only or local community bank. Shop around no the web for the highest interest. Don't get your hopes up though, the highest rate you see (that doesn't have strings attached) won't be much here late summer of 2012.","> Too much work for me. Agreed. That's why I just make sure I keep the daily minimum in there at all times and I don't have to worry about it. I think our fee is $45/mo, so I'm not willing to waste $540/yr. I contemplate moving to a credit union, but I don't like the idea of having to update dozens of accounts, bill pay, direct deposits, etc.","No. And just a caution about that super low risk: suppose that you lived during the late 70s and early 80s, when savers in the United States could get interest rates over 10% for savings. You put your money into an account in 1980, knowing that in five years, you'll have made a solid amount of interest. Except that you might have been smarter to convert your money to AUD and save in that currency because it would have moved from 0.88 in value to 1.43 in value (in principal only, not interest - when I look at the RBA's bank interest, it appears they were also paying double digit interest to savers). Now, I get that this may not be the answer that you want to see because it means that if the interest rates were higher in the US, for savers, they might be higher elsewhere too, and it also means that what may appear to be a super low risk could actually be a high risk.","There are lots of credit unions that are insured by the National Credit Union Administration (NCUA) through the National Credit Union Share Insurance Fund (NCUSIF) instead of the Federal Deposit Insurance Corporation (FDIC). Both cover individual accounts up to $250,000. If you are looking for non-trivial returns on your money, you should consider a brokerage account which is insured by the Securities Investor Protection Corporation (SPIC). In the case of SPIC insured accounts, what you are insured against is the failure of the broker (not against loss on your investments if you choose to invest poorly). SPIC insurance covers up to $500,000 in losses from an insolvent broker. You have already indicated your lack of interest in using other investments, but I am not aware of any non-insured accounts that offer higher interest than insured accounts. You have also indicated your lack of interest in investment advice, but it sounds like what you are looking for is offered by a stable value fund.","Currently the FDIC insures deposits up to $250,000 per person per bank. The following products are covered if your bank is FDIC insured. http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#FDIC-insured_products","To store $1 milion in a bank with full FDIC insurance currently requires 4 separate bank accounts, each at 250k. It's not that difficult, particularly if you are married and your spouse can have 2 in his/her name. (This is dependent on the FDIC limit; they raised it to 250k after the 2008 crash).","Banks in the US have to report deposits of more than $10,000, so they'll contact you to complete form 8300 or something. It should not be a problem, though, if you specify that it's someone else's money, not your income.","There is no such animal. If you are looking to give up FDIC protection, investing in a short-term, high quality bond fund or a tax-free bond fund with short durations is a good way to balance safety vs. return. Make sure you buy funds -- buying individual bonds isn't appropriate for folks without a high net worth. Another option is savings bonds, but the yields on these is awful today.","\"The most important thing to look at is the FDIC insurance. Savings accounts are covered. Money markets - not necessarily. Online savings accounts provide rates of ~1%. Look at American Express, Ally, Capitol One, ING Direct, E*Trade, etc. The \"\"pledge\"\" basically brings EverBank into the same list, as they all have similar rates. Being top 5% of competitive accounts is not that hard, because there are thousands of banks around, you know. 0.76 is not the highest rate available. American Express currently give 1% on their savings account. Re moving the money a lot - depends on the amounts, but when the rates were higher, I moved around a lot. Now, it just doesn't worth the trouble, although I would move for 0.25%.\"","Make sure the financial adviser is fee only. This means the person gets paid a set fee instead of a commission. The commission based adviser will put you in a financial instrument that can charge upwards of 5%, so he would get $900k for hooking you as a client. You can go to finra.org to find a good one. Read books a variety of books so you know about finanical matters. Credit is not advisable if you have as much money as you do. You have already won the race, no need to take risks.","The one thing we know for certain is that holding large amounts of cash isn't ideal - inflation will eat away at your wealth. It's understandable that you're hesitant to put all your wealth in common stock. The S&P 500's price/earnings is 18.7 right now - a little high by historical standards. But consider that the S&P 500 has given a CAGR of approximately 10% (not inflation-adjusted) since 1970. If you don't time the market correctly, you could miss out on considerable gains. So it's probably best to invest at least a portion of your wealth in common stocks, and just accept the risk of short-term losses. You'll likely come out ahead in the long run, compared to an investor who tries to time the market and ends up holding cash positions for too long. If you really think US stocks are overpriced, you could look at other markets, but you'll find similar P/Es in Europe and Japan. You could try an emerging market fund like VEMAX if you have the risk tolerance. Let's say you're not convinced, and don't want to invest heavily in stocks right now. In the current market, safe cash alternatives like Treasury bills offer very low yields - not enough to offset inflation tax. So I would invest in a diversified portfolio of long-term bonds, real estate, maybe precious metals, and whatever amount of stock you're comfortable with.","In the United States, the Securities Investor Protection Corporation protects the first $500,000 you have at a brokerage including up to $250,000 in cash. This means that if the firm holding your securities fails financially, you have some coverage. That insurance does not prevent your investment itself from losing money. Even traditionally save money market funds can potentially lose value in a situation called Breaking the buck. This means that the Net Asset Value of the fund falls below $1/share. Alas, during periods of market calamity, even traditionally safe stores of value are subject to increased risk.","The article you link scares me; but I still have faith that the FDIC will keep me protected. Personally, if the FDIC goes broke, there is something more fundamentally wrong with the government as a whole and dollars won't worry me much. There are lots of issues with the FDIC, and I think the answers lie outside of simply printing more money and funding the FDIC further. There is likely more bad before this storm is over, and I might be ignorant, but I still want to operate normally. My money would stay where it is with things being how I see them in today","\"is it worth it? That is for you to judge. The risks are having it blowup in your face, and you having to pay a penalty, or go to jail. The issue is how you keep it secret, and who you keep it secret from. If you have money in a secret account and keep it hidden even though you: You are taking a big risk. If the knowledge of the contents of the secret stash would cause a judge or government agency to make a different decision, you could face penalties ranging from monetary to jail time. The government could also decide that they need to determine the source of the funds. They may want to know if the money was \"\"earned\"\" through illegal means. They will want to determine if the funds should haven taxed not just on the interest but if the original income tax was ever collected. If the amounts are large enough the taxing authority and police will have a lot of fun pulling apart your entire financial history. Oh and the lawyers you pay to keep you out of jail will also have their fun. why do some people do it? They are greedy; or paranoid; or they don't trust others; or they are criminals.\"","\"As you've observed, when you're dealing with that amount of money, you're going to have to give up FDIC guarantees. That means that keeping the money in a bank account carries some risk with it: if that particular bank goes bust, you could lose most of your money. There are a few options to stretch the FDIC limit such as CDARS, but likely can't handle your hypothetical $800 million. So, what's a lucky winner to do? There are a few options, including treasury securities, money market funds, and more general capital investments such as stocks and bonds. Which one(s) are best depend on what your goals are, and what kind of risks you find acceptable. Money in the bank has two defining characteristics: its value is very stable, and it is liquid (meaning you can spend it very easily, whenever you want, without incurring costs). Treasury securities and money market funds each focus on one of these characteristics. A treasury security is a piece of paper (or really, an electronic record) saying that the US Federal Government owes you money and when they will pay it back. They are very secure in that the government has never missed a payment, and will move heaven and earth to make sure they won't miss one in the future (even taking into account recent political history). You can buy and sell them on an open market, either through a broker or directly on the Treasury's website. The major downside of these compared to a bank account is that they're not as liquid as cash: you own specific amounts of specific kinds of securities, not just some number of dollars in an account. The government will pay you guaranteed cash on specified dates; if you need cash on different dates, you will need to sell the securities in the open market and the price will be subject to market fluctuations. The other \"\"cash-like\"\" option is money market funds. These are a type of mutual fund offered by financial companies. These funds take your money and spread it out over a wide variety of very low risk, very short term investments, with the goal of ensuring that the full value will never go down and is available at any time. They are very liquid: you can typically transfer cash quickly and easily to a normal bank account, write checks directly, and sometimes even use \"\"online bill pay\"\"-like features. They have a very good track record for stability, too, but no one is guaranteeing them against something going terribly wrong. They are lower risk than a (non-FDIC-insured) bank account, since the investments are spread out across many institutions. Beyond those two somewhat \"\"cash-like\"\" options, there are of course other, more general investments such as stocks, bonds, and real estate. These other options trade away some degree of stability, liquidity, or both, in exchange for better expected returns.\"","\"Be mindful of your reporting requirements. Besides checking the box on Schedule B of your 1040 that you have a foreign bank account, you also need to file a TD F 90-22.1 FBAR report for any year that the total of all foreign bank accounts reaches a value of $10,000 at any time during the year. This is filed separately from your 1040 by June 30 of the following year. Penalties for violating this reporting requirement are draconian, in some cases exceeding the amount of money in the foreign bank account. This penalty has been levied on people who have been reporting and paying tax on the interest on their foreign bank accounts, and merely neglected this separate report filing. Article on the \"\"shoot the jaywalker\"\" punitive enforcement policy. http://www.rothcpa.com/archives/006866.php Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law. EDITED TO ADD\"","Your main concern seems to be to be accused of something called 'smurfing' or structuring. http://en.wikipedia.org/wiki/Structuring Depositing money amounts (cash or checks) under the 10k limit to circumvent the reporting requirement. People have been investigated for depositing under the limit, e.g. small business owners. If you're always above 10k you should be fine, as your deposits are reported and shouldn't raise IRS or FBI suspicions.","In the US bank or credit union checking, savings, CD's are insured through FDIC or NCUA. The coverage is for $250,000. This limit can be increased by having multiple accounts. You, your spouse, and a Joint account with your spouse, are considered 3 different accounts, so you could have $750K coverage. IRA funds are considered a separate pot of money for insurance coverage. Here is an explanation from NCUA and FDIC. There is no safety difference between savings and checking. There are differences regarding minimum balances, maximum number of transactions per month, and fees. But they are equally safe.","I concur with the answers above - the difference is about the risk. But in this particular case I find the interest level implausible. 11% interest on deposits in USD seems very speculative and unsustainable. You can't guarantee such return on investment unless you engage in drug trade or some other illegal activity. Or it is a Ponzi scheme. So I would suspect that the bank is having liquidity problems. Which bank is it, by the way? We had a similar case in Bulgaria with one bank offering abnormal interest on deposits in EUR and USD. It went bust - the small depositors were rescued by the local version of FDIC but the large ones were destroyed.","Yes, and there are several ways, the safest is a high-yield savings account which will return about 1% yearly, so $35 per month. That's not extremely much, but better than nothing (you probably get almost zero interest on a regular checking account).","Yes, you can put assets in Canadian banks. Will it protect your wealth to a greater extent than the FDIC protection provided by the US Government? Probably not. If you do business or spend significant time in Canada, then having at least some money in Canada makes sense. Otherwise, you're trying to protect yourself against some outlying risk of a US banking collapse, while subjecting yourself to a very real currency exchange risk.","Do not try to deposit piece wise. Either use the system in complete transparence, or do not use it at all. The fear of having your bank account frozen, even if you are in your rights, is justified. In any case, I don't advise you to put in bank before reaching IRS. Also keep all the proof that you indeed contacted them. (Recommended letter and copy of any form you submit to them) Be ready to also give those same documents to your bank to proove your good faith. If they are wrong, you'll be considered in bad faith until you can proove otherwise, without your bank account. Do not trust their good faith, they are not bad people, but very badly organized with too much power, so they put the burden of proof on you just because they can. If it is too burdensome for you then keep cash or go bitcoin. (but the learning curve to keep so much money in bitcoin secure against theft is high) You should declare it in this case anyway, but at least you don't have to fear having your money blocked arbitrarily.","If you're the type of moron that keeps several thousand dollars sitting in their checking account then you're either a 1st generation immigrant or just insanely bad with money. And still think going around insulting people is smart. Literally the worst.","If thats how you feel (its how I feel ) then the last thing you want bankers doing is accepting deposits from people who think their money is not being risked, then making loans with it (fractional reserve banking). And fdic is not an answer to that fundamental problem.","My brokerage account (E-Trade) automatically spreads cash balances that exceed the FDIC insured amount into several partner banks, so just about any amount gets insured.","\"The first consideration for the banking part of your portfolio is safety. In the United States that is FDIC protection, or the equivalent for a Credit Union. The second consideration is does it have the level of service you need. For this I mean the location of branches, ATMs, or its online services meet your needs for speed, accuracy, and ability to access or move the money as you need. The rest are then balanced on the extras. For your situation those extras include the ability to make free trades. For other it might be a discount on their mortgage. For others it is free checking. In your current situation if the first two things are met, and you are using those extra benefits then don't change. For me the free trades wouldn't be a benefit, so any major degradation in the safety and service would cause me to leave. Keep in mind that free services exist to entice you to make a deposit: which they can then make money by lending it out; or they offer a free service to entice you to use a service they can charge you to use. All Free services come with a cost. I earned a completely paltry $3.33 YTD over the last 9 months on my savings at my bank presumably in exchange for these \"\"free\"\" trades. Without knowing how much you had deposited in your savings account there is no way to know how much you could have made at the bank across the street. But with the low rates of the last decade there is not big money to be made off the emergency savings of a typical american family.\"","\"Your objectives are contradictory and/or not possible. Eliminating the non-taxable objective: You could divide the $100K in 5 increments, making a \"\"CD ladder\"\" $25K in 3mo CD (or savings a/c) $25K in 6 mo CD $25K in 9mo CD $25K in 1 yr CD or similar structure (6mo also works well) Every maturing CD you are able to access cash and/or invest in another longest maturity CD, and earn a higher rate of interest. This plan also works well to plan for future interest rates hikes. If you are forced to access (sell CD's) ALL the $$$ at any time, you will only lose accrued interest, none of the principal. All FDIC guaranteed. If non-taxable is the highest priority, \"\"invest\"\" in a tax-free money market fund....see Vanguard Funds. You will not have FDIC guarantee.\"","Not OP, but let's see: My money-market account is showing 0.25% interest rate. My savings account, 0.20%. And checking, 0.22%. It doesn't matter where I keep my emergency fund and what I keep my checking balance. It's making fuck-all for interest. And I need to keep a couple thousand in there because my mortgage hits for about $1600. And my monthly CC spend averages ~$3500 monthly. I simply can't keep a couple hundred in there.","In the UK I believe the first £50,000 in each bank are secured by the government, so are very safe but one has to check what 'each bank' means as some are members of the same 'group'. See the FSCS","The US requires its (tax) residents to report foreign accounts if the balances (on all the accounts together) are $10K or more at any given day during the year. This is done through the FBAR system. In addition, you obviously need to report this income on your US tax return and pay taxes. If the balances on your foreign accounts exceed specific threshold, your tax return should also include form 8938. If you report everything and pay the taxes due - you can keep the money wherever you want and transfer it between your accounts as you may see fit. If you don't - the US government may come after you with huge penalties, and the Dubai bank may freeze your account. Its easy to become US tax resident. Stay in the US for more than half a year in a row - and here you are. Subject to the US taxation. Even if you're not a US citizen or green card holder, or at all illegal. Some immigration statuses may grant you an exemption, but none that allows you working for your Dubai employer, so I'm assuming you're a US tax resident.","This will probably require some explanation from you on the source of the money and the reasons for the transaction. Cash transactions over $10k will be reported by the bank (in this case) on a CTR report to FinCEN. Keep in mind, mere breaking the transaction into multiple smaller ones in order to avoid the CTR is on its own a criminal offense. Just deposit what you want to deposit, and report what's needed to be reported. Note that if you're a US tax resident - these foreign bank accounts must have been reported already to FinCEN via FBAR, if not - you should expect a very nasty audit with the IRS.","Unless there is a compelling reason to do so, like reducing interest charges, IMO you shouldn't do this. The fact that the bank teller or a computer files a CTR doesn't imply that you are doing something improper -- it is simply a regulation that banks are required to adhere to. Millions of CTRs are probably filled out over the course of the year. It doesn't add more time to your transaction, nor does it impact your tax or other liability. Learning about this stuff can instill a sense of paranoia. Don't fall victim to that -- these are measures in place to make it more difficult to dodge taxation and launder money.","Re #2, consider an account at a credit union rather than a bank or brokerage firm. Whether you choose a savings account or a money market account, you're likely to get an account with lower fees (so it doesn't cost you money), and rates that are typically similar.","For a young person with good income, 50k sitting in a savings account earning nothing is really bad. You're losing money because of inflation, and losing on the growth potential of investing. Please rethink your aversion to retirement accounts. You will make more money in the long run through lower taxes by taking advantage of these accounts. At a minimum, make a Roth IRA contribution every year and max it out ($5500/yr right now). Time is of the essence! You have until April 15th to make your 2014 contribution! Equities (stocks) do very well in the long run. If you don't want to actively manage your portfolio, there is nothing wrong (and you could do a lot worse) than simply investing in a low-fee S&P 500 index fund.","Although I do not know about US Institutions; In India Banks have adopted a mix of features that mitigate the risk. Some ways that are used are;","Basically, all the same reasons you might not want to keep piles of your own country's cash, plus or minus the exchange rate question. Banks exist for good reasons. You probably want to use them unless you are explicitly playing the exchange rate game -- And if that's what you want, there are probably better ways to do it. If you need help not touching the money, CDs or other term accounts might give you enough disincentive. Or might not.","The FDIC insures deposits up to $250,000 per depositor, per bank, for each ownership category. The ownership categories are: You and a spouse could collectively have $750,000 of insured deposits at a single bank if you each had a single account, and a joint account together.","You should talk to a financial fiduciary (make sure they are a fiduciary, not all planners are) about investing your money. Even ultra safe investments such as treasury bonds will beat the 1% interest rate offered by your savings account (the yield on the 5 year treasury is currently around 2%).","\"If all of the money needs to be liquid, T-Bills from a broker are the way to go. Treasury Direct is a little onerous -- I'm not sure that you could actually get money out of there in a week. If you can sacrifice some liquidity, I'd recommend a mix of treasury, brokered CDs, agency and municipal securities. The government has implicitly guaranteed that \"\"too big to fail\"\" entities are going to be backed by the faith & credit of the United States, so investments in general obligation bonds from big states like New York, California and Florida and cities like New York City will yield you better returns, come with significant tax benefits, and represent only marginal additional short-term risk.\"","\"I would keep some money in the U.S. and some money in India. That way, in case \"\"something bad\"\" happens in one country, you will still have money in the other.\"","\"You can move most or all of those financial products into a single account at one institution, but I wouldn't go with a \"\"mutual fund account\"\" like Vanguard. The big online brokerages should offer: Consolidating everything into one statement can vastly simplify your record keeping. With a balance of $250k, you should be able to get a paper statement without a fee. Depending on where the accounts are currently held (e.g. if the stocks are at a full-service broker), you may also be able to save on fees.\"","If this is truly your emergency fund, then you should keep the money safe. Unfortunately interest rates are very low right now and there is not much you can do about that. However, ask your investment advisor for a CDIC insured high interest account, such as these:","Your goals are mutually exclusive. You cannot both earn a return that will outpace inflation while simultaneously having zero-risk of losing money, at least not in the 2011 market. In 2008, a 5+% CD would have been a good choice. Here's a potential compromise... sacrifice some immediate liquidity for more earnings. Say you had $10,000 saved: In this scheme, you've diversified a little bit, have access to 50% of your money immediately (either through online transfer or bringing your bonds to a teller), have an implicit US government guarantee for 50% of your money and low risk for the rest, and get inflation protection for 75% of your money.","In general, the higher the return (such as interest), the higher the risk. If there were a high-return no-risk investment, enough people would buy it to drive the price up and make it a low-return no-risk investment. Interest rates are low now, but so is inflation. They generally go up and down together. So, as a low risk (almost no-risk) investment, the savings account is not at all useless. There are relatively safe investments that will get a better return, but they will have a little more risk. One common way to spread the risk is to diversify. For example, put some of your money in a savings account, some in a bond mutual fund, and some in a stock index fund. A stock index fund such as SPY has the benefit of very low overhead, in addition to spreading the risk among 500 large companies. Mutual funds with a purchase or sale fee, or with a higher management fee do NOT perform any better, on average, and should generally be avoided. If you put a little money in different places regularly, you'll be fairly safe and are likely get a better return. (If you trade back and forth frequently, trying to outguess the market, you're likely to be worse off than the savings account.)","That's a sensible plan. No there's no reason for the IRS to see this arrangement as suspicious, particularly because the deposits will be from paychecks; you have a record of where all the money came from. Conversely, multiple cash deposits might be considered suspicious. It can only affect your credit if you have credit lines associated with the account (like an overdraft line of credit). Interest earned could increase your tax liability by a tiny amount, but in the current interest rate environment, that's not much of a worry.","I'm pretty sure you are don't actually plan to put £120,000 into a zero interest account, because when you take inflation into account, in 20 years, then £120,000 won't be worth anywhere near that amount. For its value to grow you need the interest rate to exceed the rate of inflation and so paying 20% (or even 40%) tax on the interest can make the difference between whether being richer and getting poorer.","You spread money/investment across different accounts for different reasons: All this is in addition to diversification reasons. Investing all your money into one stock, bond, Mutual fund, ETF is risky if that one segment of the economy/market suffers. There is a drawback to diversification of accounts. Some have minimum amounts and fee structures. In the original question you asked about 1,000 per account. That may mean that some accounts may be closed to you. In other cases they will charge a higher percentage for fees for small accounts. Those issues would disappear long before you hit the 1,000,000 per account you mentioned in your comment. One problem can occur with having too much diversification. Having dozens of funds could mean that the overlap between the funds might result in over investing in a segment because you didn't realize that one stock segment appeared in 1/3 of the funds.","It is FDIC insured, there is no catch .. a few banks offer above 1% APY. Alliant and Ally come to my mind. Terms & Conditions","Chase has a limit of $500,000 per day. A banker should be able to help you determine any immediate tax liabilities that will arise as a direct result of the transaction. You may wish to consult with a tax professional about any indirect implications the transfer may have. This transaction will be reported to the government but assuming that you are not involved in any illegitimate activities the likelihood of the US government taking any action on the notice is incredibly low. I have heard of 7 and 14 day holds being placed on out of character transfers but if you are buying property you should work with your bank to help facilitate. Bankers understand the business and can help you avoid any appearances of impropriety that the government flags. Should your account be flagged, I would retain a lawyer immediately. If you feel you have a reason to be concerned, then I would contact a lawyer in the US and Thailand before initiating the transfer. As they say an ounce of prevention is worth a pound of cure.","I wanted to know how safe is such investment with online banks vis-a-vis regular banks? As far as I know, neither money market accounts nor savings accounts have any investment risk (within reason) since both are insured by the FDIC. Note that this is not necessarily the case with money market funds. is their any downside to such investments? Yes, there are a few. I believe the two biggest ones are:","To me, it depends. How much are their total assets? Having 10% of your money in something like that isn't crazy. having it all in? That IS crazy. Can they reduce their exposure to this account without paying a penalty (say pull out 10%?) The Manager should be taking direction from them. If they aren't able to get the manager to re-allocate to something more suitable, under your friends direction, they should then pursue whether or not the manager is operating lawfully.","\"In the case of bank failures You are protected by FDIC insurance. At the time I wrote this, you are insured up to $250,000. In my lifetime, it has been as high as $1,000,000 and as low as $100,000. I attached a link, which is updated by FDIC. In the case of fraud It depends. If you read this story and are horrified (I was too), you know that the banking system is not as safe as the other answers imply: In February 2005, Joe Lopez, a businessman from Florida, filed a suit against Bank of America after unknown hackers stole $90,000 from his Bank of America account. The money had been transferred to Latvia. An investigation showed that Mr. Lopez’s computer was infected with a malicious program, Backdoor.Coreflood, which records every keystroke and sends this information to malicious users via the Internet. This is how the hackers got hold of Joe Lopez’s user name and password, since Mr. Lopez often used the Internet to manage his Bank of America account. However the court did not rule in favor of the plaintiff, saying that Mr. Lopez had neglected to take basic precautions when managing his bank account on the Internet: a signature for the malicious code that was found on his system had been added to nearly all antivirus product databases back in 2003. Ouch. But let's think about the story for a second - he had his money stolen because of online banking and he didn't have the latest antivirus/antimalware software. How safe is banking if you don't do online banking? In the case of this story, it would have prevented keyloggers, but you're still susceptible to someone stealing your card or account information. So: In the bank's defense, how does a bank not know that someone didn't wire money to a friend (which is a loss for good), then get some of that money back from his friend while also getting money back from the bank, which had to face the loss. Yes, it sucks, but it's not total madness. As for disputing charges, from personal experience it also depends. I don't use cards whatsoever, so I've never had to worry, but both of my parents have experienced banking fraud where a fake charge on their card was not reversed. Neither of my parents are rich and can't afford lawyers, so crying \"\"lawsuit\"\" is not an option for everyone. How often does this occur? I suspect it's rare that banks don't reverse the charges in fraudulent cases, though you will still lose time for filing and possibly filling out paperwork. The way to prevent this: As much as I hate to be the bearer of bad news, there is no absolutely safe place to keep your money. Even if you bought metals and buried them in the ground, a drifter with a metal detector might run across it one day. You can take steps to protect yourself, but there is no absolute guarantee that these will work out. Account Closures I added this today because I saw this question and have only seen/heard about this three times. Provided that you get the cashier's check back safely, you should be okay - but why was this person's account closed and look at how much funds he had! From his question: In the two years I banked with BoA I never had an overdraft or any negative marks on my account so the only thing that would stick out was a check that I deposited for $26k that my mom left me after she passed. Naturally, people aren't going to like some of my answers, especially this, but imagine you're in an immediate need for cash, and you experience this issue. What can you do? Let's say that rent is on the line and it's $25 for every day that you're late. Other steps to protect yourself Some banks allow you to use a keyword or phrase. If you're careful with how you do this and are clever, it will reduce the risk that someone steals your money.\"","\"Are there still people who keep significant amounts of money in a bank savings account? You could get ~1% by just choosing the right bank. ING Direct, for example, gives 0.8%, 4 times more than your credit union, with the same FDIC insurance! If you do want to invest in something slightly more long-term, you can get a CD. At the same ING Direct, you can get a 5-year CD with 1% APR. Comes with the same FDIC insurance. Note that I mention ING Direct just because I accidentally had their site open right in front of me, their rates are definitely not the highest right now. If you want to give up the FDIC insurance and take some more risks, you can invest your money in municipal bonds or various kinds of \"\"low risk\"\" mutual funds, which may yield 3-5% a year. If you want to take even more risks - there's a whole stock market available for you, with ETF's, mutual funds and individual stocks. Whether you should - that only you can tell. But you can have a NO-RISK investment yielding 4-5 times more than what you have right now, just saying.\"","\"Your #1 problem is the Government both in it's form as a taxation outfit and as a 'law and order' outfit. You'd be very surprised at how fast a bank seizes your bank account in response to a court order. Purchase 100 Mexican 50 Peso Gold (1.2 oz/ea). These coins are cheap (lowest cost to get into) and will not be reportable on sale to taxing authorities. That money is out of the banking system and legal system(s). Do not store them in a bank! You need to find a tax strategist, probably a former IRS agent / CPA type. With the rest remaining money... There's an old saying, Don't fight the Fed. As well as \"\"The trend is your friend\"\". So, the Fed wants all savers fully invested right now (near 0 interest rates). When investing, I find that if you do exactly opposite what you think is the smart thing, that's the best thing. Therefore, it follows: 1) Don't fight the Fed 2) Do opposite of smart 3) Do: Fight the Fed (and stay 100% out of the market and in cash) We're looking like Japan so could remain deflationary for decades to come. Cash is king...\"","\"HSBC, Hang Seng, and other HK banks had a series of special savings account offers when I lived in HK a few years ago. Some could be linked to the performance of your favorite stock or country's stock index. Interest rates were higher back then, around 6% one year. What they were effectively doing is taking the interest you would have earned and used it to place a bet on the stock or index in question. Technically, one way this can be done, for instance, is with call options and zero coupon bonds or notes. But there was nothing to strategize with once the account was set up, so the investor did not need to know how it worked behind the scenes... Looking at the deposit plus offering in particular, this one looks a little more dangerous than what I describe. See, now we are in an economy of low almost zero interest rates. So to boost the offered rate the bank is offering you an account where you guarantee the AUD/HKD rate for the bank in exchange for some extra interest. Effectively they sell AUD options (or want to cover their own AUD exposures) and you get some of that as extra interest. Problem is, if the AUD declines, then you lose money because the savings and interest will be converted to AUD at a contractual rate that you are agreeing to now when you take the deposit plus account. This risk of loss is also mentioned in the fine print. I wouldn't recommend this especially if the risks are not clear. If you read the fine print, you may determine you are better off with a multicurrency account, where you can change your HK$ into any currency you like and earn interest in that currency. None of these were \"\"leveraged\"\" forex accounts where you can bet on tiny fluctuations in currencies. Tiny being like 1% or 2% moves. Generally you should beware anything offering 50:1 or more leverage as a way to possibly lose all of your money quickly. Since you mentioned being a US citizen, you should learn about IRS form TD F 90-22.1 (which must be filed yearly if you have over $10,000 in foreign accounts) and google a little about the \"\"foreign account tax compliance act\"\", which shows a shift of the government towards more strict oversight of foreign accounts.\"","\"You state \"\"Any info will be appreciated\"\", so here's some background information on my answer (you can skip to my answer): When I worked for banks, I was required to submit suspicious activity to the people above me by filling out a form with a customer's name, SSN, account number(s) and ID. You may hear in media that it is $10K or sometimes $5K. The truth is that it could be lower than that, depending on what the institution defines as suspicious. Every year we were required to take a \"\"course\"\" which implied that terrorists and criminals use cash regularly - whether we agree or disagree is irrelevant - this is what the course implied. It's important to understand that many people use cash-only budgets because it's easier than relying on the banking system which charges overdraft fees for going over, or in some cases, you pay more at merchants because of card usage (some merchants give discounts for cash). If someone has a budget of $10K a month and they choose to use cash, that's perfectly fine. Also, why is it anyone's business what someone does with their private property? This created an interesting contrast among differently aged Americans - older Americans saw the banking system as tyrannical busybodies whereas young Americans didn't care. This is part of why I eventually left the banking system; I felt sick that I had to report this information, but it's amazing how quick everyone is to accept the new rules. Notice how one of the comments asks you what you intend to do with the money, as if it's any of their business. Welcome to the New America©! My answer: If you withdraw $100,000, here is what will more than likely happen: Now, watch the anger at this answer because I'm telling you the truth. This article will explain why. Your very question had a negative 1, as if asking what you're asking is wrong (see the absurdity)! If Joseph Stalin ran for president in the United States, the majority of Americans would welcome him. You have good reason to be concerned; others at this site have noticed this as well.\"","\"In answering your question as it's written: I don't think you're really \"\"missing\"\" something. Different banks offer different rates. Online banks, or eBanking solutions, such as CapitalOne, Ally, Barclays, etc., typically offer higher interest rates on basic savings accounts. There are differences between Money Market accounts and Standard Savings accounts, but primarily it comes down to how you can access your cash. This may vary based on bank, but Ally has a decent blurb about it: Regular savings accounts are easy to open and, when you choose an online bank like Ally Bank, you tend to get interest rates that are more competitive than brick-and-mortar counterparts, according to Bankrate.com. Additionally, as a member of the FDIC, Ally Bank gives you peace of mind knowing that the money in your Ally Bank Online Savings Account is insured to the maximum allowed by the law. Money market accounts are easy to open, too. And again, online banks may offer better rates than traditional banks. Generally, you have a bit more flexibility of access with a money market account than you do with a savings account. You can access funds in your Ally Bank Money Market Account through electronic fund transfers, checks, debit cards and ATM withdrawals. With savings accounts, your access is limited to electronic funds transfers or telephone withdrawals (and in-person withdrawals at traditional banks). Both types of accounts are subject to federal transaction limits. Here's a bit more information about a Money Market Account and why the rate might be a little bit higher (from thesimpledollar.com): A money market deposit account is a bit different. The restrictions on what a bank can do with that money are somewhat looser – they can often invest that money in things such as treasury notes, certificates of deposit, municipal bonds, and so on in addition to the tight restrictions of a normal savings accounts. In other words, the bank can take your money and invest it in other investments that are very safe. Now outside of your question, if you have $100K that you want to earn interest on, I'd suggest looking at options with higher rates of return rather than a basic savings account which will top out around 1% or so. What you do with that money is dependent on how quickly you need access to it, and there are a lot of Q&A's on this site that cover suggestions.\""],"string":"[\n \"First, what's the reason? Why do you have that much in cash at all - are you concerned about market volatility, are you planning to buy a house, do you have tens of millions of dollars and this is your slush fund? Are you a house flipper and this is part of business for you? If you need the money for short term use - ie, you're buying a house in cash next month - then as long as you're in a sound bank (one of the big national ones, for example) it seems reasonable. You can never predict a crash like 2008, but it seems unlikely that Chase or Citibank will go under in the next few weeks. If you like to have a cash position, then split the money among multiple banks. Buy a CD at one major bank with some of the amount. My in-laws have a trust which is partially invested in CDs, and they use multiple banks for this purpose to keep their accounts fully insured. Each separate bank you're covered up to 250k, so if you have $150k at Chase and $150k at a local bank, you're covered. (You're also covered in a much larger amount - up to 1MM potentially - if you are married, as you can have a separate account each for $250k and a joint account up to $500k.) Otherwise, why do you have that much in cash? You should invest it in something that will return more than inflation, at a minimum... Edit post-clarifications: $350k is around my level of 'Maybe, maybe not'. You're risking $100k on a pretty low risk (assuming this isn't a small local bank, and even those are pretty low still). In order to remove that risk you have to do something active - ie, take 100k somewhere else, open a new bank account, etc. - which isn't exactly the hardest thing in the world, but it does take effort. Is it worth the 0.001% chance (entirely made up) you lose the 100k? That's $10, if you agree with that risk chance. Up to you. It wouldn't be particularly hard, though, to open an account with an online bank, deposit $100k in there in a 6 month CD, then pay the IRS from your other account and when the 6 month CD expires take the cash back into your active account. Assuming you're not planning on buying a house in the next six months this should be fine, I'd think (and even then you'd still have $150k for the downpayment up front, which is enough to buy a $750k house w/o PMI). Additionally, as several commenters note: if you can reasonably do so, and your money won't be making significant interest, you might choose to pay your taxes now rather than later. This removes the risk entirely; the likely small interest you earn over 3 months may be similar to the amount you'd spend (mostly of your time, plus possibly actual expenses) moving it to another bank. If you're making 2% or 3% this may not be true, but if you're in a 0.25% account like my accounts are, $100k * 0.25% * 0.25 is $62.50, after all.\",\n \"Most people who have over $250,000 in liquid cash savings would not want to start putting their money into regular savings accounts in different banks, especially with interest rates as ridiculously low as they are now in 2014-15. People with money will want to diversify their investments in ways that will potentially earn them more money, and they can also afford to seek the advice of financial planners who can help them do this wisely. Even if you decide to put $250,000 into various accounts at different banks, I wouldn't necessarily trust that the FDIC will be able to help you recover your money in the event that your banks go under. The amount of money available to the FDIC to cover such losses pales in comparison to the actual amount of money that Americans have in their bank accounts.\",\n \"\\\"For personal accounts, I can't imagine that this is too much of a problem. The only concern that I can think of (for American banks) is that FDIC only insures you up to $100,000 if the bank were to go belly-up. If you're getting over that amount of money, you may want to \\\"\\\"diversify\\\"\\\" a little more.\\\"\",\n \"A better answer is to put the money in a Dodd-Frank qualified non interest bearing checking account. FDIC covers the entire balance, there is no upper limit on the insurance. This will only be good till the end of 2012 but for short term landing spot this works well. Forget the interest you will earn and go for the safety of the principal.\",\n \"\\\"You can store millions of dollars in deposit accounts, you just lose the explicit FDIC guarantee. So you look for rock-solid banks. Bankrate.com has \\\"\\\"Safe and Sound Ratings\\\"\\\" that show the relative strength of various banks. You put your excess deposits in those banks, and you are pretty safe. Note that in addition to the explicit FDIC guarantee, there is now an implicit guarantee that certain institutions have been deemed too \\\"\\\"big to fail\\\"\\\", and will be backed by the full faith and credit of the US Government, without regard to the capitalization of the bank. Bank of America, for example, is not well capitalized and is carrying billions of dollars of \\\"\\\"assets\\\"\\\" that have little or no value. Yet government policy keeps the bank afloat and your deposits secure. Another strategy is to use municipal money market accounts, which provide secure (but not guaranteed) deposit-like accounts as well as a tax benefit. If you have > $1M in liquid assets, you probably need a financial professional and attorney advising you to make sure that you are aware of and are controlling for risk in a way consistent with your longer-term goals.\\\"\",\n \"Even assuming hypothetically that you are able to split money in different bank accounts to get full coverage and all your accounts are in top ranking financial institutions in USA, you can not rely on FDIC if all or most of those banks go broke. Because FDIC just has a meagre 25 billion dollars to cover all bank accounts in the USA. And you know the amount of bank deposits in USA run in at least a trillion of dollars. US Deposits & FDIC Insurance figures\",\n \"If you want to store that much money, find a good hiding place. (E-mail me the location. I'll keep it a secret. I promise!) But I think instead you want to invest that much money, in a cash-like liquid form. You can do $250,000 in a bank (beyond 2012) and then spread the rest over some big-name brokerages with money market accounts. But, as JohnFx pointed out, with that much cash you can do amazing things with it. Think bigger.\",\n \"http://www.fdic.gov/deposit/deposits/index.html FDIC currently insures up to $250,000. (I would have put that as a comment to Jeffery but it says it was locked.) You don't want to put all your eggs in one basket. If you shop around, and keep shopping all the time you can keep your accounts in a single place so long as that single place provides the best deal. Don't have any loyalty to your banking institutions because they don't have any loyalty to you. Also, having lots of accounts means you are familiar with lots of institutions, so you are likely better at shopping around. Things I consider. For fewer institutions: For more institutions:\",\n \"If you were married the 250K protection can be expanded by the use of joint and individual accounts. A separate limit also exists for IRA accounts. With out those options you will have to put some additional money into another banking institution. This could be a bank or credit union. You have to be careful to make sure that any additional accounts have FDIC or NCUA (for Credit Unions) coverage. Some banking institutions try and turn customers to non-covered accounts that are either investment accounts or use a 3rd party to protect them. You could also use it to invest in US government bonds through Treasury direct. Though for just the few months that you will be in the excess position it probably isn't worth the hassle of treasury direct.\",\n \"Build a trust. I have a trust account under my name and 3 dependents, FDIC confirmed we're good to 1m. Then I have personal accounts for the 4 of us and a corp account, all at the same bank, each also insured.\",\n \"\\\"But it's also true that the FDIC (or equivalent) insurance account doesn't have enough to cover all deposits. The FDIC may come in handy if your local FDIC member bank goes belly up and a few hundred depositors need to be made whole. However, in a national crisis, where the government is \\\"\\\"legally\\\"\\\" stealing funds, that FDIC insurance is a joke. I do agree though, if you have more than the insured amount in a single account, split it up.\\\"\",\n \"Exactly. And I'm diversified in other ways. I have a money collection that includes lots of silver and some gold, a rental property. In terms of actual cash accounts it's closer to 750K. Protip: I always keep actual cash dollars in a safe in the house as well. I learned that trick from my neighbor who said she needed it twice in her life. Even a safe deposit box isn't good enough as the government can get in there, too. She and her husband owned a gas station and unbeknownst to them the Sunoco gas trucks were leaking when filling their tanks so they had a big ecological problem. The government took every bit of liquid assets they had... that they could find. Then when he died a few years ago something similar thing happened and she needed to dip into it.\",\n \"The FDIC guarantee is up to $250,000 per depositor per insured bank. If your goal is primarily to protect your money, you may want to consider depositing your money in multiple insured banks. I'll leave it to someone else to accurately define money market accounts and how they function, and the (very low) risks you take with them. Don't forget that inflation will eat into your money. It's unlikely you'll make enough interest either in a savings account or in a money market account to cover the inflation. You should factor this in to your overall investment plan.\",\n \"You don't mention how much money you are talking about but one option is to use reward checking accounts that are FDIC/NCUA insured. They pay 3-4% interest but generally have a few requirements such as 10-12 debit card transactions and sometimes require direct deposit as well as a limit of 10-50k deposits earning the top rate.\",\n \"Yes. Although I imagine the risk is small, you can remove the risk by splitting your money amongst multiple accounts at different banks so that none of the account totals exceed the FDIC Insurance limit. There are several banks or financial institutions that deposit money in multiple banks to double or triple the effective insurance limit (Fidelity has an account like this, for example)\",\n \"So basically, if you have a large savings account and are not investing... (because banks are actually a very poor way to get returns on capital), they will invest it for you... The take home I'm getting is... invest your money, and leave it out of the banks.\",\n \"It depends on your situation. For families with small amounts over the FDIC limit, there's account structures that let you get multiple coverages. Things like holding 100k in an account in joint with your wife, each of you holding 100k in individual accounts etc. For larger sums and institutions, there's CDARS. This system spreads your money out to multiple institutions with an eye to FDIC insurance limits. Some people feel this system is abusing FDIC, so I suppose it's possible it gets outlawed / shut down some day. Alternatively, you can just invest it yourself. Treasury Direct allows small buyers to buy US govt bonds at finished auction rates, or submit a qualified bid at auction. You won't get great rates, but Treasuries are about as good as dollars.\",\n \"If you are concerned about FDIC coverage, then yes, you can spread your money across multiple banks. The limit is $250k, so after you invest in property, 4 banks should do it. That having been said, in my opinion, it would be a waste to keep all this money in a bank's savings account. You will slowly lose value over time due to inflation. I suggest you spend a little money on an independent fee-based investment advisor. Choose someone who will teach you about investing in mutual funds, so you can feel comfortable with it. He or she should take into account your tolerance for risk, look at your goals, and help you come up with a low cost plan for investing your money. It's certainly okay to keep the money in a bank short-term, but don't wait too long; take steps toward putting that money to work for you.\",\n \"There's no limit, from the legal perspective (with regards to the US law, that is), to how much you can keep on your bank accounts anywhere in the world. FBAR requirements are reporting requirements, they don't limit how much you can keep in the accounts, they only make you report the accounts to the government. There's no such requirement with regards to the US domestic accounts. That is for the US government, your own government (of the country of which you're a citizen of) may have limitations on what accounts you may have outside of that country, or have reporting requirements of their own. That said, keep in mind that FDIC only insures up to $250K per person (i.e.: on all your accounts) in each institution. So if you have more than $250K in a FDIC insured account - you better spread it across different banks.\",\n \"There is no accounting reason that it should be different, there are likely psychological reasons that it should be, however. Assuming that you live in a western country with good banking regulation, you likely have deposit insurance or a similar scheme. Here in Canada we are covered up to $100,000 in a single account with various limitations. At least my rainy-day account plus savings is nowhere near that, so I'm good to go. That said, however, having a large lump of money in an account you regularly use may tempt you more than you can stand. That iPad, car, home improvement, etc., might be too easy to buy knowing you have relatively easy access to that money. So it really becomes a self-discipline question. Good Luck\",\n \"Searching for Banks or Credit Unions based on their high interest accounts is likely to be a giant waste of your time. The highest you might find is 1.5% not clearing inflation. For anything less than 100k youre better off putting it in a money market fund until you know what you want to do with it, which you can find anywhere.\",\n \"For small amounts I wouldn't be too concerned. There are two factors I can think of: For relatively small amounts and when dealing with reputable banking institutions there should be little concern of banking with a single bank. It's what most people do.\",\n \"Many brokerage accounts for trading stocks are covered under SIPC insurance, which is up to $500,000 You can also have multiple checking and savings accounts with the $250,000 balance split up. You can also check your bank's capital ratio on the FDIC website, somewhere. The FDIC won't move on them unless it falls under 3% and even then FDIC will force them into receivership and sell them to a bigger bank before they go bust and experience losses of customer deposits. This is what mostly happened when hundreds of banks failed during the crisis from 2008-2010. There were very isolated events where customers actually lost their cash balances, and that was mostly because those customers had completely uninsured accounts. As that was the most extreme moment in US and global financial history, you should be able to judge risk with the aforementioned information in mind. You can stay in a cash balance easily and be fully insured.\",\n \"\\\"Yes you should worry and take care not to violate the law or provide any appearance of impropriety. Every bank in the USA is required under the Bank Secrecy Act to report cash transactions over $10,000 the same day to the IRS -- and here's the fun secret part -- without notification to the depositor. But splitting the deposits up into smaller amounts is also a crime, called \\\"\\\"structuring\\\"\\\". On occasion there is a news story where a retail business that naturally must deposit cash from customers will be (falsely?) accused of structuring, e.g.: Feds seize grocery store's entire bank account -- Institute for Justice defends grocer Under the legal doctrine of civil asset forfeiture, your money can be accused of a crime, seized, and tried separately from its owner. The actual cases indicate the money as defendant, i.e. \\\"\\\"US v $124,700\\\"\\\" In this somewhat bizarre system of \\\"\\\"justice\\\"\\\", the owner need not be charged with a crime, and is not in immediate peril of going to prison (about the only upside in this, but might be temporary because the authorities haven't charged the owner yet). When only the money is charged with a crime, there is no requirement for the government to supply a public defender for the owners who can not afford a lawyer.... can not afford a lawyer, because the government took all their money....\\\"\",\n \"U.S. citizens are allowed to own foreign bank and investment accounts. However, there are various financial and tax reporting requirements for owners of such accounts. Even when there is no foreign income involved. For example famous FBAR (Fincen Report Form 114), Form 8938, and even more forms if your assets/activities abroad become more complicated. Penalties, even for unintentional non-compliance can be Draconian. So just keep in mind, that once you start having foreign accounts, you will start having additional obligations and might spend more money and time on tax preparation. If you are ok with that, then its cool. But... assuming your gloomy predictions on Trump presidency come true. They might be accompanied by more strict capital control, reporting requirements, and may become even greater pain in the neck for people with foreign assets. Regarding recommendations, I am not sure about banks, but there are some foreign precious metal investing companies that are completely online based such as https://www.bullionvault.com/ and https://www.goldmoney.com/. These might also guard you from potential problems with US dollar.\",\n \"I found out there is something called CDARS that allows a person to open a multi-million dollar certificate of deposit account with a single financial institution, who provides FDIC coverage for the entire account. This financial institution spreads the person's money across multiple banks, so that each bank holds less than $250K and can provide the standard FDIC coverage. The account holder doesn't have to worry about any of those details as the main financial institution handles everything. From the account holder's perspective, he/she just has a single account with the main financial institution.\",\n \"They might not have to open accounts at 12 bank because the coverage does allow multiple accounts at one institution if the accounts are joint accounts. It also treats retirement accounts a separate account. The bigger issue is that most millionaires don't have all their money siting in the bank. They invest in stocks, bonds, government bonds, international funds, and their own companies. Most of these carry risk, but they are diversified. They also can afford advisers to help them manage and protect their assets.\",\n \"In October 2011 in the United States, you just don't have any options. Save your money in a savings account and that is the best you can do. Your desire to buy a house means you are a saver not an investor, and you risk tolerance on this pile of money is 0. Save it in a bank account; I highly doubt chasing an interest rate will pay off with any significance. (being highly dependent on your opinion of significant)\",\n \"The FDIC has been pretty good at recovery lost money from failed banks. The problem is the temporary loss from immediate needs. The best thing for anyone to do is diversify in investments and banks with adequate covered insurance for all accounts. Immediate access to available cash is always a priority that should be governed by the money manager in this case yourself.\",\n \"Anything over a $10,000 deposit is reported to the IRS. I'm not sure if you need to fill out a form or if the bank does it automatically. As long as it's legit I don't see that there would be any issues. The worst that would happen is somebody would have to talk to the IRS and explain that it was their money and not a gift of some sort. Edit it is reported to the FinCEN not the IRS https://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_017.htm\",\n \"This: I was told by my broker that the amount of money I invest would be spread across multiple banks (which are FDIC insured) so that at each bank the amount would not exceed $250K. Has nothing to do with this: Is this how CDs offered by brokerage houses (that are not themselves FDIC insured) offer protection? If you want a CD, get the CD from a bank itself.\",\n \"You should ensure that your broker is a member of the Securities Investor Protection Corporation (SIPC). SIPC protects the cash and securities in your brokerage account much like the Federal Deposit Insurance Corporation (FDIC) protects bank deposits. Securities are protected with a limit of $500,000 USD. Cash is protected with a limit of $250,000 USD. It should be noted that SIPC does not protect investors against loss of value or bad advice. As far as having multiple brokerage accounts for security, I personally don’t think it’s necessary to have multiple accounts for that reason. Depending on account or transaction fees, it might not hurt to have multiple accounts. It can actually be beneficial to have multiple accounts so long as each account serves a purpose in your overall financial plan. For example, I have three brokerage accounts, each of which serves a specific purpose. One provides low cost stock and bond transactions, another provides superior market data, and the third provides low cost mutual fund transactions. If you’re worried about asset security, there are a few things you can do to protect yourself. I would recommend you begin by consulting a qualified financial advisor about your risk profile. You stated that a considerable portion of your total assets are in securities. Depending on your risk profile and the amount of your net worth held in securities, you might be better served by moving your money into lower risk asset classes. I’m not an attorney or a financial advisor. This is not legal advice or financial advice. You can and should consult your own attorney and financial advisor.\",\n \"I would suggest a high interest checking account if you qualify, or if you don't, an Investor's Deposit Account (IDA).\",\n \"Don't worry. The Cyprus situation could only occur because those banks were paying interest rates well above EU market rates, and the government did not tax them at all. Even the one-time 6.75% tax discussed is comparable to e.g. Germany and the Netherlands, if you average over the last 5 years. The simple solution is to just spread your money over multiple banks, with assets at each bank staying below EUR 100.000. There are more than 100 banks large enough that they'll come under ECB supervision this year; you'd be able to squirrel away over 10 million there. (Each branch of the Dutch Rabobank is insured individually, so you could even save 14 million there alone, and they're collectively AAA-rated.) Additionally, those savings will then be backed by more than 10 governments, many of which are still AAA-rated. Once you have to worry about those limits, you should really talk to an independent advisor. Investing in AAA government bonds is also pretty safe. The examples given by littleadv all involve known risky bonds. E.g. Argentina was on a credit watch, and paying 16% interest rates.\",\n \"IMO, QE2 will likely have no perceptible impact in the near term. Keeping all of your savings in a bank guarantees that you will lose money to inflation & taxes. I'd suggest consulting a financial advisor -- preferably someone who understands issues facing someone with assets in the US and Canada. In terms of what portion of your savings should be in USD vs. CAD, that's going to depend on your situation. I'd probably want more assets in the place that I'm living in for the next several years.\",\n \"They've already taken your money, and your purchasing power. The Fed's balance sheets is filled with $4 trillion worth of toxic mortgage derivatives and US treasuries that were purchased at all time highs. Move your money to a credit union.\",\n \"I spent some time comparing banks' interest rates until I realized that it didn't actually matter (to me). The only money I keep in checking and savings accounts is money that I'm going to spend shortly or is part of an emergency fund, and in both those cases convenience of liquidity is far more important than small differences in interest (I want to be able to go to a nearby branch, even if traveling, and pull out large sums of money). The majority of our money goes into investment accounts, where it's earning much more than even the best savings account. Most of your 100k would be much better served in a stock/bonds mix. Are standard taxable investment accounts one of those things you can't open? What about if you opened one in your home country?\",\n \"With a lot excess cash you eventually have two goals: Since interest on cash bank deposits does not exceed inflation and you have currency risk, you may want to get into other asset classes. Options that might be, but not limited to are:\",\n \"You would need to look at all aspects: - Current Rate of Interest in US compare to China - Current Exchange rate and the rate in Future when you want the money back - Any tax / Regulatory implications of keeping the money in US - Any furture regulations that may hamper your access to these funds If you are planning to stay in China and at some point in time want to get the money back, In my opinion it would make more sense to do it today like you are doing, rather than take the risk of exchange rate and regulations. Further the current low risk returns in US are near zero. The inflation in US is of no concern to you. On the other hand you have a decent return in China. If you know that at some point in future you would need USD [either moving to US, or large purchase in USD], then it would make sense to keep the funds in USD.\",\n \"The deposit insurance isn't provided by the bank; it's provided by the Singapore Deposit Insurance Corporation (SDIC). In the event that the bank fails or is declared insolvent, the SDIC will pay deposit holders their total balance in all accounts with that bank, up to S$50,000. If you hold S$60,000 in all of your insured accounts, you'll only receive S$50,000 if the bank fails. The SDIC provides an example page with sample calculations, and this is exactly what they show. If you deposit an amount greater than $S50,000, it's only insured up to S$50,000. So does it mean one should open multiple accounts under different banks to spread the money around and maintain only S$50,000 in one deposit account? This is one option. The calculations page I linked to above gives this reminder: Deposits are not insured separately in each branch office of a DI Scheme member i.e. all your eligible accounts maintained with different branches of a DI Scheme member are aggregated and insured up to S$50,000. This seems like common sense, but it's important to remember that if you open an account with two branch offices of Bank A, your deposits are aggregated and insured up to S$50,000. The SDIC insurance is per institution (called a Deposit Insurance Member), not per branch. If you hold S$45,000 in each branch office, for a total of S$90,000, you're still only insured up to S$50,000 for that bank. If you want to spread out your accounts between multiple banks, make sure they're different banks, not just different branches. Another option, if it applies to you, is to open a joint account with your spouse. In the FAQ page, the SDIC gives this example under point 14: if you and your husband have a joint account with S$70,000, and you have a separate account of S$20,000, your total deposits of S$55,000 will be covered to the maximum of S$50,000. The deposit of $S70,000 is split evenly between the spouses, so in the eyes of the SDIC, each are holding S$35,000. Then, the husband's additional S$20,000 is added to S$35,000 for a total of S$50,000. This is then insured up to S$50,000 as usual. I'm sure there are other options specific to Singapore that I'm not aware of; if you're well above the limit, i.e. holding millions of dollars, I'm sure a professional accountant in Singapore could guide you further.\",\n \"Would it be a reasonable idea to open a savings account in an overseas bank? For the risks you mention, this may not be a good idea for individual. Note HNI / Companies routinely keep funds in various overseas account. For individual the amount of paperwork [reporting in US etc] and fees etc would be high. Plus in adverse conditions, access to this funds would still be stringent and restricted. Some of the other options you can try are Generally for the risks you mention, there is very little an individual can do except to take it if & when it comes.\",\n \"Do you have a good reason for keeping a US bank account? If not, I would close it and transfer to your Canadian bank account just to simplify your life. Unless you are investing on the scale of George Soros you shouldn't be worrying too much about exchange rates.\",\n \"Houses burn down a lot more frequently than banks fail. Also, I'll bet the odds that FDIC will insure the loss of money in a bank is much higher than the odds of a homeowner's policy believing a huge pile of cash burned up in your house AND even then your policy probably wouldn't have coverage limits high enough to reimburse you for substantial cash losses. Oh yeah, then there is theft, floods,etc. The biggest danger is that routine inflation will eat up that money faster than the rats in the basement. Now, having some cash for a small emergency on hand isn't a terrible idea, but using your closet as a personal bank doesn't seem very smart.\",\n \"Lets make some assumptions. You are not close to retirement. You have no other debts. You have a job. You have no big need for the money. You should invest that. Do not invest with a bank, they are not as competitive on fees as a brokerage account. You can get specific answers that are different from every person, (so you should dig in and research a lot more if you care (and you should). Personally, I would suggest you open an account with one of the low cost providers. Then, with that new investment account, put your money into a target retirement account. File your statements away and tend to it once a year. (Make sure it is there, that you can access it, that nothing alarming is going on). You certainly have enough to start an investment account. If you want to get more into it, ask a phone adviser what you should open. Finally, before you start investing, make sure you follow the advice of radix07 and have no debt, saving the most you can for retirement. A rule of thumb is your money will double every 72 months. Congratulations, you are a saver. Investing isn't for you as the risk of investing is in conflict with your desire to preserver you money. Open a savings account or high interest checking account with a credit union, online only or local community bank. Shop around no the web for the highest interest. Don't get your hopes up though, the highest rate you see (that doesn't have strings attached) won't be much here late summer of 2012.\",\n \"> Too much work for me. Agreed. That's why I just make sure I keep the daily minimum in there at all times and I don't have to worry about it. I think our fee is $45/mo, so I'm not willing to waste $540/yr. I contemplate moving to a credit union, but I don't like the idea of having to update dozens of accounts, bill pay, direct deposits, etc.\",\n \"No. And just a caution about that super low risk: suppose that you lived during the late 70s and early 80s, when savers in the United States could get interest rates over 10% for savings. You put your money into an account in 1980, knowing that in five years, you'll have made a solid amount of interest. Except that you might have been smarter to convert your money to AUD and save in that currency because it would have moved from 0.88 in value to 1.43 in value (in principal only, not interest - when I look at the RBA's bank interest, it appears they were also paying double digit interest to savers). Now, I get that this may not be the answer that you want to see because it means that if the interest rates were higher in the US, for savers, they might be higher elsewhere too, and it also means that what may appear to be a super low risk could actually be a high risk.\",\n \"There are lots of credit unions that are insured by the National Credit Union Administration (NCUA) through the National Credit Union Share Insurance Fund (NCUSIF) instead of the Federal Deposit Insurance Corporation (FDIC). Both cover individual accounts up to $250,000. If you are looking for non-trivial returns on your money, you should consider a brokerage account which is insured by the Securities Investor Protection Corporation (SPIC). In the case of SPIC insured accounts, what you are insured against is the failure of the broker (not against loss on your investments if you choose to invest poorly). SPIC insurance covers up to $500,000 in losses from an insolvent broker. You have already indicated your lack of interest in using other investments, but I am not aware of any non-insured accounts that offer higher interest than insured accounts. You have also indicated your lack of interest in investment advice, but it sounds like what you are looking for is offered by a stable value fund.\",\n \"Currently the FDIC insures deposits up to $250,000 per person per bank. The following products are covered if your bank is FDIC insured. http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#FDIC-insured_products\",\n \"To store $1 milion in a bank with full FDIC insurance currently requires 4 separate bank accounts, each at 250k. It's not that difficult, particularly if you are married and your spouse can have 2 in his/her name. (This is dependent on the FDIC limit; they raised it to 250k after the 2008 crash).\",\n \"Banks in the US have to report deposits of more than $10,000, so they'll contact you to complete form 8300 or something. It should not be a problem, though, if you specify that it's someone else's money, not your income.\",\n \"There is no such animal. If you are looking to give up FDIC protection, investing in a short-term, high quality bond fund or a tax-free bond fund with short durations is a good way to balance safety vs. return. Make sure you buy funds -- buying individual bonds isn't appropriate for folks without a high net worth. Another option is savings bonds, but the yields on these is awful today.\",\n \"\\\"The most important thing to look at is the FDIC insurance. Savings accounts are covered. Money markets - not necessarily. Online savings accounts provide rates of ~1%. Look at American Express, Ally, Capitol One, ING Direct, E*Trade, etc. The \\\"\\\"pledge\\\"\\\" basically brings EverBank into the same list, as they all have similar rates. Being top 5% of competitive accounts is not that hard, because there are thousands of banks around, you know. 0.76 is not the highest rate available. American Express currently give 1% on their savings account. Re moving the money a lot - depends on the amounts, but when the rates were higher, I moved around a lot. Now, it just doesn't worth the trouble, although I would move for 0.25%.\\\"\",\n \"Make sure the financial adviser is fee only. This means the person gets paid a set fee instead of a commission. The commission based adviser will put you in a financial instrument that can charge upwards of 5%, so he would get $900k for hooking you as a client. You can go to finra.org to find a good one. Read books a variety of books so you know about finanical matters. Credit is not advisable if you have as much money as you do. You have already won the race, no need to take risks.\",\n \"The one thing we know for certain is that holding large amounts of cash isn't ideal - inflation will eat away at your wealth. It's understandable that you're hesitant to put all your wealth in common stock. The S&P 500's price/earnings is 18.7 right now - a little high by historical standards. But consider that the S&P 500 has given a CAGR of approximately 10% (not inflation-adjusted) since 1970. If you don't time the market correctly, you could miss out on considerable gains. So it's probably best to invest at least a portion of your wealth in common stocks, and just accept the risk of short-term losses. You'll likely come out ahead in the long run, compared to an investor who tries to time the market and ends up holding cash positions for too long. If you really think US stocks are overpriced, you could look at other markets, but you'll find similar P/Es in Europe and Japan. You could try an emerging market fund like VEMAX if you have the risk tolerance. Let's say you're not convinced, and don't want to invest heavily in stocks right now. In the current market, safe cash alternatives like Treasury bills offer very low yields - not enough to offset inflation tax. So I would invest in a diversified portfolio of long-term bonds, real estate, maybe precious metals, and whatever amount of stock you're comfortable with.\",\n \"In the United States, the Securities Investor Protection Corporation protects the first $500,000 you have at a brokerage including up to $250,000 in cash. This means that if the firm holding your securities fails financially, you have some coverage. That insurance does not prevent your investment itself from losing money. Even traditionally save money market funds can potentially lose value in a situation called Breaking the buck. This means that the Net Asset Value of the fund falls below $1/share. Alas, during periods of market calamity, even traditionally safe stores of value are subject to increased risk.\",\n \"The article you link scares me; but I still have faith that the FDIC will keep me protected. Personally, if the FDIC goes broke, there is something more fundamentally wrong with the government as a whole and dollars won't worry me much. There are lots of issues with the FDIC, and I think the answers lie outside of simply printing more money and funding the FDIC further. There is likely more bad before this storm is over, and I might be ignorant, but I still want to operate normally. My money would stay where it is with things being how I see them in today\",\n \"\\\"is it worth it? That is for you to judge. The risks are having it blowup in your face, and you having to pay a penalty, or go to jail. The issue is how you keep it secret, and who you keep it secret from. If you have money in a secret account and keep it hidden even though you: You are taking a big risk. If the knowledge of the contents of the secret stash would cause a judge or government agency to make a different decision, you could face penalties ranging from monetary to jail time. The government could also decide that they need to determine the source of the funds. They may want to know if the money was \\\"\\\"earned\\\"\\\" through illegal means. They will want to determine if the funds should haven taxed not just on the interest but if the original income tax was ever collected. If the amounts are large enough the taxing authority and police will have a lot of fun pulling apart your entire financial history. Oh and the lawyers you pay to keep you out of jail will also have their fun. why do some people do it? They are greedy; or paranoid; or they don't trust others; or they are criminals.\\\"\",\n \"\\\"As you've observed, when you're dealing with that amount of money, you're going to have to give up FDIC guarantees. That means that keeping the money in a bank account carries some risk with it: if that particular bank goes bust, you could lose most of your money. There are a few options to stretch the FDIC limit such as CDARS, but likely can't handle your hypothetical $800 million. So, what's a lucky winner to do? There are a few options, including treasury securities, money market funds, and more general capital investments such as stocks and bonds. Which one(s) are best depend on what your goals are, and what kind of risks you find acceptable. Money in the bank has two defining characteristics: its value is very stable, and it is liquid (meaning you can spend it very easily, whenever you want, without incurring costs). Treasury securities and money market funds each focus on one of these characteristics. A treasury security is a piece of paper (or really, an electronic record) saying that the US Federal Government owes you money and when they will pay it back. They are very secure in that the government has never missed a payment, and will move heaven and earth to make sure they won't miss one in the future (even taking into account recent political history). You can buy and sell them on an open market, either through a broker or directly on the Treasury's website. The major downside of these compared to a bank account is that they're not as liquid as cash: you own specific amounts of specific kinds of securities, not just some number of dollars in an account. The government will pay you guaranteed cash on specified dates; if you need cash on different dates, you will need to sell the securities in the open market and the price will be subject to market fluctuations. The other \\\"\\\"cash-like\\\"\\\" option is money market funds. These are a type of mutual fund offered by financial companies. These funds take your money and spread it out over a wide variety of very low risk, very short term investments, with the goal of ensuring that the full value will never go down and is available at any time. They are very liquid: you can typically transfer cash quickly and easily to a normal bank account, write checks directly, and sometimes even use \\\"\\\"online bill pay\\\"\\\"-like features. They have a very good track record for stability, too, but no one is guaranteeing them against something going terribly wrong. They are lower risk than a (non-FDIC-insured) bank account, since the investments are spread out across many institutions. Beyond those two somewhat \\\"\\\"cash-like\\\"\\\" options, there are of course other, more general investments such as stocks, bonds, and real estate. These other options trade away some degree of stability, liquidity, or both, in exchange for better expected returns.\\\"\",\n \"\\\"Be mindful of your reporting requirements. Besides checking the box on Schedule B of your 1040 that you have a foreign bank account, you also need to file a TD F 90-22.1 FBAR report for any year that the total of all foreign bank accounts reaches a value of $10,000 at any time during the year. This is filed separately from your 1040 by June 30 of the following year. Penalties for violating this reporting requirement are draconian, in some cases exceeding the amount of money in the foreign bank account. This penalty has been levied on people who have been reporting and paying tax on the interest on their foreign bank accounts, and merely neglected this separate report filing. Article on the \\\"\\\"shoot the jaywalker\\\"\\\" punitive enforcement policy. http://www.rothcpa.com/archives/006866.php Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law. EDITED TO ADD\\\"\",\n \"Your main concern seems to be to be accused of something called 'smurfing' or structuring. http://en.wikipedia.org/wiki/Structuring Depositing money amounts (cash or checks) under the 10k limit to circumvent the reporting requirement. People have been investigated for depositing under the limit, e.g. small business owners. If you're always above 10k you should be fine, as your deposits are reported and shouldn't raise IRS or FBI suspicions.\",\n \"In the US bank or credit union checking, savings, CD's are insured through FDIC or NCUA. The coverage is for $250,000. This limit can be increased by having multiple accounts. You, your spouse, and a Joint account with your spouse, are considered 3 different accounts, so you could have $750K coverage. IRA funds are considered a separate pot of money for insurance coverage. Here is an explanation from NCUA and FDIC. There is no safety difference between savings and checking. There are differences regarding minimum balances, maximum number of transactions per month, and fees. But they are equally safe.\",\n \"I concur with the answers above - the difference is about the risk. But in this particular case I find the interest level implausible. 11% interest on deposits in USD seems very speculative and unsustainable. You can't guarantee such return on investment unless you engage in drug trade or some other illegal activity. Or it is a Ponzi scheme. So I would suspect that the bank is having liquidity problems. Which bank is it, by the way? We had a similar case in Bulgaria with one bank offering abnormal interest on deposits in EUR and USD. It went bust - the small depositors were rescued by the local version of FDIC but the large ones were destroyed.\",\n \"Yes, and there are several ways, the safest is a high-yield savings account which will return about 1% yearly, so $35 per month. That's not extremely much, but better than nothing (you probably get almost zero interest on a regular checking account).\",\n \"Yes, you can put assets in Canadian banks. Will it protect your wealth to a greater extent than the FDIC protection provided by the US Government? Probably not. If you do business or spend significant time in Canada, then having at least some money in Canada makes sense. Otherwise, you're trying to protect yourself against some outlying risk of a US banking collapse, while subjecting yourself to a very real currency exchange risk.\",\n \"Do not try to deposit piece wise. Either use the system in complete transparence, or do not use it at all. The fear of having your bank account frozen, even if you are in your rights, is justified. In any case, I don't advise you to put in bank before reaching IRS. Also keep all the proof that you indeed contacted them. (Recommended letter and copy of any form you submit to them) Be ready to also give those same documents to your bank to proove your good faith. If they are wrong, you'll be considered in bad faith until you can proove otherwise, without your bank account. Do not trust their good faith, they are not bad people, but very badly organized with too much power, so they put the burden of proof on you just because they can. If it is too burdensome for you then keep cash or go bitcoin. (but the learning curve to keep so much money in bitcoin secure against theft is high) You should declare it in this case anyway, but at least you don't have to fear having your money blocked arbitrarily.\",\n \"If you're the type of moron that keeps several thousand dollars sitting in their checking account then you're either a 1st generation immigrant or just insanely bad with money. And still think going around insulting people is smart. Literally the worst.\",\n \"If thats how you feel (its how I feel ) then the last thing you want bankers doing is accepting deposits from people who think their money is not being risked, then making loans with it (fractional reserve banking). And fdic is not an answer to that fundamental problem.\",\n \"My brokerage account (E-Trade) automatically spreads cash balances that exceed the FDIC insured amount into several partner banks, so just about any amount gets insured.\",\n \"\\\"The first consideration for the banking part of your portfolio is safety. In the United States that is FDIC protection, or the equivalent for a Credit Union. The second consideration is does it have the level of service you need. For this I mean the location of branches, ATMs, or its online services meet your needs for speed, accuracy, and ability to access or move the money as you need. The rest are then balanced on the extras. For your situation those extras include the ability to make free trades. For other it might be a discount on their mortgage. For others it is free checking. In your current situation if the first two things are met, and you are using those extra benefits then don't change. For me the free trades wouldn't be a benefit, so any major degradation in the safety and service would cause me to leave. Keep in mind that free services exist to entice you to make a deposit: which they can then make money by lending it out; or they offer a free service to entice you to use a service they can charge you to use. All Free services come with a cost. I earned a completely paltry $3.33 YTD over the last 9 months on my savings at my bank presumably in exchange for these \\\"\\\"free\\\"\\\" trades. Without knowing how much you had deposited in your savings account there is no way to know how much you could have made at the bank across the street. But with the low rates of the last decade there is not big money to be made off the emergency savings of a typical american family.\\\"\",\n \"\\\"Your objectives are contradictory and/or not possible. Eliminating the non-taxable objective: You could divide the $100K in 5 increments, making a \\\"\\\"CD ladder\\\"\\\" $25K in 3mo CD (or savings a/c) $25K in 6 mo CD $25K in 9mo CD $25K in 1 yr CD or similar structure (6mo also works well) Every maturing CD you are able to access cash and/or invest in another longest maturity CD, and earn a higher rate of interest. This plan also works well to plan for future interest rates hikes. If you are forced to access (sell CD's) ALL the $$$ at any time, you will only lose accrued interest, none of the principal. All FDIC guaranteed. If non-taxable is the highest priority, \\\"\\\"invest\\\"\\\" in a tax-free money market fund....see Vanguard Funds. You will not have FDIC guarantee.\\\"\",\n \"Not OP, but let's see: My money-market account is showing 0.25% interest rate. My savings account, 0.20%. And checking, 0.22%. It doesn't matter where I keep my emergency fund and what I keep my checking balance. It's making fuck-all for interest. And I need to keep a couple thousand in there because my mortgage hits for about $1600. And my monthly CC spend averages ~$3500 monthly. I simply can't keep a couple hundred in there.\",\n \"In the UK I believe the first £50,000 in each bank are secured by the government, so are very safe but one has to check what 'each bank' means as some are members of the same 'group'. See the FSCS\",\n \"The US requires its (tax) residents to report foreign accounts if the balances (on all the accounts together) are $10K or more at any given day during the year. This is done through the FBAR system. In addition, you obviously need to report this income on your US tax return and pay taxes. If the balances on your foreign accounts exceed specific threshold, your tax return should also include form 8938. If you report everything and pay the taxes due - you can keep the money wherever you want and transfer it between your accounts as you may see fit. If you don't - the US government may come after you with huge penalties, and the Dubai bank may freeze your account. Its easy to become US tax resident. Stay in the US for more than half a year in a row - and here you are. Subject to the US taxation. Even if you're not a US citizen or green card holder, or at all illegal. Some immigration statuses may grant you an exemption, but none that allows you working for your Dubai employer, so I'm assuming you're a US tax resident.\",\n \"This will probably require some explanation from you on the source of the money and the reasons for the transaction. Cash transactions over $10k will be reported by the bank (in this case) on a CTR report to FinCEN. Keep in mind, mere breaking the transaction into multiple smaller ones in order to avoid the CTR is on its own a criminal offense. Just deposit what you want to deposit, and report what's needed to be reported. Note that if you're a US tax resident - these foreign bank accounts must have been reported already to FinCEN via FBAR, if not - you should expect a very nasty audit with the IRS.\",\n \"Unless there is a compelling reason to do so, like reducing interest charges, IMO you shouldn't do this. The fact that the bank teller or a computer files a CTR doesn't imply that you are doing something improper -- it is simply a regulation that banks are required to adhere to. Millions of CTRs are probably filled out over the course of the year. It doesn't add more time to your transaction, nor does it impact your tax or other liability. Learning about this stuff can instill a sense of paranoia. Don't fall victim to that -- these are measures in place to make it more difficult to dodge taxation and launder money.\",\n \"Re #2, consider an account at a credit union rather than a bank or brokerage firm. Whether you choose a savings account or a money market account, you're likely to get an account with lower fees (so it doesn't cost you money), and rates that are typically similar.\",\n \"For a young person with good income, 50k sitting in a savings account earning nothing is really bad. You're losing money because of inflation, and losing on the growth potential of investing. Please rethink your aversion to retirement accounts. You will make more money in the long run through lower taxes by taking advantage of these accounts. At a minimum, make a Roth IRA contribution every year and max it out ($5500/yr right now). Time is of the essence! You have until April 15th to make your 2014 contribution! Equities (stocks) do very well in the long run. If you don't want to actively manage your portfolio, there is nothing wrong (and you could do a lot worse) than simply investing in a low-fee S&P 500 index fund.\",\n \"Although I do not know about US Institutions; In India Banks have adopted a mix of features that mitigate the risk. Some ways that are used are;\",\n \"Basically, all the same reasons you might not want to keep piles of your own country's cash, plus or minus the exchange rate question. Banks exist for good reasons. You probably want to use them unless you are explicitly playing the exchange rate game -- And if that's what you want, there are probably better ways to do it. If you need help not touching the money, CDs or other term accounts might give you enough disincentive. Or might not.\",\n \"The FDIC insures deposits up to $250,000 per depositor, per bank, for each ownership category. The ownership categories are: You and a spouse could collectively have $750,000 of insured deposits at a single bank if you each had a single account, and a joint account together.\",\n \"You should talk to a financial fiduciary (make sure they are a fiduciary, not all planners are) about investing your money. Even ultra safe investments such as treasury bonds will beat the 1% interest rate offered by your savings account (the yield on the 5 year treasury is currently around 2%).\",\n \"\\\"If all of the money needs to be liquid, T-Bills from a broker are the way to go. Treasury Direct is a little onerous -- I'm not sure that you could actually get money out of there in a week. If you can sacrifice some liquidity, I'd recommend a mix of treasury, brokered CDs, agency and municipal securities. The government has implicitly guaranteed that \\\"\\\"too big to fail\\\"\\\" entities are going to be backed by the faith & credit of the United States, so investments in general obligation bonds from big states like New York, California and Florida and cities like New York City will yield you better returns, come with significant tax benefits, and represent only marginal additional short-term risk.\\\"\",\n \"\\\"I would keep some money in the U.S. and some money in India. That way, in case \\\"\\\"something bad\\\"\\\" happens in one country, you will still have money in the other.\\\"\",\n \"\\\"You can move most or all of those financial products into a single account at one institution, but I wouldn't go with a \\\"\\\"mutual fund account\\\"\\\" like Vanguard. The big online brokerages should offer: Consolidating everything into one statement can vastly simplify your record keeping. With a balance of $250k, you should be able to get a paper statement without a fee. Depending on where the accounts are currently held (e.g. if the stocks are at a full-service broker), you may also be able to save on fees.\\\"\",\n \"If this is truly your emergency fund, then you should keep the money safe. Unfortunately interest rates are very low right now and there is not much you can do about that. However, ask your investment advisor for a CDIC insured high interest account, such as these:\",\n \"Your goals are mutually exclusive. You cannot both earn a return that will outpace inflation while simultaneously having zero-risk of losing money, at least not in the 2011 market. In 2008, a 5+% CD would have been a good choice. Here's a potential compromise... sacrifice some immediate liquidity for more earnings. Say you had $10,000 saved: In this scheme, you've diversified a little bit, have access to 50% of your money immediately (either through online transfer or bringing your bonds to a teller), have an implicit US government guarantee for 50% of your money and low risk for the rest, and get inflation protection for 75% of your money.\",\n \"In general, the higher the return (such as interest), the higher the risk. If there were a high-return no-risk investment, enough people would buy it to drive the price up and make it a low-return no-risk investment. Interest rates are low now, but so is inflation. They generally go up and down together. So, as a low risk (almost no-risk) investment, the savings account is not at all useless. There are relatively safe investments that will get a better return, but they will have a little more risk. One common way to spread the risk is to diversify. For example, put some of your money in a savings account, some in a bond mutual fund, and some in a stock index fund. A stock index fund such as SPY has the benefit of very low overhead, in addition to spreading the risk among 500 large companies. Mutual funds with a purchase or sale fee, or with a higher management fee do NOT perform any better, on average, and should generally be avoided. If you put a little money in different places regularly, you'll be fairly safe and are likely get a better return. (If you trade back and forth frequently, trying to outguess the market, you're likely to be worse off than the savings account.)\",\n \"That's a sensible plan. No there's no reason for the IRS to see this arrangement as suspicious, particularly because the deposits will be from paychecks; you have a record of where all the money came from. Conversely, multiple cash deposits might be considered suspicious. It can only affect your credit if you have credit lines associated with the account (like an overdraft line of credit). Interest earned could increase your tax liability by a tiny amount, but in the current interest rate environment, that's not much of a worry.\",\n \"I'm pretty sure you are don't actually plan to put £120,000 into a zero interest account, because when you take inflation into account, in 20 years, then £120,000 won't be worth anywhere near that amount. For its value to grow you need the interest rate to exceed the rate of inflation and so paying 20% (or even 40%) tax on the interest can make the difference between whether being richer and getting poorer.\",\n \"You spread money/investment across different accounts for different reasons: All this is in addition to diversification reasons. Investing all your money into one stock, bond, Mutual fund, ETF is risky if that one segment of the economy/market suffers. There is a drawback to diversification of accounts. Some have minimum amounts and fee structures. In the original question you asked about 1,000 per account. That may mean that some accounts may be closed to you. In other cases they will charge a higher percentage for fees for small accounts. Those issues would disappear long before you hit the 1,000,000 per account you mentioned in your comment. One problem can occur with having too much diversification. Having dozens of funds could mean that the overlap between the funds might result in over investing in a segment because you didn't realize that one stock segment appeared in 1/3 of the funds.\",\n \"It is FDIC insured, there is no catch .. a few banks offer above 1% APY. Alliant and Ally come to my mind. Terms & Conditions\",\n \"Chase has a limit of $500,000 per day. A banker should be able to help you determine any immediate tax liabilities that will arise as a direct result of the transaction. You may wish to consult with a tax professional about any indirect implications the transfer may have. This transaction will be reported to the government but assuming that you are not involved in any illegitimate activities the likelihood of the US government taking any action on the notice is incredibly low. I have heard of 7 and 14 day holds being placed on out of character transfers but if you are buying property you should work with your bank to help facilitate. Bankers understand the business and can help you avoid any appearances of impropriety that the government flags. Should your account be flagged, I would retain a lawyer immediately. If you feel you have a reason to be concerned, then I would contact a lawyer in the US and Thailand before initiating the transfer. As they say an ounce of prevention is worth a pound of cure.\",\n \"I wanted to know how safe is such investment with online banks vis-a-vis regular banks? As far as I know, neither money market accounts nor savings accounts have any investment risk (within reason) since both are insured by the FDIC. Note that this is not necessarily the case with money market funds. is their any downside to such investments? Yes, there are a few. I believe the two biggest ones are:\",\n \"To me, it depends. How much are their total assets? Having 10% of your money in something like that isn't crazy. having it all in? That IS crazy. Can they reduce their exposure to this account without paying a penalty (say pull out 10%?) The Manager should be taking direction from them. If they aren't able to get the manager to re-allocate to something more suitable, under your friends direction, they should then pursue whether or not the manager is operating lawfully.\",\n \"\\\"In the case of bank failures You are protected by FDIC insurance. At the time I wrote this, you are insured up to $250,000. In my lifetime, it has been as high as $1,000,000 and as low as $100,000. I attached a link, which is updated by FDIC. In the case of fraud It depends. If you read this story and are horrified (I was too), you know that the banking system is not as safe as the other answers imply: In February 2005, Joe Lopez, a businessman from Florida, filed a suit against Bank of America after unknown hackers stole $90,000 from his Bank of America account. The money had been transferred to Latvia. An investigation showed that Mr. Lopez’s computer was infected with a malicious program, Backdoor.Coreflood, which records every keystroke and sends this information to malicious users via the Internet. This is how the hackers got hold of Joe Lopez’s user name and password, since Mr. Lopez often used the Internet to manage his Bank of America account. However the court did not rule in favor of the plaintiff, saying that Mr. Lopez had neglected to take basic precautions when managing his bank account on the Internet: a signature for the malicious code that was found on his system had been added to nearly all antivirus product databases back in 2003. Ouch. But let's think about the story for a second - he had his money stolen because of online banking and he didn't have the latest antivirus/antimalware software. How safe is banking if you don't do online banking? In the case of this story, it would have prevented keyloggers, but you're still susceptible to someone stealing your card or account information. So: In the bank's defense, how does a bank not know that someone didn't wire money to a friend (which is a loss for good), then get some of that money back from his friend while also getting money back from the bank, which had to face the loss. Yes, it sucks, but it's not total madness. As for disputing charges, from personal experience it also depends. I don't use cards whatsoever, so I've never had to worry, but both of my parents have experienced banking fraud where a fake charge on their card was not reversed. Neither of my parents are rich and can't afford lawyers, so crying \\\"\\\"lawsuit\\\"\\\" is not an option for everyone. How often does this occur? I suspect it's rare that banks don't reverse the charges in fraudulent cases, though you will still lose time for filing and possibly filling out paperwork. The way to prevent this: As much as I hate to be the bearer of bad news, there is no absolutely safe place to keep your money. Even if you bought metals and buried them in the ground, a drifter with a metal detector might run across it one day. You can take steps to protect yourself, but there is no absolute guarantee that these will work out. Account Closures I added this today because I saw this question and have only seen/heard about this three times. Provided that you get the cashier's check back safely, you should be okay - but why was this person's account closed and look at how much funds he had! From his question: In the two years I banked with BoA I never had an overdraft or any negative marks on my account so the only thing that would stick out was a check that I deposited for $26k that my mom left me after she passed. Naturally, people aren't going to like some of my answers, especially this, but imagine you're in an immediate need for cash, and you experience this issue. What can you do? Let's say that rent is on the line and it's $25 for every day that you're late. Other steps to protect yourself Some banks allow you to use a keyword or phrase. If you're careful with how you do this and are clever, it will reduce the risk that someone steals your money.\\\"\",\n \"\\\"Are there still people who keep significant amounts of money in a bank savings account? You could get ~1% by just choosing the right bank. ING Direct, for example, gives 0.8%, 4 times more than your credit union, with the same FDIC insurance! If you do want to invest in something slightly more long-term, you can get a CD. At the same ING Direct, you can get a 5-year CD with 1% APR. Comes with the same FDIC insurance. Note that I mention ING Direct just because I accidentally had their site open right in front of me, their rates are definitely not the highest right now. If you want to give up the FDIC insurance and take some more risks, you can invest your money in municipal bonds or various kinds of \\\"\\\"low risk\\\"\\\" mutual funds, which may yield 3-5% a year. If you want to take even more risks - there's a whole stock market available for you, with ETF's, mutual funds and individual stocks. Whether you should - that only you can tell. But you can have a NO-RISK investment yielding 4-5 times more than what you have right now, just saying.\\\"\",\n \"\\\"Your #1 problem is the Government both in it's form as a taxation outfit and as a 'law and order' outfit. You'd be very surprised at how fast a bank seizes your bank account in response to a court order. Purchase 100 Mexican 50 Peso Gold (1.2 oz/ea). These coins are cheap (lowest cost to get into) and will not be reportable on sale to taxing authorities. That money is out of the banking system and legal system(s). Do not store them in a bank! You need to find a tax strategist, probably a former IRS agent / CPA type. With the rest remaining money... There's an old saying, Don't fight the Fed. As well as \\\"\\\"The trend is your friend\\\"\\\". So, the Fed wants all savers fully invested right now (near 0 interest rates). When investing, I find that if you do exactly opposite what you think is the smart thing, that's the best thing. Therefore, it follows: 1) Don't fight the Fed 2) Do opposite of smart 3) Do: Fight the Fed (and stay 100% out of the market and in cash) We're looking like Japan so could remain deflationary for decades to come. Cash is king...\\\"\",\n \"\\\"HSBC, Hang Seng, and other HK banks had a series of special savings account offers when I lived in HK a few years ago. Some could be linked to the performance of your favorite stock or country's stock index. Interest rates were higher back then, around 6% one year. What they were effectively doing is taking the interest you would have earned and used it to place a bet on the stock or index in question. Technically, one way this can be done, for instance, is with call options and zero coupon bonds or notes. But there was nothing to strategize with once the account was set up, so the investor did not need to know how it worked behind the scenes... Looking at the deposit plus offering in particular, this one looks a little more dangerous than what I describe. See, now we are in an economy of low almost zero interest rates. So to boost the offered rate the bank is offering you an account where you guarantee the AUD/HKD rate for the bank in exchange for some extra interest. Effectively they sell AUD options (or want to cover their own AUD exposures) and you get some of that as extra interest. Problem is, if the AUD declines, then you lose money because the savings and interest will be converted to AUD at a contractual rate that you are agreeing to now when you take the deposit plus account. This risk of loss is also mentioned in the fine print. I wouldn't recommend this especially if the risks are not clear. If you read the fine print, you may determine you are better off with a multicurrency account, where you can change your HK$ into any currency you like and earn interest in that currency. None of these were \\\"\\\"leveraged\\\"\\\" forex accounts where you can bet on tiny fluctuations in currencies. Tiny being like 1% or 2% moves. Generally you should beware anything offering 50:1 or more leverage as a way to possibly lose all of your money quickly. Since you mentioned being a US citizen, you should learn about IRS form TD F 90-22.1 (which must be filed yearly if you have over $10,000 in foreign accounts) and google a little about the \\\"\\\"foreign account tax compliance act\\\"\\\", which shows a shift of the government towards more strict oversight of foreign accounts.\\\"\",\n \"\\\"You state \\\"\\\"Any info will be appreciated\\\"\\\", so here's some background information on my answer (you can skip to my answer): When I worked for banks, I was required to submit suspicious activity to the people above me by filling out a form with a customer's name, SSN, account number(s) and ID. You may hear in media that it is $10K or sometimes $5K. The truth is that it could be lower than that, depending on what the institution defines as suspicious. Every year we were required to take a \\\"\\\"course\\\"\\\" which implied that terrorists and criminals use cash regularly - whether we agree or disagree is irrelevant - this is what the course implied. It's important to understand that many people use cash-only budgets because it's easier than relying on the banking system which charges overdraft fees for going over, or in some cases, you pay more at merchants because of card usage (some merchants give discounts for cash). If someone has a budget of $10K a month and they choose to use cash, that's perfectly fine. Also, why is it anyone's business what someone does with their private property? This created an interesting contrast among differently aged Americans - older Americans saw the banking system as tyrannical busybodies whereas young Americans didn't care. This is part of why I eventually left the banking system; I felt sick that I had to report this information, but it's amazing how quick everyone is to accept the new rules. Notice how one of the comments asks you what you intend to do with the money, as if it's any of their business. Welcome to the New America©! My answer: If you withdraw $100,000, here is what will more than likely happen: Now, watch the anger at this answer because I'm telling you the truth. This article will explain why. Your very question had a negative 1, as if asking what you're asking is wrong (see the absurdity)! If Joseph Stalin ran for president in the United States, the majority of Americans would welcome him. You have good reason to be concerned; others at this site have noticed this as well.\\\"\",\n \"\\\"In answering your question as it's written: I don't think you're really \\\"\\\"missing\\\"\\\" something. Different banks offer different rates. Online banks, or eBanking solutions, such as CapitalOne, Ally, Barclays, etc., typically offer higher interest rates on basic savings accounts. There are differences between Money Market accounts and Standard Savings accounts, but primarily it comes down to how you can access your cash. This may vary based on bank, but Ally has a decent blurb about it: Regular savings accounts are easy to open and, when you choose an online bank like Ally Bank, you tend to get interest rates that are more competitive than brick-and-mortar counterparts, according to Bankrate.com. Additionally, as a member of the FDIC, Ally Bank gives you peace of mind knowing that the money in your Ally Bank Online Savings Account is insured to the maximum allowed by the law. Money market accounts are easy to open, too. And again, online banks may offer better rates than traditional banks. Generally, you have a bit more flexibility of access with a money market account than you do with a savings account. You can access funds in your Ally Bank Money Market Account through electronic fund transfers, checks, debit cards and ATM withdrawals. With savings accounts, your access is limited to electronic funds transfers or telephone withdrawals (and in-person withdrawals at traditional banks). Both types of accounts are subject to federal transaction limits. Here's a bit more information about a Money Market Account and why the rate might be a little bit higher (from thesimpledollar.com): A money market deposit account is a bit different. The restrictions on what a bank can do with that money are somewhat looser – they can often invest that money in things such as treasury notes, certificates of deposit, municipal bonds, and so on in addition to the tight restrictions of a normal savings accounts. In other words, the bank can take your money and invest it in other investments that are very safe. Now outside of your question, if you have $100K that you want to earn interest on, I'd suggest looking at options with higher rates of return rather than a basic savings account which will top out around 1% or so. What you do with that money is dependent on how quickly you need access to it, and there are a lot of Q&A's on this site that cover suggestions.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["First, what's the reason? Why do you have that much in cash at all - are you concerned about market volatility, are you planning to buy a house, do you have tens of millions of dollars and this is your slush fund? Are you a house flipper and this is part of business for you? If you need the money for short term use - ie, you're buying a house in cash next month - then as long as you're in a sound bank (one of the big national ones, for example) it seems reasonable. You can never predict a crash like 2008, but it seems unlikely that Chase or Citibank will go under in the next few weeks. If you like to have a cash position, then split the money among multiple banks. Buy a CD at one major bank with some of the amount. My in-laws have a trust which is partially invested in CDs, and they use multiple banks for this purpose to keep their accounts fully insured. Each separate bank you're covered up to 250k, so if you have $150k at Chase and $150k at a local bank, you're covered. (You're also covered in a much larger amount - up to 1MM potentially - if you are married, as you can have a separate account each for $250k and a joint account up to $500k.) Otherwise, why do you have that much in cash? You should invest it in something that will return more than inflation, at a minimum... Edit post-clarifications: $350k is around my level of 'Maybe, maybe not'. You're risking $100k on a pretty low risk (assuming this isn't a small local bank, and even those are pretty low still). In order to remove that risk you have to do something active - ie, take 100k somewhere else, open a new bank account, etc. - which isn't exactly the hardest thing in the world, but it does take effort. Is it worth the 0.001% chance (entirely made up) you lose the 100k? That's $10, if you agree with that risk chance. Up to you. It wouldn't be particularly hard, though, to open an account with an online bank, deposit $100k in there in a 6 month CD, then pay the IRS from your other account and when the 6 month CD expires take the cash back into your active account. Assuming you're not planning on buying a house in the next six months this should be fine, I'd think (and even then you'd still have $150k for the downpayment up front, which is enough to buy a $750k house w/o PMI). Additionally, as several commenters note: if you can reasonably do so, and your money won't be making significant interest, you might choose to pay your taxes now rather than later. This removes the risk entirely; the likely small interest you earn over 3 months may be similar to the amount you'd spend (mostly of your time, plus possibly actual expenses) moving it to another bank. If you're making 2% or 3% this may not be true, but if you're in a 0.25% account like my accounts are, $100k * 0.25% * 0.25 is $62.50, after all.","Yes. Although I imagine the risk is small, you can remove the risk by splitting your money amongst multiple accounts at different banks so that none of the account totals exceed the FDIC Insurance limit. There are several banks or financial institutions that deposit money in multiple banks to double or triple the effective insurance limit (Fidelity has an account like this, for example)","If you were married the 250K protection can be expanded by the use of joint and individual accounts. A separate limit also exists for IRA accounts. With out those options you will have to put some additional money into another banking institution. This could be a bank or credit union. You have to be careful to make sure that any additional accounts have FDIC or NCUA (for Credit Unions) coverage. Some banking institutions try and turn customers to non-covered accounts that are either investment accounts or use a 3rd party to protect them. You could also use it to invest in US government bonds through Treasury direct. Though for just the few months that you will be in the excess position it probably isn't worth the hassle of treasury direct.","Many brokerage accounts for trading stocks are covered under SIPC insurance, which is up to $500,000 You can also have multiple checking and savings accounts with the $250,000 balance split up. You can also check your bank's capital ratio on the FDIC website, somewhere. The FDIC won't move on them unless it falls under 3% and even then FDIC will force them into receivership and sell them to a bigger bank before they go bust and experience losses of customer deposits. This is what mostly happened when hundreds of banks failed during the crisis from 2008-2010. There were very isolated events where customers actually lost their cash balances, and that was mostly because those customers had completely uninsured accounts. As that was the most extreme moment in US and global financial history, you should be able to judge risk with the aforementioned information in mind. You can stay in a cash balance easily and be fully insured.","Build a trust. I have a trust account under my name and 3 dependents, FDIC confirmed we're good to 1m. Then I have personal accounts for the 4 of us and a corp account, all at the same bank, each also insured."],"string":"[\n \"First, what's the reason? Why do you have that much in cash at all - are you concerned about market volatility, are you planning to buy a house, do you have tens of millions of dollars and this is your slush fund? Are you a house flipper and this is part of business for you? If you need the money for short term use - ie, you're buying a house in cash next month - then as long as you're in a sound bank (one of the big national ones, for example) it seems reasonable. You can never predict a crash like 2008, but it seems unlikely that Chase or Citibank will go under in the next few weeks. If you like to have a cash position, then split the money among multiple banks. Buy a CD at one major bank with some of the amount. My in-laws have a trust which is partially invested in CDs, and they use multiple banks for this purpose to keep their accounts fully insured. Each separate bank you're covered up to 250k, so if you have $150k at Chase and $150k at a local bank, you're covered. (You're also covered in a much larger amount - up to 1MM potentially - if you are married, as you can have a separate account each for $250k and a joint account up to $500k.) Otherwise, why do you have that much in cash? You should invest it in something that will return more than inflation, at a minimum... Edit post-clarifications: $350k is around my level of 'Maybe, maybe not'. You're risking $100k on a pretty low risk (assuming this isn't a small local bank, and even those are pretty low still). In order to remove that risk you have to do something active - ie, take 100k somewhere else, open a new bank account, etc. - which isn't exactly the hardest thing in the world, but it does take effort. Is it worth the 0.001% chance (entirely made up) you lose the 100k? That's $10, if you agree with that risk chance. Up to you. It wouldn't be particularly hard, though, to open an account with an online bank, deposit $100k in there in a 6 month CD, then pay the IRS from your other account and when the 6 month CD expires take the cash back into your active account. Assuming you're not planning on buying a house in the next six months this should be fine, I'd think (and even then you'd still have $150k for the downpayment up front, which is enough to buy a $750k house w/o PMI). Additionally, as several commenters note: if you can reasonably do so, and your money won't be making significant interest, you might choose to pay your taxes now rather than later. This removes the risk entirely; the likely small interest you earn over 3 months may be similar to the amount you'd spend (mostly of your time, plus possibly actual expenses) moving it to another bank. If you're making 2% or 3% this may not be true, but if you're in a 0.25% account like my accounts are, $100k * 0.25% * 0.25 is $62.50, after all.\",\n \"Yes. Although I imagine the risk is small, you can remove the risk by splitting your money amongst multiple accounts at different banks so that none of the account totals exceed the FDIC Insurance limit. There are several banks or financial institutions that deposit money in multiple banks to double or triple the effective insurance limit (Fidelity has an account like this, for example)\",\n \"If you were married the 250K protection can be expanded by the use of joint and individual accounts. A separate limit also exists for IRA accounts. With out those options you will have to put some additional money into another banking institution. This could be a bank or credit union. You have to be careful to make sure that any additional accounts have FDIC or NCUA (for Credit Unions) coverage. Some banking institutions try and turn customers to non-covered accounts that are either investment accounts or use a 3rd party to protect them. You could also use it to invest in US government bonds through Treasury direct. Though for just the few months that you will be in the excess position it probably isn't worth the hassle of treasury direct.\",\n \"Many brokerage accounts for trading stocks are covered under SIPC insurance, which is up to $500,000 You can also have multiple checking and savings accounts with the $250,000 balance split up. You can also check your bank's capital ratio on the FDIC website, somewhere. The FDIC won't move on them unless it falls under 3% and even then FDIC will force them into receivership and sell them to a bigger bank before they go bust and experience losses of customer deposits. This is what mostly happened when hundreds of banks failed during the crisis from 2008-2010. There were very isolated events where customers actually lost their cash balances, and that was mostly because those customers had completely uninsured accounts. As that was the most extreme moment in US and global financial history, you should be able to judge risk with the aforementioned information in mind. You can stay in a cash balance easily and be fully insured.\",\n \"Build a trust. I have a trust account under my name and 3 dependents, FDIC confirmed we're good to 1m. Then I have personal accounts for the 4 of us and a corp account, all at the same bank, each also insured.\"\n]","isConversational":false}}},{"rowIdx":284,"cells":{"_id":{"kind":"string","value":"6890"},"query":{"kind":"string","value":"Where does the money go when I buy stocks?"},"gt_ids":{"kind":"list like","value":["558703","240196"],"string":"[\n \"558703\",\n \"240196\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["558703","240196","154976","471964","327941","32589","245834","393483","167322","260006","160028","128571","239064","381665","26203","524949","593455","211730","369998","332323","516561","241135","413256","413672","511760","317365","390817","537783","386278","258419","528095","525527","259072","226197","584295","365465","482739","427067","286494","537603","395409","313437","148435","186184","137478","592891","552586","155677","231221","568200","461018","540462","564870","173088","406872","306782","286296","116738","180362","564396","493438","192600","196173","93231","109246","339327","451301","152286","429927","25605","158923","130303","455168","210743","481999","370212","65147","313570","525231","407505","350110","99943","598295","466143","563405","522798","94900","591436","442830","217042","1198","517323","580364","449352","434596","454222","34882","347348","131788","320698"],"string":"[\n \"558703\",\n \"240196\",\n \"154976\",\n \"471964\",\n \"327941\",\n \"32589\",\n \"245834\",\n \"393483\",\n \"167322\",\n \"260006\",\n \"160028\",\n \"128571\",\n \"239064\",\n \"381665\",\n \"26203\",\n \"524949\",\n \"593455\",\n \"211730\",\n \"369998\",\n \"332323\",\n \"516561\",\n \"241135\",\n \"413256\",\n \"413672\",\n \"511760\",\n \"317365\",\n \"390817\",\n \"537783\",\n \"386278\",\n \"258419\",\n \"528095\",\n \"525527\",\n \"259072\",\n \"226197\",\n \"584295\",\n \"365465\",\n \"482739\",\n \"427067\",\n \"286494\",\n \"537603\",\n \"395409\",\n \"313437\",\n \"148435\",\n \"186184\",\n \"137478\",\n \"592891\",\n \"552586\",\n \"155677\",\n \"231221\",\n \"568200\",\n \"461018\",\n \"540462\",\n \"564870\",\n \"173088\",\n \"406872\",\n \"306782\",\n \"286296\",\n \"116738\",\n \"180362\",\n \"564396\",\n \"493438\",\n \"192600\",\n \"196173\",\n \"93231\",\n \"109246\",\n \"339327\",\n \"451301\",\n \"152286\",\n \"429927\",\n \"25605\",\n \"158923\",\n \"130303\",\n \"455168\",\n \"210743\",\n \"481999\",\n \"370212\",\n \"65147\",\n \"313570\",\n \"525231\",\n \"407505\",\n \"350110\",\n \"99943\",\n \"598295\",\n \"466143\",\n \"563405\",\n \"522798\",\n \"94900\",\n \"591436\",\n \"442830\",\n \"217042\",\n \"1198\",\n \"517323\",\n \"580364\",\n \"449352\",\n \"434596\",\n \"454222\",\n \"34882\",\n \"347348\",\n \"131788\",\n \"320698\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case), an investment fund, the \"\"market maker\"\" for that stock (websearch for definition of that term), or anyone else. They owned a small percentage of the company; you bought it from them and gave them the money for it, just as you would buy anything else. You don't know or care who you bought from; they don't know or care who they sold to; the market just found a buyer and seller who could agree on the price. There are a very few exceptions to that. The company may repurchase some of its own shares and/or sell them again, depending on its own financial needs and obligations. For example, my own employer has to purchase its own shares periodically so it has enough on hand to sell to employees at a slight discount through the Employee Stock Ownership Program. But you generally don't know that's who you're selling to; it happens like any other transaction. And during the Initial Public Offering, if you're lucky/privileged enough to get in on the first wave of purchases, you're buying from the investment bank that's managing this process ... though that's an almost vanishingly rare case for \"\"retail\"\" investors like us; we're more likely to get the shares after someone has already pushed the price up a bit. But really, when you buy a share the money goes to whoever you bought it from, and that's all you can know or need to know.\"","The money goes to the seller. There are a lot of behind the scenes things that happen, and some transactions are very complicated with many parties involved (evidenced by all the comments on @keshlam's perfectly reasonable high-level answer), but ultimately the money goes to the seller. Sometimes the seller is the company. The billions of shares that change hands each day are moving between other individuals like you and investment funds; these transactions have no direct impact on the company's financials, in general.","Cash changes hands when you buy or sell the stock. While you own the stock, you own it, not cash, so there is no cash to go anywhere. You spent your money when you bought. The seller got that money. It's gone. You hope that when you sell the stock, someone will give you more money for it than you spent. But they may give you less. Money doesn't magically appear either way, it comes from the buyer. After selling, you have the money -- however much you sold for -- and no longer have the stock. NOTE that this means the current value of a share of stock is interesting, but not really very relevant, unless you are actively buying or selling. What your portfolio is worth on paper is nothing more than an approximate snapshot at the moment you retrieve the data. It is not a promise of what will actually happen when you do sell.","A share is just a part ownership of a company. If you buy a share of a green stock in the open market, you now just own part of a green company. Just like if you buy a house, the money you paid moves to the former owner, but what you are getting is a clear asset in return that you now own. Via mutual funds/indexes this can get a little more complicated (voting rights etc tend to go to the mutual/indexing company rather than the holders of the fund), but is approximately the same thing: the fund buys assets on the open market, then holds them, buys more, or sells them on behalf of the fund investors.","You or the broker place an order to buy the share with the stock exchange. There has to be a matching sell order by someone. Once a match is made, you pay the money and get the share.","First: the question is irrelevant for purchases on exchange, mostly. Majority of sales on stock exchanges is between shareholders. If however you buy directly from the company (in a IPO, or direct share purchase program of some kind, like ESPP), then it does end up showing in the company account ledgers one way or another. It then become part of company's total assets, and the newly sold shares add to the equity.","In short, thanks to the answers and comments posted so far. No actual money is magically disappeared when the stock price goes down but the value is lost. The value changes of a stock is similar to the value changes of a house. The following is the long answer I came up with based on the previous answers and comments alone with my own understandings. Any experts who find any of the following is 200% out of place and wrong, feel free to edit it or make comments. Everything below only applies if the following are true: The stock price is only decreasing since the IPO because the company has been spending the money but not making profits after the IPO. The devaluation of the stock is not the result of any bad news related to the company but a direct translation of the money the company has lost by spending on whatever the company is doing. The actual money don’t just disappear into the thin air when the stock price goes down. All the money involved in trading this stock has already distributed to the sellers of this stock before the price went down. There is no actual money that is literally disappeared, it was shifted from one hand to another, but again this already happened before the price went down. For example, I bought some stocks for $100, then the price went down to $80. The $100 has already shifted from my hand to the seller before the price went down. I got the stock with less value, but the actual money $100 did not just go down to $80, it’s in the hand of the seller who sold the stock to me. Now if I sell the stock to the same seller who sold the stock to me, then I lost $20, where did the $20 go? it went to the seller who sold the stock to me and then bought it back at a lower price. The seller ended up with the same amount of the stocks and the $20 from me. Did the seller made $20? Yes, but did the seller’s total assets increased? No, it’s still $100, $80 from the stocks, and $20 in cash. Did anyone made an extra $20? No. Although I did lost $20, but the total cash involved is still there, I have the $80 , the seller who sold the stock to me and then bought it back has the $20. The total cash value is still $100. Directly, I did lost $20 to the guy who sold me the stock when the stock has higher value and then bought it back at a lower price. But that guy did not increased his total assets by $20. The value of the stock is decreased, the total money $100 did not disappear, it ended up from one person holding it to 2 people holding it. I lost $20 and nobody gained $20, how is that possible? Assume the company of the stock never made any profit since it’s IPO, the company just keeps spending the money, to really track down where the $20 I lost is going, it is the company has indirectly spent that money. So who got that $20 I lost? It could be the company spent $20 for a birthday cake, the $20 went to the cake maker. The company never did anything to make that $20 back, so that $20 is lost. Again, assume the stock price only goes down after its IPO, then buying this stock is similar to the buying a sport car example from JoeTaxpayer (in one of the answers), and buying an apple example from BrenBarn(in one of the comments from JoeTaxpayer’s answer). Go back to the question, does the money disappears into the thin air when the value of the stock goes down? No, the money did not disappear, it switched hands. It went from the buyer of the stock to the company, and the company has spent that money. Then what happens when the stock price goes down because bad news about the company? I believe the actual money still did not just disappear. If the bad news turn out to be true that the company had indeed lost this much money, the money did not disappear, it’s been spent/lost by the company. If the bad news turn out to be false, the stock price will eventually go up again, the money is still in the hand of the company. As a summary, the money itself did not disappear no matter what happens, it just went from one wallet to another wallet in many different ways through the things people created that has a value.","Because the stock still has the same value as the money paid for it - you are just exchanging one asset for another (of course the stock value starts to change immediately, but for the accounting the fictional value is the buying price). For the accounting, it is similar to changing a 100$ bill in five 20$ bills - same value, still assets.","\"I probably don't understand something. I think you are correct about that. :) The main way money enters the stock market is through investors investing and taking money out. Money doesn't exactly \"\"enter\"\" the stock market. Shares of stock are bought and sold by investors to investors. The market is just a mechanism for a buyer and seller to find each other. For the purposes of this question, we will only consider non-dividend stocks. Okay. When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets. For example, if I bought $10 of Apple Stock early on, but it later went up to $399, I can't go to Apple and say \"\"I own $399 of you, here you go it back, give me an iPhone.\"\" The only way to redeem this is to sell the stock to another investor (like a Ponzi Scheme.) It is true that when you own stock, you own a small portion of the company. No, you can't just destroy your portion of the company; that wouldn't be fair to the other investors. But you can very easily sell your portion to another investor. The stock market facilitates that sale, making it very easy to either sell your shares or buy more shares. It's not a Ponzi scheme. The only reason your hypothetical share is said to be \"\"worth\"\" $399 is that there is a buyer that wants to buy it at $399. But there is a real company behind the stock, and it is making real money. There are several existing questions that discuss what gives a stock value besides a dividend: The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market. In particular, if no one puts money in the stock market, it doesn't matter how good the businesses do. The value of a stock is simply what a buyer is willing to pay for it. You are correct that there is not always a correlation between the price of a stock and how well the company is doing. But let's look at another hypothetical scenario. Let's say that I started and run a publicly-held company that sells widgets. The company is doing very well; I'm selling lots of widgets. In fact, the company is making incredible amounts of money. However, the stock price is not going up as fast as our revenues. This could be due to a number of reasons: investors might not be aware of our success, or investors might not think our success is sustainable. I, as the founder, own lots of shares myself, and if I want a return on my investment, I can do a couple of things with the large revenues of the company: I can either continue to reinvest revenue in the company, growing the company even more (in the hopes that investors will start to notice and the stock price will rise), or I can start paying a dividend. Either way, all the current stock holders benefit from the success of the company.\"","Now a days, your stocks can be seen virtually through a brokerage account. Back in the days, a stock certificate was the only way to authenticate stock ownership. You can still request them though from the corporation you have shares in or your brokerage. It will have your name, corporation name and number of shares you have. You have to buy shares of a stock either through a brokerage or the corporation itself. Most stock brokerages are legit and are FDIC or SIPC insured. But your risks are your own loses. The $10 you are referring to is the trade commission fee the brokerage charges. When you place an order to buy or sell a stock the brokerage will charge you $10. So for example if you bought 1 share of a $20 stock. The total transaction cost will be $30. Depending on the state you live in, you can basically starting trading stocks at either 18 or 21. You can donate/gift your shares to virtually anyone. When you sell a stock and experience a profit, you will be charged a capital gains tax. If you buy a stock and sell it for a gain within 1 year, you will taxed up to 35% or your tax bracket but if you hold it for more than a year, you will taxed only 15% or your tax bracket.","\"Ditto to MD-Tech, but from a more \"\"philosophical\"\" point of view: When you buy stock, you own it, just like you own a cell phone or a toaster or a pair of socks that you bought. The difference is that a share of stock means that you own a piece of a corporation. You can't physically take possession of it and put it in your garage, because if all the stock-holders did that, then all the company's assets would be scattered around all the stock-holder's garages and the company couldn't function. Like if you bought a 1/11 share in a football team, you couldn't take one of the football players home and keep him in your closet, because then the team wouldn't be able to function. (I might want to take one of the cheerleaders home, but that's another subject ...) In pre-electronic times, you could get a piece of paper that said, \"\"XYZ Corporation - 1 share\"\". You could take physical possession of this piece of paper and put it in your filing cabinet. I'm not sure if you can even get such certificates any more; I haven't seen one in decades. These days it's just recorded electronically. That doesn't mean that you don't own it. It just means that someone else is keeping the records for you. It's like leaving your car in a parking lot. It's still your car. The people who run the parking lot doesn't own it. They are keeping it for you, but just because they have physical possession doesn't make it theirs.\"","Don't sit on it, because the money does not work for you. Add more money to it and buy a stock or stocks of the company.","When I invest in a business valued at $50,000, I pay $25,000 and receive 50% equity. Does that $25,000 go to the current owner of the business, or into the capital of the business itself? Who receives the money depends on who is selling you the equity. There are a couple of different scenarios that can fit your question. You could buy existing shares from the current owner(s) of the company. In this case, the current owner(s) would be receiving the funds from you, and in return giving you their stake in the company. So if you all agree that the value of the business is $50,000, and you give $25,000 to the current owner(s), they give you half of their shares. The value of the company has not changed. The company could be issuing new shares. This is called stock dilution, or an increase in authorized share capital. Let's say that everyone agrees that the value of the business is $50,000. The company could create new shares and sell them to you for $25,000. In this case, the value of the company has jumped to $75,000; you now control one-third of the company, and the existing owner(s), who previously owned 100% of the company, now only own two-thirds. In order for you to end up with 50% of the company in this case, you would have to invest $50,000 instead, which would result in the company being valued at $100,000. If you are wondering why the current owners would agree to this second scenario, there are two questions that address this:","\"It's not a ponzi scheme, and it does create value. I think you are confusing \"\"creating value\"\" and \"\"producing something\"\". The stock market does create value, but not in the same way as Toyota creates value by making a car. The stock market does not produce anything. The main way money enters the stock market is through investors investing and taking money out. The only other cash flow is in through dividends and out when businesses go public. & The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market. Earnings are the in-flow that you are missing here. Business profits DO flow back into the stock market through earnings and dividends. Think about a private company: if it has $100,000 in profits for the year then the company keeps $100,000, but if that same company is publicly traded with 100,000 shares outstanding then, all else being equal, each of those shares went up by $1. When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets. You can't go to an Apple store and try to pay with a stock certificate, but that doesn't mean the certificate doesn't have value. Using your agriculture example, you wouldn't be able to pay with a basket of tomatoes either. You wouldn't even be able to pay with a lump of gold! We used to do that. It was called the barter system. Companies also do buy shares back from the market using company cash. Although they usually do it through clearing-houses that are capable of moving blocks of 1,000 shares at a time.\"","First, the stock does represent a share of ownership and if you have a different interpretation I'd like to see proof of that. Secondly, when the IPO or secondary offering happened that put those shares into the market int he first place, the company did receive proceeds from selling those shares. While others may profit afterward, it is worth noting that more than a few companies will have secondary offerings, convertible debt, incentive stock options and restricted stock that may be used down the road that are all dependent upon the current trading share price in terms of how useful these can be used to fund operations, pay executives and so forth. Third, if someone buys up enough shares of the company then they gain control of the company which while you aren't mentioning this case, it is something to note as some individuals buy stock so that they can take over the company which happens. Usually this has more of an overall plan but the idea here is that getting that 50%+1 control of the company's voting shares are an important piece to things here.","If you buy a stock and it goes up, you can sell it and make money. But if you buy a stock and it goes down, you can lose money.","You buy stocks for dividends over the long term. If a share of stock pays $1.00 in dividends every quarter, that's four dollars a year. If you bought it for $40, it pays out $4 in a year, and it's still worth roughly $40 at the end of the year, you're $4 richer. People will often invest large amounts of money in stable stocks not planning to sell it, but only collect the dividends which are either re-invested or pulled out as income.","When you buy a stock, you become a partial owner of the company that the stock is for. As the company is valued at a higher or lower amount, the stock will reflect that by gaining or losing value. You still own that stock. For example, if you bought a stock for $10 per share and next week it is worth $8 dollars per share, the only loss incurred is on paper. You do not have to pay the difference (which I think is what you are asking?) and will only physically lose that money if you sell at that point. Similarly if that stock becomes worth $12, you have only gained money on paper and can only physically see it if you sell at that point.","It depends. If the investor bought newly-issued shares or treasury shares, the company gets the money. If the investor bought shares already held by the owner, the owner gets the money. A 100% owner can decide how to structure the sale. Yet, the investor may only be willing to buy shares if the funds increase the company's working capital.","Stock trading (as opposed to IPO) doesn't directly benefit the company. But it affects their ability to raise additional funds; if they're valued higher, they don't need to sell as many shares to raise a given amount of money. And the stockholders are part owners of the company; their votes in annual corporate meetings and the like can add up to a substantial influence on the company's policies, so the company has an interest in keeping them (reasonably) happy. Dividends (distributing part of the company's profits to the stockholders) are one way of doing so. You're still investing in the company. The fact that you're buying someone else's share just means you're doing so indirectly, and they're dis-investing at the same time.","The stock market is no different in this respect to anything that's bought or sold. The price of a stock like many other things reflects what the seller is prepared to sell it at and what the buyer is prepared to offer for it. If those things match then a transaction can take place. The seller loses money but gains stocks they feel represent equivalent value, the reverse happens for the buyer. Take buying a house for example, did the buyer lose money when they bought a house, sure they did but they gained a house. The seller gained money but lost a house. New money is created in the sense that companies can and do make profits, those profits, together with the expected profits from future years increase the value that is put on the company. If we take something simple like a mining company then its value represents a lot of things: and numerous other lesser things too. The value of shares in the mining company will reflect all of these things. It likely rises and falls in line with the price of the raw materials it mines and those change based on the overall supply and demand for those raw materials. Stocks do have an inherent value, they are ownership of a part of a company. You own part of the asset value, profits and losses made by that company. Betting on things is different in that you've no ownership of the thing you bet on, you're only dependent on the outcome of the bet.","Yes, you often can buy stocks directly from the company at little or no transaction cost. Many companies have either a Dividend Reinvestment Plan (DRIP) or a Direct Stock Plan (DSP). With these plans, you purchase shares directly from the company (although, often there is a third party transfer agent that handles the transaction), and the stock is issued in your name. This differs from purchasing stock from a broker, where the stock normally remains in the name of the broker. Generally, in order to begin participating in a DRIP, you need to already be a registered stockholder. This means that you need to purchase your first share of stock outside of the DRIP, and get it in your name. After that, you can register with the DRIP and purchase additional shares directly from the company. If the company has a DSP, you can begin purchasing shares directly without first being a stockholder. With the advent of discount brokers, DRIPs do not save as much money for regular investors as they once did. However, they can still sometimes save money for someone who wants to purchase shares on a regular basis over even a discount broker. If you are interested in DRIPs and DSPs and want to learn more, there is an informative website at dripinvesting.org that has lots of information on which DRIPs are available and how to get started.","\"There is a legal document called a \"\"Stock Purchase Agreement\"\" and it depends on who is the other party to the buyer in the Agreement. In almost all startups the sale goes through the company, so the company keeps the money. In your example, the company would be worth $10,000 \"\"Post-Money\"\" because the $1k got 10% of the Company.\"","\"Hmm... Well there are several ways to do that: Go to any bank (or at the very least major ones). They can assist you with buying and/or selling stocks/shares of any company on the financial market. They keep your shares safe at the bank and take care of them. The downside is that they will calculate fees for every single thing they do with your money or shares or whatever. Go to any Financial broker/trader that deals with the stock market. Open an account and tell them to buy shares from company \"\"X\"\" and keep them. Meaning they won't trade with them if this is what you want. Do the same as point 2, but on your own. Find a suitable broker with decent transaction fees, open an account, find the company's stock code and purchase the stocks via the platform the broker uses.\"","Anytime you invest in stocks, you do that inside an investment account - such as the type you might open at ETrade, Vanguard, Fidelity or Charles Schwab. Once you have the account and fund it, you can tell the system to invest some/all of your money in When you open your investment account, their first question will be whether this is a cash account, traditional IRA, or Roth IRA. The broker must report this to the IRS because the tax treatment is very different.","\"Most of the time* you're selling to other investors, not back to the company. The stock market is a collection of bid (buy offers) and asks (sell offers). When you sell your stock as a retail investor at the \"\"market\"\" price you're essentially just meeting whatever standing bid offers are on the market. For very liquid stocks (e.g. Apple), you can pretty much always get the displayed price because so many stocks are being traded. However during periods of very high volatility or for low-volume stocks, the quoted price may not be indicative of what you actually pay. As an example, let's say you have 5 stocks you're trying to sell and the bid-side order book is 2 stocks for $105, 2 for $100, and 5 for $95. In this scenario the quoted price will be $105 (the best bid price), but if you accept market price you'll settle 2 for 105, 2 for 100, and 1 for 95. After your sell order goes through, the new quoted price will be $95. For high volume stocks, there will usually be so many orders near the midpoint price ($105, in this case) that you won't see any price slippage for small orders. You can also post limit orders, which are essentially open orders waiting to be filled like in the above example. They ensure you get the price you want, but you have no way to guarantee they'll be filled or not. Edit: as a cool example, check out the bitcoin GDAX on coinbase for a live example of what the order book looks like for stocks. You'll see that the price of bitcoin will drift towards whichever direction has the less dense order book (e.g. price drifts upwards when there are far more bids than asks.)\"","The worth of a share of stocks may be defined as the present cash value of all future dividends and liquidations associated therewith. Without a crystal ball, such worth may generally only be determined retrospectively, but even though it's generally not possible to know the precise worth of a stock in time for such information to be useful, it has a level of worth which is absolute and not--unlikely market price--is generally unaffected by people buying and selling the stock (except insofar as activities in company stock affect a company's ability to do business). If a particular share of stock is worth $10 by the above measure, but Joe sells it to Larry for $8, that means Joe gives Larry $2. If Larry sells it to Fred $12, Fred gives Larry $2. The only way Fred can come out ahead is if he finds someone else to give him $2 or more. If Fred can sell it to Adam for $13, then Adam will give Fred $3, leaving Fred $1 better off than he would be if he hadn't bought the stock, but Adam will be $3 worse off. The key point is that if you sell something for less than it's worth, or buy something for more that it's worth, you give money away. You might be able to convince other people to give you money in the same way you gave someone else money, but fundamentally the money has been given away, and it's not coming back.","This is a very good question! The biggest difference is that when you put money in a savings bank you are a lender that is protected by the government, and when you buy stocks you become an owner. As a lender, whether the bank makes or loses money on the loans it makes, they still maintain your balance and pay you interest, and your principal balance is guaranteed by the government (in the USA). The bank is the party that is primarily at risk if their business does not perform well. As an owner, you participate fully in the company's gains and losses, but you also put your money at risk, since if the company loses money, you do too. Because of this, many people prefer to buy funds made up of many stocks, so they are not at risk of one company performing very poorly or going bankrupt. When you buy stock you become a part owner and share in the profitability of the company, often through a dividend. You should also be aware that stocks often have years where they do very poorly as well as years when they do very well. However, over a long period of time (10 years or more), they have historically done better in outpacing inflation than any other type of investment. For this reason, I would recommend that you only invest in the stock market if you expect to be able to leave the money there for 10 years or more, ideally, and for 5 years at the very least. Otherwise, you may need to take the money out at a bad time. I would also recommend that you only invest in stocks if you already have an emergency fund, and don't have consumer debt. There isn't much point in putting your money at risk to get a return if you can get a risk-free return by paying off debt, or if you would have to pull your money back out if your car broke down or you lost your job.","how do they turn shares into cash that they can then use to grow their business? Once a Company issues an IPO or Follow-On Public Offer, the company gets the Money. Going over the list of question tagged IPO would help you with basics. Specifically the below questions; How does a company get money by going public in an IPO? Why would a company care about the price of its own shares in the stock market? Why would a stock opening price differ from the offering price? From what I've read so far, it seems that pre-IPO an investment bank essentially buys the companies public shares, and that bank then sells them on the open market. Is the investment bank buying 100% of the newly issued public shares? And then depositing the cash equivalent into the companies bank account? Additionally, as the stock price rises and falls over the lifetime of the company how does that actually impact the companies bank balance? Quite a bit on above is incorrect. Please read the answers to the question tagged IPO. Once an IPO is over, the company does not gain anything directly from the change in shareprice. There is indirect gain / loss.","For some very small private companies I know of (and am part of), paper stocks do exist. You can sit at the table with the damn things in your hand and wave them in people's faces. They tell everyone how much of the company you own as a result of the money you ponied up. On the other hand, most stocks are now electronic. Nothing to hold. Just electronic records to review. They still represent how much you own of the company because of some amount of money you have put at risk, but they aren't anywhere near as much fun as the old-fasioned paper proofs. (As MrChrister notes, you can pay a small fee to get paper if you like, even for some big companies. Some of these paper stocks are remarkably elaborate and fine looking, but hardly necessary.) (You can see more info about what stocks are and what sort of stocks exist here: http://www.wikinvest.com/wiki/What_is_a_stock%3F)","For point two.. The norm for buying stock is to just register online with a major broker: Fidelity, Schwab,TD Ameritrade...etc, send them money to fund your purchase, make the stock purchase in your account, and then have a little faith. You could probably get them to physically transfer the stock certificates from them to you, but it is not the norm at all. I would plan on a fee being involved also. The 10$ is for one trade... regardless of if you buy one share or many. So you wouldn't buy 1 share of a five dollar stock as your cost would be absurd. You might buy a hundred shares.","\"There is no unique identifier that exists to identify specific shares of a stock. Just like money in the bank, there is no real reason to identify which exact dollar bills belong to me or you, so long as there is a record that I own X bills and I can access them when I want. (Of course, unlike banks, there is still a 1:1 relationship between the amount I should own and the amount they actually hold). If I may reach a bit, the question that I assume you are asking is how are shared actually tracked, transferred, and recorded so that I know for certain that I traded you 20 Microsoft shares yesterday and they are now officially yours, given that it's all digital. While you can technically try and request a physical share certificate, it's very cumbersome to handle and transfer in that form. Ownership of shares themselves are tracked for brokerage firms (in the case of retail trading, which I assume is the context of this question as we're discussion personal finance). Your broker has a record of how many shares of X, Y, and Z you own, when you bought each share and for how much, and while you are the beneficial owner of record (you get dividends, voting rights, etc.) your brokerage is the one who is \"\"holding\"\" the shares. When you buy or sell a stock and you are matched with a counterparty (the process of which is beyond the scope of this question) then a process of settlement comes into play. In the US, settlement takes 3 working days to process, and technically ownership does not transfer until the 3rd day after the trade is made, though things like margin accounts will allow you to effectively act as if you own the shares immediately after a buy/sell order is filled. Settlement in the US is done by a sole source, the Depository Trust & Clearing Corporation (DTCC). This is where retail and institutional trade all go to be sorted, checked and confirmed, and ultimately returned to the safekeeping of their new owners' representatives (your brokerage). Interestingly, the DTCC is also the central custodian for shares both physical and virtual, and that is where the shares of stock ultimately reside.\"","What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000.","\"The answer is partly and sometimes, but you cannot know when or how. Most clearly, you do not take somebody else's money if you buy shares in a start-up company. You are putting your money at risk in exchange for a share in the rewards. Later, if the company thrives, you can sell your shares for whatever somebody else will pay for your current share in the thriving company's earnings. Or, you lose your money, when the company fails. (Much of it has then ended up in the company's employees' pockets, much of the rest with the government as taxes that the company paid). If the stockmarket did not exist, people would be far less willing to put their money into a new company, because selling shares would be far harder. This in turn would mean that fewer new things were tried out, and less progress would be made. Communists insist that central state planning would make better decisions than random people linked by a market. I suggest that the historical record proves otherwise. Historically, limited liability companies came first, then dividing them up into larger numbers of \"\"bearer\"\" shares, and finally creating markets where such shares were traded. On the other hand if you trade in the short or medium term, you are betting that your opinion that XYZ shares are undervalued against other investors who think otherwise. But there again, you may be buying from a person who has some other reason for selling. Maybe he just needs some cash for a new car or his child's marriage, and will buy back into XYZ once he has earned some more money. You can't tell who you are buying from, and the seller can only tell if his decision to sell was good with the benefit of a good few years of hindsight. I bought shares hand over fist immediately after the Brexit vote. I was putting my money where my vote went, and I've now made a decent profit. I don't feel that I harmed the people who sold out in expectation of the UK economy cratering. They got the peace of mind of cash (which they might then reinvest in Euro stocks or gold or whatever). Time will tell whether my selling out of these purchases more recently was a good decision (short term, not my best, but a profit is a profit ...) I never trade using borrowed money and I'm not sure whether city institutions should be allowed to do so (or more reasonably, to what extent this should be allowed). In a certain size and shortness of holding time, they cease to contribute to an orderly market and become a destabilizing force. This showed up in the financial crisis when certain banks were \"\"too big to fail\"\" and had to be bailed out at the taxpayer's expense. \"\"Heads we win, tails you lose\"\", rather than trading with us small guys as equals! Likewise it's hard to see any justification for high-frequency trading, where stocks are held for mere milliseconds, and the speed of light between the trader's and the market's computers is significant.\"","There are two terms that are related, but separate here: Broker and Market Maker. The former is who goes and finds a buyer/seller to buy/sell shares from/to you. The latter (Market Maker) is a company which will agree to partner with you to complete the sale at a set price (typically the market price, often by definition as the market maker often is the one who determines the market price in a relatively low volumne listing). A market maker will have as you say a 'pool' of relatively common stock (and even relatively uncommon, up to a point) for this purpose. A broker can be a market maker (or work for one), also, in which case he would sell you directly the shares from the market maker reservoir. This may be a bad idea for you - the broker (while obligated to act in your interest, in theory) may push you towards stocks that the brokerage acts as a market maker for.","\"Very simple. You open an account with a broker who will do the trades for you. Then you give the broker orders to buy and sell (and the money to pay for the purchases). That's it. In the old days, you would call on the phone (remember, in all the movies, \"\"Sell, sell!!!!\"\"? That's how), now every decent broker has an online trading platform. If you don't want to have \"\"additional value\"\" and just trade - there are many online discount brokers (ETrade, ScotTrade, TD Ameritrade, and others) who offer pretty cheap trades and provide decent services and access to information. For more fees, you can also get advices and professional management where an investment manager will make the decisions for you (if you have several millions to invest, that is). After you open an account and login, you'll find a big green (usually) button which says \"\"BUY\"\". Stocks are traded on exchanges. For example the NYSE and the NASDAQ are the most common US exchanges (there's another one called \"\"pink sheets\"\", but its a different kind of animal), there are also stock exchanges in Europe (notably London, Frankfurt, Paris, Moscow) and Asia (notably Hong Kong, Shanghai, Tokyo). Many trading platforms (ETrade, that I use, for example) allow investing on some of those as well.\"","\"There is one other factor that I haven't seen mentioned here. It's easy to assume that if you buy a stock, then someone else (another stock owner) must have sold it to you. This is not true however, because there are people called \"\"market makers\"\" whose basic job is to always be available to buy shares from those who wish to sell, and sell shares to those who wish to buy. They could be selling you shares they just bought from someone else, but they also could simply be issuing shares from the company itself, that have never been bought before. This is a super oversimplified explanation, but hopefully it illustrates my point.\"","A purchase of a stock is not a taxable event. No 1099 to worry about. Welcome to Money.SE","People buy stocks with the intention of making money. They either expect the price to continue to rise or that they will get dividends and the price will not drop (enough) to wipe out their dividend earnings.","If I invest X each month, where does X go - an existing (low yield) bond, or a new bond (at the current interest rate)? This has to be viewed in a larger context. If the fund has outflows greater than or equal to inflows then chances are there isn't any buying being done with your money as that cash is going to those selling their shares in the fund. If though inflows are greater than outflows, there may be some new purchases or not. Don't forget that the new purchase could be an existing bond as the fund has to maintain the duration of being a short-term, intermediate-term or long-term bond fund though there are some exceptions like convertibles or high yield where duration isn't likely a factor. Does that just depend on what the fund manager is doing at the time (buying/selling)? No, it depends on the shares being created or redeemed as well as the manager's discretion. If I put Y into a fund, and leave it there for 50 years, where does Y go when all of the bonds at the time I made the purchase mature? You're missing that the fund may buy and sell bonds at various times as for example a long-term bond fund may not have issues nearing maturity because of what part of the yield curve it is to mimic. Does Y just get reinvested in new bonds at the interest rate at that time? Y gets mixed with the other money in the fund that may increase or decrease in value over time. This is part of the risk in a bond fund where NAV can fluctuate versus a money market mutual fund where the NAV is somewhat fixed at $1/share.","This depends on what your definition of the word is is. Strictly speaking, you are only investing in a company when you buy stock from them somehow. This is usually done during an IPO or a secondary offering. Or, if you are someone like Warren Buffet or an institutional investor, you strike a deal with the company to buy shares directly from them. Otherwise, your money goes to someone else. Merriam-Webster defines speculate as 1b: to review something idly or casually and often inconclusively However, it also defines it as: 2: to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations The typical use of the term stock speculation vs stock investing involves definition 1b. This alludes to the idea that little to no research was done about the stock. This may be due to a lack of time, interest, knowledge, etc., or it may be due to a lack of information. The former usually has a negative connotation. The latter may have a negative connotation, though usually the connotation is one of greater risk. Strictly speaking, definition 2 includes investing as you define it along with investing in securities/commodities.","I have been careful here to cover both shares in companies and in ETFs (Exchange Traded Funds). Some information such as around corporate actions and AGMs is only applicable for company shares and not ETFs. The shares that you own are registered to you through the broker that you bought them via but are verified by independent fund administrators and brokerage reconciliation processes. This means that there is independent verification that the broker has those shares and that they are ring fenced as being yours. The important point in this is that the broker cannot sell them for their own profit or otherwise use them for their own benefit, such as for collateral against margin etc.. 1) Since the broker is keeping the shares for you they are still acting as an intermediary. In order to prove that you own the shares and have the right to sell them you need to transfer the registration to another broker in order to sell them through that broker. This typically, but not always, involves some kind of fee and the broker that you transfer to will need to be able to hold and deal in those shares. Not all brokers have access to all markets. 2) You can sell your shares through a different broker to the one you bought them through but you will need to transfer your ownership to the other broker and that broker will need to have access to that market. 3) You will normally, depending on your broker, get an email or other message on settlement which can be around two days after your purchase. You should also be able to see them in your online account UI before settlement. You usually don't get any messages from the issuing entity for the instrument until AGM time when you may get invited to the AGM if you hold enough stock. All other corporate actions should be handled for you by your broker. It is rare that settlement does not go through on well regulated markets, such as European, Hong Kong, Japanese, and US markets but this is more common on other markets. In particular I have seen quite a lot of trades reversed on the Istanbul market (XIST) recently. That is not to say that XIST is unsafe its just that I happen to have seen a few trades reversed recently.","I see a false assumption that you are making. (Almost always) When you buy stock the cash you spend does not go to the company. Instead it goes to someone else who is selling their shares. The exception to this is when you buy shares in an IPO. Those of us who have saved all our lives for retirement want income producing investments once we retire. (Hopefully) We have saved up quite a bit of money. To have us purchase their stock companies have to offer us dividends.","\"In general, I think you're conflating a lot of ideas. The stock market is not like a supermarket. With the exception of a direct issue, you're not buying your shares from the company or from the New York Stock Exchange you're buying from an owner of stock, Joe, Sally, a pension fund, a hedge fund, etc; it's not sitting on a shelf at the stock market. When you buy an Apple stock you don't own $10 of Apple, you own 1/5,480,000,000th of Apple because Apple has 5,480,000,000 shares outstanding. When a the board gets together to vote on and approve a dividend the approved dividend is then divided by 5.48 billion to determine how much each owner receives. The company doesn't pay dividends out to owners from a pot of money it received from new owners; it sold iPhones at a profit and is sending a portion of that profit to the owners of the company. \"\"When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets.\"\" The statement does have backing. It's backed by the US Judicial system. But there's a difference between owning a company and owning the assets of the company. You own 1/5,480,000,000 of the company and the company owns the company's assets. Nevermind how disruptive it would be if any shareholder could unilaterally decide to sell a company's buildings or other assets. This is not a ponzi scheme because when you buy or sell your Apple stock, it has no impact on Apple, you're simply transacting with another random shareholder (barring a share-repurchase or direct issue). Apple doesn't receive the proceeds of your private transaction, you do. As far as value goes, yes the stock market provides tons of value and is a staple of capitalism. The stock market provides an avenue of financing for companies. Rather than taking a loan, a company's board can choose to relinquish some control and take on additional owners who will share in the spoils of the enterprise. Additionally, the exchanges deliver value via an unbelievable level of liquidity. You don't have to go seek out Joe or Sally when you want to sell your Apple stock. You don't need to put your shares on Craigslist in the hope of finding a buyer. You don't have to negotiate a price with someone who knows you want to sell. You just place an order at an exchange and you're aligned with a buyer. Also understand that anything can move up or down in value without any money actually changing hands. Say you get your hands on a pair of shoes (or whatever), they're hot on the market, very rare and sought after. You think you can sell them for $1,000. On tonight's news it turns out that the leather is actually from humans and the CEO of the company is being indicted, the company is falling apart, etc. Your shoes just went from $1,000 to $0 with no money changing hands (or from $1,000 to $100,000 depending on how cynical you are).\"","No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public. However, the company could issue more shares at the new higher price to raise more capital.","Do I make money in the stock market from other people losing money? Sometimes. If the market goes down, and someone sells -- on a panic, perhaps, or nervousness -- at a loss, if you have extra cash then you can buy that stock on the hope/expectation that its value will rise.","As others have said, it depends on the brokerage firm. My broker is Scottrade. With Scottrade the commission is assessed and applied the moment the order is filled. If I buy 100 shares of XYZ at $10 a share then Scottrade will immediately deduct $1007.02 out of my account. They add the commission and fees to the buy transaction. On a sale transaction they subtract the commission and fees from the resulting money. So if I sell 100 shares of XYZ at $11 a share I will get 1,092.98 put into my account, which I can use three business days later.","That is a loaded question but I'll give it a shot. First things first you need to determine if you are ready to invest in stocks. If you have a lot of high interest debt you would be much better served paying that off before investing in stocks. Stocks return around 8%-10% in the long run, so you'd be better off paying off any debt you have that is higher than 8%-10%. Most people get their start investing in stocks through mutual funds in their 401k or a Roth IRA. If you want to invest in individual stocks instead of mutual funds then you will need to do a lot of reading and learning. You will need a brokerage account or if you have a stock in mind they might have a dividend reinvestment plan (DRIP) that you could invest in directly with the company. You will have to compare the different brokerage firms to determine which is best for you. Since you seem to be internet savvy, I suggest you use a discount brokerage that let's you buy stocks online with cheaper commissions. A good rule of thumb is to keep commissions below 1% of the amount invested. Once you have your online brokerage account open with money in there the process of actually buying the stock is fairly straightforward. Just place an order for the amount of shares you want. That order can be a market order which means the purchase will occur at the current market price. Or you can use a limit order where you control at what price your purchase will occur. There are lots of good books out there for beginners. Personally I learned from the Motley Fool. And last but not least is to have fun with it. Learn as much as you can and welcome to the club.","In the U.S. it is typical that a stock brokerage account can be set up to buy stock with up to half the cost being borrowed from the broker. This is called a margin account. The stock purchased must remain in the account until sold (or the loan is paid off), as it serves as built-in collateral for the loan. If the market price for the stock goes down too much, you will be required to add money, or the stock will be sold to cover the loan. See this question for some more information.","New to investing... when I buy/sell a stock can I buy/sell at the exact market price whenever I'd like or is there more to it? Does there need to be a demand for when I'm trying to sell or am I just forcing the company to buy back my shares? Sorry if confusing/rookie question","stocks represent ownership in a company. their price can go up or down depending on how much profit the company makes (or is expected to make). stocks owners are sometimes paid money by the company if the company has extra cash. these payments are called dividends. bonds represent a debt that a company owes. when you buy a bond, then the company owes that debt to you. typically, the company will pay a small amount of money on a regular basis to the bond owner, then a large lump some at some point in the future. assuming the company does not file bankrupcy, and you keep the bond until it becomes worthless, then you know exactly how much money you will get from buying a bond. because bonds have a fixed payout (assuming no bankrupcy), they tend to have lower average returns. on the other hand, while stocks have a higher average return, some stocks never return any money. in the usa, stocks and bonds can be purchased through a brokerage account. examples are etrade, tradeking, or robinhood.com. before purchasing stocks or bonds, you should probably learn a great deal more about other investment concepts such as: diversification, volatility, interest rates, inflation risk, capital gains taxes, (in the usa: ira's, 401k's, the mortgage interest deduction). at the very least, you will need to decide if you want to buy stocks inside an ira or in a regular brokerage account. you will also probably want to buy a low-expense ration etf (e.g. an index fund etf) unless you feel confident in some other choice.","You can make money via stocks in two primary ways: Note that there's no guarantee of either. So it may very well not make you money.","\"The answer to your question is \"\"no\"\". Unless you specifically ask to receive paper share certificates, then brokers will hold your shares with a custodian company in the broker's own nominee account. If you are able to receive paper certificates, then the registrar of the company whose shares you own will have a record of your name, however this is exceptionally rare these days. Using a stockbroker means that your shares will be held in the broker's nominee account. A nominee company is a custodian charged with the safekeeping of investors’ securities. It should be a separate entity from the broker itself. In essence, the nominee is the legal owner of the securities, while you retain actual ownership as the beneficiary. Your broker can move and sell the securities on your behalf – and gets to handle all the lovely paperwork – but the assets still belong to you. They can’t be claimed by the broker’s creditors if things get messy. The main reason for this kind of set-up is cost, and this is why brokers are able to offer relatively low dealing costs to their clients. You can, if you wish, ask your broker for an account that deals with paper share certificates. However, few brokers will offer such an account and it will mean that you incur much higher dealing costs and may mean that you cannot sell you shares without first submitting the paper certificates back to your stock broker. Note that the stock exchange plays no role in recording ownership. Nor does your broker's account with the clearing house.\"","\"What is a stock? A share of stock represents ownership of a portion of a corporation. In olden times, you would get a physical stock certificate (looking something like this) with your name and the number of shares on it. That certificate was the document demonstrating your ownership. Today, physical stock certificates are quite uncommon (to the point that a number of companies don't issue them anymore). While a one-share certificate can be a neat memento, certificates are a pain for investors, as they have to be stored safely and you'd have to go through a whole annoying process to redeem them when you wanted to sell your investment. Now, you'll usually hold stock through a brokerage account, and your holdings will just be records in a database somewhere. You'll pick a broker (more on that in the next question), instruct them to buy something, and they'll keep track of it in your account. Where do I get a stock? You'll generally choose a broker and open an account. You can read reviews to compare different brokerages in your country, as they'll have different fees and pricing. You can also make sure the brokerage firm you choose is in good standing with the financial regulators in your country, though one from a major national bank won't be unsafe. You will be required to provide personal information, as you are opening a financial account. The information should be similar to that required to open a bank account. You'll also need to get your money in and out of the account, so you'll likely set up a bank transfer. It may be possible to request a paper stock certificate, but don't be surprised if you're told this is unavailable. If you do get a paper certificate, you'll have to deal with considerably more hassle and delay if you want to sell later. Brokers charge a commission, which is a fee per trade. Let's say the commission is $10/trade. If you buy 5 shares of Google at $739/share, you'd pay $739 * 5 + $10 = $3705 and wind up with $3695 worth of stock in your account. You'd pay the same commission when you sell the stock. Can anyone buy/own/use a stock? Pretty much. A brokerage is going to require that you be a legal adult to maintain an account with them. There are generally ways in which a parent can open an account on behalf of an underage child though. There can be different types of restrictions when it comes to investing in companies that are not publicly held, but that's not something you need to worry about. Stocks available on the public stock market are available to, well, the public. How are stocks taxed? Taxes differ from country to country, but as a general rule, you do have to provide the tax authorities with sufficient information to determine what you owe. This means figuring out how much you purchased the stock for and comparing that with how much you sold it for to determine your gain or loss. In the US (and I suspect in many other countries), your brokerage will produce an annual report with at least some of this information and send it to the tax authorities and you. You or someone you hire to do your taxes will use that report to compute the amount of tax owed. Your brokerage will generally keep track of your \"\"cost basis\"\" (how much you bought it for) for you, though it's a good idea to keep records. If you refuse to tell the government your cost basis, they can always assume it's $0, and then you'll pay more tax than you owe. Finding the cost basis for old investments can be difficult many years later if the records are lost. If you can determine when the stock was purchased, even approximately, it's possible to look back at historical price data to determine the cost. If your stock pays a dividend (a certain amount of money per-share that a company may pay out of its profits to its investors), you'll generally need to pay tax on that income. In the US, the tax rate on dividends may be the same or less than the tax rate on normal wage income depending on how long you've held the investment and other rules.\"","\"I'm posting this because I think I can do a better job of explaining and detailing everything from start to stop. :) A \"\"broker\"\" is just someone who connect buyers and sellers - a middleman of sorts who is easy to deal with. There are many kinds of brokers; the ones you'll most commonly hear about these days are \"\"mortgage broker\"\" (for arranging home loans) and \"\"stockbroker\"\". The stockbroker helps you buy and sell stock. The stockbroker has a connection to one or more stock exchanges (e.g. Nasdaq, NYSE) and will submit your orders to them in order to fulfill it. This way Nasdaq and NYSE don't have to be in the business of managing millions of customer accounts (and submitting tax information about those accounts to the government and what-not) - they just manage relationships with brokerages, which is much easier for them. To invest in a stock, you will need to: In this day and age, most brokers that you care about will be easily accessed via the Internet, the applications will be available on the Internet, and the trading interface will be over the Internet. There may also be paper and/or telephone interfaces to the brokerage, but the Internet interface will work better. Be aware that post-IPO social media stock is risky; don't invest any money if you're not prepared for the possibility of losing every penny of it. Also, don't forget that a variety of alternative things exist that you can buy from a broker, such as an S&P 500 index fund or exchange-traded corporate bond fund; these will earn you some reward over time with significantly less risk. If you do not already have similar holdings through a retirement plan, you should consider purchasing some of these sooner or later.\"","\"As I understand it, a company raises money by sharing parts of it (\"\"ownership\"\") to people who buy stocks from it. It's not \"\"ownership\"\" in quotes, it's ownership in a non-ironic way. You own part of the company. If the company has 100 million shares outstanding you own 1/100,000,000th of it per share, it's small but you're an owner. In most cases you also get to vote on company issues as a shareholder. (though non-voting shares are becoming a thing). After the initial share offer, you're not buying your shares from the company, you're buying your shares from an owner of the company. The company doesn't control the price of the shares or the shares themselves. I get that some stocks pay dividends, and that as these change the price of the stock may change accordingly. The company pays a dividend, not the stock. The company is distributing earnings to it's owners your proportion of the earnings are equal to your proportion of ownership. If you own a single share in the company referenced above you would get $1 in the case of a $100,000,000 dividend (1/100,000,000th of the dividend for your 1/100,000,000th ownership stake). I don't get why the price otherwise goes up or down (why demand changes) with earnings, and speculation on earnings. Companies are generally valued based on what they will be worth in the future. What do the prospects look like for this industry? A company that only makes typewriters probably became less valuable as computers became more prolific. Was a new law just passed that would hurt our ability to operate? Did a new competitor enter the industry to force us to change prices in order to stay competitive? If we have to charge less for our product, it stands to reason our earnings in the future will be similarly reduced. So what if the company's making more money now than it did when I bought the share? Presumably the company would then be more valuable. None of that is filtered my way as a \"\"part owner\"\". Yes it is, as a dividend; or in the case of a company not paying a dividend you're rewarded by an appreciating value. Why should the value of the shares change? A multitude of reasons generally revolving around the company's ability to profit in the future.\"","A stock represents your share of ownership in a corporation. All of these shares indicate towards your part of ownership in a corporation a shareholder, stockholder or a shareowner in a company. In order to get a stock, be sure to secure the assistance of a licensed stockbroker to buy securities on your behalf. Yes, anyone having substantial amount of money to invest can buy/own/use stocks. Holding a stock for less than a year makes it a subject to tax on your regular income for short-term gains. Most of the people find it higher than the capital gains. In addition, your annual income also comes into play.","\"Not a bond holder, but when we get dividends we usually just buy up a benchmark index tracking ETF unless/until we're ready to rebalance our portfolio. Most of the trades in the day are earmarked with the reason \"\"spending cash\"\". I'd assume it's similar for bond holders and coupons.\"","When you own stock in a company, you do literally own part of the business, even if it's a small portion. Anyone amassing over 50% of shares really does have a controlling interest. No, you can't trade a handful of AAPL shares back to Apple for an iPod, but you can sell the shares and then go buy an iPod with the proceeds. Stock prices change over time because the underlying companies are worth more or less and people are willing to pay more or less for those shares. There is no Ponzi scheme because each share you own can be bought or sold on the open market. Dividends come from the company profits, not from other investors. On the other hand, money only has value because everyone believes it has value. There's the real conspiracy.","Day traders see a dip, buy stocks, then sell them 4 mins later when the value climbed to a small peak. What value is created? Is the company better off from that trade? The stocks were already outside of company hands, so the trade doesn't affect them at all. You've just received money from others for no contribution to society. A common scenario is a younger business having a great idea but not enough capital funds to actually get the business going. So, investors buy shares which they can sell later on at a higher value. The investor gets value from the shares increasing over time, but the business also gets value of receiving money to build the business.","A Company start with say $100. Lets say the max it can borrow from bank is $100 @ $10 a year as Interest. After a years say, On the $200 the company made a profit of $110. So it now has total $310 Option 1: Company pays back the Bank $100 + $10. It further gave away the $100 back to shareholders as dividends. The Balance with company $100. It can again start the second year, borrow from Bank $100 @ 10 interest and restart. Option 2: Company pays back the Bank $100 + $10. It now has $200. It can now borrow $200 from Bank @ $20. After a year it makes a profit of $250. [Economics of scale result $30 more] Quite a few companies in growth phase use Option 2 as they can grow faster, achieve economies of scale, keep competition at bay, etc Now if I had a share of this company say 1 @ $1, by end of first year its value would be $2, at the end of year 2 it would be $3.3. Now there is someone else who wants to buy this share at end of year 1. I would say this share gives me 100% returns every year, so I will not sell at $2. Give me $3 at the end of first year. The buyer would think well, if I buy this at $3, first year I would notionally get $.3 and from then on $1 every year. Not bad. This is still better than other stocks and better than Bank CD etc ... So as long as the company is doing well and expected to do well in future its price keeps on increasing as there is someone who want to buy. Why would someone want to sell and not hold one: 1. Needs cash for buying house or other purposes, close to retirement etc 2. Is balancing the portfolio to make is less risk based 3. Quite a few similar reasons Why would someone feel its right to buy: 1. Has cash and is young is open to small risk 2. Believes the value will still go up further 3. Quite a few similar reasons","Stock A last traded at $100. Stock A has 1 million shares outstanding. No seller is willing to sell Stock A for less than $110 a share. One buyer is willing to buy 1 share for $110. The order executes. The buyer pays the seller $110. Stock A's new price is $110. An $110 investment increased the market cap by $10 million. Neat trick (for all who own Stock A).","Suppose I purchase $10,000 worth of a particular share today. If the person(s) I am purchasing the shares from paid $9,000 for those shares, then I replacing their $9,000 investment with my $10,000 investment. This is a net inflow of $1,000 into the market. Similarly, if the person(s) I am purchasing the shares from paid $11,000 for those shares, then their $11,000 investment is being replace by my $10,000 investment. This is a net outflow of $1,000 out of the market. The aggregate of all such inflows and outflows in the net inflow/outflow into the market over a given period of time. (Here we are ignoring the effects of new share issues.)","quid's answer explains the settlement period well. However, it should be noted that you can avoid the settlement period by opening a margin account. Any specific broker like Schwab may or may not offer margin accounts. Margin accounts allow you to borrow money to avoid the settlement period or to buy more securities than you can actually afford. Note that if you buy more securities than you can afford using margin, you expose yourself to losses potentially larger than your initial investment. If you fund your account with $50,000 and use margin to purchase $80,000 of stock which then drops in value by 80% you will have lost $64,000 and owe the broker $14,000 plus fees.","\"Seems like no one in this thread has heard of \"\"treasury stocks\"\", which indeed allow a company to own and sell its own stock. Think about it. When there is a stock buy-back funded by excess profits, where does that stock go?\"","Would you mind adding where that additional value comes from, if not from the losses of other investors? You asked this in a comment, but it seems to be the key to the confusion. Corporations generate money (profits, paid as dividends) from sales. Sales trade products for money. The creation of the product creates value. A car is worth more than General Motors pays for its components and inputs, even including labor and overhead as inputs. That's what profit is: added value. The dividend is the return that the stock owner gets for owning the stock. This can be a bit confusing in the sense that some stocks don't pay dividends. The theory is that the stock price is still based on the future dividends (or the liquidation price, which you could also consider a type of dividend). But the current price is mostly based on the likelihood that the stock price will increase rather than any expected dividends during ownership of the stock. A comment calls out the example of Berkshire Hathaway. Berkshire Hathaway is a weird case. It operates more like a mutual fund than a company. As such, investors prefer that it reinvest its money rather than pay a dividend. If investors want money from it, they sell shares to other investors. But that still isn't really a zero sum game, as the stock increases in value over time. There are other stocks that don't pay dividends. For example, Digital Equipment Corporation went through its entire existence without ever paying a dividend. It merged with Compaq, paying investors for owning the stock. Overall, you can see this in that the stock market goes up on average. It might have a few losing years, but pick a long enough time frame, and the market will increase during it. If you sell a stock today, it's because you value the money more than the stock. If it goes up tomorrow, that's the buyer's good luck. If it goes down, the buyer's bad luck. But it shouldn't matter to you. You wanted money for something. You received the money. The increase in the stock market overall is an increase in value. It is completely unrelated to trading losses. Over time, trading gains outweigh trading losses for investors as a group. Individual investors may depart from that, but the overall gain is added value. If the only way to make gains in the stock market was for someone else to take a loss, then the stock market wouldn't be able to go up. To view it as a zero sum game, we have to ignore the stocks themselves. Then each transaction is a payment (loss) for one party and a receipt (gain) for the other. But the stocks themselves do have value other than what we pay for them. The net present value of of future payments (dividends, buyouts, etc.) has an intrinsic worth. It's a risky worth. Some stocks will turn out to be worthless, but on average the gains outweigh the losses.","\"From Wikipedia - Stock: The stock (also capital stock) of a corporation constitutes the equity stake of its owners. It represents the residual assets of the company that would be due to stockholders after discharge of all senior claims such as secured and unsecured debt. Stockholders' equity cannot be withdrawn from the company in a way that is intended to be detrimental to the company's creditors Wikipedia - Dividend: A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can re-invest it in the business (called retained earnings), and pay a fraction of this reinvestment as a dividend to shareholders. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase. Wikipedia - Bond: In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the second market. Thus, stock is about ownership in the company, dividends are the payments those owners receive, which may be additional shares or cash usually, and bonds are about lending money. Stocks are usually bought through brokers on various stock exchanges generally. An exception can be made under \"\"Employee Stock Purchase Plans\"\" and other special cases where an employee may be given stock or options that allow the purchase of shares in the company through various plans. This would apply for Canada and the US where I have experience just as a parting note. This is without getting into Convertible Bond that also exists: In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. It is a hybrid security with debt- and equity-like features. It originated in the mid-19th century, and was used by early speculators such as Jacob Little and Daniel Drew to counter market cornering. Convertible bonds are most often issued by companies with a low credit rating and high growth potential.\"","I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.","Where can publicly traded profits go but to shareholders via dividends? They can be retained by the company.","A company CAN hold on to money. This is called retained earnings. Not all money is due back to the owners (i.e. stockholders), but only the amount that the board of directors chooses to pay back in the form of dividends. There is a lot more detail around this, but this is the simple answer to your question.","In theory you can buy shares directly from someone else who owns them. In practise, if the stock is listed on an exchange, they are unlikely to own them directly, they are likely to own them through an intermediary. You will have to pay fees to that intermediary to transfer the shares to your name. There are thousands of small companies owned by the guy who started it and a few other investors. You can buy stock in that kind of company directly from the existing owners, as long as they are willing to sell you some. It's a super-high risk investment strategy, though. This is the kind of deal that happens on Dragons Den.","The core issue is to understand what 'selling a share' means. There is no special person or company that takes the share from you; you are selling on the open market. So your question is effectively 'can I find a guy on the street that buys a 10$-bill for 11$ ?' - Well, maybe someone is dumb enough, but chances are slim.","\"Yes! What you are describing is an \"\"off-exchange\"\" trade and can be done using stock certificates. Here, you will privately negotiate with the seller on a price and delivery details. That is the old-school way to do it. Many companies (about 20% of the S&P 500) will not issue paper certificates and you may run a hefty printing fee up to $500 (source: Wikipedia, above). Other other type of private-party transactions include a deal negotiated between two parties and settled immediately or based on a future event. For example, Warren Buffet created a deal with Goldman Sachs where Warren would have the choice to purchase GS shares in the future at a certain price. This was to be settled with actual shares (rather than cash-settled). Ignoring that he later canceled this agreement, if it were to go through the transaction would still have been handled by a broker transferring the shares. You can purchase directly from a company using a direct stock purchase plan (SPP). Just pick up the phone, ask for their investor relations and then ask if they offer this option. If not, they will be glad for your interest and look into setting it up for you.\"","There are two ways that an asset can generate value. One is that the asset generates some revenue (e.g. you buy a house for $100,000 and rent it out for $1,000 per month) and the second way is that the asset appreciates (e.g you buy a house for $100,000, you don't rent it out and 5 years later you sell it for $200,000). Stocks are the same.","I'd like to add that many companies offer Divident Re-Investment Plans or DRIPs, which is basically a regular automatic stock purchase program. More info here: http://en.wikipedia.org/wiki/Dividend_reinvestment_plan. While your stock broker may offer dividend reinvestment, this is not the same as a DRIP. DRIPs are offered directly by the company, rather than the stock broker. They have the added benefits that the stock purchases are almost always commission-free, and in some cases, the company even offers a discount on the stock price. It can take a little more effort to get enrolled in a DRIP, but if you are interested in holding the stock long-term, this is a good option to consider.","Nothing. Stockbrokers set up nominee accounts, in which they hold shares on behalf of individual investors. Investors are still the legal owners of the shares but their names do not appear on the company’s share register. Nominee accounts are ring-fenced from brokers’ other activities so they are financially secure.","At any given time there are buy orders and there are sell orders. Typically there is a little bit of space between the lowest sell order and the highest buy order, this is known as the bid/ask spread. As an example say person A will sell for $10.10 but person B will only buy at $10.00. If you have a billion shares outstanding just the space between the bid and ask prices represents $100,000,000 of market cap. Now imagine that the CEO is in the news related to some embezzlement investigation. A number of buyers cancel their orders. Now the highest buy order is $7. There isn't money involved, that's just the highest offer to buy at the time; but that's a drop from $10 to $7. That's a change in market cap of $3,000,000,000. Some seller thinks the stock will continue to fall, and some buyer thinks the stock has reached a fair enterprise value at $7 billion ($7 per share). Whether or not the seller lost money depends on where the seller bought the stock. Maybe they bought when it was an IPO for $1. Even at $7 they made $6 per share. Value is changing, not money. Though it would be fun, there's no money bonfire at the NYSE.","\"The way to invest money in a company is to buy its shares, or derivatives of its shares. However, it seems you're way in over your head. Don't buy what you don't understand. There is plenty of material to teach you about stock investing on the internet. However, a book may be the fastest way to learn what you need to know. And yes, there is a \"\"for dummies\"\" book about that: Stock Investing ForDummies. I just found it by Googling, I'm sure you can find even more interesting books out there. (Note, the link is to the \"\"cheat sheet\"\" in the back of the book. The full book is worth reading.)\"","\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\"\"at market\"\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,100@180.03), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\"\"limit up\"\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \"\"market impact\"\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\"","\"This answer will expand a bit on the theory. :) A company, as an entity, represents a pile of value. Some of that is business value (the revenue stream from their products) and some of that is assets (real estate, manufacturing equipment, a patent portfolio, etc). One of those assets is cash. If you own a share in the company, you own a share of all those assets, including the cash. In a theoretical sense, it doesn't really matter whether the company holds the cash instead of you. If the company adds an extra $1 billion to its assets, then people who buy and sell the company will think \"\"hey, there's an extra $1 billion of cash in that company; I should be willing to pay $1 billion / shares outstanding more per share to own it than I would otherwise.\"\" Granted, you may ultimately want to turn your ownership into cash, but you can do that by selling your shares to someone else. From a practical standpoint, though, the company doesn't benefit from holding that cash for a long time. Cash doesn't do much except sit in bank accounts and earn pathetically small amounts of interest, and if you wanted pathetic amounts of interests from your cash you wouldn't be owning shares in a company, you'd have it in a bank account yourself. Really, the company should do something with their cash. Usually that means investing it in their own business, to grow and expand that business, or to enhance profitability. Sometimes they may also purchase other companies, if they think they can turn a profit from the purchase. Sometimes there aren't a lot of good options for what to do with that money. In that case, the company should say, \"\"I can't effectively use this money in a way which will grow my business. You should go and invest it yourself, in whatever sort of business you think makes sense.\"\" That's when they pay a dividend. You'll see that a lot of the really big global companies are the ones paying dividends - places like Coca-Cola or Exxon-Mobil or what-have-you. They just can't put all their cash to good use, even after their growth plans. Many people who get dividends will invest them in the stock market again - possibly purchasing shares of the same company from someone else, or possibly purchasing shares of another company. It doesn't usually make a lot of sense for the company to invest in the stock market themselves, though. Investment expertise isn't really something most companies are known for, and because a company has multiple owners they may have differing investment needs and risk tolerance. For instance, if I had a bunch of money from the stock market I'd put it in some sort of growth stock because I'm twenty-something with a lot of savings and years to go before retirement. If I were close to retirement, though, I would want it in a more stable stock, or even in bonds. If I were retired I might even spend it directly. So the company should let all its owners choose, unless they have a good business reason not to. Sometimes companies will do share buy-backs instead of dividends, which pays money to people selling the company stock. The remaining owners benefit by reducing the number of shares outstanding, so they own more of what's left. They should only do this if they think the stock is at a fair price, or below a fair price, for the company: otherwise the remaining owners are essentially giving away cash. (This actually happens distressingly often.) On the other hand, if the company's stock is depressed but it subsequently does better than the rest of the market, then it is a very good investment. The one nice thing about share buy-backs in general is that they don't have any immediate tax implications for the company's owners: they simply own a stock which is now more valuable, and can sell it (and pay taxes on that sale) whenever they choose.\"","\"Because I feel the answers given do not wholely represent the answer you are expecting, I'd like to re-iterate but include more information. When you own stock in a company, you OWN some of that company. When that company makes profit, you usually receive a dividend of those profits. If you owned 1% of the company stock, you (should) recieve 1% of the profits. If your company is doing well, someone might ask to buy your stock. The price of that stock is (supposed) to be worth a value representative of the expected yield or how much of a dividend you'd be getting. The \"\"worth\"\" of that, is what you're betting on when you buy the stock, if you buy $100 worth of coca cola stock and they paid $10 as dividend, you'd be pretty happy with a 10% growth in your wealth. Especially if the banks are only playing 3%. So maybe some other guy sees your 10% increase and thinks, heck.. 10% is better than 3%, if I buy your stocks, even as much as 6% more than they are worth ($106) I'm still going to be better off by that extra 1% than I would be if I left it in the bank.. so he offers you $106.. and you think.. awesome.. I can sell my $100 of cola shares now, make a $6 profit and buy $100 worth of some other share I think will pay a good dividend. Then cola publicises their profits, and they only made 2% profit, that guy that bought your shares for $106, only got a dividend of $2 (since their 'worth' is still $100, and effectively he lost $4 as a result. He bet on a better than 10% profit, and lost out when it didn't hit that. Now, (IMHO) while the stock market was supposed to be about buying shares, and getting dividends, people (brokers) discovered that you could make far more money buying and selling shares for 'perceived value' rather than waiting for dividends to show actual value, especially if you were not the one doing the buying and selling (and risk), but instead making a 0.4% cut off the difference between each purchase (broker fees). So, TL;DR, Many people have lost money in the market to those who made money from them. But only the traders and gamblers.\"","I'd look into ShareBuilder. You can buy stocks for as low as $2 each, and there is no minimum funding level. You have to be carefull about selling though, as they will charge you $10 each time you want to sell a stock, regardless of how much of it you want to sell.","Apart from making money from the price difference, some stocks also give dividends, or bonus issues. For long term investors whom are looking for steady income, they may be more interested with the dividend pay-out instead of the capital-appreciation.","Will there be a scenario in which I want to sell, but nobody wants to buy from me and I'm stuck at the brokerage website? Similarly, if nobody wants to sell their stocks, I will not be able to buy at all? You're thinking of this as a normal purchase, but that's not really how US stock markets operate. First, just because there are shares of stock purchased, it doesn't mean that there was real investor buyer and seller demand for that instrument (at that point in time). Markets have dedicated middlemen called Market Makers (NASDAQ) or Specialists (NYSE), who are responsible to make sure that there is always someone to buy or sell; this ensures that all instruments have sufficient liquidity. Market Makers and specialists may decide to lower their bid on a stock based on a high number of sellers, or raise their ask for a high number of buyers. During an investor rush to buy or sell an instrument (perhaps in response to a news release), it's possible for the Market Maker / specialist to accumulate or distribute a large number of shares, without end-investors like you or I being involved on both sides of the same transaction.","Your autograph analogy seems relevant to me. But it is not just speculation. In the long run, investing in stocks is like investing in the economy. In the long run, the economy is expected to grow , hence stock prices are expected to go up. Now in theory: the price of any financial instrument is equal to the net present value today of all the future cash flows from the instrument. So if company's earnings improve, shareholders hope that the earnings will trickle down to them either in form of dividends or in form of capital gain. So they buy the stock, creating demand for it. I can try to explain more if this did not make any sense. :)","There are 2 main types of brokers, full service and online (or discount). Basically the full service can provide you with advice in the form of recommendations on what to buy and sell and when, you call them up when you want to put an order in and the commissions are usually higher. Whilst an online broker usually doesn't provide advice (unless you ask for it at a specified fee), you place your orders online through the brokers website or trading platform and the commissions are usually much lower. The best thing to do when starting off is to go to your country's stock exchange, for example, The ASX in Sydney Australia, and they should have a list of available brokers. Some of the online brokers may have a practice or simulation account you can practice on, and they usually provide good educational material to help you get started. If you went with an online broker and wanted to buy Facebook on the secondary market (that is on the stock exchange after the IPO closes), you would log onto your brokers website or platform and go to the orders section. You would place a new order to buy say 100 Facebook shares at a certain price. You can use a market order, meaning the order will be immediately executed at the current market price and you will own the shares, or a limit price order where you select a price below the current market price and wait for the price to come down and hit your limit price before your order is executed and you get your shares. There are other types of orders available with different brokers which you will learn about when you log onto their website. You also need to be careful that you have the funds available to pay for the share at settlement, which is 3 business days after your order was executed. Some brokers may require you to have the funds deposited into an account which is linked to your trading account with them. To sell your shares you do the same thing, except this time you choose a sell order instead of a buy order. It becomes quite simple once you have done it a couple of times. The best thing is to do some research and get started. Good Luck.","Buy a share - not a penny stock; rather a well known company like Coca-Cola, Kelloggs, Exxon, etc. Follow the company. Understand their business model. See the share price fall and rise. You will learn a lot having your own money at risk.","You can purchase stock immediately in the open market on the day of the IPO when market opens. Below link gives you more information. http://finance.zacks.com/buy-ipo-stock-3903.html","Unless you are buying millions of dollars worth of a stock at a time, your transaction is a drop in the bucket, unlikely to have any noticable effect on the stock price. As Ian says, it's more likely that you are just remembering the times when the price dropped after you bought. If you keep careful track, I suspect you will find that the price goes up more often than it goes down, or at least, that the stocks you buy go up as often as the average stock on the market goes up. If you actually kept records and found that's not true, the most likely explanation is bad luck. Or that someone has placed a voodoo curse on you. I suppose one could imagine other scenarios. Like, if you regularly buy stock based on recommendations by well-known market pundits, you could expect to see a temporary increase in price as thousands or millions of people who hear this recommendation rush to buy, and then a few days or weeks later people move on to the next recommendation, the market setttles down, and the price reverts to a more normal level. In that case, if you're on the tail end of the buying rush, you could end up paying a premium. I'm just speculating here, I haven't done a study to find if this actually happens, but it sounds plausible to me.","\"Look at the link to the SIPC. I don't know exactly what you mean by \"\"runs out of funds,\"\" but the SIPC will replace shares of stock stolen from your account, and up to $100,000 in cash. The real risk is when a shady brokers sells you shares in a stock that becomes worthless, that's when \"\"buyer beware\"\" kicks in. No help there.\"","Yes, as long as you own the shares before the ex-dividend date you will get the dividends. Depending on your instructions to your broker, you can receive cash dividends or you can have the dividends reinvested in more shares of the company. There are specific Dividend ReInvestment Plans (or DRIPs) if you are after stock growth rather than income from dividend payments.","The stock market is just like any other market, but stocks are bought and sold here. Just like you buy and sell your electronics at the electronics market, this is a place where buyers and sellers come together to buy and sell shares or stocks or equity, no matter what you call it. What are these shares? A share is nothing but a portion of ownership of a company. Suppose a company has 100 shares issued to it, and you were sold 10 out of those, it literally means you are a 10% owner of the company. Why do companies sell shares? Companies sell shares to grow or expand. Suppose a business is manufacturing or producing and selling goods or services that are high in demand, the owners would want to take advantage of it and increase the production of his goods or services. And in order to increase production he would need money to buy land or equipment or labor, etc. Now either he could go get a loan by pledging something, or he could partner with someone who could give him money in exchange for some portion of the ownership of the company. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Now if the owner decides to sell shares rather than getting a loan, that's when the stock market comes into the picture. Why would a person want to trade stocks? First of all, please remember that stocks were never meant to be traded. You always invest in stocks. What's the difference? Trading is short term and investing is long term, in very simple language. It's the greed of humans which led to this concept of trading stocks. A person should only buy stocks if he believes in the business the company is doing and sees the potential of growth. Back to the question: a person would want to buy stocks of the company because: How does a stock market help society? Look around you for the answer to this question. Let me give you a start and I wish everyone reading this post to add at least one point to the answer. Corporations in general allow many people come together and invest in a business without fear that their investment will cause them undue liability - because shareholders are ultimately not liable for the actions of a corporation. The cornerstone North American case of how corporations add value is by allowing many investors to have put money towards the railroads that were built across America and Canada. For The stock market in particular, by making it easier to trade shares of a company once the company sells them, the number of people able to conveniently invest grows exponentially. This means that someone can buy shares in a company without needing to knock door to door in 5 years trying to find someone to sell to. Participating in the stock market creates 'liquidity', which is essentially the ease with which stocks are converted into cash. High liquidity reduces risk overall, and it means that those who want risk [because high risk often creates high reward] can buy shares, and those who want low risk [because say they are retiring and don't have a risk appetite anymore] can sell shares.","\"This is a misconception. One of the explanations is that if you buy at the ask price and want to sell it right away, you can only sell at the bid price. This is incorrect. There are no two separate bid and ask prices. The price you buy (your \"\"bid\"\") is the same price someone else sells (their \"\"sell\"\"). The same goes when you sell - the price you sell at is the price someone else buys. There's no spread with stocks. Emphasized it on purpose, because many people (especially those who gamble on stock exchange without knowing what they're doing) don't understand how the stock market works. On the stock exchange, the transaction price is the match between the bid price and the ask price. Thus, on any given transaction, bid always equals ask. There's no spread. There is spread with commodities (if you buy it directly, especially), contracts, mutual funds and other kinds of brokered transactions that go through a third party. The difference (spread) is that third party's fee for assuming part of the risk in the transaction, and is indeed added to your cost (indirectly, in the way you described). These transactions don't go directly between a seller and a buyer. For example, there's no buyer when you redeem some of your mutual fund - the fund pays you money. So the fund assumes certain risk, which is why there's a spread in the prices to invest and to redeem. Similarly with commodities: when you buy a gold bar - you buy it from a dealer, who needs to keep a stock. Thus, the dealer will not buy from you at the same price: there's a premium on sale and a discount on buy, which is a spread, to compensate the dealer for the risk of keeping a stock.\"","Where does the money go Who wins the billions Ever heard of The Wolf of Wall Street , theres where the money goes . In short ,bankers, traders who are paid millions to take make leverage bets using the banks money regardless of whether they do well . If they screw up and lose millions , they get paid to leave ( compensation package ) . If they do well , they get bonus.","In general stock markets are very similar to that, however, you can also put in limit orders to say that you will only buy or sell at a given price. These sit in the market for a specified length of time and will be executed when an order arrives that matches the price (or better). Traders who set limit orders are called liquidity (or price) makers as they provide liquidity (i.e. volume to be traded) to be filled later. If there is no counterparty (i.e. buyer to your seller) in the market, a market maker; a large bank or brokerage who is licensed and regulated to do so, will fill your order at some price. That price is based on how much volume (i.e. trading) there is in that stock on average. This is called average daily volume (ADV) and is calculated over varying periods of time; we use ADV30 which is the 30 day average. You can always sell stocks for whatever price you like privately but a market order does not allow you to set your price (you are a price taker) therefore that kind of order will always fill at a market price. As mentioned above limit orders will not fill until the price is hit but will stay on book as long as they aren't filled, expired or cancelled.","\"You are correct that, barring an equity capital raise, your money doesn't actually end up in the company. However, interest in their stock can help a company in other ways; Management/board members hopefully own shares or options themselves, thus knowing that \"\"green\"\" policies are favorable for the stock price (as your fund might buy shares) can be quite an incentive for them to go green(er). Companies with above average company share performance are also often viewed as financially healthy and so creditors tend to charge lower interest for companies with good share performance. Lastly, a high share price makes a company difficult to take over (as all those shares have to be acquired) and at the same time makes it easier for the company to perform takeovers themselves as they can finance such acquisitions by issuing more of their own shares. There is also the implication that money flowing towards such green companies is money flowing out of/away from polluting companies, for these \"\"dirty\"\" companies the inverse of the previous points can hold true. Of course on the other hand there is quite an argument to be made that large enough \"\"green\"\" funds should actually buy substantial positions in companies with poor environmental records and steer the company towards greener policies but that might be a hard sell to investors.\"","Open Google finance and divide the Market Capitalization by the total price. That will give you the total number of shares outstanding. Now see the number of shares you could buy for $1000(40 shares of $25 each or 10 shares of 100 shares each). Now divide the number of shares you own, by the number of shares outstanding in the company and multiply it by 100(i.e (Shares you own/shares Outstanding) * 100). That will give you the percentage or stake of the company you own(With $1000, don't expect it to be a very large number). Now ask your self the question, Is it worth it if I can buy x % of this company for $1000? If the answer is yes, go ahead and buy it. To answer your question in short, NO! it does not matter whether you buy 10 shares for $100 or 40 shares for $25. Cheers","You realize that most of the money raised through the IPO process doesn't go into the company's bank account? Those shares were shares that were held by the investors and original owners and it's those prior pre-IPO shareholders that got their money back along with a tidy profit. The cash on its books was there before the IPO, and after. The IPO process was more about a change in stock owners ship than anything else. Edit - as the SEC disclosure mentioned in comments below states, the Facebook IPO raised $6.7B for facebook's use, the rest of the transaction was from the investors selling their shares. Mark Zuckerberg still owns more than 55% of shares outstanding. The $6.7B is still about 10% of the company value. Nothing to ignore, but clearly, 'most' of the money from the IPO didn't go to the company.","Let's say that you bought a share of Apple for $10. When (if ever) their stock sold for $10, it was a very small company with a very small net worth; that is, the excess of assets over liabilities. Your $10 share was perhaps a 1/10,000,000th share of a tiny company. Over the years, Apple has developed both software and hardware that have real value to the world. No-one knew they needed a smartphone and, particularly, an iPhone, until Apple showed it to us. The same is true of iPads, iPods, Apple watches, etc. Because of the sales of products and services, Apple is now a huge company with a huge net worth. Obviously, your 1/10,000,000th share of the company is now worth a lot more. Perhaps it is worth $399. Maybe you think Apples good days are behind it. After all, it is harder to grow a huge company 15% a year than it is a small company. So maybe you will go into the marketplace and offer to sell your 1/10,000,000th share of Apple. If someone offers you $399, would you take it? The value of stocks in the market is not a Ponzi scheme, although it is a bit speculative. You might have a different conclusion and different research about the future value of Apple than I do. Your research might lead you to believe the stock is worth $399. Mine might suggest it's worth $375. Then I wouldn't buy. The value of stocks in the market is based on the present and estimated future value of living, breathing companies that are growing, shrinking and steady. The value of each company changes all the time. So, then, does the price of the stock. Real value is created in the stock market when real value is created in the underlying company.","When stocks have a change in price it is because of a TRADE. To have a trade you have to have both a buyer and a seller. When the price of a security is going up there are an equal amount of shares being sold as being bought. When the price of a security is going down there are an equal amount of shares being bought as being sold. There almost always is an unequal amount of shares waiting to be sold compared to the amount waiting to be bought. But waiting shares do not move the price, only when the purchase price and the sale price agree, and a trade occurs, does the price move. So the price does not go down because more shares are being sold. Neither does the price go up because more shares are being bought."],"string":"[\n \"\\\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case), an investment fund, the \\\"\\\"market maker\\\"\\\" for that stock (websearch for definition of that term), or anyone else. They owned a small percentage of the company; you bought it from them and gave them the money for it, just as you would buy anything else. You don't know or care who you bought from; they don't know or care who they sold to; the market just found a buyer and seller who could agree on the price. There are a very few exceptions to that. The company may repurchase some of its own shares and/or sell them again, depending on its own financial needs and obligations. For example, my own employer has to purchase its own shares periodically so it has enough on hand to sell to employees at a slight discount through the Employee Stock Ownership Program. But you generally don't know that's who you're selling to; it happens like any other transaction. And during the Initial Public Offering, if you're lucky/privileged enough to get in on the first wave of purchases, you're buying from the investment bank that's managing this process ... though that's an almost vanishingly rare case for \\\"\\\"retail\\\"\\\" investors like us; we're more likely to get the shares after someone has already pushed the price up a bit. But really, when you buy a share the money goes to whoever you bought it from, and that's all you can know or need to know.\\\"\",\n \"The money goes to the seller. There are a lot of behind the scenes things that happen, and some transactions are very complicated with many parties involved (evidenced by all the comments on @keshlam's perfectly reasonable high-level answer), but ultimately the money goes to the seller. Sometimes the seller is the company. The billions of shares that change hands each day are moving between other individuals like you and investment funds; these transactions have no direct impact on the company's financials, in general.\",\n \"Cash changes hands when you buy or sell the stock. While you own the stock, you own it, not cash, so there is no cash to go anywhere. You spent your money when you bought. The seller got that money. It's gone. You hope that when you sell the stock, someone will give you more money for it than you spent. But they may give you less. Money doesn't magically appear either way, it comes from the buyer. After selling, you have the money -- however much you sold for -- and no longer have the stock. NOTE that this means the current value of a share of stock is interesting, but not really very relevant, unless you are actively buying or selling. What your portfolio is worth on paper is nothing more than an approximate snapshot at the moment you retrieve the data. It is not a promise of what will actually happen when you do sell.\",\n \"A share is just a part ownership of a company. If you buy a share of a green stock in the open market, you now just own part of a green company. Just like if you buy a house, the money you paid moves to the former owner, but what you are getting is a clear asset in return that you now own. Via mutual funds/indexes this can get a little more complicated (voting rights etc tend to go to the mutual/indexing company rather than the holders of the fund), but is approximately the same thing: the fund buys assets on the open market, then holds them, buys more, or sells them on behalf of the fund investors.\",\n \"You or the broker place an order to buy the share with the stock exchange. There has to be a matching sell order by someone. Once a match is made, you pay the money and get the share.\",\n \"First: the question is irrelevant for purchases on exchange, mostly. Majority of sales on stock exchanges is between shareholders. If however you buy directly from the company (in a IPO, or direct share purchase program of some kind, like ESPP), then it does end up showing in the company account ledgers one way or another. It then become part of company's total assets, and the newly sold shares add to the equity.\",\n \"In short, thanks to the answers and comments posted so far. No actual money is magically disappeared when the stock price goes down but the value is lost. The value changes of a stock is similar to the value changes of a house. The following is the long answer I came up with based on the previous answers and comments alone with my own understandings. Any experts who find any of the following is 200% out of place and wrong, feel free to edit it or make comments. Everything below only applies if the following are true: The stock price is only decreasing since the IPO because the company has been spending the money but not making profits after the IPO. The devaluation of the stock is not the result of any bad news related to the company but a direct translation of the money the company has lost by spending on whatever the company is doing. The actual money don’t just disappear into the thin air when the stock price goes down. All the money involved in trading this stock has already distributed to the sellers of this stock before the price went down. There is no actual money that is literally disappeared, it was shifted from one hand to another, but again this already happened before the price went down. For example, I bought some stocks for $100, then the price went down to $80. The $100 has already shifted from my hand to the seller before the price went down. I got the stock with less value, but the actual money $100 did not just go down to $80, it’s in the hand of the seller who sold the stock to me. Now if I sell the stock to the same seller who sold the stock to me, then I lost $20, where did the $20 go? it went to the seller who sold the stock to me and then bought it back at a lower price. The seller ended up with the same amount of the stocks and the $20 from me. Did the seller made $20? Yes, but did the seller’s total assets increased? No, it’s still $100, $80 from the stocks, and $20 in cash. Did anyone made an extra $20? No. Although I did lost $20, but the total cash involved is still there, I have the $80 , the seller who sold the stock to me and then bought it back has the $20. The total cash value is still $100. Directly, I did lost $20 to the guy who sold me the stock when the stock has higher value and then bought it back at a lower price. But that guy did not increased his total assets by $20. The value of the stock is decreased, the total money $100 did not disappear, it ended up from one person holding it to 2 people holding it. I lost $20 and nobody gained $20, how is that possible? Assume the company of the stock never made any profit since it’s IPO, the company just keeps spending the money, to really track down where the $20 I lost is going, it is the company has indirectly spent that money. So who got that $20 I lost? It could be the company spent $20 for a birthday cake, the $20 went to the cake maker. The company never did anything to make that $20 back, so that $20 is lost. Again, assume the stock price only goes down after its IPO, then buying this stock is similar to the buying a sport car example from JoeTaxpayer (in one of the answers), and buying an apple example from BrenBarn(in one of the comments from JoeTaxpayer’s answer). Go back to the question, does the money disappears into the thin air when the value of the stock goes down? No, the money did not disappear, it switched hands. It went from the buyer of the stock to the company, and the company has spent that money. Then what happens when the stock price goes down because bad news about the company? I believe the actual money still did not just disappear. If the bad news turn out to be true that the company had indeed lost this much money, the money did not disappear, it’s been spent/lost by the company. If the bad news turn out to be false, the stock price will eventually go up again, the money is still in the hand of the company. As a summary, the money itself did not disappear no matter what happens, it just went from one wallet to another wallet in many different ways through the things people created that has a value.\",\n \"Because the stock still has the same value as the money paid for it - you are just exchanging one asset for another (of course the stock value starts to change immediately, but for the accounting the fictional value is the buying price). For the accounting, it is similar to changing a 100$ bill in five 20$ bills - same value, still assets.\",\n \"\\\"I probably don't understand something. I think you are correct about that. :) The main way money enters the stock market is through investors investing and taking money out. Money doesn't exactly \\\"\\\"enter\\\"\\\" the stock market. Shares of stock are bought and sold by investors to investors. The market is just a mechanism for a buyer and seller to find each other. For the purposes of this question, we will only consider non-dividend stocks. Okay. When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets. For example, if I bought $10 of Apple Stock early on, but it later went up to $399, I can't go to Apple and say \\\"\\\"I own $399 of you, here you go it back, give me an iPhone.\\\"\\\" The only way to redeem this is to sell the stock to another investor (like a Ponzi Scheme.) It is true that when you own stock, you own a small portion of the company. No, you can't just destroy your portion of the company; that wouldn't be fair to the other investors. But you can very easily sell your portion to another investor. The stock market facilitates that sale, making it very easy to either sell your shares or buy more shares. It's not a Ponzi scheme. The only reason your hypothetical share is said to be \\\"\\\"worth\\\"\\\" $399 is that there is a buyer that wants to buy it at $399. But there is a real company behind the stock, and it is making real money. There are several existing questions that discuss what gives a stock value besides a dividend: The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market. In particular, if no one puts money in the stock market, it doesn't matter how good the businesses do. The value of a stock is simply what a buyer is willing to pay for it. You are correct that there is not always a correlation between the price of a stock and how well the company is doing. But let's look at another hypothetical scenario. Let's say that I started and run a publicly-held company that sells widgets. The company is doing very well; I'm selling lots of widgets. In fact, the company is making incredible amounts of money. However, the stock price is not going up as fast as our revenues. This could be due to a number of reasons: investors might not be aware of our success, or investors might not think our success is sustainable. I, as the founder, own lots of shares myself, and if I want a return on my investment, I can do a couple of things with the large revenues of the company: I can either continue to reinvest revenue in the company, growing the company even more (in the hopes that investors will start to notice and the stock price will rise), or I can start paying a dividend. Either way, all the current stock holders benefit from the success of the company.\\\"\",\n \"Now a days, your stocks can be seen virtually through a brokerage account. Back in the days, a stock certificate was the only way to authenticate stock ownership. You can still request them though from the corporation you have shares in or your brokerage. It will have your name, corporation name and number of shares you have. You have to buy shares of a stock either through a brokerage or the corporation itself. Most stock brokerages are legit and are FDIC or SIPC insured. But your risks are your own loses. The $10 you are referring to is the trade commission fee the brokerage charges. When you place an order to buy or sell a stock the brokerage will charge you $10. So for example if you bought 1 share of a $20 stock. The total transaction cost will be $30. Depending on the state you live in, you can basically starting trading stocks at either 18 or 21. You can donate/gift your shares to virtually anyone. When you sell a stock and experience a profit, you will be charged a capital gains tax. If you buy a stock and sell it for a gain within 1 year, you will taxed up to 35% or your tax bracket but if you hold it for more than a year, you will taxed only 15% or your tax bracket.\",\n \"\\\"Ditto to MD-Tech, but from a more \\\"\\\"philosophical\\\"\\\" point of view: When you buy stock, you own it, just like you own a cell phone or a toaster or a pair of socks that you bought. The difference is that a share of stock means that you own a piece of a corporation. You can't physically take possession of it and put it in your garage, because if all the stock-holders did that, then all the company's assets would be scattered around all the stock-holder's garages and the company couldn't function. Like if you bought a 1/11 share in a football team, you couldn't take one of the football players home and keep him in your closet, because then the team wouldn't be able to function. (I might want to take one of the cheerleaders home, but that's another subject ...) In pre-electronic times, you could get a piece of paper that said, \\\"\\\"XYZ Corporation - 1 share\\\"\\\". You could take physical possession of this piece of paper and put it in your filing cabinet. I'm not sure if you can even get such certificates any more; I haven't seen one in decades. These days it's just recorded electronically. That doesn't mean that you don't own it. It just means that someone else is keeping the records for you. It's like leaving your car in a parking lot. It's still your car. The people who run the parking lot doesn't own it. They are keeping it for you, but just because they have physical possession doesn't make it theirs.\\\"\",\n \"Don't sit on it, because the money does not work for you. Add more money to it and buy a stock or stocks of the company.\",\n \"When I invest in a business valued at $50,000, I pay $25,000 and receive 50% equity. Does that $25,000 go to the current owner of the business, or into the capital of the business itself? Who receives the money depends on who is selling you the equity. There are a couple of different scenarios that can fit your question. You could buy existing shares from the current owner(s) of the company. In this case, the current owner(s) would be receiving the funds from you, and in return giving you their stake in the company. So if you all agree that the value of the business is $50,000, and you give $25,000 to the current owner(s), they give you half of their shares. The value of the company has not changed. The company could be issuing new shares. This is called stock dilution, or an increase in authorized share capital. Let's say that everyone agrees that the value of the business is $50,000. The company could create new shares and sell them to you for $25,000. In this case, the value of the company has jumped to $75,000; you now control one-third of the company, and the existing owner(s), who previously owned 100% of the company, now only own two-thirds. In order for you to end up with 50% of the company in this case, you would have to invest $50,000 instead, which would result in the company being valued at $100,000. If you are wondering why the current owners would agree to this second scenario, there are two questions that address this:\",\n \"\\\"It's not a ponzi scheme, and it does create value. I think you are confusing \\\"\\\"creating value\\\"\\\" and \\\"\\\"producing something\\\"\\\". The stock market does create value, but not in the same way as Toyota creates value by making a car. The stock market does not produce anything. The main way money enters the stock market is through investors investing and taking money out. The only other cash flow is in through dividends and out when businesses go public. & The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market. Earnings are the in-flow that you are missing here. Business profits DO flow back into the stock market through earnings and dividends. Think about a private company: if it has $100,000 in profits for the year then the company keeps $100,000, but if that same company is publicly traded with 100,000 shares outstanding then, all else being equal, each of those shares went up by $1. When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets. You can't go to an Apple store and try to pay with a stock certificate, but that doesn't mean the certificate doesn't have value. Using your agriculture example, you wouldn't be able to pay with a basket of tomatoes either. You wouldn't even be able to pay with a lump of gold! We used to do that. It was called the barter system. Companies also do buy shares back from the market using company cash. Although they usually do it through clearing-houses that are capable of moving blocks of 1,000 shares at a time.\\\"\",\n \"First, the stock does represent a share of ownership and if you have a different interpretation I'd like to see proof of that. Secondly, when the IPO or secondary offering happened that put those shares into the market int he first place, the company did receive proceeds from selling those shares. While others may profit afterward, it is worth noting that more than a few companies will have secondary offerings, convertible debt, incentive stock options and restricted stock that may be used down the road that are all dependent upon the current trading share price in terms of how useful these can be used to fund operations, pay executives and so forth. Third, if someone buys up enough shares of the company then they gain control of the company which while you aren't mentioning this case, it is something to note as some individuals buy stock so that they can take over the company which happens. Usually this has more of an overall plan but the idea here is that getting that 50%+1 control of the company's voting shares are an important piece to things here.\",\n \"If you buy a stock and it goes up, you can sell it and make money. But if you buy a stock and it goes down, you can lose money.\",\n \"You buy stocks for dividends over the long term. If a share of stock pays $1.00 in dividends every quarter, that's four dollars a year. If you bought it for $40, it pays out $4 in a year, and it's still worth roughly $40 at the end of the year, you're $4 richer. People will often invest large amounts of money in stable stocks not planning to sell it, but only collect the dividends which are either re-invested or pulled out as income.\",\n \"When you buy a stock, you become a partial owner of the company that the stock is for. As the company is valued at a higher or lower amount, the stock will reflect that by gaining or losing value. You still own that stock. For example, if you bought a stock for $10 per share and next week it is worth $8 dollars per share, the only loss incurred is on paper. You do not have to pay the difference (which I think is what you are asking?) and will only physically lose that money if you sell at that point. Similarly if that stock becomes worth $12, you have only gained money on paper and can only physically see it if you sell at that point.\",\n \"It depends. If the investor bought newly-issued shares or treasury shares, the company gets the money. If the investor bought shares already held by the owner, the owner gets the money. A 100% owner can decide how to structure the sale. Yet, the investor may only be willing to buy shares if the funds increase the company's working capital.\",\n \"Stock trading (as opposed to IPO) doesn't directly benefit the company. But it affects their ability to raise additional funds; if they're valued higher, they don't need to sell as many shares to raise a given amount of money. And the stockholders are part owners of the company; their votes in annual corporate meetings and the like can add up to a substantial influence on the company's policies, so the company has an interest in keeping them (reasonably) happy. Dividends (distributing part of the company's profits to the stockholders) are one way of doing so. You're still investing in the company. The fact that you're buying someone else's share just means you're doing so indirectly, and they're dis-investing at the same time.\",\n \"The stock market is no different in this respect to anything that's bought or sold. The price of a stock like many other things reflects what the seller is prepared to sell it at and what the buyer is prepared to offer for it. If those things match then a transaction can take place. The seller loses money but gains stocks they feel represent equivalent value, the reverse happens for the buyer. Take buying a house for example, did the buyer lose money when they bought a house, sure they did but they gained a house. The seller gained money but lost a house. New money is created in the sense that companies can and do make profits, those profits, together with the expected profits from future years increase the value that is put on the company. If we take something simple like a mining company then its value represents a lot of things: and numerous other lesser things too. The value of shares in the mining company will reflect all of these things. It likely rises and falls in line with the price of the raw materials it mines and those change based on the overall supply and demand for those raw materials. Stocks do have an inherent value, they are ownership of a part of a company. You own part of the asset value, profits and losses made by that company. Betting on things is different in that you've no ownership of the thing you bet on, you're only dependent on the outcome of the bet.\",\n \"Yes, you often can buy stocks directly from the company at little or no transaction cost. Many companies have either a Dividend Reinvestment Plan (DRIP) or a Direct Stock Plan (DSP). With these plans, you purchase shares directly from the company (although, often there is a third party transfer agent that handles the transaction), and the stock is issued in your name. This differs from purchasing stock from a broker, where the stock normally remains in the name of the broker. Generally, in order to begin participating in a DRIP, you need to already be a registered stockholder. This means that you need to purchase your first share of stock outside of the DRIP, and get it in your name. After that, you can register with the DRIP and purchase additional shares directly from the company. If the company has a DSP, you can begin purchasing shares directly without first being a stockholder. With the advent of discount brokers, DRIPs do not save as much money for regular investors as they once did. However, they can still sometimes save money for someone who wants to purchase shares on a regular basis over even a discount broker. If you are interested in DRIPs and DSPs and want to learn more, there is an informative website at dripinvesting.org that has lots of information on which DRIPs are available and how to get started.\",\n \"\\\"There is a legal document called a \\\"\\\"Stock Purchase Agreement\\\"\\\" and it depends on who is the other party to the buyer in the Agreement. In almost all startups the sale goes through the company, so the company keeps the money. In your example, the company would be worth $10,000 \\\"\\\"Post-Money\\\"\\\" because the $1k got 10% of the Company.\\\"\",\n \"\\\"Hmm... Well there are several ways to do that: Go to any bank (or at the very least major ones). They can assist you with buying and/or selling stocks/shares of any company on the financial market. They keep your shares safe at the bank and take care of them. The downside is that they will calculate fees for every single thing they do with your money or shares or whatever. Go to any Financial broker/trader that deals with the stock market. Open an account and tell them to buy shares from company \\\"\\\"X\\\"\\\" and keep them. Meaning they won't trade with them if this is what you want. Do the same as point 2, but on your own. Find a suitable broker with decent transaction fees, open an account, find the company's stock code and purchase the stocks via the platform the broker uses.\\\"\",\n \"Anytime you invest in stocks, you do that inside an investment account - such as the type you might open at ETrade, Vanguard, Fidelity or Charles Schwab. Once you have the account and fund it, you can tell the system to invest some/all of your money in When you open your investment account, their first question will be whether this is a cash account, traditional IRA, or Roth IRA. The broker must report this to the IRS because the tax treatment is very different.\",\n \"\\\"Most of the time* you're selling to other investors, not back to the company. The stock market is a collection of bid (buy offers) and asks (sell offers). When you sell your stock as a retail investor at the \\\"\\\"market\\\"\\\" price you're essentially just meeting whatever standing bid offers are on the market. For very liquid stocks (e.g. Apple), you can pretty much always get the displayed price because so many stocks are being traded. However during periods of very high volatility or for low-volume stocks, the quoted price may not be indicative of what you actually pay. As an example, let's say you have 5 stocks you're trying to sell and the bid-side order book is 2 stocks for $105, 2 for $100, and 5 for $95. In this scenario the quoted price will be $105 (the best bid price), but if you accept market price you'll settle 2 for 105, 2 for 100, and 1 for 95. After your sell order goes through, the new quoted price will be $95. For high volume stocks, there will usually be so many orders near the midpoint price ($105, in this case) that you won't see any price slippage for small orders. You can also post limit orders, which are essentially open orders waiting to be filled like in the above example. They ensure you get the price you want, but you have no way to guarantee they'll be filled or not. Edit: as a cool example, check out the bitcoin GDAX on coinbase for a live example of what the order book looks like for stocks. You'll see that the price of bitcoin will drift towards whichever direction has the less dense order book (e.g. price drifts upwards when there are far more bids than asks.)\\\"\",\n \"The worth of a share of stocks may be defined as the present cash value of all future dividends and liquidations associated therewith. Without a crystal ball, such worth may generally only be determined retrospectively, but even though it's generally not possible to know the precise worth of a stock in time for such information to be useful, it has a level of worth which is absolute and not--unlikely market price--is generally unaffected by people buying and selling the stock (except insofar as activities in company stock affect a company's ability to do business). If a particular share of stock is worth $10 by the above measure, but Joe sells it to Larry for $8, that means Joe gives Larry $2. If Larry sells it to Fred $12, Fred gives Larry $2. The only way Fred can come out ahead is if he finds someone else to give him $2 or more. If Fred can sell it to Adam for $13, then Adam will give Fred $3, leaving Fred $1 better off than he would be if he hadn't bought the stock, but Adam will be $3 worse off. The key point is that if you sell something for less than it's worth, or buy something for more that it's worth, you give money away. You might be able to convince other people to give you money in the same way you gave someone else money, but fundamentally the money has been given away, and it's not coming back.\",\n \"This is a very good question! The biggest difference is that when you put money in a savings bank you are a lender that is protected by the government, and when you buy stocks you become an owner. As a lender, whether the bank makes or loses money on the loans it makes, they still maintain your balance and pay you interest, and your principal balance is guaranteed by the government (in the USA). The bank is the party that is primarily at risk if their business does not perform well. As an owner, you participate fully in the company's gains and losses, but you also put your money at risk, since if the company loses money, you do too. Because of this, many people prefer to buy funds made up of many stocks, so they are not at risk of one company performing very poorly or going bankrupt. When you buy stock you become a part owner and share in the profitability of the company, often through a dividend. You should also be aware that stocks often have years where they do very poorly as well as years when they do very well. However, over a long period of time (10 years or more), they have historically done better in outpacing inflation than any other type of investment. For this reason, I would recommend that you only invest in the stock market if you expect to be able to leave the money there for 10 years or more, ideally, and for 5 years at the very least. Otherwise, you may need to take the money out at a bad time. I would also recommend that you only invest in stocks if you already have an emergency fund, and don't have consumer debt. There isn't much point in putting your money at risk to get a return if you can get a risk-free return by paying off debt, or if you would have to pull your money back out if your car broke down or you lost your job.\",\n \"how do they turn shares into cash that they can then use to grow their business? Once a Company issues an IPO or Follow-On Public Offer, the company gets the Money. Going over the list of question tagged IPO would help you with basics. Specifically the below questions; How does a company get money by going public in an IPO? Why would a company care about the price of its own shares in the stock market? Why would a stock opening price differ from the offering price? From what I've read so far, it seems that pre-IPO an investment bank essentially buys the companies public shares, and that bank then sells them on the open market. Is the investment bank buying 100% of the newly issued public shares? And then depositing the cash equivalent into the companies bank account? Additionally, as the stock price rises and falls over the lifetime of the company how does that actually impact the companies bank balance? Quite a bit on above is incorrect. Please read the answers to the question tagged IPO. Once an IPO is over, the company does not gain anything directly from the change in shareprice. There is indirect gain / loss.\",\n \"For some very small private companies I know of (and am part of), paper stocks do exist. You can sit at the table with the damn things in your hand and wave them in people's faces. They tell everyone how much of the company you own as a result of the money you ponied up. On the other hand, most stocks are now electronic. Nothing to hold. Just electronic records to review. They still represent how much you own of the company because of some amount of money you have put at risk, but they aren't anywhere near as much fun as the old-fasioned paper proofs. (As MrChrister notes, you can pay a small fee to get paper if you like, even for some big companies. Some of these paper stocks are remarkably elaborate and fine looking, but hardly necessary.) (You can see more info about what stocks are and what sort of stocks exist here: http://www.wikinvest.com/wiki/What_is_a_stock%3F)\",\n \"For point two.. The norm for buying stock is to just register online with a major broker: Fidelity, Schwab,TD Ameritrade...etc, send them money to fund your purchase, make the stock purchase in your account, and then have a little faith. You could probably get them to physically transfer the stock certificates from them to you, but it is not the norm at all. I would plan on a fee being involved also. The 10$ is for one trade... regardless of if you buy one share or many. So you wouldn't buy 1 share of a five dollar stock as your cost would be absurd. You might buy a hundred shares.\",\n \"\\\"There is no unique identifier that exists to identify specific shares of a stock. Just like money in the bank, there is no real reason to identify which exact dollar bills belong to me or you, so long as there is a record that I own X bills and I can access them when I want. (Of course, unlike banks, there is still a 1:1 relationship between the amount I should own and the amount they actually hold). If I may reach a bit, the question that I assume you are asking is how are shared actually tracked, transferred, and recorded so that I know for certain that I traded you 20 Microsoft shares yesterday and they are now officially yours, given that it's all digital. While you can technically try and request a physical share certificate, it's very cumbersome to handle and transfer in that form. Ownership of shares themselves are tracked for brokerage firms (in the case of retail trading, which I assume is the context of this question as we're discussion personal finance). Your broker has a record of how many shares of X, Y, and Z you own, when you bought each share and for how much, and while you are the beneficial owner of record (you get dividends, voting rights, etc.) your brokerage is the one who is \\\"\\\"holding\\\"\\\" the shares. When you buy or sell a stock and you are matched with a counterparty (the process of which is beyond the scope of this question) then a process of settlement comes into play. In the US, settlement takes 3 working days to process, and technically ownership does not transfer until the 3rd day after the trade is made, though things like margin accounts will allow you to effectively act as if you own the shares immediately after a buy/sell order is filled. Settlement in the US is done by a sole source, the Depository Trust & Clearing Corporation (DTCC). This is where retail and institutional trade all go to be sorted, checked and confirmed, and ultimately returned to the safekeeping of their new owners' representatives (your brokerage). Interestingly, the DTCC is also the central custodian for shares both physical and virtual, and that is where the shares of stock ultimately reside.\\\"\",\n \"What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000.\",\n \"\\\"The answer is partly and sometimes, but you cannot know when or how. Most clearly, you do not take somebody else's money if you buy shares in a start-up company. You are putting your money at risk in exchange for a share in the rewards. Later, if the company thrives, you can sell your shares for whatever somebody else will pay for your current share in the thriving company's earnings. Or, you lose your money, when the company fails. (Much of it has then ended up in the company's employees' pockets, much of the rest with the government as taxes that the company paid). If the stockmarket did not exist, people would be far less willing to put their money into a new company, because selling shares would be far harder. This in turn would mean that fewer new things were tried out, and less progress would be made. Communists insist that central state planning would make better decisions than random people linked by a market. I suggest that the historical record proves otherwise. Historically, limited liability companies came first, then dividing them up into larger numbers of \\\"\\\"bearer\\\"\\\" shares, and finally creating markets where such shares were traded. On the other hand if you trade in the short or medium term, you are betting that your opinion that XYZ shares are undervalued against other investors who think otherwise. But there again, you may be buying from a person who has some other reason for selling. Maybe he just needs some cash for a new car or his child's marriage, and will buy back into XYZ once he has earned some more money. You can't tell who you are buying from, and the seller can only tell if his decision to sell was good with the benefit of a good few years of hindsight. I bought shares hand over fist immediately after the Brexit vote. I was putting my money where my vote went, and I've now made a decent profit. I don't feel that I harmed the people who sold out in expectation of the UK economy cratering. They got the peace of mind of cash (which they might then reinvest in Euro stocks or gold or whatever). Time will tell whether my selling out of these purchases more recently was a good decision (short term, not my best, but a profit is a profit ...) I never trade using borrowed money and I'm not sure whether city institutions should be allowed to do so (or more reasonably, to what extent this should be allowed). In a certain size and shortness of holding time, they cease to contribute to an orderly market and become a destabilizing force. This showed up in the financial crisis when certain banks were \\\"\\\"too big to fail\\\"\\\" and had to be bailed out at the taxpayer's expense. \\\"\\\"Heads we win, tails you lose\\\"\\\", rather than trading with us small guys as equals! Likewise it's hard to see any justification for high-frequency trading, where stocks are held for mere milliseconds, and the speed of light between the trader's and the market's computers is significant.\\\"\",\n \"There are two terms that are related, but separate here: Broker and Market Maker. The former is who goes and finds a buyer/seller to buy/sell shares from/to you. The latter (Market Maker) is a company which will agree to partner with you to complete the sale at a set price (typically the market price, often by definition as the market maker often is the one who determines the market price in a relatively low volumne listing). A market maker will have as you say a 'pool' of relatively common stock (and even relatively uncommon, up to a point) for this purpose. A broker can be a market maker (or work for one), also, in which case he would sell you directly the shares from the market maker reservoir. This may be a bad idea for you - the broker (while obligated to act in your interest, in theory) may push you towards stocks that the brokerage acts as a market maker for.\",\n \"\\\"Very simple. You open an account with a broker who will do the trades for you. Then you give the broker orders to buy and sell (and the money to pay for the purchases). That's it. In the old days, you would call on the phone (remember, in all the movies, \\\"\\\"Sell, sell!!!!\\\"\\\"? That's how), now every decent broker has an online trading platform. If you don't want to have \\\"\\\"additional value\\\"\\\" and just trade - there are many online discount brokers (ETrade, ScotTrade, TD Ameritrade, and others) who offer pretty cheap trades and provide decent services and access to information. For more fees, you can also get advices and professional management where an investment manager will make the decisions for you (if you have several millions to invest, that is). After you open an account and login, you'll find a big green (usually) button which says \\\"\\\"BUY\\\"\\\". Stocks are traded on exchanges. For example the NYSE and the NASDAQ are the most common US exchanges (there's another one called \\\"\\\"pink sheets\\\"\\\", but its a different kind of animal), there are also stock exchanges in Europe (notably London, Frankfurt, Paris, Moscow) and Asia (notably Hong Kong, Shanghai, Tokyo). Many trading platforms (ETrade, that I use, for example) allow investing on some of those as well.\\\"\",\n \"\\\"There is one other factor that I haven't seen mentioned here. It's easy to assume that if you buy a stock, then someone else (another stock owner) must have sold it to you. This is not true however, because there are people called \\\"\\\"market makers\\\"\\\" whose basic job is to always be available to buy shares from those who wish to sell, and sell shares to those who wish to buy. They could be selling you shares they just bought from someone else, but they also could simply be issuing shares from the company itself, that have never been bought before. This is a super oversimplified explanation, but hopefully it illustrates my point.\\\"\",\n \"A purchase of a stock is not a taxable event. No 1099 to worry about. Welcome to Money.SE\",\n \"People buy stocks with the intention of making money. They either expect the price to continue to rise or that they will get dividends and the price will not drop (enough) to wipe out their dividend earnings.\",\n \"If I invest X each month, where does X go - an existing (low yield) bond, or a new bond (at the current interest rate)? This has to be viewed in a larger context. If the fund has outflows greater than or equal to inflows then chances are there isn't any buying being done with your money as that cash is going to those selling their shares in the fund. If though inflows are greater than outflows, there may be some new purchases or not. Don't forget that the new purchase could be an existing bond as the fund has to maintain the duration of being a short-term, intermediate-term or long-term bond fund though there are some exceptions like convertibles or high yield where duration isn't likely a factor. Does that just depend on what the fund manager is doing at the time (buying/selling)? No, it depends on the shares being created or redeemed as well as the manager's discretion. If I put Y into a fund, and leave it there for 50 years, where does Y go when all of the bonds at the time I made the purchase mature? You're missing that the fund may buy and sell bonds at various times as for example a long-term bond fund may not have issues nearing maturity because of what part of the yield curve it is to mimic. Does Y just get reinvested in new bonds at the interest rate at that time? Y gets mixed with the other money in the fund that may increase or decrease in value over time. This is part of the risk in a bond fund where NAV can fluctuate versus a money market mutual fund where the NAV is somewhat fixed at $1/share.\",\n \"This depends on what your definition of the word is is. Strictly speaking, you are only investing in a company when you buy stock from them somehow. This is usually done during an IPO or a secondary offering. Or, if you are someone like Warren Buffet or an institutional investor, you strike a deal with the company to buy shares directly from them. Otherwise, your money goes to someone else. Merriam-Webster defines speculate as 1b: to review something idly or casually and often inconclusively However, it also defines it as: 2: to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations The typical use of the term stock speculation vs stock investing involves definition 1b. This alludes to the idea that little to no research was done about the stock. This may be due to a lack of time, interest, knowledge, etc., or it may be due to a lack of information. The former usually has a negative connotation. The latter may have a negative connotation, though usually the connotation is one of greater risk. Strictly speaking, definition 2 includes investing as you define it along with investing in securities/commodities.\",\n \"I have been careful here to cover both shares in companies and in ETFs (Exchange Traded Funds). Some information such as around corporate actions and AGMs is only applicable for company shares and not ETFs. The shares that you own are registered to you through the broker that you bought them via but are verified by independent fund administrators and brokerage reconciliation processes. This means that there is independent verification that the broker has those shares and that they are ring fenced as being yours. The important point in this is that the broker cannot sell them for their own profit or otherwise use them for their own benefit, such as for collateral against margin etc.. 1) Since the broker is keeping the shares for you they are still acting as an intermediary. In order to prove that you own the shares and have the right to sell them you need to transfer the registration to another broker in order to sell them through that broker. This typically, but not always, involves some kind of fee and the broker that you transfer to will need to be able to hold and deal in those shares. Not all brokers have access to all markets. 2) You can sell your shares through a different broker to the one you bought them through but you will need to transfer your ownership to the other broker and that broker will need to have access to that market. 3) You will normally, depending on your broker, get an email or other message on settlement which can be around two days after your purchase. You should also be able to see them in your online account UI before settlement. You usually don't get any messages from the issuing entity for the instrument until AGM time when you may get invited to the AGM if you hold enough stock. All other corporate actions should be handled for you by your broker. It is rare that settlement does not go through on well regulated markets, such as European, Hong Kong, Japanese, and US markets but this is more common on other markets. In particular I have seen quite a lot of trades reversed on the Istanbul market (XIST) recently. That is not to say that XIST is unsafe its just that I happen to have seen a few trades reversed recently.\",\n \"I see a false assumption that you are making. (Almost always) When you buy stock the cash you spend does not go to the company. Instead it goes to someone else who is selling their shares. The exception to this is when you buy shares in an IPO. Those of us who have saved all our lives for retirement want income producing investments once we retire. (Hopefully) We have saved up quite a bit of money. To have us purchase their stock companies have to offer us dividends.\",\n \"\\\"In general, I think you're conflating a lot of ideas. The stock market is not like a supermarket. With the exception of a direct issue, you're not buying your shares from the company or from the New York Stock Exchange you're buying from an owner of stock, Joe, Sally, a pension fund, a hedge fund, etc; it's not sitting on a shelf at the stock market. When you buy an Apple stock you don't own $10 of Apple, you own 1/5,480,000,000th of Apple because Apple has 5,480,000,000 shares outstanding. When a the board gets together to vote on and approve a dividend the approved dividend is then divided by 5.48 billion to determine how much each owner receives. The company doesn't pay dividends out to owners from a pot of money it received from new owners; it sold iPhones at a profit and is sending a portion of that profit to the owners of the company. \\\"\\\"When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets.\\\"\\\" The statement does have backing. It's backed by the US Judicial system. But there's a difference between owning a company and owning the assets of the company. You own 1/5,480,000,000 of the company and the company owns the company's assets. Nevermind how disruptive it would be if any shareholder could unilaterally decide to sell a company's buildings or other assets. This is not a ponzi scheme because when you buy or sell your Apple stock, it has no impact on Apple, you're simply transacting with another random shareholder (barring a share-repurchase or direct issue). Apple doesn't receive the proceeds of your private transaction, you do. As far as value goes, yes the stock market provides tons of value and is a staple of capitalism. The stock market provides an avenue of financing for companies. Rather than taking a loan, a company's board can choose to relinquish some control and take on additional owners who will share in the spoils of the enterprise. Additionally, the exchanges deliver value via an unbelievable level of liquidity. You don't have to go seek out Joe or Sally when you want to sell your Apple stock. You don't need to put your shares on Craigslist in the hope of finding a buyer. You don't have to negotiate a price with someone who knows you want to sell. You just place an order at an exchange and you're aligned with a buyer. Also understand that anything can move up or down in value without any money actually changing hands. Say you get your hands on a pair of shoes (or whatever), they're hot on the market, very rare and sought after. You think you can sell them for $1,000. On tonight's news it turns out that the leather is actually from humans and the CEO of the company is being indicted, the company is falling apart, etc. Your shoes just went from $1,000 to $0 with no money changing hands (or from $1,000 to $100,000 depending on how cynical you are).\\\"\",\n \"No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public. However, the company could issue more shares at the new higher price to raise more capital.\",\n \"Do I make money in the stock market from other people losing money? Sometimes. If the market goes down, and someone sells -- on a panic, perhaps, or nervousness -- at a loss, if you have extra cash then you can buy that stock on the hope/expectation that its value will rise.\",\n \"As others have said, it depends on the brokerage firm. My broker is Scottrade. With Scottrade the commission is assessed and applied the moment the order is filled. If I buy 100 shares of XYZ at $10 a share then Scottrade will immediately deduct $1007.02 out of my account. They add the commission and fees to the buy transaction. On a sale transaction they subtract the commission and fees from the resulting money. So if I sell 100 shares of XYZ at $11 a share I will get 1,092.98 put into my account, which I can use three business days later.\",\n \"That is a loaded question but I'll give it a shot. First things first you need to determine if you are ready to invest in stocks. If you have a lot of high interest debt you would be much better served paying that off before investing in stocks. Stocks return around 8%-10% in the long run, so you'd be better off paying off any debt you have that is higher than 8%-10%. Most people get their start investing in stocks through mutual funds in their 401k or a Roth IRA. If you want to invest in individual stocks instead of mutual funds then you will need to do a lot of reading and learning. You will need a brokerage account or if you have a stock in mind they might have a dividend reinvestment plan (DRIP) that you could invest in directly with the company. You will have to compare the different brokerage firms to determine which is best for you. Since you seem to be internet savvy, I suggest you use a discount brokerage that let's you buy stocks online with cheaper commissions. A good rule of thumb is to keep commissions below 1% of the amount invested. Once you have your online brokerage account open with money in there the process of actually buying the stock is fairly straightforward. Just place an order for the amount of shares you want. That order can be a market order which means the purchase will occur at the current market price. Or you can use a limit order where you control at what price your purchase will occur. There are lots of good books out there for beginners. Personally I learned from the Motley Fool. And last but not least is to have fun with it. Learn as much as you can and welcome to the club.\",\n \"In the U.S. it is typical that a stock brokerage account can be set up to buy stock with up to half the cost being borrowed from the broker. This is called a margin account. The stock purchased must remain in the account until sold (or the loan is paid off), as it serves as built-in collateral for the loan. If the market price for the stock goes down too much, you will be required to add money, or the stock will be sold to cover the loan. See this question for some more information.\",\n \"New to investing... when I buy/sell a stock can I buy/sell at the exact market price whenever I'd like or is there more to it? Does there need to be a demand for when I'm trying to sell or am I just forcing the company to buy back my shares? Sorry if confusing/rookie question\",\n \"stocks represent ownership in a company. their price can go up or down depending on how much profit the company makes (or is expected to make). stocks owners are sometimes paid money by the company if the company has extra cash. these payments are called dividends. bonds represent a debt that a company owes. when you buy a bond, then the company owes that debt to you. typically, the company will pay a small amount of money on a regular basis to the bond owner, then a large lump some at some point in the future. assuming the company does not file bankrupcy, and you keep the bond until it becomes worthless, then you know exactly how much money you will get from buying a bond. because bonds have a fixed payout (assuming no bankrupcy), they tend to have lower average returns. on the other hand, while stocks have a higher average return, some stocks never return any money. in the usa, stocks and bonds can be purchased through a brokerage account. examples are etrade, tradeking, or robinhood.com. before purchasing stocks or bonds, you should probably learn a great deal more about other investment concepts such as: diversification, volatility, interest rates, inflation risk, capital gains taxes, (in the usa: ira's, 401k's, the mortgage interest deduction). at the very least, you will need to decide if you want to buy stocks inside an ira or in a regular brokerage account. you will also probably want to buy a low-expense ration etf (e.g. an index fund etf) unless you feel confident in some other choice.\",\n \"You can make money via stocks in two primary ways: Note that there's no guarantee of either. So it may very well not make you money.\",\n \"\\\"The answer to your question is \\\"\\\"no\\\"\\\". Unless you specifically ask to receive paper share certificates, then brokers will hold your shares with a custodian company in the broker's own nominee account. If you are able to receive paper certificates, then the registrar of the company whose shares you own will have a record of your name, however this is exceptionally rare these days. Using a stockbroker means that your shares will be held in the broker's nominee account. A nominee company is a custodian charged with the safekeeping of investors’ securities. It should be a separate entity from the broker itself. In essence, the nominee is the legal owner of the securities, while you retain actual ownership as the beneficiary. Your broker can move and sell the securities on your behalf – and gets to handle all the lovely paperwork – but the assets still belong to you. They can’t be claimed by the broker’s creditors if things get messy. The main reason for this kind of set-up is cost, and this is why brokers are able to offer relatively low dealing costs to their clients. You can, if you wish, ask your broker for an account that deals with paper share certificates. However, few brokers will offer such an account and it will mean that you incur much higher dealing costs and may mean that you cannot sell you shares without first submitting the paper certificates back to your stock broker. Note that the stock exchange plays no role in recording ownership. Nor does your broker's account with the clearing house.\\\"\",\n \"\\\"What is a stock? A share of stock represents ownership of a portion of a corporation. In olden times, you would get a physical stock certificate (looking something like this) with your name and the number of shares on it. That certificate was the document demonstrating your ownership. Today, physical stock certificates are quite uncommon (to the point that a number of companies don't issue them anymore). While a one-share certificate can be a neat memento, certificates are a pain for investors, as they have to be stored safely and you'd have to go through a whole annoying process to redeem them when you wanted to sell your investment. Now, you'll usually hold stock through a brokerage account, and your holdings will just be records in a database somewhere. You'll pick a broker (more on that in the next question), instruct them to buy something, and they'll keep track of it in your account. Where do I get a stock? You'll generally choose a broker and open an account. You can read reviews to compare different brokerages in your country, as they'll have different fees and pricing. You can also make sure the brokerage firm you choose is in good standing with the financial regulators in your country, though one from a major national bank won't be unsafe. You will be required to provide personal information, as you are opening a financial account. The information should be similar to that required to open a bank account. You'll also need to get your money in and out of the account, so you'll likely set up a bank transfer. It may be possible to request a paper stock certificate, but don't be surprised if you're told this is unavailable. If you do get a paper certificate, you'll have to deal with considerably more hassle and delay if you want to sell later. Brokers charge a commission, which is a fee per trade. Let's say the commission is $10/trade. If you buy 5 shares of Google at $739/share, you'd pay $739 * 5 + $10 = $3705 and wind up with $3695 worth of stock in your account. You'd pay the same commission when you sell the stock. Can anyone buy/own/use a stock? Pretty much. A brokerage is going to require that you be a legal adult to maintain an account with them. There are generally ways in which a parent can open an account on behalf of an underage child though. There can be different types of restrictions when it comes to investing in companies that are not publicly held, but that's not something you need to worry about. Stocks available on the public stock market are available to, well, the public. How are stocks taxed? Taxes differ from country to country, but as a general rule, you do have to provide the tax authorities with sufficient information to determine what you owe. This means figuring out how much you purchased the stock for and comparing that with how much you sold it for to determine your gain or loss. In the US (and I suspect in many other countries), your brokerage will produce an annual report with at least some of this information and send it to the tax authorities and you. You or someone you hire to do your taxes will use that report to compute the amount of tax owed. Your brokerage will generally keep track of your \\\"\\\"cost basis\\\"\\\" (how much you bought it for) for you, though it's a good idea to keep records. If you refuse to tell the government your cost basis, they can always assume it's $0, and then you'll pay more tax than you owe. Finding the cost basis for old investments can be difficult many years later if the records are lost. If you can determine when the stock was purchased, even approximately, it's possible to look back at historical price data to determine the cost. If your stock pays a dividend (a certain amount of money per-share that a company may pay out of its profits to its investors), you'll generally need to pay tax on that income. In the US, the tax rate on dividends may be the same or less than the tax rate on normal wage income depending on how long you've held the investment and other rules.\\\"\",\n \"\\\"I'm posting this because I think I can do a better job of explaining and detailing everything from start to stop. :) A \\\"\\\"broker\\\"\\\" is just someone who connect buyers and sellers - a middleman of sorts who is easy to deal with. There are many kinds of brokers; the ones you'll most commonly hear about these days are \\\"\\\"mortgage broker\\\"\\\" (for arranging home loans) and \\\"\\\"stockbroker\\\"\\\". The stockbroker helps you buy and sell stock. The stockbroker has a connection to one or more stock exchanges (e.g. Nasdaq, NYSE) and will submit your orders to them in order to fulfill it. This way Nasdaq and NYSE don't have to be in the business of managing millions of customer accounts (and submitting tax information about those accounts to the government and what-not) - they just manage relationships with brokerages, which is much easier for them. To invest in a stock, you will need to: In this day and age, most brokers that you care about will be easily accessed via the Internet, the applications will be available on the Internet, and the trading interface will be over the Internet. There may also be paper and/or telephone interfaces to the brokerage, but the Internet interface will work better. Be aware that post-IPO social media stock is risky; don't invest any money if you're not prepared for the possibility of losing every penny of it. Also, don't forget that a variety of alternative things exist that you can buy from a broker, such as an S&P 500 index fund or exchange-traded corporate bond fund; these will earn you some reward over time with significantly less risk. If you do not already have similar holdings through a retirement plan, you should consider purchasing some of these sooner or later.\\\"\",\n \"\\\"As I understand it, a company raises money by sharing parts of it (\\\"\\\"ownership\\\"\\\") to people who buy stocks from it. It's not \\\"\\\"ownership\\\"\\\" in quotes, it's ownership in a non-ironic way. You own part of the company. If the company has 100 million shares outstanding you own 1/100,000,000th of it per share, it's small but you're an owner. In most cases you also get to vote on company issues as a shareholder. (though non-voting shares are becoming a thing). After the initial share offer, you're not buying your shares from the company, you're buying your shares from an owner of the company. The company doesn't control the price of the shares or the shares themselves. I get that some stocks pay dividends, and that as these change the price of the stock may change accordingly. The company pays a dividend, not the stock. The company is distributing earnings to it's owners your proportion of the earnings are equal to your proportion of ownership. If you own a single share in the company referenced above you would get $1 in the case of a $100,000,000 dividend (1/100,000,000th of the dividend for your 1/100,000,000th ownership stake). I don't get why the price otherwise goes up or down (why demand changes) with earnings, and speculation on earnings. Companies are generally valued based on what they will be worth in the future. What do the prospects look like for this industry? A company that only makes typewriters probably became less valuable as computers became more prolific. Was a new law just passed that would hurt our ability to operate? Did a new competitor enter the industry to force us to change prices in order to stay competitive? If we have to charge less for our product, it stands to reason our earnings in the future will be similarly reduced. So what if the company's making more money now than it did when I bought the share? Presumably the company would then be more valuable. None of that is filtered my way as a \\\"\\\"part owner\\\"\\\". Yes it is, as a dividend; or in the case of a company not paying a dividend you're rewarded by an appreciating value. Why should the value of the shares change? A multitude of reasons generally revolving around the company's ability to profit in the future.\\\"\",\n \"A stock represents your share of ownership in a corporation. All of these shares indicate towards your part of ownership in a corporation a shareholder, stockholder or a shareowner in a company. In order to get a stock, be sure to secure the assistance of a licensed stockbroker to buy securities on your behalf. Yes, anyone having substantial amount of money to invest can buy/own/use stocks. Holding a stock for less than a year makes it a subject to tax on your regular income for short-term gains. Most of the people find it higher than the capital gains. In addition, your annual income also comes into play.\",\n \"\\\"Not a bond holder, but when we get dividends we usually just buy up a benchmark index tracking ETF unless/until we're ready to rebalance our portfolio. Most of the trades in the day are earmarked with the reason \\\"\\\"spending cash\\\"\\\". I'd assume it's similar for bond holders and coupons.\\\"\",\n \"When you own stock in a company, you do literally own part of the business, even if it's a small portion. Anyone amassing over 50% of shares really does have a controlling interest. No, you can't trade a handful of AAPL shares back to Apple for an iPod, but you can sell the shares and then go buy an iPod with the proceeds. Stock prices change over time because the underlying companies are worth more or less and people are willing to pay more or less for those shares. There is no Ponzi scheme because each share you own can be bought or sold on the open market. Dividends come from the company profits, not from other investors. On the other hand, money only has value because everyone believes it has value. There's the real conspiracy.\",\n \"Day traders see a dip, buy stocks, then sell them 4 mins later when the value climbed to a small peak. What value is created? Is the company better off from that trade? The stocks were already outside of company hands, so the trade doesn't affect them at all. You've just received money from others for no contribution to society. A common scenario is a younger business having a great idea but not enough capital funds to actually get the business going. So, investors buy shares which they can sell later on at a higher value. The investor gets value from the shares increasing over time, but the business also gets value of receiving money to build the business.\",\n \"A Company start with say $100. Lets say the max it can borrow from bank is $100 @ $10 a year as Interest. After a years say, On the $200 the company made a profit of $110. So it now has total $310 Option 1: Company pays back the Bank $100 + $10. It further gave away the $100 back to shareholders as dividends. The Balance with company $100. It can again start the second year, borrow from Bank $100 @ 10 interest and restart. Option 2: Company pays back the Bank $100 + $10. It now has $200. It can now borrow $200 from Bank @ $20. After a year it makes a profit of $250. [Economics of scale result $30 more] Quite a few companies in growth phase use Option 2 as they can grow faster, achieve economies of scale, keep competition at bay, etc Now if I had a share of this company say 1 @ $1, by end of first year its value would be $2, at the end of year 2 it would be $3.3. Now there is someone else who wants to buy this share at end of year 1. I would say this share gives me 100% returns every year, so I will not sell at $2. Give me $3 at the end of first year. The buyer would think well, if I buy this at $3, first year I would notionally get $.3 and from then on $1 every year. Not bad. This is still better than other stocks and better than Bank CD etc ... So as long as the company is doing well and expected to do well in future its price keeps on increasing as there is someone who want to buy. Why would someone want to sell and not hold one: 1. Needs cash for buying house or other purposes, close to retirement etc 2. Is balancing the portfolio to make is less risk based 3. Quite a few similar reasons Why would someone feel its right to buy: 1. Has cash and is young is open to small risk 2. Believes the value will still go up further 3. Quite a few similar reasons\",\n \"Stock A last traded at $100. Stock A has 1 million shares outstanding. No seller is willing to sell Stock A for less than $110 a share. One buyer is willing to buy 1 share for $110. The order executes. The buyer pays the seller $110. Stock A's new price is $110. An $110 investment increased the market cap by $10 million. Neat trick (for all who own Stock A).\",\n \"Suppose I purchase $10,000 worth of a particular share today. If the person(s) I am purchasing the shares from paid $9,000 for those shares, then I replacing their $9,000 investment with my $10,000 investment. This is a net inflow of $1,000 into the market. Similarly, if the person(s) I am purchasing the shares from paid $11,000 for those shares, then their $11,000 investment is being replace by my $10,000 investment. This is a net outflow of $1,000 out of the market. The aggregate of all such inflows and outflows in the net inflow/outflow into the market over a given period of time. (Here we are ignoring the effects of new share issues.)\",\n \"quid's answer explains the settlement period well. However, it should be noted that you can avoid the settlement period by opening a margin account. Any specific broker like Schwab may or may not offer margin accounts. Margin accounts allow you to borrow money to avoid the settlement period or to buy more securities than you can actually afford. Note that if you buy more securities than you can afford using margin, you expose yourself to losses potentially larger than your initial investment. If you fund your account with $50,000 and use margin to purchase $80,000 of stock which then drops in value by 80% you will have lost $64,000 and owe the broker $14,000 plus fees.\",\n \"\\\"Seems like no one in this thread has heard of \\\"\\\"treasury stocks\\\"\\\", which indeed allow a company to own and sell its own stock. Think about it. When there is a stock buy-back funded by excess profits, where does that stock go?\\\"\",\n \"Would you mind adding where that additional value comes from, if not from the losses of other investors? You asked this in a comment, but it seems to be the key to the confusion. Corporations generate money (profits, paid as dividends) from sales. Sales trade products for money. The creation of the product creates value. A car is worth more than General Motors pays for its components and inputs, even including labor and overhead as inputs. That's what profit is: added value. The dividend is the return that the stock owner gets for owning the stock. This can be a bit confusing in the sense that some stocks don't pay dividends. The theory is that the stock price is still based on the future dividends (or the liquidation price, which you could also consider a type of dividend). But the current price is mostly based on the likelihood that the stock price will increase rather than any expected dividends during ownership of the stock. A comment calls out the example of Berkshire Hathaway. Berkshire Hathaway is a weird case. It operates more like a mutual fund than a company. As such, investors prefer that it reinvest its money rather than pay a dividend. If investors want money from it, they sell shares to other investors. But that still isn't really a zero sum game, as the stock increases in value over time. There are other stocks that don't pay dividends. For example, Digital Equipment Corporation went through its entire existence without ever paying a dividend. It merged with Compaq, paying investors for owning the stock. Overall, you can see this in that the stock market goes up on average. It might have a few losing years, but pick a long enough time frame, and the market will increase during it. If you sell a stock today, it's because you value the money more than the stock. If it goes up tomorrow, that's the buyer's good luck. If it goes down, the buyer's bad luck. But it shouldn't matter to you. You wanted money for something. You received the money. The increase in the stock market overall is an increase in value. It is completely unrelated to trading losses. Over time, trading gains outweigh trading losses for investors as a group. Individual investors may depart from that, but the overall gain is added value. If the only way to make gains in the stock market was for someone else to take a loss, then the stock market wouldn't be able to go up. To view it as a zero sum game, we have to ignore the stocks themselves. Then each transaction is a payment (loss) for one party and a receipt (gain) for the other. But the stocks themselves do have value other than what we pay for them. The net present value of of future payments (dividends, buyouts, etc.) has an intrinsic worth. It's a risky worth. Some stocks will turn out to be worthless, but on average the gains outweigh the losses.\",\n \"\\\"From Wikipedia - Stock: The stock (also capital stock) of a corporation constitutes the equity stake of its owners. It represents the residual assets of the company that would be due to stockholders after discharge of all senior claims such as secured and unsecured debt. Stockholders' equity cannot be withdrawn from the company in a way that is intended to be detrimental to the company's creditors Wikipedia - Dividend: A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can re-invest it in the business (called retained earnings), and pay a fraction of this reinvestment as a dividend to shareholders. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase. Wikipedia - Bond: In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the second market. Thus, stock is about ownership in the company, dividends are the payments those owners receive, which may be additional shares or cash usually, and bonds are about lending money. Stocks are usually bought through brokers on various stock exchanges generally. An exception can be made under \\\"\\\"Employee Stock Purchase Plans\\\"\\\" and other special cases where an employee may be given stock or options that allow the purchase of shares in the company through various plans. This would apply for Canada and the US where I have experience just as a parting note. This is without getting into Convertible Bond that also exists: In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. It is a hybrid security with debt- and equity-like features. It originated in the mid-19th century, and was used by early speculators such as Jacob Little and Daniel Drew to counter market cornering. Convertible bonds are most often issued by companies with a low credit rating and high growth potential.\\\"\",\n \"I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.\",\n \"Where can publicly traded profits go but to shareholders via dividends? They can be retained by the company.\",\n \"A company CAN hold on to money. This is called retained earnings. Not all money is due back to the owners (i.e. stockholders), but only the amount that the board of directors chooses to pay back in the form of dividends. There is a lot more detail around this, but this is the simple answer to your question.\",\n \"In theory you can buy shares directly from someone else who owns them. In practise, if the stock is listed on an exchange, they are unlikely to own them directly, they are likely to own them through an intermediary. You will have to pay fees to that intermediary to transfer the shares to your name. There are thousands of small companies owned by the guy who started it and a few other investors. You can buy stock in that kind of company directly from the existing owners, as long as they are willing to sell you some. It's a super-high risk investment strategy, though. This is the kind of deal that happens on Dragons Den.\",\n \"The core issue is to understand what 'selling a share' means. There is no special person or company that takes the share from you; you are selling on the open market. So your question is effectively 'can I find a guy on the street that buys a 10$-bill for 11$ ?' - Well, maybe someone is dumb enough, but chances are slim.\",\n \"\\\"Yes! What you are describing is an \\\"\\\"off-exchange\\\"\\\" trade and can be done using stock certificates. Here, you will privately negotiate with the seller on a price and delivery details. That is the old-school way to do it. Many companies (about 20% of the S&P 500) will not issue paper certificates and you may run a hefty printing fee up to $500 (source: Wikipedia, above). Other other type of private-party transactions include a deal negotiated between two parties and settled immediately or based on a future event. For example, Warren Buffet created a deal with Goldman Sachs where Warren would have the choice to purchase GS shares in the future at a certain price. This was to be settled with actual shares (rather than cash-settled). Ignoring that he later canceled this agreement, if it were to go through the transaction would still have been handled by a broker transferring the shares. You can purchase directly from a company using a direct stock purchase plan (SPP). Just pick up the phone, ask for their investor relations and then ask if they offer this option. If not, they will be glad for your interest and look into setting it up for you.\\\"\",\n \"There are two ways that an asset can generate value. One is that the asset generates some revenue (e.g. you buy a house for $100,000 and rent it out for $1,000 per month) and the second way is that the asset appreciates (e.g you buy a house for $100,000, you don't rent it out and 5 years later you sell it for $200,000). Stocks are the same.\",\n \"I'd like to add that many companies offer Divident Re-Investment Plans or DRIPs, which is basically a regular automatic stock purchase program. More info here: http://en.wikipedia.org/wiki/Dividend_reinvestment_plan. While your stock broker may offer dividend reinvestment, this is not the same as a DRIP. DRIPs are offered directly by the company, rather than the stock broker. They have the added benefits that the stock purchases are almost always commission-free, and in some cases, the company even offers a discount on the stock price. It can take a little more effort to get enrolled in a DRIP, but if you are interested in holding the stock long-term, this is a good option to consider.\",\n \"Nothing. Stockbrokers set up nominee accounts, in which they hold shares on behalf of individual investors. Investors are still the legal owners of the shares but their names do not appear on the company’s share register. Nominee accounts are ring-fenced from brokers’ other activities so they are financially secure.\",\n \"At any given time there are buy orders and there are sell orders. Typically there is a little bit of space between the lowest sell order and the highest buy order, this is known as the bid/ask spread. As an example say person A will sell for $10.10 but person B will only buy at $10.00. If you have a billion shares outstanding just the space between the bid and ask prices represents $100,000,000 of market cap. Now imagine that the CEO is in the news related to some embezzlement investigation. A number of buyers cancel their orders. Now the highest buy order is $7. There isn't money involved, that's just the highest offer to buy at the time; but that's a drop from $10 to $7. That's a change in market cap of $3,000,000,000. Some seller thinks the stock will continue to fall, and some buyer thinks the stock has reached a fair enterprise value at $7 billion ($7 per share). Whether or not the seller lost money depends on where the seller bought the stock. Maybe they bought when it was an IPO for $1. Even at $7 they made $6 per share. Value is changing, not money. Though it would be fun, there's no money bonfire at the NYSE.\",\n \"\\\"The way to invest money in a company is to buy its shares, or derivatives of its shares. However, it seems you're way in over your head. Don't buy what you don't understand. There is plenty of material to teach you about stock investing on the internet. However, a book may be the fastest way to learn what you need to know. And yes, there is a \\\"\\\"for dummies\\\"\\\" book about that: Stock Investing ForDummies. I just found it by Googling, I'm sure you can find even more interesting books out there. (Note, the link is to the \\\"\\\"cheat sheet\\\"\\\" in the back of the book. The full book is worth reading.)\\\"\",\n \"\\\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\\\"\\\"at market\\\"\\\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,100@180.03), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\\\"\\\"limit up\\\"\\\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \\\"\\\"market impact\\\"\\\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\\\"\",\n \"\\\"This answer will expand a bit on the theory. :) A company, as an entity, represents a pile of value. Some of that is business value (the revenue stream from their products) and some of that is assets (real estate, manufacturing equipment, a patent portfolio, etc). One of those assets is cash. If you own a share in the company, you own a share of all those assets, including the cash. In a theoretical sense, it doesn't really matter whether the company holds the cash instead of you. If the company adds an extra $1 billion to its assets, then people who buy and sell the company will think \\\"\\\"hey, there's an extra $1 billion of cash in that company; I should be willing to pay $1 billion / shares outstanding more per share to own it than I would otherwise.\\\"\\\" Granted, you may ultimately want to turn your ownership into cash, but you can do that by selling your shares to someone else. From a practical standpoint, though, the company doesn't benefit from holding that cash for a long time. Cash doesn't do much except sit in bank accounts and earn pathetically small amounts of interest, and if you wanted pathetic amounts of interests from your cash you wouldn't be owning shares in a company, you'd have it in a bank account yourself. Really, the company should do something with their cash. Usually that means investing it in their own business, to grow and expand that business, or to enhance profitability. Sometimes they may also purchase other companies, if they think they can turn a profit from the purchase. Sometimes there aren't a lot of good options for what to do with that money. In that case, the company should say, \\\"\\\"I can't effectively use this money in a way which will grow my business. You should go and invest it yourself, in whatever sort of business you think makes sense.\\\"\\\" That's when they pay a dividend. You'll see that a lot of the really big global companies are the ones paying dividends - places like Coca-Cola or Exxon-Mobil or what-have-you. They just can't put all their cash to good use, even after their growth plans. Many people who get dividends will invest them in the stock market again - possibly purchasing shares of the same company from someone else, or possibly purchasing shares of another company. It doesn't usually make a lot of sense for the company to invest in the stock market themselves, though. Investment expertise isn't really something most companies are known for, and because a company has multiple owners they may have differing investment needs and risk tolerance. For instance, if I had a bunch of money from the stock market I'd put it in some sort of growth stock because I'm twenty-something with a lot of savings and years to go before retirement. If I were close to retirement, though, I would want it in a more stable stock, or even in bonds. If I were retired I might even spend it directly. So the company should let all its owners choose, unless they have a good business reason not to. Sometimes companies will do share buy-backs instead of dividends, which pays money to people selling the company stock. The remaining owners benefit by reducing the number of shares outstanding, so they own more of what's left. They should only do this if they think the stock is at a fair price, or below a fair price, for the company: otherwise the remaining owners are essentially giving away cash. (This actually happens distressingly often.) On the other hand, if the company's stock is depressed but it subsequently does better than the rest of the market, then it is a very good investment. The one nice thing about share buy-backs in general is that they don't have any immediate tax implications for the company's owners: they simply own a stock which is now more valuable, and can sell it (and pay taxes on that sale) whenever they choose.\\\"\",\n \"\\\"Because I feel the answers given do not wholely represent the answer you are expecting, I'd like to re-iterate but include more information. When you own stock in a company, you OWN some of that company. When that company makes profit, you usually receive a dividend of those profits. If you owned 1% of the company stock, you (should) recieve 1% of the profits. If your company is doing well, someone might ask to buy your stock. The price of that stock is (supposed) to be worth a value representative of the expected yield or how much of a dividend you'd be getting. The \\\"\\\"worth\\\"\\\" of that, is what you're betting on when you buy the stock, if you buy $100 worth of coca cola stock and they paid $10 as dividend, you'd be pretty happy with a 10% growth in your wealth. Especially if the banks are only playing 3%. So maybe some other guy sees your 10% increase and thinks, heck.. 10% is better than 3%, if I buy your stocks, even as much as 6% more than they are worth ($106) I'm still going to be better off by that extra 1% than I would be if I left it in the bank.. so he offers you $106.. and you think.. awesome.. I can sell my $100 of cola shares now, make a $6 profit and buy $100 worth of some other share I think will pay a good dividend. Then cola publicises their profits, and they only made 2% profit, that guy that bought your shares for $106, only got a dividend of $2 (since their 'worth' is still $100, and effectively he lost $4 as a result. He bet on a better than 10% profit, and lost out when it didn't hit that. Now, (IMHO) while the stock market was supposed to be about buying shares, and getting dividends, people (brokers) discovered that you could make far more money buying and selling shares for 'perceived value' rather than waiting for dividends to show actual value, especially if you were not the one doing the buying and selling (and risk), but instead making a 0.4% cut off the difference between each purchase (broker fees). So, TL;DR, Many people have lost money in the market to those who made money from them. But only the traders and gamblers.\\\"\",\n \"I'd look into ShareBuilder. You can buy stocks for as low as $2 each, and there is no minimum funding level. You have to be carefull about selling though, as they will charge you $10 each time you want to sell a stock, regardless of how much of it you want to sell.\",\n \"Apart from making money from the price difference, some stocks also give dividends, or bonus issues. For long term investors whom are looking for steady income, they may be more interested with the dividend pay-out instead of the capital-appreciation.\",\n \"Will there be a scenario in which I want to sell, but nobody wants to buy from me and I'm stuck at the brokerage website? Similarly, if nobody wants to sell their stocks, I will not be able to buy at all? You're thinking of this as a normal purchase, but that's not really how US stock markets operate. First, just because there are shares of stock purchased, it doesn't mean that there was real investor buyer and seller demand for that instrument (at that point in time). Markets have dedicated middlemen called Market Makers (NASDAQ) or Specialists (NYSE), who are responsible to make sure that there is always someone to buy or sell; this ensures that all instruments have sufficient liquidity. Market Makers and specialists may decide to lower their bid on a stock based on a high number of sellers, or raise their ask for a high number of buyers. During an investor rush to buy or sell an instrument (perhaps in response to a news release), it's possible for the Market Maker / specialist to accumulate or distribute a large number of shares, without end-investors like you or I being involved on both sides of the same transaction.\",\n \"Your autograph analogy seems relevant to me. But it is not just speculation. In the long run, investing in stocks is like investing in the economy. In the long run, the economy is expected to grow , hence stock prices are expected to go up. Now in theory: the price of any financial instrument is equal to the net present value today of all the future cash flows from the instrument. So if company's earnings improve, shareholders hope that the earnings will trickle down to them either in form of dividends or in form of capital gain. So they buy the stock, creating demand for it. I can try to explain more if this did not make any sense. :)\",\n \"There are 2 main types of brokers, full service and online (or discount). Basically the full service can provide you with advice in the form of recommendations on what to buy and sell and when, you call them up when you want to put an order in and the commissions are usually higher. Whilst an online broker usually doesn't provide advice (unless you ask for it at a specified fee), you place your orders online through the brokers website or trading platform and the commissions are usually much lower. The best thing to do when starting off is to go to your country's stock exchange, for example, The ASX in Sydney Australia, and they should have a list of available brokers. Some of the online brokers may have a practice or simulation account you can practice on, and they usually provide good educational material to help you get started. If you went with an online broker and wanted to buy Facebook on the secondary market (that is on the stock exchange after the IPO closes), you would log onto your brokers website or platform and go to the orders section. You would place a new order to buy say 100 Facebook shares at a certain price. You can use a market order, meaning the order will be immediately executed at the current market price and you will own the shares, or a limit price order where you select a price below the current market price and wait for the price to come down and hit your limit price before your order is executed and you get your shares. There are other types of orders available with different brokers which you will learn about when you log onto their website. You also need to be careful that you have the funds available to pay for the share at settlement, which is 3 business days after your order was executed. Some brokers may require you to have the funds deposited into an account which is linked to your trading account with them. To sell your shares you do the same thing, except this time you choose a sell order instead of a buy order. It becomes quite simple once you have done it a couple of times. The best thing is to do some research and get started. Good Luck.\",\n \"Buy a share - not a penny stock; rather a well known company like Coca-Cola, Kelloggs, Exxon, etc. Follow the company. Understand their business model. See the share price fall and rise. You will learn a lot having your own money at risk.\",\n \"You can purchase stock immediately in the open market on the day of the IPO when market opens. Below link gives you more information. http://finance.zacks.com/buy-ipo-stock-3903.html\",\n \"Unless you are buying millions of dollars worth of a stock at a time, your transaction is a drop in the bucket, unlikely to have any noticable effect on the stock price. As Ian says, it's more likely that you are just remembering the times when the price dropped after you bought. If you keep careful track, I suspect you will find that the price goes up more often than it goes down, or at least, that the stocks you buy go up as often as the average stock on the market goes up. If you actually kept records and found that's not true, the most likely explanation is bad luck. Or that someone has placed a voodoo curse on you. I suppose one could imagine other scenarios. Like, if you regularly buy stock based on recommendations by well-known market pundits, you could expect to see a temporary increase in price as thousands or millions of people who hear this recommendation rush to buy, and then a few days or weeks later people move on to the next recommendation, the market setttles down, and the price reverts to a more normal level. In that case, if you're on the tail end of the buying rush, you could end up paying a premium. I'm just speculating here, I haven't done a study to find if this actually happens, but it sounds plausible to me.\",\n \"\\\"Look at the link to the SIPC. I don't know exactly what you mean by \\\"\\\"runs out of funds,\\\"\\\" but the SIPC will replace shares of stock stolen from your account, and up to $100,000 in cash. The real risk is when a shady brokers sells you shares in a stock that becomes worthless, that's when \\\"\\\"buyer beware\\\"\\\" kicks in. No help there.\\\"\",\n \"Yes, as long as you own the shares before the ex-dividend date you will get the dividends. Depending on your instructions to your broker, you can receive cash dividends or you can have the dividends reinvested in more shares of the company. There are specific Dividend ReInvestment Plans (or DRIPs) if you are after stock growth rather than income from dividend payments.\",\n \"The stock market is just like any other market, but stocks are bought and sold here. Just like you buy and sell your electronics at the electronics market, this is a place where buyers and sellers come together to buy and sell shares or stocks or equity, no matter what you call it. What are these shares? A share is nothing but a portion of ownership of a company. Suppose a company has 100 shares issued to it, and you were sold 10 out of those, it literally means you are a 10% owner of the company. Why do companies sell shares? Companies sell shares to grow or expand. Suppose a business is manufacturing or producing and selling goods or services that are high in demand, the owners would want to take advantage of it and increase the production of his goods or services. And in order to increase production he would need money to buy land or equipment or labor, etc. Now either he could go get a loan by pledging something, or he could partner with someone who could give him money in exchange for some portion of the ownership of the company. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Now if the owner decides to sell shares rather than getting a loan, that's when the stock market comes into the picture. Why would a person want to trade stocks? First of all, please remember that stocks were never meant to be traded. You always invest in stocks. What's the difference? Trading is short term and investing is long term, in very simple language. It's the greed of humans which led to this concept of trading stocks. A person should only buy stocks if he believes in the business the company is doing and sees the potential of growth. Back to the question: a person would want to buy stocks of the company because: How does a stock market help society? Look around you for the answer to this question. Let me give you a start and I wish everyone reading this post to add at least one point to the answer. Corporations in general allow many people come together and invest in a business without fear that their investment will cause them undue liability - because shareholders are ultimately not liable for the actions of a corporation. The cornerstone North American case of how corporations add value is by allowing many investors to have put money towards the railroads that were built across America and Canada. For The stock market in particular, by making it easier to trade shares of a company once the company sells them, the number of people able to conveniently invest grows exponentially. This means that someone can buy shares in a company without needing to knock door to door in 5 years trying to find someone to sell to. Participating in the stock market creates 'liquidity', which is essentially the ease with which stocks are converted into cash. High liquidity reduces risk overall, and it means that those who want risk [because high risk often creates high reward] can buy shares, and those who want low risk [because say they are retiring and don't have a risk appetite anymore] can sell shares.\",\n \"\\\"This is a misconception. One of the explanations is that if you buy at the ask price and want to sell it right away, you can only sell at the bid price. This is incorrect. There are no two separate bid and ask prices. The price you buy (your \\\"\\\"bid\\\"\\\") is the same price someone else sells (their \\\"\\\"sell\\\"\\\"). The same goes when you sell - the price you sell at is the price someone else buys. There's no spread with stocks. Emphasized it on purpose, because many people (especially those who gamble on stock exchange without knowing what they're doing) don't understand how the stock market works. On the stock exchange, the transaction price is the match between the bid price and the ask price. Thus, on any given transaction, bid always equals ask. There's no spread. There is spread with commodities (if you buy it directly, especially), contracts, mutual funds and other kinds of brokered transactions that go through a third party. The difference (spread) is that third party's fee for assuming part of the risk in the transaction, and is indeed added to your cost (indirectly, in the way you described). These transactions don't go directly between a seller and a buyer. For example, there's no buyer when you redeem some of your mutual fund - the fund pays you money. So the fund assumes certain risk, which is why there's a spread in the prices to invest and to redeem. Similarly with commodities: when you buy a gold bar - you buy it from a dealer, who needs to keep a stock. Thus, the dealer will not buy from you at the same price: there's a premium on sale and a discount on buy, which is a spread, to compensate the dealer for the risk of keeping a stock.\\\"\",\n \"Where does the money go Who wins the billions Ever heard of The Wolf of Wall Street , theres where the money goes . In short ,bankers, traders who are paid millions to take make leverage bets using the banks money regardless of whether they do well . If they screw up and lose millions , they get paid to leave ( compensation package ) . If they do well , they get bonus.\",\n \"In general stock markets are very similar to that, however, you can also put in limit orders to say that you will only buy or sell at a given price. These sit in the market for a specified length of time and will be executed when an order arrives that matches the price (or better). Traders who set limit orders are called liquidity (or price) makers as they provide liquidity (i.e. volume to be traded) to be filled later. If there is no counterparty (i.e. buyer to your seller) in the market, a market maker; a large bank or brokerage who is licensed and regulated to do so, will fill your order at some price. That price is based on how much volume (i.e. trading) there is in that stock on average. This is called average daily volume (ADV) and is calculated over varying periods of time; we use ADV30 which is the 30 day average. You can always sell stocks for whatever price you like privately but a market order does not allow you to set your price (you are a price taker) therefore that kind of order will always fill at a market price. As mentioned above limit orders will not fill until the price is hit but will stay on book as long as they aren't filled, expired or cancelled.\",\n \"\\\"You are correct that, barring an equity capital raise, your money doesn't actually end up in the company. However, interest in their stock can help a company in other ways; Management/board members hopefully own shares or options themselves, thus knowing that \\\"\\\"green\\\"\\\" policies are favorable for the stock price (as your fund might buy shares) can be quite an incentive for them to go green(er). Companies with above average company share performance are also often viewed as financially healthy and so creditors tend to charge lower interest for companies with good share performance. Lastly, a high share price makes a company difficult to take over (as all those shares have to be acquired) and at the same time makes it easier for the company to perform takeovers themselves as they can finance such acquisitions by issuing more of their own shares. There is also the implication that money flowing towards such green companies is money flowing out of/away from polluting companies, for these \\\"\\\"dirty\\\"\\\" companies the inverse of the previous points can hold true. Of course on the other hand there is quite an argument to be made that large enough \\\"\\\"green\\\"\\\" funds should actually buy substantial positions in companies with poor environmental records and steer the company towards greener policies but that might be a hard sell to investors.\\\"\",\n \"Open Google finance and divide the Market Capitalization by the total price. That will give you the total number of shares outstanding. Now see the number of shares you could buy for $1000(40 shares of $25 each or 10 shares of 100 shares each). Now divide the number of shares you own, by the number of shares outstanding in the company and multiply it by 100(i.e (Shares you own/shares Outstanding) * 100). That will give you the percentage or stake of the company you own(With $1000, don't expect it to be a very large number). Now ask your self the question, Is it worth it if I can buy x % of this company for $1000? If the answer is yes, go ahead and buy it. To answer your question in short, NO! it does not matter whether you buy 10 shares for $100 or 40 shares for $25. Cheers\",\n \"You realize that most of the money raised through the IPO process doesn't go into the company's bank account? Those shares were shares that were held by the investors and original owners and it's those prior pre-IPO shareholders that got their money back along with a tidy profit. The cash on its books was there before the IPO, and after. The IPO process was more about a change in stock owners ship than anything else. Edit - as the SEC disclosure mentioned in comments below states, the Facebook IPO raised $6.7B for facebook's use, the rest of the transaction was from the investors selling their shares. Mark Zuckerberg still owns more than 55% of shares outstanding. The $6.7B is still about 10% of the company value. Nothing to ignore, but clearly, 'most' of the money from the IPO didn't go to the company.\",\n \"Let's say that you bought a share of Apple for $10. When (if ever) their stock sold for $10, it was a very small company with a very small net worth; that is, the excess of assets over liabilities. Your $10 share was perhaps a 1/10,000,000th share of a tiny company. Over the years, Apple has developed both software and hardware that have real value to the world. No-one knew they needed a smartphone and, particularly, an iPhone, until Apple showed it to us. The same is true of iPads, iPods, Apple watches, etc. Because of the sales of products and services, Apple is now a huge company with a huge net worth. Obviously, your 1/10,000,000th share of the company is now worth a lot more. Perhaps it is worth $399. Maybe you think Apples good days are behind it. After all, it is harder to grow a huge company 15% a year than it is a small company. So maybe you will go into the marketplace and offer to sell your 1/10,000,000th share of Apple. If someone offers you $399, would you take it? The value of stocks in the market is not a Ponzi scheme, although it is a bit speculative. You might have a different conclusion and different research about the future value of Apple than I do. Your research might lead you to believe the stock is worth $399. Mine might suggest it's worth $375. Then I wouldn't buy. The value of stocks in the market is based on the present and estimated future value of living, breathing companies that are growing, shrinking and steady. The value of each company changes all the time. So, then, does the price of the stock. Real value is created in the stock market when real value is created in the underlying company.\",\n \"When stocks have a change in price it is because of a TRADE. To have a trade you have to have both a buyer and a seller. When the price of a security is going up there are an equal amount of shares being sold as being bought. When the price of a security is going down there are an equal amount of shares being bought as being sold. There almost always is an unequal amount of shares waiting to be sold compared to the amount waiting to be bought. But waiting shares do not move the price, only when the purchase price and the sale price agree, and a trade occurs, does the price move. So the price does not go down because more shares are being sold. Neither does the price go up because more shares are being bought.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case), an investment fund, the \"\"market maker\"\" for that stock (websearch for definition of that term), or anyone else. They owned a small percentage of the company; you bought it from them and gave them the money for it, just as you would buy anything else. You don't know or care who you bought from; they don't know or care who they sold to; the market just found a buyer and seller who could agree on the price. There are a very few exceptions to that. The company may repurchase some of its own shares and/or sell them again, depending on its own financial needs and obligations. For example, my own employer has to purchase its own shares periodically so it has enough on hand to sell to employees at a slight discount through the Employee Stock Ownership Program. But you generally don't know that's who you're selling to; it happens like any other transaction. And during the Initial Public Offering, if you're lucky/privileged enough to get in on the first wave of purchases, you're buying from the investment bank that's managing this process ... though that's an almost vanishingly rare case for \"\"retail\"\" investors like us; we're more likely to get the shares after someone has already pushed the price up a bit. But really, when you buy a share the money goes to whoever you bought it from, and that's all you can know or need to know.\"","The money goes to the seller. There are a lot of behind the scenes things that happen, and some transactions are very complicated with many parties involved (evidenced by all the comments on @keshlam's perfectly reasonable high-level answer), but ultimately the money goes to the seller. Sometimes the seller is the company. The billions of shares that change hands each day are moving between other individuals like you and investment funds; these transactions have no direct impact on the company's financials, in general."],"string":"[\n \"\\\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case), an investment fund, the \\\"\\\"market maker\\\"\\\" for that stock (websearch for definition of that term), or anyone else. They owned a small percentage of the company; you bought it from them and gave them the money for it, just as you would buy anything else. You don't know or care who you bought from; they don't know or care who they sold to; the market just found a buyer and seller who could agree on the price. There are a very few exceptions to that. The company may repurchase some of its own shares and/or sell them again, depending on its own financial needs and obligations. For example, my own employer has to purchase its own shares periodically so it has enough on hand to sell to employees at a slight discount through the Employee Stock Ownership Program. But you generally don't know that's who you're selling to; it happens like any other transaction. And during the Initial Public Offering, if you're lucky/privileged enough to get in on the first wave of purchases, you're buying from the investment bank that's managing this process ... though that's an almost vanishingly rare case for \\\"\\\"retail\\\"\\\" investors like us; we're more likely to get the shares after someone has already pushed the price up a bit. But really, when you buy a share the money goes to whoever you bought it from, and that's all you can know or need to know.\\\"\",\n \"The money goes to the seller. There are a lot of behind the scenes things that happen, and some transactions are very complicated with many parties involved (evidenced by all the comments on @keshlam's perfectly reasonable high-level answer), but ultimately the money goes to the seller. Sometimes the seller is the company. The billions of shares that change hands each day are moving between other individuals like you and investment funds; these transactions have no direct impact on the company's financials, in general.\"\n]","isConversational":false}}},{"rowIdx":285,"cells":{"_id":{"kind":"string","value":"3103"},"query":{"kind":"string","value":"AVS Address Verification System of BOTH Credit and Debit Cards - WHERE, HOW?"},"gt_ids":{"kind":"list like","value":["176596"],"string":"[\n \"176596\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["176596","229937","246989","26996","13800","278667","280699","446255","283889","428689","409822","422225","219990","277964","5607","350237","492578","147637","196233","50347","138645","95257","332422","507428","264809","329028","521688","158008","241866","589773","325904","294128","301361","149032","18832","298729","308307","3243","488379","86532","294899","63366","86752","498140","158965","513477","159460","456679","442435","167202","7766","361917","349554","448639","213370","325713","323310","144580","456887","72854","168283","532077","448769","210855","165995","115890","20670","362643","204825","481648","123601","597933","367730","78086","39720","379732","558611","203475","152039","208169","259194","153220","494689","428973","139518","434320","160535","162870","491793","399382","233781","141579","283698","262524","39772","542783","414932","444104","448086","304100"],"string":"[\n \"176596\",\n \"229937\",\n \"246989\",\n \"26996\",\n \"13800\",\n \"278667\",\n \"280699\",\n \"446255\",\n \"283889\",\n \"428689\",\n \"409822\",\n \"422225\",\n \"219990\",\n \"277964\",\n \"5607\",\n \"350237\",\n \"492578\",\n \"147637\",\n \"196233\",\n \"50347\",\n \"138645\",\n \"95257\",\n \"332422\",\n \"507428\",\n \"264809\",\n \"329028\",\n \"521688\",\n \"158008\",\n \"241866\",\n \"589773\",\n \"325904\",\n \"294128\",\n \"301361\",\n \"149032\",\n \"18832\",\n \"298729\",\n \"308307\",\n \"3243\",\n \"488379\",\n \"86532\",\n \"294899\",\n \"63366\",\n \"86752\",\n \"498140\",\n \"158965\",\n \"513477\",\n \"159460\",\n \"456679\",\n \"442435\",\n \"167202\",\n \"7766\",\n \"361917\",\n \"349554\",\n \"448639\",\n \"213370\",\n \"325713\",\n \"323310\",\n \"144580\",\n \"456887\",\n \"72854\",\n \"168283\",\n \"532077\",\n \"448769\",\n \"210855\",\n \"165995\",\n \"115890\",\n \"20670\",\n \"362643\",\n \"204825\",\n \"481648\",\n \"123601\",\n \"597933\",\n \"367730\",\n \"78086\",\n \"39720\",\n \"379732\",\n \"558611\",\n \"203475\",\n \"152039\",\n \"208169\",\n \"259194\",\n \"153220\",\n \"494689\",\n \"428973\",\n \"139518\",\n \"434320\",\n \"160535\",\n \"162870\",\n \"491793\",\n \"399382\",\n \"233781\",\n \"141579\",\n \"283698\",\n \"262524\",\n \"39772\",\n \"542783\",\n \"414932\",\n \"444104\",\n \"448086\",\n \"304100\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Parts of what you want are possible, but taken as a whole, you're out of luck. First of all, there is no master database of every cardholder in the country. The only way to check if information is correct is to ask the issuing bank. The AVS system is a way to automate doing so, but it's possible to call the bank directly and verbally verify the address. That means you're subject to the whims of what the issuing bank chooses to support. Banks that are part of the Visa and MasterCard networks generally only verify the numeric parts (address, apartment number, zipcode). AmEx can also verify the cardholder name. But if the bank doesn't have support for validating something, you can't validate it. Separately, there is a \"\"verify-only\"\" transaction which some processors support, which will do exactly what you want: Return AVS values without ever charging the card. However, processors require you to have the \"\"approved merchant account\"\" you don't want to have to have. Without being a merchant, you shouldn't have access to other people's credit cards anyway. Would you really want anyone in the country to be able to verify anyone else's address whenever they want? In short, whatever purpose you have for wanting this probably falls into one of three categories:\"","\"Zip code, as well as billing address, is used in conjunction with the Address Verification Service (AVS). AVS is a web (or phone) service that actually verifies the address with the billing address on file with the issuing bank. It does not use the credit card stripe. You can see more information from various sources such as bank merchant help pages like Bank of America's. As far as what is stored on the stripe, it varies some by bank (as there are some \"\"optional\"\" areas). The standards are discussed here. Fields include your account number, name, the expiration date, some card-specific stuff, and then the discretionary section. I would not expect much in terms of address type information there. So - the answer to your question is that they can't really take much more than your name and CC #, unless you give it to them. If you give a false zip code, you may have your purchase rejected. They certainly do keep track of the credit card number, and I would suppose that is the most valuable piece to them; they can see you make purchases across time and know for a fact that it's the same exact person (since it's the same card). Additionally, zip codes for AVS from pay-at-the-pump are supposedly not generally used for marketing (see this article for example). That is probably not true at at-the-register (in-person) collections, most of those aren't for AVS anyway. Even California permits the pay-at-the-pump zip verification as long as it's only used for that (same article). I would assume any information given, though, is collected for marketing purposes.\"","\"As others have stated, credit (signature required) is processed through their respective networks (Visa, MasterCard, Discover, or American Express). A \"\"debit\"\" card tied to your checking account, still go through the same credit network even though the funds are guaranteed from your checking rather than a free loan 30-60 days which has the potential to be unpaid. This type of debit card purchase may be eligible for a lower processing rate for less risk. Debit cards can also be processed through the debit network (PIN required, no signature). This is typically a straight fee such as $0.35. Fees vary, but let me give you a simple comparison: Say you are at the supermarket and buy $50 worth of groceries with a debit card with Visa logo. You are asked \"\"credit\"\" or \"\"debit\"\": At my supermarket, this is why I am given the option to enter my PIN first. If I want to pay by credit, I have to tap Cancel to process via credit signature.\"","Security in the merchant services system is mainly handled in two ways: 1) Before transactions are done, the business itself must go through an application process similar (but not identical) to getting a loan. Some high risk businesses must pay higher fees due to the increased likelihood of customer complaints. 2) When a customer disputes a transaction, that's a mark against the business. Get too many of these disputes, and your priviledge of accepting credit cards will be revoked, meaning you won't be able to again. It's in the merchant's best interest to verify customer's identity, because disputes cost them money directly. It's in the servicer's best interest to verify the businesses integrity, because fraud drives up the cost for everyone else. As a whole, it's quite a reactionary system, yet in practice it works remarkably well.","POS stands for Point of Sale (like a specific store location) which indicates that the purchase occurred by using your debit card, but it can also be the on-line transaction done via 3-D Secure. Checking with bank, they said that Kirchstrasse transaction could be related to direct marketing subscription service ordered on-line. Investigating further what I've found these kind of transactions are performed by 2BuySafe company registered at Kirchstrasse in Liechtenstein with went through the MultiCards on-line cashier which can be used for paying different variety of services (e.g. in this case it was polish on-line storage service called Chomikuj). These kind of transactions can be tracked by checking the e-mail (e.g. in gmail by the following query: after:2014/09/02 before:2014/09/02 Order). Remember, that if you still don't recognise your transaction, you should call your bank. I have found also some other people concerns about that kind of transactions who ask: Is 2BuySafe.com and www.multicards.com some sort of Scam? Provided answer says: MultiCards Internet Billing is a provider of online credit card and debit card processing and payment solutions to many retailers worldwide. MultiCards was one of the pioneer companies offering this type of service since 1995 and is a PCI / DSS certified Internet Payment Service Provider (IPSP) providing service to hundreds of retail websites worldwide MultiCards is a registered Internet Payment Service Provider and has implemented various fraud protection tools including, but not limited to, MultiCards Fraud Score Tool and 'Verified by Visa' and 'MasterCard SecureCode' to protect card holder's card details. 2BuySafe.com Is also Secured and Verified By GeoTrust The certificate should be trusted by all major web browsers (all the correct intermediate certificates are installed). The certificate was issued by GeoTrust. Entering Incorrect information can lead to a card being rejected as @ TOS 2BuySafe.com is hosted on the Multicards Server site","There are different ways of credit card purchase authorizations. if some choose less secure method it's their problem. Merchants are charged back if a stolen card is used.","They represent two distict payment processing mechanisms that just happen to be available on one product. Rather like having dvi and hdmi on you laptop. Your account number and sort code relates to the bank account. Your long number, expiry and ccv relate to the card. It is perfectly possible and not uncommon to have two different cards on the same account, which would have their own card numbers etc. The BACS, CHAPS, DirectDebit and FasterPayments systems use the account numbers. These transactions are practically irreversible and work through the interbank transfer system and should be considered 'direct money transfers' - electronic cash. The long digits are used by Mastercard, Visa, AmEx etc and go through their own payment systems. These payments are 'indirect' and may or may not be reversible as the private payment network (visa etc) has some accountability. They work like electronic cheques. This is why debit card transactions can cause you to go overdrawn - you are writing a promise to pay from an account. It is up to the bank to block the card if you have no money, vs a CHAPS payment that checks the money is there before moving it. It is easier (but still hard) to recover money lost through Visa fraud than BACS. Credit cards have only the long number etc. While savings accounts (non-checking accounts) have only account numbers. Depending on where you are different laws will likely cover debit card vs money transfer payments. In the UK Direct debit guarantee is the most common protection on the BACS system, while standing orders and faster payments give you little legal power. Debit cards will give you some protection because the payment system stands between you and the bank account, so if you didn't make the transaction you should be able to reclaim the money ('card not present fraud'). If you did make the transaction but the vendor failed to supply or goods were faulty then a Chargeback system exists where you may also be able to reclaim. A bank transfer you make is irrecoverable and refund can only be claimed through court for faulty goods.","\"Yes and No. There's always a \"\"fee\"\". The difference in credit vs debit usually determines how much that fee is and how it's paid. Each vendor who accepts the major credit card is under contract to pay for equipment and meet certain standards. The same is true for debt card transactions. How much the \"\"fee\"\" is can vary based on the contract the vendor has with MasterCard/Visa/AMEX. But in general most debt transactions go back to the bank who distributed the card.\"","\"From my days in e-commerce they break down like this? The company doesn't know a debit from a credit card. Got the Visa logo, then it is a Visa through the company's payment gateway. The gateway talks to the bank and that is where the particulars for money is figured out. When I programmed gateway interfaces, I had the option to \"\"authorize\"\" or check for funds (which didn't reserve anything, just verified funds existed), run for batch (which put a hold on the funds and collected them at the end of the night) or just take the money. Most places did a verify during the early checkout stages and then did a batch at the end of the night. The nightly batch allows a merchant to cancel a transaction without getting charged a fee. The \"\"authorize\"\" doesn't mean the money is tied up, although that might be your banks policy. Furthermore, an authorize can only last for so many days. This also explains why most of your banks don't report your transactions to you the day of. There is a bunch more activity on your card than the transactions that complete.\"","Is my understanding okay ? If so, it seems to me that this system is rather error prone. By that I mean I could easily forget to make a wire some day and be charged interests while I actually have more than enough money on the check account to pay the debt. Which is where the credit card company can add fees so you pay more and they make more money. Don't forget that in the credit case, you are borrowing money rather than using your own. Another thing that bothers me is that the credit card apparently has a rather low credit limit. If I wanted to buy something that costs $2500 but only have a credit limit of $1500, can I make a preemptive wire from my check account to the VISA account to avoid facing the limit ? If so, what is the point for the customer of having two accounts (and two cards for that matter...) ? If you were the credit card company, do you believe people should be given large limits first? There are prepaid credit cards where you could put a dollar amount on and it would reject if the balance gets low enough. Iridium Prepaid MasterCard would be an example here that I received one last year as I was involved in the floods in my area and needed access to government assistance which was given this way. Part of the point of building up a credit history is that this is part of how one can get the credit limits increased on cards so that one can have a higher limit after demonstrating that they will pay it back and otherwise the system could be abused. There may be a risk that if you prepay onto a credit card and then want to take back the money that there may be fees involved in the transaction. Generally, with credit cards the company makes money on the fees involved for transactions which may come from merchants or yourself as a cash advance on a credit card will be charged interest right away while if you buy merchandise in a store there may not be the interest charged right away.","If you call them, you can make sure they'll use the new address, but if you want to do it online, there is some risk that the update is delayed. Note also that an address change with an immediate request for a replacement debit card smells very fishy - this what a hacker / thief would do to get your money. Calling seems to be the better approach, as you can verify your identity further. Otherwise, you might well run into an automated block.","\"Actually in Finland on some bank + debit/credit card + online retailer combinations you type in your card details as you normally do, but after clicking \"\"Buy\"\" you get directed to your own bank's website which asks you to authenticate yourself with online banking credentials. It also displays the amount of money and to which account it is being paid to. After authentication you get directed back to the retailer's website. Cannot say why banks in US haven't implemented this.\"","CC always (applies only if you pay your balance in full). First you rack up points on your card, second if there is an unauthorized pull a Cc will help you a bank may or may not. As a general advice don't hand out your banking information like a credit card number. Now paying bills through the bank is a different matter. This advice applies to companies that would like to pull money from bank accounts. Never do that if Cc is an alternative.","Like email and spam, fighting creditcard fraud is a cat and mouse game, with technology and processes constantly being developed to reduce fraud. The CVV on the back of the card is just one more layer of security. Requiring the CVV generally requires you to physically have access to the card. CVV should not be stored by any merchant. This frustrates card skimming fraud as the CVV is not present in the track data and fraud caused by database compromises. You should never use your PIN online. MC/VISA both have implementations of 3D-Secure (SecureCode for MC and Verified by VISA) which require a password / code to confirm card ownership. Depends on both Issuer and Merchant implementing the standard. Regarding not needing a PIN at the airport, some low value transactions no longer need PINs, depending on the Issuer and Scheme (VISA/MC). MasterCard PayPass or VISA PayWave enable low value contactless transactions without PIN. In Australia, the maximum value for a contactless transactions is $100 AUD. At some merchants (McDonalds for example) a PIN is not required for for meals purchased with VISA (at least, for the cheeseburger I bought there as a test). This makes sense - if you don't need a PIN for a contactless purchase, why do you need it for a chip based purchase? So - why allow PIN free transactions? On average customers report stolen credit cards / wallet very quickly and the losses are correspondingly small. As card issuers are always online, cards can be cancelled very quickly after being reported lost / stolen. Finally, by performing transactions for just a few cents or pennies, the merchant (Spotify) can likely validate you are the owner of the card as you'd need access to your online bank to confirm the transactions. PayPal do this with bank account to confirm ownership. (Unless I've misunderstood your statement).","\"Here is how the Visa network works: A Visa transaction is a carefully orchestrated process. When a Visa account holder uses a Visa card to buy a pair of shoes, it’s actually the acquirer — the merchant’s bank — that reimburses the merchant for the shoes. Then, the issuer — the account holder’s bank — reimburses the acquirer, usually within 24 to 48 hours. Lastly, the issuer collects from the account holder by withdrawing funds from the account holder’s bank account if a debit account is used, or through billing if a credit account is used. I read this to mean the Merchant's Bank (the Acquirer Bank) gives the merchant the money within 2 days via the Card Issuer's Bank. The issuing bank is the one that provides the \"\"credit\"\" feature since that bank won't get reimbursed until the shopper's bill is paid (or perhaps even longer if the shopper carries a balance). You'll notice the Credit Card company (Visa/MC/etc) is only involved in the process as a way of passing messages. Of course they take a fee for this service so seller ultimately get's less than the buyer bought the shoes for.\"","Some businesses verify the shipping address with the credit card company, and refuse to ship to an alternate address without additional, offline verification. Of course, this is only useful for physical goods.","So, my questions: Are payment cards provide sufficient security now? Yes. If so, how is that achieved? Depending on your country's laws, of course. In most places (The US and EU, notably), there's a statutory limit on liability for fraudulent charges. For transactions when the card is not present, proving that the charge is not fraudulent is merchants' task. Why do online services ask for all those CVV codes and expiration date information, if, whenever you poke the card out of your wallet, all of its information becomes visible to everyone in the close area? What can I do to secure myself? Is it? Try to copy someones credit card info next time you're in the line at the local grocery store. BTW, some of my friends tend to rub off the CVV code from the cards they get immediately after receiving; nevertheless, it could have already been written down by some unfair bank employee. Rubbish.","> Verify the signature against what? How old are you I wonder? I am guessing that you're so young you don't know how it used to be done. Every credit card has a space on the back for a signature. And for decades, retailers would check the signature on your ID if the signature on your card is not valid (blank, or says 'SEE I.D.'). This worked for a long time, until retailers started hiring incompetent children who were too lazy to do their jobs properly. I once worked for a retailer who would fire you if they caught you not verifying signatures.","The truth is that Visa does not require a merchant to enter the cvv number before authorizing a transaction. The only information that is really needed is the credit card number and expiration date.","\"Yes, there is a slight reason to worry as the debit card contains 1) Account Number 2) of course a the Debit Card number 3) CSV code at the back of every debit card and mostly these three parameters are being followed to verify the authenticity of the cardholder, but there are some other parameters like \"\"password of your debit card\"\" and even address in some cases. So stay chill the manager will not be able to make any online payment using the credential of your debit card without password and other details...\"","\"These are two different ways of processing payments. They go through different systems many times, and are treated differently by the banks, credit card issuers and the stores. Merchants pay different fees on transactions paid by debit cards and by credit cards. Debit transactions require PIN, and are deducted from your bank account directly. In order to achieve that, the transaction has to reach the bank in real time, otherwise it will be declined. This means, that the merchant has to have a line of communications open to the relevant processor, that in turn has to be able to connect to the bank and get the authorization - all that while on-line. The bank verifies the PIN, authorizes the transaction, and deducts the amount from your account, while you're still at the counter. Many times these transactions cannot be reversed, and the fraud protections and warranties are different from credit transactions. Credit transactions don't have to go to your card issuer at all. The merchant can accept credit payment without calling anyone, and without getting prior authorizations. Even if the merchant sends the transaction for authorization with its processor, if the processor cannot reach the issuing bank - they can still approve the transaction under certain conditions. This is, however, never true with debit cards (even if used as \"\"credit\"\"). They're not deducted from your bank account, but accumulated on your credit card account. They're posted there when the actual transaction reaches the card issuer, which may be many days (and even many months) after the transaction took place. Credit transactions can be reversed (in some cases very easily), and enjoy from a higher level of fraud protection. In some countries (and most, if not all, of the EU) fraudulent credit transactions are never the consumer's problem, always the bank's. Not so with debit transactions. Banks may be encouraging you to use debit for several reasons: Merchants will probably prefer credit because: Consumers will probably be better off with credit because:\"","ATM and Debit are not the same thing. ATM is a card that can only be used to withdraw money from the ATMs that belong to that bank (or participate in the same network). In some countries, ATM cards can be used for shopping if the merchant is equipped with an appropriate reader and is participating in an appropriate network. Debit card can be used for purchases in any store showing the appropriate (Visa/MC) logo, and withdraw money at any ATM showing the appropriate (Visa/MC or the ATM network that appears on the card) logo.","This doesn't directly pertain to international transactions but may be relevant. I got an American Express gift card over the holidays, and I tried to use it at an online merchant. The card was declined because it failed address verification. I called American Express gift card services (number was on the gift card), and they knew immediately what the problem was and fixed it. They simply took my address and added it as a billing address on the card. I retried the payment and it went through right away. It may be worth calling the gift card company and asking them to simply add your billing address.","Merchants are only supposed to verify the presence of a signature, which signifies that the card owner has accepted the terms and conditions of the card / account. It was never really intended to be used to authenticate the card holder, nor is it used as such in practice.","It depends on the business. Some ask for ID and check against the signature (rare); some ask for ID but barely glance at it; some check just that it's signed (also rare); some ask for me to input my ZIP code on the card reader (KMart); and some don't do anything (most common). What they do doesn't seem connected to whether I put the card in the reader myself, or hand it to the cashier for them to scan. It does seem silly to check IDs, etc., as there are places such as gas stations where I never even see an employee, and can spend just as much there as at WalMart, KMart, or the grocery store, all places that tend to do more checking.","One bank is more willing to risk losses and customer hassle in exchange for lower processing costs than the other bank is. It's strictly a business decision. Regarding how they detect suspicious transactions: Patten detection based on your past usage history. I've gotten calls asking me to confirm that I just placed a large order with a company I'd never bought from before, or in a country that I haven't previously visited, or...","In most cases, the brand on the card, eg Visa or MasterCard, is a middleman. The company processes the transaction, transferring $xx from the bank to the seller, and telling the bank to debit the buyer's account. The bank is at risk, not the company transacting the purchase. What's interesting is that American Express started as both. My first Amex card, issued in 1979 (long expired, but in my box of memorabilia) had no bank. American Express offered a card that offered no extended credit, it was pay in full each month. Since then, Amex started offering extended credit, i.e. with annual interest, and minimum payments, and more recently, offering transaction processing for banks which take on the credit risk, essentially becoming very similar to MasterCard and Visa.","There generally isn't much in the way of real identity verification, at least in the US and online. The protection you get is that with most credit cards you can report your card stolen (within some amount of time) and the fraudulent charges dropped. The merchant is the one that usually ends up paying for it if it gets charged back so it's usually in the merchant's best interest to do verification. However the cost of doing so (inconvenience to the customer, or if it's an impulse buy, giving them more time to change their mind, etc) is often greater than the occasional fraudulent charge so they usually don't do too much about it unless they're in a business where it's a frequent problem.","With change in technology and regulations, quite a few clearing systems provide an ability to directly credit a credit card. In Europe Sepa transactions allow one to credit a credit card. The service would be offered by Local bank rather than Visa or Master Card","Verify the signature against what? You are going to have a pad of paper and ask the customer to sign and compare it for every charge? Also, FYI, per the credit card companies, you need just to check if the signature is on the card. They do NOT(!) ask you to compare signatures.","In addition to what has been said, gift cards with a credit card logo (which is what I am assuming you mean here) do not have an address associated with them. That means that if you try to use one at a merchant that users address verification (common in online purchases), the transaction will fail. In my experience with an American Express branded gift card, I was able to call the number on the back and they added an address to the card so that it would work. It seemed like this was a common and well known issue. Because the gift card is not associated with any person, no verification is needed to add that address, you can give them any address you want. Also I believe that the card numbers in use for gift cards are specific, that is you could tell that a card is a gift card based on the number alone. That means it is likely possible for a merchant to reject those gift cards while still accepting other cards from that network. This is likely for certain transactions. For example, a hotel or car rental agency requires a credit card for incidentals, and it's likely that the system itself will outright reject a gift card even if it has enough on it for the initial hold. As for debit cards, I think there are far fewer issues with acceptance, other than the aforementioned hold issues described in another answer.","\"> Every credit card has a space on the back for a signature. And for decades, retailers would check the signature on your ID ... This worked for a long time, until retailers ... For decades, retailers never compared signatures on credit cards to the person's signature. Impractical and not even worth it as anyone can copy a signature on a card. Neither do banks bother to check for signature. They don't even have a \"\"signature on-file\"\" anymore. Try it! Deposit a check or buy with a credit card and scribble something unrelated as a signature! The deposit or credit card transaction will go through. I guarantee you that! **Please try it! Let me know if it did not work!** I know what I am talking about because I deal with credit cards a lot, professionally, in IT. The only sure thing is to ask for a PIN. But, alas, credit cards use a chip, so if I steall your card, I can buy with it with no problems. But not if I still your ATM card - I don't know your PIN. The PIN is in your head and I can't get it. The credit card companies don't really care.\"","While Rocky's answer is correct in the big picture there is another factor here to keep in mind: The disruption while you're waiting to resolve it. If a fraudster gets your card and drains your account you'll get your money back--but there will be a period while they are investigating that it won't be available. For this reason I avoid debit card transactions and only use credit cards. If the fraudster gets your credit card you might lose access while they investigate but you don't lose access to your bank account.","It depends on your bank and your terms of service, but using the card one way or the other may affect things such as how long it takes to process, what buyer protections you have, etc. It also affects the store as I believe they are charged differently for debit vs credit transactions.","\"Just to add about using debit card as \"\"credit\"\" vs \"\"debit\"\" way: In addition to the difference of having to enter the PIN when using \"\"debit\"\" mode (vs having to sign in \"\"credit\"\" mode), for stores that offer cash back (i.e. get cash out of your account at the same time as paying), you can only get cash back when using \"\"debit\"\" mode.\"","\"I completely agree with @littleadv in favor of using the credit card and dispute resolution process, but I believe there are more important details here related to consumer protection. Since 1968, US citizens are protected from credit card fraud, limiting the out-of-pocket loss to $50 if your card is lost, stolen, or otherwise used without your permission. That means the bank can't make you pay more than $50 if you report unauthorized activity--and, nicely, many credit cards these days go ahead and waive the $50 too, so you might not have to pay anything (other than the necessary time and phone calls). Of course, many banks offer a $50 cap or no fees at all for fraudulent charges--my bank once happily resolved some bad charges for me at no loss to me--but banks are under no obligation to shield debit card customers from fraud. If you read the fine print on your debit card account agreement you may find some vague promises to resolve your dispute, but probably nothing saying you cannot be held liable (the bank is not going to lose money on you if they are unable to reverse the charges!). Now a personal story: I once had my credit card used to buy $3,000 in stereo equipment, at a store I had never heard of in a state I have never visited. The bank notified me of the surprising charges, and I was immediately able to begin the fraud report--but it took months of calls before the case was accepted and the charges reversed. So, yes, there was no money out of my pocket, but I was completely unable to use the credit card, and every month they kept on piling on more finance fees and late-payment charges and such, and I would have to call them again and explain again that the charges were disputed... Finally, after about 8 months in total, they accepted the fraud report and reversed all the charges. Lastly, I want to mention one more important tool for preventing or limiting loss from online purchases: \"\"disposable\"\", one-time-use credit card numbers. At least a few credit card providers (Citibank, Bank of America, Discover) offer you the option, on their websites, to generate a credit card number that charges your account, but under the limits you specify, including a maximum amount and expiration date. With one of these disposable numbers, you can pay for a single purchase and be confident that, even if the number were stolen in-transit or the merchant a fraud, they don't have your actual credit card number, and they can never charge you again. I have not yet seen this option for debit card customers, but there must be some banks that offer it, since it saves them a lot of time and trouble in pursuing defrauders. So, in short: If you pay with a credit card number you will not ever have to pay more than $50 for fraudulent charges. Even better, you may be able to use a disposable/one-time-use credit card number to further limit the chances that your credit is misused. Here's to happy--and safe--consumering!\"","Debit is them taking the money, in your case electronically. Credit is somebody vouching for you and saying you will pay later. They are alternate ways to pay for a product. As a merchant, if you take a credit card you are agreeing that a the issuer of the credit card is going to pay you right away. The issuer of the credit will worry about collecting the money from me. There are a ton of details with regards to why you would use one over another, where the costs in each method are and who pays what for each. The main different is the source of the funds.","I would presume this goes entirely through the credit card network rather than the banking network. I am guessing that it's essentially the same operation as if you had returned something purchased on a card to the store for credit, but I'm not sure whether it really looks like a vendor credit to the network or if it is marked as a different type of transaction.","The thing is that we never asked for these services. The banks and the merchants did. These companies build profiles **against** you to provide your credit info to any creditor who asks. Then they bill you so that they will not hand out your identity to criminals for a period of time. Great fucking system.","If the debit card is associated with the account, there is nowhere else it could go. The chance is nil that there is another account with that 16-digit number. So either it goes there, or the transfer fails and it is right back where it came from, though this could take some days. If you don't want to risk a wait, talk to your bank now.","Credit cards and debit cards make up the bulk of the transactions in the US. Visa and Mastercard take a percentage of each credit card transaction. For the most part, this fee it built into the price of what you buy. That is, you don't generally pay extra at the grocery store if you use a credit card (gasoline purchases are a notable exception here.) If you were getting something like 2% of a third of all the retail transactions in the US, you'd probably not want to rock the boat too much either. Since there is little fraud relative to the amount of money they are taking in, and it can often be detected using statistical analysis, they don't really stand to gain that much by reducing it through these methods. Sure they can reduce the losses on the insurance they provide to the credit card consumer but they risk slowing down the money machine. These companies want avoid doing something like reducing fraud by 0.5% revenues but causing purchases with the cards drop by 1%. More security will be implemented as we can see with the (slow) introduction of chip cards in the US but only at a pace that will prevent disruption of the money machine. EMV will likely cause a large drop in CC fraud at brick-and-mortar stores but won't stop it online. You will likely see some sort of system like you describe rolled out for that eventually.","It depends on what provider they are using to process your charge and if it's through a website, a phone application or a desktop application. For example, if they build a desktop application with Authorize.net, the desktop application will take your information in, and then make a webservice call with it to a secure authorize.net processing platform. Something similar is true for FirstData. However, if they are using PayPal to process your request, you are routed to a paypal site to make the charge, then the funds are sent to the merchant. As for what is returned that also depends on the provider and the application. If you are using a website it's likely an XML response with all the information they provide upon a transaction attempt. If it's a desktop application they may just hand the cc info off to a library which processes the charge and then returns specific confirmed or denied flags. So to be totally honest without knowing the exact situation in which you are charging your card, it's impossible to know. For all you know they are putting your credit card information in a database unencrypted and then charging them all at the end of the week in one giant batch. If you are able to find out whom they are using as a credit card processing provider then you can look for that companies developer documentation. It will provide you with all the information you are looking for including examples.","Skimmers are most likely at gas station pumps. If your debit card is compromised you are getting money taken out of your checking account which could cause a cascade of NSF fees. Never use debit card at pump. Clark Howard calls debit cards piece of trash fake visa/mc That is because of all the points mentioned above but the most important fact is back in the 60's when congress was protecting its constituents they made sure that the banks were responsible for fraud and maxed your liability at $50. Debit cards were introduced much later when congress was interested in protecting banks. So you have no protection on your debit card and if they find you negligent with your card they may not replace the stolen funds. I got rid of my debit card and only have an ATM card. So it cannot be used in stores which means you have to know the pin and then you can only get $200 a day.","\"The fee structures are different for PIN-based transactions versus \"\"credit\"\" style transactions. Usually there is a fixed fee (around $0.50) for PIN-based transactions and a varying fixed fee plus a percentage for credit transactions (something like $0.35 + 2.5%). There are also value limits for PIN-based transactions... I believe that you cannot exceed $400 in most places. The signature feature of credit transactions isn't there to protect you, it signifies your agreement to comply with the contract you and the credit card issuer, protecting the merchant from some types of chargeback. Some merchants waive the signature for low dollar value transactions to increase convenience and speed up the lines. All of your other questions are answered elsewhere on this site.\"","If so, it seems to me that this system is rather error prone. By that I mean I could easily forget to make a wire some day and be charged interests while I actually have more than enough money on the check account to pay the debt. I have my back account (i.e. chequing account) and VISA account at/from the same bank (which, in my case, is the Royal Bank of Canada). I asked my bank to set up an automatic transfer, so that they automatically pay off my whole VISA balance every month, on time, by taking the money from my bank account. In that way I am never late paying the VISA so I never pay interest charges. IOW I use the VISA like a debit card; the difference is that it's accepted at some places where a debit card isn't (e.g. online, and for car rentals), and that the money is deducted from my bank account at the end of the month instead of immediately.","Here's a simple answer: If your debit card has a visa or mc logo, it can be used as a 'credit card'. In order to do so, you shouldn't enter the pin, instead choose 'credit' and sign for it. Unlike a credit card, you can't spend money you don't have but like a credit card, your purchase is protected by the credit card company (visa/mc) and gives you privileges like zero fraud liability and purchase disputes. http://www.moneycone.com/should-you-sign-for-a-debit-card-purchase-or-use-your-pin/","As far as I'm aware, PINs are only used for in-person transactions, not 'remote' (over the Internet or phone).","Debit card purchases without PIN are treated as credit card purchases by merchants, and that includes ID verification. In addition to the ways you mentioned, you can get a debit card in any grocery store and load it with cash, and these debit cards don't have a name imprinted on them. But then if you lose them - you may have troubles proving you did in fact lose them when you try to recover your money, as anyone can use them. Technically you can register them online and call in and request refunds for fraud losses just as any other debit/credit card in the US (with $50 deductible), but in practice it may be difficult. These cards have very high fees, and may not be accepted for rentals etc.","From the business side of credit cards, Discover and American Express carry their own risk. AmEx has lent their logo to banks such as Bank of America (BofA) to use the AmEx transaction network, but the financial risk and customer service is provided by BofA. Visa and MasterCard let banks use their logo and process through their respective networks for a fee. The financial risk of fraud, non-payment from merchants, etc is the risk that the individual banks carry.","Credit in debit way - the card simply functions like a debit card for that transaction - pulling cash from your checking account. No difference. You've simply discovered the fact that some banks are using the same piece of plastic for two functions, debit which draws funds directly from your checking, and credit which offers you time to pay a bill the comes in some time later. It's a personal choice.","Who cares? If your card gets stolen, most cards provide you with 100% liability protection. Just sign the thing!","As it is international debits, this will take a while. BofA is right, You have to dispute this with Card Issuer, i.e. HDFC. The worst case for me was around 1 month. Keep chasing and sending out reminders every 3-4 days.","\"The address under a bank's name on a check, if there is one, is generally going to be the contact address of the bank. That will be true no matter where on the check the bank's name appears. The address of the person or business the account belongs to, if present, will appear under their name. This information block is typically near the top left corner the check, so it will be visible as the return address if the check is mailed in a \"\"window envelope\"\" designed for this purpose. The address the check is being mailed to, if it appears on the check, will generally appear low on the check and to the right, so it will be visible as the destination address when the check is mailed using a \"\"window envelope\"\" designed for this purpose. If that isn't the answer you were looking for, please clarify your question.\"","Given that the laws on consumer liability for unauthorized transactions mean no cost in most cases, the CVV is there to protect the merchant. Typically a merchant will receive a lower cost from their bank to process the transaction with the CVV code versus without. As far as the Netflix case goes, (or any other recurring billing for that matter) they wouldn't care as much about it because Visa/MC/Amex regulations prohibit storage of the CVV. So if they collect it then it's only used for the first transaction and renewals just use the rest of the card info (name, expiration date, address). Does the presence of CVV indicate the merchant has better security? Maybe, maybe not. It probably means they care about their costs and want to pay the bank as little as possible to process the transaction.","Debit cards with the Visa or Mastercard symbol on them work technically everywhere where credit cards work. There are some limitations where the respective business does not accept them, for example car rentals want a credit card for potential extra charges; but most of the time, for day-to-day shopping and dining, debit cards work fine. However, you should read up the potential risks. A credit card gives you some security by buffering incorrect/fraudulent charges from your account, and credit card companies also help you reverse incorrect charges, before you ever have to pay for it. If you use a debit card, it is your money on the line immediately - any incorrect charge, even accidential, takes your money from your account, and it is gone while you work on reversing the charge. Any theft, and your account can be cleaned out, and you will be without money while you go after the thief. Many people consider the debit card risk too high, and don't use them for this reason. However, many people do use them - it is up to you.","There are 2 parties when we say credit card companies: The bank that gives you a card & VISA/Mastercard For a Bank the revenues generally come from: For VISA/Mastercard the revenue is from: P.S. Have not covered American express here but in short it is a combination of the above 2 models","> Try it! Deposit a check or buy with a credit card and scribble something unrelated as a signature! The deposit or credit card transaction will go through. About that you are correct, however during any sort of forensic investigation they are going to ask to see a signature receipt if one is available. > For decades, retailers never compared signatures on credit cards to the person's signature. No that isn't true. Retailers are required by many card processing vendors to send in a signed receipt. This is changing, because employees are lazy, and retailers don't care about their customers at all so they don't bother enforcing any standards on their minimum wage register jockeys. However many of them are still required to send signed receipts in. When I was younger I worked at a store that would not get paid by the bank if it did not send in a signed receipt for every transaction. Go on, try walking away without signing your credit card receipt at stores where they present it for signature, and see what happens. > I know what I am talking about because I deal with credit cards a lot, professionally, in IT. You and everyone else. Big deal. Different credit card processors have different requirements for their customers (merchants). > The credit card companies don't really care. I think the real lesson here is **nobody cares**. Not the banks, not the credit card companies, and not the merchants. The only thing any of them give a fuck about is keeping the money flowing, especially into their own wallets, and if that means customers get ripped off sometimes because of inadequate protections, so what. My only point is, if I have one at all, **merchants _should_ care** about protecting the customer, and **customers _should_ care** about what protections are in place to prevent fraud. **PIN numbers are fine** as an authentication method, **but they should be completely shielded from view** by people standing in line or cameras overhead.","I'm pretty sure it's merchant-dependent. If a credit card transaction doesn't go through, PayPal will automatically charge your bank account. Some merchants may want that extra insurance.",">> Hey! Do you mind giving your credit card to the waiter... > I'm not especially fond of that, but it's easy to report fraud to the bank and most of the time the bank will reverse the charges. No kidding! Of course, even I give credit cards to waiters. What do I care? **As you said, you are not liable to any fraud on your credit card.** None at all!!!! It's only Merchant, not the credit card company, that pay the price for fraud... **and you pay higher prices to cover for losses from fraud.** > The PIN situation is different because a mugging is life-threatening. Nonsense! Mugging at the ATM is so rare, each ATM has a camera. **In any case, I am not talking about using PIN to withdraw money!** I am talking about PIN to authorize charges on a credit card or ATM card. >> We already determined that nobody even care about signatures or check them. > You can't use a stolen card at an ATM with a signature. Huh? You totally got it wrong what I said, or, you argue for the sake of argument. **I am saying that cards that require you to enter a PIN cannot be used used when stolen or copied. Yes or no?** **On the other hand, cards that require signature can be used when stolen or copied because signature is a worthless method to validate the charge. Yes or no?** LASTLY, my Costco credit card has a picture of me on it. **Question for you, since for some reason you argue so much against PINs: Wouldn't a picture on the card better than a signature?** Yes or no? Do you see? There are so many ways to make this system so much more secure and fraud proof... but, ON PURPOSE, the credit card companies don't want that... because they are not liable for fraud. Simple as that.","\"To answer your question as clarified in a comment: All I wanted to know what will happen if I enter my debit card number in the sixteen digit account number they offer on the application for balance transfer. That's all. Almost certainly (subject to the particular terms and conditions of the offer), no money will move, the only question is exactly when and how they will say no. If you do it online, and their system is clever enough to look up the IIN (the first six digits) of the card number you enter, their system might learn straight away that you have entered a debit card number (eg a card starting 431940 is a Bank of Ireland debit card). Otherwise, you'll have to wait until the request goes to their back office system, which will eventually lead to the card issuer's system being contacted, at which point it will become clear that it's a debit card, and your transfer request will be refused at that point. That said, some credit card companies do offer a \"\"Money Transfer\"\" aka \"\"Super Balance Transfer\"\", which is an offer to transfer money directly into a bank account, putting the resulting debt on the credit card. I've never seen these offered without having to call a service centre and talk to a person, though, presumably so that they can check that the details they have for you (about income etc) are still correct.\"","a typical debit card is subject to several limits:","\"> Go on, try walking away without signing your credit card receipt at stores where they present it for signature, and see what happens. That's true... if the amount is over $25. Did you notice it? Actually, at Costco is over $50. And you know what else is true? That yes, they require you to squibble something, but you can write an obvious incorrect signature and nobody will care. You have no idea how many times the screen with the electronic pen did not work right, so I just put couple of lines... >> know what I am talking about because I deal with credit cards a lot, professionally, in IT. > You and everyone else. Big deal. Different credit card processors have different requirements for their customers (merchants). Just because different processors have different requirements makes the whole process impossible to manage or comply with. Go figure out the requirement based on the card presented. >> The credit card companies don't really care. > I think the real lesson here is nobody cares. The merchant cares, because they are ultimately responsible for paying for fraud... which is the main reason why credit card companies don't care... and many merchants too because they have insurance... The bottom line is that everyone would not mind to enter a PIN to get the transaction through, but a stupid ego trip of the credit card companies who don't want to be \"\"like ATMs\"\". That's it. So they came up with chip in the card, which made the process slower and more expensive, and does not solve anything except fake credit cards (copied credit cards).\"","If you are looking at domestic transfers, all Banks hold accounts with the Central Bank [Reserve Bank] , in US the Central Bank is called Federal Reserve. The money from account of Bank of America held with Fed is debited and the account of Citi held with Fed is credited.","A large biller is registered and can initiate an ACH Debit to your account based on the Account Number and the Routing number. He assumes responsibility and completes the due diligence of obtaining a written mandate / permission / authorization from you. There are other legal process where by you get a Power of Attorney that would allow you to transact on behalf of someone. The key point you seem to be missing is that one can ONLY transact from ones account either by walking into the Bank / ATM, or by writing a check. There are other options as well to transact.","If it is one of those debit cards you use just like a credit card without a PIN, I'd cancel it regardless of whatever you are trying to do with your finances. They just seem too dangerous to me. Unlike a credit card, if someone makes fraudulent purchases on a debit card the money is gone from your bank account until you resolve the issue with the issue. With a credit card, the BANK is out the money until it gets worked out. My brother once had his credit card number (not the card) stolen and the criminals emptied his bank account. Eventually the bank put the money back after an investigation, but it had two really nasty side effects: 1) Dozens of checks bounced. The bank refunded the bounced check fees, but not all of the stores would. 2) He had no money in his account until it was resolved. Luckily in his case they resolved it in a few days, but he was already making preparations to borrow money to pay his rent/bills.","I don't believe there is such a process. My observation (i.e. my opinion) is that banks will have a level of security walls appropriate to the cost vs risk they experience. Since as Frazell says, your liability is limited for this type of fraud, you personally bear little if any risk. If this fraud were common enough that the cost of your proposal outweighed the expense, they would implement it. On a similar note. Credit card fraud can be reduced ten fold if a PIN were required for all purchases. The 3 digits on the back helps prove the card is there, and you just didn't steal the from 16 digits, but a 6-8 digit PIN required at point of sale would be tough for the thief to guess. How much software to do this would cost, I don't know, but the idea is brilliant, even if it's mine. 10 fold reduction, if not 100 fold. (Any bank guys reading?)","\"•Have you had any problems with bills not being paid? NO •If you had issues, were they addressed satisfactorily? Answer: A big issue that blindsided me: With my bank, the funds come out of my account right away, but the actual payment is done through a third-party service. On my bank's online site it appears that the payment has been made, but that does not necessarily mean that the intended recipient has cashed it. Looking online at my credit union's site is useless, because all I can tell is that the payment has been sent. The only way to verify payment is to contact the intended recipient. Or I may telephone the online bill pay representative at my bank/credit union, who has access to the third party service. If I do nothing, after 90 days, the check is void, at which time the third party service notifies the bank/credit union and the funds will eventually end up back in my account. I learned this today, after a third-party paper check to a health care provider was returned to me via mail by the recipient (because insurance had already paid and I did not owe them anything). The money was in the hands of the third-party service, not in my account, nor that of my credit union nor the recipient. At first my credit union told me that I would have to contact the third-party service myself and work it out. I said \"\"NO WAY\"\" and the credit union did get the money back into account the same day. This is a sweet deal for the third party, who has my money interest-free anywhere from a few days to three months. And risk-free as well, because the money goes directly from my account to the third party service.\"","In Finland, this happens all the time - it's all about having an official ID, they don't even ask your bank account number or the card. However, as no location was specified in the question, I guess it could be anything. The stronger the requirement for official personal id is in your country, the better odds you have with just using that. Where I live it is quite strong.","\"Much of what you're asking will not be disclosed for obvious security reasons, so don't be surprised when call center people say they \"\"don't know\"\". They may actually not know, but even if they did, they'd be fired if they were to say anything. Nothing could be a touchier subject than online security for the financial institutions. I don't know of reliable sources for the data you're asking about, and I don't know the banks or other firms would release it. For a bank to talk about its incidence rates of fraud would be unusual, because none of these institutions wants to appear \"\"less safe\"\" than their competitors. If there's any information out there then it's going to be pretty vague. None of these institutions wants the \"\"bad guys\"\" to know what their degree of success is against one bank versus any other. I hope that makes sense. The smaller banks usually piggyback their data on the networks of the larger financial institutions, so they are as secure (as a general rule) as the larger banks' networks they're running on. Also, your transactions on your credit cards are not generally handled directly by your bank anyway, unless it's one of the big heavyweights like Chase or Bank of America. All transactions run through merchant processors, who act as intermediaries between merchants and the banks, and those guys are pretty damned good at security. I've met some of the programmers, and they're impressive to me (I've been a programmer for 35 years and can't put a finger on these guys!). Most banks require that you must provide proof of identity when opening an account, and that ID must me the standards of the \"\"USA Real ID Act\"\". Here's an excerpt from the Department of Homeland Security website on what Real ID is: Passed by Congress in 2005, the REAL ID Act enacted the 9/11 Commission’s recommendation that the Federal Government “set standards for the issuance of sources of identification, such as driver's licenses.” The Act established minimum security standards for state-issued driver’s licenses and identification cards and prohibits Federal agencies from accepting for official purposes licenses and identification cards from states that do not meet these standards. States have made considerable progress in meeting this key recommendation of the 9/11 Commission and every state has a more secure driver’s license today than before the passage of the Act. In order for banks to qualify for FDIC protection, they must comply with the Real ID standards when opening accounts. As with any business (especially online), the most effective way to minimize fraud is vigilant monitoring of data. Banks and other online financial entities have become very adept at pattern analysis and simply knowing where and what to look for when dealing with their customers. There are certainly sophisticated measures which are kept carefully out of the public eye for doing this, and obviously they're good at it. They have to be, right? There's no way to completely eliminate fraud -- too much incentive exists for the \"\"bad guys\"\" to not constantly search for new ways to run their schemes, and the good guys will always be at the disadvantage, because there's no way to anticipate everything anyone might come up with. Just look at online viruses and malware. Your antivirus software can only deal with what it knows about, and the bad guys are always coming up with some new variant that gets past the filters until the antivirus maker learns of it and comes up with a way to deal with it. Your question's a good one to ponder, and I wouldn't want to be the chief of internet security for a bank or online institution, because I'd lay awake at night pondering when the call's going to come that we finally ran out of luck! (grin) I hope this was helpful. Good luck!\"","For me, it is mostly for the fraud protection. If I have a debit card and someone makes a fraudulent charge the money is removed from my bank account. From my understanding, I can then file a fraud complaint with the bank to recover my money. However, for some period of time, the money is missing from my bank account. I've heard conflicting stories of money being returned quickly while the complaint is undergoing investigation as well as money being tied up for several days/weeks. It may depend on the bank. With a credit card, it is the banks money that is tied up.","The use of an old address would make me suspect that your data was stolen from some database you had registered to long ago with the old address. I would think that contacting your credit rating firm and the credit card company is urgent.","\"As for PC Mastercard like stated by @nullability, VISA Desjardins list the \"\"Pending Authorizations\"\" almost instantly (the time it's take to get back home) in AccesD (Their Web portal for managing accounts).\"","I think you'll find that a credit card does have an account number and sort code, I have had a Visa card previously and currently have a Mastercard. Both were paid by Direct Debit, and I could then transfer money to the account when I wanted to pay more than the minimum payment off. Check the introductory letter from the card provider, it should be on there, failing that, contact the provider and ask them for the details, how to pay, or a direct debit mandate for either the whole amount or the minimum amount.","Whether your card will work, I believe, depends on the institution that issued it. You'll just have to try. What I can tell you, is that the process of using a debit card or credit card in the US is fairly straight forward. If your card has a chip, you'll 'insert' your card, chip end first, into the bottom slot of the reader, assuming the reader has one. This technology is still being distributed / accepted, so you may encounter some areas where they don't have this, or they have an insert or sign that says something along the lines of 'No chip reader / swipe instead'. If your card doesn't have a chip, which looks like the bottom end of a cellular phone's SIM card, you just swipe your card in the reader. There will / may be on-screen prompts, which will explain any additional input necessary from you. Depending on how they 'process' your card - As a debit card or credit card (They can 'process' a debit card as if it's a standard credit card), you may or may not be asked to enter your debit card's PIN. If they process it as debit, you'll have to enter your PIN. If they process it as if it were a credit card, it will still go through but you'll be asked to sign the receipt. IMPORTANT FOR YOU TO NOTE: You need to find out whether your card issuer will charge you foreign transaction fees when you use your Indian debit card in the US. Is the card carrying a different currency than the US?","When the check is deposited, the bank verifies the signature in the check matches your signature in file.","\"I cannot answer the original question, but since there is a good deal of discussion about whether it's credible at all, here's an answer that I got from Bank of America. Note the fine difference between \"\"your account\"\" and \"\"our account\"\", which does not seem to be a typo: The payment method is determined automatically by our system. One of the main factors is the method by which pay to recipients prefer to receive payments. If a payment can be issued electronically, we attempt to do so because it is the most efficient method. Payment methods include: *Electronic: Payment is sent electronically prior to the \"\"Deliver By\"\" date. The funds for the payment are deducted from your account on the \"\"Deliver By\"\" date. *Corporate Check: This is a check drawn on our account and is mailed to the pay to recipient a few days before the \"\"Deliver By\"\" date. The funds to cover the payment are deducted from your account on the \"\"Deliver By\"\" date. *Laser Draft Check: This is a check drawn on your account and mailed to the pay to recipient a few days before the \"\"Deliver By\"\" date. The funds for the payment are deducted from your account when the pay to recipient cashes the check, just as if you wrote the check yourself. To determine how your payment was sent, click the \"\"Payments\"\" button in your Bill Pay service. Select the \"\"view payment\"\" link next to the payment. Payment information is then displayed. \"\"Transmitted electronically\"\" means the payment was sent electronically. \"\"Payment transaction number\"\" means the payment was sent via a check drawn from our account. \"\"Check number\"\" means the payment was sent as a laser draft check. Each payment request is evaluated individually and may change each time a payment processes. A payment may switch from one payment method to another for a number of reasons. The merchant may have temporarily switched the payment method to paper, while they update processing information. Recent changes or re-issuance of your payee account number could alter the payment method. In my case, the web site reads a little different: Payment check # 12345678 (8 digits) was sent to Company on 10/27/2015 and delivered on 10/30/2015. Funds were withdrawn from your (named) account on 10/30/2015. for one due on 10/30/2015; this must be the \"\"corporate check\"\". And for another, earlier one, due on 10/01/2015, this must be the laser draft check: Check # 1234 (4 digits) from your (named) account was mailed to Company on 09/28/2015. Funds for this payment are withdrawn from your account when the Pay To account cashes the check. Both payments were made based on the same recurring bill pay payment that I set up manually (knowing little more of the company than its address).\"","If your debit card/ATM card is stolen or lost, someone else might be able to withdraw money from the checking account that it is tied to, or buy things with the card and have the money taken out of the checking account to pay the merchant. Subject to daily withdrawal limits imposed by your bank, a considerable amount of money could be lost in this way. At least in the US, debit or ATM cards, although they are often branded Mastercard or Visa, do not provide the same level of protection as credit cards for which the liability is limited to $50 until the card is reported as lost or stolen and $0 thereafter. Note also that the money in your savings account is safe, unless you have chosen an automatic overdraft protection feature that automatically transfers money from your savings account into the checking account to cover overdrafts. So that is another reason to keep most of your money in the savings account and only enough for immediately foreseeable needs in the checking account (and to think carefully before accepting automatic overdraft protection offers). These days, with mobile banking available via smartphones and the like, transferring money yourself from savings to checking account as needed might be a preferred way of doing things on the go (until the smartphone is stolen!)","\"When using a debit card in a \"\"credit\"\" way, you don't need to enter your PIN, which protects you from skimmers and similar nastiness. Also, assuming it's a Visa or Mastercard debit card, you now have access to all of the fraud protection and other things that you would get with a credit card. The downside for the merchant is that credit card transaction fees are typically higher than debit card transaction fees. I'm less familiar with using a credit card in a \"\"debit\"\" way, so don't have anything to offer on that part of your question.\"","Lets say Debit is what you pay and Credit is what somebody else pays for you. A Debit card will charge your bank account directly. A Credit card will charge your bank account some time later. In both cases the shop owner has the money available directly. It's called Credit because somebody believes you will be able to pay your debt on time (or later with an interest). As for purchase and sales. A customer buys = makes a purchase. A shopkeeper sells = makes a sale. Note from a bar: I made an agreement with the bank. They don't sell beer, I don't give Credit.","It's not so much a credit card, but a financial institution's online platform that either provides this functionality or not. The following Canadian financial institutions show an itemized list of pre-authorized transactions (not an exhaustive list): The following institutions show a total value of pre-authorized transactions: Most other institutions show the available credit (e.g. Chase Financial used by Amazon Rewards), which give an indication of how much you have to spend. By subtracting the current balance and the available balance from the total credit limit, you can get an indication of the total amount of pre-authorized transactions. Example: $1000 - $500 - $400 = $100 is the amount of pre-authorized transactions. From TD's EasyWeb demo (http://tdeasywebdemo.com/v2/#/en/PFS/accounts/activity/chq), it appears that they don't include pre-authorized transactions in the Available Credit. You can verify for yourself by logging in to online banking after you make a purchase and comparing the Available Credit to [Credit Limit - Current Balance]. If it is equal, then they don't include, if it is different (most likely for the value of the transaction), then they do.","Call in to the bank using a publicly available number to verify the request.","Credit Cards when I can. The reason if there is fraud or disputed charges (like I very much disagree with the cell phone charge) a debit card is already gone and I have to get the money back, versus a credit card where I haven't paid anybody anything.","Credit card, without a doubt. The reason is dispute resolution. If you dispute a charge on debit card - the money has left your account already, and if the dispute was accepted - you'll get it back. If. Eventually. In the mean time your overdraft will be missing $$$. For credit cards, you can catch a fraud action before the money actually leaves your pocket and dispute it then. In this case the charge is set aside, and you will only be required to actually pay if the dispute is rejected. I.e.: The money stays in your pocket, until the business proves that the charge is legit. In both cases, if the dispute is justified (i.e.: there was indeed a fraud) neither you nor the bank will lose money at the bottom line, it's just who's got the money during the dispute resolution process (which may be lengthy) that matters.","\"Why do online services ask for all those CVV codes and expiration date information, if, whenever you poke the card out of your wallet, all of its information becomes visible to everyone in the close area? What can I do to secure myself? I'd guess that's to protect the card company, not you. The number of the card is guessable, but each other bit of information makes it much harder to guess (the CVV code makes it ~1000 times harder, the expiration date makes it about 50-100 times harder). Since you wouldn't be responsible for the payment anyway, adding security for online transactions provides the company with less liability. As for the security of your information online, that's trickier. It depends entirely on the site you're using whether they've implemented the appropriate security measures or not (and, given the SSL attacks we've seen, even that might not help). (source: I'm a web developer, and have worked on payments systems before that implemented the security mandated by the cards). At the very least never, ever type in your information on a non-https site (there's normally a little \"\"lock\"\" icon that will display if you're on HTTPS instead of HTTP).\"","Visa, Mastercard have very strong consumer protection. I have been wondering about this question for a while but never got around to asking it here: What happens if a retailer knowingly defrauds me? My guess is the first party to ask for help is Visa, Mastercard: a retailer knowingly defrauding you is unlikely to refund you any money. However, slip-ups do happen. If this is a retailer of good repute, they will not only refund you the money but send you a gift card too! Please do followup this post with what helped you in the end, but my guess is, your first (and last) line of defense would be Visa, Mastercard. Anything that would go through the bank would take such a lot of time and effort, that you would be better off writing it off.","The mode of payment mentioned by your bank is called the ACH(Automatic Clearing House) which means that anyone(Trusted payment gateway owners like banks themselves) can process payments. There can be a fraud declared against any payment that you have made and you can get every single penny back. This amount can not be withdrawn in cash at all. However for your situation I would suggest that you ask your bank to block any transactions above the amount of a specific sum, this way they will require your authorization to finalize the payment. You should feel safe after this. Also no one can access any other account apart from the one whose details you are giving out so do not worry about this guy(or anyone else for that matter) to be able to access your other accounts. Hope this helps. (I have experience in payment gateways so I do understand these procedures.) Cheers!!","So my wife was at work today and got yelled at by both a cop and her managers for simply LOOKING at the card. I don't understand I also work in retail and of course I must see the card to ensure it is a real card, it is a very strict policy that we must have a valid physical card to run any credit/debit transactions. People put skimmers everywhere you use your card and can pick up the info off the strip and put it onto another card and use it without you noticing right away. With the right equipment they can put their name on it or the name on their fake I.d. so the only red flag would be them trying to use several different cards","What you're referring to is Visa Easy Payment Services (VEPS). Other payment processors have similar programs. Basically, certain merchants (based on merchant category code - or MCC), are not required to obtain a signature under $50. This limit was raised to $50 from $25 last year. Here is the press release from Visa describing the increase, and the program in general.","Unlike MasterCard and Visa who only provide clearing service and tie up Banks to actually issue cards or POS terminals for merchants; Discover card operates more like American Express. It's a totally different network; cards and POS to merchants are directly offered by Discover Bank only. There is no other banks that issue this card.","A debit card takes the funds right from your account. There's no 'credit' issued along the way. The credit card facilitates a short term loan. If you are a pay-in-full customer, as I am, there's a cost to lend the money, but we're not paying it. It's part of the fee charged to the merchant. Thus the higher transaction cost.","\"That's accurate. Here is another risk with the current checking system, which many people are not aware of: Anyone who knows your checking account number can learn what your balance in that account is. (This is bank-specific, but it is possible at the major banks I've checked.) How does that work? Many banks have a phone line where you can dial up and interact with an automated voice response system, for various customer service tasks. One of the options is something like \"\"merchant check verification\"\". That option is intended to help a merchant who receives a check to verify whether the person writing the check has enough money in their account for the check to clear. If you select that option in the phone tree, it will prompt you to enter in the account number on the check and the amount of the check, and then it will respond by telling you either \"\"there are currently sufficient funds in the account to cash this check\"\" or \"\"there are not sufficient funds; this check would bounce\"\". Here's how you can abuse this system to learn how much someone has in their bank account, if you know their account number. You call up and check whether they've enough money to cash a $10,000 check (note that you don't actually have to have a check for $10,000 in your hands; you just need to know the account number). If the system says \"\"nope, it'd bounce\"\", then you call again and try $5,000. If the system says \"\"yup, sufficient funds for a $5,000 check\"\", then you try $7,500. If it says \"\"nope, not enough for that\"\", you try $6,250. Etcetera. At each step, you narrow the range of possible account balances by a factor of two. Consequently, after about a dozen or so steps, you will likely know their balance to within a few dollars. (Computer scientists know this procedure by the name \"\"binary search\"\". The rest of us may recognize it as akin to a game of \"\"20 questions\"\".) If this bothers you, you may be able to protect your self by calling up your bank and asking them how to prevent it. When I talked to my bank (Bank of America), they told me they could put a fraud alert flag on your account, which would disable the merchant check verification service for my account. It does mean that I have to provide a 3-digit PIN any time I phone up my bank, but that's fine with me. I realize many folks may terribly not be concerned about revealing their bank account balance, so in the grand scheme of things, this risk may be relatively minor. However, I thought I'd document it here for others to be aware of.\"","\"Circa 2002-2005, I was able to successfully \"\"transfer\"\" a balance from a debit card linked to a bank account to a Bank of America Visa credit card. As an example, I could say do a balance transfer from the card XXXX-XXXX-XXXX-XXXX (which was a valid debit card number) to the credit card, and the funds would appear in the checking account within a few days, and also the balance on the credit card would go up the amount plus any balance transfer fee. I think they've sealed off that loophole years ago.\"","Typically there are several parties involved: (Sometimes one company plays multiple roles; for example AmEx is a network and an issuer.) When a merchant charges a card and the issuer approves it, money is transferred from the issuer to the acquirer to the merchant. This settlement process takes some time, but generally is completed within a day. Of course, most cardholders pay on a monthly basis. The issuer must use their own funds in the mean time. If the cardholder defaults, the issuer takes the loss.","Try to get a second card in your business' name, with a separate card number (like you would get one for a spouse). They may or may not allow that free (you wouldn't want to pay a second fee), and it might be only possible with the second card bearing the same number, which makes it useless. But it is worth a try.","I've called both BofA and Amex Customer Support, and they couldn't help. That's because you cannot. Debit card is tied to your checking account, so you can do a cash advance from your AMEX and deposit it to your BOA checking account. It will then be available to use with your debit card.","Your chief problem seems to be that you're mixing Visa (credit cards) and Step2 (a European Automated Clearing House). Credit cards are primarily an American concept, but do work worldwide especially in travel&tourism industry. The Credit Card companies are financial institutions themselves and operate similar to international banks They're typically acting as intermediaries between the customer's bank and the retailer's bank, so this works even if those two banks have no existing agreements. This is expensive, though. Step2 is a cheaper European system which eliminates the middle man. It allows the consumer's bank to directly pay the retailer's bank. VISA is not a member of Step2.","As other answers and comments suggest you are trying to do something... odd to say the least. No one wants to use a credit card to finance a checking/current account because you are creating a debt on that credit card (unless you are in the odd situation where the card is in credit) that will immediately start accruing interest at a rate probably in excess of 10% per annum. That is not a clever thing to do. What you really need to do is find an account that one of you owns that has a positive balance and use an internet banking service to transfer part of that positive balance onto the debit card. The other solution is not to use the debit card at all but use the credit card to complete the purchases you are trying to manage with the debit card. The reason that BofA and AmEx customer support can't help you is that no one would ever do what you want to do; they would either move existing money from another account or ask for a bank loan.","Or at least I saw it do so with Bank of America.","\"PC MasterCard recently added this as a new feature to their online system. It lets you see \"\"Pending Authorizations\"\" for your card when you log in. Their email said: Along with your purchases, you'll see a list of every transaction that's been approved, but not yet applied to your balance. You'll be able to identify these with the word “Pending” in the date column. Here's a link with more information: http://pcfinancial.ca/pendingauthorization/\"","> But I pretty much followed the procedure I was told to, its just I don't know why we wouldn't get the money back. First, you're in the wrong spot. Go to /r/personalfinance. Second, does it *really* make sense that you'd still get paid? If someone stole your wallet and bought something for $100, can you not go to the store and demand your $100? Or do you have to go and find the thief THEN get back *that* item and THEN return it to the store and THEN get your cash back? It's easier both logistically and logically to stop the payment going to the store, and have the store consider it a theft of their merchandise."],"string":"[\n \"\\\"Parts of what you want are possible, but taken as a whole, you're out of luck. First of all, there is no master database of every cardholder in the country. The only way to check if information is correct is to ask the issuing bank. The AVS system is a way to automate doing so, but it's possible to call the bank directly and verbally verify the address. That means you're subject to the whims of what the issuing bank chooses to support. Banks that are part of the Visa and MasterCard networks generally only verify the numeric parts (address, apartment number, zipcode). AmEx can also verify the cardholder name. But if the bank doesn't have support for validating something, you can't validate it. Separately, there is a \\\"\\\"verify-only\\\"\\\" transaction which some processors support, which will do exactly what you want: Return AVS values without ever charging the card. However, processors require you to have the \\\"\\\"approved merchant account\\\"\\\" you don't want to have to have. Without being a merchant, you shouldn't have access to other people's credit cards anyway. Would you really want anyone in the country to be able to verify anyone else's address whenever they want? In short, whatever purpose you have for wanting this probably falls into one of three categories:\\\"\",\n \"\\\"Zip code, as well as billing address, is used in conjunction with the Address Verification Service (AVS). AVS is a web (or phone) service that actually verifies the address with the billing address on file with the issuing bank. It does not use the credit card stripe. You can see more information from various sources such as bank merchant help pages like Bank of America's. As far as what is stored on the stripe, it varies some by bank (as there are some \\\"\\\"optional\\\"\\\" areas). The standards are discussed here. Fields include your account number, name, the expiration date, some card-specific stuff, and then the discretionary section. I would not expect much in terms of address type information there. So - the answer to your question is that they can't really take much more than your name and CC #, unless you give it to them. If you give a false zip code, you may have your purchase rejected. They certainly do keep track of the credit card number, and I would suppose that is the most valuable piece to them; they can see you make purchases across time and know for a fact that it's the same exact person (since it's the same card). Additionally, zip codes for AVS from pay-at-the-pump are supposedly not generally used for marketing (see this article for example). That is probably not true at at-the-register (in-person) collections, most of those aren't for AVS anyway. Even California permits the pay-at-the-pump zip verification as long as it's only used for that (same article). I would assume any information given, though, is collected for marketing purposes.\\\"\",\n \"\\\"As others have stated, credit (signature required) is processed through their respective networks (Visa, MasterCard, Discover, or American Express). A \\\"\\\"debit\\\"\\\" card tied to your checking account, still go through the same credit network even though the funds are guaranteed from your checking rather than a free loan 30-60 days which has the potential to be unpaid. This type of debit card purchase may be eligible for a lower processing rate for less risk. Debit cards can also be processed through the debit network (PIN required, no signature). This is typically a straight fee such as $0.35. Fees vary, but let me give you a simple comparison: Say you are at the supermarket and buy $50 worth of groceries with a debit card with Visa logo. You are asked \\\"\\\"credit\\\"\\\" or \\\"\\\"debit\\\"\\\": At my supermarket, this is why I am given the option to enter my PIN first. If I want to pay by credit, I have to tap Cancel to process via credit signature.\\\"\",\n \"Security in the merchant services system is mainly handled in two ways: 1) Before transactions are done, the business itself must go through an application process similar (but not identical) to getting a loan. Some high risk businesses must pay higher fees due to the increased likelihood of customer complaints. 2) When a customer disputes a transaction, that's a mark against the business. Get too many of these disputes, and your priviledge of accepting credit cards will be revoked, meaning you won't be able to again. It's in the merchant's best interest to verify customer's identity, because disputes cost them money directly. It's in the servicer's best interest to verify the businesses integrity, because fraud drives up the cost for everyone else. As a whole, it's quite a reactionary system, yet in practice it works remarkably well.\",\n \"POS stands for Point of Sale (like a specific store location) which indicates that the purchase occurred by using your debit card, but it can also be the on-line transaction done via 3-D Secure. Checking with bank, they said that Kirchstrasse transaction could be related to direct marketing subscription service ordered on-line. Investigating further what I've found these kind of transactions are performed by 2BuySafe company registered at Kirchstrasse in Liechtenstein with went through the MultiCards on-line cashier which can be used for paying different variety of services (e.g. in this case it was polish on-line storage service called Chomikuj). These kind of transactions can be tracked by checking the e-mail (e.g. in gmail by the following query: after:2014/09/02 before:2014/09/02 Order). Remember, that if you still don't recognise your transaction, you should call your bank. I have found also some other people concerns about that kind of transactions who ask: Is 2BuySafe.com and www.multicards.com some sort of Scam? Provided answer says: MultiCards Internet Billing is a provider of online credit card and debit card processing and payment solutions to many retailers worldwide. MultiCards was one of the pioneer companies offering this type of service since 1995 and is a PCI / DSS certified Internet Payment Service Provider (IPSP) providing service to hundreds of retail websites worldwide MultiCards is a registered Internet Payment Service Provider and has implemented various fraud protection tools including, but not limited to, MultiCards Fraud Score Tool and 'Verified by Visa' and 'MasterCard SecureCode' to protect card holder's card details. 2BuySafe.com Is also Secured and Verified By GeoTrust The certificate should be trusted by all major web browsers (all the correct intermediate certificates are installed). The certificate was issued by GeoTrust. Entering Incorrect information can lead to a card being rejected as @ TOS 2BuySafe.com is hosted on the Multicards Server site\",\n \"There are different ways of credit card purchase authorizations. if some choose less secure method it's their problem. Merchants are charged back if a stolen card is used.\",\n \"They represent two distict payment processing mechanisms that just happen to be available on one product. Rather like having dvi and hdmi on you laptop. Your account number and sort code relates to the bank account. Your long number, expiry and ccv relate to the card. It is perfectly possible and not uncommon to have two different cards on the same account, which would have their own card numbers etc. The BACS, CHAPS, DirectDebit and FasterPayments systems use the account numbers. These transactions are practically irreversible and work through the interbank transfer system and should be considered 'direct money transfers' - electronic cash. The long digits are used by Mastercard, Visa, AmEx etc and go through their own payment systems. These payments are 'indirect' and may or may not be reversible as the private payment network (visa etc) has some accountability. They work like electronic cheques. This is why debit card transactions can cause you to go overdrawn - you are writing a promise to pay from an account. It is up to the bank to block the card if you have no money, vs a CHAPS payment that checks the money is there before moving it. It is easier (but still hard) to recover money lost through Visa fraud than BACS. Credit cards have only the long number etc. While savings accounts (non-checking accounts) have only account numbers. Depending on where you are different laws will likely cover debit card vs money transfer payments. In the UK Direct debit guarantee is the most common protection on the BACS system, while standing orders and faster payments give you little legal power. Debit cards will give you some protection because the payment system stands between you and the bank account, so if you didn't make the transaction you should be able to reclaim the money ('card not present fraud'). If you did make the transaction but the vendor failed to supply or goods were faulty then a Chargeback system exists where you may also be able to reclaim. A bank transfer you make is irrecoverable and refund can only be claimed through court for faulty goods.\",\n \"\\\"Yes and No. There's always a \\\"\\\"fee\\\"\\\". The difference in credit vs debit usually determines how much that fee is and how it's paid. Each vendor who accepts the major credit card is under contract to pay for equipment and meet certain standards. The same is true for debt card transactions. How much the \\\"\\\"fee\\\"\\\" is can vary based on the contract the vendor has with MasterCard/Visa/AMEX. But in general most debt transactions go back to the bank who distributed the card.\\\"\",\n \"\\\"From my days in e-commerce they break down like this? The company doesn't know a debit from a credit card. Got the Visa logo, then it is a Visa through the company's payment gateway. The gateway talks to the bank and that is where the particulars for money is figured out. When I programmed gateway interfaces, I had the option to \\\"\\\"authorize\\\"\\\" or check for funds (which didn't reserve anything, just verified funds existed), run for batch (which put a hold on the funds and collected them at the end of the night) or just take the money. Most places did a verify during the early checkout stages and then did a batch at the end of the night. The nightly batch allows a merchant to cancel a transaction without getting charged a fee. The \\\"\\\"authorize\\\"\\\" doesn't mean the money is tied up, although that might be your banks policy. Furthermore, an authorize can only last for so many days. This also explains why most of your banks don't report your transactions to you the day of. There is a bunch more activity on your card than the transactions that complete.\\\"\",\n \"Is my understanding okay ? If so, it seems to me that this system is rather error prone. By that I mean I could easily forget to make a wire some day and be charged interests while I actually have more than enough money on the check account to pay the debt. Which is where the credit card company can add fees so you pay more and they make more money. Don't forget that in the credit case, you are borrowing money rather than using your own. Another thing that bothers me is that the credit card apparently has a rather low credit limit. If I wanted to buy something that costs $2500 but only have a credit limit of $1500, can I make a preemptive wire from my check account to the VISA account to avoid facing the limit ? If so, what is the point for the customer of having two accounts (and two cards for that matter...) ? If you were the credit card company, do you believe people should be given large limits first? There are prepaid credit cards where you could put a dollar amount on and it would reject if the balance gets low enough. Iridium Prepaid MasterCard would be an example here that I received one last year as I was involved in the floods in my area and needed access to government assistance which was given this way. Part of the point of building up a credit history is that this is part of how one can get the credit limits increased on cards so that one can have a higher limit after demonstrating that they will pay it back and otherwise the system could be abused. There may be a risk that if you prepay onto a credit card and then want to take back the money that there may be fees involved in the transaction. Generally, with credit cards the company makes money on the fees involved for transactions which may come from merchants or yourself as a cash advance on a credit card will be charged interest right away while if you buy merchandise in a store there may not be the interest charged right away.\",\n \"If you call them, you can make sure they'll use the new address, but if you want to do it online, there is some risk that the update is delayed. Note also that an address change with an immediate request for a replacement debit card smells very fishy - this what a hacker / thief would do to get your money. Calling seems to be the better approach, as you can verify your identity further. Otherwise, you might well run into an automated block.\",\n \"\\\"Actually in Finland on some bank + debit/credit card + online retailer combinations you type in your card details as you normally do, but after clicking \\\"\\\"Buy\\\"\\\" you get directed to your own bank's website which asks you to authenticate yourself with online banking credentials. It also displays the amount of money and to which account it is being paid to. After authentication you get directed back to the retailer's website. Cannot say why banks in US haven't implemented this.\\\"\",\n \"CC always (applies only if you pay your balance in full). First you rack up points on your card, second if there is an unauthorized pull a Cc will help you a bank may or may not. As a general advice don't hand out your banking information like a credit card number. Now paying bills through the bank is a different matter. This advice applies to companies that would like to pull money from bank accounts. Never do that if Cc is an alternative.\",\n \"Like email and spam, fighting creditcard fraud is a cat and mouse game, with technology and processes constantly being developed to reduce fraud. The CVV on the back of the card is just one more layer of security. Requiring the CVV generally requires you to physically have access to the card. CVV should not be stored by any merchant. This frustrates card skimming fraud as the CVV is not present in the track data and fraud caused by database compromises. You should never use your PIN online. MC/VISA both have implementations of 3D-Secure (SecureCode for MC and Verified by VISA) which require a password / code to confirm card ownership. Depends on both Issuer and Merchant implementing the standard. Regarding not needing a PIN at the airport, some low value transactions no longer need PINs, depending on the Issuer and Scheme (VISA/MC). MasterCard PayPass or VISA PayWave enable low value contactless transactions without PIN. In Australia, the maximum value for a contactless transactions is $100 AUD. At some merchants (McDonalds for example) a PIN is not required for for meals purchased with VISA (at least, for the cheeseburger I bought there as a test). This makes sense - if you don't need a PIN for a contactless purchase, why do you need it for a chip based purchase? So - why allow PIN free transactions? On average customers report stolen credit cards / wallet very quickly and the losses are correspondingly small. As card issuers are always online, cards can be cancelled very quickly after being reported lost / stolen. Finally, by performing transactions for just a few cents or pennies, the merchant (Spotify) can likely validate you are the owner of the card as you'd need access to your online bank to confirm the transactions. PayPal do this with bank account to confirm ownership. (Unless I've misunderstood your statement).\",\n \"\\\"Here is how the Visa network works: A Visa transaction is a carefully orchestrated process. When a Visa account holder uses a Visa card to buy a pair of shoes, it’s actually the acquirer — the merchant’s bank — that reimburses the merchant for the shoes. Then, the issuer — the account holder’s bank — reimburses the acquirer, usually within 24 to 48 hours. Lastly, the issuer collects from the account holder by withdrawing funds from the account holder’s bank account if a debit account is used, or through billing if a credit account is used. I read this to mean the Merchant's Bank (the Acquirer Bank) gives the merchant the money within 2 days via the Card Issuer's Bank. The issuing bank is the one that provides the \\\"\\\"credit\\\"\\\" feature since that bank won't get reimbursed until the shopper's bill is paid (or perhaps even longer if the shopper carries a balance). You'll notice the Credit Card company (Visa/MC/etc) is only involved in the process as a way of passing messages. Of course they take a fee for this service so seller ultimately get's less than the buyer bought the shoes for.\\\"\",\n \"Some businesses verify the shipping address with the credit card company, and refuse to ship to an alternate address without additional, offline verification. Of course, this is only useful for physical goods.\",\n \"So, my questions: Are payment cards provide sufficient security now? Yes. If so, how is that achieved? Depending on your country's laws, of course. In most places (The US and EU, notably), there's a statutory limit on liability for fraudulent charges. For transactions when the card is not present, proving that the charge is not fraudulent is merchants' task. Why do online services ask for all those CVV codes and expiration date information, if, whenever you poke the card out of your wallet, all of its information becomes visible to everyone in the close area? What can I do to secure myself? Is it? Try to copy someones credit card info next time you're in the line at the local grocery store. BTW, some of my friends tend to rub off the CVV code from the cards they get immediately after receiving; nevertheless, it could have already been written down by some unfair bank employee. Rubbish.\",\n \"> Verify the signature against what? How old are you I wonder? I am guessing that you're so young you don't know how it used to be done. Every credit card has a space on the back for a signature. And for decades, retailers would check the signature on your ID if the signature on your card is not valid (blank, or says 'SEE I.D.'). This worked for a long time, until retailers started hiring incompetent children who were too lazy to do their jobs properly. I once worked for a retailer who would fire you if they caught you not verifying signatures.\",\n \"The truth is that Visa does not require a merchant to enter the cvv number before authorizing a transaction. The only information that is really needed is the credit card number and expiration date.\",\n \"\\\"Yes, there is a slight reason to worry as the debit card contains 1) Account Number 2) of course a the Debit Card number 3) CSV code at the back of every debit card and mostly these three parameters are being followed to verify the authenticity of the cardholder, but there are some other parameters like \\\"\\\"password of your debit card\\\"\\\" and even address in some cases. So stay chill the manager will not be able to make any online payment using the credential of your debit card without password and other details...\\\"\",\n \"\\\"These are two different ways of processing payments. They go through different systems many times, and are treated differently by the banks, credit card issuers and the stores. Merchants pay different fees on transactions paid by debit cards and by credit cards. Debit transactions require PIN, and are deducted from your bank account directly. In order to achieve that, the transaction has to reach the bank in real time, otherwise it will be declined. This means, that the merchant has to have a line of communications open to the relevant processor, that in turn has to be able to connect to the bank and get the authorization - all that while on-line. The bank verifies the PIN, authorizes the transaction, and deducts the amount from your account, while you're still at the counter. Many times these transactions cannot be reversed, and the fraud protections and warranties are different from credit transactions. Credit transactions don't have to go to your card issuer at all. The merchant can accept credit payment without calling anyone, and without getting prior authorizations. Even if the merchant sends the transaction for authorization with its processor, if the processor cannot reach the issuing bank - they can still approve the transaction under certain conditions. This is, however, never true with debit cards (even if used as \\\"\\\"credit\\\"\\\"). They're not deducted from your bank account, but accumulated on your credit card account. They're posted there when the actual transaction reaches the card issuer, which may be many days (and even many months) after the transaction took place. Credit transactions can be reversed (in some cases very easily), and enjoy from a higher level of fraud protection. In some countries (and most, if not all, of the EU) fraudulent credit transactions are never the consumer's problem, always the bank's. Not so with debit transactions. Banks may be encouraging you to use debit for several reasons: Merchants will probably prefer credit because: Consumers will probably be better off with credit because:\\\"\",\n \"ATM and Debit are not the same thing. ATM is a card that can only be used to withdraw money from the ATMs that belong to that bank (or participate in the same network). In some countries, ATM cards can be used for shopping if the merchant is equipped with an appropriate reader and is participating in an appropriate network. Debit card can be used for purchases in any store showing the appropriate (Visa/MC) logo, and withdraw money at any ATM showing the appropriate (Visa/MC or the ATM network that appears on the card) logo.\",\n \"This doesn't directly pertain to international transactions but may be relevant. I got an American Express gift card over the holidays, and I tried to use it at an online merchant. The card was declined because it failed address verification. I called American Express gift card services (number was on the gift card), and they knew immediately what the problem was and fixed it. They simply took my address and added it as a billing address on the card. I retried the payment and it went through right away. It may be worth calling the gift card company and asking them to simply add your billing address.\",\n \"Merchants are only supposed to verify the presence of a signature, which signifies that the card owner has accepted the terms and conditions of the card / account. It was never really intended to be used to authenticate the card holder, nor is it used as such in practice.\",\n \"It depends on the business. Some ask for ID and check against the signature (rare); some ask for ID but barely glance at it; some check just that it's signed (also rare); some ask for me to input my ZIP code on the card reader (KMart); and some don't do anything (most common). What they do doesn't seem connected to whether I put the card in the reader myself, or hand it to the cashier for them to scan. It does seem silly to check IDs, etc., as there are places such as gas stations where I never even see an employee, and can spend just as much there as at WalMart, KMart, or the grocery store, all places that tend to do more checking.\",\n \"One bank is more willing to risk losses and customer hassle in exchange for lower processing costs than the other bank is. It's strictly a business decision. Regarding how they detect suspicious transactions: Patten detection based on your past usage history. I've gotten calls asking me to confirm that I just placed a large order with a company I'd never bought from before, or in a country that I haven't previously visited, or...\",\n \"In most cases, the brand on the card, eg Visa or MasterCard, is a middleman. The company processes the transaction, transferring $xx from the bank to the seller, and telling the bank to debit the buyer's account. The bank is at risk, not the company transacting the purchase. What's interesting is that American Express started as both. My first Amex card, issued in 1979 (long expired, but in my box of memorabilia) had no bank. American Express offered a card that offered no extended credit, it was pay in full each month. Since then, Amex started offering extended credit, i.e. with annual interest, and minimum payments, and more recently, offering transaction processing for banks which take on the credit risk, essentially becoming very similar to MasterCard and Visa.\",\n \"There generally isn't much in the way of real identity verification, at least in the US and online. The protection you get is that with most credit cards you can report your card stolen (within some amount of time) and the fraudulent charges dropped. The merchant is the one that usually ends up paying for it if it gets charged back so it's usually in the merchant's best interest to do verification. However the cost of doing so (inconvenience to the customer, or if it's an impulse buy, giving them more time to change their mind, etc) is often greater than the occasional fraudulent charge so they usually don't do too much about it unless they're in a business where it's a frequent problem.\",\n \"With change in technology and regulations, quite a few clearing systems provide an ability to directly credit a credit card. In Europe Sepa transactions allow one to credit a credit card. The service would be offered by Local bank rather than Visa or Master Card\",\n \"Verify the signature against what? You are going to have a pad of paper and ask the customer to sign and compare it for every charge? Also, FYI, per the credit card companies, you need just to check if the signature is on the card. They do NOT(!) ask you to compare signatures.\",\n \"In addition to what has been said, gift cards with a credit card logo (which is what I am assuming you mean here) do not have an address associated with them. That means that if you try to use one at a merchant that users address verification (common in online purchases), the transaction will fail. In my experience with an American Express branded gift card, I was able to call the number on the back and they added an address to the card so that it would work. It seemed like this was a common and well known issue. Because the gift card is not associated with any person, no verification is needed to add that address, you can give them any address you want. Also I believe that the card numbers in use for gift cards are specific, that is you could tell that a card is a gift card based on the number alone. That means it is likely possible for a merchant to reject those gift cards while still accepting other cards from that network. This is likely for certain transactions. For example, a hotel or car rental agency requires a credit card for incidentals, and it's likely that the system itself will outright reject a gift card even if it has enough on it for the initial hold. As for debit cards, I think there are far fewer issues with acceptance, other than the aforementioned hold issues described in another answer.\",\n \"\\\"> Every credit card has a space on the back for a signature. And for decades, retailers would check the signature on your ID ... This worked for a long time, until retailers ... For decades, retailers never compared signatures on credit cards to the person's signature. Impractical and not even worth it as anyone can copy a signature on a card. Neither do banks bother to check for signature. They don't even have a \\\"\\\"signature on-file\\\"\\\" anymore. Try it! Deposit a check or buy with a credit card and scribble something unrelated as a signature! The deposit or credit card transaction will go through. I guarantee you that! **Please try it! Let me know if it did not work!** I know what I am talking about because I deal with credit cards a lot, professionally, in IT. The only sure thing is to ask for a PIN. But, alas, credit cards use a chip, so if I steall your card, I can buy with it with no problems. But not if I still your ATM card - I don't know your PIN. The PIN is in your head and I can't get it. The credit card companies don't really care.\\\"\",\n \"While Rocky's answer is correct in the big picture there is another factor here to keep in mind: The disruption while you're waiting to resolve it. If a fraudster gets your card and drains your account you'll get your money back--but there will be a period while they are investigating that it won't be available. For this reason I avoid debit card transactions and only use credit cards. If the fraudster gets your credit card you might lose access while they investigate but you don't lose access to your bank account.\",\n \"It depends on your bank and your terms of service, but using the card one way or the other may affect things such as how long it takes to process, what buyer protections you have, etc. It also affects the store as I believe they are charged differently for debit vs credit transactions.\",\n \"\\\"Just to add about using debit card as \\\"\\\"credit\\\"\\\" vs \\\"\\\"debit\\\"\\\" way: In addition to the difference of having to enter the PIN when using \\\"\\\"debit\\\"\\\" mode (vs having to sign in \\\"\\\"credit\\\"\\\" mode), for stores that offer cash back (i.e. get cash out of your account at the same time as paying), you can only get cash back when using \\\"\\\"debit\\\"\\\" mode.\\\"\",\n \"\\\"I completely agree with @littleadv in favor of using the credit card and dispute resolution process, but I believe there are more important details here related to consumer protection. Since 1968, US citizens are protected from credit card fraud, limiting the out-of-pocket loss to $50 if your card is lost, stolen, or otherwise used without your permission. That means the bank can't make you pay more than $50 if you report unauthorized activity--and, nicely, many credit cards these days go ahead and waive the $50 too, so you might not have to pay anything (other than the necessary time and phone calls). Of course, many banks offer a $50 cap or no fees at all for fraudulent charges--my bank once happily resolved some bad charges for me at no loss to me--but banks are under no obligation to shield debit card customers from fraud. If you read the fine print on your debit card account agreement you may find some vague promises to resolve your dispute, but probably nothing saying you cannot be held liable (the bank is not going to lose money on you if they are unable to reverse the charges!). Now a personal story: I once had my credit card used to buy $3,000 in stereo equipment, at a store I had never heard of in a state I have never visited. The bank notified me of the surprising charges, and I was immediately able to begin the fraud report--but it took months of calls before the case was accepted and the charges reversed. So, yes, there was no money out of my pocket, but I was completely unable to use the credit card, and every month they kept on piling on more finance fees and late-payment charges and such, and I would have to call them again and explain again that the charges were disputed... Finally, after about 8 months in total, they accepted the fraud report and reversed all the charges. Lastly, I want to mention one more important tool for preventing or limiting loss from online purchases: \\\"\\\"disposable\\\"\\\", one-time-use credit card numbers. At least a few credit card providers (Citibank, Bank of America, Discover) offer you the option, on their websites, to generate a credit card number that charges your account, but under the limits you specify, including a maximum amount and expiration date. With one of these disposable numbers, you can pay for a single purchase and be confident that, even if the number were stolen in-transit or the merchant a fraud, they don't have your actual credit card number, and they can never charge you again. I have not yet seen this option for debit card customers, but there must be some banks that offer it, since it saves them a lot of time and trouble in pursuing defrauders. So, in short: If you pay with a credit card number you will not ever have to pay more than $50 for fraudulent charges. Even better, you may be able to use a disposable/one-time-use credit card number to further limit the chances that your credit is misused. Here's to happy--and safe--consumering!\\\"\",\n \"Debit is them taking the money, in your case electronically. Credit is somebody vouching for you and saying you will pay later. They are alternate ways to pay for a product. As a merchant, if you take a credit card you are agreeing that a the issuer of the credit card is going to pay you right away. The issuer of the credit will worry about collecting the money from me. There are a ton of details with regards to why you would use one over another, where the costs in each method are and who pays what for each. The main different is the source of the funds.\",\n \"I would presume this goes entirely through the credit card network rather than the banking network. I am guessing that it's essentially the same operation as if you had returned something purchased on a card to the store for credit, but I'm not sure whether it really looks like a vendor credit to the network or if it is marked as a different type of transaction.\",\n \"The thing is that we never asked for these services. The banks and the merchants did. These companies build profiles **against** you to provide your credit info to any creditor who asks. Then they bill you so that they will not hand out your identity to criminals for a period of time. Great fucking system.\",\n \"If the debit card is associated with the account, there is nowhere else it could go. The chance is nil that there is another account with that 16-digit number. So either it goes there, or the transfer fails and it is right back where it came from, though this could take some days. If you don't want to risk a wait, talk to your bank now.\",\n \"Credit cards and debit cards make up the bulk of the transactions in the US. Visa and Mastercard take a percentage of each credit card transaction. For the most part, this fee it built into the price of what you buy. That is, you don't generally pay extra at the grocery store if you use a credit card (gasoline purchases are a notable exception here.) If you were getting something like 2% of a third of all the retail transactions in the US, you'd probably not want to rock the boat too much either. Since there is little fraud relative to the amount of money they are taking in, and it can often be detected using statistical analysis, they don't really stand to gain that much by reducing it through these methods. Sure they can reduce the losses on the insurance they provide to the credit card consumer but they risk slowing down the money machine. These companies want avoid doing something like reducing fraud by 0.5% revenues but causing purchases with the cards drop by 1%. More security will be implemented as we can see with the (slow) introduction of chip cards in the US but only at a pace that will prevent disruption of the money machine. EMV will likely cause a large drop in CC fraud at brick-and-mortar stores but won't stop it online. You will likely see some sort of system like you describe rolled out for that eventually.\",\n \"It depends on what provider they are using to process your charge and if it's through a website, a phone application or a desktop application. For example, if they build a desktop application with Authorize.net, the desktop application will take your information in, and then make a webservice call with it to a secure authorize.net processing platform. Something similar is true for FirstData. However, if they are using PayPal to process your request, you are routed to a paypal site to make the charge, then the funds are sent to the merchant. As for what is returned that also depends on the provider and the application. If you are using a website it's likely an XML response with all the information they provide upon a transaction attempt. If it's a desktop application they may just hand the cc info off to a library which processes the charge and then returns specific confirmed or denied flags. So to be totally honest without knowing the exact situation in which you are charging your card, it's impossible to know. For all you know they are putting your credit card information in a database unencrypted and then charging them all at the end of the week in one giant batch. If you are able to find out whom they are using as a credit card processing provider then you can look for that companies developer documentation. It will provide you with all the information you are looking for including examples.\",\n \"Skimmers are most likely at gas station pumps. If your debit card is compromised you are getting money taken out of your checking account which could cause a cascade of NSF fees. Never use debit card at pump. Clark Howard calls debit cards piece of trash fake visa/mc That is because of all the points mentioned above but the most important fact is back in the 60's when congress was protecting its constituents they made sure that the banks were responsible for fraud and maxed your liability at $50. Debit cards were introduced much later when congress was interested in protecting banks. So you have no protection on your debit card and if they find you negligent with your card they may not replace the stolen funds. I got rid of my debit card and only have an ATM card. So it cannot be used in stores which means you have to know the pin and then you can only get $200 a day.\",\n \"\\\"The fee structures are different for PIN-based transactions versus \\\"\\\"credit\\\"\\\" style transactions. Usually there is a fixed fee (around $0.50) for PIN-based transactions and a varying fixed fee plus a percentage for credit transactions (something like $0.35 + 2.5%). There are also value limits for PIN-based transactions... I believe that you cannot exceed $400 in most places. The signature feature of credit transactions isn't there to protect you, it signifies your agreement to comply with the contract you and the credit card issuer, protecting the merchant from some types of chargeback. Some merchants waive the signature for low dollar value transactions to increase convenience and speed up the lines. All of your other questions are answered elsewhere on this site.\\\"\",\n \"If so, it seems to me that this system is rather error prone. By that I mean I could easily forget to make a wire some day and be charged interests while I actually have more than enough money on the check account to pay the debt. I have my back account (i.e. chequing account) and VISA account at/from the same bank (which, in my case, is the Royal Bank of Canada). I asked my bank to set up an automatic transfer, so that they automatically pay off my whole VISA balance every month, on time, by taking the money from my bank account. In that way I am never late paying the VISA so I never pay interest charges. IOW I use the VISA like a debit card; the difference is that it's accepted at some places where a debit card isn't (e.g. online, and for car rentals), and that the money is deducted from my bank account at the end of the month instead of immediately.\",\n \"Here's a simple answer: If your debit card has a visa or mc logo, it can be used as a 'credit card'. In order to do so, you shouldn't enter the pin, instead choose 'credit' and sign for it. Unlike a credit card, you can't spend money you don't have but like a credit card, your purchase is protected by the credit card company (visa/mc) and gives you privileges like zero fraud liability and purchase disputes. http://www.moneycone.com/should-you-sign-for-a-debit-card-purchase-or-use-your-pin/\",\n \"As far as I'm aware, PINs are only used for in-person transactions, not 'remote' (over the Internet or phone).\",\n \"Debit card purchases without PIN are treated as credit card purchases by merchants, and that includes ID verification. In addition to the ways you mentioned, you can get a debit card in any grocery store and load it with cash, and these debit cards don't have a name imprinted on them. But then if you lose them - you may have troubles proving you did in fact lose them when you try to recover your money, as anyone can use them. Technically you can register them online and call in and request refunds for fraud losses just as any other debit/credit card in the US (with $50 deductible), but in practice it may be difficult. These cards have very high fees, and may not be accepted for rentals etc.\",\n \"From the business side of credit cards, Discover and American Express carry their own risk. AmEx has lent their logo to banks such as Bank of America (BofA) to use the AmEx transaction network, but the financial risk and customer service is provided by BofA. Visa and MasterCard let banks use their logo and process through their respective networks for a fee. The financial risk of fraud, non-payment from merchants, etc is the risk that the individual banks carry.\",\n \"Credit in debit way - the card simply functions like a debit card for that transaction - pulling cash from your checking account. No difference. You've simply discovered the fact that some banks are using the same piece of plastic for two functions, debit which draws funds directly from your checking, and credit which offers you time to pay a bill the comes in some time later. It's a personal choice.\",\n \"Who cares? If your card gets stolen, most cards provide you with 100% liability protection. Just sign the thing!\",\n \"As it is international debits, this will take a while. BofA is right, You have to dispute this with Card Issuer, i.e. HDFC. The worst case for me was around 1 month. Keep chasing and sending out reminders every 3-4 days.\",\n \"\\\"The address under a bank's name on a check, if there is one, is generally going to be the contact address of the bank. That will be true no matter where on the check the bank's name appears. The address of the person or business the account belongs to, if present, will appear under their name. This information block is typically near the top left corner the check, so it will be visible as the return address if the check is mailed in a \\\"\\\"window envelope\\\"\\\" designed for this purpose. The address the check is being mailed to, if it appears on the check, will generally appear low on the check and to the right, so it will be visible as the destination address when the check is mailed using a \\\"\\\"window envelope\\\"\\\" designed for this purpose. If that isn't the answer you were looking for, please clarify your question.\\\"\",\n \"Given that the laws on consumer liability for unauthorized transactions mean no cost in most cases, the CVV is there to protect the merchant. Typically a merchant will receive a lower cost from their bank to process the transaction with the CVV code versus without. As far as the Netflix case goes, (or any other recurring billing for that matter) they wouldn't care as much about it because Visa/MC/Amex regulations prohibit storage of the CVV. So if they collect it then it's only used for the first transaction and renewals just use the rest of the card info (name, expiration date, address). Does the presence of CVV indicate the merchant has better security? Maybe, maybe not. It probably means they care about their costs and want to pay the bank as little as possible to process the transaction.\",\n \"Debit cards with the Visa or Mastercard symbol on them work technically everywhere where credit cards work. There are some limitations where the respective business does not accept them, for example car rentals want a credit card for potential extra charges; but most of the time, for day-to-day shopping and dining, debit cards work fine. However, you should read up the potential risks. A credit card gives you some security by buffering incorrect/fraudulent charges from your account, and credit card companies also help you reverse incorrect charges, before you ever have to pay for it. If you use a debit card, it is your money on the line immediately - any incorrect charge, even accidential, takes your money from your account, and it is gone while you work on reversing the charge. Any theft, and your account can be cleaned out, and you will be without money while you go after the thief. Many people consider the debit card risk too high, and don't use them for this reason. However, many people do use them - it is up to you.\",\n \"There are 2 parties when we say credit card companies: The bank that gives you a card & VISA/Mastercard For a Bank the revenues generally come from: For VISA/Mastercard the revenue is from: P.S. Have not covered American express here but in short it is a combination of the above 2 models\",\n \"> Try it! Deposit a check or buy with a credit card and scribble something unrelated as a signature! The deposit or credit card transaction will go through. About that you are correct, however during any sort of forensic investigation they are going to ask to see a signature receipt if one is available. > For decades, retailers never compared signatures on credit cards to the person's signature. No that isn't true. Retailers are required by many card processing vendors to send in a signed receipt. This is changing, because employees are lazy, and retailers don't care about their customers at all so they don't bother enforcing any standards on their minimum wage register jockeys. However many of them are still required to send signed receipts in. When I was younger I worked at a store that would not get paid by the bank if it did not send in a signed receipt for every transaction. Go on, try walking away without signing your credit card receipt at stores where they present it for signature, and see what happens. > I know what I am talking about because I deal with credit cards a lot, professionally, in IT. You and everyone else. Big deal. Different credit card processors have different requirements for their customers (merchants). > The credit card companies don't really care. I think the real lesson here is **nobody cares**. Not the banks, not the credit card companies, and not the merchants. The only thing any of them give a fuck about is keeping the money flowing, especially into their own wallets, and if that means customers get ripped off sometimes because of inadequate protections, so what. My only point is, if I have one at all, **merchants _should_ care** about protecting the customer, and **customers _should_ care** about what protections are in place to prevent fraud. **PIN numbers are fine** as an authentication method, **but they should be completely shielded from view** by people standing in line or cameras overhead.\",\n \"I'm pretty sure it's merchant-dependent. If a credit card transaction doesn't go through, PayPal will automatically charge your bank account. Some merchants may want that extra insurance.\",\n \">> Hey! Do you mind giving your credit card to the waiter... > I'm not especially fond of that, but it's easy to report fraud to the bank and most of the time the bank will reverse the charges. No kidding! Of course, even I give credit cards to waiters. What do I care? **As you said, you are not liable to any fraud on your credit card.** None at all!!!! It's only Merchant, not the credit card company, that pay the price for fraud... **and you pay higher prices to cover for losses from fraud.** > The PIN situation is different because a mugging is life-threatening. Nonsense! Mugging at the ATM is so rare, each ATM has a camera. **In any case, I am not talking about using PIN to withdraw money!** I am talking about PIN to authorize charges on a credit card or ATM card. >> We already determined that nobody even care about signatures or check them. > You can't use a stolen card at an ATM with a signature. Huh? You totally got it wrong what I said, or, you argue for the sake of argument. **I am saying that cards that require you to enter a PIN cannot be used used when stolen or copied. Yes or no?** **On the other hand, cards that require signature can be used when stolen or copied because signature is a worthless method to validate the charge. Yes or no?** LASTLY, my Costco credit card has a picture of me on it. **Question for you, since for some reason you argue so much against PINs: Wouldn't a picture on the card better than a signature?** Yes or no? Do you see? There are so many ways to make this system so much more secure and fraud proof... but, ON PURPOSE, the credit card companies don't want that... because they are not liable for fraud. Simple as that.\",\n \"\\\"To answer your question as clarified in a comment: All I wanted to know what will happen if I enter my debit card number in the sixteen digit account number they offer on the application for balance transfer. That's all. Almost certainly (subject to the particular terms and conditions of the offer), no money will move, the only question is exactly when and how they will say no. If you do it online, and their system is clever enough to look up the IIN (the first six digits) of the card number you enter, their system might learn straight away that you have entered a debit card number (eg a card starting 431940 is a Bank of Ireland debit card). Otherwise, you'll have to wait until the request goes to their back office system, which will eventually lead to the card issuer's system being contacted, at which point it will become clear that it's a debit card, and your transfer request will be refused at that point. That said, some credit card companies do offer a \\\"\\\"Money Transfer\\\"\\\" aka \\\"\\\"Super Balance Transfer\\\"\\\", which is an offer to transfer money directly into a bank account, putting the resulting debt on the credit card. I've never seen these offered without having to call a service centre and talk to a person, though, presumably so that they can check that the details they have for you (about income etc) are still correct.\\\"\",\n \"a typical debit card is subject to several limits:\",\n \"\\\"> Go on, try walking away without signing your credit card receipt at stores where they present it for signature, and see what happens. That's true... if the amount is over $25. Did you notice it? Actually, at Costco is over $50. And you know what else is true? That yes, they require you to squibble something, but you can write an obvious incorrect signature and nobody will care. You have no idea how many times the screen with the electronic pen did not work right, so I just put couple of lines... >> know what I am talking about because I deal with credit cards a lot, professionally, in IT. > You and everyone else. Big deal. Different credit card processors have different requirements for their customers (merchants). Just because different processors have different requirements makes the whole process impossible to manage or comply with. Go figure out the requirement based on the card presented. >> The credit card companies don't really care. > I think the real lesson here is nobody cares. The merchant cares, because they are ultimately responsible for paying for fraud... which is the main reason why credit card companies don't care... and many merchants too because they have insurance... The bottom line is that everyone would not mind to enter a PIN to get the transaction through, but a stupid ego trip of the credit card companies who don't want to be \\\"\\\"like ATMs\\\"\\\". That's it. So they came up with chip in the card, which made the process slower and more expensive, and does not solve anything except fake credit cards (copied credit cards).\\\"\",\n \"If you are looking at domestic transfers, all Banks hold accounts with the Central Bank [Reserve Bank] , in US the Central Bank is called Federal Reserve. The money from account of Bank of America held with Fed is debited and the account of Citi held with Fed is credited.\",\n \"A large biller is registered and can initiate an ACH Debit to your account based on the Account Number and the Routing number. He assumes responsibility and completes the due diligence of obtaining a written mandate / permission / authorization from you. There are other legal process where by you get a Power of Attorney that would allow you to transact on behalf of someone. The key point you seem to be missing is that one can ONLY transact from ones account either by walking into the Bank / ATM, or by writing a check. There are other options as well to transact.\",\n \"If it is one of those debit cards you use just like a credit card without a PIN, I'd cancel it regardless of whatever you are trying to do with your finances. They just seem too dangerous to me. Unlike a credit card, if someone makes fraudulent purchases on a debit card the money is gone from your bank account until you resolve the issue with the issue. With a credit card, the BANK is out the money until it gets worked out. My brother once had his credit card number (not the card) stolen and the criminals emptied his bank account. Eventually the bank put the money back after an investigation, but it had two really nasty side effects: 1) Dozens of checks bounced. The bank refunded the bounced check fees, but not all of the stores would. 2) He had no money in his account until it was resolved. Luckily in his case they resolved it in a few days, but he was already making preparations to borrow money to pay his rent/bills.\",\n \"I don't believe there is such a process. My observation (i.e. my opinion) is that banks will have a level of security walls appropriate to the cost vs risk they experience. Since as Frazell says, your liability is limited for this type of fraud, you personally bear little if any risk. If this fraud were common enough that the cost of your proposal outweighed the expense, they would implement it. On a similar note. Credit card fraud can be reduced ten fold if a PIN were required for all purchases. The 3 digits on the back helps prove the card is there, and you just didn't steal the from 16 digits, but a 6-8 digit PIN required at point of sale would be tough for the thief to guess. How much software to do this would cost, I don't know, but the idea is brilliant, even if it's mine. 10 fold reduction, if not 100 fold. (Any bank guys reading?)\",\n \"\\\"•Have you had any problems with bills not being paid? NO •If you had issues, were they addressed satisfactorily? Answer: A big issue that blindsided me: With my bank, the funds come out of my account right away, but the actual payment is done through a third-party service. On my bank's online site it appears that the payment has been made, but that does not necessarily mean that the intended recipient has cashed it. Looking online at my credit union's site is useless, because all I can tell is that the payment has been sent. The only way to verify payment is to contact the intended recipient. Or I may telephone the online bill pay representative at my bank/credit union, who has access to the third party service. If I do nothing, after 90 days, the check is void, at which time the third party service notifies the bank/credit union and the funds will eventually end up back in my account. I learned this today, after a third-party paper check to a health care provider was returned to me via mail by the recipient (because insurance had already paid and I did not owe them anything). The money was in the hands of the third-party service, not in my account, nor that of my credit union nor the recipient. At first my credit union told me that I would have to contact the third-party service myself and work it out. I said \\\"\\\"NO WAY\\\"\\\" and the credit union did get the money back into account the same day. This is a sweet deal for the third party, who has my money interest-free anywhere from a few days to three months. And risk-free as well, because the money goes directly from my account to the third party service.\\\"\",\n \"In Finland, this happens all the time - it's all about having an official ID, they don't even ask your bank account number or the card. However, as no location was specified in the question, I guess it could be anything. The stronger the requirement for official personal id is in your country, the better odds you have with just using that. Where I live it is quite strong.\",\n \"\\\"Much of what you're asking will not be disclosed for obvious security reasons, so don't be surprised when call center people say they \\\"\\\"don't know\\\"\\\". They may actually not know, but even if they did, they'd be fired if they were to say anything. Nothing could be a touchier subject than online security for the financial institutions. I don't know of reliable sources for the data you're asking about, and I don't know the banks or other firms would release it. For a bank to talk about its incidence rates of fraud would be unusual, because none of these institutions wants to appear \\\"\\\"less safe\\\"\\\" than their competitors. If there's any information out there then it's going to be pretty vague. None of these institutions wants the \\\"\\\"bad guys\\\"\\\" to know what their degree of success is against one bank versus any other. I hope that makes sense. The smaller banks usually piggyback their data on the networks of the larger financial institutions, so they are as secure (as a general rule) as the larger banks' networks they're running on. Also, your transactions on your credit cards are not generally handled directly by your bank anyway, unless it's one of the big heavyweights like Chase or Bank of America. All transactions run through merchant processors, who act as intermediaries between merchants and the banks, and those guys are pretty damned good at security. I've met some of the programmers, and they're impressive to me (I've been a programmer for 35 years and can't put a finger on these guys!). Most banks require that you must provide proof of identity when opening an account, and that ID must me the standards of the \\\"\\\"USA Real ID Act\\\"\\\". Here's an excerpt from the Department of Homeland Security website on what Real ID is: Passed by Congress in 2005, the REAL ID Act enacted the 9/11 Commission’s recommendation that the Federal Government “set standards for the issuance of sources of identification, such as driver's licenses.” The Act established minimum security standards for state-issued driver’s licenses and identification cards and prohibits Federal agencies from accepting for official purposes licenses and identification cards from states that do not meet these standards. States have made considerable progress in meeting this key recommendation of the 9/11 Commission and every state has a more secure driver’s license today than before the passage of the Act. In order for banks to qualify for FDIC protection, they must comply with the Real ID standards when opening accounts. As with any business (especially online), the most effective way to minimize fraud is vigilant monitoring of data. Banks and other online financial entities have become very adept at pattern analysis and simply knowing where and what to look for when dealing with their customers. There are certainly sophisticated measures which are kept carefully out of the public eye for doing this, and obviously they're good at it. They have to be, right? There's no way to completely eliminate fraud -- too much incentive exists for the \\\"\\\"bad guys\\\"\\\" to not constantly search for new ways to run their schemes, and the good guys will always be at the disadvantage, because there's no way to anticipate everything anyone might come up with. Just look at online viruses and malware. Your antivirus software can only deal with what it knows about, and the bad guys are always coming up with some new variant that gets past the filters until the antivirus maker learns of it and comes up with a way to deal with it. Your question's a good one to ponder, and I wouldn't want to be the chief of internet security for a bank or online institution, because I'd lay awake at night pondering when the call's going to come that we finally ran out of luck! (grin) I hope this was helpful. Good luck!\\\"\",\n \"For me, it is mostly for the fraud protection. If I have a debit card and someone makes a fraudulent charge the money is removed from my bank account. From my understanding, I can then file a fraud complaint with the bank to recover my money. However, for some period of time, the money is missing from my bank account. I've heard conflicting stories of money being returned quickly while the complaint is undergoing investigation as well as money being tied up for several days/weeks. It may depend on the bank. With a credit card, it is the banks money that is tied up.\",\n \"The use of an old address would make me suspect that your data was stolen from some database you had registered to long ago with the old address. I would think that contacting your credit rating firm and the credit card company is urgent.\",\n \"\\\"As for PC Mastercard like stated by @nullability, VISA Desjardins list the \\\"\\\"Pending Authorizations\\\"\\\" almost instantly (the time it's take to get back home) in AccesD (Their Web portal for managing accounts).\\\"\",\n \"I think you'll find that a credit card does have an account number and sort code, I have had a Visa card previously and currently have a Mastercard. Both were paid by Direct Debit, and I could then transfer money to the account when I wanted to pay more than the minimum payment off. Check the introductory letter from the card provider, it should be on there, failing that, contact the provider and ask them for the details, how to pay, or a direct debit mandate for either the whole amount or the minimum amount.\",\n \"Whether your card will work, I believe, depends on the institution that issued it. You'll just have to try. What I can tell you, is that the process of using a debit card or credit card in the US is fairly straight forward. If your card has a chip, you'll 'insert' your card, chip end first, into the bottom slot of the reader, assuming the reader has one. This technology is still being distributed / accepted, so you may encounter some areas where they don't have this, or they have an insert or sign that says something along the lines of 'No chip reader / swipe instead'. If your card doesn't have a chip, which looks like the bottom end of a cellular phone's SIM card, you just swipe your card in the reader. There will / may be on-screen prompts, which will explain any additional input necessary from you. Depending on how they 'process' your card - As a debit card or credit card (They can 'process' a debit card as if it's a standard credit card), you may or may not be asked to enter your debit card's PIN. If they process it as debit, you'll have to enter your PIN. If they process it as if it were a credit card, it will still go through but you'll be asked to sign the receipt. IMPORTANT FOR YOU TO NOTE: You need to find out whether your card issuer will charge you foreign transaction fees when you use your Indian debit card in the US. Is the card carrying a different currency than the US?\",\n \"When the check is deposited, the bank verifies the signature in the check matches your signature in file.\",\n \"\\\"I cannot answer the original question, but since there is a good deal of discussion about whether it's credible at all, here's an answer that I got from Bank of America. Note the fine difference between \\\"\\\"your account\\\"\\\" and \\\"\\\"our account\\\"\\\", which does not seem to be a typo: The payment method is determined automatically by our system. One of the main factors is the method by which pay to recipients prefer to receive payments. If a payment can be issued electronically, we attempt to do so because it is the most efficient method. Payment methods include: *Electronic: Payment is sent electronically prior to the \\\"\\\"Deliver By\\\"\\\" date. The funds for the payment are deducted from your account on the \\\"\\\"Deliver By\\\"\\\" date. *Corporate Check: This is a check drawn on our account and is mailed to the pay to recipient a few days before the \\\"\\\"Deliver By\\\"\\\" date. The funds to cover the payment are deducted from your account on the \\\"\\\"Deliver By\\\"\\\" date. *Laser Draft Check: This is a check drawn on your account and mailed to the pay to recipient a few days before the \\\"\\\"Deliver By\\\"\\\" date. The funds for the payment are deducted from your account when the pay to recipient cashes the check, just as if you wrote the check yourself. To determine how your payment was sent, click the \\\"\\\"Payments\\\"\\\" button in your Bill Pay service. Select the \\\"\\\"view payment\\\"\\\" link next to the payment. Payment information is then displayed. \\\"\\\"Transmitted electronically\\\"\\\" means the payment was sent electronically. \\\"\\\"Payment transaction number\\\"\\\" means the payment was sent via a check drawn from our account. \\\"\\\"Check number\\\"\\\" means the payment was sent as a laser draft check. Each payment request is evaluated individually and may change each time a payment processes. A payment may switch from one payment method to another for a number of reasons. The merchant may have temporarily switched the payment method to paper, while they update processing information. Recent changes or re-issuance of your payee account number could alter the payment method. In my case, the web site reads a little different: Payment check # 12345678 (8 digits) was sent to Company on 10/27/2015 and delivered on 10/30/2015. Funds were withdrawn from your (named) account on 10/30/2015. for one due on 10/30/2015; this must be the \\\"\\\"corporate check\\\"\\\". And for another, earlier one, due on 10/01/2015, this must be the laser draft check: Check # 1234 (4 digits) from your (named) account was mailed to Company on 09/28/2015. Funds for this payment are withdrawn from your account when the Pay To account cashes the check. Both payments were made based on the same recurring bill pay payment that I set up manually (knowing little more of the company than its address).\\\"\",\n \"If your debit card/ATM card is stolen or lost, someone else might be able to withdraw money from the checking account that it is tied to, or buy things with the card and have the money taken out of the checking account to pay the merchant. Subject to daily withdrawal limits imposed by your bank, a considerable amount of money could be lost in this way. At least in the US, debit or ATM cards, although they are often branded Mastercard or Visa, do not provide the same level of protection as credit cards for which the liability is limited to $50 until the card is reported as lost or stolen and $0 thereafter. Note also that the money in your savings account is safe, unless you have chosen an automatic overdraft protection feature that automatically transfers money from your savings account into the checking account to cover overdrafts. So that is another reason to keep most of your money in the savings account and only enough for immediately foreseeable needs in the checking account (and to think carefully before accepting automatic overdraft protection offers). These days, with mobile banking available via smartphones and the like, transferring money yourself from savings to checking account as needed might be a preferred way of doing things on the go (until the smartphone is stolen!)\",\n \"\\\"When using a debit card in a \\\"\\\"credit\\\"\\\" way, you don't need to enter your PIN, which protects you from skimmers and similar nastiness. Also, assuming it's a Visa or Mastercard debit card, you now have access to all of the fraud protection and other things that you would get with a credit card. The downside for the merchant is that credit card transaction fees are typically higher than debit card transaction fees. I'm less familiar with using a credit card in a \\\"\\\"debit\\\"\\\" way, so don't have anything to offer on that part of your question.\\\"\",\n \"Lets say Debit is what you pay and Credit is what somebody else pays for you. A Debit card will charge your bank account directly. A Credit card will charge your bank account some time later. In both cases the shop owner has the money available directly. It's called Credit because somebody believes you will be able to pay your debt on time (or later with an interest). As for purchase and sales. A customer buys = makes a purchase. A shopkeeper sells = makes a sale. Note from a bar: I made an agreement with the bank. They don't sell beer, I don't give Credit.\",\n \"It's not so much a credit card, but a financial institution's online platform that either provides this functionality or not. The following Canadian financial institutions show an itemized list of pre-authorized transactions (not an exhaustive list): The following institutions show a total value of pre-authorized transactions: Most other institutions show the available credit (e.g. Chase Financial used by Amazon Rewards), which give an indication of how much you have to spend. By subtracting the current balance and the available balance from the total credit limit, you can get an indication of the total amount of pre-authorized transactions. Example: $1000 - $500 - $400 = $100 is the amount of pre-authorized transactions. From TD's EasyWeb demo (http://tdeasywebdemo.com/v2/#/en/PFS/accounts/activity/chq), it appears that they don't include pre-authorized transactions in the Available Credit. You can verify for yourself by logging in to online banking after you make a purchase and comparing the Available Credit to [Credit Limit - Current Balance]. If it is equal, then they don't include, if it is different (most likely for the value of the transaction), then they do.\",\n \"Call in to the bank using a publicly available number to verify the request.\",\n \"Credit Cards when I can. The reason if there is fraud or disputed charges (like I very much disagree with the cell phone charge) a debit card is already gone and I have to get the money back, versus a credit card where I haven't paid anybody anything.\",\n \"Credit card, without a doubt. The reason is dispute resolution. If you dispute a charge on debit card - the money has left your account already, and if the dispute was accepted - you'll get it back. If. Eventually. In the mean time your overdraft will be missing $$$. For credit cards, you can catch a fraud action before the money actually leaves your pocket and dispute it then. In this case the charge is set aside, and you will only be required to actually pay if the dispute is rejected. I.e.: The money stays in your pocket, until the business proves that the charge is legit. In both cases, if the dispute is justified (i.e.: there was indeed a fraud) neither you nor the bank will lose money at the bottom line, it's just who's got the money during the dispute resolution process (which may be lengthy) that matters.\",\n \"\\\"Why do online services ask for all those CVV codes and expiration date information, if, whenever you poke the card out of your wallet, all of its information becomes visible to everyone in the close area? What can I do to secure myself? I'd guess that's to protect the card company, not you. The number of the card is guessable, but each other bit of information makes it much harder to guess (the CVV code makes it ~1000 times harder, the expiration date makes it about 50-100 times harder). Since you wouldn't be responsible for the payment anyway, adding security for online transactions provides the company with less liability. As for the security of your information online, that's trickier. It depends entirely on the site you're using whether they've implemented the appropriate security measures or not (and, given the SSL attacks we've seen, even that might not help). (source: I'm a web developer, and have worked on payments systems before that implemented the security mandated by the cards). At the very least never, ever type in your information on a non-https site (there's normally a little \\\"\\\"lock\\\"\\\" icon that will display if you're on HTTPS instead of HTTP).\\\"\",\n \"Visa, Mastercard have very strong consumer protection. I have been wondering about this question for a while but never got around to asking it here: What happens if a retailer knowingly defrauds me? My guess is the first party to ask for help is Visa, Mastercard: a retailer knowingly defrauding you is unlikely to refund you any money. However, slip-ups do happen. If this is a retailer of good repute, they will not only refund you the money but send you a gift card too! Please do followup this post with what helped you in the end, but my guess is, your first (and last) line of defense would be Visa, Mastercard. Anything that would go through the bank would take such a lot of time and effort, that you would be better off writing it off.\",\n \"The mode of payment mentioned by your bank is called the ACH(Automatic Clearing House) which means that anyone(Trusted payment gateway owners like banks themselves) can process payments. There can be a fraud declared against any payment that you have made and you can get every single penny back. This amount can not be withdrawn in cash at all. However for your situation I would suggest that you ask your bank to block any transactions above the amount of a specific sum, this way they will require your authorization to finalize the payment. You should feel safe after this. Also no one can access any other account apart from the one whose details you are giving out so do not worry about this guy(or anyone else for that matter) to be able to access your other accounts. Hope this helps. (I have experience in payment gateways so I do understand these procedures.) Cheers!!\",\n \"So my wife was at work today and got yelled at by both a cop and her managers for simply LOOKING at the card. I don't understand I also work in retail and of course I must see the card to ensure it is a real card, it is a very strict policy that we must have a valid physical card to run any credit/debit transactions. People put skimmers everywhere you use your card and can pick up the info off the strip and put it onto another card and use it without you noticing right away. With the right equipment they can put their name on it or the name on their fake I.d. so the only red flag would be them trying to use several different cards\",\n \"What you're referring to is Visa Easy Payment Services (VEPS). Other payment processors have similar programs. Basically, certain merchants (based on merchant category code - or MCC), are not required to obtain a signature under $50. This limit was raised to $50 from $25 last year. Here is the press release from Visa describing the increase, and the program in general.\",\n \"Unlike MasterCard and Visa who only provide clearing service and tie up Banks to actually issue cards or POS terminals for merchants; Discover card operates more like American Express. It's a totally different network; cards and POS to merchants are directly offered by Discover Bank only. There is no other banks that issue this card.\",\n \"A debit card takes the funds right from your account. There's no 'credit' issued along the way. The credit card facilitates a short term loan. If you are a pay-in-full customer, as I am, there's a cost to lend the money, but we're not paying it. It's part of the fee charged to the merchant. Thus the higher transaction cost.\",\n \"\\\"That's accurate. Here is another risk with the current checking system, which many people are not aware of: Anyone who knows your checking account number can learn what your balance in that account is. (This is bank-specific, but it is possible at the major banks I've checked.) How does that work? Many banks have a phone line where you can dial up and interact with an automated voice response system, for various customer service tasks. One of the options is something like \\\"\\\"merchant check verification\\\"\\\". That option is intended to help a merchant who receives a check to verify whether the person writing the check has enough money in their account for the check to clear. If you select that option in the phone tree, it will prompt you to enter in the account number on the check and the amount of the check, and then it will respond by telling you either \\\"\\\"there are currently sufficient funds in the account to cash this check\\\"\\\" or \\\"\\\"there are not sufficient funds; this check would bounce\\\"\\\". Here's how you can abuse this system to learn how much someone has in their bank account, if you know their account number. You call up and check whether they've enough money to cash a $10,000 check (note that you don't actually have to have a check for $10,000 in your hands; you just need to know the account number). If the system says \\\"\\\"nope, it'd bounce\\\"\\\", then you call again and try $5,000. If the system says \\\"\\\"yup, sufficient funds for a $5,000 check\\\"\\\", then you try $7,500. If it says \\\"\\\"nope, not enough for that\\\"\\\", you try $6,250. Etcetera. At each step, you narrow the range of possible account balances by a factor of two. Consequently, after about a dozen or so steps, you will likely know their balance to within a few dollars. (Computer scientists know this procedure by the name \\\"\\\"binary search\\\"\\\". The rest of us may recognize it as akin to a game of \\\"\\\"20 questions\\\"\\\".) If this bothers you, you may be able to protect your self by calling up your bank and asking them how to prevent it. When I talked to my bank (Bank of America), they told me they could put a fraud alert flag on your account, which would disable the merchant check verification service for my account. It does mean that I have to provide a 3-digit PIN any time I phone up my bank, but that's fine with me. I realize many folks may terribly not be concerned about revealing their bank account balance, so in the grand scheme of things, this risk may be relatively minor. However, I thought I'd document it here for others to be aware of.\\\"\",\n \"\\\"Circa 2002-2005, I was able to successfully \\\"\\\"transfer\\\"\\\" a balance from a debit card linked to a bank account to a Bank of America Visa credit card. As an example, I could say do a balance transfer from the card XXXX-XXXX-XXXX-XXXX (which was a valid debit card number) to the credit card, and the funds would appear in the checking account within a few days, and also the balance on the credit card would go up the amount plus any balance transfer fee. I think they've sealed off that loophole years ago.\\\"\",\n \"Typically there are several parties involved: (Sometimes one company plays multiple roles; for example AmEx is a network and an issuer.) When a merchant charges a card and the issuer approves it, money is transferred from the issuer to the acquirer to the merchant. This settlement process takes some time, but generally is completed within a day. Of course, most cardholders pay on a monthly basis. The issuer must use their own funds in the mean time. If the cardholder defaults, the issuer takes the loss.\",\n \"Try to get a second card in your business' name, with a separate card number (like you would get one for a spouse). They may or may not allow that free (you wouldn't want to pay a second fee), and it might be only possible with the second card bearing the same number, which makes it useless. But it is worth a try.\",\n \"I've called both BofA and Amex Customer Support, and they couldn't help. That's because you cannot. Debit card is tied to your checking account, so you can do a cash advance from your AMEX and deposit it to your BOA checking account. It will then be available to use with your debit card.\",\n \"Your chief problem seems to be that you're mixing Visa (credit cards) and Step2 (a European Automated Clearing House). Credit cards are primarily an American concept, but do work worldwide especially in travel&tourism industry. The Credit Card companies are financial institutions themselves and operate similar to international banks They're typically acting as intermediaries between the customer's bank and the retailer's bank, so this works even if those two banks have no existing agreements. This is expensive, though. Step2 is a cheaper European system which eliminates the middle man. It allows the consumer's bank to directly pay the retailer's bank. VISA is not a member of Step2.\",\n \"As other answers and comments suggest you are trying to do something... odd to say the least. No one wants to use a credit card to finance a checking/current account because you are creating a debt on that credit card (unless you are in the odd situation where the card is in credit) that will immediately start accruing interest at a rate probably in excess of 10% per annum. That is not a clever thing to do. What you really need to do is find an account that one of you owns that has a positive balance and use an internet banking service to transfer part of that positive balance onto the debit card. The other solution is not to use the debit card at all but use the credit card to complete the purchases you are trying to manage with the debit card. The reason that BofA and AmEx customer support can't help you is that no one would ever do what you want to do; they would either move existing money from another account or ask for a bank loan.\",\n \"Or at least I saw it do so with Bank of America.\",\n \"\\\"PC MasterCard recently added this as a new feature to their online system. It lets you see \\\"\\\"Pending Authorizations\\\"\\\" for your card when you log in. Their email said: Along with your purchases, you'll see a list of every transaction that's been approved, but not yet applied to your balance. You'll be able to identify these with the word “Pending” in the date column. Here's a link with more information: http://pcfinancial.ca/pendingauthorization/\\\"\",\n \"> But I pretty much followed the procedure I was told to, its just I don't know why we wouldn't get the money back. First, you're in the wrong spot. Go to /r/personalfinance. Second, does it *really* make sense that you'd still get paid? If someone stole your wallet and bought something for $100, can you not go to the store and demand your $100? Or do you have to go and find the thief THEN get back *that* item and THEN return it to the store and THEN get your cash back? It's easier both logistically and logically to stop the payment going to the store, and have the store consider it a theft of their merchandise.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Parts of what you want are possible, but taken as a whole, you're out of luck. First of all, there is no master database of every cardholder in the country. The only way to check if information is correct is to ask the issuing bank. The AVS system is a way to automate doing so, but it's possible to call the bank directly and verbally verify the address. That means you're subject to the whims of what the issuing bank chooses to support. Banks that are part of the Visa and MasterCard networks generally only verify the numeric parts (address, apartment number, zipcode). AmEx can also verify the cardholder name. But if the bank doesn't have support for validating something, you can't validate it. Separately, there is a \"\"verify-only\"\" transaction which some processors support, which will do exactly what you want: Return AVS values without ever charging the card. However, processors require you to have the \"\"approved merchant account\"\" you don't want to have to have. Without being a merchant, you shouldn't have access to other people's credit cards anyway. Would you really want anyone in the country to be able to verify anyone else's address whenever they want? In short, whatever purpose you have for wanting this probably falls into one of three categories:\""],"string":"[\n \"\\\"Parts of what you want are possible, but taken as a whole, you're out of luck. First of all, there is no master database of every cardholder in the country. The only way to check if information is correct is to ask the issuing bank. The AVS system is a way to automate doing so, but it's possible to call the bank directly and verbally verify the address. That means you're subject to the whims of what the issuing bank chooses to support. Banks that are part of the Visa and MasterCard networks generally only verify the numeric parts (address, apartment number, zipcode). AmEx can also verify the cardholder name. But if the bank doesn't have support for validating something, you can't validate it. Separately, there is a \\\"\\\"verify-only\\\"\\\" transaction which some processors support, which will do exactly what you want: Return AVS values without ever charging the card. However, processors require you to have the \\\"\\\"approved merchant account\\\"\\\" you don't want to have to have. Without being a merchant, you shouldn't have access to other people's credit cards anyway. Would you really want anyone in the country to be able to verify anyone else's address whenever they want? In short, whatever purpose you have for wanting this probably falls into one of three categories:\\\"\"\n]","isConversational":false}}},{"rowIdx":286,"cells":{"_id":{"kind":"string","value":"4205"},"query":{"kind":"string","value":"How and why does the exchange rate of a currency change almost everyday?"},"gt_ids":{"kind":"list like","value":["79777","134239","540451"],"string":"[\n \"79777\",\n \"134239\",\n \"540451\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["79777","499875","540451","104480","61819","293777","233718","134239","19618","221435","321842","490113","215708","450694","24881","489509","319996","460755","288330","531953","510363","445943","165767","93518","343489","70421","452434","105714","273478","248794","133440","536689","354559","535613","152910","329062","441163","324546","580757","534588","302699","283473","544506","157376","241000","582063","314508","157907","116921","472298","152657","351154","68462","517381","405276","443511","336618","109788","484891","87057","416975","293483","78648","42334","114439","356465","501461","48783","122487","115087","67069","16961","310016","482415","484190","429460","126431","283168","173986","441920","440270","506818","163303","124254","190347","291165","357103","303240","301570","228787","300213","285064","402314","167717","476891","205585","386745","177264","588877","253926"],"string":"[\n \"79777\",\n \"499875\",\n \"540451\",\n \"104480\",\n \"61819\",\n \"293777\",\n \"233718\",\n \"134239\",\n \"19618\",\n \"221435\",\n \"321842\",\n \"490113\",\n \"215708\",\n \"450694\",\n \"24881\",\n \"489509\",\n \"319996\",\n \"460755\",\n \"288330\",\n \"531953\",\n \"510363\",\n \"445943\",\n \"165767\",\n \"93518\",\n \"343489\",\n \"70421\",\n \"452434\",\n \"105714\",\n \"273478\",\n \"248794\",\n \"133440\",\n \"536689\",\n \"354559\",\n \"535613\",\n \"152910\",\n \"329062\",\n \"441163\",\n \"324546\",\n \"580757\",\n \"534588\",\n \"302699\",\n \"283473\",\n \"544506\",\n \"157376\",\n \"241000\",\n \"582063\",\n \"314508\",\n \"157907\",\n \"116921\",\n \"472298\",\n \"152657\",\n \"351154\",\n \"68462\",\n \"517381\",\n \"405276\",\n \"443511\",\n \"336618\",\n \"109788\",\n \"484891\",\n \"87057\",\n \"416975\",\n \"293483\",\n \"78648\",\n \"42334\",\n \"114439\",\n \"356465\",\n \"501461\",\n \"48783\",\n \"122487\",\n \"115087\",\n \"67069\",\n \"16961\",\n \"310016\",\n \"482415\",\n \"484190\",\n \"429460\",\n \"126431\",\n \"283168\",\n \"173986\",\n \"441920\",\n \"440270\",\n \"506818\",\n \"163303\",\n \"124254\",\n \"190347\",\n \"291165\",\n \"357103\",\n \"303240\",\n \"301570\",\n \"228787\",\n \"300213\",\n \"285064\",\n \"402314\",\n \"167717\",\n \"476891\",\n \"205585\",\n \"386745\",\n \"177264\",\n \"588877\",\n \"253926\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless there's someone willing to sell you Euros for dollars, you can't get any. There are millions of people trying to exchange currency all over the world. If more want to buy USD, than that demand will positively influence the price of the USD (as measured in Euros). If more people want to buy Euros, well, vice versa. There are so many of these transactions globally, and the number of people and the nature of these transactions change so continuously, that the prices (exchange rates) for these currencies fluctuate continuously and smoothly. Demand is also impacted by what people want to buy and how much they want to buy it. If people generally want to invest their savings in stocks instead of dollars, i.e., if lots of people are attempting to buy stocks (by exchanging their dollars for stock), then the demand for the dollar is lower and the demand for stocks is higher. When the stock market crashes, you'll often see a spike in the exchange rate for the dollar, because people are trying to exchange stocks for dollars (this represents a lot of demand for dollars). Then there's \"\"Supply:\"\" It may seem like there are a fixed number of bills out there, or that supply only changes when Bernanke prints money, but there's actually a lot more to it than that. If you're coming from Europe and want to buy some USD from the bank, well, how much USD does the bank \"\"have\"\" and what does it mean for them to have money? The bank gets money from depositors, or from lenders. If one person puts money in a deposit account, and then the bank borrows that money from the account and lends it to a home buyer in the form of a mortgage, the same dollar is being used by two people. The home buyer might use that money to hire a carpenter, and the carpenter might put the dollar back into a bank account, and the same dollar might get lent out again. In economics this is called the \"\"multiplier effect.\"\" The full supply of money being used ends up becoming harder to calculate with this kind of debt and re-lending. Since money is something used and needed for conducting of transactions, the number of transactions being conducted (sometimes on credit) affects the \"\"supply\"\" of money. Demand and supply blur a bit when you consider people who hoard cash. If I fear the stock market, I might keep all my money in dollars. This takes cash away from companies who could invest it, takes the cash out of the pool of money being used for transactions, and leaves it waiting under my mattress. You could think of my hoarding as a type of demand for currency, or you could think of it as a reduction in the supply of currency available to conduct transactions. The full picture can be a bit more complicated, if you look at every way currencies are used globally, with swaps and various exchange contracts and futures, but this gives the basic story of where prices come from, that they are not set by some price fixer but are driven by market forces. The bank just facilitates transactions. If the last price (exchange rate) is 1.2 Dollars per Euro, and the bank gets more requests to buy USD for Euros than Euros for USD, it adjusts the rate downwards until the buying pressure is even. If the USD gets more expensive, at some point fewer people will want to buy it (or want to buy products from the US that cost USD). The bank maintains a spread (like buy for 1.19 and sell for 1.21) so it can take a profit. You should think of currency like any other commodity, and consider purchases for currency as a form of barter. The value of currency is merely a convention, but it works. The currency is needed in transactions, so it maintains value in this global market of bartering goods/services and other currencies. As supply and demand for this and other commodities/goods/services fluctuate, so does the quantity of any particular currency necessary to conduct any of these transactions. A official \"\"basket of goods\"\" and the price of those goods is used to determine consumer price indexes / inflation etc. The official price of this particular basket of goods is not a fundamental driver of exchange rates on a day to day basis.\"","Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.)","\"Money is money because people believe it is money. By \"\"believe it is money\"\", I mean that they expect they will be able to turn it into useful goods or services (food, rent, houses, truckloads full of iron ore, mining equipment, massages at the spa, helicopter rides, iPads, greenhouses, income streams to support your future retirement, etc). Foreign exchange rates change because people's ideas about how much useful goods or services they can get with various currencies change. For example: if the Zimbabwe government suddenly printed 10 times as much money as used to exist, you probably couldn't use that money to buy as much food at the Zimbabwe-Mart, so you wouldn't be willing to give people as many US-dollars (which can buy food at the US-Mart) for a Zimbabwe-dollar as you used to be able to. (It's not exactly that easy, because - for instance - food in the US is more useful to me than food in Zimbabwe. But people still move around all sorts of things, like oil, or agricultural products, or minerals, or electronics components.) The two main things that affect the value of a currency are the size of the economy that it's tied to (how much stuff there is to get), and how much of the currency there is / how fast it's moving around the economy (which tells you how much money there is to get it with). So most exchange rate shifts reflect a change in people's expectations for a regional economy, or the size of a money supply. (Also, Zimbabwe is doing much better now that it's ditched their own currency - they kept printing trillions of dollars' worth - and just trade in US dollars. Their economy still needs some work, but... better.)\"","The exchange rate between two currencies is simply the price that the most recent market participants were able to agree on, when trading. ie: if the USDCAD is 1.36, it's because the last trade that happened where someone bought 1 USD cost 1.36 CAD. There is no one person/organization which 'decides' the rate between two currencies. The rate moves you see is just the reality of money changing hands as people in various situations trade currencies for various reasons. Just like with stocks or any other market product, foreign exchange rates can fluctuate wildly based on many things. It is very difficult to forecast where rates will go, because the biggest changes in rates can often be unpredictable news events. For example, when Brexit happened, the value of the GBP plummeted relative to other currencies, because the market traders had less faith in the UK economy, and therefore weren't willing to pay as much to buy GBP. See more here: https://money.stackexchange.com/a/76482/44232. There is a very high level of risk in the foreign exchange market; for your sake, don't get involved in any trading that you do not well understand, first.","\"According to Soros in \"\"The Alchemy of Finance\"\", exchange rates fluctuations are mostly influenced by: (sorry I do not have the quote here, and I am paraphrasing from the top of my head what I read about a week ago). I mention his point of view as he is one of the most successful hedge fund manager ever, proved his skills, and dealt a lot with currencies. This is not just theory as he actively used the above points when managing his fund (as explained in the book). What I find interesting is that, according to him, the fundamental reason (the balance of trade) is not the most influential. Speculation on future value of currencies is the most influential, and these can set trends that can last years. Also it is key to notice that Soros thought foreign exchange markets are \"\"wrong\"\" most of the time, just like he thought stock markets are \"\"wrong\"\" most of the time (a point on which Warren Buffet and Jim Rogers also agree from my understanding).\"","The increase of currency value in relation to another is a critical determinant of the economic health. It plays an important part in the level of trade and affects the world’s free market economy. But, they also effect on smaller scale as they create an impact on the portfolio of investors. So, it is suggested that the investors should make their trades wisely keeping in mind the value of other currencies that might your trade. Also, you should check the news daily to get regular updates and be well-informed of any changes happening in the market","The fiat currency is the basis for currency markets - that is, currency that is not made of precious metals. The factors that influence what the value of a fiat currency are the state of the country's economy, what the gov't says the value should be, their fiscal policies, as well as what the currency is trading at. And what the currency is trading at is a product of these factors as well as the typical factors which would affect any stock trading. eHow has a great outline, here, which describes them.","\"The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to \"\"buy\"\" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a \"\"basket\"\" of things they produce that another country will want, and a \"\"shopping list\"\" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency.\"","It depends on the currency pair since it is much harder to move a liquid market like Fiber (EURUSD) or Cable (GBPUSD) than it is to move illiquid markets such as USDTRY, however, it will mostly be big banks and big hedge funds adjusting their positions or speculating (not just on the currency or market making but also speculating in foreign instruments). I once was involved in a one-off USD 56 million FX trade without which the hedge fund could not trade as its subscriptions were in a different currency to the fund currency. Although it was big by their standards it was small compared with the volumes we expected from other clients. Governments and big companies who need to pay costs in a foreign currency or receive income in one will also do this but less frequently and will almost always do this through a nominated bank (in the case of large firms). Because they need the foreign currency immediately; if you've ever tried to pay a bill in the US denominated in Dollars using Euros you'll know that they aren't widely accepted. So if I need to pay a large bill to a supplier in Dollars and all I have is Euros I may move the market. Similarly if I am trying to buy a large number of shares in a US company and all I have is Euros I'll lose the opportunity.","\"From my limited experience with foreign exchange... Money is a commodity.. people buy it and sell it like other products.. if \"\"money\"\" is in demand the price goes up.. this is the case when a countries stocks are hot, and you need to purchase that countries currency to buy that stock... I've also seen the currency rise on news and speculation. Many years ago, I administered foreign receivables... My job was to settle letters of credit from Britain... I remember on one ocassion Margaret Thatcher said something to upset the markets.. her remark caused the price of the UK pound to fluctuate.\"","Today the rates are arrived simply on the basis of demand and supply. Historically rates were pegged to Gold, when all currencies were printed depending on the Gold reserves. So if one country printed 100 units of currency of a 1gm of gold and other country 10 units of currency for 1 gm of gold, the rate would be 1:10. However In the seventies with shortages of Gold and other reasons, USD became the default standard, so the rate started being pegged to the USD reserves the countries started maintaining. However later in the early eighties, US backing out, the rate purely started getting pegged to market demand and supply. So for most currencies there was a default rate to begin with and today its changed ... Incase of USD/EUR, the initial rate was determined by the weighted average of the currencies that it sought to replace. After that its been market supply and demand. Since most of the trade in international market is US denominated, largest being Oil, each country has created a huge reserves of USD. So technically if China were to bank half its USD denominated treasury bills, the USD would come crashing down, but then China itself would be at disadvantage as its value of USD its holding would become less and it cannot buy the same items. Hence all countries keep hording USD and this means US if they print more money, the value will not come down, because it that happens, all countries holding USD would loose their value of reserve. In essence a country can print as much as currency it wants if all(majority) its debts and trades are denominated in local currencies. This is 100% true for US and hence it can get away by printing money. This is also true to a large extent for Japan as bulk of its Debts are denominated in JPY.","\"The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are \"\"weak\"\" and some \"\"strong\"\". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona.\"","I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies.","\"Q: How do currency markets work? A: The FX (foreign exchange) market works very much like the stock market where potential buying parties bid $Y of country 1's currency to buy $1 in country 2's currency. Potential selling parties sell (ask) $1 of country 2's currency for $Y of country 1's currency. Like the stock market, there are also a swaps, futures and options in this market. Q: What factors are behind why currencies go up or down? A: Just like any open market, currencies go up and down based on supply and demand. Many factors affect the supply and demand of a particular currency. Some were listed well by the other posts. Q: What roles do governments, central banks, institutions, and traders have in the process? A: It's common practice that gov'ts intervene to \"\"control\"\" the value of currencies. For example, although it's not general public knowledge, the Canadian gov't is actively purchasing up US dollars in the FX market in an effort to stop the US/Canadian exchange rate from dropping further. This has dramatic economic consequences for the Canadian ecomony if the Canadian dollar were to strengthen too far and too quickly.\"","\"Relative changes in rates are significant. Why? Exchange rates encourage cross-border trade. For example, I live in an area that is now popular with Canadian tourists, mostly due to the favorable exchange rates. Changes in exchange rates between trading partners can affect trade balance as well. The US \"\"strong dollar\"\" policy made US exports expensive and imports cheaper, which encouraged more imports.\"","currency's central bank or treasury/finance department speeches that can announce a significant change in policy. That includes: Particularly when it is a high level figure within the department such as the President or Prime Minister making the announcement. Macroeconomic stats: GeoPolitical considerations, such as: Economic calendars, such as ForexFactory and MyFxBook track planned economic news releases. Obviously, a coup d'etat or war declaration may not be well known in advance.","Anything related to the central bank will have a large impact, as they are the ones who determine interest rates, and interest rates have a big effect on currency flows. GDP is also important, as when there is an economic slowdown it may result in the central bank reducing rates to boost economic activity. The opposite is also true, large increases in GDP may mean that an interest rate hike might be needed. Inflation data is also very important. Again, large changes in inflation either way may push the central bank towards changing rates. This data typically is in the form of CPI Note that each central bank is different. They all have specific mandates and specific pieces of economic data that they place emphasis on. The Federal Reserve as of late has closely been watching inflation data, especially wage inflation data, and employment. Significant deviations in these data points from whats expected by investors can greatly move the market. However, these specific factors are a little less important for, say, Mexico, which is mostly concerned with headline inflation. Read the statements issued by the central banks to find out whats important to them. Central banks also issue expectations for things like growth, CPI, etc. If these expectations are not met, it may result in a policy change, or at least talk of a policy change, at the next meeting of the central bank. Anticipating these policy changes and trading accordingly is one strategy to be a profitable forex trader Also, there are several forex news calendars online that indicate what is likely to be high impact news. These can be helpful starting out.","From Indian context, there are a number of factors that are influencing the economic condition and the exchange rate, interest rate etc. are reflection of the situation. I shall try and answer the question through the above Indian example. India is running a budget deficit of 4 odd % for last 6-7 years, which means that gov.in is spending more than their revenue collection, this money is not in the system, so the govt. has to print the money, either the direct 4% or the interest it has to pay on the money it borrows to cover the 4% (don't confuse this with US printing post 2008). After printing, the supply of INR is more compared to USD in the market (INR is current A/C convertible), value of INR w.r.t. USD falls (in simplistic terms). There is another impact of this printing, it increases the money supply in domestic market leading to inflation and overall price rise. To contain this price rise, Reserve Bank of India (RBI) increases the interest rates and increases Compulsory Reserve Ratio (CRR), thus trying to pull/lock-up money, so that overall money supply decreases, but there is a limit to which RBI can do this as overall growth rate keeps falling as money is more expensive to borrow to invest. The above (in simplistic term) how this is working. However, there are many factors in economy and the above should be treated as it is intended to, a simplistic view only.","No. An exchange rate tells you the exchange rate, that's all. Changes in exchange rates are a little more interesting because they suggest economic changes (or anticipation of such), but since the exchange rate is the composite of many economic forces, determining what changes may be in action from an exchange rate change is not really possible.","Rates are arrived at by the cumulative buying and selling on the foreign exchange market, much the same way that stock prices are arrived at. If there are more people wanting to buy dollars with euros, EUR/USD goes down. If more people want to buy euros with dollars, then EUR/USD goes up. The initial rate was about $1.18 per euro when it began trading on January 1st, 1999. It replaced the European Currency Unit at that time, which was a weighted basket of currencies of (more or less) the participating countries. You're correct about the printing press in the US and other countries. The exchange rates do reflect in part how much of a relative workout those printing presses get.","International exchange rates are arbitraged. If I exchange A for B for C and then back to A again, I'll end up with the same amount ex trade fees. Assume this isn't the case. Clearly if I'd gain, someone else loses and I'd make millions by rapidly exchanging. Now assume that I'd lose money on that route. That must be because the reverse route, A->C->B->A gains money. (Again, assuming no fees) So in this case you'd just look at fees. (And as Ganesh points out, that may include future fees)","\"Supply and Demand, pure and simple! There are two basic forms of this - a change in the quantity demanded/supplied at any given price, and a true change in the amount of demand/supply itself. Please note that this can be distinct from the underlying change in the value of the company and/or its expected future cash flows, which are a function of both financial performance and future expectations. If more people want the stock that are willing to sell it at a given price at a given point in time, sellers will begin to offer the stocks at higher prices until the market is no longer willing to bear the new price, and vice versa. This will reduce the quantity of stocks demanded by buyers until the quantity demanded and the quantity supplied once again reach an equilibrium, at which point a transaction occurs. Because people are motivated to buy and sell for different reasons at different times, and because people have different opinions on a constant flow of new information, prices change frequently. This is one of the reasons why executives of a recent IPO don't typically sell all of their stock at once. In addition to legal restrictions and the message this would send to the market, if they flooded the market with additional quantities of stock supplied, all else being equal, since there is no corresponding increase in the quantity demanded, the price would drop significantly. Sometimes, the demand itself for a company's stock shifts. Unlike a simple change in price driven by quantity supplied versus quantity demanded, this is a more fundamental shift. For example, let's suppose that the current demand for rare earth metals is driven by their commercial applications in consumer electronics. Now if new devices are developed that no longer require these metals, the demand for them will fall, regardless of the actions of individual buyers and sellers in the market. Another example is when the \"\"rules of the game\"\" for an industry change dramatically. Markets are behavioral. In this sense prices are most directly driven by human behavior, which hopefully is based on well-informed opinions and facts. This is why sometimes the price keeps going up when financial performance decreases, and why sometimes it does not rise even while performance is improving. This is also why some companies' stock continues to rise even when they lose huge sums of money year after year. The key to understanding these scenarios is the opinions and expectations that buyers and sellers have of that information, which is expressed in their market behavior.\"","\"You may as well ask why a piece of wood is 25 centimeters long but only 10 inches. Most units of measure are very arbitrary. Somebody decides that this amount of heat or distance or money is a convenient unit, and so that's what they use. Suppose that tomorrow the government issued a whole new currency that had 10 times the value of the old currency. So if you used to make 10,000 foobars a year, now you make 1,000 new foobars. And likewise the price of everything you buy is divided by 10. If a certain model car used to cost 2,000 foobars, now it costs 200 new foobars. Are you better or worse off? Clearly if ALL prices change by the same percentage, then it makes absolutely no difference. (Aside from the hassle of making the switch and getting used to the new numbers.) A currency where 1 unit of money buys more is not necessarily a \"\"stronger currency\"\". Any more than inches are \"\"better\"\" than centimeters because you get more wood for an inch than you get for a centimeter. A currency is said to be \"\"strong\"\" when it's value is stable or increasing relative to other currencies. If yesterday I could trade 10 foobars for 1 plugh, but today I only need 9 foobars to buy 1 plugh, then foobars are stronger than plughs. Even though I still need more foobars than plughs to buy the same item.\"","\"It may seem weird but interest rates are set by a market. Risk is a very large component of the price that a saver will accept to deposit their money in a bank but not the only one. Essentially you are \"\"lending\"\" deposited cash to the bank that you put it in and they will lend it out at a certain risk to themselves and a certain risk to you. By diversifying who they lend to (corporations, home-buyers each other etc.) the banks mitigate a lot of the risk but lending to the bank is still a risky endeavour for the \"\"saver\"\" and the saver accepts a given interest rate for the amount of risk there is in having the money in that particular bank. The bank is also unable to diversify away all possible risk, but tries to do the best job it can. If a bank is seen to take bigger risks and therefore be in greater risk of failing (having a run on deposits) it must have a requisitely higher interest rates on deposits compared to a lower risk bank. \"\"Savers\"\" therefore \"\"shop around\"\" for the best interest rate for a given level of risk which sets the viable interest rate for that bank; any higher and the bank would not make a profit on the money that it lends out and so would not be viable as a business, any lower and savers would not deposit their money as the risk would be too high for the reward. Hence competition (or lack of it) will set the rate as a trade off between risk and return. Note that governments are also customers of the banking industry when they are issuing fixed income securities (bonds) and a good deal of the lending done by any bank is to various governments so the price that they borrow money at is a key determinant of what interest rate the bank can afford to give and are part of the competitive banking industry whether they want to be or not. Since governments in most (westernised) countries provide insurance for deposits the basic level of (perceived) risk for all of the banks in any given country is about the same. That these banks lend to each other on an incredibly regular basis (look into the overnight or repo money market if you want to see exactly how much, the rates that these banks pay to and receive from each other are governed by interbank lending rates called Libor and Euribor and are even more complicated than this answer) simply compounds this effect because it makes all of the banks reliant on each other and therefore they help each other to stay liquid (to some extent). Note that I haven't mentioned currency at all so far but this market in every country applies over a number of currencies. The way that this occurs is due to arbitrage; if I can put foreign money into a bank in a country at a rate that is higher than the rate in its native country after exchange costs and exchange rate risk I will convert all of my money to that currency and take the higher interest rate. For an ordinary individual's savings that is not really possible but remember that the large multinational banks can do exactly the same thing with billions of dollars of deposits and effectively get free money. This means that either the bank's interest rate will fall to a risk adjusted level or the exchange rate will move. Either of those moves will remove the potential for making money for nothing. In this case, therefore it is both the exchange rate risk (and costs) as well as the loan market in that country that set the interest rate in foreign currencies. Demand for loans in the foreign currency is not a major mover for the same reason. Companies importing from foreign entities need cash in foreign currencies to pay their bills and so will borrow money in other currencies to fulfil these operations which could come from deposits in the foreign currency if they were available at a lower interest rate than a loan in local currency plus the costs of exchange but the banks will be unwilling to loan to them for less than the highest return that they can get so will push up interest rates to their risk level in the same way that they did in the market before currencies were taken into account. Freedom of movement of foreign currencies, however, does move interest rates in foreign currencies as the banks want to be able to lend as much of currencies that are not freely deliverable as they can so will pay a premium for these currencies. Other political moves such as the government wanting to borrow large amounts of foreign currency etc. will also move the interest rate given for foreign currencies not just because loaning to the government is less risky but also because they sometimes pay a premium (in interest) for being able to borrow foreign currency which may balance this out. Speculation that a country may change its base interest rate will move short term rates, and can move long term rates if it is seen to be a part of a country's economic strategy. The theory behind this is deep and involved but the tl;dr answer would be the standard \"\"invisible hand\"\" response when anything market or arbitrage related is involved. references: I work in credit risk and got a colleague who is also a credit risk consultant and economist to look over it. Arbitrage theory and the repo markets are both fascinating so worth reading about!\"","\"The prices quoted are for currency pairs traded on the foreign exchange market. For currencies traded on these exchanges, the exchange rates of a given currency pair are determined by the market, so supply and demand, investor confidence, etc. all play a role. EBS and Reuters are the two primary trading platforms in the foreign exchange market, and much of the data on exchange rates comes from them. Websites will usually get their data either from these sources directly or from a data provider that in turn gets it from EBS, Reuters, or another data source like Bloomberg or Haver Analytics. These data sources aren't free, however. In the US, many contracts, transactions, etc. that involve exchange rates use the exchange rate data published by the Federal Reserve. You might see this in contracts that specify to use \"\"the exchange rate published by the Federal Reserve at 12 pm (noon) on date --some date--\"\". You can also look at the Federal Reserve Economic Data, which maintains data series of historical daily, weekly, and monthly exchange rates for major currency pairs. These data are free, although they aren't realtime. Data for each business day is mostly updated the next business day.\"","The value of the asset doesn't change just because of the exchange rate change. If a thing (valued in USD) costs USD $1 and USD $1 = CAN $1 (so the thing is also valued CAN $1) today and tomorrow CAN $1 worth USD $0.5 - the thing will continue being worth USD $1. If the thing is valued in CAN $, after the exchange rate change, the thing will be worth USD $2, but will still be valued CAN $1. What you're talking about is price quotes, not value. Price quotes will very quickly reach the value, since any deviation will be used by the traders to make profits on arbitrage. And algo-traders will make it happen much quicker than you can even notice the arbitrage existence.","Sometimes the market has to be left alone. Too much interference of the policy makers to stabilize the falling market can actually result in a major crisis. Every change stabilises after sometime and it is also applicable in the Forex trading market. So, the eager investors should learn to have some patience and wait for the market to stabilise itself rather than make random predictions on the policies released by policy makers","A lot of questions, but all it boils down to is: . Banks usually perform T+1 net settlements, also called Global Netting, as opposed to real-time gross settlements. That means they promise the counterparty the money at some point in the future (within the next few business days, see delivery versus payment) and collect all transactions of that kind. For this example say, they will have a net outflow of 10M USD. The next day they will purchase 10M USD on the FX market and hand it over to the global netter. Note that this might be more than one transaction, especially because the sums are usually larger. Another Indian bank might have a 10M USD inflow, they too will use the FX market, selling 10M USD for INR, probably picking a different time to the first bank. So the rates will most likely differ (apart from the obvious bid/ask difference). The dollar rate they charge you is an average of their rate achieved when buying the USD, plus some commission for their forex brokerage, plus probably some fee for the service (accessing the global netting system isn't free). The fees should be clearly (and separately) stated on your bank statement, and so should be the FX rate. Back to the second example: Obviously since it's a different bank handing over INRs or USDs (or if it was your own bank, they would have internally netted the incoming USDs with the outgoing USDs) the rate will be different, but it's still a once a day transaction. From the INRs you get they will subtract the average FX achieved rate, the FX commissions and again the service fee for the global netting. The fees alone mean that the USD/INR sell rate is different from the buy rate.","The current FED's spend is to encourage spends by putting in more liquidity, SOME of this funds [directly or indirectly] reach emerging markets and get invested in stocks ... so without these forex inflows, the Balance of Payments would be under pressure ... so these forex are artificially keeping the Exchange rate down. For example the USD vs INR rate was in the range of 1 USD to around INR 50 for nearly 4-5 years. In the period the inflation in India was around 10-15%, so ideally the rate should have slowly moved towards INR 60, however it took a news of FED cut-back to more the rates in the range of INR 65 before stabilizing to Rs 60","Forex is really not that volatile compared to other major asset classes like stocks and commodities. But still markets are generally unencumbered in the major pairs and therefore spikes in volatility can happen. Take what happened with the Swiss Franc a few years ago for example, or GBPUSD recently with news of Brexit. This is less the case with highly regulated currencies like the Chinese Yuan (CNY) Volatility is caused by excessive buy or sell pressure in relation to the available liquidity at the current price. This is usually caused by large buy or sell orders placed with interbank desks by institutions (often including other banks) and central banks. News can also sometimes have a dramatic impact and cause traders to adjust their prices significantly and very quickly.","\"At any moment, the price is where the supply (seller) and demand (buyer) intersect. This occurs fast enough you don't see it as anything other than bid/ask. What moves it? News of a new drug, device, sandwich, etc. Earning release, whether above or below expectations, or even dead-on, will often impact the price. Every night, the talking heads try to explain the day's price moves. When they can't, they often report \"\"profit taking\"\" for a market drop, or other similar nonsense. Some moves are simple random change.\"","I usually look at the high and low exchange rates for the last five years. If the current rate is fairly close to the high for a trade over the past five years, then I do the trade. If the current exchange rate is close to the low, then I wait.","What you are asking about is called Interest Rate Parity. Or for a longer explanation the article Interest Rate Parity at Wikipedia. If the US has a rate of say zero, and the rate in Elbonia is 10%, one believes that in a year the exchange rate will be shifted by 10%, i.e. it will take 1.1 unit of their currency to get the dollars one unit did prior. Else, you'd always profit from such FOREX trades. (Disclaimer - I am not claiming this to be true or false, just offering one theory that explains the rate difference effect on future exchange rates.","Besides overnight news events and auction mechanisms there is a more fundamental reason the price of a stock is always moving. Theoretically the stock price will move slightly even in the unlikely scenario that absolutely nothing of interest happens during the entire night. Let me go into that in some more detail: Stock valuation using Discounted Cash FLow One of the fundamental reasons that stock value is constantly changing is because underneath every stock there is a company that expects to make some kind of profit or loss in the future. We have to go into the fundamentals of stock value to understand why this is important: One popular way to determine the value of a stock is by looking into the future and summing up all the earnings (or cashflows) it has yet to produce. You have to reduce each amount by a certain factor that gets larger for payments that are farther into the future. Think of it this way: a dollar in hand now is better than a dollar that you get tomorrow. This method of valuation is called Discounted Cash Flow (abbr. DCF; see the wikipedia article on DCF) Time's effect on stock value Now take the Close price C, and the open price O. Let's assume that since there has been no news, the expectations for future earnings are the same for C and O. Remember that the discounting factor for these earnings is dependent on the time until the cashflow occurs? For O, this time is slightly shorter than for C, and therefore the value will be slightly higher (or lower, when the company is expected to incur losses). So now you can see that even without all the external forces that continuously push and pull on the stock price, a stock still changes in value over time. Hope this helps.","The mechanism of supply and demand is imperfect. Producers don't know exactly how many purchasers/consumers for a good there are. Some goods, by their nature, are in short supply, and some are plentiful. The process of price discovery is one where (in a nominally free market) producers and purchasers make offers and counter-offers to assess what the price should be. As they do this the historical price changes, usually floating around some long-term average. As it goes up, we experience inflation. As it goes down, deflation. However, there isn't a fixed supply of producers and purchasers, so as new ones arrive and old ones leave, this too has an impact on supply and prices. Money (either in electronic or physical form) needs to be available to reflect the transactions and underpin the economy. Most central banks (at least in more established economies) aim for inflation of 2-4% by controlling the availability of money and the cost of borrowing new money. There are numerous ways they can do this (printing, issuing bonds, etc.). The reason one wants some degree of inflation is because employees will never accept a pay cut even when one would significantly improve the overall economy. Companies often decrease their prices in order to match lower demand, but employees don't usually accept decreased wages for decreased labour demand. A nominal degree of overall money inflation therefore solves this problem. Employees who get a below-inflation wage increase are actually getting a wage cut. Supply and demand must be matched and some inflation is the inevitable consequence of this.","Are you trying to get someone to do your homework for you? This question has been answered repeatedly in the negative by everyone who actually studies the economy. Read Mundell-Flemming model, and learn this stuff. You can see why currency regimes like the Euro make sense from a theoretical stand point, but where flexible exchange rates are a welcome release valve for pressures. You obviously have never studied economics. Hyper inflation doesn't happen becuase of floating exhange rates. Hyperinflation happens when people lose faith in the governing body, regardless of who that is. You think political regimes won't change just because there is one currency? No, they will still spent 1.05 for every dollar they bring in taxes. Hyperinflation is not a problem of floating exchange rates, it doesn't follow from any causal relationship.","Is there not some central service that tracks current currency rates that banks can use to get currency data? Sure. But this doesn't matter. All the central service can tell you is how much the rate was historically. But the banks/PayPal don't care about the historical value. They want to know the price that they'll pay when they get around to switching, not the last price before the switch. Beyond that, there is a transaction cost to switching. They have to pay the clearinghouse for managing the transaction. The banks can choose to act as a clearinghouse, but that increases their risk. If the bank has a large balance of US dollars but dollars are falling, then they end up eating that cost. They'll only take that risk if they think that they'll make more money that way. And in the end, they may have to go on the currency market anyway. If a European bank runs out of US dollars, they have to buy them on the open market. Or a US bank might run out of Euros. Or Yen. Etc. Another problem is that many of the currency transactions are small, but the overhead is fixed. If the bank has to pay $5 for every currency transaction, they won't even break even charging 3% on a $100 transaction. So they delay the actual transaction so that they can make more than one at a time. But then they have the risk that the currency value might change in the meantime. If they credit you with $97 in your account ($100 minus the 3% fee) but the price actually drops from $100 to $99, they're out the $1. They could do it the other way as well. You ask for a $100 transaction. They perform a $1000 transaction, of which they give you $97. Now they have $898 ($1000 minus the $5 they paid for the transaction plus the $3 they charged you for the transaction). If there's a 1% drop, they're out $10.98 ($8.98 in currency loss plus a net $2 in fees). This is why banks have money market accounts. So they have someone to manage these problems working twenty-four hours a day. But then they have to pay interest on those accounts, further eating into their profits. Along with paying a staff to monitor the currency markets and things that may affect them.","At any instant, three currencies will have exchange rates so if I know the rate between A and B, and B to C, the A to C rate is easily calculated. You need X pounds, so at that moment, you are subject to the exchange rate right then. It's not a deal or bargain, although it may look better in hindsight if the currencies move after some time has passed. But if a currency is going to depreciate, and you have the foresight to know such things, you'd already be wealthy and not visiting here.","If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands). Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market. 3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news. I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are].","On Credit Cards [I am assuming you have a Visa or Master card], the RBI does not decide the rate. The rate is decided by Visa or Master. The standard Sheet rate for the day is used. Additionally SBI would mark it up by few paise [FX mark-up spread]. This is shown as mark-up fee. The rate of USD Vs INR changes frequently. On large value [say 1 million] trades even a paise off makes a huge difference and hence the rate is constantly changing [going up or down]. The rates offered to individuals are constant through out the day. They change from day to day and can go up for down. Recently in the past 6 months if you read the papers, Rupee has been going down and is at historic low. On a give day there are 2 rates; - Bank Buy Rate, ie the rate at which Bank will BUY USD from you. Say 61. So it will buy 100 USD and give you Rupees 6100. - Bank Sell rate, ie the rate at which Bank will SELL USD to you. Say 62. So if you want 100 USD, you need to give Bank 6200. The difference between this is the profit to bank.","\"Does some official tell the Foreign Exchange the the new exchange rate for the yuan is 0.98 * the current exchange rate? For China (and other countries with fixed/controlled exchange rates) - that's exactly how it happens. Does it just print more? This is the way to go for fully convertible currencies (like the USD, EUR, GBP, and handful of others, there're about 20 in the world). Flood the market and as with any commodity - flooding the market leads to a price drop. Obviously \"\"just print more\"\" is much harder to do than picking up the phone and saying \"\"Now you're buying/selling dollars at this price and if you don't I'll have you executed\"\".\"","The general idea is that if the statement wasn't true there would be an arbitrage opportunity. You'll probably want to do the math yourself to believe me. But theoretically you could borrow money in country A at their real interest rate, exchange it, then invest the money in the other country at Country B's interest rate. Generating a profit without any risk. There are a lot of assumptions that go along with the statement (like borrowing and lending have the same costs, but I'm sure that is assumed wherever you read that statement.)","according to me it's the news about a particular stock which makes people to buy or sell it mostly thus creates a fluctuation in price . It also dependents on the major stock holder.","Yes traders, living or algorithmic, are the only direct factors that can cause a change in the price of a marketable item. Traders can be affected by news, broken exchanges ;), emotional cycles, lunar cycles, time the trader goes to lunch (or a power cycle if you are an algo running on that unfortunate OS), anything.","The measure of change of value of a currency in relation to itself is inflation (or deflation).","Look for unsustainable policies and actions by policy makers, both before and possibly during, when looking at the ForEx markets. Consider some examples: Each of those events could be seen in the growing unsustainability of local policies. ForEx markets and local policies can appear to stay on an unsustainable path for a long time, but equilibrium will force itself on everything in the long run. In two of the above cases, the initial response wasn't enough to offset the mess, and more and more intervention had to be done, only making matters worse. When you know how unsustainable policies are and how big the corrections need to be, you can quickly ascertain whether an action by policy makers will be enough.","There's a concept called interest rate parity, which sort of says that you cannot profit on the difference in interest rates. This difference accounts for the predicted movement in exchange rates as well, along with the stability of the currencies.","\"Currencies that are pegged or fixed require that foreign currencies are held by the central issuer at a proportional amount. This is analogous to having a portfolio of currencies that the central bank issues shares from - in the form of its own currency. We will continue with this analogy, if the central bank says these \"\"shares\"\" are worth $1, but the underlying components of the portfolio are worth $0.80 and decreasing, then it is expensive for the central bank to maintain its peg, and eventually they will have to disregard the peg as people start questioning the central bank's solvency. (People will know the $1 they hold is not really worth what the central bank says it is, because of the price changes people experience in buying goods and services, especially when it comes to imports. Shadow economies will also trade using a currency more reflective of labor, which happens no matter what the government's punishments are for doing so). Swiss National Bank (central bank) did this in early 2015, as it experienced volatility in the Euro which it had previously been trying to keep it's currency pegged to. It became too expensive for it to keep this peg on its own. The central bank can devalue its currency by adjusting the proportions of the reserve, such as selling a lot of foreign currency X, buying more of currency Y. They can and do take losses doing this. (Swiss National Bank is maintaining a large loss) They can also flood their economy with more of their currency, diluting the value of each individual 1 dollar equivalent. This is done by issuing bonds or monetizing goods and services from the private sector in exchange for bonds. People colloquially call this \"\"printing money\"\" but it is a misnomer in this day and age where printers are not relevant tools. The good and service goes onto the central bank's balance book, and the company/entity that provided the service now has a bond on its book which can be immediately sold to someone else for cash (another reading is that the bond is as good as cash). The bond didn't previously exist until the central bank said it did, and central banks can infinitely exchange goods and services for bonds. Bond monetization (also called Quantitative Easing) is practiced by the Federal Reserve in the United States, Bank of Japan, European Central Bank and now the Central Bank of the Republic of China\"","Because we need energy in the form of oil. If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves. Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?","Depending on what currency the price is quoted in and is originally sold, currency fluctuation can also carry over onto the price in your currency. An example for that would be bitcoin prices which sometimes show heavy ups and downs in one currency, but seem totally stable in another and can be tracked back to changed exchange rates between currencies. Also like others have said, prices on stocks are not actually fixed. You can offer to buy or sell at any price. Only if 2 people want to buy or sell for the same price there will actually be a transaction.","It depends on the asset and the magnitude of the exchange rate change relative to the inflation rate. If it is a production asset, the prices can be expected to change relative to the changes in exchange rate regardless of magnitude, ceteris paribus. If it is a consumption asset, the prices of those assets will change with the net of the exchange rate change and inflation rate, but it can be a slow process since all of the possessions of the country becoming relatively poorer cannot immediately be shipped out and the need to exchange wants for goods will be resisted as long as possible.","\"You might want to read about about the Coase Theorem. \"\"In law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining.\"\" This is similar to what you are asking. Each country has an endowment of gold, and they must create a set amount of money to represent their endowment of gold. This will establish an exchange rate. If I have 5 tons of gold and you have 5 tons, and I print 10 dollars and you print 20, then one of my dollars is worth two of your dollars. Thus, the amount of money is not relevant- it's the exchange rate between the countries. If all the nations know each other's gold endowment, then we will have a perfect exchange rate. If we don't, then currency printing will vary but arbitrage should drive it to an accurate price. Gold and diamonds are both valuable in part due to scarcity, but gold has been used as a measure of value because it's been historically used as a medium of exchange. People just realized that swapping paper was safer and cheaper than physically transporting gold, but the idea of gold as a measure of value is present because \"\"that's how it's always been.\"\" Nobody \"\"creates/supervises\"\" these procedures, but organizations like the IMF, ECB, Fed Reserve, etc implement monetary policy to regulate the money supply and arbitrage drives exchange rates to fair values.\"","\"As the European crisis worsened the Swiss Franc (CHF) was seen as a safe currency so Europeans attempted to exchange their Euros for Francs. This caused the Franc to appreciate in value, against the Euro, through the summer and fall of 2011. The Swiss government and Swiss Central Bank (SNB) believe mercantilism will create wealth for the citizens of Switzerland. The Swiss central planners believe that having an abundance of export businesses in Switzerland will create wealth for the citizens of Switzerland as the exporters sell their good and services abroad and pocket a bunch of cash. Thus, the central planners tend to favor exporters. From the article: At the start of the year, when exporters urged for government and SNB action, ... The Swiss Central bank continued to intervene in currency markets in 2011 to prevent the CHF from appreciating. This was done to prevent a decrease in export business. Finally after many failed attempts they announced the 1.20 peg in September. The central planners give little consideration to imports, however, since manufacturers in foreign countries don't vote or contribute to the campaign funds of the central planners in Switzerland. As the CHF strengthened many imported items became very cheap for Swiss citizens. This was of little concern to the central planners. Currencies are like other goods in a market in that they respond to supply and demand. Their value can change daily or even hourly based on the continually varying demands of people. This can cause the exchange rate to rise and fall against other currencies and goods. Central planners mistakenly believe that the price of certain market items (like currency) should not fluctuate. The believe there is some magical number that will cause the market to operate \"\"better\"\" or \"\"more correctly\"\". How does the SNB maintain the peg? They maintain the peg by printing Francs and purchasing euros.\"","\"Wikipedia talks about the Chinese currency: Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis. so despite it appearing cheaper due to the official exchange rate, the price in China might actually be fair. There are also restrictions on foreign exchange (purportedly \"\"to prevent inflows of hot money\"\"), which, in concert with any other legal obstacles to owning or trading on the Chinese exchange, may also explain why the high-frequency traders aren't tripping over each other to arbitrage away the difference.\"","One interpretation of the above is that Pound (alongside US Dollar, Euro and other major curriencies), which forms the Forex basket of countries has dropped to less than 10% weightage in case of China's Forex holding. Now the question is where did this money go, this money probably have gone into Forex market to buy Yuan against Pound/Dollar etc. to bolster or strengthen Yuan. The currency reserve management is the 'wealth' management part and the 'currency' management part is what is known as 'central bank intervention' to stabilize the currency.","\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as whether or not the person is studying at a foreign university. If the citizen wants to exchange more dollars than legally allowed, that person must buy or sell at the \"\"black\"\" market rate, rather than through the official/government market.\"","If I understand what you're asking, I think you're looking at the relationship wrong. Yes, when one currency has a higher interest rate relative to another, it's value should, theoretically, appreciate. For example, if the USD interest rate is 10% and the EUR is 5%, the USD should appreciate in value against the EUR. However, the parity relationship tells you the price at which an investor would be indifferent to the difference in interest rates. So using the formula for interest rate parity: (1+r(USD))/(1+r(EUR)) = F/S and plugging in the interest rates from above and a spot rate of $1.5/EUR: (1.1)/(1.05) = F/(1.5) The 1 year forward rate would have to be $1.5714/EUR in order for the investor to be INDIFFERENT between holding USD or EUR. All this assuming interest rate parity holds. I'm not big on Econ but this is how I understood it when studying for the CFA exam the past few months. So please, someone correct me if I'm wrong.","There is nothing called actual, unless you convert currency. There are real offer rates that are slightly different from Bank to Bank. Search Engines give a generic average value based on the sites they are trust / have tie-up with. Banks don't use google or search engines to get the basis, they have quite a bit more info and there is a specific Treasury function that would look at the trend and give out a huge spread between buy and sell.","\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (such as nationalising businesses) or general instability / scarcity. The governments act to manage that uncertainty by limiting the availability of foreign exchange and pegging the exchange rate. Since there is an inadequate supply of trusted foreign currency people turn to informal exchanges in order to hedge their currency risk. This creates a negative feedback loop. People in government who have access to foreign exchange start to trade on informal markets, pocketing the difference in the official and unofficial rates. The increasing gap between the two rates drives increasing informal market exchange and can result in speculative bubbles. Driving instability (or economic contradiction) is that the massive and increasing difference between the official and market exchange rates becomes a powerful form of rent for government officials. This drives further state-led rent-seeking behaviour and causes the economy to become even more unstable. If you're interested in a more formal academic study of how such parallel markets in currency arise, \"\"Zimbabwe’s Black Market for Foreign Exchange\"\" by Albert Makochekanwa at the University of Pretoria is a useful source.\"","The currency market, more often referred as Forex or FX, is the decentralized market through which the currencies are exchanged. To trade currencies, you have to go through a broker or an ECN. There are a lot's of them, you can find a (small) list of brokers here on Forex Factory. They will allow you to take very simple position on currencies. For example, you can buy EUR/USD. By doing so, you will make money if the EUR/USD rate goes up (ie: Euro getting stronger against the US dollar) and lose money if the EUR/USD rate goes down (ie: US dollar getting stronger against the Euro). In reality, when you are doing such transaction the broker: borrows USD, sell it to buy EUR, and place it into an Euro account. They will charge you the interest rate on the borrowed currency (USD) and gives you the interest and the bought currency (EUR). So, if you bought a currency with high interest rate against one with low interest rate, you will gain the interest rate differential. But if you sold, you will lose the differential. The fees from the brokers are likely to be included in the prices at which you buy and sell currencies and in the interest rates that they will charge/give you. They are also likely to gives you big leverage to invest far more than the money that you deposited in their accounts. Now, about how to make money out of this market... that's speculation, there are no sure gains about it. And telling you what you should do is purely subjective. But, the Forex market, as any market, is directed by the law of supply and demand. Amongst what impacts supply and demands there are: Also, and I don't want to judge your friends, but from experience, peoples are likely to tell you about their winning transaction and not about their loosing ones.","There are no flat fees but typically banks and money exchangers will use a the current market rate, up to the minute for some powerful exchangers. They then add a little on top depending on many variables. Those variables can be related to the quantity of currency that organization holds, the average amount they hold, the market trend for that currency, the stability of the currency, the location of that currency exchange, etc. As for the one stop shop for currency exchange providers, you can try moneysupermarket.com Hope that helps.","I noticed the buy/sell board table. Where did you notice this. Generally for a pair of currencies, there is Unit associated along with direction. The Unit is generally constant. These are only revised when there is large devaluation of a particular currency. Buying Php for MYR 8.52, Selling MYR 8.98. So in this case the Unit of PHP is 100, so Bank is Buying 100 PHP from you [you are selling PHP] and will give you MYR 8.52. If you now want to buy 100 PHP [so the Bank is selling you], you have to pay MYR 8.98. So you loose MYR 0.46 Why are they selling it way beyond the exchange rate? Why is this? As explained above, they are not. Its still within the range. The quote on internet are average price. This means before going back to Philippines, I can buy a lot of peso that I can buy and exchange it for higher price right? Generally an individual cannot make money by buying in one currency and selling in other. There are specialist who try and find arbitrage between multiple pair of currencies and make money out of it. Its a continuous process, if they start making profit, the market will react and put pressure on a pair and the prices would move to remove the arbitrage.","It's the buying and selling of the stock that causes the fluctuation in prices, not the news. People buy and sell all the time, and not just for newsworthy reasons. They may have to send a child to college, or fix a roof, etc. Or they may be technical traders looking for signals. All kinds of reasons.","I wrote about the dynamic of why either of a lower or higher exchange rate would be good for economies in Would dropping the value of its currency be good for an economy? A strong currency allows consumers to import goods cheaply from the rest of the world. A weak currency allows producers to export goods cheaply to the rest of the world. People are both consumers and producers. Clearly, there have to be trade-offs. Strong or weak mean relative to Purchasing Power Parity (i.e. you can buy more or less of an equivalent good with the same money). Governments worrying about unemployment will try and push their currencies weaker relative to others, no matter the cost. There will be an inflationary impact (imported inputs cost more as a currency weakens) but a country running a major surplus (like China) can afford to subsidise these costs.","You may simply be asking why stocks 'gap up' or 'gap down' when the stock market opens. This is because the price adjusts to news that occurred while the exchanges were closed overnight. Perhaps Asian stocks crashed, or perhaps a news story was released in the New York Times about some major company. There are thousands of factors that affect market sentiment, and the big gaps that happen at the open of every trading day is the price of the stocks catching up to those factors.","As mentioned in several other answers, the main reason for high rates is to maximize profit. However, here is another, smaller effect: The typical flow of getting money from an ATM: Suppose you have a minute to consider the offer, then in that time the currency may drop or rise (which you can see from an external source of information). Therefore this opens a window for abuse. For real major currencies these huge switches are rare, but they do happen. And when 1 or 2 minor currencies are involved these switches are more common. Just looking at a random pair for today (Botswana Pula to Haitian Gourde) I immediately spotted a moment where the exchange rate jumped by more than 2 %. This may not be the best example, but it shows why a large margin is desirable. Note that this argument only holds for when the customer knows in advance what the exchange rate would be, for cases where it is calculated afterwards I have not found any valid excuse for such large margins (except that it allows them to offer other services at a lower price because these transaction).","An economy produces goods and services and people use money to pay for those goods and services. Money has value because people believe that they can buy and sell goods and services with it in that economy. How much the value of money is, is determined by how much money there is in comparison to goods and services (supply and demand). In most economies it is the job of the federal/national reserve bank to ensure that prices stay stable (ie the relationship of goods and services to how much money there is is stable); as this is necessary for a well running economy. The federal reserve bank does so by making more (printing, decreasing interest rates) or less (increasing interest rates) available to the economy. To determine how much money needs to be in the economy to keep prices stable is incredibly hard as many factors have an impact: If the reserve bank gets it wrong and there is more money compared to goods and services than previous, prices will rise to compensate; this is inflation If it's the other way round is deflation. Since it is commonly regarded that deflation is much more destabilizing to an economy than inflation the reserve banks tend to err on the side of inflation.","\"If there is a very sudden and large collapse in the exchange rate then because algorithmic trades will operate very fast it is possible to determine “x” immediately after the change in exchange rate. All you need to know is the order book. You also need to assume that the algorithmic bot operates faster than all other market participants so that the order book doesn’t change except for those trades executed by the bot. The temporarily cheaper price in the weakened currency market will rise and the temporarily dearer price in the strengthened currency market will fall until the prices are related by the new exchange rate. This price is determined by the condition that the total volume of buys in the cheaper market is equal to the total volume of sells in the dearer market. Suppose initially gold is worth $1200 on NYSE or £720 on LSE. Then suppose the exchange rate falls from r=0.6 £/$ to s=0.4 £/$. To illustrate the answer lets assume that before the currency collapse the order book for gold on the LSE and NYSE looks like: GOLD-NYSE Sell (100 @ $1310) Sell (100 @ $1300) <——— Sell (100 @ $1280) Sell (200 @ $1260) Sell (300 @ $1220) Sell (100 @ $1200) ————————— buy (100 @ $1190) buy (100 @ $1180) GOLD-LSE Sell (100 @ £750) Sell (100 @ £740) ————————— buy (200 @ £720) buy (200 @ £700) buy (100 @ £600) buy (100 @ £550) buy (100 @ £530) buy (100 @ £520) <——— buy (100 @ £500) From this hypothetical example, the automatic traders will buy up the NYSE gold and sell the LSE gold in equal volume until the price ratio \"\"s\"\" is attained. By summing up the sell volumes on the NYSE and the buy volumes on the LSE, we see that the conditions are met when the price is $1300 and £520. Note 800 units were bought and sold. So “x” depends on the available orders in the order book. Immediately after this, however, the price of the asset will be subject to the new changes of preference by the market participants. However, the price calculated above must be the initial price, since otherwise an arbitrage opportunity would exist.\"","Originally dollars were exchangeable for specie at any time, provided you went to a govt exchange. under Bretton Woods this was a generally fixed rate, but regardless there existed a spread on gold. This ceased to be the case in 71 when the Nixon shock broke Bretton woods.","I think it depends where you live in the world, but I guess the most common would be: Major Equity Indices I would say major currency exchange rate: And have a look at the Libors for USD and EUR. I guess the intent of the question is more to see how implicated you are in the daily market analysis, not really to see if you managed to learn everything by heart in the morning.","If you look at a trade grid you can see how this happens. If there are enough bids to cover all shares currently on the sell side at a certain price, those shares will be bought and increased price quotes will be shown for the bids and ask. If there are enough bids to cover this price, those will get bought and higher prices will be shown and this process will repeat until the sell side has more power than the buy side. It seems like this process is going on all day long with momentum either on the upside or downside. But I think that much of this bidding and selling is automatic and is being done by large trading firms and high tech computers. I also feel that many of these bids and asks are already programmed to appear once there is a price change. So once one price gets bought, computers will put in higher bids to take over asks. It's like a virtual war between trading firms and their computers. When more money is on the buy side the stock will go up, and vice versa. I sort of feel like this high-frequency trading is detrimental to the markets and doesn't really give everyone a fair shot. Retail investors do not have the resources and knowledge in order to do this sort of high frequency trading. It also seems to go against certain free market principles in my opinion.","The Federal Reserve Bank publishes exchange rate data in their H.10 release. It is daily, not minute by minute. The Fed says this about their data: About the Release The H.10 weekly release contains daily rates of exchange of major currencies against the U.S. dollar. The data are noon buying rates in New York for cable transfers payable in the listed currencies. The rates have been certified by the Federal Reserve Bank of New York for customs purposes as required by section 522 of the amended Tariff Act of 1930. The historical EURUSD rates for the value of 1 EURO in US$ are at: http://www.federalreserve.gov/releases/h10/hist/dat00_eu.htm If you need to know USDEUR the value of 1 US$ in EUROS use division 1.0/EURUSD.","To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold. So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.","Long term gov't bonds fluctuate in price with a seemingly small interest rate fluctuation because many years of cash inflows are discounted at low rates. This phenomenon is dulled in a high interest rate environment. For example, just the principal repayment is worth ~1/3, P * 1/(1+4%)^30, what it will be in 30 years at 4% while an overnight loan paying an unrealistic 4% is worth essentially the same as the principal, P * 1/(1+4%)^(1/365). This is more profound in low interest rate economies because, taking the countries undergoing the present misfortune, one can see that their overnight interest rates are double US long term rates while their long term rates are nearly 10x as large as US long term rates. If there were much supply at the longer maturities which have been restrained by interest rates only manageable by the highly skilled or highly risky, a 4% increase on a 30% bond is only about a 20% decline in bond price while a 4% increase on a 4% bond is a 50% decrease. The easiest long term bond to manipulate quantitatively is the perpetuity where p is the price of the bond, i is the interest payment per some arbitrary period usually 1 year, and r is the interest rate paid per some arbitrary period usually 1 year. Since they are expressly linked, a price can be implied for a given interest rate and vice versa if the interest payment is known or assumed. At a 4% interest rate, the price is At 4.04%, the price is , a 1% increase in interest rates and a 0.8% decrease in price . Longer term bonds such as a 30 year or 20 year bond will not see as extreme price movements. The constant maturity 30 year treasury has fluctuated between 5% and 2.5% to ~3.75% now from before the Great Recession til now, so prices will have more or less doubled and then reduced because bond prices are inversely proportional to interest rates as generally shown above. At shorter maturities, this phenomenon is negligible because future cash inflows are being discounted by such a low amount. The one month bill rarely moves in price beyond the bid/ask spread during expansion but can be expected to collapse before a recession and rebound during.","\"What most of these answers here seem to be missing is that a stock \"\"price\"\" is not exactly what we typically expect a price to be--for example, when we go in to the supermarket and see that the price of a gallon of milk is $2.00, we know that when we go to the cash register that is exactly how much we will pay. This is not, however, the case for stocks. For stocks, when most people talk about the price or quote, they are really referring to the last price at which that stock traded--which unlike for a gallon of milk at the supermarket, is no guarantee of what the next stock price will be. Relatively speaking, most stocks are extremely liquid, so they will react to any information which the \"\"market\"\" believes has a bearing on the value of their underlying asset almost (if not) immediately. As an extreme example, if allegations of accounting fraud for a particular company whose stock is trading at $40 come out mid-session, there will not be a gradual decline in the price ($40 -> $39.99 -> $39.97, etc.)-- instead, the price will jump from $40 to say, $20. In the time between the the $40 trade and the $20 trade, even though we may say the price of the stock was $40, that quote was actually a terrible estimate of the stock's current (post-fraud announcement) price. Considering that the \"\"price\"\" of a stock typically does not remain constant even in the span of a few seconds to a few minutes, it should not be hard to believe that this price will not remain constant over the 17.5 hour period from the previous day's close to the current day's open. Don't forget that as Americans go to bed, the Asian markets are just opening, and by the time US markets have opened, it is already past 2PM in London. In addition to the information (and therefore new knowledge) gained from these foreign markets' movements, macro factors can also play an important part in a security's price-- perhaps the ECB makes a morning statement that is interpreted as negative news for the markets or a foreign government before the US markets open. Stock prices on the NYSE, NASDAQ, etc. won't be able to react until 9:30, but the $40 price of the last trade of a broad market ETF at 4PM yesterday probably isn't looking so hot at 6:30 this morning... don't forget either that most individual stocks are correlated with the movement of the broader market, so even news that is not specific to a given security will in all likelihood still have an impact on that security's price. The above are only a few of many examples of things that can impact a stock's valuation between close and open: all sorts of geopolitical events, announcements from large, multi-national companies, macroeconomic stats such as unemployment rates, etc. announced in foreign countries can all play a role in affecting a security's price overnight. As an aside, one of the answers mentioned after hours trading as a reason--in actuality this typically has very little (if any) impact on the next day's prices and is often referred to as \"\"amateur hour\"\", due to the fact that trading during this time typically consists of small-time investors. Prices in AH are very poor predictors of a stock's price at open.\"","Many people trade the currency markets via brokers who have developed online apps with live forex prices and many currency pairs. You can trade on your phone, iPad or PC / Mac.","\"Other things equal is sometimes referred to as \"\"ceteris paribus\"\" - the scenario where you compare two currencies (or things) under the assumption that all other factors that could effect those currencies (earthquakes, revolutions, currency crises ect) are not ocurring. Its like using a control group in a lab. \"\"Real interest rates\"\" means the rate of that countries interest rate, accounting for inflation. \"\"Proportional to the strength of its home currency\"\" is referring to how countries with higher rates of interest tend to have stronger currencies (relative to other currencies) because foreign investment/capital will flood into the country seeking those higher rates of return - excess demand for the currency will cause it to appreciate. So this is also true in reverse, as capital will tend to leave a country will ultra-low interest rates.\"","There are a few reason why share prices increase or decrease, the foremost is expectation of the investors that the company/economy will do well/not well, that is expectation of profit/intrinsic value growth over some time frame (1-4 qtrs.)there is also demand & supply mismatch over (usually) short time. If you really see, the actual 'value' of a company is it's net-worth (cash+asset+stock in trade+brand value+other intangibles+other incomes)/no of shares outstanding, which (in a way) is the book value, then all shares should trade at their book value, the actual number but it does not, the expectation of investors that a share would be purchased by another investor at a higher price because the outlook of the company over a long time is good.","A day is a long time and the rate is not the same all day. Some sources will report a close price that averages the bid and ask. Some sources will report a volume-weighted average. Some will report the last transaction price. Some will report a time-weighted average. Some will average the highest and lowest prices for the interval. Different marketplaces will also have slightly different prices because different traders are present at each marketplace. Usually, the documentation will explain what method they use and you can choose the source whose method makes the most sense for your application.","While that sounds reasonable, it looks like most of the actual trading is done on the basis of changes rather than value. At a guess, this is because computing the balance sheet anew with every change inhibits the speed with which transactions can be processed.","The Fed is trying to keep the money supply growing at a rate just slightly faster than the increase in the total production in the economy. If this year we produced, say, 3% more goods and services than last year, than they try to make the money supply grow by maybe 4% or 5%. That way there should be a small rate of inflation. They are trying to prevent high inflation rates on one hand or deflation on the other. When the interest rate on T-bills is low, banks will borrow more money. As the Fed creates this money out of thin air when banks buy a T-bill, this adds money to the economy. When the interest rate on T-bills is high, banks will borrow little or nothing. As they'll be repaying older T-bills, this will result in less growth in the money supply or even contraction. So the Feds change the rate when they see that economic growth is accelerating or decelerating, or that the inflation rate is getting too high or too low.","\"You are violating the Uncovered Interest Rate Parity. If Country A has interest rate of 4% and Country B has interest rate of 1%, Country B's expected exchange rate must appreciate by 3% compared to spot. The \"\"persistent pressure to further depreciate\"\" doesn't magically occur by decree of the supreme leader. If there is room for risk free profit, the entire Country B would deposit their money at Country A, since Country A has higher interest rate and \"\"appreciates\"\" as you said. The entire Country A will also borrow their money at Country B. The exception is Capital Control. Certain people are given the opportunity to get the risk free profit, and the others are prohibited from making those transactions, making UIP to not hold.\"","What you want is the average change in rate of the Australian Dollar against multiple other currencies, to even out the effect of moves in a single other currency. People often look at the trade-weighted exchange rate to get an idea of this, as it allows you to look at the currencies that are most relevant, rather than every tiny other currency having an equal weight.","It's impossible to determine which event will cause a major shift for a certain currency pair. However, this does not mean that it's not possible to identify events that are important to the overall market sentiment and direction. There are numerous sites that provide a calendar for upcoming and past events and their impact which is most of the time indicated as low, medium and high. Such sites are: Edit: I would like to add to that, that while these are major market movers, you cannot forget that they mainly provide a certain direction for the market but that it's not always clear in which direction the market will go. A recent and prime example of a major event that triggered opposite effects of what you would expect, is the ECB meeting that took place the 3rd of December. Due to the fact that the market already priced in further easing by the ECB the euro strengthened instead of weakening compared to the dollar. This strengthening happened even though the ECB did in fact adjust the deposit by 10 base points to -0.30 % and increased the duration of the QE. Taking above example into consideration it's important to always remember that fundamentals are hard to grasp and that it will take a while to make it a second nature and become truly successful in this line of trading. Lastly, fundamentals are only a part of the complete picture. Don't lose sight of support and resistance levels as well as price action to determine when and how to enter a trade.","\"Well there are a couple reasons that people from various countries use specific currencies: 1. Government courts will recognize the settlement of contracts if they are paid with their local currency. So even if you wanted to be paid in Swiss Francs, your contracting partner can choose to pay you in USD instead. This artificially inflates the value of the local currency by increasing demand for it. 2. You're only allowed to pay your taxes in the local currency. This also artificially increases the demand for it, and it's the \"\"root value\"\" of the currency - people clamor for bits of green paper because if they don't have enough of it to pay off the tax man, they'll go to jail.\"","How high is high? In countries that suffered hyperinflation such as the Weimar Republic around 1923 and Zimbabwe around the late 1990s this certainly did happen on a daily basis. E.g. One boy, who was sent to buy two bread buns, stopped to play football and by the time he got to the shop, the price had gone up, so he could only afford to buy one. or One father set out for Berlin to buy a pair of shoes. When he got there, he could only afford a cup of coffee and the bus fare home. or At the height of the country's economic crisis that year, prices were rising at least twice day, with Zimbabweans forced to carry cash around in plastic bags just to buy basic items.","\"My answer is specific to the US because you mentioned the Federal Reserve, but a similar system is in place in most countries. Do interest rates increase based on what the market is doing, or do they solely increase based on what the Federal Reserve sets them at? There are actually two rates in question here; the Wikipedia article on the federal funds rate has a nice description that I'll summarize here. The interest rate that's usually referred to is the federal funds rate, and it's the rate at which banks can lend money to each other through the Federal Reserve. The nominal federal funds rate - this is a target set by the Board of Governors of the Federal Reserve at each meeting of the Federal Open Market Committee (FOMC). When you hear in the media that the Fed is changing interest rates, this is almost always what they're referring to. The actual federal funds rate - through the trading desk of the New York Federal Reserve, the FOMC conducts open market operations to enforce the federal funds rate, thus leading to the actual rate, which is the rate determined by market forces as a result of the Fed's operations. Open market operations involve buying and selling short-term securities in order to influence the rate. As an example, the current nominal federal funds rate is 0% (in economic parlance, this is known as the Zero Lower Bound (ZLB)), while the actual rate is approximately 25 basis points, or 0.25%. Why is it assumed that interest rates are going to increase when the Federal Reserve ends QE3? I don't understand why interest rates are going to increase. In the United States, quantitative easing is actually a little different from the usual open market operations the Fed conducts. Open market operations usually involve the buying and selling of short-term Treasury securities; in QE, however (especially the latest and ongoing round, QE3), the Fed has been purchasing longer-term Treasury securities and mortgage-backed securities (MBS). By purchasing MBS, the Fed is trying to reduce the overall risk of the commercial housing debt market. Furthermore, the demand created by these purchases drives up prices on the debt, which drives down interest rates in the commercial housing market. To clarify: the debt market I'm referring to is the market for mortgage-backed securities and other debt derivatives (CDO's, for instance). I'll use MBS as an example. The actual mortgages are sold to companies that securitize them by pooling them and issuing securities based on the value of the pool. This process may happen numerous times, since derivatives can be created based on the value of the MBS themselves, which in turn are based on housing debt. In other words, MBS aren't exactly the same thing as housing debt, but they're based on housing debt. It's these packaged securities the Fed is purchasing, not the mortgages themselves. Once the Fed draws down QE3, however, this demand will probably decrease. As the Fed unloads its balance sheet over several years, and demand decreases throughout the market, prices will fall and interest rates in the commercial housing market will fall. Ideally, the Fed will wait until the economy is healthy enough to absorb the unloading of these securities. Just to be clear, the interest rates that QE3 are targeting are different from the interest rates you usually hear about. It's possible for the Fed to unwind QE3, while still keeping the \"\"interest rate\"\", i.e. the federal funds rate, near zero. although this is considered unlikely. Also, the Fed can target long-term vs. short-term interest rates as well, which is once again slightly different from what I talked about above. This was the goal of the Operation Twist program in 2011 (and in the 1960's). Kirill Fuchs gave a great description of the program in this answer, but basically, the Fed purchased long-term securities and sold short-term securities, with the goal of twisting the yield curve to lower long-term interest rates relative to short-term rates. The goal is to encourage people and businesses to take on long-term debt, e.g. mortgages, capital investments, etc. My main question that I'm trying to understand is why interest rates are what they are. Is it more of an arbitrary number set by central banks or is it due to market activity? Hopefully I addressed much of this above, but I'll give a quick summary. There are many \"\"interest rates\"\" in numerous different financial markets. The rate most commonly talked about is the nominal federal funds rate that I mentioned above; although it's a target set by the Board of Governors, it's not arbitrary. There's a reason the Federal Reserve hires hundreds of research economists. No central bank arbitrarily sets the interest rate; it's determined as part of an effort to reach certain economic benchmarks for the foreseeable future, whatever those may be. In the US, current Fed policy maintains that the federal funds rate should be approximately zero until the economy surpasses the unemployment and inflation benchmarks set forth by the Evans Rule (named after Charles Evans, the president of the Federal Reserve Bank of Chicago, who pushed for the rule). The effective federal funds rate, as well as other rates the Fed has targeted like interest rates on commercial housing debt, long-term rates on Treasury securities, etc. are market driven. The Fed may enter the market, but the same forces of supply and demand are still at work. Although the Fed's actions are controversial, the effects of their actions are still bound by market forces, so the policies and their effects are anything but arbitrary.\"","I've always understood inflation to be linked to individual currencies, although my only research into the subject was an intro economics course in undergrad and I don't recall seeing why that would be the case. I guess the basic principle is that currency traders are watching the printing presses and trading in exchange markets to the point that the exchange rates fall in relation to increases in money supply. There's probably something about the carry trade in there as well, but it's late and I took some medications, so someone else will have to carry that torch. I must admit I've not really paid attention to foreign currencies like HKD, but the proximity and political relationship with China probably greatly complicates your question, since part of the problem has been China's currency peg.","No. The long-term valuation of currencies has to do with Purchasing Power Parity. The long-term valuation of stocks has to do with revenues, expenses, market sizes, growth rates, and interest rates. In the short term, currency and stock prices change for many reasons, including interest rate changes, demand for goods and services, asset price changes, political fears, and momentum investing. In any given time window, a currency or stock might be: The Relative Strength Index tries to say whether a currency or stock has recently been rising or falling; it does not inherently say anything about whether the current value is high or low.","Brilliant fact-based objective reality explanation of the world currency markets. I'm into bitcoin and physical gold investments (yeah, I know, it's like being gay and straight at the same time without being bi), may I ask you a few things later?","If I understand correctly, you're actually asking why there isn't a society whose members generally accept/use any currency for transactions, and just like, Google the exchange rate or something. The answer is because it's exceptionally inconvenient. Can you imagine having a wallet with 200 pouches for all the different currencies? Why would you want to deal with exchange rates all the time? What if the value of a currency changes? (A single currency at least has the illusion of being stable). Et cetera.","Fundamentally interest rates reflect the time preference people place on money and the things money can buy. If I have a high time preference then I prefer money in my hand versus money promised to me at some date in the future. Thus, I will only loan my money to someone if they offer me an incentive which would be an amount of money to be received in the future that is larger than the amount of money I’m giving the debtor in the present (i.e. the interest rate). Many factors go into my time preference determination. My demand for cash (i.e. my cash balance), the credit rating of the borrower, the length of the loan, and my expectation of the change in currency value are just a few of the factors that affect what interest rate I will loan money. The first loan I make will have a lower interest rate than the last loan, ceteris paribus. This is because my supply of cash diminishes with each loan which makes my remaining cash more valuable and a higher interest rate will be needed to entice me to make additional loans. This is the theory behind why interest rates will rise when QE3 or QEinfinity ever stops. QE is where the Federal Reserve cartel prints new money to purchase bonds from cartel banks. If QE slows or ends the supply of money will stop increasing which will make cash more valuable and higher interest rates will be needed to entice creditors to loan money. Note that increasing the stock of money does not necessarily result in lower interest rates. As stated earlier, the change in value of the currency also affects the interest rate lenders are willing to accept. If the Federal Reserve cartel deposited $1 million everyday into every US citizen’s bank account it wouldn’t take long before lenders demanded very high interest rates as compensation for the decrease in the value of the currency. Does the Federal Reserve cartel affect interest rates? Yes, in two ways. First, as mentioned before, it prints new money that is loaned to the government. It either purchases the bonds directly or purchases the bonds from cartel banks which give them cash to purchase more government bonds. This keeps demand high for government bonds which lowers the yield on government bonds (yields move inverse to the price of the bond). The Federal Reserve cartel also can provide an unlimited amount of funds at the Federal Funds rate to the cartel member banks. Banks can borrow at this rate and then proceed to make loans at a higher rate and pocket the difference. Remember, however, that the Federal Reserve cartel is not the only market participant. Other bond holders, such as foreign governments and pension funds, buy and sell US bonds. At some point they could demand higher rates. The Federal Reserve cartel, which currently holds close to 17% of US public debt, could attempt to keep rates low by printing new money to buy all existing US bonds to prevent the yield on bonds from going up. At that point, however, holding US dollars becomes very dangerous as it is apparent the Federal Reserve cartel is just a money printing machine for the US government. That’s when most people begin to dump dollars en masse.","AU rates are higher than 3.75%. The market for deposits here in Australia is very competitive (banks have change increased deposits as a share of liabilities from ~50% to ~60% in just the last few years) and, as a result, demand deposits here pay far more than the central bank rate. My demand savings account, for example, pays 4.95%. That AU-US interest differentials are so staggeringly high means that, inmevitably, lots of investors are carrying. Depending of FX moves over the next year, a lot of investors will either gain heaps or lose more. If you can leverage, you can gain even more (or lose the house).","\"As you say, the currency carry trade shouldn't work. The deluge of new cash into a high-interest currency should result in falling exchange rates. A November 2009 paper by Òscar Jordà and Alan Taylor of the University of California, Davis, may be offer one approach which is more stable. According to The Economist: They find that a refined carry-trade strategy—one that incorporates a measure of long-term value—produces more consistent profits and is less prone to huge losses than one that targets the highest yield. However, exchange rates, central bank interest rates, as well as money supply are all political as well as economic constructs. An economic driver for arbitrage may be offset by political will (such as US quantative easing) or even social malaise (Japanese continual low inward investment). I wouldn't go so far as calling the carry trade \"\"free money\"\" - currencies have proven far too unstable for that - but state interference in markets tends to be clearly telegraphed and a trader with nerves of steel may take advantage of it.\"","\"I'm not an economist, but I understand the idea of value or \"\"price\"\" is purely \"\"what people agree it to be\"\". The quants and analysts I've worked with always talk about \"\"discovering the price\"\" - it's an unknown until someone says \"\"I will pay X\"\". Are my 2nd hand Nikes worth $20? Put em on ebay to find out. If someone buys them, then yes, 2nd hand Nikes are worth $20. If they don't sell then they're not worth $20. Obviously ebay is not the most efficient market out there. The exchanges attempt to be that with prices varying by fractions of cent in fractions of seconds (milliseconds). EDIT* Perhaps another way to look at it is \"\"What is the 'correct' value of a computer game, say 'Skyrim'?\"\" Your idea of the value of labour and production costs produces some figure. But in the real world, what actually happens? On release day the game is priced at, say, $60. And lots of people say \"\"I will pay $60\"\". Many people don't, but many people do. Months later, Steam has a sale and they suggest Skyrim is now worth $30. Lot's of people who didn't think it was worth $60 do think it is worth $30. The amount of labour that went into is hasn't changed. So what it the true or 'correct' value/price of the game? What is the correct value/price of *amything*? It is *what people will pay for it*.\"","\"Here's an answer to a related question I once wrote. I'm reposting here. I can, but it takes a significant amount of time. I'll do a short version which unfortunatley might leave more holes than you like. Basically, traders don't want to barter because it is hard to find the person with precisely the goods you want who wants to trade for the goods you have. Thus the need for \"\"coupons\"\" that represent value in a marketplace. Then you need to decide who gets to create coupons. If too many can issue them, problems arise, and no one trusts the coupons will be good later. Eventually you want one large bank/nation/trader to be able to issue them so everyone has the same level of trust in them, and you don't have the economic inefficiencies of many coupon issuers. Next, the number of coupons needs to be enough to facilitate trade. If the amount of trade increases a lot, and the number of coupons doesn't increase similarly they become worth more, and people start to hoard them. This causes deflation, which causes less investment, which causes less growth, which hurts everyone in the long run. If there are too many coupons added, this causes inflation, which causes people to spent them quicker instead of holding them. For reasons I won't cover here slight, predictable inflation is much better than deflation, so remember inflation is slightly preferred. Note that inflation is often caused not by the number of coupons but by external price changes. Now, for a modern economy to do well, somone has to watch the economy, measure it carefully, and add/subtract coupons into the system as needed. Coupons, like all money, have no real value (whatever that means), but only have value because the holder expects to be able to trade them *later* for goods and services. You cannot eat coupons, use them for shelter (usually!), or wear them, but you want to trade them for such needs. The same is true for paper money, gold, stones, or almost whatever money system one uses. Money in all these forms is merely an IOU tradable for future goods. The Fed is tasked (among other things) with making sure there is precisely enough coupons in the economy to keep trade functioning as well as possible. This is very hard to do since there are external and internal shocks to an economy (think disaster, foreign govts shutting off resources, rapid changes in people's tastes, etc.). Central banks such as the Fed need to be independent of political control, since empirical evidence has shown that politicians tend to add more money to the system than is needed, because the short term gains give them votes, but the long term consequences (rapid inflation, unemployment, lower economic growth) are bad for society. This is why the Fed is largely out of congressional control, and large amounts of empirical evidence across hundreds of years and dozens of cultures shows this to be good. Note: another function of the Fed is to be a lender of last resort to help prevent bank panics that were widespread in the 18th and early 19th century, something that none of us now remember, but it was a real problem. I'll skip that part for now. So now we're at the point where the Fed needs to add/subtract coupons from society. To do this part justice takes significant time to cover all the reasons why various rules are in place (banking reserve requirements, for example), and you cannot learn it from one pass of reading. But I'll try. Instead of being like the majority of internet fools that rail against the system, try to learn the *why* of all this, and you'll be much wiser and understand that it is all a pretty good system. One method they use is the interbank lending rate. Banks have a reserve requirement, which is the ratio of coupons they need to have on hand as a ratio compared to the total coupons depositors lent them. This is usually around 1:10. The amount deposited that they can lend goes to business loans, school loans, mortgage loans, etc., and helps economies grow. Now when a bank on a given day falls short due to too many withdrawals, other banks (or the Fed) offers an overnight loan to meet reserve requirements, and the Fed sets the interest rate, which in turn drives other interest rates in the system. This does not change the money supply very much. Secondly, the Fed sets the reserve requirement, which vastly can change the amount of money available to society. But they change this rate so rarely (all the historical data is on the St. Loius Fed site, among others) that it is not usually an issue. I'll explain below how this can drastically change the money supply though the money multiplier. Thirdly, and this is the part the poster above seems upset about, they conduct open market operations. This is the primary means by which the Fed exercises control over the number of coupons in play. The government, like businesses, like individuals, often needs to borrow money, in theory to invest in wise causes like infrastructure or perhaps money making enterprises such as technology investmeny (and I know what they often use the money for causes many to complain). The government, like companies, offers the sale of various contracts such as bonds to investors, who want a place to park some accumulated coupons for safety, and they get a return plus some interest. So the government sells bonds on the open market to investors, banks, pensions, foreign governments, basically to whomever wishes to purchase them at the market rate, and the government, like many individuals and banks, uses these loans to perform day to day functioning and possible smooth out volatility in spending needs. By law the Fed cannot purchase directly from Treasury. Now, once on the market, these bonds are traded, packaged, resold, etc., since they have inherent value, and since those owning them want to buy/sell them, perhaps before maturity date. This \"\"liquidity\"\" (ability to sell your goods) is necessary - fewer would purchase an item if they could not sell it when they desire. Thus bonds are bought, sold, and traded, and their prices fluctuate based on what the market thinks they are worth, just like any good. Now, the Fed can buy/sell these bonds on the *open market*, like anyone else. So when the Fed wishes to increase the money supply, they can buy bonds that are not \"\"spendable\"\" money and inject money into the system. Note they now hold a bond that had at the time of transaction the same value as the money they injected. Note investors freely bought these from Treasury, meaning the market thought at the time of purchase that this was a good invesement. It is *not* the government merely wishing more money into existance. It is market forces that require more money for trades and is selling goods from the marketplace of (presumably) equal value to the Fed. This increases liquidity, but takes valuable assets from circulation. When the Fed wishes to shrink the money supply, they sell these bonds back into circulation basically by offering better terms than Treasury. In fact, you can find graphs of the Fed operations and see how every December they inject money for more Christmas shpping (need more coupons for more trade) and every January they extract some. So open market transactions, buying and selling goods at market prices in the marketplace along with other traders, is how the Fed injects and removes money from the money supply. This is the primary mechanism that the Fed uses to control the number of coupons in the economy. Finally, a little about reserve requirements and the money multiplier, since it affects so much of the number of coupons in play. This also I must simplify drastically. Each bank needs to hold 1/10 of all deposits in cash. The rest can be lent, which lands in another bank, which again can be lent, etc... Thus each $1 deposited can result in loans totalling 9/10 + (9/10)^2 + (9/10)^3 +... = 9 more dollars. Many people claim that banks are printing money, which is nonsense, since each also has an equal debt to pay to the person they borrowed from. When all loans are paid back there is no net money gain. However, this allows for each $1 the Fed injects by buying bonds for there to be up to $9 in the economy, *if banks all loan to the fullest extent*. Banks tend to want to loan since loaned money makes them profit. Banks used to loan too much and runs on the banks caused significant problems, which is why laws were made to require *all* banks to have the same reserve requirement. Now, when banks get scared and stop loaning, this 9 fold multiplier dries up, and the Fed has much less inpact on being able to target the proper number of coupons to keep the economy smooth. During the recent crash when banks stopped loaning, as each dollar was paid back on debts, there was significant shrinkage of available money for transactions, and this kills the economy. This is the \"\"liquidity crisis\"\". Hope this helps. As I said, this is vastly simplified and I cannot go into all the reasons and historical items needed to understand it fully. It is a vastly complex (and necessarily so) and takes significant study to grasp the genius of it. It's similar to not being able to understand nuances of particle physics in one go, but as you study and work at it you see *why* things go as they do, and you learn all the failed methods (the gold standard is one example) that were thrown out for many good reasons. Cheers.\"","Why do these fees exist? From a Banks point of view, they are operating in Currency A; Currency B is a commodity [similar to Oil, Grains, Goods, etc]. So they will only buy if they can sell it at a margin. Currency Conversion have inherent risks, on small amount, the Bank generally does not hedge these risks as it is expensive; but balances the position end of day or if the exposure becomes large. The rate they may get then may be different and the margin covers it. Hence on highly traded currency pairs; the spread is less. Are there back-end processes and requirements that require financial institutions to pass off the loss to consumers as a fee? The processes are to ensure bank does not make loss. is it just to make money on the convenience of international transactions? Banks do make money on such transactions; however they also take some risks. The Forex market is not single market, but is a collective hybrid market place. There are costs a bank incurs to carry and square off positions and some of it is reflected in fees. If you see some of the remittance corridors, banks have optimized a remittance service; say USD to INR, there is a huge flow often in small amounts. The remittance service aggregates such amounts to make it a large amount to get a better deal for themselves and passes on the benefits to individuals. Such volume of scale is not available for other pairs / corridors.","\"I suspect that to \"\"make money\"\" it isn't enough to know the current value (\"\"high currency\"\"): to make money you'd need to know/guess/predict/bet on the future change in value: will the currency value go higher in the future? Or will it come down again? Or will it stay the same? Everybody knows the current value, so that by itself isn't enough knowledge to make money from. That said, if you know you're going to need American dollars in the future (if you have future expenses which need to be paid in American dollars), then now might be a good time to buy those dollars.\"","FX is often purchased with leverage by both retail and wholesale speculators on the assumption daily movements are typically more restrained than a number of other asset classes. When volatility picks up unexpectedly these leveraged accounts can absolutely be wiped out. While these events are relatively rare, one happened as recently as 2016 when the Swiss National Bank unleashed the Swiss Franc from its Euro mooring. You can read about it here: http://www.reuters.com/article/us-swiss-snb-brokers-idUSKBN0KP1EH20150116","\"The dow jones is an index of 30 stocks that's weighted based on the price per share of these stocks. To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Prices are the result of supply and demand. Demand is defined as simply as \"\"I want this badly enough to pay cash for it\"\", \"\"supply is \"\"I own this and don't want to own it, therefore I'll sell it\"\" When investors go about deciding they'd like to buy some stock from people who own it and are wanting to sell it, a market is generated and a price both are willing to sell/buy at is found. If the price is too high/low, you won't sell or buy. The price has to be \"\"right\"\" based on your own personal valuation. Since these trades are done through an exchange and are so common, literally millions of shares are traded per day, you get the best price available at that moment for your shares. If person A is only willing to give you 100 dollars and person B is willing to give you 100.01, screw person A. I'm selling shares to person B. When this done on a macro-level (millions of shares traded per day) the exchanges will track and make public the \"\"price movement\"\" of what the market is willing to give for each and every publicly traded stock. TLDR: SUPPLY AND DEMAND. DOW USES THEIR OWN METHODS.\""],"string":"[\n \"\\\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless there's someone willing to sell you Euros for dollars, you can't get any. There are millions of people trying to exchange currency all over the world. If more want to buy USD, than that demand will positively influence the price of the USD (as measured in Euros). If more people want to buy Euros, well, vice versa. There are so many of these transactions globally, and the number of people and the nature of these transactions change so continuously, that the prices (exchange rates) for these currencies fluctuate continuously and smoothly. Demand is also impacted by what people want to buy and how much they want to buy it. If people generally want to invest their savings in stocks instead of dollars, i.e., if lots of people are attempting to buy stocks (by exchanging their dollars for stock), then the demand for the dollar is lower and the demand for stocks is higher. When the stock market crashes, you'll often see a spike in the exchange rate for the dollar, because people are trying to exchange stocks for dollars (this represents a lot of demand for dollars). Then there's \\\"\\\"Supply:\\\"\\\" It may seem like there are a fixed number of bills out there, or that supply only changes when Bernanke prints money, but there's actually a lot more to it than that. If you're coming from Europe and want to buy some USD from the bank, well, how much USD does the bank \\\"\\\"have\\\"\\\" and what does it mean for them to have money? The bank gets money from depositors, or from lenders. If one person puts money in a deposit account, and then the bank borrows that money from the account and lends it to a home buyer in the form of a mortgage, the same dollar is being used by two people. The home buyer might use that money to hire a carpenter, and the carpenter might put the dollar back into a bank account, and the same dollar might get lent out again. In economics this is called the \\\"\\\"multiplier effect.\\\"\\\" The full supply of money being used ends up becoming harder to calculate with this kind of debt and re-lending. Since money is something used and needed for conducting of transactions, the number of transactions being conducted (sometimes on credit) affects the \\\"\\\"supply\\\"\\\" of money. Demand and supply blur a bit when you consider people who hoard cash. If I fear the stock market, I might keep all my money in dollars. This takes cash away from companies who could invest it, takes the cash out of the pool of money being used for transactions, and leaves it waiting under my mattress. You could think of my hoarding as a type of demand for currency, or you could think of it as a reduction in the supply of currency available to conduct transactions. The full picture can be a bit more complicated, if you look at every way currencies are used globally, with swaps and various exchange contracts and futures, but this gives the basic story of where prices come from, that they are not set by some price fixer but are driven by market forces. The bank just facilitates transactions. If the last price (exchange rate) is 1.2 Dollars per Euro, and the bank gets more requests to buy USD for Euros than Euros for USD, it adjusts the rate downwards until the buying pressure is even. If the USD gets more expensive, at some point fewer people will want to buy it (or want to buy products from the US that cost USD). The bank maintains a spread (like buy for 1.19 and sell for 1.21) so it can take a profit. You should think of currency like any other commodity, and consider purchases for currency as a form of barter. The value of currency is merely a convention, but it works. The currency is needed in transactions, so it maintains value in this global market of bartering goods/services and other currencies. As supply and demand for this and other commodities/goods/services fluctuate, so does the quantity of any particular currency necessary to conduct any of these transactions. A official \\\"\\\"basket of goods\\\"\\\" and the price of those goods is used to determine consumer price indexes / inflation etc. The official price of this particular basket of goods is not a fundamental driver of exchange rates on a day to day basis.\\\"\",\n \"Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.)\",\n \"\\\"Money is money because people believe it is money. By \\\"\\\"believe it is money\\\"\\\", I mean that they expect they will be able to turn it into useful goods or services (food, rent, houses, truckloads full of iron ore, mining equipment, massages at the spa, helicopter rides, iPads, greenhouses, income streams to support your future retirement, etc). Foreign exchange rates change because people's ideas about how much useful goods or services they can get with various currencies change. For example: if the Zimbabwe government suddenly printed 10 times as much money as used to exist, you probably couldn't use that money to buy as much food at the Zimbabwe-Mart, so you wouldn't be willing to give people as many US-dollars (which can buy food at the US-Mart) for a Zimbabwe-dollar as you used to be able to. (It's not exactly that easy, because - for instance - food in the US is more useful to me than food in Zimbabwe. But people still move around all sorts of things, like oil, or agricultural products, or minerals, or electronics components.) The two main things that affect the value of a currency are the size of the economy that it's tied to (how much stuff there is to get), and how much of the currency there is / how fast it's moving around the economy (which tells you how much money there is to get it with). So most exchange rate shifts reflect a change in people's expectations for a regional economy, or the size of a money supply. (Also, Zimbabwe is doing much better now that it's ditched their own currency - they kept printing trillions of dollars' worth - and just trade in US dollars. Their economy still needs some work, but... better.)\\\"\",\n \"The exchange rate between two currencies is simply the price that the most recent market participants were able to agree on, when trading. ie: if the USDCAD is 1.36, it's because the last trade that happened where someone bought 1 USD cost 1.36 CAD. There is no one person/organization which 'decides' the rate between two currencies. The rate moves you see is just the reality of money changing hands as people in various situations trade currencies for various reasons. Just like with stocks or any other market product, foreign exchange rates can fluctuate wildly based on many things. It is very difficult to forecast where rates will go, because the biggest changes in rates can often be unpredictable news events. For example, when Brexit happened, the value of the GBP plummeted relative to other currencies, because the market traders had less faith in the UK economy, and therefore weren't willing to pay as much to buy GBP. See more here: https://money.stackexchange.com/a/76482/44232. There is a very high level of risk in the foreign exchange market; for your sake, don't get involved in any trading that you do not well understand, first.\",\n \"\\\"According to Soros in \\\"\\\"The Alchemy of Finance\\\"\\\", exchange rates fluctuations are mostly influenced by: (sorry I do not have the quote here, and I am paraphrasing from the top of my head what I read about a week ago). I mention his point of view as he is one of the most successful hedge fund manager ever, proved his skills, and dealt a lot with currencies. This is not just theory as he actively used the above points when managing his fund (as explained in the book). What I find interesting is that, according to him, the fundamental reason (the balance of trade) is not the most influential. Speculation on future value of currencies is the most influential, and these can set trends that can last years. Also it is key to notice that Soros thought foreign exchange markets are \\\"\\\"wrong\\\"\\\" most of the time, just like he thought stock markets are \\\"\\\"wrong\\\"\\\" most of the time (a point on which Warren Buffet and Jim Rogers also agree from my understanding).\\\"\",\n \"The increase of currency value in relation to another is a critical determinant of the economic health. It plays an important part in the level of trade and affects the world’s free market economy. But, they also effect on smaller scale as they create an impact on the portfolio of investors. So, it is suggested that the investors should make their trades wisely keeping in mind the value of other currencies that might your trade. Also, you should check the news daily to get regular updates and be well-informed of any changes happening in the market\",\n \"The fiat currency is the basis for currency markets - that is, currency that is not made of precious metals. The factors that influence what the value of a fiat currency are the state of the country's economy, what the gov't says the value should be, their fiscal policies, as well as what the currency is trading at. And what the currency is trading at is a product of these factors as well as the typical factors which would affect any stock trading. eHow has a great outline, here, which describes them.\",\n \"\\\"The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to \\\"\\\"buy\\\"\\\" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a \\\"\\\"basket\\\"\\\" of things they produce that another country will want, and a \\\"\\\"shopping list\\\"\\\" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency.\\\"\",\n \"It depends on the currency pair since it is much harder to move a liquid market like Fiber (EURUSD) or Cable (GBPUSD) than it is to move illiquid markets such as USDTRY, however, it will mostly be big banks and big hedge funds adjusting their positions or speculating (not just on the currency or market making but also speculating in foreign instruments). I once was involved in a one-off USD 56 million FX trade without which the hedge fund could not trade as its subscriptions were in a different currency to the fund currency. Although it was big by their standards it was small compared with the volumes we expected from other clients. Governments and big companies who need to pay costs in a foreign currency or receive income in one will also do this but less frequently and will almost always do this through a nominated bank (in the case of large firms). Because they need the foreign currency immediately; if you've ever tried to pay a bill in the US denominated in Dollars using Euros you'll know that they aren't widely accepted. So if I need to pay a large bill to a supplier in Dollars and all I have is Euros I may move the market. Similarly if I am trying to buy a large number of shares in a US company and all I have is Euros I'll lose the opportunity.\",\n \"\\\"From my limited experience with foreign exchange... Money is a commodity.. people buy it and sell it like other products.. if \\\"\\\"money\\\"\\\" is in demand the price goes up.. this is the case when a countries stocks are hot, and you need to purchase that countries currency to buy that stock... I've also seen the currency rise on news and speculation. Many years ago, I administered foreign receivables... My job was to settle letters of credit from Britain... I remember on one ocassion Margaret Thatcher said something to upset the markets.. her remark caused the price of the UK pound to fluctuate.\\\"\",\n \"Today the rates are arrived simply on the basis of demand and supply. Historically rates were pegged to Gold, when all currencies were printed depending on the Gold reserves. So if one country printed 100 units of currency of a 1gm of gold and other country 10 units of currency for 1 gm of gold, the rate would be 1:10. However In the seventies with shortages of Gold and other reasons, USD became the default standard, so the rate started being pegged to the USD reserves the countries started maintaining. However later in the early eighties, US backing out, the rate purely started getting pegged to market demand and supply. So for most currencies there was a default rate to begin with and today its changed ... Incase of USD/EUR, the initial rate was determined by the weighted average of the currencies that it sought to replace. After that its been market supply and demand. Since most of the trade in international market is US denominated, largest being Oil, each country has created a huge reserves of USD. So technically if China were to bank half its USD denominated treasury bills, the USD would come crashing down, but then China itself would be at disadvantage as its value of USD its holding would become less and it cannot buy the same items. Hence all countries keep hording USD and this means US if they print more money, the value will not come down, because it that happens, all countries holding USD would loose their value of reserve. In essence a country can print as much as currency it wants if all(majority) its debts and trades are denominated in local currencies. This is 100% true for US and hence it can get away by printing money. This is also true to a large extent for Japan as bulk of its Debts are denominated in JPY.\",\n \"\\\"The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are \\\"\\\"weak\\\"\\\" and some \\\"\\\"strong\\\"\\\". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona.\\\"\",\n \"I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies.\",\n \"\\\"Q: How do currency markets work? A: The FX (foreign exchange) market works very much like the stock market where potential buying parties bid $Y of country 1's currency to buy $1 in country 2's currency. Potential selling parties sell (ask) $1 of country 2's currency for $Y of country 1's currency. Like the stock market, there are also a swaps, futures and options in this market. Q: What factors are behind why currencies go up or down? A: Just like any open market, currencies go up and down based on supply and demand. Many factors affect the supply and demand of a particular currency. Some were listed well by the other posts. Q: What roles do governments, central banks, institutions, and traders have in the process? A: It's common practice that gov'ts intervene to \\\"\\\"control\\\"\\\" the value of currencies. For example, although it's not general public knowledge, the Canadian gov't is actively purchasing up US dollars in the FX market in an effort to stop the US/Canadian exchange rate from dropping further. This has dramatic economic consequences for the Canadian ecomony if the Canadian dollar were to strengthen too far and too quickly.\\\"\",\n \"\\\"Relative changes in rates are significant. Why? Exchange rates encourage cross-border trade. For example, I live in an area that is now popular with Canadian tourists, mostly due to the favorable exchange rates. Changes in exchange rates between trading partners can affect trade balance as well. The US \\\"\\\"strong dollar\\\"\\\" policy made US exports expensive and imports cheaper, which encouraged more imports.\\\"\",\n \"currency's central bank or treasury/finance department speeches that can announce a significant change in policy. That includes: Particularly when it is a high level figure within the department such as the President or Prime Minister making the announcement. Macroeconomic stats: GeoPolitical considerations, such as: Economic calendars, such as ForexFactory and MyFxBook track planned economic news releases. Obviously, a coup d'etat or war declaration may not be well known in advance.\",\n \"Anything related to the central bank will have a large impact, as they are the ones who determine interest rates, and interest rates have a big effect on currency flows. GDP is also important, as when there is an economic slowdown it may result in the central bank reducing rates to boost economic activity. The opposite is also true, large increases in GDP may mean that an interest rate hike might be needed. Inflation data is also very important. Again, large changes in inflation either way may push the central bank towards changing rates. This data typically is in the form of CPI Note that each central bank is different. They all have specific mandates and specific pieces of economic data that they place emphasis on. The Federal Reserve as of late has closely been watching inflation data, especially wage inflation data, and employment. Significant deviations in these data points from whats expected by investors can greatly move the market. However, these specific factors are a little less important for, say, Mexico, which is mostly concerned with headline inflation. Read the statements issued by the central banks to find out whats important to them. Central banks also issue expectations for things like growth, CPI, etc. If these expectations are not met, it may result in a policy change, or at least talk of a policy change, at the next meeting of the central bank. Anticipating these policy changes and trading accordingly is one strategy to be a profitable forex trader Also, there are several forex news calendars online that indicate what is likely to be high impact news. These can be helpful starting out.\",\n \"From Indian context, there are a number of factors that are influencing the economic condition and the exchange rate, interest rate etc. are reflection of the situation. I shall try and answer the question through the above Indian example. India is running a budget deficit of 4 odd % for last 6-7 years, which means that gov.in is spending more than their revenue collection, this money is not in the system, so the govt. has to print the money, either the direct 4% or the interest it has to pay on the money it borrows to cover the 4% (don't confuse this with US printing post 2008). After printing, the supply of INR is more compared to USD in the market (INR is current A/C convertible), value of INR w.r.t. USD falls (in simplistic terms). There is another impact of this printing, it increases the money supply in domestic market leading to inflation and overall price rise. To contain this price rise, Reserve Bank of India (RBI) increases the interest rates and increases Compulsory Reserve Ratio (CRR), thus trying to pull/lock-up money, so that overall money supply decreases, but there is a limit to which RBI can do this as overall growth rate keeps falling as money is more expensive to borrow to invest. The above (in simplistic term) how this is working. However, there are many factors in economy and the above should be treated as it is intended to, a simplistic view only.\",\n \"No. An exchange rate tells you the exchange rate, that's all. Changes in exchange rates are a little more interesting because they suggest economic changes (or anticipation of such), but since the exchange rate is the composite of many economic forces, determining what changes may be in action from an exchange rate change is not really possible.\",\n \"Rates are arrived at by the cumulative buying and selling on the foreign exchange market, much the same way that stock prices are arrived at. If there are more people wanting to buy dollars with euros, EUR/USD goes down. If more people want to buy euros with dollars, then EUR/USD goes up. The initial rate was about $1.18 per euro when it began trading on January 1st, 1999. It replaced the European Currency Unit at that time, which was a weighted basket of currencies of (more or less) the participating countries. You're correct about the printing press in the US and other countries. The exchange rates do reflect in part how much of a relative workout those printing presses get.\",\n \"International exchange rates are arbitraged. If I exchange A for B for C and then back to A again, I'll end up with the same amount ex trade fees. Assume this isn't the case. Clearly if I'd gain, someone else loses and I'd make millions by rapidly exchanging. Now assume that I'd lose money on that route. That must be because the reverse route, A->C->B->A gains money. (Again, assuming no fees) So in this case you'd just look at fees. (And as Ganesh points out, that may include future fees)\",\n \"\\\"Supply and Demand, pure and simple! There are two basic forms of this - a change in the quantity demanded/supplied at any given price, and a true change in the amount of demand/supply itself. Please note that this can be distinct from the underlying change in the value of the company and/or its expected future cash flows, which are a function of both financial performance and future expectations. If more people want the stock that are willing to sell it at a given price at a given point in time, sellers will begin to offer the stocks at higher prices until the market is no longer willing to bear the new price, and vice versa. This will reduce the quantity of stocks demanded by buyers until the quantity demanded and the quantity supplied once again reach an equilibrium, at which point a transaction occurs. Because people are motivated to buy and sell for different reasons at different times, and because people have different opinions on a constant flow of new information, prices change frequently. This is one of the reasons why executives of a recent IPO don't typically sell all of their stock at once. In addition to legal restrictions and the message this would send to the market, if they flooded the market with additional quantities of stock supplied, all else being equal, since there is no corresponding increase in the quantity demanded, the price would drop significantly. Sometimes, the demand itself for a company's stock shifts. Unlike a simple change in price driven by quantity supplied versus quantity demanded, this is a more fundamental shift. For example, let's suppose that the current demand for rare earth metals is driven by their commercial applications in consumer electronics. Now if new devices are developed that no longer require these metals, the demand for them will fall, regardless of the actions of individual buyers and sellers in the market. Another example is when the \\\"\\\"rules of the game\\\"\\\" for an industry change dramatically. Markets are behavioral. In this sense prices are most directly driven by human behavior, which hopefully is based on well-informed opinions and facts. This is why sometimes the price keeps going up when financial performance decreases, and why sometimes it does not rise even while performance is improving. This is also why some companies' stock continues to rise even when they lose huge sums of money year after year. The key to understanding these scenarios is the opinions and expectations that buyers and sellers have of that information, which is expressed in their market behavior.\\\"\",\n \"\\\"You may as well ask why a piece of wood is 25 centimeters long but only 10 inches. Most units of measure are very arbitrary. Somebody decides that this amount of heat or distance or money is a convenient unit, and so that's what they use. Suppose that tomorrow the government issued a whole new currency that had 10 times the value of the old currency. So if you used to make 10,000 foobars a year, now you make 1,000 new foobars. And likewise the price of everything you buy is divided by 10. If a certain model car used to cost 2,000 foobars, now it costs 200 new foobars. Are you better or worse off? Clearly if ALL prices change by the same percentage, then it makes absolutely no difference. (Aside from the hassle of making the switch and getting used to the new numbers.) A currency where 1 unit of money buys more is not necessarily a \\\"\\\"stronger currency\\\"\\\". Any more than inches are \\\"\\\"better\\\"\\\" than centimeters because you get more wood for an inch than you get for a centimeter. A currency is said to be \\\"\\\"strong\\\"\\\" when it's value is stable or increasing relative to other currencies. If yesterday I could trade 10 foobars for 1 plugh, but today I only need 9 foobars to buy 1 plugh, then foobars are stronger than plughs. Even though I still need more foobars than plughs to buy the same item.\\\"\",\n \"\\\"It may seem weird but interest rates are set by a market. Risk is a very large component of the price that a saver will accept to deposit their money in a bank but not the only one. Essentially you are \\\"\\\"lending\\\"\\\" deposited cash to the bank that you put it in and they will lend it out at a certain risk to themselves and a certain risk to you. By diversifying who they lend to (corporations, home-buyers each other etc.) the banks mitigate a lot of the risk but lending to the bank is still a risky endeavour for the \\\"\\\"saver\\\"\\\" and the saver accepts a given interest rate for the amount of risk there is in having the money in that particular bank. The bank is also unable to diversify away all possible risk, but tries to do the best job it can. If a bank is seen to take bigger risks and therefore be in greater risk of failing (having a run on deposits) it must have a requisitely higher interest rates on deposits compared to a lower risk bank. \\\"\\\"Savers\\\"\\\" therefore \\\"\\\"shop around\\\"\\\" for the best interest rate for a given level of risk which sets the viable interest rate for that bank; any higher and the bank would not make a profit on the money that it lends out and so would not be viable as a business, any lower and savers would not deposit their money as the risk would be too high for the reward. Hence competition (or lack of it) will set the rate as a trade off between risk and return. Note that governments are also customers of the banking industry when they are issuing fixed income securities (bonds) and a good deal of the lending done by any bank is to various governments so the price that they borrow money at is a key determinant of what interest rate the bank can afford to give and are part of the competitive banking industry whether they want to be or not. Since governments in most (westernised) countries provide insurance for deposits the basic level of (perceived) risk for all of the banks in any given country is about the same. That these banks lend to each other on an incredibly regular basis (look into the overnight or repo money market if you want to see exactly how much, the rates that these banks pay to and receive from each other are governed by interbank lending rates called Libor and Euribor and are even more complicated than this answer) simply compounds this effect because it makes all of the banks reliant on each other and therefore they help each other to stay liquid (to some extent). Note that I haven't mentioned currency at all so far but this market in every country applies over a number of currencies. The way that this occurs is due to arbitrage; if I can put foreign money into a bank in a country at a rate that is higher than the rate in its native country after exchange costs and exchange rate risk I will convert all of my money to that currency and take the higher interest rate. For an ordinary individual's savings that is not really possible but remember that the large multinational banks can do exactly the same thing with billions of dollars of deposits and effectively get free money. This means that either the bank's interest rate will fall to a risk adjusted level or the exchange rate will move. Either of those moves will remove the potential for making money for nothing. In this case, therefore it is both the exchange rate risk (and costs) as well as the loan market in that country that set the interest rate in foreign currencies. Demand for loans in the foreign currency is not a major mover for the same reason. Companies importing from foreign entities need cash in foreign currencies to pay their bills and so will borrow money in other currencies to fulfil these operations which could come from deposits in the foreign currency if they were available at a lower interest rate than a loan in local currency plus the costs of exchange but the banks will be unwilling to loan to them for less than the highest return that they can get so will push up interest rates to their risk level in the same way that they did in the market before currencies were taken into account. Freedom of movement of foreign currencies, however, does move interest rates in foreign currencies as the banks want to be able to lend as much of currencies that are not freely deliverable as they can so will pay a premium for these currencies. Other political moves such as the government wanting to borrow large amounts of foreign currency etc. will also move the interest rate given for foreign currencies not just because loaning to the government is less risky but also because they sometimes pay a premium (in interest) for being able to borrow foreign currency which may balance this out. Speculation that a country may change its base interest rate will move short term rates, and can move long term rates if it is seen to be a part of a country's economic strategy. The theory behind this is deep and involved but the tl;dr answer would be the standard \\\"\\\"invisible hand\\\"\\\" response when anything market or arbitrage related is involved. references: I work in credit risk and got a colleague who is also a credit risk consultant and economist to look over it. Arbitrage theory and the repo markets are both fascinating so worth reading about!\\\"\",\n \"\\\"The prices quoted are for currency pairs traded on the foreign exchange market. For currencies traded on these exchanges, the exchange rates of a given currency pair are determined by the market, so supply and demand, investor confidence, etc. all play a role. EBS and Reuters are the two primary trading platforms in the foreign exchange market, and much of the data on exchange rates comes from them. Websites will usually get their data either from these sources directly or from a data provider that in turn gets it from EBS, Reuters, or another data source like Bloomberg or Haver Analytics. These data sources aren't free, however. In the US, many contracts, transactions, etc. that involve exchange rates use the exchange rate data published by the Federal Reserve. You might see this in contracts that specify to use \\\"\\\"the exchange rate published by the Federal Reserve at 12 pm (noon) on date --some date--\\\"\\\". You can also look at the Federal Reserve Economic Data, which maintains data series of historical daily, weekly, and monthly exchange rates for major currency pairs. These data are free, although they aren't realtime. Data for each business day is mostly updated the next business day.\\\"\",\n \"The value of the asset doesn't change just because of the exchange rate change. If a thing (valued in USD) costs USD $1 and USD $1 = CAN $1 (so the thing is also valued CAN $1) today and tomorrow CAN $1 worth USD $0.5 - the thing will continue being worth USD $1. If the thing is valued in CAN $, after the exchange rate change, the thing will be worth USD $2, but will still be valued CAN $1. What you're talking about is price quotes, not value. Price quotes will very quickly reach the value, since any deviation will be used by the traders to make profits on arbitrage. And algo-traders will make it happen much quicker than you can even notice the arbitrage existence.\",\n \"Sometimes the market has to be left alone. Too much interference of the policy makers to stabilize the falling market can actually result in a major crisis. Every change stabilises after sometime and it is also applicable in the Forex trading market. So, the eager investors should learn to have some patience and wait for the market to stabilise itself rather than make random predictions on the policies released by policy makers\",\n \"A lot of questions, but all it boils down to is: . Banks usually perform T+1 net settlements, also called Global Netting, as opposed to real-time gross settlements. That means they promise the counterparty the money at some point in the future (within the next few business days, see delivery versus payment) and collect all transactions of that kind. For this example say, they will have a net outflow of 10M USD. The next day they will purchase 10M USD on the FX market and hand it over to the global netter. Note that this might be more than one transaction, especially because the sums are usually larger. Another Indian bank might have a 10M USD inflow, they too will use the FX market, selling 10M USD for INR, probably picking a different time to the first bank. So the rates will most likely differ (apart from the obvious bid/ask difference). The dollar rate they charge you is an average of their rate achieved when buying the USD, plus some commission for their forex brokerage, plus probably some fee for the service (accessing the global netting system isn't free). The fees should be clearly (and separately) stated on your bank statement, and so should be the FX rate. Back to the second example: Obviously since it's a different bank handing over INRs or USDs (or if it was your own bank, they would have internally netted the incoming USDs with the outgoing USDs) the rate will be different, but it's still a once a day transaction. From the INRs you get they will subtract the average FX achieved rate, the FX commissions and again the service fee for the global netting. The fees alone mean that the USD/INR sell rate is different from the buy rate.\",\n \"The current FED's spend is to encourage spends by putting in more liquidity, SOME of this funds [directly or indirectly] reach emerging markets and get invested in stocks ... so without these forex inflows, the Balance of Payments would be under pressure ... so these forex are artificially keeping the Exchange rate down. For example the USD vs INR rate was in the range of 1 USD to around INR 50 for nearly 4-5 years. In the period the inflation in India was around 10-15%, so ideally the rate should have slowly moved towards INR 60, however it took a news of FED cut-back to more the rates in the range of INR 65 before stabilizing to Rs 60\",\n \"Forex is really not that volatile compared to other major asset classes like stocks and commodities. But still markets are generally unencumbered in the major pairs and therefore spikes in volatility can happen. Take what happened with the Swiss Franc a few years ago for example, or GBPUSD recently with news of Brexit. This is less the case with highly regulated currencies like the Chinese Yuan (CNY) Volatility is caused by excessive buy or sell pressure in relation to the available liquidity at the current price. This is usually caused by large buy or sell orders placed with interbank desks by institutions (often including other banks) and central banks. News can also sometimes have a dramatic impact and cause traders to adjust their prices significantly and very quickly.\",\n \"\\\"At any moment, the price is where the supply (seller) and demand (buyer) intersect. This occurs fast enough you don't see it as anything other than bid/ask. What moves it? News of a new drug, device, sandwich, etc. Earning release, whether above or below expectations, or even dead-on, will often impact the price. Every night, the talking heads try to explain the day's price moves. When they can't, they often report \\\"\\\"profit taking\\\"\\\" for a market drop, or other similar nonsense. Some moves are simple random change.\\\"\",\n \"I usually look at the high and low exchange rates for the last five years. If the current rate is fairly close to the high for a trade over the past five years, then I do the trade. If the current exchange rate is close to the low, then I wait.\",\n \"What you are asking about is called Interest Rate Parity. Or for a longer explanation the article Interest Rate Parity at Wikipedia. If the US has a rate of say zero, and the rate in Elbonia is 10%, one believes that in a year the exchange rate will be shifted by 10%, i.e. it will take 1.1 unit of their currency to get the dollars one unit did prior. Else, you'd always profit from such FOREX trades. (Disclaimer - I am not claiming this to be true or false, just offering one theory that explains the rate difference effect on future exchange rates.\",\n \"Besides overnight news events and auction mechanisms there is a more fundamental reason the price of a stock is always moving. Theoretically the stock price will move slightly even in the unlikely scenario that absolutely nothing of interest happens during the entire night. Let me go into that in some more detail: Stock valuation using Discounted Cash FLow One of the fundamental reasons that stock value is constantly changing is because underneath every stock there is a company that expects to make some kind of profit or loss in the future. We have to go into the fundamentals of stock value to understand why this is important: One popular way to determine the value of a stock is by looking into the future and summing up all the earnings (or cashflows) it has yet to produce. You have to reduce each amount by a certain factor that gets larger for payments that are farther into the future. Think of it this way: a dollar in hand now is better than a dollar that you get tomorrow. This method of valuation is called Discounted Cash Flow (abbr. DCF; see the wikipedia article on DCF) Time's effect on stock value Now take the Close price C, and the open price O. Let's assume that since there has been no news, the expectations for future earnings are the same for C and O. Remember that the discounting factor for these earnings is dependent on the time until the cashflow occurs? For O, this time is slightly shorter than for C, and therefore the value will be slightly higher (or lower, when the company is expected to incur losses). So now you can see that even without all the external forces that continuously push and pull on the stock price, a stock still changes in value over time. Hope this helps.\",\n \"The mechanism of supply and demand is imperfect. Producers don't know exactly how many purchasers/consumers for a good there are. Some goods, by their nature, are in short supply, and some are plentiful. The process of price discovery is one where (in a nominally free market) producers and purchasers make offers and counter-offers to assess what the price should be. As they do this the historical price changes, usually floating around some long-term average. As it goes up, we experience inflation. As it goes down, deflation. However, there isn't a fixed supply of producers and purchasers, so as new ones arrive and old ones leave, this too has an impact on supply and prices. Money (either in electronic or physical form) needs to be available to reflect the transactions and underpin the economy. Most central banks (at least in more established economies) aim for inflation of 2-4% by controlling the availability of money and the cost of borrowing new money. There are numerous ways they can do this (printing, issuing bonds, etc.). The reason one wants some degree of inflation is because employees will never accept a pay cut even when one would significantly improve the overall economy. Companies often decrease their prices in order to match lower demand, but employees don't usually accept decreased wages for decreased labour demand. A nominal degree of overall money inflation therefore solves this problem. Employees who get a below-inflation wage increase are actually getting a wage cut. Supply and demand must be matched and some inflation is the inevitable consequence of this.\",\n \"Are you trying to get someone to do your homework for you? This question has been answered repeatedly in the negative by everyone who actually studies the economy. Read Mundell-Flemming model, and learn this stuff. You can see why currency regimes like the Euro make sense from a theoretical stand point, but where flexible exchange rates are a welcome release valve for pressures. You obviously have never studied economics. Hyper inflation doesn't happen becuase of floating exhange rates. Hyperinflation happens when people lose faith in the governing body, regardless of who that is. You think political regimes won't change just because there is one currency? No, they will still spent 1.05 for every dollar they bring in taxes. Hyperinflation is not a problem of floating exchange rates, it doesn't follow from any causal relationship.\",\n \"Is there not some central service that tracks current currency rates that banks can use to get currency data? Sure. But this doesn't matter. All the central service can tell you is how much the rate was historically. But the banks/PayPal don't care about the historical value. They want to know the price that they'll pay when they get around to switching, not the last price before the switch. Beyond that, there is a transaction cost to switching. They have to pay the clearinghouse for managing the transaction. The banks can choose to act as a clearinghouse, but that increases their risk. If the bank has a large balance of US dollars but dollars are falling, then they end up eating that cost. They'll only take that risk if they think that they'll make more money that way. And in the end, they may have to go on the currency market anyway. If a European bank runs out of US dollars, they have to buy them on the open market. Or a US bank might run out of Euros. Or Yen. Etc. Another problem is that many of the currency transactions are small, but the overhead is fixed. If the bank has to pay $5 for every currency transaction, they won't even break even charging 3% on a $100 transaction. So they delay the actual transaction so that they can make more than one at a time. But then they have the risk that the currency value might change in the meantime. If they credit you with $97 in your account ($100 minus the 3% fee) but the price actually drops from $100 to $99, they're out the $1. They could do it the other way as well. You ask for a $100 transaction. They perform a $1000 transaction, of which they give you $97. Now they have $898 ($1000 minus the $5 they paid for the transaction plus the $3 they charged you for the transaction). If there's a 1% drop, they're out $10.98 ($8.98 in currency loss plus a net $2 in fees). This is why banks have money market accounts. So they have someone to manage these problems working twenty-four hours a day. But then they have to pay interest on those accounts, further eating into their profits. Along with paying a staff to monitor the currency markets and things that may affect them.\",\n \"At any instant, three currencies will have exchange rates so if I know the rate between A and B, and B to C, the A to C rate is easily calculated. You need X pounds, so at that moment, you are subject to the exchange rate right then. It's not a deal or bargain, although it may look better in hindsight if the currencies move after some time has passed. But if a currency is going to depreciate, and you have the foresight to know such things, you'd already be wealthy and not visiting here.\",\n \"If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands). Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market. 3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news. I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are].\",\n \"On Credit Cards [I am assuming you have a Visa or Master card], the RBI does not decide the rate. The rate is decided by Visa or Master. The standard Sheet rate for the day is used. Additionally SBI would mark it up by few paise [FX mark-up spread]. This is shown as mark-up fee. The rate of USD Vs INR changes frequently. On large value [say 1 million] trades even a paise off makes a huge difference and hence the rate is constantly changing [going up or down]. The rates offered to individuals are constant through out the day. They change from day to day and can go up for down. Recently in the past 6 months if you read the papers, Rupee has been going down and is at historic low. On a give day there are 2 rates; - Bank Buy Rate, ie the rate at which Bank will BUY USD from you. Say 61. So it will buy 100 USD and give you Rupees 6100. - Bank Sell rate, ie the rate at which Bank will SELL USD to you. Say 62. So if you want 100 USD, you need to give Bank 6200. The difference between this is the profit to bank.\",\n \"\\\"Does some official tell the Foreign Exchange the the new exchange rate for the yuan is 0.98 * the current exchange rate? For China (and other countries with fixed/controlled exchange rates) - that's exactly how it happens. Does it just print more? This is the way to go for fully convertible currencies (like the USD, EUR, GBP, and handful of others, there're about 20 in the world). Flood the market and as with any commodity - flooding the market leads to a price drop. Obviously \\\"\\\"just print more\\\"\\\" is much harder to do than picking up the phone and saying \\\"\\\"Now you're buying/selling dollars at this price and if you don't I'll have you executed\\\"\\\".\\\"\",\n \"The general idea is that if the statement wasn't true there would be an arbitrage opportunity. You'll probably want to do the math yourself to believe me. But theoretically you could borrow money in country A at their real interest rate, exchange it, then invest the money in the other country at Country B's interest rate. Generating a profit without any risk. There are a lot of assumptions that go along with the statement (like borrowing and lending have the same costs, but I'm sure that is assumed wherever you read that statement.)\",\n \"according to me it's the news about a particular stock which makes people to buy or sell it mostly thus creates a fluctuation in price . It also dependents on the major stock holder.\",\n \"Yes traders, living or algorithmic, are the only direct factors that can cause a change in the price of a marketable item. Traders can be affected by news, broken exchanges ;), emotional cycles, lunar cycles, time the trader goes to lunch (or a power cycle if you are an algo running on that unfortunate OS), anything.\",\n \"The measure of change of value of a currency in relation to itself is inflation (or deflation).\",\n \"Look for unsustainable policies and actions by policy makers, both before and possibly during, when looking at the ForEx markets. Consider some examples: Each of those events could be seen in the growing unsustainability of local policies. ForEx markets and local policies can appear to stay on an unsustainable path for a long time, but equilibrium will force itself on everything in the long run. In two of the above cases, the initial response wasn't enough to offset the mess, and more and more intervention had to be done, only making matters worse. When you know how unsustainable policies are and how big the corrections need to be, you can quickly ascertain whether an action by policy makers will be enough.\",\n \"There's a concept called interest rate parity, which sort of says that you cannot profit on the difference in interest rates. This difference accounts for the predicted movement in exchange rates as well, along with the stability of the currencies.\",\n \"\\\"Currencies that are pegged or fixed require that foreign currencies are held by the central issuer at a proportional amount. This is analogous to having a portfolio of currencies that the central bank issues shares from - in the form of its own currency. We will continue with this analogy, if the central bank says these \\\"\\\"shares\\\"\\\" are worth $1, but the underlying components of the portfolio are worth $0.80 and decreasing, then it is expensive for the central bank to maintain its peg, and eventually they will have to disregard the peg as people start questioning the central bank's solvency. (People will know the $1 they hold is not really worth what the central bank says it is, because of the price changes people experience in buying goods and services, especially when it comes to imports. Shadow economies will also trade using a currency more reflective of labor, which happens no matter what the government's punishments are for doing so). Swiss National Bank (central bank) did this in early 2015, as it experienced volatility in the Euro which it had previously been trying to keep it's currency pegged to. It became too expensive for it to keep this peg on its own. The central bank can devalue its currency by adjusting the proportions of the reserve, such as selling a lot of foreign currency X, buying more of currency Y. They can and do take losses doing this. (Swiss National Bank is maintaining a large loss) They can also flood their economy with more of their currency, diluting the value of each individual 1 dollar equivalent. This is done by issuing bonds or monetizing goods and services from the private sector in exchange for bonds. People colloquially call this \\\"\\\"printing money\\\"\\\" but it is a misnomer in this day and age where printers are not relevant tools. The good and service goes onto the central bank's balance book, and the company/entity that provided the service now has a bond on its book which can be immediately sold to someone else for cash (another reading is that the bond is as good as cash). The bond didn't previously exist until the central bank said it did, and central banks can infinitely exchange goods and services for bonds. Bond monetization (also called Quantitative Easing) is practiced by the Federal Reserve in the United States, Bank of Japan, European Central Bank and now the Central Bank of the Republic of China\\\"\",\n \"Because we need energy in the form of oil. If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves. Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?\",\n \"Depending on what currency the price is quoted in and is originally sold, currency fluctuation can also carry over onto the price in your currency. An example for that would be bitcoin prices which sometimes show heavy ups and downs in one currency, but seem totally stable in another and can be tracked back to changed exchange rates between currencies. Also like others have said, prices on stocks are not actually fixed. You can offer to buy or sell at any price. Only if 2 people want to buy or sell for the same price there will actually be a transaction.\",\n \"It depends on the asset and the magnitude of the exchange rate change relative to the inflation rate. If it is a production asset, the prices can be expected to change relative to the changes in exchange rate regardless of magnitude, ceteris paribus. If it is a consumption asset, the prices of those assets will change with the net of the exchange rate change and inflation rate, but it can be a slow process since all of the possessions of the country becoming relatively poorer cannot immediately be shipped out and the need to exchange wants for goods will be resisted as long as possible.\",\n \"\\\"You might want to read about about the Coase Theorem. \\\"\\\"In law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining.\\\"\\\" This is similar to what you are asking. Each country has an endowment of gold, and they must create a set amount of money to represent their endowment of gold. This will establish an exchange rate. If I have 5 tons of gold and you have 5 tons, and I print 10 dollars and you print 20, then one of my dollars is worth two of your dollars. Thus, the amount of money is not relevant- it's the exchange rate between the countries. If all the nations know each other's gold endowment, then we will have a perfect exchange rate. If we don't, then currency printing will vary but arbitrage should drive it to an accurate price. Gold and diamonds are both valuable in part due to scarcity, but gold has been used as a measure of value because it's been historically used as a medium of exchange. People just realized that swapping paper was safer and cheaper than physically transporting gold, but the idea of gold as a measure of value is present because \\\"\\\"that's how it's always been.\\\"\\\" Nobody \\\"\\\"creates/supervises\\\"\\\" these procedures, but organizations like the IMF, ECB, Fed Reserve, etc implement monetary policy to regulate the money supply and arbitrage drives exchange rates to fair values.\\\"\",\n \"\\\"As the European crisis worsened the Swiss Franc (CHF) was seen as a safe currency so Europeans attempted to exchange their Euros for Francs. This caused the Franc to appreciate in value, against the Euro, through the summer and fall of 2011. The Swiss government and Swiss Central Bank (SNB) believe mercantilism will create wealth for the citizens of Switzerland. The Swiss central planners believe that having an abundance of export businesses in Switzerland will create wealth for the citizens of Switzerland as the exporters sell their good and services abroad and pocket a bunch of cash. Thus, the central planners tend to favor exporters. From the article: At the start of the year, when exporters urged for government and SNB action, ... The Swiss Central bank continued to intervene in currency markets in 2011 to prevent the CHF from appreciating. This was done to prevent a decrease in export business. Finally after many failed attempts they announced the 1.20 peg in September. The central planners give little consideration to imports, however, since manufacturers in foreign countries don't vote or contribute to the campaign funds of the central planners in Switzerland. As the CHF strengthened many imported items became very cheap for Swiss citizens. This was of little concern to the central planners. Currencies are like other goods in a market in that they respond to supply and demand. Their value can change daily or even hourly based on the continually varying demands of people. This can cause the exchange rate to rise and fall against other currencies and goods. Central planners mistakenly believe that the price of certain market items (like currency) should not fluctuate. The believe there is some magical number that will cause the market to operate \\\"\\\"better\\\"\\\" or \\\"\\\"more correctly\\\"\\\". How does the SNB maintain the peg? They maintain the peg by printing Francs and purchasing euros.\\\"\",\n \"\\\"Wikipedia talks about the Chinese currency: Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis. so despite it appearing cheaper due to the official exchange rate, the price in China might actually be fair. There are also restrictions on foreign exchange (purportedly \\\"\\\"to prevent inflows of hot money\\\"\\\"), which, in concert with any other legal obstacles to owning or trading on the Chinese exchange, may also explain why the high-frequency traders aren't tripping over each other to arbitrage away the difference.\\\"\",\n \"One interpretation of the above is that Pound (alongside US Dollar, Euro and other major curriencies), which forms the Forex basket of countries has dropped to less than 10% weightage in case of China's Forex holding. Now the question is where did this money go, this money probably have gone into Forex market to buy Yuan against Pound/Dollar etc. to bolster or strengthen Yuan. The currency reserve management is the 'wealth' management part and the 'currency' management part is what is known as 'central bank intervention' to stabilize the currency.\",\n \"\\\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as whether or not the person is studying at a foreign university. If the citizen wants to exchange more dollars than legally allowed, that person must buy or sell at the \\\"\\\"black\\\"\\\" market rate, rather than through the official/government market.\\\"\",\n \"If I understand what you're asking, I think you're looking at the relationship wrong. Yes, when one currency has a higher interest rate relative to another, it's value should, theoretically, appreciate. For example, if the USD interest rate is 10% and the EUR is 5%, the USD should appreciate in value against the EUR. However, the parity relationship tells you the price at which an investor would be indifferent to the difference in interest rates. So using the formula for interest rate parity: (1+r(USD))/(1+r(EUR)) = F/S and plugging in the interest rates from above and a spot rate of $1.5/EUR: (1.1)/(1.05) = F/(1.5) The 1 year forward rate would have to be $1.5714/EUR in order for the investor to be INDIFFERENT between holding USD or EUR. All this assuming interest rate parity holds. I'm not big on Econ but this is how I understood it when studying for the CFA exam the past few months. So please, someone correct me if I'm wrong.\",\n \"There is nothing called actual, unless you convert currency. There are real offer rates that are slightly different from Bank to Bank. Search Engines give a generic average value based on the sites they are trust / have tie-up with. Banks don't use google or search engines to get the basis, they have quite a bit more info and there is a specific Treasury function that would look at the trend and give out a huge spread between buy and sell.\",\n \"\\\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (such as nationalising businesses) or general instability / scarcity. The governments act to manage that uncertainty by limiting the availability of foreign exchange and pegging the exchange rate. Since there is an inadequate supply of trusted foreign currency people turn to informal exchanges in order to hedge their currency risk. This creates a negative feedback loop. People in government who have access to foreign exchange start to trade on informal markets, pocketing the difference in the official and unofficial rates. The increasing gap between the two rates drives increasing informal market exchange and can result in speculative bubbles. Driving instability (or economic contradiction) is that the massive and increasing difference between the official and market exchange rates becomes a powerful form of rent for government officials. This drives further state-led rent-seeking behaviour and causes the economy to become even more unstable. If you're interested in a more formal academic study of how such parallel markets in currency arise, \\\"\\\"Zimbabwe’s Black Market for Foreign Exchange\\\"\\\" by Albert Makochekanwa at the University of Pretoria is a useful source.\\\"\",\n \"The currency market, more often referred as Forex or FX, is the decentralized market through which the currencies are exchanged. To trade currencies, you have to go through a broker or an ECN. There are a lot's of them, you can find a (small) list of brokers here on Forex Factory. They will allow you to take very simple position on currencies. For example, you can buy EUR/USD. By doing so, you will make money if the EUR/USD rate goes up (ie: Euro getting stronger against the US dollar) and lose money if the EUR/USD rate goes down (ie: US dollar getting stronger against the Euro). In reality, when you are doing such transaction the broker: borrows USD, sell it to buy EUR, and place it into an Euro account. They will charge you the interest rate on the borrowed currency (USD) and gives you the interest and the bought currency (EUR). So, if you bought a currency with high interest rate against one with low interest rate, you will gain the interest rate differential. But if you sold, you will lose the differential. The fees from the brokers are likely to be included in the prices at which you buy and sell currencies and in the interest rates that they will charge/give you. They are also likely to gives you big leverage to invest far more than the money that you deposited in their accounts. Now, about how to make money out of this market... that's speculation, there are no sure gains about it. And telling you what you should do is purely subjective. But, the Forex market, as any market, is directed by the law of supply and demand. Amongst what impacts supply and demands there are: Also, and I don't want to judge your friends, but from experience, peoples are likely to tell you about their winning transaction and not about their loosing ones.\",\n \"There are no flat fees but typically banks and money exchangers will use a the current market rate, up to the minute for some powerful exchangers. They then add a little on top depending on many variables. Those variables can be related to the quantity of currency that organization holds, the average amount they hold, the market trend for that currency, the stability of the currency, the location of that currency exchange, etc. As for the one stop shop for currency exchange providers, you can try moneysupermarket.com Hope that helps.\",\n \"I noticed the buy/sell board table. Where did you notice this. Generally for a pair of currencies, there is Unit associated along with direction. The Unit is generally constant. These are only revised when there is large devaluation of a particular currency. Buying Php for MYR 8.52, Selling MYR 8.98. So in this case the Unit of PHP is 100, so Bank is Buying 100 PHP from you [you are selling PHP] and will give you MYR 8.52. If you now want to buy 100 PHP [so the Bank is selling you], you have to pay MYR 8.98. So you loose MYR 0.46 Why are they selling it way beyond the exchange rate? Why is this? As explained above, they are not. Its still within the range. The quote on internet are average price. This means before going back to Philippines, I can buy a lot of peso that I can buy and exchange it for higher price right? Generally an individual cannot make money by buying in one currency and selling in other. There are specialist who try and find arbitrage between multiple pair of currencies and make money out of it. Its a continuous process, if they start making profit, the market will react and put pressure on a pair and the prices would move to remove the arbitrage.\",\n \"It's the buying and selling of the stock that causes the fluctuation in prices, not the news. People buy and sell all the time, and not just for newsworthy reasons. They may have to send a child to college, or fix a roof, etc. Or they may be technical traders looking for signals. All kinds of reasons.\",\n \"I wrote about the dynamic of why either of a lower or higher exchange rate would be good for economies in Would dropping the value of its currency be good for an economy? A strong currency allows consumers to import goods cheaply from the rest of the world. A weak currency allows producers to export goods cheaply to the rest of the world. People are both consumers and producers. Clearly, there have to be trade-offs. Strong or weak mean relative to Purchasing Power Parity (i.e. you can buy more or less of an equivalent good with the same money). Governments worrying about unemployment will try and push their currencies weaker relative to others, no matter the cost. There will be an inflationary impact (imported inputs cost more as a currency weakens) but a country running a major surplus (like China) can afford to subsidise these costs.\",\n \"You may simply be asking why stocks 'gap up' or 'gap down' when the stock market opens. This is because the price adjusts to news that occurred while the exchanges were closed overnight. Perhaps Asian stocks crashed, or perhaps a news story was released in the New York Times about some major company. There are thousands of factors that affect market sentiment, and the big gaps that happen at the open of every trading day is the price of the stocks catching up to those factors.\",\n \"As mentioned in several other answers, the main reason for high rates is to maximize profit. However, here is another, smaller effect: The typical flow of getting money from an ATM: Suppose you have a minute to consider the offer, then in that time the currency may drop or rise (which you can see from an external source of information). Therefore this opens a window for abuse. For real major currencies these huge switches are rare, but they do happen. And when 1 or 2 minor currencies are involved these switches are more common. Just looking at a random pair for today (Botswana Pula to Haitian Gourde) I immediately spotted a moment where the exchange rate jumped by more than 2 %. This may not be the best example, but it shows why a large margin is desirable. Note that this argument only holds for when the customer knows in advance what the exchange rate would be, for cases where it is calculated afterwards I have not found any valid excuse for such large margins (except that it allows them to offer other services at a lower price because these transaction).\",\n \"An economy produces goods and services and people use money to pay for those goods and services. Money has value because people believe that they can buy and sell goods and services with it in that economy. How much the value of money is, is determined by how much money there is in comparison to goods and services (supply and demand). In most economies it is the job of the federal/national reserve bank to ensure that prices stay stable (ie the relationship of goods and services to how much money there is is stable); as this is necessary for a well running economy. The federal reserve bank does so by making more (printing, decreasing interest rates) or less (increasing interest rates) available to the economy. To determine how much money needs to be in the economy to keep prices stable is incredibly hard as many factors have an impact: If the reserve bank gets it wrong and there is more money compared to goods and services than previous, prices will rise to compensate; this is inflation If it's the other way round is deflation. Since it is commonly regarded that deflation is much more destabilizing to an economy than inflation the reserve banks tend to err on the side of inflation.\",\n \"\\\"If there is a very sudden and large collapse in the exchange rate then because algorithmic trades will operate very fast it is possible to determine “x” immediately after the change in exchange rate. All you need to know is the order book. You also need to assume that the algorithmic bot operates faster than all other market participants so that the order book doesn’t change except for those trades executed by the bot. The temporarily cheaper price in the weakened currency market will rise and the temporarily dearer price in the strengthened currency market will fall until the prices are related by the new exchange rate. This price is determined by the condition that the total volume of buys in the cheaper market is equal to the total volume of sells in the dearer market. Suppose initially gold is worth $1200 on NYSE or £720 on LSE. Then suppose the exchange rate falls from r=0.6 £/$ to s=0.4 £/$. To illustrate the answer lets assume that before the currency collapse the order book for gold on the LSE and NYSE looks like: GOLD-NYSE Sell (100 @ $1310) Sell (100 @ $1300) <——— Sell (100 @ $1280) Sell (200 @ $1260) Sell (300 @ $1220) Sell (100 @ $1200) ————————— buy (100 @ $1190) buy (100 @ $1180) GOLD-LSE Sell (100 @ £750) Sell (100 @ £740) ————————— buy (200 @ £720) buy (200 @ £700) buy (100 @ £600) buy (100 @ £550) buy (100 @ £530) buy (100 @ £520) <——— buy (100 @ £500) From this hypothetical example, the automatic traders will buy up the NYSE gold and sell the LSE gold in equal volume until the price ratio \\\"\\\"s\\\"\\\" is attained. By summing up the sell volumes on the NYSE and the buy volumes on the LSE, we see that the conditions are met when the price is $1300 and £520. Note 800 units were bought and sold. So “x” depends on the available orders in the order book. Immediately after this, however, the price of the asset will be subject to the new changes of preference by the market participants. However, the price calculated above must be the initial price, since otherwise an arbitrage opportunity would exist.\\\"\",\n \"Originally dollars were exchangeable for specie at any time, provided you went to a govt exchange. under Bretton Woods this was a generally fixed rate, but regardless there existed a spread on gold. This ceased to be the case in 71 when the Nixon shock broke Bretton woods.\",\n \"I think it depends where you live in the world, but I guess the most common would be: Major Equity Indices I would say major currency exchange rate: And have a look at the Libors for USD and EUR. I guess the intent of the question is more to see how implicated you are in the daily market analysis, not really to see if you managed to learn everything by heart in the morning.\",\n \"If you look at a trade grid you can see how this happens. If there are enough bids to cover all shares currently on the sell side at a certain price, those shares will be bought and increased price quotes will be shown for the bids and ask. If there are enough bids to cover this price, those will get bought and higher prices will be shown and this process will repeat until the sell side has more power than the buy side. It seems like this process is going on all day long with momentum either on the upside or downside. But I think that much of this bidding and selling is automatic and is being done by large trading firms and high tech computers. I also feel that many of these bids and asks are already programmed to appear once there is a price change. So once one price gets bought, computers will put in higher bids to take over asks. It's like a virtual war between trading firms and their computers. When more money is on the buy side the stock will go up, and vice versa. I sort of feel like this high-frequency trading is detrimental to the markets and doesn't really give everyone a fair shot. Retail investors do not have the resources and knowledge in order to do this sort of high frequency trading. It also seems to go against certain free market principles in my opinion.\",\n \"The Federal Reserve Bank publishes exchange rate data in their H.10 release. It is daily, not minute by minute. The Fed says this about their data: About the Release The H.10 weekly release contains daily rates of exchange of major currencies against the U.S. dollar. The data are noon buying rates in New York for cable transfers payable in the listed currencies. The rates have been certified by the Federal Reserve Bank of New York for customs purposes as required by section 522 of the amended Tariff Act of 1930. The historical EURUSD rates for the value of 1 EURO in US$ are at: http://www.federalreserve.gov/releases/h10/hist/dat00_eu.htm If you need to know USDEUR the value of 1 US$ in EUROS use division 1.0/EURUSD.\",\n \"To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold. So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.\",\n \"Long term gov't bonds fluctuate in price with a seemingly small interest rate fluctuation because many years of cash inflows are discounted at low rates. This phenomenon is dulled in a high interest rate environment. For example, just the principal repayment is worth ~1/3, P * 1/(1+4%)^30, what it will be in 30 years at 4% while an overnight loan paying an unrealistic 4% is worth essentially the same as the principal, P * 1/(1+4%)^(1/365). This is more profound in low interest rate economies because, taking the countries undergoing the present misfortune, one can see that their overnight interest rates are double US long term rates while their long term rates are nearly 10x as large as US long term rates. If there were much supply at the longer maturities which have been restrained by interest rates only manageable by the highly skilled or highly risky, a 4% increase on a 30% bond is only about a 20% decline in bond price while a 4% increase on a 4% bond is a 50% decrease. The easiest long term bond to manipulate quantitatively is the perpetuity where p is the price of the bond, i is the interest payment per some arbitrary period usually 1 year, and r is the interest rate paid per some arbitrary period usually 1 year. Since they are expressly linked, a price can be implied for a given interest rate and vice versa if the interest payment is known or assumed. At a 4% interest rate, the price is At 4.04%, the price is , a 1% increase in interest rates and a 0.8% decrease in price . Longer term bonds such as a 30 year or 20 year bond will not see as extreme price movements. The constant maturity 30 year treasury has fluctuated between 5% and 2.5% to ~3.75% now from before the Great Recession til now, so prices will have more or less doubled and then reduced because bond prices are inversely proportional to interest rates as generally shown above. At shorter maturities, this phenomenon is negligible because future cash inflows are being discounted by such a low amount. The one month bill rarely moves in price beyond the bid/ask spread during expansion but can be expected to collapse before a recession and rebound during.\",\n \"\\\"What most of these answers here seem to be missing is that a stock \\\"\\\"price\\\"\\\" is not exactly what we typically expect a price to be--for example, when we go in to the supermarket and see that the price of a gallon of milk is $2.00, we know that when we go to the cash register that is exactly how much we will pay. This is not, however, the case for stocks. For stocks, when most people talk about the price or quote, they are really referring to the last price at which that stock traded--which unlike for a gallon of milk at the supermarket, is no guarantee of what the next stock price will be. Relatively speaking, most stocks are extremely liquid, so they will react to any information which the \\\"\\\"market\\\"\\\" believes has a bearing on the value of their underlying asset almost (if not) immediately. As an extreme example, if allegations of accounting fraud for a particular company whose stock is trading at $40 come out mid-session, there will not be a gradual decline in the price ($40 -> $39.99 -> $39.97, etc.)-- instead, the price will jump from $40 to say, $20. In the time between the the $40 trade and the $20 trade, even though we may say the price of the stock was $40, that quote was actually a terrible estimate of the stock's current (post-fraud announcement) price. Considering that the \\\"\\\"price\\\"\\\" of a stock typically does not remain constant even in the span of a few seconds to a few minutes, it should not be hard to believe that this price will not remain constant over the 17.5 hour period from the previous day's close to the current day's open. Don't forget that as Americans go to bed, the Asian markets are just opening, and by the time US markets have opened, it is already past 2PM in London. In addition to the information (and therefore new knowledge) gained from these foreign markets' movements, macro factors can also play an important part in a security's price-- perhaps the ECB makes a morning statement that is interpreted as negative news for the markets or a foreign government before the US markets open. Stock prices on the NYSE, NASDAQ, etc. won't be able to react until 9:30, but the $40 price of the last trade of a broad market ETF at 4PM yesterday probably isn't looking so hot at 6:30 this morning... don't forget either that most individual stocks are correlated with the movement of the broader market, so even news that is not specific to a given security will in all likelihood still have an impact on that security's price. The above are only a few of many examples of things that can impact a stock's valuation between close and open: all sorts of geopolitical events, announcements from large, multi-national companies, macroeconomic stats such as unemployment rates, etc. announced in foreign countries can all play a role in affecting a security's price overnight. As an aside, one of the answers mentioned after hours trading as a reason--in actuality this typically has very little (if any) impact on the next day's prices and is often referred to as \\\"\\\"amateur hour\\\"\\\", due to the fact that trading during this time typically consists of small-time investors. Prices in AH are very poor predictors of a stock's price at open.\\\"\",\n \"Many people trade the currency markets via brokers who have developed online apps with live forex prices and many currency pairs. You can trade on your phone, iPad or PC / Mac.\",\n \"\\\"Other things equal is sometimes referred to as \\\"\\\"ceteris paribus\\\"\\\" - the scenario where you compare two currencies (or things) under the assumption that all other factors that could effect those currencies (earthquakes, revolutions, currency crises ect) are not ocurring. Its like using a control group in a lab. \\\"\\\"Real interest rates\\\"\\\" means the rate of that countries interest rate, accounting for inflation. \\\"\\\"Proportional to the strength of its home currency\\\"\\\" is referring to how countries with higher rates of interest tend to have stronger currencies (relative to other currencies) because foreign investment/capital will flood into the country seeking those higher rates of return - excess demand for the currency will cause it to appreciate. So this is also true in reverse, as capital will tend to leave a country will ultra-low interest rates.\\\"\",\n \"There are a few reason why share prices increase or decrease, the foremost is expectation of the investors that the company/economy will do well/not well, that is expectation of profit/intrinsic value growth over some time frame (1-4 qtrs.)there is also demand & supply mismatch over (usually) short time. If you really see, the actual 'value' of a company is it's net-worth (cash+asset+stock in trade+brand value+other intangibles+other incomes)/no of shares outstanding, which (in a way) is the book value, then all shares should trade at their book value, the actual number but it does not, the expectation of investors that a share would be purchased by another investor at a higher price because the outlook of the company over a long time is good.\",\n \"A day is a long time and the rate is not the same all day. Some sources will report a close price that averages the bid and ask. Some sources will report a volume-weighted average. Some will report the last transaction price. Some will report a time-weighted average. Some will average the highest and lowest prices for the interval. Different marketplaces will also have slightly different prices because different traders are present at each marketplace. Usually, the documentation will explain what method they use and you can choose the source whose method makes the most sense for your application.\",\n \"While that sounds reasonable, it looks like most of the actual trading is done on the basis of changes rather than value. At a guess, this is because computing the balance sheet anew with every change inhibits the speed with which transactions can be processed.\",\n \"The Fed is trying to keep the money supply growing at a rate just slightly faster than the increase in the total production in the economy. If this year we produced, say, 3% more goods and services than last year, than they try to make the money supply grow by maybe 4% or 5%. That way there should be a small rate of inflation. They are trying to prevent high inflation rates on one hand or deflation on the other. When the interest rate on T-bills is low, banks will borrow more money. As the Fed creates this money out of thin air when banks buy a T-bill, this adds money to the economy. When the interest rate on T-bills is high, banks will borrow little or nothing. As they'll be repaying older T-bills, this will result in less growth in the money supply or even contraction. So the Feds change the rate when they see that economic growth is accelerating or decelerating, or that the inflation rate is getting too high or too low.\",\n \"\\\"You are violating the Uncovered Interest Rate Parity. If Country A has interest rate of 4% and Country B has interest rate of 1%, Country B's expected exchange rate must appreciate by 3% compared to spot. The \\\"\\\"persistent pressure to further depreciate\\\"\\\" doesn't magically occur by decree of the supreme leader. If there is room for risk free profit, the entire Country B would deposit their money at Country A, since Country A has higher interest rate and \\\"\\\"appreciates\\\"\\\" as you said. The entire Country A will also borrow their money at Country B. The exception is Capital Control. Certain people are given the opportunity to get the risk free profit, and the others are prohibited from making those transactions, making UIP to not hold.\\\"\",\n \"What you want is the average change in rate of the Australian Dollar against multiple other currencies, to even out the effect of moves in a single other currency. People often look at the trade-weighted exchange rate to get an idea of this, as it allows you to look at the currencies that are most relevant, rather than every tiny other currency having an equal weight.\",\n \"It's impossible to determine which event will cause a major shift for a certain currency pair. However, this does not mean that it's not possible to identify events that are important to the overall market sentiment and direction. There are numerous sites that provide a calendar for upcoming and past events and their impact which is most of the time indicated as low, medium and high. Such sites are: Edit: I would like to add to that, that while these are major market movers, you cannot forget that they mainly provide a certain direction for the market but that it's not always clear in which direction the market will go. A recent and prime example of a major event that triggered opposite effects of what you would expect, is the ECB meeting that took place the 3rd of December. Due to the fact that the market already priced in further easing by the ECB the euro strengthened instead of weakening compared to the dollar. This strengthening happened even though the ECB did in fact adjust the deposit by 10 base points to -0.30 % and increased the duration of the QE. Taking above example into consideration it's important to always remember that fundamentals are hard to grasp and that it will take a while to make it a second nature and become truly successful in this line of trading. Lastly, fundamentals are only a part of the complete picture. Don't lose sight of support and resistance levels as well as price action to determine when and how to enter a trade.\",\n \"\\\"Well there are a couple reasons that people from various countries use specific currencies: 1. Government courts will recognize the settlement of contracts if they are paid with their local currency. So even if you wanted to be paid in Swiss Francs, your contracting partner can choose to pay you in USD instead. This artificially inflates the value of the local currency by increasing demand for it. 2. You're only allowed to pay your taxes in the local currency. This also artificially increases the demand for it, and it's the \\\"\\\"root value\\\"\\\" of the currency - people clamor for bits of green paper because if they don't have enough of it to pay off the tax man, they'll go to jail.\\\"\",\n \"How high is high? In countries that suffered hyperinflation such as the Weimar Republic around 1923 and Zimbabwe around the late 1990s this certainly did happen on a daily basis. E.g. One boy, who was sent to buy two bread buns, stopped to play football and by the time he got to the shop, the price had gone up, so he could only afford to buy one. or One father set out for Berlin to buy a pair of shoes. When he got there, he could only afford a cup of coffee and the bus fare home. or At the height of the country's economic crisis that year, prices were rising at least twice day, with Zimbabweans forced to carry cash around in plastic bags just to buy basic items.\",\n \"\\\"My answer is specific to the US because you mentioned the Federal Reserve, but a similar system is in place in most countries. Do interest rates increase based on what the market is doing, or do they solely increase based on what the Federal Reserve sets them at? There are actually two rates in question here; the Wikipedia article on the federal funds rate has a nice description that I'll summarize here. The interest rate that's usually referred to is the federal funds rate, and it's the rate at which banks can lend money to each other through the Federal Reserve. The nominal federal funds rate - this is a target set by the Board of Governors of the Federal Reserve at each meeting of the Federal Open Market Committee (FOMC). When you hear in the media that the Fed is changing interest rates, this is almost always what they're referring to. The actual federal funds rate - through the trading desk of the New York Federal Reserve, the FOMC conducts open market operations to enforce the federal funds rate, thus leading to the actual rate, which is the rate determined by market forces as a result of the Fed's operations. Open market operations involve buying and selling short-term securities in order to influence the rate. As an example, the current nominal federal funds rate is 0% (in economic parlance, this is known as the Zero Lower Bound (ZLB)), while the actual rate is approximately 25 basis points, or 0.25%. Why is it assumed that interest rates are going to increase when the Federal Reserve ends QE3? I don't understand why interest rates are going to increase. In the United States, quantitative easing is actually a little different from the usual open market operations the Fed conducts. Open market operations usually involve the buying and selling of short-term Treasury securities; in QE, however (especially the latest and ongoing round, QE3), the Fed has been purchasing longer-term Treasury securities and mortgage-backed securities (MBS). By purchasing MBS, the Fed is trying to reduce the overall risk of the commercial housing debt market. Furthermore, the demand created by these purchases drives up prices on the debt, which drives down interest rates in the commercial housing market. To clarify: the debt market I'm referring to is the market for mortgage-backed securities and other debt derivatives (CDO's, for instance). I'll use MBS as an example. The actual mortgages are sold to companies that securitize them by pooling them and issuing securities based on the value of the pool. This process may happen numerous times, since derivatives can be created based on the value of the MBS themselves, which in turn are based on housing debt. In other words, MBS aren't exactly the same thing as housing debt, but they're based on housing debt. It's these packaged securities the Fed is purchasing, not the mortgages themselves. Once the Fed draws down QE3, however, this demand will probably decrease. As the Fed unloads its balance sheet over several years, and demand decreases throughout the market, prices will fall and interest rates in the commercial housing market will fall. Ideally, the Fed will wait until the economy is healthy enough to absorb the unloading of these securities. Just to be clear, the interest rates that QE3 are targeting are different from the interest rates you usually hear about. It's possible for the Fed to unwind QE3, while still keeping the \\\"\\\"interest rate\\\"\\\", i.e. the federal funds rate, near zero. although this is considered unlikely. Also, the Fed can target long-term vs. short-term interest rates as well, which is once again slightly different from what I talked about above. This was the goal of the Operation Twist program in 2011 (and in the 1960's). Kirill Fuchs gave a great description of the program in this answer, but basically, the Fed purchased long-term securities and sold short-term securities, with the goal of twisting the yield curve to lower long-term interest rates relative to short-term rates. The goal is to encourage people and businesses to take on long-term debt, e.g. mortgages, capital investments, etc. My main question that I'm trying to understand is why interest rates are what they are. Is it more of an arbitrary number set by central banks or is it due to market activity? Hopefully I addressed much of this above, but I'll give a quick summary. There are many \\\"\\\"interest rates\\\"\\\" in numerous different financial markets. The rate most commonly talked about is the nominal federal funds rate that I mentioned above; although it's a target set by the Board of Governors, it's not arbitrary. There's a reason the Federal Reserve hires hundreds of research economists. No central bank arbitrarily sets the interest rate; it's determined as part of an effort to reach certain economic benchmarks for the foreseeable future, whatever those may be. In the US, current Fed policy maintains that the federal funds rate should be approximately zero until the economy surpasses the unemployment and inflation benchmarks set forth by the Evans Rule (named after Charles Evans, the president of the Federal Reserve Bank of Chicago, who pushed for the rule). The effective federal funds rate, as well as other rates the Fed has targeted like interest rates on commercial housing debt, long-term rates on Treasury securities, etc. are market driven. The Fed may enter the market, but the same forces of supply and demand are still at work. Although the Fed's actions are controversial, the effects of their actions are still bound by market forces, so the policies and their effects are anything but arbitrary.\\\"\",\n \"I've always understood inflation to be linked to individual currencies, although my only research into the subject was an intro economics course in undergrad and I don't recall seeing why that would be the case. I guess the basic principle is that currency traders are watching the printing presses and trading in exchange markets to the point that the exchange rates fall in relation to increases in money supply. There's probably something about the carry trade in there as well, but it's late and I took some medications, so someone else will have to carry that torch. I must admit I've not really paid attention to foreign currencies like HKD, but the proximity and political relationship with China probably greatly complicates your question, since part of the problem has been China's currency peg.\",\n \"No. The long-term valuation of currencies has to do with Purchasing Power Parity. The long-term valuation of stocks has to do with revenues, expenses, market sizes, growth rates, and interest rates. In the short term, currency and stock prices change for many reasons, including interest rate changes, demand for goods and services, asset price changes, political fears, and momentum investing. In any given time window, a currency or stock might be: The Relative Strength Index tries to say whether a currency or stock has recently been rising or falling; it does not inherently say anything about whether the current value is high or low.\",\n \"Brilliant fact-based objective reality explanation of the world currency markets. I'm into bitcoin and physical gold investments (yeah, I know, it's like being gay and straight at the same time without being bi), may I ask you a few things later?\",\n \"If I understand correctly, you're actually asking why there isn't a society whose members generally accept/use any currency for transactions, and just like, Google the exchange rate or something. The answer is because it's exceptionally inconvenient. Can you imagine having a wallet with 200 pouches for all the different currencies? Why would you want to deal with exchange rates all the time? What if the value of a currency changes? (A single currency at least has the illusion of being stable). Et cetera.\",\n \"Fundamentally interest rates reflect the time preference people place on money and the things money can buy. If I have a high time preference then I prefer money in my hand versus money promised to me at some date in the future. Thus, I will only loan my money to someone if they offer me an incentive which would be an amount of money to be received in the future that is larger than the amount of money I’m giving the debtor in the present (i.e. the interest rate). Many factors go into my time preference determination. My demand for cash (i.e. my cash balance), the credit rating of the borrower, the length of the loan, and my expectation of the change in currency value are just a few of the factors that affect what interest rate I will loan money. The first loan I make will have a lower interest rate than the last loan, ceteris paribus. This is because my supply of cash diminishes with each loan which makes my remaining cash more valuable and a higher interest rate will be needed to entice me to make additional loans. This is the theory behind why interest rates will rise when QE3 or QEinfinity ever stops. QE is where the Federal Reserve cartel prints new money to purchase bonds from cartel banks. If QE slows or ends the supply of money will stop increasing which will make cash more valuable and higher interest rates will be needed to entice creditors to loan money. Note that increasing the stock of money does not necessarily result in lower interest rates. As stated earlier, the change in value of the currency also affects the interest rate lenders are willing to accept. If the Federal Reserve cartel deposited $1 million everyday into every US citizen’s bank account it wouldn’t take long before lenders demanded very high interest rates as compensation for the decrease in the value of the currency. Does the Federal Reserve cartel affect interest rates? Yes, in two ways. First, as mentioned before, it prints new money that is loaned to the government. It either purchases the bonds directly or purchases the bonds from cartel banks which give them cash to purchase more government bonds. This keeps demand high for government bonds which lowers the yield on government bonds (yields move inverse to the price of the bond). The Federal Reserve cartel also can provide an unlimited amount of funds at the Federal Funds rate to the cartel member banks. Banks can borrow at this rate and then proceed to make loans at a higher rate and pocket the difference. Remember, however, that the Federal Reserve cartel is not the only market participant. Other bond holders, such as foreign governments and pension funds, buy and sell US bonds. At some point they could demand higher rates. The Federal Reserve cartel, which currently holds close to 17% of US public debt, could attempt to keep rates low by printing new money to buy all existing US bonds to prevent the yield on bonds from going up. At that point, however, holding US dollars becomes very dangerous as it is apparent the Federal Reserve cartel is just a money printing machine for the US government. That’s when most people begin to dump dollars en masse.\",\n \"AU rates are higher than 3.75%. The market for deposits here in Australia is very competitive (banks have change increased deposits as a share of liabilities from ~50% to ~60% in just the last few years) and, as a result, demand deposits here pay far more than the central bank rate. My demand savings account, for example, pays 4.95%. That AU-US interest differentials are so staggeringly high means that, inmevitably, lots of investors are carrying. Depending of FX moves over the next year, a lot of investors will either gain heaps or lose more. If you can leverage, you can gain even more (or lose the house).\",\n \"\\\"As you say, the currency carry trade shouldn't work. The deluge of new cash into a high-interest currency should result in falling exchange rates. A November 2009 paper by Òscar Jordà and Alan Taylor of the University of California, Davis, may be offer one approach which is more stable. According to The Economist: They find that a refined carry-trade strategy—one that incorporates a measure of long-term value—produces more consistent profits and is less prone to huge losses than one that targets the highest yield. However, exchange rates, central bank interest rates, as well as money supply are all political as well as economic constructs. An economic driver for arbitrage may be offset by political will (such as US quantative easing) or even social malaise (Japanese continual low inward investment). I wouldn't go so far as calling the carry trade \\\"\\\"free money\\\"\\\" - currencies have proven far too unstable for that - but state interference in markets tends to be clearly telegraphed and a trader with nerves of steel may take advantage of it.\\\"\",\n \"\\\"I'm not an economist, but I understand the idea of value or \\\"\\\"price\\\"\\\" is purely \\\"\\\"what people agree it to be\\\"\\\". The quants and analysts I've worked with always talk about \\\"\\\"discovering the price\\\"\\\" - it's an unknown until someone says \\\"\\\"I will pay X\\\"\\\". Are my 2nd hand Nikes worth $20? Put em on ebay to find out. If someone buys them, then yes, 2nd hand Nikes are worth $20. If they don't sell then they're not worth $20. Obviously ebay is not the most efficient market out there. The exchanges attempt to be that with prices varying by fractions of cent in fractions of seconds (milliseconds). EDIT* Perhaps another way to look at it is \\\"\\\"What is the 'correct' value of a computer game, say 'Skyrim'?\\\"\\\" Your idea of the value of labour and production costs produces some figure. But in the real world, what actually happens? On release day the game is priced at, say, $60. And lots of people say \\\"\\\"I will pay $60\\\"\\\". Many people don't, but many people do. Months later, Steam has a sale and they suggest Skyrim is now worth $30. Lot's of people who didn't think it was worth $60 do think it is worth $30. The amount of labour that went into is hasn't changed. So what it the true or 'correct' value/price of the game? What is the correct value/price of *amything*? It is *what people will pay for it*.\\\"\",\n \"\\\"Here's an answer to a related question I once wrote. I'm reposting here. I can, but it takes a significant amount of time. I'll do a short version which unfortunatley might leave more holes than you like. Basically, traders don't want to barter because it is hard to find the person with precisely the goods you want who wants to trade for the goods you have. Thus the need for \\\"\\\"coupons\\\"\\\" that represent value in a marketplace. Then you need to decide who gets to create coupons. If too many can issue them, problems arise, and no one trusts the coupons will be good later. Eventually you want one large bank/nation/trader to be able to issue them so everyone has the same level of trust in them, and you don't have the economic inefficiencies of many coupon issuers. Next, the number of coupons needs to be enough to facilitate trade. If the amount of trade increases a lot, and the number of coupons doesn't increase similarly they become worth more, and people start to hoard them. This causes deflation, which causes less investment, which causes less growth, which hurts everyone in the long run. If there are too many coupons added, this causes inflation, which causes people to spent them quicker instead of holding them. For reasons I won't cover here slight, predictable inflation is much better than deflation, so remember inflation is slightly preferred. Note that inflation is often caused not by the number of coupons but by external price changes. Now, for a modern economy to do well, somone has to watch the economy, measure it carefully, and add/subtract coupons into the system as needed. Coupons, like all money, have no real value (whatever that means), but only have value because the holder expects to be able to trade them *later* for goods and services. You cannot eat coupons, use them for shelter (usually!), or wear them, but you want to trade them for such needs. The same is true for paper money, gold, stones, or almost whatever money system one uses. Money in all these forms is merely an IOU tradable for future goods. The Fed is tasked (among other things) with making sure there is precisely enough coupons in the economy to keep trade functioning as well as possible. This is very hard to do since there are external and internal shocks to an economy (think disaster, foreign govts shutting off resources, rapid changes in people's tastes, etc.). Central banks such as the Fed need to be independent of political control, since empirical evidence has shown that politicians tend to add more money to the system than is needed, because the short term gains give them votes, but the long term consequences (rapid inflation, unemployment, lower economic growth) are bad for society. This is why the Fed is largely out of congressional control, and large amounts of empirical evidence across hundreds of years and dozens of cultures shows this to be good. Note: another function of the Fed is to be a lender of last resort to help prevent bank panics that were widespread in the 18th and early 19th century, something that none of us now remember, but it was a real problem. I'll skip that part for now. So now we're at the point where the Fed needs to add/subtract coupons from society. To do this part justice takes significant time to cover all the reasons why various rules are in place (banking reserve requirements, for example), and you cannot learn it from one pass of reading. But I'll try. Instead of being like the majority of internet fools that rail against the system, try to learn the *why* of all this, and you'll be much wiser and understand that it is all a pretty good system. One method they use is the interbank lending rate. Banks have a reserve requirement, which is the ratio of coupons they need to have on hand as a ratio compared to the total coupons depositors lent them. This is usually around 1:10. The amount deposited that they can lend goes to business loans, school loans, mortgage loans, etc., and helps economies grow. Now when a bank on a given day falls short due to too many withdrawals, other banks (or the Fed) offers an overnight loan to meet reserve requirements, and the Fed sets the interest rate, which in turn drives other interest rates in the system. This does not change the money supply very much. Secondly, the Fed sets the reserve requirement, which vastly can change the amount of money available to society. But they change this rate so rarely (all the historical data is on the St. Loius Fed site, among others) that it is not usually an issue. I'll explain below how this can drastically change the money supply though the money multiplier. Thirdly, and this is the part the poster above seems upset about, they conduct open market operations. This is the primary means by which the Fed exercises control over the number of coupons in play. The government, like businesses, like individuals, often needs to borrow money, in theory to invest in wise causes like infrastructure or perhaps money making enterprises such as technology investmeny (and I know what they often use the money for causes many to complain). The government, like companies, offers the sale of various contracts such as bonds to investors, who want a place to park some accumulated coupons for safety, and they get a return plus some interest. So the government sells bonds on the open market to investors, banks, pensions, foreign governments, basically to whomever wishes to purchase them at the market rate, and the government, like many individuals and banks, uses these loans to perform day to day functioning and possible smooth out volatility in spending needs. By law the Fed cannot purchase directly from Treasury. Now, once on the market, these bonds are traded, packaged, resold, etc., since they have inherent value, and since those owning them want to buy/sell them, perhaps before maturity date. This \\\"\\\"liquidity\\\"\\\" (ability to sell your goods) is necessary - fewer would purchase an item if they could not sell it when they desire. Thus bonds are bought, sold, and traded, and their prices fluctuate based on what the market thinks they are worth, just like any good. Now, the Fed can buy/sell these bonds on the *open market*, like anyone else. So when the Fed wishes to increase the money supply, they can buy bonds that are not \\\"\\\"spendable\\\"\\\" money and inject money into the system. Note they now hold a bond that had at the time of transaction the same value as the money they injected. Note investors freely bought these from Treasury, meaning the market thought at the time of purchase that this was a good invesement. It is *not* the government merely wishing more money into existance. It is market forces that require more money for trades and is selling goods from the marketplace of (presumably) equal value to the Fed. This increases liquidity, but takes valuable assets from circulation. When the Fed wishes to shrink the money supply, they sell these bonds back into circulation basically by offering better terms than Treasury. In fact, you can find graphs of the Fed operations and see how every December they inject money for more Christmas shpping (need more coupons for more trade) and every January they extract some. So open market transactions, buying and selling goods at market prices in the marketplace along with other traders, is how the Fed injects and removes money from the money supply. This is the primary mechanism that the Fed uses to control the number of coupons in the economy. Finally, a little about reserve requirements and the money multiplier, since it affects so much of the number of coupons in play. This also I must simplify drastically. Each bank needs to hold 1/10 of all deposits in cash. The rest can be lent, which lands in another bank, which again can be lent, etc... Thus each $1 deposited can result in loans totalling 9/10 + (9/10)^2 + (9/10)^3 +... = 9 more dollars. Many people claim that banks are printing money, which is nonsense, since each also has an equal debt to pay to the person they borrowed from. When all loans are paid back there is no net money gain. However, this allows for each $1 the Fed injects by buying bonds for there to be up to $9 in the economy, *if banks all loan to the fullest extent*. Banks tend to want to loan since loaned money makes them profit. Banks used to loan too much and runs on the banks caused significant problems, which is why laws were made to require *all* banks to have the same reserve requirement. Now, when banks get scared and stop loaning, this 9 fold multiplier dries up, and the Fed has much less inpact on being able to target the proper number of coupons to keep the economy smooth. During the recent crash when banks stopped loaning, as each dollar was paid back on debts, there was significant shrinkage of available money for transactions, and this kills the economy. This is the \\\"\\\"liquidity crisis\\\"\\\". Hope this helps. As I said, this is vastly simplified and I cannot go into all the reasons and historical items needed to understand it fully. It is a vastly complex (and necessarily so) and takes significant study to grasp the genius of it. It's similar to not being able to understand nuances of particle physics in one go, but as you study and work at it you see *why* things go as they do, and you learn all the failed methods (the gold standard is one example) that were thrown out for many good reasons. Cheers.\\\"\",\n \"Why do these fees exist? From a Banks point of view, they are operating in Currency A; Currency B is a commodity [similar to Oil, Grains, Goods, etc]. So they will only buy if they can sell it at a margin. Currency Conversion have inherent risks, on small amount, the Bank generally does not hedge these risks as it is expensive; but balances the position end of day or if the exposure becomes large. The rate they may get then may be different and the margin covers it. Hence on highly traded currency pairs; the spread is less. Are there back-end processes and requirements that require financial institutions to pass off the loss to consumers as a fee? The processes are to ensure bank does not make loss. is it just to make money on the convenience of international transactions? Banks do make money on such transactions; however they also take some risks. The Forex market is not single market, but is a collective hybrid market place. There are costs a bank incurs to carry and square off positions and some of it is reflected in fees. If you see some of the remittance corridors, banks have optimized a remittance service; say USD to INR, there is a huge flow often in small amounts. The remittance service aggregates such amounts to make it a large amount to get a better deal for themselves and passes on the benefits to individuals. Such volume of scale is not available for other pairs / corridors.\",\n \"\\\"I suspect that to \\\"\\\"make money\\\"\\\" it isn't enough to know the current value (\\\"\\\"high currency\\\"\\\"): to make money you'd need to know/guess/predict/bet on the future change in value: will the currency value go higher in the future? Or will it come down again? Or will it stay the same? Everybody knows the current value, so that by itself isn't enough knowledge to make money from. That said, if you know you're going to need American dollars in the future (if you have future expenses which need to be paid in American dollars), then now might be a good time to buy those dollars.\\\"\",\n \"FX is often purchased with leverage by both retail and wholesale speculators on the assumption daily movements are typically more restrained than a number of other asset classes. When volatility picks up unexpectedly these leveraged accounts can absolutely be wiped out. While these events are relatively rare, one happened as recently as 2016 when the Swiss National Bank unleashed the Swiss Franc from its Euro mooring. You can read about it here: http://www.reuters.com/article/us-swiss-snb-brokers-idUSKBN0KP1EH20150116\",\n \"\\\"The dow jones is an index of 30 stocks that's weighted based on the price per share of these stocks. To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Prices are the result of supply and demand. Demand is defined as simply as \\\"\\\"I want this badly enough to pay cash for it\\\"\\\", \\\"\\\"supply is \\\"\\\"I own this and don't want to own it, therefore I'll sell it\\\"\\\" When investors go about deciding they'd like to buy some stock from people who own it and are wanting to sell it, a market is generated and a price both are willing to sell/buy at is found. If the price is too high/low, you won't sell or buy. The price has to be \\\"\\\"right\\\"\\\" based on your own personal valuation. Since these trades are done through an exchange and are so common, literally millions of shares are traded per day, you get the best price available at that moment for your shares. If person A is only willing to give you 100 dollars and person B is willing to give you 100.01, screw person A. I'm selling shares to person B. When this done on a macro-level (millions of shares traded per day) the exchanges will track and make public the \\\"\\\"price movement\\\"\\\" of what the market is willing to give for each and every publicly traded stock. TLDR: SUPPLY AND DEMAND. DOW USES THEIR OWN METHODS.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless there's someone willing to sell you Euros for dollars, you can't get any. There are millions of people trying to exchange currency all over the world. If more want to buy USD, than that demand will positively influence the price of the USD (as measured in Euros). If more people want to buy Euros, well, vice versa. There are so many of these transactions globally, and the number of people and the nature of these transactions change so continuously, that the prices (exchange rates) for these currencies fluctuate continuously and smoothly. Demand is also impacted by what people want to buy and how much they want to buy it. If people generally want to invest their savings in stocks instead of dollars, i.e., if lots of people are attempting to buy stocks (by exchanging their dollars for stock), then the demand for the dollar is lower and the demand for stocks is higher. When the stock market crashes, you'll often see a spike in the exchange rate for the dollar, because people are trying to exchange stocks for dollars (this represents a lot of demand for dollars). Then there's \"\"Supply:\"\" It may seem like there are a fixed number of bills out there, or that supply only changes when Bernanke prints money, but there's actually a lot more to it than that. If you're coming from Europe and want to buy some USD from the bank, well, how much USD does the bank \"\"have\"\" and what does it mean for them to have money? The bank gets money from depositors, or from lenders. If one person puts money in a deposit account, and then the bank borrows that money from the account and lends it to a home buyer in the form of a mortgage, the same dollar is being used by two people. The home buyer might use that money to hire a carpenter, and the carpenter might put the dollar back into a bank account, and the same dollar might get lent out again. In economics this is called the \"\"multiplier effect.\"\" The full supply of money being used ends up becoming harder to calculate with this kind of debt and re-lending. Since money is something used and needed for conducting of transactions, the number of transactions being conducted (sometimes on credit) affects the \"\"supply\"\" of money. Demand and supply blur a bit when you consider people who hoard cash. If I fear the stock market, I might keep all my money in dollars. This takes cash away from companies who could invest it, takes the cash out of the pool of money being used for transactions, and leaves it waiting under my mattress. You could think of my hoarding as a type of demand for currency, or you could think of it as a reduction in the supply of currency available to conduct transactions. The full picture can be a bit more complicated, if you look at every way currencies are used globally, with swaps and various exchange contracts and futures, but this gives the basic story of where prices come from, that they are not set by some price fixer but are driven by market forces. The bank just facilitates transactions. If the last price (exchange rate) is 1.2 Dollars per Euro, and the bank gets more requests to buy USD for Euros than Euros for USD, it adjusts the rate downwards until the buying pressure is even. If the USD gets more expensive, at some point fewer people will want to buy it (or want to buy products from the US that cost USD). The bank maintains a spread (like buy for 1.19 and sell for 1.21) so it can take a profit. You should think of currency like any other commodity, and consider purchases for currency as a form of barter. The value of currency is merely a convention, but it works. The currency is needed in transactions, so it maintains value in this global market of bartering goods/services and other currencies. As supply and demand for this and other commodities/goods/services fluctuate, so does the quantity of any particular currency necessary to conduct any of these transactions. A official \"\"basket of goods\"\" and the price of those goods is used to determine consumer price indexes / inflation etc. The official price of this particular basket of goods is not a fundamental driver of exchange rates on a day to day basis.\"","\"The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to \"\"buy\"\" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a \"\"basket\"\" of things they produce that another country will want, and a \"\"shopping list\"\" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency.\"","\"Money is money because people believe it is money. By \"\"believe it is money\"\", I mean that they expect they will be able to turn it into useful goods or services (food, rent, houses, truckloads full of iron ore, mining equipment, massages at the spa, helicopter rides, iPads, greenhouses, income streams to support your future retirement, etc). Foreign exchange rates change because people's ideas about how much useful goods or services they can get with various currencies change. For example: if the Zimbabwe government suddenly printed 10 times as much money as used to exist, you probably couldn't use that money to buy as much food at the Zimbabwe-Mart, so you wouldn't be willing to give people as many US-dollars (which can buy food at the US-Mart) for a Zimbabwe-dollar as you used to be able to. (It's not exactly that easy, because - for instance - food in the US is more useful to me than food in Zimbabwe. But people still move around all sorts of things, like oil, or agricultural products, or minerals, or electronics components.) The two main things that affect the value of a currency are the size of the economy that it's tied to (how much stuff there is to get), and how much of the currency there is / how fast it's moving around the economy (which tells you how much money there is to get it with). So most exchange rate shifts reflect a change in people's expectations for a regional economy, or the size of a money supply. (Also, Zimbabwe is doing much better now that it's ditched their own currency - they kept printing trillions of dollars' worth - and just trade in US dollars. Their economy still needs some work, but... better.)\""],"string":"[\n \"\\\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless there's someone willing to sell you Euros for dollars, you can't get any. There are millions of people trying to exchange currency all over the world. If more want to buy USD, than that demand will positively influence the price of the USD (as measured in Euros). If more people want to buy Euros, well, vice versa. There are so many of these transactions globally, and the number of people and the nature of these transactions change so continuously, that the prices (exchange rates) for these currencies fluctuate continuously and smoothly. Demand is also impacted by what people want to buy and how much they want to buy it. If people generally want to invest their savings in stocks instead of dollars, i.e., if lots of people are attempting to buy stocks (by exchanging their dollars for stock), then the demand for the dollar is lower and the demand for stocks is higher. When the stock market crashes, you'll often see a spike in the exchange rate for the dollar, because people are trying to exchange stocks for dollars (this represents a lot of demand for dollars). Then there's \\\"\\\"Supply:\\\"\\\" It may seem like there are a fixed number of bills out there, or that supply only changes when Bernanke prints money, but there's actually a lot more to it than that. If you're coming from Europe and want to buy some USD from the bank, well, how much USD does the bank \\\"\\\"have\\\"\\\" and what does it mean for them to have money? The bank gets money from depositors, or from lenders. If one person puts money in a deposit account, and then the bank borrows that money from the account and lends it to a home buyer in the form of a mortgage, the same dollar is being used by two people. The home buyer might use that money to hire a carpenter, and the carpenter might put the dollar back into a bank account, and the same dollar might get lent out again. In economics this is called the \\\"\\\"multiplier effect.\\\"\\\" The full supply of money being used ends up becoming harder to calculate with this kind of debt and re-lending. Since money is something used and needed for conducting of transactions, the number of transactions being conducted (sometimes on credit) affects the \\\"\\\"supply\\\"\\\" of money. Demand and supply blur a bit when you consider people who hoard cash. If I fear the stock market, I might keep all my money in dollars. This takes cash away from companies who could invest it, takes the cash out of the pool of money being used for transactions, and leaves it waiting under my mattress. You could think of my hoarding as a type of demand for currency, or you could think of it as a reduction in the supply of currency available to conduct transactions. The full picture can be a bit more complicated, if you look at every way currencies are used globally, with swaps and various exchange contracts and futures, but this gives the basic story of where prices come from, that they are not set by some price fixer but are driven by market forces. The bank just facilitates transactions. If the last price (exchange rate) is 1.2 Dollars per Euro, and the bank gets more requests to buy USD for Euros than Euros for USD, it adjusts the rate downwards until the buying pressure is even. If the USD gets more expensive, at some point fewer people will want to buy it (or want to buy products from the US that cost USD). The bank maintains a spread (like buy for 1.19 and sell for 1.21) so it can take a profit. You should think of currency like any other commodity, and consider purchases for currency as a form of barter. The value of currency is merely a convention, but it works. The currency is needed in transactions, so it maintains value in this global market of bartering goods/services and other currencies. As supply and demand for this and other commodities/goods/services fluctuate, so does the quantity of any particular currency necessary to conduct any of these transactions. A official \\\"\\\"basket of goods\\\"\\\" and the price of those goods is used to determine consumer price indexes / inflation etc. The official price of this particular basket of goods is not a fundamental driver of exchange rates on a day to day basis.\\\"\",\n \"\\\"The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to \\\"\\\"buy\\\"\\\" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a \\\"\\\"basket\\\"\\\" of things they produce that another country will want, and a \\\"\\\"shopping list\\\"\\\" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency.\\\"\",\n \"\\\"Money is money because people believe it is money. By \\\"\\\"believe it is money\\\"\\\", I mean that they expect they will be able to turn it into useful goods or services (food, rent, houses, truckloads full of iron ore, mining equipment, massages at the spa, helicopter rides, iPads, greenhouses, income streams to support your future retirement, etc). Foreign exchange rates change because people's ideas about how much useful goods or services they can get with various currencies change. For example: if the Zimbabwe government suddenly printed 10 times as much money as used to exist, you probably couldn't use that money to buy as much food at the Zimbabwe-Mart, so you wouldn't be willing to give people as many US-dollars (which can buy food at the US-Mart) for a Zimbabwe-dollar as you used to be able to. (It's not exactly that easy, because - for instance - food in the US is more useful to me than food in Zimbabwe. But people still move around all sorts of things, like oil, or agricultural products, or minerals, or electronics components.) The two main things that affect the value of a currency are the size of the economy that it's tied to (how much stuff there is to get), and how much of the currency there is / how fast it's moving around the economy (which tells you how much money there is to get it with). So most exchange rate shifts reflect a change in people's expectations for a regional economy, or the size of a money supply. (Also, Zimbabwe is doing much better now that it's ditched their own currency - they kept printing trillions of dollars' worth - and just trade in US dollars. Their economy still needs some work, but... better.)\\\"\"\n]","isConversational":false}}},{"rowIdx":287,"cells":{"_id":{"kind":"string","value":"8247"},"query":{"kind":"string","value":"Tax on Stocks or ETF's"},"gt_ids":{"kind":"list like","value":["42521","475170","321114","465313"],"string":"[\n \"42521\",\n \"475170\",\n \"321114\",\n \"465313\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["333425","195767","423929","447651","581632","553253","526661","84238","530146","537916","586010","161041","149305","350317","507276","65702","474745","537371","42521","580802","437907","518735","169240","244061","161019","459953","264820","535822","326559","553332","29502","233248","563831","110343","350555","251394","583626","545267","518310","202645","67616","534391","481283","367742","183910","343708","453639","43508","456968","407185","252135","552138","261902","392313","558867","443354","427067","173133","447197","337993","153112","227064","512253","493160","474981","524612","311782","249687","374676","240651","543898","41509","321114","590010","314342","216827","244749","420529","45190","506448","257274","252176","448659","23217","309923","496820","430868","190687","343219","207788","89546","189028","155053","486974","34139","175563","158185","116017","550319","216404"],"string":"[\n \"333425\",\n \"195767\",\n \"423929\",\n \"447651\",\n \"581632\",\n \"553253\",\n \"526661\",\n \"84238\",\n \"530146\",\n \"537916\",\n \"586010\",\n \"161041\",\n \"149305\",\n \"350317\",\n \"507276\",\n \"65702\",\n \"474745\",\n \"537371\",\n \"42521\",\n \"580802\",\n \"437907\",\n \"518735\",\n \"169240\",\n \"244061\",\n \"161019\",\n \"459953\",\n \"264820\",\n \"535822\",\n \"326559\",\n \"553332\",\n \"29502\",\n \"233248\",\n \"563831\",\n \"110343\",\n \"350555\",\n \"251394\",\n \"583626\",\n \"545267\",\n \"518310\",\n \"202645\",\n \"67616\",\n \"534391\",\n \"481283\",\n \"367742\",\n \"183910\",\n \"343708\",\n \"453639\",\n \"43508\",\n \"456968\",\n \"407185\",\n \"252135\",\n \"552138\",\n \"261902\",\n \"392313\",\n \"558867\",\n \"443354\",\n \"427067\",\n \"173133\",\n \"447197\",\n \"337993\",\n \"153112\",\n \"227064\",\n \"512253\",\n \"493160\",\n \"474981\",\n \"524612\",\n \"311782\",\n \"249687\",\n \"374676\",\n \"240651\",\n \"543898\",\n \"41509\",\n \"321114\",\n \"590010\",\n \"314342\",\n \"216827\",\n \"244749\",\n \"420529\",\n \"45190\",\n \"506448\",\n \"257274\",\n \"252176\",\n \"448659\",\n \"23217\",\n \"309923\",\n \"496820\",\n \"430868\",\n \"190687\",\n \"343219\",\n \"207788\",\n \"89546\",\n \"189028\",\n \"155053\",\n \"486974\",\n \"34139\",\n \"175563\",\n \"158185\",\n \"116017\",\n \"550319\",\n \"216404\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["As mentioned by Dilip, you need to provide more details. In general for transacting on stocks; Long Term: If you hold the stock for more than one year then its long term and not taxable. There is a STT [Securities Transaction Tax] that is already deducted/paid during buying and selling of a stock. Short Term: If you hold the stock for less than one year, it's short term gain. This can be adjusted against the short term loss for the financial year. The tax rate is 10%. Day Trading: Is same as short term from tax point of view. Unless you are doing it as a full time business. If you have purchased multiple quantities of same stock in different quantities and time, then when you selling you have to arrive at profit or loss on FIFO basis, ie First in First Out","@BlackJack does a good answer of addressing the gains and when you are taxed on them and at what kind of rate. Money held in a brokerage account will usually be in a money-market fund, so you would own taxes on the interest it earned. There is one important consideration that must be understood for capitol Losses. This is called the Wash Sale Rule. This rule comes into affect if you sell a stock at a LOSS, and buy shares of the same stock within 30 days (before or after) the sale. A common tactic used to minimize taxes paid is to 'capture losses' when they occur, since these can be used to offset gains and lower your taxes. This is normally done by selling a stock in which you have a LOSS, and then either buying another similar stock, or waiting and buying back the stock you sold. However, if you are intending to buy back the same stock, you must not 'trigger' the Wash Sale Rule or you are forbidden to take the loss. Examples. Lets presume you own 1000 shares of a stock and it's trading 25% below where you bought it, and you want to capture the loss to use on your taxes. This can be a very important consideration if trading index ETF's if you have a loss in something like a S&P500 ETF, you would likely incur a wash sale if you sold it and bought a different S&P500 ETF from another company since they are effectively the same thing. OTOH, if you sold an S&P500 ETF and bought something like a 'viper''total stock market' ETF it should be different enough to not trigger the wash sale rule. If you are trying to minimize the taxes you pay on stocks, there are basically two rules to follow. 1) When a gain is involved, hold things at least a year before selling, if at all possible. 2) Capture losses when they occur and use to offset gains, but be sure not to trigger the wash sale rule when doing so.","If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.","Is the remaining amount tax free? As in, if the amount shown (which I can sell) on etrade is $5000 then if I sell the entire shares will my bank account be increased by $5000? The stocks they sell are withholding. So let's say you had $7000 of stock and they sold $2000 for taxes. That leaves you with $5000. But the actual taxes paid might be more or less than $2000. They go in the same bucket as the rest of your withholding. If too much is withheld, you get a refund. Too little and you owe them. Way too little and you have to pay penalties. At the end of the year, you will show $7000 as income and $2000 as withheld for taxes from that transaction. You may also have a capital gain if the stock increases in price. They do not generally withhold on stock sales, as they don't necessarily know what was your gain and what was your loss. You usually have to handle that yourself. The main point that I wanted to make is that the sale is not tax free. It's just that you already had tax withheld. It may or may not be enough.","Consult a professional CA. For shares sold outside the Indian Stock Exchanges, these will be treated as normal Long Term Capital Gains if held more than one year. The rate would be 10% without Indexation and 20% with Indexation. If the stocks are held for less than 1 years, it will be short term gains and taxed according you to tax bracket.","E.g. I buy 1 stock unit for $100.00 and sell it later for $150.00 => income taxes arise. Correct. You pay tax on your gains, i.e.: the different between net proceeds and gross costs (proceeds sans fees, acquisition costs including fees). I buy 1 stock unit for $150.00 and sell it later for $100.00 => no income taxes here. Not correct. The loss is deductible from other capital gains, and if no other capital gains - from your income (up to $3000 a year, until exhausted). Also, there are two different tax rate sets for capital gains: short term (holding up to 1 year) and long term (more than that). Short term capital gains tax matches ordinary income brackets, whereas long term capital gains tax brackets are much lower.","\"Long term: Assuming you sold stock ABC through a registered stock exchange, e.g., the Bombay Stock Exchange or the National Stock Exchange of India, and you paid the Securities Transaction Tax (STT), you don't owe any other taxes on the long term capital gain of INR 100. If you buy stock BCD afterwards, this doesn't affect the long term capital gains from the sale of stock ABC. Short term: If you sell the BCD stock (or the ABC stock, or some combination therein) within one year of its purchase, you're required to pay short term capital gains on the net profit, in which case you pay the STT and the exchange fees and an additional flat rate of 15%. The Income Tax Department of India has a publication titled \"\"How to Compute your Capital Gains,\"\" which goes into more detail about a variety of relevant situations.\"","Gold ETFs are treated different than stock ETFs, as a collectable. This makes long-term investing in gold ETFs (for one year or longer) subject to a relatively large capital gains tax (maximum rate of 28%, rather than the 15% rate that is applicable to most other long-term capital gains). Read The Gold Showdown: ETFs Vs. Futures for more details.","Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income.","\"Do I have to pay the stock investment income tax if I bought some stocks in 2016, it made some profits but I didn't sell them at the end of 2016? You pay capital gains taxes only when you sell the stocks. When you sell the stock within a year you will pay the short term capital gains rate which is the same rate as your ordinary income. If the stock pays dividends, however, you will have to pay taxes in the year that the dividend was paid out to you. I bought some stocks in 2011, sold them in 2012 and made some gains. Which year of do I pay the tax for the gains I made? You would pay in 2012, likely at the short term gain rate. I bought some stocks, sold them and made some gains, then use the money plus the gains to buy some other stocks before the end of the same year. Do I have to pay the tax for the gains I made in that year? Yes. There is a specific exception called the \"\"Wash Sale Rule\"\", but that would only apply if you lost money on the original sale and bought a substantially similar or same stock within 30 days. Do I get taxed more for the money I made from buying and selling stocks, even if the gains is only in hundreds? More than what? You pay taxes based on the profit you make from the investment. If you held it less than a year it is the same tax rate as your regular income. If you held it longer you pay a lower tax rate which is usually lower than your regular tax rate.\"","The money that you put into the ETF is not tax-exempt in the usual sense of the word. It is your money and you don't owe any taxes on it any more unless Congress (or the state that you reside in) imposes a wealth tax at some time in the future. What you will owe taxes on are any dividends or capital gains that the ETF distributes to you each year (even if you have opted to automatically re-invest those amounts into the ETF), and the capital gains when you sell shares of the ETF.","ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.","\"Appreciation of a Capital Asset is a Capital Gain. In the United States, Capital Gains get favorable tax treatment after being held for 12 months. From the IRS newsroom: Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%. The IRS defines a Capital Asset as \"\"most property you own\"\" with a list of exclusions found in Schedule D Instructions. None of the exclusions listed relate to Bond ETFs.\"","Generally, ETFs and mutual funds don't pay taxes (although there are some cases where they do, and some countries where it is a common case). What happens is, the fund reports the portion of the gain attributed to each investor, and the investor pays the tax. In the US, this is reported to you on 1099-DIV as capital gains distribution, and can be either short term (as in the scenario you described), long term, or a mix of both. It doesn't mean you actually get a distribution, though, but if you don't - it reduces your basis.","\"Are these all of the taxes or is there any additional taxes over these? Turn-over tax is not for retail investors. Other taxes are paid by the broker as part of transaction and one need not worry too much about it. Is there any \"\"Income tax\"\" to be paid for shares bought/holding shares? No for just buying and holding. However if you buy and sell; there would be a capital gain or loss. In stocks, if you hold a security for less than 1 year and sell it; it is classified as short term capital gain and taxes at special rate of 15%. The loss can be adjusted against any other short term gain. If held for more than year it is long term capital gain. For stock market, the tax is zero, you can't adjust long term losses in stock markets. Will the money received from selling shares fall under \"\"Taxable money for FY Income tax\"\"? Only the gain [or loss] will be tread as income not the complete sale value. To calculate gain, one need to arrive a purchase price which is price of stock + Brokerage + STT + all other taxes. Similar the sale price will be Sales of stock - Brokerage - STT - all other taxes. The difference is the gain. Will the \"\"Dividend/Bonus/Buy-back\"\" money fall under taxable category? Dividend is tax free to individual as the company has already paid dividend distribution tax. Bonus is tax free event as it does not create any additional value. Buy-Back is treated as sale of shares if you have participated. Will the share-holder pay \"\"Dividend Distribution Tax\"\"? Paid by the company. What is \"\"Capital Gains\"\"? Profit or loss of buying and selling a particular security.\"","\"Securities and ETFs are also subjected to Estate Tax. Some ways: Draft a \"\"Transfer on Death\"\" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker. Give your brokerage and bank password/token to your beneficiary. Have him transfer out holdings within hours of death. Create a Trust, that survives even after death of an individual. P.S. ETF is treated as Stock (a company that owns other companies), regardless of the nature of the holdings. P.S.2 Above suggestions are only applicable to nonresident alien of the US.\"","Investopedia laid out the general information of tax treatment on the ETF fund structures as well as their underlying asset classes: http://www.investopedia.com/financial-edge/0213/how-tax-treatments-of-etfs-work.aspx","No Tax would have been deducted at the time of purchase/sale of shares. You would yourself be required to compute your tax liability and then pay taxes to the govt. In case the shares sold were held for less than 1 year - 15% tax on capital gains would be levied. In case the shares sold were held for more than 1 year - No Tax would be levied and the income earned would be tax free. PS: No Tax is levied at the time of purchase of shares and Tax is only applicable at the time of sale of shares.","\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \"\"otherwise\"\" is substantial and far-ranging.\"","You cannot do a 1031 exchange with stocks, bonds, mutual funds, or ETFs. There really isn't much difference between an ETF and its equivalent index mutual fund. Both will have minimal capital gains distributions. I would not recommend selling an index mutual fund and taking a short-term capital gain just to buy the equivalent ETF.","The dividend tax credit is not applicable to foreign dividend income, so you would be taxed fully on every dollar of that income. When you sell a stock, there will be a capital gain or capital loss depending on if it gained or lost value, after accounting for the Adjusted Cost Base. You only pay income tax on half of the amount earned through capital gains, and if you have losses, you can use them to offset other investments that had capital gains (or carry forward to offset gains in the future). The dividends from US stocks are subject to a 15% withholding tax that gets paid to the IRS automatically when the dividends are issued. If the stocks are held in an RRSP, they are exempt from the withholding tax. If held in a non-registered account, you can be reimbursed for the tax by claiming the foreign tax credit that you linked to. If held in a TFSA or RESP, the withholding tax cannot be recovered. Also, if you are not directly holding the stocks, and instead buy a mutual fund or ETF that directly holds the stocks, then the RRSP exemption no longer applies, but the foreign tax credit is still claimable for a non-registered account. If the mutual fund or ETF does not directly hold stocks, and instead holds one or more ETFs, there is no way to recover the withholding tax in any type of account.","There is little difference between buying shares in your broker's index fund and shares of their corresponding ETF. In many cases the money invested in an ETF gets essentially stuffed right into the index fund (I believe Vanguard does this, for example). In either case you will be paying a little bit of tax. In the ETF case it will be on the dividends that are paid out. In the index fund case it will additionally be on the capital gains that have been realized within the fund, which are very few for an index fund. Not a ton in either case. The more important tax consideration is between purchase and sale, which is the same in either case. I'd say stick it wherever the lowest fees are.","You can keep the cash in your account as long as you want, but you have to pay a tax on what's called capital gains. To quote from Wikipedia: A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor.[1] Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price. Thus, buying/selling stock counts as investment income which would be a capital gain/loss. When you are filing taxes, you have to report net capital gain/loss. So you don't pay taxes on an individual stock sale or purchase - you pay tax on the sum of all your transactions. Note: You do not pay any tax if you have a net capital loss. Taxes are only on capital gains. The amount you are taxed depends on your tax bracket and your holding period. A short term capital gain is gain on an investment held for less than one year. These gains are taxed at your ordinary income tax rate. A long term capital gain is gain on an investment held for more than one year. These gains are taxed at a special rate: If your income tax rate is 10 or 15%, then long term gains are taxed at 0% i.e. no tax, otherwise the tax rate is 15%. So you're not taxed on specific stock sales - you're taxed on your total gain. There is no tax for a capital loss, and investors sometimes take profits from good investments and take losses from bad investments to lower their total capital gain so they won't be taxed as much. The tax rate is expected to change in 2013, but the current ratios could be extended. Until then, however, the rate is as is. Of course, this all applies if you live in the United States. Other countries have different measures. Hope it helps! Wikipedia has a great chart to refer to: http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States.","The tax is only payable on the gain you make i.e the difference between the price you paid and the price you sold at. In your cse no tax is payable if you sell at the same price you bought at","Your tax efficient reasoning is solid for where you want to distribute your assets. ETFs are often more tax efficient than their equivalent mutual funds but the exact differences would depend on the comparison between the fund and ETF you were considering. The one exception to this rule is Vanguard funds and ETFs which have the exact same tax-efficiency because ETFs are a share class of the corresponding mutual fund.","As far as I read in many articles, all earnings (capital gains and dividends) from Canadian stocks will be always tax-free. Right? There's no withholding tax, ie. a $100 dividend means you get $100. There's no withholding for capital gains in shares for anybody. You will still have to pay taxes on the amounts, but that's only due at tax time and it could be very minor (or even a refund) for eligible Canadian dividends. That's because the company has already paid tax on those dividends. In contrast, holding U.S. or any foreign stock that yields dividends in a TFSA will pay 15% withholding tax and it is not recoverable. Correct, but the 15% is a special rate for regular shares and you need to fill out a W8-BEN. Your broker will probably make sure you have every few years. But if you hold the same stock in a non-registered account, this 15% withholding tax can be used as a foreign tax credit? Is this true or not or what are the considerations? That's true but reduces your Canadian tax payable, it's not refundable, so you have to have some tax to subtract it from. Another consideration is foreign dividends are included 100% in income no mater what the character is. That means you pay tax at your highest rate always if not held in a tax sheltered account. Canadian dividends that are in a non-registered account will pay taxes, I presume and I don't know how much, but the amount can be used also as a tax credit or are unrecoverable? What happens in order to take into account taxes paid by the company is, I read also that if you don't want to pay withholding taxes from foreign > dividends you can hold your stock in a RRSP or RRIF? You don't have any withholding taxes from US entities to what they consider Canadian retirement accounts. So TFSAs and RESPs aren't covered. Note that it has to be a US fund like SPY or VTI that trades in the US, and the account has to be RRSP/RRIF. You can't buy a Canadian listed ETF that holds US stocks and get the same treatment. This is also only for the US, not foreign like Europe or Asia. Also something like VT (total world) in the US will have withholding taxes from foreign (Europe & Asia mostly) before the money gets to the US. You can't get that back. Just an honourable mention for the UK, there's no withholding taxes for anybody, and I hear it's on sale. But at some point, if I withdraw the money, who do I need to pay taxes, > U.S. or Canada? Canada.","\"An investment is sold when you sell that particular stock or fund. It doesn't wait until you withdraw cash from the brokerage account. Whether an investment is subject to long term or short term taxes depends on how long you held that particular stock. Sorry, you can't get around the higher short term tax by leaving the money in a brokerage account or re-investing in something else. If you are invested in a mutual fund, whether it's long or short term depends on when you buy and sell the fund. The fact that the fund managers are buying and selling behind your back doesn't affect this. (I don't know what taxes they have to pay, maybe you really are paying for it in the form of management fees or lower returns, but you don't explicitly pay the tax on these \"\"inner\"\" transactions.) Your broker should send you a tax statement every year giving the numbers that you need to fill in to the various boxes of your income tax form. You don't have to figure it out. Of course it helps to know the rules. If you've held a stock for 11 1/2 months and are planning to sell, you might want to consider waiting a couple of weeks so it becomes a long term capital gain rather than short term and thus subject to lower tax.\"","The Federal Central Tax Office says you may not have to pay taxes in germany for capital gains. You may have to apply for a tax relief to prevent the tax from being collected. You very likely will have to pay whatever taxes there are in Hong Kong on capital gains. Since you use an US broker withholding tax may apply to you but this is a different question that has nothing to do with Germany or german stocks. To be sure you should contact a local expert on this topic. EDIT: I missed some informations that I found on the english site of the german Federal Central Tax Office homepage.","The link provided by DumbCoder (below) is only relevant to UK resident investors and does not apply if you live in Malaysia. I noticed that in a much older question you asked a similar question about taxes on US stocks, so I'll try and answer both situations here. The answer is almost the same for any country you decide to invest in. As a foreign investor, the country from which you purchase stock cannot charge you tax on either income or capital gains. Taxation is based on residency, so even when you purchase foreign stock its the tax laws of Malaysia (as your country of residence) that matter. At the time of writing, Malaysia does not levy any capital gains tax and there is no income tax charged on dividends so you won't have to declare or pay any tax on your stocks regardless of where you buy them from. The only exception to this is Dividend Withholding Tax, which is a special tax taken by the government of the country you bought the stock from before it is paid to your account. You do not need to declare this tax as it his already been taken by the time you receive your dividend. The rate of DWT that will be withheld is unique to each country. The UK does not have any withholding tax so you will always receive the full dividend on UK stocks. The withholding tax rate for the US is 30%. Other countries vary. For most countries that do charge a withholding tax, it is possible to have this reduced to 15% if there is a double taxation treaty in place between the two countries and all of the following are true: Note: Although the taxation rules of both countries are similar, I am a resident of Singapore not Malaysia so I can't speak from first hand experience, but current Malaysia tax rates are easy to find online. The rest of this information is common to any non-US/UK resident investor (as long as you're not a US person).","Note the above is only for shares. There are different rules for other assets like House, Jewellery, Mutual Funds, Debt Funds. Refer to the Income Tax guide for more details.","You pay taxes on any gains you make after selling, so if you buy and hold you won't pay taxes (and you should hold for more than a year so that it gets taxed at the long-term rate, not the short-term rate). I like ETFs, there are some good ones Vanguard offers that are fairly broad, or you can use something like www.Betterment.com which invests in a diversified portfolio of ETFs (and includes things like automatic re-balancing and tax-loss harvesting).","(I'm assuming the tag of United-states is accurate) Yes, the remaining amount is tax free -- at the current price. If you sell at exactly the original price, there is no capital gain, no capital loss. So you've already payed the taxes. If you sell and there is a capital gain of $3000, then you will pay taxes on the $3000. If 33% is your marginal tax rate, and if you held the stock for less than a year, then you will keep $7000 and pay taxes of $1000. Somehow, I doubt your marginal tax rate is 33%. If you hold the stock for a year after eTrade sold some for you to pay taxes, then you will pay 15% on the gain -- or $450. eTrade sold the shares to pay the taxes generated by the income. Yes, those shares were considered income. If you sell and have a loss, well, life sucks. However, if you sell something else, you can use the loss to offset the other gain. So if you sell stock A for a loss of $3000, and sell stock B at a gain of $4000, then you pay taxes on the net of $1000.","The same as you would for an individual stock. A stock starts the year at $100, and has $4 in dividends over the year, why would the fact the the stock ends the year at say $90, confuse you? You pay tax on the dividend at the favored rate, if held in a taxable account, obviously, and that's about it.","A mutual fund makes distributions of its dividends and capital gains, usually once a year, or seminanually or quarterly or monthly etc; it does not distribute any capital losses to its shareholders but holds them for offsetting capital gains in future years, (cf, this answer of mine to a different question). A stock pays dividends; a stock neither has nor does it distribute capital gains: you get capital gains (or losses) when you sell the shares of the stock, but these are not called distributions of any kind. Similarly, you incur capital gains or losses when you redeem shares of mutual funds but these are not called distributions either. Note that non-ETF mutual fund shares are generally not bought and sold on stock exchanges; you buy shares directly from the fund and you sell shares back (redeem them) directly to the fund. All of the above transactions are taxable events for the year to you unless the shares are being held in a tax-deferred account or are tax-free for other reasons (e.g. dividends from a municipal bond fund).","Capital gain distribution is not capital gain on sale of stock. If you have stock sales (Schedule D) you should be filing 1040, not 1040A. Capital gain distributions are distributions from mutual funds/ETFs that are attributed to capital gains of the funds (you may not have actually received the distribution, but you still may have gain attributed to you). It is reported on 1099-DIV, and if it is 0 - then you don't have any. If you sold a stock, your broker should have given you 1099-B (which is not the same as 1099-DIV, but may be consolidated by your broker into one large PDF and not provided separately). On 1099-B the sales proceeds are recorded, and if you purchased the stock after 2011 - the cost basis is also recorded. The difference between the proceeds and the cost basis is your gain (or loss, if it is negative). Fees are added to cost basis.","The capital gain is either short-term or long-term and will be indicated on the 1099-DiV. You pay taxes on this amount as the capital gain was received in a taxable account (assuming since you received a 1099-DIV). More info here: https://www.mutualfundstore.com/brokerage-account/capital-gains-distributions-taxable","I don't see a tag for United States, so I'm having to assume this is US taxes. It doesn't matter what app you use, IRS trades are all calculated the same. First, you have to report each trade on a 8949 and from that the totals go into a schedule D. Short term trades are stocks that you've kept exactly one year or less, long term trades are for 1 year + 1 day or more. Trades where you sold a stock for a loss, then bought that stock back again under 30 days don't get to count as a loss. This only affects realized capital gains and losses, you don't count fees. First, take all of your short term gains then offset them by all of your short term losses. Do the same for long term gains and losses. Short and long term gains are taxed at different rates. You can deduct losses from short term to your long term and vice versa. Then you can deduct the total losses up to $3000 (household, $1500 married, filing separately) per year on your regular income taxes or other dividend taxes. If you have over $3000 in losses, then you need to carry that over to subsequent years. Edited per Dave's comments: thanks Dave","\"Very interesting question. While searching i also found that some precious metal ETFs (including IAU) gains are taxed at 28% because IRS considers it \"\"collectible\"\", rather than the usual long term 15% for stocks and stock holding ETFs. As for capital gain tax you have to pay now my guess it's because of the following statement in the IAU prospectus (page 34): When the trust sells gold, for example to pay expenses, a Shareholder will recognize gain or loss ....\"","Long term gains are taxed at 15% maximum. Losses, up to the $3K/yr you cited, can offset ordinary income, so 25% or higher, depending on your income. Better to take the loss that way. With my usual disclaimer: Do not let the tax tail wag the investing dog.","For stocks, bonds, ETF funds and so on - Taxed only on realised gain and losses are deductible from the gain and not from company's income. Corporate tax is calculated only after all expenses have been deducted. Not the other way around. Real estate expenses can be deducted because of repairs and maintenance. In general all expenses related to the operation of the business can be deducted. But you cannot use expenses as willy nilly, as you assume. You cannot deduct your subscription to Playboy as an expense. Doing it is illegal and if caught, the tours to church will increase exponentially. VAT is only paid if you claim VAT on your invoices. Your situation seems quite complicated. I would suggest, get an accountant pronto. There are nuances in your situation, which an accountant only can understand and help.","This depends on the particular index, of course. Capital gains taxes occur when stock is sold (for a profit). This occurs less frequently in an index fund: Where an active manager frequently buys and sells stocks (after all, he wants to be active :-) ), the index fund only sells stocks when the particular stock leaves the index. For an index such as the S&P 500 this does not happen that often. The more specific the criteria of the index fund, the more often the selling of stock and thus the need to pay capital gains taxes occurs.","Does my prior answer here to a slightly different question help at all? Are there capital gains taxes or dividend taxes if I invest in the U.S. stock market from outside of the country?","Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.","Assuming that taxes were withheld when you received the options, you would now only owe tax on the profit from the sale of the stock. The cost basis would be whatever you bought the stock for (the strike price of the options in this case), and the profit will be the total amount received from the sale minus the total cost of those shares. Since you bought the stock more than one year ago, you will get taxed at the long-term capital gains rate of 15% (unless you are in the 39.6% tax bracket, in which case the rate is 20%). As with all tax advice on this site, you need to check with a tax specialist when you actually file, but that should give you a rough indication of what your tax liability is.","The problem there is that there's a tax due on that dividend. So, if you wish, you can buy the ETF and specify to reinvest dividends, but you'll have to pay a bit of tax on them, and keep track of your basis, if the account isn't a retirement account.","\"The US withholding tax applies to stocks/ETFs purchased on the NYSE and other US-based exchanges. If you buy Cenovus on the TSE then you will not be charged this tax. Your last sentence seems like you might be misunderstanding this tax though. If the tax applied, it would not cost you 15% on all your profits, it only applies to dividend yields. So if it pays you a 5% dividend, the tax costs you 0.75%. However, if you buy at $21.19 and sell at $26, then your capital gain is not subject to withholding taxes. It is however, subject to Canadian income tax (at 50% of the gain amount) when it's not sheltered in a TFSA or other registered account. The tax on the gains could easily amount to 16% of your profits, which is a much more significant cost. Therefore, having to pay a 0.75% withholding cost certainly does not \"\"defeat the purpose of the TFSA\"\" which is to shelter from Canadian income tax!\"","(All for US.) Yes you (will) have a realized long-term capital gain, which is taxable. Long-term gains (including those distributed by a mutual fund or other RIC, and also 'qualified' dividends, both not relevant here) are taxed at lower rates than 'ordinary' income but are still bracketed almost (not quite) like ordinary income, not always 15%. Specifically if your ordinary taxable income (after deductions and exemptions, equivalent to line 43 minus LTCG/QD) 'ends' in the 25% to 33% brackets, your LTCG/QD income is taxed at 15% unless the total of ordinary+preferred reaches the top of those brackets, then any remainder at 20%. These brackets depend on your filing status and are adjusted yearly for inflation, for 2016 they are: * single 37,650 to 413,350 * married-joint or widow(er) 75,300 to 413,350 * head-of-household 50,400 to 441,000 (special) * married-separate 37,650 to 206,675 which I'd guess covers at least the middle three quintiles of the earning/taxpaying population. OTOH if your ordinary income ends below the 25% bracket, your LTCG/QD income that 'fits' in the lower bracket(s) is taxed at 0% (not at all) and only the portion that would be in the ordinary 25%-and-up brackets is taxed at 15%. IF your ordinary taxable income this year was below those brackets, or you expect next year it will be (possibly due to status/exemption/deduction changes as well as income change), then if all else is equal you are better off realizing the stock gain in the year(s) where some (or more) of it fits in the 0% bracket. If you're over about $400k a similar calculation applies, but you can afford more reliable advice than potential dogs on the Internet. (update) Near dupe found: see also How are long-term capital gains taxed if the gain pushes income into a new tax bracket? Also, a warning on estimated payments: in general you are required to pay most of your income tax liability during the year (not wait until April 15); if you underpay by more than 10% or $1000 (whichever is larger) you usually owe a penalty, computed on Form 2210 whose name(?) is frequently and roundly cursed. For most people, whose income is (mostly) from a job, this is handled by payroll withholding which normally comes out close enough to your liability. If you have other income, like investments (as here) or self-employment or pension/retirement/disability/etc, you are supposed to either make estimated payments each 'quarter' (the IRS' quarters are shifted slightly from everyone else's), or increase your withholding, or a combination. For a large income 'lump' in December that wasn't planned in advance, it won't be practical to adjust withholding. However, if this is the only year increased, there is a safe harbor: if your withholding this year (2016) is enough to pay last year's tax (2015) -- which for most people it is, unless you got a pay cut this year, or a (filed) status change like marrying or having a child -- you get until next April 15 (or next business day -- in 2017 it is actually April 18) to pay the additional amount of this year's tax (2016) without underpayment penalty. However, if you split the gain so that both 2016 and 2017 have income and (thus) taxes higher than normal for you, you will need to make estimated payment(s) and/or increase withholding for 2017. PS: congratulations on your gain -- and on the patience to hold anything for 10 years!","\"The examples you provide in the question are completely irrelevant. It doesn't matter where the brokerage is or where is the company you own stocks in. For a fairly standard case of an non-resident alien international student living full time in the US - your capital gains are US sourced. Let me quote the following text a couple of paragraphs down the line you quoted on the same page: Gain or loss from the sale or exchange of personal property generally has its source in the United States if the alien has a tax home in the United States. The key factor in determining if an individual is a U.S. resident for purposes of the sourcing of capital gains is whether the alien's \"\"tax home\"\" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’s U.S. source capital gains would be treated as foreign-source and thus nontaxable. In general, under the \"\"tax home\"\" rules, a person who is away (or who intends to be away) from his tax home for longer than 1 year has shifted tax homes to his new location upon his arrival in that new location. See Chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses I'll assume you've read this and just want an explanation on what it means. What it means is that if you move to the US for a significant period of time (expected length of 1 year or more), your tax home is assumed to have shifted to the US and the capital gains are sourced to the US from the start of your move. For example: you are a foreign diplomat, and your 4-year assignment started in May. Year-end - you're not US tax resident (diplomats exempt), but you've stayed in the US for more than 183 days, and since your assignment is longer than 1 year - your tax home is now in the US. You'll pay the 30% flat tax. Another example: You're a foreign airline pilot, coming to the US every other day flying the airline aircraft. You end up staying in the US 184 days, but your tax home hasn't shifted, nor you're a US tax resident - you don't pay the flat tax. Keep in mind, that tax treaties may alter the situation since in many cases they also cover the capital gains situation for non-residents.\"","However, you might have to pay taxes on capital gains if these stocks were acquired during your prior residency.","\"Mutual funds don't pay taxes themselves, they distribute any dividends or capital gains to the shareholders. Thus, if you hold a mutual fund in a tax-advantaged account like a 401k or IRA then the distribution isn't a taxable event while in a regular taxable account you would have to pay taxes on the distributions. From Forbes: There can be foreign companies on US stock exchanges that would still work the same way. Unilever for example is an Anglo-Dutch multinational listed on the NYSE as \"\"UN.\"\"\"","You normally only pay taxes on the difference between the sale price and the cost basis of the asset. In your example, you would probably pay taxes on the $10 difference, not the full sale price of $110. If you paid a commission, however, you would be taxed on your gain minus the commission you paid. Since you held the asset for less than a year, you wouldn't pay the long-term capital gains rate of 20%; you'd be taxed on the capital gain as if it were ordinary income, which depends on your federal income tax bracket. Also, littleadv makes a good point about the implications of buying the asset with after-tax funds too, so that's another part of the equation to consider as well.","\"The country from which you purchase stock cannot charge you tax on either income or capital gains. Taxation is based on residency, so even when you purchase foreign stock its the tax laws of Malaysia (as your country of residence) that matter. At the time of writing, Malaysia does not levy any capital gains tax and there is no income tax charged on dividends so you won't have to declare or pay any tax on your stocks regardless of where you buy them from. The only exception to this is Dividend Withholding Tax, which is a special tax taken by the government of the country you bought the stock from before it is paid to your account. You do not need to declare this tax as it his already been taken by the time you receive your dividend. The US withholding tax rate on dividends is 30%, although this can be reduced to 15% if there as a tax treaty in place between the US and your country of residence. Malaysia does have a double taxation agreement with the US (see here: http://www.mida.gov.my/env3/index.php?page=double-taxation-agreement) but it is flagged as a \"\"limited\"\" agreement. You'd need to find the full text of the agreement to see whether a reduced rate of dividend withholding tax would be available in the Malaysia/US treaty. See my other answer for more details on withholding taxes and how to partially reclaim under a double tax treaty: What is the dividend tax rate for UK stock Note: Although the taxation rules of both countries are similar, I am a resident of Singapore not Malaysia so I can't speak from first hand experience, but current Malaysia tax rates are easy to find online. The rest of this information is common to any non-US/UK resident investor (as long as you're not a US person).\"","\"The IRS rules are actually the same. 26 U.S. Code § 1091 - Loss from wash sales of stock or securities In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed... What you should take away from the quote above is \"\"substantially identical stock or securities.\"\" With stocks, one company may happen to have a high correlation, Exxon and Mobil come to mind, before their merger of course. With funds or ETFs, the story is different. The IRS has yet to issue rules regarding what level of overlap or correlation makes two funds or ETFs \"\"substantially identical.\"\" Last month, I wrote an article, Tax Loss Harvesting, which analyses the impact of taking losses each year. I study the 2000's which showed an average loss of 1% per year, a 9% loss for the decade. Tax loss harvesting made the decade slightly positive, i.e. an annual boost of approx 1%.\"","non-resident aliens to the US do not pay capital gains on US products. You pay tax in your home country if you have done a taxable event in your country. http://www.investopedia.com/ask/answers/06/nonusresidenttax.asp#axzz1mQDut9Ru but if you hold dividends, you are subject to US dividend tax. The UK-US treaty should touch on that though.","I'm not sure where you are, but in the United States capital gains are taxed at a lower rate than other types of income. On the 1040, captial gains income is separated from earned income, and income tax is calculated just on earned income. Then capital gains tax is calculated on capital gains income, and then added to income tax afterward.","Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.","A purchase of a stock is not a taxable event. No 1099 to worry about. Welcome to Money.SE","Tax questions require that you specify a jurisdiction. Assuming that this is the US, you owe Federal income tax (at the special long-term capital gains tax rate) on the net long-term capital gains (total long-term capital gains minus total long-term capital losses) and so, yes, if these two were your only transactions involving long-term holdings, you would pay long-term capital gains tax on $3000-$50 = $2950. Many States in the US don't tax long-term capital gains at special rates the way the Federal Government does, but you still pay taxes on the net long-term capital gains. I suspect that other countries have similar rules.","See my answer here What is the dividend tax rate for UK stock The only tax from US stocks you'd need to worry about would be dividend withholding tax of 30%. If you contact your ISA provider they should be able to provide you with a W8-BEN form so that you can have this rate reduced to 15%. Just because there's a tax treaty does not mean you will automatically be charged 15% - you must provide a W8-BEN form and renew it when it expires. That last 15% is unfortunately unavoidable. If you were paying any UK taxes you could claim that 15% as a discount against your UK dividend tax liability, but as your US stock would be wrapped in an ISA there's no UK tax to pay which means no tax to reclaim from the tax treaty. Other than DWT though, you will pay absolutely no tax on US stocks held in an ISA to either the US or UK government.","\"This answer is about the USA. Each time you sell a security (a stock or a bond) or some other asset, you are expected to pay tax on the net gain. It doesn't matter whether you use a broker or mutual fund to make the sale. You still owe the tax. Net capital gain is defined this way: Gross sale prices less (broker fees for selling + cost of buying the asset) The cost of buying the asset is called the \"\"basis price.\"\" You, or your broker, needs to keep track of the basis price for each share. This is easy when you're just getting started investing. It stays easy if you're careful about your record keeping. You owe the capital gains tax whenever you sell an asset, whether or not you reinvest the proceeds in something else. If your capital gains are modest, you can pay all the taxes at the end of the year. If they are larger -- for example if they exceed your wage earnings -- you should pay quarterly estimated tax. The tax authorities ding you for a penalty if you wait to pay five- or six-figure tax bills without paying quarterly estimates. You pay NET capital gains tax. If one asset loses money and another makes money, you pay on your gains minus your losses. If you have more losses than gains in a particular year, you can carry forward up to $3,000 (I think). You can't carry forward tens of thousands in capital losses. Long term and short term gains are treated separately. IRS Schedule B has places to plug in all those numbers, and the tax programs (Turbo etc) do too. Dividend payments are also taxable when they are paid. Those aren't capital gains. They go on Schedule D along with interest payments. The same is true for a mutual fund. If the fund has Ford shares in it, and Ford pays $0.70 per share in March, that's a dividend payment. If the fund managers decide to sell Ford and buy Tesla in June, the selling of Ford shares will be a cap-gains taxable event for you. The good news: the mutual fund managers send you a statement sometime in February or March of each year telling what you should put on your tax forms. This is great. They add it all up for you. They give you a nice consolidated tax statement covering everything: dividends, their buying and selling activity on your behalf, and any selling they did when you withdrew money from the fund for any purpose. Some investment accounts like 401(k) accounts are tax free. You don't pay any tax on those accounts -- capital gains, dividends, interest -- until you withdraw the money to live on after you retire. Then that money is taxed as if it were wage income. If you want an easy and fairly reliable way to invest, and don't want to do a lot of tax-form scrambling, choose a couple of different mutual funds, put money into them, and leave it there. They'll send you consolidated tax statements once a year. Download them into your tax program and you're done. You mentioned \"\"riding out bad times in cash.\"\" No, no, NOT a good idea. That investment strategy almost guarantees you will sell when the market is going down and buy when it's going up. That's \"\"sell low, buy high.\"\" It's a loser. Not even Warren Buffett can call the top of the market and the bottom. Ned Johnson (Fidelity's founder) DEFINITELY can't.\"","The ETF is likely better in this case. The ETF will generally generate less capital gains taxes along the way. In order to pay off investors who leave a mutual fund, the manager will have to sell the fund's assets. This creates a capital gain, which must be distributed to shareholders at the end of the year. The mutual fund holder is essentially taxed on this turnover. The ETF does not have to sell any stock when an investor sells his shares because the investor sells the shares himself on the open market. This will result in a capital gain for the specific person exiting his position, but it does not create a taxable event for anyone else holding the ETF shares.","You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.","Capital gains taxes for a year are calculated on sales of assets that take place during that year. So if you sell some stock in 2016, you will report those gains/losses on your 2016 tax return.","\"That's a tricky question and you should consult a tax professional that specializes on taxation of non-resident aliens and foreign expats. You should also consider the provisions of the tax treaty, if your country has one with the US. I would suggest you not to seek a \"\"free advice\"\" on internet forums, as the costs of making a mistake may be hefty. Generally, sales of stocks is not considered trade or business effectively connected to the US if that's your only activity. However, being this ESPP stock may make it connected to providing personal services, which makes it effectively connected. I'm assuming that since you're filing 1040NR, taxes were withheld by the broker, which means the broker considered this effectively connected income.\"","\"You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule \"\"Don't let the tax tail wag the investing dog.\"\" For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense.\"","ETFs are a type of investment, not a specific choice. In other words, there are good ETFs and bad. What you see is the general statement that ETFs are preferable to most mutual funds, if only for the fact that they are low cost. An index ETF such as SPY (which reflects the S&P 500 index) has a .09% annual expense, vs a mutual fund which average a full percent or more. sheegaon isn't wrong, I just have a different spin to offer you. Given a long term return of say even 8% (note - this question is not a debate of the long term return, and I purposely chose a low number compared to the long term average, closer to 10%) and the current CD rate of <1%, a 1% hit for the commission on the buy side doesn't bother me. The sell won't occur for a long time, and $8 on a $10K sale is no big deal. I'd not expect you to save $1K/yr in cash/CDs for the years it would take to make that $8 fee look tiny. Not when over time the growth will overshaddow this. One day you will be in a position where the swings in the market will produce the random increase or decrease to your net worth in the $10s of thousands. Do you know why you won't lose a night's sleep over this? Because when you invested your first $1K, and started to pay attention to the market, you saw how some days had swings of 3 or 4%, and you built up an immunity to the day to day noise. You stayed invested and as you gained wealth, you stuck to the right rebalancing each year, so a market crash which took others down by 30%, only impacted you by 15-20, and you were ready for the next move to the upside. And you also saw that since mutual funds with their 1% fees never beat the index over time, you were happy to say you lagged the S&P by .09%, or 1% over 11 year's time vs those whose funds had some great years, but lost it all in the bad years. And by the way, right until you are in the 25% bracket, Roth is the way to go. When you are at 25%, that's the time to use pre-tax accounts to get just below the cuttoff. Last, welcome to SE. Edit - see sheegaon's answer below. I agree, I missed the cost of the bid/ask spread. Going with the lowest cost (index) funds may make better sense for you. To clarify, Sheehan points out that ETFs trade like a stock, a commission, and a bid/ask, both add to transaction cost. So, agreeing this is the case, an indexed-based mutual fund can provide the best of possible options. Reflecting the S&P (for example) less a small anual expense, .1% or less.","If so, are there ways to reduce the amount of taxes owed? Given that it's currently December, I suppose I could sell half of what I want now, and the other half in January and it would split the tax burden over 2 years instead, but beyond that, are there any strategies for tax reduction in this scenario? One possibility is to also sell stocks that have gone down since you bought them. Of course, you would only do this if you have changed your mind about the stock's prospects since you bought it -- that is, it has gone down and you no longer think it will go up enough to be worth holding it. When you sell stocks, any losses you take can offset any gains, so if you sell one stock for a gain of $10,000 and another for a loss of $5,000, you will only be taxed on your net gain of $5,000. Even if you think your down stock could go back up, you could sell it to realize the loss, and then buy it back later at the lower price (as long as you're not worried it will go up in the meantime). However, you need to wait at least 30 days before rebuying the stock to avoid wash sale rules. This practice is known as tax loss harvesting.","You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.","\"For example, if I have an income of $100,000 from my job and I also realize a $350,000 in long-term capital gains from a stock sale, will I pay 20% on the $350K or 15%? You'll pay 20% assuming filing single and no major offsets to taxable income. Capital gains count towards your income for determining tax bracket. They're on line 13 of the 1040 which is in the \"\"income\"\" section and aren't adjusted out/excluded from your taxable income, but since they are taxed at a different rate make sure to follow the instructions for line 44 when calculating your tax due.\"","First of all an IRA is a type of account that says nothing about how your money is invested. It seems like you are trying to compare an IRA with a market ETF (like Vanguard Total Market Admiral VTSAX), but the reality is that you can have both. Depending on your IRA some of the investment options may be limited, but you will probably be able to find some version of a passive fund following an index you are interested in. The IRA account is tax advantaged, but you may invest the money in your IRA in an ETF. As for how often a non-IRA account is taxed and how much, that depends on how often you sell. If you park your money in an ETF and do not sell, the IRS will not claim any taxes from it. The taxable event happens when you sell. But if you gain $1000 in a year and a day and you decide to sell, you will owe $150 (assuming 15% capital gains tax), bringing your earnings down to $850. If your investments go poorly and you lose money, there will be no capital gains tax to pay.","The sentence you quoted does not apply in the case where you sell the stock at a loss. In that case, you recognize zero ordinary income, and a capital loss (opposite of a gain) for the loss. Reference: http://efs.fidelity.com/support/sps/article/article2.html","You need to report the income from any work as income, regardless of if you invest it, spend it, or put it in your mattress (ignoring tax advantaged accounts like 401ks). You then also need to report any realized gains or losses from non-tax advantaged accounts, as well as any dividends received. Gains and losses are realized when you actually sell, and is the difference between the price you bought for, and the price you sold for. Gains are taxed at the capital gains rate, either short-term or long-term depending on how long you owned the stock. The tax system is complex, and these are just the general rules. There are lots of complications and special situations, some things are different depending on how much you make, etc. The IRS has all of the forms and rules online. You might also consider having a professional do you taxes the first time, just to ensure that they are done correctly. You can then use that as an example in future years.","If you receive dividends on an investment, those are taxed.","What JoeTaxpayer means is that you can sell one ETF and buy another that will perform substantially the same during the 30 day wash sale period without being considered substantially the same from a wash sale perspective more easily than you could with an individual stock. For example, you could sell an S&P 500 index ETF and then temporarily buy a DJIA index ETF. As these track different indexes, they are not considered to be substantially the same for wash sale purposes, but for a short term investing period, their performance should still be substantially the same.","\"Many individual states, counties, and cities have their own income taxes, payroll taxes, sales taxes, property taxes, etc., you will need to consult your state and local government websites for information about additional taxes that apply based on your locale. Wages, Salaries, Tips, Cash bonuses and other taxable employee pay, Strike benefits, Long-term disability, Earnings from self employment Earned income is subject to payroll taxes such as: Earned income is also subject to income taxes which are progressively higher depending on the amount earned minus tax credits, exemptions, and/or deductions depending on how you file. There are 7 tax rates that get progressively larger as your income rises but only applies to the income in each bracket. 10% for the first 18,650 (2017) through 39.6% for any income above 470,700. The full list of rates is in the above linked article about payroll taxes. Earned income is required for contributions to an IRA. You cannot contribute more to an IRA than you have earned in a given year. Interest, Ordinary Dividends, Short-term Capital Gains, Retirement income (pensions, distributions from tax deferred accounts, social security), Unemployment benefits, Worker's Compensation, Alimony/Child support, Income earned while in prison, Non-taxable military pay, most rental income, and S-Corp passthrough income Ordinary income is taxed the same as earned income with the exception that social security taxes do not apply. This is the \"\"pure taxable income\"\" referred to in the other linked question. Dividends paid by US Corporations and qualified foreign corporations to stock-holders (that are held for a certain period of time before the dividend is paid) are taxed at the Long-term Capital Gains rate explained below. Ordinary dividends like the interest earned in your bank account are included with ordinary income. Stocks, Bonds, Real estate, Carried interest -- Held for more than a year Income from assets that increase in value while being held for over a year. Long term capital gains justified by the idea that they encourage people to hold stock and make long term investments rather than buying and then quickly reselling for a short-term profit. The lower tax rates also reflect the fact that many of these assets are already taxed as they are appreciating in value. Real-estate is usually taxed through local property taxes. Equity in US corporations realized by rising stock prices and dividends that are returned to stock holders reflect earnings from a corporation that are already taxed at the 35% Corporate tax rate. Taxing Capital gains as ordinary income would be a second tax on those same profits. Another problem with Long-term capital gains tax is that a big portion of the gains for assets held for multiple decades are not real gains. Inflation increases the price of assets held for longer periods, but you are still taxed on the full gain even if it would be a loss when inflation is calculated. Capital gains are also taxed differently depending on your income level. If you are in the 10% or 15% brackets then Long-term capital gains are assessed at 0%. If you are in the 25%, 28%, 33%, or 35% brackets, they are assessed at 15%. Only those in the 39.6% bracket pay 20%. Capital assets sold at a profit held for less than a year Income from buying and selling any assets such as real-estate, stock, bonds, etc., that you hold for less than a year before selling. After adding up all gains and losses during the year, the net gain is taxed as ordinary income. Collectibles held for more than a year are not considered capital assets and are still taxed at ordinary income rates.\"","You pay taxes on capital gains when you realize your gains by selling the investment property. Also, in the US, taxes on capital gains are computed at special rates depending on your current income level, and so when you realize your gains two years from now, you will pay taxes on the gains at the special rate then applicable to your income level for the year of sale. Remember also that the US Congress can change the tax laws at any time between now and the time you sell your stocks, and so the rates you are looking at now may have changed too.","Is selling Vested RSU is the same as selling a regular stock? Yes. Your basis (to calculate the gain) is what you've been taxed on when the RSUs vested. Check your payslips/W2 for that period, and the employer should probably have sent you detailed information about that. I'm not a US citizen, my account is in ETrade and my stocks are of a US company, what pre arrangements I need to take to avoid tax issues? You will pay capital gains taxes on the sale in Israel. Depending on where you were when you earned the stocks and what taxes you paid then - it may open additional issues with the Israeli tax authority. Check with an Israeli tax adviser/accountant.","I assume US as mhoran_psprep edited, although I'm not sure IRS necessarily means US. (It definitely used to also include Britain's Inland Revenue, but they changed.) (US) Stockbrokers do not normally withhold on either dividends/interest/distributions or realized capital gains, especially since gains might be reduced or eliminated by later losses. (They can be required to apply backup withholding to dividends and interest; don't ask how I know :-) You are normally required to pay most of your tax during the year, defined as within 10% or $1000 whichever is more, by withholding and/or estimated payments. Thus if the tax on your income including your recent gain will exceed your withholding by 10% and $1000, you should either adjust your withholding or make an estimated payment or some combination, although even if you have a job the last week of December is too late for you to adjust withholding significantly, or even to make a timely estimated payment if 'earlier in the year' means in an earlier quarter as defined for tax (Jan-Mar, Apr-May, June-Aug, Sept-Dec). See https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes and for details its link to Publication 505. But a 'safe harbor' may apply since you say this is your first time to have capital gains. If you did not owe any income tax for last year (and were a citizen or resident), or (except very high earners) if you did owe tax and your withholding plus estimated payments this year is enough to pay last year's tax, you are exempt from the Form 2210 penalty and you have until the filing deadline (normally April 15 but this year April 18 due to weekend and holiday) to pay. The latter is likely if your job and therefore payroll income and withholding this year was the same or nearly the same as last year and there was no other big change other than the new capital gain. Also note that gains on investments held more than one year are classified as long-term and taxed at lower rates, which reduces the tax you will owe (all else equal) and thus the payments you need to make. But your wording 'bought and sold ... earlier this year' suggests your holding was not long-term, and short-term gains are taxed as 'ordinary' income. Added: if the state you live in has a state income tax similar considerations apply but to smaller amounts. TTBOMK all states tax capital gains (and other investment income, other than interest on exempt bonds), and don't necessarily give the lower rates for long-term gains. And all states I have lived in have 'must have withholding or estimated payments' rules generally similar to the Federal ones, though not identical.","\"A mutual fund could make two different kinds of distributions to you: Capital gains: When the fund liquidates positions that it holds, it may realize a gain if it sells the assets for a greater price than the fund purchased them for. As an example, for an index fund, assets may get liquidated if the underlying index changes in composition, thus requiring the manager to sell some stocks and purchase others. Mutual funds are required to distribute most of their income that they generate in this way back to its shareholders; many often do this near the end of the calendar year. When you receive the distribution, the gains will be categorized as either short-term (the asset was held for less than one year) or long-term (vice versa). Based upon the holding period, the gain is taxed differently. Currently in the United States, long-term capital gains are only taxed at 15%, regardless of your income tax bracket (you only pay the capital gains tax, not the income tax). Short-term capital gains are treated as ordinary income, so you will pay your (probably higher) tax rate on any cash that you are given by your mutual fund. You may also be subject to capital gains taxes when you decide to sell your holdings in the fund. Any profit that you made based on the difference between your purchase and sale price is treated as a capital gain. Based upon the period of time that you held the mutual fund shares, it is categorized as a short- or long-term gain and is taxed accordingly in the tax year that you sell the shares. Dividends: Many companies pay dividends to their stockholders as a way of returning a portion of their profits to their collective owners. When you invest in a mutual fund that owns dividend-paying stocks, the fund is the \"\"owner\"\" that receives the dividend payments. As with capital gains, mutual funds will redistribute these dividends to you periodically, often quarterly or annually. The main difference with dividends is that they are always taxed as ordinary income, no matter how long you (or the fund) have held the asset. I'm not aware of Texas state tax laws, so I can't comment on your other question.\"","I believe the answer to your question boils down to a discussion of tax strategies and personal situation, both now and in the future. As a result, it's pretty hard to give a concrete example to the question as asked right now. For example, if your tax rate now is likely to be higher than your tax rate at retirement (it is for most people), than putting the higher growth ETF in a retirement fund makes some sense. But even then, there are other considerations. However, if the opposite is true (which could happen if your income is growing so fast that your retirement income looks like it will be higher than your current income), than you might want the flexibility of holding all your ETFs in your non-tax advantaged brokerage account so that IF you do incur capital gains they are paid at prevailing, presumably lower tax rates. (I assume you meant a brokerage account rather than a savings account since you usually can't hold ETFs in a savings account.) I also want to mention that a holding in a corp account isn't necessarily taxed twice. It depends on the corporation type and the type of distribution. For example, S corps pay no federal income tax themselves. Instead the owners pay taxes when money is distributed to them as personal income. Which means you could trickle out the earnings from an holdings there such that it keeps you under any given federal tax bracket (assuming it's your only personal income.) This might come in handy when retired for example. Also, distribution of the holdings as dividends would incur cap gains tax rates rather than personal income tax rates. One thing I would definitely say: any holdings in a Roth account (IRA, 401k) will have no future taxes on earnings or distributions (unless the gov't changes its mind.) Thus, putting your highest total return ETF there would always be the right move.","\"There are ways to mitigate, but since you're not protected by a tax-deferred/advantaged account, the realized income will be taxed. But you can do any of the followings to reduce the burden: Prefer selling either short positions that are at loss or long positions that are at gain. Do not invest in stocks, but rather in index funds that do the rebalancing for you without (significant) tax impact on you. If you are rebalancing portfolio that includes assets that are not stocks (real-estate, mainly) consider performing 1031 exchanges instead of plain sale and re-purchase. Maximize your IRA contributions, even if non-deductible, and convert them to Roth IRA. Hold your more volatile investments and individual stocks there - you will not be taxed when rebalancing. Maximize your 401K, HSA, SEP-IRA and any other tax-advantaged account you may be eligible for. On some accounts you'll pay taxes when withdrawing, on others - you won't. For example - Roth IRA/401k accounts are not taxed at all when withdrawing qualified distributions, while traditional IRA/401k are taxed as ordinary income. During the \"\"low income\"\" years, consider converting portions of traditional accounts to Roth.\"","\"There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are \"\"ready made\"\" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a \"\"frequent trader\"\" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales.\"","I'm not sure where people keep getting this idea, but I see it come up a lot. Anyway, you pay capital gains taxes when you sell an investment that has appreciated. It makes no difference when/if you reinvest the money or what you invest it in. If you are afraid of the tax burden you can minimize it by: 1) Selling a stock that you have held longer than a year to get the lower long-term rate. 2) Sell a stock that hasn't appreciated that much and therefore doesn't have a lot of gains to tax. 3) Sell a stock that's below purchase price (i.e. at a loss) to offset any short term gains.","It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).","Selling one fund and buying another will incur capital gains tax on the sale for the amount of the gain. I'm not aware of any sort of exemption available due to you moving out of the country. However, long-term capital gains for low-tax-bracket taxpayers is 0%. As long as your total income including the gains fits within the 15% regular tax bracket, you don't pay any long-term capital gains. Options for you that I see to avoid taxes are: Note that even if you do sell it all, it's only the amount of gains that would take your income over the 15% normal tax bracket that would be taxed at the long-term rate of 15%, which may not end up being that much of a tax hit. It may be worth calculating just how bad it would be based on your actual income. Also note that all I'm saying here is for US federal income taxes. The state you most recently lived in may still charge taxes if you're still considered a resident there in some fashion, and I don't know if your new home's government may try to take a cut as well.","When you invest (say $1000) in (say 100 shares) of a mutual fund at $10 per share, and the price of the shares changes, you do not have a capital gain or loss, and you do not have to declare anything to the IRS or make any entry on any line on Form 1040 or tell anyone else about it either. You can brag about it at parties if the share price has gone up, or weep bitter tears into your cocktail if the price has gone down, but the IRS not only does not care, but it will not let you deduct the paper loss or pay taxes on the paper gain. What you put down on Form 1040 Schedules B and D is precisely what the mutual fund will tell you on Form 1099-DIV (and Form 1099-B), no more, no less. If you did not report any of these amounts on your previous tax returns, you need to file amended tax returns, both Federal as well as State, A stock mutual fund invests in stocks and the fund manager may buy and sell some stocks during the course of the year. If he makes a profit, that money will be distributed to the share holders of the mutual fund. That money can be re-invested in more shares of the same mutual fund or taken as cash (and possibly invested in some other fund). This capital gain distribution is reported to you on Form 1099-DIV and you have to report sit on your tax return even if you re-invested in more share of the same mutual fund, and the amount of the distribution is taxable income to you. Similarly, if the stocks owned by the mutual fund pay dividends, those will be passed on to you as a dividend distribution and all the above still applies. You can choose to reinvest, etc, the amount will be reported to you on Form 1099-DIV, and you need to report it to the IRS and include it in your taxable income. If the mutual fund manager loses money in the buying and selling he will not tell you that he lost money but it will be visible as a reduction in the price of the shares. The loss will not be reported to you on Form 1099-DIV and you cannot do anything about it. Especially important, you cannot declare to the IRS that you have a loss and you cannot deduct the loss on your income tax returns that year. When you finally sell your shares in the mutual fund, you will have a gain or loss that you can pay taxes on or deduct. Say the mutual fund paid a dividend of $33 one year and you re-invested the money into the mutual fund, buying 3 shares at the then cost of $11 per share. You declare the $33 on your tax return that year and pay taxes on it. Two years later, you sell all 103 shares that you own for $10.50 per share. Your total investment was $1000 + $33 = $1033. You get $1081.50 from the fund, and you will owe taxes on $1081.50 - $1033 = $48.50. You have a profit of $50 on the 100 shares originally bought and a loss of $1.50 on the 3 shares bought for $11: the net result is a gain of $48.50. You do not pay taxes on $81.50 as the profit from your original $1000 investment; you pay taxes only on $48.50 (remember that you already paid taxes on the $33). The mutual fund will report on Form 1099-B that you sold 103 shares for $1081.50 and that you bought the 103 shares for an average price of $1033/103 = $10.029 per share. The difference is taxable income to you. If you sell the 103 shares for $9 per share (say), then you get $927 out of an investment of $1033 for a capital loss of $106. This will be reported to you on Form 1099-B and you will enter the amounts on Schedule D of Form 1040 as a capital loss. What you actually pay taxes on is the net capital gain, if any, after combining all your capital gains and losses for the year. If the net is a loss, you can deduct up to $3000 in a year, and carry the rest forward to later years to offset capital gains in later years. But, your unrealized capital gains or losses (those that occur because the mutual fund share price goes up and down like a yoyo while you grin or grit your teeth and hang on to your shares) are not reported or deducted or taxed anywhere. It is more complicated when you don't sell all the shares you own in the mutual fund or if you sell shares within one year of buying them, but let's stick to simple cases.","If the brokerage account holds US assets, such as the stock of US companies, then it may be taxable under some conditions. The rules are complex and depend on the nationality of the individuals, because the results may be affected by tax treaties between the United States and whatever country the person is from.","\"Assuming your investments aren't in any kind of tax-advantaged account (like an IRA), they are generally not tracked and you indeed may pay more taxes. What will likely change, however, is your cost basis. You only pay tax on the difference between the value of the investment when you sell it and its value when you bought it. There is no rule that says once you sell an investment and pay taxes on the gain, you will never again pay any taxes on any other investments you then buy with that money. If you own some investment, and it increases in value, and then you sell it, you had a capital gain and owe taxes (depending on your tax bracket, etc.). If you use the money to buy some other investment, and that increases in value, and then you sell it, you had another separate capital gain and again owe taxes. However, every time you sell, you only are subject to capital gains taxes on the gain, not the entire sale price. The value of the investment at the time you bought it is the cost basis. When you sell, you take the sale price and subtract the cost basis to find your gain, So suppose you bought $1000 worth of some ETF many years ago. It went up to $2000 and you sold it. You have $2000 in cash, but $1000 of that is your original money back, so your capital gain is $1000 and that is the amount on which you owe (or may owe) taxes. Suppose you pay 15% tax on this, as you suggest; that is $150, leaving you with $1850. Now suppose you buy another ETF with that. Your cost basis is now $1850. Suppose the investment now increases in value again to $2000. This time when you sell, you still have $2000 in cash, but this is now only $150 more than you paid, so you only owe capital gains taxes on that $150. (A 15% tax on that would be $22.50.) In that example you had one capital gain of $1000 and a second of $150 and paid a total of $172.50 in taxes (150 + 22.50). Suppose instead that you had held the original investment and it had increased in value to $2150 and you had then sold it. You would have a single capital gain of $1150 (2150 minus the original 1000 you paid). 15% of this would be the same $172.50 you paid under the other arrangement. So in essence you pay the same taxes either way. (This example is simplified, of course; in reality, the rate you pay depends on your overall income, so you could pay more if you sell a lot in a single year, since it could push you into a higher tax bracket.) So none of the money is \"\"tax exempt\"\", but each time you sell, you \"\"reset the counter\"\" by paying tax on your gain, and each time you buy, you start a new counter on the basis of whatever you pay for the investment. Assuming you're dealing with ordinary investment instruments like stocks and ETFs, this basis information is typically tracked by the bank or brokerage where you buy and sell them. Technically speaking it is your responsibility to track and report this when you sell an investment, and if you do complicated things like transfer securities from one brokerage to another you may have to do that yourself. In general, however, your bank/brokerage will keep track of cost basis information for you.\"","You realise a capital gain as soon as you sell the stock. At that point, you will have to pay taxes on the profits when you fill in your tax return. The fact that you used the money to subsequently purchase other stocks is not relevant, unless you sell those stocks within the same tax year. For example, purchase $5000 of stock A in 2010. Sell for $6000 in 2010. Purchase $6000 of stock B in 2010. Sell stock B for $6500 in 2010. Purchase $6500 of stock C in 2010. Sell stock C for $7000 in 2011. You owe capital gains on ($6000 - $5000) + ($6500 - $6000) = $1500 for tax year 2010. You owe capital gains on ($7000 - $6500) = $500 for 2011.","\"You have a sequence of questions here, so a sequence of answers: If you stopped at the point where you had multiple wins with a net profit of $72, then you would pay regular income tax on that $72. It's a short term capital gain, which does not get special tax treatment, and the fact that you made it on multiple transactions does not matter. When you enter your next transaction that takes the hypothetical loss the question gets more complicated. In either case, you are paying a percentage on net gains. If you took a two year view in the second case and you don't have anything to offset your loss in the second year, then I guess you could say that you paid more tax than you won in the total sequence of trades over the two years. Although you picked a sequence of trades where it does not appear to play, if you're going to pursue this type of strategy then you are likely at some point to run into a case where the \"\"wash sale\"\" rules apply, so you should be aware of that. You can find information on this elsewhere on this site and also, for example, here: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02 Basically these rules require you to defer recording a loss under some circumstances where you have rapid wins and losses on \"\"substantially identical\"\" securities. EDIT A slight correction, you can take part of your losses in the second year even if you have no off-setting gain. From the IRS: If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately)\"","If you have made $33k from winning trades and lost $30k from loosing trades your net gain for the year would be $3k, so obviously you would pay taxes only on the net $3k gains.","Purchasing stock doesn't affect your immediate taxes any more than purchasing anything else, unless you purchase it through a traditional 401k or some other pre-tax vehicle. Selling stock has tax effects; that's when you have a gain or loss to report.","\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed at 25%, plus a 10% penalty, for 35% total. Thus the bite on the IRA withdrawal is larger than that on a non-IRA withdrawal. As for the estimated tax issue, I don't think there will be a significant difference there. The reason is that (traditional) IRA withdrawals count as ordinary taxable income (see here). This means that, when you withdraw the funds from your IRA, you will increase your income. If that increase pushes you too far beyond what your withholding is accounting for, then you owe estimated tax. In other words, whether you get the money by selling stocks in a taxable account or by withdrawing them from an IRA, you still increase your taxable income, and thus potentially expose yourself to the estimated tax obligation. (In fact, there may be a difference. As you note, you will pay tax at the capital gains rate on gains from selling in a taxable account. But if you sell the stocks inside the IRA and withdraw, that is ordinary income. However, since ordinary income is taxed at a higher rate than long-term capital gains, you will potentially pay more tax on the IRA withdrawal, since it will be taxed at the higher rate, if your gains are long-term rather than short term. This is doubly true if you withdraw early, incurring the extra 10% penalty. See this question for some more discussion of this issue.) In addition, I think you may be somewhat misunderstanding the nature of estimated tax. The IRS will not \"\"ask\"\" you for a quarterly estimated tax when you sell stock. The IRS does not monitor your activity and send you a bill each quarter. They may indeed check whether your reported income jibes with info they received from your bank, etc., but they'll still do that regardless of whether you got that income by selling in a taxable account or withdrawing money from an IRA, because both of those increase your taxable income. Quarterly estimated tax is not an extra tax; it is just you paying your normal income tax over the course of the year instead of all at once. If your withholdings will not cover enough of your tax liability, you must figure that out yourself and pay the estimated tax (see here); if you don't do so, you may be assessed a penalty. It doesn't matter how you got the money; if your taxable income is too high relative to your withheld tax, then you have to pay the estimated tax. Typically tax will be withheld from your IRA distribution, but if it's not withheld, you'll still owe it as estimated tax.\"","Generally speaking, each year, mutual funds distribute to their shareholders the dividends that are earned by the stocks that they hold and also the net capital gains that they make when they sell stocks that they hold. If they did not do so, the money would be income to the fund and the fund would have to pay taxes on the amount not distributed. (On the other hand, net capital losses are held by the fund and carried forward to later years to offset future capital gains). You pay taxes on the amounts of the distributions declared by the fund. Whether the fund sold a particular stock for a loss or a gain (and if so, how much) is not the issue; what the fund declares as its distribution is. This is why it is not a good idea to buy a mutual fund just before it makes a distribution; your share price drops by the per-share amount of the distribution, and you have to pay taxes on the distribution.","Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity.","In response to your points #1 and #2: In general, yes it is true that capital gains are only subject to half one's marginal rate of income tax. That doesn't mean 50% of the gain is due as tax... rather, it means that if one's marginal tax rate (tax bracket) on the next $10K would have been, say, 32%, then one is taxed on the gain at 16%. (The percentages are examples, not factual.) However, because these are employee stock options, the tax treatment is different than for a capital gain! Details: On the Federal tax return are lines for reporting Security option benefits (Line 101) and Security options deductions (Line 249). The distinction between a regular capital gain and an employee stock option benefits is important. In many cases the net effect may be the same as a capital gain, but the income is characterized differently and there are cases where it matters. Somebody who is about to or has realized employee stock option benefits should seek professional tax advice. In response to your next two points: No, one cannot transfer a capital gain or other investment income into a TFSA immediately after-the-fact in order to receive the tax-free benefits of the TFSA on that income. Only income and gains earned within a TFSA are free from tax – i.e. The options would have to have been in the TFSA before being exercised. Once a gain or other investment income has been realized in a non-sheltered account, it is considered taxable. The horse has already left the barn, so to speak! However, despite the above, there is another strategy available: One can create an offsetting deduction by contributing some of the realized gain into an RRSP. The RRSP contribution, assuming room is available, would yield a tax deduction to offset some tax due on the gain. However, the RRSP only defers income tax; upon withdrawal of funds, ordinary income tax is due (hopefully, at a lower marginal rate in retirement.) There is no minimum amount of time that money or assets have to be inside a TFSA to benefit from the tax-free nature of the account. However, there are limits on how much money you can move into a TFSA in any given year, and many folks weren't aware of the rules. p.s. Let me add once more that this is a case where I suggest seeking professional tax advice.","The answer to your question doesn't depend on who you trade with but what country you live in. If you live outside of the US, you will have to pay tax on dividends... sometimes. This depends on the tax treaty that your country has with the US. Canada, Australia, UK and a few other countries have favorable tax treaties with the US that allow you to not be double taxed. You must look into the tax treaty that your home country has with the US to answer the question. Each country is different.","In the United States Short-term capital gains are taxed at rates similar to regular income which is 25% if you make less than $91,000 and 28% if you make more than that but less than $190,000. If you make more than $190,000 then the rate is 33%. If you hold the stock for a year or more than the tax rate is 15%, unless your income is less than $33,000 in which case there is no tax on long-term gains. As a general rule, the way to make money is to stay out of debt, so I cannot advise you to assume a mortgage. Financially you are better off investing your money. Much like you I bought a house with a mortgage using about $30,000 in a down payment about 20 years ago and I paid it off a few years ago. If I had to do it over again, I would have bought a shack (a steel building) for $30,000 and lived in that and invested my income. If I had done that, I would be about $500,000 richer today than I am now.","This depends on a lot actually - with the overall being your goals and how much you like risk. Question: What are your fees/commissions for selling? $8.95/trade will wipe out some gains on those trades. (.69% if all are sold with $8.95 commission - not including the commission payed when purchased that should be factored into the cost basis) Also, I would recommend doing commission free ETFs. You can get the same affect as a mutual fund without the fees associated with paying someone to invest in ETFs and stocks. On another note: Your portfolio looks rather risky. Although everyone has their own risk preference so this might be yours but if you are thinking about a mutual fund instead of individual stocks you probably are risk averse. I would suggest consulting with an adviser on how to set up for the future. Financial advice is free flowing from your local barber, dentist, and of course StackExchange but I would look towards a professional. Disclaimer: These are my thoughts and opinions only ;) Feel free to add comments below.","Generally stock trades will require an additional Capital Gains and Losses form included with a 1040, known as Schedule D (summary) and Schedule D-1 (itemized). That year I believe the maximum declarable Capital loss was $3000--the rest could carry over to future years. The purchase date/year only matters insofar as to rank the lot as short term or long term(a position held 365 days or longer), short term typically but depends on actual asset taxed then at 25%, long term 15%. The year a position was closed(eg. sold) tells you which year's filing it belongs in. The tiny $16.08 interest earned probably goes into Schedule B, typically a short form. The IRS actually has a hotline 800-829-1040 (Individuals) for quick questions such as advising which previous-year filing forms they'd expect from you. Be sure to explain the custodial situation and that it all recently came to your awareness etc. Disclaimer: I am no specialist. You'd need to verify everything I wrote; it was just from personal experience with the IRS and taxes."],"string":"[\n \"As mentioned by Dilip, you need to provide more details. In general for transacting on stocks; Long Term: If you hold the stock for more than one year then its long term and not taxable. There is a STT [Securities Transaction Tax] that is already deducted/paid during buying and selling of a stock. Short Term: If you hold the stock for less than one year, it's short term gain. This can be adjusted against the short term loss for the financial year. The tax rate is 10%. Day Trading: Is same as short term from tax point of view. Unless you are doing it as a full time business. If you have purchased multiple quantities of same stock in different quantities and time, then when you selling you have to arrive at profit or loss on FIFO basis, ie First in First Out\",\n \"@BlackJack does a good answer of addressing the gains and when you are taxed on them and at what kind of rate. Money held in a brokerage account will usually be in a money-market fund, so you would own taxes on the interest it earned. There is one important consideration that must be understood for capitol Losses. This is called the Wash Sale Rule. This rule comes into affect if you sell a stock at a LOSS, and buy shares of the same stock within 30 days (before or after) the sale. A common tactic used to minimize taxes paid is to 'capture losses' when they occur, since these can be used to offset gains and lower your taxes. This is normally done by selling a stock in which you have a LOSS, and then either buying another similar stock, or waiting and buying back the stock you sold. However, if you are intending to buy back the same stock, you must not 'trigger' the Wash Sale Rule or you are forbidden to take the loss. Examples. Lets presume you own 1000 shares of a stock and it's trading 25% below where you bought it, and you want to capture the loss to use on your taxes. This can be a very important consideration if trading index ETF's if you have a loss in something like a S&P500 ETF, you would likely incur a wash sale if you sold it and bought a different S&P500 ETF from another company since they are effectively the same thing. OTOH, if you sold an S&P500 ETF and bought something like a 'viper''total stock market' ETF it should be different enough to not trigger the wash sale rule. If you are trying to minimize the taxes you pay on stocks, there are basically two rules to follow. 1) When a gain is involved, hold things at least a year before selling, if at all possible. 2) Capture losses when they occur and use to offset gains, but be sure not to trigger the wash sale rule when doing so.\",\n \"If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.\",\n \"Is the remaining amount tax free? As in, if the amount shown (which I can sell) on etrade is $5000 then if I sell the entire shares will my bank account be increased by $5000? The stocks they sell are withholding. So let's say you had $7000 of stock and they sold $2000 for taxes. That leaves you with $5000. But the actual taxes paid might be more or less than $2000. They go in the same bucket as the rest of your withholding. If too much is withheld, you get a refund. Too little and you owe them. Way too little and you have to pay penalties. At the end of the year, you will show $7000 as income and $2000 as withheld for taxes from that transaction. You may also have a capital gain if the stock increases in price. They do not generally withhold on stock sales, as they don't necessarily know what was your gain and what was your loss. You usually have to handle that yourself. The main point that I wanted to make is that the sale is not tax free. It's just that you already had tax withheld. It may or may not be enough.\",\n \"Consult a professional CA. For shares sold outside the Indian Stock Exchanges, these will be treated as normal Long Term Capital Gains if held more than one year. The rate would be 10% without Indexation and 20% with Indexation. If the stocks are held for less than 1 years, it will be short term gains and taxed according you to tax bracket.\",\n \"E.g. I buy 1 stock unit for $100.00 and sell it later for $150.00 => income taxes arise. Correct. You pay tax on your gains, i.e.: the different between net proceeds and gross costs (proceeds sans fees, acquisition costs including fees). I buy 1 stock unit for $150.00 and sell it later for $100.00 => no income taxes here. Not correct. The loss is deductible from other capital gains, and if no other capital gains - from your income (up to $3000 a year, until exhausted). Also, there are two different tax rate sets for capital gains: short term (holding up to 1 year) and long term (more than that). Short term capital gains tax matches ordinary income brackets, whereas long term capital gains tax brackets are much lower.\",\n \"\\\"Long term: Assuming you sold stock ABC through a registered stock exchange, e.g., the Bombay Stock Exchange or the National Stock Exchange of India, and you paid the Securities Transaction Tax (STT), you don't owe any other taxes on the long term capital gain of INR 100. If you buy stock BCD afterwards, this doesn't affect the long term capital gains from the sale of stock ABC. Short term: If you sell the BCD stock (or the ABC stock, or some combination therein) within one year of its purchase, you're required to pay short term capital gains on the net profit, in which case you pay the STT and the exchange fees and an additional flat rate of 15%. The Income Tax Department of India has a publication titled \\\"\\\"How to Compute your Capital Gains,\\\"\\\" which goes into more detail about a variety of relevant situations.\\\"\",\n \"Gold ETFs are treated different than stock ETFs, as a collectable. This makes long-term investing in gold ETFs (for one year or longer) subject to a relatively large capital gains tax (maximum rate of 28%, rather than the 15% rate that is applicable to most other long-term capital gains). Read The Gold Showdown: ETFs Vs. Futures for more details.\",\n \"Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income.\",\n \"\\\"Do I have to pay the stock investment income tax if I bought some stocks in 2016, it made some profits but I didn't sell them at the end of 2016? You pay capital gains taxes only when you sell the stocks. When you sell the stock within a year you will pay the short term capital gains rate which is the same rate as your ordinary income. If the stock pays dividends, however, you will have to pay taxes in the year that the dividend was paid out to you. I bought some stocks in 2011, sold them in 2012 and made some gains. Which year of do I pay the tax for the gains I made? You would pay in 2012, likely at the short term gain rate. I bought some stocks, sold them and made some gains, then use the money plus the gains to buy some other stocks before the end of the same year. Do I have to pay the tax for the gains I made in that year? Yes. There is a specific exception called the \\\"\\\"Wash Sale Rule\\\"\\\", but that would only apply if you lost money on the original sale and bought a substantially similar or same stock within 30 days. Do I get taxed more for the money I made from buying and selling stocks, even if the gains is only in hundreds? More than what? You pay taxes based on the profit you make from the investment. If you held it less than a year it is the same tax rate as your regular income. If you held it longer you pay a lower tax rate which is usually lower than your regular tax rate.\\\"\",\n \"The money that you put into the ETF is not tax-exempt in the usual sense of the word. It is your money and you don't owe any taxes on it any more unless Congress (or the state that you reside in) imposes a wealth tax at some time in the future. What you will owe taxes on are any dividends or capital gains that the ETF distributes to you each year (even if you have opted to automatically re-invest those amounts into the ETF), and the capital gains when you sell shares of the ETF.\",\n \"ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.\",\n \"\\\"Appreciation of a Capital Asset is a Capital Gain. In the United States, Capital Gains get favorable tax treatment after being held for 12 months. From the IRS newsroom: Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%. The IRS defines a Capital Asset as \\\"\\\"most property you own\\\"\\\" with a list of exclusions found in Schedule D Instructions. None of the exclusions listed relate to Bond ETFs.\\\"\",\n \"Generally, ETFs and mutual funds don't pay taxes (although there are some cases where they do, and some countries where it is a common case). What happens is, the fund reports the portion of the gain attributed to each investor, and the investor pays the tax. In the US, this is reported to you on 1099-DIV as capital gains distribution, and can be either short term (as in the scenario you described), long term, or a mix of both. It doesn't mean you actually get a distribution, though, but if you don't - it reduces your basis.\",\n \"\\\"Are these all of the taxes or is there any additional taxes over these? Turn-over tax is not for retail investors. Other taxes are paid by the broker as part of transaction and one need not worry too much about it. Is there any \\\"\\\"Income tax\\\"\\\" to be paid for shares bought/holding shares? No for just buying and holding. However if you buy and sell; there would be a capital gain or loss. In stocks, if you hold a security for less than 1 year and sell it; it is classified as short term capital gain and taxes at special rate of 15%. The loss can be adjusted against any other short term gain. If held for more than year it is long term capital gain. For stock market, the tax is zero, you can't adjust long term losses in stock markets. Will the money received from selling shares fall under \\\"\\\"Taxable money for FY Income tax\\\"\\\"? Only the gain [or loss] will be tread as income not the complete sale value. To calculate gain, one need to arrive a purchase price which is price of stock + Brokerage + STT + all other taxes. Similar the sale price will be Sales of stock - Brokerage - STT - all other taxes. The difference is the gain. Will the \\\"\\\"Dividend/Bonus/Buy-back\\\"\\\" money fall under taxable category? Dividend is tax free to individual as the company has already paid dividend distribution tax. Bonus is tax free event as it does not create any additional value. Buy-Back is treated as sale of shares if you have participated. Will the share-holder pay \\\"\\\"Dividend Distribution Tax\\\"\\\"? Paid by the company. What is \\\"\\\"Capital Gains\\\"\\\"? Profit or loss of buying and selling a particular security.\\\"\",\n \"\\\"Securities and ETFs are also subjected to Estate Tax. Some ways: Draft a \\\"\\\"Transfer on Death\\\"\\\" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker. Give your brokerage and bank password/token to your beneficiary. Have him transfer out holdings within hours of death. Create a Trust, that survives even after death of an individual. P.S. ETF is treated as Stock (a company that owns other companies), regardless of the nature of the holdings. P.S.2 Above suggestions are only applicable to nonresident alien of the US.\\\"\",\n \"Investopedia laid out the general information of tax treatment on the ETF fund structures as well as their underlying asset classes: http://www.investopedia.com/financial-edge/0213/how-tax-treatments-of-etfs-work.aspx\",\n \"No Tax would have been deducted at the time of purchase/sale of shares. You would yourself be required to compute your tax liability and then pay taxes to the govt. In case the shares sold were held for less than 1 year - 15% tax on capital gains would be levied. In case the shares sold were held for more than 1 year - No Tax would be levied and the income earned would be tax free. PS: No Tax is levied at the time of purchase of shares and Tax is only applicable at the time of sale of shares.\",\n \"\\\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \\\"\\\"otherwise\\\"\\\" is substantial and far-ranging.\\\"\",\n \"You cannot do a 1031 exchange with stocks, bonds, mutual funds, or ETFs. There really isn't much difference between an ETF and its equivalent index mutual fund. Both will have minimal capital gains distributions. I would not recommend selling an index mutual fund and taking a short-term capital gain just to buy the equivalent ETF.\",\n \"The dividend tax credit is not applicable to foreign dividend income, so you would be taxed fully on every dollar of that income. When you sell a stock, there will be a capital gain or capital loss depending on if it gained or lost value, after accounting for the Adjusted Cost Base. You only pay income tax on half of the amount earned through capital gains, and if you have losses, you can use them to offset other investments that had capital gains (or carry forward to offset gains in the future). The dividends from US stocks are subject to a 15% withholding tax that gets paid to the IRS automatically when the dividends are issued. If the stocks are held in an RRSP, they are exempt from the withholding tax. If held in a non-registered account, you can be reimbursed for the tax by claiming the foreign tax credit that you linked to. If held in a TFSA or RESP, the withholding tax cannot be recovered. Also, if you are not directly holding the stocks, and instead buy a mutual fund or ETF that directly holds the stocks, then the RRSP exemption no longer applies, but the foreign tax credit is still claimable for a non-registered account. If the mutual fund or ETF does not directly hold stocks, and instead holds one or more ETFs, there is no way to recover the withholding tax in any type of account.\",\n \"There is little difference between buying shares in your broker's index fund and shares of their corresponding ETF. In many cases the money invested in an ETF gets essentially stuffed right into the index fund (I believe Vanguard does this, for example). In either case you will be paying a little bit of tax. In the ETF case it will be on the dividends that are paid out. In the index fund case it will additionally be on the capital gains that have been realized within the fund, which are very few for an index fund. Not a ton in either case. The more important tax consideration is between purchase and sale, which is the same in either case. I'd say stick it wherever the lowest fees are.\",\n \"You can keep the cash in your account as long as you want, but you have to pay a tax on what's called capital gains. To quote from Wikipedia: A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor.[1] Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price. Thus, buying/selling stock counts as investment income which would be a capital gain/loss. When you are filing taxes, you have to report net capital gain/loss. So you don't pay taxes on an individual stock sale or purchase - you pay tax on the sum of all your transactions. Note: You do not pay any tax if you have a net capital loss. Taxes are only on capital gains. The amount you are taxed depends on your tax bracket and your holding period. A short term capital gain is gain on an investment held for less than one year. These gains are taxed at your ordinary income tax rate. A long term capital gain is gain on an investment held for more than one year. These gains are taxed at a special rate: If your income tax rate is 10 or 15%, then long term gains are taxed at 0% i.e. no tax, otherwise the tax rate is 15%. So you're not taxed on specific stock sales - you're taxed on your total gain. There is no tax for a capital loss, and investors sometimes take profits from good investments and take losses from bad investments to lower their total capital gain so they won't be taxed as much. The tax rate is expected to change in 2013, but the current ratios could be extended. Until then, however, the rate is as is. Of course, this all applies if you live in the United States. Other countries have different measures. Hope it helps! Wikipedia has a great chart to refer to: http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States.\",\n \"The tax is only payable on the gain you make i.e the difference between the price you paid and the price you sold at. In your cse no tax is payable if you sell at the same price you bought at\",\n \"Your tax efficient reasoning is solid for where you want to distribute your assets. ETFs are often more tax efficient than their equivalent mutual funds but the exact differences would depend on the comparison between the fund and ETF you were considering. The one exception to this rule is Vanguard funds and ETFs which have the exact same tax-efficiency because ETFs are a share class of the corresponding mutual fund.\",\n \"As far as I read in many articles, all earnings (capital gains and dividends) from Canadian stocks will be always tax-free. Right? There's no withholding tax, ie. a $100 dividend means you get $100. There's no withholding for capital gains in shares for anybody. You will still have to pay taxes on the amounts, but that's only due at tax time and it could be very minor (or even a refund) for eligible Canadian dividends. That's because the company has already paid tax on those dividends. In contrast, holding U.S. or any foreign stock that yields dividends in a TFSA will pay 15% withholding tax and it is not recoverable. Correct, but the 15% is a special rate for regular shares and you need to fill out a W8-BEN. Your broker will probably make sure you have every few years. But if you hold the same stock in a non-registered account, this 15% withholding tax can be used as a foreign tax credit? Is this true or not or what are the considerations? That's true but reduces your Canadian tax payable, it's not refundable, so you have to have some tax to subtract it from. Another consideration is foreign dividends are included 100% in income no mater what the character is. That means you pay tax at your highest rate always if not held in a tax sheltered account. Canadian dividends that are in a non-registered account will pay taxes, I presume and I don't know how much, but the amount can be used also as a tax credit or are unrecoverable? What happens in order to take into account taxes paid by the company is, I read also that if you don't want to pay withholding taxes from foreign > dividends you can hold your stock in a RRSP or RRIF? You don't have any withholding taxes from US entities to what they consider Canadian retirement accounts. So TFSAs and RESPs aren't covered. Note that it has to be a US fund like SPY or VTI that trades in the US, and the account has to be RRSP/RRIF. You can't buy a Canadian listed ETF that holds US stocks and get the same treatment. This is also only for the US, not foreign like Europe or Asia. Also something like VT (total world) in the US will have withholding taxes from foreign (Europe & Asia mostly) before the money gets to the US. You can't get that back. Just an honourable mention for the UK, there's no withholding taxes for anybody, and I hear it's on sale. But at some point, if I withdraw the money, who do I need to pay taxes, > U.S. or Canada? Canada.\",\n \"\\\"An investment is sold when you sell that particular stock or fund. It doesn't wait until you withdraw cash from the brokerage account. Whether an investment is subject to long term or short term taxes depends on how long you held that particular stock. Sorry, you can't get around the higher short term tax by leaving the money in a brokerage account or re-investing in something else. If you are invested in a mutual fund, whether it's long or short term depends on when you buy and sell the fund. The fact that the fund managers are buying and selling behind your back doesn't affect this. (I don't know what taxes they have to pay, maybe you really are paying for it in the form of management fees or lower returns, but you don't explicitly pay the tax on these \\\"\\\"inner\\\"\\\" transactions.) Your broker should send you a tax statement every year giving the numbers that you need to fill in to the various boxes of your income tax form. You don't have to figure it out. Of course it helps to know the rules. If you've held a stock for 11 1/2 months and are planning to sell, you might want to consider waiting a couple of weeks so it becomes a long term capital gain rather than short term and thus subject to lower tax.\\\"\",\n \"The Federal Central Tax Office says you may not have to pay taxes in germany for capital gains. You may have to apply for a tax relief to prevent the tax from being collected. You very likely will have to pay whatever taxes there are in Hong Kong on capital gains. Since you use an US broker withholding tax may apply to you but this is a different question that has nothing to do with Germany or german stocks. To be sure you should contact a local expert on this topic. EDIT: I missed some informations that I found on the english site of the german Federal Central Tax Office homepage.\",\n \"The link provided by DumbCoder (below) is only relevant to UK resident investors and does not apply if you live in Malaysia. I noticed that in a much older question you asked a similar question about taxes on US stocks, so I'll try and answer both situations here. The answer is almost the same for any country you decide to invest in. As a foreign investor, the country from which you purchase stock cannot charge you tax on either income or capital gains. Taxation is based on residency, so even when you purchase foreign stock its the tax laws of Malaysia (as your country of residence) that matter. At the time of writing, Malaysia does not levy any capital gains tax and there is no income tax charged on dividends so you won't have to declare or pay any tax on your stocks regardless of where you buy them from. The only exception to this is Dividend Withholding Tax, which is a special tax taken by the government of the country you bought the stock from before it is paid to your account. You do not need to declare this tax as it his already been taken by the time you receive your dividend. The rate of DWT that will be withheld is unique to each country. The UK does not have any withholding tax so you will always receive the full dividend on UK stocks. The withholding tax rate for the US is 30%. Other countries vary. For most countries that do charge a withholding tax, it is possible to have this reduced to 15% if there is a double taxation treaty in place between the two countries and all of the following are true: Note: Although the taxation rules of both countries are similar, I am a resident of Singapore not Malaysia so I can't speak from first hand experience, but current Malaysia tax rates are easy to find online. The rest of this information is common to any non-US/UK resident investor (as long as you're not a US person).\",\n \"Note the above is only for shares. There are different rules for other assets like House, Jewellery, Mutual Funds, Debt Funds. Refer to the Income Tax guide for more details.\",\n \"You pay taxes on any gains you make after selling, so if you buy and hold you won't pay taxes (and you should hold for more than a year so that it gets taxed at the long-term rate, not the short-term rate). I like ETFs, there are some good ones Vanguard offers that are fairly broad, or you can use something like www.Betterment.com which invests in a diversified portfolio of ETFs (and includes things like automatic re-balancing and tax-loss harvesting).\",\n \"(I'm assuming the tag of United-states is accurate) Yes, the remaining amount is tax free -- at the current price. If you sell at exactly the original price, there is no capital gain, no capital loss. So you've already payed the taxes. If you sell and there is a capital gain of $3000, then you will pay taxes on the $3000. If 33% is your marginal tax rate, and if you held the stock for less than a year, then you will keep $7000 and pay taxes of $1000. Somehow, I doubt your marginal tax rate is 33%. If you hold the stock for a year after eTrade sold some for you to pay taxes, then you will pay 15% on the gain -- or $450. eTrade sold the shares to pay the taxes generated by the income. Yes, those shares were considered income. If you sell and have a loss, well, life sucks. However, if you sell something else, you can use the loss to offset the other gain. So if you sell stock A for a loss of $3000, and sell stock B at a gain of $4000, then you pay taxes on the net of $1000.\",\n \"The same as you would for an individual stock. A stock starts the year at $100, and has $4 in dividends over the year, why would the fact the the stock ends the year at say $90, confuse you? You pay tax on the dividend at the favored rate, if held in a taxable account, obviously, and that's about it.\",\n \"A mutual fund makes distributions of its dividends and capital gains, usually once a year, or seminanually or quarterly or monthly etc; it does not distribute any capital losses to its shareholders but holds them for offsetting capital gains in future years, (cf, this answer of mine to a different question). A stock pays dividends; a stock neither has nor does it distribute capital gains: you get capital gains (or losses) when you sell the shares of the stock, but these are not called distributions of any kind. Similarly, you incur capital gains or losses when you redeem shares of mutual funds but these are not called distributions either. Note that non-ETF mutual fund shares are generally not bought and sold on stock exchanges; you buy shares directly from the fund and you sell shares back (redeem them) directly to the fund. All of the above transactions are taxable events for the year to you unless the shares are being held in a tax-deferred account or are tax-free for other reasons (e.g. dividends from a municipal bond fund).\",\n \"Capital gain distribution is not capital gain on sale of stock. If you have stock sales (Schedule D) you should be filing 1040, not 1040A. Capital gain distributions are distributions from mutual funds/ETFs that are attributed to capital gains of the funds (you may not have actually received the distribution, but you still may have gain attributed to you). It is reported on 1099-DIV, and if it is 0 - then you don't have any. If you sold a stock, your broker should have given you 1099-B (which is not the same as 1099-DIV, but may be consolidated by your broker into one large PDF and not provided separately). On 1099-B the sales proceeds are recorded, and if you purchased the stock after 2011 - the cost basis is also recorded. The difference between the proceeds and the cost basis is your gain (or loss, if it is negative). Fees are added to cost basis.\",\n \"The capital gain is either short-term or long-term and will be indicated on the 1099-DiV. You pay taxes on this amount as the capital gain was received in a taxable account (assuming since you received a 1099-DIV). More info here: https://www.mutualfundstore.com/brokerage-account/capital-gains-distributions-taxable\",\n \"I don't see a tag for United States, so I'm having to assume this is US taxes. It doesn't matter what app you use, IRS trades are all calculated the same. First, you have to report each trade on a 8949 and from that the totals go into a schedule D. Short term trades are stocks that you've kept exactly one year or less, long term trades are for 1 year + 1 day or more. Trades where you sold a stock for a loss, then bought that stock back again under 30 days don't get to count as a loss. This only affects realized capital gains and losses, you don't count fees. First, take all of your short term gains then offset them by all of your short term losses. Do the same for long term gains and losses. Short and long term gains are taxed at different rates. You can deduct losses from short term to your long term and vice versa. Then you can deduct the total losses up to $3000 (household, $1500 married, filing separately) per year on your regular income taxes or other dividend taxes. If you have over $3000 in losses, then you need to carry that over to subsequent years. Edited per Dave's comments: thanks Dave\",\n \"\\\"Very interesting question. While searching i also found that some precious metal ETFs (including IAU) gains are taxed at 28% because IRS considers it \\\"\\\"collectible\\\"\\\", rather than the usual long term 15% for stocks and stock holding ETFs. As for capital gain tax you have to pay now my guess it's because of the following statement in the IAU prospectus (page 34): When the trust sells gold, for example to pay expenses, a Shareholder will recognize gain or loss ....\\\"\",\n \"Long term gains are taxed at 15% maximum. Losses, up to the $3K/yr you cited, can offset ordinary income, so 25% or higher, depending on your income. Better to take the loss that way. With my usual disclaimer: Do not let the tax tail wag the investing dog.\",\n \"For stocks, bonds, ETF funds and so on - Taxed only on realised gain and losses are deductible from the gain and not from company's income. Corporate tax is calculated only after all expenses have been deducted. Not the other way around. Real estate expenses can be deducted because of repairs and maintenance. In general all expenses related to the operation of the business can be deducted. But you cannot use expenses as willy nilly, as you assume. You cannot deduct your subscription to Playboy as an expense. Doing it is illegal and if caught, the tours to church will increase exponentially. VAT is only paid if you claim VAT on your invoices. Your situation seems quite complicated. I would suggest, get an accountant pronto. There are nuances in your situation, which an accountant only can understand and help.\",\n \"This depends on the particular index, of course. Capital gains taxes occur when stock is sold (for a profit). This occurs less frequently in an index fund: Where an active manager frequently buys and sells stocks (after all, he wants to be active :-) ), the index fund only sells stocks when the particular stock leaves the index. For an index such as the S&P 500 this does not happen that often. The more specific the criteria of the index fund, the more often the selling of stock and thus the need to pay capital gains taxes occurs.\",\n \"Does my prior answer here to a slightly different question help at all? Are there capital gains taxes or dividend taxes if I invest in the U.S. stock market from outside of the country?\",\n \"Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.\",\n \"Assuming that taxes were withheld when you received the options, you would now only owe tax on the profit from the sale of the stock. The cost basis would be whatever you bought the stock for (the strike price of the options in this case), and the profit will be the total amount received from the sale minus the total cost of those shares. Since you bought the stock more than one year ago, you will get taxed at the long-term capital gains rate of 15% (unless you are in the 39.6% tax bracket, in which case the rate is 20%). As with all tax advice on this site, you need to check with a tax specialist when you actually file, but that should give you a rough indication of what your tax liability is.\",\n \"The problem there is that there's a tax due on that dividend. So, if you wish, you can buy the ETF and specify to reinvest dividends, but you'll have to pay a bit of tax on them, and keep track of your basis, if the account isn't a retirement account.\",\n \"\\\"The US withholding tax applies to stocks/ETFs purchased on the NYSE and other US-based exchanges. If you buy Cenovus on the TSE then you will not be charged this tax. Your last sentence seems like you might be misunderstanding this tax though. If the tax applied, it would not cost you 15% on all your profits, it only applies to dividend yields. So if it pays you a 5% dividend, the tax costs you 0.75%. However, if you buy at $21.19 and sell at $26, then your capital gain is not subject to withholding taxes. It is however, subject to Canadian income tax (at 50% of the gain amount) when it's not sheltered in a TFSA or other registered account. The tax on the gains could easily amount to 16% of your profits, which is a much more significant cost. Therefore, having to pay a 0.75% withholding cost certainly does not \\\"\\\"defeat the purpose of the TFSA\\\"\\\" which is to shelter from Canadian income tax!\\\"\",\n \"(All for US.) Yes you (will) have a realized long-term capital gain, which is taxable. Long-term gains (including those distributed by a mutual fund or other RIC, and also 'qualified' dividends, both not relevant here) are taxed at lower rates than 'ordinary' income but are still bracketed almost (not quite) like ordinary income, not always 15%. Specifically if your ordinary taxable income (after deductions and exemptions, equivalent to line 43 minus LTCG/QD) 'ends' in the 25% to 33% brackets, your LTCG/QD income is taxed at 15% unless the total of ordinary+preferred reaches the top of those brackets, then any remainder at 20%. These brackets depend on your filing status and are adjusted yearly for inflation, for 2016 they are: * single 37,650 to 413,350 * married-joint or widow(er) 75,300 to 413,350 * head-of-household 50,400 to 441,000 (special) * married-separate 37,650 to 206,675 which I'd guess covers at least the middle three quintiles of the earning/taxpaying population. OTOH if your ordinary income ends below the 25% bracket, your LTCG/QD income that 'fits' in the lower bracket(s) is taxed at 0% (not at all) and only the portion that would be in the ordinary 25%-and-up brackets is taxed at 15%. IF your ordinary taxable income this year was below those brackets, or you expect next year it will be (possibly due to status/exemption/deduction changes as well as income change), then if all else is equal you are better off realizing the stock gain in the year(s) where some (or more) of it fits in the 0% bracket. If you're over about $400k a similar calculation applies, but you can afford more reliable advice than potential dogs on the Internet. (update) Near dupe found: see also How are long-term capital gains taxed if the gain pushes income into a new tax bracket? Also, a warning on estimated payments: in general you are required to pay most of your income tax liability during the year (not wait until April 15); if you underpay by more than 10% or $1000 (whichever is larger) you usually owe a penalty, computed on Form 2210 whose name(?) is frequently and roundly cursed. For most people, whose income is (mostly) from a job, this is handled by payroll withholding which normally comes out close enough to your liability. If you have other income, like investments (as here) or self-employment or pension/retirement/disability/etc, you are supposed to either make estimated payments each 'quarter' (the IRS' quarters are shifted slightly from everyone else's), or increase your withholding, or a combination. For a large income 'lump' in December that wasn't planned in advance, it won't be practical to adjust withholding. However, if this is the only year increased, there is a safe harbor: if your withholding this year (2016) is enough to pay last year's tax (2015) -- which for most people it is, unless you got a pay cut this year, or a (filed) status change like marrying or having a child -- you get until next April 15 (or next business day -- in 2017 it is actually April 18) to pay the additional amount of this year's tax (2016) without underpayment penalty. However, if you split the gain so that both 2016 and 2017 have income and (thus) taxes higher than normal for you, you will need to make estimated payment(s) and/or increase withholding for 2017. PS: congratulations on your gain -- and on the patience to hold anything for 10 years!\",\n \"\\\"The examples you provide in the question are completely irrelevant. It doesn't matter where the brokerage is or where is the company you own stocks in. For a fairly standard case of an non-resident alien international student living full time in the US - your capital gains are US sourced. Let me quote the following text a couple of paragraphs down the line you quoted on the same page: Gain or loss from the sale or exchange of personal property generally has its source in the United States if the alien has a tax home in the United States. The key factor in determining if an individual is a U.S. resident for purposes of the sourcing of capital gains is whether the alien's \\\"\\\"tax home\\\"\\\" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’s U.S. source capital gains would be treated as foreign-source and thus nontaxable. In general, under the \\\"\\\"tax home\\\"\\\" rules, a person who is away (or who intends to be away) from his tax home for longer than 1 year has shifted tax homes to his new location upon his arrival in that new location. See Chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses I'll assume you've read this and just want an explanation on what it means. What it means is that if you move to the US for a significant period of time (expected length of 1 year or more), your tax home is assumed to have shifted to the US and the capital gains are sourced to the US from the start of your move. For example: you are a foreign diplomat, and your 4-year assignment started in May. Year-end - you're not US tax resident (diplomats exempt), but you've stayed in the US for more than 183 days, and since your assignment is longer than 1 year - your tax home is now in the US. You'll pay the 30% flat tax. Another example: You're a foreign airline pilot, coming to the US every other day flying the airline aircraft. You end up staying in the US 184 days, but your tax home hasn't shifted, nor you're a US tax resident - you don't pay the flat tax. Keep in mind, that tax treaties may alter the situation since in many cases they also cover the capital gains situation for non-residents.\\\"\",\n \"However, you might have to pay taxes on capital gains if these stocks were acquired during your prior residency.\",\n \"\\\"Mutual funds don't pay taxes themselves, they distribute any dividends or capital gains to the shareholders. Thus, if you hold a mutual fund in a tax-advantaged account like a 401k or IRA then the distribution isn't a taxable event while in a regular taxable account you would have to pay taxes on the distributions. From Forbes: There can be foreign companies on US stock exchanges that would still work the same way. Unilever for example is an Anglo-Dutch multinational listed on the NYSE as \\\"\\\"UN.\\\"\\\"\\\"\",\n \"You normally only pay taxes on the difference between the sale price and the cost basis of the asset. In your example, you would probably pay taxes on the $10 difference, not the full sale price of $110. If you paid a commission, however, you would be taxed on your gain minus the commission you paid. Since you held the asset for less than a year, you wouldn't pay the long-term capital gains rate of 20%; you'd be taxed on the capital gain as if it were ordinary income, which depends on your federal income tax bracket. Also, littleadv makes a good point about the implications of buying the asset with after-tax funds too, so that's another part of the equation to consider as well.\",\n \"\\\"The country from which you purchase stock cannot charge you tax on either income or capital gains. Taxation is based on residency, so even when you purchase foreign stock its the tax laws of Malaysia (as your country of residence) that matter. At the time of writing, Malaysia does not levy any capital gains tax and there is no income tax charged on dividends so you won't have to declare or pay any tax on your stocks regardless of where you buy them from. The only exception to this is Dividend Withholding Tax, which is a special tax taken by the government of the country you bought the stock from before it is paid to your account. You do not need to declare this tax as it his already been taken by the time you receive your dividend. The US withholding tax rate on dividends is 30%, although this can be reduced to 15% if there as a tax treaty in place between the US and your country of residence. Malaysia does have a double taxation agreement with the US (see here: http://www.mida.gov.my/env3/index.php?page=double-taxation-agreement) but it is flagged as a \\\"\\\"limited\\\"\\\" agreement. You'd need to find the full text of the agreement to see whether a reduced rate of dividend withholding tax would be available in the Malaysia/US treaty. See my other answer for more details on withholding taxes and how to partially reclaim under a double tax treaty: What is the dividend tax rate for UK stock Note: Although the taxation rules of both countries are similar, I am a resident of Singapore not Malaysia so I can't speak from first hand experience, but current Malaysia tax rates are easy to find online. The rest of this information is common to any non-US/UK resident investor (as long as you're not a US person).\\\"\",\n \"\\\"The IRS rules are actually the same. 26 U.S. Code § 1091 - Loss from wash sales of stock or securities In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed... What you should take away from the quote above is \\\"\\\"substantially identical stock or securities.\\\"\\\" With stocks, one company may happen to have a high correlation, Exxon and Mobil come to mind, before their merger of course. With funds or ETFs, the story is different. The IRS has yet to issue rules regarding what level of overlap or correlation makes two funds or ETFs \\\"\\\"substantially identical.\\\"\\\" Last month, I wrote an article, Tax Loss Harvesting, which analyses the impact of taking losses each year. I study the 2000's which showed an average loss of 1% per year, a 9% loss for the decade. Tax loss harvesting made the decade slightly positive, i.e. an annual boost of approx 1%.\\\"\",\n \"non-resident aliens to the US do not pay capital gains on US products. You pay tax in your home country if you have done a taxable event in your country. http://www.investopedia.com/ask/answers/06/nonusresidenttax.asp#axzz1mQDut9Ru but if you hold dividends, you are subject to US dividend tax. The UK-US treaty should touch on that though.\",\n \"I'm not sure where you are, but in the United States capital gains are taxed at a lower rate than other types of income. On the 1040, captial gains income is separated from earned income, and income tax is calculated just on earned income. Then capital gains tax is calculated on capital gains income, and then added to income tax afterward.\",\n \"Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.\",\n \"A purchase of a stock is not a taxable event. No 1099 to worry about. Welcome to Money.SE\",\n \"Tax questions require that you specify a jurisdiction. Assuming that this is the US, you owe Federal income tax (at the special long-term capital gains tax rate) on the net long-term capital gains (total long-term capital gains minus total long-term capital losses) and so, yes, if these two were your only transactions involving long-term holdings, you would pay long-term capital gains tax on $3000-$50 = $2950. Many States in the US don't tax long-term capital gains at special rates the way the Federal Government does, but you still pay taxes on the net long-term capital gains. I suspect that other countries have similar rules.\",\n \"See my answer here What is the dividend tax rate for UK stock The only tax from US stocks you'd need to worry about would be dividend withholding tax of 30%. If you contact your ISA provider they should be able to provide you with a W8-BEN form so that you can have this rate reduced to 15%. Just because there's a tax treaty does not mean you will automatically be charged 15% - you must provide a W8-BEN form and renew it when it expires. That last 15% is unfortunately unavoidable. If you were paying any UK taxes you could claim that 15% as a discount against your UK dividend tax liability, but as your US stock would be wrapped in an ISA there's no UK tax to pay which means no tax to reclaim from the tax treaty. Other than DWT though, you will pay absolutely no tax on US stocks held in an ISA to either the US or UK government.\",\n \"\\\"This answer is about the USA. Each time you sell a security (a stock or a bond) or some other asset, you are expected to pay tax on the net gain. It doesn't matter whether you use a broker or mutual fund to make the sale. You still owe the tax. Net capital gain is defined this way: Gross sale prices less (broker fees for selling + cost of buying the asset) The cost of buying the asset is called the \\\"\\\"basis price.\\\"\\\" You, or your broker, needs to keep track of the basis price for each share. This is easy when you're just getting started investing. It stays easy if you're careful about your record keeping. You owe the capital gains tax whenever you sell an asset, whether or not you reinvest the proceeds in something else. If your capital gains are modest, you can pay all the taxes at the end of the year. If they are larger -- for example if they exceed your wage earnings -- you should pay quarterly estimated tax. The tax authorities ding you for a penalty if you wait to pay five- or six-figure tax bills without paying quarterly estimates. You pay NET capital gains tax. If one asset loses money and another makes money, you pay on your gains minus your losses. If you have more losses than gains in a particular year, you can carry forward up to $3,000 (I think). You can't carry forward tens of thousands in capital losses. Long term and short term gains are treated separately. IRS Schedule B has places to plug in all those numbers, and the tax programs (Turbo etc) do too. Dividend payments are also taxable when they are paid. Those aren't capital gains. They go on Schedule D along with interest payments. The same is true for a mutual fund. If the fund has Ford shares in it, and Ford pays $0.70 per share in March, that's a dividend payment. If the fund managers decide to sell Ford and buy Tesla in June, the selling of Ford shares will be a cap-gains taxable event for you. The good news: the mutual fund managers send you a statement sometime in February or March of each year telling what you should put on your tax forms. This is great. They add it all up for you. They give you a nice consolidated tax statement covering everything: dividends, their buying and selling activity on your behalf, and any selling they did when you withdrew money from the fund for any purpose. Some investment accounts like 401(k) accounts are tax free. You don't pay any tax on those accounts -- capital gains, dividends, interest -- until you withdraw the money to live on after you retire. Then that money is taxed as if it were wage income. If you want an easy and fairly reliable way to invest, and don't want to do a lot of tax-form scrambling, choose a couple of different mutual funds, put money into them, and leave it there. They'll send you consolidated tax statements once a year. Download them into your tax program and you're done. You mentioned \\\"\\\"riding out bad times in cash.\\\"\\\" No, no, NOT a good idea. That investment strategy almost guarantees you will sell when the market is going down and buy when it's going up. That's \\\"\\\"sell low, buy high.\\\"\\\" It's a loser. Not even Warren Buffett can call the top of the market and the bottom. Ned Johnson (Fidelity's founder) DEFINITELY can't.\\\"\",\n \"The ETF is likely better in this case. The ETF will generally generate less capital gains taxes along the way. In order to pay off investors who leave a mutual fund, the manager will have to sell the fund's assets. This creates a capital gain, which must be distributed to shareholders at the end of the year. The mutual fund holder is essentially taxed on this turnover. The ETF does not have to sell any stock when an investor sells his shares because the investor sells the shares himself on the open market. This will result in a capital gain for the specific person exiting his position, but it does not create a taxable event for anyone else holding the ETF shares.\",\n \"You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.\",\n \"Capital gains taxes for a year are calculated on sales of assets that take place during that year. So if you sell some stock in 2016, you will report those gains/losses on your 2016 tax return.\",\n \"\\\"That's a tricky question and you should consult a tax professional that specializes on taxation of non-resident aliens and foreign expats. You should also consider the provisions of the tax treaty, if your country has one with the US. I would suggest you not to seek a \\\"\\\"free advice\\\"\\\" on internet forums, as the costs of making a mistake may be hefty. Generally, sales of stocks is not considered trade or business effectively connected to the US if that's your only activity. However, being this ESPP stock may make it connected to providing personal services, which makes it effectively connected. I'm assuming that since you're filing 1040NR, taxes were withheld by the broker, which means the broker considered this effectively connected income.\\\"\",\n \"\\\"You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule \\\"\\\"Don't let the tax tail wag the investing dog.\\\"\\\" For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense.\\\"\",\n \"ETFs are a type of investment, not a specific choice. In other words, there are good ETFs and bad. What you see is the general statement that ETFs are preferable to most mutual funds, if only for the fact that they are low cost. An index ETF such as SPY (which reflects the S&P 500 index) has a .09% annual expense, vs a mutual fund which average a full percent or more. sheegaon isn't wrong, I just have a different spin to offer you. Given a long term return of say even 8% (note - this question is not a debate of the long term return, and I purposely chose a low number compared to the long term average, closer to 10%) and the current CD rate of <1%, a 1% hit for the commission on the buy side doesn't bother me. The sell won't occur for a long time, and $8 on a $10K sale is no big deal. I'd not expect you to save $1K/yr in cash/CDs for the years it would take to make that $8 fee look tiny. Not when over time the growth will overshaddow this. One day you will be in a position where the swings in the market will produce the random increase or decrease to your net worth in the $10s of thousands. Do you know why you won't lose a night's sleep over this? Because when you invested your first $1K, and started to pay attention to the market, you saw how some days had swings of 3 or 4%, and you built up an immunity to the day to day noise. You stayed invested and as you gained wealth, you stuck to the right rebalancing each year, so a market crash which took others down by 30%, only impacted you by 15-20, and you were ready for the next move to the upside. And you also saw that since mutual funds with their 1% fees never beat the index over time, you were happy to say you lagged the S&P by .09%, or 1% over 11 year's time vs those whose funds had some great years, but lost it all in the bad years. And by the way, right until you are in the 25% bracket, Roth is the way to go. When you are at 25%, that's the time to use pre-tax accounts to get just below the cuttoff. Last, welcome to SE. Edit - see sheegaon's answer below. I agree, I missed the cost of the bid/ask spread. Going with the lowest cost (index) funds may make better sense for you. To clarify, Sheehan points out that ETFs trade like a stock, a commission, and a bid/ask, both add to transaction cost. So, agreeing this is the case, an indexed-based mutual fund can provide the best of possible options. Reflecting the S&P (for example) less a small anual expense, .1% or less.\",\n \"If so, are there ways to reduce the amount of taxes owed? Given that it's currently December, I suppose I could sell half of what I want now, and the other half in January and it would split the tax burden over 2 years instead, but beyond that, are there any strategies for tax reduction in this scenario? One possibility is to also sell stocks that have gone down since you bought them. Of course, you would only do this if you have changed your mind about the stock's prospects since you bought it -- that is, it has gone down and you no longer think it will go up enough to be worth holding it. When you sell stocks, any losses you take can offset any gains, so if you sell one stock for a gain of $10,000 and another for a loss of $5,000, you will only be taxed on your net gain of $5,000. Even if you think your down stock could go back up, you could sell it to realize the loss, and then buy it back later at the lower price (as long as you're not worried it will go up in the meantime). However, you need to wait at least 30 days before rebuying the stock to avoid wash sale rules. This practice is known as tax loss harvesting.\",\n \"You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.\",\n \"\\\"For example, if I have an income of $100,000 from my job and I also realize a $350,000 in long-term capital gains from a stock sale, will I pay 20% on the $350K or 15%? You'll pay 20% assuming filing single and no major offsets to taxable income. Capital gains count towards your income for determining tax bracket. They're on line 13 of the 1040 which is in the \\\"\\\"income\\\"\\\" section and aren't adjusted out/excluded from your taxable income, but since they are taxed at a different rate make sure to follow the instructions for line 44 when calculating your tax due.\\\"\",\n \"First of all an IRA is a type of account that says nothing about how your money is invested. It seems like you are trying to compare an IRA with a market ETF (like Vanguard Total Market Admiral VTSAX), but the reality is that you can have both. Depending on your IRA some of the investment options may be limited, but you will probably be able to find some version of a passive fund following an index you are interested in. The IRA account is tax advantaged, but you may invest the money in your IRA in an ETF. As for how often a non-IRA account is taxed and how much, that depends on how often you sell. If you park your money in an ETF and do not sell, the IRS will not claim any taxes from it. The taxable event happens when you sell. But if you gain $1000 in a year and a day and you decide to sell, you will owe $150 (assuming 15% capital gains tax), bringing your earnings down to $850. If your investments go poorly and you lose money, there will be no capital gains tax to pay.\",\n \"The sentence you quoted does not apply in the case where you sell the stock at a loss. In that case, you recognize zero ordinary income, and a capital loss (opposite of a gain) for the loss. Reference: http://efs.fidelity.com/support/sps/article/article2.html\",\n \"You need to report the income from any work as income, regardless of if you invest it, spend it, or put it in your mattress (ignoring tax advantaged accounts like 401ks). You then also need to report any realized gains or losses from non-tax advantaged accounts, as well as any dividends received. Gains and losses are realized when you actually sell, and is the difference between the price you bought for, and the price you sold for. Gains are taxed at the capital gains rate, either short-term or long-term depending on how long you owned the stock. The tax system is complex, and these are just the general rules. There are lots of complications and special situations, some things are different depending on how much you make, etc. The IRS has all of the forms and rules online. You might also consider having a professional do you taxes the first time, just to ensure that they are done correctly. You can then use that as an example in future years.\",\n \"If you receive dividends on an investment, those are taxed.\",\n \"What JoeTaxpayer means is that you can sell one ETF and buy another that will perform substantially the same during the 30 day wash sale period without being considered substantially the same from a wash sale perspective more easily than you could with an individual stock. For example, you could sell an S&P 500 index ETF and then temporarily buy a DJIA index ETF. As these track different indexes, they are not considered to be substantially the same for wash sale purposes, but for a short term investing period, their performance should still be substantially the same.\",\n \"\\\"Many individual states, counties, and cities have their own income taxes, payroll taxes, sales taxes, property taxes, etc., you will need to consult your state and local government websites for information about additional taxes that apply based on your locale. Wages, Salaries, Tips, Cash bonuses and other taxable employee pay, Strike benefits, Long-term disability, Earnings from self employment Earned income is subject to payroll taxes such as: Earned income is also subject to income taxes which are progressively higher depending on the amount earned minus tax credits, exemptions, and/or deductions depending on how you file. There are 7 tax rates that get progressively larger as your income rises but only applies to the income in each bracket. 10% for the first 18,650 (2017) through 39.6% for any income above 470,700. The full list of rates is in the above linked article about payroll taxes. Earned income is required for contributions to an IRA. You cannot contribute more to an IRA than you have earned in a given year. Interest, Ordinary Dividends, Short-term Capital Gains, Retirement income (pensions, distributions from tax deferred accounts, social security), Unemployment benefits, Worker's Compensation, Alimony/Child support, Income earned while in prison, Non-taxable military pay, most rental income, and S-Corp passthrough income Ordinary income is taxed the same as earned income with the exception that social security taxes do not apply. This is the \\\"\\\"pure taxable income\\\"\\\" referred to in the other linked question. Dividends paid by US Corporations and qualified foreign corporations to stock-holders (that are held for a certain period of time before the dividend is paid) are taxed at the Long-term Capital Gains rate explained below. Ordinary dividends like the interest earned in your bank account are included with ordinary income. Stocks, Bonds, Real estate, Carried interest -- Held for more than a year Income from assets that increase in value while being held for over a year. Long term capital gains justified by the idea that they encourage people to hold stock and make long term investments rather than buying and then quickly reselling for a short-term profit. The lower tax rates also reflect the fact that many of these assets are already taxed as they are appreciating in value. Real-estate is usually taxed through local property taxes. Equity in US corporations realized by rising stock prices and dividends that are returned to stock holders reflect earnings from a corporation that are already taxed at the 35% Corporate tax rate. Taxing Capital gains as ordinary income would be a second tax on those same profits. Another problem with Long-term capital gains tax is that a big portion of the gains for assets held for multiple decades are not real gains. Inflation increases the price of assets held for longer periods, but you are still taxed on the full gain even if it would be a loss when inflation is calculated. Capital gains are also taxed differently depending on your income level. If you are in the 10% or 15% brackets then Long-term capital gains are assessed at 0%. If you are in the 25%, 28%, 33%, or 35% brackets, they are assessed at 15%. Only those in the 39.6% bracket pay 20%. Capital assets sold at a profit held for less than a year Income from buying and selling any assets such as real-estate, stock, bonds, etc., that you hold for less than a year before selling. After adding up all gains and losses during the year, the net gain is taxed as ordinary income. Collectibles held for more than a year are not considered capital assets and are still taxed at ordinary income rates.\\\"\",\n \"You pay taxes on capital gains when you realize your gains by selling the investment property. Also, in the US, taxes on capital gains are computed at special rates depending on your current income level, and so when you realize your gains two years from now, you will pay taxes on the gains at the special rate then applicable to your income level for the year of sale. Remember also that the US Congress can change the tax laws at any time between now and the time you sell your stocks, and so the rates you are looking at now may have changed too.\",\n \"Is selling Vested RSU is the same as selling a regular stock? Yes. Your basis (to calculate the gain) is what you've been taxed on when the RSUs vested. Check your payslips/W2 for that period, and the employer should probably have sent you detailed information about that. I'm not a US citizen, my account is in ETrade and my stocks are of a US company, what pre arrangements I need to take to avoid tax issues? You will pay capital gains taxes on the sale in Israel. Depending on where you were when you earned the stocks and what taxes you paid then - it may open additional issues with the Israeli tax authority. Check with an Israeli tax adviser/accountant.\",\n \"I assume US as mhoran_psprep edited, although I'm not sure IRS necessarily means US. (It definitely used to also include Britain's Inland Revenue, but they changed.) (US) Stockbrokers do not normally withhold on either dividends/interest/distributions or realized capital gains, especially since gains might be reduced or eliminated by later losses. (They can be required to apply backup withholding to dividends and interest; don't ask how I know :-) You are normally required to pay most of your tax during the year, defined as within 10% or $1000 whichever is more, by withholding and/or estimated payments. Thus if the tax on your income including your recent gain will exceed your withholding by 10% and $1000, you should either adjust your withholding or make an estimated payment or some combination, although even if you have a job the last week of December is too late for you to adjust withholding significantly, or even to make a timely estimated payment if 'earlier in the year' means in an earlier quarter as defined for tax (Jan-Mar, Apr-May, June-Aug, Sept-Dec). See https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes and for details its link to Publication 505. But a 'safe harbor' may apply since you say this is your first time to have capital gains. If you did not owe any income tax for last year (and were a citizen or resident), or (except very high earners) if you did owe tax and your withholding plus estimated payments this year is enough to pay last year's tax, you are exempt from the Form 2210 penalty and you have until the filing deadline (normally April 15 but this year April 18 due to weekend and holiday) to pay. The latter is likely if your job and therefore payroll income and withholding this year was the same or nearly the same as last year and there was no other big change other than the new capital gain. Also note that gains on investments held more than one year are classified as long-term and taxed at lower rates, which reduces the tax you will owe (all else equal) and thus the payments you need to make. But your wording 'bought and sold ... earlier this year' suggests your holding was not long-term, and short-term gains are taxed as 'ordinary' income. Added: if the state you live in has a state income tax similar considerations apply but to smaller amounts. TTBOMK all states tax capital gains (and other investment income, other than interest on exempt bonds), and don't necessarily give the lower rates for long-term gains. And all states I have lived in have 'must have withholding or estimated payments' rules generally similar to the Federal ones, though not identical.\",\n \"\\\"A mutual fund could make two different kinds of distributions to you: Capital gains: When the fund liquidates positions that it holds, it may realize a gain if it sells the assets for a greater price than the fund purchased them for. As an example, for an index fund, assets may get liquidated if the underlying index changes in composition, thus requiring the manager to sell some stocks and purchase others. Mutual funds are required to distribute most of their income that they generate in this way back to its shareholders; many often do this near the end of the calendar year. When you receive the distribution, the gains will be categorized as either short-term (the asset was held for less than one year) or long-term (vice versa). Based upon the holding period, the gain is taxed differently. Currently in the United States, long-term capital gains are only taxed at 15%, regardless of your income tax bracket (you only pay the capital gains tax, not the income tax). Short-term capital gains are treated as ordinary income, so you will pay your (probably higher) tax rate on any cash that you are given by your mutual fund. You may also be subject to capital gains taxes when you decide to sell your holdings in the fund. Any profit that you made based on the difference between your purchase and sale price is treated as a capital gain. Based upon the period of time that you held the mutual fund shares, it is categorized as a short- or long-term gain and is taxed accordingly in the tax year that you sell the shares. Dividends: Many companies pay dividends to their stockholders as a way of returning a portion of their profits to their collective owners. When you invest in a mutual fund that owns dividend-paying stocks, the fund is the \\\"\\\"owner\\\"\\\" that receives the dividend payments. As with capital gains, mutual funds will redistribute these dividends to you periodically, often quarterly or annually. The main difference with dividends is that they are always taxed as ordinary income, no matter how long you (or the fund) have held the asset. I'm not aware of Texas state tax laws, so I can't comment on your other question.\\\"\",\n \"I believe the answer to your question boils down to a discussion of tax strategies and personal situation, both now and in the future. As a result, it's pretty hard to give a concrete example to the question as asked right now. For example, if your tax rate now is likely to be higher than your tax rate at retirement (it is for most people), than putting the higher growth ETF in a retirement fund makes some sense. But even then, there are other considerations. However, if the opposite is true (which could happen if your income is growing so fast that your retirement income looks like it will be higher than your current income), than you might want the flexibility of holding all your ETFs in your non-tax advantaged brokerage account so that IF you do incur capital gains they are paid at prevailing, presumably lower tax rates. (I assume you meant a brokerage account rather than a savings account since you usually can't hold ETFs in a savings account.) I also want to mention that a holding in a corp account isn't necessarily taxed twice. It depends on the corporation type and the type of distribution. For example, S corps pay no federal income tax themselves. Instead the owners pay taxes when money is distributed to them as personal income. Which means you could trickle out the earnings from an holdings there such that it keeps you under any given federal tax bracket (assuming it's your only personal income.) This might come in handy when retired for example. Also, distribution of the holdings as dividends would incur cap gains tax rates rather than personal income tax rates. One thing I would definitely say: any holdings in a Roth account (IRA, 401k) will have no future taxes on earnings or distributions (unless the gov't changes its mind.) Thus, putting your highest total return ETF there would always be the right move.\",\n \"\\\"There are ways to mitigate, but since you're not protected by a tax-deferred/advantaged account, the realized income will be taxed. But you can do any of the followings to reduce the burden: Prefer selling either short positions that are at loss or long positions that are at gain. Do not invest in stocks, but rather in index funds that do the rebalancing for you without (significant) tax impact on you. If you are rebalancing portfolio that includes assets that are not stocks (real-estate, mainly) consider performing 1031 exchanges instead of plain sale and re-purchase. Maximize your IRA contributions, even if non-deductible, and convert them to Roth IRA. Hold your more volatile investments and individual stocks there - you will not be taxed when rebalancing. Maximize your 401K, HSA, SEP-IRA and any other tax-advantaged account you may be eligible for. On some accounts you'll pay taxes when withdrawing, on others - you won't. For example - Roth IRA/401k accounts are not taxed at all when withdrawing qualified distributions, while traditional IRA/401k are taxed as ordinary income. During the \\\"\\\"low income\\\"\\\" years, consider converting portions of traditional accounts to Roth.\\\"\",\n \"\\\"There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are \\\"\\\"ready made\\\"\\\" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a \\\"\\\"frequent trader\\\"\\\" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales.\\\"\",\n \"I'm not sure where people keep getting this idea, but I see it come up a lot. Anyway, you pay capital gains taxes when you sell an investment that has appreciated. It makes no difference when/if you reinvest the money or what you invest it in. If you are afraid of the tax burden you can minimize it by: 1) Selling a stock that you have held longer than a year to get the lower long-term rate. 2) Sell a stock that hasn't appreciated that much and therefore doesn't have a lot of gains to tax. 3) Sell a stock that's below purchase price (i.e. at a loss) to offset any short term gains.\",\n \"It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).\",\n \"Selling one fund and buying another will incur capital gains tax on the sale for the amount of the gain. I'm not aware of any sort of exemption available due to you moving out of the country. However, long-term capital gains for low-tax-bracket taxpayers is 0%. As long as your total income including the gains fits within the 15% regular tax bracket, you don't pay any long-term capital gains. Options for you that I see to avoid taxes are: Note that even if you do sell it all, it's only the amount of gains that would take your income over the 15% normal tax bracket that would be taxed at the long-term rate of 15%, which may not end up being that much of a tax hit. It may be worth calculating just how bad it would be based on your actual income. Also note that all I'm saying here is for US federal income taxes. The state you most recently lived in may still charge taxes if you're still considered a resident there in some fashion, and I don't know if your new home's government may try to take a cut as well.\",\n \"When you invest (say $1000) in (say 100 shares) of a mutual fund at $10 per share, and the price of the shares changes, you do not have a capital gain or loss, and you do not have to declare anything to the IRS or make any entry on any line on Form 1040 or tell anyone else about it either. You can brag about it at parties if the share price has gone up, or weep bitter tears into your cocktail if the price has gone down, but the IRS not only does not care, but it will not let you deduct the paper loss or pay taxes on the paper gain. What you put down on Form 1040 Schedules B and D is precisely what the mutual fund will tell you on Form 1099-DIV (and Form 1099-B), no more, no less. If you did not report any of these amounts on your previous tax returns, you need to file amended tax returns, both Federal as well as State, A stock mutual fund invests in stocks and the fund manager may buy and sell some stocks during the course of the year. If he makes a profit, that money will be distributed to the share holders of the mutual fund. That money can be re-invested in more shares of the same mutual fund or taken as cash (and possibly invested in some other fund). This capital gain distribution is reported to you on Form 1099-DIV and you have to report sit on your tax return even if you re-invested in more share of the same mutual fund, and the amount of the distribution is taxable income to you. Similarly, if the stocks owned by the mutual fund pay dividends, those will be passed on to you as a dividend distribution and all the above still applies. You can choose to reinvest, etc, the amount will be reported to you on Form 1099-DIV, and you need to report it to the IRS and include it in your taxable income. If the mutual fund manager loses money in the buying and selling he will not tell you that he lost money but it will be visible as a reduction in the price of the shares. The loss will not be reported to you on Form 1099-DIV and you cannot do anything about it. Especially important, you cannot declare to the IRS that you have a loss and you cannot deduct the loss on your income tax returns that year. When you finally sell your shares in the mutual fund, you will have a gain or loss that you can pay taxes on or deduct. Say the mutual fund paid a dividend of $33 one year and you re-invested the money into the mutual fund, buying 3 shares at the then cost of $11 per share. You declare the $33 on your tax return that year and pay taxes on it. Two years later, you sell all 103 shares that you own for $10.50 per share. Your total investment was $1000 + $33 = $1033. You get $1081.50 from the fund, and you will owe taxes on $1081.50 - $1033 = $48.50. You have a profit of $50 on the 100 shares originally bought and a loss of $1.50 on the 3 shares bought for $11: the net result is a gain of $48.50. You do not pay taxes on $81.50 as the profit from your original $1000 investment; you pay taxes only on $48.50 (remember that you already paid taxes on the $33). The mutual fund will report on Form 1099-B that you sold 103 shares for $1081.50 and that you bought the 103 shares for an average price of $1033/103 = $10.029 per share. The difference is taxable income to you. If you sell the 103 shares for $9 per share (say), then you get $927 out of an investment of $1033 for a capital loss of $106. This will be reported to you on Form 1099-B and you will enter the amounts on Schedule D of Form 1040 as a capital loss. What you actually pay taxes on is the net capital gain, if any, after combining all your capital gains and losses for the year. If the net is a loss, you can deduct up to $3000 in a year, and carry the rest forward to later years to offset capital gains in later years. But, your unrealized capital gains or losses (those that occur because the mutual fund share price goes up and down like a yoyo while you grin or grit your teeth and hang on to your shares) are not reported or deducted or taxed anywhere. It is more complicated when you don't sell all the shares you own in the mutual fund or if you sell shares within one year of buying them, but let's stick to simple cases.\",\n \"If the brokerage account holds US assets, such as the stock of US companies, then it may be taxable under some conditions. The rules are complex and depend on the nationality of the individuals, because the results may be affected by tax treaties between the United States and whatever country the person is from.\",\n \"\\\"Assuming your investments aren't in any kind of tax-advantaged account (like an IRA), they are generally not tracked and you indeed may pay more taxes. What will likely change, however, is your cost basis. You only pay tax on the difference between the value of the investment when you sell it and its value when you bought it. There is no rule that says once you sell an investment and pay taxes on the gain, you will never again pay any taxes on any other investments you then buy with that money. If you own some investment, and it increases in value, and then you sell it, you had a capital gain and owe taxes (depending on your tax bracket, etc.). If you use the money to buy some other investment, and that increases in value, and then you sell it, you had another separate capital gain and again owe taxes. However, every time you sell, you only are subject to capital gains taxes on the gain, not the entire sale price. The value of the investment at the time you bought it is the cost basis. When you sell, you take the sale price and subtract the cost basis to find your gain, So suppose you bought $1000 worth of some ETF many years ago. It went up to $2000 and you sold it. You have $2000 in cash, but $1000 of that is your original money back, so your capital gain is $1000 and that is the amount on which you owe (or may owe) taxes. Suppose you pay 15% tax on this, as you suggest; that is $150, leaving you with $1850. Now suppose you buy another ETF with that. Your cost basis is now $1850. Suppose the investment now increases in value again to $2000. This time when you sell, you still have $2000 in cash, but this is now only $150 more than you paid, so you only owe capital gains taxes on that $150. (A 15% tax on that would be $22.50.) In that example you had one capital gain of $1000 and a second of $150 and paid a total of $172.50 in taxes (150 + 22.50). Suppose instead that you had held the original investment and it had increased in value to $2150 and you had then sold it. You would have a single capital gain of $1150 (2150 minus the original 1000 you paid). 15% of this would be the same $172.50 you paid under the other arrangement. So in essence you pay the same taxes either way. (This example is simplified, of course; in reality, the rate you pay depends on your overall income, so you could pay more if you sell a lot in a single year, since it could push you into a higher tax bracket.) So none of the money is \\\"\\\"tax exempt\\\"\\\", but each time you sell, you \\\"\\\"reset the counter\\\"\\\" by paying tax on your gain, and each time you buy, you start a new counter on the basis of whatever you pay for the investment. Assuming you're dealing with ordinary investment instruments like stocks and ETFs, this basis information is typically tracked by the bank or brokerage where you buy and sell them. Technically speaking it is your responsibility to track and report this when you sell an investment, and if you do complicated things like transfer securities from one brokerage to another you may have to do that yourself. In general, however, your bank/brokerage will keep track of cost basis information for you.\\\"\",\n \"You realise a capital gain as soon as you sell the stock. At that point, you will have to pay taxes on the profits when you fill in your tax return. The fact that you used the money to subsequently purchase other stocks is not relevant, unless you sell those stocks within the same tax year. For example, purchase $5000 of stock A in 2010. Sell for $6000 in 2010. Purchase $6000 of stock B in 2010. Sell stock B for $6500 in 2010. Purchase $6500 of stock C in 2010. Sell stock C for $7000 in 2011. You owe capital gains on ($6000 - $5000) + ($6500 - $6000) = $1500 for tax year 2010. You owe capital gains on ($7000 - $6500) = $500 for 2011.\",\n \"\\\"You have a sequence of questions here, so a sequence of answers: If you stopped at the point where you had multiple wins with a net profit of $72, then you would pay regular income tax on that $72. It's a short term capital gain, which does not get special tax treatment, and the fact that you made it on multiple transactions does not matter. When you enter your next transaction that takes the hypothetical loss the question gets more complicated. In either case, you are paying a percentage on net gains. If you took a two year view in the second case and you don't have anything to offset your loss in the second year, then I guess you could say that you paid more tax than you won in the total sequence of trades over the two years. Although you picked a sequence of trades where it does not appear to play, if you're going to pursue this type of strategy then you are likely at some point to run into a case where the \\\"\\\"wash sale\\\"\\\" rules apply, so you should be aware of that. You can find information on this elsewhere on this site and also, for example, here: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02 Basically these rules require you to defer recording a loss under some circumstances where you have rapid wins and losses on \\\"\\\"substantially identical\\\"\\\" securities. EDIT A slight correction, you can take part of your losses in the second year even if you have no off-setting gain. From the IRS: If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately)\\\"\",\n \"If you have made $33k from winning trades and lost $30k from loosing trades your net gain for the year would be $3k, so obviously you would pay taxes only on the net $3k gains.\",\n \"Purchasing stock doesn't affect your immediate taxes any more than purchasing anything else, unless you purchase it through a traditional 401k or some other pre-tax vehicle. Selling stock has tax effects; that's when you have a gain or loss to report.\",\n \"\\\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed at 25%, plus a 10% penalty, for 35% total. Thus the bite on the IRA withdrawal is larger than that on a non-IRA withdrawal. As for the estimated tax issue, I don't think there will be a significant difference there. The reason is that (traditional) IRA withdrawals count as ordinary taxable income (see here). This means that, when you withdraw the funds from your IRA, you will increase your income. If that increase pushes you too far beyond what your withholding is accounting for, then you owe estimated tax. In other words, whether you get the money by selling stocks in a taxable account or by withdrawing them from an IRA, you still increase your taxable income, and thus potentially expose yourself to the estimated tax obligation. (In fact, there may be a difference. As you note, you will pay tax at the capital gains rate on gains from selling in a taxable account. But if you sell the stocks inside the IRA and withdraw, that is ordinary income. However, since ordinary income is taxed at a higher rate than long-term capital gains, you will potentially pay more tax on the IRA withdrawal, since it will be taxed at the higher rate, if your gains are long-term rather than short term. This is doubly true if you withdraw early, incurring the extra 10% penalty. See this question for some more discussion of this issue.) In addition, I think you may be somewhat misunderstanding the nature of estimated tax. The IRS will not \\\"\\\"ask\\\"\\\" you for a quarterly estimated tax when you sell stock. The IRS does not monitor your activity and send you a bill each quarter. They may indeed check whether your reported income jibes with info they received from your bank, etc., but they'll still do that regardless of whether you got that income by selling in a taxable account or withdrawing money from an IRA, because both of those increase your taxable income. Quarterly estimated tax is not an extra tax; it is just you paying your normal income tax over the course of the year instead of all at once. If your withholdings will not cover enough of your tax liability, you must figure that out yourself and pay the estimated tax (see here); if you don't do so, you may be assessed a penalty. It doesn't matter how you got the money; if your taxable income is too high relative to your withheld tax, then you have to pay the estimated tax. Typically tax will be withheld from your IRA distribution, but if it's not withheld, you'll still owe it as estimated tax.\\\"\",\n \"Generally speaking, each year, mutual funds distribute to their shareholders the dividends that are earned by the stocks that they hold and also the net capital gains that they make when they sell stocks that they hold. If they did not do so, the money would be income to the fund and the fund would have to pay taxes on the amount not distributed. (On the other hand, net capital losses are held by the fund and carried forward to later years to offset future capital gains). You pay taxes on the amounts of the distributions declared by the fund. Whether the fund sold a particular stock for a loss or a gain (and if so, how much) is not the issue; what the fund declares as its distribution is. This is why it is not a good idea to buy a mutual fund just before it makes a distribution; your share price drops by the per-share amount of the distribution, and you have to pay taxes on the distribution.\",\n \"Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity.\",\n \"In response to your points #1 and #2: In general, yes it is true that capital gains are only subject to half one's marginal rate of income tax. That doesn't mean 50% of the gain is due as tax... rather, it means that if one's marginal tax rate (tax bracket) on the next $10K would have been, say, 32%, then one is taxed on the gain at 16%. (The percentages are examples, not factual.) However, because these are employee stock options, the tax treatment is different than for a capital gain! Details: On the Federal tax return are lines for reporting Security option benefits (Line 101) and Security options deductions (Line 249). The distinction between a regular capital gain and an employee stock option benefits is important. In many cases the net effect may be the same as a capital gain, but the income is characterized differently and there are cases where it matters. Somebody who is about to or has realized employee stock option benefits should seek professional tax advice. In response to your next two points: No, one cannot transfer a capital gain or other investment income into a TFSA immediately after-the-fact in order to receive the tax-free benefits of the TFSA on that income. Only income and gains earned within a TFSA are free from tax – i.e. The options would have to have been in the TFSA before being exercised. Once a gain or other investment income has been realized in a non-sheltered account, it is considered taxable. The horse has already left the barn, so to speak! However, despite the above, there is another strategy available: One can create an offsetting deduction by contributing some of the realized gain into an RRSP. The RRSP contribution, assuming room is available, would yield a tax deduction to offset some tax due on the gain. However, the RRSP only defers income tax; upon withdrawal of funds, ordinary income tax is due (hopefully, at a lower marginal rate in retirement.) There is no minimum amount of time that money or assets have to be inside a TFSA to benefit from the tax-free nature of the account. However, there are limits on how much money you can move into a TFSA in any given year, and many folks weren't aware of the rules. p.s. Let me add once more that this is a case where I suggest seeking professional tax advice.\",\n \"The answer to your question doesn't depend on who you trade with but what country you live in. If you live outside of the US, you will have to pay tax on dividends... sometimes. This depends on the tax treaty that your country has with the US. Canada, Australia, UK and a few other countries have favorable tax treaties with the US that allow you to not be double taxed. You must look into the tax treaty that your home country has with the US to answer the question. Each country is different.\",\n \"In the United States Short-term capital gains are taxed at rates similar to regular income which is 25% if you make less than $91,000 and 28% if you make more than that but less than $190,000. If you make more than $190,000 then the rate is 33%. If you hold the stock for a year or more than the tax rate is 15%, unless your income is less than $33,000 in which case there is no tax on long-term gains. As a general rule, the way to make money is to stay out of debt, so I cannot advise you to assume a mortgage. Financially you are better off investing your money. Much like you I bought a house with a mortgage using about $30,000 in a down payment about 20 years ago and I paid it off a few years ago. If I had to do it over again, I would have bought a shack (a steel building) for $30,000 and lived in that and invested my income. If I had done that, I would be about $500,000 richer today than I am now.\",\n \"This depends on a lot actually - with the overall being your goals and how much you like risk. Question: What are your fees/commissions for selling? $8.95/trade will wipe out some gains on those trades. (.69% if all are sold with $8.95 commission - not including the commission payed when purchased that should be factored into the cost basis) Also, I would recommend doing commission free ETFs. You can get the same affect as a mutual fund without the fees associated with paying someone to invest in ETFs and stocks. On another note: Your portfolio looks rather risky. Although everyone has their own risk preference so this might be yours but if you are thinking about a mutual fund instead of individual stocks you probably are risk averse. I would suggest consulting with an adviser on how to set up for the future. Financial advice is free flowing from your local barber, dentist, and of course StackExchange but I would look towards a professional. Disclaimer: These are my thoughts and opinions only ;) Feel free to add comments below.\",\n \"Generally stock trades will require an additional Capital Gains and Losses form included with a 1040, known as Schedule D (summary) and Schedule D-1 (itemized). That year I believe the maximum declarable Capital loss was $3000--the rest could carry over to future years. The purchase date/year only matters insofar as to rank the lot as short term or long term(a position held 365 days or longer), short term typically but depends on actual asset taxed then at 25%, long term 15%. The year a position was closed(eg. sold) tells you which year's filing it belongs in. The tiny $16.08 interest earned probably goes into Schedule B, typically a short form. The IRS actually has a hotline 800-829-1040 (Individuals) for quick questions such as advising which previous-year filing forms they'd expect from you. Be sure to explain the custodial situation and that it all recently came to your awareness etc. Disclaimer: I am no specialist. You'd need to verify everything I wrote; it was just from personal experience with the IRS and taxes.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \"\"otherwise\"\" is substantial and far-ranging.\"","\"No, not really. This depends on the situation and the taxing jurisdiction. Different countries have different laws, and some countries have different laws for different situations. For example, in the US, some investments will be taxed as you described, others will be taxed as \"\"mark to market\"\", i.e.: based on the FMV difference between the end of the year and the beginning of the year, and without you actually making any transactions. Depends on the situation.\"","If you receive dividends on an investment, those are taxed.","I think the answer you are looking for is: You are not taxed on the original basis (purchase cost) of your investment. If you pay $30 a share, and sell at $35, the $5 per share gain is taxable at time of sale. But the $30 basis cost doesn't enter into tax calculations at all. (So it's important to keep good records on your investments and how much you paid for them at purchase.)"],"string":"[\n \"\\\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \\\"\\\"otherwise\\\"\\\" is substantial and far-ranging.\\\"\",\n \"\\\"No, not really. This depends on the situation and the taxing jurisdiction. Different countries have different laws, and some countries have different laws for different situations. For example, in the US, some investments will be taxed as you described, others will be taxed as \\\"\\\"mark to market\\\"\\\", i.e.: based on the FMV difference between the end of the year and the beginning of the year, and without you actually making any transactions. Depends on the situation.\\\"\",\n \"If you receive dividends on an investment, those are taxed.\",\n \"I think the answer you are looking for is: You are not taxed on the original basis (purchase cost) of your investment. If you pay $30 a share, and sell at $35, the $5 per share gain is taxable at time of sale. But the $30 basis cost doesn't enter into tax calculations at all. (So it's important to keep good records on your investments and how much you paid for them at purchase.)\"\n]","isConversational":false}}},{"rowIdx":288,"cells":{"_id":{"kind":"string","value":"9108"},"query":{"kind":"string","value":"Starting an investment portfolio with Rs 5,000/-"},"gt_ids":{"kind":"list like","value":["272021","472585"],"string":"[\n \"272021\",\n \"472585\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["290757","323067","581712","65006","281865","175139","272021","46967","531965","183497","240351","452760","171189","356552","208165","593475","551627","152286","307424","93073","224816","596537","312821","384893","298985","412785","537711","469141","78893","102119","45970","488651","231246","548467","172913","55513","591909","52941","215799","246531","576688","397383","51848","239459","474296","129255","425293","336218","465819","390972","436622","8861","571218","376485","398278","310935","436120","68270","161445","365675","122679","479697","231195","579901","400196","269384","413856","505993","460457","183722","97836","325808","424061","45174","451782","100341","176335","332064","580313","35971","125477","153231","415432","235917","241996","274833","525089","95282","585269","59394","272174","586632","158426","397976","358154","41357","531005","338707","497344","379546"],"string":"[\n \"290757\",\n \"323067\",\n \"581712\",\n \"65006\",\n \"281865\",\n \"175139\",\n \"272021\",\n \"46967\",\n \"531965\",\n \"183497\",\n \"240351\",\n \"452760\",\n \"171189\",\n \"356552\",\n \"208165\",\n \"593475\",\n \"551627\",\n \"152286\",\n \"307424\",\n \"93073\",\n \"224816\",\n \"596537\",\n \"312821\",\n \"384893\",\n \"298985\",\n \"412785\",\n \"537711\",\n \"469141\",\n \"78893\",\n \"102119\",\n \"45970\",\n \"488651\",\n \"231246\",\n \"548467\",\n \"172913\",\n \"55513\",\n \"591909\",\n \"52941\",\n \"215799\",\n \"246531\",\n \"576688\",\n \"397383\",\n \"51848\",\n \"239459\",\n \"474296\",\n \"129255\",\n \"425293\",\n \"336218\",\n \"465819\",\n \"390972\",\n \"436622\",\n \"8861\",\n \"571218\",\n \"376485\",\n \"398278\",\n \"310935\",\n \"436120\",\n \"68270\",\n \"161445\",\n \"365675\",\n \"122679\",\n \"479697\",\n \"231195\",\n \"579901\",\n \"400196\",\n \"269384\",\n \"413856\",\n \"505993\",\n \"460457\",\n \"183722\",\n \"97836\",\n \"325808\",\n \"424061\",\n \"45174\",\n \"451782\",\n \"100341\",\n \"176335\",\n \"332064\",\n \"580313\",\n \"35971\",\n \"125477\",\n \"153231\",\n \"415432\",\n \"235917\",\n \"241996\",\n \"274833\",\n \"525089\",\n \"95282\",\n \"585269\",\n \"59394\",\n \"272174\",\n \"586632\",\n \"158426\",\n \"397976\",\n \"358154\",\n \"41357\",\n \"531005\",\n \"338707\",\n \"497344\",\n \"379546\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Rs 10,000 is a small but good amount to begin with. I would suggest you start by investing in some good mutual funds. Do some research, a balance mutual fund is less risky less returns compared to a equity mutual fund. The other option is directly investing in stock market, however this needs some experience and you would need to open demat and trading accounts that would cost money to open and maintain.","As a matter of fact, I invest small sums in stable stocks every month (in fact, much lesser than the $50 you are talking about). More than the return on investment, I gained a lot of knowledge keeping track of my stocks and this now helps me pick my stocks better. And the portfolio is doing great too. So, it is a good idea to start small and invest regularly.","I am going to assume that this is going to be a long term investment and you don't need this money before 5-6years at the very least. My advise would be to invest in one of the following funds : IDFC Premier equity fund growth plan (Direct) (Only SIP allowed right now) ICICI Discovery fund growth plan (Direct) DSP microcap fund growth plan (Direct) In case you do not want to be invested in small and mid cap and want a little less volatility then my first choice for that would be : Quantum long term equity fund dividend plan Whatever you go for make sure you go directly with the fund house and not through a broker as you end up getting charged an extra .63% extra as opposed to going direct and you will also be paying for a demat account which can be avoided if you invest directly with a fund house. Out of the above mentioned funds Quantum has the lowest expense ratio of 1.25% and it is a huge benefit if you are talking 10+ years because it makes a lot of difference. Source : My own research and experience as an investor.","There are quite a few options. Suggest you put a mix of things and begin investing into Mutual Funds.","On reading couple of articles & some research over internet, I got to know about diversified investment where one should invest 70% in equity related & rest 30% in debt related funds Yes that is about right. Although the recommendation keeps varying a bit. However your first investment should not aim for diversification. Putting small amounts in multiple mutual funds may create paper work and tracking issues. My suggestion would be to start with an Index EFT or Large cap. Then move to balanced funds and mid caps etc. On this site we don't advise on specific funds. You can refer to moneycontrol.com or economictimes or quite a few other personal finance advisory sites to understand the top funds in the segments and decide on funds accordingly. PS: Rather than buying paper, buy it electronic, better you can now buy it as Demat. If you already have an Demat account it would be best to buy through it.","The best way to invest 50k Indian rupees is in a 5 Year NSC(National Saving Certificate which can be obtained at the Post Office) yielding interest 8.1% p.a. (at present), which is more than the effective FDR interest rate offered by any bank in India. Investment in an NSC also permits a deduction u/s 80C of the Income Tax Act, 1961. So, investing in an NSC will save tax and get a higher return/benefit for your investment.","Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy. Let's say you have ₹15,000 to start with. Split this in to three components: Purchase all of the above at the same time. 30 days later, you will have the first FD mature. If you need this money, you use it. If you don't need it, purchase another 90-day fixed deposit. If you keep going this way, you will have a deposit mature every 30 days and can choose to use it or renew the fixed deposit. This strategy has some disadvantages to consider: As for interest rates, the length of the fixed deposit in positively related to the interest rate. If you want higher interest rates, elect for longer fixed deposit cycles.For instance, when you become more confident about your financial situation, replace the 30, 60, 90 day cycle with a 6, 12, 18 month cycle The cost of maintaining the short term deposit renewals and new purchases. If your bank does not allow such transactions through on line banking, you might spend more time than you like at a bank or on the phone with the bank You want a monthly dividend but this might not be the case with fixed deposits. It depends on your bank but I believe most Indian banks pay interest every three months","I would suggest you to put your money in an FD for a year, and as soon as you get paid the interest, start investing that interest in a SIP(Systematic investment plan). This is your safest option but it will not give you a lot of returns. But I can guarantee that you will not lose your capital(Unless the economy fails as a whole, which is unlikely). For example: - you have 500000 rupees. If you put it in a fixed deposit for 1 year, you earn 46500 in interest(At 9% compounded quarterly). With this interest you can invest Rs.3875(46500/12) every month in an SIP for 12 months and also renew your FD, so that you can keep earning that interest.So at the end of 10 years, you will have 5 lacs in your FD and Rs. 4,18,500 in your SIP(Good funds usually make 13-16 % a year). Assuming your fund gives you 14%, you make: - 1.) 46500 at 14% for 9 years - 1,51,215 2.)8 years - 1,32,645 3.) 7 years - 1,16,355 4.) 6 years - 1,02,066 5.) 5 years - 89,531 6.) 4 years - 78,536 7.) 3 years - 68891 8.) 2 years 60,431 9.) 1 year - 53010 Total Maturity Value on SIP = Rs, 8,52,680 Principal on FD = Rs 5,00,000 Interest earned on 10th year = Rs. 46,500 Total = Rs. 13,99,180(14 lacs). Please note: - Interest rates and rate of return on funds may vary. This figure can only be assumed if these rates stay the same.:). Cheers!","First, as Dheer mentioned above, there is no right answer as investment avenues for a person is dicteted by many subjective considerations. Given that below a few of my thoughts (strictly thoughts): 1) Have a plan for how much money you would need in next 5-7 years, one hint is, do you plan you buy a house, car, get married ... Try to project this requirement 2) Related to the above, if you have some idea on point 1, then it would be possible for you to determine how much you need to save now to achieve the above (possibly with a loan thrown in). It will also give you some indication as to where and how much of your current cash holding that you should invest now 3) From an investment perspective there are many instruments, some more risky some less. The exact mix of instruments that you should consider is based on many things, one among them is your risk apetite and fund requirement projections 4) Usually (not as a rule of thumb) the % of savings corresponding to your age should go into low risk investments and 100-the % into higher risk investment 5) You could talk to some professional invetment planners, all banks offer the service Hope this helps, I reiterate as Dheer did, there is truely no right answer for your question all the answers would be rather contextual.","Buy only 'Direct' Plans, not regular. - Demat providers won't sell Direct plans, that you can do it through https://www.mfuindia.com Make sure expense ratio < 2.5% (With direct plans it will be much lesser) I hope these points will help you to take a better decision.","Just to clarify Short Team Goals & Long Term Goals... Long Term goals are for something in future, your retirement fund, Children’s education etc. Short Term goals are something in the near future, your down payment for car, house, and holiday being planned. First have both the long and short terms goals defined. Of Couse you would need to review both these goals on a ongoing basis... To meet the short term goals you would need to make short term investments. Having arrived at a short term goal value, you would now need to make a decision as to how much risk you are willing [also how much is required to take] to take in order to meet your goal. For example if you goal is to save Rs 100,000 by yearend for the car, and you can easily set aside Rs 8,000 every month, you don't really need to take a risk. A simple Term / Fixed Deposit would suffice you to meet your goal. On the other hand if you can only save Rs 6,000 a year, then you would need to invest this into something that would return you around 35%. You would now need to take a risk. Stocks market is one option, there are multiple types of trades [day trades, shorts, options, regular trades] that one can do ... however the risk can wipe out even your capital. As you don't know these types of investments, suggest you start with dummy investing using quite a few free websites, MoneyControl is one such site, you get pseudo money and can buy sell and see how things actually move. This should teach you something about making quick gains or losses without actually gaining or loosing real money. Once you reach some confidence level, you can start trading using real money by opening a trading account almost every other bank in India offers online trading linked to bank account. Never lose sight of risk appetite, and revise if every now and then. When you don't have dependents, you can easily risk money for potential bumper, however after you have other commitments, you may want to tone down... Edit: http://moneybhai.moneycontrol.com/moneybhai-rules.html is one such site, there are quite a few others as well that offer you to trade on virtual money. Try this for few months and you will understand whether you are making right decissions or not.","\"Best way to invest around 50k Indian rupees and save Tax There is nothing \"\"Best\"\". There are multiple options that are available under 80C and you need to select one that suites you best. There are market linked options like ELSS, or assured returns like 6 years FD, or PPF or Term Insurance or other such options.\"","\"Say you have $15,000 of capital to invest. You want to put the majority of your capital into low risk investments that will yield positive gains over the course of your working career. $5,000: Government bonds and mutual funds, split how you want. $9,500: Low risk, trusted companies with positive historical growth. If the stock market is very unfamiliar for you, I recommend Google Finance, Yahoo Finance, and Zack's to learn about smart investments you can make. You can also research the investments that hedge fund managers and top investors are making. Google \"\"Warren Buffett or Carl Icahn portfolio\"\", and this will give you an idea of stocks you can put your money into. Do not leave your money into a certain company for more than 25 years. Rebalance your portfolio and take the gains when you feel you need them. You have no idea when to take your profits now, but 5 years from now, you will be a smart and experienced investor. A safe investment strategy to start is to put your money into an ETF that mimics the S&P 500. Over the past 20 years, the S&P 500 has yielded gains of about 270%. During the financial crisis a few years back, the S&P 500 had lost over 50% of its value when it reached its low point. However, from when it hit rock bottom in 2009, it has had as high percentage gains in six years as it did in 12 years from 1995 to 2007, which about 200%. The market is very strong and will treat your money well if you invest wisely. $500: Medium - High risk Speculative Stocks There is a reason this category accounts for only approximately 3% of your portfolio. This may take some research on the weekend, but the returns that may result can be extraordinary. Speculative companies are often innovative, low priced stocks that see high volatility, gains or losses of more than 10% over a single month. The likelihood of your $500 investment being completely evaporated is very slim, but if you lose $300 here, the thousands invested in the S&P 500, low risk stocks, government bonds, and mutual funds will more than recuperate the losses. If your pick is a winner, however, expect that the $500 investment could easily double, triple, or gain even more in a single year or over the course of just a few, perhaps, 2-4 years will see a very large return. I hope this advice helps and happy investing! Sending your money to smart investments is the key to financial security, freedom, and later, a comfortable retirement. Good luck, Matt McLaughlin\"","I have been on the same boat as you are right now. So basically, it depends on your goals, risk tolerance, upcoming life events! You want a plan not just for this particular 50K, but for your household assets and future earnings to come! My suggestion: Get a flat fee, online financial advisor to do the work for you. You don’t have to figure this out by yourself. Personally, I would invest in a portfolio that: Offers dynamic asset allocation plans that evolves over time based on changing market conditions. Offers a healthy mix of beta and alpha strategies along with the liquidity and ability to monitor activity online. Has structural risk management in place. Risk management is as much about increasing risk as it is about cutting risk. Therefore, you want a plan for de-allocating and re-allocating risk Hope this helps.","50 (dollars, Euros?) is a very small amount to invest. The first time I ever bought stock I picked a winner. It went up by about 40% in the first few months. I sold it and lost money. How? I only bought 10 shares at $7.50 each. The profit was less than the two commissions for buying and selling (about $17 a piece). If you are thinking of buying individual stocks, You simply need to save up more money before it will be practical. If you are not trying to beat the market, which is probably not something an amateur like you or I should attempt, then you should consider low cost index funds. I have money in mutual funds, some of which, have as low as a $100 minimum investment. I have moved entirely away from picking stocks. It was a good experience and I could afford to lose the money, but as a long term strategy, it just was not working for me. Note: This is coming from an American. If this somehow does not apply in Europe...","There are more than a few ideas here. Assuming you are in the U.S., here are a few approaches: First, DRIPs: Dividend Reinvestment Plans. DRIP Investing: How To Actually Invest Only A Hundred Dollars Per Month notes: I have received many requests from readers that want to invest in individual stocks, but only have the available funds to put aside $50 to $100 into a particular company. For these investors, keeping costs to a minimum is absolutely crucial. I have often made allusions and references to DRIP Investing, but I have never offered an explanation as to how to logistically set up DRIP accounts. Today, I will attempt to do that. A second option, Sharebuilder, is a broker that will allow for fractional shares. A third option are mutual funds. Though, these often will have minimums but may be waived in some cases if you sign up with an automatic investment plan. List of mutual fund companies to research. Something else to consider here is what kind of account do you want to have? There can be accounts for specific purposes like education, e.g. a college or university fund, or a retirement plan. 529 Plans exist for college savings that may be worth noting so be aware of which kinds of accounts may make sense for what you want here.","I think I have a better answer for this since I have been an investor in the stock markets since a decade and most of my money is either made through investing or trading the financial markets. Yes you can start investing with as low as 50 GBP or even less. If you are talking about stocks there is no restriction on the amount of shares you can purchase the price of which can be as low as a penny. I stared investing in stocks when I was 18. With the money saved from my pocket money which was not much. But I made investments on a regular period no matter how less I could but I would make regular investments on a long term. Remember one thing, never trade stock markets always invest in it on a long term. The stock markets will give you the best return on a long term as shown on the graph below and will also save you money on commission the broker charge on every transaction. The brokers to make money for themselves will ask you to trade stocks on short term but stock market were always made to invest on a long term as Warren Buffet rightly says. And if you want to trade try commodities or forex. Forex brokers will offer you accounts with as low as 25 USD with no commissions. The commission here are all inclusive in spreads. Is this true? Can the average Joe become involved? Yes anyone who wants has an interest in the financial markets can get involved. Knowledge is the key not money. Is it worth investing £50 here and there? Or is that a laughable idea? 50 GBP is a lot. I started with a few Indian Rupees. If people laugh let them laugh. Only morons who don't understand the true concept of financial markets laugh. There are fees/rules involved, is it worth the effort if you just want to see? The problem with today's generation of people is that they fear a lot. Unless you crawl you dont walk. Unless you try something you dont learn. The only difference between a successful person and a not successful person is his ability to try, fail/fall, get back on feet, again try untill he succeeds. I know its not instant money, but I'd like to get a few shares here and there, to follow the news and see how companies do. I hear that BRIC (brasil, russia, india and china) is a good share to invest in Brazil India the good thing is share prices are relatively low even the commissions. Mostly ROI (return on investment) on a long term would almost be the same. Can anyone share their experiences? (maybe best for community wiki?) Always up for sharing. Please ask questions no matter how stupid they are. I love people who ask for when I started I asked and people were generous enough to answer and so would I be.","I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.","There's a few options you may want to look into. First, I'm writing from an US point of view, I do not know if these are available in Russia. First look into DRIPS (Dividend Reinvestment Plans). These seem tailor made for your request. They are plans set up by companies that pay dividends. If you own at least one share (costing no more than say $100 often less), then these companies will take the dividends paid on these shares and automatically buy more shares as the income from the dividends pile up. This is a low cost of entry way of getting in on many high quality stocks. Stalwart stocks such as GE and many utility and real estate stocks (REITs) offer this. Check out these links: Secondly you can look at brokerages that specialize in buying smaller amount of stocks on a regular basis to simulate a DRIP, ShareBuilder will allow you to invest say $50 or $100 a month into one or more stocks. However, at smaller amounts, their commission fees can eat in to your returns. Folio investing does the same thing as Sharebuilder. It's worth looking at them both and comparing their commissions and other features","You can invest more that 20,000 in Infrastructure bonds, however the tax benefit is only on 20,000. Further the interest earned is taxable. The best guaranteed post tax returns is on PPF. So invest a substantial sum in this. As your age group low you can afford to take risk and hence could also look at investing in ELSS [Mutual Fund]. A note on each of these investments: LIC: If you have taken any of the endowment / Money Back plan, remember the returns are very low around 5-6%. It would make more sense to buy a pure term plan at fraction of the cost and invest the remaining premium into even PPF or FD that would give you more return. NSC/Postal Savings: They are a good option, however the interest is taxable. There is a locking of 6 years. PPF: The locking is large 15 years although one can do partial withdrawals after 7 years. The interest is not taxable. ULIP: These are market linked plans with Insurance and balance invested into markets. The charges for initial few years is quite high, plus the returns are not comparable to the normal Mutual Funds. Invest in this only if one needs less paper and doesn't want to track things separately. ELSS/Mutual Fund: These offer good market returns, but there is a risk of market. As you are young you can afford to take the risk. Most of the ELSS have given average results that are still higher than FD or PPF. Pension Plan: This is a good way to accumulate for retirement. Invest some small amount in this and do not take any insurance on it. Go for pure equity as you can still take the risk. This ensures that you have a kit for retirement. Check out the terms and conditions as to how you need to purchase annuity at the term end etc.","Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.","I think small sums invested regularly over long-term can do good for you, things to consider: I would go with an index fund and contribute there there regularly.","\"Everything that I'm saying presumes that you're young, and won't need your money back for 20+ years, and that you're going to invest additional money in the future. Your first investments should never be individual stocks. That is far too risky until you have a LOT more experience in the market. (Once you absolutely can't resist, keep it to under 5% of your total investments. That lets you experiment without damaging your returns too much.) Instead you would want to invest in one or more mutual funds of some sort, which spreads out your investment across MANY companies. With only $50, avoiding a trading commission is paramount. If you were in the US, I would recommend opening a free online brokerage account and then purchasing a no-load commission-free mutual fund. TD Ameritrade, for example, publishes a list of the funds that you can purchase without commission. The lists generally include the type of fund (index, growth, value, etc.) and its record of return. I don't know if Europe has the same kind of discount brokerages / mutual funds the US has, but I'd be a little surprised if it didn't. You may or may not be able to invest until you first scrape together a $500 minimum, but the brokerages often have special programs/accounts for people just starting out. It should be possible to ask. One more thing on picking a fund: most charge about a 1% annual expense ratio. (That means that a $100 investment that had a 100% gain after one year would net you $198 instead of $200, because 1% of the value of your asset ($200) is $2. The math is much more complicated, and depends on the value of your investment at every given point during the year, but that's the basic idea.) HOWEVER, there are index funds that track \"\"the market\"\" automatically, and they can have MUCH lower expense fees (0.05%, vs 1%) for the same quality of performance. Over 40 years, the expense ratio can have a surprisingly large impact on your net return, even 20% or more! You'll want to google separately about the right way to pick a low-expense index fund. Your online brokerage may also be able to help. Finally, ask friends or family what mutual funds they've invested in, how they chose those funds, and what their experience has been. The point is not to have them tell you what to do, but for you to learn from the mistakes and successes of other experienced investors with whom you can follow up.\"","The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.","\"Is this amount an adequate starting amount to begin investing with? Yes. You can open an account at a brokerage with this amount. I'm not sure I would invest in individual stocks at this point. Which services should I use to start buying shares? (Currently my bank offers this service but I'm willing to use other sources) I can't make UK-specific recommendations, but I'd compare your bank's fees to those of a discount broker -- as well as the variety and level of service available. I would like to regularly increase the amount invested in shares. Is it worth doing this in say £200 increments? Take a look at the fees associated with each investment. Divide the fee by the increment to see what percent you'll lose to fees/commissions. Keep in mind that you have to gain more than that percentage to start earning a positive return on your investment. If you have access to fee-free automatic mutual fund investments, and you can commit to the £200 amount on a regular basis going forward, then this can be a completely free way of making these incremental investments. See also this answer on dollar cost averaging, and my comment on the other answer on that question for how fees impact returns. When buying shares should I focus on say two or three companies, or diversify more? I would diversify into two or three different index funds. Read up on asset allocation. For example, you might invest 1/3 of your balance into S&P 500 index fund, bond index fund, and MSCI EAFE index fund (but that's just a rough example, and not necessarily good for you). I highly recommend \"\"The Intelligent Asset Allocator\"\" by William Bernstein for excellent info on diversification and asset allocation.\"","One year is short term -- short enough that trying to predict returns is a crap shoot. Frankly, if you will need the money in one year I wouldn't touch anything riskier than a money market account. $5000 also isn't enough to give you much flexibility in achieving a balanced portfolio, since the minimal initial purchase for mutual funds is often around $2500. (I'm not sure whether ETFs would give you any more flexibility.) So on grounds of both size and time horizon, I have to recommend against this plan. The risk of losing money, with insufficient time for gains to balance that risk, is simply too high. Others may feel differently, of course. But that's the best advice I can offer.","\"Before going into specific investments, I think it would be a good idea to assess how \"\"free\"\" is that $5000. How much do you have to rely on it in emergency? You always want to buy low and sell high. However, if you need to make unplanned withdraw from an investment, you risk unfavorable market conditions at the time when you need the money, and lose money that way. One common suggestion is to keep 3-6 months living expense in checking/saving/very, very liquid/short term investments. After that, you can invest the rest in more profitable ventures. Assuming that you are all set in that regard, next consideration is whether you have any goal for the money besides generating the maximum return. Is this for retirement, buying a house/apartment a few year down the road, graduate school, emergency cash store for the time between graduation and getting a job, or traveling a year in Europe after graduation? There are myriad of other possible goals. Knowing that you get a better idea of the time frame involved in the investment, and what you need to do with your money. If this is for retirement, you just need to generate the highest possible return for 40-50 years, while minimize taxes when you have to withdraw that money (there are more nuanced concerns, but large idea-wise that's what you need to do). If you want it for a trip to an exotic location in 2 year, then your primary goal will be to preserve the value of your capital, while assessing whether you need to manage foreign-exchange risk. The time frame also rule in or rule out certain types of investments. If you are planning to use the money to purchase a house in 5 years, IRAs probably would not be what you are looking for. If you are planning to retirement, short term CD would not be the most effective way. After figuring out a bit of what you are trying to do with the money, I think how you want to invest it will be much more clear to you. In case of retirement, people seem to generally recommend no load index funds, and mid-cap growth funds. Nothing is really off the table, since your investment time frame is so long, and you can tolerate risk. You might also be interested to check out https://www.wealthfront.com/ (I have no relation with them). A friend recommended it to me, and I think their pitch make sense. In other cases, it really is case dependent, and there might have more than one solution to any case. There is just one more potential investment venture that people you might not immediately thinking of, and that might be of interest to you. That is to use the $5000 as your own budget to build/maintain connections with people and network. Use it to take professors out to a meal to pick their brain, travel to keep in touch with old friends, network with potential future employers and peers to improve job prospect, or get opportunities to meet interesting people. I hope this helps.\"","When you are starting out using a balanced fund can be quite advantageous. A balanced fund is represents a diversified portfolio in single fund. The primary advantage of using a balanced fund is that with it being a single fund it is easier to meet the initial investment minimum. Later once you have enough to transition to a portfolio of diversified funds you would sell the fund and buy the portfolio. With a custom portfolio, you will be better able to target your risk level and you might also be able to use lower cost funds. The other item to check is do any of the funds that you might be interested in for the diversified portfolio have lower initial investment option if you can commit to adding money on a specified basis (assuming that you are able to). Also there might be an ETF version of a mutual fund and for those the initial investment amount is just the share price. The one thing to be aware of is make sure that you can buy enough shares that you can rebalance (holding a single share makes it hard to sell some gain when rebalancing). I would stay away from individual stocks until you have a much larger portfolio, assuming that you want to invest with a diversified portfolio. The reason being that it takes a lot more money to create a diversified portfolio out of individual stocks since you have to buy whole shares. With a mutual fund or ETF, your underlying ownership of can be fractional with no issue as each fund share is going to map into a fraction of the various companies held and with mutual funds you can buy fractional shares of the fund itself.","Contrary to most other advise given here, I'd recommend (in your situation) not to invest in stock (yet). There are some 'hidden' cost to investing that will eat your profit and in the end, that's why you are investing. Banks will charge for buying, selling and maintaining stock as well as for cashing dividends. Depending on which bank or intermediary these costs will rise. So, my advise is to start playing with stock creating a virtual portfolio and track that. Just as duffbeer says, start saving. Also look at my answer here.","Compound interest is your friend. For such a low amount of cash, just pop it into savings accounts or deposits. When you reach about 1.500€ buy one very defensive stock that pays high dividends. With deposits, you don't risk anything, with one stock, you can lose 100% of the investment. That's why it's important to buy defensive stock (food, pharma, ...). Every time you hit 1.500€ after, buy another stock until you have about 10 different stock in different sectors, in different countries. Then buy more stock of the ones you have in portfolio. You're own strategy is pretty good also.","\"Index funds can be a very good way to get into the stock market. It's a lot easier, and cheaper, to buy a few shares of an index fund than it is to buy a few shares in hundreds of different companies. An index fund will also generally charge lower fees than an \"\"actively managed\"\" mutual fund, where the manager tries to pick which stocks to invest for you. While the actively managed fund might give you better returns (by investing in good companies instead of every company in the index) that doesn't always work out, and the fees can eat away at that advantage. (Stocks, on average, are expected to yield an annual return of 4%, after inflation. Consider that when you see an expense ratio of 1%. Index funds should charge you more like 0.1%-0.3% or so, possibly more if it's an exotic index.) The question is what sort of index you're going to invest in. The Standard and Poor's 500 (S&P 500) is a major index, and if you see someone talking about the performance of a mutual fund or investment strategy, there's a good chance they'll compare it to the return of the S&P 500. Moreover, there are a variety of index funds and exchange-traded funds that offer very good expense ratios (e.g. Vanguard's ETF charges ~0.06%, very cheap!). You can also find some funds which try to get you exposure to the entire world stock market, e.g. Vanguard Total World Stock ETF, NYSE:VT). An index fund is probably the ideal way to start a portfolio - easy, and you get a lot of diversification. Later, when you have more money available, you can consider adding individual stocks or investing in specific sectors or regions. (Someone else suggested Brazil/Russia/Indo-China, or BRICs - having some money invested in that region isn't necessarily a bad idea, but putting all or most of your money in that region would be. If BRICs are more of your portfolio then they are of the world economy, your portfolio isn't balanced. Also, while these countries are experiencing a lot of economic growth, that doesn't always mean that the companies that you own stock in are the ones which will benefit; small businesses and new ventures may make up a significant part of that growth.) Bond funds are useful when you want to diversify your portfolio so that it's not all stocks. There's a bunch of portfolio theory built around asset allocation strategies. The idea is that you should try to maintain a target mix of assets, whatever the market's doing. The basic simplified guideline about investing for retirement says that your portfolio should have (your age)% in bonds (e.g. a 30-year-old should have 30% in bonds, a 50-year-old 50%.) This helps maintain a balance between the volatility of your portfolio (the stock market's ups and downs) and the rate of return: you want to earn money when you can, but when it's almost time to spend it, you don't want a sudden stock market crash to wipe it all out. Bonds help preserve that value (but don't have as nice of a return). The other idea behind asset allocation is that if the market changes - e.g. your stocks go up a lot while your bonds stagnate - you rebalance and buy more bonds. If the stock market subsequently crashes, you move some of your bond money back into stocks. This basically means that you buy low and sell high, just by maintaining your asset allocation. This is generally more reliable than trying to \"\"time the market\"\" and move into an asset class before it goes up (and move out before it goes down). Market-timing is just speculation. You get better returns if you guess right, but you get worse returns if you guess wrong. Commodity funds are useful as another way to diversify your portfolio, and can serve as a little bit of protection in case of crisis or inflation. You can buy gold, silver, platinum and palladium ETFs on the stock exchanges. Having a small amount of money in these funds isn't a bad idea, but commodities can be subject to violent price swings! Moreover, a bar of gold doesn't really earn any money (and owning a share of a precious-metals ETF will incur administrative, storage, and insurance costs to boot). A well-run business does earn money. Assuming you're saving for the long haul (retirement or something several decades off) my suggestion for you would be to start by investing most of your money* in index funds to match the total world stock market (with something like the aforementioned NYSE:VT, for instance), a small portion in bonds, and a smaller portion in commodity funds. (For all the negative stuff I've said about market-timing, it's pretty clear that the bond market is very expensive right now, and so are the commodities!) Then, as you do additional research and determine what sort investments are right for you, add new investment money in the places that you think are appropriate - stock funds, bond funds, commodity funds, individual stocks, sector-specific funds, actively managed mutual funds, et cetera - and try to maintain a reasonable asset allocation. Have fun. *(Most of your investment money. You should have a separate fund for emergencies, and don't invest money in stocks if you know you're going need it within the next few years).\"","It varies. Depending on your brokerage, they may charge you per transaction, so the more transactions, the higher the cost. Though this (from what I've seen), is uncommon with many index funds. In terms of how aggressive you want to be with your investment varies on your comfort with risk, timeline of investment and many other factors beyond the scope of this question. The biggest issue you may need to be aware of is if you are looking at mutual funds, they may have minimum investments. Depending on what that minimum investment is set to, you may not be able to split your $5500 into more than one fund. A lot of this comes down to the specific funds in which your are anticipating investing, as well as the service you use to do so (Fidelity, Vanguard, etc). Ultimately, diversification can be a lot safer, but there are logistics to consider. Personally, I began with a target fund (a mutual fund with adjusted risk based on the estimated year of retirement) and add additional mutual funds, stocks and ETFs as time goes on.","If I were you, I would save 200 euros for retirement each month and another 800 I would stash away with the hope to start investing soon. I think you have to invest a bigger lump sum, then 1000 euros. It makes sense to invest at least 30K to see any tangible results. My acquaintances started from 50K and now see pretty handsome returns. Investing is profitable, as long as you approach it smartly. Also, do not ever hire an overly expensive financial consultant - this expenses will never pay off. Of course, check their credentials and reputation... But never pay much to these guys. Not worth it.","\"1000 (£/$/€) is also not a lot to start with. Assuming you want to buy stocks or ETFs you will be paying fees on both ends. Even with online brokerages you are looking at 7.95 (£/$/€) a trade. That of course translates to a min of .795% x 2 = 1.59% increase in value you would need just to break even already. There is a way around some of this as a lot of the brokerages do not charge fees for their ETFs or their affiliated ones. However, I would try to hold out till at least $5000 before investing in assets such as stocks. In the meantime there are many great books out there to \"\"invest in knowledge\"\".\"","What is the best form of investment? It only depends on your goals... The perfect amount of money depends also on your particular situation. The first thing you should start getting familiar with is the notion of portfolio and diversification. Managing risk is also fundamental especially with the current market funkiness... Start looking at index based ETFs -Exchange Traded Funds- and Balanced Mutual Funds to begin with. Many discounted online brokerage companies in the USA offer good training and knowledge centers. Some of them will also let you practice with a demo account that let you invest virtual money to make you feel comfortable with the interface and also with investing in general.","Conventional wisdom says (100-age) percentage of your saving should go to Equity and (age) percentage should go to debt. My advice to you is to invest (100-age) into index fund through SIP and rest in FD. You can re-balance your investment once a year. Stock picking is very risky. And so is market timing. Of cource you can change the 100 into a other number according to your risk tolerance.","As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.","It is difficult to actually 'answer' your (or any other) investment question as investment outlook and objectives are different from one individual to another. I shall put down some of my thoughts and probably you shall be able to factor them in while you take your decision. As for your last paragraph, in general from investment perspective, the younger you are more kisk you can take and bond gives a stable base to a portfolio. One good way to estimate the proportionality of bond:stock is (your age):(100-your age). However for 2-3 years you could ignore the above and invest in good quality stocks for long term.","5 years is a reasonable time period to invest in a stock which will give you a decent return and will generally not lose too much value except in case of 2008 kinda downturn. I would advise you to invest in a large cap stock/s like BP, Royal Dutch or HSBC (Your parents of course can buy them for you).","As I recall, the Scottrade minimum is only $500. (By the way, Scottrade has a feature to automatically reinvest any dividends which the securities pay) Once you have an account, you can buy into an index fund. SPY tracks the S&P 500. It is also currently paying nearly 2% in dividends. You can shop for other alternatives here: http://seekingalpha.com/insight/etf_hub/etf_guide/selector/article/39431-core-building-blocks-large-mid-small-cap-us-etfs","As observed above, 1.5% for 3 years is not attractive, and since due to the risk profile the stock market also needs to be excluded, there seems about 2 primary ways, viz: fixed income bonds and commodity(e,g, gold). However, since local bonds (gilt or corporate) are sensitive and follow the central bank interest rates, you could look out investing in overseas bonds (usually through a overseas gilt based mutual fund). I am specifically mentioning gilt here as they are government backed (of the overseas location) and have very low risk. Best would be to scout out for strong fund houses that have mutual funds that invest in overseas gilts, preferably of the emerging markets (as the interest is higher). The good fund houses manage the currency volatility and can generate decent returns at fairly low risk.","What is your investing goal? And what do you mean by investing? Do you necessarily mean investing in the stock market or are you just looking to grow your money? Also, will you be able to add to that amount on a regular basis going forward? If you are just looking for a way to get $100 into the stock market, your best option may be DRIP investing. (DRIP stands for Dividend Re-Investment Plan.) The idea is that you buy shares in a company (typically directly from the company) and then the money from the dividends are automatically used to buy additional fractional shares. Most DRIP plans also allow you to invest additional on a monthly basis (even fractional shares). The advantages of this approach for you is that many DRIP plans have small upfront requirements. I just looked up Coca-cola's and they have a $500 minimum, but they will reduce the requirement to $50 if you continue investing $50/month. The fees for DRIP plans also generally fairly small which is going to be important to you as if you take a traditional broker approach too large a percentage of your money will be going to commissions. Other stock DRIP plans may have lower monthly requirements, but don't make your decision on which stock to buy based on who has the lowest minimum: you only want a stock that is going to grow in value. They primary disadvantages of this approach is that you will be investing in a only a single stock (I don't believe that can get started with a mutual fund or ETF with $100), you will be fairly committed to that stock, and you will be taking a long term investing approach. The Motley Fool investing website also has some information on DRIP plans : http://www.fool.com/DRIPPort/HowToInvestDRIPs.htm . It's a fairly old article, but I imagine that many of the links still work and the principles still apply If you are looking for a more medium term or balanced investment, I would advise just opening an online savings account. If you can grow that to $500 or $1,000 you will have more options available to you. Even though savings accounts don't pay significant interest right now, they can still help you grow your money by helping you segregate your money and make regular deposits into savings.","\"Before anything else, read up on the basics of economics. After that, there a few things you need to ask yourself before you even think about investing in anything: If you have an answer to those questions: Once you answered those questions I could make a simple first suggestion: Confident in handling it yourself and low maintenance with uncertain horizon: look up an online bank that offers ETFs such as IWDA (accumulation (dividend is not payed but reinvested) or income(dividend is payed out)) and maybe a few more specific ones then buy and hold for at least 5 years. Confident and high maintenance with long horizon: maybe stock picking but you'll probably never be able to beat the market unless you invest 10's of hours in research per week. However this will also cost a bit and given your initial amount not advisable to do. Be sure that you also have a VERY close look at the prospectus of an investment (especially if you go with a (retail) bank and they \"\"recommend\"\" you certain actively traded funds). They tend to charge you quite a bit (yearly management fees of 2-3% (which is A LOT if you are eying maybe 7%-8% yearly) aren't unheard of). ETF's such IWDA only have for example a yearly cost of 0.20%. Personally I have one portfolio (of many) only consisting of that ETF (so IWDA) and one global small cap. It's one of the best and most consistant ones to date. In the end, the amount you start with doesn't really matter so much as long as it's enough to buy at least a few shares of what you have in mind. If you can then increase your portfolio over time and keep the expenses in check, compounding interest should do the rest.\"","As you have already good on your retirement kitty. Assuming you have a sufficient cash for difficult situations, explore the options of investing in Shares and Mutual Funds. As you are new to Stock Market, begin slowly by investing into Mutual Funds and ETF for precious metals. This will help you understand and give you confidence on markets and returns. Real estate is a good option, the down side being the hassle of getting rental and the illiquid nature of the investment.","\"Spend your first 50 euros on research materials. Warren Buffett got started as a boy by reading every book in the Library of Congress on investing and stock market analysis. You can research the company filings for Canadian companies at http://www.sedar.com, U.S companies at http://www.edgar.com, and European companies at https://www.gov.uk/government/organisations/companies-house. Find conflicting arguments and strategies and decide for yourself which ones are right. The Motley Fool http://www.fool.ca offers articles on good stocks to add to your portfolio and why, as well as why not. They provide a balanced judgement instead of just hype. They also sell advice through their newsletter. In Canada the Globe & Mail runs a daily column on screening stocks. Every day they present a different stock-picking strategy and the filters used to reach their end list. They then show how much that portfolio would have increased or decreased as well as talking about some of the good & bad points of the stocks in the list. It's interesting to see over time a very few stocks show up on multiple lists for different strategies. These ones in my opinion are the stocks to be investing in. While the Globe's stock picks focus on Canadian and US exchanges, you might find the strategies worthwhile. You can subscribe to the digital version at http://www.theglobeandmail.com Once you have your analytical tools ready, pick any bank or stock house that offers a free practice account. Use that account and their screening tools to try out your strategies and see if you can make money picking stocks. My personal stock-picking strategy is to look for companies with: - a long uninterrupted history of paying dividends, - that are regularly increased, - and do not exceed the net profit per share of the company - and whose share price has a long history of increasing These are called unicorn companies, because there are so very few of them. Another great read is, \"\"Do Stocks Outperform Treasury Bills?\"\" by Hendrik Bessembinder. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 In this paper the author looks at the entire history of the U.S. stock universe and finds that less than 4% of stocks are responsible for 100% of the wealth creation in the U.S. stock market. He discusses his strategies for picking the winners, but it also suggests that if you don't want to do any research, you could pick pretty much any stock at random, short it, and wait. I avoid mutual funds because they are a winner only for the fellas selling them. A great description on why the mutual fund industry is skewed against the investor can be found in a book called \"\"The RRSP Secret\"\" by Greg Habstritt. \"\"Unshakeable\"\" by Tony Robbins also discusses why mutual funds are not the best way to invest in stocks. The investor puts up 100% of the money, takes 100% of the risk, and gets at best 30% of the return. Rich people don't invest like that.\"","Investing is really about learning your own comfort level. You will make money and lose money. You will make mistakes but you will also learn a great deal. First off, invest in your own financial knowledge, this doesn't require capital at all but a commitment. No one will watch or care for your own money better than yourself. Read books, and follow some companies in a Google Finance virtual portfolio. Track how they're doing over time - you can do this as a virtual portfolio without actually spending or losing money. Have you ever invested before? What is your knowledge level? Investing long term is about trying to balance risk while reducing losses and trying not to get screwed along the way (by people). My personal advice: Go to an independent financial planner, go to one that charges you per hour only. Financial planners that don't charge you hourly get paid in commissions. They will be biased to sell you what puts the most money in their pockets. Do not go to the banks investment people, they are employed by the banks who have sales and quota requirements to have you invest and push their own investment vehicles like mutual funds. Take $15k to the financial planner and see what they suggest. Keep the other $5K in something slow and boring and $1k under your mattress in actual cash as an emergency. While you're young, compound interest is the magic that will make that $25k increase hand over fist in time. But you need to have it consistently make money. I'm young too and more risk tolerant because I have time. While I get older I can start to scale back my risk because I'm nearing retirement and preserve instead of try to make returns.","\"I've never invested in penny stocks. My #1 investing rule, buy what you know and use. People get burned because they hear about the next big thing, go invest! to just end up losing everything because they have no clue in what they're investing in. From what I've found, until you have minimum of $5k to invest, put everything in a single investment. The reason for this, as others have mentioned, is that commissions eat up just about all your profits. My opinion, don't put it in a bond, returns are garbage right now - however they are \"\"safe\"\". Because this is $1000 we're talking about and not your life savings, put it in a equity like a stock to try and maximize your return. I aim for 15% returns on stocks and can generally achieve 10-15% consistently. The problem is when you get greedy and keep thinking it will go above once you're at 10-15%. Sell it. Sell it right away :) If it drops down -15% you have to be willing to accept that risk. The nice thing is that you can wait it out. I try to put a 3 month time frame on things I buy to make money. Once you start getting a more sizable chunk of money to play around with you should start to diversify. In Canada at least, once you have a trading account with a decent size investment the commissions get reduced to like $10 a trade. With your consistent 10% returns and additional savings you'll start to build up your portfolio. Keep at it and best of luck!\"","Just sticking to equities: If you are investing directly in a share/stock, depending on various factors, you may have picked up a winner or to your dismay a loser. Say you just have Rs 10,000/- to invest, which stock would you buy? If you don't know, then it’s better to buy a Mutual Fund. Now if you say you would buy a few of everything, then even to purchase say Rs 5000/- worth of each stock in the NIFTY Index [50 companies] you would require at least an investment of 250,000/-. When you are investing directly you always have to buy in whole numbers, i.e. you can't buy 1/2 share or 1.6 share of some stock. The way Mutual funds work is they take 10,000 from 250 people and invest in all the stocks. There are fund managers who's job is to pick good stocks, however even they cannot predict winners all the time. Normally a few of the picks become great winners, most are average, and a few are losers; this means that overall your returns are average VS if you had picked the winning stock. The essential difference between you investing on your own and via mutual funds are: It is good to begin with a Mutual Fund, and once you start understanding the stocks better you can invest directly into the equities. The same logic holds true for Debt as well.","\"My advice would be to invest that 50k in 25% batches across 4 different money markets. Batch 1: Lend using a peer-to-peer account - 12.5k The interest rates offered by banks aren't that appealing to investors anymore, at least in the UK. Peer to peer lending brokers such as ZOPA provide 5% to 6% annual returns if you're willing to hold on to your investment for a couple of years. Despite your pre-conceptions, these investments are relatively safe (although not guaranteed - I must stress this). Zopa state on their website that they haven't lost any money provided from their investors since the company's inception 10 years ago, and have a Safeguard trust that will be used to pay out investors if a large number of borrowers defaulted. I'm not sure if this service is available in Australia but aim for an interest rate of 5-6% with a trusted peer-to-peer lender that has a strong track record. Batch 2: The stock market - 12.5k An obvious choice. This is by far the most exciting way to grow your money. The next question arising from this will likely be \"\"how do I pick stocks?\"\". This 12.5k needs to be further divided into 5 or so different stocks. My strategy for picking stock at the current time will be to have 20% of your holdings in blue-chip companies with a strong track record of performance, and ideally, a dividend that is paid bi-anually/quarterly. Another type of stock that you should invest in should be companies that are relatively newly listed on the stock market, but have monopolistic qualities - that is - that they are the biggest, best, and only provider of their new and unique service. Examples of this would be Tesla, Worldpay, and Just-eat. Moreover, I'd advise another type of stock you should purchase be a 'sin stock' to hedge against bad economic times (if they arise). A sin stock is one associated with sin, i.e. cigarette manufacturers, alcohol suppliers, providers of gambling products. These often perform good while the economy is doing well, but even better when the economy experiences a 2007-2008, and 2001-dotcom type of meltdown. Finally, another category I'd advise would be large-cap energy provider companies such as Exxon Mobil, BP, Duke Energy - primarily because these are currently cheaper than they were a few months ago - and the demand for energy is likely to grow with the population (which is definitely growing rapidly). Batch 3: Funds - 12.5k Having some of your money in Funds is really a no-brainer. A managed fund is traditionally a collection of stocks that have been selected within a particular market. At this time, I'd advise at least 20% of the 12.5k in Emerging market funds (as the prices are ridiculously low having fallen about 60% - unless China/Brazil/India just self destruct or get nuked they will slowly grow again within the next 5 years - I imagine quite high returns can be had in this type of funds). The rest of your funds should be high dividend payers - but I'll let you do your own research. Batch 4: Property - 12.5k The property market is too good to not get into, but let's be honest you're not going to be able to buy a flat/house/apartment for 12.5k. The idea therefore would be to find a crowd-funding platform that allows you to own a part of a property (alongside other owners). The UK has platforms such as Property Partner that are great for this and I'm sure Australia also has some such platforms. Invest in the capital city in areas as close to the city's center as possible, as that's unlikely to change - barring some kind of economic collapse or an asteroid strike. I think the above methods of investing provide the following: 1) Diversified portfolio of investments 2) Hedging against difficult economic times should they occur And the only way you'll lose out with diversification such as this is if the whole economic system collapses or all-out nuclear war (although I think your investments will be the least of your worries in a nuclear war). Anyway, this is the method of investing I've chosen for myself and you can see my reasoning above. Feel free to ask me if you have any questions.\"","\"Shares are for investors. Most of the rich are investors. Unfortunately, the reverse is not true. But if you want to get rich, the first step is to become an investor. (The second is to become a SUCCESSFUL investor. 50 pounds might be too little. Try to start with at least 500 at a time. You can ADD amounts of 50 pounds. There are definitely fees involved. You will \"\"pay for lessons.\"\" But it will be worth it, if you become even a moderately successful investor. As for rules, they'll teach you the rules. Everyone wants your business. People have gotten (modestly) rich, buying shares here and there. One man told me of investing $600 in a company called Limited, and ending up with $12,000 some years later. BRIC is not a \"\"share.\"\" It is an acronym for four countries \"\"of the future.\"\" High risk, high reward here.\"","More often than not the market will rise year on year. Your best move is to put the $5000 in on Jan 2. Are you in the 15% bracket? If not, that is, if higher, I'd suggest the traditional, deductible, IRA.","\"Sure. For starters, you can put it in a savings account. Don't laugh, they used to pay noticeable interest. You know, back in the olden days. You could buy an I-bond from Treasury Direct. They're a government savings bond that pays a specified amount of interest (currently 0%, I believe), plus the amount of the inflation rate (something like 3.5% currently, I believe). You don't get paid the money -- the I-bond grows in value till you sell it. You can open a discount brokerage account, and buy 1 or more shares of stock in a company you like. Discount brokerages generally have a minimum of $500 or so, but will waive that if you set the account up as an IRA. Scot Trade, for instance. (An IRA, in case you didn't know, is a type of account that's tax free but you can't touch it till you turn 59 1/2. It's meant to help you save for retirement.) Incidentally, watch out of \"\"small account\"\" fees that some brokerages might charge you. Generally they're annual or monthly charges they'd charge you to cover their costs on your account -- since they're certainly not going to make it in commissions. That IRA at Scot Trade is no-fee. Speaking of commissions, those will be a big chunk of that $100. It'll be like $7-$10 to buy that stock -- a pretty big bite. However, many of these discount brokerages also offer some mutual funds for no commission. Those mutual funds, in turn, have minimums too, but once again if your account's an IRA many will waive the minimum or set it low -- like $100.\"","Congratulations! You're making enough money to invest. There are two easy places to start: I recommend against savings accounts because they will quite safely lose your money: the inflation rate is usually higher than the interest rate on a savings account. You may have twice as much money after 50 years, but if everything costs four times as much, then you've lost buying power. If, in the course of learning about investing, you'd like to try buying individual stocks, do it only with money you wouldn't mind losing. Index funds will go down slightly if one of the companies in that index fails entirely, but the stock of a failed company is worthless.","\"Congratulations on deciding to save money and choosing to invest it. One thing to know about mutual funds including index funds is that they typically require a minimum investment of a few thousand dollars, $3000 being a typical amount, unless the investment is in an IRA in which case $1000 might be a minimum. In some cases, automated monthly investments of $50 or $100 might need to be set up if you are beginning with a small balance. There is nothing wrong with your approach. You now should go and look at the various requirements for specific index funds. The Fidelity and Vanguard families are good choices and both offer very low-cost index funds to choose from, but different funds can have different requirements regarding minimum investments etc. You also have a choice of which index you want to follow, the S&P 500 Index, MidCap Indexes, Small-Cap Indexes, Total Stock Market Indexes etc., but your choice might be limited until you have more money to invest because of minimum investment rules etc. Most important, after you have made your choice, I urge you to not look every day, or even every month, to see how your investment is doing. You will save yourself a lot of anxiety and will save yourself from making wrong decisions. Far too many investors ignore the maxim \"\"Buy Low, Sell High\"\" and pull money out of what should be long-term investments at the first flicker of a downturn and end up buying high and selling low. Finally, the time is approaching when most stock funds will be declaring dividends and capital gains distributions. If you invest now, you may end up with a paper profit on which you will have to pay taxes (in non-tax-advantaged accounts) on your 2012 tax return (this is called \"\"buying a dividend\"\"), and so you might want to spend some time investigating now, but actually make the investment in late December after your chosen fund has made its distributions (the date for this will be on the fund's web site) or in early 2013.\"","Before jumping into stock trading, do try Mutual Funds and Index funds, That should give you some good overview of the equity markets. Further, do read up on building a balanced portfolio to suit your need and risk apetite. This would help you decide on Govt. bonds and other debt instruments.","A safe investment would be to get a 5-year CD from Ally Bank. No minimum deposit and no monthly maintenance fees. 1.74% APY at the moment. I would choose a 5-year CD since the early withdrawal penalty is only 60 days interest, which will be negligible for a $100 investment and increasing the term significantly increases your interest rate. Regarding other suggestions: Even if you find a way purchase stock commission free, it will probably cost a $5-$10 commission to sell, wiping out probably a year or two of gains. Also, I-Bonds must be held for a year minimum, which is problematic. At the end of the day, it's probably not really worth your time to do any of these. $2 a year or $5 a year, it's still fairly insignificant and your time is surely worth more than that.","\"The \"\"Money 70\"\" is a fine list: http://money.cnn.com/magazines/moneymag/bestfunds/index.html Money magazine is usually more reasonable than the other ones (SmartMoney, Kiplinger's, etc. are in my opinion sillier). If you want a lot of depth, the Morningstar Analyst Picks are useful but you have to pay for a membership which is probably not worth it for now: http://www.morningstar.com/Cover/Funds.aspx (side note: Morningstar star ratings are not useful, I'd ignore those. analyst picks are pretty useful.) Vanguard is a can't-go-too-wrong suggestion. They don't have any house funds that are \"\"bad,\"\" while for example Fidelity has some good ones mixed with a bunch that aren't so much. Of course, some funds at Vanguard may be inappropriate for your situation. (Vanguard also sells third-party funds, I'm talking about their own branded funds.) If getting started with 5K I think you'd want to go with an all-in-one fund like a target date retirement fund or a balanced fund. Such a fund also handles rebalancing for you. There's a Vanguard target date fund and balanced fund (Wellington) in the Money 70 list. fwiw, I think it's more important to ask how much risk you need to take, rather than how much you are willing to take. I wrote this down at more length here: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ First pick your desired asset allocation, then pick your fund after that to match. Good luck.\"","I like Keshlam's answer and would like to add a few notes: While your enthusiasm to invest is admirable learning patience is a key aspect of wealth building and keeping.","The S&P 500 is a stock market index, which is a list of 500 stocks from the largest companies in America. You could open a brokerage account with a broker and buy shares in each of these companies, but the easiest, least expensive way to invest in all these stocks is to invest in an S&P 500 index mutual fund. Inside an index mutual fund, your money will be pooled together with everyone else in the fund to purchase all the stocks in the index. These types of funds are very low expense compared to managed mutual funds. Most mutual fund companies have an S&P 500 index fund; two examples are Vanguard and Fidelity. The minimum investment in most of these mutual funds is low enough that you will be able to open an account with your $4000. Something you need to keep in mind, however: investing in any stock mutual fund is not non-risk. It's not even low-risk, really. It is very possible to lose money by investing in the stock market. An S&P 500 index fund is diversified in the sense that you have money in lots of different stocks, but it is also not diversified, in a sense, because it is all in large cap American stocks. Before investing in the stock market, you should have a goal for the money you are investing. If you are investing for something several years away, an index fund can be a good place to invest, but if you will need this money within the next few years, the stock market might be too risky for you.","\"Mutual funds can be relatively low risk and a good starting point. Really it depends on you. What are your goals? This is a pretty open ended question. These can all be low risk and provide some return. Note \"\"Less Knowledge\"\" is never a good qualifier for an investment. Your money is your business and you are entitled to know what your business is up to.\"","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","Investing requires capital, and the fastest way to get the capital is to develop good saving habits. Investing is an ongoing process to help you accumulate wealth, so to take advantage of compounding, the earlier you start, the better. I can suggest a few pointers to get you started on the investing journey. Godspeed! :)","I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs.","\"Invest! Because you are young and have lots of time, I recommend opening an investment account and putting most (1000£?) or all in something like an S&P 500 index fund or ETF. Start building your savings now because compound growth over time will build significant wealth. You can still invest the other 500£/mo in something a bit less volatile if you think you'll need the money in < 5 years. If you expect your income to continue to grow and you expect to have extra cash every month for the foreseeable future, I'd just put it all in an index fund. You can weather any temporary market swings, and in the worst-case scenario you can always sell a few shares if you need the cash. The advantage of an index fund is that it has very low fees and it's an \"\"invest-and-forget\"\" approach. You don't have to watch the market every day because your money will simply match the market. And in the long term the market does much better than most managed funds or ETFs. https://en.wikipedia.org/wiki/Index_fund\"","Almost all major no-load mutual fund families allow you to do the kind of thing you are talking about, however you may need an initial investment of between $1000 to $3000 depending on the fund. Once you have it however, annual fee's are usually very little, and the fees to buy that companies funds are usually zero if it's a no-load company (Vanguard, TRowPrice, etc) With the larger companies that means you have a pretty large selection of funds, but generally EACH fund has a minimum initial purchase, once that's met then you can buy additional amounts in small quantities without a problem. For someone on a smaller budget, many low cost brokers (ETrade as mentioned by Litteadv, Scottrade as mentioned by myself in another similar question today) allow you to start with smaller initial balances and have a small selection of funds or ETF's that you can trade from without commission. In the case of Scottrade, they have like 15 ETF's that you can trade comission free. Check with the various low cost brokerages such as ETrade, Scottrade, and TDAmeritrade, to see what their policies are, and what if any funds/ETF's they allow you to trade in without commissions. Keep in mind that for Mutual funds, there may still be a fund minimum initial investment that applies, be sure to check if that is the case or not. The lack of any minimum investment makes ETF's a slightly more attractive option for someone who doesn't have the 'buy in' that many funds require.","\"First off, monozok is right, at the end of the day, you should not accept what anyone says to do without your money - take their suggestions as directions to research and decide for yourself. I also do not think what you have is too little to invest, but that depends on how liquid you need to be. Often in order to make a small amount of money grow via investments, you have to be willing to take all the investment profits from that principle and reinvest it. Thus, can you see how your investment ability is governed by the time you plan to spend without that money? They mantra that I have heard from many people is that the longer you are able to wait, the more 'risk' you can take. As someone who is about the same age as you (I'm 24) I can't exactly say yet that what I have done is sure fire for the long term, but I suggest you adopt a few principles: 1) Go read \"\"A Random Walk Down Wall Street\"\" by Burton G. Malkiel. A key point for you might be that you can do better than most of these professional investors for hire simply by putting more money in a well selected index fund. For example, Vanguard is a nice online service to buy indexes through, but they may require a minimum. 2) Since you are young, if you go into any firm, bank, or \"\"financial planner,\"\" they will just think you are naive and try to get you to buy whatever is best for them (one of their mutual funds, money market accounts, annuities, some flashy cd). Don't. You can do better on your own and while it might be tempting because these options look more secure or well managed, most of the time you will barely make above inflation, and you will not have learned very much. 3) One exciting thin you should start learning now is about algorithmic trading because it is cool and super efficient. quantopian.com is a good platform for this. It is a fun community and it is also free. 4) One of the best ways I have found to watch the stock market is actually through a stock game app on my phone that has realtime stock price feed. Seeking Alpha has a good mobile app interface and it also connects you to news that has to do with the companies you are interested in.\"","In terms of building the initial investment using some kind of mutual fund, I'd suggest you see my answer to this similar question https://money.stackexchange.com/questions/9943/cheapest-or-free-online-broker-for-beginner For buying individual stocks later, you could look at sharebuilder, or a low cost broker, however most of them charge between $5-$7 per trade, and if you are doing small dollar value trades then that can really really eat into things if you try to trade a lot.","Buy the minimum of one fund now. (Eg total bond market) Buy the minimum of the next fund next time you have $2500. (Eg large-cap stocks.) Continue with those until you have enough to buy the next fund (eg small-cap stocks). Adjust as you go to balance these funds according to your planned ratios, or as close as you can reasonably get without having to actually transfer money between the funds more than once a year or so. Build up to your targets over time. If you can't easily afford to tie up that first $2500, stay with banks and CDs and maybe money market accounts until you can. And don't try to invest (except maybe through a matched 401k) before you have adequate savings both for normal life and for an emergency reserve. Note too that the 401k can be a way to buy into funds without a minimum. Check with your employer. If you haven't maxed out your 401k yet, and it has matching funds, that is usually the place to start saving for retirement; otherwise you are leaving free money on the table.","In my mind, when looking at a five year period you have a number of options. You didn't specify where you are based, which admittedly makes it harder, to give you good advice. If you are looking for an investment that can achieve large gains, equities are impossible to ignore. By investing in an index fund or other diverse asset forms (such as mutual funds), your risk is relatively minimal. However there has historically been five year periods where you would lose/flatline your money. If this was to be the case you would likely be better off waiting more than five years to buy a house, which would be frustrating. When markets rebound, they often do it hard. If you are in a major economy, taking something like the top 100 of your stock market is a safe bet, although admittedly you would have made terrible returns if you invested in the Polish markets. While they often achieve lower returns than equity investments, they are generally considered safer - especially government issued bonds. If you were willing to sacrifice returns for safety, you must always consider them. This is an interesting new addition, and I can't comment on the state of it in the United States, however in Europe we have a number of platforms which do this. In the UK, for example you can achieve ~7.3% returns YoY using sites like Funding Circle. If you invest in a diverse range of businesses, you have minimal risk from and individual company not paying. Elsewhere in Europe (although not appropriate for me as everything I do is denominated in Sterling), you can secure 12% in places like Georgia, Poland, and Estonia. This is a very good rate and the platforms seem reputable, and 'guarantee' their loans. However unlike funding circle, they are for consumer loans. The risk profile in my mind is similar to that of equities, but it is hard to say. Whatever you do, you need to do your homework, and ensure that you can handle the level of risk offered by the investments you make. I haven't included things like Savings accounts in here, as the rates aren't worth bothering with.","You have a couple of options: Auto-investing in an open-end mutual fund. Some companies may waive a minimum if you sign up for an automatic investing, e.g. T. Rowe Price will waive its minimum if you agree to invest $100/month. There may be some lower ones out there as well. Some brokers like ShareBuilder have programs where someone could auto-invest getting fractional shares with each purchase. However, something to consider is what percentage is it costing you to buy each time as it may be quite a bit of friction if you are paying $4 a purchase and only buying $40, this is 10% of your investment being eaten up in costs that I'd highly advise taking the first option.","Most ETFs are index funds, meaning you get built in diversification so that any one stock going down won't hurt the overall performance much. You can also get essentially the same index funds by directly purchasing them from the mutual fund company. To buy an ETF you need a brokerage account and have to pay a transaction fee. Buying only $1000 at a time the broker transaction fee will eat too much of your money. You want to keep such fees way down below 0.1%. Pay attention to transaction fees and fund expense ratios. Or buy an equivalent index fund directly from the mutual fund company. This generally costs nothing in transaction fees if you have at least the minimum account value built up. If you buy every month or two you are dollar cost averaging, no matter what kind of account you are using. Keep doing that, even if the market values are going down. (Especially if the market values are going down!) If you can keep doing this then forget about certificates of deposit. At current rates you cannot build wealth with CDs.","5 years is very short term, and since you are sure you'll need the money, investing it into the markets should probably not be done. You can toss it in Ally bank for 1% or consider a 5 yr raise your rate CD A decent write-up on time horizons: http://www.investopedia.com/articles/investing/110813/using-time-horizons-investing.asp If you want to go the stock/bond route you can assess the benefits of using something like a vanguard target date fund, or a roboadvisor such as wealthfront or betterment. You need to assess whether you think you may move up your time horizon, say you want to buy a house in 4 years, or, if it is 5 years, are you ok with it being 6.5-7 if there is a market downturn.","Put £50 away as often as possible, and once it's built up to £500, invest in a stockmarket ETF. Repeat until you retire.","Here's a good strategy: Open up a Roth IRA at a discount-broker, like TD Ameritrade, invest in no-fee ETF's, tracking an Index, with very low expense ratios (look for around .15%) This way, you won't pay brokers fees whenever you buy shares, and shares are cheap enough to buy casually. This is a good way to start. When you learn more about the market, you can check out individual stocks, exploring different market sectors, etc. But you won't regret starting with a good index fund. Also, it's easy to know how well you did. Just listen on the radio or online for how the Dow or S&P did that day/month/year. Your account will mirror these changes!","Investing in mutual funds, ETF, etc. won't build a large pool of money. Be an active investor if your nature aligns. For e.g. Invest in buying out a commercial space (on bank finance) like a office space and then rent it out. That would give you better return than a savings account. In few years time, you may be able to pay back your financing and then the total return is your net return. Look for options like this for a multiple growth in your worth.","According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.","\"You will invest 1000£ each month and the transaction fee is 10£ per trade, so buying a bunch of stocks each month would not be wise. If you buy 5 stocks, then transaction costs will eat up 5% of your investment. So if you insist on taking this approach, you should probably only buy one or two stocks a month. It sounds like you're interested in active investing & would like a diversified portfolio, so maybe the best approach for you is Core & Satellite Portfolio Management. Start by creating a well diversified portfolio \"\"core\"\" with index funds. Once you have a solid core, make some active investment decisions with the \"\"satellite\"\" portion of the portfolio. You can dollar cost average into the core and make active bets when the opportunity arises, so you're not killed by transaction fees.\"","It looks like you need a lot more education on the subject. I suggest you pick up a book on investing and portfolio management to get a first idea. Dividend yields are currently way below 5% on blue chips. Unlike coupons from fixed income instruments (which, in the same risk category, pay a lot less), dividend yields are not guaranteed and neither is the invested principal amount. In either case, your calculation is far away from reality. Sure, there are investments (such as the mentioned direct investments in companies or housings in emerging economies) that can potentially earn you two digit percentage returns. Just remember: risk always goes both ways. A higher earning potential means higher loss potential. Also, a direct investment is a lot less liquid than an investment on a publicly quoted high turnover market place. If you suddenly need money, you really don't want to be pressed to sell real estate in an emerging market (keyword: bid ask spread). My advice: the money that you can set aside for the long term (10 years plus), invest it in stock ETFs, globally. Everything else should be invested in bond funds or even deposits, depending on when you will need the access. As others have pointed out, consider getting professional advice.","you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.","Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.","\"The $1K in funds are by default your emergency fund. If absolutely necessary, emergency funds may need to come from debt, a credit capacity, focus on building credit to leverage lower rates for living expenses eventually needed. Profitable organizations & proprietors, borrow at a lower cost of capital than their return. Join your local credit union, you're welcome to join mine online, the current rates for the first $500 in both your checking and savings is 4.07%, it's currently the fourth largest in the U.S. by assets. You may join as a \"\"family member\"\" to me (Karl Erdmann), not sure what their definition of \"\"family\"\" is, I'd be happy to trace our ancestry if need be or consider other options. Their current incentive program, like many institutions have often, will give you $100 for going through the hassle to join and establish a checking and savings. Some institutions, such as this credit union, have a lower threshold to risk, applicants may be turned down for an account if there is any negative history or a low credit score, shooting for a score of 600 before applying seems safest. The web services, as you mentioned, have significantly improved the layman's ability to cost effectively invest funds and provide liquidity. Robinhood currently seems to be providing the most affordable access to the market. It goes without saying, stay objective with your trust of any platform, as you may have noticed, there is a detailed explanation of how Robinhood makes their money on this stack exchange community, they are largely backed by venture funding, hopefully the organization is able to maintain a low enough overhead to keep the organization sustainable in the long run. The services that power this service such as Plaid, seem promising and underrated, but i digress. The platform gives access for users to learn how investing works, it seems safest to plan a diversified portfolio utilizing a mix of securities,such as low Beta stocks or \"\"blue chip\"\" companies with clear dividend policies. One intriguing feature, if you invest in equities is casting votes on decisions in shareholder meetings. Another popular investment asset class that is less liquid and perhaps something to work toward is real estate. Google the economist \"\"Matthew Rognlie\"\" for his work on income equality on this type of investment. There are many incentives for first time homeowners, saving up for a down payment is the first step. Consider adding to your portfolio a Real Estate Investment Trust (REITs) to gain a market position. Another noteworthy approach to this idea is an investment commercial property cooperative organization, currently the first and only one is called NorthEast Investment Cooperative, one stock of class A is $1K. If you are interested and plan to focus on equities, consider dropping into your college's Accounting Capstone course to learn more about the the details of fundamental and technical analysis of an organization. The complexities of investing involve cyclical risk, macro and micro economic factors, understanding financial statements and their notes, cash flow forecasting - discounting, market timing, and a host of other details Wikipedia is much more helpful at detailing. It's safe to assume initial investment decisions by unsophisticated investors are mostly whimsical, and likely will only add up to learning opportunities, however risk is inherit in all things, including sitting on cash that pays a price of inflation. A promising mindset in long term investments are in organizations that focus on conscious business practices. Another way to think of investing is that you are already somewhat of a \"\"sophisticated investor\"\" and could beat the market by what you know given your background, catching wind of certain information first, or acting on a new trends or technology quickly. Move carefully with any perhaps biased \"\"bullish\"\" or \"\"bearish\"\" mindset. Thinking independently is helpful, constantly becoming familiar with different ideas from professions in a diverse set of backgrounds, and simulating decisions in portfolio's. Here is an extremely limited set of authors and outlets that may have ideas worth digging more into, MIT Tech Reviews (Informative), Bloomberg TV (it's free, informative), John Mackey (businessman), Paul Mason (provocative journalist). Google finance is a simple and free go-to application, use the \"\"cost basis\"\" feature for \"\"paper\"\" or real trades, it's easy to import transactions from a .csv. This seems sufficient to start off with. Enjoy the journey, aim for real value with your resources.\"","The plan doesn't make sense. Don't invest your money. Just keep it in your bank account. $5000 is not a lot, especially since you don't have a steady income stream. You only have $1000 to your name, you can't afford to gamble $4000. You will need it for things like food, books, rent, student loans, traveling, etc. If you don't get a job right after you graduate, you will be very happy to have some money in the bank. Or what if you get a dream job, but you need a car? Or you get a job at a suit & tie business and need to get a new wardrobe? Or your computer dies and you need a new one? You find a great apartment but need $2500 first, last & security? That money can help you out much more NOW when you're starting out, then it will when you're ready to retire in your 60's.","On average, you should be saving at least 10-15% of your income in order to be financially secure when you retire. Different people will tell you different things, but really this can be split between short term savings (cash), long term savings (401ks, IRAs, stocks & bonds), and paying down debt. That $5k is a good start on an emergency fund, but you probably want a little more. As justkt said, 6 months' worth is what you want to aim for. Put this in a Money Market account, where you'll earn a little more interest but won't be penalized from withdrawing it when its needed (you may have to live off it, after all). Beyond that, I would split things up; if possible, have payroll deductions going to a broker (sharebuilder is a good one to start with if you can't spare much change), as well as an IRA at a bank. Set up a separate checking account just for rent and utilities, put a month's worth of cash in there, and have another payroll deduction that covers your living expenses + maybe 5% put in there automatically. Then, set up automatic bill payments, so you don't even have to think about it. Check it once a month to make sure there aren't any surprises. Pay off your credit cards every month. These are, by far, the most expensive forms of credit that most people have. You shouldn't be financing large purchases with them (you'll get better rates by taking a personal loan from a bank). Set specific goals for savings, and set up automatic payroll deductions to work towards them. Especially for buying a house; most responsible lenders will ask for 20% down. In today's market, that means you need to write a check for $40k or $50k. While it's tempting to finance up to 100% of the property value, it's also risky considering how volatile markets can be. You don't want to end up owing more on the property than it's worth two years down the road. If you find yourself at the end of the month with an extra $50 or so, consider your savings goals or your current debt instead of blowing it on a toy. Especially if you have long term debt (high balance credit cards, vehicle or property loans), applying that money directly to principal can save you months (or years) paying it back, and hundreds or thousands of dollars of interest (all depending on the details of the loan, of course). Above all, have fun with it :) Think of your personal net worth as you do your Gamer score on the XBox, and look for ways to maximize it with a minimum of effort or investment on your part! Investing in yourself and your future can be incredibly rewarding emotionally :)","This is slightly opinion based. Is it appropriate to invest small amounts for short periods of time? At your age and the time period, I would say NO. This is because although the index fund do return 6-7% on average, there are several times it blips and goes negative as well. Stock Markets in short periods like 6 months can be unpredictable. At times a downturn will remain stagnant for periods of 2-3 years before suddenly zoom ahead. If you are not to particular about the time when you need the changes done; i.e. the changes can in worst case wait for few years; then yes investing in Index fund would make sense. Else you are well off keeping this in savings. Try CD's if they can offer better rates for such durations.","A single fund that reflects the local currency would be an index fund in the country. Look for mutual funds which provide for investing on the local stock index. The fund managers would handle all the portfolio balancing for you.","Taking into account that you are in Cyprus, a Euro country, you should not invest in USD as the USA and China are starting a currency war that will benefit the Euro. Meaning, if you buy USD today, they will be worth less in a couple of months. As for the way of investing your money. Look at it like a boat race, starting on the 1st of January and ending on the 31st of December each year. There are a lot of boats in the water. Some are small, some are big, some are whole fleets. Your objective is to choose the fastest boat at any time. If you invest all of your money in one small boat, that might sink before the end of the year, you are putting yourself at risk. Say: Startup Capital. If you invest all of your money in a medium sized boat, you still run the risk of it sinking. Say: Stock market stock. If you invest all of your money in a supertanker, the risk of it sinking is smaller, and the probability of it ending first in the race is also smaller. Say: a stock of a multinational. A fleet is limited by it's slowest boat, but it will surely reach the shore. Say: a fund. Now investing money is time consuming, and you may not have the money to create your own portfolio (your own fleet). So a fund should be your choice. However, there are a lot of funds out there, and not all funds perform the same. Most funds are compared with their index. A 3 star Morningstar rated fund is performing on par with it's index for a time period. A 4 or 5 star rated fund is doing better than it's index. Most funds fluctuate between ratings. A 4 star rated fund can be mismanaged and in a number of months become a 2 star rated fund. Or the other way around. But it's not just luck. Depending on the money you have available, your best bet is to buy a number of star rated, managed funds. There are a lot of factors to keep into account. Currency is one. Geography, Sector... Don't buy for less than 1.000€ in one fund, and don't buy more than 10 funds. Stay away from Gold, unless you want to speculate (short term). Stay away from the USD (for now). And if you can prevent it, don't put all your eggs in one basket.","Sounds like you're doing fine, though somewhat fuzzy: how are you allocating the $500/month? Are you doing dollar cost averaging into funds, accumulating enough $$ to buy round lots of individual stocks, market timing, etc. The summary suggestion: max out the ROTH first, then with $$$ left over, do the after tax, low-cost fund, monthly dollar cost averaging approach.","\"Contribute as much as you can. When do you want to retire and how much income do you think you'll need? A $1M portfolio yielding 5% will yield $50,000/year. Do some research about how to build a portfolio... this site is a good start, but check out books on retirement planning and magazines like Money and Kiplinger. If you don't speak \"\"money\"\" or are intimidated by investing, look for a fee-based financial advisor whom you are comfortable with.\"","\"(Since you used the dollar sign without any qualification, I assume you're in the United States and talking about US dollars.) You have a few options here. I won't make a specific recommendation, but will present some options and hopefully useful information. Here's the short story: To buy individual stocks, you need to go through a broker. These brokers charge a fee for every transaction, usually in the neighborhood of $7. Since you probably won't want to just buy and hold a single stock for 15 years, the fees are probably unreasonable for you. If you want the educational experience of picking stocks and managing a portfolio, I suggest not using real money. Most mutual funds have minimum investments on the order of a few thousand dollars. If you shop around, there are mutual funds that may work for you. In general, look for a fund that: An example of a fund that meets these requirements is SWPPX from Charles Schwabb, which tracks the S&P 500. Buy the product directly from the mutual fund company: if you go through a broker or financial manager they'll try to rip you off. The main advantage of such a mutual fund is that it will probably make your daughter significantly more money over the next 15 years than the safer options. The tradeoff is that you have to be prepared to accept the volatility of the stock market and the possibility that your daughter might lose money. Your daughter can buy savings bonds through the US Treasury's TreasuryDirect website. There are two relevant varieties: You and your daughter seem to be the intended customers of these products: they are available in low denominations and they guarantee a rate for up to 30 years. The Series I bonds are the only product I know of that's guaranteed to keep pace with inflation until redeemed at an unknown time many years in the future. It is probably not a big concern for your daughter in these amounts, but the interest on these bonds is exempt from state taxes in all cases, and is exempt from Federal taxes if you use them for education expenses. The main weakness of these bonds is probably that they're too safe. You can get better returns by taking some risk, and some risk is probably acceptable in your situation. Savings accounts, including so-called \"\"money market accounts\"\" from banks are a possibility. They are very convenient, but you might have to shop around for one that: I don't have any particular insight into whether these are likely to outperform or be outperformed by treasury bonds. Remember, however, that the interest rates are not guaranteed over the long run, and that money lost to inflation is significant over 15 years. Certificates of deposit are what a bank wants you to do in your situation: you hand your money to the bank, and they guarantee a rate for some number of months or years. You pay a penalty if you want the money sooner. The longest terms I've typically seen are 5 years, but there may be longer terms available if you shop around. You can probably get better rates on CDs than you can through a savings account. The rates are not guaranteed in the long run, since the terms won't last 15 years and you'll have to get new CDs as your old ones mature. Again, I don't have any particular insight on whether these are likely to keep up with inflation or how performance will compare to treasury bonds. Watch out for the same things that affect savings accounts, in particular fees and reduced rates for balances of your size.\"","\"Invest in a high quality dividend paying group of stocks. Look up \"\"stock aristocrats\"\" to find longterm quality stocks that have regularly increased their dividends for over 20'years. 10'years is a safe period of time to invest in stocks. If you had bought stocks at their hight in 2007 and kept them through the 40% decline thru 2008 and 2009 and held on to them for 10 years until 2017, you would have earned a 40 % increase from when you purchased them. That is pretty much a worst case scenerio. If you had invested in dividend paying stocks and had earned an additional 2.5% per year, you would have exceeded your 5% goal. The lifetime yearly return of the stock market is 10%. Time is the only downside, but with ten years, you are almost certainly immune.\"","For a time period as short as a matter of months, commercial paper or bonds about to mature are the highest returning investments, as defined by Benjamin Graham: An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative. There are no well-known methods that can be applied to cryptocurrencies or forex for such short time periods to promise safety of principal. The problem is that with $1,500, it will be impossible to buy any worthy credit directly and hold to maturity; besides, the need for liquidity eats up the return, risk-adjusted. The only alternative is a bond ETF which has a high probability of getting crushed as interest rates continue to rise, so that fails the above criteria. The only alternative for investment now is a short term deposit with a bank. For speculation, anything goes... The best strategy is to take the money and continue to build up a financial structure: saving for risk-adjusted and time-discounted future annual cash flows. After the average unemployment cycle is funded, approximately six or so years, then long-term investments should be accumulated, internationally diversified equities.","Try this as a starter - my eBook served up as a blog (http://www.sspf.co.uk/blog/001/). Then read as much as possible about investing. Once you have money set aside for emergencies, then make some steps towards investing. I'd guide you towards low-fee 'tracker-style' funds to provide a bedrock to long-term investing. Your post suggests it will be investing over the long-term (ie. 5-10 years or more), perhaps even to middle-age/retirement? Read as much as you can about the types of investments: unit trusts, investment trusts, ETFs; fixed-interest (bonds/corporate bonds), equities (IPOs/shares/dividends), property (mortgages, buy-to-let, off-plan). Be conservative and start with simple products. If you don't understand enough to describe it to me in a lift in 60 seconds, stay away from it and learn more about it. Many of the items you think are good long-term investments will be available within any pension plans you encounter, so the learning has a double benefit. Work a plan. Learn all the time. Keep your day-to-day life quite conservative and be more risky in your long-term investing. And ask for advice on things here, from friends who aren't skint and professionals for specific tasks (IFAs, financial planners, personal finance coaches, accountants, mortgage brokers). The fact you're being proactive tells me you've the tools to do well. Best wishes to you.","ChrisW's comment may appear flippant, but it illustrates (albeit too briefly) an important fact - there are aspects of investing that begin to look exactly like gambling. In fact, there are expressions which overlap - Game Theory, often used to describe investing behavior, Monte Carlo Simulation, a way of convincing ourselves we can produce a set of possible outcomes for future returns, etc. You should first invest time. 100 hours reading is a good start. 1000 pounds, Euros, or dollars is a small sum to invest in individual stocks. A round lot is considered 100 shares, so you'd either need to find a stock trading less than 10 pounds, or buy fewer shares. There are a number of reasons a new investor should be steered toward index funds, in the States, ETFs (exchange traded funds) reflect the value of an entire index of stocks. If you feel compelled to get into the market this is the way to go, whether a market near you of a foreign fund, US, or other.","You are suggesting something called dollar cost averaging (or its cousin, dollar value averaging) - http://www.investopedia.com/articles/stocks/07/dcavsva.asp This is certainly a valid investment strategy, although personally, I feel that for long term investment, it is not necessary unless you plan on being an active trader. I still strongly encourage you to research these two methods and see if they would work well for your personal investment strategy and goals. As far as what sorts of investments for a taxable account, I have three general recommendations: As far as which company to use for your brokerage, I personally have accounts at Voya, TRowe Price and Fidelity. I would strongly recommend Fidelity out of those three, mostly due to customer service and quality and ease of use of their website. Vanguard is a great brokerage, but you don't have to choose them just because you plan to mostly invest in Vanguard funds. I also recommend you research how capital gains and dividend taxing works (and things like lost harvesting), so that you can structure your investments with taxes in mind. Do this ahead of time, don't wait until April of 2016 because it will be too late to save on taxes by then.","\"You can start investing with any amount. You can use the ShareBuilder account to purchase \"\"partial\"\" stocks through their automatic investment plan. Usually brokers don't sell parts of stock, and ShareBuilder is the only one allowing it IMHO using its own tricks. What they do basically is buy a stock and then divide it internally among several investors who bought it, while each of the investors doesn't really own it directly. That's perfect for investing small amounts and making first steps in investing.\"","3-5 years is long enough of a timeframe that I'd certainly invest it, assuming you have enough (which $10k is). Even conservatively you can guess at 4-5% annual growth; if you invest reasonably conservatively (60/40 mix of stocks/bonds, with both in large ETFs or similar) you should have a good chance to gain along those lines and still be reasonably safe in case the market tanks. Of course, the market could tank at any time and wipe out 20-30% of that or even more, even if you invest conservatively - so you need to think about that risk, and decide if it's worth it or not. But, particularly if your 3-5 year time frame is reasonably flexible (i.e., if in 2019 the market tanks, you can wait the 2-3 years it may take to come back up) you should be investing. And - as usual, the normal warnings apply. Past performance is not a guarantee of future performance, we are not your investment advisors, and you may lose 100% of your investment...","\"I got started by reading the following two books: You could probably get by with just the first of those two. I haven't been a big fan of the \"\"for dummies\"\" series in the past, but I found both of these were quite good, particularly for people who have little understanding of investing. I also rather like the site, Canadian Couch Potato. That has a wealth of information on passive investing using mutual funds and ETFs. It's a good next step after reading one or the other of the books above. In your specific case, you are investing for the fairly short term and your tolerance for risk seems to be quite low. Gold is a high-risk investment, and in my opinion is ill-suited to your investment goals. I'd say you are looking at a money market account (very low risk, low return) such as e.g. the TD Canadian Money Market fund (TDB164). You may also want to take a look at e.g. the TD Canadian Bond Index (TDB909) which is only slightly higher risk. However, for someone just starting out and without a whack of knowledge, I rather like pointing people at the ING Direct Streetwise Funds. They offer three options, balancing risk vs reward. You can fill in their online fund selector and it'll point you in the right direction. You can pay less by buying individual stock and bond funds through your bank (following e.g. one of the Canadian Couch Potato's model portfolios), but ING Direct makes things nice and simple, and is a good option for people who don't care to spend a lot of time on this. Note that I am not a financial adviser, and I have only a limited understanding of your needs. You may want to consult one, though you'll want to be careful when doing so to avoid just talking to a salesperson. Also, note that I am biased toward passive index investing. Other people may recommend that you invest in gold or real estate or specific stocks. I think that's a bad idea and believe I have the science to back this up, but I may be wrong.\"","If you are not working, I believe you would be getting some money from your family to meet your expenses. In such a case, I would start with maintaining a Cash A/c which would list your monthly expenses and the money you received, which is what I used to do at your age. You can maintain it in a notebook with pen/pencil or using online tools such as Google Sheets. Enter each expense entries each day as debits and entries towards any money you receive as credits. At the end of the month, tally them and see how much you have left. Also, this gives you a clear picture of where your expenses are what is that you can avoid. On longer term, this can help you form an annual budget for your personal finances.","\"For equities, buy direct from the transfer agent. You have to buy one full share at a minimum but after that dividend reinvestment is free. There are others like share builder and foliofn that let you buy fractional shares. As the other poster said their roster is limited so you cannot buy every ETF out there. With your example of not wanting to spend $200 I agree with the others that you should invest in a mutual fund. Vanguard will have every index fund you need and can invest as little as $50, as long as you sign up for a systematic investment draft from your bank. Plus vanguard typically has the lowest fees in the industry. The most important thing is to start investing as soon as possible and as regular as possible. \"\"Pay yourself first\"\"\"","It sounds like you are interested in investing in the stock market but you don't want to take too much risk. Investing in an Index EFT will provide some diversification and can be less risky than investing in individual stocks, however with potentially lower returns. If you want to invest your money, the first thing you should do is learn about managing your risk. You are still young and you should spend your time now to increase your education and knowledge. There are plenty of good books to start with, and you should prepare an investment plan which incorporates a risk management strategy. $1000 is a little low to start investing in the stock market, so whilst you are building your education and preparing your plan, you can continue building up more funds for when you are ready to start investing. Place your funds in an high interest savings account for now, and whilst you are learning you can practice your strategies using virtual accounts. In fact the ASX has a share market game which is held 2 or 3 times per year. The ASX website also has some good learning materials for novices and they hold regular seminars. It is another good source for improving your education in the subject. Remember, first get educated, then plan and practice, and then invest."],"string":"[\n \"Rs 10,000 is a small but good amount to begin with. I would suggest you start by investing in some good mutual funds. Do some research, a balance mutual fund is less risky less returns compared to a equity mutual fund. The other option is directly investing in stock market, however this needs some experience and you would need to open demat and trading accounts that would cost money to open and maintain.\",\n \"As a matter of fact, I invest small sums in stable stocks every month (in fact, much lesser than the $50 you are talking about). More than the return on investment, I gained a lot of knowledge keeping track of my stocks and this now helps me pick my stocks better. And the portfolio is doing great too. So, it is a good idea to start small and invest regularly.\",\n \"I am going to assume that this is going to be a long term investment and you don't need this money before 5-6years at the very least. My advise would be to invest in one of the following funds : IDFC Premier equity fund growth plan (Direct) (Only SIP allowed right now) ICICI Discovery fund growth plan (Direct) DSP microcap fund growth plan (Direct) In case you do not want to be invested in small and mid cap and want a little less volatility then my first choice for that would be : Quantum long term equity fund dividend plan Whatever you go for make sure you go directly with the fund house and not through a broker as you end up getting charged an extra .63% extra as opposed to going direct and you will also be paying for a demat account which can be avoided if you invest directly with a fund house. Out of the above mentioned funds Quantum has the lowest expense ratio of 1.25% and it is a huge benefit if you are talking 10+ years because it makes a lot of difference. Source : My own research and experience as an investor.\",\n \"There are quite a few options. Suggest you put a mix of things and begin investing into Mutual Funds.\",\n \"On reading couple of articles & some research over internet, I got to know about diversified investment where one should invest 70% in equity related & rest 30% in debt related funds Yes that is about right. Although the recommendation keeps varying a bit. However your first investment should not aim for diversification. Putting small amounts in multiple mutual funds may create paper work and tracking issues. My suggestion would be to start with an Index EFT or Large cap. Then move to balanced funds and mid caps etc. On this site we don't advise on specific funds. You can refer to moneycontrol.com or economictimes or quite a few other personal finance advisory sites to understand the top funds in the segments and decide on funds accordingly. PS: Rather than buying paper, buy it electronic, better you can now buy it as Demat. If you already have an Demat account it would be best to buy through it.\",\n \"The best way to invest 50k Indian rupees is in a 5 Year NSC(National Saving Certificate which can be obtained at the Post Office) yielding interest 8.1% p.a. (at present), which is more than the effective FDR interest rate offered by any bank in India. Investment in an NSC also permits a deduction u/s 80C of the Income Tax Act, 1961. So, investing in an NSC will save tax and get a higher return/benefit for your investment.\",\n \"Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy. Let's say you have ₹15,000 to start with. Split this in to three components: Purchase all of the above at the same time. 30 days later, you will have the first FD mature. If you need this money, you use it. If you don't need it, purchase another 90-day fixed deposit. If you keep going this way, you will have a deposit mature every 30 days and can choose to use it or renew the fixed deposit. This strategy has some disadvantages to consider: As for interest rates, the length of the fixed deposit in positively related to the interest rate. If you want higher interest rates, elect for longer fixed deposit cycles.For instance, when you become more confident about your financial situation, replace the 30, 60, 90 day cycle with a 6, 12, 18 month cycle The cost of maintaining the short term deposit renewals and new purchases. If your bank does not allow such transactions through on line banking, you might spend more time than you like at a bank or on the phone with the bank You want a monthly dividend but this might not be the case with fixed deposits. It depends on your bank but I believe most Indian banks pay interest every three months\",\n \"I would suggest you to put your money in an FD for a year, and as soon as you get paid the interest, start investing that interest in a SIP(Systematic investment plan). This is your safest option but it will not give you a lot of returns. But I can guarantee that you will not lose your capital(Unless the economy fails as a whole, which is unlikely). For example: - you have 500000 rupees. If you put it in a fixed deposit for 1 year, you earn 46500 in interest(At 9% compounded quarterly). With this interest you can invest Rs.3875(46500/12) every month in an SIP for 12 months and also renew your FD, so that you can keep earning that interest.So at the end of 10 years, you will have 5 lacs in your FD and Rs. 4,18,500 in your SIP(Good funds usually make 13-16 % a year). Assuming your fund gives you 14%, you make: - 1.) 46500 at 14% for 9 years - 1,51,215 2.)8 years - 1,32,645 3.) 7 years - 1,16,355 4.) 6 years - 1,02,066 5.) 5 years - 89,531 6.) 4 years - 78,536 7.) 3 years - 68891 8.) 2 years 60,431 9.) 1 year - 53010 Total Maturity Value on SIP = Rs, 8,52,680 Principal on FD = Rs 5,00,000 Interest earned on 10th year = Rs. 46,500 Total = Rs. 13,99,180(14 lacs). Please note: - Interest rates and rate of return on funds may vary. This figure can only be assumed if these rates stay the same.:). Cheers!\",\n \"First, as Dheer mentioned above, there is no right answer as investment avenues for a person is dicteted by many subjective considerations. Given that below a few of my thoughts (strictly thoughts): 1) Have a plan for how much money you would need in next 5-7 years, one hint is, do you plan you buy a house, car, get married ... Try to project this requirement 2) Related to the above, if you have some idea on point 1, then it would be possible for you to determine how much you need to save now to achieve the above (possibly with a loan thrown in). It will also give you some indication as to where and how much of your current cash holding that you should invest now 3) From an investment perspective there are many instruments, some more risky some less. The exact mix of instruments that you should consider is based on many things, one among them is your risk apetite and fund requirement projections 4) Usually (not as a rule of thumb) the % of savings corresponding to your age should go into low risk investments and 100-the % into higher risk investment 5) You could talk to some professional invetment planners, all banks offer the service Hope this helps, I reiterate as Dheer did, there is truely no right answer for your question all the answers would be rather contextual.\",\n \"Buy only 'Direct' Plans, not regular. - Demat providers won't sell Direct plans, that you can do it through https://www.mfuindia.com Make sure expense ratio < 2.5% (With direct plans it will be much lesser) I hope these points will help you to take a better decision.\",\n \"Just to clarify Short Team Goals & Long Term Goals... Long Term goals are for something in future, your retirement fund, Children’s education etc. Short Term goals are something in the near future, your down payment for car, house, and holiday being planned. First have both the long and short terms goals defined. Of Couse you would need to review both these goals on a ongoing basis... To meet the short term goals you would need to make short term investments. Having arrived at a short term goal value, you would now need to make a decision as to how much risk you are willing [also how much is required to take] to take in order to meet your goal. For example if you goal is to save Rs 100,000 by yearend for the car, and you can easily set aside Rs 8,000 every month, you don't really need to take a risk. A simple Term / Fixed Deposit would suffice you to meet your goal. On the other hand if you can only save Rs 6,000 a year, then you would need to invest this into something that would return you around 35%. You would now need to take a risk. Stocks market is one option, there are multiple types of trades [day trades, shorts, options, regular trades] that one can do ... however the risk can wipe out even your capital. As you don't know these types of investments, suggest you start with dummy investing using quite a few free websites, MoneyControl is one such site, you get pseudo money and can buy sell and see how things actually move. This should teach you something about making quick gains or losses without actually gaining or loosing real money. Once you reach some confidence level, you can start trading using real money by opening a trading account almost every other bank in India offers online trading linked to bank account. Never lose sight of risk appetite, and revise if every now and then. When you don't have dependents, you can easily risk money for potential bumper, however after you have other commitments, you may want to tone down... Edit: http://moneybhai.moneycontrol.com/moneybhai-rules.html is one such site, there are quite a few others as well that offer you to trade on virtual money. Try this for few months and you will understand whether you are making right decissions or not.\",\n \"\\\"Best way to invest around 50k Indian rupees and save Tax There is nothing \\\"\\\"Best\\\"\\\". There are multiple options that are available under 80C and you need to select one that suites you best. There are market linked options like ELSS, or assured returns like 6 years FD, or PPF or Term Insurance or other such options.\\\"\",\n \"\\\"Say you have $15,000 of capital to invest. You want to put the majority of your capital into low risk investments that will yield positive gains over the course of your working career. $5,000: Government bonds and mutual funds, split how you want. $9,500: Low risk, trusted companies with positive historical growth. If the stock market is very unfamiliar for you, I recommend Google Finance, Yahoo Finance, and Zack's to learn about smart investments you can make. You can also research the investments that hedge fund managers and top investors are making. Google \\\"\\\"Warren Buffett or Carl Icahn portfolio\\\"\\\", and this will give you an idea of stocks you can put your money into. Do not leave your money into a certain company for more than 25 years. Rebalance your portfolio and take the gains when you feel you need them. You have no idea when to take your profits now, but 5 years from now, you will be a smart and experienced investor. A safe investment strategy to start is to put your money into an ETF that mimics the S&P 500. Over the past 20 years, the S&P 500 has yielded gains of about 270%. During the financial crisis a few years back, the S&P 500 had lost over 50% of its value when it reached its low point. However, from when it hit rock bottom in 2009, it has had as high percentage gains in six years as it did in 12 years from 1995 to 2007, which about 200%. The market is very strong and will treat your money well if you invest wisely. $500: Medium - High risk Speculative Stocks There is a reason this category accounts for only approximately 3% of your portfolio. This may take some research on the weekend, but the returns that may result can be extraordinary. Speculative companies are often innovative, low priced stocks that see high volatility, gains or losses of more than 10% over a single month. The likelihood of your $500 investment being completely evaporated is very slim, but if you lose $300 here, the thousands invested in the S&P 500, low risk stocks, government bonds, and mutual funds will more than recuperate the losses. If your pick is a winner, however, expect that the $500 investment could easily double, triple, or gain even more in a single year or over the course of just a few, perhaps, 2-4 years will see a very large return. I hope this advice helps and happy investing! Sending your money to smart investments is the key to financial security, freedom, and later, a comfortable retirement. Good luck, Matt McLaughlin\\\"\",\n \"I have been on the same boat as you are right now. So basically, it depends on your goals, risk tolerance, upcoming life events! You want a plan not just for this particular 50K, but for your household assets and future earnings to come! My suggestion: Get a flat fee, online financial advisor to do the work for you. You don’t have to figure this out by yourself. Personally, I would invest in a portfolio that: Offers dynamic asset allocation plans that evolves over time based on changing market conditions. Offers a healthy mix of beta and alpha strategies along with the liquidity and ability to monitor activity online. Has structural risk management in place. Risk management is as much about increasing risk as it is about cutting risk. Therefore, you want a plan for de-allocating and re-allocating risk Hope this helps.\",\n \"50 (dollars, Euros?) is a very small amount to invest. The first time I ever bought stock I picked a winner. It went up by about 40% in the first few months. I sold it and lost money. How? I only bought 10 shares at $7.50 each. The profit was less than the two commissions for buying and selling (about $17 a piece). If you are thinking of buying individual stocks, You simply need to save up more money before it will be practical. If you are not trying to beat the market, which is probably not something an amateur like you or I should attempt, then you should consider low cost index funds. I have money in mutual funds, some of which, have as low as a $100 minimum investment. I have moved entirely away from picking stocks. It was a good experience and I could afford to lose the money, but as a long term strategy, it just was not working for me. Note: This is coming from an American. If this somehow does not apply in Europe...\",\n \"There are more than a few ideas here. Assuming you are in the U.S., here are a few approaches: First, DRIPs: Dividend Reinvestment Plans. DRIP Investing: How To Actually Invest Only A Hundred Dollars Per Month notes: I have received many requests from readers that want to invest in individual stocks, but only have the available funds to put aside $50 to $100 into a particular company. For these investors, keeping costs to a minimum is absolutely crucial. I have often made allusions and references to DRIP Investing, but I have never offered an explanation as to how to logistically set up DRIP accounts. Today, I will attempt to do that. A second option, Sharebuilder, is a broker that will allow for fractional shares. A third option are mutual funds. Though, these often will have minimums but may be waived in some cases if you sign up with an automatic investment plan. List of mutual fund companies to research. Something else to consider here is what kind of account do you want to have? There can be accounts for specific purposes like education, e.g. a college or university fund, or a retirement plan. 529 Plans exist for college savings that may be worth noting so be aware of which kinds of accounts may make sense for what you want here.\",\n \"I think I have a better answer for this since I have been an investor in the stock markets since a decade and most of my money is either made through investing or trading the financial markets. Yes you can start investing with as low as 50 GBP or even less. If you are talking about stocks there is no restriction on the amount of shares you can purchase the price of which can be as low as a penny. I stared investing in stocks when I was 18. With the money saved from my pocket money which was not much. But I made investments on a regular period no matter how less I could but I would make regular investments on a long term. Remember one thing, never trade stock markets always invest in it on a long term. The stock markets will give you the best return on a long term as shown on the graph below and will also save you money on commission the broker charge on every transaction. The brokers to make money for themselves will ask you to trade stocks on short term but stock market were always made to invest on a long term as Warren Buffet rightly says. And if you want to trade try commodities or forex. Forex brokers will offer you accounts with as low as 25 USD with no commissions. The commission here are all inclusive in spreads. Is this true? Can the average Joe become involved? Yes anyone who wants has an interest in the financial markets can get involved. Knowledge is the key not money. Is it worth investing £50 here and there? Or is that a laughable idea? 50 GBP is a lot. I started with a few Indian Rupees. If people laugh let them laugh. Only morons who don't understand the true concept of financial markets laugh. There are fees/rules involved, is it worth the effort if you just want to see? The problem with today's generation of people is that they fear a lot. Unless you crawl you dont walk. Unless you try something you dont learn. The only difference between a successful person and a not successful person is his ability to try, fail/fall, get back on feet, again try untill he succeeds. I know its not instant money, but I'd like to get a few shares here and there, to follow the news and see how companies do. I hear that BRIC (brasil, russia, india and china) is a good share to invest in Brazil India the good thing is share prices are relatively low even the commissions. Mostly ROI (return on investment) on a long term would almost be the same. Can anyone share their experiences? (maybe best for community wiki?) Always up for sharing. Please ask questions no matter how stupid they are. I love people who ask for when I started I asked and people were generous enough to answer and so would I be.\",\n \"I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.\",\n \"There's a few options you may want to look into. First, I'm writing from an US point of view, I do not know if these are available in Russia. First look into DRIPS (Dividend Reinvestment Plans). These seem tailor made for your request. They are plans set up by companies that pay dividends. If you own at least one share (costing no more than say $100 often less), then these companies will take the dividends paid on these shares and automatically buy more shares as the income from the dividends pile up. This is a low cost of entry way of getting in on many high quality stocks. Stalwart stocks such as GE and many utility and real estate stocks (REITs) offer this. Check out these links: Secondly you can look at brokerages that specialize in buying smaller amount of stocks on a regular basis to simulate a DRIP, ShareBuilder will allow you to invest say $50 or $100 a month into one or more stocks. However, at smaller amounts, their commission fees can eat in to your returns. Folio investing does the same thing as Sharebuilder. It's worth looking at them both and comparing their commissions and other features\",\n \"You can invest more that 20,000 in Infrastructure bonds, however the tax benefit is only on 20,000. Further the interest earned is taxable. The best guaranteed post tax returns is on PPF. So invest a substantial sum in this. As your age group low you can afford to take risk and hence could also look at investing in ELSS [Mutual Fund]. A note on each of these investments: LIC: If you have taken any of the endowment / Money Back plan, remember the returns are very low around 5-6%. It would make more sense to buy a pure term plan at fraction of the cost and invest the remaining premium into even PPF or FD that would give you more return. NSC/Postal Savings: They are a good option, however the interest is taxable. There is a locking of 6 years. PPF: The locking is large 15 years although one can do partial withdrawals after 7 years. The interest is not taxable. ULIP: These are market linked plans with Insurance and balance invested into markets. The charges for initial few years is quite high, plus the returns are not comparable to the normal Mutual Funds. Invest in this only if one needs less paper and doesn't want to track things separately. ELSS/Mutual Fund: These offer good market returns, but there is a risk of market. As you are young you can afford to take the risk. Most of the ELSS have given average results that are still higher than FD or PPF. Pension Plan: This is a good way to accumulate for retirement. Invest some small amount in this and do not take any insurance on it. Go for pure equity as you can still take the risk. This ensures that you have a kit for retirement. Check out the terms and conditions as to how you need to purchase annuity at the term end etc.\",\n \"Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.\",\n \"I think small sums invested regularly over long-term can do good for you, things to consider: I would go with an index fund and contribute there there regularly.\",\n \"\\\"Everything that I'm saying presumes that you're young, and won't need your money back for 20+ years, and that you're going to invest additional money in the future. Your first investments should never be individual stocks. That is far too risky until you have a LOT more experience in the market. (Once you absolutely can't resist, keep it to under 5% of your total investments. That lets you experiment without damaging your returns too much.) Instead you would want to invest in one or more mutual funds of some sort, which spreads out your investment across MANY companies. With only $50, avoiding a trading commission is paramount. If you were in the US, I would recommend opening a free online brokerage account and then purchasing a no-load commission-free mutual fund. TD Ameritrade, for example, publishes a list of the funds that you can purchase without commission. The lists generally include the type of fund (index, growth, value, etc.) and its record of return. I don't know if Europe has the same kind of discount brokerages / mutual funds the US has, but I'd be a little surprised if it didn't. You may or may not be able to invest until you first scrape together a $500 minimum, but the brokerages often have special programs/accounts for people just starting out. It should be possible to ask. One more thing on picking a fund: most charge about a 1% annual expense ratio. (That means that a $100 investment that had a 100% gain after one year would net you $198 instead of $200, because 1% of the value of your asset ($200) is $2. The math is much more complicated, and depends on the value of your investment at every given point during the year, but that's the basic idea.) HOWEVER, there are index funds that track \\\"\\\"the market\\\"\\\" automatically, and they can have MUCH lower expense fees (0.05%, vs 1%) for the same quality of performance. Over 40 years, the expense ratio can have a surprisingly large impact on your net return, even 20% or more! You'll want to google separately about the right way to pick a low-expense index fund. Your online brokerage may also be able to help. Finally, ask friends or family what mutual funds they've invested in, how they chose those funds, and what their experience has been. The point is not to have them tell you what to do, but for you to learn from the mistakes and successes of other experienced investors with whom you can follow up.\\\"\",\n \"The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.\",\n \"\\\"Is this amount an adequate starting amount to begin investing with? Yes. You can open an account at a brokerage with this amount. I'm not sure I would invest in individual stocks at this point. Which services should I use to start buying shares? (Currently my bank offers this service but I'm willing to use other sources) I can't make UK-specific recommendations, but I'd compare your bank's fees to those of a discount broker -- as well as the variety and level of service available. I would like to regularly increase the amount invested in shares. Is it worth doing this in say £200 increments? Take a look at the fees associated with each investment. Divide the fee by the increment to see what percent you'll lose to fees/commissions. Keep in mind that you have to gain more than that percentage to start earning a positive return on your investment. If you have access to fee-free automatic mutual fund investments, and you can commit to the £200 amount on a regular basis going forward, then this can be a completely free way of making these incremental investments. See also this answer on dollar cost averaging, and my comment on the other answer on that question for how fees impact returns. When buying shares should I focus on say two or three companies, or diversify more? I would diversify into two or three different index funds. Read up on asset allocation. For example, you might invest 1/3 of your balance into S&P 500 index fund, bond index fund, and MSCI EAFE index fund (but that's just a rough example, and not necessarily good for you). I highly recommend \\\"\\\"The Intelligent Asset Allocator\\\"\\\" by William Bernstein for excellent info on diversification and asset allocation.\\\"\",\n \"One year is short term -- short enough that trying to predict returns is a crap shoot. Frankly, if you will need the money in one year I wouldn't touch anything riskier than a money market account. $5000 also isn't enough to give you much flexibility in achieving a balanced portfolio, since the minimal initial purchase for mutual funds is often around $2500. (I'm not sure whether ETFs would give you any more flexibility.) So on grounds of both size and time horizon, I have to recommend against this plan. The risk of losing money, with insufficient time for gains to balance that risk, is simply too high. Others may feel differently, of course. But that's the best advice I can offer.\",\n \"\\\"Before going into specific investments, I think it would be a good idea to assess how \\\"\\\"free\\\"\\\" is that $5000. How much do you have to rely on it in emergency? You always want to buy low and sell high. However, if you need to make unplanned withdraw from an investment, you risk unfavorable market conditions at the time when you need the money, and lose money that way. One common suggestion is to keep 3-6 months living expense in checking/saving/very, very liquid/short term investments. After that, you can invest the rest in more profitable ventures. Assuming that you are all set in that regard, next consideration is whether you have any goal for the money besides generating the maximum return. Is this for retirement, buying a house/apartment a few year down the road, graduate school, emergency cash store for the time between graduation and getting a job, or traveling a year in Europe after graduation? There are myriad of other possible goals. Knowing that you get a better idea of the time frame involved in the investment, and what you need to do with your money. If this is for retirement, you just need to generate the highest possible return for 40-50 years, while minimize taxes when you have to withdraw that money (there are more nuanced concerns, but large idea-wise that's what you need to do). If you want it for a trip to an exotic location in 2 year, then your primary goal will be to preserve the value of your capital, while assessing whether you need to manage foreign-exchange risk. The time frame also rule in or rule out certain types of investments. If you are planning to use the money to purchase a house in 5 years, IRAs probably would not be what you are looking for. If you are planning to retirement, short term CD would not be the most effective way. After figuring out a bit of what you are trying to do with the money, I think how you want to invest it will be much more clear to you. In case of retirement, people seem to generally recommend no load index funds, and mid-cap growth funds. Nothing is really off the table, since your investment time frame is so long, and you can tolerate risk. You might also be interested to check out https://www.wealthfront.com/ (I have no relation with them). A friend recommended it to me, and I think their pitch make sense. In other cases, it really is case dependent, and there might have more than one solution to any case. There is just one more potential investment venture that people you might not immediately thinking of, and that might be of interest to you. That is to use the $5000 as your own budget to build/maintain connections with people and network. Use it to take professors out to a meal to pick their brain, travel to keep in touch with old friends, network with potential future employers and peers to improve job prospect, or get opportunities to meet interesting people. I hope this helps.\\\"\",\n \"When you are starting out using a balanced fund can be quite advantageous. A balanced fund is represents a diversified portfolio in single fund. The primary advantage of using a balanced fund is that with it being a single fund it is easier to meet the initial investment minimum. Later once you have enough to transition to a portfolio of diversified funds you would sell the fund and buy the portfolio. With a custom portfolio, you will be better able to target your risk level and you might also be able to use lower cost funds. The other item to check is do any of the funds that you might be interested in for the diversified portfolio have lower initial investment option if you can commit to adding money on a specified basis (assuming that you are able to). Also there might be an ETF version of a mutual fund and for those the initial investment amount is just the share price. The one thing to be aware of is make sure that you can buy enough shares that you can rebalance (holding a single share makes it hard to sell some gain when rebalancing). I would stay away from individual stocks until you have a much larger portfolio, assuming that you want to invest with a diversified portfolio. The reason being that it takes a lot more money to create a diversified portfolio out of individual stocks since you have to buy whole shares. With a mutual fund or ETF, your underlying ownership of can be fractional with no issue as each fund share is going to map into a fraction of the various companies held and with mutual funds you can buy fractional shares of the fund itself.\",\n \"Contrary to most other advise given here, I'd recommend (in your situation) not to invest in stock (yet). There are some 'hidden' cost to investing that will eat your profit and in the end, that's why you are investing. Banks will charge for buying, selling and maintaining stock as well as for cashing dividends. Depending on which bank or intermediary these costs will rise. So, my advise is to start playing with stock creating a virtual portfolio and track that. Just as duffbeer says, start saving. Also look at my answer here.\",\n \"Compound interest is your friend. For such a low amount of cash, just pop it into savings accounts or deposits. When you reach about 1.500€ buy one very defensive stock that pays high dividends. With deposits, you don't risk anything, with one stock, you can lose 100% of the investment. That's why it's important to buy defensive stock (food, pharma, ...). Every time you hit 1.500€ after, buy another stock until you have about 10 different stock in different sectors, in different countries. Then buy more stock of the ones you have in portfolio. You're own strategy is pretty good also.\",\n \"\\\"Index funds can be a very good way to get into the stock market. It's a lot easier, and cheaper, to buy a few shares of an index fund than it is to buy a few shares in hundreds of different companies. An index fund will also generally charge lower fees than an \\\"\\\"actively managed\\\"\\\" mutual fund, where the manager tries to pick which stocks to invest for you. While the actively managed fund might give you better returns (by investing in good companies instead of every company in the index) that doesn't always work out, and the fees can eat away at that advantage. (Stocks, on average, are expected to yield an annual return of 4%, after inflation. Consider that when you see an expense ratio of 1%. Index funds should charge you more like 0.1%-0.3% or so, possibly more if it's an exotic index.) The question is what sort of index you're going to invest in. The Standard and Poor's 500 (S&P 500) is a major index, and if you see someone talking about the performance of a mutual fund or investment strategy, there's a good chance they'll compare it to the return of the S&P 500. Moreover, there are a variety of index funds and exchange-traded funds that offer very good expense ratios (e.g. Vanguard's ETF charges ~0.06%, very cheap!). You can also find some funds which try to get you exposure to the entire world stock market, e.g. Vanguard Total World Stock ETF, NYSE:VT). An index fund is probably the ideal way to start a portfolio - easy, and you get a lot of diversification. Later, when you have more money available, you can consider adding individual stocks or investing in specific sectors or regions. (Someone else suggested Brazil/Russia/Indo-China, or BRICs - having some money invested in that region isn't necessarily a bad idea, but putting all or most of your money in that region would be. If BRICs are more of your portfolio then they are of the world economy, your portfolio isn't balanced. Also, while these countries are experiencing a lot of economic growth, that doesn't always mean that the companies that you own stock in are the ones which will benefit; small businesses and new ventures may make up a significant part of that growth.) Bond funds are useful when you want to diversify your portfolio so that it's not all stocks. There's a bunch of portfolio theory built around asset allocation strategies. The idea is that you should try to maintain a target mix of assets, whatever the market's doing. The basic simplified guideline about investing for retirement says that your portfolio should have (your age)% in bonds (e.g. a 30-year-old should have 30% in bonds, a 50-year-old 50%.) This helps maintain a balance between the volatility of your portfolio (the stock market's ups and downs) and the rate of return: you want to earn money when you can, but when it's almost time to spend it, you don't want a sudden stock market crash to wipe it all out. Bonds help preserve that value (but don't have as nice of a return). The other idea behind asset allocation is that if the market changes - e.g. your stocks go up a lot while your bonds stagnate - you rebalance and buy more bonds. If the stock market subsequently crashes, you move some of your bond money back into stocks. This basically means that you buy low and sell high, just by maintaining your asset allocation. This is generally more reliable than trying to \\\"\\\"time the market\\\"\\\" and move into an asset class before it goes up (and move out before it goes down). Market-timing is just speculation. You get better returns if you guess right, but you get worse returns if you guess wrong. Commodity funds are useful as another way to diversify your portfolio, and can serve as a little bit of protection in case of crisis or inflation. You can buy gold, silver, platinum and palladium ETFs on the stock exchanges. Having a small amount of money in these funds isn't a bad idea, but commodities can be subject to violent price swings! Moreover, a bar of gold doesn't really earn any money (and owning a share of a precious-metals ETF will incur administrative, storage, and insurance costs to boot). A well-run business does earn money. Assuming you're saving for the long haul (retirement or something several decades off) my suggestion for you would be to start by investing most of your money* in index funds to match the total world stock market (with something like the aforementioned NYSE:VT, for instance), a small portion in bonds, and a smaller portion in commodity funds. (For all the negative stuff I've said about market-timing, it's pretty clear that the bond market is very expensive right now, and so are the commodities!) Then, as you do additional research and determine what sort investments are right for you, add new investment money in the places that you think are appropriate - stock funds, bond funds, commodity funds, individual stocks, sector-specific funds, actively managed mutual funds, et cetera - and try to maintain a reasonable asset allocation. Have fun. *(Most of your investment money. You should have a separate fund for emergencies, and don't invest money in stocks if you know you're going need it within the next few years).\\\"\",\n \"It varies. Depending on your brokerage, they may charge you per transaction, so the more transactions, the higher the cost. Though this (from what I've seen), is uncommon with many index funds. In terms of how aggressive you want to be with your investment varies on your comfort with risk, timeline of investment and many other factors beyond the scope of this question. The biggest issue you may need to be aware of is if you are looking at mutual funds, they may have minimum investments. Depending on what that minimum investment is set to, you may not be able to split your $5500 into more than one fund. A lot of this comes down to the specific funds in which your are anticipating investing, as well as the service you use to do so (Fidelity, Vanguard, etc). Ultimately, diversification can be a lot safer, but there are logistics to consider. Personally, I began with a target fund (a mutual fund with adjusted risk based on the estimated year of retirement) and add additional mutual funds, stocks and ETFs as time goes on.\",\n \"If I were you, I would save 200 euros for retirement each month and another 800 I would stash away with the hope to start investing soon. I think you have to invest a bigger lump sum, then 1000 euros. It makes sense to invest at least 30K to see any tangible results. My acquaintances started from 50K and now see pretty handsome returns. Investing is profitable, as long as you approach it smartly. Also, do not ever hire an overly expensive financial consultant - this expenses will never pay off. Of course, check their credentials and reputation... But never pay much to these guys. Not worth it.\",\n \"\\\"1000 (£/$/€) is also not a lot to start with. Assuming you want to buy stocks or ETFs you will be paying fees on both ends. Even with online brokerages you are looking at 7.95 (£/$/€) a trade. That of course translates to a min of .795% x 2 = 1.59% increase in value you would need just to break even already. There is a way around some of this as a lot of the brokerages do not charge fees for their ETFs or their affiliated ones. However, I would try to hold out till at least $5000 before investing in assets such as stocks. In the meantime there are many great books out there to \\\"\\\"invest in knowledge\\\"\\\".\\\"\",\n \"What is the best form of investment? It only depends on your goals... The perfect amount of money depends also on your particular situation. The first thing you should start getting familiar with is the notion of portfolio and diversification. Managing risk is also fundamental especially with the current market funkiness... Start looking at index based ETFs -Exchange Traded Funds- and Balanced Mutual Funds to begin with. Many discounted online brokerage companies in the USA offer good training and knowledge centers. Some of them will also let you practice with a demo account that let you invest virtual money to make you feel comfortable with the interface and also with investing in general.\",\n \"Conventional wisdom says (100-age) percentage of your saving should go to Equity and (age) percentage should go to debt. My advice to you is to invest (100-age) into index fund through SIP and rest in FD. You can re-balance your investment once a year. Stock picking is very risky. And so is market timing. Of cource you can change the 100 into a other number according to your risk tolerance.\",\n \"As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.\",\n \"It is difficult to actually 'answer' your (or any other) investment question as investment outlook and objectives are different from one individual to another. I shall put down some of my thoughts and probably you shall be able to factor them in while you take your decision. As for your last paragraph, in general from investment perspective, the younger you are more kisk you can take and bond gives a stable base to a portfolio. One good way to estimate the proportionality of bond:stock is (your age):(100-your age). However for 2-3 years you could ignore the above and invest in good quality stocks for long term.\",\n \"5 years is a reasonable time period to invest in a stock which will give you a decent return and will generally not lose too much value except in case of 2008 kinda downturn. I would advise you to invest in a large cap stock/s like BP, Royal Dutch or HSBC (Your parents of course can buy them for you).\",\n \"As I recall, the Scottrade minimum is only $500. (By the way, Scottrade has a feature to automatically reinvest any dividends which the securities pay) Once you have an account, you can buy into an index fund. SPY tracks the S&P 500. It is also currently paying nearly 2% in dividends. You can shop for other alternatives here: http://seekingalpha.com/insight/etf_hub/etf_guide/selector/article/39431-core-building-blocks-large-mid-small-cap-us-etfs\",\n \"As observed above, 1.5% for 3 years is not attractive, and since due to the risk profile the stock market also needs to be excluded, there seems about 2 primary ways, viz: fixed income bonds and commodity(e,g, gold). However, since local bonds (gilt or corporate) are sensitive and follow the central bank interest rates, you could look out investing in overseas bonds (usually through a overseas gilt based mutual fund). I am specifically mentioning gilt here as they are government backed (of the overseas location) and have very low risk. Best would be to scout out for strong fund houses that have mutual funds that invest in overseas gilts, preferably of the emerging markets (as the interest is higher). The good fund houses manage the currency volatility and can generate decent returns at fairly low risk.\",\n \"What is your investing goal? And what do you mean by investing? Do you necessarily mean investing in the stock market or are you just looking to grow your money? Also, will you be able to add to that amount on a regular basis going forward? If you are just looking for a way to get $100 into the stock market, your best option may be DRIP investing. (DRIP stands for Dividend Re-Investment Plan.) The idea is that you buy shares in a company (typically directly from the company) and then the money from the dividends are automatically used to buy additional fractional shares. Most DRIP plans also allow you to invest additional on a monthly basis (even fractional shares). The advantages of this approach for you is that many DRIP plans have small upfront requirements. I just looked up Coca-cola's and they have a $500 minimum, but they will reduce the requirement to $50 if you continue investing $50/month. The fees for DRIP plans also generally fairly small which is going to be important to you as if you take a traditional broker approach too large a percentage of your money will be going to commissions. Other stock DRIP plans may have lower monthly requirements, but don't make your decision on which stock to buy based on who has the lowest minimum: you only want a stock that is going to grow in value. They primary disadvantages of this approach is that you will be investing in a only a single stock (I don't believe that can get started with a mutual fund or ETF with $100), you will be fairly committed to that stock, and you will be taking a long term investing approach. The Motley Fool investing website also has some information on DRIP plans : http://www.fool.com/DRIPPort/HowToInvestDRIPs.htm . It's a fairly old article, but I imagine that many of the links still work and the principles still apply If you are looking for a more medium term or balanced investment, I would advise just opening an online savings account. If you can grow that to $500 or $1,000 you will have more options available to you. Even though savings accounts don't pay significant interest right now, they can still help you grow your money by helping you segregate your money and make regular deposits into savings.\",\n \"\\\"Before anything else, read up on the basics of economics. After that, there a few things you need to ask yourself before you even think about investing in anything: If you have an answer to those questions: Once you answered those questions I could make a simple first suggestion: Confident in handling it yourself and low maintenance with uncertain horizon: look up an online bank that offers ETFs such as IWDA (accumulation (dividend is not payed but reinvested) or income(dividend is payed out)) and maybe a few more specific ones then buy and hold for at least 5 years. Confident and high maintenance with long horizon: maybe stock picking but you'll probably never be able to beat the market unless you invest 10's of hours in research per week. However this will also cost a bit and given your initial amount not advisable to do. Be sure that you also have a VERY close look at the prospectus of an investment (especially if you go with a (retail) bank and they \\\"\\\"recommend\\\"\\\" you certain actively traded funds). They tend to charge you quite a bit (yearly management fees of 2-3% (which is A LOT if you are eying maybe 7%-8% yearly) aren't unheard of). ETF's such IWDA only have for example a yearly cost of 0.20%. Personally I have one portfolio (of many) only consisting of that ETF (so IWDA) and one global small cap. It's one of the best and most consistant ones to date. In the end, the amount you start with doesn't really matter so much as long as it's enough to buy at least a few shares of what you have in mind. If you can then increase your portfolio over time and keep the expenses in check, compounding interest should do the rest.\\\"\",\n \"As you have already good on your retirement kitty. Assuming you have a sufficient cash for difficult situations, explore the options of investing in Shares and Mutual Funds. As you are new to Stock Market, begin slowly by investing into Mutual Funds and ETF for precious metals. This will help you understand and give you confidence on markets and returns. Real estate is a good option, the down side being the hassle of getting rental and the illiquid nature of the investment.\",\n \"\\\"Spend your first 50 euros on research materials. Warren Buffett got started as a boy by reading every book in the Library of Congress on investing and stock market analysis. You can research the company filings for Canadian companies at http://www.sedar.com, U.S companies at http://www.edgar.com, and European companies at https://www.gov.uk/government/organisations/companies-house. Find conflicting arguments and strategies and decide for yourself which ones are right. The Motley Fool http://www.fool.ca offers articles on good stocks to add to your portfolio and why, as well as why not. They provide a balanced judgement instead of just hype. They also sell advice through their newsletter. In Canada the Globe & Mail runs a daily column on screening stocks. Every day they present a different stock-picking strategy and the filters used to reach their end list. They then show how much that portfolio would have increased or decreased as well as talking about some of the good & bad points of the stocks in the list. It's interesting to see over time a very few stocks show up on multiple lists for different strategies. These ones in my opinion are the stocks to be investing in. While the Globe's stock picks focus on Canadian and US exchanges, you might find the strategies worthwhile. You can subscribe to the digital version at http://www.theglobeandmail.com Once you have your analytical tools ready, pick any bank or stock house that offers a free practice account. Use that account and their screening tools to try out your strategies and see if you can make money picking stocks. My personal stock-picking strategy is to look for companies with: - a long uninterrupted history of paying dividends, - that are regularly increased, - and do not exceed the net profit per share of the company - and whose share price has a long history of increasing These are called unicorn companies, because there are so very few of them. Another great read is, \\\"\\\"Do Stocks Outperform Treasury Bills?\\\"\\\" by Hendrik Bessembinder. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 In this paper the author looks at the entire history of the U.S. stock universe and finds that less than 4% of stocks are responsible for 100% of the wealth creation in the U.S. stock market. He discusses his strategies for picking the winners, but it also suggests that if you don't want to do any research, you could pick pretty much any stock at random, short it, and wait. I avoid mutual funds because they are a winner only for the fellas selling them. A great description on why the mutual fund industry is skewed against the investor can be found in a book called \\\"\\\"The RRSP Secret\\\"\\\" by Greg Habstritt. \\\"\\\"Unshakeable\\\"\\\" by Tony Robbins also discusses why mutual funds are not the best way to invest in stocks. The investor puts up 100% of the money, takes 100% of the risk, and gets at best 30% of the return. Rich people don't invest like that.\\\"\",\n \"Investing is really about learning your own comfort level. You will make money and lose money. You will make mistakes but you will also learn a great deal. First off, invest in your own financial knowledge, this doesn't require capital at all but a commitment. No one will watch or care for your own money better than yourself. Read books, and follow some companies in a Google Finance virtual portfolio. Track how they're doing over time - you can do this as a virtual portfolio without actually spending or losing money. Have you ever invested before? What is your knowledge level? Investing long term is about trying to balance risk while reducing losses and trying not to get screwed along the way (by people). My personal advice: Go to an independent financial planner, go to one that charges you per hour only. Financial planners that don't charge you hourly get paid in commissions. They will be biased to sell you what puts the most money in their pockets. Do not go to the banks investment people, they are employed by the banks who have sales and quota requirements to have you invest and push their own investment vehicles like mutual funds. Take $15k to the financial planner and see what they suggest. Keep the other $5K in something slow and boring and $1k under your mattress in actual cash as an emergency. While you're young, compound interest is the magic that will make that $25k increase hand over fist in time. But you need to have it consistently make money. I'm young too and more risk tolerant because I have time. While I get older I can start to scale back my risk because I'm nearing retirement and preserve instead of try to make returns.\",\n \"\\\"I've never invested in penny stocks. My #1 investing rule, buy what you know and use. People get burned because they hear about the next big thing, go invest! to just end up losing everything because they have no clue in what they're investing in. From what I've found, until you have minimum of $5k to invest, put everything in a single investment. The reason for this, as others have mentioned, is that commissions eat up just about all your profits. My opinion, don't put it in a bond, returns are garbage right now - however they are \\\"\\\"safe\\\"\\\". Because this is $1000 we're talking about and not your life savings, put it in a equity like a stock to try and maximize your return. I aim for 15% returns on stocks and can generally achieve 10-15% consistently. The problem is when you get greedy and keep thinking it will go above once you're at 10-15%. Sell it. Sell it right away :) If it drops down -15% you have to be willing to accept that risk. The nice thing is that you can wait it out. I try to put a 3 month time frame on things I buy to make money. Once you start getting a more sizable chunk of money to play around with you should start to diversify. In Canada at least, once you have a trading account with a decent size investment the commissions get reduced to like $10 a trade. With your consistent 10% returns and additional savings you'll start to build up your portfolio. Keep at it and best of luck!\\\"\",\n \"Just sticking to equities: If you are investing directly in a share/stock, depending on various factors, you may have picked up a winner or to your dismay a loser. Say you just have Rs 10,000/- to invest, which stock would you buy? If you don't know, then it’s better to buy a Mutual Fund. Now if you say you would buy a few of everything, then even to purchase say Rs 5000/- worth of each stock in the NIFTY Index [50 companies] you would require at least an investment of 250,000/-. When you are investing directly you always have to buy in whole numbers, i.e. you can't buy 1/2 share or 1.6 share of some stock. The way Mutual funds work is they take 10,000 from 250 people and invest in all the stocks. There are fund managers who's job is to pick good stocks, however even they cannot predict winners all the time. Normally a few of the picks become great winners, most are average, and a few are losers; this means that overall your returns are average VS if you had picked the winning stock. The essential difference between you investing on your own and via mutual funds are: It is good to begin with a Mutual Fund, and once you start understanding the stocks better you can invest directly into the equities. The same logic holds true for Debt as well.\",\n \"\\\"My advice would be to invest that 50k in 25% batches across 4 different money markets. Batch 1: Lend using a peer-to-peer account - 12.5k The interest rates offered by banks aren't that appealing to investors anymore, at least in the UK. Peer to peer lending brokers such as ZOPA provide 5% to 6% annual returns if you're willing to hold on to your investment for a couple of years. Despite your pre-conceptions, these investments are relatively safe (although not guaranteed - I must stress this). Zopa state on their website that they haven't lost any money provided from their investors since the company's inception 10 years ago, and have a Safeguard trust that will be used to pay out investors if a large number of borrowers defaulted. I'm not sure if this service is available in Australia but aim for an interest rate of 5-6% with a trusted peer-to-peer lender that has a strong track record. Batch 2: The stock market - 12.5k An obvious choice. This is by far the most exciting way to grow your money. The next question arising from this will likely be \\\"\\\"how do I pick stocks?\\\"\\\". This 12.5k needs to be further divided into 5 or so different stocks. My strategy for picking stock at the current time will be to have 20% of your holdings in blue-chip companies with a strong track record of performance, and ideally, a dividend that is paid bi-anually/quarterly. Another type of stock that you should invest in should be companies that are relatively newly listed on the stock market, but have monopolistic qualities - that is - that they are the biggest, best, and only provider of their new and unique service. Examples of this would be Tesla, Worldpay, and Just-eat. Moreover, I'd advise another type of stock you should purchase be a 'sin stock' to hedge against bad economic times (if they arise). A sin stock is one associated with sin, i.e. cigarette manufacturers, alcohol suppliers, providers of gambling products. These often perform good while the economy is doing well, but even better when the economy experiences a 2007-2008, and 2001-dotcom type of meltdown. Finally, another category I'd advise would be large-cap energy provider companies such as Exxon Mobil, BP, Duke Energy - primarily because these are currently cheaper than they were a few months ago - and the demand for energy is likely to grow with the population (which is definitely growing rapidly). Batch 3: Funds - 12.5k Having some of your money in Funds is really a no-brainer. A managed fund is traditionally a collection of stocks that have been selected within a particular market. At this time, I'd advise at least 20% of the 12.5k in Emerging market funds (as the prices are ridiculously low having fallen about 60% - unless China/Brazil/India just self destruct or get nuked they will slowly grow again within the next 5 years - I imagine quite high returns can be had in this type of funds). The rest of your funds should be high dividend payers - but I'll let you do your own research. Batch 4: Property - 12.5k The property market is too good to not get into, but let's be honest you're not going to be able to buy a flat/house/apartment for 12.5k. The idea therefore would be to find a crowd-funding platform that allows you to own a part of a property (alongside other owners). The UK has platforms such as Property Partner that are great for this and I'm sure Australia also has some such platforms. Invest in the capital city in areas as close to the city's center as possible, as that's unlikely to change - barring some kind of economic collapse or an asteroid strike. I think the above methods of investing provide the following: 1) Diversified portfolio of investments 2) Hedging against difficult economic times should they occur And the only way you'll lose out with diversification such as this is if the whole economic system collapses or all-out nuclear war (although I think your investments will be the least of your worries in a nuclear war). Anyway, this is the method of investing I've chosen for myself and you can see my reasoning above. Feel free to ask me if you have any questions.\\\"\",\n \"\\\"Shares are for investors. Most of the rich are investors. Unfortunately, the reverse is not true. But if you want to get rich, the first step is to become an investor. (The second is to become a SUCCESSFUL investor. 50 pounds might be too little. Try to start with at least 500 at a time. You can ADD amounts of 50 pounds. There are definitely fees involved. You will \\\"\\\"pay for lessons.\\\"\\\" But it will be worth it, if you become even a moderately successful investor. As for rules, they'll teach you the rules. Everyone wants your business. People have gotten (modestly) rich, buying shares here and there. One man told me of investing $600 in a company called Limited, and ending up with $12,000 some years later. BRIC is not a \\\"\\\"share.\\\"\\\" It is an acronym for four countries \\\"\\\"of the future.\\\"\\\" High risk, high reward here.\\\"\",\n \"More often than not the market will rise year on year. Your best move is to put the $5000 in on Jan 2. Are you in the 15% bracket? If not, that is, if higher, I'd suggest the traditional, deductible, IRA.\",\n \"\\\"Sure. For starters, you can put it in a savings account. Don't laugh, they used to pay noticeable interest. You know, back in the olden days. You could buy an I-bond from Treasury Direct. They're a government savings bond that pays a specified amount of interest (currently 0%, I believe), plus the amount of the inflation rate (something like 3.5% currently, I believe). You don't get paid the money -- the I-bond grows in value till you sell it. You can open a discount brokerage account, and buy 1 or more shares of stock in a company you like. Discount brokerages generally have a minimum of $500 or so, but will waive that if you set the account up as an IRA. Scot Trade, for instance. (An IRA, in case you didn't know, is a type of account that's tax free but you can't touch it till you turn 59 1/2. It's meant to help you save for retirement.) Incidentally, watch out of \\\"\\\"small account\\\"\\\" fees that some brokerages might charge you. Generally they're annual or monthly charges they'd charge you to cover their costs on your account -- since they're certainly not going to make it in commissions. That IRA at Scot Trade is no-fee. Speaking of commissions, those will be a big chunk of that $100. It'll be like $7-$10 to buy that stock -- a pretty big bite. However, many of these discount brokerages also offer some mutual funds for no commission. Those mutual funds, in turn, have minimums too, but once again if your account's an IRA many will waive the minimum or set it low -- like $100.\\\"\",\n \"Congratulations! You're making enough money to invest. There are two easy places to start: I recommend against savings accounts because they will quite safely lose your money: the inflation rate is usually higher than the interest rate on a savings account. You may have twice as much money after 50 years, but if everything costs four times as much, then you've lost buying power. If, in the course of learning about investing, you'd like to try buying individual stocks, do it only with money you wouldn't mind losing. Index funds will go down slightly if one of the companies in that index fails entirely, but the stock of a failed company is worthless.\",\n \"\\\"Congratulations on deciding to save money and choosing to invest it. One thing to know about mutual funds including index funds is that they typically require a minimum investment of a few thousand dollars, $3000 being a typical amount, unless the investment is in an IRA in which case $1000 might be a minimum. In some cases, automated monthly investments of $50 or $100 might need to be set up if you are beginning with a small balance. There is nothing wrong with your approach. You now should go and look at the various requirements for specific index funds. The Fidelity and Vanguard families are good choices and both offer very low-cost index funds to choose from, but different funds can have different requirements regarding minimum investments etc. You also have a choice of which index you want to follow, the S&P 500 Index, MidCap Indexes, Small-Cap Indexes, Total Stock Market Indexes etc., but your choice might be limited until you have more money to invest because of minimum investment rules etc. Most important, after you have made your choice, I urge you to not look every day, or even every month, to see how your investment is doing. You will save yourself a lot of anxiety and will save yourself from making wrong decisions. Far too many investors ignore the maxim \\\"\\\"Buy Low, Sell High\\\"\\\" and pull money out of what should be long-term investments at the first flicker of a downturn and end up buying high and selling low. Finally, the time is approaching when most stock funds will be declaring dividends and capital gains distributions. If you invest now, you may end up with a paper profit on which you will have to pay taxes (in non-tax-advantaged accounts) on your 2012 tax return (this is called \\\"\\\"buying a dividend\\\"\\\"), and so you might want to spend some time investigating now, but actually make the investment in late December after your chosen fund has made its distributions (the date for this will be on the fund's web site) or in early 2013.\\\"\",\n \"Before jumping into stock trading, do try Mutual Funds and Index funds, That should give you some good overview of the equity markets. Further, do read up on building a balanced portfolio to suit your need and risk apetite. This would help you decide on Govt. bonds and other debt instruments.\",\n \"A safe investment would be to get a 5-year CD from Ally Bank. No minimum deposit and no monthly maintenance fees. 1.74% APY at the moment. I would choose a 5-year CD since the early withdrawal penalty is only 60 days interest, which will be negligible for a $100 investment and increasing the term significantly increases your interest rate. Regarding other suggestions: Even if you find a way purchase stock commission free, it will probably cost a $5-$10 commission to sell, wiping out probably a year or two of gains. Also, I-Bonds must be held for a year minimum, which is problematic. At the end of the day, it's probably not really worth your time to do any of these. $2 a year or $5 a year, it's still fairly insignificant and your time is surely worth more than that.\",\n \"\\\"The \\\"\\\"Money 70\\\"\\\" is a fine list: http://money.cnn.com/magazines/moneymag/bestfunds/index.html Money magazine is usually more reasonable than the other ones (SmartMoney, Kiplinger's, etc. are in my opinion sillier). If you want a lot of depth, the Morningstar Analyst Picks are useful but you have to pay for a membership which is probably not worth it for now: http://www.morningstar.com/Cover/Funds.aspx (side note: Morningstar star ratings are not useful, I'd ignore those. analyst picks are pretty useful.) Vanguard is a can't-go-too-wrong suggestion. They don't have any house funds that are \\\"\\\"bad,\\\"\\\" while for example Fidelity has some good ones mixed with a bunch that aren't so much. Of course, some funds at Vanguard may be inappropriate for your situation. (Vanguard also sells third-party funds, I'm talking about their own branded funds.) If getting started with 5K I think you'd want to go with an all-in-one fund like a target date retirement fund or a balanced fund. Such a fund also handles rebalancing for you. There's a Vanguard target date fund and balanced fund (Wellington) in the Money 70 list. fwiw, I think it's more important to ask how much risk you need to take, rather than how much you are willing to take. I wrote this down at more length here: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ First pick your desired asset allocation, then pick your fund after that to match. Good luck.\\\"\",\n \"I like Keshlam's answer and would like to add a few notes: While your enthusiasm to invest is admirable learning patience is a key aspect of wealth building and keeping.\",\n \"The S&P 500 is a stock market index, which is a list of 500 stocks from the largest companies in America. You could open a brokerage account with a broker and buy shares in each of these companies, but the easiest, least expensive way to invest in all these stocks is to invest in an S&P 500 index mutual fund. Inside an index mutual fund, your money will be pooled together with everyone else in the fund to purchase all the stocks in the index. These types of funds are very low expense compared to managed mutual funds. Most mutual fund companies have an S&P 500 index fund; two examples are Vanguard and Fidelity. The minimum investment in most of these mutual funds is low enough that you will be able to open an account with your $4000. Something you need to keep in mind, however: investing in any stock mutual fund is not non-risk. It's not even low-risk, really. It is very possible to lose money by investing in the stock market. An S&P 500 index fund is diversified in the sense that you have money in lots of different stocks, but it is also not diversified, in a sense, because it is all in large cap American stocks. Before investing in the stock market, you should have a goal for the money you are investing. If you are investing for something several years away, an index fund can be a good place to invest, but if you will need this money within the next few years, the stock market might be too risky for you.\",\n \"\\\"Mutual funds can be relatively low risk and a good starting point. Really it depends on you. What are your goals? This is a pretty open ended question. These can all be low risk and provide some return. Note \\\"\\\"Less Knowledge\\\"\\\" is never a good qualifier for an investment. Your money is your business and you are entitled to know what your business is up to.\\\"\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"Investing requires capital, and the fastest way to get the capital is to develop good saving habits. Investing is an ongoing process to help you accumulate wealth, so to take advantage of compounding, the earlier you start, the better. I can suggest a few pointers to get you started on the investing journey. Godspeed! :)\",\n \"I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs.\",\n \"\\\"Invest! Because you are young and have lots of time, I recommend opening an investment account and putting most (1000£?) or all in something like an S&P 500 index fund or ETF. Start building your savings now because compound growth over time will build significant wealth. You can still invest the other 500£/mo in something a bit less volatile if you think you'll need the money in < 5 years. If you expect your income to continue to grow and you expect to have extra cash every month for the foreseeable future, I'd just put it all in an index fund. You can weather any temporary market swings, and in the worst-case scenario you can always sell a few shares if you need the cash. The advantage of an index fund is that it has very low fees and it's an \\\"\\\"invest-and-forget\\\"\\\" approach. You don't have to watch the market every day because your money will simply match the market. And in the long term the market does much better than most managed funds or ETFs. https://en.wikipedia.org/wiki/Index_fund\\\"\",\n \"Almost all major no-load mutual fund families allow you to do the kind of thing you are talking about, however you may need an initial investment of between $1000 to $3000 depending on the fund. Once you have it however, annual fee's are usually very little, and the fees to buy that companies funds are usually zero if it's a no-load company (Vanguard, TRowPrice, etc) With the larger companies that means you have a pretty large selection of funds, but generally EACH fund has a minimum initial purchase, once that's met then you can buy additional amounts in small quantities without a problem. For someone on a smaller budget, many low cost brokers (ETrade as mentioned by Litteadv, Scottrade as mentioned by myself in another similar question today) allow you to start with smaller initial balances and have a small selection of funds or ETF's that you can trade from without commission. In the case of Scottrade, they have like 15 ETF's that you can trade comission free. Check with the various low cost brokerages such as ETrade, Scottrade, and TDAmeritrade, to see what their policies are, and what if any funds/ETF's they allow you to trade in without commissions. Keep in mind that for Mutual funds, there may still be a fund minimum initial investment that applies, be sure to check if that is the case or not. The lack of any minimum investment makes ETF's a slightly more attractive option for someone who doesn't have the 'buy in' that many funds require.\",\n \"\\\"First off, monozok is right, at the end of the day, you should not accept what anyone says to do without your money - take their suggestions as directions to research and decide for yourself. I also do not think what you have is too little to invest, but that depends on how liquid you need to be. Often in order to make a small amount of money grow via investments, you have to be willing to take all the investment profits from that principle and reinvest it. Thus, can you see how your investment ability is governed by the time you plan to spend without that money? They mantra that I have heard from many people is that the longer you are able to wait, the more 'risk' you can take. As someone who is about the same age as you (I'm 24) I can't exactly say yet that what I have done is sure fire for the long term, but I suggest you adopt a few principles: 1) Go read \\\"\\\"A Random Walk Down Wall Street\\\"\\\" by Burton G. Malkiel. A key point for you might be that you can do better than most of these professional investors for hire simply by putting more money in a well selected index fund. For example, Vanguard is a nice online service to buy indexes through, but they may require a minimum. 2) Since you are young, if you go into any firm, bank, or \\\"\\\"financial planner,\\\"\\\" they will just think you are naive and try to get you to buy whatever is best for them (one of their mutual funds, money market accounts, annuities, some flashy cd). Don't. You can do better on your own and while it might be tempting because these options look more secure or well managed, most of the time you will barely make above inflation, and you will not have learned very much. 3) One exciting thin you should start learning now is about algorithmic trading because it is cool and super efficient. quantopian.com is a good platform for this. It is a fun community and it is also free. 4) One of the best ways I have found to watch the stock market is actually through a stock game app on my phone that has realtime stock price feed. Seeking Alpha has a good mobile app interface and it also connects you to news that has to do with the companies you are interested in.\\\"\",\n \"In terms of building the initial investment using some kind of mutual fund, I'd suggest you see my answer to this similar question https://money.stackexchange.com/questions/9943/cheapest-or-free-online-broker-for-beginner For buying individual stocks later, you could look at sharebuilder, or a low cost broker, however most of them charge between $5-$7 per trade, and if you are doing small dollar value trades then that can really really eat into things if you try to trade a lot.\",\n \"Buy the minimum of one fund now. (Eg total bond market) Buy the minimum of the next fund next time you have $2500. (Eg large-cap stocks.) Continue with those until you have enough to buy the next fund (eg small-cap stocks). Adjust as you go to balance these funds according to your planned ratios, or as close as you can reasonably get without having to actually transfer money between the funds more than once a year or so. Build up to your targets over time. If you can't easily afford to tie up that first $2500, stay with banks and CDs and maybe money market accounts until you can. And don't try to invest (except maybe through a matched 401k) before you have adequate savings both for normal life and for an emergency reserve. Note too that the 401k can be a way to buy into funds without a minimum. Check with your employer. If you haven't maxed out your 401k yet, and it has matching funds, that is usually the place to start saving for retirement; otherwise you are leaving free money on the table.\",\n \"In my mind, when looking at a five year period you have a number of options. You didn't specify where you are based, which admittedly makes it harder, to give you good advice. If you are looking for an investment that can achieve large gains, equities are impossible to ignore. By investing in an index fund or other diverse asset forms (such as mutual funds), your risk is relatively minimal. However there has historically been five year periods where you would lose/flatline your money. If this was to be the case you would likely be better off waiting more than five years to buy a house, which would be frustrating. When markets rebound, they often do it hard. If you are in a major economy, taking something like the top 100 of your stock market is a safe bet, although admittedly you would have made terrible returns if you invested in the Polish markets. While they often achieve lower returns than equity investments, they are generally considered safer - especially government issued bonds. If you were willing to sacrifice returns for safety, you must always consider them. This is an interesting new addition, and I can't comment on the state of it in the United States, however in Europe we have a number of platforms which do this. In the UK, for example you can achieve ~7.3% returns YoY using sites like Funding Circle. If you invest in a diverse range of businesses, you have minimal risk from and individual company not paying. Elsewhere in Europe (although not appropriate for me as everything I do is denominated in Sterling), you can secure 12% in places like Georgia, Poland, and Estonia. This is a very good rate and the platforms seem reputable, and 'guarantee' their loans. However unlike funding circle, they are for consumer loans. The risk profile in my mind is similar to that of equities, but it is hard to say. Whatever you do, you need to do your homework, and ensure that you can handle the level of risk offered by the investments you make. I haven't included things like Savings accounts in here, as the rates aren't worth bothering with.\",\n \"You have a couple of options: Auto-investing in an open-end mutual fund. Some companies may waive a minimum if you sign up for an automatic investing, e.g. T. Rowe Price will waive its minimum if you agree to invest $100/month. There may be some lower ones out there as well. Some brokers like ShareBuilder have programs where someone could auto-invest getting fractional shares with each purchase. However, something to consider is what percentage is it costing you to buy each time as it may be quite a bit of friction if you are paying $4 a purchase and only buying $40, this is 10% of your investment being eaten up in costs that I'd highly advise taking the first option.\",\n \"Most ETFs are index funds, meaning you get built in diversification so that any one stock going down won't hurt the overall performance much. You can also get essentially the same index funds by directly purchasing them from the mutual fund company. To buy an ETF you need a brokerage account and have to pay a transaction fee. Buying only $1000 at a time the broker transaction fee will eat too much of your money. You want to keep such fees way down below 0.1%. Pay attention to transaction fees and fund expense ratios. Or buy an equivalent index fund directly from the mutual fund company. This generally costs nothing in transaction fees if you have at least the minimum account value built up. If you buy every month or two you are dollar cost averaging, no matter what kind of account you are using. Keep doing that, even if the market values are going down. (Especially if the market values are going down!) If you can keep doing this then forget about certificates of deposit. At current rates you cannot build wealth with CDs.\",\n \"5 years is very short term, and since you are sure you'll need the money, investing it into the markets should probably not be done. You can toss it in Ally bank for 1% or consider a 5 yr raise your rate CD A decent write-up on time horizons: http://www.investopedia.com/articles/investing/110813/using-time-horizons-investing.asp If you want to go the stock/bond route you can assess the benefits of using something like a vanguard target date fund, or a roboadvisor such as wealthfront or betterment. You need to assess whether you think you may move up your time horizon, say you want to buy a house in 4 years, or, if it is 5 years, are you ok with it being 6.5-7 if there is a market downturn.\",\n \"Put £50 away as often as possible, and once it's built up to £500, invest in a stockmarket ETF. Repeat until you retire.\",\n \"Here's a good strategy: Open up a Roth IRA at a discount-broker, like TD Ameritrade, invest in no-fee ETF's, tracking an Index, with very low expense ratios (look for around .15%) This way, you won't pay brokers fees whenever you buy shares, and shares are cheap enough to buy casually. This is a good way to start. When you learn more about the market, you can check out individual stocks, exploring different market sectors, etc. But you won't regret starting with a good index fund. Also, it's easy to know how well you did. Just listen on the radio or online for how the Dow or S&P did that day/month/year. Your account will mirror these changes!\",\n \"Investing in mutual funds, ETF, etc. won't build a large pool of money. Be an active investor if your nature aligns. For e.g. Invest in buying out a commercial space (on bank finance) like a office space and then rent it out. That would give you better return than a savings account. In few years time, you may be able to pay back your financing and then the total return is your net return. Look for options like this for a multiple growth in your worth.\",\n \"According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.\",\n \"\\\"You will invest 1000£ each month and the transaction fee is 10£ per trade, so buying a bunch of stocks each month would not be wise. If you buy 5 stocks, then transaction costs will eat up 5% of your investment. So if you insist on taking this approach, you should probably only buy one or two stocks a month. It sounds like you're interested in active investing & would like a diversified portfolio, so maybe the best approach for you is Core & Satellite Portfolio Management. Start by creating a well diversified portfolio \\\"\\\"core\\\"\\\" with index funds. Once you have a solid core, make some active investment decisions with the \\\"\\\"satellite\\\"\\\" portion of the portfolio. You can dollar cost average into the core and make active bets when the opportunity arises, so you're not killed by transaction fees.\\\"\",\n \"It looks like you need a lot more education on the subject. I suggest you pick up a book on investing and portfolio management to get a first idea. Dividend yields are currently way below 5% on blue chips. Unlike coupons from fixed income instruments (which, in the same risk category, pay a lot less), dividend yields are not guaranteed and neither is the invested principal amount. In either case, your calculation is far away from reality. Sure, there are investments (such as the mentioned direct investments in companies or housings in emerging economies) that can potentially earn you two digit percentage returns. Just remember: risk always goes both ways. A higher earning potential means higher loss potential. Also, a direct investment is a lot less liquid than an investment on a publicly quoted high turnover market place. If you suddenly need money, you really don't want to be pressed to sell real estate in an emerging market (keyword: bid ask spread). My advice: the money that you can set aside for the long term (10 years plus), invest it in stock ETFs, globally. Everything else should be invested in bond funds or even deposits, depending on when you will need the access. As others have pointed out, consider getting professional advice.\",\n \"you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.\",\n \"Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.\",\n \"\\\"The $1K in funds are by default your emergency fund. If absolutely necessary, emergency funds may need to come from debt, a credit capacity, focus on building credit to leverage lower rates for living expenses eventually needed. Profitable organizations & proprietors, borrow at a lower cost of capital than their return. Join your local credit union, you're welcome to join mine online, the current rates for the first $500 in both your checking and savings is 4.07%, it's currently the fourth largest in the U.S. by assets. You may join as a \\\"\\\"family member\\\"\\\" to me (Karl Erdmann), not sure what their definition of \\\"\\\"family\\\"\\\" is, I'd be happy to trace our ancestry if need be or consider other options. Their current incentive program, like many institutions have often, will give you $100 for going through the hassle to join and establish a checking and savings. Some institutions, such as this credit union, have a lower threshold to risk, applicants may be turned down for an account if there is any negative history or a low credit score, shooting for a score of 600 before applying seems safest. The web services, as you mentioned, have significantly improved the layman's ability to cost effectively invest funds and provide liquidity. Robinhood currently seems to be providing the most affordable access to the market. It goes without saying, stay objective with your trust of any platform, as you may have noticed, there is a detailed explanation of how Robinhood makes their money on this stack exchange community, they are largely backed by venture funding, hopefully the organization is able to maintain a low enough overhead to keep the organization sustainable in the long run. The services that power this service such as Plaid, seem promising and underrated, but i digress. The platform gives access for users to learn how investing works, it seems safest to plan a diversified portfolio utilizing a mix of securities,such as low Beta stocks or \\\"\\\"blue chip\\\"\\\" companies with clear dividend policies. One intriguing feature, if you invest in equities is casting votes on decisions in shareholder meetings. Another popular investment asset class that is less liquid and perhaps something to work toward is real estate. Google the economist \\\"\\\"Matthew Rognlie\\\"\\\" for his work on income equality on this type of investment. There are many incentives for first time homeowners, saving up for a down payment is the first step. Consider adding to your portfolio a Real Estate Investment Trust (REITs) to gain a market position. Another noteworthy approach to this idea is an investment commercial property cooperative organization, currently the first and only one is called NorthEast Investment Cooperative, one stock of class A is $1K. If you are interested and plan to focus on equities, consider dropping into your college's Accounting Capstone course to learn more about the the details of fundamental and technical analysis of an organization. The complexities of investing involve cyclical risk, macro and micro economic factors, understanding financial statements and their notes, cash flow forecasting - discounting, market timing, and a host of other details Wikipedia is much more helpful at detailing. It's safe to assume initial investment decisions by unsophisticated investors are mostly whimsical, and likely will only add up to learning opportunities, however risk is inherit in all things, including sitting on cash that pays a price of inflation. A promising mindset in long term investments are in organizations that focus on conscious business practices. Another way to think of investing is that you are already somewhat of a \\\"\\\"sophisticated investor\\\"\\\" and could beat the market by what you know given your background, catching wind of certain information first, or acting on a new trends or technology quickly. Move carefully with any perhaps biased \\\"\\\"bullish\\\"\\\" or \\\"\\\"bearish\\\"\\\" mindset. Thinking independently is helpful, constantly becoming familiar with different ideas from professions in a diverse set of backgrounds, and simulating decisions in portfolio's. Here is an extremely limited set of authors and outlets that may have ideas worth digging more into, MIT Tech Reviews (Informative), Bloomberg TV (it's free, informative), John Mackey (businessman), Paul Mason (provocative journalist). Google finance is a simple and free go-to application, use the \\\"\\\"cost basis\\\"\\\" feature for \\\"\\\"paper\\\"\\\" or real trades, it's easy to import transactions from a .csv. This seems sufficient to start off with. Enjoy the journey, aim for real value with your resources.\\\"\",\n \"The plan doesn't make sense. Don't invest your money. Just keep it in your bank account. $5000 is not a lot, especially since you don't have a steady income stream. You only have $1000 to your name, you can't afford to gamble $4000. You will need it for things like food, books, rent, student loans, traveling, etc. If you don't get a job right after you graduate, you will be very happy to have some money in the bank. Or what if you get a dream job, but you need a car? Or you get a job at a suit & tie business and need to get a new wardrobe? Or your computer dies and you need a new one? You find a great apartment but need $2500 first, last & security? That money can help you out much more NOW when you're starting out, then it will when you're ready to retire in your 60's.\",\n \"On average, you should be saving at least 10-15% of your income in order to be financially secure when you retire. Different people will tell you different things, but really this can be split between short term savings (cash), long term savings (401ks, IRAs, stocks & bonds), and paying down debt. That $5k is a good start on an emergency fund, but you probably want a little more. As justkt said, 6 months' worth is what you want to aim for. Put this in a Money Market account, where you'll earn a little more interest but won't be penalized from withdrawing it when its needed (you may have to live off it, after all). Beyond that, I would split things up; if possible, have payroll deductions going to a broker (sharebuilder is a good one to start with if you can't spare much change), as well as an IRA at a bank. Set up a separate checking account just for rent and utilities, put a month's worth of cash in there, and have another payroll deduction that covers your living expenses + maybe 5% put in there automatically. Then, set up automatic bill payments, so you don't even have to think about it. Check it once a month to make sure there aren't any surprises. Pay off your credit cards every month. These are, by far, the most expensive forms of credit that most people have. You shouldn't be financing large purchases with them (you'll get better rates by taking a personal loan from a bank). Set specific goals for savings, and set up automatic payroll deductions to work towards them. Especially for buying a house; most responsible lenders will ask for 20% down. In today's market, that means you need to write a check for $40k or $50k. While it's tempting to finance up to 100% of the property value, it's also risky considering how volatile markets can be. You don't want to end up owing more on the property than it's worth two years down the road. If you find yourself at the end of the month with an extra $50 or so, consider your savings goals or your current debt instead of blowing it on a toy. Especially if you have long term debt (high balance credit cards, vehicle or property loans), applying that money directly to principal can save you months (or years) paying it back, and hundreds or thousands of dollars of interest (all depending on the details of the loan, of course). Above all, have fun with it :) Think of your personal net worth as you do your Gamer score on the XBox, and look for ways to maximize it with a minimum of effort or investment on your part! Investing in yourself and your future can be incredibly rewarding emotionally :)\",\n \"This is slightly opinion based. Is it appropriate to invest small amounts for short periods of time? At your age and the time period, I would say NO. This is because although the index fund do return 6-7% on average, there are several times it blips and goes negative as well. Stock Markets in short periods like 6 months can be unpredictable. At times a downturn will remain stagnant for periods of 2-3 years before suddenly zoom ahead. If you are not to particular about the time when you need the changes done; i.e. the changes can in worst case wait for few years; then yes investing in Index fund would make sense. Else you are well off keeping this in savings. Try CD's if they can offer better rates for such durations.\",\n \"A single fund that reflects the local currency would be an index fund in the country. Look for mutual funds which provide for investing on the local stock index. The fund managers would handle all the portfolio balancing for you.\",\n \"Taking into account that you are in Cyprus, a Euro country, you should not invest in USD as the USA and China are starting a currency war that will benefit the Euro. Meaning, if you buy USD today, they will be worth less in a couple of months. As for the way of investing your money. Look at it like a boat race, starting on the 1st of January and ending on the 31st of December each year. There are a lot of boats in the water. Some are small, some are big, some are whole fleets. Your objective is to choose the fastest boat at any time. If you invest all of your money in one small boat, that might sink before the end of the year, you are putting yourself at risk. Say: Startup Capital. If you invest all of your money in a medium sized boat, you still run the risk of it sinking. Say: Stock market stock. If you invest all of your money in a supertanker, the risk of it sinking is smaller, and the probability of it ending first in the race is also smaller. Say: a stock of a multinational. A fleet is limited by it's slowest boat, but it will surely reach the shore. Say: a fund. Now investing money is time consuming, and you may not have the money to create your own portfolio (your own fleet). So a fund should be your choice. However, there are a lot of funds out there, and not all funds perform the same. Most funds are compared with their index. A 3 star Morningstar rated fund is performing on par with it's index for a time period. A 4 or 5 star rated fund is doing better than it's index. Most funds fluctuate between ratings. A 4 star rated fund can be mismanaged and in a number of months become a 2 star rated fund. Or the other way around. But it's not just luck. Depending on the money you have available, your best bet is to buy a number of star rated, managed funds. There are a lot of factors to keep into account. Currency is one. Geography, Sector... Don't buy for less than 1.000€ in one fund, and don't buy more than 10 funds. Stay away from Gold, unless you want to speculate (short term). Stay away from the USD (for now). And if you can prevent it, don't put all your eggs in one basket.\",\n \"Sounds like you're doing fine, though somewhat fuzzy: how are you allocating the $500/month? Are you doing dollar cost averaging into funds, accumulating enough $$ to buy round lots of individual stocks, market timing, etc. The summary suggestion: max out the ROTH first, then with $$$ left over, do the after tax, low-cost fund, monthly dollar cost averaging approach.\",\n \"\\\"Contribute as much as you can. When do you want to retire and how much income do you think you'll need? A $1M portfolio yielding 5% will yield $50,000/year. Do some research about how to build a portfolio... this site is a good start, but check out books on retirement planning and magazines like Money and Kiplinger. If you don't speak \\\"\\\"money\\\"\\\" or are intimidated by investing, look for a fee-based financial advisor whom you are comfortable with.\\\"\",\n \"\\\"(Since you used the dollar sign without any qualification, I assume you're in the United States and talking about US dollars.) You have a few options here. I won't make a specific recommendation, but will present some options and hopefully useful information. Here's the short story: To buy individual stocks, you need to go through a broker. These brokers charge a fee for every transaction, usually in the neighborhood of $7. Since you probably won't want to just buy and hold a single stock for 15 years, the fees are probably unreasonable for you. If you want the educational experience of picking stocks and managing a portfolio, I suggest not using real money. Most mutual funds have minimum investments on the order of a few thousand dollars. If you shop around, there are mutual funds that may work for you. In general, look for a fund that: An example of a fund that meets these requirements is SWPPX from Charles Schwabb, which tracks the S&P 500. Buy the product directly from the mutual fund company: if you go through a broker or financial manager they'll try to rip you off. The main advantage of such a mutual fund is that it will probably make your daughter significantly more money over the next 15 years than the safer options. The tradeoff is that you have to be prepared to accept the volatility of the stock market and the possibility that your daughter might lose money. Your daughter can buy savings bonds through the US Treasury's TreasuryDirect website. There are two relevant varieties: You and your daughter seem to be the intended customers of these products: they are available in low denominations and they guarantee a rate for up to 30 years. The Series I bonds are the only product I know of that's guaranteed to keep pace with inflation until redeemed at an unknown time many years in the future. It is probably not a big concern for your daughter in these amounts, but the interest on these bonds is exempt from state taxes in all cases, and is exempt from Federal taxes if you use them for education expenses. The main weakness of these bonds is probably that they're too safe. You can get better returns by taking some risk, and some risk is probably acceptable in your situation. Savings accounts, including so-called \\\"\\\"money market accounts\\\"\\\" from banks are a possibility. They are very convenient, but you might have to shop around for one that: I don't have any particular insight into whether these are likely to outperform or be outperformed by treasury bonds. Remember, however, that the interest rates are not guaranteed over the long run, and that money lost to inflation is significant over 15 years. Certificates of deposit are what a bank wants you to do in your situation: you hand your money to the bank, and they guarantee a rate for some number of months or years. You pay a penalty if you want the money sooner. The longest terms I've typically seen are 5 years, but there may be longer terms available if you shop around. You can probably get better rates on CDs than you can through a savings account. The rates are not guaranteed in the long run, since the terms won't last 15 years and you'll have to get new CDs as your old ones mature. Again, I don't have any particular insight on whether these are likely to keep up with inflation or how performance will compare to treasury bonds. Watch out for the same things that affect savings accounts, in particular fees and reduced rates for balances of your size.\\\"\",\n \"\\\"Invest in a high quality dividend paying group of stocks. Look up \\\"\\\"stock aristocrats\\\"\\\" to find longterm quality stocks that have regularly increased their dividends for over 20'years. 10'years is a safe period of time to invest in stocks. If you had bought stocks at their hight in 2007 and kept them through the 40% decline thru 2008 and 2009 and held on to them for 10 years until 2017, you would have earned a 40 % increase from when you purchased them. That is pretty much a worst case scenerio. If you had invested in dividend paying stocks and had earned an additional 2.5% per year, you would have exceeded your 5% goal. The lifetime yearly return of the stock market is 10%. Time is the only downside, but with ten years, you are almost certainly immune.\\\"\",\n \"For a time period as short as a matter of months, commercial paper or bonds about to mature are the highest returning investments, as defined by Benjamin Graham: An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative. There are no well-known methods that can be applied to cryptocurrencies or forex for such short time periods to promise safety of principal. The problem is that with $1,500, it will be impossible to buy any worthy credit directly and hold to maturity; besides, the need for liquidity eats up the return, risk-adjusted. The only alternative is a bond ETF which has a high probability of getting crushed as interest rates continue to rise, so that fails the above criteria. The only alternative for investment now is a short term deposit with a bank. For speculation, anything goes... The best strategy is to take the money and continue to build up a financial structure: saving for risk-adjusted and time-discounted future annual cash flows. After the average unemployment cycle is funded, approximately six or so years, then long-term investments should be accumulated, internationally diversified equities.\",\n \"Try this as a starter - my eBook served up as a blog (http://www.sspf.co.uk/blog/001/). Then read as much as possible about investing. Once you have money set aside for emergencies, then make some steps towards investing. I'd guide you towards low-fee 'tracker-style' funds to provide a bedrock to long-term investing. Your post suggests it will be investing over the long-term (ie. 5-10 years or more), perhaps even to middle-age/retirement? Read as much as you can about the types of investments: unit trusts, investment trusts, ETFs; fixed-interest (bonds/corporate bonds), equities (IPOs/shares/dividends), property (mortgages, buy-to-let, off-plan). Be conservative and start with simple products. If you don't understand enough to describe it to me in a lift in 60 seconds, stay away from it and learn more about it. Many of the items you think are good long-term investments will be available within any pension plans you encounter, so the learning has a double benefit. Work a plan. Learn all the time. Keep your day-to-day life quite conservative and be more risky in your long-term investing. And ask for advice on things here, from friends who aren't skint and professionals for specific tasks (IFAs, financial planners, personal finance coaches, accountants, mortgage brokers). The fact you're being proactive tells me you've the tools to do well. Best wishes to you.\",\n \"ChrisW's comment may appear flippant, but it illustrates (albeit too briefly) an important fact - there are aspects of investing that begin to look exactly like gambling. In fact, there are expressions which overlap - Game Theory, often used to describe investing behavior, Monte Carlo Simulation, a way of convincing ourselves we can produce a set of possible outcomes for future returns, etc. You should first invest time. 100 hours reading is a good start. 1000 pounds, Euros, or dollars is a small sum to invest in individual stocks. A round lot is considered 100 shares, so you'd either need to find a stock trading less than 10 pounds, or buy fewer shares. There are a number of reasons a new investor should be steered toward index funds, in the States, ETFs (exchange traded funds) reflect the value of an entire index of stocks. If you feel compelled to get into the market this is the way to go, whether a market near you of a foreign fund, US, or other.\",\n \"You are suggesting something called dollar cost averaging (or its cousin, dollar value averaging) - http://www.investopedia.com/articles/stocks/07/dcavsva.asp This is certainly a valid investment strategy, although personally, I feel that for long term investment, it is not necessary unless you plan on being an active trader. I still strongly encourage you to research these two methods and see if they would work well for your personal investment strategy and goals. As far as what sorts of investments for a taxable account, I have three general recommendations: As far as which company to use for your brokerage, I personally have accounts at Voya, TRowe Price and Fidelity. I would strongly recommend Fidelity out of those three, mostly due to customer service and quality and ease of use of their website. Vanguard is a great brokerage, but you don't have to choose them just because you plan to mostly invest in Vanguard funds. I also recommend you research how capital gains and dividend taxing works (and things like lost harvesting), so that you can structure your investments with taxes in mind. Do this ahead of time, don't wait until April of 2016 because it will be too late to save on taxes by then.\",\n \"\\\"You can start investing with any amount. You can use the ShareBuilder account to purchase \\\"\\\"partial\\\"\\\" stocks through their automatic investment plan. Usually brokers don't sell parts of stock, and ShareBuilder is the only one allowing it IMHO using its own tricks. What they do basically is buy a stock and then divide it internally among several investors who bought it, while each of the investors doesn't really own it directly. That's perfect for investing small amounts and making first steps in investing.\\\"\",\n \"3-5 years is long enough of a timeframe that I'd certainly invest it, assuming you have enough (which $10k is). Even conservatively you can guess at 4-5% annual growth; if you invest reasonably conservatively (60/40 mix of stocks/bonds, with both in large ETFs or similar) you should have a good chance to gain along those lines and still be reasonably safe in case the market tanks. Of course, the market could tank at any time and wipe out 20-30% of that or even more, even if you invest conservatively - so you need to think about that risk, and decide if it's worth it or not. But, particularly if your 3-5 year time frame is reasonably flexible (i.e., if in 2019 the market tanks, you can wait the 2-3 years it may take to come back up) you should be investing. And - as usual, the normal warnings apply. Past performance is not a guarantee of future performance, we are not your investment advisors, and you may lose 100% of your investment...\",\n \"\\\"I got started by reading the following two books: You could probably get by with just the first of those two. I haven't been a big fan of the \\\"\\\"for dummies\\\"\\\" series in the past, but I found both of these were quite good, particularly for people who have little understanding of investing. I also rather like the site, Canadian Couch Potato. That has a wealth of information on passive investing using mutual funds and ETFs. It's a good next step after reading one or the other of the books above. In your specific case, you are investing for the fairly short term and your tolerance for risk seems to be quite low. Gold is a high-risk investment, and in my opinion is ill-suited to your investment goals. I'd say you are looking at a money market account (very low risk, low return) such as e.g. the TD Canadian Money Market fund (TDB164). You may also want to take a look at e.g. the TD Canadian Bond Index (TDB909) which is only slightly higher risk. However, for someone just starting out and without a whack of knowledge, I rather like pointing people at the ING Direct Streetwise Funds. They offer three options, balancing risk vs reward. You can fill in their online fund selector and it'll point you in the right direction. You can pay less by buying individual stock and bond funds through your bank (following e.g. one of the Canadian Couch Potato's model portfolios), but ING Direct makes things nice and simple, and is a good option for people who don't care to spend a lot of time on this. Note that I am not a financial adviser, and I have only a limited understanding of your needs. You may want to consult one, though you'll want to be careful when doing so to avoid just talking to a salesperson. Also, note that I am biased toward passive index investing. Other people may recommend that you invest in gold or real estate or specific stocks. I think that's a bad idea and believe I have the science to back this up, but I may be wrong.\\\"\",\n \"If you are not working, I believe you would be getting some money from your family to meet your expenses. In such a case, I would start with maintaining a Cash A/c which would list your monthly expenses and the money you received, which is what I used to do at your age. You can maintain it in a notebook with pen/pencil or using online tools such as Google Sheets. Enter each expense entries each day as debits and entries towards any money you receive as credits. At the end of the month, tally them and see how much you have left. Also, this gives you a clear picture of where your expenses are what is that you can avoid. On longer term, this can help you form an annual budget for your personal finances.\",\n \"\\\"For equities, buy direct from the transfer agent. You have to buy one full share at a minimum but after that dividend reinvestment is free. There are others like share builder and foliofn that let you buy fractional shares. As the other poster said their roster is limited so you cannot buy every ETF out there. With your example of not wanting to spend $200 I agree with the others that you should invest in a mutual fund. Vanguard will have every index fund you need and can invest as little as $50, as long as you sign up for a systematic investment draft from your bank. Plus vanguard typically has the lowest fees in the industry. The most important thing is to start investing as soon as possible and as regular as possible. \\\"\\\"Pay yourself first\\\"\\\"\\\"\",\n \"It sounds like you are interested in investing in the stock market but you don't want to take too much risk. Investing in an Index EFT will provide some diversification and can be less risky than investing in individual stocks, however with potentially lower returns. If you want to invest your money, the first thing you should do is learn about managing your risk. You are still young and you should spend your time now to increase your education and knowledge. There are plenty of good books to start with, and you should prepare an investment plan which incorporates a risk management strategy. $1000 is a little low to start investing in the stock market, so whilst you are building your education and preparing your plan, you can continue building up more funds for when you are ready to start investing. Place your funds in an high interest savings account for now, and whilst you are learning you can practice your strategies using virtual accounts. In fact the ASX has a share market game which is held 2 or 3 times per year. The ASX website also has some good learning materials for novices and they hold regular seminars. It is another good source for improving your education in the subject. Remember, first get educated, then plan and practice, and then invest.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy. Let's say you have ₹15,000 to start with. Split this in to three components: Purchase all of the above at the same time. 30 days later, you will have the first FD mature. If you need this money, you use it. If you don't need it, purchase another 90-day fixed deposit. If you keep going this way, you will have a deposit mature every 30 days and can choose to use it or renew the fixed deposit. This strategy has some disadvantages to consider: As for interest rates, the length of the fixed deposit in positively related to the interest rate. If you want higher interest rates, elect for longer fixed deposit cycles.For instance, when you become more confident about your financial situation, replace the 30, 60, 90 day cycle with a 6, 12, 18 month cycle The cost of maintaining the short term deposit renewals and new purchases. If your bank does not allow such transactions through on line banking, you might spend more time than you like at a bank or on the phone with the bank You want a monthly dividend but this might not be the case with fixed deposits. It depends on your bank but I believe most Indian banks pay interest every three months","I don't think it makes sense to invest in an FD since. 1.) A 30 day FD is not very likely to give you 8-9% 2.) Inflation is so high in India that your losing money even though you think that you are doing well enough. I would suggest you to expect a larger return and try hedging your portfolio correctly. For example you can buy a stock which is likely to go higher, and to limit your risks, you can buy a put option on the same stock, so even if the price falls drastically, you can exercise your option and not lose anything except for the premium you paid. Good luck:)"],"string":"[\n \"Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy. Let's say you have ₹15,000 to start with. Split this in to three components: Purchase all of the above at the same time. 30 days later, you will have the first FD mature. If you need this money, you use it. If you don't need it, purchase another 90-day fixed deposit. If you keep going this way, you will have a deposit mature every 30 days and can choose to use it or renew the fixed deposit. This strategy has some disadvantages to consider: As for interest rates, the length of the fixed deposit in positively related to the interest rate. If you want higher interest rates, elect for longer fixed deposit cycles.For instance, when you become more confident about your financial situation, replace the 30, 60, 90 day cycle with a 6, 12, 18 month cycle The cost of maintaining the short term deposit renewals and new purchases. If your bank does not allow such transactions through on line banking, you might spend more time than you like at a bank or on the phone with the bank You want a monthly dividend but this might not be the case with fixed deposits. It depends on your bank but I believe most Indian banks pay interest every three months\",\n \"I don't think it makes sense to invest in an FD since. 1.) A 30 day FD is not very likely to give you 8-9% 2.) Inflation is so high in India that your losing money even though you think that you are doing well enough. I would suggest you to expect a larger return and try hedging your portfolio correctly. For example you can buy a stock which is likely to go higher, and to limit your risks, you can buy a put option on the same stock, so even if the price falls drastically, you can exercise your option and not lose anything except for the premium you paid. Good luck:)\"\n]","isConversational":false}}},{"rowIdx":289,"cells":{"_id":{"kind":"string","value":"9617"},"query":{"kind":"string","value":"What differentiates index funds and ETFs?"},"gt_ids":{"kind":"list like","value":["408524","364735","314008"],"string":"[\n \"408524\",\n \"364735\",\n \"314008\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["408524","370244","106863","159471","479420","473658","172374","270992","288679","358997","138383","96926","367960","364735","518735","454224","580802","195191","87722","107462","153660","298350","49168","153112","472663","312015","480315","539263","334919","268289","362579","148721","500486","357979","377429","590010","281841","332278","437875","454610","387277","161019","99568","143238","314008","230997","322826","392465","200212","119819","200360","87238","368124","220486","172703","94076","276983","560783","489103","204202","435746","101852","17208","403864","492212","130188","374204","27930","524612","253971","308071","324697","237133","473150","206744","147282","65587","554015","224765","410123","407571","474745","70898","451598","201714","271997","501153","254230","161041","138658","341544","585405","438582","173967","89205","97836","122679","286227","498597","144033"],"string":"[\n \"408524\",\n \"370244\",\n \"106863\",\n \"159471\",\n \"479420\",\n \"473658\",\n \"172374\",\n \"270992\",\n \"288679\",\n \"358997\",\n \"138383\",\n \"96926\",\n \"367960\",\n \"364735\",\n \"518735\",\n \"454224\",\n \"580802\",\n \"195191\",\n \"87722\",\n \"107462\",\n \"153660\",\n \"298350\",\n \"49168\",\n \"153112\",\n \"472663\",\n \"312015\",\n \"480315\",\n \"539263\",\n \"334919\",\n \"268289\",\n \"362579\",\n \"148721\",\n \"500486\",\n \"357979\",\n \"377429\",\n \"590010\",\n \"281841\",\n \"332278\",\n \"437875\",\n \"454610\",\n \"387277\",\n \"161019\",\n \"99568\",\n \"143238\",\n \"314008\",\n \"230997\",\n \"322826\",\n \"392465\",\n \"200212\",\n \"119819\",\n \"200360\",\n \"87238\",\n \"368124\",\n \"220486\",\n \"172703\",\n \"94076\",\n \"276983\",\n \"560783\",\n \"489103\",\n \"204202\",\n \"435746\",\n \"101852\",\n \"17208\",\n \"403864\",\n \"492212\",\n \"130188\",\n \"374204\",\n \"27930\",\n \"524612\",\n \"253971\",\n \"308071\",\n \"324697\",\n \"237133\",\n \"473150\",\n \"206744\",\n \"147282\",\n \"65587\",\n \"554015\",\n \"224765\",\n \"410123\",\n \"407571\",\n \"474745\",\n \"70898\",\n \"451598\",\n \"201714\",\n \"271997\",\n \"501153\",\n \"254230\",\n \"161041\",\n \"138658\",\n \"341544\",\n \"585405\",\n \"438582\",\n \"173967\",\n \"89205\",\n \"97836\",\n \"122679\",\n \"286227\",\n \"498597\",\n \"144033\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons. Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference. Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.","Behind the scenes, mutual funds and ETFs are very similar. Both can vary widely in purpose and policies, which is why understanding the prospectus before investing is so important. Since both mutual funds and ETFs cover a wide range of choices, any discussion of management, assets, or expenses when discussing the differences between the two is inaccurate. Mutual funds and ETFs can both be either managed or index-based, high expense or low expense, stock or commodity backed. Method of investing When you invest in a mutual fund, you typically set up an account with the mutual fund company and send your money directly to them. There is often a minimum initial investment required to open your mutual fund account. Mutual funds sometimes, but not always, have a load, which is a fee that you pay either when you put money in or take money out. An ETF is a mutual fund that is traded like a stock. To invest, you need a brokerage account that can buy and sell stocks. When you invest, you pay a transaction fee, just as you would if you purchase a stock. There isn't really a minimum investment required as there is with a traditional mutual fund, but you usually need to purchase whole shares of the ETF. There is inherently no load with ETFs. Tax treatment Mutual funds and ETFs are usually taxed the same. However, capital gain distributions, which are taxable events that occur while you are holding the investment, are more common with mutual funds than they are with ETFs, due to the way that ETFs are structured. (See Fidelity: ETF versus mutual funds: Tax efficiency for more details.) That having been said, in an index fund, capital gain distributions are rare anyway, due to the low turnover of the fund. Conclusion When comparing a mutual fund and ETF with similar objectives and expenses and deciding which to choose, it more often comes down to convenience. If you already have a brokerage account and you are planning on making a one-time investment, an ETF could be more convenient. If, on the other hand, you have more than the minimum initial investment required and you also plan on making additional regular monthly investments, a traditional no-load mutual fund account could be more convenient and less expensive.","The main difference between a mutual fund and an ETF are how they are bought and sold (from the investors perspective). An ETF is transacted on the open market. This means you normally can't buy partial shares with your initial investment. Having to transact on the open market also means you pay a market price. The market price is always a little bit different from the Net Asset Value (NAV) of the fund. During market hours, the ETF will trade at a premium/discount to the NAV calculated on the previous day. Morningstar's fund analysis will show a graph of the premium/discount to NAV for an ETF. With a mutual fund on the other hand, your investment goes to a fund company, which then grants you shares while under the hood buying the underlying investments. You pay the NAV price and are allowed to buy partial shares. Usually an ETF has a lower expense ratio, but if that's equal and any initial fees/commissions are equal, I would prefer the mutual fund in order to buy partial shares (so your initial investment will be fully invested) and so you don't have to worry about paying premium to NAV","Why don't you look at the actual funds and etfs in question rather than seeking a general conclusion about all pairs of funds and etfs? For example, Vanguard's total stock market index fund (VTSAX) and ETF (VTI). Comparing the two on yahoo finance I find no difference over the last 5 years visually. For a different pair of funds you may find something very slightly different. In many cases the index fund and ETF will not have the same benchmark and fees so comparisons get a little more cloudy. I recall a while ago there was an article that was pointing out that at the time emerging market ETF's had higher fees than corresponding index funds. For this reason I think you should examine your question on a case-by-case basis. Index fund and ETF returns are all publicly available so you don't have to guess.","Mutual funds buy (and sell) shares in companies in accordance with the policies set forth in their prospectus, not according to the individual needs of an investor, that is, when you invest money in (or withdraw money from) a mutual fund, the manager buys or sells whatever shares that, in the manager's judgement, will be the most appropriate ones (consistent with the investment policies). Thus, a large-cap mutual fund manager will not buy the latest hot small-cap stock that will likely be hugely profitable; he/she must choose only between various large capitalization companies. Some exchange-traded funds are fixed baskets of stocks. Suppose you will not invest in a company X as a matter of principle. Unless a mutual fund prospectus says that it will not invest in X, you may well end up having an investment in X at some time because the fund manager bought shares in X. With such an ETF, you know what is in the basket, and if the basket does not include stock in X now, it will not own stock in X at a later date. Some exchange-traded funds are constructed based on some index and track the index as a matter of policy. Thus, you will not be investing in X unless X becomes part of the index because Standard or Poor or Russell or somebody changed their minds, and the ETF buys X in order to track the index. Finally, some ETFs are exactly like general mutual funds except that you can buy or sell ETF shares at any time at the price at the instant that your order is executed whereas with mutual funds, the price of the mutual fund shares that you have bought or sold is the NAV of the mutual fund shares for that day, which is established based on the closing prices at the end of the trading day of the stocks, bonds etc that the fund owns. So, you might end up owning stock in X at any time based on what the fund manager thinks about X.","ETFs offer the flexibility of stocks while retaining many of the benefits of mutual funds. Since an ETF is an actual fund, it has the diversification of its potentially many underlying securities. You can find ETFs with stocks at various market caps and style categories. You can have bond or mixed ETFs. You can even get ETFs with equal or fundamental weighting. In short, all the variety benefits of mutual funds. ETFs are typically much less expensive than mutual funds both in terms of management fees (expense ratio) and taxable gains. Most of them are not actively managed; instead they follow an index and therefore have a low turnover. A mutual fund may actively trade and, if not balanced with a loss, will generate capital gains that you pay taxes on. An ETF will produce gains only when shifting to keep inline with the index or you yourself sell. As a reminder: while expense ratio always matters, capital gains and dividends don't matter if the ETF or mutual fund is in a tax-advantaged account. ETFs have no load fees. Instead, because you trade it like a stock, you will pay a commission. Commissions are straight, up-front and perfectly clear. Much easier to understand than the various ways funds might charge you. There are no account minimums to entry with ETFs, but you will need to buy complete shares. Only a few places allow partial shares. It is generally harder to dollar-cost average into an ETF with regular automated investments. Also, like trading stocks, you can do those fancy things like selling short, buying on margin, options, etc. And you can pay attention to the price fluctuations throughout the day if you really want to. Things to make you pause: if you buy (no-load) mutual funds through the parent company, you'll get them at no commission. Many brokerages have No Transaction Fee (NTF) agreements with companies so that you can buy many funds for free. Still look out for that expense ratio though (which is probably paying for that NTF advantage). As sort of a middle ground: index funds can have very low expense ratios, track the same index as an ETF, can be tax-efficient or tax-managed, free to purchase, easy to dollar-cost average and easier to automate/understand. Further reading:","If you just want to track an index, then ETFs are, generally speaking, the better way.","The main difference between an ETF and a Mutual Fund is Management. An ETF will track a specific index with NO manager input. A Mutual Fund has a manager that is trying to choose securities for its fund based on the mandate of the fund. Liquidity ETFs trade like a stock, so you can buy at 10am and sell at 11 if you wish. Mutual Funds (most) are valued at the end of each business day, so no intraday trading. Also ETFs are similar to stocks in that you need a buyer/seller for the ETF that you want/have. Whereas a mutual fund's units are sold back to itself. I do not know of many if any liquity issues with an ETF, but you could be stuck holding it if you can not find a buyer (usually the market maker). Mutual Funds can be closed to trading, however it is rare. Tax treatment Both come down to the underlying holdings in the fund or ETF. However, more often in Mutual Funds you could be stuck paying someone else's taxes, not true with an ETF. For example, you buy an Equity Mutual Fund 5 years ago, you sell the fund yourself today for little to no gain. I buy the fund a month ago and the fund manager sells a bunch of the stocks they bought for it 10 years ago for a hefty gain. I have a tax liability, you do not even though it is possible that neither of us have any gains in our pocket. It can even go one step further and 6 months from now I could be down money on paper and still have a tax liability. Expenses A Mutual Fund has an MER or Management Expense Ratio, you pay it no matter what. If the fund has a positive return of 12.5% in any given year and it has an MER of 2.5%, then you are up 10%. However if the fund loses 7.5% with the same MER, you are down 10%. An ETF has a much smaller management fee (typically 0.10-0.95%) but you will have trading costs associated with any trades. Risks involved in these as well as any investment are many and likely too long to go into here. However in general, if you have a Canadian Stock ETF it will have similar risks to a Canadian Equity Mutual Fund. I hope this helps.","ETFs are both liquid (benefits active traders) and a simple way for people to invest in funds even if they don't have the minimum balance needed to invest in a mutual fund (EDIT: in which purchases are resolved at the end of the trading day). One big difference between ETFs and mutual funds is that you must buy ETFs in whole units, whereas you can add $100 to a mutual fund and the fund will determine -- usually to 4 decimal places -- how many shares you've purchased.","What is your time horizon? Over long horizons, you absolutely want to minimise the expense ratio – a seemingly puny 2% fee p.a. can cost you a third of your savings over 35 years. Over short horizons, the cost of trading in and trading out might matter more. A mutual fund might be front-loaded, i.e. charge a fixed initial percentage when you first purchase it. ETFs, traded daily on an exchange just like a stock, don't have that. What you'll pay there is the broker commission, and the bid-ask spread (and possibly any premium/discount the ETF has vis-a-vis the underlying asset value). Another thing to keep in mind is tracking error: how closely does the fond mirror the underlying index it attempts to track? More often than not it works against you. However, not sure there is a systematic difference between ETFs and funds there. Size and age of a fund can matter, indeed - I've had new and smallish ETFs that didn't take off close down, so I had to sell and re-allocate the money. Two more minor aspects: Synthetic ETFs and lending to short sellers. 1) Some ETFs are synthetic, that is, they don't buy all the underlying shares replicating the index, actually owning the shares. Instead, they put the money in the bank and enter a swap with a counter-party, typically an investment bank, that promises to pay them the equivalent return of holding that share portfolio. In this case, you have (implicit) credit exposure to that counter-party - if the index performs well, and they don't pay up, well, tough luck. The ETF was relying on that swap, never really held the shares comprising the index, and won't necessarily cough up the difference. 2) In a similar vein, some (non-synthetic) ETFs hold the shares, but then lend them out to short sellers, earning extra money. This will increase the profit of the ETF provider, and potentially decrease your expense ratio (if they pass some of the profit on, or charge lower fees). So, that's a good thing. In case of an operational screw up, or if the short seller can't fulfil their obligations to return the shares, there is a risk of a loss. These two considerations are not really a factor in normal times (except in improving ETF expense ratios), but during the 2009 meltdown they were floated as things to consider. Mutual funds and ETFs re-invest or pay out dividends. For a given mutual fund, you might be able to choose, while ETFs typically are of one type or the other. Not sure how tax treatment differs there, though, sorry (not something I have to deal with in my jurisdiction). As a rule of thumb though, as alex vieux says, for a popular index, ETFs will be cheaper over the long term. Very low cost mutual funds, such as Vanguard, might be competitive though.","Bond ETFs are just another way to buy a bond mutual fund. An ETF lets you trade mutual fund shares the way you trade stocks, in small share-size increments. The content of this answer applies equally to both stock and bond funds. If you are intending to buy and hold these securities, your main concerns should be purchase fees and expense ratios. Different brokerages will charge you different amounts to purchase these securities. Some brokerages have their own mutual funds for which they charge no trading fees, but they charge trading fees for ETFs. Brokerage A will let you buy Brokerage A's mutual funds for no trading fee but will charge a fee if you purchase Brokerage B's mutual fund in your Brokerage A account. Some brokerages have multiple classes of the same mutual fund. For example, Vanguard for many of its mutual funds has an Investor class (minimum $3,000 initial investment), Admiral class (minimum $10,000 initial investment), and an ETF (share price as initial investment). Investor class has the highest expense ratio (ER). Admiral class and the ETF generally have much lower ER, usually the same number. For example, Vanguard's Total Bond Market Index mutual fund has Investor class (symbol VBMFX) with 0.16% ER, Admiral (symbol VBTLX) with 0.06% ER, and ETF (symbol BND) with 0.06% ER (same as Admiral). See Vanguard ETF/mutual fund comparison page. Note that you can initially buy Investor class shares with Vanguard and Vanguard will automatically convert them to the lower-ER Admiral class shares when your investment has grown to the Admiral threshold. Choosing your broker and your funds may end up being more important than choosing the form of mutual fund versus ETF. Some brokers charge very high purchase/redemption fees for mutual funds. Many brokers have no ETFs that they will trade for free. Between funds, index funds are passively managed and are just designed to track a certain index; they have lower ERs. Actively managed funds are run by managers who try to beat the market; they have higher ERs and tend to actually fall below the performance of index funds, a double whammy. See also Vanguard's explanation of mutual funds vs. ETFs at Vanguard. See also Investopedia's explanation of mutual funds vs. ETFs in general.","The mutual fund will price at day's end, while the ETF trades during the day, like a stock. If you decide at 10am, that some event will occur during the day that will send the market up, the ETF is preferable. Aside from that, the expenses are identical, a low .14%. No real difference especially in a Roth.","\"I think you are asking about actively managed funds vs. indexes and possibly also vs. diversified funds like target date funds. This is also related to the question of mutual fund vs. ETF. First, a fund can be either actively managed or it can attempt to track an index. An actively managed fund has a fund manager who tries to find the best stocks to invest in within some constraints, like \"\"this fund invests in large cap US companies\"\". An index fund tries to match as closely as possible the performance of an index like the S&P 500. A fund may also try to offer a portfolio that is suitable for someone to put their entire account into. For example, a target date fund is a fund that may invest in a mix of stocks, bonds and foreign stock in a proportion that would be appropriate to someone expecting to retire in a certain year. These are not what people tend to think of as the canonical examples of mutual funds, even though they share the same legal structure and investment mechanisms. Secondly, a fund can either be a traditional mutual fund or it can be an exchange traded fund (ETF). To invest in a traditional mutual fund, you send money to the fund, and they give you a number of shares equal to what that money would have bought of the net asset value (NAV) of the fund at the end of trading on the day they receive your deposit, possibly minus a sales charge. To invest in an ETF, you buy shares of the ETF on the stock market like any other stock. Under the covers, an ETF does have something similar to the mechanism of depositing money to get shares, but only big traders can use that, and it's not used for investing, but only for people who are making a market in the stock (if lots of people are buying VTI, Big Dealer Co will get 100,000 shares from Vanguard so that they can sell them on the market the next day). Historically and traditionally, ETFs are associated with an indexing strategy, while if not specifically mentioned, people assume that traditional mutual funds are actively managed. Many ETFs, notably all the Vanguard ETFs, are actually just a different way to hold the same underlying fund. The best way to understand this is to read the prospectus for a mutual fund and an ETF. It's all there in reasonably plain English.\"","I think that assuming that you're not looking to trade the fund, an index Mutual Fund is a better overall value than an ETF. The cost difference is negligible, and the ability to dollar-cost average future contributions with no transaction costs. You also have to be careful with ETFs; the spreads are wide on a low-volume fund and some ETFs are going more exotic things that can burn a novice investor. Track two similar funds (say Vanguard Total Stock Market: VTSMX and Vanguard Total Stock Market ETF: VTI), you'll see that they track similarly. If you are a more sophisticated investor, ETFs give you the ability to use options to hedge against declines in value without having to incur capital gains from the sale of the fund. (ie. 20 years from now, can use puts to make up for short-term losses instead of selling shares to avoid losses) For most retail investors, I think you really need to justify using ETFs versus mutual funds. If anything, the limitations of mutual funds (no intra-day trading, no options, etc) discourage speculative behavior that is ultimately not in your best interest. EDIT: Since this answer was written, many brokers have begun offering a suite of ETFs with no transaction fees. That may push the cost equation over to support Index ETFs over Index Mutual Funds, particularly if it's a big ETF with narrow spreads..","There is little difference between buying shares in your broker's index fund and shares of their corresponding ETF. In many cases the money invested in an ETF gets essentially stuffed right into the index fund (I believe Vanguard does this, for example). In either case you will be paying a little bit of tax. In the ETF case it will be on the dividends that are paid out. In the index fund case it will additionally be on the capital gains that have been realized within the fund, which are very few for an index fund. Not a ton in either case. The more important tax consideration is between purchase and sale, which is the same in either case. I'd say stick it wherever the lowest fees are.","A mutual fund has several classes of shares that are charged different fees. Some shares are sold through brokers and carry a sales charge (called load) that compensates the broker in lieu of a fee that the broker would charge the client for the service. Vanguard does not have sales charge on its funds and you don't need to go through a broker to buy its shares; you can buy directly from them. Admiral shares of Vanguard funds are charged lower annual expenses than regular shares (yes, all mutual funds charge expenses for fund adninistration that reduce the return that you get, and Vanguard has some of the lowest expense ratios) but Admiral shares are available only for large investments, typically $50K or so. If you have invested in a Vanguard mutual fund, your shares can be set to automatically convert to Admiral shares when the investment reaches the right level. A mutual fund manager can buy and sell stocks to achieve the objectives of the fund, so what stockes you are invested in as a share holder in a mutual fund will typically be unknown to you on a day-to-day basis. On the other hand, Exchange-traded funds (ETFs) are fixed baskets of stocks, and you can buy shares in the ETF. These shares are bought and sold through a broker (so you pay a transaction fee each time) but expenses are lower since there is no manager to buy and sell stocks: the basket is fixed. Many ETFs follow specific market indexes (e.g. S&P 500). Another difference between ETFs and mutual funds is that you can buy and sell ETFs at any time of the day just as if you could if you held stocks. With mutual funds, any buy and sell requests made during the day are processed at the end of the day and the value of the shares that you buy or sell is determined by the closing price of the stocks held by the mutual fund. With ETFs, you are getting the intra-day price at the time the buy or sell order is executed by your broker.","You cannot do a 1031 exchange with stocks, bonds, mutual funds, or ETFs. There really isn't much difference between an ETF and its equivalent index mutual fund. Both will have minimal capital gains distributions. I would not recommend selling an index mutual fund and taking a short-term capital gain just to buy the equivalent ETF.","Something to consider is how do you want to handle fractional shares. Most open-end funds can easily go to fractional shares to that if you want to invest $500 in a fund each month, it is a relatively easy transaction where some shares will be fractional and handled easily. An ETF may not always work that way unless you go through something like Sharebuilder that would allow the fractional shares as if the ETF is trading at $150/share, you could buy 3 shares but still have $50 that you want to invest but can't as stocks trade in whole share numbers usually. This is without adding brokerage commissions. Depending on the broker, re-investing dividends may or may not be that simple as fractional shares could be a problem since those 3 shares aren't likely to have enough of a dividend to equal another share being bought with the proceeds. If you want the flexibility of stop and limit orders then the ETF may make more sense while the open-end fund is simply to invest whole dollar amounts that then lead to fractional shares. Don't forget to factor in minimums and other stuff as VFIAX may have a bit of a minimum to it as well as possible fees that could be annoying as I remember VFINX having some account maintenance fees that were a bit irksome back in the day that may still be around in some cases so be sure to read the fine print on things.","In my opinion, if you are doing long-term investing, this is a non-issue. The difference of hours in being able to trade an ETF during the day vs. only being able to trade a traditional mutual fund at day-end is irrelevant if you are holding the investment for a long time. If you are engaging in day trading, market timing, or other advanced/controversial trading practices, then I suppose it could make a difference. For the way I invest (index funds, long-term, set-it-and-forget-it), ETFs have no advantage over traditional mutual funds.","So, why or why should I not invest in the cheaper index fund? They are both same, one is not cheaper than other. You get something that is worth $1000. To give a simple illustration; There is an item for $100, Vanguard creates 10 Units out of this so price per unit is $10. Schwab creates 25 units out of this, so the per unit price is $4. Now if you are looking at investing $20; with Vanguard you would get 2 units, with Schwab you would get 5 units. This does not mean one is cheaper than other. Both are at the same value of $20. The Factors you need to consider are; Related question What differentiates index funds and ETFs?","\"For a non-ETF mutual fund, you can only buy shares of the mutual fund from the mutual fund itself (at a price that the mutual fund will reveal only at the end of the day) and can only shares back to the mutual fund (again at a price that the mutual fund will reveal only at the end of the day). There is no open market in the sense that you cannot put in a bid to buy, say, 100 shares of VFINX at $217 per share through a brokerage, and if there is a seller willing to sell 100 shares of VFINX to you at $217, then the sale is consummated and you are now the proud owner of 100 shares of VFINX. The only buyer or seller of VFINX is the mutual find itself, and you tell it that you \"\"want to buy 100 shares of VFINX and please take the money out of my checking account\"\". If this order is entered before the markets close at 4 pm, the mutual fund determines its share price as of the end of the day, opens a new account for you and puts 100 shares of VFINX in it (or adds 100 shares of VFINX to your already existing pile of shares) and takes the purchase price out of your checking account via an ACH transfer. Similarly for redeeming/selling shares of VFINX that you own (and these are held in an account at the mutual fund itself, not by your brokerage): you tell the mutual fund to that you \"\"wish to redeem 100 shares and please send the proceeds to my bank account\"\" and the mutual fund does this at the end of the day, and the money appears in your bank account via ACH transfer two or three days later. Generally, these transactions do not need to be for round lots of multiples of 100 shares for efficiency; most mutual fund will gladly sell you fractional shares down to a thousandth of a share. In contrast, shares of an exchange-traded fund (ETF) are just like stock shares in that they can be bought and sold on the open market and your broker will charge you fees for buying and selling them. Selling fractional shares on the open market is generally not possible, and trading in round lots is less expensive. Also, trades occur at all times of the stock exchange day, not just at the end of the day as with non-ETF funds, and the price can fluctuate during the day too. Many non-ETF mutual funds have an ETF equivalent: VOO is the symbol for Vanguard's S&P 500 Index ETF while VFINX is the non-ETF version of the same index fund. Read more about the differences between ETFs and mutual funds, for example, here.\"","\"Index funds may invest either in index components directly or in other instruments (like ETFs, index options, futures, etc.) which are highly correlated with the index. The specific fund prospectus or description on any decent financial site should contain these details. Index funds are not actively managed, but that does not mean they aren't managed at all - if index changes and the fund includes specific stock, they would adjust the fund content. Of course, the downside of it is that selling off large amounts of certain stock (on its low point, since it's being excluded presumably because of its decline) and buying large amount of different stock (on its raising point) may have certain costs, which would cause the fund lag behind the index. Usually the difference is not overly large, but it exists. Investing in the index contents directly involves more transactions - which the fund distributes between members, so it doesn't usually buy individually for each member but manages the portfolio in big chunks, which saves costs. Of course, the downside is that it can lag behind the index if it's volatile. Also, in order to buy specific shares, you will have to shell out for a number of whole share prices - which for a big index may be a substantial sum and won't allow you much flexibility (like \"\"I want to withdraw half of my investment in S&P 500\"\") since you can't usually own 1/10 of a share. With index funds, the entry price is usually quite low and increments in which you can add or withdraw funds are low too.\"","The creation mechanism for ETF's ensures that the value of the underlying stocks do not diverge significantly from the Fund's value. Authorized participants have a strong incentive to arbitrage any pricing differences and create/redeem blocks of stock/etf until the prices are back inline. Contrary to what was stated in a previous answer, this mechanism lowers the cost of management of ETF's when compared to mutual funds that must access the market on a regular basis when any investors enter/exit the fund. The ETF only needs to create/redeem in a wholesale basis, this allows them to operate with management fees that are much lower than those of a mutual fund. Expenses Due to the passive nature of indexed strategies, the internal expenses of most ETFs are considerably lower than those of many mutual funds. Of the more than 900 available ETFs listed on Morningstar in 2010, those with the lowest expense ratios charged about .10%, while those with the highest expenses ran about 1.25%. By comparison, the lowest fund fees range from .01% to more than 10% per year for other funds. (For more on mutual fund feeds, read Stop Paying High Fees.)","The ETF is likely better in this case. The ETF will generally generate less capital gains taxes along the way. In order to pay off investors who leave a mutual fund, the manager will have to sell the fund's assets. This creates a capital gain, which must be distributed to shareholders at the end of the year. The mutual fund holder is essentially taxed on this turnover. The ETF does not have to sell any stock when an investor sells his shares because the investor sells the shares himself on the open market. This will result in a capital gain for the specific person exiting his position, but it does not create a taxable event for anyone else holding the ETF shares.","\"An Exchange-Traded Fund (ETF) is a special type of mutual fund that is traded on the stock exchange like a stock. To invest, you buy it through a stock broker, just as you would if you were buying an individual stock. When looking at a mutual fund based in the U.S., the easiest way to tell whether or not it is an ETF is by looking at the ticker symbol. Traditional mutual funds have ticker symbols that end in \"\"X\"\", and ETFs have ticker symbols that do not end in \"\"X\"\". The JPMorgan Emerging Markets Equity Fund, with ticker symbol JFAMX, is a traditional mutual fund, not an ETF. JPMorgan does have ETFs; the JPMorgan Diversified Return Emerging Markets Equity ETF, with ticker symbol JPEM, is an example. This ETF invests in similar stocks as JFAMX; however, because it is an index-based fund instead of an actively managed fund, it has lower fees. If you aren't sure about the ticker symbol, the advertising/prospectus of any ETF should clearly state that it is an ETF. (In the example of JPEM above, they put \"\"ETF\"\" right in the fund name.) If you don't see ETF mentioned, it is most likely a traditional mutual fund. Another way to tell is by looking at the \"\"investment minimums\"\" of the fund. JFAMX has a minimum initial investment of $1000. ETFs, however, do not have an investment minimum listed; because it is traded like a stock, you simply buy whole shares at whatever the current share price is. So if you look at the \"\"Fees and Investment Minimums\"\" section of the JPEM page, you'll see the fees listed, but not any investment minimums.\"","I see a couple of reasons why you could consider choosing a mutual fund over an ETF In some cases index mutual funds can be a cheaper alternative to ETFs. In the UK where I am based, Fidelity is offering a management fee of 0.07% on its FTSE All shares tracker. Last time I checked, no ETF was beating that There are quite a few cost you have to foot when dealing ETFs In some cases, when dealing for relatively small amounts (e.g. a monthly investment plan) you can get a better deal, if your broker has negotiated discounts for you with a fund provider. My broker asks £12.5 when dealing in shares (£1.5 for the regular investment plan) whereas he asks £0 when dealing in funds and I get a 100% discount on the initial charge of the fund. As a conclusion, I would suggest you look at the all-in costs over total investment period you are considering for the exact amount you are planning to invest. Despite all the hype, ETFs are not always the cheapest alternative.","\"ETFs purchases are subject to a bid/ask spread, which is the difference between the highest available purchase offer (\"\"bid\"\") and the lowest available sell offer (\"\"ask\"\"). You can read more about this concept here. This cost doesn't exist for mutual funds, which are priced once per day, and buyers and sellers all use the same price for transactions that day. ETFs allow you to trade any time that the market is open. If you're investing for the long term (which means you're not trying to time your buy/sell orders to a particular time of day), and the pricing is otherwise equal between the ETF and the mutual fund (which they are in the case of Vanguard's ETFs and Admiral Shares mutual funds), I would go with the mutual fund because it eliminates any cost associated with bid/ask spread.\"","There are times when investing in an ETF is more convenient than a mutual fund. When you invest in a mutual fund, you often have an account directly with the mutual fund company, or you have an account with a mutual fund broker. Mutual funds often have either a front end or back end load, which essentially gives you a penalty for jumping in and out of funds. ETFs are traded exactly like stocks, so there is inherently no load when buying or selling. If you have a brokerage account and you want to move funds from a stock to a mutual fund, an ETF might be more convenient. With some accounts, an ETF allows you to invest in a fund that you would not be able to invest in otherwise. For example, you might have a 401k account through your employer. You might want to invest in a Vanguard mutual fund, but Vanguard funds are not available with your 401k. If you have access to a brokerage account inside your 401k, you can invest in the Vanguard fund through the associated ETF. Another reason that you might choose an ETF over a mutual fund is if you want to try to short the fund.","Index funds are good for diversifying risk. For people who don't have a large sum of money to invest, holding all the different types of stocks in the index is both very expensive and not practical because you incur too many transaction costs. For an index funds, the main advantages are that costs are pooled, and investors can invest a smaller amount that they would if they bought all the different stocks individually. Naturally, if you wanted to figure out the percentage composition of the index and invest directly it would be possible, albeit tedious.","\"One reason is that it is not possible (at Vanguard and at many other brokerages) to auto-invest into ETFs. Because the ETF trades like a stock, you typically must buy a whole number of shares. This makes it difficult to do auto-investing where you invest, say, a fixed dollar amount each month. If you're investing $100 and the ETF trades for $30 a share, you must either buy 3 shares and leave $10 unspent, or buy 4 and spend $20 more than you planned. This makes auto-investing with dollar amounts difficult. (It would be cool if there were brokerages that handled this for you, for instance by accumulating \"\"leftover\"\" cash until an additional whole share could be purchased, but I don't know of any.) A difference of 0.12% in the expense ratios is real, but small. It may be outweighed by the psychological gains of being able to adopt a \"\"hands-off\"\" auto-investing plan. With ETFs, you generally must remember to \"\"manually\"\" buy the shares yourself every so often. For many average investors, the advantage of being able to invest without having to think about it at all is worth a small increase in expense ratio. The 0.12% savings don't do you any good if you never remember to buy shares until the market is already up.\"","Cost. If an investor wanted to diversify his portfolio by investing in the companies that make up the S&P 500, the per-share and commission costs to individually place trades for each and every one of those companies would be prohibitive. I can buy one share of an exchange-traded fund that tracks the S&P 500 for less than the purchase price of a single share in some of the companies that make up the index.","\"Funds which track the same index may have different nominal prices. From an investors point of view, this is not important. What is important is that when the underlying index moves by a given percentage, the price of the tracking funds also move by an equal percentage. In other words, if the S&P500 rises by 5%, then the price of those funds tracking the S&P500 will also rise by 5%. Therefore, investing a given amount in any of the tracking funds will produce the same profit or loss, regardless of the nominal prices at which the individual funds are trading. To see this, use the \"\"compare\"\" function available on the popular online charting services. For example, in Google finance call up a chart of the S&P500 index, then use the compare textbox to enter the codes for the various ETFs tracking the S&P500. You will see that they all track the S&P500 equally so that your relative returns will be equal from each of the tracking funds. Any small difference in total returns will be attributable to management fees and expenses, which is why low fees are so important in passive investing.\"","First, it's not always the case that ETFs have lower expenses than the equivalent mutual funds. For example, in the Vanguard family of funds the expense ratio for the ETF version is the same as it is for the Admiral share class in the mutual fund version. With that in mind, the main advantages of a mutual fund over an equivalent ETF are: From a long-term investor's point of view, the main disadvantage of mutual funds relative to ETFs is the minimum account sizes. Especially if the fund has multiple share classes (i.e., where better classes get lower expense ratios), you might have to have quite a lot of money invested in the fund in order to get the same expense ratio as the ETF. There are some other differences that matter to more active investors (e.g., intraday trading, options, etc.), but for a passive investor the ones above are the major ones. Apart from those mutual funds and ETFs are pretty similar. Personally, I prefer mutual funds because I'm at a point where the fund minimums aren't really an issue, and I don't want to deal with the more fiddly aspects of ETFs. For investors just starting out the lower minimum investment for an ETF is a big win, as long as you can get commission-free trades (which is what I've assumed above.)","Wikipedia has a fairly detailed explanation of ETFs. http://en.wikipedia.org/wiki/Exchange-traded_fund","In the case of VFIAX versus VOO, if you're a buy-and-hold investor, you're probably better off with the mutual fund because you can buy fractional shares. However, in general the expense ratio for ETFs will be lower than equivalent mutual funds (even passive index funds). They are the same in this case because the mutual fund is Admiral Class, which has a $10,000 minimum investment that not all people may be able to meet. Additionally, ETFs are useful when you don't have an account with the mutual fund company (i.e. Vanguard), and buying the mutual fund would incur heavy transaction fees.","What JoeTaxpayer means is that you can sell one ETF and buy another that will perform substantially the same during the 30 day wash sale period without being considered substantially the same from a wash sale perspective more easily than you could with an individual stock. For example, you could sell an S&P 500 index ETF and then temporarily buy a DJIA index ETF. As these track different indexes, they are not considered to be substantially the same for wash sale purposes, but for a short term investing period, their performance should still be substantially the same.","\"The amount, reliability and frequency of dividends paid by an ETF other than a stock, such as an index or mutual fund, is a function of the agreement under which the ETF was established by the managing or issuing company (or companies), and the \"\"basket\"\" of investments that a share in the fund represents. Let's say you invest in a DJIA-based index fund, for instance Dow Diamonds (DIA), which is traded on several exchanges including NASDAQ and AMEX. One share of this fund is currently worth $163.45 (Jan 22 2014 14:11 CDT) while the DJIA itself is $16,381.38 as of the same time, so one share of the ETF represents approximately 1% of the index it tracks. The ETF tracks the index by buying and selling shares of the blue chips proportional to total invested value of the fund, to maintain the same weighted percentages of the same stocks that make up the index. McDonald's, for instance, has an applied weight that makes the share price of MCD stock roughly 5% of the total DJIA value, and therefore roughly 5% of the price of 100 shares of DIA. Now, let's say MCD issued a dividend to shareholders of, say, $.20 per share. By buying 100 shares of DIA, you own, through the fund, approximately five MCD shares, and would theoretically be entitled to $1 in dividends. However, keep in mind that you do not own these shares directly, as you would if you spent $16k buying the correct percentage of all the shares directly off the exchange. You instead own shares in the DIA fund, basically giving you an interest in some investment bank that maintains a pool of blue-chips to back the fund shares. Whether the fund pays dividends or not depends on the rules under which that fund was set up. The investment bank may keep all the dividends itself, to cover the expenses inherent in managing the fund (paying fund management personnel and floor traders, covering losses versus the listed price based on bid-ask parity, etc), or it may pay some percentage of total dividends received from stock holdings. However, it will virtually never transparently cut you a check in the amount of your proportional holding of an indexed investment as if you held those stocks directly. In the case of the DIA, the fund pays dividends monthly, at a yield of 2.08%, virtually identical to the actual weighted DJIA yield (2.09%) but lower than the per-share mean yield of the \"\"DJI 30\"\" (2.78%). Differences between index yields and ETF yields can be reflected in the share price of the ETF versus the actual index; 100 shares of DIA would cost $16,345 versus the actual index price of 16,381.38, a delta of $(36.38) or -0.2% from the actual index price. That difference can be attributed to many things, but fundamentally it's because owning the DIA is not the exact same thing as owning the correct proportion of shares making up the DJIA. However, because of what index funds represent, this difference is very small because investors expect to get the price for the ETF that is inherent in the real-time index.\"","One of the often cited advantages of ETFs is that they have a higher liquidity and that they can be traded at any time during the trading hours. On the other hand they are often proposed as a simple way to invest private funds for people that do not want to always keep an eye on the market, hence the intraday trading is mostly irrelevant for them. I am pretty sure that this is a subjective idea. The fact is you may buy GOOG, AAPL, F or whatever you wish(ETF as well, such as QQQ, SPY etc.) and keep them for a long time. In both cases, if you do not want to keep an on the market it is ok. Because, if you keep them it is called investment(the idea is collecting dividends etc.), if you are day trading then is it called speculation, because you main goal is to earn by buying and selling, of course you may loose as well. So, you do not care about dividends or owning some percent of the company. As, ETFs are derived instruments, their volatility depends on the volatility of the related shares. I'm wondering whether there are secondary effects that make the liquidity argument interesting for private investors, despite not using it themselves. What would these effects be and how do they impact when compared, for example, to mutual funds? Liquidity(ability to turn cash) could create high volatility which means high risk and high reward. From this point of view mutual funds are more safe. Because, money managers know how to diversify the total portfolio and manage income under any market conditions.","An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)","\"I wonder if ETF's are further removed from the actual underlying holdings or assets giving value to the fund, as compared to regular mutual funds. Not exactly removed. But slightly different. Whenever a Fund want to launch an ETF, it would buy the underlying shares; create units. Lets say it purchased 10 of A, 20 of B and 25 of C. And created 100 units for price x. As part of listing, the ETF company will keep the purchased shares of A,B,C with a custodian. Only then it is allowed to sell the 100 units into the market. Once created, units are bought or sold like regular stock. In case the demand is huge, more units are created and the underlying shares kept with custodian. So, for instance, would VTI and Total Stock Market Index Admiral Shares be equally anchored to the underlying shares of the companies within the index? Yes they are. Are they both connected? Yes to an extent. The way Vanguard is managing this is given a Index [Investment Objective]; it is further splitting the common set of assets into different class. Read more at Share Class. The Portfolio & Management gives out the assets per share class. So Vanguard Total Stock Market Index is a common pool that has VTI ETF, Admiral and Investor Share and possibly Institutional share. Is VTI more of a \"\"derivative\"\"? No it is not a derivative. It is a Mutual Fund.\"","ETFs are just like any other mutual fund; they hold a mix of assets described by their prospectus. If that mix fits your needs for diversification and the costs of buying/selling/holding are low, it's as worth considering as a traditional fund with the same mix. A bond fund will hold a mixture of bonds. Whether that mix is sufficiently diversified for you, or whether you want a different fund or a mix of funds, is a judgement call. I want my money to take care of itself for the most part, so most of the bond portion is in a low-fee Total Bond Market Index fund (which tries to match the performance of bonds in general). That could as easily be an ETF, but happens not to be.","Your tax efficient reasoning is solid for where you want to distribute your assets. ETFs are often more tax efficient than their equivalent mutual funds but the exact differences would depend on the comparison between the fund and ETF you were considering. The one exception to this rule is Vanguard funds and ETFs which have the exact same tax-efficiency because ETFs are a share class of the corresponding mutual fund.","\"The majority (about 80%) of mutual funds are underperforming their underlying indexes. This is why ETFs have seen massive capital inflows compared to equity funds, which have seen significant withdrawals in the last years. I would definitively recommend going with an ETF. In addition to pure index based ETFs that (almost) track broad market indexes like the S&P 500 there are quite a few more \"\"quant\"\" oriented ETFs that even outperformed the S&P. I am long the S&P trough iShares ETFs and have dividend paying ETFs and some quant ETFS on top (Invesco Powershares) in my portfolio.\"","\"There are a few reasons why an index mutual fund may be preferable to an ETF: I looked at the iShare S&P 500 ETF and it has an expense ratio of 0.07%. The Vanguard Admiral S&P 500 index has an expense ratio of 0.05% and the Investor Shares have an expense ratio of 0.17%, do I don't necessarily agree with your statement \"\"admiral class Vanguard shares don't beat the iShares ETF\"\".\"","\"I'm assuming the question is about how to compare two ETFs that track the same index. I'd look at (for ETFs -- ignoring index funds): So, for example you might compare SPY vs IVV: SPY has about 100x the volume. Sure, IVV has 2M shares trading, so it is liquid \"\"enough\"\". But the bigger volume on SPY might matter to you if you use options: open interest is as much as 1000x more on SPY. Even if you have no interest in options, the spreads on SPY are probably going to be slightly smaller. They both have 0.09% expense ratios. When I looked on 2010-9-6, SPY was trading at a slight discount, IVV was at a slight premium. Looking for any sort of trend is left as an exercise to the reader... Grab the prospectus for each to examine the rules they set for fund makeup. Both come from well-known issuers and have a decent history. (Rather than crazy Uncle Ed's pawn shop, or the Central Bank of Stilumunistan.) So unless you find something in the SPY prospectus that makes you queasy, the higher volume and equal expense ratios would seem to suggest it over IVV. The fact that it is at a (tiny) discount right now is a (tiny) bonus.\"","\"Back in the olden days, if you wanted to buy the S&P, you had to have a lot of money so you can buy the shares. Then somebody had the bright idea of making a fund that just buys the S&P, and then sells small pieces of it to investor without huge mountains of capital. Enter the ETFs. The guy running the ETF, of course, doesn't do it for free. He skims a little bit of money off the top. This is the \"\"fee\"\". The major S&P ETFs all have tiny fees, in the percents of a percent. If you're buying the index, you're probably looking at gains (or losses) to the tune of 5, 10, 20% - unless you're doing something really silly, you wouldn't even notice the fee. As often happens, when one guy starts doing something and making money, there will immediately be copycats. So now we have competing ETFs all providing the same service. You are technically a competitor as well, since you could compete with all these funds by just buying a basket of shares yourself, thereby running your own private fund for yourself. The reason this stuff even started was that people said, \"\"well why bother with mutual funds when they charge such huge fees and still don't beat the index anyway\"\", so the index ETFs are supposed to be a low cost alternative to mutual funds. Thus one thing ETFs compete on is fees: You can see how VOO has lower fees than SPY and IVV, in keeping with Vanguard's philosophy of minimal management (and management fees). Incidentally, if you buy the shares directly, you wouldn't charge yourself fees, but you would have to pay commissions on each stock and it would destroy you - another benefit of the ETFs. Moreover, these ETFs claim they track the index, but of course there is no real way to peg an asset to another. So they ensure tracking by keeping a carefully curated portfolio. Of course nobody is perfect, and there's tracking error. You can in theory compare the ETFs in this respect and buy the one with the least tracking error. However they all basically track very closely, again the error is fractions of the percent, if it is a legitimate concern in your books then you're not doing index investing right. The actual prices of each fund may vary, but the price hardly matters - the key metric is does it go up 20% when the index goes up 20%? And they all do. So what do you compare them on? Well, typically companies offer people perks to attract them to their own product. If you are a Fidelity customer, and you buy IVV, they will waive your commission if you hold it for a month. I believe Vanguard will also sell VOO for free. But for instance Fidelity will take commission from VOO trades and vice versa. So, this would be your main factor. Though, then again, you can just make an account on Robinhood and they're all commission free. A second factor is reliability of the operator. Frankly, I doubt any of these operators are at all untrustworthy, and you'd be buying your own broker's ETF anyway, and presumably you already went with the most trustworthy broker. Besides that, like I said, there's trivial matters like fees and tracking error, but you might as well just flip a coin. It doesn't really matter.\"","As Ross says, SPX is the index itself. This carries no overheads. It is defined as a capitalization-weighted mixture of the stocks of (about) 500 companies. SPY is an index fund that tries to match the performance of SPX. As an index fund it has several differences from the index:","\"Your question is one of semantics. ETFs and mutual funds have many things in common and provide essentially the same service to investors with minimal differences. It's reasonably correct to say \"\"An ETF is a mutual fund that...\"\" and then follow up with some stuff that is not true of a typical mutual fund. You could do the same with, for example, a hedge fund. \"\"A hedge fund is a mutual fund that doesn't comply with most SEC regulations and thus is limited to accredited investors.\"\" As a matter of practice, when people say \"\"mutual fund\"\" they are talking about traditional mutual funds and pretty much never including ETFs. So is an ETF a mutual fund as the word is commonly used? No.\"","http://www.efficientfrontier.com/ef/104/stupid.htm would have some data though a bit old about open-end funds vs an ETF that would be one point. Secondly, do you know that the Math on your ETF will always work out to whole numbers of shares or do you plan on using brokers that would allow fractional shares easily? This is a factor as $3,000 of an open-end fund will automatically go into fractional shares that isn't necessarily the case of an ETF where you have to specify a number of shares when you purchase as well as consider are you doing a market or limit order? These are a couple of things to keep in mind here. Lastly, what if the broker you use charges account maintenance fees for your account? In buying the mutual fund from the fund company directly, there may be a lower likelihood of having such fees. I don't know of any way to buy shares in the ETF directly without using a broker.","\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \"\"ETF\"\" is used (despite CEFs also being both \"\"exchange-traded\"\" and \"\"funds\"\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\"","\"If anything, the price of an ETF is more tightly coupled to the underlying holdings or assets than a mutual fund, because of the independent creation/destruction mechanism. With a mutual fund, the price is generally set once at the end of each day, and the mutual fund manager has to deal with investments and redemptions at that price. By the time they get to buying or selling the underlying assets, the market may have moved or they may even move the market with those transactions. With an ETF, investment and redemption is handled by independent \"\"authorized participants\"\". They can create new units of the ETF by buying up the underlying assets and delivering them to the ETF manager, and vice versa they can cancel units by requesting the underlying assets from the ETF manager. ETFs trade intraday (i.e. at any time during trading hours) and any time the price diverges too far from the underlying assets, one of the authorized participants has an incentive to make a small profit by creating or destroying units of the ETF, also intraday.\"","what reason would I have in buying an ETF? Apart from the efforts, the real reason is the ticket size. One can't buy shares in fraction. To truly reflect the index in equal weight, the amount to invest will be in multiples of millions [depending on the Index and the stock composition] This related question should help you understand why it is difficult even for large fund house to exactly mimic the index. Why do passive ETFs require so much trading (and incur costs)?","\"Note that an index fund may not be able to precisely mirror the index it's tracking. If enough many people invest enough money into funds based on that index, there may not always be sufficient shares available of every stock included in the index for the fund to both accept additional investment and track the index precisely. This is one of the places where the details of one index fund may differ from another even when they're following the same index. IDEALLY they ought to deliver the same returns, but in practical terms they're going to diverge a bit. (Personally, as long as I'm getting \"\"market rate of return\"\" or better on average across all my funds, at a risk I'm comfortable with, I honestly don't care enough to try to optimize it further. Pick a distribution based on some stochastic modelling tools, rebalance periodically to maintain that distribution, and otherwise ignore it. That's very much to the taste of someone like me who wants the savings to work for him rather than vice versa.)\"","\"You cannot actually buy an index in the true sense of the word. An index is created and maintained by a company like Standard and Poor's who licenses the use of the index to firms like Vanguard. The S&P 500 is an example of an index. The S&P 500 \"\"index includes 500 leading companies\"\", many finical companies sell products which track to this index. The two most popular products which track to indexes are Mutual Funds (as called Index Funds and Index Mutual Funds) and Exchange Traded Funds (as called ETFs). Each Index Mutual Fund or ETF has an index which it tracks against, meaning they hold securities which make up a sample of the index (some indexes like bond indexes are very hard to hold everything that makes them up). Looking at the Vanguard S&P 500 Index Mutual Fund (ticker VFINX) we see that it tracks against the S&P 500 index. Looking at its holdings we see the 500-ish stocks that it holds along with a small amount of bonds and cash to handle cash flow for people buying and sell shares. If we look at the Vanguard S&P 500 ETF (ticker VOO) we see that it also tracks against the S&P 500 index. Looking at its holdings we see they are very similar to the similar Index Mutual Fund. Other companies like T. Rowe Price have similar offering. Look at the T. Rowe Price Equity Index 500 Fund (ticker PREIX) its holdings in stocks are the same as the similar Vanguard fund and like the Vanguard fund it also holds a small amount of bonds and cash to handle cash flow. The only real difference between different products which track against the same index is in the expense ratio (fees for managing the fund) and in the small differences in the execution of the funds. For the most part execution of the funds do not really matter to most people (it has a very small effect), what matters is the expense (the fees paid to own the fund). If we just compare the expense ratio of the Vanguard and T. Rowe Price funds we see (as of 27 Feb 2016) Vanguard has an expense ratio of 0.17% for it Index Mutual Fund and 0.05% for its ETF, while T. Rowe Price has an expense ratio of 0.27%. These are just the fees for the funds themselves, there are also account maintenance fees (which normally go down as the amount of money you have invested at a firm go up) and in the case of ETFs execution cost (cost to trade the shares along with the difference between the bid and ask on the shares). If you are just starting out I would say going with the Index Mutual Fund would easier and most likely would cost less over-all if you are buying a small amount of shares every month. When choosing a company look at the expense ratio on the funds and the account maintenance fees (along with the account minimals). Vanguard is well known for having low fees and they in fact were the first to offer Index Mutual Funds. For more info on the S&P 500 index see also this Investopedia entry on the S&P 500 index. Do not worry if this is all a bit confusing it is to most people (myself included) at first.\"","No, some of Vanguard's funds are index funds like their Total Stock Market Index and 500 Index. In contrast, there are funds like Vanguard PRIMECAP and Vanguard Wellington that are actively managed. There are index funds in both open-end and exchange-traded formats. VTI is the ticker for Vanguard's Total Stock Market ETF while VTSMX is an open-end mutual fund format. VOO would be the S & P 500 ETF ticker while VFINX is one of the open-end mutual fund tickers, where VIIIX has a really low expense ratio but a pretty stiff minimum to my mind. As a general note, open-end mutual funds will generally have a 5 letter ticker ending in X while an ETF will generally be shorter at 3 or 4 letters in length.","index ETF tracks indented index (if fund manager spend all money on Premium Pokemon Trading Cards someone must cover resulting losses) Most Index ETF are passively managed. ie a computer algorithm would do automatic trades. The role of fund manager is limited. There are controls adopted by the institution that generally do allow such wide deviations, it would quickly be flagged and reported. Most financial institutions have keyman fraud insurance. fees are not higher that specified in prospectus Most countries have regulation where fees need to be reported and cannot exceed the guideline specified. at least theoretically possible to end with ETF shares that for weeks cannot be sold Yes some ETF's can be illiquid at difficult to sell. Hence its important to invest in ETF that are very liquid.","You haven't looked very far if you didn't find index tracking exchange-traded funds (ETFs) on the Toronto Stock Exchange. There are at least a half dozen major exchange-traded fund families that I'm aware of, including Canadian-listed offerings from some of the larger ETF providers from the U.S. The Toronto Stock Exchange (TSX) maintains a list of ETF providers that have products listed on the TSX.","Mutual funds don't do what ETFs do because, according to how the fund was built in their contract, they can't. That is not how they are built and the people that invested in them expect them to act in a certain way. That is ok, though. Many people still invest in mutual funds partially because of their history but there are some advantages to mutual funds over etfs. Mainly mutual funds must mark-to-market at the end of day while etf values can drift from the asset value especially in crisis. As long enough people invest in mutual funds the funds make enough money on their fees they don't need to change. Maybe mutual funds will go extinct as etfs do have significant advantages, but it likely won't happen soon.","\"Ask your trading site for their definition of \"\"ETF\"\". The term itself is overloaded/ambiguous. Consider: If \"\"ETF\"\" is interpreted liberally, then any fund that trades on a [stock] exchange is an exchange-traded fund. i.e. the most literal meaning implied by the acronym itself. Whereas, if \"\"ETF\"\" is interpreted more narrowly and in the sense that most market participants might use it, then \"\"ETF\"\" refers to those exchange-traded funds that specifically have a mechanism in place to ensure the fund's current price remains close to its net asset value. This is not the case with closed-end funds (CEFs), which often trade at either a premium or a discount to their underlying net asset value.\"","They're exchange traded debt, basically, not funds. E.g. from the NYSE: An exchange-traded note (ETN) is a senior unsecured debt obligation designed to track the total return of an underlying market index or other benchmark, minus investor fees. Whereas an ETF, in some way or another, is an equity product - which doesn't mean that they can only expose you to equity, but that they themselves are a company that you buy shares in. FCOR for example is a bond ETF, basically a company whose sole purpose is to own a basket of bonds. Contrast that to DTYS, a bear Treasury ETN, which is described as The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Also from Barclays site: Because the iPath ETNs are debt securities, they do not have any voting rights. FCOR on the other hand is some sort of company owned/managed by a Fidelity trust, though my EDGAR skills are rusty. AGREEMENT made this 18th day of September, 2014, by and between Fidelity Merrimack Street Trust, a Massachusetts business trust which may issue one or more series of shares of beneficial interest (hereinafter called the Trust), on behalf of Fidelity Corporate Bond ETF (hereinafter called the Fund), and Fidelity Investments Money Management, Inc., a New Hampshire corporation (hereinafter called the Adviser) as set forth in its entirety below.","The top ten holdings for these funds don't overlap by even one stock. It seems to me they are targeting an index for comparison, but making no attempt to replicate a list of holdings as would, say, a true S&P index.","No. Investors purchase ETFs' as they would any other stock, own it under the same circumstances as an equity investment, collecting distributions instead of dividends or interest. The ETF takes care of the internal operations (bond maturities and turnover, accrued interest, payment dates, etc.).","See my comment for some discussion of why one might choose an identical fund over an ETF. As to why someone would choose the higher cost fund in this instance ... The Admiral Shares version of the fund (VFIAX) has the same expense ratio as the ETF but has a minimum investment of $10K. Some investors may want to eventually own the Admiral Shares fund but do not yet have $10K. If they begin with the Investor Shares now and then convert to Admiral later, that conversion will be a non-taxable event. If, however, they start with ETF shares now and then sell them later to buy the fund, that sale will be a taxable event. Vanguard ETFs are only commission-free to Vanguard clients using Vanguard Brokerage Services. Some investors using other brokers may face all sorts of penalties for purchasing third-party ETFs. Some retirement plan participants (either at Vanguard or another broker) may not even be allowed to purchase ETFs.","Like an S&P 500 ETF? So you're getting in some cash inflow each day, cash outflows each day. And you have to buy and sell 500 different stocks, at the same time, in order for your total fund assets to match the S&P 500 index proportions, as much as possible. At any given time, the prices you get from the purchase/sale of stock is probably going to be somewhat different than the theoretical amounts you are supposed to get to match, so it's quite a tangle. This is my understanding of things. Some funds are simpler - a Dow 30 fund only has 30 stocks to balance out. Maybe that's easier, or maybe it's harder because one wonky trade makes a bigger difference? I'm not sure this is how it really operates. The closest I've gotten is a team that has submitted products for indexing, and attempted to develop funds from those indexes. Turns out finding the $25-50 million of initial investments isn't as easy as anyone would think.","The key two things to consider when looking at similar/identical ETFs is the typical (or 'indicative') spread, and the trading volume and size of the ETF. Just like regular stocks, thinly traded ETF's often have quite large spreads between buy and sell: in the 1.5-2%+ range in some cases. This is a huge drain if you make a lot of transactions and can easily be a much larger concern than a relatively trivial difference in ongoing charges depending on your exact expected trading frequency. Poor spreads are also generally related to a lack of liquidity, and illiquid assets are usually the first to become heavily disconnected from the underlying in cases where the authorized participants (APs) face issues. In general with stock ETFs that trade very liquid markets this has historically not been much of an issue, as the creation/redemption mechanism on these types of assets is pretty robust: it's consequences on typical spread is much more important for the average retail investor. On point #3, no, this would create an arbitrage which an authorized participant would quickly take advantage of. Worth reading up about the creation and redemption mechanism (here is a good place to start) to understand the exact way this happens in ETFs as it's very key to how they work.","ETFs trade on specific exchanges. If your broker deals with those exchanges, you should have access to the ETF. If your broker does not deal with that exchange, then you will not have access through that broker. This is different than, say, mutual funds, which don't trade on the exchanges are proprietary to certain brokerages or financial institutions.","Close-end funds just means there's a fixed number of shares available, so if you want to buy some you must purchase from other existing owners, typically through an exchange. Open-end funds mean the company providing the shares is still selling them, so you can buy them directly from the company. Some can also be traded on exchanges as well.","Also, when they mean SP500 fund - it means that fund which invests in the top 500 companies in the SP Index, is my understanding correct? Yes that is right. In reality they may not be able to invest in all 500 companies in same proportion, but is reflective of the composition. I wanted to know whether India also has a company similar to Vanguard which offers low cost index funds. Almost all mutual fund companies offer a NIFTY index fund, both as mutual fund as well as ETF. You can search for index fund and see the total assets to find out which is bigger compared to others.","ETFs are a type of investment, not a specific choice. In other words, there are good ETFs and bad. What you see is the general statement that ETFs are preferable to most mutual funds, if only for the fact that they are low cost. An index ETF such as SPY (which reflects the S&P 500 index) has a .09% annual expense, vs a mutual fund which average a full percent or more. sheegaon isn't wrong, I just have a different spin to offer you. Given a long term return of say even 8% (note - this question is not a debate of the long term return, and I purposely chose a low number compared to the long term average, closer to 10%) and the current CD rate of <1%, a 1% hit for the commission on the buy side doesn't bother me. The sell won't occur for a long time, and $8 on a $10K sale is no big deal. I'd not expect you to save $1K/yr in cash/CDs for the years it would take to make that $8 fee look tiny. Not when over time the growth will overshaddow this. One day you will be in a position where the swings in the market will produce the random increase or decrease to your net worth in the $10s of thousands. Do you know why you won't lose a night's sleep over this? Because when you invested your first $1K, and started to pay attention to the market, you saw how some days had swings of 3 or 4%, and you built up an immunity to the day to day noise. You stayed invested and as you gained wealth, you stuck to the right rebalancing each year, so a market crash which took others down by 30%, only impacted you by 15-20, and you were ready for the next move to the upside. And you also saw that since mutual funds with their 1% fees never beat the index over time, you were happy to say you lagged the S&P by .09%, or 1% over 11 year's time vs those whose funds had some great years, but lost it all in the bad years. And by the way, right until you are in the 25% bracket, Roth is the way to go. When you are at 25%, that's the time to use pre-tax accounts to get just below the cuttoff. Last, welcome to SE. Edit - see sheegaon's answer below. I agree, I missed the cost of the bid/ask spread. Going with the lowest cost (index) funds may make better sense for you. To clarify, Sheehan points out that ETFs trade like a stock, a commission, and a bid/ask, both add to transaction cost. So, agreeing this is the case, an indexed-based mutual fund can provide the best of possible options. Reflecting the S&P (for example) less a small anual expense, .1% or less.","The way it is handled with ETF's is that someone has to gather a block of units and redeem them with the fund. So, with the mutual fund you redeem your unit directly with the fund, always, you never sell to another player. With the ETF - its the opposite, you sell to another player. Once a player has a large chunk of units - he can go to the fund and redeem them. These are very specific players (investment banks), not individual investors.","Why not figure out the % composition of the index and invest in the participating securities directly? This isn't really practical. Two indices I use follow the Russell 2000 and the S&P 500 Those two indices represent 2500 stocks. A $4 brokerage commission per trade would mean that it would cost me $10,000 in transaction fees to buy a position in 2500 stocks. Not to mention, I don't want to track 2500 investments. Index funds provide inexpensive diversity.","One of the key things to look for is trading volume. I think the price spread will be better on high volume ETFs, which means you'll be able to sell for more when the time comes. Check Google or Yahoo finance for those stats.","\"If your intention is to purchase ETFs on a regular basis (like $x per month), then ETFs may not make sense. You may have to pay a fixed transaction cost like you were buying a stock for each purchase. In a similar no load mutual fund, there are more likely to be no transaction costs (depending on how it is bought). The above paragraph is not very definitive, and is really dependent upon how you would purchase either ETFs or Mutual funds. For example if you have a Fidelity brokerage account, they may let you buy certain ETFs commission free. Okay then either ETFs make great sense. It would not make sense to buy ones that they charge $35 per transaction if you have regular transactions that are smallish. The last two questions seem to be asking if you should buy MF or buy stocks directly. For most people the later is a losing proposition. They do not have the time or ability to buy stocks directly, effectively. Even if they did they may not have the capital to make enough of a difference when one considers all the cost involved. However, if that kind of thing interests you, perhaps you should dabble. Start out small and look at the higher costs of doing so as part of the \"\"cost of doing business\"\".\"","Price, whether related to a stock or ETF, has little to do with anything. The fund or company has a total value and the value is distributed among the number of units or shares. Vanguard's S&P ETF has a unit price of $196 and Schwab's S&P mutual fund has a unit price of $35, it's essentially just a matter of the fund's total assets divided by number of units outstanding. Vanguard's VOO has assets of about $250 billion and Schwab's SWPPX has assets of about $25 billion. Additionally, Apple has a share price of $100, Google has a share price of $800, that doesn't mean Google is more valuable than Apple. Apple's market capitalization is about $630 billion while Google's is about $560 billion. Or on the extreme a single share of Berkshire's Class A stock is $216,000, and Berkshire's market cap is just $360 billion. It's all just a matter of value divided by shares/units.","In your other question about these funds you quoted two very different yields for them. That pretty clearly says they are NOT tracking the same index.","Yes, it depends on the fund it's trying to mirror. The ETF for the S&P that's best known (in my opinion) is SPY and you see the breakdown of its holdings. Clearly, it's not an equal weighted index.","Some index funds offer lower expense ratios to those who invest large amounts of money. For example, Vanguard offers Admiral Shares of many of its mutual funds (including several index funds) to individuals who invest more than $50K or $100K, and these Shares have lower expense ratios than the Investor shares in the fund. There are Institutional Shares designed for investments by pension plans, 401k plans of large companies etc which have even lower expenses than Admiral Shares. Individuals working for large companies sometimes get access to Institutional Shares through their 401k plans. Thus, there is something to gained by investing in just one index fund (for a particular index) that offers lower expense ratios for large investments instead of diversifying into several index funds all tracking the same index. Of course, this advantage might be offset by failure to track the index closely, but this tracking should be monitored not on a daily basis but over much longer periods of time to test whether your favorite fund is perennially trailing the index by far more than its competitors with larger expense ratios. Remember that the Net Asset Value (NAV) published by each mutual fund after the markets close already take into account the expense ratio.","What account you put it in depends on why you have those different accounts. First, if you have them due to regulatory requirements, then you of course must follow said regulations. I doubt that's the case here. Otherwise, you might be splitting based on how they trade (ETFs trade as stocks) or you could be splitting based on how you build a portfolio out of them. When you build a non-speculative stock portfolio, you typically want to limit your holdings in a single stock to a fairly small portion of your portfolio (say, 3%) to limit your exposure to bad stuff happening to a single company. That doesn't apply nearly a much to mutual funds, especially index funds. ETFs are much more like mutual funds here. You can also, of course, create an ETF account and put them there. You also say you have a market index account, what is that used for?","\"An ETF does not track any one individual stock. It \"\"is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund.\"\" Check out this link to learn more about ETFs. The easiest way see what ETF tracks a stock is to determine what sector and industry that company is in and find some ETF that trade it. The ETF will likely trade that stock, assuming that its market cap and exchange it trades on fits within the parameters of the ETF.\"","\"To add on to the other answers, in asking why funds have different price points one might be asking why stocks aren't normalized so a unit price of $196 in one stock can be directly compared to the same price in another stock. While this might not make sense with AAPL vs. GOOG (it would be like comparing apples to oranges, pun intended, not to mention how would two different companies ever come to such an agreement) it does seem like it would make more sense when tracking an index. And in fact less agreement between different funds would be required as some \"\"natural\"\" price points exist such as dividing by 100 (like some S&P funds do). However, there are a couple of reasons why two different funds might price their shares of the same underlying index differently. Demand - If there are a lot of people wanting the issue, more shares might be issued at a lower price. Or, there might be a lot of demand centered on a certain price range. Pricing - shares that are priced higher will find fewer buyers, because it makes it harder to buy round lots (100 shares at $100/share is $10,000 while at $10/share it's only $1000). While not everyone buys stock in lots, it's important if you do anything with (standardized) options on the stock because they are always acting on lots. In addition, even if you don't buy round lots a higher price makes it harder to buy in for a specific amount because each unit share has a greater chance to be further away from your target amount. Conversely, shares that are priced too low will also find fewer buyers, because some holders have minimum price requirements due to low price (e.g. penny) stocks tending to be more speculative and volatile. So, different funds tracking the same index might pick different price points to satisfy demand that is not being filled by other funds selling at a different price point.\"","\"Okay. An ETF is an \"\"Exchange Traded Fund\"\". It trades like a stock, on the stock market. Basically by buying one ETF, you can have ownership in the underlying companies that make up the ETF. So, if you buy QCLN, a green energy ETF, you own Tesla, First Solar Inc, SunPower Corporation, Vivint Solar, Advanced energy industries and a bunch of other companies that are involved in clean energy. It allows you to gain exposure to a sector without having to buy individual companies. There are ETFs for lots of different things. Technology ETFs, Healthcare ETFs, Consumer Staples ETFs, Utilities ETFs, etc. REITS are essentially the same thing, except they own real estate.\"","Investopedia laid out the general information of tax treatment on the ETF fund structures as well as their underlying asset classes: http://www.investopedia.com/financial-edge/0213/how-tax-treatments-of-etfs-work.aspx","\"Regarding SPY: \"\"One SPDR unit is valued at approximately 1/10 of the value of the S&P 500. Dividends are distributed quarterly, and are based on the accumulated stock dividends held in trust, less any expenses of the trust.\"\" (source) These are depository receipts, not the actual stocks. Regarding IVV: \"\"The component stocks are weighted according to the total float-adjusted market value of their outstanding shares. The Fund invests in sectors, such as energy, information technology, industrials, financials, consumer staples, healthcare, telecom services, consumer discretionary and materials.\"\" (more here) VOO is the Vanguard S&P 500 ETF. The tracking error seems pretty small to me. I went to Google Finance and plotted the percent change for all four on one chart. They lie pretty much on top of one another. The actual dollar value of each one doesn't matter nearly as much as the fact that they move up and down almost in lock-step. There may be a larger difference going farther out, but for three separate financial products, the agreement is still remarkably good.\"","The simple answer is that whatever strategy is implemented with e-series, could be implemented at a lower cost with ETFs.","Ohhhh. Well thank you for that info. I know I could've Googled it all and while I'm a sticker for doing your own research, it's nice to hear it from someone in the know. Gotta pass on knowledge to those who don't know. Is it cheap to buy an ETF?","Mutual funds are funds composed of financial assets and the funds of investors, and are managed by a firm, usually a large wealth management firm. They are generally accessible to anyone. Hedge funds are private investment funds with limited access, and are subject to fewer regulations. They are usually legally set up as their own firm.","\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \"\"patient buyer\"\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \"\"representative sample.\"\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \"\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\"\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\"","The issue with trading stocks vs. mutual funds (or ETFs) is all about risk. You trade Microsoft you now have a Stock Risk in your portfolio. It drops 5% you are down 5%. Instead if you want to buy Tech and you buy QQQ if MSFT fell 5% the QQQs would not be as impacted to the downside. So if you want to trade a mutual fund, but you want to be able to put in stop sell orders trade ETFs instead. Considering mutual funds it is better to say Invest vs. Trade. Since all fund families have different rules and once you sell (if you sell it early) you will pay a fee and will not be able to invest in that same fund for x number of days (30, 60...)","ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.","- ETFs make money through management fees. You can look it up: they all skim off a little bit of its profit, normally <1%. - It's all about cheap diversification. People generally don't have the capital to invest individually in each equity to mimic an ETF's portfolio. - Yes, but you need a lot of money. For example: You can't just invest $1 in GOOG if you want to buy a tech sector ETF.","Index funds, like IBB, generally lack active management, which equates to lower expenses. This is simply because the target index, the NASDAQ Biotechnology Index in the case of IBB, is composed of known quantities. This means there won't be stock pickers or analysts constantly swapping holdings, increasing the turnover rate of the portfolio and increasing capital gains; costs that are offset by higher expense ratios in more actively managed funds.","Sure, but as a retail client you'd be incurring transaction fees on entry and exit. Do you have the necessary tools to manage all the corporate actions, too? And index rebalances? ETF managers add value by taking away the monstrous web of clerical work associated with managing a portfolio of, at times, hundreds of different names. With this comes the value of institutional brokerage commissions, data licenses, etc. I think if you were to work out the actual brokerage cost, as well as the time you'd have to spend doing it yourself, you'd find that just buying the ETF is far cheaper. Also a bit of a rabbit hole, but how would you (with traditional retail client tools) even coordinate the simultaneous purchase of all 500 components of something like SPY? I would guess that, on average, you're going to have significantly worse slippage to the index than a typical ETF provider. Add that into your calculation too.","I think you need a diversified portfolio, and index funds can be a part of that. Make sure that you understand the composition of your funds and that they are in fact invested in different investments.","The S&P500 is an index, not an investment by itself. The index lists a large number of stocks, and the value of the index is the price of all the stocks added together. If you want to make an investment that tracks the S&P500, you could buy some shares of each stock in the index, in the same proportions as the index. This, however, is impractical for just about everyone. Index mutual funds provide an easy way to make this investment. SPY is an ETF (exchange-traded mutual fund) that does the same thing. An index CFD (contract for difference) is not the same as an index mutual fund. There are a number of differences between investing in a security fund and investing in a CFD, and CFDs are not available everywhere.","The market doesn't really need to adjust for fees on ETF funds that are often less than 1/10th of a percent. The loss of the return is more than made up for by the diversification. How does the market adjust for trading fees? It doesn't have to, it's just a cost of doing business. If one broker or platform offers better fee structures, people will naturally migrate toward the lower fees.","Most ETFs are index funds, meaning you get built in diversification so that any one stock going down won't hurt the overall performance much. You can also get essentially the same index funds by directly purchasing them from the mutual fund company. To buy an ETF you need a brokerage account and have to pay a transaction fee. Buying only $1000 at a time the broker transaction fee will eat too much of your money. You want to keep such fees way down below 0.1%. Pay attention to transaction fees and fund expense ratios. Or buy an equivalent index fund directly from the mutual fund company. This generally costs nothing in transaction fees if you have at least the minimum account value built up. If you buy every month or two you are dollar cost averaging, no matter what kind of account you are using. Keep doing that, even if the market values are going down. (Especially if the market values are going down!) If you can keep doing this then forget about certificates of deposit. At current rates you cannot build wealth with CDs.","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","diversifying; but isn't that what mutual funds already do? They diversify and reduce stock-specific risk by moving from individual stocks to many stocks, but you can diversify even further by selecting different fund types (e.g. large-cal, small-cap, fixed- income (bond) funds, international, etc.). Your target-date fund probably includes a few different types already, and will automatically reallocate to less risky investments as you get close to the target date. I would look at the fees of different types of funds, and compare them to the historical returns of those funds. You can also use things like morningstar and other ratings as guides, but they are generally very large buckets and may not be much help distinguishing between individual funds. So to answer the question, yes you can diversify further - and probably get better returns (and lower fees) that a target-date fund. The question is - is it worth your time and effort to do so? You're obviously comfortable investing for the long-term, so you might get some benefit by spending a little time looking for different funds to increase your diversification. Note that ETFs don't really diversify any differently than mutual funds, they are just a different mechanism to invest in funds, and allow different trading strategies (trading during the day, derivatives, selling short, etc.).","An index fund is just copying the definition of an index. The group that defines the index determines how to weight the different parts of the index. The index fund just makes sure they invest the same way the index creator wants. Think of a non-investment scenario. A teacher can grade tests, quizzes, homework, in-class assignments, research papers. They decide how much weight to give each category and how much weight to give each part of each category. when a student wants to see how they are doing they take the information in the syllabus, and generate a few formulas in a spreadsheet to calculate their current grade. They can also calculate what they need to get on the final exam to get the grade they want.","The Creation/Redemption mechanism is how shares of an ETF are created or redeemed as needed and thus is where there can be differences in what the value of the holdings can be versus the trading price. If the ETF is thinly traded, then the difference could be big as more volume would be where the mechanism could kick in as generally there are blocks required so the mechanism usually created or redeemed in lots of 50,000 shares I believe. From the link where AP=Authorized Participant: With ETFs, APs do most of the buying and selling. When APs sense demand for additional shares of an ETF—which manifests itself when the ETF share price trades at a premium to its NAV—they go into the market and create new shares. When the APs sense demand from investors looking to redeem—which manifests itself when the ETF share price trades at a discount—they process redemptions. So, suppose the NAV of the ETF is $20/share and the trading price is $30/share. The AP can buy the underlying securities for $20/share in a bulk order that equates to 50,000 shares of the ETF and exchange the underlying shares for new shares in the ETF. Then the AP can turn around and sell those new ETF shares for $30/share and pocket the gain. If you switch the prices around, the AP would then take the ETF shares and exchange them for the underlying securities in the same way and make a profit on the difference. SEC also notes this same process."],"string":"[\n \"Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons. Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference. Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.\",\n \"Behind the scenes, mutual funds and ETFs are very similar. Both can vary widely in purpose and policies, which is why understanding the prospectus before investing is so important. Since both mutual funds and ETFs cover a wide range of choices, any discussion of management, assets, or expenses when discussing the differences between the two is inaccurate. Mutual funds and ETFs can both be either managed or index-based, high expense or low expense, stock or commodity backed. Method of investing When you invest in a mutual fund, you typically set up an account with the mutual fund company and send your money directly to them. There is often a minimum initial investment required to open your mutual fund account. Mutual funds sometimes, but not always, have a load, which is a fee that you pay either when you put money in or take money out. An ETF is a mutual fund that is traded like a stock. To invest, you need a brokerage account that can buy and sell stocks. When you invest, you pay a transaction fee, just as you would if you purchase a stock. There isn't really a minimum investment required as there is with a traditional mutual fund, but you usually need to purchase whole shares of the ETF. There is inherently no load with ETFs. Tax treatment Mutual funds and ETFs are usually taxed the same. However, capital gain distributions, which are taxable events that occur while you are holding the investment, are more common with mutual funds than they are with ETFs, due to the way that ETFs are structured. (See Fidelity: ETF versus mutual funds: Tax efficiency for more details.) That having been said, in an index fund, capital gain distributions are rare anyway, due to the low turnover of the fund. Conclusion When comparing a mutual fund and ETF with similar objectives and expenses and deciding which to choose, it more often comes down to convenience. If you already have a brokerage account and you are planning on making a one-time investment, an ETF could be more convenient. If, on the other hand, you have more than the minimum initial investment required and you also plan on making additional regular monthly investments, a traditional no-load mutual fund account could be more convenient and less expensive.\",\n \"The main difference between a mutual fund and an ETF are how they are bought and sold (from the investors perspective). An ETF is transacted on the open market. This means you normally can't buy partial shares with your initial investment. Having to transact on the open market also means you pay a market price. The market price is always a little bit different from the Net Asset Value (NAV) of the fund. During market hours, the ETF will trade at a premium/discount to the NAV calculated on the previous day. Morningstar's fund analysis will show a graph of the premium/discount to NAV for an ETF. With a mutual fund on the other hand, your investment goes to a fund company, which then grants you shares while under the hood buying the underlying investments. You pay the NAV price and are allowed to buy partial shares. Usually an ETF has a lower expense ratio, but if that's equal and any initial fees/commissions are equal, I would prefer the mutual fund in order to buy partial shares (so your initial investment will be fully invested) and so you don't have to worry about paying premium to NAV\",\n \"Why don't you look at the actual funds and etfs in question rather than seeking a general conclusion about all pairs of funds and etfs? For example, Vanguard's total stock market index fund (VTSAX) and ETF (VTI). Comparing the two on yahoo finance I find no difference over the last 5 years visually. For a different pair of funds you may find something very slightly different. In many cases the index fund and ETF will not have the same benchmark and fees so comparisons get a little more cloudy. I recall a while ago there was an article that was pointing out that at the time emerging market ETF's had higher fees than corresponding index funds. For this reason I think you should examine your question on a case-by-case basis. Index fund and ETF returns are all publicly available so you don't have to guess.\",\n \"Mutual funds buy (and sell) shares in companies in accordance with the policies set forth in their prospectus, not according to the individual needs of an investor, that is, when you invest money in (or withdraw money from) a mutual fund, the manager buys or sells whatever shares that, in the manager's judgement, will be the most appropriate ones (consistent with the investment policies). Thus, a large-cap mutual fund manager will not buy the latest hot small-cap stock that will likely be hugely profitable; he/she must choose only between various large capitalization companies. Some exchange-traded funds are fixed baskets of stocks. Suppose you will not invest in a company X as a matter of principle. Unless a mutual fund prospectus says that it will not invest in X, you may well end up having an investment in X at some time because the fund manager bought shares in X. With such an ETF, you know what is in the basket, and if the basket does not include stock in X now, it will not own stock in X at a later date. Some exchange-traded funds are constructed based on some index and track the index as a matter of policy. Thus, you will not be investing in X unless X becomes part of the index because Standard or Poor or Russell or somebody changed their minds, and the ETF buys X in order to track the index. Finally, some ETFs are exactly like general mutual funds except that you can buy or sell ETF shares at any time at the price at the instant that your order is executed whereas with mutual funds, the price of the mutual fund shares that you have bought or sold is the NAV of the mutual fund shares for that day, which is established based on the closing prices at the end of the trading day of the stocks, bonds etc that the fund owns. So, you might end up owning stock in X at any time based on what the fund manager thinks about X.\",\n \"ETFs offer the flexibility of stocks while retaining many of the benefits of mutual funds. Since an ETF is an actual fund, it has the diversification of its potentially many underlying securities. You can find ETFs with stocks at various market caps and style categories. You can have bond or mixed ETFs. You can even get ETFs with equal or fundamental weighting. In short, all the variety benefits of mutual funds. ETFs are typically much less expensive than mutual funds both in terms of management fees (expense ratio) and taxable gains. Most of them are not actively managed; instead they follow an index and therefore have a low turnover. A mutual fund may actively trade and, if not balanced with a loss, will generate capital gains that you pay taxes on. An ETF will produce gains only when shifting to keep inline with the index or you yourself sell. As a reminder: while expense ratio always matters, capital gains and dividends don't matter if the ETF or mutual fund is in a tax-advantaged account. ETFs have no load fees. Instead, because you trade it like a stock, you will pay a commission. Commissions are straight, up-front and perfectly clear. Much easier to understand than the various ways funds might charge you. There are no account minimums to entry with ETFs, but you will need to buy complete shares. Only a few places allow partial shares. It is generally harder to dollar-cost average into an ETF with regular automated investments. Also, like trading stocks, you can do those fancy things like selling short, buying on margin, options, etc. And you can pay attention to the price fluctuations throughout the day if you really want to. Things to make you pause: if you buy (no-load) mutual funds through the parent company, you'll get them at no commission. Many brokerages have No Transaction Fee (NTF) agreements with companies so that you can buy many funds for free. Still look out for that expense ratio though (which is probably paying for that NTF advantage). As sort of a middle ground: index funds can have very low expense ratios, track the same index as an ETF, can be tax-efficient or tax-managed, free to purchase, easy to dollar-cost average and easier to automate/understand. Further reading:\",\n \"If you just want to track an index, then ETFs are, generally speaking, the better way.\",\n \"The main difference between an ETF and a Mutual Fund is Management. An ETF will track a specific index with NO manager input. A Mutual Fund has a manager that is trying to choose securities for its fund based on the mandate of the fund. Liquidity ETFs trade like a stock, so you can buy at 10am and sell at 11 if you wish. Mutual Funds (most) are valued at the end of each business day, so no intraday trading. Also ETFs are similar to stocks in that you need a buyer/seller for the ETF that you want/have. Whereas a mutual fund's units are sold back to itself. I do not know of many if any liquity issues with an ETF, but you could be stuck holding it if you can not find a buyer (usually the market maker). Mutual Funds can be closed to trading, however it is rare. Tax treatment Both come down to the underlying holdings in the fund or ETF. However, more often in Mutual Funds you could be stuck paying someone else's taxes, not true with an ETF. For example, you buy an Equity Mutual Fund 5 years ago, you sell the fund yourself today for little to no gain. I buy the fund a month ago and the fund manager sells a bunch of the stocks they bought for it 10 years ago for a hefty gain. I have a tax liability, you do not even though it is possible that neither of us have any gains in our pocket. It can even go one step further and 6 months from now I could be down money on paper and still have a tax liability. Expenses A Mutual Fund has an MER or Management Expense Ratio, you pay it no matter what. If the fund has a positive return of 12.5% in any given year and it has an MER of 2.5%, then you are up 10%. However if the fund loses 7.5% with the same MER, you are down 10%. An ETF has a much smaller management fee (typically 0.10-0.95%) but you will have trading costs associated with any trades. Risks involved in these as well as any investment are many and likely too long to go into here. However in general, if you have a Canadian Stock ETF it will have similar risks to a Canadian Equity Mutual Fund. I hope this helps.\",\n \"ETFs are both liquid (benefits active traders) and a simple way for people to invest in funds even if they don't have the minimum balance needed to invest in a mutual fund (EDIT: in which purchases are resolved at the end of the trading day). One big difference between ETFs and mutual funds is that you must buy ETFs in whole units, whereas you can add $100 to a mutual fund and the fund will determine -- usually to 4 decimal places -- how many shares you've purchased.\",\n \"What is your time horizon? Over long horizons, you absolutely want to minimise the expense ratio – a seemingly puny 2% fee p.a. can cost you a third of your savings over 35 years. Over short horizons, the cost of trading in and trading out might matter more. A mutual fund might be front-loaded, i.e. charge a fixed initial percentage when you first purchase it. ETFs, traded daily on an exchange just like a stock, don't have that. What you'll pay there is the broker commission, and the bid-ask spread (and possibly any premium/discount the ETF has vis-a-vis the underlying asset value). Another thing to keep in mind is tracking error: how closely does the fond mirror the underlying index it attempts to track? More often than not it works against you. However, not sure there is a systematic difference between ETFs and funds there. Size and age of a fund can matter, indeed - I've had new and smallish ETFs that didn't take off close down, so I had to sell and re-allocate the money. Two more minor aspects: Synthetic ETFs and lending to short sellers. 1) Some ETFs are synthetic, that is, they don't buy all the underlying shares replicating the index, actually owning the shares. Instead, they put the money in the bank and enter a swap with a counter-party, typically an investment bank, that promises to pay them the equivalent return of holding that share portfolio. In this case, you have (implicit) credit exposure to that counter-party - if the index performs well, and they don't pay up, well, tough luck. The ETF was relying on that swap, never really held the shares comprising the index, and won't necessarily cough up the difference. 2) In a similar vein, some (non-synthetic) ETFs hold the shares, but then lend them out to short sellers, earning extra money. This will increase the profit of the ETF provider, and potentially decrease your expense ratio (if they pass some of the profit on, or charge lower fees). So, that's a good thing. In case of an operational screw up, or if the short seller can't fulfil their obligations to return the shares, there is a risk of a loss. These two considerations are not really a factor in normal times (except in improving ETF expense ratios), but during the 2009 meltdown they were floated as things to consider. Mutual funds and ETFs re-invest or pay out dividends. For a given mutual fund, you might be able to choose, while ETFs typically are of one type or the other. Not sure how tax treatment differs there, though, sorry (not something I have to deal with in my jurisdiction). As a rule of thumb though, as alex vieux says, for a popular index, ETFs will be cheaper over the long term. Very low cost mutual funds, such as Vanguard, might be competitive though.\",\n \"Bond ETFs are just another way to buy a bond mutual fund. An ETF lets you trade mutual fund shares the way you trade stocks, in small share-size increments. The content of this answer applies equally to both stock and bond funds. If you are intending to buy and hold these securities, your main concerns should be purchase fees and expense ratios. Different brokerages will charge you different amounts to purchase these securities. Some brokerages have their own mutual funds for which they charge no trading fees, but they charge trading fees for ETFs. Brokerage A will let you buy Brokerage A's mutual funds for no trading fee but will charge a fee if you purchase Brokerage B's mutual fund in your Brokerage A account. Some brokerages have multiple classes of the same mutual fund. For example, Vanguard for many of its mutual funds has an Investor class (minimum $3,000 initial investment), Admiral class (minimum $10,000 initial investment), and an ETF (share price as initial investment). Investor class has the highest expense ratio (ER). Admiral class and the ETF generally have much lower ER, usually the same number. For example, Vanguard's Total Bond Market Index mutual fund has Investor class (symbol VBMFX) with 0.16% ER, Admiral (symbol VBTLX) with 0.06% ER, and ETF (symbol BND) with 0.06% ER (same as Admiral). See Vanguard ETF/mutual fund comparison page. Note that you can initially buy Investor class shares with Vanguard and Vanguard will automatically convert them to the lower-ER Admiral class shares when your investment has grown to the Admiral threshold. Choosing your broker and your funds may end up being more important than choosing the form of mutual fund versus ETF. Some brokers charge very high purchase/redemption fees for mutual funds. Many brokers have no ETFs that they will trade for free. Between funds, index funds are passively managed and are just designed to track a certain index; they have lower ERs. Actively managed funds are run by managers who try to beat the market; they have higher ERs and tend to actually fall below the performance of index funds, a double whammy. See also Vanguard's explanation of mutual funds vs. ETFs at Vanguard. See also Investopedia's explanation of mutual funds vs. ETFs in general.\",\n \"The mutual fund will price at day's end, while the ETF trades during the day, like a stock. If you decide at 10am, that some event will occur during the day that will send the market up, the ETF is preferable. Aside from that, the expenses are identical, a low .14%. No real difference especially in a Roth.\",\n \"\\\"I think you are asking about actively managed funds vs. indexes and possibly also vs. diversified funds like target date funds. This is also related to the question of mutual fund vs. ETF. First, a fund can be either actively managed or it can attempt to track an index. An actively managed fund has a fund manager who tries to find the best stocks to invest in within some constraints, like \\\"\\\"this fund invests in large cap US companies\\\"\\\". An index fund tries to match as closely as possible the performance of an index like the S&P 500. A fund may also try to offer a portfolio that is suitable for someone to put their entire account into. For example, a target date fund is a fund that may invest in a mix of stocks, bonds and foreign stock in a proportion that would be appropriate to someone expecting to retire in a certain year. These are not what people tend to think of as the canonical examples of mutual funds, even though they share the same legal structure and investment mechanisms. Secondly, a fund can either be a traditional mutual fund or it can be an exchange traded fund (ETF). To invest in a traditional mutual fund, you send money to the fund, and they give you a number of shares equal to what that money would have bought of the net asset value (NAV) of the fund at the end of trading on the day they receive your deposit, possibly minus a sales charge. To invest in an ETF, you buy shares of the ETF on the stock market like any other stock. Under the covers, an ETF does have something similar to the mechanism of depositing money to get shares, but only big traders can use that, and it's not used for investing, but only for people who are making a market in the stock (if lots of people are buying VTI, Big Dealer Co will get 100,000 shares from Vanguard so that they can sell them on the market the next day). Historically and traditionally, ETFs are associated with an indexing strategy, while if not specifically mentioned, people assume that traditional mutual funds are actively managed. Many ETFs, notably all the Vanguard ETFs, are actually just a different way to hold the same underlying fund. The best way to understand this is to read the prospectus for a mutual fund and an ETF. It's all there in reasonably plain English.\\\"\",\n \"I think that assuming that you're not looking to trade the fund, an index Mutual Fund is a better overall value than an ETF. The cost difference is negligible, and the ability to dollar-cost average future contributions with no transaction costs. You also have to be careful with ETFs; the spreads are wide on a low-volume fund and some ETFs are going more exotic things that can burn a novice investor. Track two similar funds (say Vanguard Total Stock Market: VTSMX and Vanguard Total Stock Market ETF: VTI), you'll see that they track similarly. If you are a more sophisticated investor, ETFs give you the ability to use options to hedge against declines in value without having to incur capital gains from the sale of the fund. (ie. 20 years from now, can use puts to make up for short-term losses instead of selling shares to avoid losses) For most retail investors, I think you really need to justify using ETFs versus mutual funds. If anything, the limitations of mutual funds (no intra-day trading, no options, etc) discourage speculative behavior that is ultimately not in your best interest. EDIT: Since this answer was written, many brokers have begun offering a suite of ETFs with no transaction fees. That may push the cost equation over to support Index ETFs over Index Mutual Funds, particularly if it's a big ETF with narrow spreads..\",\n \"There is little difference between buying shares in your broker's index fund and shares of their corresponding ETF. In many cases the money invested in an ETF gets essentially stuffed right into the index fund (I believe Vanguard does this, for example). In either case you will be paying a little bit of tax. In the ETF case it will be on the dividends that are paid out. In the index fund case it will additionally be on the capital gains that have been realized within the fund, which are very few for an index fund. Not a ton in either case. The more important tax consideration is between purchase and sale, which is the same in either case. I'd say stick it wherever the lowest fees are.\",\n \"A mutual fund has several classes of shares that are charged different fees. Some shares are sold through brokers and carry a sales charge (called load) that compensates the broker in lieu of a fee that the broker would charge the client for the service. Vanguard does not have sales charge on its funds and you don't need to go through a broker to buy its shares; you can buy directly from them. Admiral shares of Vanguard funds are charged lower annual expenses than regular shares (yes, all mutual funds charge expenses for fund adninistration that reduce the return that you get, and Vanguard has some of the lowest expense ratios) but Admiral shares are available only for large investments, typically $50K or so. If you have invested in a Vanguard mutual fund, your shares can be set to automatically convert to Admiral shares when the investment reaches the right level. A mutual fund manager can buy and sell stocks to achieve the objectives of the fund, so what stockes you are invested in as a share holder in a mutual fund will typically be unknown to you on a day-to-day basis. On the other hand, Exchange-traded funds (ETFs) are fixed baskets of stocks, and you can buy shares in the ETF. These shares are bought and sold through a broker (so you pay a transaction fee each time) but expenses are lower since there is no manager to buy and sell stocks: the basket is fixed. Many ETFs follow specific market indexes (e.g. S&P 500). Another difference between ETFs and mutual funds is that you can buy and sell ETFs at any time of the day just as if you could if you held stocks. With mutual funds, any buy and sell requests made during the day are processed at the end of the day and the value of the shares that you buy or sell is determined by the closing price of the stocks held by the mutual fund. With ETFs, you are getting the intra-day price at the time the buy or sell order is executed by your broker.\",\n \"You cannot do a 1031 exchange with stocks, bonds, mutual funds, or ETFs. There really isn't much difference between an ETF and its equivalent index mutual fund. Both will have minimal capital gains distributions. I would not recommend selling an index mutual fund and taking a short-term capital gain just to buy the equivalent ETF.\",\n \"Something to consider is how do you want to handle fractional shares. Most open-end funds can easily go to fractional shares to that if you want to invest $500 in a fund each month, it is a relatively easy transaction where some shares will be fractional and handled easily. An ETF may not always work that way unless you go through something like Sharebuilder that would allow the fractional shares as if the ETF is trading at $150/share, you could buy 3 shares but still have $50 that you want to invest but can't as stocks trade in whole share numbers usually. This is without adding brokerage commissions. Depending on the broker, re-investing dividends may or may not be that simple as fractional shares could be a problem since those 3 shares aren't likely to have enough of a dividend to equal another share being bought with the proceeds. If you want the flexibility of stop and limit orders then the ETF may make more sense while the open-end fund is simply to invest whole dollar amounts that then lead to fractional shares. Don't forget to factor in minimums and other stuff as VFIAX may have a bit of a minimum to it as well as possible fees that could be annoying as I remember VFINX having some account maintenance fees that were a bit irksome back in the day that may still be around in some cases so be sure to read the fine print on things.\",\n \"In my opinion, if you are doing long-term investing, this is a non-issue. The difference of hours in being able to trade an ETF during the day vs. only being able to trade a traditional mutual fund at day-end is irrelevant if you are holding the investment for a long time. If you are engaging in day trading, market timing, or other advanced/controversial trading practices, then I suppose it could make a difference. For the way I invest (index funds, long-term, set-it-and-forget-it), ETFs have no advantage over traditional mutual funds.\",\n \"So, why or why should I not invest in the cheaper index fund? They are both same, one is not cheaper than other. You get something that is worth $1000. To give a simple illustration; There is an item for $100, Vanguard creates 10 Units out of this so price per unit is $10. Schwab creates 25 units out of this, so the per unit price is $4. Now if you are looking at investing $20; with Vanguard you would get 2 units, with Schwab you would get 5 units. This does not mean one is cheaper than other. Both are at the same value of $20. The Factors you need to consider are; Related question What differentiates index funds and ETFs?\",\n \"\\\"For a non-ETF mutual fund, you can only buy shares of the mutual fund from the mutual fund itself (at a price that the mutual fund will reveal only at the end of the day) and can only shares back to the mutual fund (again at a price that the mutual fund will reveal only at the end of the day). There is no open market in the sense that you cannot put in a bid to buy, say, 100 shares of VFINX at $217 per share through a brokerage, and if there is a seller willing to sell 100 shares of VFINX to you at $217, then the sale is consummated and you are now the proud owner of 100 shares of VFINX. The only buyer or seller of VFINX is the mutual find itself, and you tell it that you \\\"\\\"want to buy 100 shares of VFINX and please take the money out of my checking account\\\"\\\". If this order is entered before the markets close at 4 pm, the mutual fund determines its share price as of the end of the day, opens a new account for you and puts 100 shares of VFINX in it (or adds 100 shares of VFINX to your already existing pile of shares) and takes the purchase price out of your checking account via an ACH transfer. Similarly for redeeming/selling shares of VFINX that you own (and these are held in an account at the mutual fund itself, not by your brokerage): you tell the mutual fund to that you \\\"\\\"wish to redeem 100 shares and please send the proceeds to my bank account\\\"\\\" and the mutual fund does this at the end of the day, and the money appears in your bank account via ACH transfer two or three days later. Generally, these transactions do not need to be for round lots of multiples of 100 shares for efficiency; most mutual fund will gladly sell you fractional shares down to a thousandth of a share. In contrast, shares of an exchange-traded fund (ETF) are just like stock shares in that they can be bought and sold on the open market and your broker will charge you fees for buying and selling them. Selling fractional shares on the open market is generally not possible, and trading in round lots is less expensive. Also, trades occur at all times of the stock exchange day, not just at the end of the day as with non-ETF funds, and the price can fluctuate during the day too. Many non-ETF mutual funds have an ETF equivalent: VOO is the symbol for Vanguard's S&P 500 Index ETF while VFINX is the non-ETF version of the same index fund. Read more about the differences between ETFs and mutual funds, for example, here.\\\"\",\n \"\\\"Index funds may invest either in index components directly or in other instruments (like ETFs, index options, futures, etc.) which are highly correlated with the index. The specific fund prospectus or description on any decent financial site should contain these details. Index funds are not actively managed, but that does not mean they aren't managed at all - if index changes and the fund includes specific stock, they would adjust the fund content. Of course, the downside of it is that selling off large amounts of certain stock (on its low point, since it's being excluded presumably because of its decline) and buying large amount of different stock (on its raising point) may have certain costs, which would cause the fund lag behind the index. Usually the difference is not overly large, but it exists. Investing in the index contents directly involves more transactions - which the fund distributes between members, so it doesn't usually buy individually for each member but manages the portfolio in big chunks, which saves costs. Of course, the downside is that it can lag behind the index if it's volatile. Also, in order to buy specific shares, you will have to shell out for a number of whole share prices - which for a big index may be a substantial sum and won't allow you much flexibility (like \\\"\\\"I want to withdraw half of my investment in S&P 500\\\"\\\") since you can't usually own 1/10 of a share. With index funds, the entry price is usually quite low and increments in which you can add or withdraw funds are low too.\\\"\",\n \"The creation mechanism for ETF's ensures that the value of the underlying stocks do not diverge significantly from the Fund's value. Authorized participants have a strong incentive to arbitrage any pricing differences and create/redeem blocks of stock/etf until the prices are back inline. Contrary to what was stated in a previous answer, this mechanism lowers the cost of management of ETF's when compared to mutual funds that must access the market on a regular basis when any investors enter/exit the fund. The ETF only needs to create/redeem in a wholesale basis, this allows them to operate with management fees that are much lower than those of a mutual fund. Expenses Due to the passive nature of indexed strategies, the internal expenses of most ETFs are considerably lower than those of many mutual funds. Of the more than 900 available ETFs listed on Morningstar in 2010, those with the lowest expense ratios charged about .10%, while those with the highest expenses ran about 1.25%. By comparison, the lowest fund fees range from .01% to more than 10% per year for other funds. (For more on mutual fund feeds, read Stop Paying High Fees.)\",\n \"The ETF is likely better in this case. The ETF will generally generate less capital gains taxes along the way. In order to pay off investors who leave a mutual fund, the manager will have to sell the fund's assets. This creates a capital gain, which must be distributed to shareholders at the end of the year. The mutual fund holder is essentially taxed on this turnover. The ETF does not have to sell any stock when an investor sells his shares because the investor sells the shares himself on the open market. This will result in a capital gain for the specific person exiting his position, but it does not create a taxable event for anyone else holding the ETF shares.\",\n \"\\\"An Exchange-Traded Fund (ETF) is a special type of mutual fund that is traded on the stock exchange like a stock. To invest, you buy it through a stock broker, just as you would if you were buying an individual stock. When looking at a mutual fund based in the U.S., the easiest way to tell whether or not it is an ETF is by looking at the ticker symbol. Traditional mutual funds have ticker symbols that end in \\\"\\\"X\\\"\\\", and ETFs have ticker symbols that do not end in \\\"\\\"X\\\"\\\". The JPMorgan Emerging Markets Equity Fund, with ticker symbol JFAMX, is a traditional mutual fund, not an ETF. JPMorgan does have ETFs; the JPMorgan Diversified Return Emerging Markets Equity ETF, with ticker symbol JPEM, is an example. This ETF invests in similar stocks as JFAMX; however, because it is an index-based fund instead of an actively managed fund, it has lower fees. If you aren't sure about the ticker symbol, the advertising/prospectus of any ETF should clearly state that it is an ETF. (In the example of JPEM above, they put \\\"\\\"ETF\\\"\\\" right in the fund name.) If you don't see ETF mentioned, it is most likely a traditional mutual fund. Another way to tell is by looking at the \\\"\\\"investment minimums\\\"\\\" of the fund. JFAMX has a minimum initial investment of $1000. ETFs, however, do not have an investment minimum listed; because it is traded like a stock, you simply buy whole shares at whatever the current share price is. So if you look at the \\\"\\\"Fees and Investment Minimums\\\"\\\" section of the JPEM page, you'll see the fees listed, but not any investment minimums.\\\"\",\n \"I see a couple of reasons why you could consider choosing a mutual fund over an ETF In some cases index mutual funds can be a cheaper alternative to ETFs. In the UK where I am based, Fidelity is offering a management fee of 0.07% on its FTSE All shares tracker. Last time I checked, no ETF was beating that There are quite a few cost you have to foot when dealing ETFs In some cases, when dealing for relatively small amounts (e.g. a monthly investment plan) you can get a better deal, if your broker has negotiated discounts for you with a fund provider. My broker asks £12.5 when dealing in shares (£1.5 for the regular investment plan) whereas he asks £0 when dealing in funds and I get a 100% discount on the initial charge of the fund. As a conclusion, I would suggest you look at the all-in costs over total investment period you are considering for the exact amount you are planning to invest. Despite all the hype, ETFs are not always the cheapest alternative.\",\n \"\\\"ETFs purchases are subject to a bid/ask spread, which is the difference between the highest available purchase offer (\\\"\\\"bid\\\"\\\") and the lowest available sell offer (\\\"\\\"ask\\\"\\\"). You can read more about this concept here. This cost doesn't exist for mutual funds, which are priced once per day, and buyers and sellers all use the same price for transactions that day. ETFs allow you to trade any time that the market is open. If you're investing for the long term (which means you're not trying to time your buy/sell orders to a particular time of day), and the pricing is otherwise equal between the ETF and the mutual fund (which they are in the case of Vanguard's ETFs and Admiral Shares mutual funds), I would go with the mutual fund because it eliminates any cost associated with bid/ask spread.\\\"\",\n \"There are times when investing in an ETF is more convenient than a mutual fund. When you invest in a mutual fund, you often have an account directly with the mutual fund company, or you have an account with a mutual fund broker. Mutual funds often have either a front end or back end load, which essentially gives you a penalty for jumping in and out of funds. ETFs are traded exactly like stocks, so there is inherently no load when buying or selling. If you have a brokerage account and you want to move funds from a stock to a mutual fund, an ETF might be more convenient. With some accounts, an ETF allows you to invest in a fund that you would not be able to invest in otherwise. For example, you might have a 401k account through your employer. You might want to invest in a Vanguard mutual fund, but Vanguard funds are not available with your 401k. If you have access to a brokerage account inside your 401k, you can invest in the Vanguard fund through the associated ETF. Another reason that you might choose an ETF over a mutual fund is if you want to try to short the fund.\",\n \"Index funds are good for diversifying risk. For people who don't have a large sum of money to invest, holding all the different types of stocks in the index is both very expensive and not practical because you incur too many transaction costs. For an index funds, the main advantages are that costs are pooled, and investors can invest a smaller amount that they would if they bought all the different stocks individually. Naturally, if you wanted to figure out the percentage composition of the index and invest directly it would be possible, albeit tedious.\",\n \"\\\"One reason is that it is not possible (at Vanguard and at many other brokerages) to auto-invest into ETFs. Because the ETF trades like a stock, you typically must buy a whole number of shares. This makes it difficult to do auto-investing where you invest, say, a fixed dollar amount each month. If you're investing $100 and the ETF trades for $30 a share, you must either buy 3 shares and leave $10 unspent, or buy 4 and spend $20 more than you planned. This makes auto-investing with dollar amounts difficult. (It would be cool if there were brokerages that handled this for you, for instance by accumulating \\\"\\\"leftover\\\"\\\" cash until an additional whole share could be purchased, but I don't know of any.) A difference of 0.12% in the expense ratios is real, but small. It may be outweighed by the psychological gains of being able to adopt a \\\"\\\"hands-off\\\"\\\" auto-investing plan. With ETFs, you generally must remember to \\\"\\\"manually\\\"\\\" buy the shares yourself every so often. For many average investors, the advantage of being able to invest without having to think about it at all is worth a small increase in expense ratio. The 0.12% savings don't do you any good if you never remember to buy shares until the market is already up.\\\"\",\n \"Cost. If an investor wanted to diversify his portfolio by investing in the companies that make up the S&P 500, the per-share and commission costs to individually place trades for each and every one of those companies would be prohibitive. I can buy one share of an exchange-traded fund that tracks the S&P 500 for less than the purchase price of a single share in some of the companies that make up the index.\",\n \"\\\"Funds which track the same index may have different nominal prices. From an investors point of view, this is not important. What is important is that when the underlying index moves by a given percentage, the price of the tracking funds also move by an equal percentage. In other words, if the S&P500 rises by 5%, then the price of those funds tracking the S&P500 will also rise by 5%. Therefore, investing a given amount in any of the tracking funds will produce the same profit or loss, regardless of the nominal prices at which the individual funds are trading. To see this, use the \\\"\\\"compare\\\"\\\" function available on the popular online charting services. For example, in Google finance call up a chart of the S&P500 index, then use the compare textbox to enter the codes for the various ETFs tracking the S&P500. You will see that they all track the S&P500 equally so that your relative returns will be equal from each of the tracking funds. Any small difference in total returns will be attributable to management fees and expenses, which is why low fees are so important in passive investing.\\\"\",\n \"First, it's not always the case that ETFs have lower expenses than the equivalent mutual funds. For example, in the Vanguard family of funds the expense ratio for the ETF version is the same as it is for the Admiral share class in the mutual fund version. With that in mind, the main advantages of a mutual fund over an equivalent ETF are: From a long-term investor's point of view, the main disadvantage of mutual funds relative to ETFs is the minimum account sizes. Especially if the fund has multiple share classes (i.e., where better classes get lower expense ratios), you might have to have quite a lot of money invested in the fund in order to get the same expense ratio as the ETF. There are some other differences that matter to more active investors (e.g., intraday trading, options, etc.), but for a passive investor the ones above are the major ones. Apart from those mutual funds and ETFs are pretty similar. Personally, I prefer mutual funds because I'm at a point where the fund minimums aren't really an issue, and I don't want to deal with the more fiddly aspects of ETFs. For investors just starting out the lower minimum investment for an ETF is a big win, as long as you can get commission-free trades (which is what I've assumed above.)\",\n \"Wikipedia has a fairly detailed explanation of ETFs. http://en.wikipedia.org/wiki/Exchange-traded_fund\",\n \"In the case of VFIAX versus VOO, if you're a buy-and-hold investor, you're probably better off with the mutual fund because you can buy fractional shares. However, in general the expense ratio for ETFs will be lower than equivalent mutual funds (even passive index funds). They are the same in this case because the mutual fund is Admiral Class, which has a $10,000 minimum investment that not all people may be able to meet. Additionally, ETFs are useful when you don't have an account with the mutual fund company (i.e. Vanguard), and buying the mutual fund would incur heavy transaction fees.\",\n \"What JoeTaxpayer means is that you can sell one ETF and buy another that will perform substantially the same during the 30 day wash sale period without being considered substantially the same from a wash sale perspective more easily than you could with an individual stock. For example, you could sell an S&P 500 index ETF and then temporarily buy a DJIA index ETF. As these track different indexes, they are not considered to be substantially the same for wash sale purposes, but for a short term investing period, their performance should still be substantially the same.\",\n \"\\\"The amount, reliability and frequency of dividends paid by an ETF other than a stock, such as an index or mutual fund, is a function of the agreement under which the ETF was established by the managing or issuing company (or companies), and the \\\"\\\"basket\\\"\\\" of investments that a share in the fund represents. Let's say you invest in a DJIA-based index fund, for instance Dow Diamonds (DIA), which is traded on several exchanges including NASDAQ and AMEX. One share of this fund is currently worth $163.45 (Jan 22 2014 14:11 CDT) while the DJIA itself is $16,381.38 as of the same time, so one share of the ETF represents approximately 1% of the index it tracks. The ETF tracks the index by buying and selling shares of the blue chips proportional to total invested value of the fund, to maintain the same weighted percentages of the same stocks that make up the index. McDonald's, for instance, has an applied weight that makes the share price of MCD stock roughly 5% of the total DJIA value, and therefore roughly 5% of the price of 100 shares of DIA. Now, let's say MCD issued a dividend to shareholders of, say, $.20 per share. By buying 100 shares of DIA, you own, through the fund, approximately five MCD shares, and would theoretically be entitled to $1 in dividends. However, keep in mind that you do not own these shares directly, as you would if you spent $16k buying the correct percentage of all the shares directly off the exchange. You instead own shares in the DIA fund, basically giving you an interest in some investment bank that maintains a pool of blue-chips to back the fund shares. Whether the fund pays dividends or not depends on the rules under which that fund was set up. The investment bank may keep all the dividends itself, to cover the expenses inherent in managing the fund (paying fund management personnel and floor traders, covering losses versus the listed price based on bid-ask parity, etc), or it may pay some percentage of total dividends received from stock holdings. However, it will virtually never transparently cut you a check in the amount of your proportional holding of an indexed investment as if you held those stocks directly. In the case of the DIA, the fund pays dividends monthly, at a yield of 2.08%, virtually identical to the actual weighted DJIA yield (2.09%) but lower than the per-share mean yield of the \\\"\\\"DJI 30\\\"\\\" (2.78%). Differences between index yields and ETF yields can be reflected in the share price of the ETF versus the actual index; 100 shares of DIA would cost $16,345 versus the actual index price of 16,381.38, a delta of $(36.38) or -0.2% from the actual index price. That difference can be attributed to many things, but fundamentally it's because owning the DIA is not the exact same thing as owning the correct proportion of shares making up the DJIA. However, because of what index funds represent, this difference is very small because investors expect to get the price for the ETF that is inherent in the real-time index.\\\"\",\n \"One of the often cited advantages of ETFs is that they have a higher liquidity and that they can be traded at any time during the trading hours. On the other hand they are often proposed as a simple way to invest private funds for people that do not want to always keep an eye on the market, hence the intraday trading is mostly irrelevant for them. I am pretty sure that this is a subjective idea. The fact is you may buy GOOG, AAPL, F or whatever you wish(ETF as well, such as QQQ, SPY etc.) and keep them for a long time. In both cases, if you do not want to keep an on the market it is ok. Because, if you keep them it is called investment(the idea is collecting dividends etc.), if you are day trading then is it called speculation, because you main goal is to earn by buying and selling, of course you may loose as well. So, you do not care about dividends or owning some percent of the company. As, ETFs are derived instruments, their volatility depends on the volatility of the related shares. I'm wondering whether there are secondary effects that make the liquidity argument interesting for private investors, despite not using it themselves. What would these effects be and how do they impact when compared, for example, to mutual funds? Liquidity(ability to turn cash) could create high volatility which means high risk and high reward. From this point of view mutual funds are more safe. Because, money managers know how to diversify the total portfolio and manage income under any market conditions.\",\n \"An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)\",\n \"\\\"I wonder if ETF's are further removed from the actual underlying holdings or assets giving value to the fund, as compared to regular mutual funds. Not exactly removed. But slightly different. Whenever a Fund want to launch an ETF, it would buy the underlying shares; create units. Lets say it purchased 10 of A, 20 of B and 25 of C. And created 100 units for price x. As part of listing, the ETF company will keep the purchased shares of A,B,C with a custodian. Only then it is allowed to sell the 100 units into the market. Once created, units are bought or sold like regular stock. In case the demand is huge, more units are created and the underlying shares kept with custodian. So, for instance, would VTI and Total Stock Market Index Admiral Shares be equally anchored to the underlying shares of the companies within the index? Yes they are. Are they both connected? Yes to an extent. The way Vanguard is managing this is given a Index [Investment Objective]; it is further splitting the common set of assets into different class. Read more at Share Class. The Portfolio & Management gives out the assets per share class. So Vanguard Total Stock Market Index is a common pool that has VTI ETF, Admiral and Investor Share and possibly Institutional share. Is VTI more of a \\\"\\\"derivative\\\"\\\"? No it is not a derivative. It is a Mutual Fund.\\\"\",\n \"ETFs are just like any other mutual fund; they hold a mix of assets described by their prospectus. If that mix fits your needs for diversification and the costs of buying/selling/holding are low, it's as worth considering as a traditional fund with the same mix. A bond fund will hold a mixture of bonds. Whether that mix is sufficiently diversified for you, or whether you want a different fund or a mix of funds, is a judgement call. I want my money to take care of itself for the most part, so most of the bond portion is in a low-fee Total Bond Market Index fund (which tries to match the performance of bonds in general). That could as easily be an ETF, but happens not to be.\",\n \"Your tax efficient reasoning is solid for where you want to distribute your assets. ETFs are often more tax efficient than their equivalent mutual funds but the exact differences would depend on the comparison between the fund and ETF you were considering. The one exception to this rule is Vanguard funds and ETFs which have the exact same tax-efficiency because ETFs are a share class of the corresponding mutual fund.\",\n \"\\\"The majority (about 80%) of mutual funds are underperforming their underlying indexes. This is why ETFs have seen massive capital inflows compared to equity funds, which have seen significant withdrawals in the last years. I would definitively recommend going with an ETF. In addition to pure index based ETFs that (almost) track broad market indexes like the S&P 500 there are quite a few more \\\"\\\"quant\\\"\\\" oriented ETFs that even outperformed the S&P. I am long the S&P trough iShares ETFs and have dividend paying ETFs and some quant ETFS on top (Invesco Powershares) in my portfolio.\\\"\",\n \"\\\"There are a few reasons why an index mutual fund may be preferable to an ETF: I looked at the iShare S&P 500 ETF and it has an expense ratio of 0.07%. The Vanguard Admiral S&P 500 index has an expense ratio of 0.05% and the Investor Shares have an expense ratio of 0.17%, do I don't necessarily agree with your statement \\\"\\\"admiral class Vanguard shares don't beat the iShares ETF\\\"\\\".\\\"\",\n \"\\\"I'm assuming the question is about how to compare two ETFs that track the same index. I'd look at (for ETFs -- ignoring index funds): So, for example you might compare SPY vs IVV: SPY has about 100x the volume. Sure, IVV has 2M shares trading, so it is liquid \\\"\\\"enough\\\"\\\". But the bigger volume on SPY might matter to you if you use options: open interest is as much as 1000x more on SPY. Even if you have no interest in options, the spreads on SPY are probably going to be slightly smaller. They both have 0.09% expense ratios. When I looked on 2010-9-6, SPY was trading at a slight discount, IVV was at a slight premium. Looking for any sort of trend is left as an exercise to the reader... Grab the prospectus for each to examine the rules they set for fund makeup. Both come from well-known issuers and have a decent history. (Rather than crazy Uncle Ed's pawn shop, or the Central Bank of Stilumunistan.) So unless you find something in the SPY prospectus that makes you queasy, the higher volume and equal expense ratios would seem to suggest it over IVV. The fact that it is at a (tiny) discount right now is a (tiny) bonus.\\\"\",\n \"\\\"Back in the olden days, if you wanted to buy the S&P, you had to have a lot of money so you can buy the shares. Then somebody had the bright idea of making a fund that just buys the S&P, and then sells small pieces of it to investor without huge mountains of capital. Enter the ETFs. The guy running the ETF, of course, doesn't do it for free. He skims a little bit of money off the top. This is the \\\"\\\"fee\\\"\\\". The major S&P ETFs all have tiny fees, in the percents of a percent. If you're buying the index, you're probably looking at gains (or losses) to the tune of 5, 10, 20% - unless you're doing something really silly, you wouldn't even notice the fee. As often happens, when one guy starts doing something and making money, there will immediately be copycats. So now we have competing ETFs all providing the same service. You are technically a competitor as well, since you could compete with all these funds by just buying a basket of shares yourself, thereby running your own private fund for yourself. The reason this stuff even started was that people said, \\\"\\\"well why bother with mutual funds when they charge such huge fees and still don't beat the index anyway\\\"\\\", so the index ETFs are supposed to be a low cost alternative to mutual funds. Thus one thing ETFs compete on is fees: You can see how VOO has lower fees than SPY and IVV, in keeping with Vanguard's philosophy of minimal management (and management fees). Incidentally, if you buy the shares directly, you wouldn't charge yourself fees, but you would have to pay commissions on each stock and it would destroy you - another benefit of the ETFs. Moreover, these ETFs claim they track the index, but of course there is no real way to peg an asset to another. So they ensure tracking by keeping a carefully curated portfolio. Of course nobody is perfect, and there's tracking error. You can in theory compare the ETFs in this respect and buy the one with the least tracking error. However they all basically track very closely, again the error is fractions of the percent, if it is a legitimate concern in your books then you're not doing index investing right. The actual prices of each fund may vary, but the price hardly matters - the key metric is does it go up 20% when the index goes up 20%? And they all do. So what do you compare them on? Well, typically companies offer people perks to attract them to their own product. If you are a Fidelity customer, and you buy IVV, they will waive your commission if you hold it for a month. I believe Vanguard will also sell VOO for free. But for instance Fidelity will take commission from VOO trades and vice versa. So, this would be your main factor. Though, then again, you can just make an account on Robinhood and they're all commission free. A second factor is reliability of the operator. Frankly, I doubt any of these operators are at all untrustworthy, and you'd be buying your own broker's ETF anyway, and presumably you already went with the most trustworthy broker. Besides that, like I said, there's trivial matters like fees and tracking error, but you might as well just flip a coin. It doesn't really matter.\\\"\",\n \"As Ross says, SPX is the index itself. This carries no overheads. It is defined as a capitalization-weighted mixture of the stocks of (about) 500 companies. SPY is an index fund that tries to match the performance of SPX. As an index fund it has several differences from the index:\",\n \"\\\"Your question is one of semantics. ETFs and mutual funds have many things in common and provide essentially the same service to investors with minimal differences. It's reasonably correct to say \\\"\\\"An ETF is a mutual fund that...\\\"\\\" and then follow up with some stuff that is not true of a typical mutual fund. You could do the same with, for example, a hedge fund. \\\"\\\"A hedge fund is a mutual fund that doesn't comply with most SEC regulations and thus is limited to accredited investors.\\\"\\\" As a matter of practice, when people say \\\"\\\"mutual fund\\\"\\\" they are talking about traditional mutual funds and pretty much never including ETFs. So is an ETF a mutual fund as the word is commonly used? No.\\\"\",\n \"http://www.efficientfrontier.com/ef/104/stupid.htm would have some data though a bit old about open-end funds vs an ETF that would be one point. Secondly, do you know that the Math on your ETF will always work out to whole numbers of shares or do you plan on using brokers that would allow fractional shares easily? This is a factor as $3,000 of an open-end fund will automatically go into fractional shares that isn't necessarily the case of an ETF where you have to specify a number of shares when you purchase as well as consider are you doing a market or limit order? These are a couple of things to keep in mind here. Lastly, what if the broker you use charges account maintenance fees for your account? In buying the mutual fund from the fund company directly, there may be a lower likelihood of having such fees. I don't know of any way to buy shares in the ETF directly without using a broker.\",\n \"\\\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \\\"\\\"ETF\\\"\\\" is used (despite CEFs also being both \\\"\\\"exchange-traded\\\"\\\" and \\\"\\\"funds\\\"\\\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\\\"\",\n \"\\\"If anything, the price of an ETF is more tightly coupled to the underlying holdings or assets than a mutual fund, because of the independent creation/destruction mechanism. With a mutual fund, the price is generally set once at the end of each day, and the mutual fund manager has to deal with investments and redemptions at that price. By the time they get to buying or selling the underlying assets, the market may have moved or they may even move the market with those transactions. With an ETF, investment and redemption is handled by independent \\\"\\\"authorized participants\\\"\\\". They can create new units of the ETF by buying up the underlying assets and delivering them to the ETF manager, and vice versa they can cancel units by requesting the underlying assets from the ETF manager. ETFs trade intraday (i.e. at any time during trading hours) and any time the price diverges too far from the underlying assets, one of the authorized participants has an incentive to make a small profit by creating or destroying units of the ETF, also intraday.\\\"\",\n \"what reason would I have in buying an ETF? Apart from the efforts, the real reason is the ticket size. One can't buy shares in fraction. To truly reflect the index in equal weight, the amount to invest will be in multiples of millions [depending on the Index and the stock composition] This related question should help you understand why it is difficult even for large fund house to exactly mimic the index. Why do passive ETFs require so much trading (and incur costs)?\",\n \"\\\"Note that an index fund may not be able to precisely mirror the index it's tracking. If enough many people invest enough money into funds based on that index, there may not always be sufficient shares available of every stock included in the index for the fund to both accept additional investment and track the index precisely. This is one of the places where the details of one index fund may differ from another even when they're following the same index. IDEALLY they ought to deliver the same returns, but in practical terms they're going to diverge a bit. (Personally, as long as I'm getting \\\"\\\"market rate of return\\\"\\\" or better on average across all my funds, at a risk I'm comfortable with, I honestly don't care enough to try to optimize it further. Pick a distribution based on some stochastic modelling tools, rebalance periodically to maintain that distribution, and otherwise ignore it. That's very much to the taste of someone like me who wants the savings to work for him rather than vice versa.)\\\"\",\n \"\\\"You cannot actually buy an index in the true sense of the word. An index is created and maintained by a company like Standard and Poor's who licenses the use of the index to firms like Vanguard. The S&P 500 is an example of an index. The S&P 500 \\\"\\\"index includes 500 leading companies\\\"\\\", many finical companies sell products which track to this index. The two most popular products which track to indexes are Mutual Funds (as called Index Funds and Index Mutual Funds) and Exchange Traded Funds (as called ETFs). Each Index Mutual Fund or ETF has an index which it tracks against, meaning they hold securities which make up a sample of the index (some indexes like bond indexes are very hard to hold everything that makes them up). Looking at the Vanguard S&P 500 Index Mutual Fund (ticker VFINX) we see that it tracks against the S&P 500 index. Looking at its holdings we see the 500-ish stocks that it holds along with a small amount of bonds and cash to handle cash flow for people buying and sell shares. If we look at the Vanguard S&P 500 ETF (ticker VOO) we see that it also tracks against the S&P 500 index. Looking at its holdings we see they are very similar to the similar Index Mutual Fund. Other companies like T. Rowe Price have similar offering. Look at the T. Rowe Price Equity Index 500 Fund (ticker PREIX) its holdings in stocks are the same as the similar Vanguard fund and like the Vanguard fund it also holds a small amount of bonds and cash to handle cash flow. The only real difference between different products which track against the same index is in the expense ratio (fees for managing the fund) and in the small differences in the execution of the funds. For the most part execution of the funds do not really matter to most people (it has a very small effect), what matters is the expense (the fees paid to own the fund). If we just compare the expense ratio of the Vanguard and T. Rowe Price funds we see (as of 27 Feb 2016) Vanguard has an expense ratio of 0.17% for it Index Mutual Fund and 0.05% for its ETF, while T. Rowe Price has an expense ratio of 0.27%. These are just the fees for the funds themselves, there are also account maintenance fees (which normally go down as the amount of money you have invested at a firm go up) and in the case of ETFs execution cost (cost to trade the shares along with the difference between the bid and ask on the shares). If you are just starting out I would say going with the Index Mutual Fund would easier and most likely would cost less over-all if you are buying a small amount of shares every month. When choosing a company look at the expense ratio on the funds and the account maintenance fees (along with the account minimals). Vanguard is well known for having low fees and they in fact were the first to offer Index Mutual Funds. For more info on the S&P 500 index see also this Investopedia entry on the S&P 500 index. Do not worry if this is all a bit confusing it is to most people (myself included) at first.\\\"\",\n \"No, some of Vanguard's funds are index funds like their Total Stock Market Index and 500 Index. In contrast, there are funds like Vanguard PRIMECAP and Vanguard Wellington that are actively managed. There are index funds in both open-end and exchange-traded formats. VTI is the ticker for Vanguard's Total Stock Market ETF while VTSMX is an open-end mutual fund format. VOO would be the S & P 500 ETF ticker while VFINX is one of the open-end mutual fund tickers, where VIIIX has a really low expense ratio but a pretty stiff minimum to my mind. As a general note, open-end mutual funds will generally have a 5 letter ticker ending in X while an ETF will generally be shorter at 3 or 4 letters in length.\",\n \"index ETF tracks indented index (if fund manager spend all money on Premium Pokemon Trading Cards someone must cover resulting losses) Most Index ETF are passively managed. ie a computer algorithm would do automatic trades. The role of fund manager is limited. There are controls adopted by the institution that generally do allow such wide deviations, it would quickly be flagged and reported. Most financial institutions have keyman fraud insurance. fees are not higher that specified in prospectus Most countries have regulation where fees need to be reported and cannot exceed the guideline specified. at least theoretically possible to end with ETF shares that for weeks cannot be sold Yes some ETF's can be illiquid at difficult to sell. Hence its important to invest in ETF that are very liquid.\",\n \"You haven't looked very far if you didn't find index tracking exchange-traded funds (ETFs) on the Toronto Stock Exchange. There are at least a half dozen major exchange-traded fund families that I'm aware of, including Canadian-listed offerings from some of the larger ETF providers from the U.S. The Toronto Stock Exchange (TSX) maintains a list of ETF providers that have products listed on the TSX.\",\n \"Mutual funds don't do what ETFs do because, according to how the fund was built in their contract, they can't. That is not how they are built and the people that invested in them expect them to act in a certain way. That is ok, though. Many people still invest in mutual funds partially because of their history but there are some advantages to mutual funds over etfs. Mainly mutual funds must mark-to-market at the end of day while etf values can drift from the asset value especially in crisis. As long enough people invest in mutual funds the funds make enough money on their fees they don't need to change. Maybe mutual funds will go extinct as etfs do have significant advantages, but it likely won't happen soon.\",\n \"\\\"Ask your trading site for their definition of \\\"\\\"ETF\\\"\\\". The term itself is overloaded/ambiguous. Consider: If \\\"\\\"ETF\\\"\\\" is interpreted liberally, then any fund that trades on a [stock] exchange is an exchange-traded fund. i.e. the most literal meaning implied by the acronym itself. Whereas, if \\\"\\\"ETF\\\"\\\" is interpreted more narrowly and in the sense that most market participants might use it, then \\\"\\\"ETF\\\"\\\" refers to those exchange-traded funds that specifically have a mechanism in place to ensure the fund's current price remains close to its net asset value. This is not the case with closed-end funds (CEFs), which often trade at either a premium or a discount to their underlying net asset value.\\\"\",\n \"They're exchange traded debt, basically, not funds. E.g. from the NYSE: An exchange-traded note (ETN) is a senior unsecured debt obligation designed to track the total return of an underlying market index or other benchmark, minus investor fees. Whereas an ETF, in some way or another, is an equity product - which doesn't mean that they can only expose you to equity, but that they themselves are a company that you buy shares in. FCOR for example is a bond ETF, basically a company whose sole purpose is to own a basket of bonds. Contrast that to DTYS, a bear Treasury ETN, which is described as The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Also from Barclays site: Because the iPath ETNs are debt securities, they do not have any voting rights. FCOR on the other hand is some sort of company owned/managed by a Fidelity trust, though my EDGAR skills are rusty. AGREEMENT made this 18th day of September, 2014, by and between Fidelity Merrimack Street Trust, a Massachusetts business trust which may issue one or more series of shares of beneficial interest (hereinafter called the Trust), on behalf of Fidelity Corporate Bond ETF (hereinafter called the Fund), and Fidelity Investments Money Management, Inc., a New Hampshire corporation (hereinafter called the Adviser) as set forth in its entirety below.\",\n \"The top ten holdings for these funds don't overlap by even one stock. It seems to me they are targeting an index for comparison, but making no attempt to replicate a list of holdings as would, say, a true S&P index.\",\n \"No. Investors purchase ETFs' as they would any other stock, own it under the same circumstances as an equity investment, collecting distributions instead of dividends or interest. The ETF takes care of the internal operations (bond maturities and turnover, accrued interest, payment dates, etc.).\",\n \"See my comment for some discussion of why one might choose an identical fund over an ETF. As to why someone would choose the higher cost fund in this instance ... The Admiral Shares version of the fund (VFIAX) has the same expense ratio as the ETF but has a minimum investment of $10K. Some investors may want to eventually own the Admiral Shares fund but do not yet have $10K. If they begin with the Investor Shares now and then convert to Admiral later, that conversion will be a non-taxable event. If, however, they start with ETF shares now and then sell them later to buy the fund, that sale will be a taxable event. Vanguard ETFs are only commission-free to Vanguard clients using Vanguard Brokerage Services. Some investors using other brokers may face all sorts of penalties for purchasing third-party ETFs. Some retirement plan participants (either at Vanguard or another broker) may not even be allowed to purchase ETFs.\",\n \"Like an S&P 500 ETF? So you're getting in some cash inflow each day, cash outflows each day. And you have to buy and sell 500 different stocks, at the same time, in order for your total fund assets to match the S&P 500 index proportions, as much as possible. At any given time, the prices you get from the purchase/sale of stock is probably going to be somewhat different than the theoretical amounts you are supposed to get to match, so it's quite a tangle. This is my understanding of things. Some funds are simpler - a Dow 30 fund only has 30 stocks to balance out. Maybe that's easier, or maybe it's harder because one wonky trade makes a bigger difference? I'm not sure this is how it really operates. The closest I've gotten is a team that has submitted products for indexing, and attempted to develop funds from those indexes. Turns out finding the $25-50 million of initial investments isn't as easy as anyone would think.\",\n \"The key two things to consider when looking at similar/identical ETFs is the typical (or 'indicative') spread, and the trading volume and size of the ETF. Just like regular stocks, thinly traded ETF's often have quite large spreads between buy and sell: in the 1.5-2%+ range in some cases. This is a huge drain if you make a lot of transactions and can easily be a much larger concern than a relatively trivial difference in ongoing charges depending on your exact expected trading frequency. Poor spreads are also generally related to a lack of liquidity, and illiquid assets are usually the first to become heavily disconnected from the underlying in cases where the authorized participants (APs) face issues. In general with stock ETFs that trade very liquid markets this has historically not been much of an issue, as the creation/redemption mechanism on these types of assets is pretty robust: it's consequences on typical spread is much more important for the average retail investor. On point #3, no, this would create an arbitrage which an authorized participant would quickly take advantage of. Worth reading up about the creation and redemption mechanism (here is a good place to start) to understand the exact way this happens in ETFs as it's very key to how they work.\",\n \"ETFs trade on specific exchanges. If your broker deals with those exchanges, you should have access to the ETF. If your broker does not deal with that exchange, then you will not have access through that broker. This is different than, say, mutual funds, which don't trade on the exchanges are proprietary to certain brokerages or financial institutions.\",\n \"Close-end funds just means there's a fixed number of shares available, so if you want to buy some you must purchase from other existing owners, typically through an exchange. Open-end funds mean the company providing the shares is still selling them, so you can buy them directly from the company. Some can also be traded on exchanges as well.\",\n \"Also, when they mean SP500 fund - it means that fund which invests in the top 500 companies in the SP Index, is my understanding correct? Yes that is right. In reality they may not be able to invest in all 500 companies in same proportion, but is reflective of the composition. I wanted to know whether India also has a company similar to Vanguard which offers low cost index funds. Almost all mutual fund companies offer a NIFTY index fund, both as mutual fund as well as ETF. You can search for index fund and see the total assets to find out which is bigger compared to others.\",\n \"ETFs are a type of investment, not a specific choice. In other words, there are good ETFs and bad. What you see is the general statement that ETFs are preferable to most mutual funds, if only for the fact that they are low cost. An index ETF such as SPY (which reflects the S&P 500 index) has a .09% annual expense, vs a mutual fund which average a full percent or more. sheegaon isn't wrong, I just have a different spin to offer you. Given a long term return of say even 8% (note - this question is not a debate of the long term return, and I purposely chose a low number compared to the long term average, closer to 10%) and the current CD rate of <1%, a 1% hit for the commission on the buy side doesn't bother me. The sell won't occur for a long time, and $8 on a $10K sale is no big deal. I'd not expect you to save $1K/yr in cash/CDs for the years it would take to make that $8 fee look tiny. Not when over time the growth will overshaddow this. One day you will be in a position where the swings in the market will produce the random increase or decrease to your net worth in the $10s of thousands. Do you know why you won't lose a night's sleep over this? Because when you invested your first $1K, and started to pay attention to the market, you saw how some days had swings of 3 or 4%, and you built up an immunity to the day to day noise. You stayed invested and as you gained wealth, you stuck to the right rebalancing each year, so a market crash which took others down by 30%, only impacted you by 15-20, and you were ready for the next move to the upside. And you also saw that since mutual funds with their 1% fees never beat the index over time, you were happy to say you lagged the S&P by .09%, or 1% over 11 year's time vs those whose funds had some great years, but lost it all in the bad years. And by the way, right until you are in the 25% bracket, Roth is the way to go. When you are at 25%, that's the time to use pre-tax accounts to get just below the cuttoff. Last, welcome to SE. Edit - see sheegaon's answer below. I agree, I missed the cost of the bid/ask spread. Going with the lowest cost (index) funds may make better sense for you. To clarify, Sheehan points out that ETFs trade like a stock, a commission, and a bid/ask, both add to transaction cost. So, agreeing this is the case, an indexed-based mutual fund can provide the best of possible options. Reflecting the S&P (for example) less a small anual expense, .1% or less.\",\n \"The way it is handled with ETF's is that someone has to gather a block of units and redeem them with the fund. So, with the mutual fund you redeem your unit directly with the fund, always, you never sell to another player. With the ETF - its the opposite, you sell to another player. Once a player has a large chunk of units - he can go to the fund and redeem them. These are very specific players (investment banks), not individual investors.\",\n \"Why not figure out the % composition of the index and invest in the participating securities directly? This isn't really practical. Two indices I use follow the Russell 2000 and the S&P 500 Those two indices represent 2500 stocks. A $4 brokerage commission per trade would mean that it would cost me $10,000 in transaction fees to buy a position in 2500 stocks. Not to mention, I don't want to track 2500 investments. Index funds provide inexpensive diversity.\",\n \"One of the key things to look for is trading volume. I think the price spread will be better on high volume ETFs, which means you'll be able to sell for more when the time comes. Check Google or Yahoo finance for those stats.\",\n \"\\\"If your intention is to purchase ETFs on a regular basis (like $x per month), then ETFs may not make sense. You may have to pay a fixed transaction cost like you were buying a stock for each purchase. In a similar no load mutual fund, there are more likely to be no transaction costs (depending on how it is bought). The above paragraph is not very definitive, and is really dependent upon how you would purchase either ETFs or Mutual funds. For example if you have a Fidelity brokerage account, they may let you buy certain ETFs commission free. Okay then either ETFs make great sense. It would not make sense to buy ones that they charge $35 per transaction if you have regular transactions that are smallish. The last two questions seem to be asking if you should buy MF or buy stocks directly. For most people the later is a losing proposition. They do not have the time or ability to buy stocks directly, effectively. Even if they did they may not have the capital to make enough of a difference when one considers all the cost involved. However, if that kind of thing interests you, perhaps you should dabble. Start out small and look at the higher costs of doing so as part of the \\\"\\\"cost of doing business\\\"\\\".\\\"\",\n \"Price, whether related to a stock or ETF, has little to do with anything. The fund or company has a total value and the value is distributed among the number of units or shares. Vanguard's S&P ETF has a unit price of $196 and Schwab's S&P mutual fund has a unit price of $35, it's essentially just a matter of the fund's total assets divided by number of units outstanding. Vanguard's VOO has assets of about $250 billion and Schwab's SWPPX has assets of about $25 billion. Additionally, Apple has a share price of $100, Google has a share price of $800, that doesn't mean Google is more valuable than Apple. Apple's market capitalization is about $630 billion while Google's is about $560 billion. Or on the extreme a single share of Berkshire's Class A stock is $216,000, and Berkshire's market cap is just $360 billion. It's all just a matter of value divided by shares/units.\",\n \"In your other question about these funds you quoted two very different yields for them. That pretty clearly says they are NOT tracking the same index.\",\n \"Yes, it depends on the fund it's trying to mirror. The ETF for the S&P that's best known (in my opinion) is SPY and you see the breakdown of its holdings. Clearly, it's not an equal weighted index.\",\n \"Some index funds offer lower expense ratios to those who invest large amounts of money. For example, Vanguard offers Admiral Shares of many of its mutual funds (including several index funds) to individuals who invest more than $50K or $100K, and these Shares have lower expense ratios than the Investor shares in the fund. There are Institutional Shares designed for investments by pension plans, 401k plans of large companies etc which have even lower expenses than Admiral Shares. Individuals working for large companies sometimes get access to Institutional Shares through their 401k plans. Thus, there is something to gained by investing in just one index fund (for a particular index) that offers lower expense ratios for large investments instead of diversifying into several index funds all tracking the same index. Of course, this advantage might be offset by failure to track the index closely, but this tracking should be monitored not on a daily basis but over much longer periods of time to test whether your favorite fund is perennially trailing the index by far more than its competitors with larger expense ratios. Remember that the Net Asset Value (NAV) published by each mutual fund after the markets close already take into account the expense ratio.\",\n \"What account you put it in depends on why you have those different accounts. First, if you have them due to regulatory requirements, then you of course must follow said regulations. I doubt that's the case here. Otherwise, you might be splitting based on how they trade (ETFs trade as stocks) or you could be splitting based on how you build a portfolio out of them. When you build a non-speculative stock portfolio, you typically want to limit your holdings in a single stock to a fairly small portion of your portfolio (say, 3%) to limit your exposure to bad stuff happening to a single company. That doesn't apply nearly a much to mutual funds, especially index funds. ETFs are much more like mutual funds here. You can also, of course, create an ETF account and put them there. You also say you have a market index account, what is that used for?\",\n \"\\\"An ETF does not track any one individual stock. It \\\"\\\"is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund.\\\"\\\" Check out this link to learn more about ETFs. The easiest way see what ETF tracks a stock is to determine what sector and industry that company is in and find some ETF that trade it. The ETF will likely trade that stock, assuming that its market cap and exchange it trades on fits within the parameters of the ETF.\\\"\",\n \"\\\"To add on to the other answers, in asking why funds have different price points one might be asking why stocks aren't normalized so a unit price of $196 in one stock can be directly compared to the same price in another stock. While this might not make sense with AAPL vs. GOOG (it would be like comparing apples to oranges, pun intended, not to mention how would two different companies ever come to such an agreement) it does seem like it would make more sense when tracking an index. And in fact less agreement between different funds would be required as some \\\"\\\"natural\\\"\\\" price points exist such as dividing by 100 (like some S&P funds do). However, there are a couple of reasons why two different funds might price their shares of the same underlying index differently. Demand - If there are a lot of people wanting the issue, more shares might be issued at a lower price. Or, there might be a lot of demand centered on a certain price range. Pricing - shares that are priced higher will find fewer buyers, because it makes it harder to buy round lots (100 shares at $100/share is $10,000 while at $10/share it's only $1000). While not everyone buys stock in lots, it's important if you do anything with (standardized) options on the stock because they are always acting on lots. In addition, even if you don't buy round lots a higher price makes it harder to buy in for a specific amount because each unit share has a greater chance to be further away from your target amount. Conversely, shares that are priced too low will also find fewer buyers, because some holders have minimum price requirements due to low price (e.g. penny) stocks tending to be more speculative and volatile. So, different funds tracking the same index might pick different price points to satisfy demand that is not being filled by other funds selling at a different price point.\\\"\",\n \"\\\"Okay. An ETF is an \\\"\\\"Exchange Traded Fund\\\"\\\". It trades like a stock, on the stock market. Basically by buying one ETF, you can have ownership in the underlying companies that make up the ETF. So, if you buy QCLN, a green energy ETF, you own Tesla, First Solar Inc, SunPower Corporation, Vivint Solar, Advanced energy industries and a bunch of other companies that are involved in clean energy. It allows you to gain exposure to a sector without having to buy individual companies. There are ETFs for lots of different things. Technology ETFs, Healthcare ETFs, Consumer Staples ETFs, Utilities ETFs, etc. REITS are essentially the same thing, except they own real estate.\\\"\",\n \"Investopedia laid out the general information of tax treatment on the ETF fund structures as well as their underlying asset classes: http://www.investopedia.com/financial-edge/0213/how-tax-treatments-of-etfs-work.aspx\",\n \"\\\"Regarding SPY: \\\"\\\"One SPDR unit is valued at approximately 1/10 of the value of the S&P 500. Dividends are distributed quarterly, and are based on the accumulated stock dividends held in trust, less any expenses of the trust.\\\"\\\" (source) These are depository receipts, not the actual stocks. Regarding IVV: \\\"\\\"The component stocks are weighted according to the total float-adjusted market value of their outstanding shares. The Fund invests in sectors, such as energy, information technology, industrials, financials, consumer staples, healthcare, telecom services, consumer discretionary and materials.\\\"\\\" (more here) VOO is the Vanguard S&P 500 ETF. The tracking error seems pretty small to me. I went to Google Finance and plotted the percent change for all four on one chart. They lie pretty much on top of one another. The actual dollar value of each one doesn't matter nearly as much as the fact that they move up and down almost in lock-step. There may be a larger difference going farther out, but for three separate financial products, the agreement is still remarkably good.\\\"\",\n \"The simple answer is that whatever strategy is implemented with e-series, could be implemented at a lower cost with ETFs.\",\n \"Ohhhh. Well thank you for that info. I know I could've Googled it all and while I'm a sticker for doing your own research, it's nice to hear it from someone in the know. Gotta pass on knowledge to those who don't know. Is it cheap to buy an ETF?\",\n \"Mutual funds are funds composed of financial assets and the funds of investors, and are managed by a firm, usually a large wealth management firm. They are generally accessible to anyone. Hedge funds are private investment funds with limited access, and are subject to fewer regulations. They are usually legally set up as their own firm.\",\n \"\\\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \\\"\\\"patient buyer\\\"\\\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \\\"\\\"representative sample.\\\"\\\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \\\"\\\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\\\"\\\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\\\"\",\n \"The issue with trading stocks vs. mutual funds (or ETFs) is all about risk. You trade Microsoft you now have a Stock Risk in your portfolio. It drops 5% you are down 5%. Instead if you want to buy Tech and you buy QQQ if MSFT fell 5% the QQQs would not be as impacted to the downside. So if you want to trade a mutual fund, but you want to be able to put in stop sell orders trade ETFs instead. Considering mutual funds it is better to say Invest vs. Trade. Since all fund families have different rules and once you sell (if you sell it early) you will pay a fee and will not be able to invest in that same fund for x number of days (30, 60...)\",\n \"ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.\",\n \"- ETFs make money through management fees. You can look it up: they all skim off a little bit of its profit, normally <1%. - It's all about cheap diversification. People generally don't have the capital to invest individually in each equity to mimic an ETF's portfolio. - Yes, but you need a lot of money. For example: You can't just invest $1 in GOOG if you want to buy a tech sector ETF.\",\n \"Index funds, like IBB, generally lack active management, which equates to lower expenses. This is simply because the target index, the NASDAQ Biotechnology Index in the case of IBB, is composed of known quantities. This means there won't be stock pickers or analysts constantly swapping holdings, increasing the turnover rate of the portfolio and increasing capital gains; costs that are offset by higher expense ratios in more actively managed funds.\",\n \"Sure, but as a retail client you'd be incurring transaction fees on entry and exit. Do you have the necessary tools to manage all the corporate actions, too? And index rebalances? ETF managers add value by taking away the monstrous web of clerical work associated with managing a portfolio of, at times, hundreds of different names. With this comes the value of institutional brokerage commissions, data licenses, etc. I think if you were to work out the actual brokerage cost, as well as the time you'd have to spend doing it yourself, you'd find that just buying the ETF is far cheaper. Also a bit of a rabbit hole, but how would you (with traditional retail client tools) even coordinate the simultaneous purchase of all 500 components of something like SPY? I would guess that, on average, you're going to have significantly worse slippage to the index than a typical ETF provider. Add that into your calculation too.\",\n \"I think you need a diversified portfolio, and index funds can be a part of that. Make sure that you understand the composition of your funds and that they are in fact invested in different investments.\",\n \"The S&P500 is an index, not an investment by itself. The index lists a large number of stocks, and the value of the index is the price of all the stocks added together. If you want to make an investment that tracks the S&P500, you could buy some shares of each stock in the index, in the same proportions as the index. This, however, is impractical for just about everyone. Index mutual funds provide an easy way to make this investment. SPY is an ETF (exchange-traded mutual fund) that does the same thing. An index CFD (contract for difference) is not the same as an index mutual fund. There are a number of differences between investing in a security fund and investing in a CFD, and CFDs are not available everywhere.\",\n \"The market doesn't really need to adjust for fees on ETF funds that are often less than 1/10th of a percent. The loss of the return is more than made up for by the diversification. How does the market adjust for trading fees? It doesn't have to, it's just a cost of doing business. If one broker or platform offers better fee structures, people will naturally migrate toward the lower fees.\",\n \"Most ETFs are index funds, meaning you get built in diversification so that any one stock going down won't hurt the overall performance much. You can also get essentially the same index funds by directly purchasing them from the mutual fund company. To buy an ETF you need a brokerage account and have to pay a transaction fee. Buying only $1000 at a time the broker transaction fee will eat too much of your money. You want to keep such fees way down below 0.1%. Pay attention to transaction fees and fund expense ratios. Or buy an equivalent index fund directly from the mutual fund company. This generally costs nothing in transaction fees if you have at least the minimum account value built up. If you buy every month or two you are dollar cost averaging, no matter what kind of account you are using. Keep doing that, even if the market values are going down. (Especially if the market values are going down!) If you can keep doing this then forget about certificates of deposit. At current rates you cannot build wealth with CDs.\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"diversifying; but isn't that what mutual funds already do? They diversify and reduce stock-specific risk by moving from individual stocks to many stocks, but you can diversify even further by selecting different fund types (e.g. large-cal, small-cap, fixed- income (bond) funds, international, etc.). Your target-date fund probably includes a few different types already, and will automatically reallocate to less risky investments as you get close to the target date. I would look at the fees of different types of funds, and compare them to the historical returns of those funds. You can also use things like morningstar and other ratings as guides, but they are generally very large buckets and may not be much help distinguishing between individual funds. So to answer the question, yes you can diversify further - and probably get better returns (and lower fees) that a target-date fund. The question is - is it worth your time and effort to do so? You're obviously comfortable investing for the long-term, so you might get some benefit by spending a little time looking for different funds to increase your diversification. Note that ETFs don't really diversify any differently than mutual funds, they are just a different mechanism to invest in funds, and allow different trading strategies (trading during the day, derivatives, selling short, etc.).\",\n \"An index fund is just copying the definition of an index. The group that defines the index determines how to weight the different parts of the index. The index fund just makes sure they invest the same way the index creator wants. Think of a non-investment scenario. A teacher can grade tests, quizzes, homework, in-class assignments, research papers. They decide how much weight to give each category and how much weight to give each part of each category. when a student wants to see how they are doing they take the information in the syllabus, and generate a few formulas in a spreadsheet to calculate their current grade. They can also calculate what they need to get on the final exam to get the grade they want.\",\n \"The Creation/Redemption mechanism is how shares of an ETF are created or redeemed as needed and thus is where there can be differences in what the value of the holdings can be versus the trading price. If the ETF is thinly traded, then the difference could be big as more volume would be where the mechanism could kick in as generally there are blocks required so the mechanism usually created or redeemed in lots of 50,000 shares I believe. From the link where AP=Authorized Participant: With ETFs, APs do most of the buying and selling. When APs sense demand for additional shares of an ETF—which manifests itself when the ETF share price trades at a premium to its NAV—they go into the market and create new shares. When the APs sense demand from investors looking to redeem—which manifests itself when the ETF share price trades at a discount—they process redemptions. So, suppose the NAV of the ETF is $20/share and the trading price is $30/share. The AP can buy the underlying securities for $20/share in a bulk order that equates to 50,000 shares of the ETF and exchange the underlying shares for new shares in the ETF. Then the AP can turn around and sell those new ETF shares for $30/share and pocket the gain. If you switch the prices around, the AP would then take the ETF shares and exchange them for the underlying securities in the same way and make a profit on the difference. SEC also notes this same process.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons. Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference. Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.","I think that assuming that you're not looking to trade the fund, an index Mutual Fund is a better overall value than an ETF. The cost difference is negligible, and the ability to dollar-cost average future contributions with no transaction costs. You also have to be careful with ETFs; the spreads are wide on a low-volume fund and some ETFs are going more exotic things that can burn a novice investor. Track two similar funds (say Vanguard Total Stock Market: VTSMX and Vanguard Total Stock Market ETF: VTI), you'll see that they track similarly. If you are a more sophisticated investor, ETFs give you the ability to use options to hedge against declines in value without having to incur capital gains from the sale of the fund. (ie. 20 years from now, can use puts to make up for short-term losses instead of selling shares to avoid losses) For most retail investors, I think you really need to justify using ETFs versus mutual funds. If anything, the limitations of mutual funds (no intra-day trading, no options, etc) discourage speculative behavior that is ultimately not in your best interest. EDIT: Since this answer was written, many brokers have begun offering a suite of ETFs with no transaction fees. That may push the cost equation over to support Index ETFs over Index Mutual Funds, particularly if it's a big ETF with narrow spreads..","\"I'm assuming the question is about how to compare two ETFs that track the same index. I'd look at (for ETFs -- ignoring index funds): So, for example you might compare SPY vs IVV: SPY has about 100x the volume. Sure, IVV has 2M shares trading, so it is liquid \"\"enough\"\". But the bigger volume on SPY might matter to you if you use options: open interest is as much as 1000x more on SPY. Even if you have no interest in options, the spreads on SPY are probably going to be slightly smaller. They both have 0.09% expense ratios. When I looked on 2010-9-6, SPY was trading at a slight discount, IVV was at a slight premium. Looking for any sort of trend is left as an exercise to the reader... Grab the prospectus for each to examine the rules they set for fund makeup. Both come from well-known issuers and have a decent history. (Rather than crazy Uncle Ed's pawn shop, or the Central Bank of Stilumunistan.) So unless you find something in the SPY prospectus that makes you queasy, the higher volume and equal expense ratios would seem to suggest it over IVV. The fact that it is at a (tiny) discount right now is a (tiny) bonus.\""],"string":"[\n \"Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons. Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference. Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.\",\n \"I think that assuming that you're not looking to trade the fund, an index Mutual Fund is a better overall value than an ETF. The cost difference is negligible, and the ability to dollar-cost average future contributions with no transaction costs. You also have to be careful with ETFs; the spreads are wide on a low-volume fund and some ETFs are going more exotic things that can burn a novice investor. Track two similar funds (say Vanguard Total Stock Market: VTSMX and Vanguard Total Stock Market ETF: VTI), you'll see that they track similarly. If you are a more sophisticated investor, ETFs give you the ability to use options to hedge against declines in value without having to incur capital gains from the sale of the fund. (ie. 20 years from now, can use puts to make up for short-term losses instead of selling shares to avoid losses) For most retail investors, I think you really need to justify using ETFs versus mutual funds. If anything, the limitations of mutual funds (no intra-day trading, no options, etc) discourage speculative behavior that is ultimately not in your best interest. EDIT: Since this answer was written, many brokers have begun offering a suite of ETFs with no transaction fees. That may push the cost equation over to support Index ETFs over Index Mutual Funds, particularly if it's a big ETF with narrow spreads..\",\n \"\\\"I'm assuming the question is about how to compare two ETFs that track the same index. I'd look at (for ETFs -- ignoring index funds): So, for example you might compare SPY vs IVV: SPY has about 100x the volume. Sure, IVV has 2M shares trading, so it is liquid \\\"\\\"enough\\\"\\\". But the bigger volume on SPY might matter to you if you use options: open interest is as much as 1000x more on SPY. Even if you have no interest in options, the spreads on SPY are probably going to be slightly smaller. They both have 0.09% expense ratios. When I looked on 2010-9-6, SPY was trading at a slight discount, IVV was at a slight premium. Looking for any sort of trend is left as an exercise to the reader... Grab the prospectus for each to examine the rules they set for fund makeup. Both come from well-known issuers and have a decent history. (Rather than crazy Uncle Ed's pawn shop, or the Central Bank of Stilumunistan.) So unless you find something in the SPY prospectus that makes you queasy, the higher volume and equal expense ratios would seem to suggest it over IVV. The fact that it is at a (tiny) discount right now is a (tiny) bonus.\\\"\"\n]","isConversational":false}}},{"rowIdx":290,"cells":{"_id":{"kind":"string","value":"6199"},"query":{"kind":"string","value":"How can all these countries owe so much money? Why & where did they borrow it from?"},"gt_ids":{"kind":"list like","value":["414693","584273","239214","169921"],"string":"[\n \"414693\",\n \"584273\",\n \"239214\",\n \"169921\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["584273","414693","47163","520000","450041","298794","169921","209013","239214","10399","194335","14035","514697","477724","596959","69960","392806","370186","222693","151971","510305","329270","490042","24214","396145","286900","199253","463750","310456","49602","263563","124940","118191","92912","380714","203231","133511","295089","474318","72238","453919","446705","44708","177832","321842","127359","446402","311495","540516","276831","396360","99525","1917","153316","56481","294761","67406","428764","345823","206881","476812","475104","69518","176970","132519","152201","373346","303820","137602","383555","208637","242171","514952","99797","145238","322259","395929","430923","189592","351853","563268","58851","333966","119906","231306","217377","125966","65043","592859","267815","231310","583883","97075","481987","538457","344165","3559","169028","190427","38918"],"string":"[\n \"584273\",\n \"414693\",\n \"47163\",\n \"520000\",\n \"450041\",\n \"298794\",\n \"169921\",\n \"209013\",\n \"239214\",\n \"10399\",\n \"194335\",\n \"14035\",\n \"514697\",\n \"477724\",\n \"596959\",\n \"69960\",\n \"392806\",\n \"370186\",\n \"222693\",\n \"151971\",\n \"510305\",\n \"329270\",\n \"490042\",\n \"24214\",\n \"396145\",\n \"286900\",\n \"199253\",\n \"463750\",\n \"310456\",\n \"49602\",\n \"263563\",\n \"124940\",\n \"118191\",\n \"92912\",\n \"380714\",\n \"203231\",\n \"133511\",\n \"295089\",\n \"474318\",\n \"72238\",\n \"453919\",\n \"446705\",\n \"44708\",\n \"177832\",\n \"321842\",\n \"127359\",\n \"446402\",\n \"311495\",\n \"540516\",\n \"276831\",\n \"396360\",\n \"99525\",\n \"1917\",\n \"153316\",\n \"56481\",\n \"294761\",\n \"67406\",\n \"428764\",\n \"345823\",\n \"206881\",\n \"476812\",\n \"475104\",\n \"69518\",\n \"176970\",\n \"132519\",\n \"152201\",\n \"373346\",\n \"303820\",\n \"137602\",\n \"383555\",\n \"208637\",\n \"242171\",\n \"514952\",\n \"99797\",\n \"145238\",\n \"322259\",\n \"395929\",\n \"430923\",\n \"189592\",\n \"351853\",\n \"563268\",\n \"58851\",\n \"333966\",\n \"119906\",\n \"231306\",\n \"217377\",\n \"125966\",\n \"65043\",\n \"592859\",\n \"267815\",\n \"231310\",\n \"583883\",\n \"97075\",\n \"481987\",\n \"538457\",\n \"344165\",\n \"3559\",\n \"169028\",\n \"190427\",\n \"38918\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["By the phrasing of your question it seems that you are under the mistaken impression that countries are borrowing money from other countries, in which case it would make sense to question how everyone can be a borrower with no one on the other side of the equation. The short answer is that the debt is owed mostly to individuals and institutions that buy debt instruments. For example, you know those US savings bonds that parents are buying to save for their children's education? Well a bond is just a way to loan money to the Government in exchange for the original money plus some interest back later. It is as simple as that. I think because the debt and the deficit are usually discussed in the context of more complex macroeconomic concerns people often mistakenly assume that national debts are denominated in some shadow banking system that is hidden from the common person behind some red-tape covered bureaucracy. This is not the case here. Why did they get themselves into this much debt? The same reason the average person does, they are spending more than they bring in and are enabled by access to easy credit. Like many people they are also paying off one credit card using another one.","\"They borrowed it from the people, and typically to finance wars and military spending. For example, Wikipedia suggests that the Bank of England \"\"was set up to supply money to the King. £1.2m was raised in 12 days; half of this was used to rebuild the Navy.\"\" It's a game that everyone has to play once started; if Napoleon buys an army on credit, you'll have to raise an equal amount or face quite a problem. As for why they've grown so large, it's because governments are quite skilled at owing large sums of money. Only a small portion of the debt comes due in full at a given moment, and they constantly reissue new debt via auction to keep it rolling. So as long as they can make coupon (interest) and the lump sum at maturity, it's not difficult to keep up. Imagine how much credit card debt you could rack up if you only ever had to pay interest. This game will continue for as long as people lend. And there are plenty of lenders. There's pensions, mutual funds and endowments, which find public debt typically safer than stocks. And money market funds, which target 1 dollar NAV and only invest in the \"\"safest\"\" AAA-rated bonds to protect it. There's central banks, which can buy and sell public debt to manipulate inflation and exchange rates. Absent some kind of UN resolution to ban lending, or perhaps a EU mandated balanced budget, these debts will likely continue to grow. You think they \"\"collectively owe more money than can exist\"\", but there's a lot of wealth in the world. Most nations owe less than a year's GDP. For example, the US's total wealth is in the neighborhood of 50 trillion.\"","\"Depends on the country, whether its a currency issuer with floating exchange rate, and what the debt is denominated in. For instance, the US has no real debt, b/c its all in US dollars and can be printed at any time. It has no need to borrow anything, it issues its own currency. It used to be different 4 decades ago, on the gold standard, so in general people still think currency issuers need to borrow (or earn) to spend. Just a relic in thinking. But when the country does not issue its own currency, then it does need to earn or borrow in order to spend. In this case, it could borrow from anywhere that will lend it money. In US, a state would fit this description. Or Greece, as it borrowed Euros, for which it is not an issuer of. EDIT: just came across this blog http://pragcap.com/where-does-the-money-come-from Its title, \"\"Where does the money come from\"\". Maybe he saw this question. Anyway, the US does not need to borrow money. Why would it borrow what it creates? From the video: \"\"Thinking is hard, that's why we don't do it a lot\"\". Great line.\"","I looked into the investopedia one (all their videos are mazing), but that detail just was not clear to me, it also makes be wonder, if a country issues bonds to finance itself, what happens at maturity when literally millions of them need to be paid? The income needs to have grown to that level or it defaults? Wouldn't all the countries default if that was the case, or are bonds being issued to being able to pay maturity of older bonds already? (I'm freaking myself out by realizing this)","The answers provided so far as good and informative, but I just thought I'd add one small point... There are super-national organisations that commonly lend to governments, in particular those in the developing the world. The World Bank and IMF (International Monetary Fund) are the two primary ones. Also quite notably, the Greek economy was bailed out only this year by the EMF (European Monetary Fund) spearheaded by Germany - this is a rare occurrence however and was done mainly because Greece was a relatively developed country and others had an obligation to assist it as an EU member state.","It's more complicated than that. Governments raise money in a number of ways. First, they tax economic activity within their borders and for connected companies and individuals. Then, some governments have actual revenues from state-owned enterprises (licences, patents, courts, business revenues, and so on). Whatever shortage arises between state expenditure and this income is the deficit which is usually financed through debt. Government usually issues a bond (Wikipedia for a list of government bonds) of various types, some with extremely lengthy maturation dates. These bonds can be purchased both locally and by foreign investment funds. The nature of who buys is important. From the Wikipedia link you'll see that most government debt is very highly rated based on the ability of the state to simply raise taxes in order to fund redemption. Pension funds are legally bound to only invest in highly-rated investment classes and the bulk of bonds may be purchased to support local pensioners. A state that defaults on debt will first hit its own most vulnerable citizens. In addition, the fall-out will result in a savage cut in ratings. Countries like Argentina and Zimbabwe, which have both refused to repay their debts even to the IMF, are currently unable to raise investment at all. This has a tremendous impact on local economic development. So, default is out of the question without severe penalties. The second part of your question is about paying down the debt. As debts increase, more and more of the revenue that a country does earn is spent on servicing debt repayments. Sometimes bonds are issued merely to refinance old debt. A country that spends too much on refinancing debt is no different from an individual. Less and less money is available to do other things. In conclusion: governments can neither default nor binge-borrow unless they wish to severely limit economic opportunities for their citizens.","Here is an overview of who owns US Debt from Wikipedia, it indicates that approximately 1/3rd of US debt is held by foreigners (mainly the central banks of other countries), approximately 1/2 of US Debt is held by the federal reserve, and the rest is owned by various America organizations (mutual funds, pension funds, etc). The money is loaned via bonds, treasury bills, etc. When you put money in your pension fund, you very likely buying US debt. The US Treasury department all has a comprehensive page about how public debt works in the United States here: an overview of public debt from the treasury. I wasn't able to find a similar breakdown for other countries, but Wikipedia has a comprehensive list of how much debt is owed by other countries: a list of countries by public debt.","i disagree. if a country has sovereign currency, then there is no squandering. where does that money come from in the first place? govt creates it, and spends it into the economy through deficit spending. And govt gets a service or product in return from that spending. Govt deficit spending = private sector savings.","\"Others have pointed out that the entities loaning money to the government are typically people and institutions. Recently, however, the US federal government borrowings were largely funded by money printed by the Federal Reserve. The government had to borrow $1.1 trillion from October, 2010 through June, 2011. During this period the FED printed around $0.8 trillion new dollars to purchase US debt. Thus, the US government was not borrowing money from people, it was being funded by money printing. The central bankers call this \"\"quantitative easing\"\".\"","Where are they going to get money from? Their bonds are worthless because they have no viable way of ever paying back debt so why would anyone lend money to them. You, and Keynes think that you can fuel debt with more debt, but all this does is build a massive debt bubble that has to pop at some point. This is exactly what these nations did for years and now are beginning to realize that they can no longer issue debt.","To understand this fully one would need to understand quite a few things. Not in scope here. In short, whenever China sells goods to US, it gets USD as most of the trades are in USD. China uses this money to buy other things it needs like Oil etc. After this they still have quite a bit of USD left with them. The money is left with them because US is buying more things from China and selling less things to China. This creates a surplus USD with China. So if US were to borrow money from China or any other country, it would be this excess money. Ofcourse how money gets created in first place is a different topic altogether.","\"For political reasons, almost all governments (including the US) spend more money than they get from taxes etc. There are a number of things a government can do to cover the difference: Most governments opt for selling bonds. The \"\"National Debt\"\" of a country can be thought of as being the sum of all the \"\"Bonds\"\" that are still paying interest, and that the Government hasn't Redeemed. It can all go horribly wrong. If the Government gets into a situation where it cannot pay the interest, or it cannot Redeem the Bonds it has promised to, then it may have to break its promise (\"\"Default\"\" on its payments). This makes the owners of the Bonds unhappy and means potential buyers of future Bond sales are less likely to want to buy the Governments new Bonds - effectively meaning the Government has to promise to pay more interest in the future. Recent examples of this include Argentina; and may include Greece soon. The US is in the fortunate position that not many people believe it will Default. Therefore the new Bonds it sells (which it does on a regular basis) are still in demand, even though its interest payments, and promises to Redeem Bonds are huge.\"","\"Is it not that bad? Depends how bad is bad. The problems causes by a government having large debt are similar to those caused by an individual having large debt. The big issue is: More and more of your income goes to paying interest on the debt, and is thus not available for spending on goods and services. If it gets bad enough, you find you cannot make payments, you start defaulting on loans, and then you have to make serious sacrifices, like selling your property to pay the debt. Nations have an advantage over individuals in that they can sometimes repudiate debt, i.e. simply declare that they are not going to pay. Lenders can then refuse to give them more money, but that doesn't get their original loans paid back. In theory other nations could send in troops to seize property to pay the loan, but this is a very extreme solution. Totally aside from any moral considerations, modern warfare is very expensive, it's likely the war would cost you more than you'd recover on the debt. How much debt is too much? It's hard to give a number, any more than one could give a \"\"maximum acceptable debt\"\" for an individual. American banks have a rule of thumb that they won't normally loan you money if your total debt payments would be more than 1/3 of your income. I've never come close to that, that seems awfully high to me. But, say, a young person just starting out so he's not making a lot of money, and he lives someplace with high housing prices, might find this painful but acceptable. Etc.\"","\"That was indeed a typo. I would not go into details regarding Germany, Japan's economy is pretty much in stagnated state for the past two decades. US has a high deficit and this issue is a major topic if you follow the current election season. And yes, that is not a good thing. Britain (Still, is not that UK?) and Italy seem to come off as time wrap living in colonial era where they can just get free stuff off others. Note the high debt cost of Italy. It is not as if debtors are lining up to give money to these nations. More often than not, it is the leftover state of pre-world war mindset where some people/organizations try to hold on to the money and influence as long as possible. I think this topic itself is extremely complicated and has various facets to it but to even moot such ideas - essentially saying \"\"lets exchange goods and here take our currency\"\" and then saying \"\"our currency has no value btw\"\" is criminal. It just voids the legal contract written on a dollar note.\"","It isn't as simple as just borrowing money. This is more of an economics question but there are reasons to borrow money (simple example being when the economy is growing too slowly) and reasons to increase taxes (basic example being when the economy is growing too fast). Check out monetary and fiscal policy on investopedia or youtube, this should give you a good understanding. Now one more thing to consider is the 'risk' of governments defaulting on their loans. In a simple sense, the more debt a government has the more risk there is to default. This means people who lend the government money will want a higher interest rate, making it harder for the government to borrow money.","As long as we remember that debt is the only option when the government has to borrow their money at interest or take it from taxes. When taxes don't cut it, we borrow. Ever wondered why the government doesn't just spend money into the economy instead of borrowing at interest?","One important answer is still missing: governments may not be able to do print money because of international agreements. This is in fact a very important reason: it applies to the entire Eurozone. (I admit that many Eurozone countries also not allowed to borrow as much as they do now, but somehow that's considered a far lesser sin).","Has any country in their existence, paid their debt in full? To me it seems that every country is in debt and it will just keep growing. It's like they know that the debt is impossible to pay and they just play along so that they get their paycheck and pass the debt to the other guy/gal who wins the office. Do we just want to believe that one day everybody would receive so much money that everybody would pay off their debt?","“Why do governments borrow money instead of printing it? (When printing money, one doesn't need to pay interest).” Good question. Numerous leading economists, including a couple of economics Nobel Laureates have asked the same question and concluded that borrowing can be dispensed with. First, Milton Freidman set out a monetary system in a paper in the American Economic Review which involved no government borrowing, and govt just printed money (in a responsible fashion of course) as and when needed. See: http://www.jstor.org/pss/1810624 A second Nobel Laureate with similar views was William Vickrey. A third economist with similar views (of Keynes’ era) was Abba Lerner. Keynes said of Lerner, “Lerner's argument is impeccable, but heaven help anyone who tries to put it across to the plain man at this stage of the evolution of our ideas”.","\"Governments borrowing money doesn't create new money. When banks \"\"borrow\"\" money (i.e. take deposits), it does effectively create money because the depositor expects to be able to get the money back at any time, but the bank assumes that most won't actually do this and lends out most of the money to other people. If everyone did actually ask for their money back at once, the illusion of the extra money created by this process would collapse, and the bank would go bust. In contrast when governments borrow money, the loan isn't repayable on demand, it has a fixed maturity and the money is only repaid at the end of that period (plus interest at defined points during the period). So holders of government debt don't have money they can spend (they can turn it into money they can spend but only by finding someone else to buy it). So government debt doesn't create inflation in itself. If they printed money, then they'd be devaluing the money of everyone who had saved or invested, whereas if they borrow money and use taxes to repay it, the burden falls more evenly across the economy and doesn't disproportionately penalise certain sets of people.\"","The country isn't a business, of course you are correct. That doesn't mean one can run deficits year after year and expect success. I blame both GWB and Obama in this regard, neither showed a serious interest in balancing the budget. But you have to, the money has to come from somewhere to get what you want.","The Government doesn't borrow money. It in fact simply prints it. The bond market is used for an advanced way of controlling the demand for this printed money. Think about it logically. Take 2011 for example. The Govt spent $1.7 trillion more than it took in. This is real money that get's credited in to people's bank accounts to purchase real goods and services. Now who purchases the majority of treasuries? The Primary Dealers. What are the Primary Dealers? They are banks. Where do banks get their money? From us. So now put two and two together. When the Govt spends $1.7 trillion and credits our bank accounts, the banking system has $1.7 trillion more. Then that money flows in to pension funds, gets spent in to corporation who then send that money to China for cheap products... and eventually the money spent purchases up Govt securities for investments. We had to physically give China 1 trillion dollars for them to be able to purchase 1 trillion dollars in securities. So it makes sense if you think about how the math works in the real world.","\"Sovereign states borrow money explicitly in a two primary ways: A sovereign cannot be compelled to repay debt, and there isn't a judicial process like bankruptcy to erase debt. When sovereigns default, they negotiate new terms with creditors and pay back some fraction of the actual debt owed. They can also print money to repay debt, which has other nasty consequences. But, while a state cannot be compelled to repay a debt, creditors cannot be compelled to loan money to the state either! Any enterprise of sufficient size needs access to capital via loans to meet daily obligations in anticipation of revenue -- even when times are good. Defaulting makes borrowing impossible or expensive, and is avoided. Regarding using your military to avoid repaying debt... remember what Napoleon said: \"\"An army travels on its stomach\"\". Military campaigns are expensive... no borrowing ability means the soldiers don't get paid and the food, fuel and ammo don't get delivered. Smaller countries have other risks as well. Many nations are essentially forced to use US Dollars as a reserve currency, or are forced by the market to borrow money in a foreign currency. This creates a situation where any risk of non-payment results in a deep devaluation of the local currency. When your debt is denominated in dollars, these shifts can dramatically increase your debt obligations from a local currency point of view. You also run the risk that a larger or richer company will park warships in your harbor and seize assets as payment -- the US and Britain engaged in this several times during the 19th and 20th centuries. In general, not paying the bills has a cascading effect. Bad situations get worse, and they do so quickly.\"","> A significant proportion of recent economic growth has relied on borrowed money -- today standing at a dizzying 325 percent of global gross domestic product. Debt allows society to accelerate consumption, as borrowings are used to purchase something today against the promise of future repayment. Unfunded entitlements to social services, health care and pensions increase those liabilities. The bill for these commitments will soon become unsustainable, as demographic changes make it more difficult to meet.","hey look I can spout random countries too. Spain! Back it up, or shut up. The UK did NOT sell debt and simultaneously purchase its own debt in the past (until modern times). And who said the reason soviet union collapsed was because of its banking policies? Putting words in peoples mouths aren't we. I think you should move along before you get hurt. This is a grown up conversation little one.","\"To summarize, the money never existed. The best example I can give is the housing bubble. Houses were being bought on credit worthiness and this pushed the house prices and values up as if the houses had been bought with real money. When people couldn't make their payments, the house prices crashed. The boom and bust cycle is simply credit being overextended (boom) and when there is not enough money in the system for everyone to repay all their debts it crashes (bust). The real question that people should be asking is not \"\"Where did all the money go?\"\", but \"\"Why is money issued by private banks?\"\" Money is a social invention to facilitate trade. Should it not be like a public water utility? Counterfeiting is illegal except when a private bank does it. Money should not be variable in value and economics will never be a science if the measurement of value is not standardized. All natural sciences have standards of measurement like meters, joules, degrees, etc. Money must decrease in value constantly because all money is issued at interest. We essentially pay rent on all money that isssued and the interest can only be repaid if more money is created, once again at interest. This is why economists generally say some inflation is good. Finance has told them interest is a given on the issue of money when in reality, money is just an IOU that requires no such interest payment for it's issue. Interest should be made if a loan is issued against savings, but not for the simple issuance of money. There should be public banks that issue the money and private banks for investment. You can read more about this from reading about Arthur Kitson. In this way, the public controls the value of it's money, not private bankers that use the issue of money to transfer wealth to an idle financial class. If you want to get into the differences between wealth and debt, read the work of Frederick Soddy. It's off topic from this thread but really interesting to see how he relates real science to economics and how our current economic system is not scientific in the least. Wealth is subject to the laws of thermodynamics while debt is an invention of the human will. Debt never rots or degrades with time and can expand exponentially through compound interest - nothing in the natural world does this.\"",">I would be really surprised if they didn't have more relatively short term debt as they were in the midst of a global freaking conflict, man. What its spent on is a political decision and isn't relevant, except that its even less useful than how it might be spent today. >I just don't want to open the unlimited money taps without carefully considering how long we can leave them open You are the only one saying that. Its a straw man. >If you're deciding whether or not to spend a crap ton of money you don't have, it helps if you haven't already spent a crap ton of money you don't have The government is the issuer of the currency. It doesn't have it or not have it. It creates it. They've issued an ~~crap ton of money~~ amount that hasn't been clawed back through taxation and they can add to it if it suits them.","\"This might not map well, because personal finance is not the global economy; but let's start by talking about this in terms of the cost of a loan vs the gain of an investment. If you can buy a house with a mortgage at 3%, but make 7% on average in the stock market... You should take as *looong* as possible to pay that off, and invest every penny you can spare in the markets. Heck, if you can take on even *more* debt at 3%, you should still do the same. Now imagine you have the power to literally print money, *but*, doing so is effectively a form of \"\"loan\"\" to yourself. We call the \"\"interest\"\" on that loan \"\"inflation\"\", and it comes out to roughly 2%, basically the same rate that US treasuries pay (they aren't strictly locked, but they rarely drift far apart). So, if you can print money at 1%, you should rationally print as much money as you possibly can to buy US treasuries at 2+%. But someone has to *take* that money off your hands - Pallets of money siting in a warehouse aren't worth any more than the paper they're made of. There we get into trade imbalances... Whether printing money costs you 0.1% or 10% or 1000% per year depends on whether your country is, on average, making or losing money on international trade (I'm glossing over a hell of a lot there, as full disclosure), and by how much. If you're printing money as fast as you can just to buy food to stay alive with zero exports, you're screwed; if your country exports $10 to the US (or equivalents) for every $1 you import, the rest of that is essentially \"\"invested\"\" in USD, in that you didn't need to print it yourself just to feed your people.\"","You don't understand government financing at all. Gov'ts earn revenue, aka, taxes. They also spend money. The different between the money they spend and they money they earn is the deficit. If you run a deficit for a long period of time, you incur a very large national debt. Now, you can finance (aka, pay for) a deficit by borrowing money. This means you can sell bonds, and instead of pay off the debt each year, you just pay the interest. If your spending balloons out of control, your the likely hood of you paying your debt decreases. If you are very unlikely to payback your debt, people won't buy any more of your bonds, and you no longer have the income (from borrowing) to pay off your interest from other debt you owe, or what ever other obligations you own (think mortgage payments, or teachers salaries, etc). Here's were Europe and USA differ: European nations can't just print money. They can issue more debt, but they can't just create more euros. IF you can print money, you can pay off your debt with money you literally created out of thin air (at the expense of your people, this is called inflation). But this is a form of cheating, eventually people won't trust you, and won't buy your debt either. So where do the banks come in? if the government is SOUND and the banks are NOT, the government can backstop the banks. This is what the US and UK did. Greece, Spain, Ireland all had to back stop their banks also. However, Greece, Spain, and Irelany ( and Italy, and Portugal) also have 1) A lot of debt 2) Structurally high deficits 3) Extremely high borrowing costs (high interest rates...because people don't trust them...because...) 4) Weak underlying economies The fourth point gets you in real trouble. if you have high entitlements, lots of poeple out of work, who the hell is paying taxes and what are they going to? You have no revenue! Remember, a govt works just like a household. It is easy for a good household to support one member, but it is difficult for a member to support an irresponsible household.","\"It is measured in US dollars. The US cannot just print the money because that would cause inflation. Remember that money is really just a convenient placeholder for the barter system. Creating more money regardless of whether there is more value in the economy (work, resources, etc.) is a very bad idea, and doing so has collapsed the economies of many countries. Debt increasing means that the US owes other countries more money. So yes, they are receiving more money from other countries, but the US has to pay it all back with interest eventually. The US government spends more money than it receives in taxes. To decrease the debt, spending needs to decrease and/or taxes need to increase. Many countries lend to the US. One of the biggest is China. These countries do so because of interest -- the US pays back more money than it gets lent, so the lending countries make a profit. If China suddenly called in all its debt to the US, this would severely damage the world economy. China's biggest trading partner is the US, so it has no interest in harming the US this way; it would harm itself. Additionally, the US would probably refuse to pay it (not to mention that it can't), and then China would lose all the money it \"\"invested\"\" in the US. It would benefit no one.\"","Money as Debt and Money as Debt II (while low-quality in their production), give a great historical explanation of how the modern monetary system came into being, as well as touching on things you just said. You can find various versions online, but here are two links anyway: * Money as Debt: http://archive.org/details/MoneyAsDebt * Money as Debt II: http://archive.org/details/MoneyAsDebt2","The higher the debt, the higher inflation needs to be to wash the debt away. This is why the debt and US equities move upward hand in hand. The same goes for US housing. Just as homeowners borrow money through mortgages so that house prices rise, the banks borrow the money for mortgages through the central banks. Thus, the cycle circulates. The more debt, the higher the prices! Everybody makes money from debt. That is why the US has the highest external debt on the globe, yet they are considered one of the wealthiest countries in the world.","\"Hmm... Maybe I somewhat misunderstood your question then. Yes, trade deficits/surpluses are really the core of the country-level \"\"investment\"\". But yes, it maters what they *do* with it, which is **why** so many countries put any excesses into US treasuries. Going back to \"\"personal\"\" finance, if they pay down higher interest debt with their trade surplus, *great*; if they have no debt and can issue local currency (in PF land, \"\"take out a loan\"\") for under 2%, *great*; If not... **Not** so great. \"\"Saving\"\" money that costs over 2% isn't an investment, it's nothing but a loan disguised as one.\"",">It is well known that the US entered an unprecedented depression after its unprecedented borrowing during World War 2. Yeah, just ignore ALL of the differences between the world *then* (devastated and destroyed factories & cities all over Europe and Asia) and the world *now*. Ignorance... it's what's for dinner!","\"> As I currently understand, we owe much of our national debt to ourselves. Debtors owe creditors. Creditors are, by and large, the banks. Forget about we/ourselves. One thing we are taught in school is that banks earn money on the spread between what a creditor pays, minus what a saver earns in interest on his deposit. In reality, such private savings pretty much do not exist. When someone borrows from the bank, they mostly aren't borrowing another person's savings. The bank is creating *new* currency through the issuance of debt. > The reason for this is that people are being charged interest that does not exist in the system. I'm not sure what you mean by \"\"does not exist in the system\"\". The way it works is you borrow a dollar, and now you owe a dollar plus the interest on the dollar. Since each new loan creates more debt than currency, the monetary system can never shrink or it implodes. If you mean that the currency is unbacked by any objective measure of value, that is correct. > Therefore, if we tried to pay the debt (like some conservative politicians are fighting for) it would be a massive transfer of wealth from the 99% to the 1%, since most of the debt is owed to the 1% (banks). There is no possibility of repaying it. Both the Red Team and the Blue Team are in on this. If you're worried about the 99% you should be advocating commodity money, because that is the only way to stop theft by inflation. If you're worried about yourself, get informed as to how these plans have played out in history and how you might protect yourself.\"","\"Global banks are without a doubt the new evil empires. They're buying debt for pennies on the dollar, because they know the risk of default/bankruptcy, yet they expect the IMF to do for international debt what W did for student loans. Wasn't Argentina also the country that had a vulture fund \"\"seize\"\" one of their naval vessels? Soon banks will have their own standing armies and naval fleets to exact asset forfeiture.\"","The reason they have this massive debt is largely (not entirely) because they have been employing Keynes' policies and spending more than they had for so many years as it is. Austerity is not the solution. However, reckless spending is not the solution either. A lot of people arguing for keynesian policies (not a bad idea in most recessions) don't grasp that investors have a limited amount of money to invest and aren't going to place it in a country that has as bad of a debt problem as you pointed out. So many people keep arguing these struggling countries need to spend more. While that would help expand their economies, it is not feasible. Where do you guys going to think the money is going to come from? If investors don't want to provide then they have to print more money, which creates the risk of hyperinflation. Spending could help a little maybe if it was a realistic thing to do. Right now any Keynesian solutions are a fairy tale. Countries like Greece need to do what they can with the resources available to them instead of spending like a bunch of millionaire playboys on crystal meth. Look at the U.S. We have spent trillions and our GDP is still growing at only slightly more than half the rate it has from 1947-2012. If people expect massive government spending to be a fix to these problems, then we are a clear case that it isn't. I acknowledge we could be a lot worse and possibly still be seeing a contraction without the spending, but it clearly isn't fixing our problems and sooner or later we won't be able to take on more debt to fix it. We need real solutions to generate real growth instead of dicking around like this. Other western countries need to do the same. edit:Also what we are doing right now would not be considered keynesian solutions. Keynes would advocate spending money to fix the problems, not just dumping money into the economy. That is something I would agree with. But since our politicians can't grasp that I don't want them in control of the purse strings anymore.","Some countries, like the United States, allow a mortgage interest tax deduction. This means the interest you pay on a mortgage, which is typically much more than half of the monthly payment at the beginning of a 25 year mortgage, is tax deductible, so you might get 33% or more of the interest back, and that effectively makes the interest rate significantly lower. Therefore you are borrowing the money really cheap. That makes MrChrister's answer even more appropriate.","\"If the government prints money recklessly and causes inflation, people will come to expect inflation, and the value of the currency will plummet, and you'll end up like Zimbabwe where a trillion dollars won't buy a loaf of bread. If the government actually pays people for the money they borrow, they don't have this problem - and as it turns out, the US government can get pretty good rates on borrowing in general, in part because they're extraordinarily good about paying them back. (Also, inflation expectations are low, so people will accept 1-2% interest rates. If you expected inflation of 10%, you'd see people demanding something more like 12% interest rates.) (The downside of too much of this sort of borrowing is that it \"\"crowds out\"\" other borrowing, which may harm the economy. Who would lend money to / invest in a small business, if the government is paying good money and there's almost no risk at all?) Now, inflation can come into play afterward, if the Fed decides it needs to maintain \"\"easy money\"\" policies to stimulate the economy (because taxes are too high because we're paying off the debt, or because we've crowded out smaller borrowers, or something). -- In general, you can count on the the principle that if you, as the government, try to play too many games with people's money... well, people aren't stupid; they will eventually catch on, and adjust their behavior to compensate, and then you're right back where you started, but with less trust.\"","230 government agencies by law have to buy treasury bonds with their excess cash. Those agencies hold 30% of the debt. The rest is by anyone else who purchased bonds on the open market when the treasury sold them. Are you fucking stupid? You think the government just printed 20 trillion dollars with nothing to back it? No hedge funds bought them. China, Japan, Britain, bought them.",">This goes on until they simply drop dead. Substitute debt for alcohol and you have our situation exactly. *Exactly.* It is well known that the US entered an unprecedented depression after its unprecedented borrowing during World War 2. It is all very simple and easily predicted.","\"Actually the UK was doing that back in the 1600's to finance war with France. You might want to learn why the crown jewels were not actually owned by the state :) \"\"I think you should move along before you get hurt. This is a grown up conversation little one.\"\"\"","As do other states. The state and national debts are created by big government politicians. Such as bloated civil services, pension funds, more borrowing instead of fiscally responsible. The USA federal gov keeps trillions of shadow debt off its books and downplays the actual unemployment rate.","\"Why rent money? \"\"Ooh... new shiny. Must have!\"\" - lol Seriously, Governements that control the presses can harness an almost magical property of money \"\"trust\"\". You and I believe wages have a set value per hour worked. This isn't always so.\"","Today the rates are arrived simply on the basis of demand and supply. Historically rates were pegged to Gold, when all currencies were printed depending on the Gold reserves. So if one country printed 100 units of currency of a 1gm of gold and other country 10 units of currency for 1 gm of gold, the rate would be 1:10. However In the seventies with shortages of Gold and other reasons, USD became the default standard, so the rate started being pegged to the USD reserves the countries started maintaining. However later in the early eighties, US backing out, the rate purely started getting pegged to market demand and supply. So for most currencies there was a default rate to begin with and today its changed ... Incase of USD/EUR, the initial rate was determined by the weighted average of the currencies that it sought to replace. After that its been market supply and demand. Since most of the trade in international market is US denominated, largest being Oil, each country has created a huge reserves of USD. So technically if China were to bank half its USD denominated treasury bills, the USD would come crashing down, but then China itself would be at disadvantage as its value of USD its holding would become less and it cannot buy the same items. Hence all countries keep hording USD and this means US if they print more money, the value will not come down, because it that happens, all countries holding USD would loose their value of reserve. In essence a country can print as much as currency it wants if all(majority) its debts and trades are denominated in local currencies. This is 100% true for US and hence it can get away by printing money. This is also true to a large extent for Japan as bulk of its Debts are denominated in JPY.","They didn't have more **going into** the war. I would be really surprised if they didn't have more relatively short term debt as they were **in the midst of a global freaking conflict**, man. Well I'll be damned, we both want the same thing. I just don't want to open the unlimited money taps without carefully considering how long we can leave them open Edit: If you're deciding whether or not to spend a crap ton of money you don't have, it helps if you haven't already spent a crap ton of money you don't have","\"Most of those countries had debt that was well beyond prudent levels (~70% of GDP) before the crisis, levels such that any crisis would put them over the safe limit and into trouble. The only exception was Spain whose debt levels were still marginally dangerous. Greece was off the charts, which is why they left off the graph for Greece. Second problem. On top of the high or marginal levels of government debt, the governments implicitly or explicitly guaranteed the banks, without limiting in any effective way their levels of leverage and risk (inb4 Basel II - a lot of paper that made no difference). Protip: if someone guarantees your debt, they should be able to oversee your level of risk, but the governments didn't. As a result these banks, and their CEOs in particular, have a bet that goes \"\"heads I win, tails I win (and you the taxpayer lose)\"\". If the loans are paid off the CEOs rake in millions. If the loans go bad the government bails them out and the CEOs and other top executives - you guessed it - rake in millions. Of course when faced with these incentives the banks will lend too much. This is not free market capitalism, it is crony capitalism. **Bailouts of private companies are not part of unfettered free market capitalism.** The third problem is that the same governments cannot print money like the US can because the Euro is not owned by the individual governments. The answer to excessive levels of government debt is for governments not to borrow too much and not to take on excessive unfunded liabilities such as pensions. This probably needs to be enforced by a constitutional amendment, so it can't be easily overruled. The answer to governments getting dragged into bailing out insolvent banks and then going under themselves, is to allow the banks to go under and to guarantee only small deposits. Let shareholders, bond holders and large (>$500k) lenders to the banks to lose their money. Second, hold bank executives and shareholders liable for the bank's debts. Eg executive salaries and other remuneration need to be clawed back up to a 5 year window. Shareholders should be liable (as they used to be) for debts up to an additional 100% of the par value of the shares. I can assure you this would concentrate minds wonderfully - as it did in the old days when Wall St investment banks were partnerships with each partner liable for all the debts of the firm. Another alternative would be for governments to enforce limits on financial risk, but unfortunately they do not have the courage to do this, nor the morality to resist \"\"campaign contributions\"\" / bribes to look the other way. If these steps were taken the issue of the Euro currency would not be a problem. However printing money (which requires having your own currency) is a solution if it comes to that although it comes at the expense of people who have saved and invested prudently. Printing money (keeping interest rates excessively low for years on end) subsidizes borrowers - the ones who created the problem - at the expense of savers. Clearly this creates terribly perverse incentives the next time around. Anyone who thinks this problem is a result of unfettered free market capitalism is not paying attention.\"",">Not to mention that Japan has a very good savings rate. Remember they buy a lot of bonds with their savings, Japanese bonds. This shows up as debt on the ledger. People really need to learn about government debt in general.","For now we can pay off our debt in United States dollars. If we lose our reserve currency status, we would have to pay it off with a different currency. If we continued printing money we would be debasing our currency against the new reserve currency, which would mean that after we took on too much debt we wouldn't really be able to pay our creditors back after exchanging our devalued currency for the new one on the international markets. We are lucky enough not to have to worry about this now. But I think OP was referring to all countries in these situations. Other countries don't have the luxury of just printing out massive amounts of money to pay off their debts. That is why I am saying that America has a very disillusioned view of reality when it comes to deficit spending. We wouldn't have that any more if the UN followed through with its suggestion to create a global reserve currency or reverted back to the gold standard (I don't think the second option is nearly as realistic but we never know).","\"Instead of getting into complex economic theories, here are the few places I can tell you where the cash has disappeared to: 1. Apple - holding over 100b cash in their vault more than any banks have in their reserves in the world and more than enough to pay off all of the debts of the U.S. 2. Real Estates.........in developing countries, that is :p. You may keep hearing how real estates are de-valuing in the U.S., but in developing countries like the BRICs, they are going higher. Think Hong Kong, Tokyo, Beijing, Shanghai, etc. Yes, it's a proven bubble there. If you have access to their regional news, just listen to how many people in Asia have to borrow from loan sharks to keep their finances afloat. 3. Gold - go see for yourself on goldprice.org, that's where the wealthy individuals put their cash in the so-called \"\"safe haven\"\" next to shotguns. Yes, it's ridiculous and is totally out of anyone's league beyond basic things like air, water, and food. 4. Commodities (gas, food, basic materials) - enough said, check out your local gas pumps and grocery stores.\"","\"Many reasons, but let me pick my favourite: The incentive to save isn't there. Any government subject to elections has the incentive to spend as much as possible to remain in power. What is worse, it has a DISINCENTIVE to save. Because the money it saves - and which it pays for with bad will from the electorate, who should really be smarter - is going to be spent by the OTHER guy who will then look incredibly good and be reassured of re-election. \"\"But isn't it afraid of accumulating debt?\"\" you may ask, and its simple. Somebody else will be there when the debt is due. The problem of incentives is a fundamental one.\"","Lol TL:DR. your first point is completely wrong so I stopped at the wall of text. Get over it buddy, you lost the argument. No country simultaniously purchased and sold its own debt, like we have this past several years in the US. So, shut the fuck up already. loser.","Are you fucking stupid or just retarded? There isn't another country in the world remotely with the size of economy we have or that are starting wars like we are. Do you understand that wars are 10-15 year commitments with tens of trillions ~~wasted ~~ stolen ? I'm not going to argue with the flat earth society.. go troll someone else with your fantasy arguments.","> But to answer your question, the two factors you mention are positively correlated, not negatively as you postulate. I'm not sure if there's necessarily any correlation. I'm merely stating the fact that they have so much savings that they must export capital but at the same time, they've ramped up domestic debt to somewhere around 300% of GDP which, I don't know why you say it isn't a lot, but it's probably twice the level of the average developing country. Wealth is probably very overstated, but the mechanism for why this has happened is confusing to me.","But how can you have continued growth? Nothing is perpetual at least not in real life - maybe in theory :) I'm guessing you're talking about growth in the money supply right? Well how can you keep growing your money supply indefinitely if doing so requires the creation of a larger amount of debt than the amount that already exists? Think of it in rounds. If each round of debt requires that new debt to the amount of 105% of the old debt is created, how long can you keep that running for? You've essentially got the principle of compound interest working against you. I'm obviously missing something really big because this seems ridiculous to me...","\"Why would a bank buy government bonds? Why couldn't they just deposit their money in another bank instead? Generally, banks are limited by laws and regulations about how much they must set aside as reserves. Of the money they receive as deposits, they may loan a certain amount, but must keep some as a reserve (this is called \"\"fractional reserve banking\"\"). Different countries have a different amount that they must set aside in reserves. In countries where bank deposits are guaranteed, there is almost always some upper limit to how much is guaranteed. The amount of money that a bank would deposit in another bank would be far greater than the guarantee.\"","They are wrong. Agreed. The problem I have is that sooner or later you get in so much debt no one will lend money to you anymore. At that point austerity is forced on you. The increased spending comes from domestic and foreign investors. We all know how fickle the financial markets can be. If our debt gets too high and they cut off the tap, we are fucked. I don't think we are anywhere near that point now. However, things can change dramatically in the course of a few months. Political tensions, global uncertainty and social unrest could all cause enough of a panic that people start questioning the safety of U.S. treasuries. We could also see the day where everyone collectively demands the U.S. stop ripping them off with negative bond yields. Like I said, I see no indication of that now, but who knows how long it will take? I know this is a bit of a tangent, but it is clear. My solution: borrow money to improve the economy while you can but make sure that your dollars count to fixing the economy. Otherwise, you are going to be stuck with a stagnant economy AND at a serious risk of bankruptcy when the financial markets no longer see you as a wise investment. You can't save yourself from falling off of two cliffs at the same time so our politicians should stop dicking around and start looking for real solutions with the money they are borrowing instead of pissing it away on useless shit.","\"But their economy is based on -- built upon -- the very concept of debt, just like the U.S. and most other advanced economies on the planet. Debt itself isn't the problem -- having to borrow to get capital and then *service the debt* is where the problems appear because whilst one group in the economy continues this old pattern of issuing debt and expecting payback with interest, another prominent group has been undercutting the ability of debtors to service their debt by shifting how products and services develop and are used by the public. It's the old \"\"watch this hand\"\" trick with the other hand stabbing you when you're not looking. Simply put, you can't have an economy based upon the debt/return-on-interest model while -- at the very same time -- having an economy based on make-everything-in-China/India production/service model: If you make people have to borrow money to have money, then you *must* give them a way to service that debt; otherwise, you're just a daft bastard who refuses to acknowledge that adding two and two returns four; an imbecile who insists that he can indeed have his cake and eat it too; I could go on but the point is made.\"","\"Debt can be denominated either in a currency the country controls or a currency the country doesn't control. If the debt is denominated in a currency the country controls then they have the option of \"\"printing their way out of it\"\". That option doesn't come for free, it will devalue their currency on the global market and hurt savers in their country but it is an option. If the debt is denominated in a currency the country does not control then they don't have that option. As I understand it the US debt is in the first category. It's denominated in US dollars so the US government could if they so wished print their way out of it. On the other hand greece's debt is denominated in euros putting them at the mercy of european bankers.\"","> They'd literally have to invade and plunder other nations on a regular basis. Which is what they do. The plundering is done by the mining companies and oil companies and engineering firms that follow them in though. Not them directly.","I'll give you a stark example of China's debt-driven construction growth: Since '09 China has constructed enough physical office space buildings to give every Chinese man, woman, and child their own cubicle - 3 times over! Given that these buildings were largely financed by debt, its hard to see how those creditors get all their money back given that there simply are not enough Chinese people to occupy and pay/rent that space in order for break-even to occur.","The debt is a problem but IF (and the key word is if) other nations are lending to us at rates we dictate, then that is not a problem. But if our own banks, Central Bank, and the like are buying it then the problem is being kept on our shores. The issue is with fractional reserve lending, one will always have this issue but if other nations give us items/services for paper/pixels we send them why not continue.","Lots of countries *have* printed themselves away from debt. Not all inflation turns into a death spiral like Zimbabwe (or Weimar Germany) did, for that you need to have a really shitty economy that no-one believes in. The problem with Japan right now is that they are trying to print their debt away, but as they do so, their currency *appreciates*. Gold medal for the first one who manages to explain that one.","Surely there's more to the picture than this. Breaking the borrowing limit by going to 3.5% multiple times is surely no where near as bad as going to 18% once. On top of this there was a fundamental difference in the use of capital. Borrowing to invest (as Germany did) has been ridiculously beneficial for them.","Corrupt country leaders will probably rape it dry for their personal gains. Next thing you know, the secretary of state is getting $100000 loan with 1 percent interest when the country national bank lending money to its people at 25% percent interest.","No - we're having fun seeing how long you avoid providing a single example of something you claimed was so universal any single one should suffice. It seems you totally pulled that statement out of your ass and now are so stubborn that admitting it must impact your psyche in some amazing way. So stubborn that you both don't address your claim, admit it is wrong, and yet you call us names for asking you to back up your statement. This is fun. You still have not listed an empire that did not purchase it's own debt. Your entire argument fails.","The main driver behind countries not printing themselves out of debt is the fact that it will cripple the economy, destroy citizens savings, asset valuations and piss all the countries trade partners off so much that they may stop doing business with them. You will have a few different extremes, look at Zimbabwe as an example of a country that just prints money like no ones business. America is essentially devaluing its currency to compete with China. That annoys the Chinese because their holdings are devalued and as such you then see people moving away from US treasuries into more stable commodities and currencies.","The ECB has put up about 400BEuro from EU countries. They are borrowing the money at an interests from other EU countries and then lend it to Spain with an interest. Same way the FEd is borrowing money from tax payers for yet another stimulus, QE3.","Your preferred answer: It's not debt, it's magic. It never has to be paid back. Ok, go ahead tell us all you know about QE and how it isn't debt. Your half baked version of the socratic method isn't working too well.","\"Your question is expressed as a run-on sentence, which I'm having trouble parsing. Maybe you could restate. I'm just pointing out the stupidity of the statist canard that [the debt is not a problem because] \"\"we owe it to ourselves\"\". Collectivists like to think we're all in this together, but that's not reality. Some people are taking from others by force of law. The debt is owed to BANKS, and they want to keep this system going. Wouldn't you like to have a legal monopoly on the supply of currency? Institutions which are funded by loose credit (government, academia, military contractors, crony corporations) likewise benefit from this system. Those who invest in US dollars, and those who are farthest from the central planning spigot are the losers in this scheme. But there is more debt than currency, so it can't ever be repaid. So that is a moot point - it can't even hypothetically be considered. There are however a number of other ways that this system could unwind, when it inevitably does. The banks could be left to fail, and their assets would be bid on by others through the bankruptcy process. Or the Fed could keep issuing currency to keep the banks solvent, eventually inflating the whole system into irrelevance.\"","\"Pretty much every american \"\"borrows\"\". Credit cards are essential in building credit history and story. Debit cards got popular in the past few years, but most still borrow at least a little bit on credit and pay it off right away.\"","\"It's helpful to remember that Charles Ponzi started with a legitimate arbitrage (international postal remittances). Once purveyors of arbitrage reach a certain scale, there's a natural tendency to become lazy and just forgo the arbitrage and just use new investor money to pay off previous investors. Banks wouldn't be any different if it weren't for central banks and government participation. Indeed, the primary reason that the FedResInk came into existence is **because** of ponzi-like bank failures (bankers call them \"\"a run on the bank\"\"). Neoclassical economics is about using the synthesis of state sovereignty and central bank monetary theory to keep the system they've developed intact. ...and, as fun as it might be to sit back and calculate just how much debt can be created from a life-time of labor proceeds (a couple million for the average person-- completely hypothetical back of the envelope inflation excluded, 4.5x10^14, which is still in middle of the trillions), it would be wise to keep in mind that the last banking crisis, while fundamentally caused by the inability to collect future labor proceeds, was precipitated, not by individuals, but by repurchase agreements propping up extremely leveraged positions made by and between massive investment banks. So, the thing to remember is that fractional reserve debt issuance banking is like a 10 to 1 transistor that has a fundamental tolerance requirement on the source signal, but that when the source signal fades, it can draw from the surplus signal created by the 10 to 1 amplification (up to a certain point and then the transistor goes up in a puff of smoke).\"","There is no country tag, so I will answer the question generally. Is it possible...? Yes, it's possible and common. Is it wise? Ask Barings Bank whether it's a good idea to allow speculative investing.","\"I think the important fact here is that all of our currencies are Fiat Currencies. So currency technically means nothing, because (as you mentioned) the country could print more any time it wants. Now what makes it useful is the combination of two big things: So I would say, we know they owe us 100 \"\"dollars\"\", and the dollar is just a word we use to represent value. It is not technically worth anything, beyond the fact that the government controls the amount of that currency in circulation and you trust that people still want more of that currency.\"","\"Judging from your comments, you seem to be confused about the way banking works. Banks can only lend out money that they actually have: whether from deposits or investors or loans taken from other banks/government entities. The rules on how this works varies from country to country, but the principle is always the same. There is no magic money. Let's imagine a closed system. There's only one town, and that town only has one bank. There are 100 people total in town, and each has $10,000. Everyone deposits all of their money in the bank. The bank now has $1,000,000 in total deposits. You take a loan for $100,000 and buy a house. The bank now has $900,000. You make your payments of $965 per month: $833 of interest and $132 toward principal. In this ideal world, the bank has no costs associated with doing business. After one month, the bank has $1,000,000 in deposits, $900,965 in cash on hand, $99,868 in loans, and $833 in profit (from interest). Now here's the confusing part. You bought a house from someone. That person also lives in town. He takes the $100,000 you gave him and... deposits it in the bank. The bank now has $1,100,000 in deposits, $1,000,965 in cash, $99,868 in loans, and $833 in profit. Assume 10 more people buy houses at $100,000 each, taking loans for that whole amount (for the same terms you did). Assume those sellers then deposit the money back in the bank. The bank now has $2,100,000 in deposits, $1,000,965 in cash, $1,099,868 in loans, and $833 in profit. The bank is taking in $10,615 per month ($965 x 11) in loan payments, making profit of $9,163 ($833 x 11) per month from interest. This process of loans and deposits and payments can go on forever without any outside influence. This is the primary way money is created. It's like printing money without the paper. Of course, we're not in a closed system. Banks are limited in endlessly creating money, primarily by two things: Reserve Requirements are set by government agencies. They might say banks can lend until their cash on hand (or liquid equivalent) is, at minimum, 35% of total deposits. So a bank with $1,000,000 in deposits would have to keep $350,000 in cash at any given time. Capital Requirements work largely the same way. It's more the bank saying, \"\"What happens if a bunch of people want their deposits back?\"\" They plan a reasonable amount of cash to have on hand for that scenario.\"","When banks create a loan, it is said they write the debit account out of thin air (liability), balanced by the loan (asset). When the person who gets the loans spends the money, the bank has to pay it. If the bank only has 10% reserves of the money it loans, how does the bank pay out it's loans? Does it borrow the money from the Fed and then pay it back?","\"Here's some way of thinking about it, and I'm not really sure if it's completely correct, but sometimes we oversimplify when trying to tell a five year old :) Say there are two people in the world. You and me. We both have $100. A total of $200 in the world. Suddenly, a wild bank appears. I deposit my $100 in the bank. I still have $100 and you still have $100. Now you want to buy something from me that costs $150. You go to the bank to loan money. The bank has $100 available so gives you $50. You give me $150. Now I have $250 and you are $50 in debt. I deposit the $150 in the bank. We do this again and again, until I have $1000 on my bank account, and you are $900 in debt. I want to buy a house of $500 and go to my bank, demanding to take out $500. But there is only $200 in the whole world so the bank can only give me $200. \"\"Money\"\" has been created out of thin air, but it's actually you who are in debt. If you go bankrupt, the bank has a big debt it won't get back, and is in deep shit when I come around to demand my money back. At that point governments step in to loan the bank money for cheap, because if the bank fails, I will lose all my pension savings I put into that bank, as well as my companies and a lot of my employees. And other banks loaned this bank money, so if this bank fails, the other banks will be in the exact same position and will also fail, because then they will also have debts that won't be paid back. There are regulations minimizing this - i.e. a bank is required to keep a percentage of the amount of money on its accounts, so there's a maximum limit of \"\"money created\"\".\"","\"India's a very interesting case study. They're economy's exploded and grown by leaps and bounds in the last decade. It's a free market but the Reserve Bank of India's get's weird sometimes. For instance a lot of these crappy and defaulting loans are because the government (Reserve Bank of India) said to fuel growth you have to make sure a certain percentage of your loan book is made out industries we want to develop. So huge loans were made to construction firms, not because they fit the risk profile of the bank or were good investments, but cause the government mandated it. Ton's of horribly run companies got money they shouldn't have. Also, public banks pay a lot less than their private counterparts, so you don't have the best and brightest handing out these loans. India's a fucking mess of laws. Like there's no codified way to declare bankruptcy like there is in the West. So if a company goes belly up, they have to go through this maze of different government offices with contradictory rules so creditors (in many cases, the banks that lent them money) can get some of their money back, IMF said it takes 4.5 years on average for a company to go through bankruptcy proceedings. That's insane! And because it's India, there's a ton of shady shit going on behind the scenes. Up until 2-3 years ago, loans that the banking industry considers non performing (interest payments haven't been made in 90 days) were lumped in another category and hidden in the balance sheet, so the rest of the world looked at this said, \"\"well, their NPL ratio is only 3-4% which is fine for developing country\"\" and continued to rate them highly. It wasn't until recently that we figured out the ENTIRE banking sector wasn't reporting their bad loans properly.\"","\"You quite literally just answered why I never understood my own god damn currency says \"\"I promise to pay the bearer...\"\" What I don't get however, is that how wealth comes out of thin air.... why each continent cannot be eternally rich... We're all (at the very basic level) taking things from the ground and providing a service to someone. But if the whole world were to become bankers (only providing a service to which some people would emply never actually existed), we obviously can't all make money from it. So how does money \"\"come out of thin air\"\" so speak?\"","Yep, the wonderful thing about finance is the more you learn the more you start understanding the world around you. I think your question is more related to economics (deficits, surpluses and budgets) however countries can (and do) reissue new bonds to help pay off the old ones. Also keep in mind if a country has say $10trillion in debt, it isn't all due at once so maybe only $10 billion might be due per year",">So where is all the money? I mean, labor has been produced to make things and wages paid to the laborers. The things are purchased by other laborers, who were paid for producing goods or services, etc. It's a closed loop, right? Almost right. The problem is that the wages paid to the laborers are not high enough to buy all the goods produced, so there is constant overproduction and at the same time there are people who would want to buy these goods, but can't afford them. Some people lose their jobs, which reduces demand for goods even further. It's a vicious circle and everbody loses in the long run.",">u telling me there were that much savings and reserve in the system? Yes. You're telling me there wasn't? The loans were bundled and *sold to investors* to get more capital to loan. It was not magically created as you seem to think. [There were about $4trillion saved in the US at the time](http://research.stlouisfed.org/fred2/series/WSAVNS). The mortgages were sold all over the world, where there is easily more trillions of savings and reserve. You still have not addressed M2 being around 10x M1. You keep floundering but not addressing anything of substance.","I think you'll find some sound answers here: Money Creation in the Modern Economy by the Bank of England Where does money come from? In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money. This description of how money is created differs from the story found in some economics textbooks.","\"I meant \"\"we\"\" in terms of the US Treasury, which currently owes over 100% of GDP. And that's cooking the debt numbers down using cash accounting and cooking the GDP up by lying about inflation, among other things. Plenty of people are doing better than ever, particularly those who have their hands in the cheap money thrown around by the Fed.\"","What are those maximums, and do all countries have them? Usury, lending money for any interest at all, used to be anti-biblical: it wasn't a Christian thing to do, and so in Christian countries it was Jews who did it (Jews who were money-lenders). Asking for interest on loans is still anti-Koranic: so Islamic banks don't lend money for interest. Instead of your getting a mortgage from the bank to buy a house, the bank will buy the house, which you then buy from bank on a rent-to-own basis. Further details:","First Reddit comment! This may seem like a noob question, but why can't the government just borrow unlimited amount of money, to pay for welfare program instead of raising taxes? I would assume that would be the better thing to do, and just roll the debt forward. Thanks!","\"Still waiting, still not seeing any that have.. When you debate someone, in a forum or somewhere other than your armchair, I suggest you forget about trying to demand a opposite answer from someone as an answer to a question. Its not only childish, its really quite silly. You are, by all definitions, a troglodyte. If you think of those ignorant \"\"republican christians\"\", thats how you are acting now. No country in the past has ever sold and bought there own debt at the same time I can promise you I worked in finance, for a large highly rated company, then got rich building a business. I know this hurts, but honestly, when you are wrong, just admit it and move on. Ignorance is just so sad to display and probably keeps you held back in life anyways. Im off to bed though I am sure you'll declare yourself victor of not naming a single country that bought and sold its own debt in history. But, maybe its ANY victory in your head you need right now. Who knows. ------------------------------------------- Update 1 * lol I see you changed your answer, let me do the same. The fact that the \"\"bank of england\"\" in 1694 is the model of \"\"modern\"\" central banks STILL doesn't show that they BOUGHT THERE OWN DEBT. Do you still not understand this yet? Modern central banking has NOTHING TO DO with buying your own debt. You really are clueless as to how \"\"economics\"\" works aren't you? ------------------------------------------- Update 2 * I think you keep changing them, because for some reason you just won't admit you have no understanding of modern/classical banking. Once again: >In order to induce subscription to the loan, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. The bank was given exclusive possession of the government's balances, and was the only limited-liability corporation allowed to issue bank-notes.[12] The lenders would give the government cash (bullion) and also issue notes against the government bonds, which can be lent again. The £1.2m was raised in 12 days; half of this was used to rebuild the Navy. This statement still DOES NOT show that the government here simultaniously purchased its own bonds it issued. It issued debt, yes, no one is debating this. The bank, for all purposes, acted as the Treasury for England. But honestly, you are a fucking piece of work. I have watched you lie, change your answers, and pretty much do every childish thing in the book to try to win an arguement on Reddit. You are a little person, honestly. I know not of what world you live in, but it isn't this one. Seriously, get better, the world is alot more fun when you don't suck so bad at it.\"","I'm sorry, I know that it's not your fault but you really need to think about what you're saying and stop listening to the financial advisors on tv... If you think that all you need to do is give people money to spend then you need to read up on Zimbabwe. They tried that - at it's hight they *think* that Zim's inflation hit 6.5 x 10^108 % ([that's 6.5 quindecillion novemdecillion percent](http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe)). I can't even begin to imagine how large that is - basically bread cost billions of zim dollars a loaf. I remember hearing the one day that they were dropping 3 zeros from their notes. I'm ashamed to say that I laughed. No one is buying right now because, instead of buying stuff, everyone is paying back loans - or they're too scared to buy in case they need the cash to survive in the future. Look at the liquidity crisis; the housing bubble; all the bank failing/needing to be bailed out lately - all because people couldn't pay back the loans they took out. The US government is already $15 trillion in debt (nearly 16 trillion now) - and that's only the public debt. The gov is already paying $454 billion every year *just to repay the **interest** on the debt!* Never mind actually paying back the principle amount. Last year it added another $1.2 trillion to the deficit (that's another 1,200,000,000 dollars that it owes on top of the 15,000,000,000 dollars it already owes). At the beginning of this year, public debt amounted to 102% of GDP - that means that if everyone in America didn't buy what ever it was that they bought last year and instead repaid the public debt (not private mind you, just the debts that the government owed) then they *still* wouldn't have been able to pay it all off. Now after reading all of that, please keep a straight face and tell me that all that the government needs to spend even more money to sort it all out.","It is also not helped that governments globally are pressing banks to improve capital ratios; i.e. hold more in reserve. While this will reduce the likelihood of a bailout in the near future, it severely reduces the access to money and damages the economy.","> The issue I have with your use of Japan is that Japan has very strong exports of superior quality and low cost, we do not. That has no bearing on their sovereign debt situation though. Japan's debt is yen-denominated. Does Japan rely on the rest of the world to supply it with yen via exports? No. Japan issues the yen. >And what about South and Central American Pesos? Where you saw actual debt crises, it was countries that owed US dollars. Peg your peso to the US dollar and/or borrow US dollars and you are on the hook for US dollars which you can run out of. Let's just apply this as a general rule: any example of actual sovereign debt crisis you want to offer, before you do... look for where they're on the hook for foreign currency. You'll find it. >What about Keynes, Minsky, and the trilemma? Their central banks were completely overridden by foreign speculators. We can only choose two out of three options, peg our currency, spend to help the economy, and/or maintain free trade, not all three What I'm describing is consistent with the trilemma [triangle](http://en.wikipedia.org/wiki/Impossible_trinity#mediaviewer/File:Impossible_trinity_diagram.svg). I'm saying the sovereign monetary policy with a floating rate currency is the one which allows a country the most policy space for responding to crisis and funding its domestic economy in general up to its own real capacity limits. I want to emphasize here that the printing press isn't some magic fountain of real wealth. Your potential real wealth is limited by what you have the real resources to produce. The idea is to fund yourself to the point where you're producing up to your own real limits of output capacity at full employment. Maximize your own potential. As opposed to adopting voluntary financial constraints which force you to leave some of that potential idle, making you poorer in real terms.","\"This is the best tl;dr I could make, [original](https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/) reduced by 95%. (I'm a bot) ***** > Financing World War I required the UK government to borrow the equivalent of a full year&#039;s GDP. But its first effort to raise capital in the bond market was a spectacular failure. > As part of a project looking at the financing of World War I, the ledgers of investors who purchased the 3&frac12;% War Loan have been analysed for the first time. > These reveal the startling truth about the failure of the first bond issue of the Great War and the extraordinary role of the Bank of England in covering and then concealing the shortfall in funds. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6tfsn0/hacker_news_the_extraordinary_story_of_britains/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~189875 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **War**^#1 **Bank**^#2 **Loan**^#3 **investors**^#4 **bond**^#5\"","\"And if you subtract that 30% (the 19% Social Security and 11% Fed holdings) which are entirely bogus and moot... Then that 32% (out of the remaining 70%) is pretty darned near half, and regardless of it being just shy of a majority, it is still the largest block. Even then, since the dollar itself is backed by nothing, it isn't technically a problem -- the US can pay it off at any time (the only inherent cost being the debasement of the currency). Where the problem with that comes in is that there are a LOT of US assets located on foreign soil (all of the \"\"joint-operation\"\" manufacturing plants in China, for instance); and foreign governments CAN hold them \"\"hostage\"\" (so to speak), or if they so choose, to literally confiscate (nationalize) them and yet legally \"\"compensate\"\" their US based paper-owners by paying them off with the debased dollars (and/or US treas bonds, same thing really)... basically just \"\"paying\"\" us with checks drawn on our own collective account.\"","Steve Keen says otherwise, he says Banks CAN create a Quadrillion dollars, as long as there are willing borrowers. : http://www.youtube.com/watch?v=zc_fpGfyqGE. http://www.youtube.com/watch?v=4sSfPkIUHPk&feature=share why does m2 seem like exponential? how can fractional reserve do something like that? unpossible. seems like only an explosive growth in either productivity or profits through slave labor globalization or speculative derivatives can do something like that.","So if a country forces their savings onto another country, say the U.S., the U.S. would have to absorb those savings somehow. If there were enough productive investments available, then this would be a good thing. But if there aren't enough productive investments available but the savings are still forced upon the U.S. it would seem that it would inevitably lead to some kind of a debt bubble for the U.S.","\"What you are looking for is the \"\"debt maturity profile\"\" (to make it easier to google. Most countries continuously roll over their debt, in effect just paying interest forever. So when your debt is due, you issue another loan for the same amount and use the new loan to pay off the old one.\"","\"Banks use the money for productive pursuits, earning returns in excess of what they will owe the fed in discount interest. If a bank could not yield a return greater than their interest due their lender (whether that lender is the fed or not) they probably wouldn't borrow in the first place. EDIT: I misunderstood the question. The federal reserve does not disseminate new money by making loans. They do so by issuing and trading in bonds. The US Treasury, for example, issues a bond. The Federal Reserve Bank buys this bond using money they \"\"printed\"\". So the same question applies.... where does the money come from to pay the interest on the bond? It comes from the perpetual issuance and trading in bonds at a growing rate. All the fed needs to do is to buy bonds at a rate faster than they collect interest.\"","\"(relix already hit on some of this) It's hard to explain this to a five-year-old, because there are some fairly abstract concepts involved, but here goes... All actual \"\"money\"\" is debt. All of it, including monetary gold, etc. (Don't argue with me yet, I'll get to that.) Imagine a pretend world with no money, some kind of primitive villiage or something. Now let's invent paper money. You can't just print a bunch of paper that says people have to give you stuff, because nobody would honor it. But you *could* print IOUs. Let's walk through this... - Let's say you're an apple-farmer and I'm a hunter. You want some meat but haven't harvested your crops yet. You say to me, \"\"hey, go hunt me some meat and I'll give you 1/10th of my apple harvest in the fall\"\". Fair enough, I give you meat, you owe me apples. There's probably a lot of this kind of stuff going on, in addition to normal barter. In time, standard \"\"prices\"\" start to emerge: a deer haunch is worth a bushel of apples, or whatever. - Now, let's say a week later, I realize that my kid needs a new pair of shoes more than I need a bushel of apples. I come back to you and say, \"\"Hey remember that bushel of apples you owe me? Could you write a marker, redeemable for one bushel of apples, that I can give to the shoemaker in trade for a pair of shoes?\"\" You say okay, and we have invented a *transferable note*, something a lot like money. - In time, our little villiage starts to figure out that a note redeemable for a bushel of apples can be swapped for all kinds of things. The fisherman who doesn't even like apples will accept apple-certificates in trade for fish, because he knows he can trade them to boat-builder who loves apples. In time, you can even start to hire farm-workers without giving them anything except a note promising a cut of the future harvest. Now, you are issuing *debt*: a promise to provide apples. The \"\"money\"\" is a transferable IOU-- your workers get a promise to provide value equal to a day of farm-work, or whatever, and it's transferrable, so they can use it to buy whatever they want. The worker gets fish from the fisherman, not in exchange for doing any work or giving him anything he can use, but in exchange for an IOU that the fisherman can redeem anywhere. So far so good. But there are a couple of forks in the road here, on the way to a realistic monetary system, that we'll address separately: - What happens if your apple orchard is destroyed in a wildfire? Suddenly all the notes that everyone has been trading are basically wiped out. It didn't \"\"go\"\" anywhere, it's just gone, it doesn't exist. Real value was genuinely destroyed. There is no thermodynamic law of the conservation of monetary value-- just as you and I created it by creating transferable debt, it can also be genuinely destroyed. (We'll get back to this in a minute, it gets interesting). - The second issue is that, in all probability, the whole town is not *just* trading apple-certificates. I could also issue promises to catch deer, the fisherman could issue promises of fish, and so on. This could get pretty messy, especially if you got the notion to issue more apple-certificates than you can grow: you could buy all kinds of stuff with self-issued debt that you could never repay, and the town wouldn't find out until harvest-time comes. Once again, value has been \"\"destroyed\"\" people worked and made stuff and gave you stuff in exchange for something that doesn't exist, and will never exist. All that stuff they made is gone, you consumed it, and there is nothing to show for it. The above two concerns are likely to become manifest in our village sooner or later, and probably sooner. This leads to the question of *credit*, which is, at its most basic, a measure of *credibility*. Every time you issue an apple-certificate, you are *borrowing*, with a promise to repay from future apple-harvests. After the first couple of town scandals, people will start taking a closer look at the credibility of the issuer. Let's say the town potato-farmer comes up with a scheme where his potato-certificates are actually issued by some credible third-party, say the town priest or whatever, who starts every growing season with a book of numbered certificates equal to the typical crop-yield and no more, and keeps half of the certificate on file, issuing the other half. Now there is an audit trail and a very credible system that is likely to earn the potato-grower a lot of credit, compared to other farmers in town. That means that the potato-grower can probably issue more notes at a better exchange rate than some murkier system. Similarly, the town drunk probably won't get much value for his certificates promising a ship of gold. Now we have something like a credit market emerging, and the potato-farmer is issuing something closer to what we might call a modern \"\"bond\"\"... (continued in a reply to this post...)\"","\"please explain, and use historic example if you would, how purchasing your own debt is a 1) Solid financial decision 2) Historically successful for another country. Oh right, you can't. Because its not. Maybe you don't have an \"\"understanding\"\" of economics, loser.\"","If you have an increasing population but a steady supply of wealth then there will be a perceived effect of decline. As the average person can afford less and less. If inflation is factored in this effect is accelerated as the value of money is reduced but the availability of that money is as well. In this model those who have tend to accumulate as they produce. And those who do not have tend to lose wealth as they consume to fill basic needs, at ever increasing prices, with a declining source of income, exacerbating the effect. If you control your population, prevent inflation and deflation, and maintain a constant production/consumption cycle that is perfectly in balance then you could have that utopian society. But in practice there is waste. That waste makes maintaining that balance impractical at best. People have different desires and motivations. So while that utopian society that you propose seems possible at the theoretical level when solely looking at the mechanics and economics, in practice it becomes more about managing the people. Which makes the task virtually impossible. As for the debt issue that is the strategy of many of the western nations. Most of them experienced growth over the last 50 years that was unprecedented in history. Many of them simply assumed it would continue indefinitely and failed to plan for a downturn. In addition they planned for the growth and borrowed based on the assumptions. When the growth slowed several continued to use the same projections for their budgeting, with the effect of spending money they would not take in. So in a way, yes the growth is needed to service the continued growth of debt, unless the government issuing that debt is willing to reduce its expenses.","Is there anywhere I can get further information? I ask because I'm thinking about an alternative theory of money where companies can issue bonds as currency, and we can have coexisting monetary policies. These relate to what i'm saying: http://www.reddit.com/r/finance/comments/utf5u/where_has_all_the_money_in_the_world_gone/c4yfkhg http://www.radicalsocialentreps.org/2012/07/open-source-currencies-on-the-rise-in-greece/ http://www.businessinsider.com/why-are-central-banks-independent-2012-5 http://truth-out.org/news/item/11868-spain-and-greece-are-being-forced-to-suffer-to-save-germany-from-high-inflation"],"string":"[\n \"By the phrasing of your question it seems that you are under the mistaken impression that countries are borrowing money from other countries, in which case it would make sense to question how everyone can be a borrower with no one on the other side of the equation. The short answer is that the debt is owed mostly to individuals and institutions that buy debt instruments. For example, you know those US savings bonds that parents are buying to save for their children's education? Well a bond is just a way to loan money to the Government in exchange for the original money plus some interest back later. It is as simple as that. I think because the debt and the deficit are usually discussed in the context of more complex macroeconomic concerns people often mistakenly assume that national debts are denominated in some shadow banking system that is hidden from the common person behind some red-tape covered bureaucracy. This is not the case here. Why did they get themselves into this much debt? The same reason the average person does, they are spending more than they bring in and are enabled by access to easy credit. Like many people they are also paying off one credit card using another one.\",\n \"\\\"They borrowed it from the people, and typically to finance wars and military spending. For example, Wikipedia suggests that the Bank of England \\\"\\\"was set up to supply money to the King. £1.2m was raised in 12 days; half of this was used to rebuild the Navy.\\\"\\\" It's a game that everyone has to play once started; if Napoleon buys an army on credit, you'll have to raise an equal amount or face quite a problem. As for why they've grown so large, it's because governments are quite skilled at owing large sums of money. Only a small portion of the debt comes due in full at a given moment, and they constantly reissue new debt via auction to keep it rolling. So as long as they can make coupon (interest) and the lump sum at maturity, it's not difficult to keep up. Imagine how much credit card debt you could rack up if you only ever had to pay interest. This game will continue for as long as people lend. And there are plenty of lenders. There's pensions, mutual funds and endowments, which find public debt typically safer than stocks. And money market funds, which target 1 dollar NAV and only invest in the \\\"\\\"safest\\\"\\\" AAA-rated bonds to protect it. There's central banks, which can buy and sell public debt to manipulate inflation and exchange rates. Absent some kind of UN resolution to ban lending, or perhaps a EU mandated balanced budget, these debts will likely continue to grow. You think they \\\"\\\"collectively owe more money than can exist\\\"\\\", but there's a lot of wealth in the world. Most nations owe less than a year's GDP. For example, the US's total wealth is in the neighborhood of 50 trillion.\\\"\",\n \"\\\"Depends on the country, whether its a currency issuer with floating exchange rate, and what the debt is denominated in. For instance, the US has no real debt, b/c its all in US dollars and can be printed at any time. It has no need to borrow anything, it issues its own currency. It used to be different 4 decades ago, on the gold standard, so in general people still think currency issuers need to borrow (or earn) to spend. Just a relic in thinking. But when the country does not issue its own currency, then it does need to earn or borrow in order to spend. In this case, it could borrow from anywhere that will lend it money. In US, a state would fit this description. Or Greece, as it borrowed Euros, for which it is not an issuer of. EDIT: just came across this blog http://pragcap.com/where-does-the-money-come-from Its title, \\\"\\\"Where does the money come from\\\"\\\". Maybe he saw this question. Anyway, the US does not need to borrow money. Why would it borrow what it creates? From the video: \\\"\\\"Thinking is hard, that's why we don't do it a lot\\\"\\\". Great line.\\\"\",\n \"I looked into the investopedia one (all their videos are mazing), but that detail just was not clear to me, it also makes be wonder, if a country issues bonds to finance itself, what happens at maturity when literally millions of them need to be paid? The income needs to have grown to that level or it defaults? Wouldn't all the countries default if that was the case, or are bonds being issued to being able to pay maturity of older bonds already? (I'm freaking myself out by realizing this)\",\n \"The answers provided so far as good and informative, but I just thought I'd add one small point... There are super-national organisations that commonly lend to governments, in particular those in the developing the world. The World Bank and IMF (International Monetary Fund) are the two primary ones. Also quite notably, the Greek economy was bailed out only this year by the EMF (European Monetary Fund) spearheaded by Germany - this is a rare occurrence however and was done mainly because Greece was a relatively developed country and others had an obligation to assist it as an EU member state.\",\n \"It's more complicated than that. Governments raise money in a number of ways. First, they tax economic activity within their borders and for connected companies and individuals. Then, some governments have actual revenues from state-owned enterprises (licences, patents, courts, business revenues, and so on). Whatever shortage arises between state expenditure and this income is the deficit which is usually financed through debt. Government usually issues a bond (Wikipedia for a list of government bonds) of various types, some with extremely lengthy maturation dates. These bonds can be purchased both locally and by foreign investment funds. The nature of who buys is important. From the Wikipedia link you'll see that most government debt is very highly rated based on the ability of the state to simply raise taxes in order to fund redemption. Pension funds are legally bound to only invest in highly-rated investment classes and the bulk of bonds may be purchased to support local pensioners. A state that defaults on debt will first hit its own most vulnerable citizens. In addition, the fall-out will result in a savage cut in ratings. Countries like Argentina and Zimbabwe, which have both refused to repay their debts even to the IMF, are currently unable to raise investment at all. This has a tremendous impact on local economic development. So, default is out of the question without severe penalties. The second part of your question is about paying down the debt. As debts increase, more and more of the revenue that a country does earn is spent on servicing debt repayments. Sometimes bonds are issued merely to refinance old debt. A country that spends too much on refinancing debt is no different from an individual. Less and less money is available to do other things. In conclusion: governments can neither default nor binge-borrow unless they wish to severely limit economic opportunities for their citizens.\",\n \"Here is an overview of who owns US Debt from Wikipedia, it indicates that approximately 1/3rd of US debt is held by foreigners (mainly the central banks of other countries), approximately 1/2 of US Debt is held by the federal reserve, and the rest is owned by various America organizations (mutual funds, pension funds, etc). The money is loaned via bonds, treasury bills, etc. When you put money in your pension fund, you very likely buying US debt. The US Treasury department all has a comprehensive page about how public debt works in the United States here: an overview of public debt from the treasury. I wasn't able to find a similar breakdown for other countries, but Wikipedia has a comprehensive list of how much debt is owed by other countries: a list of countries by public debt.\",\n \"i disagree. if a country has sovereign currency, then there is no squandering. where does that money come from in the first place? govt creates it, and spends it into the economy through deficit spending. And govt gets a service or product in return from that spending. Govt deficit spending = private sector savings.\",\n \"\\\"Others have pointed out that the entities loaning money to the government are typically people and institutions. Recently, however, the US federal government borrowings were largely funded by money printed by the Federal Reserve. The government had to borrow $1.1 trillion from October, 2010 through June, 2011. During this period the FED printed around $0.8 trillion new dollars to purchase US debt. Thus, the US government was not borrowing money from people, it was being funded by money printing. The central bankers call this \\\"\\\"quantitative easing\\\"\\\".\\\"\",\n \"Where are they going to get money from? Their bonds are worthless because they have no viable way of ever paying back debt so why would anyone lend money to them. You, and Keynes think that you can fuel debt with more debt, but all this does is build a massive debt bubble that has to pop at some point. This is exactly what these nations did for years and now are beginning to realize that they can no longer issue debt.\",\n \"To understand this fully one would need to understand quite a few things. Not in scope here. In short, whenever China sells goods to US, it gets USD as most of the trades are in USD. China uses this money to buy other things it needs like Oil etc. After this they still have quite a bit of USD left with them. The money is left with them because US is buying more things from China and selling less things to China. This creates a surplus USD with China. So if US were to borrow money from China or any other country, it would be this excess money. Ofcourse how money gets created in first place is a different topic altogether.\",\n \"\\\"For political reasons, almost all governments (including the US) spend more money than they get from taxes etc. There are a number of things a government can do to cover the difference: Most governments opt for selling bonds. The \\\"\\\"National Debt\\\"\\\" of a country can be thought of as being the sum of all the \\\"\\\"Bonds\\\"\\\" that are still paying interest, and that the Government hasn't Redeemed. It can all go horribly wrong. If the Government gets into a situation where it cannot pay the interest, or it cannot Redeem the Bonds it has promised to, then it may have to break its promise (\\\"\\\"Default\\\"\\\" on its payments). This makes the owners of the Bonds unhappy and means potential buyers of future Bond sales are less likely to want to buy the Governments new Bonds - effectively meaning the Government has to promise to pay more interest in the future. Recent examples of this include Argentina; and may include Greece soon. The US is in the fortunate position that not many people believe it will Default. Therefore the new Bonds it sells (which it does on a regular basis) are still in demand, even though its interest payments, and promises to Redeem Bonds are huge.\\\"\",\n \"\\\"Is it not that bad? Depends how bad is bad. The problems causes by a government having large debt are similar to those caused by an individual having large debt. The big issue is: More and more of your income goes to paying interest on the debt, and is thus not available for spending on goods and services. If it gets bad enough, you find you cannot make payments, you start defaulting on loans, and then you have to make serious sacrifices, like selling your property to pay the debt. Nations have an advantage over individuals in that they can sometimes repudiate debt, i.e. simply declare that they are not going to pay. Lenders can then refuse to give them more money, but that doesn't get their original loans paid back. In theory other nations could send in troops to seize property to pay the loan, but this is a very extreme solution. Totally aside from any moral considerations, modern warfare is very expensive, it's likely the war would cost you more than you'd recover on the debt. How much debt is too much? It's hard to give a number, any more than one could give a \\\"\\\"maximum acceptable debt\\\"\\\" for an individual. American banks have a rule of thumb that they won't normally loan you money if your total debt payments would be more than 1/3 of your income. I've never come close to that, that seems awfully high to me. But, say, a young person just starting out so he's not making a lot of money, and he lives someplace with high housing prices, might find this painful but acceptable. Etc.\\\"\",\n \"\\\"That was indeed a typo. I would not go into details regarding Germany, Japan's economy is pretty much in stagnated state for the past two decades. US has a high deficit and this issue is a major topic if you follow the current election season. And yes, that is not a good thing. Britain (Still, is not that UK?) and Italy seem to come off as time wrap living in colonial era where they can just get free stuff off others. Note the high debt cost of Italy. It is not as if debtors are lining up to give money to these nations. More often than not, it is the leftover state of pre-world war mindset where some people/organizations try to hold on to the money and influence as long as possible. I think this topic itself is extremely complicated and has various facets to it but to even moot such ideas - essentially saying \\\"\\\"lets exchange goods and here take our currency\\\"\\\" and then saying \\\"\\\"our currency has no value btw\\\"\\\" is criminal. It just voids the legal contract written on a dollar note.\\\"\",\n \"It isn't as simple as just borrowing money. This is more of an economics question but there are reasons to borrow money (simple example being when the economy is growing too slowly) and reasons to increase taxes (basic example being when the economy is growing too fast). Check out monetary and fiscal policy on investopedia or youtube, this should give you a good understanding. Now one more thing to consider is the 'risk' of governments defaulting on their loans. In a simple sense, the more debt a government has the more risk there is to default. This means people who lend the government money will want a higher interest rate, making it harder for the government to borrow money.\",\n \"As long as we remember that debt is the only option when the government has to borrow their money at interest or take it from taxes. When taxes don't cut it, we borrow. Ever wondered why the government doesn't just spend money into the economy instead of borrowing at interest?\",\n \"One important answer is still missing: governments may not be able to do print money because of international agreements. This is in fact a very important reason: it applies to the entire Eurozone. (I admit that many Eurozone countries also not allowed to borrow as much as they do now, but somehow that's considered a far lesser sin).\",\n \"Has any country in their existence, paid their debt in full? To me it seems that every country is in debt and it will just keep growing. It's like they know that the debt is impossible to pay and they just play along so that they get their paycheck and pass the debt to the other guy/gal who wins the office. Do we just want to believe that one day everybody would receive so much money that everybody would pay off their debt?\",\n \"“Why do governments borrow money instead of printing it? (When printing money, one doesn't need to pay interest).” Good question. Numerous leading economists, including a couple of economics Nobel Laureates have asked the same question and concluded that borrowing can be dispensed with. First, Milton Freidman set out a monetary system in a paper in the American Economic Review which involved no government borrowing, and govt just printed money (in a responsible fashion of course) as and when needed. See: http://www.jstor.org/pss/1810624 A second Nobel Laureate with similar views was William Vickrey. A third economist with similar views (of Keynes’ era) was Abba Lerner. Keynes said of Lerner, “Lerner's argument is impeccable, but heaven help anyone who tries to put it across to the plain man at this stage of the evolution of our ideas”.\",\n \"\\\"Governments borrowing money doesn't create new money. When banks \\\"\\\"borrow\\\"\\\" money (i.e. take deposits), it does effectively create money because the depositor expects to be able to get the money back at any time, but the bank assumes that most won't actually do this and lends out most of the money to other people. If everyone did actually ask for their money back at once, the illusion of the extra money created by this process would collapse, and the bank would go bust. In contrast when governments borrow money, the loan isn't repayable on demand, it has a fixed maturity and the money is only repaid at the end of that period (plus interest at defined points during the period). So holders of government debt don't have money they can spend (they can turn it into money they can spend but only by finding someone else to buy it). So government debt doesn't create inflation in itself. If they printed money, then they'd be devaluing the money of everyone who had saved or invested, whereas if they borrow money and use taxes to repay it, the burden falls more evenly across the economy and doesn't disproportionately penalise certain sets of people.\\\"\",\n \"The country isn't a business, of course you are correct. That doesn't mean one can run deficits year after year and expect success. I blame both GWB and Obama in this regard, neither showed a serious interest in balancing the budget. But you have to, the money has to come from somewhere to get what you want.\",\n \"The Government doesn't borrow money. It in fact simply prints it. The bond market is used for an advanced way of controlling the demand for this printed money. Think about it logically. Take 2011 for example. The Govt spent $1.7 trillion more than it took in. This is real money that get's credited in to people's bank accounts to purchase real goods and services. Now who purchases the majority of treasuries? The Primary Dealers. What are the Primary Dealers? They are banks. Where do banks get their money? From us. So now put two and two together. When the Govt spends $1.7 trillion and credits our bank accounts, the banking system has $1.7 trillion more. Then that money flows in to pension funds, gets spent in to corporation who then send that money to China for cheap products... and eventually the money spent purchases up Govt securities for investments. We had to physically give China 1 trillion dollars for them to be able to purchase 1 trillion dollars in securities. So it makes sense if you think about how the math works in the real world.\",\n \"\\\"Sovereign states borrow money explicitly in a two primary ways: A sovereign cannot be compelled to repay debt, and there isn't a judicial process like bankruptcy to erase debt. When sovereigns default, they negotiate new terms with creditors and pay back some fraction of the actual debt owed. They can also print money to repay debt, which has other nasty consequences. But, while a state cannot be compelled to repay a debt, creditors cannot be compelled to loan money to the state either! Any enterprise of sufficient size needs access to capital via loans to meet daily obligations in anticipation of revenue -- even when times are good. Defaulting makes borrowing impossible or expensive, and is avoided. Regarding using your military to avoid repaying debt... remember what Napoleon said: \\\"\\\"An army travels on its stomach\\\"\\\". Military campaigns are expensive... no borrowing ability means the soldiers don't get paid and the food, fuel and ammo don't get delivered. Smaller countries have other risks as well. Many nations are essentially forced to use US Dollars as a reserve currency, or are forced by the market to borrow money in a foreign currency. This creates a situation where any risk of non-payment results in a deep devaluation of the local currency. When your debt is denominated in dollars, these shifts can dramatically increase your debt obligations from a local currency point of view. You also run the risk that a larger or richer company will park warships in your harbor and seize assets as payment -- the US and Britain engaged in this several times during the 19th and 20th centuries. In general, not paying the bills has a cascading effect. Bad situations get worse, and they do so quickly.\\\"\",\n \"> A significant proportion of recent economic growth has relied on borrowed money -- today standing at a dizzying 325 percent of global gross domestic product. Debt allows society to accelerate consumption, as borrowings are used to purchase something today against the promise of future repayment. Unfunded entitlements to social services, health care and pensions increase those liabilities. The bill for these commitments will soon become unsustainable, as demographic changes make it more difficult to meet.\",\n \"hey look I can spout random countries too. Spain! Back it up, or shut up. The UK did NOT sell debt and simultaneously purchase its own debt in the past (until modern times). And who said the reason soviet union collapsed was because of its banking policies? Putting words in peoples mouths aren't we. I think you should move along before you get hurt. This is a grown up conversation little one.\",\n \"\\\"To summarize, the money never existed. The best example I can give is the housing bubble. Houses were being bought on credit worthiness and this pushed the house prices and values up as if the houses had been bought with real money. When people couldn't make their payments, the house prices crashed. The boom and bust cycle is simply credit being overextended (boom) and when there is not enough money in the system for everyone to repay all their debts it crashes (bust). The real question that people should be asking is not \\\"\\\"Where did all the money go?\\\"\\\", but \\\"\\\"Why is money issued by private banks?\\\"\\\" Money is a social invention to facilitate trade. Should it not be like a public water utility? Counterfeiting is illegal except when a private bank does it. Money should not be variable in value and economics will never be a science if the measurement of value is not standardized. All natural sciences have standards of measurement like meters, joules, degrees, etc. Money must decrease in value constantly because all money is issued at interest. We essentially pay rent on all money that isssued and the interest can only be repaid if more money is created, once again at interest. This is why economists generally say some inflation is good. Finance has told them interest is a given on the issue of money when in reality, money is just an IOU that requires no such interest payment for it's issue. Interest should be made if a loan is issued against savings, but not for the simple issuance of money. There should be public banks that issue the money and private banks for investment. You can read more about this from reading about Arthur Kitson. In this way, the public controls the value of it's money, not private bankers that use the issue of money to transfer wealth to an idle financial class. If you want to get into the differences between wealth and debt, read the work of Frederick Soddy. It's off topic from this thread but really interesting to see how he relates real science to economics and how our current economic system is not scientific in the least. Wealth is subject to the laws of thermodynamics while debt is an invention of the human will. Debt never rots or degrades with time and can expand exponentially through compound interest - nothing in the natural world does this.\\\"\",\n \">I would be really surprised if they didn't have more relatively short term debt as they were in the midst of a global freaking conflict, man. What its spent on is a political decision and isn't relevant, except that its even less useful than how it might be spent today. >I just don't want to open the unlimited money taps without carefully considering how long we can leave them open You are the only one saying that. Its a straw man. >If you're deciding whether or not to spend a crap ton of money you don't have, it helps if you haven't already spent a crap ton of money you don't have The government is the issuer of the currency. It doesn't have it or not have it. It creates it. They've issued an ~~crap ton of money~~ amount that hasn't been clawed back through taxation and they can add to it if it suits them.\",\n \"\\\"This might not map well, because personal finance is not the global economy; but let's start by talking about this in terms of the cost of a loan vs the gain of an investment. If you can buy a house with a mortgage at 3%, but make 7% on average in the stock market... You should take as *looong* as possible to pay that off, and invest every penny you can spare in the markets. Heck, if you can take on even *more* debt at 3%, you should still do the same. Now imagine you have the power to literally print money, *but*, doing so is effectively a form of \\\"\\\"loan\\\"\\\" to yourself. We call the \\\"\\\"interest\\\"\\\" on that loan \\\"\\\"inflation\\\"\\\", and it comes out to roughly 2%, basically the same rate that US treasuries pay (they aren't strictly locked, but they rarely drift far apart). So, if you can print money at 1%, you should rationally print as much money as you possibly can to buy US treasuries at 2+%. But someone has to *take* that money off your hands - Pallets of money siting in a warehouse aren't worth any more than the paper they're made of. There we get into trade imbalances... Whether printing money costs you 0.1% or 10% or 1000% per year depends on whether your country is, on average, making or losing money on international trade (I'm glossing over a hell of a lot there, as full disclosure), and by how much. If you're printing money as fast as you can just to buy food to stay alive with zero exports, you're screwed; if your country exports $10 to the US (or equivalents) for every $1 you import, the rest of that is essentially \\\"\\\"invested\\\"\\\" in USD, in that you didn't need to print it yourself just to feed your people.\\\"\",\n \"You don't understand government financing at all. Gov'ts earn revenue, aka, taxes. They also spend money. The different between the money they spend and they money they earn is the deficit. If you run a deficit for a long period of time, you incur a very large national debt. Now, you can finance (aka, pay for) a deficit by borrowing money. This means you can sell bonds, and instead of pay off the debt each year, you just pay the interest. If your spending balloons out of control, your the likely hood of you paying your debt decreases. If you are very unlikely to payback your debt, people won't buy any more of your bonds, and you no longer have the income (from borrowing) to pay off your interest from other debt you owe, or what ever other obligations you own (think mortgage payments, or teachers salaries, etc). Here's were Europe and USA differ: European nations can't just print money. They can issue more debt, but they can't just create more euros. IF you can print money, you can pay off your debt with money you literally created out of thin air (at the expense of your people, this is called inflation). But this is a form of cheating, eventually people won't trust you, and won't buy your debt either. So where do the banks come in? if the government is SOUND and the banks are NOT, the government can backstop the banks. This is what the US and UK did. Greece, Spain, Ireland all had to back stop their banks also. However, Greece, Spain, and Irelany ( and Italy, and Portugal) also have 1) A lot of debt 2) Structurally high deficits 3) Extremely high borrowing costs (high interest rates...because people don't trust them...because...) 4) Weak underlying economies The fourth point gets you in real trouble. if you have high entitlements, lots of poeple out of work, who the hell is paying taxes and what are they going to? You have no revenue! Remember, a govt works just like a household. It is easy for a good household to support one member, but it is difficult for a member to support an irresponsible household.\",\n \"\\\"It is measured in US dollars. The US cannot just print the money because that would cause inflation. Remember that money is really just a convenient placeholder for the barter system. Creating more money regardless of whether there is more value in the economy (work, resources, etc.) is a very bad idea, and doing so has collapsed the economies of many countries. Debt increasing means that the US owes other countries more money. So yes, they are receiving more money from other countries, but the US has to pay it all back with interest eventually. The US government spends more money than it receives in taxes. To decrease the debt, spending needs to decrease and/or taxes need to increase. Many countries lend to the US. One of the biggest is China. These countries do so because of interest -- the US pays back more money than it gets lent, so the lending countries make a profit. If China suddenly called in all its debt to the US, this would severely damage the world economy. China's biggest trading partner is the US, so it has no interest in harming the US this way; it would harm itself. Additionally, the US would probably refuse to pay it (not to mention that it can't), and then China would lose all the money it \\\"\\\"invested\\\"\\\" in the US. It would benefit no one.\\\"\",\n \"Money as Debt and Money as Debt II (while low-quality in their production), give a great historical explanation of how the modern monetary system came into being, as well as touching on things you just said. You can find various versions online, but here are two links anyway: * Money as Debt: http://archive.org/details/MoneyAsDebt * Money as Debt II: http://archive.org/details/MoneyAsDebt2\",\n \"The higher the debt, the higher inflation needs to be to wash the debt away. This is why the debt and US equities move upward hand in hand. The same goes for US housing. Just as homeowners borrow money through mortgages so that house prices rise, the banks borrow the money for mortgages through the central banks. Thus, the cycle circulates. The more debt, the higher the prices! Everybody makes money from debt. That is why the US has the highest external debt on the globe, yet they are considered one of the wealthiest countries in the world.\",\n \"\\\"Hmm... Maybe I somewhat misunderstood your question then. Yes, trade deficits/surpluses are really the core of the country-level \\\"\\\"investment\\\"\\\". But yes, it maters what they *do* with it, which is **why** so many countries put any excesses into US treasuries. Going back to \\\"\\\"personal\\\"\\\" finance, if they pay down higher interest debt with their trade surplus, *great*; if they have no debt and can issue local currency (in PF land, \\\"\\\"take out a loan\\\"\\\") for under 2%, *great*; If not... **Not** so great. \\\"\\\"Saving\\\"\\\" money that costs over 2% isn't an investment, it's nothing but a loan disguised as one.\\\"\",\n \">It is well known that the US entered an unprecedented depression after its unprecedented borrowing during World War 2. Yeah, just ignore ALL of the differences between the world *then* (devastated and destroyed factories & cities all over Europe and Asia) and the world *now*. Ignorance... it's what's for dinner!\",\n \"\\\"> As I currently understand, we owe much of our national debt to ourselves. Debtors owe creditors. Creditors are, by and large, the banks. Forget about we/ourselves. One thing we are taught in school is that banks earn money on the spread between what a creditor pays, minus what a saver earns in interest on his deposit. In reality, such private savings pretty much do not exist. When someone borrows from the bank, they mostly aren't borrowing another person's savings. The bank is creating *new* currency through the issuance of debt. > The reason for this is that people are being charged interest that does not exist in the system. I'm not sure what you mean by \\\"\\\"does not exist in the system\\\"\\\". The way it works is you borrow a dollar, and now you owe a dollar plus the interest on the dollar. Since each new loan creates more debt than currency, the monetary system can never shrink or it implodes. If you mean that the currency is unbacked by any objective measure of value, that is correct. > Therefore, if we tried to pay the debt (like some conservative politicians are fighting for) it would be a massive transfer of wealth from the 99% to the 1%, since most of the debt is owed to the 1% (banks). There is no possibility of repaying it. Both the Red Team and the Blue Team are in on this. If you're worried about the 99% you should be advocating commodity money, because that is the only way to stop theft by inflation. If you're worried about yourself, get informed as to how these plans have played out in history and how you might protect yourself.\\\"\",\n \"\\\"Global banks are without a doubt the new evil empires. They're buying debt for pennies on the dollar, because they know the risk of default/bankruptcy, yet they expect the IMF to do for international debt what W did for student loans. Wasn't Argentina also the country that had a vulture fund \\\"\\\"seize\\\"\\\" one of their naval vessels? Soon banks will have their own standing armies and naval fleets to exact asset forfeiture.\\\"\",\n \"The reason they have this massive debt is largely (not entirely) because they have been employing Keynes' policies and spending more than they had for so many years as it is. Austerity is not the solution. However, reckless spending is not the solution either. A lot of people arguing for keynesian policies (not a bad idea in most recessions) don't grasp that investors have a limited amount of money to invest and aren't going to place it in a country that has as bad of a debt problem as you pointed out. So many people keep arguing these struggling countries need to spend more. While that would help expand their economies, it is not feasible. Where do you guys going to think the money is going to come from? If investors don't want to provide then they have to print more money, which creates the risk of hyperinflation. Spending could help a little maybe if it was a realistic thing to do. Right now any Keynesian solutions are a fairy tale. Countries like Greece need to do what they can with the resources available to them instead of spending like a bunch of millionaire playboys on crystal meth. Look at the U.S. We have spent trillions and our GDP is still growing at only slightly more than half the rate it has from 1947-2012. If people expect massive government spending to be a fix to these problems, then we are a clear case that it isn't. I acknowledge we could be a lot worse and possibly still be seeing a contraction without the spending, but it clearly isn't fixing our problems and sooner or later we won't be able to take on more debt to fix it. We need real solutions to generate real growth instead of dicking around like this. Other western countries need to do the same. edit:Also what we are doing right now would not be considered keynesian solutions. Keynes would advocate spending money to fix the problems, not just dumping money into the economy. That is something I would agree with. But since our politicians can't grasp that I don't want them in control of the purse strings anymore.\",\n \"Some countries, like the United States, allow a mortgage interest tax deduction. This means the interest you pay on a mortgage, which is typically much more than half of the monthly payment at the beginning of a 25 year mortgage, is tax deductible, so you might get 33% or more of the interest back, and that effectively makes the interest rate significantly lower. Therefore you are borrowing the money really cheap. That makes MrChrister's answer even more appropriate.\",\n \"\\\"If the government prints money recklessly and causes inflation, people will come to expect inflation, and the value of the currency will plummet, and you'll end up like Zimbabwe where a trillion dollars won't buy a loaf of bread. If the government actually pays people for the money they borrow, they don't have this problem - and as it turns out, the US government can get pretty good rates on borrowing in general, in part because they're extraordinarily good about paying them back. (Also, inflation expectations are low, so people will accept 1-2% interest rates. If you expected inflation of 10%, you'd see people demanding something more like 12% interest rates.) (The downside of too much of this sort of borrowing is that it \\\"\\\"crowds out\\\"\\\" other borrowing, which may harm the economy. Who would lend money to / invest in a small business, if the government is paying good money and there's almost no risk at all?) Now, inflation can come into play afterward, if the Fed decides it needs to maintain \\\"\\\"easy money\\\"\\\" policies to stimulate the economy (because taxes are too high because we're paying off the debt, or because we've crowded out smaller borrowers, or something). -- In general, you can count on the the principle that if you, as the government, try to play too many games with people's money... well, people aren't stupid; they will eventually catch on, and adjust their behavior to compensate, and then you're right back where you started, but with less trust.\\\"\",\n \"230 government agencies by law have to buy treasury bonds with their excess cash. Those agencies hold 30% of the debt. The rest is by anyone else who purchased bonds on the open market when the treasury sold them. Are you fucking stupid? You think the government just printed 20 trillion dollars with nothing to back it? No hedge funds bought them. China, Japan, Britain, bought them.\",\n \">This goes on until they simply drop dead. Substitute debt for alcohol and you have our situation exactly. *Exactly.* It is well known that the US entered an unprecedented depression after its unprecedented borrowing during World War 2. It is all very simple and easily predicted.\",\n \"\\\"Actually the UK was doing that back in the 1600's to finance war with France. You might want to learn why the crown jewels were not actually owned by the state :) \\\"\\\"I think you should move along before you get hurt. This is a grown up conversation little one.\\\"\\\"\\\"\",\n \"As do other states. The state and national debts are created by big government politicians. Such as bloated civil services, pension funds, more borrowing instead of fiscally responsible. The USA federal gov keeps trillions of shadow debt off its books and downplays the actual unemployment rate.\",\n \"\\\"Why rent money? \\\"\\\"Ooh... new shiny. Must have!\\\"\\\" - lol Seriously, Governements that control the presses can harness an almost magical property of money \\\"\\\"trust\\\"\\\". You and I believe wages have a set value per hour worked. This isn't always so.\\\"\",\n \"Today the rates are arrived simply on the basis of demand and supply. Historically rates were pegged to Gold, when all currencies were printed depending on the Gold reserves. So if one country printed 100 units of currency of a 1gm of gold and other country 10 units of currency for 1 gm of gold, the rate would be 1:10. However In the seventies with shortages of Gold and other reasons, USD became the default standard, so the rate started being pegged to the USD reserves the countries started maintaining. However later in the early eighties, US backing out, the rate purely started getting pegged to market demand and supply. So for most currencies there was a default rate to begin with and today its changed ... Incase of USD/EUR, the initial rate was determined by the weighted average of the currencies that it sought to replace. After that its been market supply and demand. Since most of the trade in international market is US denominated, largest being Oil, each country has created a huge reserves of USD. So technically if China were to bank half its USD denominated treasury bills, the USD would come crashing down, but then China itself would be at disadvantage as its value of USD its holding would become less and it cannot buy the same items. Hence all countries keep hording USD and this means US if they print more money, the value will not come down, because it that happens, all countries holding USD would loose their value of reserve. In essence a country can print as much as currency it wants if all(majority) its debts and trades are denominated in local currencies. This is 100% true for US and hence it can get away by printing money. This is also true to a large extent for Japan as bulk of its Debts are denominated in JPY.\",\n \"They didn't have more **going into** the war. I would be really surprised if they didn't have more relatively short term debt as they were **in the midst of a global freaking conflict**, man. Well I'll be damned, we both want the same thing. I just don't want to open the unlimited money taps without carefully considering how long we can leave them open Edit: If you're deciding whether or not to spend a crap ton of money you don't have, it helps if you haven't already spent a crap ton of money you don't have\",\n \"\\\"Most of those countries had debt that was well beyond prudent levels (~70% of GDP) before the crisis, levels such that any crisis would put them over the safe limit and into trouble. The only exception was Spain whose debt levels were still marginally dangerous. Greece was off the charts, which is why they left off the graph for Greece. Second problem. On top of the high or marginal levels of government debt, the governments implicitly or explicitly guaranteed the banks, without limiting in any effective way their levels of leverage and risk (inb4 Basel II - a lot of paper that made no difference). Protip: if someone guarantees your debt, they should be able to oversee your level of risk, but the governments didn't. As a result these banks, and their CEOs in particular, have a bet that goes \\\"\\\"heads I win, tails I win (and you the taxpayer lose)\\\"\\\". If the loans are paid off the CEOs rake in millions. If the loans go bad the government bails them out and the CEOs and other top executives - you guessed it - rake in millions. Of course when faced with these incentives the banks will lend too much. This is not free market capitalism, it is crony capitalism. **Bailouts of private companies are not part of unfettered free market capitalism.** The third problem is that the same governments cannot print money like the US can because the Euro is not owned by the individual governments. The answer to excessive levels of government debt is for governments not to borrow too much and not to take on excessive unfunded liabilities such as pensions. This probably needs to be enforced by a constitutional amendment, so it can't be easily overruled. The answer to governments getting dragged into bailing out insolvent banks and then going under themselves, is to allow the banks to go under and to guarantee only small deposits. Let shareholders, bond holders and large (>$500k) lenders to the banks to lose their money. Second, hold bank executives and shareholders liable for the bank's debts. Eg executive salaries and other remuneration need to be clawed back up to a 5 year window. Shareholders should be liable (as they used to be) for debts up to an additional 100% of the par value of the shares. I can assure you this would concentrate minds wonderfully - as it did in the old days when Wall St investment banks were partnerships with each partner liable for all the debts of the firm. Another alternative would be for governments to enforce limits on financial risk, but unfortunately they do not have the courage to do this, nor the morality to resist \\\"\\\"campaign contributions\\\"\\\" / bribes to look the other way. If these steps were taken the issue of the Euro currency would not be a problem. However printing money (which requires having your own currency) is a solution if it comes to that although it comes at the expense of people who have saved and invested prudently. Printing money (keeping interest rates excessively low for years on end) subsidizes borrowers - the ones who created the problem - at the expense of savers. Clearly this creates terribly perverse incentives the next time around. Anyone who thinks this problem is a result of unfettered free market capitalism is not paying attention.\\\"\",\n \">Not to mention that Japan has a very good savings rate. Remember they buy a lot of bonds with their savings, Japanese bonds. This shows up as debt on the ledger. People really need to learn about government debt in general.\",\n \"For now we can pay off our debt in United States dollars. If we lose our reserve currency status, we would have to pay it off with a different currency. If we continued printing money we would be debasing our currency against the new reserve currency, which would mean that after we took on too much debt we wouldn't really be able to pay our creditors back after exchanging our devalued currency for the new one on the international markets. We are lucky enough not to have to worry about this now. But I think OP was referring to all countries in these situations. Other countries don't have the luxury of just printing out massive amounts of money to pay off their debts. That is why I am saying that America has a very disillusioned view of reality when it comes to deficit spending. We wouldn't have that any more if the UN followed through with its suggestion to create a global reserve currency or reverted back to the gold standard (I don't think the second option is nearly as realistic but we never know).\",\n \"\\\"Instead of getting into complex economic theories, here are the few places I can tell you where the cash has disappeared to: 1. Apple - holding over 100b cash in their vault more than any banks have in their reserves in the world and more than enough to pay off all of the debts of the U.S. 2. Real Estates.........in developing countries, that is :p. You may keep hearing how real estates are de-valuing in the U.S., but in developing countries like the BRICs, they are going higher. Think Hong Kong, Tokyo, Beijing, Shanghai, etc. Yes, it's a proven bubble there. If you have access to their regional news, just listen to how many people in Asia have to borrow from loan sharks to keep their finances afloat. 3. Gold - go see for yourself on goldprice.org, that's where the wealthy individuals put their cash in the so-called \\\"\\\"safe haven\\\"\\\" next to shotguns. Yes, it's ridiculous and is totally out of anyone's league beyond basic things like air, water, and food. 4. Commodities (gas, food, basic materials) - enough said, check out your local gas pumps and grocery stores.\\\"\",\n \"\\\"Many reasons, but let me pick my favourite: The incentive to save isn't there. Any government subject to elections has the incentive to spend as much as possible to remain in power. What is worse, it has a DISINCENTIVE to save. Because the money it saves - and which it pays for with bad will from the electorate, who should really be smarter - is going to be spent by the OTHER guy who will then look incredibly good and be reassured of re-election. \\\"\\\"But isn't it afraid of accumulating debt?\\\"\\\" you may ask, and its simple. Somebody else will be there when the debt is due. The problem of incentives is a fundamental one.\\\"\",\n \"Lol TL:DR. your first point is completely wrong so I stopped at the wall of text. Get over it buddy, you lost the argument. No country simultaniously purchased and sold its own debt, like we have this past several years in the US. So, shut the fuck up already. loser.\",\n \"Are you fucking stupid or just retarded? There isn't another country in the world remotely with the size of economy we have or that are starting wars like we are. Do you understand that wars are 10-15 year commitments with tens of trillions ~~wasted ~~ stolen ? I'm not going to argue with the flat earth society.. go troll someone else with your fantasy arguments.\",\n \"> But to answer your question, the two factors you mention are positively correlated, not negatively as you postulate. I'm not sure if there's necessarily any correlation. I'm merely stating the fact that they have so much savings that they must export capital but at the same time, they've ramped up domestic debt to somewhere around 300% of GDP which, I don't know why you say it isn't a lot, but it's probably twice the level of the average developing country. Wealth is probably very overstated, but the mechanism for why this has happened is confusing to me.\",\n \"But how can you have continued growth? Nothing is perpetual at least not in real life - maybe in theory :) I'm guessing you're talking about growth in the money supply right? Well how can you keep growing your money supply indefinitely if doing so requires the creation of a larger amount of debt than the amount that already exists? Think of it in rounds. If each round of debt requires that new debt to the amount of 105% of the old debt is created, how long can you keep that running for? You've essentially got the principle of compound interest working against you. I'm obviously missing something really big because this seems ridiculous to me...\",\n \"\\\"Why would a bank buy government bonds? Why couldn't they just deposit their money in another bank instead? Generally, banks are limited by laws and regulations about how much they must set aside as reserves. Of the money they receive as deposits, they may loan a certain amount, but must keep some as a reserve (this is called \\\"\\\"fractional reserve banking\\\"\\\"). Different countries have a different amount that they must set aside in reserves. In countries where bank deposits are guaranteed, there is almost always some upper limit to how much is guaranteed. The amount of money that a bank would deposit in another bank would be far greater than the guarantee.\\\"\",\n \"They are wrong. Agreed. The problem I have is that sooner or later you get in so much debt no one will lend money to you anymore. At that point austerity is forced on you. The increased spending comes from domestic and foreign investors. We all know how fickle the financial markets can be. If our debt gets too high and they cut off the tap, we are fucked. I don't think we are anywhere near that point now. However, things can change dramatically in the course of a few months. Political tensions, global uncertainty and social unrest could all cause enough of a panic that people start questioning the safety of U.S. treasuries. We could also see the day where everyone collectively demands the U.S. stop ripping them off with negative bond yields. Like I said, I see no indication of that now, but who knows how long it will take? I know this is a bit of a tangent, but it is clear. My solution: borrow money to improve the economy while you can but make sure that your dollars count to fixing the economy. Otherwise, you are going to be stuck with a stagnant economy AND at a serious risk of bankruptcy when the financial markets no longer see you as a wise investment. You can't save yourself from falling off of two cliffs at the same time so our politicians should stop dicking around and start looking for real solutions with the money they are borrowing instead of pissing it away on useless shit.\",\n \"\\\"But their economy is based on -- built upon -- the very concept of debt, just like the U.S. and most other advanced economies on the planet. Debt itself isn't the problem -- having to borrow to get capital and then *service the debt* is where the problems appear because whilst one group in the economy continues this old pattern of issuing debt and expecting payback with interest, another prominent group has been undercutting the ability of debtors to service their debt by shifting how products and services develop and are used by the public. It's the old \\\"\\\"watch this hand\\\"\\\" trick with the other hand stabbing you when you're not looking. Simply put, you can't have an economy based upon the debt/return-on-interest model while -- at the very same time -- having an economy based on make-everything-in-China/India production/service model: If you make people have to borrow money to have money, then you *must* give them a way to service that debt; otherwise, you're just a daft bastard who refuses to acknowledge that adding two and two returns four; an imbecile who insists that he can indeed have his cake and eat it too; I could go on but the point is made.\\\"\",\n \"\\\"Debt can be denominated either in a currency the country controls or a currency the country doesn't control. If the debt is denominated in a currency the country controls then they have the option of \\\"\\\"printing their way out of it\\\"\\\". That option doesn't come for free, it will devalue their currency on the global market and hurt savers in their country but it is an option. If the debt is denominated in a currency the country does not control then they don't have that option. As I understand it the US debt is in the first category. It's denominated in US dollars so the US government could if they so wished print their way out of it. On the other hand greece's debt is denominated in euros putting them at the mercy of european bankers.\\\"\",\n \"> They'd literally have to invade and plunder other nations on a regular basis. Which is what they do. The plundering is done by the mining companies and oil companies and engineering firms that follow them in though. Not them directly.\",\n \"I'll give you a stark example of China's debt-driven construction growth: Since '09 China has constructed enough physical office space buildings to give every Chinese man, woman, and child their own cubicle - 3 times over! Given that these buildings were largely financed by debt, its hard to see how those creditors get all their money back given that there simply are not enough Chinese people to occupy and pay/rent that space in order for break-even to occur.\",\n \"The debt is a problem but IF (and the key word is if) other nations are lending to us at rates we dictate, then that is not a problem. But if our own banks, Central Bank, and the like are buying it then the problem is being kept on our shores. The issue is with fractional reserve lending, one will always have this issue but if other nations give us items/services for paper/pixels we send them why not continue.\",\n \"Lots of countries *have* printed themselves away from debt. Not all inflation turns into a death spiral like Zimbabwe (or Weimar Germany) did, for that you need to have a really shitty economy that no-one believes in. The problem with Japan right now is that they are trying to print their debt away, but as they do so, their currency *appreciates*. Gold medal for the first one who manages to explain that one.\",\n \"Surely there's more to the picture than this. Breaking the borrowing limit by going to 3.5% multiple times is surely no where near as bad as going to 18% once. On top of this there was a fundamental difference in the use of capital. Borrowing to invest (as Germany did) has been ridiculously beneficial for them.\",\n \"Corrupt country leaders will probably rape it dry for their personal gains. Next thing you know, the secretary of state is getting $100000 loan with 1 percent interest when the country national bank lending money to its people at 25% percent interest.\",\n \"No - we're having fun seeing how long you avoid providing a single example of something you claimed was so universal any single one should suffice. It seems you totally pulled that statement out of your ass and now are so stubborn that admitting it must impact your psyche in some amazing way. So stubborn that you both don't address your claim, admit it is wrong, and yet you call us names for asking you to back up your statement. This is fun. You still have not listed an empire that did not purchase it's own debt. Your entire argument fails.\",\n \"The main driver behind countries not printing themselves out of debt is the fact that it will cripple the economy, destroy citizens savings, asset valuations and piss all the countries trade partners off so much that they may stop doing business with them. You will have a few different extremes, look at Zimbabwe as an example of a country that just prints money like no ones business. America is essentially devaluing its currency to compete with China. That annoys the Chinese because their holdings are devalued and as such you then see people moving away from US treasuries into more stable commodities and currencies.\",\n \"The ECB has put up about 400BEuro from EU countries. They are borrowing the money at an interests from other EU countries and then lend it to Spain with an interest. Same way the FEd is borrowing money from tax payers for yet another stimulus, QE3.\",\n \"Your preferred answer: It's not debt, it's magic. It never has to be paid back. Ok, go ahead tell us all you know about QE and how it isn't debt. Your half baked version of the socratic method isn't working too well.\",\n \"\\\"Your question is expressed as a run-on sentence, which I'm having trouble parsing. Maybe you could restate. I'm just pointing out the stupidity of the statist canard that [the debt is not a problem because] \\\"\\\"we owe it to ourselves\\\"\\\". Collectivists like to think we're all in this together, but that's not reality. Some people are taking from others by force of law. The debt is owed to BANKS, and they want to keep this system going. Wouldn't you like to have a legal monopoly on the supply of currency? Institutions which are funded by loose credit (government, academia, military contractors, crony corporations) likewise benefit from this system. Those who invest in US dollars, and those who are farthest from the central planning spigot are the losers in this scheme. But there is more debt than currency, so it can't ever be repaid. So that is a moot point - it can't even hypothetically be considered. There are however a number of other ways that this system could unwind, when it inevitably does. The banks could be left to fail, and their assets would be bid on by others through the bankruptcy process. Or the Fed could keep issuing currency to keep the banks solvent, eventually inflating the whole system into irrelevance.\\\"\",\n \"\\\"Pretty much every american \\\"\\\"borrows\\\"\\\". Credit cards are essential in building credit history and story. Debit cards got popular in the past few years, but most still borrow at least a little bit on credit and pay it off right away.\\\"\",\n \"\\\"It's helpful to remember that Charles Ponzi started with a legitimate arbitrage (international postal remittances). Once purveyors of arbitrage reach a certain scale, there's a natural tendency to become lazy and just forgo the arbitrage and just use new investor money to pay off previous investors. Banks wouldn't be any different if it weren't for central banks and government participation. Indeed, the primary reason that the FedResInk came into existence is **because** of ponzi-like bank failures (bankers call them \\\"\\\"a run on the bank\\\"\\\"). Neoclassical economics is about using the synthesis of state sovereignty and central bank monetary theory to keep the system they've developed intact. ...and, as fun as it might be to sit back and calculate just how much debt can be created from a life-time of labor proceeds (a couple million for the average person-- completely hypothetical back of the envelope inflation excluded, 4.5x10^14, which is still in middle of the trillions), it would be wise to keep in mind that the last banking crisis, while fundamentally caused by the inability to collect future labor proceeds, was precipitated, not by individuals, but by repurchase agreements propping up extremely leveraged positions made by and between massive investment banks. So, the thing to remember is that fractional reserve debt issuance banking is like a 10 to 1 transistor that has a fundamental tolerance requirement on the source signal, but that when the source signal fades, it can draw from the surplus signal created by the 10 to 1 amplification (up to a certain point and then the transistor goes up in a puff of smoke).\\\"\",\n \"There is no country tag, so I will answer the question generally. Is it possible...? Yes, it's possible and common. Is it wise? Ask Barings Bank whether it's a good idea to allow speculative investing.\",\n \"\\\"I think the important fact here is that all of our currencies are Fiat Currencies. So currency technically means nothing, because (as you mentioned) the country could print more any time it wants. Now what makes it useful is the combination of two big things: So I would say, we know they owe us 100 \\\"\\\"dollars\\\"\\\", and the dollar is just a word we use to represent value. It is not technically worth anything, beyond the fact that the government controls the amount of that currency in circulation and you trust that people still want more of that currency.\\\"\",\n \"\\\"Judging from your comments, you seem to be confused about the way banking works. Banks can only lend out money that they actually have: whether from deposits or investors or loans taken from other banks/government entities. The rules on how this works varies from country to country, but the principle is always the same. There is no magic money. Let's imagine a closed system. There's only one town, and that town only has one bank. There are 100 people total in town, and each has $10,000. Everyone deposits all of their money in the bank. The bank now has $1,000,000 in total deposits. You take a loan for $100,000 and buy a house. The bank now has $900,000. You make your payments of $965 per month: $833 of interest and $132 toward principal. In this ideal world, the bank has no costs associated with doing business. After one month, the bank has $1,000,000 in deposits, $900,965 in cash on hand, $99,868 in loans, and $833 in profit (from interest). Now here's the confusing part. You bought a house from someone. That person also lives in town. He takes the $100,000 you gave him and... deposits it in the bank. The bank now has $1,100,000 in deposits, $1,000,965 in cash, $99,868 in loans, and $833 in profit. Assume 10 more people buy houses at $100,000 each, taking loans for that whole amount (for the same terms you did). Assume those sellers then deposit the money back in the bank. The bank now has $2,100,000 in deposits, $1,000,965 in cash, $1,099,868 in loans, and $833 in profit. The bank is taking in $10,615 per month ($965 x 11) in loan payments, making profit of $9,163 ($833 x 11) per month from interest. This process of loans and deposits and payments can go on forever without any outside influence. This is the primary way money is created. It's like printing money without the paper. Of course, we're not in a closed system. Banks are limited in endlessly creating money, primarily by two things: Reserve Requirements are set by government agencies. They might say banks can lend until their cash on hand (or liquid equivalent) is, at minimum, 35% of total deposits. So a bank with $1,000,000 in deposits would have to keep $350,000 in cash at any given time. Capital Requirements work largely the same way. It's more the bank saying, \\\"\\\"What happens if a bunch of people want their deposits back?\\\"\\\" They plan a reasonable amount of cash to have on hand for that scenario.\\\"\",\n \"When banks create a loan, it is said they write the debit account out of thin air (liability), balanced by the loan (asset). When the person who gets the loans spends the money, the bank has to pay it. If the bank only has 10% reserves of the money it loans, how does the bank pay out it's loans? Does it borrow the money from the Fed and then pay it back?\",\n \"\\\"Here's some way of thinking about it, and I'm not really sure if it's completely correct, but sometimes we oversimplify when trying to tell a five year old :) Say there are two people in the world. You and me. We both have $100. A total of $200 in the world. Suddenly, a wild bank appears. I deposit my $100 in the bank. I still have $100 and you still have $100. Now you want to buy something from me that costs $150. You go to the bank to loan money. The bank has $100 available so gives you $50. You give me $150. Now I have $250 and you are $50 in debt. I deposit the $150 in the bank. We do this again and again, until I have $1000 on my bank account, and you are $900 in debt. I want to buy a house of $500 and go to my bank, demanding to take out $500. But there is only $200 in the whole world so the bank can only give me $200. \\\"\\\"Money\\\"\\\" has been created out of thin air, but it's actually you who are in debt. If you go bankrupt, the bank has a big debt it won't get back, and is in deep shit when I come around to demand my money back. At that point governments step in to loan the bank money for cheap, because if the bank fails, I will lose all my pension savings I put into that bank, as well as my companies and a lot of my employees. And other banks loaned this bank money, so if this bank fails, the other banks will be in the exact same position and will also fail, because then they will also have debts that won't be paid back. There are regulations minimizing this - i.e. a bank is required to keep a percentage of the amount of money on its accounts, so there's a maximum limit of \\\"\\\"money created\\\"\\\".\\\"\",\n \"\\\"India's a very interesting case study. They're economy's exploded and grown by leaps and bounds in the last decade. It's a free market but the Reserve Bank of India's get's weird sometimes. For instance a lot of these crappy and defaulting loans are because the government (Reserve Bank of India) said to fuel growth you have to make sure a certain percentage of your loan book is made out industries we want to develop. So huge loans were made to construction firms, not because they fit the risk profile of the bank or were good investments, but cause the government mandated it. Ton's of horribly run companies got money they shouldn't have. Also, public banks pay a lot less than their private counterparts, so you don't have the best and brightest handing out these loans. India's a fucking mess of laws. Like there's no codified way to declare bankruptcy like there is in the West. So if a company goes belly up, they have to go through this maze of different government offices with contradictory rules so creditors (in many cases, the banks that lent them money) can get some of their money back, IMF said it takes 4.5 years on average for a company to go through bankruptcy proceedings. That's insane! And because it's India, there's a ton of shady shit going on behind the scenes. Up until 2-3 years ago, loans that the banking industry considers non performing (interest payments haven't been made in 90 days) were lumped in another category and hidden in the balance sheet, so the rest of the world looked at this said, \\\"\\\"well, their NPL ratio is only 3-4% which is fine for developing country\\\"\\\" and continued to rate them highly. It wasn't until recently that we figured out the ENTIRE banking sector wasn't reporting their bad loans properly.\\\"\",\n \"\\\"You quite literally just answered why I never understood my own god damn currency says \\\"\\\"I promise to pay the bearer...\\\"\\\" What I don't get however, is that how wealth comes out of thin air.... why each continent cannot be eternally rich... We're all (at the very basic level) taking things from the ground and providing a service to someone. But if the whole world were to become bankers (only providing a service to which some people would emply never actually existed), we obviously can't all make money from it. So how does money \\\"\\\"come out of thin air\\\"\\\" so speak?\\\"\",\n \"Yep, the wonderful thing about finance is the more you learn the more you start understanding the world around you. I think your question is more related to economics (deficits, surpluses and budgets) however countries can (and do) reissue new bonds to help pay off the old ones. Also keep in mind if a country has say $10trillion in debt, it isn't all due at once so maybe only $10 billion might be due per year\",\n \">So where is all the money? I mean, labor has been produced to make things and wages paid to the laborers. The things are purchased by other laborers, who were paid for producing goods or services, etc. It's a closed loop, right? Almost right. The problem is that the wages paid to the laborers are not high enough to buy all the goods produced, so there is constant overproduction and at the same time there are people who would want to buy these goods, but can't afford them. Some people lose their jobs, which reduces demand for goods even further. It's a vicious circle and everbody loses in the long run.\",\n \">u telling me there were that much savings and reserve in the system? Yes. You're telling me there wasn't? The loans were bundled and *sold to investors* to get more capital to loan. It was not magically created as you seem to think. [There were about $4trillion saved in the US at the time](http://research.stlouisfed.org/fred2/series/WSAVNS). The mortgages were sold all over the world, where there is easily more trillions of savings and reserve. You still have not addressed M2 being around 10x M1. You keep floundering but not addressing anything of substance.\",\n \"I think you'll find some sound answers here: Money Creation in the Modern Economy by the Bank of England Where does money come from? In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money. This description of how money is created differs from the story found in some economics textbooks.\",\n \"\\\"I meant \\\"\\\"we\\\"\\\" in terms of the US Treasury, which currently owes over 100% of GDP. And that's cooking the debt numbers down using cash accounting and cooking the GDP up by lying about inflation, among other things. Plenty of people are doing better than ever, particularly those who have their hands in the cheap money thrown around by the Fed.\\\"\",\n \"What are those maximums, and do all countries have them? Usury, lending money for any interest at all, used to be anti-biblical: it wasn't a Christian thing to do, and so in Christian countries it was Jews who did it (Jews who were money-lenders). Asking for interest on loans is still anti-Koranic: so Islamic banks don't lend money for interest. Instead of your getting a mortgage from the bank to buy a house, the bank will buy the house, which you then buy from bank on a rent-to-own basis. Further details:\",\n \"First Reddit comment! This may seem like a noob question, but why can't the government just borrow unlimited amount of money, to pay for welfare program instead of raising taxes? I would assume that would be the better thing to do, and just roll the debt forward. Thanks!\",\n \"\\\"Still waiting, still not seeing any that have.. When you debate someone, in a forum or somewhere other than your armchair, I suggest you forget about trying to demand a opposite answer from someone as an answer to a question. Its not only childish, its really quite silly. You are, by all definitions, a troglodyte. If you think of those ignorant \\\"\\\"republican christians\\\"\\\", thats how you are acting now. No country in the past has ever sold and bought there own debt at the same time I can promise you I worked in finance, for a large highly rated company, then got rich building a business. I know this hurts, but honestly, when you are wrong, just admit it and move on. Ignorance is just so sad to display and probably keeps you held back in life anyways. Im off to bed though I am sure you'll declare yourself victor of not naming a single country that bought and sold its own debt in history. But, maybe its ANY victory in your head you need right now. Who knows. ------------------------------------------- Update 1 * lol I see you changed your answer, let me do the same. The fact that the \\\"\\\"bank of england\\\"\\\" in 1694 is the model of \\\"\\\"modern\\\"\\\" central banks STILL doesn't show that they BOUGHT THERE OWN DEBT. Do you still not understand this yet? Modern central banking has NOTHING TO DO with buying your own debt. You really are clueless as to how \\\"\\\"economics\\\"\\\" works aren't you? ------------------------------------------- Update 2 * I think you keep changing them, because for some reason you just won't admit you have no understanding of modern/classical banking. Once again: >In order to induce subscription to the loan, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. The bank was given exclusive possession of the government's balances, and was the only limited-liability corporation allowed to issue bank-notes.[12] The lenders would give the government cash (bullion) and also issue notes against the government bonds, which can be lent again. The £1.2m was raised in 12 days; half of this was used to rebuild the Navy. This statement still DOES NOT show that the government here simultaniously purchased its own bonds it issued. It issued debt, yes, no one is debating this. The bank, for all purposes, acted as the Treasury for England. But honestly, you are a fucking piece of work. I have watched you lie, change your answers, and pretty much do every childish thing in the book to try to win an arguement on Reddit. You are a little person, honestly. I know not of what world you live in, but it isn't this one. Seriously, get better, the world is alot more fun when you don't suck so bad at it.\\\"\",\n \"I'm sorry, I know that it's not your fault but you really need to think about what you're saying and stop listening to the financial advisors on tv... If you think that all you need to do is give people money to spend then you need to read up on Zimbabwe. They tried that - at it's hight they *think* that Zim's inflation hit 6.5 x 10^108 % ([that's 6.5 quindecillion novemdecillion percent](http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe)). I can't even begin to imagine how large that is - basically bread cost billions of zim dollars a loaf. I remember hearing the one day that they were dropping 3 zeros from their notes. I'm ashamed to say that I laughed. No one is buying right now because, instead of buying stuff, everyone is paying back loans - or they're too scared to buy in case they need the cash to survive in the future. Look at the liquidity crisis; the housing bubble; all the bank failing/needing to be bailed out lately - all because people couldn't pay back the loans they took out. The US government is already $15 trillion in debt (nearly 16 trillion now) - and that's only the public debt. The gov is already paying $454 billion every year *just to repay the **interest** on the debt!* Never mind actually paying back the principle amount. Last year it added another $1.2 trillion to the deficit (that's another 1,200,000,000 dollars that it owes on top of the 15,000,000,000 dollars it already owes). At the beginning of this year, public debt amounted to 102% of GDP - that means that if everyone in America didn't buy what ever it was that they bought last year and instead repaid the public debt (not private mind you, just the debts that the government owed) then they *still* wouldn't have been able to pay it all off. Now after reading all of that, please keep a straight face and tell me that all that the government needs to spend even more money to sort it all out.\",\n \"It is also not helped that governments globally are pressing banks to improve capital ratios; i.e. hold more in reserve. While this will reduce the likelihood of a bailout in the near future, it severely reduces the access to money and damages the economy.\",\n \"> The issue I have with your use of Japan is that Japan has very strong exports of superior quality and low cost, we do not. That has no bearing on their sovereign debt situation though. Japan's debt is yen-denominated. Does Japan rely on the rest of the world to supply it with yen via exports? No. Japan issues the yen. >And what about South and Central American Pesos? Where you saw actual debt crises, it was countries that owed US dollars. Peg your peso to the US dollar and/or borrow US dollars and you are on the hook for US dollars which you can run out of. Let's just apply this as a general rule: any example of actual sovereign debt crisis you want to offer, before you do... look for where they're on the hook for foreign currency. You'll find it. >What about Keynes, Minsky, and the trilemma? Their central banks were completely overridden by foreign speculators. We can only choose two out of three options, peg our currency, spend to help the economy, and/or maintain free trade, not all three What I'm describing is consistent with the trilemma [triangle](http://en.wikipedia.org/wiki/Impossible_trinity#mediaviewer/File:Impossible_trinity_diagram.svg). I'm saying the sovereign monetary policy with a floating rate currency is the one which allows a country the most policy space for responding to crisis and funding its domestic economy in general up to its own real capacity limits. I want to emphasize here that the printing press isn't some magic fountain of real wealth. Your potential real wealth is limited by what you have the real resources to produce. The idea is to fund yourself to the point where you're producing up to your own real limits of output capacity at full employment. Maximize your own potential. As opposed to adopting voluntary financial constraints which force you to leave some of that potential idle, making you poorer in real terms.\",\n \"\\\"This is the best tl;dr I could make, [original](https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/) reduced by 95%. (I'm a bot) ***** > Financing World War I required the UK government to borrow the equivalent of a full year&#039;s GDP. But its first effort to raise capital in the bond market was a spectacular failure. > As part of a project looking at the financing of World War I, the ledgers of investors who purchased the 3&frac12;% War Loan have been analysed for the first time. > These reveal the startling truth about the failure of the first bond issue of the Great War and the extraordinary role of the Bank of England in covering and then concealing the shortfall in funds. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6tfsn0/hacker_news_the_extraordinary_story_of_britains/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~189875 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **War**^#1 **Bank**^#2 **Loan**^#3 **investors**^#4 **bond**^#5\\\"\",\n \"\\\"And if you subtract that 30% (the 19% Social Security and 11% Fed holdings) which are entirely bogus and moot... Then that 32% (out of the remaining 70%) is pretty darned near half, and regardless of it being just shy of a majority, it is still the largest block. Even then, since the dollar itself is backed by nothing, it isn't technically a problem -- the US can pay it off at any time (the only inherent cost being the debasement of the currency). Where the problem with that comes in is that there are a LOT of US assets located on foreign soil (all of the \\\"\\\"joint-operation\\\"\\\" manufacturing plants in China, for instance); and foreign governments CAN hold them \\\"\\\"hostage\\\"\\\" (so to speak), or if they so choose, to literally confiscate (nationalize) them and yet legally \\\"\\\"compensate\\\"\\\" their US based paper-owners by paying them off with the debased dollars (and/or US treas bonds, same thing really)... basically just \\\"\\\"paying\\\"\\\" us with checks drawn on our own collective account.\\\"\",\n \"Steve Keen says otherwise, he says Banks CAN create a Quadrillion dollars, as long as there are willing borrowers. : http://www.youtube.com/watch?v=zc_fpGfyqGE. http://www.youtube.com/watch?v=4sSfPkIUHPk&feature=share why does m2 seem like exponential? how can fractional reserve do something like that? unpossible. seems like only an explosive growth in either productivity or profits through slave labor globalization or speculative derivatives can do something like that.\",\n \"So if a country forces their savings onto another country, say the U.S., the U.S. would have to absorb those savings somehow. If there were enough productive investments available, then this would be a good thing. But if there aren't enough productive investments available but the savings are still forced upon the U.S. it would seem that it would inevitably lead to some kind of a debt bubble for the U.S.\",\n \"\\\"What you are looking for is the \\\"\\\"debt maturity profile\\\"\\\" (to make it easier to google. Most countries continuously roll over their debt, in effect just paying interest forever. So when your debt is due, you issue another loan for the same amount and use the new loan to pay off the old one.\\\"\",\n \"\\\"Banks use the money for productive pursuits, earning returns in excess of what they will owe the fed in discount interest. If a bank could not yield a return greater than their interest due their lender (whether that lender is the fed or not) they probably wouldn't borrow in the first place. EDIT: I misunderstood the question. The federal reserve does not disseminate new money by making loans. They do so by issuing and trading in bonds. The US Treasury, for example, issues a bond. The Federal Reserve Bank buys this bond using money they \\\"\\\"printed\\\"\\\". So the same question applies.... where does the money come from to pay the interest on the bond? It comes from the perpetual issuance and trading in bonds at a growing rate. All the fed needs to do is to buy bonds at a rate faster than they collect interest.\\\"\",\n \"\\\"(relix already hit on some of this) It's hard to explain this to a five-year-old, because there are some fairly abstract concepts involved, but here goes... All actual \\\"\\\"money\\\"\\\" is debt. All of it, including monetary gold, etc. (Don't argue with me yet, I'll get to that.) Imagine a pretend world with no money, some kind of primitive villiage or something. Now let's invent paper money. You can't just print a bunch of paper that says people have to give you stuff, because nobody would honor it. But you *could* print IOUs. Let's walk through this... - Let's say you're an apple-farmer and I'm a hunter. You want some meat but haven't harvested your crops yet. You say to me, \\\"\\\"hey, go hunt me some meat and I'll give you 1/10th of my apple harvest in the fall\\\"\\\". Fair enough, I give you meat, you owe me apples. There's probably a lot of this kind of stuff going on, in addition to normal barter. In time, standard \\\"\\\"prices\\\"\\\" start to emerge: a deer haunch is worth a bushel of apples, or whatever. - Now, let's say a week later, I realize that my kid needs a new pair of shoes more than I need a bushel of apples. I come back to you and say, \\\"\\\"Hey remember that bushel of apples you owe me? Could you write a marker, redeemable for one bushel of apples, that I can give to the shoemaker in trade for a pair of shoes?\\\"\\\" You say okay, and we have invented a *transferable note*, something a lot like money. - In time, our little villiage starts to figure out that a note redeemable for a bushel of apples can be swapped for all kinds of things. The fisherman who doesn't even like apples will accept apple-certificates in trade for fish, because he knows he can trade them to boat-builder who loves apples. In time, you can even start to hire farm-workers without giving them anything except a note promising a cut of the future harvest. Now, you are issuing *debt*: a promise to provide apples. The \\\"\\\"money\\\"\\\" is a transferable IOU-- your workers get a promise to provide value equal to a day of farm-work, or whatever, and it's transferrable, so they can use it to buy whatever they want. The worker gets fish from the fisherman, not in exchange for doing any work or giving him anything he can use, but in exchange for an IOU that the fisherman can redeem anywhere. So far so good. But there are a couple of forks in the road here, on the way to a realistic monetary system, that we'll address separately: - What happens if your apple orchard is destroyed in a wildfire? Suddenly all the notes that everyone has been trading are basically wiped out. It didn't \\\"\\\"go\\\"\\\" anywhere, it's just gone, it doesn't exist. Real value was genuinely destroyed. There is no thermodynamic law of the conservation of monetary value-- just as you and I created it by creating transferable debt, it can also be genuinely destroyed. (We'll get back to this in a minute, it gets interesting). - The second issue is that, in all probability, the whole town is not *just* trading apple-certificates. I could also issue promises to catch deer, the fisherman could issue promises of fish, and so on. This could get pretty messy, especially if you got the notion to issue more apple-certificates than you can grow: you could buy all kinds of stuff with self-issued debt that you could never repay, and the town wouldn't find out until harvest-time comes. Once again, value has been \\\"\\\"destroyed\\\"\\\" people worked and made stuff and gave you stuff in exchange for something that doesn't exist, and will never exist. All that stuff they made is gone, you consumed it, and there is nothing to show for it. The above two concerns are likely to become manifest in our village sooner or later, and probably sooner. This leads to the question of *credit*, which is, at its most basic, a measure of *credibility*. Every time you issue an apple-certificate, you are *borrowing*, with a promise to repay from future apple-harvests. After the first couple of town scandals, people will start taking a closer look at the credibility of the issuer. Let's say the town potato-farmer comes up with a scheme where his potato-certificates are actually issued by some credible third-party, say the town priest or whatever, who starts every growing season with a book of numbered certificates equal to the typical crop-yield and no more, and keeps half of the certificate on file, issuing the other half. Now there is an audit trail and a very credible system that is likely to earn the potato-grower a lot of credit, compared to other farmers in town. That means that the potato-grower can probably issue more notes at a better exchange rate than some murkier system. Similarly, the town drunk probably won't get much value for his certificates promising a ship of gold. Now we have something like a credit market emerging, and the potato-farmer is issuing something closer to what we might call a modern \\\"\\\"bond\\\"\\\"... (continued in a reply to this post...)\\\"\",\n \"\\\"please explain, and use historic example if you would, how purchasing your own debt is a 1) Solid financial decision 2) Historically successful for another country. Oh right, you can't. Because its not. Maybe you don't have an \\\"\\\"understanding\\\"\\\" of economics, loser.\\\"\",\n \"If you have an increasing population but a steady supply of wealth then there will be a perceived effect of decline. As the average person can afford less and less. If inflation is factored in this effect is accelerated as the value of money is reduced but the availability of that money is as well. In this model those who have tend to accumulate as they produce. And those who do not have tend to lose wealth as they consume to fill basic needs, at ever increasing prices, with a declining source of income, exacerbating the effect. If you control your population, prevent inflation and deflation, and maintain a constant production/consumption cycle that is perfectly in balance then you could have that utopian society. But in practice there is waste. That waste makes maintaining that balance impractical at best. People have different desires and motivations. So while that utopian society that you propose seems possible at the theoretical level when solely looking at the mechanics and economics, in practice it becomes more about managing the people. Which makes the task virtually impossible. As for the debt issue that is the strategy of many of the western nations. Most of them experienced growth over the last 50 years that was unprecedented in history. Many of them simply assumed it would continue indefinitely and failed to plan for a downturn. In addition they planned for the growth and borrowed based on the assumptions. When the growth slowed several continued to use the same projections for their budgeting, with the effect of spending money they would not take in. So in a way, yes the growth is needed to service the continued growth of debt, unless the government issuing that debt is willing to reduce its expenses.\",\n \"Is there anywhere I can get further information? I ask because I'm thinking about an alternative theory of money where companies can issue bonds as currency, and we can have coexisting monetary policies. These relate to what i'm saying: http://www.reddit.com/r/finance/comments/utf5u/where_has_all_the_money_in_the_world_gone/c4yfkhg http://www.radicalsocialentreps.org/2012/07/open-source-currencies-on-the-rise-in-greece/ http://www.businessinsider.com/why-are-central-banks-independent-2012-5 http://truth-out.org/news/item/11868-spain-and-greece-are-being-forced-to-suffer-to-save-germany-from-high-inflation\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"They borrowed it from the people, and typically to finance wars and military spending. For example, Wikipedia suggests that the Bank of England \"\"was set up to supply money to the King. £1.2m was raised in 12 days; half of this was used to rebuild the Navy.\"\" It's a game that everyone has to play once started; if Napoleon buys an army on credit, you'll have to raise an equal amount or face quite a problem. As for why they've grown so large, it's because governments are quite skilled at owing large sums of money. Only a small portion of the debt comes due in full at a given moment, and they constantly reissue new debt via auction to keep it rolling. So as long as they can make coupon (interest) and the lump sum at maturity, it's not difficult to keep up. Imagine how much credit card debt you could rack up if you only ever had to pay interest. This game will continue for as long as people lend. And there are plenty of lenders. There's pensions, mutual funds and endowments, which find public debt typically safer than stocks. And money market funds, which target 1 dollar NAV and only invest in the \"\"safest\"\" AAA-rated bonds to protect it. There's central banks, which can buy and sell public debt to manipulate inflation and exchange rates. Absent some kind of UN resolution to ban lending, or perhaps a EU mandated balanced budget, these debts will likely continue to grow. You think they \"\"collectively owe more money than can exist\"\", but there's a lot of wealth in the world. Most nations owe less than a year's GDP. For example, the US's total wealth is in the neighborhood of 50 trillion.\"","By the phrasing of your question it seems that you are under the mistaken impression that countries are borrowing money from other countries, in which case it would make sense to question how everyone can be a borrower with no one on the other side of the equation. The short answer is that the debt is owed mostly to individuals and institutions that buy debt instruments. For example, you know those US savings bonds that parents are buying to save for their children's education? Well a bond is just a way to loan money to the Government in exchange for the original money plus some interest back later. It is as simple as that. I think because the debt and the deficit are usually discussed in the context of more complex macroeconomic concerns people often mistakenly assume that national debts are denominated in some shadow banking system that is hidden from the common person behind some red-tape covered bureaucracy. This is not the case here. Why did they get themselves into this much debt? The same reason the average person does, they are spending more than they bring in and are enabled by access to easy credit. Like many people they are also paying off one credit card using another one.","\"Others have pointed out that the entities loaning money to the government are typically people and institutions. Recently, however, the US federal government borrowings were largely funded by money printed by the Federal Reserve. The government had to borrow $1.1 trillion from October, 2010 through June, 2011. During this period the FED printed around $0.8 trillion new dollars to purchase US debt. Thus, the US government was not borrowing money from people, it was being funded by money printing. The central bankers call this \"\"quantitative easing\"\".\"","Here is an overview of who owns US Debt from Wikipedia, it indicates that approximately 1/3rd of US debt is held by foreigners (mainly the central banks of other countries), approximately 1/2 of US Debt is held by the federal reserve, and the rest is owned by various America organizations (mutual funds, pension funds, etc). The money is loaned via bonds, treasury bills, etc. When you put money in your pension fund, you very likely buying US debt. The US Treasury department all has a comprehensive page about how public debt works in the United States here: an overview of public debt from the treasury. I wasn't able to find a similar breakdown for other countries, but Wikipedia has a comprehensive list of how much debt is owed by other countries: a list of countries by public debt."],"string":"[\n \"\\\"They borrowed it from the people, and typically to finance wars and military spending. For example, Wikipedia suggests that the Bank of England \\\"\\\"was set up to supply money to the King. £1.2m was raised in 12 days; half of this was used to rebuild the Navy.\\\"\\\" It's a game that everyone has to play once started; if Napoleon buys an army on credit, you'll have to raise an equal amount or face quite a problem. As for why they've grown so large, it's because governments are quite skilled at owing large sums of money. Only a small portion of the debt comes due in full at a given moment, and they constantly reissue new debt via auction to keep it rolling. So as long as they can make coupon (interest) and the lump sum at maturity, it's not difficult to keep up. Imagine how much credit card debt you could rack up if you only ever had to pay interest. This game will continue for as long as people lend. And there are plenty of lenders. There's pensions, mutual funds and endowments, which find public debt typically safer than stocks. And money market funds, which target 1 dollar NAV and only invest in the \\\"\\\"safest\\\"\\\" AAA-rated bonds to protect it. There's central banks, which can buy and sell public debt to manipulate inflation and exchange rates. Absent some kind of UN resolution to ban lending, or perhaps a EU mandated balanced budget, these debts will likely continue to grow. You think they \\\"\\\"collectively owe more money than can exist\\\"\\\", but there's a lot of wealth in the world. Most nations owe less than a year's GDP. For example, the US's total wealth is in the neighborhood of 50 trillion.\\\"\",\n \"By the phrasing of your question it seems that you are under the mistaken impression that countries are borrowing money from other countries, in which case it would make sense to question how everyone can be a borrower with no one on the other side of the equation. The short answer is that the debt is owed mostly to individuals and institutions that buy debt instruments. For example, you know those US savings bonds that parents are buying to save for their children's education? Well a bond is just a way to loan money to the Government in exchange for the original money plus some interest back later. It is as simple as that. I think because the debt and the deficit are usually discussed in the context of more complex macroeconomic concerns people often mistakenly assume that national debts are denominated in some shadow banking system that is hidden from the common person behind some red-tape covered bureaucracy. This is not the case here. Why did they get themselves into this much debt? The same reason the average person does, they are spending more than they bring in and are enabled by access to easy credit. Like many people they are also paying off one credit card using another one.\",\n \"\\\"Others have pointed out that the entities loaning money to the government are typically people and institutions. Recently, however, the US federal government borrowings were largely funded by money printed by the Federal Reserve. The government had to borrow $1.1 trillion from October, 2010 through June, 2011. During this period the FED printed around $0.8 trillion new dollars to purchase US debt. Thus, the US government was not borrowing money from people, it was being funded by money printing. The central bankers call this \\\"\\\"quantitative easing\\\"\\\".\\\"\",\n \"Here is an overview of who owns US Debt from Wikipedia, it indicates that approximately 1/3rd of US debt is held by foreigners (mainly the central banks of other countries), approximately 1/2 of US Debt is held by the federal reserve, and the rest is owned by various America organizations (mutual funds, pension funds, etc). The money is loaned via bonds, treasury bills, etc. When you put money in your pension fund, you very likely buying US debt. The US Treasury department all has a comprehensive page about how public debt works in the United States here: an overview of public debt from the treasury. I wasn't able to find a similar breakdown for other countries, but Wikipedia has a comprehensive list of how much debt is owed by other countries: a list of countries by public debt.\"\n]","isConversational":false}}},{"rowIdx":291,"cells":{"_id":{"kind":"string","value":"10137"},"query":{"kind":"string","value":"F-1 student investing in foreign markets"},"gt_ids":{"kind":"list like","value":["57168"],"string":"[\n \"57168\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["78632","308048","57168","412226","255519","480638","123030","397340","528475","197478","143264","347560","231814","234851","540986","334495","514952","535340","89351","480749","102682","458635","410543","35191","506368","213833","411021","51777","565296","551809","426703","349417","253024","98461","389581","144685","431389","566028","113644","526847","224688","386173","504612","178691","534391","284805","526664","177222","400500","12268","378390","187155","152643","508895","461821","311834","213373","107215","588345","57841","5347","148208","427916","589625","397449","208916","66039","151412","407259","62966","551964","79009","43508","268022","47579","160899","598680","98510","552298","382505","219995","326559","334154","412109","276408","296528","23116","13657","430868","287019","478711","64168","269646","451671","471789","28188","241996","291229","120082","44574"],"string":"[\n \"78632\",\n \"308048\",\n \"57168\",\n \"412226\",\n \"255519\",\n \"480638\",\n \"123030\",\n \"397340\",\n \"528475\",\n \"197478\",\n \"143264\",\n \"347560\",\n \"231814\",\n \"234851\",\n \"540986\",\n \"334495\",\n \"514952\",\n \"535340\",\n \"89351\",\n \"480749\",\n \"102682\",\n \"458635\",\n \"410543\",\n \"35191\",\n \"506368\",\n \"213833\",\n \"411021\",\n \"51777\",\n \"565296\",\n \"551809\",\n \"426703\",\n \"349417\",\n \"253024\",\n \"98461\",\n \"389581\",\n \"144685\",\n \"431389\",\n \"566028\",\n \"113644\",\n \"526847\",\n \"224688\",\n \"386173\",\n \"504612\",\n \"178691\",\n \"534391\",\n \"284805\",\n \"526664\",\n \"177222\",\n \"400500\",\n \"12268\",\n \"378390\",\n \"187155\",\n \"152643\",\n \"508895\",\n \"461821\",\n \"311834\",\n \"213373\",\n \"107215\",\n \"588345\",\n \"57841\",\n \"5347\",\n \"148208\",\n \"427916\",\n \"589625\",\n \"397449\",\n \"208916\",\n \"66039\",\n \"151412\",\n \"407259\",\n \"62966\",\n \"551964\",\n \"79009\",\n \"43508\",\n \"268022\",\n \"47579\",\n \"160899\",\n \"598680\",\n \"98510\",\n \"552298\",\n \"382505\",\n \"219995\",\n \"326559\",\n \"334154\",\n \"412109\",\n \"276408\",\n \"296528\",\n \"23116\",\n \"13657\",\n \"430868\",\n \"287019\",\n \"478711\",\n \"64168\",\n \"269646\",\n \"451671\",\n \"471789\",\n \"28188\",\n \"241996\",\n \"291229\",\n \"120082\",\n \"44574\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["As an F1 student, I have been investing (and occasionally buying and selling within few weeks) for several years, and I have never had problems (of course I report to IRS gains/losses every year at tax time). On the other hand, the officer in charge of foreign students at my school advised me to not run ads on a website and make a profit. So, it seems to me that investing is perfectly legit for a F1 student, as it's not considered a business activity. That's obviously my personal understanding, you may want to speak with an immigration attorney to be on the safe side.","It is absolutely legal. While studying on a F-1 you would typically be considered a non-resident alien for tax purposes. You can trade stocks, just like any other foreigner having an account with a US- or non-US based brokerage firm. Make sure to account for profit made on dividends/capital gain when doing your US taxes. A software package provided by your university for doing taxes might not be adequate for this.","You cannot have off-campus employment in your first year, but investments are considered passive income no matter how much time you put into that effort. Obviously you need to stay enrolled full-time and get good enough grades to stay in good standing academically, so you should be cautious about how much time you spend day trading. If the foreign market is also active in a separate time zone, that may help you not to miss class or otherwise divert your attention from your investment in your own education. I have no idea about your wealth, but it seems to me that completing your degree is more likely to build your wealth than your stock market trades, otherwise you would have stayed home and continued trading instead of attending school in another country.","There are no legal reasons preventing you from trading as a F-1 visa holder, as noted in this Money.SE answer. Per this article, here are the things you need to set up an account: What do I need to have for doing Stock trading as F1 student ? Typically, most of the stock brokerage firms require Social Security Number (SSN) for stock trading. The reason is that, for your capital gains, it is required by IRS for tax purposes. If you work on campus, then you would already get SSN as part of the job application process…Typically, once you get the on-campus job or work authorization using CPT or OPT , you use that offer letter and take all your current documents like Passport, I-20, I-94 and apply for SSN at Social Security Administration(SSA) Office, check full details at SSA Website . SSN is typically used to report job wages by employer for tax purposes or check eligibility of benefits to IRS/Government. I do NOT have SSN, Can I still do stock trading as F1 student ? While many stock brokerage firms require SSN, you are not out of luck, if you do not have one…you will have to apply for an ITIN Number ( Individual Taxpayer Identification Number ) and can use the same when applying for stock brokerage account. While some of the firms accept ITIN number, it totally depends on the stock brokering firm and you need to check with the one that you are interested in. The key thing is that you'll need either a SSN or ITIN to open a US-based brokerage account.","There's no limitation on what you can invest in, including trading stocks (as long as trading is not a business activity, like day-trading or investing for others). You just need to make sure you have a tax ID (either ITIN or SSN) and pay taxes on all the gains and dividends. Also, consider your home country tax laws, since you're still tax resident in your home country (most likely).","Other than the possibility of minimal entry price being prohibitively high, there's no reason why you couldn't participate in any global trading whatsoever. Most ETFs, and indeed, stockbrokers allows both accounts opening, and trading via the Internet, without regard to physical location. With that said, I'd strongly advice you to do a proper research, and reality check both on your risk/reward profile, and on the vehicles to invest in. As Fools write, money you'll need in the next 6 months have no place on the stockmarket. Be prepared, that you can indeed loose all of your investment, regardless of the chosen vehicle.","Quite a few stock broker in India offer to trade in US markets via tie-up brokers in US. As an Indian citizen, there are limits as to how much FX you can buy, generally very large, should be an issue. The profits will be taxed in US as well as India [you can claim relief under DTAA]","So, my question is what is the limit below which I don't have to pay taxes while trading. I just invested $10. Do I have to pay taxes for this too? what are the slabs? Any income is subject to tax. That said, investing $10 will probably not generate much of income, even at the discount brokers most of it will be wasted on commissions... I am also having an assistantship. So is holding two sources of income legitimate? Thanks You can have as many sources of income as you want. Working is what is restricted when you're on a student visa. As long as you don't open a business as a day trader or start working for someone trading stocks - you're fine.","\"This is an old post I feel requires some more love for completeness. Though several responses have mentioned the inherent risks that currency speculation, leverage, and frequent trading of stocks or currencies bring about, more information, and possibly a combination of answers, is necessary to fully answer this question. My answer should probably not be the answer, just some additional information to help aid your (and others') decision(s). Firstly, as a retail investor, don't trade forex. Period. Major currency pairs arguably make up the most efficient market in the world, and as a layman, that puts you at a severe disadvantage. You mentioned you were a student—since you have something else to do other than trade currencies, implicitly you cannot spend all of your time researching, monitoring, and investigating the various (infinite) drivers of currency return. Since major financial institutions such as banks, broker-dealers, hedge-funds, brokerages, inter-dealer-brokers, mutual funds, ETF companies, etc..., do have highly intelligent people researching, monitoring, and investigating the various drivers of currency return at all times, you're unlikely to win against the opposing trader. Not impossible to win, just improbable; over time, that probability will rob you clean. Secondly, investing in individual businesses can be a worthwhile endeavor and, especially as a young student, one that could pay dividends (pun intended!) for a very long time. That being said, what I mentioned above also holds true for many large-capitalization equities—there are thousands, maybe millions, of very intelligent people who do nothing other than research a few individual stocks and are often paid quite handsomely to do so. As with forex, you will often be at a severe informational disadvantage when trading. So, view any purchase of a stock as a very long-term commitment—at least five years. And if you're going to invest in a stock, you must review the company's financial history—that means poring through 10-K/Q for several years (I typically examine a minimum ten years of financial statements) and reading the notes to the financial statements. Read the yearly MD&A (quarterly is usually too volatile to be useful for long term investors) – management discussion and analysis – but remember, management pays themselves with your money. I assure you: management will always place a cherry on top, even if that cherry does not exist. If you are a shareholder, any expense the company pays is partially an expense of yours—never forget that no matter how small a position, you have partial ownership of the business in which you're invested. Thirdly, I need to address the stark contrast and often (but not always!) deep conflict between the concepts of investment and speculation. According to Seth Klarman, written on page 21 in his famous Margin of Safety, \"\"both investments and speculations can be bought and sold. Both typically fluctuate in price and can thus appear to generate investment returns. But there is one critical difference: investments throw off cash flow for the benefit of the owners; speculations do not. The return to the owners of speculations depends exclusively on the vagaries of the resale market.\"\" This seems simple and it is; but do not underestimate the profound distinction Mr. Klarman makes here. (and ask yourself—will forex pay you cash flows while you have a position on?) A simple litmus test prior to purchasing a stock might help to differentiate between investment and speculation: at what price are you willing to sell, and why? I typically require the answer to be at least 50% higher than the current salable price (so that I have a margin of safety) and that I will never sell unless there is a material operating change, accounting fraud, or more generally, regime change within the industry in which my company operates. Furthermore, I then research what types of operating changes will alter my opinion and how severe they need to be prior to a liquidation. I then write this in a journal to keep myself honest. This is the personal aspect to investing, the kind of thing you learn only by doing yourself—and it takes a lifetime to master. You can try various methodologies (there are tons of books) but overall just be cautious. Money lost does not return on its own. I've just scratched the surface of a 200,000 page investing book you need to read if you'd like to do this professionally or as a hobbyist. If this seems like too much or you want to wait until you've more time to research, consider index investing strategies (I won't delve into these here). And because I'm an investment professional: please do not interpret anything you've read here as personal advice or as a solicitation to buy or sell any securities or types of securities, whatsoever. This has been provided for general informational purposes only. Contact a financial advisor to review your personal circumstances such as time horizon, risk tolerance, liquidity needs, and asset allocation strategies. Again, nothing written herein should be construed as individual advice.\"","If you are a US citizen, you need to very carefully research the US tax implications of investing in foreign stocks before you do so. The US tax rules have been set up in general to make this very unattractive.","You don't need a visa to invest in US equity. You don't need a visa to profit from US equity. There may be other legal considerations, but they aren't visa related, hope that helps","You can invest upto $200K per year abroad, and yes, you can buy Google as a stock. Consider opening an international account with a broker like interactive brokers (www.interactivebrokers.co.in) which allows you to fund the account from your local Indian account, and then on, buy shares of companies listed abroad.","It looks like your best option is to go with an online broker. There are many available. Some of them won't let you open an account online as a foreign national but will allow you to open one through the mail. See more about that http://finance.zacks.com/can-nonus-citizen-trade-us-stocks-9654.html Also keep in mind that you will need to pay taxes on any capital gains made through selling http://www.irs.gov/pub/irs-pdf/p519.pdf","You can use interactive brokers. It allows you to have a single account to trade stocks and currencies from several countries.","Absolutely. It does highly depend on your country, as US brokerages are stricter with or even closed to residents of countries that produce drugs, launder money, finance terror, have traditional difficulty with the US, etc. It also depends on your country's laws. Some countries have currency controls, restrictions on buying foreign/US securities, etc. That said, some brokerages have offices world-wide, so there might be one near you. If your legal situation as described above is fortunate, some brokers will simply allow you to setup online using a procedure not too different from US residents: provide identification, sign tons of documents. You'll have to have a method to deliver your documentation in the ways you'd expect: mail, fax, email. E*Trade is the best starter broker, right now, imo. Just see how far you can go in the sign-up process.","You have two problems, money exchange commissions and currency risk. Commissions are always exorbitant. First you must find the cheapest way to get your money converted to the foreign currency and into your brokerage account. The absolute cheapest way may involve some research and financial institution maneuvering. Also I'd forget about anything other than USD for the foreseeable future. Any other foreign currency will probably have higher commissions and a weaker market. Once you have that down, you must avoid needlessly exchanging currencies. Keep a balance in the foreign currency, keep all dividends and capital gains there, and only take local money out of your brokerage account right before using it. That means of course that you need to keep enough local currency to pay taxes on any gains, etc. As for currency risk, there are two solutions. One solution is to buy your risk away using forex. You sell an amount of USD/AED lots that is mostly equivalent to your current investments and then just make sure you don't get margin calls. I'm not sure just how cheap your rates would be in the UAE, but, on average, your investments should still have positive returns. The other solution is to just stop seeing exchange rate fluctuations as losses. If you had USD 100k and now you have USD 115k how are you losing money? Exchange rates can go the other way just fine, you know, and holding USD is a good way to hedge against your country going south.","There is no country tag, so I will answer the question generally. Is it possible...? Yes, it's possible and common. Is it wise? Ask Barings Bank whether it's a good idea to allow speculative investing.","\"As user quid states in his answer, all you need to do is open an account with a stock broker in order to gain access to the world's stock markets. If you are currently banking with one of the six big bank, then they will offer stockbroking services. You can shop around for the best commission rates. If you wish to manage your own investments, then you will open a \"\"self-directed\"\" account. You can shelter your investments from all taxation by opening a TFSA account with your stock broker. Currently, you can add $5,500 per year to your TFSA. Unused allowances from previous years can still be used. Thus, if you have not yet made any TFSA contributions, you can add upto $46,500 to your TFSA and enjoy the benefits of tax free investing. Investing in what you are calling \"\"unmanaged index funds\"\" means investing in ETFs (Exchange Traded Funds). Once you have opened your account you can invest in any ETFs traded on the stock markets accessible through your stock broker. Buying shares on foreign markets may carry higher commission rates, but for the US markets commissions are generally the same as they are for Canadian markets. However, in the case of buying foreign shares you will carry the extra cost and risk of selling Canadian dollars and buying foreign currency. There are also issues to do with foreign withholding taxes when you trade foreign shares directly. In the case of the US, you will also need to register with the US tax authorities. Foreign withholding taxes payable are generally treated as a tax credit with respect to Canadian taxation, so you will not be double taxed. In today's market, for most investors there is generally no need to invest directly in foreign market indices since you can do so indirectly on the Toronto stock market. The large Canadian ETF providers offer a wide range of US, European, Asian, and Global ETFs as well as Canadian ETFs. For example, you can track all of the major US indices by trading in Toronto in Canadian dollars. The S&P500, the Dow Jones, and the NASDAQ100 are offered in both \"\"currency hedged\"\" and \"\"unhedged\"\" forms. In addition, there are ETFs on the total US Market, US Small Caps, US sectors such as banks, and more exotic ETFs such as those offering \"\"covered call\"\" strategies and \"\"put write\"\" strategies. Here is a link to the BMO ETF website. Here is a link to the iShares (Canada) ETF website.\"","Interactive Brokers offers many foreign markets (19 countries) for US based investors. You can trade all these local markets within one universal account which is very convenient in my view. IB offering","You will not be able to continue filing with TurboTax if you invest in foreign funds. Form 8261 which is required to report PFIC investments is not included. Read the form instructions carefully - if you don't feel shocked and scared, you didn't understand what it says. The bottom line is that the American Congress doesn't want you do what you want to do and will punish you dearly.","\"Are most big US based financial institutions and banks in such a close relationship with USCIS (United States Citizenship And Immigration Services) so they can easily request the information about market traders? Yes. They must be in order to enforce the laws required by the sanctions. What online broker would you suggest that probably won't focus on that dual citizenship matter? \"\"Dual\"\" citizenship isn't actually relevant here. Nearly anyone in the world can invest in US banks except for those few countries that the US has imposed sanctions against. Since you are a citizen of one of those countries, you are ineligible to participate. The fact that you are also a US citizen isn't relevant in this case. I believe the reasoning behind this is that the US doesn't encourage dual citizenship: The U.S. Government does not encourage dual nationality. While recognizing the existence of dual nationality and permitting Americans to have other nationalities, the U.S. Government also recognizes the problems which it may cause. Claims of other countries upon U.S. dual-nationals often place them in situations where their obligations to one country are in conflict with the laws of the other. In addition, their dual nationality may hamper efforts of the U.S. Government to provide consular protection to them when they are abroad, especially when they are in the country of their second nationality. If I had to guess, I'd say the thinking there is that if you (and enough other people that are citizens of that country) want to participate in something in the US that sanctions forbid, you (collectively) could try to persuade that country's government to change its actions so that the sanctions are lifted. Alternatively, you could renounce your citizenship in the other country. Either of those actions would help further the cause that the US perceives to be correct. What it basically boils down to is that even though you are a US citizen, your rights can be limited due to having another citizenship in a country that is not favorable in the current political climate. Thus there are pros and cons to having dual citizenship.\"","\"This page from the CRA website details the types of investments you can hold in a TFSA. You can hold individual shares, including ETFs, traded on any \"\"designated stock exchange\"\" in addition to the other types of investment you have listed. Here is a list of designated stock exchanges provided by the Department of Finance. As you can see, it includes pretty well every major stock exchange in the developed world. If your bank's TFSA only offers \"\"mutual funds, GICs and saving deposits\"\" then you need to open a TFSA with a different bank or a stock broking company with an execution only service that offers TFSA accounts. Almost all of the big banks will do this. I use Scotia iTrade, HSBC Invest Direct, and TD, though my TFSA's are all with HSBC currently. You will simply provide them with details of your bank account in order to facilitate money transfers/TFSA contributions. Since purchasing foreign shares involves changing your Canadian dollars into a foreign currency, one thing to watch out for when purchasing foreign shares is the potential for high foreign exchange spreads. They can be excessive in proportion to the investment being made. My experience is that HSBC offers by far the best spreads on FX, but you need to exchange a minimum of $10,000 in order to obtain a decent spread (typically between 0.25% and 0.5%). You may also wish to note that you can buy unhedged ETFs for the US and European markets on the Toronto exchange. This means you are paying next to nothing on the spread, though you obviously are still carrying the currency risk. For example, an unhedged S&P500 trades under the code ZSP (BMO unhedged) or XUS (iShares unhedged). In addition, it is important to consider that commissions for trades on foreign markets may be much higher than those on a Canadian exchange. This is not always the case. HSBC charge me a flat rate of $6.88 for both Toronto and New York trades, but for London they would charge up to 0.5% depending on the size of the trade. Some foreign exchanges carry additional trading costs. For example, London has a 0.5% stamp duty on purchases. EDIT One final thing worth mentioning is that, in my experience, holding US securities means that you will be required to register with the US tax authorities and with those US exchanges upon which you are trading. This just means fill out a number of different forms which will be provided by your stock broker. Exchange registrations can be done electronically, however US tax authority registration must be submitted in writing. Dividends you receive will be net of US withholding taxes. I am not aware of any capital gains reporting requirements to US authorities.\"","As a relatively recent nonimmigrant visa holder (O1), I was able to open an ETrade brokerage account without problems. I have full tax residence in the USA so have an SSN, and a credit history so it was no problem. Later, as a greencard holder, I opened IRA accounts with them, too. Again, there were no issues as I had all the information that the IRS paperwork required at hand.","First thing to consider is that getting your hands on an IPO is very difficult unless you have some serious clout. This might help a bit in that department (http://www.sec.gov/answers/ipoelig.htm) However, assuming you accept all that risk and requirements, YES - you can buy stocks of any kind in the US even if you are a foreigner. There are no laws prohibiting investment/buying in the US stock market. What you need is to get an online trading account from a registered brokerage house in the US. Once you are registered, you can buy whatever that is offered.","I believe I have to pay taxes in US since it is a US broker. No, not at all. The fact that the broker is a US broker has nothing to do with your tax liabilities. You should update the banks and the broker with your change of status submitting form W8-BEN to them. Consult a tax professional proficient with Indo-US tax treaty as to what you should put in part II. The broker might withhold some of your income and remit it as taxes to the IRS based on what you put in W8-BEN and the type of income, but you can have it refunded (if it exceeds your liability) by submitting a tax return (form 1040-NR). You do have to pay tax in India, based on the Indian tax law, for your profits in the US. Consult with an Indian tax accountant on that. If I'm not mistaken, there are also currency transfer restrictions in India that you should be aware of.","I will split my answer in a few sections... Note: I will not address the legal aspect of the question. If you can or not use Federal money to invest. 1st - Investments with Student Loan 2nd - IRA as the Instrument I hope this helps!","With $7 Million at stake I guess it would be prudent to take legal advise as well as advise from qualified CA. Forex trading for select currency pair [with one leg in INR] is allowed. Ex USDINR, EURINR, JPYINR, GBPINR. Forex trading for pairs without INR or not in the above list is NOT allowed.","The UK has historically aggressive financial law, inherited from Dutch friendship, influence, and acquisitions by conquest. The law is so open that nearly anyone can invest through the UK without much difficulty, and citizens have nearly no restrictions on where to invest. A UK citizen can either open an account in the US with paperwork hassles or at home with access to all world markets and less paperwork. Here is the UK version of my broker, Interactive Brokers. Their costs are the lowest, but you will be charged a minimum fee if you do not trade enough, and their minimum opening balance can be prohibitively high for some. If you do buy US products, be sure to file your W-8BEN.","You have left out the most important piece of information: are you an American citizen? If you are, then PFIC rules mean you need to be very careful not to invest in any foreign index funds/ETFs. That means it will probably be easiest for you to just leave the money in the US and continue to invest it there. If you do not have US citizenship, and have never had a green card, then you will qualify for non-resident alien status after you've been gone for 3 years. Once that happens, you won't owe US capital gains tax (though you will owe it in AUS). You will owe 30% tax on dividends, though. Much more at Investopedia.","Any large stockbroker will offer trading in US securities. As a foreign national you will be required to register with the US tax authorities (IRS) by completing and filing a W-8BEN form and pay US withholding taxes on any dividend income you receive. US dividends are paid net of withholding taxes, so you do not need to file a US tax return. Capital gains are not subject to US taxes. Also, each year you are holding US securities, you will receive a form from the IRS which you are required to complete and return. You will also be required to complete and file forms for each of the exchanges you wish to received market price data from. Trading will be restricted to US trading hours, which I believe is 6 hours ahead of Denmark for the New York markets. You will simply submit an order to the desired market using your broker's online trading software or your broker's telephone dealing service. You can expect to pay significantly higher commissions for trading US securities when compared to domestic securities. You will also face potentially large foreign exchange fees when exchaning your funds from EUR to USD. All in all, you will probably be better off using your local market to trade US index or sector ETFs.","\"In addition to @MD-tech's answer: I'd distinguish between stock of a foreign company traded in local currency at a local exchange from the same stock traded in the foreign currency at a foreign exchange (and maybe with a foreign bank holding your accounts). The latter option will typically have higher variation because of exchange rate, and (usually) higher risks associated with possibility of recovery, (double) taxation and the possible legal difficulties @MD-tech mentions. Trading the foreign stock at a local exchange may mean that the transaction volume is far lower than at their \"\"home\"\" exchange. Holding stock of companies working in foreign markets OTOH can be seen as diversification and may lower your risk. If you only invest in the local market, your investments may be subject to the same economic fluctuations that your wage/employment/pension situation is subject to - it may be good to try de-correlating this a bit. Of course, depending on political circumstances in your home country, foreign investments may be less risky (though I'd suspect these home countries also come with a high risk of seizing foreign investments...)\"","Your definition of 'outside your country' might need some redefinition, as there are three different things going on here . . . Your financial adviser appears to be highlighting the currency risk associated with point three. However, consider these risk scenarios . . . A) Your country enters a period of severe financial difficulty, and money markets shut down. Your brokerage becomes insolvent, and your investments are lost. In this scenario the fact of whether your investments were in an overseas index such as the S&P, or were purchased from an account denominated in a different currency, would be irrelevant. The only thing that would have mitigated this scenario is an account with an overseas broker. B) Your country's stock market enters a sustained and deep bear market, decimating the value of shares in its companies. In this scenario the fact of whether your investments were made in from a brokerage overseas, or were purchased from an account denominated in a different currency, would be irrelevant. The only thing that would have mitigate this scenario is investment in shares and indices outside your home country. Your adviser has a good point; as long as you intend to enjoy your retirement in your home country then it might be advisable to remove currency risk by holding an account in Rupees. However, you might like to consider reducing the other forms of risk by holding non-Indian securities to create a globally diversified portfolio, and also placing some of your capital in an account with a broker outside your home country (this may be very difficult to do in practice).","Verify if a local bank offers to participate in different stock markets - big companies like apple or facebook often gets traded on different markets - like Xetra (germany) or SIX (Switzerland). That being said I'd recommend you to rethink this strategy and maybe using some products offered by your bank - for 1000$ you will quickly drown in fees (my bank requires 40$ for every trade. If you buy and sell them you already lost nearly 10% of your investment)","There are some ETF's on the Indian market that invest in broad indexes in other countries Here's an article discussing this Be aware that such investments carry an additional risk you do not have when investing in your local market, which is 'currency risk' If for example you invest in a ETF that represents the US S&P500 index, and the US dollar weakens relative to the indian rupee, you could see the value if your investment in the US market go down, even if the index itself is 'up' (but not as much as the change in currency values). A lot of investment advisors recommend that you have at least 75% of your investments in things which are denominated in your local currency (well technically, the same currency as your liabilities), and no more than 25% invested internationally. In large part the reason for this advice is to reduce your exposure to currency risk.","I'm not a professional, but my understanding is that US funds are not considered PFICs regardless of the fact that they are held in a foreign brokerage account. In addition, be aware that foreign stocks are not considered PFICs (although foreign ETFs may be).","One other issue you may face is when the company announces poor financial results and begins to tank, you will not be able to sell until the US market open and could incur a lot of pain.","Question One: Question Two: Your best reference for this would be a brokerage account with data privileges in the markets you wish to trade. Failing that, I would reference the Chicago Mercantile Exchange Group (CME Group) website. Question Three: Considering future tuition costs and being Canadian, you are eligible to open a Registered Education Savings Plan (RESP). While contributions to this plan are not tax deductible, any taxes on income earned through investments within the fund are deferred until the beneficiary withdraws the funds. Since the beneficiary will likely be in a lower tax bracket at such a time, the sum will likely be taxed at a lower rate, assuming that the beneficiary enrolls in a qualifying post secondary institution. The Canadian government also offers the Canada Education Savings Grant (CESG) in which the federal government will match 20% of the first $2500 of your annual RESP contribution up to a maximum of $500.","As other people have said they should register with a broker in the country they reside in that can deal in US stocks, then fill out a W8-BEN form. I have personally done this as I am from the Uk, it's not a very complicated process. I would assume that most US brokers don't allow foreign customers due to the person having to pay tax where they reside and the US brokers don't want to have to keep approximately 200 different tax codes in track.","OptionsXpress includes India in the list of countries where is possible to open an international account to invest in the US Stock Market. They just merged with Charles Schwab and they have a nice online trading platform. Stocks and ETFs are little bit pricey.. Get in touch with them to get more information.","I had this problem when I finished my job in Canada in Sept 2013. You'll likely have to open the account in person in Canada, at least if you don't already have a relationship with a broker there. DO NOT go to Virtual Brokers. They told me that my US citizenship was no problem, but right before I left Canada to double check. It wasn't until I asked specifically which US states they were licensed in that they realized they were licensed in NO US STATES. They told me that they'd freeze my account when I left. I then moved my (former) pension to a locked-in RRSP at BMO. As of September 2010 BMO could handle residents of most US states, but it took some tooth pulling to get the list out of them. However, after I flew to the USA, BMO called to demand more ID. My account was frozen until I flew back to Canada in person just to show ID. Annoyed, I closed the BMO account and moved it to TD Waterhouse. TD waterhouse can handle accounts for residents of all the US states EXCEPT Virginia, Louisiana, and Nebraska. (I only got the complete list of exceptions when I made my first trade, since the guys at the trading desk are much more knowledgeable about such things than the guys in the branch.) TD was extremely friendly about my USA citizenship/residence. (Many Canadian brokers simply won't accept US residents, at least as of the end of 2013.) Whichever broker you choose, BRING LOTS MORE ID than they require. Insist that they zerox it all. Make sure to include your social security card. You don't want them to demand more ID after you've left the country, like BMO did. They may even make such a move simply to get rid of US customers, because the FATCA is a pain for foreign banks.","Every month I will get a return in from my share of the profit which would be used for repayment of capital and interest in India. Not to sure what the business plan is. Please factor all the modalities, Exchange rate fluctuations, etc. My concern is regarding RBI rules and regulations, FEMA guidelines, and Income tax. Under the Liberalized Remittance Scheme; Funds can be transferred outside India. Any profit you make will be taxable in India. You will have to declare this pay tax in as per schedule.","It isn't just ETFs, you have normal mutual funds in India which invest internationally. This could be convenient if you don't already have a depository account and a stockbroker. Here's a list of such funds, along with some performance data: Value Research - Equity: International: Long-term Performance. However, you should also be aware that in India, domestic equity and equity fund investing is tax-free in the long-term (longer than one year), but this exemption doesn't apply to international investments. Ref: Invest Around the World.","You can apply for Foreign currency accounts. But they aren't saving accounts by any means, but more like current accounts. Taking money out will involve charges. You have to visit the bank website to figure out what all operations can be performed on your account. Barclays and HSBC allow accounts in foreign currency. Other banks also will be providing the same services. Are there banks where you can open a bank account without being a citizen of that country without having to visit the bank in person Depends on country by country. Are there any online services for investing money that aren't tied to any particular country? Get yourself a trading account and invest in foreign markets i.e. equities, bonds etc. But all in all be ready for the foreign exchange risks involved in denominating assets in multiple currencies.","You should invest a trivial (<500$USD) amount of money in a stock portfolio. If you aren't able to make more on the market than the interest rates of your loans, you are losing money. This question has discussed this topic as well.","Does my prior answer here to a slightly different question help at all? Are there capital gains taxes or dividend taxes if I invest in the U.S. stock market from outside of the country?","\"Others have given a lot of advice about how to invest, but as a former expat I wanted to throw this in: US citizens living and investing overseas can VERY easily run afoul of the IRS. Laws and regulations designed to prevent offshore tax havens can also make it very difficult for expats to do effective investing and estate planning. Among other things, watch out for: US citizens owe US income tax on world income regardless of where they live or earn money FBAR reporting requirements affect foreign accounts valued over $10k The IRS penalizes (often heavily) certain types of financial accounts. Tax-sheltered accounts (for education, retirement, etc.) are in the crosshairs, and anything the IRS deems a \"\"foreign-controlled trust\"\" is especially bad. Heavy taxes on investment not purchased from a US stock exchange Some US states will demand income taxes from former residents (including expats) who cannot prove residency in a different US state. I believe California is neutral in that regard, at least. I am neither a lawyer nor an accountant nor a financial advisor, so please take the above only as a starting point so you know what sorts of questions to ask the relevant experts.\"","\"For starting with zero knowledge you certainly did a great job on research as you hit on most of the important points with your question. It seems like you have already saved up around six months of expenses in savings so it is a great time to look into investing. The hardest part of your question is actually one of the most important details. Investing in a way that minimizes your taxes is generally more important, in the end, than what assets you actually invest in (as long as you invest even semi-reasonably). The problem is that the interaction between your home country's tax system and the U.S. tax system can be complex. It's probably (likely?) still worth maxing out your 401(k) (IRA, SEP, 529 accounts if you qualify) to avoid taxes, but like this question from an Indian investor it may be worth seeing an investment professional about this. If you do, see a fee-based professional preferably one familiar with your country. If tax-advantaged accounts are not a good deal for you or if you max them out, a discount broker is probably a good second option for someone willing to do a bit of research like you. With this money investing in broadly-diversified, low fee, index mutual funds or exchange traded funds is generally recommended. Among other benefits, diversified funds make sure that if any particular company fails you don't feel too much pain. The advantages of low fees are fairly obvious and one very good reason why so many people recommend Vanguard on this site. A common mix for someone your age is mostly stocks (local and international) and some bonds. Though with how you talk about risk you may prefer more bonds. Some people recommend spicing this up a bit with a small amount of real estate (REITs), sometimes even other assets. The right portfolio of the above can change a lot given the person. The above mentioned adviser and/or more research can help here. If, in the future, you start to believe you will go back to your home country soon that may throw much of this advice out the window and you should definitely reevaluate then. Also, if you are interested in the math/stats behind the above advice \"\"A Random Walk Down Wall Street\"\" is a light read and a good place to start. Investing makes for a very interesting and reasonably profitable math/stats problem.\"","I used to trade on Nasdaq using a US broker from the UK, you need a way to convert your money into US $s and have the cost of international money transfers. I don’t know if there are any laws in Turkey that will stop you using a US broker. You are also on your own if anything goes wrong, as the Turkish police will not be interested, and the US police will be very hard to deal with from Turkey. This all depends on Turkey not unplugging the internet on the day you wish to trade on!!! (I used tdameritrade, but it was a VERY long timer ago, as UK brokers are now as cheap, you should also consider UK based brokers as they will also let you trade outside of the USA.)","Where is the money coming from? If you already have the money (inheritance, gifts or similar) sitting in your account, you can just buy e.g. index funds from Vanguard, Robinhood or other low-cost brokerages. But first you should estimate how much money you need for your studies - it is a bit of a gamble to invest money that you'll need to withdraw in a few years time. Even though the average return may be quite high (12% sounds like an overestimate, more commonly quoted figure is 7%), over short timespans your stocks will go up and down randomly. Once you actually have a job and have income from it, then the 401k and IRA and similar retirement accounts start to make sense. There is no need to have all your savings in the same account, so you can start saving now already.","As a permanent resident in the U.S. but not a citizen, I was told by a representative at Scottrade that I am not allowed to open a brokerage account.","Which of these two factors is likely to be more significant? There is long term trend that puts one favourable with other. .... I realise that I could just as easily have lost 5% on the LSE and made 5% back on the currency, leaving me with my original investment minus various fees; or to have lost 5% on both. Yes that is true. Either of the 3 scenarios are possible. Those issues aside, am I looking at this in remotely the right way? Yes. You are looking at it the right way. Generally one invests in Foreign markets for;","\"I'd check the terms of the student loan. It's been a long time since I had a student loan, but when I did it had restrictions that it could only be used for educational expenses, which they pretty clear spelled out meant tuition, books, lab fees, I think some provision for living expenses. If your student loan is subsidized by the government, they're not going to let you use it to start a business or go on vacation ... nor are they likely to let you invest it. Even if it is legal and within the terms of the contract, borrowing money to invest is very risky. What if you invest in the stock market, and then the stock market goes down? You may find you don't have the money to make the payments on the loan. People do this sort of thing all the time -- that's what \"\"buying on margin\"\" is all about. And some of them lose a bundle and get in real trouble.\"","I strongly recommend you to invest in either stocks or bonds. Both markets have very strict regulations, and usually follow international standards of governance. Plus, they are closely supervised by local governments, since they look to serve the interests of capital holders in order to attract foreign investment. Real estate investment is not all risky, but regulations tend to be very localized. There are federal, state/county laws and byelaws, the last usually being the most significant in terms of costs (city taxes) and zoning. So if they ever change, that could ruin your investment. Keeping up with them would be hard work, because of language, legal and distance issues (visiting notary's office to sign papers, for example). Another thing to consider is, specially on rural distant areas, the risk of forgers taking your land. In poorer countries you could also face the problem of land invasion, both urban and rural. Solution for that depends on a harsh (fast) or socially populist (slow) local government. Small businesses are out of question for you, frankly. The list of risks (cash stealing, accounting misleading, etc.) is such that you will lose money. Even if you ran the business in your hometown it would not be easy right?","U.S. citizens are allowed to own foreign bank and investment accounts. However, there are various financial and tax reporting requirements for owners of such accounts. Even when there is no foreign income involved. For example famous FBAR (Fincen Report Form 114), Form 8938, and even more forms if your assets/activities abroad become more complicated. Penalties, even for unintentional non-compliance can be Draconian. So just keep in mind, that once you start having foreign accounts, you will start having additional obligations and might spend more money and time on tax preparation. If you are ok with that, then its cool. But... assuming your gloomy predictions on Trump presidency come true. They might be accompanied by more strict capital control, reporting requirements, and may become even greater pain in the neck for people with foreign assets. Regarding recommendations, I am not sure about banks, but there are some foreign precious metal investing companies that are completely online based such as https://www.bullionvault.com/ and https://www.goldmoney.com/. These might also guard you from potential problems with US dollar.","Yes many people operate accounts in usa from outside usa. You need a brokerage account opened in the name of your sister and then her username and password. Remember that brokerages may check the location of login and may ask security questions before login. So when your sister opens her account , please get the security questions. Also note that usa markets open ( 7.00 pm or 8.00 pm IST depending on daylight savings in usa). So this means when they close at 4:00 pm ET, it will be 1:30 or 2:30 am in India. This means it will affect your sleeping hours if you intend to day trade. Also understand that there are some day trading restrictions and balances associate. Normally brokerages need 25,000 $ for you to be a day trader. Finally CFA is not a qualification to be a trader and desire to become a trader doesn't make one a trader. TO give an analogy , just because you want to be a cricketer doesn't make you one. It needs a lot of practice and discipline.Also since in bangladesh , you will always convert the usa amount to bangladeshi currency and think of profits and losses in those terms. This might actually be bad.","Some brokerages will let you withdraw/deposit in multiple jurisdictions. e.g. I used to use Interactive Brokers. I could deposit/withdraw to US and UK bank accounts, in the appropriate currencies. It helps to have a brokerage that provides good rates on forex exchange also, and they were very good on the bid/ask spread. It was possible to get interbank rates plus a very low commission.","When you want to invest in an asset denominated by a foreign currency, your investment is going to have some currency risk to it. You need to worry not just about what happens to your own currency, but also the foreign currency. Lets say you want to invest $10000 in US Stocks as a Canadian. Today that will cost you $13252, since USDCAD just hit 1.3252. You now have two ways you can make money. One is if USDCAD goes up, two is if the stocks go up. The former may not be obvious, but remember, you are holding US denominated assets currently, with the intention of one day converting those assets back into CAD. Essentially, you are long USDCAD (long USD short CAD). Since you are short CAD, if CAD goes up it hurts you It may seem odd to think about this as a currency trade, but it opens up a possibility. If you want a foreign investment to be currency neutral, you just make the opposite currency trade, in addition to your original investment. So in this case, you would buy $10,000 in US stocks, and then short USDCAD (ie long CAD, short USD $10,000). This is kind of savvy and may not be something you would do. But its worth mentioning. And there are also some currency hedged ETFs out there that do this for you http://www.ishares.com/us/strategies/hedge-currency-impact However most are hedged relative to USD, and are meant to hedge the target countries currency, not your own.","According to this page on their website (http://www.kotaksecurities.com/internationaleq/homepage.htm), Kotak Securities is one big-name Indian broker that offers an international equities account to its Indian customers. Presumably, they should be able to answer all your questions. Since this is a competitive market, one can assume that others like ICICI Direct must also be doing so.","\"This sounds like a FATCA issue. I will attempt to explain, but please confirm with your own research, as I am not a FATCA expert. If a foreign institution has made a policy decision not to accept US customers because of the Foreign Financial Institution (FFI) obligations under FATCA, then that will of course exclude you even if you are resident outside the US. The US government asserts the principle of universal tax jurisdiction over its citizens. The institution may have a publicly available FATCA policy statement or otherwise be covered in a new story, so you can confirm this is what has happened. Failing that, I would follow up and ask for clarification. You may be able to find an institution that accepts US citizens as investors. This requires some research, maybe some legwork. Renunciation of your citizenship is the most certain way to circumvent this issue, if you are prepared to take such a drastic step. Such a step would require thought and planning. Note that there would be an expatriation tax (\"\"exit tax\"\") that deems a disposition of all your assets (mark to market for all your assets) under IRC § 877. A less direct but far less extreme measure would be to use an intermediary, either one that has access or a foreign entity (i.e. non-US entity) that can gain access. A Non-Financial Foreign Entity (NFFE) is itself subject to withholding rules of FATCA, so it must withhold payments to you and any other US persons. But the investing institutions will not become FFIs by paying an NFFE; the obligation rests on the FFI. PWC Australia has a nice little writeup that explains some of the key terms and concepts of FATCA. Of course, the simplest solution is probably to use US institutions, where possible. Non-foreign entities do not have foreign obligations under FATCA.\"","I'm in the US as well, but some basic things are still the same. You need to trade through a broker, but the need for a full service broker is no longer necessary. You may be able to get by with a web based brokerage that charges less fees. If you are nervous, look for a big name, and avoid a fly by night company. Stick with non-exotic investments. don't do options, or futures or Forex. You may even want to skip shares all together and see if UK offers something akin to an index fund which tracks broad markets (like the whole of the FTSE 100 or the S&P 500) as a whole.","If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.","If you buy US stocks when the CAD is high and sell them when the CAD is lower you will make a currency gain on top of any profit or loss from the stock investments. If you buy US stocks when the CAD is low and sell when the CAD is higher any profits from gains from the stock investment will be reduced and any losses will be increased. If you are just starting out you may be better off investing in your own country to avoid any currency risk adding to your stock market risk.","You can buy and sell stocks, if you like. You'll have to pay taxes on any profits. And short-term is speculating, not investing, and has high risk","Yes, However if you live in the USA a lot of companies will refuse to sent you any report and will not let you take part in “right issues” as they don’t wish to come under USA investment law.","You can keep your Mutual Funds. You have to communicate your new status to fund house. The SIP can continue. Please note you have to convert the savings account to NRO account. Most banks would keep the account number same, else you have to revise SIP debit to new NRO account. From a tax point of view, it would be similar to resident status. Right now short term gains are taxed. There are quite a few other things you may need to do. Although dated, this is a good article. PS: Once you become resident alien in US for tax purposes, you are liable for taxes on global income.","\"I took a course in forex trading for 3 months. I also studied financial markets in the Uni. I have been saving in order to start investing but I face the same question. I have gathered some advantages and disadventages that I would like to know your opinion. Forex market is more liquid, its more easy to identify what makes the currency change and to \"\"predict\"\" it. For small investors its an intraday trading. The risk is huge but the return can be also huge. Stocks are for long term investements. Its difficult to have a bigger return unless you know something that others dont. Its more difficult to predict price change since its easier to anyone influence it. The risk is less.\"","The US will let you keep as much money as you want to within its borders regardless of your citizenship. You'll owe capital gains tax in the US unless you're subject to a tax treaty (which you would probably make as an election in the year of the transaction). I don't know if India has any rules about how it governs its citizens' foreign assets, but the US requires citizens to file a form annually declaring foreign accounts over $10,000. You may be subject to additional Indian taxes if India taxes global income like the US does.","I think there are two options: You invest for very close friends, who trust you completely. In this case, I don't see why you need legal formalities. Just take their money, invest, and return the profits (or losses) to them. They'll know that you invest it as well as you can (rather than spend it on your dream vacation), simply because they trust you. And in case they never get to see most of their money back - they'll know that you've tried your best, and won't be upset with you. You invest for people who trust you, but not 100%. In this case, don't take their money. If you lose (and in Forex, you most likely will) then you'll lose not only money, but also your friends. Even if the legal documents would prove that you were honset, and that they knew what they're getting into, they'll still be mad at you.","\"You might find some of the answers here helpful; the question is different, but has some similar concerns, such as a changing economic environment. What approach should I take to best protect my wealth against currency devaluation & poor growth prospects. I want to avoid selling off any more of my local index funds in a panic as I want to hold long term. Does my portfolio balance make sense? Good question; I can't even get US banks to answer questions like this, such as \"\"What happens if they try to nationalize all bank accounts like in the Soviet Union?\"\" Response: it'll never happen. The question was what if! I think that your portfolio carries a lot of risk, but also offsets what you're worried about. Outside of government confiscation of foreign accounts (if your foreign investments are held through a local brokerage), you should be good. What to do about government confiscation? Even the US government (in 1933) confiscated physical gold (and they made it illegal to own) - so even physical resources can be confiscated during hard times. Quite a large portion of my foreign investments have been bought at an expensive time when our currency is already around historic lows, which does concern me in the event that it strengthens in future. What strategy should I take in the future if/when my local currency starts the strengthen...do I hold my foreign investments through it and just trust in cost averaging long term, or try sell them off to avoid the devaluation? Are these foreign investments a hedge? If so, then you shouldn't worry if your currency does strengthen; they serve the purpose of hedging the local environment. If these investments are not a hedge, then timing will matter and you'll want to sell and buy your currency before it does strengthen. The risk on this latter point is that your timing will be wrong.\"","when investing in index funds Index fund as the name suggests invests in the same proportion of the stocks that make up the index. You can choose a Index Fund that tracks NYSE or S&P etc. You cannot select individual companies. Generally these are passively managed, i.e. just follow the index composition via automated algorithms resulting in lower Fund Manager costs. is it possible to establish an offshore company Yes it is possible and most large organization or High Net-worth individuals do this. Its expensive and complicated for ordinary individuals. One needs and army of International Tax Consultants / International Lawyers / etc but do I have to pay taxes from the capital gains at the end of the year? Yes Canada taxes on world wide income and you would have to pay taxes on gains in Canada. Note depending on your tax residency status in US, you may have to pay tax in US as well.","You do not need to set this up as a loan. Try finding an Indian student. He is eligible to get cash (using a travel card, may be) from India tax-free. As long as it doesn't exceed the i-20 amount, he will not have any problems. Since, $10,000 is very small amount, the student shouldn't be having any problem.","lol @ savings accounts. I don't use savings accounts. I just use checking for liquidity and invest everything else. Now if you have a job that prohibits trading on your own account that's understandable but if you have the knowledge might as well use it and make some $$$","\"The examples you provide in the question are completely irrelevant. It doesn't matter where the brokerage is or where is the company you own stocks in. For a fairly standard case of an non-resident alien international student living full time in the US - your capital gains are US sourced. Let me quote the following text a couple of paragraphs down the line you quoted on the same page: Gain or loss from the sale or exchange of personal property generally has its source in the United States if the alien has a tax home in the United States. The key factor in determining if an individual is a U.S. resident for purposes of the sourcing of capital gains is whether the alien's \"\"tax home\"\" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’s U.S. source capital gains would be treated as foreign-source and thus nontaxable. In general, under the \"\"tax home\"\" rules, a person who is away (or who intends to be away) from his tax home for longer than 1 year has shifted tax homes to his new location upon his arrival in that new location. See Chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses I'll assume you've read this and just want an explanation on what it means. What it means is that if you move to the US for a significant period of time (expected length of 1 year or more), your tax home is assumed to have shifted to the US and the capital gains are sourced to the US from the start of your move. For example: you are a foreign diplomat, and your 4-year assignment started in May. Year-end - you're not US tax resident (diplomats exempt), but you've stayed in the US for more than 183 days, and since your assignment is longer than 1 year - your tax home is now in the US. You'll pay the 30% flat tax. Another example: You're a foreign airline pilot, coming to the US every other day flying the airline aircraft. You end up staying in the US 184 days, but your tax home hasn't shifted, nor you're a US tax resident - you don't pay the flat tax. Keep in mind, that tax treaties may alter the situation since in many cases they also cover the capital gains situation for non-residents.\"","One risk not mentioned is that foreign stock might be thinly traded on your local stock market, so you will find it harder to buy and sell, and you will be late to the game if there is some sudden change in the share price in the original country.","It is more easier if you select a Broker in India that would allow you these services. The reason being the broker in India will follow the required norms by India and allow you to invest without much hassel. Further as the institution would be in India, it would be more easy for resolving any disputes. ICICI Direct an Indian online broker allows one to trade in US stocks. For more details refer to ICIC Direct. Reliance Money also offers limited trading in US stocks. Selecting a Broker in US maybe more difficult as your would have to met their KYC norm's and also operate a Bank account in US. I am not aware of the requirements. For more details visit ICICI Direct website. Refer to http://www.finance-trading-times.com/2007/10/investing-in-us-stocks-and-options.html for a news article. TDAmeritrade or Charlesschwab are good online brokers, however from what I read they are more for US nationals holding Social Security. Further with the recent events and KYC norms becoming more stringent, it would be difficult for an individual [Indian Citizen] to open an account directly with these firms.","As far as the RRSP goes, see my answer in self directed RRSP for a non resident Don't forget to file your FBAR and form 8938, if applicable. -Jon","You can trade currency ETF options on IB. It is SIPC insured; the options are just like vanilla options in Saxo.","There's a possibility to lose money in exchange rate shifts, but just as much chance to gain money (Efficient Market Hypothesis and all that). If you're worried about it, you should buy a stock in Canada and short sell the US version at the same time. Then journal the Canadian stock over to the US stock exchange and use it to settle your short sell. Or you can use derivatives to accomplish the same thing.","\"I suggest that you're really asking questions surrounding three topics: (1) what allocation hedges your risks but also allows for upside? (2) How do you time your purchases so you're not getting hammered by exchange rates? (3) How do you know if you're doing ok? Allocations Your questions concerning allocation are really \"\"what if\"\" questions, as DoubleVu points out. Only you can really answer those. I would suggest building an excel sheet and thinking through the scenarios of at least 3 what-ifs. A) What if you keep your current allocations and anything in local currency gets cut in half in value? Could you live with that? B) What if you allocate more to \"\"stable economies\"\" and your economy recovers... so stable items grow at 5% per year, but your local investments grow 50% for the next 3 years? Could you live with that missed opportunity? C) What if you allocate more to \"\"stable economies\"\" and they grow at 5%... while SA continues a gradual slide? Remember that slow or flat growth in a stable currency is the same as higher returns in a declining currency. I would trust your own insights as a local, but I would recommend thinking more about how this plays out for your current investments. Timing You bring up concerns about \"\"timing\"\" of buying expensive foreign currencies... you can't time the market. If you knew how to do this with forex trading, you wouldn't be here :). Read up on dollar cost averaging. For most people, and most companies with international exposure, it may not beat the market in the short term, but it nets out positive in the long term. Rebalancing For you there will be two questions to ask regularly: is the allocation still correct as political and international issues play out? Have any returns or losses thrown your planned allocation out of alignment? Put your investment goals in writing, and revisit it at least once a year to evaluate whether any adjustments would be wise to make. And of course, I am not a registered financial professional, especially not in SA, so I obviously recommend taking what I say with a large dose of salt.\"","You can calculate your exposure intuitively, by calculating your 'fx sensitivity'. Take your total USD assets, let's assume $50k. Convert to EUR at the current rate, let's assume 1 EUR : 1.1 USD, resulting in 45.5k EUR . If the USD strengthens by 1%, this moves to a rate of ~1.09, resulting in 46k EUR value for the same 50k of USD investments. From this you can see that for every 1% the USD strengthens, you gain 500 EUR. For every 1% the USD weakens, you lose 500 EUR. The simplest way to reduce your exchange rate risk exposure, is to simply eliminate your foreign currency investments. ie: if you do not want to be exposed to fluctuations in the USD, invest in EUR only. This will align your assets with the currency of your future expenses [assuming you intend to continue living in Europe].This is not possible of course, if you would like to maintain investments in US assets. One relatively simple method available to invest in the US, without gaining an exposure to the USD, is to invest in USD assets only with money borrowed in USD. ie: if you borrow $50k USD, and invest $50k in the US stock market, then your new investments will be in the same currency as your debt. Therefore if the USD strengthens, your assets increase in relative EUR value, and your debt becomes more expensive. These two impacts wash out, leaving you with no net exposure to the value of the USD. There is a risk to this option - you are investing with a higher 'financial leverage' ratio. Using borrowed money to invest increases your risk; if your investments fall in value, you still need to make the periodic interest payments. Many people view this increased risk as a reason to never invest with borrowed money. You are compensated for that risk, by increased returns [because you have the ability to earn investment income without contributing any additional money of your own]. Whether the risk is worth it to you will depend on many factors - you should search this site and others on the topic to learn more about what those risks mean.","Don't try individual stocks. If you have a job, any job, even one from mowing lawns, you can open a Roth IRA. If you are under 18 you will need your parents/guardian to setting up the account. You can put the an amount equal to your earned income into the Roth IRA, up to the annual maximum of $5500. There are advantages to a Roth IRA: What happens if you are using your income to pay for your car, insurance, etc? You can get the money from your parents, grandparents. The only rule is that you can't invest more than you have earned. Act before Tax day (April 15th). You know what you made last year. If you open the account and make the contribution before April 15th it can count for last year, as long as you are clear with the broker/bank when you make the deposit.","The link provided by DumbCoder (below) is only relevant to UK resident investors and does not apply if you live in Malaysia. I noticed that in a much older question you asked a similar question about taxes on US stocks, so I'll try and answer both situations here. The answer is almost the same for any country you decide to invest in. As a foreign investor, the country from which you purchase stock cannot charge you tax on either income or capital gains. Taxation is based on residency, so even when you purchase foreign stock its the tax laws of Malaysia (as your country of residence) that matter. At the time of writing, Malaysia does not levy any capital gains tax and there is no income tax charged on dividends so you won't have to declare or pay any tax on your stocks regardless of where you buy them from. The only exception to this is Dividend Withholding Tax, which is a special tax taken by the government of the country you bought the stock from before it is paid to your account. You do not need to declare this tax as it his already been taken by the time you receive your dividend. The rate of DWT that will be withheld is unique to each country. The UK does not have any withholding tax so you will always receive the full dividend on UK stocks. The withholding tax rate for the US is 30%. Other countries vary. For most countries that do charge a withholding tax, it is possible to have this reduced to 15% if there is a double taxation treaty in place between the two countries and all of the following are true: Note: Although the taxation rules of both countries are similar, I am a resident of Singapore not Malaysia so I can't speak from first hand experience, but current Malaysia tax rates are easy to find online. The rest of this information is common to any non-US/UK resident investor (as long as you're not a US person).","If you are using the money to invest in a property (even abroad) then you can claim tax exemption. while some people will tell you that the reinvestment should be in India only, it have been ruled that the property can be purchased abroad too..","It all depends on how much risk you take. The problem is you have no idea what the risks are, and so you will lose all your money. I would say zero. But if you want to have a go, try reading reminiscences of a stock operator, then try reading my own attempt to make sense of the same stuff Hey, as you're a student you could even try making sense of my FX and MM training on the same website. Good luck","Please consult a tax advisor. You may be voilating the FEMA [Foreign Exchange Management Act] and can land into trouble. Further what you are doing can land up into various other acts as illegal including AML. Further if there is income generated by Indian citizen in India, he is still liable to pay tax, irrespective of whether you get the funds back into India. Edit: AML is Anti Money Laundering. Your transaction is sure to raise AML triggers as it looks like converting Black Money to White in round about way. Once the triggers are raised, RBI division will investigate further to verify what you are doing. If you are able to prove that this is a valid transaction, you would be OK on AML front. How will Income Tax Know? - If they don't know does not mean you are not liable for tax. - Any suspicious transactions would get investigated and sooner or later Income Tax would know about it and can cause a serious problem. - It is irrelevant where you have kept the money, if you have earned something, its taxable. For it not to be taxable you need to conduct this business differently. Please consult a tax adviser who will advice you on the tax-ability of this type of transaction.","Yes it is legal, in fact according to statistics.gov.uk, foreign investors are the largest holders of UK shares (as of 2008). Investors from outside the UK owned 41.5 per cent of shares listed on the London Stock Exchange at the end of 2008, up from 40.0 per cent at end of 2006, according to the latest Office for National Statistics report on share ownership.","\"Between 1 and 2 G is actually pretty decent for a High School Student. Your best bet in my opinion is to wait the next (small) stock market crash, and then invest in an index fund. A fund that tracks the SP500 or the Russel 2000 would be a good choice. By stock market crash, I'm talking about a 20% to 30% drop from the highest point. The stock market is at an all time high, but nobody knows if it's going to keep going. I would avoid penny stocks, at least until you can read their annual report and understand most of what they're claiming, especially the cash flow statement. From the few that I've looked at, penny stock companies just keep issuing stock to raise money for their money loosing operations. I'd also avoid individual stocks for now. You can setup a practice account somewhere online, and try trading. Your classmates probably brag about how much they've made, but they won't tell you how much they lost. You are not misusing your money by \"\"not doing anything with it\"\". Your classmates are gambling with it, they might as well go to a casino. Echoing what others have said, investing in yourself is your best option at this point. Try to get into the best school that you can. Anything that gives you an edge over other people in terms of experience or education is good. So try to get some leadership and team experience. , and some online classes in a field that interests you.\"","In short: yes, as long as you have Internet access. See, for example this question or this one about opening a brokerage account from outside the US. Your sister could even open an account here in the US and provide you with access. However, I'm guessing you're not a registered or even formally trained financial advisor and if you make bets with her money that don't work out well, she could get pretty upset with you. You might consider doing research from Bangladesh on good financial advisors and picking one (or a few) to recommend she go see in the US. EDIT: OP hopes to be a financial advisor in the future. Given that comment, I'd recommend looking into becoming a Certified Financial Planner (unless CFA suits your goals; you indicated that process is already underway), as a step towards that goal. Information about the certification in the US is here, in India here, and in some other countries here.","If the brokerage account holds US assets, such as the stock of US companies, then it may be taxable under some conditions. The rules are complex and depend on the nationality of the individuals, because the results may be affected by tax treaties between the United States and whatever country the person is from.","For $100 you better just hold it in Mexico. The cost of opening an account could eat 10% or more of your capital easily, and that won't be able to buy enough shares of an ETF or similar investment to make it worthwhile.","As I tell all my clients... remember WHY you are investing in the first. Make a plan and stick to it. Find a strategy and perfect it. A profit is not a profit until you take it. the same goes with a loss. You never loose till you sell for less than what you paid. Stop jumping for one market to the next, find one strategy that works for you. Making money in the stock market is easy when you perfect your trading strategy. As for your questions: Precious metal... Buying or selling look for the trends and time frame for your desired holdings. Foreign investments... They have problem in their economy just as we do, if you know someone that specializes in that... good for you. Bonds and CD are not investments in my opinion... I look at them as parking lots for your cash. At this moment in time with the devaluation of the US dollar and inflation both killing any returns even the best bonds are giving out I see no point in them at this time. There are so many ways to easily and safely make money here in our stock market why look elsewhere. Find a strategy and perfect it, make a plan and stick to it. As for me I love Dividend Capturing and Dividend Stocks, some of these companies have been paying out dividends for decades. Some have been increasing their payouts to their investors since Kennedy was in office.","Investing in the stock market early is a good thing. However, it does have a learning curve, and that curve can, and eventually will, cost you. One basic rule in investing is that risk and reward are proportional. The greater the reward, the higher the risk that you either (a) won't get the reward, or (b) lose your money instead. Given that, don't invest money you can't afford to lose (you mentioned you're on a student budget). If you want to start with short but sercure investments, try finding a high-interest savings account or CD. For example, the bank I use has an offer where the first $500 in your account gets ~6% interest - certainly not bad if you only put $500 in the account. Unfortunately, most banks are offering a pittance for savings rates or CDs. If you're willing to take more risk, you could certainly put money into the stock market. Before you do, I would recommend spending some time learning about how the stock market works, it's flows and ebbs, and how stock valuations work. Don't buy a stock because you hear about it a lot; understand why that stock is being valued as such. Also consider buying index funds (such as SPY) which is like a stock but tracks an entire index. That way if a specific company suddenly drops, you won't be nearly as affected. On the flip side, if only 1 company goes up, but the market goes down, you'll miss out. But consider the odds of having picked that 1 company.","I find that there are two violation of law , prima facie , if someone earns money by depositing in the online account and then not reporting it ( including in his total income for the year ) and not bringing in India. Income Tax Act violation 1. It is simply comcealment liable for penalty & prosecution under I.T.Act. 2. You should know that anyone who is resident of India as per income Tax Act and having taxable income ( gross total income exceeding exemption limit) will have to fill up the column in his/her income tax return whether Previously these column were not in the Income Tax Return. So , now anyone who is liable to file return of Income can be tried for false return if he has hiddne assets aborad. 2. FEMA violation RBI permits remittance under Liberalized Remittance Scheme. However this scheme can not be used for certain purpose . It is important to examine whether RBI prohibits use of remittance for any entity or business you have described. You can read following FAQ on RBI site Q. 30. What are the prohibited items under the Scheme? Ans. The remittance facility under the Scheme is not available for the following: i) Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000; ii) Remittance from India for margins or margin calls to overseas exchanges / overseas counter-party; iii) Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market; iv) Remittance for trading in foreign exchange abroad; v) Remittance by a resident individual for setting up a company abroad; vi) Remittances directly or indirectly to Bhutan, Nepal, Mauritius and Pakistan; vii) Remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “non co-operative countries and territories”, from time to time; and viii) Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks. You will have to examine , if the remittance was NOT done for purpose not allowed by RBI under LRS . If you clear this , you can say there is no violation and your violation is restricted to I.T.Act only.","It's not really like im am going to lose my money unless I was doing penny stocks. And throwing away that much for a vacation when student debt will probally exist in my life later on appears not wise.","Banking vs. speculating isn't a relevant dichotomy here. If my broker-dealer goes belly-up, I'm covered for up to $500K to replace the cash and securities I had on deposit with them. If he was doing forex investing, he fell into one of the few areas which is not covered by SIPC deposit insurance.","\"To trade stocks in India, you need a copy of your pan card, address proof(passport or driving license/electricity bill), income tax return (if you are trading futures & options and currencies), and a cancelled cheque from the bank. You will also need to sign across your recent photographs, and require various other forms from a brokerage house which need to be signed in the brokers presence. If your stock broker trusts you, and you have all these documents, then you CAN open a DEMAT account in India by signing and sending him all these documents. Otherwise you CANNOT, as every single form states that \"\"this particular document was signed in my presence\"\", and the stock broker needs to sign under that clause. Chances are, if you live abroad, no broker will ever trust you with any kind of margin, and therefore cannot make profits from you, so they will not agree to open your account.\"","A single fund that reflects the local currency would be an index fund in the country. Look for mutual funds which provide for investing on the local stock index. The fund managers would handle all the portfolio balancing for you.","\"The other option apart from the above which I feel is quite good is \"\"Travel Card\"\" [also called Forex Card] issued in USD. These cards are like prepaid debit cards. They are available from almost quite a few Indian Banks like HDFC / ICICI / UTI. The limit for students is around 100 K USD per year. http://www.hdfcbank.com/personal/cards/prepaid_cards/forexplus_card/pre_forex_elg.htm The card can be reloaded by any amount [i think the minimum is USD 100] by visiting the Branch or certain Forex agents. There loading fee is INR 75. The Fx is typical Card Rate prevailing on the day. In US this card can be used as a credit card for almost everything [I have used this without any hassel]. Avoid using the card for blocking anything [at Hotel for room booking, or initial block at car rentals]. Although its mentioned that there is a withdrawl fees, i was never charged anything for withdrawls. The card comes with an internet based login to monitor account balance and transactions. Any unused funds can be withdrawn in India. The payment will be make in INR.\"","ML is a brokerage firm. Tell them to sell. If you can't or don't know how to do it on-line - call them and do it over the phone. Your citizenship might come in effect when tax are withheld, you need to fill form W8-BEN if you haven't done so yet. If US taxes are withheld, you can file 1040NR to request refund, or get it credited against your local tax liabilities.","\"I agree with Grade 'Eh' Bacon's answer, but there are a couple of ideas that are relevant to your particular situation: If I were you, I would invest at least half of the cash in growth ETFs because you're young enough that market variability doesn't affect you and long term growth is important. The rest should be invested in safer investments (value and dividend ETFs, bonds, cash) so that you have something to live off in the near term. You said you wanted to invest ethically. The keyword to search is \"\"socially responsible ETFs\"\". There are many, and if this is important to you, you'll have to read their prospectus to find one that matches your ethics. Since you're American, the way I understand it, you need to file taxes on income; selling stocks at a gain is income. You want to make sure that as your stocks appreciate, you sell some every year and immediately rebuy them so that you pay a small tax bill every year rather than one huge tax bill 20 years from now. Claiming about $20600 of capital gains every year would be tax free assuming you are not earning any other money. I would claim a bit more in years where you make a lot. You can mitigate your long term capital gains tax exposure by opening a Roth IRA and maxing that out. Capital gains in the Roth IRA are not taxable. Even if you don't have income from working, you can have some income if you invest in stocks that pay dividends, which would allow you to contribute to a Roth IRA. You should figure where you're going to be living because you will want to minimize the currency risk of having your money in USD while you're living abroad. If the exchange rate were to change by a lot, you might find yourself a lot poorer. There are various hedging strategies, but the easiest one is to invest some of your money in securities of the country you'll be living in. You should look into how you'll be converting money into the foreign currency. There are sometimes way of minimizing the spread when converting large amounts of money, e.g., Norbert's gambit. Shaving off 1.5% when exchanging $100k saves $1500.\""],"string":"[\n \"As an F1 student, I have been investing (and occasionally buying and selling within few weeks) for several years, and I have never had problems (of course I report to IRS gains/losses every year at tax time). On the other hand, the officer in charge of foreign students at my school advised me to not run ads on a website and make a profit. So, it seems to me that investing is perfectly legit for a F1 student, as it's not considered a business activity. That's obviously my personal understanding, you may want to speak with an immigration attorney to be on the safe side.\",\n \"It is absolutely legal. While studying on a F-1 you would typically be considered a non-resident alien for tax purposes. You can trade stocks, just like any other foreigner having an account with a US- or non-US based brokerage firm. Make sure to account for profit made on dividends/capital gain when doing your US taxes. A software package provided by your university for doing taxes might not be adequate for this.\",\n \"You cannot have off-campus employment in your first year, but investments are considered passive income no matter how much time you put into that effort. Obviously you need to stay enrolled full-time and get good enough grades to stay in good standing academically, so you should be cautious about how much time you spend day trading. If the foreign market is also active in a separate time zone, that may help you not to miss class or otherwise divert your attention from your investment in your own education. I have no idea about your wealth, but it seems to me that completing your degree is more likely to build your wealth than your stock market trades, otherwise you would have stayed home and continued trading instead of attending school in another country.\",\n \"There are no legal reasons preventing you from trading as a F-1 visa holder, as noted in this Money.SE answer. Per this article, here are the things you need to set up an account: What do I need to have for doing Stock trading as F1 student ? Typically, most of the stock brokerage firms require Social Security Number (SSN) for stock trading. The reason is that, for your capital gains, it is required by IRS for tax purposes. If you work on campus, then you would already get SSN as part of the job application process…Typically, once you get the on-campus job or work authorization using CPT or OPT , you use that offer letter and take all your current documents like Passport, I-20, I-94 and apply for SSN at Social Security Administration(SSA) Office, check full details at SSA Website . SSN is typically used to report job wages by employer for tax purposes or check eligibility of benefits to IRS/Government. I do NOT have SSN, Can I still do stock trading as F1 student ? While many stock brokerage firms require SSN, you are not out of luck, if you do not have one…you will have to apply for an ITIN Number ( Individual Taxpayer Identification Number ) and can use the same when applying for stock brokerage account. While some of the firms accept ITIN number, it totally depends on the stock brokering firm and you need to check with the one that you are interested in. The key thing is that you'll need either a SSN or ITIN to open a US-based brokerage account.\",\n \"There's no limitation on what you can invest in, including trading stocks (as long as trading is not a business activity, like day-trading or investing for others). You just need to make sure you have a tax ID (either ITIN or SSN) and pay taxes on all the gains and dividends. Also, consider your home country tax laws, since you're still tax resident in your home country (most likely).\",\n \"Other than the possibility of minimal entry price being prohibitively high, there's no reason why you couldn't participate in any global trading whatsoever. Most ETFs, and indeed, stockbrokers allows both accounts opening, and trading via the Internet, without regard to physical location. With that said, I'd strongly advice you to do a proper research, and reality check both on your risk/reward profile, and on the vehicles to invest in. As Fools write, money you'll need in the next 6 months have no place on the stockmarket. Be prepared, that you can indeed loose all of your investment, regardless of the chosen vehicle.\",\n \"Quite a few stock broker in India offer to trade in US markets via tie-up brokers in US. As an Indian citizen, there are limits as to how much FX you can buy, generally very large, should be an issue. The profits will be taxed in US as well as India [you can claim relief under DTAA]\",\n \"So, my question is what is the limit below which I don't have to pay taxes while trading. I just invested $10. Do I have to pay taxes for this too? what are the slabs? Any income is subject to tax. That said, investing $10 will probably not generate much of income, even at the discount brokers most of it will be wasted on commissions... I am also having an assistantship. So is holding two sources of income legitimate? Thanks You can have as many sources of income as you want. Working is what is restricted when you're on a student visa. As long as you don't open a business as a day trader or start working for someone trading stocks - you're fine.\",\n \"\\\"This is an old post I feel requires some more love for completeness. Though several responses have mentioned the inherent risks that currency speculation, leverage, and frequent trading of stocks or currencies bring about, more information, and possibly a combination of answers, is necessary to fully answer this question. My answer should probably not be the answer, just some additional information to help aid your (and others') decision(s). Firstly, as a retail investor, don't trade forex. Period. Major currency pairs arguably make up the most efficient market in the world, and as a layman, that puts you at a severe disadvantage. You mentioned you were a student—since you have something else to do other than trade currencies, implicitly you cannot spend all of your time researching, monitoring, and investigating the various (infinite) drivers of currency return. Since major financial institutions such as banks, broker-dealers, hedge-funds, brokerages, inter-dealer-brokers, mutual funds, ETF companies, etc..., do have highly intelligent people researching, monitoring, and investigating the various drivers of currency return at all times, you're unlikely to win against the opposing trader. Not impossible to win, just improbable; over time, that probability will rob you clean. Secondly, investing in individual businesses can be a worthwhile endeavor and, especially as a young student, one that could pay dividends (pun intended!) for a very long time. That being said, what I mentioned above also holds true for many large-capitalization equities—there are thousands, maybe millions, of very intelligent people who do nothing other than research a few individual stocks and are often paid quite handsomely to do so. As with forex, you will often be at a severe informational disadvantage when trading. So, view any purchase of a stock as a very long-term commitment—at least five years. And if you're going to invest in a stock, you must review the company's financial history—that means poring through 10-K/Q for several years (I typically examine a minimum ten years of financial statements) and reading the notes to the financial statements. Read the yearly MD&A (quarterly is usually too volatile to be useful for long term investors) – management discussion and analysis – but remember, management pays themselves with your money. I assure you: management will always place a cherry on top, even if that cherry does not exist. If you are a shareholder, any expense the company pays is partially an expense of yours—never forget that no matter how small a position, you have partial ownership of the business in which you're invested. Thirdly, I need to address the stark contrast and often (but not always!) deep conflict between the concepts of investment and speculation. According to Seth Klarman, written on page 21 in his famous Margin of Safety, \\\"\\\"both investments and speculations can be bought and sold. Both typically fluctuate in price and can thus appear to generate investment returns. But there is one critical difference: investments throw off cash flow for the benefit of the owners; speculations do not. The return to the owners of speculations depends exclusively on the vagaries of the resale market.\\\"\\\" This seems simple and it is; but do not underestimate the profound distinction Mr. Klarman makes here. (and ask yourself—will forex pay you cash flows while you have a position on?) A simple litmus test prior to purchasing a stock might help to differentiate between investment and speculation: at what price are you willing to sell, and why? I typically require the answer to be at least 50% higher than the current salable price (so that I have a margin of safety) and that I will never sell unless there is a material operating change, accounting fraud, or more generally, regime change within the industry in which my company operates. Furthermore, I then research what types of operating changes will alter my opinion and how severe they need to be prior to a liquidation. I then write this in a journal to keep myself honest. This is the personal aspect to investing, the kind of thing you learn only by doing yourself—and it takes a lifetime to master. You can try various methodologies (there are tons of books) but overall just be cautious. Money lost does not return on its own. I've just scratched the surface of a 200,000 page investing book you need to read if you'd like to do this professionally or as a hobbyist. If this seems like too much or you want to wait until you've more time to research, consider index investing strategies (I won't delve into these here). And because I'm an investment professional: please do not interpret anything you've read here as personal advice or as a solicitation to buy or sell any securities or types of securities, whatsoever. This has been provided for general informational purposes only. Contact a financial advisor to review your personal circumstances such as time horizon, risk tolerance, liquidity needs, and asset allocation strategies. Again, nothing written herein should be construed as individual advice.\\\"\",\n \"If you are a US citizen, you need to very carefully research the US tax implications of investing in foreign stocks before you do so. The US tax rules have been set up in general to make this very unattractive.\",\n \"You don't need a visa to invest in US equity. You don't need a visa to profit from US equity. There may be other legal considerations, but they aren't visa related, hope that helps\",\n \"You can invest upto $200K per year abroad, and yes, you can buy Google as a stock. Consider opening an international account with a broker like interactive brokers (www.interactivebrokers.co.in) which allows you to fund the account from your local Indian account, and then on, buy shares of companies listed abroad.\",\n \"It looks like your best option is to go with an online broker. There are many available. Some of them won't let you open an account online as a foreign national but will allow you to open one through the mail. See more about that http://finance.zacks.com/can-nonus-citizen-trade-us-stocks-9654.html Also keep in mind that you will need to pay taxes on any capital gains made through selling http://www.irs.gov/pub/irs-pdf/p519.pdf\",\n \"You can use interactive brokers. It allows you to have a single account to trade stocks and currencies from several countries.\",\n \"Absolutely. It does highly depend on your country, as US brokerages are stricter with or even closed to residents of countries that produce drugs, launder money, finance terror, have traditional difficulty with the US, etc. It also depends on your country's laws. Some countries have currency controls, restrictions on buying foreign/US securities, etc. That said, some brokerages have offices world-wide, so there might be one near you. If your legal situation as described above is fortunate, some brokers will simply allow you to setup online using a procedure not too different from US residents: provide identification, sign tons of documents. You'll have to have a method to deliver your documentation in the ways you'd expect: mail, fax, email. E*Trade is the best starter broker, right now, imo. Just see how far you can go in the sign-up process.\",\n \"You have two problems, money exchange commissions and currency risk. Commissions are always exorbitant. First you must find the cheapest way to get your money converted to the foreign currency and into your brokerage account. The absolute cheapest way may involve some research and financial institution maneuvering. Also I'd forget about anything other than USD for the foreseeable future. Any other foreign currency will probably have higher commissions and a weaker market. Once you have that down, you must avoid needlessly exchanging currencies. Keep a balance in the foreign currency, keep all dividends and capital gains there, and only take local money out of your brokerage account right before using it. That means of course that you need to keep enough local currency to pay taxes on any gains, etc. As for currency risk, there are two solutions. One solution is to buy your risk away using forex. You sell an amount of USD/AED lots that is mostly equivalent to your current investments and then just make sure you don't get margin calls. I'm not sure just how cheap your rates would be in the UAE, but, on average, your investments should still have positive returns. The other solution is to just stop seeing exchange rate fluctuations as losses. If you had USD 100k and now you have USD 115k how are you losing money? Exchange rates can go the other way just fine, you know, and holding USD is a good way to hedge against your country going south.\",\n \"There is no country tag, so I will answer the question generally. Is it possible...? Yes, it's possible and common. Is it wise? Ask Barings Bank whether it's a good idea to allow speculative investing.\",\n \"\\\"As user quid states in his answer, all you need to do is open an account with a stock broker in order to gain access to the world's stock markets. If you are currently banking with one of the six big bank, then they will offer stockbroking services. You can shop around for the best commission rates. If you wish to manage your own investments, then you will open a \\\"\\\"self-directed\\\"\\\" account. You can shelter your investments from all taxation by opening a TFSA account with your stock broker. Currently, you can add $5,500 per year to your TFSA. Unused allowances from previous years can still be used. Thus, if you have not yet made any TFSA contributions, you can add upto $46,500 to your TFSA and enjoy the benefits of tax free investing. Investing in what you are calling \\\"\\\"unmanaged index funds\\\"\\\" means investing in ETFs (Exchange Traded Funds). Once you have opened your account you can invest in any ETFs traded on the stock markets accessible through your stock broker. Buying shares on foreign markets may carry higher commission rates, but for the US markets commissions are generally the same as they are for Canadian markets. However, in the case of buying foreign shares you will carry the extra cost and risk of selling Canadian dollars and buying foreign currency. There are also issues to do with foreign withholding taxes when you trade foreign shares directly. In the case of the US, you will also need to register with the US tax authorities. Foreign withholding taxes payable are generally treated as a tax credit with respect to Canadian taxation, so you will not be double taxed. In today's market, for most investors there is generally no need to invest directly in foreign market indices since you can do so indirectly on the Toronto stock market. The large Canadian ETF providers offer a wide range of US, European, Asian, and Global ETFs as well as Canadian ETFs. For example, you can track all of the major US indices by trading in Toronto in Canadian dollars. The S&P500, the Dow Jones, and the NASDAQ100 are offered in both \\\"\\\"currency hedged\\\"\\\" and \\\"\\\"unhedged\\\"\\\" forms. In addition, there are ETFs on the total US Market, US Small Caps, US sectors such as banks, and more exotic ETFs such as those offering \\\"\\\"covered call\\\"\\\" strategies and \\\"\\\"put write\\\"\\\" strategies. Here is a link to the BMO ETF website. Here is a link to the iShares (Canada) ETF website.\\\"\",\n \"Interactive Brokers offers many foreign markets (19 countries) for US based investors. You can trade all these local markets within one universal account which is very convenient in my view. IB offering\",\n \"You will not be able to continue filing with TurboTax if you invest in foreign funds. Form 8261 which is required to report PFIC investments is not included. Read the form instructions carefully - if you don't feel shocked and scared, you didn't understand what it says. The bottom line is that the American Congress doesn't want you do what you want to do and will punish you dearly.\",\n \"\\\"Are most big US based financial institutions and banks in such a close relationship with USCIS (United States Citizenship And Immigration Services) so they can easily request the information about market traders? Yes. They must be in order to enforce the laws required by the sanctions. What online broker would you suggest that probably won't focus on that dual citizenship matter? \\\"\\\"Dual\\\"\\\" citizenship isn't actually relevant here. Nearly anyone in the world can invest in US banks except for those few countries that the US has imposed sanctions against. Since you are a citizen of one of those countries, you are ineligible to participate. The fact that you are also a US citizen isn't relevant in this case. I believe the reasoning behind this is that the US doesn't encourage dual citizenship: The U.S. Government does not encourage dual nationality. While recognizing the existence of dual nationality and permitting Americans to have other nationalities, the U.S. Government also recognizes the problems which it may cause. Claims of other countries upon U.S. dual-nationals often place them in situations where their obligations to one country are in conflict with the laws of the other. In addition, their dual nationality may hamper efforts of the U.S. Government to provide consular protection to them when they are abroad, especially when they are in the country of their second nationality. If I had to guess, I'd say the thinking there is that if you (and enough other people that are citizens of that country) want to participate in something in the US that sanctions forbid, you (collectively) could try to persuade that country's government to change its actions so that the sanctions are lifted. Alternatively, you could renounce your citizenship in the other country. Either of those actions would help further the cause that the US perceives to be correct. What it basically boils down to is that even though you are a US citizen, your rights can be limited due to having another citizenship in a country that is not favorable in the current political climate. Thus there are pros and cons to having dual citizenship.\\\"\",\n \"\\\"This page from the CRA website details the types of investments you can hold in a TFSA. You can hold individual shares, including ETFs, traded on any \\\"\\\"designated stock exchange\\\"\\\" in addition to the other types of investment you have listed. Here is a list of designated stock exchanges provided by the Department of Finance. As you can see, it includes pretty well every major stock exchange in the developed world. If your bank's TFSA only offers \\\"\\\"mutual funds, GICs and saving deposits\\\"\\\" then you need to open a TFSA with a different bank or a stock broking company with an execution only service that offers TFSA accounts. Almost all of the big banks will do this. I use Scotia iTrade, HSBC Invest Direct, and TD, though my TFSA's are all with HSBC currently. You will simply provide them with details of your bank account in order to facilitate money transfers/TFSA contributions. Since purchasing foreign shares involves changing your Canadian dollars into a foreign currency, one thing to watch out for when purchasing foreign shares is the potential for high foreign exchange spreads. They can be excessive in proportion to the investment being made. My experience is that HSBC offers by far the best spreads on FX, but you need to exchange a minimum of $10,000 in order to obtain a decent spread (typically between 0.25% and 0.5%). You may also wish to note that you can buy unhedged ETFs for the US and European markets on the Toronto exchange. This means you are paying next to nothing on the spread, though you obviously are still carrying the currency risk. For example, an unhedged S&P500 trades under the code ZSP (BMO unhedged) or XUS (iShares unhedged). In addition, it is important to consider that commissions for trades on foreign markets may be much higher than those on a Canadian exchange. This is not always the case. HSBC charge me a flat rate of $6.88 for both Toronto and New York trades, but for London they would charge up to 0.5% depending on the size of the trade. Some foreign exchanges carry additional trading costs. For example, London has a 0.5% stamp duty on purchases. EDIT One final thing worth mentioning is that, in my experience, holding US securities means that you will be required to register with the US tax authorities and with those US exchanges upon which you are trading. This just means fill out a number of different forms which will be provided by your stock broker. Exchange registrations can be done electronically, however US tax authority registration must be submitted in writing. Dividends you receive will be net of US withholding taxes. I am not aware of any capital gains reporting requirements to US authorities.\\\"\",\n \"As a relatively recent nonimmigrant visa holder (O1), I was able to open an ETrade brokerage account without problems. I have full tax residence in the USA so have an SSN, and a credit history so it was no problem. Later, as a greencard holder, I opened IRA accounts with them, too. Again, there were no issues as I had all the information that the IRS paperwork required at hand.\",\n \"First thing to consider is that getting your hands on an IPO is very difficult unless you have some serious clout. This might help a bit in that department (http://www.sec.gov/answers/ipoelig.htm) However, assuming you accept all that risk and requirements, YES - you can buy stocks of any kind in the US even if you are a foreigner. There are no laws prohibiting investment/buying in the US stock market. What you need is to get an online trading account from a registered brokerage house in the US. Once you are registered, you can buy whatever that is offered.\",\n \"I believe I have to pay taxes in US since it is a US broker. No, not at all. The fact that the broker is a US broker has nothing to do with your tax liabilities. You should update the banks and the broker with your change of status submitting form W8-BEN to them. Consult a tax professional proficient with Indo-US tax treaty as to what you should put in part II. The broker might withhold some of your income and remit it as taxes to the IRS based on what you put in W8-BEN and the type of income, but you can have it refunded (if it exceeds your liability) by submitting a tax return (form 1040-NR). You do have to pay tax in India, based on the Indian tax law, for your profits in the US. Consult with an Indian tax accountant on that. If I'm not mistaken, there are also currency transfer restrictions in India that you should be aware of.\",\n \"I will split my answer in a few sections... Note: I will not address the legal aspect of the question. If you can or not use Federal money to invest. 1st - Investments with Student Loan 2nd - IRA as the Instrument I hope this helps!\",\n \"With $7 Million at stake I guess it would be prudent to take legal advise as well as advise from qualified CA. Forex trading for select currency pair [with one leg in INR] is allowed. Ex USDINR, EURINR, JPYINR, GBPINR. Forex trading for pairs without INR or not in the above list is NOT allowed.\",\n \"The UK has historically aggressive financial law, inherited from Dutch friendship, influence, and acquisitions by conquest. The law is so open that nearly anyone can invest through the UK without much difficulty, and citizens have nearly no restrictions on where to invest. A UK citizen can either open an account in the US with paperwork hassles or at home with access to all world markets and less paperwork. Here is the UK version of my broker, Interactive Brokers. Their costs are the lowest, but you will be charged a minimum fee if you do not trade enough, and their minimum opening balance can be prohibitively high for some. If you do buy US products, be sure to file your W-8BEN.\",\n \"You have left out the most important piece of information: are you an American citizen? If you are, then PFIC rules mean you need to be very careful not to invest in any foreign index funds/ETFs. That means it will probably be easiest for you to just leave the money in the US and continue to invest it there. If you do not have US citizenship, and have never had a green card, then you will qualify for non-resident alien status after you've been gone for 3 years. Once that happens, you won't owe US capital gains tax (though you will owe it in AUS). You will owe 30% tax on dividends, though. Much more at Investopedia.\",\n \"Any large stockbroker will offer trading in US securities. As a foreign national you will be required to register with the US tax authorities (IRS) by completing and filing a W-8BEN form and pay US withholding taxes on any dividend income you receive. US dividends are paid net of withholding taxes, so you do not need to file a US tax return. Capital gains are not subject to US taxes. Also, each year you are holding US securities, you will receive a form from the IRS which you are required to complete and return. You will also be required to complete and file forms for each of the exchanges you wish to received market price data from. Trading will be restricted to US trading hours, which I believe is 6 hours ahead of Denmark for the New York markets. You will simply submit an order to the desired market using your broker's online trading software or your broker's telephone dealing service. You can expect to pay significantly higher commissions for trading US securities when compared to domestic securities. You will also face potentially large foreign exchange fees when exchaning your funds from EUR to USD. All in all, you will probably be better off using your local market to trade US index or sector ETFs.\",\n \"\\\"In addition to @MD-tech's answer: I'd distinguish between stock of a foreign company traded in local currency at a local exchange from the same stock traded in the foreign currency at a foreign exchange (and maybe with a foreign bank holding your accounts). The latter option will typically have higher variation because of exchange rate, and (usually) higher risks associated with possibility of recovery, (double) taxation and the possible legal difficulties @MD-tech mentions. Trading the foreign stock at a local exchange may mean that the transaction volume is far lower than at their \\\"\\\"home\\\"\\\" exchange. Holding stock of companies working in foreign markets OTOH can be seen as diversification and may lower your risk. If you only invest in the local market, your investments may be subject to the same economic fluctuations that your wage/employment/pension situation is subject to - it may be good to try de-correlating this a bit. Of course, depending on political circumstances in your home country, foreign investments may be less risky (though I'd suspect these home countries also come with a high risk of seizing foreign investments...)\\\"\",\n \"Your definition of 'outside your country' might need some redefinition, as there are three different things going on here . . . Your financial adviser appears to be highlighting the currency risk associated with point three. However, consider these risk scenarios . . . A) Your country enters a period of severe financial difficulty, and money markets shut down. Your brokerage becomes insolvent, and your investments are lost. In this scenario the fact of whether your investments were in an overseas index such as the S&P, or were purchased from an account denominated in a different currency, would be irrelevant. The only thing that would have mitigated this scenario is an account with an overseas broker. B) Your country's stock market enters a sustained and deep bear market, decimating the value of shares in its companies. In this scenario the fact of whether your investments were made in from a brokerage overseas, or were purchased from an account denominated in a different currency, would be irrelevant. The only thing that would have mitigate this scenario is investment in shares and indices outside your home country. Your adviser has a good point; as long as you intend to enjoy your retirement in your home country then it might be advisable to remove currency risk by holding an account in Rupees. However, you might like to consider reducing the other forms of risk by holding non-Indian securities to create a globally diversified portfolio, and also placing some of your capital in an account with a broker outside your home country (this may be very difficult to do in practice).\",\n \"Verify if a local bank offers to participate in different stock markets - big companies like apple or facebook often gets traded on different markets - like Xetra (germany) or SIX (Switzerland). That being said I'd recommend you to rethink this strategy and maybe using some products offered by your bank - for 1000$ you will quickly drown in fees (my bank requires 40$ for every trade. If you buy and sell them you already lost nearly 10% of your investment)\",\n \"There are some ETF's on the Indian market that invest in broad indexes in other countries Here's an article discussing this Be aware that such investments carry an additional risk you do not have when investing in your local market, which is 'currency risk' If for example you invest in a ETF that represents the US S&P500 index, and the US dollar weakens relative to the indian rupee, you could see the value if your investment in the US market go down, even if the index itself is 'up' (but not as much as the change in currency values). A lot of investment advisors recommend that you have at least 75% of your investments in things which are denominated in your local currency (well technically, the same currency as your liabilities), and no more than 25% invested internationally. In large part the reason for this advice is to reduce your exposure to currency risk.\",\n \"I'm not a professional, but my understanding is that US funds are not considered PFICs regardless of the fact that they are held in a foreign brokerage account. In addition, be aware that foreign stocks are not considered PFICs (although foreign ETFs may be).\",\n \"One other issue you may face is when the company announces poor financial results and begins to tank, you will not be able to sell until the US market open and could incur a lot of pain.\",\n \"Question One: Question Two: Your best reference for this would be a brokerage account with data privileges in the markets you wish to trade. Failing that, I would reference the Chicago Mercantile Exchange Group (CME Group) website. Question Three: Considering future tuition costs and being Canadian, you are eligible to open a Registered Education Savings Plan (RESP). While contributions to this plan are not tax deductible, any taxes on income earned through investments within the fund are deferred until the beneficiary withdraws the funds. Since the beneficiary will likely be in a lower tax bracket at such a time, the sum will likely be taxed at a lower rate, assuming that the beneficiary enrolls in a qualifying post secondary institution. The Canadian government also offers the Canada Education Savings Grant (CESG) in which the federal government will match 20% of the first $2500 of your annual RESP contribution up to a maximum of $500.\",\n \"As other people have said they should register with a broker in the country they reside in that can deal in US stocks, then fill out a W8-BEN form. I have personally done this as I am from the Uk, it's not a very complicated process. I would assume that most US brokers don't allow foreign customers due to the person having to pay tax where they reside and the US brokers don't want to have to keep approximately 200 different tax codes in track.\",\n \"OptionsXpress includes India in the list of countries where is possible to open an international account to invest in the US Stock Market. They just merged with Charles Schwab and they have a nice online trading platform. Stocks and ETFs are little bit pricey.. Get in touch with them to get more information.\",\n \"I had this problem when I finished my job in Canada in Sept 2013. You'll likely have to open the account in person in Canada, at least if you don't already have a relationship with a broker there. DO NOT go to Virtual Brokers. They told me that my US citizenship was no problem, but right before I left Canada to double check. It wasn't until I asked specifically which US states they were licensed in that they realized they were licensed in NO US STATES. They told me that they'd freeze my account when I left. I then moved my (former) pension to a locked-in RRSP at BMO. As of September 2010 BMO could handle residents of most US states, but it took some tooth pulling to get the list out of them. However, after I flew to the USA, BMO called to demand more ID. My account was frozen until I flew back to Canada in person just to show ID. Annoyed, I closed the BMO account and moved it to TD Waterhouse. TD waterhouse can handle accounts for residents of all the US states EXCEPT Virginia, Louisiana, and Nebraska. (I only got the complete list of exceptions when I made my first trade, since the guys at the trading desk are much more knowledgeable about such things than the guys in the branch.) TD was extremely friendly about my USA citizenship/residence. (Many Canadian brokers simply won't accept US residents, at least as of the end of 2013.) Whichever broker you choose, BRING LOTS MORE ID than they require. Insist that they zerox it all. Make sure to include your social security card. You don't want them to demand more ID after you've left the country, like BMO did. They may even make such a move simply to get rid of US customers, because the FATCA is a pain for foreign banks.\",\n \"Every month I will get a return in from my share of the profit which would be used for repayment of capital and interest in India. Not to sure what the business plan is. Please factor all the modalities, Exchange rate fluctuations, etc. My concern is regarding RBI rules and regulations, FEMA guidelines, and Income tax. Under the Liberalized Remittance Scheme; Funds can be transferred outside India. Any profit you make will be taxable in India. You will have to declare this pay tax in as per schedule.\",\n \"It isn't just ETFs, you have normal mutual funds in India which invest internationally. This could be convenient if you don't already have a depository account and a stockbroker. Here's a list of such funds, along with some performance data: Value Research - Equity: International: Long-term Performance. However, you should also be aware that in India, domestic equity and equity fund investing is tax-free in the long-term (longer than one year), but this exemption doesn't apply to international investments. Ref: Invest Around the World.\",\n \"You can apply for Foreign currency accounts. But they aren't saving accounts by any means, but more like current accounts. Taking money out will involve charges. You have to visit the bank website to figure out what all operations can be performed on your account. Barclays and HSBC allow accounts in foreign currency. Other banks also will be providing the same services. Are there banks where you can open a bank account without being a citizen of that country without having to visit the bank in person Depends on country by country. Are there any online services for investing money that aren't tied to any particular country? Get yourself a trading account and invest in foreign markets i.e. equities, bonds etc. But all in all be ready for the foreign exchange risks involved in denominating assets in multiple currencies.\",\n \"You should invest a trivial (<500$USD) amount of money in a stock portfolio. If you aren't able to make more on the market than the interest rates of your loans, you are losing money. This question has discussed this topic as well.\",\n \"Does my prior answer here to a slightly different question help at all? Are there capital gains taxes or dividend taxes if I invest in the U.S. stock market from outside of the country?\",\n \"\\\"Others have given a lot of advice about how to invest, but as a former expat I wanted to throw this in: US citizens living and investing overseas can VERY easily run afoul of the IRS. Laws and regulations designed to prevent offshore tax havens can also make it very difficult for expats to do effective investing and estate planning. Among other things, watch out for: US citizens owe US income tax on world income regardless of where they live or earn money FBAR reporting requirements affect foreign accounts valued over $10k The IRS penalizes (often heavily) certain types of financial accounts. Tax-sheltered accounts (for education, retirement, etc.) are in the crosshairs, and anything the IRS deems a \\\"\\\"foreign-controlled trust\\\"\\\" is especially bad. Heavy taxes on investment not purchased from a US stock exchange Some US states will demand income taxes from former residents (including expats) who cannot prove residency in a different US state. I believe California is neutral in that regard, at least. I am neither a lawyer nor an accountant nor a financial advisor, so please take the above only as a starting point so you know what sorts of questions to ask the relevant experts.\\\"\",\n \"\\\"For starting with zero knowledge you certainly did a great job on research as you hit on most of the important points with your question. It seems like you have already saved up around six months of expenses in savings so it is a great time to look into investing. The hardest part of your question is actually one of the most important details. Investing in a way that minimizes your taxes is generally more important, in the end, than what assets you actually invest in (as long as you invest even semi-reasonably). The problem is that the interaction between your home country's tax system and the U.S. tax system can be complex. It's probably (likely?) still worth maxing out your 401(k) (IRA, SEP, 529 accounts if you qualify) to avoid taxes, but like this question from an Indian investor it may be worth seeing an investment professional about this. If you do, see a fee-based professional preferably one familiar with your country. If tax-advantaged accounts are not a good deal for you or if you max them out, a discount broker is probably a good second option for someone willing to do a bit of research like you. With this money investing in broadly-diversified, low fee, index mutual funds or exchange traded funds is generally recommended. Among other benefits, diversified funds make sure that if any particular company fails you don't feel too much pain. The advantages of low fees are fairly obvious and one very good reason why so many people recommend Vanguard on this site. A common mix for someone your age is mostly stocks (local and international) and some bonds. Though with how you talk about risk you may prefer more bonds. Some people recommend spicing this up a bit with a small amount of real estate (REITs), sometimes even other assets. The right portfolio of the above can change a lot given the person. The above mentioned adviser and/or more research can help here. If, in the future, you start to believe you will go back to your home country soon that may throw much of this advice out the window and you should definitely reevaluate then. Also, if you are interested in the math/stats behind the above advice \\\"\\\"A Random Walk Down Wall Street\\\"\\\" is a light read and a good place to start. Investing makes for a very interesting and reasonably profitable math/stats problem.\\\"\",\n \"I used to trade on Nasdaq using a US broker from the UK, you need a way to convert your money into US $s and have the cost of international money transfers. I don’t know if there are any laws in Turkey that will stop you using a US broker. You are also on your own if anything goes wrong, as the Turkish police will not be interested, and the US police will be very hard to deal with from Turkey. This all depends on Turkey not unplugging the internet on the day you wish to trade on!!! (I used tdameritrade, but it was a VERY long timer ago, as UK brokers are now as cheap, you should also consider UK based brokers as they will also let you trade outside of the USA.)\",\n \"Where is the money coming from? If you already have the money (inheritance, gifts or similar) sitting in your account, you can just buy e.g. index funds from Vanguard, Robinhood or other low-cost brokerages. But first you should estimate how much money you need for your studies - it is a bit of a gamble to invest money that you'll need to withdraw in a few years time. Even though the average return may be quite high (12% sounds like an overestimate, more commonly quoted figure is 7%), over short timespans your stocks will go up and down randomly. Once you actually have a job and have income from it, then the 401k and IRA and similar retirement accounts start to make sense. There is no need to have all your savings in the same account, so you can start saving now already.\",\n \"As a permanent resident in the U.S. but not a citizen, I was told by a representative at Scottrade that I am not allowed to open a brokerage account.\",\n \"Which of these two factors is likely to be more significant? There is long term trend that puts one favourable with other. .... I realise that I could just as easily have lost 5% on the LSE and made 5% back on the currency, leaving me with my original investment minus various fees; or to have lost 5% on both. Yes that is true. Either of the 3 scenarios are possible. Those issues aside, am I looking at this in remotely the right way? Yes. You are looking at it the right way. Generally one invests in Foreign markets for;\",\n \"\\\"I'd check the terms of the student loan. It's been a long time since I had a student loan, but when I did it had restrictions that it could only be used for educational expenses, which they pretty clear spelled out meant tuition, books, lab fees, I think some provision for living expenses. If your student loan is subsidized by the government, they're not going to let you use it to start a business or go on vacation ... nor are they likely to let you invest it. Even if it is legal and within the terms of the contract, borrowing money to invest is very risky. What if you invest in the stock market, and then the stock market goes down? You may find you don't have the money to make the payments on the loan. People do this sort of thing all the time -- that's what \\\"\\\"buying on margin\\\"\\\" is all about. And some of them lose a bundle and get in real trouble.\\\"\",\n \"I strongly recommend you to invest in either stocks or bonds. Both markets have very strict regulations, and usually follow international standards of governance. Plus, they are closely supervised by local governments, since they look to serve the interests of capital holders in order to attract foreign investment. Real estate investment is not all risky, but regulations tend to be very localized. There are federal, state/county laws and byelaws, the last usually being the most significant in terms of costs (city taxes) and zoning. So if they ever change, that could ruin your investment. Keeping up with them would be hard work, because of language, legal and distance issues (visiting notary's office to sign papers, for example). Another thing to consider is, specially on rural distant areas, the risk of forgers taking your land. In poorer countries you could also face the problem of land invasion, both urban and rural. Solution for that depends on a harsh (fast) or socially populist (slow) local government. Small businesses are out of question for you, frankly. The list of risks (cash stealing, accounting misleading, etc.) is such that you will lose money. Even if you ran the business in your hometown it would not be easy right?\",\n \"U.S. citizens are allowed to own foreign bank and investment accounts. However, there are various financial and tax reporting requirements for owners of such accounts. Even when there is no foreign income involved. For example famous FBAR (Fincen Report Form 114), Form 8938, and even more forms if your assets/activities abroad become more complicated. Penalties, even for unintentional non-compliance can be Draconian. So just keep in mind, that once you start having foreign accounts, you will start having additional obligations and might spend more money and time on tax preparation. If you are ok with that, then its cool. But... assuming your gloomy predictions on Trump presidency come true. They might be accompanied by more strict capital control, reporting requirements, and may become even greater pain in the neck for people with foreign assets. Regarding recommendations, I am not sure about banks, but there are some foreign precious metal investing companies that are completely online based such as https://www.bullionvault.com/ and https://www.goldmoney.com/. These might also guard you from potential problems with US dollar.\",\n \"Yes many people operate accounts in usa from outside usa. You need a brokerage account opened in the name of your sister and then her username and password. Remember that brokerages may check the location of login and may ask security questions before login. So when your sister opens her account , please get the security questions. Also note that usa markets open ( 7.00 pm or 8.00 pm IST depending on daylight savings in usa). So this means when they close at 4:00 pm ET, it will be 1:30 or 2:30 am in India. This means it will affect your sleeping hours if you intend to day trade. Also understand that there are some day trading restrictions and balances associate. Normally brokerages need 25,000 $ for you to be a day trader. Finally CFA is not a qualification to be a trader and desire to become a trader doesn't make one a trader. TO give an analogy , just because you want to be a cricketer doesn't make you one. It needs a lot of practice and discipline.Also since in bangladesh , you will always convert the usa amount to bangladeshi currency and think of profits and losses in those terms. This might actually be bad.\",\n \"Some brokerages will let you withdraw/deposit in multiple jurisdictions. e.g. I used to use Interactive Brokers. I could deposit/withdraw to US and UK bank accounts, in the appropriate currencies. It helps to have a brokerage that provides good rates on forex exchange also, and they were very good on the bid/ask spread. It was possible to get interbank rates plus a very low commission.\",\n \"When you want to invest in an asset denominated by a foreign currency, your investment is going to have some currency risk to it. You need to worry not just about what happens to your own currency, but also the foreign currency. Lets say you want to invest $10000 in US Stocks as a Canadian. Today that will cost you $13252, since USDCAD just hit 1.3252. You now have two ways you can make money. One is if USDCAD goes up, two is if the stocks go up. The former may not be obvious, but remember, you are holding US denominated assets currently, with the intention of one day converting those assets back into CAD. Essentially, you are long USDCAD (long USD short CAD). Since you are short CAD, if CAD goes up it hurts you It may seem odd to think about this as a currency trade, but it opens up a possibility. If you want a foreign investment to be currency neutral, you just make the opposite currency trade, in addition to your original investment. So in this case, you would buy $10,000 in US stocks, and then short USDCAD (ie long CAD, short USD $10,000). This is kind of savvy and may not be something you would do. But its worth mentioning. And there are also some currency hedged ETFs out there that do this for you http://www.ishares.com/us/strategies/hedge-currency-impact However most are hedged relative to USD, and are meant to hedge the target countries currency, not your own.\",\n \"According to this page on their website (http://www.kotaksecurities.com/internationaleq/homepage.htm), Kotak Securities is one big-name Indian broker that offers an international equities account to its Indian customers. Presumably, they should be able to answer all your questions. Since this is a competitive market, one can assume that others like ICICI Direct must also be doing so.\",\n \"\\\"This sounds like a FATCA issue. I will attempt to explain, but please confirm with your own research, as I am not a FATCA expert. If a foreign institution has made a policy decision not to accept US customers because of the Foreign Financial Institution (FFI) obligations under FATCA, then that will of course exclude you even if you are resident outside the US. The US government asserts the principle of universal tax jurisdiction over its citizens. The institution may have a publicly available FATCA policy statement or otherwise be covered in a new story, so you can confirm this is what has happened. Failing that, I would follow up and ask for clarification. You may be able to find an institution that accepts US citizens as investors. This requires some research, maybe some legwork. Renunciation of your citizenship is the most certain way to circumvent this issue, if you are prepared to take such a drastic step. Such a step would require thought and planning. Note that there would be an expatriation tax (\\\"\\\"exit tax\\\"\\\") that deems a disposition of all your assets (mark to market for all your assets) under IRC § 877. A less direct but far less extreme measure would be to use an intermediary, either one that has access or a foreign entity (i.e. non-US entity) that can gain access. A Non-Financial Foreign Entity (NFFE) is itself subject to withholding rules of FATCA, so it must withhold payments to you and any other US persons. But the investing institutions will not become FFIs by paying an NFFE; the obligation rests on the FFI. PWC Australia has a nice little writeup that explains some of the key terms and concepts of FATCA. Of course, the simplest solution is probably to use US institutions, where possible. Non-foreign entities do not have foreign obligations under FATCA.\\\"\",\n \"I'm in the US as well, but some basic things are still the same. You need to trade through a broker, but the need for a full service broker is no longer necessary. You may be able to get by with a web based brokerage that charges less fees. If you are nervous, look for a big name, and avoid a fly by night company. Stick with non-exotic investments. don't do options, or futures or Forex. You may even want to skip shares all together and see if UK offers something akin to an index fund which tracks broad markets (like the whole of the FTSE 100 or the S&P 500) as a whole.\",\n \"If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.\",\n \"If you buy US stocks when the CAD is high and sell them when the CAD is lower you will make a currency gain on top of any profit or loss from the stock investments. If you buy US stocks when the CAD is low and sell when the CAD is higher any profits from gains from the stock investment will be reduced and any losses will be increased. If you are just starting out you may be better off investing in your own country to avoid any currency risk adding to your stock market risk.\",\n \"You can buy and sell stocks, if you like. You'll have to pay taxes on any profits. And short-term is speculating, not investing, and has high risk\",\n \"Yes, However if you live in the USA a lot of companies will refuse to sent you any report and will not let you take part in “right issues” as they don’t wish to come under USA investment law.\",\n \"You can keep your Mutual Funds. You have to communicate your new status to fund house. The SIP can continue. Please note you have to convert the savings account to NRO account. Most banks would keep the account number same, else you have to revise SIP debit to new NRO account. From a tax point of view, it would be similar to resident status. Right now short term gains are taxed. There are quite a few other things you may need to do. Although dated, this is a good article. PS: Once you become resident alien in US for tax purposes, you are liable for taxes on global income.\",\n \"\\\"I took a course in forex trading for 3 months. I also studied financial markets in the Uni. I have been saving in order to start investing but I face the same question. I have gathered some advantages and disadventages that I would like to know your opinion. Forex market is more liquid, its more easy to identify what makes the currency change and to \\\"\\\"predict\\\"\\\" it. For small investors its an intraday trading. The risk is huge but the return can be also huge. Stocks are for long term investements. Its difficult to have a bigger return unless you know something that others dont. Its more difficult to predict price change since its easier to anyone influence it. The risk is less.\\\"\",\n \"The US will let you keep as much money as you want to within its borders regardless of your citizenship. You'll owe capital gains tax in the US unless you're subject to a tax treaty (which you would probably make as an election in the year of the transaction). I don't know if India has any rules about how it governs its citizens' foreign assets, but the US requires citizens to file a form annually declaring foreign accounts over $10,000. You may be subject to additional Indian taxes if India taxes global income like the US does.\",\n \"I think there are two options: You invest for very close friends, who trust you completely. In this case, I don't see why you need legal formalities. Just take their money, invest, and return the profits (or losses) to them. They'll know that you invest it as well as you can (rather than spend it on your dream vacation), simply because they trust you. And in case they never get to see most of their money back - they'll know that you've tried your best, and won't be upset with you. You invest for people who trust you, but not 100%. In this case, don't take their money. If you lose (and in Forex, you most likely will) then you'll lose not only money, but also your friends. Even if the legal documents would prove that you were honset, and that they knew what they're getting into, they'll still be mad at you.\",\n \"\\\"You might find some of the answers here helpful; the question is different, but has some similar concerns, such as a changing economic environment. What approach should I take to best protect my wealth against currency devaluation & poor growth prospects. I want to avoid selling off any more of my local index funds in a panic as I want to hold long term. Does my portfolio balance make sense? Good question; I can't even get US banks to answer questions like this, such as \\\"\\\"What happens if they try to nationalize all bank accounts like in the Soviet Union?\\\"\\\" Response: it'll never happen. The question was what if! I think that your portfolio carries a lot of risk, but also offsets what you're worried about. Outside of government confiscation of foreign accounts (if your foreign investments are held through a local brokerage), you should be good. What to do about government confiscation? Even the US government (in 1933) confiscated physical gold (and they made it illegal to own) - so even physical resources can be confiscated during hard times. Quite a large portion of my foreign investments have been bought at an expensive time when our currency is already around historic lows, which does concern me in the event that it strengthens in future. What strategy should I take in the future if/when my local currency starts the strengthen...do I hold my foreign investments through it and just trust in cost averaging long term, or try sell them off to avoid the devaluation? Are these foreign investments a hedge? If so, then you shouldn't worry if your currency does strengthen; they serve the purpose of hedging the local environment. If these investments are not a hedge, then timing will matter and you'll want to sell and buy your currency before it does strengthen. The risk on this latter point is that your timing will be wrong.\\\"\",\n \"when investing in index funds Index fund as the name suggests invests in the same proportion of the stocks that make up the index. You can choose a Index Fund that tracks NYSE or S&P etc. You cannot select individual companies. Generally these are passively managed, i.e. just follow the index composition via automated algorithms resulting in lower Fund Manager costs. is it possible to establish an offshore company Yes it is possible and most large organization or High Net-worth individuals do this. Its expensive and complicated for ordinary individuals. One needs and army of International Tax Consultants / International Lawyers / etc but do I have to pay taxes from the capital gains at the end of the year? Yes Canada taxes on world wide income and you would have to pay taxes on gains in Canada. Note depending on your tax residency status in US, you may have to pay tax in US as well.\",\n \"You do not need to set this up as a loan. Try finding an Indian student. He is eligible to get cash (using a travel card, may be) from India tax-free. As long as it doesn't exceed the i-20 amount, he will not have any problems. Since, $10,000 is very small amount, the student shouldn't be having any problem.\",\n \"lol @ savings accounts. I don't use savings accounts. I just use checking for liquidity and invest everything else. Now if you have a job that prohibits trading on your own account that's understandable but if you have the knowledge might as well use it and make some $$$\",\n \"\\\"The examples you provide in the question are completely irrelevant. It doesn't matter where the brokerage is or where is the company you own stocks in. For a fairly standard case of an non-resident alien international student living full time in the US - your capital gains are US sourced. Let me quote the following text a couple of paragraphs down the line you quoted on the same page: Gain or loss from the sale or exchange of personal property generally has its source in the United States if the alien has a tax home in the United States. The key factor in determining if an individual is a U.S. resident for purposes of the sourcing of capital gains is whether the alien's \\\"\\\"tax home\\\"\\\" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’s U.S. source capital gains would be treated as foreign-source and thus nontaxable. In general, under the \\\"\\\"tax home\\\"\\\" rules, a person who is away (or who intends to be away) from his tax home for longer than 1 year has shifted tax homes to his new location upon his arrival in that new location. See Chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses I'll assume you've read this and just want an explanation on what it means. What it means is that if you move to the US for a significant period of time (expected length of 1 year or more), your tax home is assumed to have shifted to the US and the capital gains are sourced to the US from the start of your move. For example: you are a foreign diplomat, and your 4-year assignment started in May. Year-end - you're not US tax resident (diplomats exempt), but you've stayed in the US for more than 183 days, and since your assignment is longer than 1 year - your tax home is now in the US. You'll pay the 30% flat tax. Another example: You're a foreign airline pilot, coming to the US every other day flying the airline aircraft. You end up staying in the US 184 days, but your tax home hasn't shifted, nor you're a US tax resident - you don't pay the flat tax. Keep in mind, that tax treaties may alter the situation since in many cases they also cover the capital gains situation for non-residents.\\\"\",\n \"One risk not mentioned is that foreign stock might be thinly traded on your local stock market, so you will find it harder to buy and sell, and you will be late to the game if there is some sudden change in the share price in the original country.\",\n \"It is more easier if you select a Broker in India that would allow you these services. The reason being the broker in India will follow the required norms by India and allow you to invest without much hassel. Further as the institution would be in India, it would be more easy for resolving any disputes. ICICI Direct an Indian online broker allows one to trade in US stocks. For more details refer to ICIC Direct. Reliance Money also offers limited trading in US stocks. Selecting a Broker in US maybe more difficult as your would have to met their KYC norm's and also operate a Bank account in US. I am not aware of the requirements. For more details visit ICICI Direct website. Refer to http://www.finance-trading-times.com/2007/10/investing-in-us-stocks-and-options.html for a news article. TDAmeritrade or Charlesschwab are good online brokers, however from what I read they are more for US nationals holding Social Security. Further with the recent events and KYC norms becoming more stringent, it would be difficult for an individual [Indian Citizen] to open an account directly with these firms.\",\n \"As far as the RRSP goes, see my answer in self directed RRSP for a non resident Don't forget to file your FBAR and form 8938, if applicable. -Jon\",\n \"You can trade currency ETF options on IB. It is SIPC insured; the options are just like vanilla options in Saxo.\",\n \"There's a possibility to lose money in exchange rate shifts, but just as much chance to gain money (Efficient Market Hypothesis and all that). If you're worried about it, you should buy a stock in Canada and short sell the US version at the same time. Then journal the Canadian stock over to the US stock exchange and use it to settle your short sell. Or you can use derivatives to accomplish the same thing.\",\n \"\\\"I suggest that you're really asking questions surrounding three topics: (1) what allocation hedges your risks but also allows for upside? (2) How do you time your purchases so you're not getting hammered by exchange rates? (3) How do you know if you're doing ok? Allocations Your questions concerning allocation are really \\\"\\\"what if\\\"\\\" questions, as DoubleVu points out. Only you can really answer those. I would suggest building an excel sheet and thinking through the scenarios of at least 3 what-ifs. A) What if you keep your current allocations and anything in local currency gets cut in half in value? Could you live with that? B) What if you allocate more to \\\"\\\"stable economies\\\"\\\" and your economy recovers... so stable items grow at 5% per year, but your local investments grow 50% for the next 3 years? Could you live with that missed opportunity? C) What if you allocate more to \\\"\\\"stable economies\\\"\\\" and they grow at 5%... while SA continues a gradual slide? Remember that slow or flat growth in a stable currency is the same as higher returns in a declining currency. I would trust your own insights as a local, but I would recommend thinking more about how this plays out for your current investments. Timing You bring up concerns about \\\"\\\"timing\\\"\\\" of buying expensive foreign currencies... you can't time the market. If you knew how to do this with forex trading, you wouldn't be here :). Read up on dollar cost averaging. For most people, and most companies with international exposure, it may not beat the market in the short term, but it nets out positive in the long term. Rebalancing For you there will be two questions to ask regularly: is the allocation still correct as political and international issues play out? Have any returns or losses thrown your planned allocation out of alignment? Put your investment goals in writing, and revisit it at least once a year to evaluate whether any adjustments would be wise to make. And of course, I am not a registered financial professional, especially not in SA, so I obviously recommend taking what I say with a large dose of salt.\\\"\",\n \"You can calculate your exposure intuitively, by calculating your 'fx sensitivity'. Take your total USD assets, let's assume $50k. Convert to EUR at the current rate, let's assume 1 EUR : 1.1 USD, resulting in 45.5k EUR . If the USD strengthens by 1%, this moves to a rate of ~1.09, resulting in 46k EUR value for the same 50k of USD investments. From this you can see that for every 1% the USD strengthens, you gain 500 EUR. For every 1% the USD weakens, you lose 500 EUR. The simplest way to reduce your exchange rate risk exposure, is to simply eliminate your foreign currency investments. ie: if you do not want to be exposed to fluctuations in the USD, invest in EUR only. This will align your assets with the currency of your future expenses [assuming you intend to continue living in Europe].This is not possible of course, if you would like to maintain investments in US assets. One relatively simple method available to invest in the US, without gaining an exposure to the USD, is to invest in USD assets only with money borrowed in USD. ie: if you borrow $50k USD, and invest $50k in the US stock market, then your new investments will be in the same currency as your debt. Therefore if the USD strengthens, your assets increase in relative EUR value, and your debt becomes more expensive. These two impacts wash out, leaving you with no net exposure to the value of the USD. There is a risk to this option - you are investing with a higher 'financial leverage' ratio. Using borrowed money to invest increases your risk; if your investments fall in value, you still need to make the periodic interest payments. Many people view this increased risk as a reason to never invest with borrowed money. You are compensated for that risk, by increased returns [because you have the ability to earn investment income without contributing any additional money of your own]. Whether the risk is worth it to you will depend on many factors - you should search this site and others on the topic to learn more about what those risks mean.\",\n \"Don't try individual stocks. If you have a job, any job, even one from mowing lawns, you can open a Roth IRA. If you are under 18 you will need your parents/guardian to setting up the account. You can put the an amount equal to your earned income into the Roth IRA, up to the annual maximum of $5500. There are advantages to a Roth IRA: What happens if you are using your income to pay for your car, insurance, etc? You can get the money from your parents, grandparents. The only rule is that you can't invest more than you have earned. Act before Tax day (April 15th). You know what you made last year. If you open the account and make the contribution before April 15th it can count for last year, as long as you are clear with the broker/bank when you make the deposit.\",\n \"The link provided by DumbCoder (below) is only relevant to UK resident investors and does not apply if you live in Malaysia. I noticed that in a much older question you asked a similar question about taxes on US stocks, so I'll try and answer both situations here. The answer is almost the same for any country you decide to invest in. As a foreign investor, the country from which you purchase stock cannot charge you tax on either income or capital gains. Taxation is based on residency, so even when you purchase foreign stock its the tax laws of Malaysia (as your country of residence) that matter. At the time of writing, Malaysia does not levy any capital gains tax and there is no income tax charged on dividends so you won't have to declare or pay any tax on your stocks regardless of where you buy them from. The only exception to this is Dividend Withholding Tax, which is a special tax taken by the government of the country you bought the stock from before it is paid to your account. You do not need to declare this tax as it his already been taken by the time you receive your dividend. The rate of DWT that will be withheld is unique to each country. The UK does not have any withholding tax so you will always receive the full dividend on UK stocks. The withholding tax rate for the US is 30%. Other countries vary. For most countries that do charge a withholding tax, it is possible to have this reduced to 15% if there is a double taxation treaty in place between the two countries and all of the following are true: Note: Although the taxation rules of both countries are similar, I am a resident of Singapore not Malaysia so I can't speak from first hand experience, but current Malaysia tax rates are easy to find online. The rest of this information is common to any non-US/UK resident investor (as long as you're not a US person).\",\n \"If you are using the money to invest in a property (even abroad) then you can claim tax exemption. while some people will tell you that the reinvestment should be in India only, it have been ruled that the property can be purchased abroad too..\",\n \"It all depends on how much risk you take. The problem is you have no idea what the risks are, and so you will lose all your money. I would say zero. But if you want to have a go, try reading reminiscences of a stock operator, then try reading my own attempt to make sense of the same stuff Hey, as you're a student you could even try making sense of my FX and MM training on the same website. Good luck\",\n \"Please consult a tax advisor. You may be voilating the FEMA [Foreign Exchange Management Act] and can land into trouble. Further what you are doing can land up into various other acts as illegal including AML. Further if there is income generated by Indian citizen in India, he is still liable to pay tax, irrespective of whether you get the funds back into India. Edit: AML is Anti Money Laundering. Your transaction is sure to raise AML triggers as it looks like converting Black Money to White in round about way. Once the triggers are raised, RBI division will investigate further to verify what you are doing. If you are able to prove that this is a valid transaction, you would be OK on AML front. How will Income Tax Know? - If they don't know does not mean you are not liable for tax. - Any suspicious transactions would get investigated and sooner or later Income Tax would know about it and can cause a serious problem. - It is irrelevant where you have kept the money, if you have earned something, its taxable. For it not to be taxable you need to conduct this business differently. Please consult a tax adviser who will advice you on the tax-ability of this type of transaction.\",\n \"Yes it is legal, in fact according to statistics.gov.uk, foreign investors are the largest holders of UK shares (as of 2008). Investors from outside the UK owned 41.5 per cent of shares listed on the London Stock Exchange at the end of 2008, up from 40.0 per cent at end of 2006, according to the latest Office for National Statistics report on share ownership.\",\n \"\\\"Between 1 and 2 G is actually pretty decent for a High School Student. Your best bet in my opinion is to wait the next (small) stock market crash, and then invest in an index fund. A fund that tracks the SP500 or the Russel 2000 would be a good choice. By stock market crash, I'm talking about a 20% to 30% drop from the highest point. The stock market is at an all time high, but nobody knows if it's going to keep going. I would avoid penny stocks, at least until you can read their annual report and understand most of what they're claiming, especially the cash flow statement. From the few that I've looked at, penny stock companies just keep issuing stock to raise money for their money loosing operations. I'd also avoid individual stocks for now. You can setup a practice account somewhere online, and try trading. Your classmates probably brag about how much they've made, but they won't tell you how much they lost. You are not misusing your money by \\\"\\\"not doing anything with it\\\"\\\". Your classmates are gambling with it, they might as well go to a casino. Echoing what others have said, investing in yourself is your best option at this point. Try to get into the best school that you can. Anything that gives you an edge over other people in terms of experience or education is good. So try to get some leadership and team experience. , and some online classes in a field that interests you.\\\"\",\n \"In short: yes, as long as you have Internet access. See, for example this question or this one about opening a brokerage account from outside the US. Your sister could even open an account here in the US and provide you with access. However, I'm guessing you're not a registered or even formally trained financial advisor and if you make bets with her money that don't work out well, she could get pretty upset with you. You might consider doing research from Bangladesh on good financial advisors and picking one (or a few) to recommend she go see in the US. EDIT: OP hopes to be a financial advisor in the future. Given that comment, I'd recommend looking into becoming a Certified Financial Planner (unless CFA suits your goals; you indicated that process is already underway), as a step towards that goal. Information about the certification in the US is here, in India here, and in some other countries here.\",\n \"If the brokerage account holds US assets, such as the stock of US companies, then it may be taxable under some conditions. The rules are complex and depend on the nationality of the individuals, because the results may be affected by tax treaties between the United States and whatever country the person is from.\",\n \"For $100 you better just hold it in Mexico. The cost of opening an account could eat 10% or more of your capital easily, and that won't be able to buy enough shares of an ETF or similar investment to make it worthwhile.\",\n \"As I tell all my clients... remember WHY you are investing in the first. Make a plan and stick to it. Find a strategy and perfect it. A profit is not a profit until you take it. the same goes with a loss. You never loose till you sell for less than what you paid. Stop jumping for one market to the next, find one strategy that works for you. Making money in the stock market is easy when you perfect your trading strategy. As for your questions: Precious metal... Buying or selling look for the trends and time frame for your desired holdings. Foreign investments... They have problem in their economy just as we do, if you know someone that specializes in that... good for you. Bonds and CD are not investments in my opinion... I look at them as parking lots for your cash. At this moment in time with the devaluation of the US dollar and inflation both killing any returns even the best bonds are giving out I see no point in them at this time. There are so many ways to easily and safely make money here in our stock market why look elsewhere. Find a strategy and perfect it, make a plan and stick to it. As for me I love Dividend Capturing and Dividend Stocks, some of these companies have been paying out dividends for decades. Some have been increasing their payouts to their investors since Kennedy was in office.\",\n \"Investing in the stock market early is a good thing. However, it does have a learning curve, and that curve can, and eventually will, cost you. One basic rule in investing is that risk and reward are proportional. The greater the reward, the higher the risk that you either (a) won't get the reward, or (b) lose your money instead. Given that, don't invest money you can't afford to lose (you mentioned you're on a student budget). If you want to start with short but sercure investments, try finding a high-interest savings account or CD. For example, the bank I use has an offer where the first $500 in your account gets ~6% interest - certainly not bad if you only put $500 in the account. Unfortunately, most banks are offering a pittance for savings rates or CDs. If you're willing to take more risk, you could certainly put money into the stock market. Before you do, I would recommend spending some time learning about how the stock market works, it's flows and ebbs, and how stock valuations work. Don't buy a stock because you hear about it a lot; understand why that stock is being valued as such. Also consider buying index funds (such as SPY) which is like a stock but tracks an entire index. That way if a specific company suddenly drops, you won't be nearly as affected. On the flip side, if only 1 company goes up, but the market goes down, you'll miss out. But consider the odds of having picked that 1 company.\",\n \"I find that there are two violation of law , prima facie , if someone earns money by depositing in the online account and then not reporting it ( including in his total income for the year ) and not bringing in India. Income Tax Act violation 1. It is simply comcealment liable for penalty & prosecution under I.T.Act. 2. You should know that anyone who is resident of India as per income Tax Act and having taxable income ( gross total income exceeding exemption limit) will have to fill up the column in his/her income tax return whether Previously these column were not in the Income Tax Return. So , now anyone who is liable to file return of Income can be tried for false return if he has hiddne assets aborad. 2. FEMA violation RBI permits remittance under Liberalized Remittance Scheme. However this scheme can not be used for certain purpose . It is important to examine whether RBI prohibits use of remittance for any entity or business you have described. You can read following FAQ on RBI site Q. 30. What are the prohibited items under the Scheme? Ans. The remittance facility under the Scheme is not available for the following: i) Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000; ii) Remittance from India for margins or margin calls to overseas exchanges / overseas counter-party; iii) Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market; iv) Remittance for trading in foreign exchange abroad; v) Remittance by a resident individual for setting up a company abroad; vi) Remittances directly or indirectly to Bhutan, Nepal, Mauritius and Pakistan; vii) Remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “non co-operative countries and territories”, from time to time; and viii) Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks. You will have to examine , if the remittance was NOT done for purpose not allowed by RBI under LRS . If you clear this , you can say there is no violation and your violation is restricted to I.T.Act only.\",\n \"It's not really like im am going to lose my money unless I was doing penny stocks. And throwing away that much for a vacation when student debt will probally exist in my life later on appears not wise.\",\n \"Banking vs. speculating isn't a relevant dichotomy here. If my broker-dealer goes belly-up, I'm covered for up to $500K to replace the cash and securities I had on deposit with them. If he was doing forex investing, he fell into one of the few areas which is not covered by SIPC deposit insurance.\",\n \"\\\"To trade stocks in India, you need a copy of your pan card, address proof(passport or driving license/electricity bill), income tax return (if you are trading futures & options and currencies), and a cancelled cheque from the bank. You will also need to sign across your recent photographs, and require various other forms from a brokerage house which need to be signed in the brokers presence. If your stock broker trusts you, and you have all these documents, then you CAN open a DEMAT account in India by signing and sending him all these documents. Otherwise you CANNOT, as every single form states that \\\"\\\"this particular document was signed in my presence\\\"\\\", and the stock broker needs to sign under that clause. Chances are, if you live abroad, no broker will ever trust you with any kind of margin, and therefore cannot make profits from you, so they will not agree to open your account.\\\"\",\n \"A single fund that reflects the local currency would be an index fund in the country. Look for mutual funds which provide for investing on the local stock index. The fund managers would handle all the portfolio balancing for you.\",\n \"\\\"The other option apart from the above which I feel is quite good is \\\"\\\"Travel Card\\\"\\\" [also called Forex Card] issued in USD. These cards are like prepaid debit cards. They are available from almost quite a few Indian Banks like HDFC / ICICI / UTI. The limit for students is around 100 K USD per year. http://www.hdfcbank.com/personal/cards/prepaid_cards/forexplus_card/pre_forex_elg.htm The card can be reloaded by any amount [i think the minimum is USD 100] by visiting the Branch or certain Forex agents. There loading fee is INR 75. The Fx is typical Card Rate prevailing on the day. In US this card can be used as a credit card for almost everything [I have used this without any hassel]. Avoid using the card for blocking anything [at Hotel for room booking, or initial block at car rentals]. Although its mentioned that there is a withdrawl fees, i was never charged anything for withdrawls. The card comes with an internet based login to monitor account balance and transactions. Any unused funds can be withdrawn in India. The payment will be make in INR.\\\"\",\n \"ML is a brokerage firm. Tell them to sell. If you can't or don't know how to do it on-line - call them and do it over the phone. Your citizenship might come in effect when tax are withheld, you need to fill form W8-BEN if you haven't done so yet. If US taxes are withheld, you can file 1040NR to request refund, or get it credited against your local tax liabilities.\",\n \"\\\"I agree with Grade 'Eh' Bacon's answer, but there are a couple of ideas that are relevant to your particular situation: If I were you, I would invest at least half of the cash in growth ETFs because you're young enough that market variability doesn't affect you and long term growth is important. The rest should be invested in safer investments (value and dividend ETFs, bonds, cash) so that you have something to live off in the near term. You said you wanted to invest ethically. The keyword to search is \\\"\\\"socially responsible ETFs\\\"\\\". There are many, and if this is important to you, you'll have to read their prospectus to find one that matches your ethics. Since you're American, the way I understand it, you need to file taxes on income; selling stocks at a gain is income. You want to make sure that as your stocks appreciate, you sell some every year and immediately rebuy them so that you pay a small tax bill every year rather than one huge tax bill 20 years from now. Claiming about $20600 of capital gains every year would be tax free assuming you are not earning any other money. I would claim a bit more in years where you make a lot. You can mitigate your long term capital gains tax exposure by opening a Roth IRA and maxing that out. Capital gains in the Roth IRA are not taxable. Even if you don't have income from working, you can have some income if you invest in stocks that pay dividends, which would allow you to contribute to a Roth IRA. You should figure where you're going to be living because you will want to minimize the currency risk of having your money in USD while you're living abroad. If the exchange rate were to change by a lot, you might find yourself a lot poorer. There are various hedging strategies, but the easiest one is to invest some of your money in securities of the country you'll be living in. You should look into how you'll be converting money into the foreign currency. There are sometimes way of minimizing the spread when converting large amounts of money, e.g., Norbert's gambit. Shaving off 1.5% when exchanging $100k saves $1500.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["You cannot have off-campus employment in your first year, but investments are considered passive income no matter how much time you put into that effort. Obviously you need to stay enrolled full-time and get good enough grades to stay in good standing academically, so you should be cautious about how much time you spend day trading. If the foreign market is also active in a separate time zone, that may help you not to miss class or otherwise divert your attention from your investment in your own education. I have no idea about your wealth, but it seems to me that completing your degree is more likely to build your wealth than your stock market trades, otherwise you would have stayed home and continued trading instead of attending school in another country."],"string":"[\n \"You cannot have off-campus employment in your first year, but investments are considered passive income no matter how much time you put into that effort. Obviously you need to stay enrolled full-time and get good enough grades to stay in good standing academically, so you should be cautious about how much time you spend day trading. If the foreign market is also active in a separate time zone, that may help you not to miss class or otherwise divert your attention from your investment in your own education. I have no idea about your wealth, but it seems to me that completing your degree is more likely to build your wealth than your stock market trades, otherwise you would have stayed home and continued trading instead of attending school in another country.\"\n]","isConversational":false}}},{"rowIdx":292,"cells":{"_id":{"kind":"string","value":"3014"},"query":{"kind":"string","value":"What investments are positively related to the housing market decline?"},"gt_ids":{"kind":"list like","value":["341399","273282"],"string":"[\n \"341399\",\n \"273282\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["341399","273282","484266","401264","150632","75650","190891","300703","387141","481874","584633","12782","350332","209125","337057","494928","66219","407145","149725","288167","494438","598764","217242","313913","208081","60175","412502","257716","174302","421285","48946","250028","549763","427808","158006","409859","297877","8135","55985","32936","186031","251843","509064","508055","268802","183934","21225","107697","375438","570855","190503","130388","144177","483648","181007","329930","375151","390061","73649","53601","422820","464078","457800","275768","464957","355620","386162","394326","25582","28039","465430","68269","166597","62027","532907","62669","34844","228997","354117","265218","440220","50744","376709","214798","189006","265267","482077","324587","387702","328556","419397","397290","501504","24822","113189","440696","427819","160623","442122","242040"],"string":"[\n \"341399\",\n \"273282\",\n \"484266\",\n \"401264\",\n \"150632\",\n \"75650\",\n \"190891\",\n \"300703\",\n \"387141\",\n \"481874\",\n \"584633\",\n \"12782\",\n \"350332\",\n \"209125\",\n \"337057\",\n \"494928\",\n \"66219\",\n \"407145\",\n \"149725\",\n \"288167\",\n \"494438\",\n \"598764\",\n \"217242\",\n \"313913\",\n \"208081\",\n \"60175\",\n \"412502\",\n \"257716\",\n \"174302\",\n \"421285\",\n \"48946\",\n \"250028\",\n \"549763\",\n \"427808\",\n \"158006\",\n \"409859\",\n \"297877\",\n \"8135\",\n \"55985\",\n \"32936\",\n \"186031\",\n \"251843\",\n \"509064\",\n \"508055\",\n \"268802\",\n \"183934\",\n \"21225\",\n \"107697\",\n \"375438\",\n \"570855\",\n \"190503\",\n \"130388\",\n \"144177\",\n \"483648\",\n \"181007\",\n \"329930\",\n \"375151\",\n \"390061\",\n \"73649\",\n \"53601\",\n \"422820\",\n \"464078\",\n \"457800\",\n \"275768\",\n \"464957\",\n \"355620\",\n \"386162\",\n \"394326\",\n \"25582\",\n \"28039\",\n \"465430\",\n \"68269\",\n \"166597\",\n \"62027\",\n \"532907\",\n \"62669\",\n \"34844\",\n \"228997\",\n \"354117\",\n \"265218\",\n \"440220\",\n \"50744\",\n \"376709\",\n \"214798\",\n \"189006\",\n \"265267\",\n \"482077\",\n \"324587\",\n \"387702\",\n \"328556\",\n \"419397\",\n \"397290\",\n \"501504\",\n \"24822\",\n \"113189\",\n \"440696\",\n \"427819\",\n \"160623\",\n \"442122\",\n \"242040\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a down market. If sales volume does go up another option would be other service markets for real estate such as real estate information and marketing websites and sources i.e. http://www.trulia.com. Furthermore one can go and make a broad generalization such as since real estate no longer requires the same quantity of construction material other industries sensitive to the price of those commodities should technically have a lower cost of doing business. But be careful in the US much of the wealth an average american has is in their home. In this case this means that the economy as a whole takes a dive due to consumer uncertainty. In which case safe havens could benefit, may be things like Proctor & Gamble, gold, or treasuries. Side Note: You can always short builders or someone who loses if the housing market declines, this will make your investment higher as a result of the security going lower.","\"During the actual decline, there's very little money to be made and a lot to lose. When housing prices tank, everybody loses; the banks are exposed to higher risk of mortgage defaults, insurers start having to pay out more for \"\"gas leaks\"\" claiming over-leveraged homes, realtors starve because their commissions go down (even as foreclosures put more homes on the market) and people faced with financial uncertainty will stay put in their current homes instead of moving elsewhere. And homebuilders and contractors go broke because nobody wants to spend cash on a new home or major reno that looks like a losing investment. There can be some bright spots. Smaller hardware stores will make money as people do relatively small DIY projects to improve the condition of their current home. The larger stores get this business too, but it tends to be more than offset by the loss of contractor business (FAR more lucrative, and something the ACEs and True-Values don't really get in on). Of course the \"\"grave-robbers\"\" do well; gold buyers, auctioneers, pawn shops, repo firms; these guys eat well when other people are defaulting on loans or have to sell their stuff for fast cash. Most of these businesses are not publicly traded. One thing that was seen was increased revenues at discount retailers like Wal-Mart, Dollar General etc. When things are bad, people in the middle class who had avoided these stores for image or morality reasons learn to swallow their pride and buy discount store brands for half the price of national brand names. That lessens the blow felt by the discount retailers as overall consumer spending decreases; the pie shrinks, but the discount retailers get a bigger slice of the mandatory spending on food, clothing, etc (and the higher-level retailers get it in the shorts). When the pie starts to grow again as consumer spending picks back up, the discount retailers retain their percentage for a while, as the fickle middle class can afford to buy more from the discount retailer but can't yet afford to take their business back to the shopping mall stores. This produces a flatter, \"\"offset\"\" price graph for discount retailers through the business cycle; they don't lose as early or as much as everyone else in a major downturn, and they turn it around sooner while everyone else may still be on the way down, but as everything gets better for everyone on the upswing it's less great for the discount guys, as they start losing customers and their dollars to competitors with better stuff, even as the ones they keep spend more. This doesn't generally manifest as a true negative correlation, but it can be a good hedge. The number one money-making investment in a tanking economy is gold. When things go down the crapper, everyone wants gold, so if you see the train wreck coming far enough in advance, you can make a big move to gold and really make some money off that investment. For instance, when the first whispers about ARM adjustments and mass defaults reached the public consciousness in mid-2005, gold bullion jumped from about $400 to over $700 in a nine-month period. It cooled off again in 06-07 but only to about $600/oz, and then in late 07 it steadily climbed to peak at $1000/oz; even if you got in late, an investment of $1000 in July '07 in \"\"bulk\"\" gold would have netted you $650 in one year; that's a 65% APY. Then the economy hit bottom and a lot of investors ditched gold for investments they thought would pull back out of their holes quickly; For just a little while in '08 gold was down to $700 again. Then came all the government reports; unemployment not budging, home prices still declining, a lot of banks still hiding just how bad their position was. If you had seen that it was going to be bad, bad, bad, like a lot of now-billionaire hedge fund investors did, a $1000 investment in gold in July 05, and then cashing out at the tops of the peaks and buying back in at the major troughs, would be worth almost $4000 today. That's a 400% return over 7 years, or an annual average yield of 57%. There simply hasn't been anything like that in the last 7 years.\"","You could short home builders who do a lot of their business in Northern California. (Not just San Francisco, Silicon Valley, or even the Bay Area.) Home prices in Sacramento and the northern San Joaquin Valley are correlated with Bay Area home prices. Many of these builders went broke during the last bust, so you might have trouble finding a publicly traded home builder that is concentrated in just one market.","\"If you're trying to hedge the ups and downs of your local residential real estate market, a REIT fund holding commercial properties across the country is not the ideal match. Here's a comparison of an index tracking single-family home prices in one region (Los Angeles) and VNQ (another popular REIT fund). There's some correlation but there's clearly different magnitudes and sometimes different directions. With a national home price index, the correlation is only 68%, and it would be lower for individual cities. You could still use it for hedging, but there's significant \"\"tracker error\"\" risk to be considered. Unfortunately, I'm not familiar with any investment that would be a better match for individual residential markets. So, if you decide to use this, I'd also adjust the level of exposure to get a closer result. E.g. using approx. 50% VNQ and 50% cash results in a closer result after 2 years (compared to national single-family home price changes) than either 0% VNQ and 100% cash, or 100% VNQ and 0% cash.\"","You can hedge your house price from losing value if you believe that the housing market is correlated with major stock indices. Speak with a commodities broker because they will be able to help you buy puts on stock indices which if correlated with housing prices will offer somewhat of a hedge. Example. House prices drop 30% because of weak economy, stocks will generally drop around that same amount 30%. If you have enough exposure to in the puts compared to your house value you will be protected. You can also buy calls in 30 year bonds for interest rate lock if you are not on a fixed interest rate. Many investors like warren buffet and carl icahn have been protecting them selves from a potential market downward turn. Speak to a local commodity broker to get some detailed advice, not etrade or any discount brokers they won't be able to help you specialize your trades. look for a full time commodity broker house.","As the value of a currency declines, commodities, priced in that currency, will rise. The two best commodities to see a change in would be oil and gold.","\"The price of real estate reacts to both demand for property and the rate of inflation and rate of income growth. Mortgage rates generally move as treasury rates move. See this paragraph: As we mentioned, intermediate term bonds and long-term mortgages (more properly, Mortgage-Backed Securities, or MBS) compete for the same fixed-income investor dollar. Treasury issues are 100% guaranteed to be repaid, but mortgages are not; therefore mortgages carry more risk of default or early repayment, which could potentially disturb the return on the investment. Therefore, mortgage rates must be priced higher to compensate for that risk. But how much higher are mortgages priced? In a normal market, the average \"\"spread\"\" or markup above the 100% secured Treasury is about 170 basis points, or 1.7%. That markup -- the spread relationship -- widens and contracts with a range of market conditions, investor appetites and supply of available product -- as well as the presence of competing investment opportunities, like corporate bonds or domestic (or foreign) equity markets Source: What Moves Mortgage Rates? And when the stock market crashes, investors tend to run to bonds and treasuries, which causes prices to go up and treasury yields to drop. Theoretically, this would also cause mortgage rates to drop, although most mortgage rates have a base price below which they cannot fall. How easy is it to profit from recent stock market drops and at what frequency? Incredibly difficult. The issue with your strategy is that you cannot predict the bottom of the market (at least us mortals can't). Just take the month of August for example. Stocks fell something like 15%? After the first 5-10% drop, people felt that the bottom was there, so they rushed in, only to have the market fall even more. How will you know when to invest? Even if the market falls by 50%, and there's a huge buying opportunity, and you increase the mortgage on your house, odds are your rates will increase because of the equity you take out. What if the market stays low for a very long time? Will you be able to maintain mortgage payments? Japan's stock bubble popped in the early 90's, and they've had two lost decade's now. Furthermore, there are issues of liquidity. What if you need more capital? Can you just sell a property or can you buy now property to draw equity against? What if the market is moving too fast for you to take advantage of. Don't ignore transaction costs and taxes either. Overall, there are a lot of ways that your idea can go wrong, and not many ways it can go right.\"","The most obvious route is to short the lenders, preferably subprime. Since there are no lenders that operate exclusively in San Francisco, you could look north at Canada. The Canadian real estate market (esp. Vancouver) is just as overheated as the San Francisco market. As a start, famous short seller Marc Cohodes recommends HCG (Home Capital Group) as an opportune short.","Well, Taking a short position directly in real estate is impossible because it's not a fungible asset, so the only way to do it is to trade in its derivatives - Investment Fund Stock, indexes and commodities correlated to the real estate market (for example, materials related to construction). It's hard to find those because real estate funds usually don't issue securities and rely on investment made directly with them. Another factor should be that those who actually do have issued securities aren't usually popular enough for dealers and Market Makers to invest in it, who make it possible to take a short position in exchange for some spread. So what you can do is, you can go through all the existing real estate funds and find out if any of them has a broker that let's you short it, in other words which one of them has securities in the financial market you can buy or sell. One other option is looking for real estate/property derivatives, like this particular example. Personally, I would try to computationally find other securities that may in some way correlate with the real estate market, even if they look a bit far fetched to be related like commodities and stock from companies in construction and real estate management, etc. and trade those because these have in most of the cases more liquidity. Hope this answers your question!","Frequently people saving money for a down payment, or for their emergency fund, feel that they need to find a way to speedup the process via methods that will generate more interest than a bank account or a CD. Once they have reached their goal they also feel that having the money sitting around not generating income is a missed opportunity. All investments that aren't 100% safe introduce risk. To entice you to invest they offer the opportunity make more money than a bank account or CD. But the downside is that the extra money isn't guaranteed. In fact the introduced risk also opens up the investment to the possibility of losses, including a total loss. You have identified risks with bank accounts and CDs. With the bank account you will generally lose money vs. inflation. With a CD the investment is less liquid if you sell early, or you want/need to sell 1/2 a CD, you will give up some of that extra income. Also if rates on a CD rise next month you are stilled locked into your current rate til the CD ends. Putting some or all of the money you are saving for the house into a risky investment means that you may shorten or extend the time period. Nobody knows. by investing in real estate we can offset the risk of real estate going up in the next couple years: if real estate goes up we will still be able to use our down payment for a comparable house as of now. Inversely, if real estate goes down we will lose on the down payment but be able to get a house cheaper. Unless the REIT matches the market of residential real estate in your city/metropolitan region there is no guarantee that home prices in your city will move the same way the REIT does. A recent listing of the 10 largest holdings of the index is: none of these tell me what home prices in my neighborhood will do next year.","It seems that you're interested in an asset which you can hold that would go up when the gold price went down. It seems like a good place to start would be an index fund, which invests in the general stock market. When the gold market falls, this would mainly affect gold mining companies. These do not make up a sizable portion of any index fund, which is invested broadly in the market. Unfortunately, in order to act on this, you would also have to believe that the stock market was a good investment. To test this theory, I looked at an ETF index fund which tracks the S&P 500, and compared it to an ETF which invests in gold. I found that the daily price movements of the stock market were positively correlated with the price of gold. This result was statistically significant. The weekly price movements of the stock market were also correlated with the price of gold. This result was also statistically significant. When the holding period was stretched to one month, there was still a positive relationship between the stock market's price moves and the price of gold. This result was not statistically significant. When the holding period was stretched to one year, there was a negative relationship between the price changes in the stock market and the price of gold. This result was not statistically significant, either.","Your question may have another clue. You are bullish regarding the real estate market. Is that for your city, your state, your nation or for the whole world? Unless you can identify particular properties or neighborhoods that are expected to be better than the average return for your expected bull market in real estate, you will be taking a huge risk. It would be the same as believing that stocks are about to enter a bull market, but then wanting to put 50% of your wealth on one stock. The YTD for the DOW is ~+7%, yet 13 of the 30 have not reached the average increase including 4 that are down more than 7%. Being bullish about the real estate segment still gives you plenty of opportunities to invest. You can invest directly in the REIT or you can invest in the companies that will grow because of the bullish conditions. If your opinion changes in a few years it is hard to short a single property.","\"If you do as you propose you are going to get burned. You need to sell, then start to rent. amongst other things. Since 2008, the economy never \"\"recovered,\"\" but was sort of stabilized temporarily like a fighter on the ropes. The economy is beginning to collapse again, and that collapse will accelerate around the Fall. The dollar too will also begin its delayed downward fall come Autumn. Just one example of what I speak: https://research.stlouisfed.org/fred2/series/CIVPART I would be happy to tell you more if you like, but I am already going to get pilloried for what I have already said. I do not sell anything, or push anything, but since you asked, and I follow this day in and day out, I thought that I would give you my very well informed answer. Take it for what it's worth. So let me know if you want more.\"","I see that you're invested in a couple bond funds. You do not want to be invested in bonds when the Fed raises rates. When rates climb, the value of bond investments decline, and vice-versa. So that means you should sell bonds before a rate hike, and buy them before a rate drop.","Well put and, honestly, seemingly unavoidable. It will be crazy if it truly does come to fruition if they (Fed/Treasury/Gummit) realize that they cannot inflate their way out of this by printing more money and all of the nay-sayers of massive deflation get proven wrong. So, the better question is this: we believe/know it's coming, so how do we prepare and strategically place ourselves to survive/profit/prosper from the coming collapse? As I see it, RE is a crap investment for the foreseeable future as oversupply and oversize are not absorbed. People have to live, so rentals will be key; but, they have already bloomed quite a bit. Stocks will likely trade sideways for awhile before likely tanking as the forced/willing withdrawals start happening from the Boomers. So, keeping it in stocks doesn't sound overly positive, unless a fairly aggressive put strategy is enforced. Bonds are paying crap and, after taxes, barely pacing inflation. For me personally and selfishly, I have 20 years minimum for retirement, so I'm fine qith the market trending sideways or down. It means that I'm getting more bang for my DCA buck and, 20+ years from now, I will be well positioned when the market eventually cycles back up. But, for now, where do we put our investments to protect and, hopefully, grow them as the mid term passes?","When credit locks up, junk bond prices fall rapidly, and you see more defaults. The opportunity to make money with junk is to buy a diversified collection of them when the market declines. Look at the charts from some of the mutual funds or ETFs like PIMCO High Yield Instl (PHIYX), or Northeast Investors (NTHEX). Very volatile stuff. Keep in mind that junk bonds are not representative of the economy as a whole -- they cluster in certain industries. Retail and financials are big industry segments for junk. Also keep in mind that the market for these things is not as liquid as the stock market. If your investment choice is really a sector investment, you might be better served by investing in sector funds with stocks that trade every day versus bonds whose market price may be difficult to determine.","If you know the market will crash, you could opt for going short. However, if you think this is too risky, not investing at all is probably your best move. In case of crises, correlation go up and almost all assets go down.","\"In my experience, Shiller is always way before his time with his predictions and often it comes at too early a point for anyone actually making some money to care about. His view is very long term - and I trust his predictions, because he so accurately predicted so many of the homepocalypse, and the measures that would follow. He even predicted that there would be bailouts in his book \"\"Irrational Exuberance\"\". His opinons were poo-poo'd as doom and gloom and manipulative until every piece started falling apart in the specific order of events (give or take) that they did. I personally think people like Dr. Shiller make bold predictions that are hard to swallow. The derivatives market is a bit skittish about rolling into bull territory with any kind of housing index, but Warren Buffet's old adage to \"\"buy when everyone is selling and sell when everyone is buying.\"\" (paraphrase). I see this as a good long-term investment because I trust Shiller's judgement, he stuck to his guns when the doubts were lobbed at him incessantly (and Krugman, et. al. to some extent), and he turned out to be more than vindicated. To me, these kinds of sources are usually pretty sound. The man knows what he's talking about, and I wouldn't mind picking up a piece of that action, especially if the market just doesn't trust any real estate investments. It's pretty easy to realize that right now housing will be undervalued and now that mortgage applications are (supposedly) stricter, I think there's a good argument to be made that this economist should continue to exceed expectations.\"","Buy some pits for xiv in October if you want to piggy back. Options pretty cheap right now. Not sure if xiv has options, but if vix spikes, xiv will tank almost 1 for 1 negative relationship. Chart both of them over time to see the relationship.","There are two impacts: First, if the pound is dropping, then buying houses becomes cheaper for foreign investors, so they will tend to buy more houses as investments, which will drive house prices up. Second, in theory you might be able to get a mortgage in a foreign country, let's say in Euro, and you might hope that over the next few years the pound would go up again, and the Euros that you owe the foreign bank become worth less.","I want to know too. Outside of the stock market there could be a lot of assets that aren't being supported as well as stocks by the US government. If that's the case we could be seeing another signaller showing the poor shape of the economy.","I know that assets like bonds have prices that have an inverse relationship with interest rates, but what other assets do as well? I'm a bit new to finance and all that so I'm trying to learn. Would real estate prices be high as well? If so, why?","You could look into an index fund or ETF that invests primarily in Real Estate Investment Trusts (REIT's). An REIT is any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages Many investment firms offer an index fund or ETF like this. For example, Vanguard and Fidelity have funds that invest primarily in real estate markets. You could also invest in a home construction ETF, like iShares' ITB, which invests in companies related to home construction. This ETF includes more companies than just REITs, so for example, Home Depot is included.","\"VNQ only holds ~16% residential REITs. The rest are industrial, office, retail (e.g. shopping malls), specialized (hotels perhaps?) etc. Thus, VNQ isn't as correlated towards housing as you might have assumed just based on it being about \"\"real estate.\"\" Second of all, if by \"\"housing\"\" you mean that actual houses have gone up appreciably, then you ought to realize that residential REITs seldom hold actual houses. The residential units held tend primarily to be rental apartments. There is a relationship in prices, but not direct.\"","I would think a depressed housing market might be the BEST time to buy, is this not correct? There are foreclosures where banks are letting houses go for half of their standard value, and are offering some of the lowest interest rates ever. In a strong economy you could be looking at around 10% APR, I see this as a situation where it's a buy low sort of time.","If you've decided to ignore the sound advice re: oil company stocks, and you want something directly linked to the price of oil, do the following: Understand that oil producers would like avoid the risk of a price drop, and oil consumers (refiners, electric utilities, etc.) would like to avoid the risk of a price rise. Understand that you are about to assume their risk.","\"I was in a similar situation, and used FX trading to hedge against currency fluctuations. I bought the \"\"new\"\" currency when the PPP implied valuation of my \"\"old\"\" currency was high, and was able to protect quite a bit of purchasing power that I would have lost without the hedge. Unfortunately you get taxed for the \"\"gain\"\" you made, but still helpful. In terms of housing market, you could look into a Ireland REIT index, but it may not correlate well with the actual house prices you are looking for.\"","Basically, they all do. The relationship is much more dynamic with stocks but corporate financing costs increase, return requirements increase (risk free rate goes up). Same with real estate. Commodity demand is correlated with economic activity, which is correlated with interest rates, although not perfectly. The most important factor is, a higher risk free rate increases the discount rate, which reduces asset values","Huh? I don't see how this effects inflation in practice.... (only in theory) Basically, I sell short end bonds and buy longer end bonds pocketing the difference in yield and increasing my duration. GLD and mining are hedges against inflation, markets are stupidly short term looking and care only about current expectations, if the current macro situation deteoriates we see prices fall.","Invest in an etf called SPXS and hope for a market correction in the next month. Or if you know a lot about markets and trends, select from this list of leveraged etfs available from Direxion.","\"Yes. S&P/ Case-Shiller real-estate indices are available, as a single national index as well as multiple regional geographic indices. These indices are updated on the last Tuesday of every month. According to the Case-Shiller Index Methodology documentation: Their purpose is to measure the average change in home prices in 20 major metropolitan areas... and three price tiers– low, middle and high. The regional indices use 3-month moving averages, published with a two-month lag. This helps offset delays due to \"\"clumping\"\" in the flow of sales price data from county deed recorders. It also assures sufficient sample sizes. Regional Case-Shiller real-estate indices * Source: Case-Shiller Real-estate Index FAQ. The S&P Case-Shiller webpage has links to historical studies and commentary by Yale University Professor Shiller. Housing Views posts news and analysis for the regional indices. Yes. The CME Group in Chicago runs a real-estate futures market. Regional S&P/ Case-Schiller index futures and options are the first [security type] for managing U.S. housing risk. They provide protection, or profit, in up or down markets. They extend to the housing industry the same tools, for risk management and investment, available for agriculture and finance. But would you want to invest? Probably not. This market has minimal activity. For the three markets, San Diego, Boston and Los Angeles on 28 November 2011, there was zero trading volume (prices unchanged), no trades settled, no open interest, see far right, partially cut off in image below. * Source: Futures and options activity[PDF] for all 20 regional indices. I don't know the reason for this situation. A few guesses: Additional reference: CME spec's for index futures and options contracts.\"","Generally speaking, you want to find goods and services that are inelastic and also require oil as a cost. Oil company stocks make record profits when oil is high, because direct demand for oil is relatively inelastic. Profit margins of oil competition should also go up, as this creates inflation in general, as people seek alternatives to the inelastic demand.","Invest in solid companies, not in esoteric products built on sand. The problem is with finance, not with real economy: oil companies make money, mobile phone companies make money, airlines make money...","If you believe the stock market will be down 20-30% in the next few months, sell your stock holdings, buy a protective put option for the value of the holdings that you want to keep. That would be hedging against it. Anything more is speculating that the market will fall.","There are multiple ETFs which inversely track the common indices, though many of these are leveraged. For example, SDS tracks approximately -200% of the S&P 500. (Note: due to how these are structured, they are only suitable for very short term investments) You can also consider using Put options for the various indices as well. For example, you could buy a Put for the SPY out a year or so to give you some fairly cheap insurance (assuming it's a small part of your portfolio). One other option is to invest against the market volatility. As the market makes sudden swings, the volatility goes up; this tends to be true more when it falls than when it rises. One way of invesing in market volatility is to trade options against the VIX.","Yes, bond funds are marked to market, so they will decline as the composition of their holdings will. Households actually have unimpressive relative levels of credit to equity holdings. The reason why is because there is little return on credit, making it irrational to hold any amount greater than to fund future liquidity needs, risk adjusted and time discounted. The vast majority of credit is held by insurance companies. Pension funds have large stakes as well. Banks hold even fewer bonds since they try to sell them as soon as they've made them. Insurance companies are forced to hold a large percentage of their floats in credit then preferred equity. While this dulls their returns, it's not a large problem for them because they typically hold bonds until maturity. Only the ones who misprice the risk of insurance will have to sell at unfavorable prices. Being able to predict interest rates thus bond prices accurately would make one the best bond manager in the world. While it does look like inflation will rise again soon just as it has during every other US expansion, can it be assured when commodity prices are high in real terms and look like they may be in a collapse? The banking industry would have to produce credit at a much higher rate to counter the deflation of all physical goods. Households typically shun assets at low prices to pursue others at high prices, so their holdings of bonds ETFs should be expected to decline during a bond collapse. If insurance companies find it less costly to hold ETFs then they will contribute to an increase in bond ETF supply.","Real estate. The value of the house where I live going up 15% per year! From 2004-2009. Sold for $92k in 1980 now valued at $524k. Twice the rate of inflation in that timeframe. None of it makes sense nor is it sustainable = asset bubble. In my zip code the median income is $162k and median house value $808k (Source: US Census Bureau, American Community Survey 2012). That averages out 5x annual income. In LA and Las Vegas that ratio is even worse, where most of these HELs and HELOCs are going to blow up. This article is accurate. People use these loans to replace their stagnating or falling wages. And its a lot of people.","The charts suggest otherwise. Although most of the large gains were wiped out in 2008 and 2011, that doesn't include the substantial dividends you are likely to get with financials. They still returned a positive percentage and some outperformed benchmark indices over time. But hey, don't let your bias get in the way.","Generally, you need something that goes up over time during periods of index decline, but otherwise holds some value. Historically, people tend to use gold for that purpose. But with gold also set up for possible declines, that raises questions. Silver has dropped a bit more than gold in terms of percentages. If you think the downward motion will be in the form of sudden jumps, you can look at putting some of your money in puts away from the current price, but you can easily wind up paying too much for this protection. In the case of a deflation, most things lose value vs. money, and you want all cash. These things might already be obvious. I don't think there is a clear answer to your question. But if the future were clear, the present market could possibly anticipate and adjust... one reason the future of the market always seems a bit murky.","You always see articles of how financially distressed people are, but then other articles on how home prices are rising and people don't want to sell their homes for less (to meet the pent-up demand for starter homes). A nice, long, prolonged drop in real estate prices would solve so much. With the decline in retail I hope it comes.","It is almost a sure thing that the housing market will crash again hugely.For this reason I prefer to own several houses that way when it does no one can ask for their money back and leave me homeless. Current economics suggest a fall of between 40-60% from 2011 prices meaning that if you have bought a house in the last 12 years you can wave bye bye to any and all equity, and this will happen very soon. I recommend saving your money and buying a house outright (like I did 3 times) from someone who has spent 12 years or so paying a mortgage.","\"You're \"\"onto\"\" something. Investing in real estate was not a bad idea about 10-15 years ago, when stocks were high, and real estate was not. On the other hand, by about 2006, BOTH stocks and real estate were high, and should have been avoided. And around 1980, both were LOW, and should have been bought. I expand this construct to include gold and oil. Around 2005, these were relatively low, and should have been bought over stocks and real estate. On the other hand, ALL FOUR are high right now, and offer comparable dangers.\"","I recommend you two things: I like these investments because they are not high risk. I hope this helps.","Credit products and securitized debt. Credit/debt is the flip side of equity but has less volatility. In today's investing environment people are not looking for a big return as much as less risk with a modest return. Another trend I think you will see is the disappearance of the wall between interest rate products/fixed income and credit products.","Without commenting on your view of the TV market: Let's have a look at the main ways to get negative exposure: 1.Short the stocks Pros: Relatively Easy Cons: Interest rate, costs of shorting, linear bet 2.Options a. Write Calls b. Buy puts Pros: Convexity, leveraged, relatively cheap Cons: Zero Sum bet that expires with time, theta 3.Short Stock, Buy Puts, Write Calls Short X Units of each stock, Write calls on them , use call premiums to finance puts. Pros: 3x the power!, high kickout Cons: Unlimited pain","not sure if serious, read on if you don't think the previous comment is sarcasm. No, they don't. The point of investing is to buy a stake in something that will become more valuable in the future. Other things don't have to devalue for your investment to gain value. This is possible because the net value of everything is increasing over time (compare the value of all the world's private property today to its value in 1900).","\"Real estate is not a good investment. In fact, it's easy to make a case for it being the worst possible investment imaginable: Imagine over a cup or coffee or a glass of wine we get to talking about investments. Then maybe one of us, let’s say you, says: “Hey I’ve got an idea. We’re always talking about good investments. What if we came up with the worst possible investment we can construct? What might that look like?” Well, let’s see now (pulling out our lined yellow pad), let’s make a list. To be really terrible: -- Why Your House Is A Terrible Investment There are plenty of good reasons to own a home, but the key word there is \"\"home\"\". Owning housing as an investment property is a horrible idea, and anyone who does it, especially right now with as bubbly as the market is looking again, (or, better put, still, since the last bubble never did fully pop and clear out the underlying systemic instability,) is an idiot. And even after the current housing market bubble pops, it's likely to remain a bad idea for decades. We're never getting the early 2000s back, for basic supply-and-demand reasons: with the Baby Boom generation retiring, aging and dying off, they're not likely to do much more home-buying, and no generation after them is as big as they are, which means a glut of oversupply and weak demand for the entirety of the foreseeable future.\"","The article John cites says no correlation, but this chart from the article says otherwise; One sees the rate drop from 14% to 4% and housing rise from an index of 50 to near 190. (reaching over to my TI BA-35 calculator) I see that at 14%, $1000/mo will buy $84,400 worth of mortgage, but at 4%, it will buy $209,500. 2-1/2 times the borrowing power for the same payment. But wait, my friends at West Egg tell me that inflation means I can't compare $1000 in 1980 to the same $1000 in 2010. The $1,000 inflates to $2611 (i.e. an income rising only with inflation, no more) and that can fund a mortgage for $546,900. This is 6.5 times the original borrowing power, yet the housing index 'only' rose 3.8X. See that crazy chart? Housing actually got cheaper from 1980 to the peak. Statistics can say whatever you wish. Interest rate change drove all the change in housing prices, but not quite as much as it should have. To answer your question - I expect that when rates rise (and they will) housing prices will take a hit. In today's dollars, a current $1000 borrows (at 4%) nearly $210K, but at 6%, just $167K. If rates took a jump from these record lows, that's the nature of the risk you'd take.","One way of looking at it is that your equity in your house is an investment in a particular class of asset, and investing further in that asset class may drive you away from, rather than towards, your preferred asset mix. It's pretty common here in New Zealand for people's only investments to be their homes and rental properties. I wish those people luck when our current property boom ends.","So wages for the working class are declining, young people can't find jobs and are over encumbered in school debt, unemployment is really high, yet these fools think they can find a sucker who can afford their overpriced assets? Good Luck.","Hits 3 I go in big. You think it'll still be at 3 in 5 or 10 years? Come on now. It ain't going under and the economy will rebound. When it does, all the bank stocks will come back. It's quite simple, really.","To avoid risk from rising interest rates, get a fixed rate mortgage. For the life of the mortgage your principal and interest payments will remain the same. Keep in mind that the taxes and insurance portion of your monthly payment may still go up. Because you own the property, the costs to maintain the property are your responsibility. If you rented this would be the responsibility of the owner of the property; if the cost to repair and maintain goes up so does the rent. Because you are the owner your annual costs to repair and maintain may go up over time. The way to eliminate risk of loss of value is to never move, until the mortgage is paid off. You will know exactly what principal and interest will cost you over the life of the loan. When you sell that will be essentially return on your payments. You don't know if the loss of value is due to world, national, regional, local or individual circumstances. so hedging is tough. If the fact that the mortgage is 95% is what makes you nervous, your biggest risk is risk of being upside down. That risk is greatly reduced by increasing the amount of the down payment. That decreases the risk that the value will be below the mortgage amount if due to unforeseen circumstances you have to sell immediately. The money will still be lost due to decrease in value, but you aren't forced to bring cash to the settlement table if you need to sell.","\"If you owned a bank how would you invest the bank's money? Typically banks are involved in loaning out money to businesses, people, and government at a higher interest rate then what they are paying to depositors. This is the spread and how they make money. If the bank determines that the yields on government bonds is more attractive then loaning the money out to businesses and people then the bank will purchase government bonds. It can also decide the other way. In this manner the mortgage and bond markets are always competing for capital and tend to offer very similar yields. Certain banks have the unique privilege of being able to borrow money from the FED at the Federal Funds rate and use this money to purchase government debt or loan it out to other banks or purchase other debt products. In this manner you see a high correlation between the FED funds rate, mortgage rates, and treasury yields. Other political factors include legislation that encourages mortgage lending (see Community Reinvestment Act) where banks may not have made the loans without said legislation. In short, keep your eye on the FED and ask yourself: \"\"Does the FED want rates to rise?\"\" and \"\"Can the US government afford rising rates?\"\" The answer to these two questions is no. However, the FED may be pressured to \"\"stop the presses\"\" if inflation becomes unwieldy and the FED actually starts to care about food and energy prices. So far this hasn't been the case.\"","Totally depends on the drivers of the downturn. Keep in mind that in ~2005, both real estate and short-term bonds would arguably have been reasonable answers to this question (without the benefit of hindsight, of course). e: After re-reading your post, it looks like you were asking about (I assume) equity investments by sector rather than asset classes more broadly. I'm not sure equity in any sector can be considered a safe haven in a downturn. Utilities are the typical answer, but they didn't do much better than equity markets in general in 2008-2009.","Goldman Sachs saw credit default swaps as an investment option too. You have to realize they aren't really in the buy and hold game. Them seeing an opportunity to make money off something doesn't mean it will necessarily go up in the future. Also the US economy is the strongest it's been in almost 20 years.. Eroding?","\"I would undoubtedly sell the investments if they are positive, maybe even a little negative. That's what non-retirement investments are for, building wealth to spend, give, etc. Flipping things may put it in perspective. Would you borrow money or liquidate your emergency fund in order to invest in mutual funds? If you can completely ignore risk then this MAY make sense. Let's say if you could borrow money at 3.75% and had a \"\"guaranteed\"\" investment return of 7.5% and a \"\"guaranteed\"\" source of income (job). But mutual funds (stocks, bonds) aren't even guaranteed to make money and they most definitely can lose and lose big. Also, I hope your job isn't in any way tied to the oil industry. On the other hand, if you take a loan and fall on hard times you can liquidate your mutual funds to get out of the bind, but you are at the mercy of the market and the worth of your investments at that point. So it may come down to whether you want to choose when to spend your investments, when they are up or at some future date when they may be worth much less (or much more).\"","If your planning on shorting the stocks be careful, while the value of the retail sector may be declining there will be a lot of back and forth over the next ten years, and as REITs discounts to nav increases, there is huge opportunities for buyouts from developers who have other use ideas for the real estate. The real estate will always have value, even if it's not as a shopping center.",">I would much rather have my money in an up-trend. Damn right. Or at least have it liquid. We couldn't sell this house now, even though it's one of the best in the neighborhood. (The nice, but smaller, house across the street has been on the market for over a year.) A few other houses in the neighborhood didn't seem to have any problems being rented, though, so we could likely get rental income from this one if we wanted.","It's always a good move for risk-averse person, expecially in Europe. Because houses are not represented by number in an index. Therefor if you are risk-adverse, you will suffer less pain when house prices go down because you won't have a number to look at everyday like the S&P500 index. Because houses in Europe (Germany, Italy, Spain) are almost all made by concrete and really well done (string real marble cover, hard ceramic covers, copper pipes, ...) compared to the ones in US. The house will still be almost new after 30 years, it will just need a repaint and really few/cheap fixings. Because on the long run (20/30 years) hosues are guaranteed to rise in price, expecially in dense places like big city, NY, San Francisco, etc. The reason is simple: the number of people is ever growing in this world, but the quantity of land is always the same. Moreover there is inflation, do you really think that 30 years from now building a concrete house will be less expensive than today??? Do you think the concrete will cost less? Do you think the gasoline that moves the trucks that bring the concrete will be less expensive than now? Do you think the labour cost will be less expensice than now? So, 30 years from now building an house will be much more expensive than today, and therefor your house wil be more expensive too. On the lomng run stock market do not guarantee you to always increase. The US stock market have always been growing in the long run, but Japan stock market today is at the same level of 30 years ago. Guess what happened to you if you invested your money in the Japan stock market, 30 years ago, whilest your friend bought an hosue in Japan 30 years ago. He would now be rich, and you would now be poor.","\"There's an old saying: \"\"Never invest in anything that eats or needs maintenance.\"\" This doesn't mean that a house or a racehorse or private ownership of your own company is not an investment. It just points out that constant effort is needed on your part, or on the part of somebody you pay, just to keep it from losing value. Common stock, gold, and money in the bank are three things you can buy and leave alone. They may gain or lose market value, but not because of neglect on your part. Buying a house is a complex decision. There are many benefits and many risks. Other investments have benefits and risks too.\"","\"How can one offset exposure created by real-estate purchase? provides a similar discussion. Even if such a product were available in the precise increments you need, the pricing would make it a loser for you. \"\"There's no free lunch\"\" in this case, and the cost to insure against the downside would be disproportional to the true risk. Say you bought a $100K home. At today's valuations, the downside over a given year might be, say, 20%. It might cost you $5000 to 'insure' against that $20K risk. Let me offer an example - The SPY (S&P ETF) is now at $177. A $160 (Dec '14) put costs $7.50. So, if you fear a crash, you can pay 4%, but only get a return if the market falls by over 14%. If it falls 'just' 10%, you lose your premium. With only 5% down, you will get a far better risk-adjusted return by paying down the mortgage to <78% LTV, and requesting PMI, if any, be removed. Even if no PMI, in 5 years, you'll have 20% more equity than otherwise. Over the long term, 5 year's housing inflation would be ~ 15% or so. This process would help insure you are not underwater in that time. Not guarantee, but help.\"","\"1) link? 2) It doesn't matter if they can or do, what matters is if they are *investing* (not trading) in it *more* than banks are investing in businesses. If that is the case (it is) then businesses as a whole will see the inflation first, and commodities will be playing catchup the entire time, but mostly when the investments hit recession. I will invest in the market again after they lose their mal-invested value, In historical terms the best time was to invest in them was 1980, 1938 and 1900, and the best time to get out was 1929 1960's and 2000. But to bet against them right now, with the dollar, is meaningless because the FED is deflating the currency as they go down, so it's like running on a treadmill. By holding silver I am essentially short the market, only difference is instead of holding a devaluing currency (cash) I'm holding a real money which is increasing in value. There's nothing simpler than \"\"investing\"\" in commodities for the long-term, people lose when they are making monthly/daily trades in them. Anyone who bought and held on to gold in 2000 did it for $300, and they've made infinitely more than the majority of people investing in blue chips (because they've lost value) and much more than those who invested in bonds. And that trend isn't going to stop unless the government lets the dollar deflate in which case the dollar will come to gold instead of the other way around. Until they are in equilibrium again. Historically the dow has an average of being 2 ounces of gold, peaking at 50 and trophing at .5. If it hits .5 again like it has everytime this occurs in the past. Then either gold will be $20000 or the dow will be 4000. You pick.\"","That tends to be the case with a lot of things I am seeing. Any changes seem to create short term recession with projections of long-term growth. I would normally see that as a problem, because the reaction to the recession could effect the outcome post recession, but the LFPR trending downward is not a good sign for the economy as a whole. Eventually that portion would leave most markets, or welfare would have to increase, on the current trajectory. I think encouraging non-income producing assets for wealth generation is a flawed system, personally. Whether I am right or wrong, I do not know. I think the Government, and subsequently the fed, should encourage income-producing assets for the wealth affect, or in the very least, not something as crucial as housing to the health of the consumer base.","Put Options. They're less risky than shorting, and have similar upsides. The major difference is that if the price goes up, you're just out the underwriting price. You'll also need to know when the event will happen, or you risk being outwaited. More traditionally, an investor would pull their money out of the market and move into Treasury bonds. Recall that when the market tanked in 2008, the price of treasuries jumped. Problem is, you can only do that trade once, and it hasn't really unwound yet. And the effect is most pronounced on short term treasuries, so you have to babysit the investment. Because of this, I think some people have moved into commodities like gold, but there's a lot of risk there. Worst case scenario you have a lot of shiny metal you can't eat or use.","> Indeed, the most popular of the funds, the Barclays iPath fund, known broadly by its ticker symbol VXX, has since its inception averaged a yearly return of negative 58 percent, according to FactSet. > Or look at it this way: If an investor bought VXX when it came to market in 2009 and held onto it until now, that investor would have lost 99 percent of his investment. perfect for /r/wallstreetbets !","\"The Case-Schiller macro derivatives market has seen very minimal activity. For example, in the three regional markets of San Diego (SDG), Boston (BOS) and Los Angeles (LAX) on 28 November 2011, there was zero trading volume, no trades settled, no open interest. * Source: CME Futures and options activity[PDF] for all 20 regional indices. Why haven't these real-estate futures caught on with investors? Keep in mind that the CME introduced these indices, with support from Professor Shiller and partner Standard & Poor's several years ago. The CME seems committed to wait this out, as they have shown no indication of dropping the Case-Shiller indices. There are alternative real-estate investment securities to the Case-Shiller indices. I don't think the market of investors is so small that Case-Shiller has been, in effect, \"\"crowded out\"\" by them. I think it is more likely a matter of known quantities. Also, I don't know how well these alternatives are doing! Additional reference: CME spec's for Case-Shiller index futures and options contracts.\"","I agree with @Turukawa that the x-axes need to be the same to make a direct comparison. However, the graphs you linked make me think of introductory calculus: If you time averaged plots, speculative investments (gold, housing) seem to have many large concave up time periods and the dow jones has many concave down sections. Using the concavity test: If the first derivative tells you about the rate of change, the second derivative tells you about the rate of change of rate of change. Remember back to Physics 101: 1st derivative is velocity & second derivative is acceleration. It would be interesting to have the same time scales for your plots & compare these accelerations between the two. I suspect the more volatile investments would have larger (in magnitude) accelerations during boom/bust cycles than less speculative investments.","\"For real. AAA treasury bonds are used a safe investment vehicle for the reason of \"\"its the US government, its safe\"\", which is pretty similar to the \"\"dude, who doesnt pay their mortgage?!\"\" line of thinking. You got people dumping money into these derivatives and suddenly someone goes \"\"oh yeah you just bought a bunch of bad debt that should be rated 'junk'. Oops.\"\"\"","Short the Pound and other English financial items. Because the English economy is tied to the EU, it will be hit as well. You might prefer this over Euro denominated investments, since it's not exactly clear who your counterpart is if the Euro really crashes hard. Meaning suppose you have a short position Euro's versus dollars, but the clearing house is taken down by the crash.","\"I don't see how I'm biased in favor of the banks. Make no mistake, the banks are to blame for the collapse, more so than the government. However I'm acknowledging the timeline and all the major players in this game, and that includes the government. I addressed the role of banks selling risky mortgages susceptible to default, which includes predatory lending rates, highly leveraged individuals who buy investment properties, and subprime ARM loans. Thank you for providing more detail. I also addressed the securitization of risky mortgages into investment-grade debt, which could be sold to satisfy the \"\"Giant Pool of Money\"\". Plus, I addressed how the banks lowered their standards to continue the supply of mortgages. Feel free to directly cite [Paul Krugman](http://krugman.blogs.nytimes.com/2010/01/07/cre-ative-destruction/) as the source of your argument regarding the simultaneous growth of the residential and commercial RE. Commercial RE was pulled along by residential RE and the broader market rally (commercial land is highly cyclical). Commercial RE prices rose as the market showed lower interest rates and higher land prices. So commercial RE slightly lagged the housing market.\"","I would strongly recommend investing in assets and commodities. I personally believe fiat money is losing its value because of a rising inflation and the price of oil. The collapse of the euro should considerably affect the US currency and shake up other regions of the world in forex markets. In my opinion, safest investment these days are hard assets and commodities. Real estate, land, gold, silver(my favorite) and food could provide some lucrative benefits. GL mate!","\"You're hearing alot of talk about housing (and by implication property) not being an investment today because on the downside of a market, the conventional wisdom is to be negative about buying things that have lost value. Just as it was dumb to listen to your coworker about hot .Com IPOs in 1999, it's dumb to listen to the real estate naysayers now. Here's another question along a similar vein: Were stocks a good investment in the spring of 2009? The conventional wisdom said: \"\"No, stocks are scary! Buy T-Bills or Gold Bullion!\"\". The people who made money said: \"\"Wait a second, Goldman Sachs is down like 75%? IBM is down like 30%, are they going anywhere? Time to buy.\"\" The wrong house is a poor investment in any economy. Buying a house in Detriot in 1970 was not a good move. Buying a house that needs $50k in work, not a good move. Buying a condo with a bankrupt HOA in Florida is not a good idea. But a good house that is well cared for is a great investment. I'm living in a house right now that is 80 years old, well maintained and affordable on a single income. A similar home a few blocks away sold in May for the same price as we paid in 2006. I'm paying about 20% less than I would for an apartment, and we'll think about moving in 2016 or 2017, by which time I'll probably have put $30-50k into the house. (Roof, kitchen, exterior painting, minor renovation)\"","Options are contractual instruments. Most options you'll run into are contracts which allow you to buy or sell stock at a given price at some time in the future, if you feel like it (it gives you the option). These are Call and Put options, respectively (for buying the stock and selling the stock). If you have a lot of money in an index fund ETF, you may be able to protect your portfolio against a market decline by (e.g.) buying Put options against the ETF for a substantially lower price than the index fund currently trades at. If the market crashes and your fund falls in value significantly, you can exercise the options, selling the fund at the price that your option has specified (to the counter-party of your contract). This is the risk that the option mitigates against. Even if you don't have one particular fund with your investments, you could still buy a put option on a similar fund, and resell it to another person in lieu of exercise (they would be capable of buying the stock and performing the exercise themselves for profit if necessary). In general, if you are buying an option for safety, it should be an option either on something you own, or something whose price behavior will mimic something you own. You will note that options are linked to the price of stocks. Futures are contracts whose values are linked to the price of other things, typically commodities such as oil, gold, or orange juice. Their behaviors may diverge. With an option you can have a contractual guarantee on the exact investment you're trying to protect. (Additionally, many commodities' value may fall at the same time that stock investments fall: during economic contractions which reduce industrial activity, resulting in lower profits for firms and less demand for commodities.) You may also note that there are other structures that options may have - PUT options on index funds or similar instruments are probably most specifically relevant to your interests. The downside of protecting yourself with options is that it costs money to buy this option, and the option eventually expires, so you may lose money. Essentially, you are buying safety and risk-tolerance from the option contract's counterparty, and safety is not free. I cannot inform you what level of safety is appropriate for your portfolio's needs, but more safety is more expensive.","I agree, again, for the most part. But I still see the trend of real-estate to be going down. I would much rather have my money in an up-trend. While many people should still buy homes for the same reasons they would if the bubble weren't there and still crashing.","PST, or any of the Ultra Short/Long funds aren't actually holding any traditional securities -- just swaps that are betting on the underlying asset. They also don't track the value of the underlying security over time -- just for one day. (And they're not even guaranteed to do that!) IEF is an actual treasury bond fund that holds real-life treasury securities, not swaps. Shorting a fund like IEF is one option, another is to buy options on a fund like IEF. Be very careful investing with ETFs, and don't buy any until you fully read and understand the prospectus. I got burned by an Ultra Long ETF because I didn't do my homework.","This is literally the thought process that caused the 2008 collapse, the only difference being the bonds consisted of sub-prime mortgages. Not saying its a bad idea, honestly you could make a lot of money, but macro-economically its a shit-storm brewing in the distance.","\"Yes, it's unreasonable to think the prices will drop 10-20% in that time frame. Housing prices are not an equation that can can be solved to \"\"home prices are X% overvalued.\"\" You have 3 answers so far, Quanty's \"\"prices are inversely proportional to rates,\"\" Rob's \"\"there's no strong correlation between interest rates and house prices,\"\" and MB's, \"\"rising interest rates create downward pressure on housing prices.\"\" Any research into price history had better take every other variable into account. Articles that look at rates vs price don't always address a key item, income. Say we agree that the data show your city to be 10% too high. But if sellers like their high price and have some 'dig my heels in' power, prices won't drop. The seller simply stays put, and the supply/demand curves result not in a lower price, but in less supply. And the effect is to change the demographic of that area, i.e. attracting higher income earners. Rob linked to an article with a nice set of charts. One chart showing the US30 yr fixed rate and 'Real House Prices'. What results is a chart that can refute the relationship between rates and prices. But that would ignore an historical point that's too important to forget. The tumble that started in Jan '06 had nothing to do with the 30 year rate. It was the result of a series of insane financial products including 'interest only option ARMs' which permitted buyers to get approved for a purchase based on a payment that wasn't fixed, and would change to a fully amortizing mortgage at a higher rate that was unaffordable. A product that was a financial time bomb. Canada Banks offered no such product, and when the US market got pneumonia, Canada experienced a mild cold. With respect to any answers that offer US centric data to prove any hypothesis, I don't feel such comparisons are appropriate. Correlations, and the data used to prove them are an interesting thing. I can suggest that you take the US 30 year rate, along with our median income, or rather 25% of monthly median income. Calculate the mortgage that results. This translates nicely to the home a median family can afford. And I claim that long term this is the equilibrium price of that median home. But supply/demand has another factor, 'stickyness' or the more technical term, 'inelasticity of demand.' This means that for example, a 10% increase in the price of cigarettes does not cause a 10% drop in consumption. Each and every good has its own elasticity, and in the case of housing, a rise in cost would certainly impact the marginal buyers, but others will simply adjust their budgets. Not all buyers were planning to hit the bank's limit on what they could afford, so the rise doesn't change their mind, just their budget. Last - I know that Canada does not have a 30 year mortgage, most common is a 5 year rate with 30 year amortization. (correction/clarification, anyone?) The effect of this is less volatility in the market, since I believe your rates are not poised for the 2.5% to 4% jump implied by another response. Small increases can be absorbed. In a beautiful coincidence, the Federal Reserve Board sent me a link to The Interest Rate Elasticity of Mortgage Demand: Evidence From Bunching at the Conforming Loan Limit. It's a bit long but a worthwhile look at how the correlation isn't as instant as some might think.\"","I just read this: Housing and inflation Adjusted for inflation the price of a house has increased a miniscule amount. A better investment would be an ETF that buys REIT stocks. You would be investing in real estate but can cash in and walk away at any time. Here is a list of mREITs: Stockchart of REITs","Yes, but only because the US had a huge crash. Other economies have, in the absence of any credible *real* growth strategy, continued pumping housing. I still think student debt will erode incomes further as it's simply pulling forward demand that will drag on incomes later. When nearly everyone has a degree then nearly everyone doesn't get paid much more for having one. By the same principle of supply and demand all the boomer downsizing vs impoverished 30-something lack of upsizing will mean prices will fall.","Since 1971, mortgage interest rates have never been more than .25% below current rates (3.6%). Even restricting just to the last four years, rates have been as much as .89% higher. Overall, we're much closer to the record low interest rate than any type of high. We're currently at a three-year low. Yes, we should expect interest rates to go up. Eventually. Maybe when that happens, bonds will fall. It hasn't happened yet though. In fact, there remain significant worries that the Fed has been overly aggressive in raising rates (as it was around 2008). The Brexit side effects seem to be leaning towards an easing in monetary policy rather than a tightening.","Uhm, this is my disclaimer that this is not financial advice. But. I would imagine a decent amount of high growth tech will go into the toilet. Also cyclicals that are heavily reliant on the low cost of short term capital. But really these are just some intuitive guesses. It would really depend on what the mechanism and impact of a future recession would be. Curious though, why do you personally think a recession is looming? I know there's been a lot of talk but per the VIX, investors' worries don't appear to be affecting their behavior too much (at least in equities). I think the big risk is the Fed not being able to control the yield curve, i.e if short term rates increase but the Fed can't or won't shrink the balance sheet enough to impact long term rates. Just an idea.","High risk foreign debt is great until the bottom falls out of the market when the government default on debt or revalues currency. If you do this, you should be able to sustain near total losses of principal and interest.","\"anything that produces steady income will produce a \"\"real return\"\" (return above inflation) in a zero-interest rate environment: Note, however, that all of these will decline in value if interest rates rise.\"","Like @littleadv, I don't consider a mortgage on a primary residence to be a low-risk investment. It is an asset, but one that can be rather illiquid, depending on the nature of the real estate market in your area. There are enough additional costs associated with home-ownership (down-payment, insurance, repairs) relative to more traditional investments to argue against a primary residence being an investment. Your question didn't indicate when and where you bought your home, the type of home (single-family, townhouse, or condo) the nature of your mortgage (fixed-rate or adjustable rate), or your interest rate, but since you're in your mid-20s, I'm guessing you bought after the crash. If that's the case, your odds of making a profit if/when you sell your home are higher than they would be if you bought in the 2006/2007 time-frame. This is no guarantee of course. Given the amount of housing stock still available, housing prices could still fall further. While it is possible to lose money in all sorts of investments, the illiquid nature of real estate makes it a lot more difficult to limit your losses by selling. If preserving principal is your objective, money market funds and treasury inflation protected securities are better choices than your home. The diversification your financial advisor is suggesting is a way to manage risk. Not all investments perform the same way in a given economic climate. When stocks increase in value, bonds tend to decrease (and vice versa). Too much money in a single investment means you could be wiped out in a downturn.","\"First, a clarification. No assets are immune to inflation, apart from inflation-indexed securities like TIPS or inflation-indexed gilts (well, if held to maturity, these are at least close). Inflation causes a decline in the future purchasing power of a given dollar1 amount, and it certainly doesn't just affect government bonds, either. Regardless of whether you hold equity, bonds, derivatives, etc., the real value of those assets is declining because of inflation, all else being equal. For example, if I invest $100 in an asset that pays a 10% rate of return over the next year, and I sell my entire position at the end of the year, I have $110 in nominal terms. Inflation affects the real value of this asset regardless of its asset class because those $110 aren't worth as much in a year as they are today, assuming inflation is positive. An easy way to incorporate inflation into your calculations of rate of return is to simply subtract the rate of inflation from your rate of return. Using the previous example with inflation of 3%, you could estimate that although the nominal value of your investment at the end of one year is $110, the real value is $100*(1 + 10% - 3%) = $107. In other words, you only gained $7 of purchasing power, even though you gained $10 in nominal terms. This back-of-the-envelope calculation works for securities that don't pay fixed returns as well. Consider an example retirement portfolio. Say I make a one-time investment of $50,000 today in a portfolio that pays, on average, 8% annually. I plan to retire in 30 years, without making any further contributions (yes, this is an over-simplified example). I calculate that my portfolio will have a value of 50000 * (1 + 0.08)^30, or $503,132. That looks like a nice amount, but how much is it really worth? I don't care how many dollars I have; I care about what I can buy with those dollars. If I use the same rough estimate of the effect of inflation and use a 8% - 3% = 5% rate of return instead, I get an estimate of what I'll have at retirement, in today's dollars. That allows me to make an easy comparison to my current standard of living, and see if my portfolio is up to scratch. Repeating the calculation with 5% instead of 8% yields 50000 * (1 + 0.05)^30, or $21,6097. As you can see, the amount is significantly different. If I'm accustomed to living off $50,000 a year now, my calculation that doesn't take inflation into account tells me that I'll have over 10 years of living expenses at retirement. The new calculation tells me I'll only have a little over 4 years. Now that I've clarified the basics of inflation, I'll respond to the rest of the answer. I want to know if I need to be making sure my investments span multiple currencies to protect against a single country's currency failing. As others have pointed out, currency doesn't inflate; prices denominated in that currency inflate. Also, a currency failing is significantly different from a prices denominated in a currency inflating. If you're worried about prices inflating and decreasing the purchasing power of your dollars (which usually occurs in modern economies) then it's a good idea to look for investments and asset allocations that, over time, have outpaced the rate of inflation and that even with the effects of inflation, still give you a high enough rate of return to meet your investment goals in real, inflation-adjusted terms. If you have legitimate reason to worry about your currency failing, perhaps because your country doesn't maintain stable monetary or fiscal policies, there are a few things you can do. First, define what you mean by \"\"failing.\"\" Do you mean ceasing to exist, or simply falling in unit purchasing power because of inflation? If it's the latter, see the previous paragraph. If the former, investing in other currencies abroad may be a good idea. Questions about currencies actually failing are quite general, however, and (in my opinion) require significant economic analysis before deciding on a course of action/hedging. I would ask the same question about my home's value against an inflated currency as well. Would it keep the same real value. Your home may or may not keep the same real value over time. In some time periods, average home prices have risen at rates significantly higher than the rate of inflation, in which case on paper, their real value has increased. However, if you need to make substantial investments in your home to keep its price rising at the same rate as inflation, you may actually be losing money because your total investment is higher than what you paid for the house initially. Of course, if you own your home and don't have plans to move, you may not be concerned if its value isn't keeping up with inflation at all times. You're deriving additional satisfaction/utility from it, mainly because it's a place for you to live, and you spend money maintaining it in order to maintain your physical standard of living, not just its price at some future sale date. 1) I use dollars as an example. This applies to all currencies.\"","\"Perhaps buying some internationally exchanged stock of China real-estate companies? It's never too late to enter a bubble or profit from a bubble after it bursts. As a native Chinese, my observations suggest that the bubble may exist in a few of the most populated cities of China such as Beijing, Shanghai and Shenzhen, the price doesn't seem to be much higher than expected in cities further within the mainland, such as Xi'an and Chengdu. I myself is living in Xi'an. I did a post about the urban housing cost of Xi'an at the end of last year: http://www.xianhotels.info/urban-housing-cost-of-xian-china~15 It may give you a rough idea of the pricing level. The average of 5,500 CNY per square meter (condo) hasn't fluctuated much since the posting of the entry. But you need to pay about 1,000 to 3,000 higher to get something desirable. For location, just search \"\"Xi'an, China\"\" in Google Maps. =========== I actually have no idea how you, a foreigner can safely and easily profit from this. I'll just share what I know. It's really hard to financially enter China. To prevent oversea speculative funds from freely entering and leaving China, the Admin of Forex (safe.gov.cn) has laid down a range of rigid policies regarding currency exchange. By law, any native individual, such as me, is imposed of a maximum of $50,000 that can be converted from USD to CNY or the other way around per year AND a maximum of $10,000 per day. Larger chunks of exchange must get the written consent of the Admin of Forex or it will simply not be cleared by any of the banks in China, even HSBC that's not owned by China. However, you can circumvent this limit by using the social ID of your immediate relatives when submitting exchange requests. It takes extra time and effort but viable. However, things may change drastically should China be in a forex crisis or simply war. You may not be able to withdraw USD at all from the banks in China, even with a positive balance that's your own money. My whole income stream are USD which is wired monthly from US to Bank of China. I purchased a property in the middle of last year that's worth 275,000 CNY using the funds I exchanged from USD I had earned. It's a 43.7% down payment on a mortgage loan of 20 years: http://www.mlcalc.com/#mortgage-275000-43.7-20-4.284-0-0-0.52-7-2009-year (in CNY, not USD) The current household loan rate is 6.12% across the entire China. However, because this is my first property, it is discounted by 30% to 4.284% to encourage the first house purchase. There will be no more discounts of loan rate for the 2nd property and so forth to discourage speculative stocking that drives the price high. The apartment I bought in July of 2009 can easily be sold at 300,000 now. Some of the earlier buyers have enjoyed much more appreciation than I do. To give you a rough idea, a house bought in 2006 is now evaluated 100% more, one bought in 2008 now 50% more and one bought in the beginning of 2009 now 25% more.\"","\"leverage amplifies gains and losses, when returns are positive leverage makes them more positive, but when returns are negative leverage makes them more negative. since most investments have a positive return in \"\"the long run\"\", leverage is generally considered a good idea for long term illiquid investments like real estate. that said, to quote keynes: in the long run we are all dead. in the case of real estate specifically, negative returns generally happen when house prices drop. assuming you have no intention of ever selling the properties, you can still end up with negative returns if rents fall, mortgage rates increase or tax rates rise (all of which tend to correlate with falling property values). also, if cash flow becomes negative, you may be forced to sell during a down market, thereby amplifying the loss. besides loss scenarios, leverage can turn a small gain into a loss because leverage has a price (interest) that is subtracted from any amplified gains (and added to any amplified losses). to give a specific example: if you realize a 0.1% gain on x$ when unleveraged, you could end up with a 17% loss if leveraged 90% at 2% interest. (gains-interest)/investment=(0.001*x-0.02*0.9*x)/(x/10)=-0.017*10=-0.17=17% loss one reason leveraged investments are popular (particularly with real estate), is that the investor can file bankruptcy to \"\"erase\"\" a large negative net worth. this means the down side of a leveraged investment is limited for the highly leveraged investor. this leads to a \"\"get rich or start over\"\" mentality common among the self-made millionaire (and failed entrepreneurs). unfortunately, this dynamic also leads to serious problems for the banking sector in the event of a large nation-wide devaluation of real estate prices.\"","if more people wanted to short mortgages, the price of insurance on them would have gone up, and investors would have stopped wanting to buy them, which would cause interest rates on homes to go up, reducing the number of people who can buy homes out of their price range- which was a fundamental cause of the crisis","No, there is no linkage to the value of real estate and inflation. In most of the United States if you bought at the peak of the market in 2006, you still haven't recovered 7+ years later. Also real estate has a strong local component to the price. Pick the wrong location or the wrong type of real estate and the value of your real estate will be dropping while everybody else sees their values rising. Three properties I have owned near Washington DC, have had three different price patterns since the late 80's. Each had a different starting and ending point for the peak price rise. You can get lucky and make a lot, but there is no way to guarantee that prices will rise at all during the period you will own it.","In the 2008 housing crash, cash was king. Cash can make your mortgage payment, buy groceries, utilities, etc. Great deals on bank owned properties were available for those with cash. Getting a mortgage in 2008-2011 was tough. If you are worried about stock market crashing, then diversification is key. Don't have all your investments in one mutual fund or sector. Gold and precious metals have a place in one's portfolio, say 5-10 percent as an insurance policy. The days of using a Gold Double Eagle to pay the property taxes are largely gone, although Utah does allow it. The biggest lesson I took from the crash is you cant have too much cash saved. Build up the rainy day fund.","\"TBF - Proshares short 20+ Year Treasury The TBF fund is designed to track (hopefully) 100 percent of the inverse daily returns of the Barclays Capital 20+ Year U.S. Treasury Index. there's some risk of tracking error, and also a compounding effect if it's down several days in a row. (invest with care) There's also a TBT fund, but the risks are even greater since it is leveraged, potentially you could make the right long term call, but lose a lot in the short term due to tracking error and effect of compounding) (that would tend to make this one more appropriate for short term 'bets' on interest rates, and less so for a long term investor) There are also quite a few floating rate closed-end funds (Click here, then click on \"\"loan participation funds\"\") that should do well in a rising rate environment. Just beware that these funds seem to incorporate a substantial amount of credit risk as well as floating interest rate exposure. Closed end funds trade a lot like securities, since the fund is closed, you have to buy shares from another owner that is selling (just like with stocks), that means the shares can sometimes trade above or below the underlying value of the actual assets held by the fund depending on buying/selling pressure and the relative liquidity of a given fund.\"","Typically in a developed / developing economy if there is high overall inflation, then it means everything will rise including property/real estate. The cost of funds is low [too much money chasing too few goods causes inflation] which means more companies borrow money cheaply and more business florish and hence the stock market should also go up. So if you are looking at a situation where industry is doing badly and the inflation is high, then it means there are larger issues. The best bet would be Gold and parking the funds into other currency.","What financial instruments are there that are profitable when an underlying assets falls? The instrument you are looking for is called an Option, specifically a Put Option. It allows you, within the validity date, to sell ('Put') the respective shares to the option giver, at the predefined Strike Price. For example, let's assume APPL trades currently at 100 $ per share, and you think they will go down a lot. You buy one Put Option for 100 shares (they always come for larger amounts like 100s) for a Strike Price of 90 $, and pay 5 $ for it (it would be cheap if nobody believes they will fall that much). Note the last sentence under 2. - it is rather easy and very common when trading options to make complete losses. You have been warned. Are they available for IPOs? They could be available for IPOs, even before the IPO. However, someone has to put them out (some large bank, typically), which is some effort, and they would only do that if they expect enough interest and volume in the trade. most of the time, there will be no such options on the market. Are they available for foreign stocks?Yes, but again only selectively - only if the stock is well known and interesting enough for a broad audience.","I don't like REITs because they are more closely correlated to the movement of the stock market. They don't really do the job of diversifying a portfolio because of that correlation. When the stock market dropped in 2008, REITs were hammered as well because the housing bubble burst. Bonds went up, and if you rebalanced (sold the bonds to buy more stock) then you came out much further ahead when the stock market recovered. The point of adding bonds for diversification is that they move in the opposite direction of equities; blunting the major drops (and providing buying opportunities). REITs don't fit that bill. REITs are not undergoing a correction like bonds because the price of real estate is a function of housing supply and buyer demand. Rising interest rates only make it a little harder for buyers to buy, so the effect of rising interest rates on real estate prices is muted. The other effects on real estate prices (more wealth in the economy for buyers) pushes in the opposite direction of the rising interest rates.","Similarly to buying property on your own, REITs cannot get to good returns without leveraging. If you buy an investment property 100% cash only - chances are that 10% ROI is a very very optimistic scenario. If you use leveraging (i.e.: take out a mortgage) - you're susceptible to interest rate changes. REITs invest in properties all around all the time. They invest in mortgages themselves as well (In the US, that's the only security REITs can hold without being disqualified). You can't expect all that to be cash-only, there have to be loans and financing involved. When rates go up - financing costs go up. That brings net income down. Simple math. In the US, there's an additional benefit to investing in REIT vs directly holding real estate: taxes. REITs pay dividends, which have preferential (if qualified) taxation. You'll pay capital gains taxes on the dividends if you hold the fund long enough. If you own a rental property directly, your income after all the expenses is taxed at ordinary rates, which would usually be higher. Also, as you mentioned, you can use them as margin, and they're much much more liquid than holding real estate directly. Not to mention you don't need to deal with tenants or periods where you don't have any, or if local real-estate market tanks (while REITs are usually quite diversified in kinds of real estate they hold and areas). On the other hand, if you own real estate, you can leverage it at lower rates than margin (with HELOCs etc), and it provides some safety net in case of a stock market crash (which REITs are somewhat susceptible to). You can also live in your property, if needed, which is something that's hard to do with REITs....","You seem to underestimate the risk of this deal for the inverstors. A person purchasing a residence is happy to pay $70K instead of $150K now, and the only risk they take is that the construction company fails to build the condo. Whatever happens on the estate market in two years, they still saved the price difference between the price of complete apartments and to-be-build apartments (which by the way may be less than $150K-$70K, since that $150K is the price on a hot market in two years). However, an investor aiming to earn money counts on that the property will actually cost $150K in two years, so he's additionally taking the risk that the estate market may drop. Should that happen, their return on investment will be considerably lower, and it's entirely possible they will make a loss instead of a profit. At this point, this becomes yet another high risk investment option, like financing a startup.","There is none, whatever sector you invest in will be subject to cyclical market difficulties, however alpha can be generated from two sources: Timing and selection. Its much easier to get the timing done over a long period of time.","\"I agree for the most part. I thought about them, I even thought about money supply and some others. But the point was mainly that businesses as a whole have been doing bad for not just this year or since 2008 but over a decade, not enough to account for inflation. This is grounds that the economy is in a recession, and will be. Bond's aren't really an investment in business as they are loaning money to the government on interest so they don't portray whether the economy is in recession or not. The premise was that a recession is/has occurred, not that money cannot be made in a good portfolio. Perhaps you didn't fully understand my last point, I don't believe gold and silver are the bubble. I believe the dollar is the bubble and it has been bursting since 2000. Commodity prices are merely a sign of the bursting bubble. Given that we're in recession, the only way to \"\"pull-out\"\" as it is apparent people have been doing for the past 10 years, is to buy real assets and that this creates a positive feedback loop into devaluing the dollar. Not everyone will pull out, but most will. For a long while the assets have had little exposure to the inflation of the dollar, and now it's catching up to the assets. Ergo assets are undervalued, they are not the bubble.\"","All of this makes perfect sense and I can definitely see the logic behind it. But I don't think Hedge Funds are the way to go. The real money lies in real estate, more specifically land-banking. The problem, though, is that a lot of land-banking investments are really just scams and it's really hard to tell which ones are real and which ones are fake.","Oh woohooo . . .and its all a great investment AAA . .you have to buy and when we do . .it goes straight down because we find the biggest seller was Morgan and Stanley Yah. . .we know that game really well now . .always buy the good news Build some fucking public toilets"],"string":"[\n \"A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a down market. If sales volume does go up another option would be other service markets for real estate such as real estate information and marketing websites and sources i.e. http://www.trulia.com. Furthermore one can go and make a broad generalization such as since real estate no longer requires the same quantity of construction material other industries sensitive to the price of those commodities should technically have a lower cost of doing business. But be careful in the US much of the wealth an average american has is in their home. In this case this means that the economy as a whole takes a dive due to consumer uncertainty. In which case safe havens could benefit, may be things like Proctor & Gamble, gold, or treasuries. Side Note: You can always short builders or someone who loses if the housing market declines, this will make your investment higher as a result of the security going lower.\",\n \"\\\"During the actual decline, there's very little money to be made and a lot to lose. When housing prices tank, everybody loses; the banks are exposed to higher risk of mortgage defaults, insurers start having to pay out more for \\\"\\\"gas leaks\\\"\\\" claiming over-leveraged homes, realtors starve because their commissions go down (even as foreclosures put more homes on the market) and people faced with financial uncertainty will stay put in their current homes instead of moving elsewhere. And homebuilders and contractors go broke because nobody wants to spend cash on a new home or major reno that looks like a losing investment. There can be some bright spots. Smaller hardware stores will make money as people do relatively small DIY projects to improve the condition of their current home. The larger stores get this business too, but it tends to be more than offset by the loss of contractor business (FAR more lucrative, and something the ACEs and True-Values don't really get in on). Of course the \\\"\\\"grave-robbers\\\"\\\" do well; gold buyers, auctioneers, pawn shops, repo firms; these guys eat well when other people are defaulting on loans or have to sell their stuff for fast cash. Most of these businesses are not publicly traded. One thing that was seen was increased revenues at discount retailers like Wal-Mart, Dollar General etc. When things are bad, people in the middle class who had avoided these stores for image or morality reasons learn to swallow their pride and buy discount store brands for half the price of national brand names. That lessens the blow felt by the discount retailers as overall consumer spending decreases; the pie shrinks, but the discount retailers get a bigger slice of the mandatory spending on food, clothing, etc (and the higher-level retailers get it in the shorts). When the pie starts to grow again as consumer spending picks back up, the discount retailers retain their percentage for a while, as the fickle middle class can afford to buy more from the discount retailer but can't yet afford to take their business back to the shopping mall stores. This produces a flatter, \\\"\\\"offset\\\"\\\" price graph for discount retailers through the business cycle; they don't lose as early or as much as everyone else in a major downturn, and they turn it around sooner while everyone else may still be on the way down, but as everything gets better for everyone on the upswing it's less great for the discount guys, as they start losing customers and their dollars to competitors with better stuff, even as the ones they keep spend more. This doesn't generally manifest as a true negative correlation, but it can be a good hedge. The number one money-making investment in a tanking economy is gold. When things go down the crapper, everyone wants gold, so if you see the train wreck coming far enough in advance, you can make a big move to gold and really make some money off that investment. For instance, when the first whispers about ARM adjustments and mass defaults reached the public consciousness in mid-2005, gold bullion jumped from about $400 to over $700 in a nine-month period. It cooled off again in 06-07 but only to about $600/oz, and then in late 07 it steadily climbed to peak at $1000/oz; even if you got in late, an investment of $1000 in July '07 in \\\"\\\"bulk\\\"\\\" gold would have netted you $650 in one year; that's a 65% APY. Then the economy hit bottom and a lot of investors ditched gold for investments they thought would pull back out of their holes quickly; For just a little while in '08 gold was down to $700 again. Then came all the government reports; unemployment not budging, home prices still declining, a lot of banks still hiding just how bad their position was. If you had seen that it was going to be bad, bad, bad, like a lot of now-billionaire hedge fund investors did, a $1000 investment in gold in July 05, and then cashing out at the tops of the peaks and buying back in at the major troughs, would be worth almost $4000 today. That's a 400% return over 7 years, or an annual average yield of 57%. There simply hasn't been anything like that in the last 7 years.\\\"\",\n \"You could short home builders who do a lot of their business in Northern California. (Not just San Francisco, Silicon Valley, or even the Bay Area.) Home prices in Sacramento and the northern San Joaquin Valley are correlated with Bay Area home prices. Many of these builders went broke during the last bust, so you might have trouble finding a publicly traded home builder that is concentrated in just one market.\",\n \"\\\"If you're trying to hedge the ups and downs of your local residential real estate market, a REIT fund holding commercial properties across the country is not the ideal match. Here's a comparison of an index tracking single-family home prices in one region (Los Angeles) and VNQ (another popular REIT fund). There's some correlation but there's clearly different magnitudes and sometimes different directions. With a national home price index, the correlation is only 68%, and it would be lower for individual cities. You could still use it for hedging, but there's significant \\\"\\\"tracker error\\\"\\\" risk to be considered. Unfortunately, I'm not familiar with any investment that would be a better match for individual residential markets. So, if you decide to use this, I'd also adjust the level of exposure to get a closer result. E.g. using approx. 50% VNQ and 50% cash results in a closer result after 2 years (compared to national single-family home price changes) than either 0% VNQ and 100% cash, or 100% VNQ and 0% cash.\\\"\",\n \"You can hedge your house price from losing value if you believe that the housing market is correlated with major stock indices. Speak with a commodities broker because they will be able to help you buy puts on stock indices which if correlated with housing prices will offer somewhat of a hedge. Example. House prices drop 30% because of weak economy, stocks will generally drop around that same amount 30%. If you have enough exposure to in the puts compared to your house value you will be protected. You can also buy calls in 30 year bonds for interest rate lock if you are not on a fixed interest rate. Many investors like warren buffet and carl icahn have been protecting them selves from a potential market downward turn. Speak to a local commodity broker to get some detailed advice, not etrade or any discount brokers they won't be able to help you specialize your trades. look for a full time commodity broker house.\",\n \"As the value of a currency declines, commodities, priced in that currency, will rise. The two best commodities to see a change in would be oil and gold.\",\n \"\\\"The price of real estate reacts to both demand for property and the rate of inflation and rate of income growth. Mortgage rates generally move as treasury rates move. See this paragraph: As we mentioned, intermediate term bonds and long-term mortgages (more properly, Mortgage-Backed Securities, or MBS) compete for the same fixed-income investor dollar. Treasury issues are 100% guaranteed to be repaid, but mortgages are not; therefore mortgages carry more risk of default or early repayment, which could potentially disturb the return on the investment. Therefore, mortgage rates must be priced higher to compensate for that risk. But how much higher are mortgages priced? In a normal market, the average \\\"\\\"spread\\\"\\\" or markup above the 100% secured Treasury is about 170 basis points, or 1.7%. That markup -- the spread relationship -- widens and contracts with a range of market conditions, investor appetites and supply of available product -- as well as the presence of competing investment opportunities, like corporate bonds or domestic (or foreign) equity markets Source: What Moves Mortgage Rates? And when the stock market crashes, investors tend to run to bonds and treasuries, which causes prices to go up and treasury yields to drop. Theoretically, this would also cause mortgage rates to drop, although most mortgage rates have a base price below which they cannot fall. How easy is it to profit from recent stock market drops and at what frequency? Incredibly difficult. The issue with your strategy is that you cannot predict the bottom of the market (at least us mortals can't). Just take the month of August for example. Stocks fell something like 15%? After the first 5-10% drop, people felt that the bottom was there, so they rushed in, only to have the market fall even more. How will you know when to invest? Even if the market falls by 50%, and there's a huge buying opportunity, and you increase the mortgage on your house, odds are your rates will increase because of the equity you take out. What if the market stays low for a very long time? Will you be able to maintain mortgage payments? Japan's stock bubble popped in the early 90's, and they've had two lost decade's now. Furthermore, there are issues of liquidity. What if you need more capital? Can you just sell a property or can you buy now property to draw equity against? What if the market is moving too fast for you to take advantage of. Don't ignore transaction costs and taxes either. Overall, there are a lot of ways that your idea can go wrong, and not many ways it can go right.\\\"\",\n \"The most obvious route is to short the lenders, preferably subprime. Since there are no lenders that operate exclusively in San Francisco, you could look north at Canada. The Canadian real estate market (esp. Vancouver) is just as overheated as the San Francisco market. As a start, famous short seller Marc Cohodes recommends HCG (Home Capital Group) as an opportune short.\",\n \"Well, Taking a short position directly in real estate is impossible because it's not a fungible asset, so the only way to do it is to trade in its derivatives - Investment Fund Stock, indexes and commodities correlated to the real estate market (for example, materials related to construction). It's hard to find those because real estate funds usually don't issue securities and rely on investment made directly with them. Another factor should be that those who actually do have issued securities aren't usually popular enough for dealers and Market Makers to invest in it, who make it possible to take a short position in exchange for some spread. So what you can do is, you can go through all the existing real estate funds and find out if any of them has a broker that let's you short it, in other words which one of them has securities in the financial market you can buy or sell. One other option is looking for real estate/property derivatives, like this particular example. Personally, I would try to computationally find other securities that may in some way correlate with the real estate market, even if they look a bit far fetched to be related like commodities and stock from companies in construction and real estate management, etc. and trade those because these have in most of the cases more liquidity. Hope this answers your question!\",\n \"Frequently people saving money for a down payment, or for their emergency fund, feel that they need to find a way to speedup the process via methods that will generate more interest than a bank account or a CD. Once they have reached their goal they also feel that having the money sitting around not generating income is a missed opportunity. All investments that aren't 100% safe introduce risk. To entice you to invest they offer the opportunity make more money than a bank account or CD. But the downside is that the extra money isn't guaranteed. In fact the introduced risk also opens up the investment to the possibility of losses, including a total loss. You have identified risks with bank accounts and CDs. With the bank account you will generally lose money vs. inflation. With a CD the investment is less liquid if you sell early, or you want/need to sell 1/2 a CD, you will give up some of that extra income. Also if rates on a CD rise next month you are stilled locked into your current rate til the CD ends. Putting some or all of the money you are saving for the house into a risky investment means that you may shorten or extend the time period. Nobody knows. by investing in real estate we can offset the risk of real estate going up in the next couple years: if real estate goes up we will still be able to use our down payment for a comparable house as of now. Inversely, if real estate goes down we will lose on the down payment but be able to get a house cheaper. Unless the REIT matches the market of residential real estate in your city/metropolitan region there is no guarantee that home prices in your city will move the same way the REIT does. A recent listing of the 10 largest holdings of the index is: none of these tell me what home prices in my neighborhood will do next year.\",\n \"It seems that you're interested in an asset which you can hold that would go up when the gold price went down. It seems like a good place to start would be an index fund, which invests in the general stock market. When the gold market falls, this would mainly affect gold mining companies. These do not make up a sizable portion of any index fund, which is invested broadly in the market. Unfortunately, in order to act on this, you would also have to believe that the stock market was a good investment. To test this theory, I looked at an ETF index fund which tracks the S&P 500, and compared it to an ETF which invests in gold. I found that the daily price movements of the stock market were positively correlated with the price of gold. This result was statistically significant. The weekly price movements of the stock market were also correlated with the price of gold. This result was also statistically significant. When the holding period was stretched to one month, there was still a positive relationship between the stock market's price moves and the price of gold. This result was not statistically significant. When the holding period was stretched to one year, there was a negative relationship between the price changes in the stock market and the price of gold. This result was not statistically significant, either.\",\n \"Your question may have another clue. You are bullish regarding the real estate market. Is that for your city, your state, your nation or for the whole world? Unless you can identify particular properties or neighborhoods that are expected to be better than the average return for your expected bull market in real estate, you will be taking a huge risk. It would be the same as believing that stocks are about to enter a bull market, but then wanting to put 50% of your wealth on one stock. The YTD for the DOW is ~+7%, yet 13 of the 30 have not reached the average increase including 4 that are down more than 7%. Being bullish about the real estate segment still gives you plenty of opportunities to invest. You can invest directly in the REIT or you can invest in the companies that will grow because of the bullish conditions. If your opinion changes in a few years it is hard to short a single property.\",\n \"\\\"If you do as you propose you are going to get burned. You need to sell, then start to rent. amongst other things. Since 2008, the economy never \\\"\\\"recovered,\\\"\\\" but was sort of stabilized temporarily like a fighter on the ropes. The economy is beginning to collapse again, and that collapse will accelerate around the Fall. The dollar too will also begin its delayed downward fall come Autumn. Just one example of what I speak: https://research.stlouisfed.org/fred2/series/CIVPART I would be happy to tell you more if you like, but I am already going to get pilloried for what I have already said. I do not sell anything, or push anything, but since you asked, and I follow this day in and day out, I thought that I would give you my very well informed answer. Take it for what it's worth. So let me know if you want more.\\\"\",\n \"I see that you're invested in a couple bond funds. You do not want to be invested in bonds when the Fed raises rates. When rates climb, the value of bond investments decline, and vice-versa. So that means you should sell bonds before a rate hike, and buy them before a rate drop.\",\n \"Well put and, honestly, seemingly unavoidable. It will be crazy if it truly does come to fruition if they (Fed/Treasury/Gummit) realize that they cannot inflate their way out of this by printing more money and all of the nay-sayers of massive deflation get proven wrong. So, the better question is this: we believe/know it's coming, so how do we prepare and strategically place ourselves to survive/profit/prosper from the coming collapse? As I see it, RE is a crap investment for the foreseeable future as oversupply and oversize are not absorbed. People have to live, so rentals will be key; but, they have already bloomed quite a bit. Stocks will likely trade sideways for awhile before likely tanking as the forced/willing withdrawals start happening from the Boomers. So, keeping it in stocks doesn't sound overly positive, unless a fairly aggressive put strategy is enforced. Bonds are paying crap and, after taxes, barely pacing inflation. For me personally and selfishly, I have 20 years minimum for retirement, so I'm fine qith the market trending sideways or down. It means that I'm getting more bang for my DCA buck and, 20+ years from now, I will be well positioned when the market eventually cycles back up. But, for now, where do we put our investments to protect and, hopefully, grow them as the mid term passes?\",\n \"When credit locks up, junk bond prices fall rapidly, and you see more defaults. The opportunity to make money with junk is to buy a diversified collection of them when the market declines. Look at the charts from some of the mutual funds or ETFs like PIMCO High Yield Instl (PHIYX), or Northeast Investors (NTHEX). Very volatile stuff. Keep in mind that junk bonds are not representative of the economy as a whole -- they cluster in certain industries. Retail and financials are big industry segments for junk. Also keep in mind that the market for these things is not as liquid as the stock market. If your investment choice is really a sector investment, you might be better served by investing in sector funds with stocks that trade every day versus bonds whose market price may be difficult to determine.\",\n \"If you know the market will crash, you could opt for going short. However, if you think this is too risky, not investing at all is probably your best move. In case of crises, correlation go up and almost all assets go down.\",\n \"\\\"In my experience, Shiller is always way before his time with his predictions and often it comes at too early a point for anyone actually making some money to care about. His view is very long term - and I trust his predictions, because he so accurately predicted so many of the homepocalypse, and the measures that would follow. He even predicted that there would be bailouts in his book \\\"\\\"Irrational Exuberance\\\"\\\". His opinons were poo-poo'd as doom and gloom and manipulative until every piece started falling apart in the specific order of events (give or take) that they did. I personally think people like Dr. Shiller make bold predictions that are hard to swallow. The derivatives market is a bit skittish about rolling into bull territory with any kind of housing index, but Warren Buffet's old adage to \\\"\\\"buy when everyone is selling and sell when everyone is buying.\\\"\\\" (paraphrase). I see this as a good long-term investment because I trust Shiller's judgement, he stuck to his guns when the doubts were lobbed at him incessantly (and Krugman, et. al. to some extent), and he turned out to be more than vindicated. To me, these kinds of sources are usually pretty sound. The man knows what he's talking about, and I wouldn't mind picking up a piece of that action, especially if the market just doesn't trust any real estate investments. It's pretty easy to realize that right now housing will be undervalued and now that mortgage applications are (supposedly) stricter, I think there's a good argument to be made that this economist should continue to exceed expectations.\\\"\",\n \"Buy some pits for xiv in October if you want to piggy back. Options pretty cheap right now. Not sure if xiv has options, but if vix spikes, xiv will tank almost 1 for 1 negative relationship. Chart both of them over time to see the relationship.\",\n \"There are two impacts: First, if the pound is dropping, then buying houses becomes cheaper for foreign investors, so they will tend to buy more houses as investments, which will drive house prices up. Second, in theory you might be able to get a mortgage in a foreign country, let's say in Euro, and you might hope that over the next few years the pound would go up again, and the Euros that you owe the foreign bank become worth less.\",\n \"I want to know too. Outside of the stock market there could be a lot of assets that aren't being supported as well as stocks by the US government. If that's the case we could be seeing another signaller showing the poor shape of the economy.\",\n \"I know that assets like bonds have prices that have an inverse relationship with interest rates, but what other assets do as well? I'm a bit new to finance and all that so I'm trying to learn. Would real estate prices be high as well? If so, why?\",\n \"You could look into an index fund or ETF that invests primarily in Real Estate Investment Trusts (REIT's). An REIT is any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages Many investment firms offer an index fund or ETF like this. For example, Vanguard and Fidelity have funds that invest primarily in real estate markets. You could also invest in a home construction ETF, like iShares' ITB, which invests in companies related to home construction. This ETF includes more companies than just REITs, so for example, Home Depot is included.\",\n \"\\\"VNQ only holds ~16% residential REITs. The rest are industrial, office, retail (e.g. shopping malls), specialized (hotels perhaps?) etc. Thus, VNQ isn't as correlated towards housing as you might have assumed just based on it being about \\\"\\\"real estate.\\\"\\\" Second of all, if by \\\"\\\"housing\\\"\\\" you mean that actual houses have gone up appreciably, then you ought to realize that residential REITs seldom hold actual houses. The residential units held tend primarily to be rental apartments. There is a relationship in prices, but not direct.\\\"\",\n \"I would think a depressed housing market might be the BEST time to buy, is this not correct? There are foreclosures where banks are letting houses go for half of their standard value, and are offering some of the lowest interest rates ever. In a strong economy you could be looking at around 10% APR, I see this as a situation where it's a buy low sort of time.\",\n \"If you've decided to ignore the sound advice re: oil company stocks, and you want something directly linked to the price of oil, do the following: Understand that oil producers would like avoid the risk of a price drop, and oil consumers (refiners, electric utilities, etc.) would like to avoid the risk of a price rise. Understand that you are about to assume their risk.\",\n \"\\\"I was in a similar situation, and used FX trading to hedge against currency fluctuations. I bought the \\\"\\\"new\\\"\\\" currency when the PPP implied valuation of my \\\"\\\"old\\\"\\\" currency was high, and was able to protect quite a bit of purchasing power that I would have lost without the hedge. Unfortunately you get taxed for the \\\"\\\"gain\\\"\\\" you made, but still helpful. In terms of housing market, you could look into a Ireland REIT index, but it may not correlate well with the actual house prices you are looking for.\\\"\",\n \"Basically, they all do. The relationship is much more dynamic with stocks but corporate financing costs increase, return requirements increase (risk free rate goes up). Same with real estate. Commodity demand is correlated with economic activity, which is correlated with interest rates, although not perfectly. The most important factor is, a higher risk free rate increases the discount rate, which reduces asset values\",\n \"Huh? I don't see how this effects inflation in practice.... (only in theory) Basically, I sell short end bonds and buy longer end bonds pocketing the difference in yield and increasing my duration. GLD and mining are hedges against inflation, markets are stupidly short term looking and care only about current expectations, if the current macro situation deteoriates we see prices fall.\",\n \"Invest in an etf called SPXS and hope for a market correction in the next month. Or if you know a lot about markets and trends, select from this list of leveraged etfs available from Direxion.\",\n \"\\\"Yes. S&P/ Case-Shiller real-estate indices are available, as a single national index as well as multiple regional geographic indices. These indices are updated on the last Tuesday of every month. According to the Case-Shiller Index Methodology documentation: Their purpose is to measure the average change in home prices in 20 major metropolitan areas... and three price tiers– low, middle and high. The regional indices use 3-month moving averages, published with a two-month lag. This helps offset delays due to \\\"\\\"clumping\\\"\\\" in the flow of sales price data from county deed recorders. It also assures sufficient sample sizes. Regional Case-Shiller real-estate indices * Source: Case-Shiller Real-estate Index FAQ. The S&P Case-Shiller webpage has links to historical studies and commentary by Yale University Professor Shiller. Housing Views posts news and analysis for the regional indices. Yes. The CME Group in Chicago runs a real-estate futures market. Regional S&P/ Case-Schiller index futures and options are the first [security type] for managing U.S. housing risk. They provide protection, or profit, in up or down markets. They extend to the housing industry the same tools, for risk management and investment, available for agriculture and finance. But would you want to invest? Probably not. This market has minimal activity. For the three markets, San Diego, Boston and Los Angeles on 28 November 2011, there was zero trading volume (prices unchanged), no trades settled, no open interest, see far right, partially cut off in image below. * Source: Futures and options activity[PDF] for all 20 regional indices. I don't know the reason for this situation. A few guesses: Additional reference: CME spec's for index futures and options contracts.\\\"\",\n \"Generally speaking, you want to find goods and services that are inelastic and also require oil as a cost. Oil company stocks make record profits when oil is high, because direct demand for oil is relatively inelastic. Profit margins of oil competition should also go up, as this creates inflation in general, as people seek alternatives to the inelastic demand.\",\n \"Invest in solid companies, not in esoteric products built on sand. The problem is with finance, not with real economy: oil companies make money, mobile phone companies make money, airlines make money...\",\n \"If you believe the stock market will be down 20-30% in the next few months, sell your stock holdings, buy a protective put option for the value of the holdings that you want to keep. That would be hedging against it. Anything more is speculating that the market will fall.\",\n \"There are multiple ETFs which inversely track the common indices, though many of these are leveraged. For example, SDS tracks approximately -200% of the S&P 500. (Note: due to how these are structured, they are only suitable for very short term investments) You can also consider using Put options for the various indices as well. For example, you could buy a Put for the SPY out a year or so to give you some fairly cheap insurance (assuming it's a small part of your portfolio). One other option is to invest against the market volatility. As the market makes sudden swings, the volatility goes up; this tends to be true more when it falls than when it rises. One way of invesing in market volatility is to trade options against the VIX.\",\n \"Yes, bond funds are marked to market, so they will decline as the composition of their holdings will. Households actually have unimpressive relative levels of credit to equity holdings. The reason why is because there is little return on credit, making it irrational to hold any amount greater than to fund future liquidity needs, risk adjusted and time discounted. The vast majority of credit is held by insurance companies. Pension funds have large stakes as well. Banks hold even fewer bonds since they try to sell them as soon as they've made them. Insurance companies are forced to hold a large percentage of their floats in credit then preferred equity. While this dulls their returns, it's not a large problem for them because they typically hold bonds until maturity. Only the ones who misprice the risk of insurance will have to sell at unfavorable prices. Being able to predict interest rates thus bond prices accurately would make one the best bond manager in the world. While it does look like inflation will rise again soon just as it has during every other US expansion, can it be assured when commodity prices are high in real terms and look like they may be in a collapse? The banking industry would have to produce credit at a much higher rate to counter the deflation of all physical goods. Households typically shun assets at low prices to pursue others at high prices, so their holdings of bonds ETFs should be expected to decline during a bond collapse. If insurance companies find it less costly to hold ETFs then they will contribute to an increase in bond ETF supply.\",\n \"Real estate. The value of the house where I live going up 15% per year! From 2004-2009. Sold for $92k in 1980 now valued at $524k. Twice the rate of inflation in that timeframe. None of it makes sense nor is it sustainable = asset bubble. In my zip code the median income is $162k and median house value $808k (Source: US Census Bureau, American Community Survey 2012). That averages out 5x annual income. In LA and Las Vegas that ratio is even worse, where most of these HELs and HELOCs are going to blow up. This article is accurate. People use these loans to replace their stagnating or falling wages. And its a lot of people.\",\n \"The charts suggest otherwise. Although most of the large gains were wiped out in 2008 and 2011, that doesn't include the substantial dividends you are likely to get with financials. They still returned a positive percentage and some outperformed benchmark indices over time. But hey, don't let your bias get in the way.\",\n \"Generally, you need something that goes up over time during periods of index decline, but otherwise holds some value. Historically, people tend to use gold for that purpose. But with gold also set up for possible declines, that raises questions. Silver has dropped a bit more than gold in terms of percentages. If you think the downward motion will be in the form of sudden jumps, you can look at putting some of your money in puts away from the current price, but you can easily wind up paying too much for this protection. In the case of a deflation, most things lose value vs. money, and you want all cash. These things might already be obvious. I don't think there is a clear answer to your question. But if the future were clear, the present market could possibly anticipate and adjust... one reason the future of the market always seems a bit murky.\",\n \"You always see articles of how financially distressed people are, but then other articles on how home prices are rising and people don't want to sell their homes for less (to meet the pent-up demand for starter homes). A nice, long, prolonged drop in real estate prices would solve so much. With the decline in retail I hope it comes.\",\n \"It is almost a sure thing that the housing market will crash again hugely.For this reason I prefer to own several houses that way when it does no one can ask for their money back and leave me homeless. Current economics suggest a fall of between 40-60% from 2011 prices meaning that if you have bought a house in the last 12 years you can wave bye bye to any and all equity, and this will happen very soon. I recommend saving your money and buying a house outright (like I did 3 times) from someone who has spent 12 years or so paying a mortgage.\",\n \"\\\"You're \\\"\\\"onto\\\"\\\" something. Investing in real estate was not a bad idea about 10-15 years ago, when stocks were high, and real estate was not. On the other hand, by about 2006, BOTH stocks and real estate were high, and should have been avoided. And around 1980, both were LOW, and should have been bought. I expand this construct to include gold and oil. Around 2005, these were relatively low, and should have been bought over stocks and real estate. On the other hand, ALL FOUR are high right now, and offer comparable dangers.\\\"\",\n \"I recommend you two things: I like these investments because they are not high risk. I hope this helps.\",\n \"Credit products and securitized debt. Credit/debt is the flip side of equity but has less volatility. In today's investing environment people are not looking for a big return as much as less risk with a modest return. Another trend I think you will see is the disappearance of the wall between interest rate products/fixed income and credit products.\",\n \"Without commenting on your view of the TV market: Let's have a look at the main ways to get negative exposure: 1.Short the stocks Pros: Relatively Easy Cons: Interest rate, costs of shorting, linear bet 2.Options a. Write Calls b. Buy puts Pros: Convexity, leveraged, relatively cheap Cons: Zero Sum bet that expires with time, theta 3.Short Stock, Buy Puts, Write Calls Short X Units of each stock, Write calls on them , use call premiums to finance puts. Pros: 3x the power!, high kickout Cons: Unlimited pain\",\n \"not sure if serious, read on if you don't think the previous comment is sarcasm. No, they don't. The point of investing is to buy a stake in something that will become more valuable in the future. Other things don't have to devalue for your investment to gain value. This is possible because the net value of everything is increasing over time (compare the value of all the world's private property today to its value in 1900).\",\n \"\\\"Real estate is not a good investment. In fact, it's easy to make a case for it being the worst possible investment imaginable: Imagine over a cup or coffee or a glass of wine we get to talking about investments. Then maybe one of us, let’s say you, says: “Hey I’ve got an idea. We’re always talking about good investments. What if we came up with the worst possible investment we can construct? What might that look like?” Well, let’s see now (pulling out our lined yellow pad), let’s make a list. To be really terrible: -- Why Your House Is A Terrible Investment There are plenty of good reasons to own a home, but the key word there is \\\"\\\"home\\\"\\\". Owning housing as an investment property is a horrible idea, and anyone who does it, especially right now with as bubbly as the market is looking again, (or, better put, still, since the last bubble never did fully pop and clear out the underlying systemic instability,) is an idiot. And even after the current housing market bubble pops, it's likely to remain a bad idea for decades. We're never getting the early 2000s back, for basic supply-and-demand reasons: with the Baby Boom generation retiring, aging and dying off, they're not likely to do much more home-buying, and no generation after them is as big as they are, which means a glut of oversupply and weak demand for the entirety of the foreseeable future.\\\"\",\n \"The article John cites says no correlation, but this chart from the article says otherwise; One sees the rate drop from 14% to 4% and housing rise from an index of 50 to near 190. (reaching over to my TI BA-35 calculator) I see that at 14%, $1000/mo will buy $84,400 worth of mortgage, but at 4%, it will buy $209,500. 2-1/2 times the borrowing power for the same payment. But wait, my friends at West Egg tell me that inflation means I can't compare $1000 in 1980 to the same $1000 in 2010. The $1,000 inflates to $2611 (i.e. an income rising only with inflation, no more) and that can fund a mortgage for $546,900. This is 6.5 times the original borrowing power, yet the housing index 'only' rose 3.8X. See that crazy chart? Housing actually got cheaper from 1980 to the peak. Statistics can say whatever you wish. Interest rate change drove all the change in housing prices, but not quite as much as it should have. To answer your question - I expect that when rates rise (and they will) housing prices will take a hit. In today's dollars, a current $1000 borrows (at 4%) nearly $210K, but at 6%, just $167K. If rates took a jump from these record lows, that's the nature of the risk you'd take.\",\n \"One way of looking at it is that your equity in your house is an investment in a particular class of asset, and investing further in that asset class may drive you away from, rather than towards, your preferred asset mix. It's pretty common here in New Zealand for people's only investments to be their homes and rental properties. I wish those people luck when our current property boom ends.\",\n \"So wages for the working class are declining, young people can't find jobs and are over encumbered in school debt, unemployment is really high, yet these fools think they can find a sucker who can afford their overpriced assets? Good Luck.\",\n \"Hits 3 I go in big. You think it'll still be at 3 in 5 or 10 years? Come on now. It ain't going under and the economy will rebound. When it does, all the bank stocks will come back. It's quite simple, really.\",\n \"To avoid risk from rising interest rates, get a fixed rate mortgage. For the life of the mortgage your principal and interest payments will remain the same. Keep in mind that the taxes and insurance portion of your monthly payment may still go up. Because you own the property, the costs to maintain the property are your responsibility. If you rented this would be the responsibility of the owner of the property; if the cost to repair and maintain goes up so does the rent. Because you are the owner your annual costs to repair and maintain may go up over time. The way to eliminate risk of loss of value is to never move, until the mortgage is paid off. You will know exactly what principal and interest will cost you over the life of the loan. When you sell that will be essentially return on your payments. You don't know if the loss of value is due to world, national, regional, local or individual circumstances. so hedging is tough. If the fact that the mortgage is 95% is what makes you nervous, your biggest risk is risk of being upside down. That risk is greatly reduced by increasing the amount of the down payment. That decreases the risk that the value will be below the mortgage amount if due to unforeseen circumstances you have to sell immediately. The money will still be lost due to decrease in value, but you aren't forced to bring cash to the settlement table if you need to sell.\",\n \"\\\"If you owned a bank how would you invest the bank's money? Typically banks are involved in loaning out money to businesses, people, and government at a higher interest rate then what they are paying to depositors. This is the spread and how they make money. If the bank determines that the yields on government bonds is more attractive then loaning the money out to businesses and people then the bank will purchase government bonds. It can also decide the other way. In this manner the mortgage and bond markets are always competing for capital and tend to offer very similar yields. Certain banks have the unique privilege of being able to borrow money from the FED at the Federal Funds rate and use this money to purchase government debt or loan it out to other banks or purchase other debt products. In this manner you see a high correlation between the FED funds rate, mortgage rates, and treasury yields. Other political factors include legislation that encourages mortgage lending (see Community Reinvestment Act) where banks may not have made the loans without said legislation. In short, keep your eye on the FED and ask yourself: \\\"\\\"Does the FED want rates to rise?\\\"\\\" and \\\"\\\"Can the US government afford rising rates?\\\"\\\" The answer to these two questions is no. However, the FED may be pressured to \\\"\\\"stop the presses\\\"\\\" if inflation becomes unwieldy and the FED actually starts to care about food and energy prices. So far this hasn't been the case.\\\"\",\n \"Totally depends on the drivers of the downturn. Keep in mind that in ~2005, both real estate and short-term bonds would arguably have been reasonable answers to this question (without the benefit of hindsight, of course). e: After re-reading your post, it looks like you were asking about (I assume) equity investments by sector rather than asset classes more broadly. I'm not sure equity in any sector can be considered a safe haven in a downturn. Utilities are the typical answer, but they didn't do much better than equity markets in general in 2008-2009.\",\n \"Goldman Sachs saw credit default swaps as an investment option too. You have to realize they aren't really in the buy and hold game. Them seeing an opportunity to make money off something doesn't mean it will necessarily go up in the future. Also the US economy is the strongest it's been in almost 20 years.. Eroding?\",\n \"\\\"I would undoubtedly sell the investments if they are positive, maybe even a little negative. That's what non-retirement investments are for, building wealth to spend, give, etc. Flipping things may put it in perspective. Would you borrow money or liquidate your emergency fund in order to invest in mutual funds? If you can completely ignore risk then this MAY make sense. Let's say if you could borrow money at 3.75% and had a \\\"\\\"guaranteed\\\"\\\" investment return of 7.5% and a \\\"\\\"guaranteed\\\"\\\" source of income (job). But mutual funds (stocks, bonds) aren't even guaranteed to make money and they most definitely can lose and lose big. Also, I hope your job isn't in any way tied to the oil industry. On the other hand, if you take a loan and fall on hard times you can liquidate your mutual funds to get out of the bind, but you are at the mercy of the market and the worth of your investments at that point. So it may come down to whether you want to choose when to spend your investments, when they are up or at some future date when they may be worth much less (or much more).\\\"\",\n \"If your planning on shorting the stocks be careful, while the value of the retail sector may be declining there will be a lot of back and forth over the next ten years, and as REITs discounts to nav increases, there is huge opportunities for buyouts from developers who have other use ideas for the real estate. The real estate will always have value, even if it's not as a shopping center.\",\n \">I would much rather have my money in an up-trend. Damn right. Or at least have it liquid. We couldn't sell this house now, even though it's one of the best in the neighborhood. (The nice, but smaller, house across the street has been on the market for over a year.) A few other houses in the neighborhood didn't seem to have any problems being rented, though, so we could likely get rental income from this one if we wanted.\",\n \"It's always a good move for risk-averse person, expecially in Europe. Because houses are not represented by number in an index. Therefor if you are risk-adverse, you will suffer less pain when house prices go down because you won't have a number to look at everyday like the S&P500 index. Because houses in Europe (Germany, Italy, Spain) are almost all made by concrete and really well done (string real marble cover, hard ceramic covers, copper pipes, ...) compared to the ones in US. The house will still be almost new after 30 years, it will just need a repaint and really few/cheap fixings. Because on the long run (20/30 years) hosues are guaranteed to rise in price, expecially in dense places like big city, NY, San Francisco, etc. The reason is simple: the number of people is ever growing in this world, but the quantity of land is always the same. Moreover there is inflation, do you really think that 30 years from now building a concrete house will be less expensive than today??? Do you think the concrete will cost less? Do you think the gasoline that moves the trucks that bring the concrete will be less expensive than now? Do you think the labour cost will be less expensice than now? So, 30 years from now building an house will be much more expensive than today, and therefor your house wil be more expensive too. On the lomng run stock market do not guarantee you to always increase. The US stock market have always been growing in the long run, but Japan stock market today is at the same level of 30 years ago. Guess what happened to you if you invested your money in the Japan stock market, 30 years ago, whilest your friend bought an hosue in Japan 30 years ago. He would now be rich, and you would now be poor.\",\n \"\\\"There's an old saying: \\\"\\\"Never invest in anything that eats or needs maintenance.\\\"\\\" This doesn't mean that a house or a racehorse or private ownership of your own company is not an investment. It just points out that constant effort is needed on your part, or on the part of somebody you pay, just to keep it from losing value. Common stock, gold, and money in the bank are three things you can buy and leave alone. They may gain or lose market value, but not because of neglect on your part. Buying a house is a complex decision. There are many benefits and many risks. Other investments have benefits and risks too.\\\"\",\n \"\\\"How can one offset exposure created by real-estate purchase? provides a similar discussion. Even if such a product were available in the precise increments you need, the pricing would make it a loser for you. \\\"\\\"There's no free lunch\\\"\\\" in this case, and the cost to insure against the downside would be disproportional to the true risk. Say you bought a $100K home. At today's valuations, the downside over a given year might be, say, 20%. It might cost you $5000 to 'insure' against that $20K risk. Let me offer an example - The SPY (S&P ETF) is now at $177. A $160 (Dec '14) put costs $7.50. So, if you fear a crash, you can pay 4%, but only get a return if the market falls by over 14%. If it falls 'just' 10%, you lose your premium. With only 5% down, you will get a far better risk-adjusted return by paying down the mortgage to <78% LTV, and requesting PMI, if any, be removed. Even if no PMI, in 5 years, you'll have 20% more equity than otherwise. Over the long term, 5 year's housing inflation would be ~ 15% or so. This process would help insure you are not underwater in that time. Not guarantee, but help.\\\"\",\n \"\\\"1) link? 2) It doesn't matter if they can or do, what matters is if they are *investing* (not trading) in it *more* than banks are investing in businesses. If that is the case (it is) then businesses as a whole will see the inflation first, and commodities will be playing catchup the entire time, but mostly when the investments hit recession. I will invest in the market again after they lose their mal-invested value, In historical terms the best time was to invest in them was 1980, 1938 and 1900, and the best time to get out was 1929 1960's and 2000. But to bet against them right now, with the dollar, is meaningless because the FED is deflating the currency as they go down, so it's like running on a treadmill. By holding silver I am essentially short the market, only difference is instead of holding a devaluing currency (cash) I'm holding a real money which is increasing in value. There's nothing simpler than \\\"\\\"investing\\\"\\\" in commodities for the long-term, people lose when they are making monthly/daily trades in them. Anyone who bought and held on to gold in 2000 did it for $300, and they've made infinitely more than the majority of people investing in blue chips (because they've lost value) and much more than those who invested in bonds. And that trend isn't going to stop unless the government lets the dollar deflate in which case the dollar will come to gold instead of the other way around. Until they are in equilibrium again. Historically the dow has an average of being 2 ounces of gold, peaking at 50 and trophing at .5. If it hits .5 again like it has everytime this occurs in the past. Then either gold will be $20000 or the dow will be 4000. You pick.\\\"\",\n \"That tends to be the case with a lot of things I am seeing. Any changes seem to create short term recession with projections of long-term growth. I would normally see that as a problem, because the reaction to the recession could effect the outcome post recession, but the LFPR trending downward is not a good sign for the economy as a whole. Eventually that portion would leave most markets, or welfare would have to increase, on the current trajectory. I think encouraging non-income producing assets for wealth generation is a flawed system, personally. Whether I am right or wrong, I do not know. I think the Government, and subsequently the fed, should encourage income-producing assets for the wealth affect, or in the very least, not something as crucial as housing to the health of the consumer base.\",\n \"Put Options. They're less risky than shorting, and have similar upsides. The major difference is that if the price goes up, you're just out the underwriting price. You'll also need to know when the event will happen, or you risk being outwaited. More traditionally, an investor would pull their money out of the market and move into Treasury bonds. Recall that when the market tanked in 2008, the price of treasuries jumped. Problem is, you can only do that trade once, and it hasn't really unwound yet. And the effect is most pronounced on short term treasuries, so you have to babysit the investment. Because of this, I think some people have moved into commodities like gold, but there's a lot of risk there. Worst case scenario you have a lot of shiny metal you can't eat or use.\",\n \"> Indeed, the most popular of the funds, the Barclays iPath fund, known broadly by its ticker symbol VXX, has since its inception averaged a yearly return of negative 58 percent, according to FactSet. > Or look at it this way: If an investor bought VXX when it came to market in 2009 and held onto it until now, that investor would have lost 99 percent of his investment. perfect for /r/wallstreetbets !\",\n \"\\\"The Case-Schiller macro derivatives market has seen very minimal activity. For example, in the three regional markets of San Diego (SDG), Boston (BOS) and Los Angeles (LAX) on 28 November 2011, there was zero trading volume, no trades settled, no open interest. * Source: CME Futures and options activity[PDF] for all 20 regional indices. Why haven't these real-estate futures caught on with investors? Keep in mind that the CME introduced these indices, with support from Professor Shiller and partner Standard & Poor's several years ago. The CME seems committed to wait this out, as they have shown no indication of dropping the Case-Shiller indices. There are alternative real-estate investment securities to the Case-Shiller indices. I don't think the market of investors is so small that Case-Shiller has been, in effect, \\\"\\\"crowded out\\\"\\\" by them. I think it is more likely a matter of known quantities. Also, I don't know how well these alternatives are doing! Additional reference: CME spec's for Case-Shiller index futures and options contracts.\\\"\",\n \"I agree with @Turukawa that the x-axes need to be the same to make a direct comparison. However, the graphs you linked make me think of introductory calculus: If you time averaged plots, speculative investments (gold, housing) seem to have many large concave up time periods and the dow jones has many concave down sections. Using the concavity test: If the first derivative tells you about the rate of change, the second derivative tells you about the rate of change of rate of change. Remember back to Physics 101: 1st derivative is velocity & second derivative is acceleration. It would be interesting to have the same time scales for your plots & compare these accelerations between the two. I suspect the more volatile investments would have larger (in magnitude) accelerations during boom/bust cycles than less speculative investments.\",\n \"\\\"For real. AAA treasury bonds are used a safe investment vehicle for the reason of \\\"\\\"its the US government, its safe\\\"\\\", which is pretty similar to the \\\"\\\"dude, who doesnt pay their mortgage?!\\\"\\\" line of thinking. You got people dumping money into these derivatives and suddenly someone goes \\\"\\\"oh yeah you just bought a bunch of bad debt that should be rated 'junk'. Oops.\\\"\\\"\\\"\",\n \"Short the Pound and other English financial items. Because the English economy is tied to the EU, it will be hit as well. You might prefer this over Euro denominated investments, since it's not exactly clear who your counterpart is if the Euro really crashes hard. Meaning suppose you have a short position Euro's versus dollars, but the clearing house is taken down by the crash.\",\n \"\\\"I don't see how I'm biased in favor of the banks. Make no mistake, the banks are to blame for the collapse, more so than the government. However I'm acknowledging the timeline and all the major players in this game, and that includes the government. I addressed the role of banks selling risky mortgages susceptible to default, which includes predatory lending rates, highly leveraged individuals who buy investment properties, and subprime ARM loans. Thank you for providing more detail. I also addressed the securitization of risky mortgages into investment-grade debt, which could be sold to satisfy the \\\"\\\"Giant Pool of Money\\\"\\\". Plus, I addressed how the banks lowered their standards to continue the supply of mortgages. Feel free to directly cite [Paul Krugman](http://krugman.blogs.nytimes.com/2010/01/07/cre-ative-destruction/) as the source of your argument regarding the simultaneous growth of the residential and commercial RE. Commercial RE was pulled along by residential RE and the broader market rally (commercial land is highly cyclical). Commercial RE prices rose as the market showed lower interest rates and higher land prices. So commercial RE slightly lagged the housing market.\\\"\",\n \"I would strongly recommend investing in assets and commodities. I personally believe fiat money is losing its value because of a rising inflation and the price of oil. The collapse of the euro should considerably affect the US currency and shake up other regions of the world in forex markets. In my opinion, safest investment these days are hard assets and commodities. Real estate, land, gold, silver(my favorite) and food could provide some lucrative benefits. GL mate!\",\n \"\\\"You're hearing alot of talk about housing (and by implication property) not being an investment today because on the downside of a market, the conventional wisdom is to be negative about buying things that have lost value. Just as it was dumb to listen to your coworker about hot .Com IPOs in 1999, it's dumb to listen to the real estate naysayers now. Here's another question along a similar vein: Were stocks a good investment in the spring of 2009? The conventional wisdom said: \\\"\\\"No, stocks are scary! Buy T-Bills or Gold Bullion!\\\"\\\". The people who made money said: \\\"\\\"Wait a second, Goldman Sachs is down like 75%? IBM is down like 30%, are they going anywhere? Time to buy.\\\"\\\" The wrong house is a poor investment in any economy. Buying a house in Detriot in 1970 was not a good move. Buying a house that needs $50k in work, not a good move. Buying a condo with a bankrupt HOA in Florida is not a good idea. But a good house that is well cared for is a great investment. I'm living in a house right now that is 80 years old, well maintained and affordable on a single income. A similar home a few blocks away sold in May for the same price as we paid in 2006. I'm paying about 20% less than I would for an apartment, and we'll think about moving in 2016 or 2017, by which time I'll probably have put $30-50k into the house. (Roof, kitchen, exterior painting, minor renovation)\\\"\",\n \"Options are contractual instruments. Most options you'll run into are contracts which allow you to buy or sell stock at a given price at some time in the future, if you feel like it (it gives you the option). These are Call and Put options, respectively (for buying the stock and selling the stock). If you have a lot of money in an index fund ETF, you may be able to protect your portfolio against a market decline by (e.g.) buying Put options against the ETF for a substantially lower price than the index fund currently trades at. If the market crashes and your fund falls in value significantly, you can exercise the options, selling the fund at the price that your option has specified (to the counter-party of your contract). This is the risk that the option mitigates against. Even if you don't have one particular fund with your investments, you could still buy a put option on a similar fund, and resell it to another person in lieu of exercise (they would be capable of buying the stock and performing the exercise themselves for profit if necessary). In general, if you are buying an option for safety, it should be an option either on something you own, or something whose price behavior will mimic something you own. You will note that options are linked to the price of stocks. Futures are contracts whose values are linked to the price of other things, typically commodities such as oil, gold, or orange juice. Their behaviors may diverge. With an option you can have a contractual guarantee on the exact investment you're trying to protect. (Additionally, many commodities' value may fall at the same time that stock investments fall: during economic contractions which reduce industrial activity, resulting in lower profits for firms and less demand for commodities.) You may also note that there are other structures that options may have - PUT options on index funds or similar instruments are probably most specifically relevant to your interests. The downside of protecting yourself with options is that it costs money to buy this option, and the option eventually expires, so you may lose money. Essentially, you are buying safety and risk-tolerance from the option contract's counterparty, and safety is not free. I cannot inform you what level of safety is appropriate for your portfolio's needs, but more safety is more expensive.\",\n \"I agree, again, for the most part. But I still see the trend of real-estate to be going down. I would much rather have my money in an up-trend. While many people should still buy homes for the same reasons they would if the bubble weren't there and still crashing.\",\n \"PST, or any of the Ultra Short/Long funds aren't actually holding any traditional securities -- just swaps that are betting on the underlying asset. They also don't track the value of the underlying security over time -- just for one day. (And they're not even guaranteed to do that!) IEF is an actual treasury bond fund that holds real-life treasury securities, not swaps. Shorting a fund like IEF is one option, another is to buy options on a fund like IEF. Be very careful investing with ETFs, and don't buy any until you fully read and understand the prospectus. I got burned by an Ultra Long ETF because I didn't do my homework.\",\n \"This is literally the thought process that caused the 2008 collapse, the only difference being the bonds consisted of sub-prime mortgages. Not saying its a bad idea, honestly you could make a lot of money, but macro-economically its a shit-storm brewing in the distance.\",\n \"\\\"Yes, it's unreasonable to think the prices will drop 10-20% in that time frame. Housing prices are not an equation that can can be solved to \\\"\\\"home prices are X% overvalued.\\\"\\\" You have 3 answers so far, Quanty's \\\"\\\"prices are inversely proportional to rates,\\\"\\\" Rob's \\\"\\\"there's no strong correlation between interest rates and house prices,\\\"\\\" and MB's, \\\"\\\"rising interest rates create downward pressure on housing prices.\\\"\\\" Any research into price history had better take every other variable into account. Articles that look at rates vs price don't always address a key item, income. Say we agree that the data show your city to be 10% too high. But if sellers like their high price and have some 'dig my heels in' power, prices won't drop. The seller simply stays put, and the supply/demand curves result not in a lower price, but in less supply. And the effect is to change the demographic of that area, i.e. attracting higher income earners. Rob linked to an article with a nice set of charts. One chart showing the US30 yr fixed rate and 'Real House Prices'. What results is a chart that can refute the relationship between rates and prices. But that would ignore an historical point that's too important to forget. The tumble that started in Jan '06 had nothing to do with the 30 year rate. It was the result of a series of insane financial products including 'interest only option ARMs' which permitted buyers to get approved for a purchase based on a payment that wasn't fixed, and would change to a fully amortizing mortgage at a higher rate that was unaffordable. A product that was a financial time bomb. Canada Banks offered no such product, and when the US market got pneumonia, Canada experienced a mild cold. With respect to any answers that offer US centric data to prove any hypothesis, I don't feel such comparisons are appropriate. Correlations, and the data used to prove them are an interesting thing. I can suggest that you take the US 30 year rate, along with our median income, or rather 25% of monthly median income. Calculate the mortgage that results. This translates nicely to the home a median family can afford. And I claim that long term this is the equilibrium price of that median home. But supply/demand has another factor, 'stickyness' or the more technical term, 'inelasticity of demand.' This means that for example, a 10% increase in the price of cigarettes does not cause a 10% drop in consumption. Each and every good has its own elasticity, and in the case of housing, a rise in cost would certainly impact the marginal buyers, but others will simply adjust their budgets. Not all buyers were planning to hit the bank's limit on what they could afford, so the rise doesn't change their mind, just their budget. Last - I know that Canada does not have a 30 year mortgage, most common is a 5 year rate with 30 year amortization. (correction/clarification, anyone?) The effect of this is less volatility in the market, since I believe your rates are not poised for the 2.5% to 4% jump implied by another response. Small increases can be absorbed. In a beautiful coincidence, the Federal Reserve Board sent me a link to The Interest Rate Elasticity of Mortgage Demand: Evidence From Bunching at the Conforming Loan Limit. It's a bit long but a worthwhile look at how the correlation isn't as instant as some might think.\\\"\",\n \"I just read this: Housing and inflation Adjusted for inflation the price of a house has increased a miniscule amount. A better investment would be an ETF that buys REIT stocks. You would be investing in real estate but can cash in and walk away at any time. Here is a list of mREITs: Stockchart of REITs\",\n \"Yes, but only because the US had a huge crash. Other economies have, in the absence of any credible *real* growth strategy, continued pumping housing. I still think student debt will erode incomes further as it's simply pulling forward demand that will drag on incomes later. When nearly everyone has a degree then nearly everyone doesn't get paid much more for having one. By the same principle of supply and demand all the boomer downsizing vs impoverished 30-something lack of upsizing will mean prices will fall.\",\n \"Since 1971, mortgage interest rates have never been more than .25% below current rates (3.6%). Even restricting just to the last four years, rates have been as much as .89% higher. Overall, we're much closer to the record low interest rate than any type of high. We're currently at a three-year low. Yes, we should expect interest rates to go up. Eventually. Maybe when that happens, bonds will fall. It hasn't happened yet though. In fact, there remain significant worries that the Fed has been overly aggressive in raising rates (as it was around 2008). The Brexit side effects seem to be leaning towards an easing in monetary policy rather than a tightening.\",\n \"Uhm, this is my disclaimer that this is not financial advice. But. I would imagine a decent amount of high growth tech will go into the toilet. Also cyclicals that are heavily reliant on the low cost of short term capital. But really these are just some intuitive guesses. It would really depend on what the mechanism and impact of a future recession would be. Curious though, why do you personally think a recession is looming? I know there's been a lot of talk but per the VIX, investors' worries don't appear to be affecting their behavior too much (at least in equities). I think the big risk is the Fed not being able to control the yield curve, i.e if short term rates increase but the Fed can't or won't shrink the balance sheet enough to impact long term rates. Just an idea.\",\n \"High risk foreign debt is great until the bottom falls out of the market when the government default on debt or revalues currency. If you do this, you should be able to sustain near total losses of principal and interest.\",\n \"\\\"anything that produces steady income will produce a \\\"\\\"real return\\\"\\\" (return above inflation) in a zero-interest rate environment: Note, however, that all of these will decline in value if interest rates rise.\\\"\",\n \"Like @littleadv, I don't consider a mortgage on a primary residence to be a low-risk investment. It is an asset, but one that can be rather illiquid, depending on the nature of the real estate market in your area. There are enough additional costs associated with home-ownership (down-payment, insurance, repairs) relative to more traditional investments to argue against a primary residence being an investment. Your question didn't indicate when and where you bought your home, the type of home (single-family, townhouse, or condo) the nature of your mortgage (fixed-rate or adjustable rate), or your interest rate, but since you're in your mid-20s, I'm guessing you bought after the crash. If that's the case, your odds of making a profit if/when you sell your home are higher than they would be if you bought in the 2006/2007 time-frame. This is no guarantee of course. Given the amount of housing stock still available, housing prices could still fall further. While it is possible to lose money in all sorts of investments, the illiquid nature of real estate makes it a lot more difficult to limit your losses by selling. If preserving principal is your objective, money market funds and treasury inflation protected securities are better choices than your home. The diversification your financial advisor is suggesting is a way to manage risk. Not all investments perform the same way in a given economic climate. When stocks increase in value, bonds tend to decrease (and vice versa). Too much money in a single investment means you could be wiped out in a downturn.\",\n \"\\\"First, a clarification. No assets are immune to inflation, apart from inflation-indexed securities like TIPS or inflation-indexed gilts (well, if held to maturity, these are at least close). Inflation causes a decline in the future purchasing power of a given dollar1 amount, and it certainly doesn't just affect government bonds, either. Regardless of whether you hold equity, bonds, derivatives, etc., the real value of those assets is declining because of inflation, all else being equal. For example, if I invest $100 in an asset that pays a 10% rate of return over the next year, and I sell my entire position at the end of the year, I have $110 in nominal terms. Inflation affects the real value of this asset regardless of its asset class because those $110 aren't worth as much in a year as they are today, assuming inflation is positive. An easy way to incorporate inflation into your calculations of rate of return is to simply subtract the rate of inflation from your rate of return. Using the previous example with inflation of 3%, you could estimate that although the nominal value of your investment at the end of one year is $110, the real value is $100*(1 + 10% - 3%) = $107. In other words, you only gained $7 of purchasing power, even though you gained $10 in nominal terms. This back-of-the-envelope calculation works for securities that don't pay fixed returns as well. Consider an example retirement portfolio. Say I make a one-time investment of $50,000 today in a portfolio that pays, on average, 8% annually. I plan to retire in 30 years, without making any further contributions (yes, this is an over-simplified example). I calculate that my portfolio will have a value of 50000 * (1 + 0.08)^30, or $503,132. That looks like a nice amount, but how much is it really worth? I don't care how many dollars I have; I care about what I can buy with those dollars. If I use the same rough estimate of the effect of inflation and use a 8% - 3% = 5% rate of return instead, I get an estimate of what I'll have at retirement, in today's dollars. That allows me to make an easy comparison to my current standard of living, and see if my portfolio is up to scratch. Repeating the calculation with 5% instead of 8% yields 50000 * (1 + 0.05)^30, or $21,6097. As you can see, the amount is significantly different. If I'm accustomed to living off $50,000 a year now, my calculation that doesn't take inflation into account tells me that I'll have over 10 years of living expenses at retirement. The new calculation tells me I'll only have a little over 4 years. Now that I've clarified the basics of inflation, I'll respond to the rest of the answer. I want to know if I need to be making sure my investments span multiple currencies to protect against a single country's currency failing. As others have pointed out, currency doesn't inflate; prices denominated in that currency inflate. Also, a currency failing is significantly different from a prices denominated in a currency inflating. If you're worried about prices inflating and decreasing the purchasing power of your dollars (which usually occurs in modern economies) then it's a good idea to look for investments and asset allocations that, over time, have outpaced the rate of inflation and that even with the effects of inflation, still give you a high enough rate of return to meet your investment goals in real, inflation-adjusted terms. If you have legitimate reason to worry about your currency failing, perhaps because your country doesn't maintain stable monetary or fiscal policies, there are a few things you can do. First, define what you mean by \\\"\\\"failing.\\\"\\\" Do you mean ceasing to exist, or simply falling in unit purchasing power because of inflation? If it's the latter, see the previous paragraph. If the former, investing in other currencies abroad may be a good idea. Questions about currencies actually failing are quite general, however, and (in my opinion) require significant economic analysis before deciding on a course of action/hedging. I would ask the same question about my home's value against an inflated currency as well. Would it keep the same real value. Your home may or may not keep the same real value over time. In some time periods, average home prices have risen at rates significantly higher than the rate of inflation, in which case on paper, their real value has increased. However, if you need to make substantial investments in your home to keep its price rising at the same rate as inflation, you may actually be losing money because your total investment is higher than what you paid for the house initially. Of course, if you own your home and don't have plans to move, you may not be concerned if its value isn't keeping up with inflation at all times. You're deriving additional satisfaction/utility from it, mainly because it's a place for you to live, and you spend money maintaining it in order to maintain your physical standard of living, not just its price at some future sale date. 1) I use dollars as an example. This applies to all currencies.\\\"\",\n \"\\\"Perhaps buying some internationally exchanged stock of China real-estate companies? It's never too late to enter a bubble or profit from a bubble after it bursts. As a native Chinese, my observations suggest that the bubble may exist in a few of the most populated cities of China such as Beijing, Shanghai and Shenzhen, the price doesn't seem to be much higher than expected in cities further within the mainland, such as Xi'an and Chengdu. I myself is living in Xi'an. I did a post about the urban housing cost of Xi'an at the end of last year: http://www.xianhotels.info/urban-housing-cost-of-xian-china~15 It may give you a rough idea of the pricing level. The average of 5,500 CNY per square meter (condo) hasn't fluctuated much since the posting of the entry. But you need to pay about 1,000 to 3,000 higher to get something desirable. For location, just search \\\"\\\"Xi'an, China\\\"\\\" in Google Maps. =========== I actually have no idea how you, a foreigner can safely and easily profit from this. I'll just share what I know. It's really hard to financially enter China. To prevent oversea speculative funds from freely entering and leaving China, the Admin of Forex (safe.gov.cn) has laid down a range of rigid policies regarding currency exchange. By law, any native individual, such as me, is imposed of a maximum of $50,000 that can be converted from USD to CNY or the other way around per year AND a maximum of $10,000 per day. Larger chunks of exchange must get the written consent of the Admin of Forex or it will simply not be cleared by any of the banks in China, even HSBC that's not owned by China. However, you can circumvent this limit by using the social ID of your immediate relatives when submitting exchange requests. It takes extra time and effort but viable. However, things may change drastically should China be in a forex crisis or simply war. You may not be able to withdraw USD at all from the banks in China, even with a positive balance that's your own money. My whole income stream are USD which is wired monthly from US to Bank of China. I purchased a property in the middle of last year that's worth 275,000 CNY using the funds I exchanged from USD I had earned. It's a 43.7% down payment on a mortgage loan of 20 years: http://www.mlcalc.com/#mortgage-275000-43.7-20-4.284-0-0-0.52-7-2009-year (in CNY, not USD) The current household loan rate is 6.12% across the entire China. However, because this is my first property, it is discounted by 30% to 4.284% to encourage the first house purchase. There will be no more discounts of loan rate for the 2nd property and so forth to discourage speculative stocking that drives the price high. The apartment I bought in July of 2009 can easily be sold at 300,000 now. Some of the earlier buyers have enjoyed much more appreciation than I do. To give you a rough idea, a house bought in 2006 is now evaluated 100% more, one bought in 2008 now 50% more and one bought in the beginning of 2009 now 25% more.\\\"\",\n \"\\\"leverage amplifies gains and losses, when returns are positive leverage makes them more positive, but when returns are negative leverage makes them more negative. since most investments have a positive return in \\\"\\\"the long run\\\"\\\", leverage is generally considered a good idea for long term illiquid investments like real estate. that said, to quote keynes: in the long run we are all dead. in the case of real estate specifically, negative returns generally happen when house prices drop. assuming you have no intention of ever selling the properties, you can still end up with negative returns if rents fall, mortgage rates increase or tax rates rise (all of which tend to correlate with falling property values). also, if cash flow becomes negative, you may be forced to sell during a down market, thereby amplifying the loss. besides loss scenarios, leverage can turn a small gain into a loss because leverage has a price (interest) that is subtracted from any amplified gains (and added to any amplified losses). to give a specific example: if you realize a 0.1% gain on x$ when unleveraged, you could end up with a 17% loss if leveraged 90% at 2% interest. (gains-interest)/investment=(0.001*x-0.02*0.9*x)/(x/10)=-0.017*10=-0.17=17% loss one reason leveraged investments are popular (particularly with real estate), is that the investor can file bankruptcy to \\\"\\\"erase\\\"\\\" a large negative net worth. this means the down side of a leveraged investment is limited for the highly leveraged investor. this leads to a \\\"\\\"get rich or start over\\\"\\\" mentality common among the self-made millionaire (and failed entrepreneurs). unfortunately, this dynamic also leads to serious problems for the banking sector in the event of a large nation-wide devaluation of real estate prices.\\\"\",\n \"if more people wanted to short mortgages, the price of insurance on them would have gone up, and investors would have stopped wanting to buy them, which would cause interest rates on homes to go up, reducing the number of people who can buy homes out of their price range- which was a fundamental cause of the crisis\",\n \"No, there is no linkage to the value of real estate and inflation. In most of the United States if you bought at the peak of the market in 2006, you still haven't recovered 7+ years later. Also real estate has a strong local component to the price. Pick the wrong location or the wrong type of real estate and the value of your real estate will be dropping while everybody else sees their values rising. Three properties I have owned near Washington DC, have had three different price patterns since the late 80's. Each had a different starting and ending point for the peak price rise. You can get lucky and make a lot, but there is no way to guarantee that prices will rise at all during the period you will own it.\",\n \"In the 2008 housing crash, cash was king. Cash can make your mortgage payment, buy groceries, utilities, etc. Great deals on bank owned properties were available for those with cash. Getting a mortgage in 2008-2011 was tough. If you are worried about stock market crashing, then diversification is key. Don't have all your investments in one mutual fund or sector. Gold and precious metals have a place in one's portfolio, say 5-10 percent as an insurance policy. The days of using a Gold Double Eagle to pay the property taxes are largely gone, although Utah does allow it. The biggest lesson I took from the crash is you cant have too much cash saved. Build up the rainy day fund.\",\n \"\\\"TBF - Proshares short 20+ Year Treasury The TBF fund is designed to track (hopefully) 100 percent of the inverse daily returns of the Barclays Capital 20+ Year U.S. Treasury Index. there's some risk of tracking error, and also a compounding effect if it's down several days in a row. (invest with care) There's also a TBT fund, but the risks are even greater since it is leveraged, potentially you could make the right long term call, but lose a lot in the short term due to tracking error and effect of compounding) (that would tend to make this one more appropriate for short term 'bets' on interest rates, and less so for a long term investor) There are also quite a few floating rate closed-end funds (Click here, then click on \\\"\\\"loan participation funds\\\"\\\") that should do well in a rising rate environment. Just beware that these funds seem to incorporate a substantial amount of credit risk as well as floating interest rate exposure. Closed end funds trade a lot like securities, since the fund is closed, you have to buy shares from another owner that is selling (just like with stocks), that means the shares can sometimes trade above or below the underlying value of the actual assets held by the fund depending on buying/selling pressure and the relative liquidity of a given fund.\\\"\",\n \"Typically in a developed / developing economy if there is high overall inflation, then it means everything will rise including property/real estate. The cost of funds is low [too much money chasing too few goods causes inflation] which means more companies borrow money cheaply and more business florish and hence the stock market should also go up. So if you are looking at a situation where industry is doing badly and the inflation is high, then it means there are larger issues. The best bet would be Gold and parking the funds into other currency.\",\n \"What financial instruments are there that are profitable when an underlying assets falls? The instrument you are looking for is called an Option, specifically a Put Option. It allows you, within the validity date, to sell ('Put') the respective shares to the option giver, at the predefined Strike Price. For example, let's assume APPL trades currently at 100 $ per share, and you think they will go down a lot. You buy one Put Option for 100 shares (they always come for larger amounts like 100s) for a Strike Price of 90 $, and pay 5 $ for it (it would be cheap if nobody believes they will fall that much). Note the last sentence under 2. - it is rather easy and very common when trading options to make complete losses. You have been warned. Are they available for IPOs? They could be available for IPOs, even before the IPO. However, someone has to put them out (some large bank, typically), which is some effort, and they would only do that if they expect enough interest and volume in the trade. most of the time, there will be no such options on the market. Are they available for foreign stocks?Yes, but again only selectively - only if the stock is well known and interesting enough for a broad audience.\",\n \"I don't like REITs because they are more closely correlated to the movement of the stock market. They don't really do the job of diversifying a portfolio because of that correlation. When the stock market dropped in 2008, REITs were hammered as well because the housing bubble burst. Bonds went up, and if you rebalanced (sold the bonds to buy more stock) then you came out much further ahead when the stock market recovered. The point of adding bonds for diversification is that they move in the opposite direction of equities; blunting the major drops (and providing buying opportunities). REITs don't fit that bill. REITs are not undergoing a correction like bonds because the price of real estate is a function of housing supply and buyer demand. Rising interest rates only make it a little harder for buyers to buy, so the effect of rising interest rates on real estate prices is muted. The other effects on real estate prices (more wealth in the economy for buyers) pushes in the opposite direction of the rising interest rates.\",\n \"Similarly to buying property on your own, REITs cannot get to good returns without leveraging. If you buy an investment property 100% cash only - chances are that 10% ROI is a very very optimistic scenario. If you use leveraging (i.e.: take out a mortgage) - you're susceptible to interest rate changes. REITs invest in properties all around all the time. They invest in mortgages themselves as well (In the US, that's the only security REITs can hold without being disqualified). You can't expect all that to be cash-only, there have to be loans and financing involved. When rates go up - financing costs go up. That brings net income down. Simple math. In the US, there's an additional benefit to investing in REIT vs directly holding real estate: taxes. REITs pay dividends, which have preferential (if qualified) taxation. You'll pay capital gains taxes on the dividends if you hold the fund long enough. If you own a rental property directly, your income after all the expenses is taxed at ordinary rates, which would usually be higher. Also, as you mentioned, you can use them as margin, and they're much much more liquid than holding real estate directly. Not to mention you don't need to deal with tenants or periods where you don't have any, or if local real-estate market tanks (while REITs are usually quite diversified in kinds of real estate they hold and areas). On the other hand, if you own real estate, you can leverage it at lower rates than margin (with HELOCs etc), and it provides some safety net in case of a stock market crash (which REITs are somewhat susceptible to). You can also live in your property, if needed, which is something that's hard to do with REITs....\",\n \"You seem to underestimate the risk of this deal for the inverstors. A person purchasing a residence is happy to pay $70K instead of $150K now, and the only risk they take is that the construction company fails to build the condo. Whatever happens on the estate market in two years, they still saved the price difference between the price of complete apartments and to-be-build apartments (which by the way may be less than $150K-$70K, since that $150K is the price on a hot market in two years). However, an investor aiming to earn money counts on that the property will actually cost $150K in two years, so he's additionally taking the risk that the estate market may drop. Should that happen, their return on investment will be considerably lower, and it's entirely possible they will make a loss instead of a profit. At this point, this becomes yet another high risk investment option, like financing a startup.\",\n \"There is none, whatever sector you invest in will be subject to cyclical market difficulties, however alpha can be generated from two sources: Timing and selection. Its much easier to get the timing done over a long period of time.\",\n \"\\\"I agree for the most part. I thought about them, I even thought about money supply and some others. But the point was mainly that businesses as a whole have been doing bad for not just this year or since 2008 but over a decade, not enough to account for inflation. This is grounds that the economy is in a recession, and will be. Bond's aren't really an investment in business as they are loaning money to the government on interest so they don't portray whether the economy is in recession or not. The premise was that a recession is/has occurred, not that money cannot be made in a good portfolio. Perhaps you didn't fully understand my last point, I don't believe gold and silver are the bubble. I believe the dollar is the bubble and it has been bursting since 2000. Commodity prices are merely a sign of the bursting bubble. Given that we're in recession, the only way to \\\"\\\"pull-out\\\"\\\" as it is apparent people have been doing for the past 10 years, is to buy real assets and that this creates a positive feedback loop into devaluing the dollar. Not everyone will pull out, but most will. For a long while the assets have had little exposure to the inflation of the dollar, and now it's catching up to the assets. Ergo assets are undervalued, they are not the bubble.\\\"\",\n \"All of this makes perfect sense and I can definitely see the logic behind it. But I don't think Hedge Funds are the way to go. The real money lies in real estate, more specifically land-banking. The problem, though, is that a lot of land-banking investments are really just scams and it's really hard to tell which ones are real and which ones are fake.\",\n \"Oh woohooo . . .and its all a great investment AAA . .you have to buy and when we do . .it goes straight down because we find the biggest seller was Morgan and Stanley Yah. . .we know that game really well now . .always buy the good news Build some fucking public toilets\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a down market. If sales volume does go up another option would be other service markets for real estate such as real estate information and marketing websites and sources i.e. http://www.trulia.com. Furthermore one can go and make a broad generalization such as since real estate no longer requires the same quantity of construction material other industries sensitive to the price of those commodities should technically have a lower cost of doing business. But be careful in the US much of the wealth an average american has is in their home. In this case this means that the economy as a whole takes a dive due to consumer uncertainty. In which case safe havens could benefit, may be things like Proctor & Gamble, gold, or treasuries. Side Note: You can always short builders or someone who loses if the housing market declines, this will make your investment higher as a result of the security going lower.","\"During the actual decline, there's very little money to be made and a lot to lose. When housing prices tank, everybody loses; the banks are exposed to higher risk of mortgage defaults, insurers start having to pay out more for \"\"gas leaks\"\" claiming over-leveraged homes, realtors starve because their commissions go down (even as foreclosures put more homes on the market) and people faced with financial uncertainty will stay put in their current homes instead of moving elsewhere. And homebuilders and contractors go broke because nobody wants to spend cash on a new home or major reno that looks like a losing investment. There can be some bright spots. Smaller hardware stores will make money as people do relatively small DIY projects to improve the condition of their current home. The larger stores get this business too, but it tends to be more than offset by the loss of contractor business (FAR more lucrative, and something the ACEs and True-Values don't really get in on). Of course the \"\"grave-robbers\"\" do well; gold buyers, auctioneers, pawn shops, repo firms; these guys eat well when other people are defaulting on loans or have to sell their stuff for fast cash. Most of these businesses are not publicly traded. One thing that was seen was increased revenues at discount retailers like Wal-Mart, Dollar General etc. When things are bad, people in the middle class who had avoided these stores for image or morality reasons learn to swallow their pride and buy discount store brands for half the price of national brand names. That lessens the blow felt by the discount retailers as overall consumer spending decreases; the pie shrinks, but the discount retailers get a bigger slice of the mandatory spending on food, clothing, etc (and the higher-level retailers get it in the shorts). When the pie starts to grow again as consumer spending picks back up, the discount retailers retain their percentage for a while, as the fickle middle class can afford to buy more from the discount retailer but can't yet afford to take their business back to the shopping mall stores. This produces a flatter, \"\"offset\"\" price graph for discount retailers through the business cycle; they don't lose as early or as much as everyone else in a major downturn, and they turn it around sooner while everyone else may still be on the way down, but as everything gets better for everyone on the upswing it's less great for the discount guys, as they start losing customers and their dollars to competitors with better stuff, even as the ones they keep spend more. This doesn't generally manifest as a true negative correlation, but it can be a good hedge. The number one money-making investment in a tanking economy is gold. When things go down the crapper, everyone wants gold, so if you see the train wreck coming far enough in advance, you can make a big move to gold and really make some money off that investment. For instance, when the first whispers about ARM adjustments and mass defaults reached the public consciousness in mid-2005, gold bullion jumped from about $400 to over $700 in a nine-month period. It cooled off again in 06-07 but only to about $600/oz, and then in late 07 it steadily climbed to peak at $1000/oz; even if you got in late, an investment of $1000 in July '07 in \"\"bulk\"\" gold would have netted you $650 in one year; that's a 65% APY. Then the economy hit bottom and a lot of investors ditched gold for investments they thought would pull back out of their holes quickly; For just a little while in '08 gold was down to $700 again. Then came all the government reports; unemployment not budging, home prices still declining, a lot of banks still hiding just how bad their position was. If you had seen that it was going to be bad, bad, bad, like a lot of now-billionaire hedge fund investors did, a $1000 investment in gold in July 05, and then cashing out at the tops of the peaks and buying back in at the major troughs, would be worth almost $4000 today. That's a 400% return over 7 years, or an annual average yield of 57%. There simply hasn't been anything like that in the last 7 years.\""],"string":"[\n \"A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a down market. If sales volume does go up another option would be other service markets for real estate such as real estate information and marketing websites and sources i.e. http://www.trulia.com. Furthermore one can go and make a broad generalization such as since real estate no longer requires the same quantity of construction material other industries sensitive to the price of those commodities should technically have a lower cost of doing business. But be careful in the US much of the wealth an average american has is in their home. In this case this means that the economy as a whole takes a dive due to consumer uncertainty. In which case safe havens could benefit, may be things like Proctor & Gamble, gold, or treasuries. Side Note: You can always short builders or someone who loses if the housing market declines, this will make your investment higher as a result of the security going lower.\",\n \"\\\"During the actual decline, there's very little money to be made and a lot to lose. When housing prices tank, everybody loses; the banks are exposed to higher risk of mortgage defaults, insurers start having to pay out more for \\\"\\\"gas leaks\\\"\\\" claiming over-leveraged homes, realtors starve because their commissions go down (even as foreclosures put more homes on the market) and people faced with financial uncertainty will stay put in their current homes instead of moving elsewhere. And homebuilders and contractors go broke because nobody wants to spend cash on a new home or major reno that looks like a losing investment. There can be some bright spots. Smaller hardware stores will make money as people do relatively small DIY projects to improve the condition of their current home. The larger stores get this business too, but it tends to be more than offset by the loss of contractor business (FAR more lucrative, and something the ACEs and True-Values don't really get in on). Of course the \\\"\\\"grave-robbers\\\"\\\" do well; gold buyers, auctioneers, pawn shops, repo firms; these guys eat well when other people are defaulting on loans or have to sell their stuff for fast cash. Most of these businesses are not publicly traded. One thing that was seen was increased revenues at discount retailers like Wal-Mart, Dollar General etc. When things are bad, people in the middle class who had avoided these stores for image or morality reasons learn to swallow their pride and buy discount store brands for half the price of national brand names. That lessens the blow felt by the discount retailers as overall consumer spending decreases; the pie shrinks, but the discount retailers get a bigger slice of the mandatory spending on food, clothing, etc (and the higher-level retailers get it in the shorts). When the pie starts to grow again as consumer spending picks back up, the discount retailers retain their percentage for a while, as the fickle middle class can afford to buy more from the discount retailer but can't yet afford to take their business back to the shopping mall stores. This produces a flatter, \\\"\\\"offset\\\"\\\" price graph for discount retailers through the business cycle; they don't lose as early or as much as everyone else in a major downturn, and they turn it around sooner while everyone else may still be on the way down, but as everything gets better for everyone on the upswing it's less great for the discount guys, as they start losing customers and their dollars to competitors with better stuff, even as the ones they keep spend more. This doesn't generally manifest as a true negative correlation, but it can be a good hedge. The number one money-making investment in a tanking economy is gold. When things go down the crapper, everyone wants gold, so if you see the train wreck coming far enough in advance, you can make a big move to gold and really make some money off that investment. For instance, when the first whispers about ARM adjustments and mass defaults reached the public consciousness in mid-2005, gold bullion jumped from about $400 to over $700 in a nine-month period. It cooled off again in 06-07 but only to about $600/oz, and then in late 07 it steadily climbed to peak at $1000/oz; even if you got in late, an investment of $1000 in July '07 in \\\"\\\"bulk\\\"\\\" gold would have netted you $650 in one year; that's a 65% APY. Then the economy hit bottom and a lot of investors ditched gold for investments they thought would pull back out of their holes quickly; For just a little while in '08 gold was down to $700 again. Then came all the government reports; unemployment not budging, home prices still declining, a lot of banks still hiding just how bad their position was. If you had seen that it was going to be bad, bad, bad, like a lot of now-billionaire hedge fund investors did, a $1000 investment in gold in July 05, and then cashing out at the tops of the peaks and buying back in at the major troughs, would be worth almost $4000 today. That's a 400% return over 7 years, or an annual average yield of 57%. There simply hasn't been anything like that in the last 7 years.\\\"\"\n]","isConversational":false}}},{"rowIdx":293,"cells":{"_id":{"kind":"string","value":"6787"},"query":{"kind":"string","value":"Would it make sense to sell a stock, then repurchase it for tax purposes?"},"gt_ids":{"kind":"list like","value":["587120"],"string":"[\n \"587120\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["38287","219762","540292","17184","23217","390864","304918","400730","376800","358602","396030","156092","161155","207929","407602","221715","571124","377944","261902","501214","522319","444405","268423","292762","514970","474981","55893","596518","113948","483394","438419","152960","132111","306460","416789","72677","581780","536610","132966","318321","399583","46625","178059","517577","550468","322284","14364","343219","443354","151037","102999","290317","177798","590010","456436","350080","312154","457059","187761","335375","584917","330848","275340","71601","311782","137251","548278","521133","345793","227064","257274","481283","140267","448659","81353","303193","477851","348922","338754","71292","221427","598460","256010","162804","323731","468047","543898","379786","539548","561999","150809","476224","492401","585764","537212","5347","4830","551286","557361","75024"],"string":"[\n \"38287\",\n \"219762\",\n \"540292\",\n \"17184\",\n \"23217\",\n \"390864\",\n \"304918\",\n \"400730\",\n \"376800\",\n \"358602\",\n \"396030\",\n \"156092\",\n \"161155\",\n \"207929\",\n \"407602\",\n \"221715\",\n \"571124\",\n \"377944\",\n \"261902\",\n \"501214\",\n \"522319\",\n \"444405\",\n \"268423\",\n \"292762\",\n \"514970\",\n \"474981\",\n \"55893\",\n \"596518\",\n \"113948\",\n \"483394\",\n \"438419\",\n \"152960\",\n \"132111\",\n \"306460\",\n \"416789\",\n \"72677\",\n \"581780\",\n \"536610\",\n \"132966\",\n \"318321\",\n \"399583\",\n \"46625\",\n \"178059\",\n \"517577\",\n \"550468\",\n \"322284\",\n \"14364\",\n \"343219\",\n \"443354\",\n \"151037\",\n \"102999\",\n \"290317\",\n \"177798\",\n \"590010\",\n \"456436\",\n \"350080\",\n \"312154\",\n \"457059\",\n \"187761\",\n \"335375\",\n \"584917\",\n \"330848\",\n \"275340\",\n \"71601\",\n \"311782\",\n \"137251\",\n \"548278\",\n \"521133\",\n \"345793\",\n \"227064\",\n \"257274\",\n \"481283\",\n \"140267\",\n \"448659\",\n \"81353\",\n \"303193\",\n \"477851\",\n \"348922\",\n \"338754\",\n \"71292\",\n \"221427\",\n \"598460\",\n \"256010\",\n \"162804\",\n \"323731\",\n \"468047\",\n \"543898\",\n \"379786\",\n \"539548\",\n \"561999\",\n \"150809\",\n \"476224\",\n \"492401\",\n \"585764\",\n \"537212\",\n \"5347\",\n \"4830\",\n \"551286\",\n \"557361\",\n \"75024\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["I don't believe in letting the tax tail wag the investing dog. You have a stock you no longer wish to hold for whatever reason? Sell it. But to sell a loser, hoping it doesn't rise by the time you wish to re-buy it in 30 days is folly. This effort may gain you $50 if done right. No, it's not worth it either way.","In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares. IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-). In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined.","Is this possible and will it have the intended effect? From the US tax perspective, it most definitely is and will. Is my plan not very similar to Wash Sale? Yes, except that wash sale rules apply for losses, not gains. In any case, since you're not a US tax resident, the US wash sale rules won't apply to you.","\"When a question is phrased this way, i.e. \"\"for tax purposes\"\" I'm compelled to advise - Don't let the tax tail wag the investing dog. In theory, one can create a loss, up to the $3K, and take it against ordinary income. When sold, the gains may be long term and be at a lower rate. In reality, if you are out of the stock for the required 30 days, it will shoot up in price. If you double up, as LittleAdv correctly offers, it will drop over the 30 days and negate any benefit. The investing dog's water bowl is half full.\"","It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).","I sold it at 609.25 and buy again at 608.75 in the same day If you Sold and bought the same day, it would be considered as intra-day trade. Profit will be due and would be taxed at normal tax brackets. Edits Best Consult a CA. This is covered under Indian Accounting Standard AG51 The following examples illustrate the application of the derecognition principles of this Standard. (e) Wash sale transaction. The repurchase of a financial asset shortly after it has been sold is sometimes referred to as a wash sale. Such a repurchase does not preclude derecognition provided that the original transaction met the derecognition requirements. However, if an agreement to sell a financial asset is entered into concurrently with an agreement to repurchase the same asset at a fixed price or the sale price plus a lender's return, then the asset is not derecognised. This is more relevant now for shares/stocks as Long Term Capital Gains are tax free, Long Term Capital Loss cannot be adjusted against anything. Short Term Gains are taxed differentially. Hence the transaction can be interpreted as tax evasion, professional advise is recommended. A simple way to avoid this situation; sell on a given day and buy it next or few days later.","If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?","Yes. As long as the stock is in a taxable account (i.e. not a tax deferred retirement account) you'll pay gain on the profit regardless of subsequent purchases. If the sale is a loss, however, you'll risk delaying the claim for the loss if you repurchase identical shares within 30 days of that sale. This is called a wash sale.","The top long-term capital gains tax rate will rise to 20% effective 1 Jan, 2011, unless Congress decides to do something about it before then. (Will they? Who knows!! There's been talk about it, but, well, it's Congress. They don't even know what they're going to do.) Anyway. The rules about when you can sell stock are mostly concerned with when you can realize a capital loss: if you sell a stock at a loss and then re-buy it for tax purposes within 30 days, it's a wash sale and not eligible for a deduction. However, I don't believe this applies to any stocks once you realize a gain - once you've realized the gain and paid your tax for it, it's all yours, locked in at whatever rate. Your replacement stock will be subject to short-term capital gains for the next year afterwards, and you might need to be careful with identifying the holding period on different lots of your stock, but I don't believe there will be any particular trouble. Please do not rely entirely on my advice and consult also with your tax preparer or lawyer. :) And the IRS documentation: Special Addendum for Nov/Dec 2012! Spoiler alert! Congress did indeed act: they extended the rates, but only temporarily, so now we're looking at tax hikes starting in 2013 instead, only the new top rate++ will be something like 23.8% on account of an extra 3.8% medicare tax on passive earnings (brought to you via Obamacare legislation). But the year and the rates' specifics aside, same thing still applies. And the Republican house and Democratic senate/President are still duking it out. Have fun. ++ 3.8% surtax applies to the lesser of (a) net investment income (b) income over $200,000 ($250k if married). 20% tax rate applies to people in the 15% income tax bracket for ordinary income or higher. Additional tax discounts for property held over 5 years may be available. Consult tax law and your favorite tax professional and prepare to be confused.","The way the wash sale works is your loss is added to your cost basis of the buy. So suppose your original cost basis is $10,000. You then sell the stock for $9,000 which accounts for your $1,000 loss. You then buy the stock again, say for $8,500, and sell it for $9,000. Since your loss of $1,000 is added to your cost basis, you actually still have a net loss of $500. You then buy the stock again for say $10,500, then sell it for $9,500. Your $500 loss is added to your cost basis, and you have a net loss of $1,500. Since you never had a net gain, you will not owe any tax for these transactions.","No, you can not cheat the IRS. This question is also based on the assumption that the stock will return to $1 which isn't always a safe assumption and that it will continue to cycle like that repeatedly which is also likely a false assumption.","I think what you're asking is, Can I buy 1000 shares of the stock at $1. For $1000. it goes up to $2, then sell 500 shares of the stock with proceeds of $1000, now having my original $1000 out of it, and still owning 500 shares. And that not create a taxable event. Since all I did was take my cost basis back out, and didn't collect any gains. And then I want to repeat that over and over. Nope, not in the USA anyway. Each sale is a separate taxable event. The first sale will have proceeds of $1000 and a cost basis of $500, with $500 of capital gains, and taxes owed at the time of that sale. The remaining stock will have a cost basis of $500 and proceeds of whatever you sell it for in the future. The next batch of stock will have a cost basis of whatever you pay for it. The only thing that works anything like the way you're thinking, is a Roth IRA... You can put your cost basis in, pull it back out, and put it back in again, all tax free. But every time your cost basis cycles in, that counts towed your contribution limits unless you do it fast enough to call it a rollover.","Is wash rule applicable for this? No - because you made a gain on the sale. You paid $13,500 for the stock and sold it for $14,250. The wash rule prevents you from claiming a loss if you buy the same stock again within 30 days. You have no loss to claim, so the rule does not apply.","I agree, one should not let the tax tail wag the investing dog. The only question should be whether he'd buy the stock at today's price. If he wishes to own it long term, he keeps it. To take the loss this year, he'd have to sell soon, and can't buy it back for 30 days. If, for whatever reason, the stock comes back a bit, he's going to buy in higher. To be clear, the story changes for ETFs or mutual funds. You can buy a fund to replace one you're selling, capture the loss, and easily not run afoul of wash sale rules.","Note that the rules around wash sales vary depending on where you live. For the U.S., the wash sale rules say that you cannot buy a substantially identical stock or security within 30 days (before or after) your sale. So, you could sell your stock today to lock in the capital losses. However, you would then have to wait at least 30 days before purchasing it back. If you bought it back within 30 days, you would disqualify the capital loss event. The risk, of course, is that the stock's price goes up substantially while you are waiting for the wash sale period. It's up to you to determine if the risk outweighs the benefit of locking in your capital losses. Note that this applies regardless of whether you sell SOME or ALL of the stock. Or indeed, if we are talking about securities other than stocks.","\"If you bought them, you can sell them. That does not preclude you from buying again later. You might get yourself into a situation where you need to account for a so-called \"\"wash sale\"\" on your taxes, but your broker should calculate that and report it on your 1099-B at the end of the year. There's nothing illegal about this though - It's just a required step in the accounting of capital gains for tax purposes.\"","\"According to Wikipedia this is still a wash sale: In the USA wash sale rules are codified in \"\"26 USC § 1091 - Loss from wash sales of stock or securities.\"\" Under Section 1091, a wash sale occurs when a taxpayer sells or trades stock or securities at a loss, and within 30 days before or after the sale:\"","Brokerage->Brokerage 13-16 The loss from the previous purchase will be added to the cost basis of the security for the second purchase. Since you sold it at a loss again it would increase your losses. Your loss from the first sale will be disallowed. Your loss will be added to the cost basis of the next purchase. Your gains will be taxed on the total of the cost basis which will reduce your gains. Which you will taxed 'less'. Your gains will be taxed. Your loss is allowed. You will be taxed on both. Wash Sales really only applies to losses. If you sell for gain, the tax man will be happy to take his share. From my understanding, it does not matter if it is IRA or Brokerage, the wash sale rule affects them all. Check this link: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02","\"The IRS rules are actually the same. 26 U.S. Code § 1091 - Loss from wash sales of stock or securities In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed... What you should take away from the quote above is \"\"substantially identical stock or securities.\"\" With stocks, one company may happen to have a high correlation, Exxon and Mobil come to mind, before their merger of course. With funds or ETFs, the story is different. The IRS has yet to issue rules regarding what level of overlap or correlation makes two funds or ETFs \"\"substantially identical.\"\" Last month, I wrote an article, Tax Loss Harvesting, which analyses the impact of taking losses each year. I study the 2000's which showed an average loss of 1% per year, a 9% loss for the decade. Tax loss harvesting made the decade slightly positive, i.e. an annual boost of approx 1%.\"","This will work as intended, but there's another point to consider. In the US, the tax rate on proceeds from stock sales is higher for short term holdings, which are defined as held for less than one year. Both rates vary based on your income. Bracket numbers are for fiscal year 2014, filing as single. The difference between short and long term capital gains tax in the US is a minimum of ten percentage points, and works out to 15 percentage points on average. This is substantial. If you won't be reporting much income the year you move to the US (say because you only worked for a portion of the year) it is decidedly to your advantage to wait and sell the stocks in the US, to get that sweet 0% rate. At a minimum, you should hold the position for a year if you sell and rebuy, from a tax optimization perspective. Two caveats:","Firstly 795 is not even. Secondly - generally you would pay tax on the sale of the 122 shares, whether you buy them back or not, even one minute later, has nothing to do with it. The only reason this would not create a capital gains event is if your country (which you haven't specified) has some odd rules or laws about this that I, and most others, have never heard of before.","Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it.","Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that.","Yes. On December 10, you have a wash sale. As long as you don't buy the stock back for 30 days after that, the wash is of no consequence. In other words, you don't have a wash issue if you don't own the stock for 30 days.","You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.","\"You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule \"\"Don't let the tax tail wag the investing dog.\"\" For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense.\"","Your three options are: Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have the same effect as option 2 with no transaction costs. The loss will likely also offset some of the other short term gains you mentioned.","I was not able to find any authority for the opinion you suggest. Wash sale rules should, IMHO, apply. According to the regulations, you attribute the newly purchased shares to the oldest sold shares for the purposes of the calculation of the disallowed loss and cost basis. (c) Where the amount of stock or securities acquired within the 61-day period is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be those with which the stock or securities acquired are matched in accordance with the following rule: The stock or securities acquired will be matched in accordance with the order of their acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or otherwise disposed of. You can resort to the claim that you have not, in fact, entered into the contract within 30 days, but when you gave the instructions to reinvest dividends. I don't know if such a claim will hold, but to me it sounds reasonable. This is similar to the rules re short sales (in (g) there). In this case, wash sale rules will not apply (unless you instructed to reinvest dividends within the 30 days prior to the sale). But I'd ask a tax professional if such a claim would hold, talk to a EA/CPA licensed in your state.","Yes, an overall $500 loss on the stock can be claimed. Since the day trader sold both lots she acquired, the Wash Sale rule has no net impact on her taxes. The Wash Sale rule would come into play if within thirty days of second sale, she purchased the stock a third time. Then she would have to amend her taxes because claiming the $500 loss would no longer be a valid under the Wash Sale rule. It would have to be added to the cost basis of the most recent purchase.","What might make more sense is to 'capture' your losses. Sell out the funds you have, move into something else that is different enough that the IRS won't consider it a wash sale, and you can then use those losses to offset gains (you can even carry them forward) You would still be in the market, just having made a sort of 'sideways move'. A month or two later (once you are clear of wash sale rules) you could shift back to your original choices. (this answer presumes you are in the US, or somewhere that lets you use losses to offset gains)","Looks like there are no specific rule in India to prevent Wash sales. See the link below. http://economictimes.indiatimes.com/wealth/personal-finance-news/investors-can-rejig-portfolio-book-short-term-loss-to-save-tax/articleshow/7812788.cms?intenttarget=no","\"Summary of accepted answer: Your \"\"loss\"\" will not count as a loss (to the IRS). Which means no tax deduction for a \"\"short-term capital loss\"\" (on that sale). Instead, the IRS simply pretends like you had paid less for the stock to begin with.\"","\"Yes- you do not realize gains or losses until you actually sell the stock. After you sell the initial stocks/bonds you have realized the gain. When you buy the new, different stocks you haven't realized anything until you then sell those. There is one exception to this, called the \"\"Wash-Sale Rule\"\". From Investopedia.com: With the wash-sale rule, the IRS disallows a loss deduction from the sale of a security if a ‘substantially identical security' was purchased within 30 days before or after the sale. The wash-sale period is actually 61 days, consisting of the 30 days before and the 30 days after the date of the sale. For example, if you bought 100 shares of IBM on December 1 and then sold 100 shares of IBM on December 15 at a loss, the loss deduction would not be allowed. Similarly, selling IBM on December 15 and then buying it back on January 10 of the following year does not permit a deduction. The wash-sale rule is designed to prevent investors from making trades for the sole purpose of avoiding taxes.\"","No one can advise you on whether to hold this stock or sell it. Your carried losses can offset short or long term gains, but the long term losses have to be applied to offset long term gains before any remaining losses can offset short term gains. Your question doesn't indicate how long you have to hold before the short term gains become long term gains. Obviously the longer the holding period, the greater the risk. You also must avoid a wash sale (selling to lock in the gains/reset your basis then repurchasing within a month). All of those decisions hold risks that you have to weigh. If you see further upside in holding it longer, keep the investment. Don't sell just to try to maximize tax benefits.","Equal sized gains and losses in alternating years would lead to an unjust positive tax. On the contrary. If I can take my gains at the long term rate (15%) in even years, but take losses in odd years, up to $3000, or let them offset short term gains at ordinary rate, I've just gamed the system. What is the purpose of the wash sale rule? Respectfully, we here can do a fine job of explaining how a bit of tax code works. And we can suggest the implication of those code bits. But, I suspect that it's not easy to explain the history of particular rules. For wash sale, the simple intent is to not let someone take a loss without actually selling the stock for a time. You'd be right to say the +/- 30 days is arbitrary. I'd ask you to keep 2 things in mind if you continue to frequent this board -","\"if you buy back the now ITM calls, then you will have a short term loss. That pair of transactions is independent, from a tax perspective, of your long position (which was being used as \"\"collateral\"\" in the very case that occurred). I can see your tax situation and can see the logic of taking a short term loss to balance a short term gain. Referring to D Stanley's answer, #2 and #3 are not the same because you are paying intrinsic value in the options and the skew in #2, whereas #3 has no intrinsic value. Of course, because you can't know the future, the stock price could move higher or lower between #2 and #3. #1 presumes the stock continues to climb.\"","\"As Dilip said, if you want actual concrete, based in tax law, answers, please add the country (and if applicable, state) where you pay income tax. Also, knowing what tax bracket you're in would help as well, although I certainly understand if you're not comfortable sharing that. So, assuming the US... If you're in the 10% or 15% tax bracket, then you're already not paying any federal tax on the $3k long term gain, so purposely taking losses is pointless, and given that there's probably a cost to taking the loss (commission, SEC fee), you'd be losing money by doing so. Also, you won't be able to buy back the loser for 31 days without having the loss postponed due to the wash sale that would result. State tax is another matter, but (going by the table in this article), even using the highest low end tax rate (Tennessee at 6%), the $50 loss would only save you $3, which is probably less than the commission to sell the loser, so again you'd be losing money. And if you're in a state with no state income tax, then the loss wouldn't save you anything on taxes at the state level, but of course you'll still be paying to be able to take the loss. On the high end, you'd be saving 20% federal tax and 13.3% state tax (using the highest high end tax state, California, and ignoring (because I don't know :-) ) whether they tax long-term capital gains at the same rate as regular income or not), you'd be saving $50 * (20% + 13.3%) = $50 * 33.3% = $16.65. So for taxes, you're looking at saving between nothing and $16.65. And then you have to subtract from that the cost to achieve the loss, so even on the high end (which means (assuming a single filer)) you're making >$1 million), you're only saving about $10, and you're probably actually losing money. So I personally don't think taking a $50 loss to try to decrease taxes makes sense. However, if you really meant $500 or $5000, then it might (although if you're in the 10-15% brackets in a no income tax state, even then it wouldn't). So the answer to your final question is, \"\"It depends.\"\" The only way to say for sure is, based on the country and state you're in, calculate what it will save you (if anything). As a general rule, you want to avoid letting the tax tail wag the dog. That is, your financial goal should be to end up with the most money, not to pay the least taxes. So while looking at the tax consequences of a transaction is a good idea, don't look at just the tax consequences, look at the consequences for your overall net worth.\"","\"The wash sale rule only applies when the sale in question is at a loss. So the rule does not apply at all to your cases 3, 4, 7, 8, 11, 12, 15, and 16, which all start with a gain. You get a capital gain at the first sale and then a separately computed gain / loss at the second sale, depending on the case, BUT any gain or loss in the IRA is not a taxable event due to the usual tax-advantaged rules for the IRA. The wash sale does not apply to \"\"first\"\" sales in your IRA because there is no taxable gain or loss in that case. That means that you wouldn't be seeking a deduction anyway, and there is nothing to get rolled into the repurchase. This means that the rule does not apply to 1-8. For 5-8, where the second sale is in your brokerage account, you have a \"\"usual\"\" capital gain / loss as if the sale in the IRA didn't happen. (For 1-4, again, the second sale is in the IRA, so that sale is not taxable.) What's left are 9-10 (Brokerage -> IRA) and 13-14 (Brokerage -> Brokerage). The easier two are 13-14. In this case, you cannot take a capital loss deduction for the first sale at a loss. The loss gets added to the basis of the repurchase instead. When you ultimately close the position with the second sale, then you compute your gain or loss based on the modified basis. Note that this means you need to be careful about what you mean by \"\"gain\"\" or \"\"loss\"\" at the second sale, because you need to be careful about when you account for the basis adjustment due to the wash sale. Example 1: All buys and sells are in your brokerage account. You buy initially at $10 and sell at $8, creating a $2 loss. But you buy again within the wash sale window at $9 and sell that at $12. You get no deduction after the first sale because it's wash. You have a $1 capital gain at the second sale because your basis is $11 = $9 + $2 due to the $2 basis adjustment from wash sale. Example 2: Same as Example 1, except that final sale is at $8 instead of at $12. In this case you appear to have taken a $2 loss on the first buy-sell and another $1 loss on the second buy-sell. For taxes however, you cannot claim the loss at the first sale due to the wash. At the second sale, your basis is still $11 (as in Example 1), so your overall capital loss is the $3 dollars that you might expect, computed as the $8 final sale price minus the $11 (wash-adjusted) basis. Now for 9-10 (Brokerage->IRA), things are a little more complicated. In the IRA, you don't worry about the basis of individual stocks that you hold because of the way that tax advantages of those accounts work. You do need to worry about the basis of the IRA account as a whole, however, in some cases. The most common case would be if you have non-deductable contributions to your traditional IRA. When you eventually withdraw, you don't pay tax on any distributions that are attributable to those nondeductible contributions (because you already paid tax on that part). There are other cases where basis of your account matters, but that's a whole question in itself - It's enough for now to understand 1. Basis in your IRA as a whole is a well-defined concept with tax implications, and 2. Basis in individual holdings within your account don't matter. So with the brokerage-IRA wash sale, there are two questions: 1. Can you take the capital loss on the brokerage side? 2. If no because of the wash sale, does this increase the basis of your IRA account (as a whole)? The answer to both is \"\"no,\"\" although the reason is not obvious. The IRS actually put out a Special Bulletin to answer the question specifically because it was unclear in the law. Bottom line for 9-10 is that you apparently are losing your tax deduction completely in that case. In addition, if you were counting on an increase in the basis of your IRA to avoid early distribution penalties, you don't get that either, which will result in yet more tax if you actually take the early distribution. In addition to the Special Bulletin noted above, Publication 550, which talks about wash sale rules for individuals, may also help some.\"","From the IRS Section 1091. Loss from Wash Sales of Stock or Securities Section 1091(a) provides that in the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law),or has entered into a contract or option so to acquire, substantially identical stock or 3 securities, then no deduction shall be allowed under § 165 The document is not long, 4 pages, and should be read to see the intent. It's tough to choose the one snippet, but the conclusion is this is the definitive response to that question. A purchase within an IRA or other retirement account can create a wash sale if such a purchase would be a wash sale otherwise, i.e. the fact that it's a retirement account doesn't avoid wash rules.","My understanding is that losses are first deductible against any capital gains you may have, then against your regular income (up to $3,000 per year). If you still have a loss after that, the loss may be carried over to offset capital gains or income in subsequent years As you suspect, a short term capital loss is deductible against short term capital gains and long term losses are deductible against long term gains. So taking the loss now MIGHT be beneficial from a tax perspective. I say MIGHT because there are a couple scenarios in which it either may not matter, or actually be detrimental: If you don't have any short term capital gains this year, but you have long term capital gains, you would have to use the short term loss to offset the long term gain before you could apply it to ordinary income. So in that situation you lose out on the difference between the long term tax rate (15%) and your ordinary income rate (potentially higher). If you keep the stock, and sell it for a long term loss next year, but you only have short-term capital gains or no capital gains next year, then you may use the long term loss to offset your short-term gains (first) or your ordinary income. Clear as mud? The whole mess is outlined in IRS Publication 550 Finally, if you still think the stock is good, but just want to take the tax loss, you can sell the stock now (to realize the loss) then re-buy it in 30 days. This is called Tax Loss Harvesting. The 30 day delay is an IRS requirement for being allowed to realize the loss.","In a comment on this answer you asked It's not clear to me why the ability to defer the gains would matter (since you never materially benefit until you actually sell) but the estate step up in basis is a great point! Could you describe a hypothetical exploitive scenario (utilizing a wash sale) in a little more detail? This sounds like you still have the same question as originally, so I'll take a stab at answering with an example. I sell some security for a $10,000 profit. I then sell another security at a $10,000 loss and immediately rebuy. So pay no taxes (without the rule). Assuming a 15% rate, that's $1500 in savings which I realize immediately. Next year, I sell that same security for a $20,000 profit over the $10,000 loss basis (so a $10,000 profit over my original purchase). I sell and buy another security to pay no taxes. In fact, I pay no taxes like this for fifty years as I live off my investments (and a pension or social security that uses up my tax deductions). Then I die. All my securities step up in basis to their current market value. So I completely evade taxes on $500,000 in profits. That's $75,000 in tax savings to make my heirs richer. And they're already getting at least $500,000 worth of securities. Especially consider the case where I sell a privately held security to a private buyer who then sells me back the same shares at the same price. Don't think that $10,000 is enough? Remember that you also get the original value. But this also scales. It could be $100,000 in gains as well, for $750,000 in tax savings over the fifty years. That's at least $5 million of securities. The effective result of this would be to make a 0% tax on capital gains for many rich people. Worse, a poorer person can't do the same thing. You need to have many investments to take advantage of this. If a relatively poor person with two $500 investments tried this, that person would lose all the benefit in trading fees. And of course such a person would run out of investments quickly. Really poor people have $0 in investments, so this is totally impractical.","\"'Note that \"\"to keep an investor from lowering their tax bill\"\" is not an explanation'. Well, yes it is. In fact it is the only explanation. The rule plainly exists to prevent someone from realizing a loss when their economic situation remains unchanged before/after a sale. Now, you might say 'but I have suffered a loss, even if it is unrealized!' But, would you want to pay tax on unrealized gains? The tax system still caters to reducing the tax impact of investments, particularly capital investments. Part and parcel with the system of taxing gains only when realized, is that you can recognize losses only when realized. Are there other ways to 'artificially' reduce taxable income? Yes. But the goal of a good tax system should be to reduce those opportunities. Whether you agree that it is fair for the government to prevent this tax-saving opportunity, when others exist, is another question. But that is why the rule exists.\"","Elaborating on kelsham's answer: You buy 100 shares XYZ at $1, for a total cost of $100 plus commissions. You sell 100 shares XYZ at $2, for a total income of $200 minus commissions. Exclusive of commissions, your capital gain is $100 for this trade, and you will pay taxes on that. Even if you proceed to buy 200 shares XYZ at $1, reinvesting all your income from the sale, you still owe taxes on that $100 gain. The IRS has met this trick before.","You sold all shares? The potential wash sale effect goes away after 30 days from the dividend date. Selling all shares of a stock where a wash existed effectively negates the wash and you can take the loss.","No, if you are taking a loss solely and purely to reduce the tax you have to pay, then it is not a good strategy, in fact it is a very bad strategy, no matter what country you are in. No investment choice should be made solely due to your tax consequeses. If you are paying tax that means you made a profit, if you made a loss just to save some tax then you are loosing money. The whole point of investing is to make money not lose it.","\"You have to calculate the total value of all shares and then ask yourself \"\"Would I invest that amount of money in this stock?\"\" If the answer is yes, then only sell what you need to sell. Take the $3k loss against your income, if you have no other gains. If you would not invest that amount of cash in that stock, then sell it all right now and carry forward the excess loss every year. Note at any point you have capital gains you can offset all of them with your loss carryover (not just $3k).\"","Yes, you would have to report the gain. It is not relevant that you traded the stock previously, you still made a profit on the trade-at-hand. Imagine if for some reason this type of trade were exempt. Investors could follow the short term swings of volatile stocks completely tax-free.","You realise a capital gain as soon as you sell the stock. At that point, you will have to pay taxes on the profits when you fill in your tax return. The fact that you used the money to subsequently purchase other stocks is not relevant, unless you sell those stocks within the same tax year. For example, purchase $5000 of stock A in 2010. Sell for $6000 in 2010. Purchase $6000 of stock B in 2010. Sell stock B for $6500 in 2010. Purchase $6500 of stock C in 2010. Sell stock C for $7000 in 2011. You owe capital gains on ($6000 - $5000) + ($6500 - $6000) = $1500 for tax year 2010. You owe capital gains on ($7000 - $6500) = $500 for 2011.","Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.","Disallowed losses due to the wash sale rule are added to the basis of the repurchased shares. In your example, on day two you paid $0.70 per share. Then the disallowed $0.30 loss from the previous day gets added to the basis, making your total basis $1.00 per share. When you sell at the end of the day for $1.00 per share, your net gain/loss is zero. Furthermore, you can recapture disallowed losses by selling the last lot of ABC, completely divesting yourself of all holdings in ABC for at least 31 days. Even if that last lot was a loss, when taking into account the increased basis from previously disallowed wash sale losses, you can claim the loss fully on this last, non-wash sale.",">suffering, say, a potential 20% loss for business reasons can be preferable to creating a guaranteed, irreversible 37% loss due to state and federal LTCG taxes. You don't pay taxes on capital losses... In fact, you can write them off against future gains.","As JoeTaxpayer illustrated, yes you can. However, one thing to remember is that unless you live in a state with no state income tax, there may be state tax to pay on those gains. Even so, it's likely a good idea if you expect either your income (or the federal capital gains tax rate) to rise in the future.","\"Edited: Pub 550 says 30 days before or after so the example is ok - but still a gain by average share basis. On sale your basis is likely defaulted to \"\"average price\"\" (in the example 9.67 so there was a gain selling at 10), but can be named shares at your election to your brokerage, and supported by record keeping. A Pub 550 wash might be buy 2000 @ 10 with basis 20000, sell 1000 @9 (nominally a loss of 1000 for now and remaining basis 10000), buy 1000 @ 8 within 30 days. Because of the wash sale rule the basis is 10000+8000 paid + 1000 disallowed loss from wash sale with a final position of 2000 shares at 19000 basis. I think I have the link at the example: http://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010601\"","What JoeTaxpayer means is that you can sell one ETF and buy another that will perform substantially the same during the 30 day wash sale period without being considered substantially the same from a wash sale perspective more easily than you could with an individual stock. For example, you could sell an S&P 500 index ETF and then temporarily buy a DJIA index ETF. As these track different indexes, they are not considered to be substantially the same for wash sale purposes, but for a short term investing period, their performance should still be substantially the same.","The 'same day rule' in the UK is a rule for matching purposes only. It says that sales on any day are matched firstly with purchases made on the same day for the purposes of ascertaining any gain/loss. Hence the phrase 'bed-and-breakfast' ('b&b') when you wish to crystalise a gain (that is within the exempt amount) and re-establish a purchase price at a higher level. You do the sale on one day, just before the market closes, which gets matched with your original purchase, and then you buy the shares back the next day, just after the market opens. This is standard tax-planning. Whenever you have a paper gain, and you wish to lock that gain out of being taxed, you do a bed-and-breakfast transaction, the idea being to use up your annual exemption each and every year. Of course, if your dealing costs are high, then they may outweigh any tax saved, and so it would be pointless. For the purpose of an example, let's assume that the UK tax year is the same as the calendar year. Scenario 1. Suppose I bought some shares in 2016, for a total price of Stg.50,000. Suppose by the end of 2016, the holding is worth Stg.54,000, resulting in a paper gain of Stg.4,000. Question. Should I do a b&b transaction to make use of my Stg.11,100 annual exemption ? Answer. Well, with transaction costs at 1.5% for a round-trip trade, suppose, and stamp duty on the purchase of 0.5%, your total costs for a b&b will be Stg1,080, and your tax saved (upon some future sale date) assuming you are a 20% tax-payer is 20%x(4,000-1,080) = Stg584 (the transaction costs are deductible, we assume). This does not make sense. Scenario 2. The same as scenario 1., but the shares are worth Stg60,000 by end-2016. Answer. The total transaction costs are 2%x60,000 = 1,200 and so the taxable gain of 10,000-1,200 = 8,800 would result in a tax bill of 20%x8,800 = 1,760 and so the transaction costs are lower than the tax to be saved (a strict analysis would take into account only the present value of the tax to be saved), it makes sense to crystalise the gain. We sell some day before the tax year-end, and re-invest the very next day. Scenario 3. The same as scenario 1., but the shares are worth Stg70,000 by end-2016. Answer. The gain of 20,000 less costs would result in a tax bill for 1,500 (this is: 20%x(20,000 - 2%x70,000 - 11,100) ). This tax bill will be on top of the dealing costs of 1,400. But the gain is in excess of the annual exemption. The strategy is to sell just enough of the holding to crystallise a taxable gain of just 11,100. The fraction, f%, is given by: f%x(70,000-50,000) - 2%xf%x70,000 = 11,100 ... which simplifies to: f% = 11,100/18,600 = 59.68%. The tax saved is 20%x11,100 = 2,220, versus costs of 2%x59.58%x70,000 = 835.52. This strategy of partial b&b is adopted because it never makes sense to pay tax early ! End.","Great question! It can be a confusing for sure -- but here's a great example I've adapted to your scenario: As a Day Trader, you buy 100 shares of LMNO at $100, then after a large drop the same day, you sell all 10 shares at $90 for a loss of $1,000. Later in the afternoon, you bought another 100 shares at $92 and resold them an hour later at $97 (a $500 profit), closing out your position for the day. The second trade had a profit of $500, so you had a net loss of $500 (the $1,000 loss plus the $500 profit). Here’s how this works out tax-wise: The IRS first disallows the $1,000 loss and lets you show only a profit of $500 for the first trade (since it was a wash). But it lets you add the $1,000 loss to the basis of your replacement shares. So instead of spending $9,200 (100 shares times $92), for tax purposes, you spent $10,200 ($9,200 plus $1,000), which means that the second trade is what caused you to lose the $500 that you added back (100 x $97 = $9,700 minus the 100 x $102 = $10,200, netting $500 loss). On a net basis, you get to record your loss, it just gets recorded on the second trade. The basis addition lets you work off your wash-sale losses eventually, and in your case, on Day 3 you would recognize a $500 final net loss for tax purposes since you EXITED your position. Caveat: UNLESS you re-enter LMNO within 30 days later (at which point it would be another wash and the basis would shift again). Source: http://www.dummies.com/personal-finance/investing/day-trading/understand-the-irs-wash-sale-rule-when-day-trading/","One of my university professors suggested doing this systematically to get access to shareholder meetings where there is typically a nice dinner involved. As long as the stock price + commission is less than the price of a nice restaurant it's actually not a bad idea.","\"There are different schools of thought. You can ask the IRS - and it would not surprise me if you got different answers on different phone calls. One interpretation is that a put is not \"\"substantially identical\"\" to the disposed stock, therefore no wash is triggered by that sale. However if that put is exercised, then you automatically purchase the security, and that is identical. As to whether the IRS (or your brokerage firm) recognizes the identical security when it falls out of an option, I can't say; but technically they could enforce it because the rule is based on 30 days and a \"\"substantially identical\"\" stock or security. In this interpretation (your investor) would probably at least want to stay out of the money in choosing a strike price, to avoid exercise; however, options are normally either held or sold, rather than be exercised, until at or very close to the expiration date (because time value is left on the table otherwise). So the key driver in this interpretation would be expiration date, which should be at least 31 days out from the stock sale; and it would be prudent to sell an out of the money put as well, in order to avoid the wash sale trigger. However there is also a more unfavorable opinion - see fairmark.com/capgain/wash/wsoption.htm where they hold that a \"\"deep in the money\"\" option is an immediate trigger (regardless of exercise). This article is sage, in that they say that the Treasury (IRS) may interpret an option transaction as a wash if it's ballpark to being exercisable. And, if the IRS throws paper, it always beats each of paper, rock and scissors :( A Schwab article (\"\"A Primer on Wash Sales\"\") says, if the CUSIPs match, bang, wash. This is the one that they may interpret unfavorably on in any case, supporting Schwab's \"\"play it safe\"\" position: \"\"3. Acquire a contract or option to buy substantially identical stock or securities...\"\" . This certainly nails buying a call. As to selling a put, well, it is at least conceivable that an IRS official would call that a contract to buy! SO it's simply not a slam dunk; there are varying opinions that you might describe as ranging from \"\"hell no\"\" to \"\"only if blatant.\"\" If you can get an \"\"official\"\" predetermination, or you like to go aggressive in your tax strategy, there's that; they may act adversely, so Caveat Taxfiler!\"","Wash sale applies. If you purchase shares within 30 days of that Feb 3 sell date, the wash sale kicks in, preventing the loss on that sale, and deferring it into the new shares.","\"Once again I offer some sage advice - \"\"Don't let the tax tail wag the investing dog.\"\" Michael offers an excellent method to decide what to do. Note, he doesn't base the decision on the tax implication. If you are truly indifferent to holding the stock, taxwise, you might consider selling just the profitable shares if that's enough cash. Then sell shares at a loss each year if you have no other gains. That will let you pay the long term gain rate on the shares sold this year, but offset regular income in years to come. But. I'm hard pressed to believe you are indifferent, and I'd use Michel's approach to decide. Updated - The New Law is simply a rule requiring brokers to track basis. Your situation doesn't change at all. When you sell the shares, you need to identify which shares you want to sell. For older shares, the tracking is your responsibility, that's all.\"","When you get into reading Revenue Rulings and Treasury Regulations - I'd suggest hiring a professional to do that for you. Especially since you also need to assure that the new stock does indeed qualify as QSBS. However, from the revenue ruling you quoted it doesn't sound like there's any other requirement other than reporting the subsequent purchase as a loss on your schedule D. I wouldn't know, however, if there are subsequent/superseding revenue rulings on the matter since 1998. Professional tax adviser (EA/CPA licensed in your State) would have the means and the ability to research this and give you a proper advice.","\"According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is \"\"substantially identical\"\". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical.\"","No, there's nothing special in mutual funds or ETFs. Wash sale rules apply to any asset.","\"And my CPA is saying no way, it will cost me many thousands in taxes and doesn't make any sense. I'd think so too. It looks like it converts from capitol gains at 14% to something else at about 35% Can be, if your gain under the Sec.1231 rules is classified as depreciation recapture. But, perhaps the buyers will be saving this way? Not your problem even if they were, which they aren't. I would not do something my CPA says \"\"no-way\"\" about. I sometimes prefer not doing some things my CPA says \"\"it may fly\"\" because I'm defensive when it comes to taxes, but if your CPA is not willing to sign something off - don't do it. Ever.\"","If so, are there ways to reduce the amount of taxes owed? Given that it's currently December, I suppose I could sell half of what I want now, and the other half in January and it would split the tax burden over 2 years instead, but beyond that, are there any strategies for tax reduction in this scenario? One possibility is to also sell stocks that have gone down since you bought them. Of course, you would only do this if you have changed your mind about the stock's prospects since you bought it -- that is, it has gone down and you no longer think it will go up enough to be worth holding it. When you sell stocks, any losses you take can offset any gains, so if you sell one stock for a gain of $10,000 and another for a loss of $5,000, you will only be taxed on your net gain of $5,000. Even if you think your down stock could go back up, you could sell it to realize the loss, and then buy it back later at the lower price (as long as you're not worried it will go up in the meantime). However, you need to wait at least 30 days before rebuying the stock to avoid wash sale rules. This practice is known as tax loss harvesting.","You are correct. She cannot claim the initial loss of $1,000 on her taxes, she can only report the $500 profit. However, the IRS does allow her to add the $1,000 loss to the basis cost of her replacement shares. e.g.","\"There are several reasons. First, if you sell your stock \"\"at any price\"\", you may be selling it for less than you originally bought it for. Thus you will take a loss right at the beginning of your scheme. If you \"\"rinse and repeat\"\", the problem only gets worse. Every time you sell your stock, you will have to sell it at an even lower price in order to lower the price even more. Then you buy it back and. . . just resell it an even lower price? It should be clear that you are not making any money this way. Second, even if you don't sell it at an absolute loss, you must sell it at a relative loss in order to lower the price. In other words, if someone will currently buy your shares for $X, and you want to lower the price, you must sell them for less than $X. But you could have made more money by selling them for $X, since someone was already willing to buy them at that price. In order to bring the price down significantly, you have to sell the stock for less than people currently believe it is worth, which means you're incurring a loss relative to just selling it at the market rate. Of course, you can still make money if it goes back up again, but selling it at an extra loss this way just makes it harder to break even. Third, if you sell the stock at $X, whoever you sold it to is not going to sell it right back to you at $X, because then they would not make any money. You could in theory buy it from someone else, but the same principle holds: if the stock price has just gone down, people who have it may be waiting for it to go back up. This is doubly true if anyone suspects you have been trying to manipulate the stock price, because they will then suspect that the price drop is artificial and it will soon go back up. Fourth, even if someone did sell it right back to you at the price you sold it for, then what? You now hold the stock at a lower price, but you don't gain unless it goes back up. If it wasn't going up before until you took action, there is no reason to suppose it will go back up now. In fact, if you had enough shares to significantly influence the price, other people may have been fooled into thinking the value is actually lower now. The basic problem is that, in order for you to buy it at a low price, someone else has to sell it at that low price. It is easy to sell someone a stock for less than it's worth, but it will be hard to get people to sell it back to you for less than it's worth. If you engage in deceptive practices to get people to do this, you may be guilty of securities fraud.\"","My broker offers a service to transfer the shares where you only pay commission once. Therefore say if standard commission is £10, then you don't end up paying £20 (10 for selling + 10 for buy back). You'll have to be okay with the spread though. Hope this helps.","\"Overall the question is one of a political nature. However, this component can have objective answers: \"\"What behavior is trying to be prevented?\"\" There are mechanisms by which capital gains can be deferred (1031 like-kind exchange, or simply holding a long position for years) or eliminated by the estate step up in basis. With these available, mechanisms that enable basis-reduction are ripe for abuse. On the other hand, if this truly bothers you then if you meet the IRS qualifications of a day trader, you may elect to use \"\"mark to market\"\" accounting, eliminating this entirely as a concern. Special rules for traders of securities\"","You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.","\"There are ways to mitigate, but since you're not protected by a tax-deferred/advantaged account, the realized income will be taxed. But you can do any of the followings to reduce the burden: Prefer selling either short positions that are at loss or long positions that are at gain. Do not invest in stocks, but rather in index funds that do the rebalancing for you without (significant) tax impact on you. If you are rebalancing portfolio that includes assets that are not stocks (real-estate, mainly) consider performing 1031 exchanges instead of plain sale and re-purchase. Maximize your IRA contributions, even if non-deductible, and convert them to Roth IRA. Hold your more volatile investments and individual stocks there - you will not be taxed when rebalancing. Maximize your 401K, HSA, SEP-IRA and any other tax-advantaged account you may be eligible for. On some accounts you'll pay taxes when withdrawing, on others - you won't. For example - Roth IRA/401k accounts are not taxed at all when withdrawing qualified distributions, while traditional IRA/401k are taxed as ordinary income. During the \"\"low income\"\" years, consider converting portions of traditional accounts to Roth.\"","Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.","\"Strangely enough, you have a wash sale, but, for the fact that you sold the shares and then more than 30 days passed, you can take the loss. I mistakenly used the phrase \"\"and ended the year with no shared of the stock\"\" elsewhere, and was corrected, as one can sell at a loss up to 12/31, and have until the end of January to create a wash condition. In your case, the facts in June combined with you ending the year with no shares removes any doubt, a wash sale, but one that's fully closed out. Note - while Vicky's answer is correct, it should go on to say that once the stock is not owned for 30 days, the wash sale loss is permitted.\"","I'm not sure where people keep getting this idea, but I see it come up a lot. Anyway, you pay capital gains taxes when you sell an investment that has appreciated. It makes no difference when/if you reinvest the money or what you invest it in. If you are afraid of the tax burden you can minimize it by: 1) Selling a stock that you have held longer than a year to get the lower long-term rate. 2) Sell a stock that hasn't appreciated that much and therefore doesn't have a lot of gains to tax. 3) Sell a stock that's below purchase price (i.e. at a loss) to offset any short term gains.","When you sell a stock that you own, you realize gains, or losses. Short-term gains, realized within a year of buying and selling an asset, are taxed at your maximum (or marginal) tax rate. Long term-gains, realized after a year, are taxed at a lower, preferential rate. The first thing to consider is losses. Losses can be cancelled against gains, reducing your tax liability. Losses can also be carried over to the next tax year and be redeemed against those gains. When you own a bunch of the same type of stock, bought at different times and prices, you can choose which shares to sell. This allows you to decide whether you realize short- or long-term gains (or losses). This is known as lot matching (or order matching). You want to sell the shares that lost value before selling the ones that gained value. Booking losses reduces your taxes; booking gains increases them. If faced with a choice between booking short term and long term losses, I'd go with the former. Since net short-term gains are taxed at a higher rate, I'd want to minimize the short-term tax liability before moving on to long-term tax liability. If my remaining shares had gains, I'd sell the ones purchased earliest since long-term gains are taxed at a lower rate, and delaying the booking of gains converts short-term gains into long-term ones. If there's a formula for this, I'd say it's (profit - loss) x (tax bracket) = tax paid","As littleadv suggested, you are mixing issues. If you have earned income and are able to deduct an IRA deposit, where those actual dollars came from is irrelevant. The fact that you are taking proceeds from one transaction to deposit to the IRA is a booking entry on your side, but the IRS doesn't care. By the way, when you get that $1000 gain, the broker doesn't withhold tax, so if you take the entire $1000 and put it in the IRA, you owe $150 on one line, but save $250 elsewhere, and are still $100 to the positive on your tax return.","\"Just brainstorming here, but my gut feeling is it should be possible to sell your home to yourself with the sole purpose of resetting your basis. Taken at face value it feels illegal, but since I think we all would agree that you could sell your house to a third party and purchase the identical house next door for the same price (thus resetting your basis), why can't you purchase the same home right back? If one is legal, it seems odd for the other not to be. That being said, I have no idea how to legally do it. Perhaps you truly need a third party to step in which you sell it to, and then buy it back from them sometime in the future. Or perhaps you could start an LLC and have it purchase your home from you. Either way, I highly suggest finding an expert real estate attorney/accountant before attempting this, and don't be surprised if you get multiple opposite opinions. I suspect this is a gray area which will highly depend on how tax \"\"aggressive\"\" you are willing to be.\"","There can be a good reason if you own shares issued in a different country: For example, if you are in the UK and own US shares and take the dividend payments, you get some check in US dollars that you will have to exchange to UK£, which means you pay fees - mostly these fees are fixed, so you lose a significant percentage of your dividends. By reinvesting and selling shares accumlated over some years, you got one much bigger check and pay only one fee.","Yes. Wash rules are only for losses.","Some financial planners would not advise one way or the other on a specific stock without knowing your investment strategy... if you didn't have one, their goal would be to help you develop one and introduce you to a portfolio management framework like Asset Allocation. Is a two of clubs a good card? Well, that all depends on what is in your hand (diversification) and what game you are playing(investing strategy). One possibility to reduce your basis over time if you would like to hold the stock is to sell calls against it, known as a 'covered-call'. It can be an intermediate-term (30-60+ months depending on option pricing) trading strategy that may require you to upgrade your brokerage account to allow option trades. Personally I like this strategy because it makes me feel proactive about my portfolio rather than sitting on the side lines and watching stocks move.","With a short position you make your money (profit) when you buy the stocks back to close the position at a lower price than what you bought them at. As short selling is classed as speculation and not investing and you at no time own any actual assets, you cannot donate any short possition to charity. If you did want to avoid paying tax on the profits you could donate the proceeds of the profits after closing the position and thus get a tax deduction equal to the profits you made. But that raises a new and more important question, why are you trading in the first place if you are afraid to make profits in case you have to pay tax on those profits?","Did you read what I wrote? I sold some stock for a gain, that's a taxable event. Are you trying to say I just shouldn't have sold it? Do you understand investing at all? And the second point is moot, I still had to pay the tax, having write offs doesn't change the fact that my taxes were higher(more importantly that they would have been much higher if I couldn't take advantage of capital gains.)","Don't let the tax tail wag the investment dog. There is risk in exchanging this (known) property for another (unknown) property. That risk may be more than $9000 worth of risk. Tax considerations are important, but most important is that your investments make money. If you intend to continue as a landlord, you had better be sure you are finding a better deal elsewhere if you are going to trade this property up. I should also mention that you have a 5 year window in which you need to have lived in the home for 2 years. You have time and might be able to sell for a higher price if you wait a little longer.","the difference would be taxes... Lets say you have two lots, one with a 10 dollar gain, and one with a 20 dollar gain. And lets say you decide to sell one lot this year, and the other lot in 10 years. AND, lets say that it turns out the stock price is exactly the same in ten years as it is when you sell the first lot. In all likelyhood, you'll have more income, and therefore you are likely to be in a different marginal tax rate. If you believe that you're more likely to pay more taxes in 10 years, then sell the lot with the higher gain now. If you believe you're more likely to pay more taxes now, then sell the lot with the lower gain now.","If you are planning this as a tax avoidance scheme, well it is not. The gains will be taxable in your hands and not in the Banks hands. Banks simply don't cash out the stock at the same price, there will be quite a bit of both Lawyers and others ... so in the end you will end up paying more. The link indicates that one would pay back the loan via one's own earnings. So if you have a stock worth USD 100, you can pledge this to a Bank and get a max loan of USD 50 [there are regulations that govern the max you can get against 100]. You want to buy something worth USD 50. Option1: Sell half the stock, get USD 50, pay the captial gains tax on USD 50. Option2: Pledge the USD 100 stock to bank, get a loan of USD 50. As you have not sold anything, there is no tax. Over a period pay the USD 50 loan via your own earnings. A high valued customer may be able to get away with a very low rate of intrest and very long repayment period. The tax implication to your legal hier would be from the time the stock come to his/her hands to the time she sold. So if the price increase to 150 by the time Mark dies, and its sold at 160 later, the gain is only of USD 10. So rather than paying 30% or whatever the applicable tax rate, it would be wise to pay an interest of few percentages.","Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.","The sentence you quoted does not apply in the case where you sell the stock at a loss. In that case, you recognize zero ordinary income, and a capital loss (opposite of a gain) for the loss. Reference: http://efs.fidelity.com/support/sps/article/article2.html","You also may want to consider how this interacts with the stepped up basis of estates. If you never sell the stock and it passes to your heirs with your estate, under current tax law the basis will increase from the purchase price to the market price at the time of transfer. In a comment, you proposed: Thinking more deeply though, I am a little skeptical that it's a free lunch: Say I buy stock A (a computer manufacturer) at $100 which I intend to hold long term. It ends up falling to $80 and the robo-advisor sells it for tax loss harvesting, buying stock B (a similar computer manufacturer) as a replacement. So I benefit from realizing those losses. HOWEVER, say both stocks then rise by 50% over 3 years. At this point, selling B gives me more capital gains tax than if I had held A through the losses, since A's rise from 80 back to 100 would have been free for me since I purchased at 100. And then later thought Although thinking even more (sorry, thinking out loud here), I guess I still come out ahead on taxes since I was able to deduct the $20 loss on A against ordinary income, and while I pay extra capital gains on B, that's a lower tax rate. So the free lunch is $20*[number of shares]*([my tax bracket] - [capital gains rates]) That's true. And in addition to that, if you never sell B, which continues to rise to $200 (was last at $120 after a 50% increase from $80), the basis steps up to $200 on transfer to your heirs. Of course, your estate may have to pay a 40% tax on the $200 before transferring the shares to your heirs. So this isn't exactly a free lunch either. But you have to pay that 40% tax regardless of the form in which the money is held. Cash, real estate, stocks, whatever. Whether you have a large or small capital gain on the stock is irrelevant to the estate tax. This type of planning may not matter to you personally, but it is another aspect of what wealth management can impact.","\"Of course, but that's not relevant to my example. Let me clarify: say you hold a highly-appreciated $10M position in AAPL and you have good reason to believe the next iPhone is going to be a flop, causing the stock to decline 20%. You can sell now to avoid the (probable) decline, but by doing so you will be left with, let's say, $6.67M after paying $3.33M of state and federal LTCG taxes on the appreciation ($9M of the $10M, because you bought a long time ago). However, by simply doing nothing and \"\"eating\"\" the 20% decline, you'll end up with $8M instead of $6.67M. Many economists would criticize the tax in this example, as it has led to the investor rationally suffering a $2M loss, instead of reallocating all $10M of his/her capital to a more promising enterprise. Furthermore, if/when many investors act that way, they can create inefficiency in the equity markets (prices not declining by as much as they should to reflect a firm's reduced prospects).\"","\"You cannot get \"\"your investment\"\" out and \"\"leave only the capital gains\"\" until they become taxable at the long-term rate. When you sell some shares after holding them for less than a year, you have capital gains on which you will have to pay taxes at the short-term capital gains rate (that is, at the same rate as ordinary income). As an example, if you bought 100 shares at $70 for a net investment of $7000, and sell 70 of them at $100 after five months to get your \"\"initial investment back\"\", you will have short-term capital gains of $30 per share on the 70 shares that you sold and so you have to pay tax on that $30x70=$2100. The other $4900 = $7000-$2100 is \"\"tax-free\"\" since it is just your purchase price of the 70 shares being returned to you. So after paying the tax on your short-term capital gains, you really don't have your \"\"initial investment back\"\"; you have something less. The capital gains on the 30 shares that you continue to hold will become (long-term capital gains) income to you only when you sell the shares after having held them for a full year or more: the gains on the shares sold after five months are taxable income in the year of sale.\"","You are not allowed to pick and choose what years to take a loss once the stock/fund is sold. While I realize it might be too late for you to do anything now, in the future if members should read this, they might consider doing a Roth conversion during that year they will have $3000 in losses. This way they will show some income that can be offset by that loss, effectively getting a free conversion to the Roth.","The market maker will always take it off your hands. Just enter a market sell order. It will cost you a commission to pull the loss into this year. But that's it.","All corporate gains are taxed at the same rate as corporate income, for the corporate entity, so this actually can be WORSE than the individual capital gains tax rates. There are a lot of things you can do with trading certain asset classes, like opening you up to like-kind re-investment tax perks, but I can't think of anything that helps with stocks. Also, in the US there is now a law against doing things solely to avoid tax if they have no other economic purpose. So be conscious about that, you'll need to be able to rationalize at least a thin excuse for why you jumped through all the hoops.","I brought this up to my CPA. She said don't do it. People used to do it, but now they're cracking down. Is it unfair? Yes. But it's the government so don't mess with them.","Yes, the newly bought shares will have a long-term holding period, regardless of when you sell them. In addition, it's only a wash sale if you sold the first shares for a loss; it's not a wash sale if you sold them for a gain. Wikipedia mentions this: When a wash sale occurs, the holding period for the replacement stock includes the period you held the stock you sold. Example: You've held shares of XYZ for 10 years. You sell it at a loss but then buy it back within the wash sale period. When you sell the replacement stock, your gain or loss will be long-term — no matter how soon you sell it. Charles Schwab also mentions this: Here's a quick example of a wash sale. On 9/30/XX, you buy 500 shares of ABC at $10 per share. One year later the stock price starts to drop, and you sell all your shares at $9 per share on 10/4/XY. Two days later, on 10/6, ABC bottoms out at $8 and you buy 500 shares again. This series of trades triggers a wash sale. The holding period of the original shares will be added to the holding period of the replacement shares, effectively leaving you with a long-term position.","If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.","Yes, you could avoid capital gains tax altogether, however, capital gains are used in determining your tax bracket even though they are not taxed at that rate. This would only work in situations where your total capital gains and ordinary income kept you in the 0% longterm capital gains bracket. You can't realize a million dollars in capital gains and have no tax burden due to lack of ordinary income. You can potentially save some money by realizing capital gains strategically. Giving up income in an attempt to save on taxes rarely makes sense.","The person may just want to get out of that position in order to buy a different stock, he or she feels may go up faster. There is really a lot of reasons.","Consider doing things that will allow for tax deductions, such as short selling. The IRS has regulations on this as well. And consider that Futures are taxed more favorably than other kinds of investments. (60% taxed as long term, 40% taxed as short term)","Assuming that you have capital gains, you can expect to have to pay taxes on them. It might be short term, or long term capital gains. If you specify exactly which shares to sell, it is possible to sell mostly losers, thus reducing or eliminating capital gains. There are separate rules for 401K and other retirement programs regarding down payments for a house. This leads to many other issues such as the hit your retirement will take."],"string":"[\n \"I don't believe in letting the tax tail wag the investing dog. You have a stock you no longer wish to hold for whatever reason? Sell it. But to sell a loser, hoping it doesn't rise by the time you wish to re-buy it in 30 days is folly. This effort may gain you $50 if done right. No, it's not worth it either way.\",\n \"In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares. IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-). In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined.\",\n \"Is this possible and will it have the intended effect? From the US tax perspective, it most definitely is and will. Is my plan not very similar to Wash Sale? Yes, except that wash sale rules apply for losses, not gains. In any case, since you're not a US tax resident, the US wash sale rules won't apply to you.\",\n \"\\\"When a question is phrased this way, i.e. \\\"\\\"for tax purposes\\\"\\\" I'm compelled to advise - Don't let the tax tail wag the investing dog. In theory, one can create a loss, up to the $3K, and take it against ordinary income. When sold, the gains may be long term and be at a lower rate. In reality, if you are out of the stock for the required 30 days, it will shoot up in price. If you double up, as LittleAdv correctly offers, it will drop over the 30 days and negate any benefit. The investing dog's water bowl is half full.\\\"\",\n \"It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).\",\n \"I sold it at 609.25 and buy again at 608.75 in the same day If you Sold and bought the same day, it would be considered as intra-day trade. Profit will be due and would be taxed at normal tax brackets. Edits Best Consult a CA. This is covered under Indian Accounting Standard AG51 The following examples illustrate the application of the derecognition principles of this Standard. (e) Wash sale transaction. The repurchase of a financial asset shortly after it has been sold is sometimes referred to as a wash sale. Such a repurchase does not preclude derecognition provided that the original transaction met the derecognition requirements. However, if an agreement to sell a financial asset is entered into concurrently with an agreement to repurchase the same asset at a fixed price or the sale price plus a lender's return, then the asset is not derecognised. This is more relevant now for shares/stocks as Long Term Capital Gains are tax free, Long Term Capital Loss cannot be adjusted against anything. Short Term Gains are taxed differentially. Hence the transaction can be interpreted as tax evasion, professional advise is recommended. A simple way to avoid this situation; sell on a given day and buy it next or few days later.\",\n \"If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?\",\n \"Yes. As long as the stock is in a taxable account (i.e. not a tax deferred retirement account) you'll pay gain on the profit regardless of subsequent purchases. If the sale is a loss, however, you'll risk delaying the claim for the loss if you repurchase identical shares within 30 days of that sale. This is called a wash sale.\",\n \"The top long-term capital gains tax rate will rise to 20% effective 1 Jan, 2011, unless Congress decides to do something about it before then. (Will they? Who knows!! There's been talk about it, but, well, it's Congress. They don't even know what they're going to do.) Anyway. The rules about when you can sell stock are mostly concerned with when you can realize a capital loss: if you sell a stock at a loss and then re-buy it for tax purposes within 30 days, it's a wash sale and not eligible for a deduction. However, I don't believe this applies to any stocks once you realize a gain - once you've realized the gain and paid your tax for it, it's all yours, locked in at whatever rate. Your replacement stock will be subject to short-term capital gains for the next year afterwards, and you might need to be careful with identifying the holding period on different lots of your stock, but I don't believe there will be any particular trouble. Please do not rely entirely on my advice and consult also with your tax preparer or lawyer. :) And the IRS documentation: Special Addendum for Nov/Dec 2012! Spoiler alert! Congress did indeed act: they extended the rates, but only temporarily, so now we're looking at tax hikes starting in 2013 instead, only the new top rate++ will be something like 23.8% on account of an extra 3.8% medicare tax on passive earnings (brought to you via Obamacare legislation). But the year and the rates' specifics aside, same thing still applies. And the Republican house and Democratic senate/President are still duking it out. Have fun. ++ 3.8% surtax applies to the lesser of (a) net investment income (b) income over $200,000 ($250k if married). 20% tax rate applies to people in the 15% income tax bracket for ordinary income or higher. Additional tax discounts for property held over 5 years may be available. Consult tax law and your favorite tax professional and prepare to be confused.\",\n \"The way the wash sale works is your loss is added to your cost basis of the buy. So suppose your original cost basis is $10,000. You then sell the stock for $9,000 which accounts for your $1,000 loss. You then buy the stock again, say for $8,500, and sell it for $9,000. Since your loss of $1,000 is added to your cost basis, you actually still have a net loss of $500. You then buy the stock again for say $10,500, then sell it for $9,500. Your $500 loss is added to your cost basis, and you have a net loss of $1,500. Since you never had a net gain, you will not owe any tax for these transactions.\",\n \"No, you can not cheat the IRS. This question is also based on the assumption that the stock will return to $1 which isn't always a safe assumption and that it will continue to cycle like that repeatedly which is also likely a false assumption.\",\n \"I think what you're asking is, Can I buy 1000 shares of the stock at $1. For $1000. it goes up to $2, then sell 500 shares of the stock with proceeds of $1000, now having my original $1000 out of it, and still owning 500 shares. And that not create a taxable event. Since all I did was take my cost basis back out, and didn't collect any gains. And then I want to repeat that over and over. Nope, not in the USA anyway. Each sale is a separate taxable event. The first sale will have proceeds of $1000 and a cost basis of $500, with $500 of capital gains, and taxes owed at the time of that sale. The remaining stock will have a cost basis of $500 and proceeds of whatever you sell it for in the future. The next batch of stock will have a cost basis of whatever you pay for it. The only thing that works anything like the way you're thinking, is a Roth IRA... You can put your cost basis in, pull it back out, and put it back in again, all tax free. But every time your cost basis cycles in, that counts towed your contribution limits unless you do it fast enough to call it a rollover.\",\n \"Is wash rule applicable for this? No - because you made a gain on the sale. You paid $13,500 for the stock and sold it for $14,250. The wash rule prevents you from claiming a loss if you buy the same stock again within 30 days. You have no loss to claim, so the rule does not apply.\",\n \"I agree, one should not let the tax tail wag the investing dog. The only question should be whether he'd buy the stock at today's price. If he wishes to own it long term, he keeps it. To take the loss this year, he'd have to sell soon, and can't buy it back for 30 days. If, for whatever reason, the stock comes back a bit, he's going to buy in higher. To be clear, the story changes for ETFs or mutual funds. You can buy a fund to replace one you're selling, capture the loss, and easily not run afoul of wash sale rules.\",\n \"Note that the rules around wash sales vary depending on where you live. For the U.S., the wash sale rules say that you cannot buy a substantially identical stock or security within 30 days (before or after) your sale. So, you could sell your stock today to lock in the capital losses. However, you would then have to wait at least 30 days before purchasing it back. If you bought it back within 30 days, you would disqualify the capital loss event. The risk, of course, is that the stock's price goes up substantially while you are waiting for the wash sale period. It's up to you to determine if the risk outweighs the benefit of locking in your capital losses. Note that this applies regardless of whether you sell SOME or ALL of the stock. Or indeed, if we are talking about securities other than stocks.\",\n \"\\\"If you bought them, you can sell them. That does not preclude you from buying again later. You might get yourself into a situation where you need to account for a so-called \\\"\\\"wash sale\\\"\\\" on your taxes, but your broker should calculate that and report it on your 1099-B at the end of the year. There's nothing illegal about this though - It's just a required step in the accounting of capital gains for tax purposes.\\\"\",\n \"\\\"According to Wikipedia this is still a wash sale: In the USA wash sale rules are codified in \\\"\\\"26 USC § 1091 - Loss from wash sales of stock or securities.\\\"\\\" Under Section 1091, a wash sale occurs when a taxpayer sells or trades stock or securities at a loss, and within 30 days before or after the sale:\\\"\",\n \"Brokerage->Brokerage 13-16 The loss from the previous purchase will be added to the cost basis of the security for the second purchase. Since you sold it at a loss again it would increase your losses. Your loss from the first sale will be disallowed. Your loss will be added to the cost basis of the next purchase. Your gains will be taxed on the total of the cost basis which will reduce your gains. Which you will taxed 'less'. Your gains will be taxed. Your loss is allowed. You will be taxed on both. Wash Sales really only applies to losses. If you sell for gain, the tax man will be happy to take his share. From my understanding, it does not matter if it is IRA or Brokerage, the wash sale rule affects them all. Check this link: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02\",\n \"\\\"The IRS rules are actually the same. 26 U.S. Code § 1091 - Loss from wash sales of stock or securities In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed... What you should take away from the quote above is \\\"\\\"substantially identical stock or securities.\\\"\\\" With stocks, one company may happen to have a high correlation, Exxon and Mobil come to mind, before their merger of course. With funds or ETFs, the story is different. The IRS has yet to issue rules regarding what level of overlap or correlation makes two funds or ETFs \\\"\\\"substantially identical.\\\"\\\" Last month, I wrote an article, Tax Loss Harvesting, which analyses the impact of taking losses each year. I study the 2000's which showed an average loss of 1% per year, a 9% loss for the decade. Tax loss harvesting made the decade slightly positive, i.e. an annual boost of approx 1%.\\\"\",\n \"This will work as intended, but there's another point to consider. In the US, the tax rate on proceeds from stock sales is higher for short term holdings, which are defined as held for less than one year. Both rates vary based on your income. Bracket numbers are for fiscal year 2014, filing as single. The difference between short and long term capital gains tax in the US is a minimum of ten percentage points, and works out to 15 percentage points on average. This is substantial. If you won't be reporting much income the year you move to the US (say because you only worked for a portion of the year) it is decidedly to your advantage to wait and sell the stocks in the US, to get that sweet 0% rate. At a minimum, you should hold the position for a year if you sell and rebuy, from a tax optimization perspective. Two caveats:\",\n \"Firstly 795 is not even. Secondly - generally you would pay tax on the sale of the 122 shares, whether you buy them back or not, even one minute later, has nothing to do with it. The only reason this would not create a capital gains event is if your country (which you haven't specified) has some odd rules or laws about this that I, and most others, have never heard of before.\",\n \"Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain. So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate. I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock. If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it.\",\n \"Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that.\",\n \"Yes. On December 10, you have a wash sale. As long as you don't buy the stock back for 30 days after that, the wash is of no consequence. In other words, you don't have a wash issue if you don't own the stock for 30 days.\",\n \"You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.\",\n \"\\\"You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule \\\"\\\"Don't let the tax tail wag the investing dog.\\\"\\\" For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense.\\\"\",\n \"Your three options are: Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have the same effect as option 2 with no transaction costs. The loss will likely also offset some of the other short term gains you mentioned.\",\n \"I was not able to find any authority for the opinion you suggest. Wash sale rules should, IMHO, apply. According to the regulations, you attribute the newly purchased shares to the oldest sold shares for the purposes of the calculation of the disallowed loss and cost basis. (c) Where the amount of stock or securities acquired within the 61-day period is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be those with which the stock or securities acquired are matched in accordance with the following rule: The stock or securities acquired will be matched in accordance with the order of their acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or otherwise disposed of. You can resort to the claim that you have not, in fact, entered into the contract within 30 days, but when you gave the instructions to reinvest dividends. I don't know if such a claim will hold, but to me it sounds reasonable. This is similar to the rules re short sales (in (g) there). In this case, wash sale rules will not apply (unless you instructed to reinvest dividends within the 30 days prior to the sale). But I'd ask a tax professional if such a claim would hold, talk to a EA/CPA licensed in your state.\",\n \"Yes, an overall $500 loss on the stock can be claimed. Since the day trader sold both lots she acquired, the Wash Sale rule has no net impact on her taxes. The Wash Sale rule would come into play if within thirty days of second sale, she purchased the stock a third time. Then she would have to amend her taxes because claiming the $500 loss would no longer be a valid under the Wash Sale rule. It would have to be added to the cost basis of the most recent purchase.\",\n \"What might make more sense is to 'capture' your losses. Sell out the funds you have, move into something else that is different enough that the IRS won't consider it a wash sale, and you can then use those losses to offset gains (you can even carry them forward) You would still be in the market, just having made a sort of 'sideways move'. A month or two later (once you are clear of wash sale rules) you could shift back to your original choices. (this answer presumes you are in the US, or somewhere that lets you use losses to offset gains)\",\n \"Looks like there are no specific rule in India to prevent Wash sales. See the link below. http://economictimes.indiatimes.com/wealth/personal-finance-news/investors-can-rejig-portfolio-book-short-term-loss-to-save-tax/articleshow/7812788.cms?intenttarget=no\",\n \"\\\"Summary of accepted answer: Your \\\"\\\"loss\\\"\\\" will not count as a loss (to the IRS). Which means no tax deduction for a \\\"\\\"short-term capital loss\\\"\\\" (on that sale). Instead, the IRS simply pretends like you had paid less for the stock to begin with.\\\"\",\n \"\\\"Yes- you do not realize gains or losses until you actually sell the stock. After you sell the initial stocks/bonds you have realized the gain. When you buy the new, different stocks you haven't realized anything until you then sell those. There is one exception to this, called the \\\"\\\"Wash-Sale Rule\\\"\\\". From Investopedia.com: With the wash-sale rule, the IRS disallows a loss deduction from the sale of a security if a ‘substantially identical security' was purchased within 30 days before or after the sale. The wash-sale period is actually 61 days, consisting of the 30 days before and the 30 days after the date of the sale. For example, if you bought 100 shares of IBM on December 1 and then sold 100 shares of IBM on December 15 at a loss, the loss deduction would not be allowed. Similarly, selling IBM on December 15 and then buying it back on January 10 of the following year does not permit a deduction. The wash-sale rule is designed to prevent investors from making trades for the sole purpose of avoiding taxes.\\\"\",\n \"No one can advise you on whether to hold this stock or sell it. Your carried losses can offset short or long term gains, but the long term losses have to be applied to offset long term gains before any remaining losses can offset short term gains. Your question doesn't indicate how long you have to hold before the short term gains become long term gains. Obviously the longer the holding period, the greater the risk. You also must avoid a wash sale (selling to lock in the gains/reset your basis then repurchasing within a month). All of those decisions hold risks that you have to weigh. If you see further upside in holding it longer, keep the investment. Don't sell just to try to maximize tax benefits.\",\n \"Equal sized gains and losses in alternating years would lead to an unjust positive tax. On the contrary. If I can take my gains at the long term rate (15%) in even years, but take losses in odd years, up to $3000, or let them offset short term gains at ordinary rate, I've just gamed the system. What is the purpose of the wash sale rule? Respectfully, we here can do a fine job of explaining how a bit of tax code works. And we can suggest the implication of those code bits. But, I suspect that it's not easy to explain the history of particular rules. For wash sale, the simple intent is to not let someone take a loss without actually selling the stock for a time. You'd be right to say the +/- 30 days is arbitrary. I'd ask you to keep 2 things in mind if you continue to frequent this board -\",\n \"\\\"if you buy back the now ITM calls, then you will have a short term loss. That pair of transactions is independent, from a tax perspective, of your long position (which was being used as \\\"\\\"collateral\\\"\\\" in the very case that occurred). I can see your tax situation and can see the logic of taking a short term loss to balance a short term gain. Referring to D Stanley's answer, #2 and #3 are not the same because you are paying intrinsic value in the options and the skew in #2, whereas #3 has no intrinsic value. Of course, because you can't know the future, the stock price could move higher or lower between #2 and #3. #1 presumes the stock continues to climb.\\\"\",\n \"\\\"As Dilip said, if you want actual concrete, based in tax law, answers, please add the country (and if applicable, state) where you pay income tax. Also, knowing what tax bracket you're in would help as well, although I certainly understand if you're not comfortable sharing that. So, assuming the US... If you're in the 10% or 15% tax bracket, then you're already not paying any federal tax on the $3k long term gain, so purposely taking losses is pointless, and given that there's probably a cost to taking the loss (commission, SEC fee), you'd be losing money by doing so. Also, you won't be able to buy back the loser for 31 days without having the loss postponed due to the wash sale that would result. State tax is another matter, but (going by the table in this article), even using the highest low end tax rate (Tennessee at 6%), the $50 loss would only save you $3, which is probably less than the commission to sell the loser, so again you'd be losing money. And if you're in a state with no state income tax, then the loss wouldn't save you anything on taxes at the state level, but of course you'll still be paying to be able to take the loss. On the high end, you'd be saving 20% federal tax and 13.3% state tax (using the highest high end tax state, California, and ignoring (because I don't know :-) ) whether they tax long-term capital gains at the same rate as regular income or not), you'd be saving $50 * (20% + 13.3%) = $50 * 33.3% = $16.65. So for taxes, you're looking at saving between nothing and $16.65. And then you have to subtract from that the cost to achieve the loss, so even on the high end (which means (assuming a single filer)) you're making >$1 million), you're only saving about $10, and you're probably actually losing money. So I personally don't think taking a $50 loss to try to decrease taxes makes sense. However, if you really meant $500 or $5000, then it might (although if you're in the 10-15% brackets in a no income tax state, even then it wouldn't). So the answer to your final question is, \\\"\\\"It depends.\\\"\\\" The only way to say for sure is, based on the country and state you're in, calculate what it will save you (if anything). As a general rule, you want to avoid letting the tax tail wag the dog. That is, your financial goal should be to end up with the most money, not to pay the least taxes. So while looking at the tax consequences of a transaction is a good idea, don't look at just the tax consequences, look at the consequences for your overall net worth.\\\"\",\n \"\\\"The wash sale rule only applies when the sale in question is at a loss. So the rule does not apply at all to your cases 3, 4, 7, 8, 11, 12, 15, and 16, which all start with a gain. You get a capital gain at the first sale and then a separately computed gain / loss at the second sale, depending on the case, BUT any gain or loss in the IRA is not a taxable event due to the usual tax-advantaged rules for the IRA. The wash sale does not apply to \\\"\\\"first\\\"\\\" sales in your IRA because there is no taxable gain or loss in that case. That means that you wouldn't be seeking a deduction anyway, and there is nothing to get rolled into the repurchase. This means that the rule does not apply to 1-8. For 5-8, where the second sale is in your brokerage account, you have a \\\"\\\"usual\\\"\\\" capital gain / loss as if the sale in the IRA didn't happen. (For 1-4, again, the second sale is in the IRA, so that sale is not taxable.) What's left are 9-10 (Brokerage -> IRA) and 13-14 (Brokerage -> Brokerage). The easier two are 13-14. In this case, you cannot take a capital loss deduction for the first sale at a loss. The loss gets added to the basis of the repurchase instead. When you ultimately close the position with the second sale, then you compute your gain or loss based on the modified basis. Note that this means you need to be careful about what you mean by \\\"\\\"gain\\\"\\\" or \\\"\\\"loss\\\"\\\" at the second sale, because you need to be careful about when you account for the basis adjustment due to the wash sale. Example 1: All buys and sells are in your brokerage account. You buy initially at $10 and sell at $8, creating a $2 loss. But you buy again within the wash sale window at $9 and sell that at $12. You get no deduction after the first sale because it's wash. You have a $1 capital gain at the second sale because your basis is $11 = $9 + $2 due to the $2 basis adjustment from wash sale. Example 2: Same as Example 1, except that final sale is at $8 instead of at $12. In this case you appear to have taken a $2 loss on the first buy-sell and another $1 loss on the second buy-sell. For taxes however, you cannot claim the loss at the first sale due to the wash. At the second sale, your basis is still $11 (as in Example 1), so your overall capital loss is the $3 dollars that you might expect, computed as the $8 final sale price minus the $11 (wash-adjusted) basis. Now for 9-10 (Brokerage->IRA), things are a little more complicated. In the IRA, you don't worry about the basis of individual stocks that you hold because of the way that tax advantages of those accounts work. You do need to worry about the basis of the IRA account as a whole, however, in some cases. The most common case would be if you have non-deductable contributions to your traditional IRA. When you eventually withdraw, you don't pay tax on any distributions that are attributable to those nondeductible contributions (because you already paid tax on that part). There are other cases where basis of your account matters, but that's a whole question in itself - It's enough for now to understand 1. Basis in your IRA as a whole is a well-defined concept with tax implications, and 2. Basis in individual holdings within your account don't matter. So with the brokerage-IRA wash sale, there are two questions: 1. Can you take the capital loss on the brokerage side? 2. If no because of the wash sale, does this increase the basis of your IRA account (as a whole)? The answer to both is \\\"\\\"no,\\\"\\\" although the reason is not obvious. The IRS actually put out a Special Bulletin to answer the question specifically because it was unclear in the law. Bottom line for 9-10 is that you apparently are losing your tax deduction completely in that case. In addition, if you were counting on an increase in the basis of your IRA to avoid early distribution penalties, you don't get that either, which will result in yet more tax if you actually take the early distribution. In addition to the Special Bulletin noted above, Publication 550, which talks about wash sale rules for individuals, may also help some.\\\"\",\n \"From the IRS Section 1091. Loss from Wash Sales of Stock or Securities Section 1091(a) provides that in the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law),or has entered into a contract or option so to acquire, substantially identical stock or 3 securities, then no deduction shall be allowed under § 165 The document is not long, 4 pages, and should be read to see the intent. It's tough to choose the one snippet, but the conclusion is this is the definitive response to that question. A purchase within an IRA or other retirement account can create a wash sale if such a purchase would be a wash sale otherwise, i.e. the fact that it's a retirement account doesn't avoid wash rules.\",\n \"My understanding is that losses are first deductible against any capital gains you may have, then against your regular income (up to $3,000 per year). If you still have a loss after that, the loss may be carried over to offset capital gains or income in subsequent years As you suspect, a short term capital loss is deductible against short term capital gains and long term losses are deductible against long term gains. So taking the loss now MIGHT be beneficial from a tax perspective. I say MIGHT because there are a couple scenarios in which it either may not matter, or actually be detrimental: If you don't have any short term capital gains this year, but you have long term capital gains, you would have to use the short term loss to offset the long term gain before you could apply it to ordinary income. So in that situation you lose out on the difference between the long term tax rate (15%) and your ordinary income rate (potentially higher). If you keep the stock, and sell it for a long term loss next year, but you only have short-term capital gains or no capital gains next year, then you may use the long term loss to offset your short-term gains (first) or your ordinary income. Clear as mud? The whole mess is outlined in IRS Publication 550 Finally, if you still think the stock is good, but just want to take the tax loss, you can sell the stock now (to realize the loss) then re-buy it in 30 days. This is called Tax Loss Harvesting. The 30 day delay is an IRS requirement for being allowed to realize the loss.\",\n \"In a comment on this answer you asked It's not clear to me why the ability to defer the gains would matter (since you never materially benefit until you actually sell) but the estate step up in basis is a great point! Could you describe a hypothetical exploitive scenario (utilizing a wash sale) in a little more detail? This sounds like you still have the same question as originally, so I'll take a stab at answering with an example. I sell some security for a $10,000 profit. I then sell another security at a $10,000 loss and immediately rebuy. So pay no taxes (without the rule). Assuming a 15% rate, that's $1500 in savings which I realize immediately. Next year, I sell that same security for a $20,000 profit over the $10,000 loss basis (so a $10,000 profit over my original purchase). I sell and buy another security to pay no taxes. In fact, I pay no taxes like this for fifty years as I live off my investments (and a pension or social security that uses up my tax deductions). Then I die. All my securities step up in basis to their current market value. So I completely evade taxes on $500,000 in profits. That's $75,000 in tax savings to make my heirs richer. And they're already getting at least $500,000 worth of securities. Especially consider the case where I sell a privately held security to a private buyer who then sells me back the same shares at the same price. Don't think that $10,000 is enough? Remember that you also get the original value. But this also scales. It could be $100,000 in gains as well, for $750,000 in tax savings over the fifty years. That's at least $5 million of securities. The effective result of this would be to make a 0% tax on capital gains for many rich people. Worse, a poorer person can't do the same thing. You need to have many investments to take advantage of this. If a relatively poor person with two $500 investments tried this, that person would lose all the benefit in trading fees. And of course such a person would run out of investments quickly. Really poor people have $0 in investments, so this is totally impractical.\",\n \"\\\"'Note that \\\"\\\"to keep an investor from lowering their tax bill\\\"\\\" is not an explanation'. Well, yes it is. In fact it is the only explanation. The rule plainly exists to prevent someone from realizing a loss when their economic situation remains unchanged before/after a sale. Now, you might say 'but I have suffered a loss, even if it is unrealized!' But, would you want to pay tax on unrealized gains? The tax system still caters to reducing the tax impact of investments, particularly capital investments. Part and parcel with the system of taxing gains only when realized, is that you can recognize losses only when realized. Are there other ways to 'artificially' reduce taxable income? Yes. But the goal of a good tax system should be to reduce those opportunities. Whether you agree that it is fair for the government to prevent this tax-saving opportunity, when others exist, is another question. But that is why the rule exists.\\\"\",\n \"Elaborating on kelsham's answer: You buy 100 shares XYZ at $1, for a total cost of $100 plus commissions. You sell 100 shares XYZ at $2, for a total income of $200 minus commissions. Exclusive of commissions, your capital gain is $100 for this trade, and you will pay taxes on that. Even if you proceed to buy 200 shares XYZ at $1, reinvesting all your income from the sale, you still owe taxes on that $100 gain. The IRS has met this trick before.\",\n \"You sold all shares? The potential wash sale effect goes away after 30 days from the dividend date. Selling all shares of a stock where a wash existed effectively negates the wash and you can take the loss.\",\n \"No, if you are taking a loss solely and purely to reduce the tax you have to pay, then it is not a good strategy, in fact it is a very bad strategy, no matter what country you are in. No investment choice should be made solely due to your tax consequeses. If you are paying tax that means you made a profit, if you made a loss just to save some tax then you are loosing money. The whole point of investing is to make money not lose it.\",\n \"\\\"You have to calculate the total value of all shares and then ask yourself \\\"\\\"Would I invest that amount of money in this stock?\\\"\\\" If the answer is yes, then only sell what you need to sell. Take the $3k loss against your income, if you have no other gains. If you would not invest that amount of cash in that stock, then sell it all right now and carry forward the excess loss every year. Note at any point you have capital gains you can offset all of them with your loss carryover (not just $3k).\\\"\",\n \"Yes, you would have to report the gain. It is not relevant that you traded the stock previously, you still made a profit on the trade-at-hand. Imagine if for some reason this type of trade were exempt. Investors could follow the short term swings of volatile stocks completely tax-free.\",\n \"You realise a capital gain as soon as you sell the stock. At that point, you will have to pay taxes on the profits when you fill in your tax return. The fact that you used the money to subsequently purchase other stocks is not relevant, unless you sell those stocks within the same tax year. For example, purchase $5000 of stock A in 2010. Sell for $6000 in 2010. Purchase $6000 of stock B in 2010. Sell stock B for $6500 in 2010. Purchase $6500 of stock C in 2010. Sell stock C for $7000 in 2011. You owe capital gains on ($6000 - $5000) + ($6500 - $6000) = $1500 for tax year 2010. You owe capital gains on ($7000 - $6500) = $500 for 2011.\",\n \"Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.\",\n \"Disallowed losses due to the wash sale rule are added to the basis of the repurchased shares. In your example, on day two you paid $0.70 per share. Then the disallowed $0.30 loss from the previous day gets added to the basis, making your total basis $1.00 per share. When you sell at the end of the day for $1.00 per share, your net gain/loss is zero. Furthermore, you can recapture disallowed losses by selling the last lot of ABC, completely divesting yourself of all holdings in ABC for at least 31 days. Even if that last lot was a loss, when taking into account the increased basis from previously disallowed wash sale losses, you can claim the loss fully on this last, non-wash sale.\",\n \">suffering, say, a potential 20% loss for business reasons can be preferable to creating a guaranteed, irreversible 37% loss due to state and federal LTCG taxes. You don't pay taxes on capital losses... In fact, you can write them off against future gains.\",\n \"As JoeTaxpayer illustrated, yes you can. However, one thing to remember is that unless you live in a state with no state income tax, there may be state tax to pay on those gains. Even so, it's likely a good idea if you expect either your income (or the federal capital gains tax rate) to rise in the future.\",\n \"\\\"Edited: Pub 550 says 30 days before or after so the example is ok - but still a gain by average share basis. On sale your basis is likely defaulted to \\\"\\\"average price\\\"\\\" (in the example 9.67 so there was a gain selling at 10), but can be named shares at your election to your brokerage, and supported by record keeping. A Pub 550 wash might be buy 2000 @ 10 with basis 20000, sell 1000 @9 (nominally a loss of 1000 for now and remaining basis 10000), buy 1000 @ 8 within 30 days. Because of the wash sale rule the basis is 10000+8000 paid + 1000 disallowed loss from wash sale with a final position of 2000 shares at 19000 basis. I think I have the link at the example: http://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010601\\\"\",\n \"What JoeTaxpayer means is that you can sell one ETF and buy another that will perform substantially the same during the 30 day wash sale period without being considered substantially the same from a wash sale perspective more easily than you could with an individual stock. For example, you could sell an S&P 500 index ETF and then temporarily buy a DJIA index ETF. As these track different indexes, they are not considered to be substantially the same for wash sale purposes, but for a short term investing period, their performance should still be substantially the same.\",\n \"The 'same day rule' in the UK is a rule for matching purposes only. It says that sales on any day are matched firstly with purchases made on the same day for the purposes of ascertaining any gain/loss. Hence the phrase 'bed-and-breakfast' ('b&b') when you wish to crystalise a gain (that is within the exempt amount) and re-establish a purchase price at a higher level. You do the sale on one day, just before the market closes, which gets matched with your original purchase, and then you buy the shares back the next day, just after the market opens. This is standard tax-planning. Whenever you have a paper gain, and you wish to lock that gain out of being taxed, you do a bed-and-breakfast transaction, the idea being to use up your annual exemption each and every year. Of course, if your dealing costs are high, then they may outweigh any tax saved, and so it would be pointless. For the purpose of an example, let's assume that the UK tax year is the same as the calendar year. Scenario 1. Suppose I bought some shares in 2016, for a total price of Stg.50,000. Suppose by the end of 2016, the holding is worth Stg.54,000, resulting in a paper gain of Stg.4,000. Question. Should I do a b&b transaction to make use of my Stg.11,100 annual exemption ? Answer. Well, with transaction costs at 1.5% for a round-trip trade, suppose, and stamp duty on the purchase of 0.5%, your total costs for a b&b will be Stg1,080, and your tax saved (upon some future sale date) assuming you are a 20% tax-payer is 20%x(4,000-1,080) = Stg584 (the transaction costs are deductible, we assume). This does not make sense. Scenario 2. The same as scenario 1., but the shares are worth Stg60,000 by end-2016. Answer. The total transaction costs are 2%x60,000 = 1,200 and so the taxable gain of 10,000-1,200 = 8,800 would result in a tax bill of 20%x8,800 = 1,760 and so the transaction costs are lower than the tax to be saved (a strict analysis would take into account only the present value of the tax to be saved), it makes sense to crystalise the gain. We sell some day before the tax year-end, and re-invest the very next day. Scenario 3. The same as scenario 1., but the shares are worth Stg70,000 by end-2016. Answer. The gain of 20,000 less costs would result in a tax bill for 1,500 (this is: 20%x(20,000 - 2%x70,000 - 11,100) ). This tax bill will be on top of the dealing costs of 1,400. But the gain is in excess of the annual exemption. The strategy is to sell just enough of the holding to crystallise a taxable gain of just 11,100. The fraction, f%, is given by: f%x(70,000-50,000) - 2%xf%x70,000 = 11,100 ... which simplifies to: f% = 11,100/18,600 = 59.68%. The tax saved is 20%x11,100 = 2,220, versus costs of 2%x59.58%x70,000 = 835.52. This strategy of partial b&b is adopted because it never makes sense to pay tax early ! End.\",\n \"Great question! It can be a confusing for sure -- but here's a great example I've adapted to your scenario: As a Day Trader, you buy 100 shares of LMNO at $100, then after a large drop the same day, you sell all 10 shares at $90 for a loss of $1,000. Later in the afternoon, you bought another 100 shares at $92 and resold them an hour later at $97 (a $500 profit), closing out your position for the day. The second trade had a profit of $500, so you had a net loss of $500 (the $1,000 loss plus the $500 profit). Here’s how this works out tax-wise: The IRS first disallows the $1,000 loss and lets you show only a profit of $500 for the first trade (since it was a wash). But it lets you add the $1,000 loss to the basis of your replacement shares. So instead of spending $9,200 (100 shares times $92), for tax purposes, you spent $10,200 ($9,200 plus $1,000), which means that the second trade is what caused you to lose the $500 that you added back (100 x $97 = $9,700 minus the 100 x $102 = $10,200, netting $500 loss). On a net basis, you get to record your loss, it just gets recorded on the second trade. The basis addition lets you work off your wash-sale losses eventually, and in your case, on Day 3 you would recognize a $500 final net loss for tax purposes since you EXITED your position. Caveat: UNLESS you re-enter LMNO within 30 days later (at which point it would be another wash and the basis would shift again). Source: http://www.dummies.com/personal-finance/investing/day-trading/understand-the-irs-wash-sale-rule-when-day-trading/\",\n \"One of my university professors suggested doing this systematically to get access to shareholder meetings where there is typically a nice dinner involved. As long as the stock price + commission is less than the price of a nice restaurant it's actually not a bad idea.\",\n \"\\\"There are different schools of thought. You can ask the IRS - and it would not surprise me if you got different answers on different phone calls. One interpretation is that a put is not \\\"\\\"substantially identical\\\"\\\" to the disposed stock, therefore no wash is triggered by that sale. However if that put is exercised, then you automatically purchase the security, and that is identical. As to whether the IRS (or your brokerage firm) recognizes the identical security when it falls out of an option, I can't say; but technically they could enforce it because the rule is based on 30 days and a \\\"\\\"substantially identical\\\"\\\" stock or security. In this interpretation (your investor) would probably at least want to stay out of the money in choosing a strike price, to avoid exercise; however, options are normally either held or sold, rather than be exercised, until at or very close to the expiration date (because time value is left on the table otherwise). So the key driver in this interpretation would be expiration date, which should be at least 31 days out from the stock sale; and it would be prudent to sell an out of the money put as well, in order to avoid the wash sale trigger. However there is also a more unfavorable opinion - see fairmark.com/capgain/wash/wsoption.htm where they hold that a \\\"\\\"deep in the money\\\"\\\" option is an immediate trigger (regardless of exercise). This article is sage, in that they say that the Treasury (IRS) may interpret an option transaction as a wash if it's ballpark to being exercisable. And, if the IRS throws paper, it always beats each of paper, rock and scissors :( A Schwab article (\\\"\\\"A Primer on Wash Sales\\\"\\\") says, if the CUSIPs match, bang, wash. This is the one that they may interpret unfavorably on in any case, supporting Schwab's \\\"\\\"play it safe\\\"\\\" position: \\\"\\\"3. Acquire a contract or option to buy substantially identical stock or securities...\\\"\\\" . This certainly nails buying a call. As to selling a put, well, it is at least conceivable that an IRS official would call that a contract to buy! SO it's simply not a slam dunk; there are varying opinions that you might describe as ranging from \\\"\\\"hell no\\\"\\\" to \\\"\\\"only if blatant.\\\"\\\" If you can get an \\\"\\\"official\\\"\\\" predetermination, or you like to go aggressive in your tax strategy, there's that; they may act adversely, so Caveat Taxfiler!\\\"\",\n \"Wash sale applies. If you purchase shares within 30 days of that Feb 3 sell date, the wash sale kicks in, preventing the loss on that sale, and deferring it into the new shares.\",\n \"\\\"Once again I offer some sage advice - \\\"\\\"Don't let the tax tail wag the investing dog.\\\"\\\" Michael offers an excellent method to decide what to do. Note, he doesn't base the decision on the tax implication. If you are truly indifferent to holding the stock, taxwise, you might consider selling just the profitable shares if that's enough cash. Then sell shares at a loss each year if you have no other gains. That will let you pay the long term gain rate on the shares sold this year, but offset regular income in years to come. But. I'm hard pressed to believe you are indifferent, and I'd use Michel's approach to decide. Updated - The New Law is simply a rule requiring brokers to track basis. Your situation doesn't change at all. When you sell the shares, you need to identify which shares you want to sell. For older shares, the tracking is your responsibility, that's all.\\\"\",\n \"When you get into reading Revenue Rulings and Treasury Regulations - I'd suggest hiring a professional to do that for you. Especially since you also need to assure that the new stock does indeed qualify as QSBS. However, from the revenue ruling you quoted it doesn't sound like there's any other requirement other than reporting the subsequent purchase as a loss on your schedule D. I wouldn't know, however, if there are subsequent/superseding revenue rulings on the matter since 1998. Professional tax adviser (EA/CPA licensed in your State) would have the means and the ability to research this and give you a proper advice.\",\n \"\\\"According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is \\\"\\\"substantially identical\\\"\\\". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical.\\\"\",\n \"No, there's nothing special in mutual funds or ETFs. Wash sale rules apply to any asset.\",\n \"\\\"And my CPA is saying no way, it will cost me many thousands in taxes and doesn't make any sense. I'd think so too. It looks like it converts from capitol gains at 14% to something else at about 35% Can be, if your gain under the Sec.1231 rules is classified as depreciation recapture. But, perhaps the buyers will be saving this way? Not your problem even if they were, which they aren't. I would not do something my CPA says \\\"\\\"no-way\\\"\\\" about. I sometimes prefer not doing some things my CPA says \\\"\\\"it may fly\\\"\\\" because I'm defensive when it comes to taxes, but if your CPA is not willing to sign something off - don't do it. Ever.\\\"\",\n \"If so, are there ways to reduce the amount of taxes owed? Given that it's currently December, I suppose I could sell half of what I want now, and the other half in January and it would split the tax burden over 2 years instead, but beyond that, are there any strategies for tax reduction in this scenario? One possibility is to also sell stocks that have gone down since you bought them. Of course, you would only do this if you have changed your mind about the stock's prospects since you bought it -- that is, it has gone down and you no longer think it will go up enough to be worth holding it. When you sell stocks, any losses you take can offset any gains, so if you sell one stock for a gain of $10,000 and another for a loss of $5,000, you will only be taxed on your net gain of $5,000. Even if you think your down stock could go back up, you could sell it to realize the loss, and then buy it back later at the lower price (as long as you're not worried it will go up in the meantime). However, you need to wait at least 30 days before rebuying the stock to avoid wash sale rules. This practice is known as tax loss harvesting.\",\n \"You are correct. She cannot claim the initial loss of $1,000 on her taxes, she can only report the $500 profit. However, the IRS does allow her to add the $1,000 loss to the basis cost of her replacement shares. e.g.\",\n \"\\\"There are several reasons. First, if you sell your stock \\\"\\\"at any price\\\"\\\", you may be selling it for less than you originally bought it for. Thus you will take a loss right at the beginning of your scheme. If you \\\"\\\"rinse and repeat\\\"\\\", the problem only gets worse. Every time you sell your stock, you will have to sell it at an even lower price in order to lower the price even more. Then you buy it back and. . . just resell it an even lower price? It should be clear that you are not making any money this way. Second, even if you don't sell it at an absolute loss, you must sell it at a relative loss in order to lower the price. In other words, if someone will currently buy your shares for $X, and you want to lower the price, you must sell them for less than $X. But you could have made more money by selling them for $X, since someone was already willing to buy them at that price. In order to bring the price down significantly, you have to sell the stock for less than people currently believe it is worth, which means you're incurring a loss relative to just selling it at the market rate. Of course, you can still make money if it goes back up again, but selling it at an extra loss this way just makes it harder to break even. Third, if you sell the stock at $X, whoever you sold it to is not going to sell it right back to you at $X, because then they would not make any money. You could in theory buy it from someone else, but the same principle holds: if the stock price has just gone down, people who have it may be waiting for it to go back up. This is doubly true if anyone suspects you have been trying to manipulate the stock price, because they will then suspect that the price drop is artificial and it will soon go back up. Fourth, even if someone did sell it right back to you at the price you sold it for, then what? You now hold the stock at a lower price, but you don't gain unless it goes back up. If it wasn't going up before until you took action, there is no reason to suppose it will go back up now. In fact, if you had enough shares to significantly influence the price, other people may have been fooled into thinking the value is actually lower now. The basic problem is that, in order for you to buy it at a low price, someone else has to sell it at that low price. It is easy to sell someone a stock for less than it's worth, but it will be hard to get people to sell it back to you for less than it's worth. If you engage in deceptive practices to get people to do this, you may be guilty of securities fraud.\\\"\",\n \"My broker offers a service to transfer the shares where you only pay commission once. Therefore say if standard commission is £10, then you don't end up paying £20 (10 for selling + 10 for buy back). You'll have to be okay with the spread though. Hope this helps.\",\n \"\\\"Overall the question is one of a political nature. However, this component can have objective answers: \\\"\\\"What behavior is trying to be prevented?\\\"\\\" There are mechanisms by which capital gains can be deferred (1031 like-kind exchange, or simply holding a long position for years) or eliminated by the estate step up in basis. With these available, mechanisms that enable basis-reduction are ripe for abuse. On the other hand, if this truly bothers you then if you meet the IRS qualifications of a day trader, you may elect to use \\\"\\\"mark to market\\\"\\\" accounting, eliminating this entirely as a concern. Special rules for traders of securities\\\"\",\n \"You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.\",\n \"\\\"There are ways to mitigate, but since you're not protected by a tax-deferred/advantaged account, the realized income will be taxed. But you can do any of the followings to reduce the burden: Prefer selling either short positions that are at loss or long positions that are at gain. Do not invest in stocks, but rather in index funds that do the rebalancing for you without (significant) tax impact on you. If you are rebalancing portfolio that includes assets that are not stocks (real-estate, mainly) consider performing 1031 exchanges instead of plain sale and re-purchase. Maximize your IRA contributions, even if non-deductible, and convert them to Roth IRA. Hold your more volatile investments and individual stocks there - you will not be taxed when rebalancing. Maximize your 401K, HSA, SEP-IRA and any other tax-advantaged account you may be eligible for. On some accounts you'll pay taxes when withdrawing, on others - you won't. For example - Roth IRA/401k accounts are not taxed at all when withdrawing qualified distributions, while traditional IRA/401k are taxed as ordinary income. During the \\\"\\\"low income\\\"\\\" years, consider converting portions of traditional accounts to Roth.\\\"\",\n \"Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.\",\n \"\\\"Strangely enough, you have a wash sale, but, for the fact that you sold the shares and then more than 30 days passed, you can take the loss. I mistakenly used the phrase \\\"\\\"and ended the year with no shared of the stock\\\"\\\" elsewhere, and was corrected, as one can sell at a loss up to 12/31, and have until the end of January to create a wash condition. In your case, the facts in June combined with you ending the year with no shares removes any doubt, a wash sale, but one that's fully closed out. Note - while Vicky's answer is correct, it should go on to say that once the stock is not owned for 30 days, the wash sale loss is permitted.\\\"\",\n \"I'm not sure where people keep getting this idea, but I see it come up a lot. Anyway, you pay capital gains taxes when you sell an investment that has appreciated. It makes no difference when/if you reinvest the money or what you invest it in. If you are afraid of the tax burden you can minimize it by: 1) Selling a stock that you have held longer than a year to get the lower long-term rate. 2) Sell a stock that hasn't appreciated that much and therefore doesn't have a lot of gains to tax. 3) Sell a stock that's below purchase price (i.e. at a loss) to offset any short term gains.\",\n \"When you sell a stock that you own, you realize gains, or losses. Short-term gains, realized within a year of buying and selling an asset, are taxed at your maximum (or marginal) tax rate. Long term-gains, realized after a year, are taxed at a lower, preferential rate. The first thing to consider is losses. Losses can be cancelled against gains, reducing your tax liability. Losses can also be carried over to the next tax year and be redeemed against those gains. When you own a bunch of the same type of stock, bought at different times and prices, you can choose which shares to sell. This allows you to decide whether you realize short- or long-term gains (or losses). This is known as lot matching (or order matching). You want to sell the shares that lost value before selling the ones that gained value. Booking losses reduces your taxes; booking gains increases them. If faced with a choice between booking short term and long term losses, I'd go with the former. Since net short-term gains are taxed at a higher rate, I'd want to minimize the short-term tax liability before moving on to long-term tax liability. If my remaining shares had gains, I'd sell the ones purchased earliest since long-term gains are taxed at a lower rate, and delaying the booking of gains converts short-term gains into long-term ones. If there's a formula for this, I'd say it's (profit - loss) x (tax bracket) = tax paid\",\n \"As littleadv suggested, you are mixing issues. If you have earned income and are able to deduct an IRA deposit, where those actual dollars came from is irrelevant. The fact that you are taking proceeds from one transaction to deposit to the IRA is a booking entry on your side, but the IRS doesn't care. By the way, when you get that $1000 gain, the broker doesn't withhold tax, so if you take the entire $1000 and put it in the IRA, you owe $150 on one line, but save $250 elsewhere, and are still $100 to the positive on your tax return.\",\n \"\\\"Just brainstorming here, but my gut feeling is it should be possible to sell your home to yourself with the sole purpose of resetting your basis. Taken at face value it feels illegal, but since I think we all would agree that you could sell your house to a third party and purchase the identical house next door for the same price (thus resetting your basis), why can't you purchase the same home right back? If one is legal, it seems odd for the other not to be. That being said, I have no idea how to legally do it. Perhaps you truly need a third party to step in which you sell it to, and then buy it back from them sometime in the future. Or perhaps you could start an LLC and have it purchase your home from you. Either way, I highly suggest finding an expert real estate attorney/accountant before attempting this, and don't be surprised if you get multiple opposite opinions. I suspect this is a gray area which will highly depend on how tax \\\"\\\"aggressive\\\"\\\" you are willing to be.\\\"\",\n \"There can be a good reason if you own shares issued in a different country: For example, if you are in the UK and own US shares and take the dividend payments, you get some check in US dollars that you will have to exchange to UK£, which means you pay fees - mostly these fees are fixed, so you lose a significant percentage of your dividends. By reinvesting and selling shares accumlated over some years, you got one much bigger check and pay only one fee.\",\n \"Yes. Wash rules are only for losses.\",\n \"Some financial planners would not advise one way or the other on a specific stock without knowing your investment strategy... if you didn't have one, their goal would be to help you develop one and introduce you to a portfolio management framework like Asset Allocation. Is a two of clubs a good card? Well, that all depends on what is in your hand (diversification) and what game you are playing(investing strategy). One possibility to reduce your basis over time if you would like to hold the stock is to sell calls against it, known as a 'covered-call'. It can be an intermediate-term (30-60+ months depending on option pricing) trading strategy that may require you to upgrade your brokerage account to allow option trades. Personally I like this strategy because it makes me feel proactive about my portfolio rather than sitting on the side lines and watching stocks move.\",\n \"With a short position you make your money (profit) when you buy the stocks back to close the position at a lower price than what you bought them at. As short selling is classed as speculation and not investing and you at no time own any actual assets, you cannot donate any short possition to charity. If you did want to avoid paying tax on the profits you could donate the proceeds of the profits after closing the position and thus get a tax deduction equal to the profits you made. But that raises a new and more important question, why are you trading in the first place if you are afraid to make profits in case you have to pay tax on those profits?\",\n \"Did you read what I wrote? I sold some stock for a gain, that's a taxable event. Are you trying to say I just shouldn't have sold it? Do you understand investing at all? And the second point is moot, I still had to pay the tax, having write offs doesn't change the fact that my taxes were higher(more importantly that they would have been much higher if I couldn't take advantage of capital gains.)\",\n \"Don't let the tax tail wag the investment dog. There is risk in exchanging this (known) property for another (unknown) property. That risk may be more than $9000 worth of risk. Tax considerations are important, but most important is that your investments make money. If you intend to continue as a landlord, you had better be sure you are finding a better deal elsewhere if you are going to trade this property up. I should also mention that you have a 5 year window in which you need to have lived in the home for 2 years. You have time and might be able to sell for a higher price if you wait a little longer.\",\n \"the difference would be taxes... Lets say you have two lots, one with a 10 dollar gain, and one with a 20 dollar gain. And lets say you decide to sell one lot this year, and the other lot in 10 years. AND, lets say that it turns out the stock price is exactly the same in ten years as it is when you sell the first lot. In all likelyhood, you'll have more income, and therefore you are likely to be in a different marginal tax rate. If you believe that you're more likely to pay more taxes in 10 years, then sell the lot with the higher gain now. If you believe you're more likely to pay more taxes now, then sell the lot with the lower gain now.\",\n \"If you are planning this as a tax avoidance scheme, well it is not. The gains will be taxable in your hands and not in the Banks hands. Banks simply don't cash out the stock at the same price, there will be quite a bit of both Lawyers and others ... so in the end you will end up paying more. The link indicates that one would pay back the loan via one's own earnings. So if you have a stock worth USD 100, you can pledge this to a Bank and get a max loan of USD 50 [there are regulations that govern the max you can get against 100]. You want to buy something worth USD 50. Option1: Sell half the stock, get USD 50, pay the captial gains tax on USD 50. Option2: Pledge the USD 100 stock to bank, get a loan of USD 50. As you have not sold anything, there is no tax. Over a period pay the USD 50 loan via your own earnings. A high valued customer may be able to get away with a very low rate of intrest and very long repayment period. The tax implication to your legal hier would be from the time the stock come to his/her hands to the time she sold. So if the price increase to 150 by the time Mark dies, and its sold at 160 later, the gain is only of USD 10. So rather than paying 30% or whatever the applicable tax rate, it would be wise to pay an interest of few percentages.\",\n \"Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.\",\n \"The sentence you quoted does not apply in the case where you sell the stock at a loss. In that case, you recognize zero ordinary income, and a capital loss (opposite of a gain) for the loss. Reference: http://efs.fidelity.com/support/sps/article/article2.html\",\n \"You also may want to consider how this interacts with the stepped up basis of estates. If you never sell the stock and it passes to your heirs with your estate, under current tax law the basis will increase from the purchase price to the market price at the time of transfer. In a comment, you proposed: Thinking more deeply though, I am a little skeptical that it's a free lunch: Say I buy stock A (a computer manufacturer) at $100 which I intend to hold long term. It ends up falling to $80 and the robo-advisor sells it for tax loss harvesting, buying stock B (a similar computer manufacturer) as a replacement. So I benefit from realizing those losses. HOWEVER, say both stocks then rise by 50% over 3 years. At this point, selling B gives me more capital gains tax than if I had held A through the losses, since A's rise from 80 back to 100 would have been free for me since I purchased at 100. And then later thought Although thinking even more (sorry, thinking out loud here), I guess I still come out ahead on taxes since I was able to deduct the $20 loss on A against ordinary income, and while I pay extra capital gains on B, that's a lower tax rate. So the free lunch is $20*[number of shares]*([my tax bracket] - [capital gains rates]) That's true. And in addition to that, if you never sell B, which continues to rise to $200 (was last at $120 after a 50% increase from $80), the basis steps up to $200 on transfer to your heirs. Of course, your estate may have to pay a 40% tax on the $200 before transferring the shares to your heirs. So this isn't exactly a free lunch either. But you have to pay that 40% tax regardless of the form in which the money is held. Cash, real estate, stocks, whatever. Whether you have a large or small capital gain on the stock is irrelevant to the estate tax. This type of planning may not matter to you personally, but it is another aspect of what wealth management can impact.\",\n \"\\\"Of course, but that's not relevant to my example. Let me clarify: say you hold a highly-appreciated $10M position in AAPL and you have good reason to believe the next iPhone is going to be a flop, causing the stock to decline 20%. You can sell now to avoid the (probable) decline, but by doing so you will be left with, let's say, $6.67M after paying $3.33M of state and federal LTCG taxes on the appreciation ($9M of the $10M, because you bought a long time ago). However, by simply doing nothing and \\\"\\\"eating\\\"\\\" the 20% decline, you'll end up with $8M instead of $6.67M. Many economists would criticize the tax in this example, as it has led to the investor rationally suffering a $2M loss, instead of reallocating all $10M of his/her capital to a more promising enterprise. Furthermore, if/when many investors act that way, they can create inefficiency in the equity markets (prices not declining by as much as they should to reflect a firm's reduced prospects).\\\"\",\n \"\\\"You cannot get \\\"\\\"your investment\\\"\\\" out and \\\"\\\"leave only the capital gains\\\"\\\" until they become taxable at the long-term rate. When you sell some shares after holding them for less than a year, you have capital gains on which you will have to pay taxes at the short-term capital gains rate (that is, at the same rate as ordinary income). As an example, if you bought 100 shares at $70 for a net investment of $7000, and sell 70 of them at $100 after five months to get your \\\"\\\"initial investment back\\\"\\\", you will have short-term capital gains of $30 per share on the 70 shares that you sold and so you have to pay tax on that $30x70=$2100. The other $4900 = $7000-$2100 is \\\"\\\"tax-free\\\"\\\" since it is just your purchase price of the 70 shares being returned to you. So after paying the tax on your short-term capital gains, you really don't have your \\\"\\\"initial investment back\\\"\\\"; you have something less. The capital gains on the 30 shares that you continue to hold will become (long-term capital gains) income to you only when you sell the shares after having held them for a full year or more: the gains on the shares sold after five months are taxable income in the year of sale.\\\"\",\n \"You are not allowed to pick and choose what years to take a loss once the stock/fund is sold. While I realize it might be too late for you to do anything now, in the future if members should read this, they might consider doing a Roth conversion during that year they will have $3000 in losses. This way they will show some income that can be offset by that loss, effectively getting a free conversion to the Roth.\",\n \"The market maker will always take it off your hands. Just enter a market sell order. It will cost you a commission to pull the loss into this year. But that's it.\",\n \"All corporate gains are taxed at the same rate as corporate income, for the corporate entity, so this actually can be WORSE than the individual capital gains tax rates. There are a lot of things you can do with trading certain asset classes, like opening you up to like-kind re-investment tax perks, but I can't think of anything that helps with stocks. Also, in the US there is now a law against doing things solely to avoid tax if they have no other economic purpose. So be conscious about that, you'll need to be able to rationalize at least a thin excuse for why you jumped through all the hoops.\",\n \"I brought this up to my CPA. She said don't do it. People used to do it, but now they're cracking down. Is it unfair? Yes. But it's the government so don't mess with them.\",\n \"Yes, the newly bought shares will have a long-term holding period, regardless of when you sell them. In addition, it's only a wash sale if you sold the first shares for a loss; it's not a wash sale if you sold them for a gain. Wikipedia mentions this: When a wash sale occurs, the holding period for the replacement stock includes the period you held the stock you sold. Example: You've held shares of XYZ for 10 years. You sell it at a loss but then buy it back within the wash sale period. When you sell the replacement stock, your gain or loss will be long-term — no matter how soon you sell it. Charles Schwab also mentions this: Here's a quick example of a wash sale. On 9/30/XX, you buy 500 shares of ABC at $10 per share. One year later the stock price starts to drop, and you sell all your shares at $9 per share on 10/4/XY. Two days later, on 10/6, ABC bottoms out at $8 and you buy 500 shares again. This series of trades triggers a wash sale. The holding period of the original shares will be added to the holding period of the replacement shares, effectively leaving you with a long-term position.\",\n \"If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.\",\n \"Yes, you could avoid capital gains tax altogether, however, capital gains are used in determining your tax bracket even though they are not taxed at that rate. This would only work in situations where your total capital gains and ordinary income kept you in the 0% longterm capital gains bracket. You can't realize a million dollars in capital gains and have no tax burden due to lack of ordinary income. You can potentially save some money by realizing capital gains strategically. Giving up income in an attempt to save on taxes rarely makes sense.\",\n \"The person may just want to get out of that position in order to buy a different stock, he or she feels may go up faster. There is really a lot of reasons.\",\n \"Consider doing things that will allow for tax deductions, such as short selling. The IRS has regulations on this as well. And consider that Futures are taxed more favorably than other kinds of investments. (60% taxed as long term, 40% taxed as short term)\",\n \"Assuming that you have capital gains, you can expect to have to pay taxes on them. It might be short term, or long term capital gains. If you specify exactly which shares to sell, it is possible to sell mostly losers, thus reducing or eliminating capital gains. There are separate rules for 401K and other retirement programs regarding down payments for a house. This leads to many other issues such as the hit your retirement will take.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"What you're talking about is called \"\"tax gain harvesting,\"\" and it is considered good tax management. From The Oblivious Investor, investors in the 10% or 15% bracket pay 0% tax on long-term capital gains. For an interesting take on never paying income taxes again, check out Go Curry Cracker. You can claim up to $70,000 or so in capital gains before paying any taxes if you are the 10% or 15% tax bracket.\""],"string":"[\n \"\\\"What you're talking about is called \\\"\\\"tax gain harvesting,\\\"\\\" and it is considered good tax management. From The Oblivious Investor, investors in the 10% or 15% bracket pay 0% tax on long-term capital gains. For an interesting take on never paying income taxes again, check out Go Curry Cracker. You can claim up to $70,000 or so in capital gains before paying any taxes if you are the 10% or 15% tax bracket.\\\"\"\n]","isConversational":false}}},{"rowIdx":294,"cells":{"_id":{"kind":"string","value":"89"},"query":{"kind":"string","value":"How can I deposit a check made out to my business into my personal account?"},"gt_ids":{"kind":"list like","value":["413229","590102","268026","248624","508754","64556"],"string":"[\n \"413229\",\n \"590102\",\n \"268026\",\n \"248624\",\n \"508754\",\n \"64556\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["188893","536686","309023","521540","65404","508754","264075","197862","193830","556021","184697","316359","406109","213331","116030","261856","268026","564553","346537","466317","138934","91707","377521","590102","501230","42032","165397","596427","388147","192726","526817","389953","133833","480238","469738","494666","413229","15473","289844","308938","466162","354314","100764","278653","426076","94957","3336","461858","400230","248624","272807","507287","66991","468718","529879","591416","168667","86273","152027","40719","342212","266840","508960","473017","357738","270339","570960","451969","357037","561103","1066","460577","148589","590837","229157","181187","528661","331384","246049","439540","48840","489199","317569","500403","505611","187790","385484","485507","514425","221061","264934","36917","212713","80538","391420","301833","480472","45078","324717","71569"],"string":"[\n \"188893\",\n \"536686\",\n \"309023\",\n \"521540\",\n \"65404\",\n \"508754\",\n \"264075\",\n \"197862\",\n \"193830\",\n \"556021\",\n \"184697\",\n \"316359\",\n \"406109\",\n \"213331\",\n \"116030\",\n \"261856\",\n \"268026\",\n \"564553\",\n \"346537\",\n \"466317\",\n \"138934\",\n \"91707\",\n \"377521\",\n \"590102\",\n \"501230\",\n \"42032\",\n \"165397\",\n \"596427\",\n \"388147\",\n \"192726\",\n \"526817\",\n \"389953\",\n \"133833\",\n \"480238\",\n \"469738\",\n \"494666\",\n \"413229\",\n \"15473\",\n \"289844\",\n \"308938\",\n \"466162\",\n \"354314\",\n \"100764\",\n \"278653\",\n \"426076\",\n \"94957\",\n \"3336\",\n \"461858\",\n \"400230\",\n \"248624\",\n \"272807\",\n \"507287\",\n \"66991\",\n \"468718\",\n \"529879\",\n \"591416\",\n \"168667\",\n \"86273\",\n \"152027\",\n \"40719\",\n \"342212\",\n \"266840\",\n \"508960\",\n \"473017\",\n \"357738\",\n \"270339\",\n \"570960\",\n \"451969\",\n \"357037\",\n \"561103\",\n \"1066\",\n \"460577\",\n \"148589\",\n \"590837\",\n \"229157\",\n \"181187\",\n \"528661\",\n \"331384\",\n \"246049\",\n \"439540\",\n \"48840\",\n \"489199\",\n \"317569\",\n \"500403\",\n \"505611\",\n \"187790\",\n \"385484\",\n \"485507\",\n \"514425\",\n \"221061\",\n \"264934\",\n \"36917\",\n \"212713\",\n \"80538\",\n \"391420\",\n \"301833\",\n \"480472\",\n \"45078\",\n \"324717\",\n \"71569\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Assuming it's your business, endorse the check as yourself and your DBA name, payable to your personal account","\"If your son endorses the check or better still, endorses it with \"\"for deposit only\"\" and places the account number in the endorsement, it's likely the bank will accept it for deposit. In this manner, you are not putting it in your account, you are putting it in his. I have a family member perform this action occasionally with zero complications and she does not have an account at the same bank.\"","\"Depending on how the check was made out, you may be able to file a DBA (\"\"doing business as\"\"), which would give you the business name locally. Then open an account under that name and deposit the check. Or simply go back to the customer and say \"\"hey, I don't have yhe company bak account open yet; could I exchange this check for one made out to me personally?\"\" That's how I've been handling hobby income under a company name. (I really do ned to file that DBA!)\"","If the check is made out to him, he will have to endorse it. Which means that at some point he will have to physically have the check in his hands. At which point, he could probably just deposit it himself. If there's some problem getting the check to him for him to sign it, you could call the bank and ask if they'll accept it for deposit to his account without a signature. I understand some banks will do this. I would be very surprised if they would let you deposit a check made out to your son to your account. They'd have no way of knowing if your son was agreeable to this or if you were stealing his money. Traditionally, the person the check was made out to could endorse it, give the check to someone else, and then the second person could endorse it and deposit it to their (the second person's) account. That is, the endorsement would have your son's signature, and below that, your signature. But I understand some banks won't accept this any more, so you'd be best to check before trying it.","Just have the associate sign the back and then deposit it. It's called a third party cheque and is perfectly legal. I wouldn't be surprised if it has a longer hold period and, as always, you don't get the money if the cheque doesn't clear. Now, you may have problems if it's a large amount or you're not very well known at the bank. In that case you can have the associate go to the bank and endorse it in front of the teller with some ID. You don't even technically have to be there. Anybody can deposit money to your account if they have the account number. He could also just deposit it in his account and write a cheque to the business.","\"I have checked with Bank of America, and they say the ONLY way to cash (or deposit, or otherwise get access to the funds represented by a check made out to my business) is to open a business account. They tell me this is a Federal regulation, and every bank will say the same thing. To do this, I need a state-issued \"\"dba\"\" certificate (from the county clerk's office) as well as an Employer ID Number (EIN) issued by the IRS. AND their CHEAPEST business banking account costs $15 / month. I think I can go to the bank that the check is drawn upon, and they will cash it, assuming I have documentation showing that I am the sole proprietor. But I'm not sure.... What a racket!!\"","How would I go about this so that I can start using this money? You would open the LLC. The checks were not written out to you, they were written out to the LLC. Only the LLC can endorse them.","Avoid talking to a person: Just use an automated system, such as an ATM or a cellphone app. Automated systems will ONLY scan for the RTN # and Account number at the bottom of the check (the funny looking blocky numbers). The automated system will not care who the check is made out to, or who is present, so long as you have an account to credit the money into, and the account number on the check can get the money debited properly.","You can sign over the check, of course. However, you'll probably need to deal with 1099 issued to you personally instead of the corporation later on. You'll have to add it to your tax return as income and negative income on the same line (line 21 of your 1040) and attach a statement explaining that the income was erroneously reported to you and will be reported on the corp form 1120. Another option is to return the check to the payer and ask them to reissue in the correct name. Next time, make sure to provide the properly filled W9 to your payers with the details of the corporation, not your own details.","Yes, you can do this. I do this for my own single-member LLC, but I usually do it online instead of writing a check. Your only legal obligation is to pay quarterly estimated tax payments to the IRS. I'm assuming you are not otherwise doing anything shady. For example, that you have funds in your business account to pay any expenses that will be due soon or that you are trying to somehow pull a fast one on someone else...","You can simply deposit the check into your joint account. You should be able do that even without his signature. Then you can transfer the money out of that account and into yours.","In my experience, you don't need to endorse a check with a signature to deposit it into your account. You do if you are exchanging the check for cash. Businesses usually have a stamp with their account number on them. Once stamped, those checks are only able to be deposited into that account. Individuals can do the same. I have had issues depositing insurance and government checks in the past that had both my and my wife's name on them. Both of us had to endorse the check to be able to deposit them. I think this was some kind of fraud prevention scheme, so that later one of us couldn't claim they didn't know anything about the check.","\"Anyone can walk into a bank, say \"\"Hi, I'm a messenger, I have an endorsed check and a filled out deposit slip for Joe Blow who has an account here, please deposit this check for him, as he is incapacitated. Straight deposit.\"\" They'll fiddle on their computer, to see if they can identify the deposit account definitively, and if they can, and the check looks legit, \"\"thanks for taking care of our customer sir.\"\" Of course, getting a balance or cashback is out of the question since you are not authenticated as the customer. I have done the same with balance transfer paperwork, in that case the bank knew the customer and the balance transfer was his usual. If the friend does not have an account there, then s/he should maybe open an account at an \"\"online bank\"\" that allows deposit by snapping photos on a phone, or phone up a branch, describe her/his situation and see if they have any options. Alternately, s/he could get a PayPal account. Or get one of those \"\"credit card swipe on your phone\"\" deals like Square or PayPal Here, which have fees very close to nil, normally cards are swiped but you can hand-enter the numbers. Those are fairly easy to get even if you have troubles with creditworthiness. S/he would need to return the check to the payer and ask the payer to pay her/him one of those ways. The payer may not be able to, e.g. if they are a large corporation. A last possibility is if the check is from a large corporation with whom s/he continues to do business with. For instance, the electric company cashiers out your account after you terminate service at your old location. But then you provision service at a new location and get a new bill, you can send their check right back to them and say \"\"Please apply this to my new account\"\". If s/he is unable to get any of those because of more serious problems like being in the country illegally, then, lawful behavior has its privileges, sorry. There are lots of unbanked people, and they pay through the nose for banking services at those ghastly check-cashing places, at least in America. I don't have a good answer for how to get a check cashed in that situation.\"","\"Your friend probably cannot deposit the check to your U.S. bank account. U.S. banks that I've worked with will not accept a deposit from someone who is not an owner of the account. I don't know why not. If some stranger wants to make unauthorized deposits to my account, why should I object? But that's the common rule. You could endorse the check, your friend could then deposit it to his own account or cash it, and then transfer the money to you in a variety of ways. But I think it would be easier to just deposit the check in your account wherever it is you live. Most banks have no problem with depositing a foreign check. There may be a fairly long delay before you can get access to the money while the check clears through the system. I don't know exactly what you mean by a \"\"prize check\"\", but assuming that this is taxable income, yes, I assume the U.S. government would want their hard-earned share of your money. These days you can pay U.S. taxes on-line if you have a credit card. If you have not already paid U.S. taxes for the year, you should make an \"\"estimated payment\"\". i.e. you can't wait until April 15 of the next year, you have to pay most or all of the taxes you will owe in the calendar year you earned it.\"","if the deposit earned interest, you could be liable for taxes on the interest earned. If it ended up in a checking account, then you will not be liable for any taxes since checking accounts do not earn interest anyway. Your bank may inquire about where these transfers are coming from and question the legality of it.","Banks has to complete KYC. In case you want to open a bank account, most will ask for proof of address. I also feel it is difficult for bank to encash a cheque payable to a business in your account. Opening a bank account in the name of your business or alternatively obtaining a cheque payable to your personal name seems the only alternatives to me.","\"If you sign the check \"\"For Deposit Only\"\", the bank will put it in your account. You may need to set up a \"\"payable name\"\" on the account matching your DBA alias. However, having counted offerings for a church on several occasions, I know that banks simply have no choice but to be lax about the \"\"Pay to the Order Of\"\" line on checks. Say the church's \"\"legal name\"\" for which the operating funds account was opened is \"\"Saint Barnabas Episcopal Church of Red Bluff\"\". You'll get offering checks made out to \"\"Saint Barnabas\"\", \"\"Saint B's\"\", \"\"Episcopal Church of Red Bluff\"\", \"\"Red Bluff Episcopal\"\", \"\"Youth Group Fund\"\", \"\"Pastor Frank\"\", etc. The bank will take em all; just gotta stamp em with the endorsement for the church. Sometimes the money will be \"\"earmarked\"\" based on the payable line; any attempt to pay the pastor directly will go into his \"\"discretionary fund\"\", and anything payable to a specific subgroup of the church will go into their asset account line, but really all the cash goes directly to the same bank account anyway. For-profit operations are similar; an apartment complex may get checks payable to the apartment name, the management company name, even the landlord. I expect that your freelance work will be no different.\"","\"If the cheque is not crossed, then your friend can write \"\"payable to [your name]\"\" above his signature when he endorses it. If it is crossed, you'll have to deposit it into his account. Given that one can deposit cheques at ATMs, this shouldn't require his presence. Just make sure he endorses it before you leave! It also might take a few more days to clear.\"","Deposit check and send a personal check (resulting in tax and IRS reporting issues) That's a bad idea, unless maybe the check you're receiving is a certified bank draft. Suppose the insurance company are crooks and the check is fraudulent. It could take weeks or months for some investigation to catch up to that, long after your own personal check was cashed by the pharmacy. The bank will then put you on hook for the 20 grand by reversing the check, even though the funds had been deposited into your account. Do not put yourself into the position of a money handler; you don't have the cash base, insurance, government protection and whatever else that a bank has. And, of course, you're being a free money handler if you do that. (You're not even compensated for postage, time and whatnot). If you're handling money between two parties, you should collect a percentage, or else refuse. That percentage has to be in proportion to the risk, since cashing a check for someone carries a risk similar to (and is effectively a form of) making a loan.","buy a cashiers check with the cash (a CRT will be nec if over 10 K) and deposit the cashiers check","When I moved banks. I had my old bank cut a cashier's check. It isn't a check you write. They write it and give it to you. I then took the cashier's check to my new bank to deposit it.","All banks in the US that I have ever worked with will allow you to deposit checks if: In your case, you have 3 options:","I'd consider this offer. Keep in mind, any time you write a check, there's the information he's asking for. If it makes you feel comfortable, use the small balance account, or set up a 4th one you'll use for these incoming deposits only.","When a business asks me to make out a cheque to a person rather than the business name, I take that as a red flag. Frankly it usually means that the person doesn't want the money going through their business account for some reason - probably tax evasion. I'm not saying you are doing that, but it is a frequent issue. If the company makes the cheque out to a person they may run the risk of being party to fraud. Worse still they only have your word for it that you actually own the company, and aren't ripping off your employer by pocketing their payment. Even worse, when the company is audited and finds that cheque, the person who wrote it will have to justify and document why they made it out to you or risk being charged with embezzlement. It's very much in their interests to make the cheque out to the company they did business with. Given that, you should really have an account in the name of your business. It's going to make your life much simpler in the long run.","How? Basically all banks nowadays allow online deposits from a smartphone - you take a picture from the front and back of the check, and submit it, and that's it. You still have the paper check, and it looks pristine, but it is deposited (and the paper is worthless).","\"There are at least a couple problems: Your friend may not manage money well and so may not have enough money in the account. Check bounces. They get charged a fee. You get charged a fee. You have to chase after the friend to get the fee paid. The friend was cheap about the regular fees and doesn't want to pay this much higher fee. Your \"\"friend\"\" may really be a crook. The check is no good. Perhaps it's written under a false identity such that you are attempting to cash a stolen/forged check. You cash it. They take the money and disappear. You get charged with participating in the crime, go to jail, and now have a criminal record (worst case). My quick thought is that if you don't know the person well enough to know the home address, you don't know the person well enough to cash checks. In general, I would view this the same as a loan. When loaning to a friend, you should never loan more than you are willing to lose. Note that an actual loan would be safer. If you loan $50 to a friend, at worst you're out $50. If you deposit a fraudulent check, you did something illegal. You will have to be convincing when you tell your story to the police. If they don't believe you, they could charge you. A couple bad breaks and you could go to jail.\"","\"The best reason for endorsing a check is in case it is lost. If the back is blank, a crooked finder could simply write \"\"pay to the order of \"\" on it and deposit it in his own account. You do not need a signature for the endorsement. The safest way to endorse a check is to write \"\"FOR DEPOSIT ONLY\"\" followed by an account number, in which case the signature is not needed. most businesses make up rubber stamps with this and stamp it the minute they receive a check. That way it has no value to anyone else. Depositing checks is increasingly going the way of the dodo. Many businesses today use check truncation - the business scans the check in, sends the digital image to the bank, and stores the check. I was surprised that Chase already has an applet for iPhones that you can use to deposit a check by taking a picture of it!\"","I'll assume you are asking about a check for some kind of work or service that you provided them, that they hired your company to do. No large business will do that. In their records they have a contract with your company to provide services. If they write you a personal check it won't match with the contract, and when the auditors see that they will scream blue murder. Whoever wrote the check will have to prove that you are legitimately the same thing as the company (that doesn't mean taking your word for it). They may also have to show they weren't conspiring with you to commit tax fraud ( that wasn't your intention of course, was it?) .","\"You can try writing on the back of the check, in the signature area, \"\"For deposit only to account xxxxxxxxx\"\", leaving room for the signature. This may or may not be legally binding, but it states your intnt and is in a form the bank will recognize.\"","\"Basically, yes. Don't use your business account for personal spending because it may invalidate your limited liability protection. Transfer a chunk of money to your personal account, write it down in your books as \"\"distribution\"\" (or something similar), and use it in whatever way you want from your personal account. The IRS doesn't care per se, but mixing personal and business expenses will cause troubles if you're audited because you'll have problems distinguishing one from another. You should be using some accounting software to make sure you track your expenses and distributions correctly. It will make it easier for you to prepare reports for yourself and your tax preparer, and also track distributions and expenses. I suggest GnuCash, I find it highly effective for a small business with not so many transactions (if you have a lot of transactions, then maybe QuickBooks would be more appropriate).\"","You mentioned depositing the check and then sending a personal check. Be sure to account for time, since any deposit over $10,000 the money will be made available in increments, so it may take 10-14 days to get the full amount in your account before you could send a personal check. I would not recommend this option regardless, but if you do, just a heads up.","I have seen this happen with IRS checks, the bank told me that the IRS imposes the requirement. Otherwise, though, I have frequently deposited checks made out to my wife into a joint checking account without her signature, they have never cared one bit.","\"In absence of complete information, I can only speculate that your phrases We both endorsed the cheque, and especially since the name on the cheque doesn't seem to be the name of the person I spoke with. mean that the check was payable to Jane Doe but was endorsed by someone you know as Wade Roe using language such as \"\"Pay to the order of user6344\"\" and then you endorsed it as something like \"\"For deposit only to Acct# 1234567890\"\" and gave it to the bank teller with a deposit slip for Acct# 1234567890. Presumably Wade Roe did not accompany you to the bank and the bank teller did not notice that the check was not endorsed to you by Jane Doe, or she did go with you to the bank but the teller did not check her ID when she endorsed the check. In any case, you, as a customer of the bank, are definitely on the hook in the sense that you in effect guaranteed the validity of Wade Roe's endorsement of the check payable to Jane Doe. You presented the check to the bank as a legitimate check that you were legitimately entitled to deposit in your account. In effect, if fraud was committed, you committed the fraud by depositing a bum check. As all the other answers have said, you need to go down to the bank and talk to a bank officer, preferably the manager, right away. Don't go to a teller (even though in many banks, the tellers have job titles like assistant vice-president.\"","They can go to an ATM and deposit it in to their account. The ATM does not care to read the name, and the bank does not care to verify anything if the check goes through (meaning the bank it is drawn on pays). So if nobody complains, that's it, he has your money. You would need to go to the check-writer's bank and ask for help, or look at the check-writer's cancelled check copy if you get to it. That bank can find out where it was deposited to, and then you have to go after the guy and get your money back - if it is still recoverable! - if it is a poor sod and he already blew your 5 grand, you can sue his pants off, but there are no 5 grand in them anywhere. So bad luck for you. Technically, the bank is not supposed to accept the check if the name doesn't match. At the counter, that might get a question, but as said above, there are deposit ATMs, and he could also just endorse the check to himself and sign the endorsement with some illegible scrawling, and claim that this is your signature - how would Joe the teller know? Either way, he gets the check in his account, and then he can take it out and blow it. It is legally clearly theft or fraud, and probably a federal crime, but if the guy is bankrupt, that doesn't help you much. Depending on that bank's fine-print, they might or might not cover your loss, but I wouldn't hold my breath. Better don't lose a check.","I don't know if it's legal but your talking about arbitraging the rates between a personal savings account and a business account. I also don't know those rates but will venture to guess that they are not materially different, after taking into account the cost of setting up and registering an LLC, for it to be worth the time and effort.","Your main concern seems to be to be accused of something called 'smurfing' or structuring. http://en.wikipedia.org/wiki/Structuring Depositing money amounts (cash or checks) under the 10k limit to circumvent the reporting requirement. People have been investigated for depositing under the limit, e.g. small business owners. If you're always above 10k you should be fine, as your deposits are reported and shouldn't raise IRS or FBI suspicions.","You should have a separate business account. Mixing business and personal funds is a bad practice. Shop around, you should be able to find a bank that will let you open a free checking account, especially if you are going to have minimal activity (e.g. less than 20 of checks per month) and perhaps maintain a small balance (e.g. $100 or $500).","I don't see any reason to worry about a check being deposited via cell phone. There isn't anything you can write on a check to make it physical deposit only or similar. If you really want to keep your check from being read electronically you could always smudge the numbers but you run the risk of the bank not cashing it and possibly getting a return check fee.","\"A check is simply an order to the bank to pay money to someone. The payor's signature on the front of the check is all that's needed to make that order binding. If you read the check carefully, you'll see that it says \"\"Pay to the order of ...\"\"; that's the payor's instruction to the bank, and as payee you can make a further order, to pay the money to someone else, in which case you'd have to endorse the check to make your order binding. But nobody does that any more; instead, people always just deposit checks into their accounts. When you deposit a check, the payor's signature is all that's needed to tell the payor's bank that it should pay the money. If your bank insists on a signature as well, that's just to pretend that they're paying attention in case it turns out that you stole the check. In reality, banks don't pay attention to signatures, nor to the name of the payee. I once put the wrong check into an envelope, and the phone company got a check for something over $700 on a bill of less than $50, payable to some completely different company; they deposited it and gave me a credit for the balance; none of the banks in the transition chain questioned it.\"","\"You should have separate files for each of the two businesses. The business that transfers money out should \"\"write check\"\" in its QB file. The business that receives money should \"\"make deposit\"\" in its QB file. (In QB you \"\"write check\"\" even when you make the payment by some other means like ACH.) Neither business should have the bank accounts of the other explicitly represented. On each side, you will also need to classify the payment as having originated from / gone to some other account - To know what's correct there, we'd need to know why your transferring the money in the first place and how you otherwise have your books established. I think that's probably beyond the scope of what's on-topic / feasible here. Money into your business from your personal account is probably owner's equity, unless you have something else going on. For example, on the S Corp you should be paying yourself a salary. If you overpay by accident, then you might write a check back to the company from your personal account to correct the mistake. That's not equity - It's probably a \"\"negative expense\"\" in some other account that tracks the salary payments.\"","Years ago, I had a tenant who bounced a check now and then. I started going to the bank where his account was. With my ID they were agreeable to cashing the check against his account. The teller first checked his balance and only cashed when there were enough funds. One time he was $10 short. I wrote a deposit slip and added the $10 it took to clear the check. As they say, your mileage may vary, I hear some banks won't even break a large bill for a non customer.","I am assuming this is USA. While it is a bit of a pain, you are best off to have separate accounts for your business and personal. This way, if it comes to audit, you hand the IRS statements for your business account(s) and they match your return. As a further precaution I would have the card(s) you use for business expenses look different then the ones you use for personal so you don't mess another one up.","\"You don't specify which country you are in, so my answers are more from a best practice view than a legal view.. I don't intend on using it for personal use, but I mean it's just as possible. This is a dangerous proposition.. You shouldn't co-mingle business expenses with personal expenses. If there is a chance this will happen, then stop, make it so that it won't happen. The big danger is in being able to have traceability between what you are doing for the business, and what you are doing for yourself. If you are using this as a \"\"staging\"\" account for investments, etc., are those investments for yourself? Or for the business? Is tax treatment on capital gains and/or dividends the same for personal and business in your jurisdiction? If you buy a widget, is the widget an expense against business income? Or is it an out of pocket expense for personal consumption? The former reduces your taxable income, the latter does not. I don't see the benefit of a real business account because those have features specific to maybe corporations, LLC, and etc. -- nothing beneficial to a sole proprietor who has no reports/employees. The real benefit is that there is a clear delineation between business income/expenses and personal income/expenses. This account can also accept money and hold it from business transactions/sales, and possibly transfer some to the personal account if there's no need for reinvesting said amount/percentage. What you are looking for is a commonly called a current account, because it is used for current expenses. If you are moving money out of the account to your personal account, that speaks to paying yourself, which has other implications as well. The safest/cleanest way to do this is to: While this may sound like overkill, it is the only way to guarantee that income/expenses are allocated to the correct entity (i.e. you, or your business). From a Canadian standpoint:\"","Quick get a Social Security Number for the child. You will need it before you file your taxes early next year. If you don't have a SSN for your child you will not be able to claim them as a dependent. If you applied for one already, many do so at the hospital, then wait for it to arrive. The next step is to open a savings account with the child's SSN. Then have your parent write the check in the child's name and deposit it into the account. If it is written in the child's name already then you don't need a new check from them. If the check is large, you may run into problems if you take a check in the name of a minor and try and deposit it into your account. The bank would have no idea that the person is related to you.","\"Let me do the math. .6% * (not large) = really tiny. Since \"\"not large\"\" = \"\"small\"\" , etc. I suggest that even a small chance that you need to explain this to anyone in the future is a sign to avoid the risk. Yes, there are times that it's illegal. A real estate office may not deposit escrow funds into anything but a segregated escrow account. In your case, even if legal, it messes up 'the books' and can cost you more in grief than the 'tiny amount' saves you in cash.\"","\"Its a classic sign of fraud. The fraud is on you. You cashed the check not given to you, and not endorsed by the person its given to, so even if the check is legit you're still in trouble. There are many variations of this scheme, but the common thing is that the \"\"innocent\"\" third party is given a check to cash, and gives its own check or cash in return. The check ends up being forged, stolen, or otherwise invalid, but the cash/check the third party gave is long gone. Usually its cash, because its untraceable. You should wait at least a couple of weeks to make sure the check doesn't bounce. You might want to contact the check owner to verify its legit, and suggest to return the money, if it is not. You might also want to consult with an attorney. Bear in mind, that it might be reported to the authorities as a money laundering scheme (which it very well might be), and you'll have some explaining to do in this case, even if the check is legit.\"","\"Yes, kinda. Talk to local banks about a business account, and tell them you want to enable certain employees to make deposits but not withdrawals. They don't need to know you're all the same person. For instance I have a PayPal account for business. These allow you to create \"\"sub accounts\"\" for your employees with a variety of access privileges. Of course I control the master account, but I also set up a \"\"sub account\"\" for myself. That is the account I use every day.\"","\"You can spend the money quite quickly. The problem is that if there is something wrong with the check, the bank will ask you for the money back. If the check is from a trusted source (a trusted friend, a business with good reputation etc.) that's fine. If the money is from an untrusted source, make sure that having to pay back the money doesn't get you into trouble. Since most people are honest, this is fine for a small amount, but if it's more than you can afford to pay back, don't spend it. A simple scam is that people send you checks, \"\"by mistake\"\" the check is for the wrong amount, say $910 instead of $190, and they ask you to send the difference back. So you put $910 into your account, send them $720, and six weeks later your bank asks for their $910 back. If someone pays you too much on a check and asks you to pay them the difference, you know it is a scam.\"","\"IANAL, but. As you note, when you open a new account, they give you temporary checks that are usually blank in the upper left. I've used such checks and the bank has honored them. Therefore, I conclude that there must not be any legal requirement for anything to appear there, nor does the bank require it. Businesses are often reluctant to accept such temporary checks, for the obvious reason that anyone could go to the bank, open an account with $10, write checks for thousands of dollars, and disappear. At least if they've waited long enough to get the permanent checks in, there's some reason to believe that they plan to stick around. In any case, it's not clear what you are trying to accomplish. You want to hand-write either your business name or your personal name depending on whether the check is for personal or business purposes? I don't see what that gains. You could always use a personal check for business purposes. If you're afraid someone will say, \"\"Hey, that doesn't look very professional, what kind of fly-by-night company is this that uses personal checks?\"\", surely a hand-written company name would look even less professional. Why not just open a business account and have your personal checks printed with your personal name and your business checks with your business name? I don't know where you live, but I have a business account on which I pay zero fees. The only cost is getting checks printed. There's the small hassle of having to make one trip to the bank to open the account. Well, the biggest hassle I have is that the bank won't let me transfer money between my personal and business accounts over the Internet, so I have to either go to the bank to move money back and forth, or I have to write a check from one account to the other and deposit through an ATM.\"","\"Depending on where you are, you may be able to get away with filing a \"\"Doing Business As\"\" document with your local government, and then having the bank call the county seat to verify this. There is generally a fee for processing/recording/filing the DBA form, of course. But it's useful for more purposes than just this one. (I still need to file a DBA for my hobby work-for-pay, for exactly this reason.)\"","While you can print that on the check, it isn't considered legally binding. If you are concerned about a check not being deposited in a timely manner, consider purchasing a cashier's check instead. This doesn't solve the problem per se, but it transfers responsibility of tracking that check from you to the bank.","I'm going to give the checkmark to Joe, but I wanted to convey my personal experience. I bank with TD in New Jersey and was informed by the teller that I simply needed to endorse the check myself and indicate Parent of Minor. I cannot attest if other banks will accept this, but it at least works for TD and my situation in particular.","Deposit it into your Brazilian bank account. They'll charge you collection fee (shouldn't be high, its a cashier's check equivalent), and the currency exchange rate may not be the best ever, but that's the price to pay for the service. Another option would be to cash the check at check cashing places, but that would most likely require you being in the US (I don't know if any check-cashing store in Brazil would cash a US check).","I actually had to go to the bank today and so I decided to ask. The answer I was given is that a check is a legal document (a promise to pay). In order to get your money from the bank, you need to sign the check over to them. By endorsing the check you are attesting to the fact that you have transferred said document to them and they can draw on that account.","It would be better to use a bank account and have the refund deposited directly to it. But you said you never had a bank account, so that may be a problem. Another option is to have the refund check mailed to you, and you deposit it in your local bank, converting to your home currency (or not, depending on local laws). Generally, for another person to cash a check made out to you - you need to endorse it first. Physically, on the back of the check. That means you have to see the check. Specifically with tax refund checks there's much more scrutiny since there's a lot of fraud going on with regards to tax refunds. Thus, I doubt a bank would allow a third party cash a check made out to you, without you actually being present there.","\"No functional difference. Only impression/convenience. \"\"Business checks\"\" are checks in larger format (8\"\" instead of the regular 5\"\" checks), they can be from your personal account just as well. I didn't have any problem using the small \"\"individual\"\"-standard checks for my company (I actually did get them for free from Wells Fargo, but that was a gesture, not by policy).\"","If you don't have a bank account then open one and use the check as your opening deposit. You'll need to obtain a Social Security card as well (you didn't indicate you have one or not, so I'll assume you don't), but they're free and quick to apply for. I assume you're from Washington state, so there should be no problem with you opening an account in Washington, no matter where the check is from. Because of the amount of the check, the bank will probably only let yo have a part of the amount for a few days until it clears, but federal banking rules require quick clearance of out-of-state checks (I think it's 48 hours now), so you'd have access to at least half of the money right away and the rest in a few days.","\"See \"\"Structuring transactions to evade reporting requirement prohibited.\"\" You absolutely run the risk of the accusation of structuring. One can move money via check, direct transfer, etc, all day long, from account to account, and not have a reporting issue. But, cash deposits have a reporting requirement (by the bank) if $10K or over. Very simple, you deposit $5000 today, and $5000 tomorrow. That's structuring, and illegal. Let me offer a pre-emptive \"\"I don't know what frequency of $10000/X deposits triggers this rule. But, like the Supreme Court's, \"\"We have trouble defining porn, but we know it when we see it. And we're happy to have these cases brought to us,\"\" structuring is similarly not 100% definable, else one would shift a bit right.\"\" You did not ask, but your friend runs the risk of gift tax issues, as he's not filing the forms to acknowledge once he's over $14,000.\"","It seems that you're complicating things quite a bit. Why would you not create a business entity, open one or more bank accounts for it, and then have the money wired into those accounts? If you plan on being a company then set up the appropriate structure for it. In the U.S., you can form an S-corporation or an LLC and choose pass-through taxation so that all you pay is income tax on what you receive from the business as personal income. The business itself would not have tax liability in such a case. Co-mingling your personal banking with that of your business could create real tax headaches for you if you aren't careful, so it's not worth the trouble or risk.","What you are describing is perfectly legal, and is well under the threshold to attract the attention of the IRS ($10K+). The money is not income, because it is repayment for goods provided or a loan made to your friends. I do this myself oftentimes to take advantage of the rewards on my credit cards. With cash to cover expenses coming in immediately from friends/family, there is virtually no risk. If you are concerned and want to protect against questions in the future about the source of the money, you ought to start keeping records of dates, times, locations, amounts, and the names of people involved when the charges are made. Then track the dates when the cash is deposited into your bank account. That way you can demonstrate the cash flow (Charge -> Repayment -> Deposit) to anyone who needs to know.","I've been a landlord and also a tenant. I have been able to deposit money in an account, where I have the account number, and/or a deposit slip. In a foreign bank you can deposit by a machine if in the bank or someone is there for you and knows the account number. With regards to cashing a check in another country, it is up to the bank and the time is at least 14 to 21 business days, with a fee is added. As of a winning check, since its in your name, if you are in another country sign the check, for deposit only with a deposit slip and send it to your out of country bank by FedEx - you will have a tracking number, where as regular mail it might get there in 3 months. I hope by now you came to your solution.","The easiest options appear to be to open an account with one of the large multinational banks like Citi. They have options such as opening two separate checking accounts, one in each currency, and Citi in particular has an international account that appears to make mutli-currency personal banking easier. All of the options have minimum balance requirements or fees for conversion, but if you need quick access this seems to be the best bet. Even if this is a one-time event and you don't need the account, a bank like Citi may be able to help you cash the check and get access to the funds quicker than a national or local bank. http://www.citibank.com/ipb-global/homepage/newsite/content/english/multi_cap_bank_depo.htm Alternatively if you know anyone with a US bank account you can deposit it with them and take the cash withdrawal from their account, assuming they agree, the check isn't too large, etc.","\"I would contact the security/fraud departments at your bank and see if you can get in contact (via your bank) with the bank that the check is drawn on. By my reading of your question, it sounds like the person you are dealing with fraudulently endorsed a third party check, which you subsequently endorsed for deposit. Explain this situation to your bank. As far as the other person goes, tell her \"\"I'm in contact with the frauds department at my bank, as the validity of the check is in question, and I'm not giving you a cent until the matter is resolved.\"\" Depositing a bad check is a misdemeanor in most jurisdictions, so it's essential to bring this to the attention of the bank and authorities asap.\"","The person writing the check has already signed and endorsed it. The depositer's signature is not to confirm the check's validity, but to demonstrate that the check was depisited to the correct Fred Smith's account, and permit charges to be brought if, eg, Fred Bonzo Smith tries to steal Fred Gnorph Smith's check.","No fees: Write a check. Deposit it into the other bank.","If it's always the same person, you could open a joint account. Then fees are avoided altogether. How fast the funds are available depends on what you deposit. Cash is immediate.","That's a sensible plan. No there's no reason for the IRS to see this arrangement as suspicious, particularly because the deposits will be from paychecks; you have a record of where all the money came from. Conversely, multiple cash deposits might be considered suspicious. It can only affect your credit if you have credit lines associated with the account (like an overdraft line of credit). Interest earned could increase your tax liability by a tiny amount, but in the current interest rate environment, that's not much of a worry.","As long as someone is willing to take it, you can write it! I personally wrote a check for a new car. The dealership didn't bat an eye.","You should be careful about mingling your personal money and that of the business, even if it is a sole prop right now. It is a good habit to keep separate business and personal bank/credit accounts just so that when you change to an LLC, it is simpler for you to separate what belongs to the company and what is yours personally. What you're doing makes it more difficult (although only marginally so) to itemize business deductions that were paid with an ostensibly personal credit account. The better habit to get into now is keeping that distinct separation between personal and business. That being said, there's nothing illegal in what you're doing, but it would make an accountant cringe, that's for sure. (chuckle) Hope this helps. Good luck!","The fee you were charged to get the money order is gone. You agreed to that fee when you purchased the Money order. It is now a check that you can use how ever you wish. If you have already added a name to the pay to line it can be changed but different agencies have different rules for what they will accept. Take the money order to your bank explain the situation and tell them you want to put the money in your account, or cash it.","\"There's nothing you can do. If he has indeed deposited the check, it would appear on your account fairly quickly - I've never seen it taking more than 2-3 business days. However, a check is a debt instrument, and you cannot close the account until it clears, or until the \"\"unclaimed property\"\" laws of your state kick in. If he claims that he deposited the check, ask it in writing and have your bank (or the bank where it was deposited) investigate why it takes so long to clear. If he's not willing to give it to you in writing - he's likely not deposited it. Whatever the reason may be, even just to cause you nuisance. Lesson learned. Next time - cashier's check with a signed receipt. Re closing the LLC: if you're the only two partners - you can just withdraw yourself from the LLC, take out your share, and drop it on him leaving him the only partner. Check with your local attorney for details.\"","Once you've made a good-faith effort to straighten the situation out you've done all you can do. Cash the check.","You can receive all the Money in your Bank. By Problem if you mean whether it will raise any alarms at the Bank. Most likely yes, such kind of activity would trigger AML. Bank would flag this off to regulators and questions would be asked. If you are doing a Legitimate business, its not an issue. Maintain a proper record of the transaction and pay your taxes. As funds are large 80 K a month, it makes sense to seek to advice of a Laywer and CA to help you keep thing in order.","\"It is not allowed to pay refunds to anyone other than the taxpayer. This is due to various tax return fraud schemes that were running around. Banks are required to enforce this. If the direct deposit is denied, a check will be issued. In her name, obviously. What she does with it when she gets it is her business - but I believe that tax refund checks may not be just \"\"endorsed\"\", the bank will likely want to see her when you deposit it to your account, even if it is endorsed. For the same reason.\"","\"No, you cannot do that. You can't just debit someone because \"\"he said so\"\". You'll need a document in writing, that would show the routing number, account number, the amount to withdraw and who is allowed to withdraw it. This document must be signed by the account owner and dated. Usually, these documents are called \"\"checks\"\". But legally speaking, in most countries you can write this on any piece of paper and it would be valid. But better use a standard check. Once you have a check - you can cash/deposit it in any bank, that part is true.\"","They sure can. They are two different legal entities, so why not? You can even write a check to yourself, and then deposit it back into your own account. (Not very useful, but you can). The tax implications are a very different question, as this might constitute taking money out of the company. Edit: In some countries, when the business hires someone to work for them, it is forbidden by law to do that, unless he/she is explicitly allowed to do it in his contract. The business owner himself however, can always 'allow' himself to do that.","The legal department at the Bank left me a message telling me that the bank check was paid & the recipient got the funds. Call up the bank and find out who the recipient was. Generally it can only be cashed by the person whose name is on it - the original business partner to whom it was intended. It is unlikely to be cashed by the attorney, unless he misrepresented the facts to the bank and got the funds. My question is how could he have cashed it without the original bank check? The other possibility is your mom lost this check, went to the bank and requested them to cancel this and reissue a fresh banker's check and give it to the business partner - in which case the check you had was worthless. You would need to work with the bank and ask them for details. However without the details of the original bank check that you found, it would be difficult for the bank to help you.","I agree with Joe, having the money deposited to the US bank account may land you in trouble. Technically, a US business paying a foreigner must withhold 30% of the payment, unless a tax treaty says otherwise. The US business should do that based on your W8-BEN/W8-ECI form that you should have given to the business before being paid. I'm guessing, that by paying to your US bank account, you (and your American counterpart) are trying to avoid this withholding. That may cause trouble for both of you. I would suggest you talking to a professional (EA/CPA licensed in the State where the business is located) and having the situation resolved ASAP. You may not be liable for the US taxes at all, but because of incorrectly reporting the income/expense - you and the US business may end up paying way more than the $0 you otherwise would have, in penalties.","The simplest method is just to write a check from one account and deposit it in the other. If you are the owner of both accounts, you should be able to electronically deposit the check using their phone apps. Depending on the amount you are transfering, it may take a few days for the check to clear.","\"In general, a lack of endorsement (meaning nothing written by the receiver on the back of the check) is equivalent to it being endorsed \"\"as deposit only\"\" to a bank that the depositor has an account with. (See Uniform Commercial Code §4-205.) That is, the bank that receives a deposit without any endorsement promises to the banks that process the check along the line all the way back to your bank, that they properly deposited the money into the account of the entity that the check was made out to. With checks being processed with more and more automation, it's getting fairly common for there to be little writing needed on the check itself, as the digital copy gets submitted to the banking system for clearing. If you're concerned about there being some sort of fraud, that perhaps the entity that you're sending money to isn't the ones that should be getting it, or that they're not actually getting the money, or something like that, that's really an entirely different concern. I would expect that if you were saying that you paid something, and the payee said that you hadn't, that you would dispute the transaction with your bank. They should be able to follow the electronic trail to where the money went, but I suspect they only do so as part of an investigation (and possibly only in an investigation that involved law enforcement of some type). If you're just curious about what bank account number your deposit went into, then it just looks like you're the one trying to commit some sort of fraud (even if you're just being curious), and they don't have much incentive to try to help you out there.\"","You don't have much choice other than to open an account in your business name, then do a money transfer, as @DJClayworth says. You will not without providing your name and street address and possibly other information that you may consider to be of a private nature. This is due to laws about fraud, money laundering and consumer protection. I'm not saying that's what you have in mind! But without accountability of the sort provided by names and street addresses, banks would be facilitating crimes of many sorts, which is why regulatory agencies enforce disclosure requirements.","\"It's possible to cash cheques by post. When I did this, it involved filling out a \"\"paying-in slip\"\" (I had a book of these provided by the bank) and posting the cheque together with the slip to an address provided by the bank. You could also bring the paying-in slip and the cheque to a branch and deposit them there, and it wasn't necessary that you were the account holder, just that the details on the slip matched the account you were paying into. I Googled \"\"paying-in slip\"\" and found the instructions for HSBC as an example: Paying-In Slips. It explicitly mentions that you don't need to be the account holder to do this, and moreover there are even blank slips in the branch, which you just need to fill in with the correct account details. I think the procedure is much the same for other banks, but presumably you could check the relevant bank's website for specific guidance.\"","Why do they have to endorse every check every time they want to deposit it? They told you why. They said it was because it was made out to one person and there were others on the account that could withdraw money from the acct., so endorsing it acknowledged that the payee still wanted to deposit the money, knowing others could take the $ out The reason they insist on it may have something to do with their responsibility in case of elder abuse. They are worried that you may be using your parents' money without their knowledge, and if it ends up being true and they didn't enforce the requirement - they may also be liable. I have a joint account with my spouse, and they do not let us deposit checks written to both of us unless we both endorse. This is similar, and stems from the same concern. So here's the unusual situation In case of a death of a joint account holder - the whole account is frozen until the estate is executed. You cannot deposit a check of a deceased person to such an account.","Not illegal. With respect to littleadv response, the printing of a check isn't illegal. I can order checks from cheap check printers, and they have no relationship to any bank, so long as they have my routing number and checking account number, they print. Years ago (25+) I wrote my account details on a shirt in protest to owing the IRS money, and my bank cashed it. They charged a penalty of some nominal amount, $20 or so for 'non-standard check format' or something like that. But, in fact, stupid young person rants aside, you may write a check out by hand on a piece of paper and it should clear. The missing factor is the magnetic ink. But, I often see a regular check with a strip taped to the bottom when the mag strip fails, proving that bad ink will not prevent a check from clearing. So long as the person trying to send you the funds isn't going to dispute the transaction (and the check is made out to you, so I suppose they couldn't even do that) this process should be simple. I see little to no risk so long as the image isn't intercepted along the way.","This will probably require some explanation from you on the source of the money and the reasons for the transaction. Cash transactions over $10k will be reported by the bank (in this case) on a CTR report to FinCEN. Keep in mind, mere breaking the transaction into multiple smaller ones in order to avoid the CTR is on its own a criminal offense. Just deposit what you want to deposit, and report what's needed to be reported. Note that if you're a US tax resident - these foreign bank accounts must have been reported already to FinCEN via FBAR, if not - you should expect a very nasty audit with the IRS.","Contractors regularly deposit checks like this; if the income is legitimate don't worry. Report it to the IRS as income whether or not the customer issues you a 1099. With deposits like this you should be making quarterly payments to the IRS for your projected income.","\"Open a personal account to link SQUARE with, open a savings account with same bank. Register as \"\"PERSONAL USE\"\", make as many transactions you want for whatever you want $5.00 to $1,000.00 or more, you get paid, square collects a fee. Money is in your \"\"personal account\"\" in 24 hrs, transfer it to your savings acct. 2 years now no issue. I've done the EIN, vendors license, registering business crap, if you work for yourself for private citizens it's none of anyone else's concern.\"","Banks in the US have to report deposits of more than $10,000, so they'll contact you to complete form 8300 or something. It should not be a problem, though, if you specify that it's someone else's money, not your income.","As long as your bank does not have any limits on the number of transactions per month you should be fine. The danger would be theft while you had the money before depositing into the new account. I would expect that your new credit union could do a wire transfer for you. It might cost you a few dollars but it would be safer and probably faster.","\"Generally, ACH transfers are not considered direct deposits. However, you can pay for this service to various providers, and they will do the transfer so that it would be marked as a direct deposit. For example, Wells Fargo allows doing it using their \"\"DirectPay\"\" system. I happen to have a WF business account (free with conditions) where this service is available, but there are plenty of providers. It does cost money (for WF - $10 monthly fee + $0.50 for a transfer to non-WF account), but it may be worth it for you if the benefit is large enough.\"","\"There is no \"\"reason why this cannot be done\"\", but you can tell your friend that these actions are officially shady in the eyes of the US government. Any bank transactions with a value of $10,000 or more are automatically reported to the government as a way to prevent money laundering, tax evasion, and other criminal shenanigans. \"\"Structuring\"\" bank deposits to avoid this monetary limit is a crime in and of itself. https://en.wikipedia.org/wiki/Currency_transaction_report\"","It all depends on the trust level you have in them handling it correctly. If they never deposit it, it doesn't matter what happens to the check, they could frame it and hang it on the wall. The risk is that someone someday deposits it (incorrectly double-charging you), and you need to do what think is appropriate to avoid this risk. If your trust in them is too small, only sending it back to you makes sure that you physically control the check.","This varies by jurisdiction somewhat but speaking as a Canadian, a small business owner, and accountant (unregistered but some courses and accounting for multiple businesses) this is the answer if you were in Canada. In Canada the cheque cashing limit is 6 months. Therefor any bank will refuse to cash this cheque. It would be totally morally and legally acceptable to ask for a replacement cheque from your employer. In Canada they would generally have no problem issuing a replacement; in other jurisdictions with differing time limits they might want to cancel the original cheque first.","\"If you forgot to put the name on the \"\"pay to the order of\"\" line then anybody who gets their hands on the check can add their name to the check and deposit it at their bank into their account. If it goes to the correct person they will have an easy time making sure that the check is made out correctly. They don't have to worry about that picky teller who doesn't know what to do with a check made out to Billy Smith and a drivers license for Xavier William Smith. On the other hand... a criminal will also be able to make sure it is processed exactly the way they want it. If I made it out to a small business or a person I would let them know. You might not have a choice but to wait and see what happens if it was sent to a large business, the payment processing center could be a long way from where you will be calling.\"","You friend would only be able to deposit this in NRO account. You may have to explain the source of money. If you declare it as gift, then you would need to pay gift tax. What you are doing is converting USD to INR outside the normal banking network and this maybe in volition of FEMA [Foreign Exchange Management Act].","\"If the cheque is crossed (as almost all are these days), it can only be paid into an account in the name of the person it was written out to: it cannot be paid into another's account, nor can it be \"\"cashed\"\"1 – see the rules on \"\"Crossed\"\" cheques. Note: that while the recipient of the cheque cannot (legally) alter this state of afairs, the writer of a cheque that was printed pre-crossed can – at least technically – cancel the crossing (see above link). Probably the best the OP can do is pay in the cheque on the friend's behalf (as described in Ben Millwood's answer) and then either lend the friend some money until they are mobile and can get some cash to repay the OP (or have the friend write one of their own cheques which the OP can pay into their bank account). 1 As mentioned in the last section of the rules on crossed cheques, the only exception is that designated \"\"Cheque cashing shops\"\" have special arrangements to deposit cheques which they have cashed (after deducting a fee). However, they would (should?) require proof of identity (of the original payee) and so are unlikely to be of any help (and probably not worth the cost for £35). Having said that, I've never used one, so have no idea how strict they are in practice.\"","Of course not. You had another job for which you earned money. What does the corporation have to do with it? Corporation is a separate entity from your person, and since it was in no way involved in the transaction - there's no justification to funnel money through it. Doing so may pierce the corporate veil and expose you to liability which you created the corporation to shield yourself from. Not to mention the tax evasion, which is the reason you are asking the question to begin with....","You probably can't deposit the check directly, but there are mechanisms in place to get your money through other means. In the US, all states and territories have an unclaimed property registry. Before you contact the company that wrote the check, you should check that registry in your state. You will have to provide proof that you are the intended recipient, having the original check in your possession should make that considerably easier.","As I replied to someone else who said that: I'm often having to send stuff with the check. Paperwork, a bill etc. While that would work to a person who knows me, it's usually not going to work with a business or government who needs to know why I'm sending this check.","You can move money in and out of the business at will, just keep track of every transaction. Ideally you'd use an accounting software like QuickBooks or similar. Create a Capital Contributions account and every time you put money into the business checking account record it as a Capital Contribution. Likewise, if you take money out of the business, it comes from your capital accounts. (You can create a separate Capital Distributions account in your accounting software, or just use a single account for contributions and distributions). Money coming in and out of those capital accounts is not taxable because you will pay taxes based on net earnings regardless of whether or not you have distributed any profits. So there's no need to make a loan to the company, which would have tax consequences. To reimburse yourself for purchases already made, submit an expense report to the company. If the company is unfunded right now, you can make a capital contribution to cover current expenses, submit the expense report, and wait until you have some profits before paying out the expense report or making any distributions. Welcome to entrepreneurship."],"string":"[\n \"Assuming it's your business, endorse the check as yourself and your DBA name, payable to your personal account\",\n \"\\\"If your son endorses the check or better still, endorses it with \\\"\\\"for deposit only\\\"\\\" and places the account number in the endorsement, it's likely the bank will accept it for deposit. In this manner, you are not putting it in your account, you are putting it in his. I have a family member perform this action occasionally with zero complications and she does not have an account at the same bank.\\\"\",\n \"\\\"Depending on how the check was made out, you may be able to file a DBA (\\\"\\\"doing business as\\\"\\\"), which would give you the business name locally. Then open an account under that name and deposit the check. Or simply go back to the customer and say \\\"\\\"hey, I don't have yhe company bak account open yet; could I exchange this check for one made out to me personally?\\\"\\\" That's how I've been handling hobby income under a company name. (I really do ned to file that DBA!)\\\"\",\n \"If the check is made out to him, he will have to endorse it. Which means that at some point he will have to physically have the check in his hands. At which point, he could probably just deposit it himself. If there's some problem getting the check to him for him to sign it, you could call the bank and ask if they'll accept it for deposit to his account without a signature. I understand some banks will do this. I would be very surprised if they would let you deposit a check made out to your son to your account. They'd have no way of knowing if your son was agreeable to this or if you were stealing his money. Traditionally, the person the check was made out to could endorse it, give the check to someone else, and then the second person could endorse it and deposit it to their (the second person's) account. That is, the endorsement would have your son's signature, and below that, your signature. But I understand some banks won't accept this any more, so you'd be best to check before trying it.\",\n \"Just have the associate sign the back and then deposit it. It's called a third party cheque and is perfectly legal. I wouldn't be surprised if it has a longer hold period and, as always, you don't get the money if the cheque doesn't clear. Now, you may have problems if it's a large amount or you're not very well known at the bank. In that case you can have the associate go to the bank and endorse it in front of the teller with some ID. You don't even technically have to be there. Anybody can deposit money to your account if they have the account number. He could also just deposit it in his account and write a cheque to the business.\",\n \"\\\"I have checked with Bank of America, and they say the ONLY way to cash (or deposit, or otherwise get access to the funds represented by a check made out to my business) is to open a business account. They tell me this is a Federal regulation, and every bank will say the same thing. To do this, I need a state-issued \\\"\\\"dba\\\"\\\" certificate (from the county clerk's office) as well as an Employer ID Number (EIN) issued by the IRS. AND their CHEAPEST business banking account costs $15 / month. I think I can go to the bank that the check is drawn upon, and they will cash it, assuming I have documentation showing that I am the sole proprietor. But I'm not sure.... What a racket!!\\\"\",\n \"How would I go about this so that I can start using this money? You would open the LLC. The checks were not written out to you, they were written out to the LLC. Only the LLC can endorse them.\",\n \"Avoid talking to a person: Just use an automated system, such as an ATM or a cellphone app. Automated systems will ONLY scan for the RTN # and Account number at the bottom of the check (the funny looking blocky numbers). The automated system will not care who the check is made out to, or who is present, so long as you have an account to credit the money into, and the account number on the check can get the money debited properly.\",\n \"You can sign over the check, of course. However, you'll probably need to deal with 1099 issued to you personally instead of the corporation later on. You'll have to add it to your tax return as income and negative income on the same line (line 21 of your 1040) and attach a statement explaining that the income was erroneously reported to you and will be reported on the corp form 1120. Another option is to return the check to the payer and ask them to reissue in the correct name. Next time, make sure to provide the properly filled W9 to your payers with the details of the corporation, not your own details.\",\n \"Yes, you can do this. I do this for my own single-member LLC, but I usually do it online instead of writing a check. Your only legal obligation is to pay quarterly estimated tax payments to the IRS. I'm assuming you are not otherwise doing anything shady. For example, that you have funds in your business account to pay any expenses that will be due soon or that you are trying to somehow pull a fast one on someone else...\",\n \"You can simply deposit the check into your joint account. You should be able do that even without his signature. Then you can transfer the money out of that account and into yours.\",\n \"In my experience, you don't need to endorse a check with a signature to deposit it into your account. You do if you are exchanging the check for cash. Businesses usually have a stamp with their account number on them. Once stamped, those checks are only able to be deposited into that account. Individuals can do the same. I have had issues depositing insurance and government checks in the past that had both my and my wife's name on them. Both of us had to endorse the check to be able to deposit them. I think this was some kind of fraud prevention scheme, so that later one of us couldn't claim they didn't know anything about the check.\",\n \"\\\"Anyone can walk into a bank, say \\\"\\\"Hi, I'm a messenger, I have an endorsed check and a filled out deposit slip for Joe Blow who has an account here, please deposit this check for him, as he is incapacitated. Straight deposit.\\\"\\\" They'll fiddle on their computer, to see if they can identify the deposit account definitively, and if they can, and the check looks legit, \\\"\\\"thanks for taking care of our customer sir.\\\"\\\" Of course, getting a balance or cashback is out of the question since you are not authenticated as the customer. I have done the same with balance transfer paperwork, in that case the bank knew the customer and the balance transfer was his usual. If the friend does not have an account there, then s/he should maybe open an account at an \\\"\\\"online bank\\\"\\\" that allows deposit by snapping photos on a phone, or phone up a branch, describe her/his situation and see if they have any options. Alternately, s/he could get a PayPal account. Or get one of those \\\"\\\"credit card swipe on your phone\\\"\\\" deals like Square or PayPal Here, which have fees very close to nil, normally cards are swiped but you can hand-enter the numbers. Those are fairly easy to get even if you have troubles with creditworthiness. S/he would need to return the check to the payer and ask the payer to pay her/him one of those ways. The payer may not be able to, e.g. if they are a large corporation. A last possibility is if the check is from a large corporation with whom s/he continues to do business with. For instance, the electric company cashiers out your account after you terminate service at your old location. But then you provision service at a new location and get a new bill, you can send their check right back to them and say \\\"\\\"Please apply this to my new account\\\"\\\". If s/he is unable to get any of those because of more serious problems like being in the country illegally, then, lawful behavior has its privileges, sorry. There are lots of unbanked people, and they pay through the nose for banking services at those ghastly check-cashing places, at least in America. I don't have a good answer for how to get a check cashed in that situation.\\\"\",\n \"\\\"Your friend probably cannot deposit the check to your U.S. bank account. U.S. banks that I've worked with will not accept a deposit from someone who is not an owner of the account. I don't know why not. If some stranger wants to make unauthorized deposits to my account, why should I object? But that's the common rule. You could endorse the check, your friend could then deposit it to his own account or cash it, and then transfer the money to you in a variety of ways. But I think it would be easier to just deposit the check in your account wherever it is you live. Most banks have no problem with depositing a foreign check. There may be a fairly long delay before you can get access to the money while the check clears through the system. I don't know exactly what you mean by a \\\"\\\"prize check\\\"\\\", but assuming that this is taxable income, yes, I assume the U.S. government would want their hard-earned share of your money. These days you can pay U.S. taxes on-line if you have a credit card. If you have not already paid U.S. taxes for the year, you should make an \\\"\\\"estimated payment\\\"\\\". i.e. you can't wait until April 15 of the next year, you have to pay most or all of the taxes you will owe in the calendar year you earned it.\\\"\",\n \"if the deposit earned interest, you could be liable for taxes on the interest earned. If it ended up in a checking account, then you will not be liable for any taxes since checking accounts do not earn interest anyway. Your bank may inquire about where these transfers are coming from and question the legality of it.\",\n \"Banks has to complete KYC. In case you want to open a bank account, most will ask for proof of address. I also feel it is difficult for bank to encash a cheque payable to a business in your account. Opening a bank account in the name of your business or alternatively obtaining a cheque payable to your personal name seems the only alternatives to me.\",\n \"\\\"If you sign the check \\\"\\\"For Deposit Only\\\"\\\", the bank will put it in your account. You may need to set up a \\\"\\\"payable name\\\"\\\" on the account matching your DBA alias. However, having counted offerings for a church on several occasions, I know that banks simply have no choice but to be lax about the \\\"\\\"Pay to the Order Of\\\"\\\" line on checks. Say the church's \\\"\\\"legal name\\\"\\\" for which the operating funds account was opened is \\\"\\\"Saint Barnabas Episcopal Church of Red Bluff\\\"\\\". You'll get offering checks made out to \\\"\\\"Saint Barnabas\\\"\\\", \\\"\\\"Saint B's\\\"\\\", \\\"\\\"Episcopal Church of Red Bluff\\\"\\\", \\\"\\\"Red Bluff Episcopal\\\"\\\", \\\"\\\"Youth Group Fund\\\"\\\", \\\"\\\"Pastor Frank\\\"\\\", etc. The bank will take em all; just gotta stamp em with the endorsement for the church. Sometimes the money will be \\\"\\\"earmarked\\\"\\\" based on the payable line; any attempt to pay the pastor directly will go into his \\\"\\\"discretionary fund\\\"\\\", and anything payable to a specific subgroup of the church will go into their asset account line, but really all the cash goes directly to the same bank account anyway. For-profit operations are similar; an apartment complex may get checks payable to the apartment name, the management company name, even the landlord. I expect that your freelance work will be no different.\\\"\",\n \"\\\"If the cheque is not crossed, then your friend can write \\\"\\\"payable to [your name]\\\"\\\" above his signature when he endorses it. If it is crossed, you'll have to deposit it into his account. Given that one can deposit cheques at ATMs, this shouldn't require his presence. Just make sure he endorses it before you leave! It also might take a few more days to clear.\\\"\",\n \"Deposit check and send a personal check (resulting in tax and IRS reporting issues) That's a bad idea, unless maybe the check you're receiving is a certified bank draft. Suppose the insurance company are crooks and the check is fraudulent. It could take weeks or months for some investigation to catch up to that, long after your own personal check was cashed by the pharmacy. The bank will then put you on hook for the 20 grand by reversing the check, even though the funds had been deposited into your account. Do not put yourself into the position of a money handler; you don't have the cash base, insurance, government protection and whatever else that a bank has. And, of course, you're being a free money handler if you do that. (You're not even compensated for postage, time and whatnot). If you're handling money between two parties, you should collect a percentage, or else refuse. That percentage has to be in proportion to the risk, since cashing a check for someone carries a risk similar to (and is effectively a form of) making a loan.\",\n \"buy a cashiers check with the cash (a CRT will be nec if over 10 K) and deposit the cashiers check\",\n \"When I moved banks. I had my old bank cut a cashier's check. It isn't a check you write. They write it and give it to you. I then took the cashier's check to my new bank to deposit it.\",\n \"All banks in the US that I have ever worked with will allow you to deposit checks if: In your case, you have 3 options:\",\n \"I'd consider this offer. Keep in mind, any time you write a check, there's the information he's asking for. If it makes you feel comfortable, use the small balance account, or set up a 4th one you'll use for these incoming deposits only.\",\n \"When a business asks me to make out a cheque to a person rather than the business name, I take that as a red flag. Frankly it usually means that the person doesn't want the money going through their business account for some reason - probably tax evasion. I'm not saying you are doing that, but it is a frequent issue. If the company makes the cheque out to a person they may run the risk of being party to fraud. Worse still they only have your word for it that you actually own the company, and aren't ripping off your employer by pocketing their payment. Even worse, when the company is audited and finds that cheque, the person who wrote it will have to justify and document why they made it out to you or risk being charged with embezzlement. It's very much in their interests to make the cheque out to the company they did business with. Given that, you should really have an account in the name of your business. It's going to make your life much simpler in the long run.\",\n \"How? Basically all banks nowadays allow online deposits from a smartphone - you take a picture from the front and back of the check, and submit it, and that's it. You still have the paper check, and it looks pristine, but it is deposited (and the paper is worthless).\",\n \"\\\"There are at least a couple problems: Your friend may not manage money well and so may not have enough money in the account. Check bounces. They get charged a fee. You get charged a fee. You have to chase after the friend to get the fee paid. The friend was cheap about the regular fees and doesn't want to pay this much higher fee. Your \\\"\\\"friend\\\"\\\" may really be a crook. The check is no good. Perhaps it's written under a false identity such that you are attempting to cash a stolen/forged check. You cash it. They take the money and disappear. You get charged with participating in the crime, go to jail, and now have a criminal record (worst case). My quick thought is that if you don't know the person well enough to know the home address, you don't know the person well enough to cash checks. In general, I would view this the same as a loan. When loaning to a friend, you should never loan more than you are willing to lose. Note that an actual loan would be safer. If you loan $50 to a friend, at worst you're out $50. If you deposit a fraudulent check, you did something illegal. You will have to be convincing when you tell your story to the police. If they don't believe you, they could charge you. A couple bad breaks and you could go to jail.\\\"\",\n \"\\\"The best reason for endorsing a check is in case it is lost. If the back is blank, a crooked finder could simply write \\\"\\\"pay to the order of \\\"\\\" on it and deposit it in his own account. You do not need a signature for the endorsement. The safest way to endorse a check is to write \\\"\\\"FOR DEPOSIT ONLY\\\"\\\" followed by an account number, in which case the signature is not needed. most businesses make up rubber stamps with this and stamp it the minute they receive a check. That way it has no value to anyone else. Depositing checks is increasingly going the way of the dodo. Many businesses today use check truncation - the business scans the check in, sends the digital image to the bank, and stores the check. I was surprised that Chase already has an applet for iPhones that you can use to deposit a check by taking a picture of it!\\\"\",\n \"I'll assume you are asking about a check for some kind of work or service that you provided them, that they hired your company to do. No large business will do that. In their records they have a contract with your company to provide services. If they write you a personal check it won't match with the contract, and when the auditors see that they will scream blue murder. Whoever wrote the check will have to prove that you are legitimately the same thing as the company (that doesn't mean taking your word for it). They may also have to show they weren't conspiring with you to commit tax fraud ( that wasn't your intention of course, was it?) .\",\n \"\\\"You can try writing on the back of the check, in the signature area, \\\"\\\"For deposit only to account xxxxxxxxx\\\"\\\", leaving room for the signature. This may or may not be legally binding, but it states your intnt and is in a form the bank will recognize.\\\"\",\n \"\\\"Basically, yes. Don't use your business account for personal spending because it may invalidate your limited liability protection. Transfer a chunk of money to your personal account, write it down in your books as \\\"\\\"distribution\\\"\\\" (or something similar), and use it in whatever way you want from your personal account. The IRS doesn't care per se, but mixing personal and business expenses will cause troubles if you're audited because you'll have problems distinguishing one from another. You should be using some accounting software to make sure you track your expenses and distributions correctly. It will make it easier for you to prepare reports for yourself and your tax preparer, and also track distributions and expenses. I suggest GnuCash, I find it highly effective for a small business with not so many transactions (if you have a lot of transactions, then maybe QuickBooks would be more appropriate).\\\"\",\n \"You mentioned depositing the check and then sending a personal check. Be sure to account for time, since any deposit over $10,000 the money will be made available in increments, so it may take 10-14 days to get the full amount in your account before you could send a personal check. I would not recommend this option regardless, but if you do, just a heads up.\",\n \"I have seen this happen with IRS checks, the bank told me that the IRS imposes the requirement. Otherwise, though, I have frequently deposited checks made out to my wife into a joint checking account without her signature, they have never cared one bit.\",\n \"\\\"In absence of complete information, I can only speculate that your phrases We both endorsed the cheque, and especially since the name on the cheque doesn't seem to be the name of the person I spoke with. mean that the check was payable to Jane Doe but was endorsed by someone you know as Wade Roe using language such as \\\"\\\"Pay to the order of user6344\\\"\\\" and then you endorsed it as something like \\\"\\\"For deposit only to Acct# 1234567890\\\"\\\" and gave it to the bank teller with a deposit slip for Acct# 1234567890. Presumably Wade Roe did not accompany you to the bank and the bank teller did not notice that the check was not endorsed to you by Jane Doe, or she did go with you to the bank but the teller did not check her ID when she endorsed the check. In any case, you, as a customer of the bank, are definitely on the hook in the sense that you in effect guaranteed the validity of Wade Roe's endorsement of the check payable to Jane Doe. You presented the check to the bank as a legitimate check that you were legitimately entitled to deposit in your account. In effect, if fraud was committed, you committed the fraud by depositing a bum check. As all the other answers have said, you need to go down to the bank and talk to a bank officer, preferably the manager, right away. Don't go to a teller (even though in many banks, the tellers have job titles like assistant vice-president.\\\"\",\n \"They can go to an ATM and deposit it in to their account. The ATM does not care to read the name, and the bank does not care to verify anything if the check goes through (meaning the bank it is drawn on pays). So if nobody complains, that's it, he has your money. You would need to go to the check-writer's bank and ask for help, or look at the check-writer's cancelled check copy if you get to it. That bank can find out where it was deposited to, and then you have to go after the guy and get your money back - if it is still recoverable! - if it is a poor sod and he already blew your 5 grand, you can sue his pants off, but there are no 5 grand in them anywhere. So bad luck for you. Technically, the bank is not supposed to accept the check if the name doesn't match. At the counter, that might get a question, but as said above, there are deposit ATMs, and he could also just endorse the check to himself and sign the endorsement with some illegible scrawling, and claim that this is your signature - how would Joe the teller know? Either way, he gets the check in his account, and then he can take it out and blow it. It is legally clearly theft or fraud, and probably a federal crime, but if the guy is bankrupt, that doesn't help you much. Depending on that bank's fine-print, they might or might not cover your loss, but I wouldn't hold my breath. Better don't lose a check.\",\n \"I don't know if it's legal but your talking about arbitraging the rates between a personal savings account and a business account. I also don't know those rates but will venture to guess that they are not materially different, after taking into account the cost of setting up and registering an LLC, for it to be worth the time and effort.\",\n \"Your main concern seems to be to be accused of something called 'smurfing' or structuring. http://en.wikipedia.org/wiki/Structuring Depositing money amounts (cash or checks) under the 10k limit to circumvent the reporting requirement. People have been investigated for depositing under the limit, e.g. small business owners. If you're always above 10k you should be fine, as your deposits are reported and shouldn't raise IRS or FBI suspicions.\",\n \"You should have a separate business account. Mixing business and personal funds is a bad practice. Shop around, you should be able to find a bank that will let you open a free checking account, especially if you are going to have minimal activity (e.g. less than 20 of checks per month) and perhaps maintain a small balance (e.g. $100 or $500).\",\n \"I don't see any reason to worry about a check being deposited via cell phone. There isn't anything you can write on a check to make it physical deposit only or similar. If you really want to keep your check from being read electronically you could always smudge the numbers but you run the risk of the bank not cashing it and possibly getting a return check fee.\",\n \"\\\"A check is simply an order to the bank to pay money to someone. The payor's signature on the front of the check is all that's needed to make that order binding. If you read the check carefully, you'll see that it says \\\"\\\"Pay to the order of ...\\\"\\\"; that's the payor's instruction to the bank, and as payee you can make a further order, to pay the money to someone else, in which case you'd have to endorse the check to make your order binding. But nobody does that any more; instead, people always just deposit checks into their accounts. When you deposit a check, the payor's signature is all that's needed to tell the payor's bank that it should pay the money. If your bank insists on a signature as well, that's just to pretend that they're paying attention in case it turns out that you stole the check. In reality, banks don't pay attention to signatures, nor to the name of the payee. I once put the wrong check into an envelope, and the phone company got a check for something over $700 on a bill of less than $50, payable to some completely different company; they deposited it and gave me a credit for the balance; none of the banks in the transition chain questioned it.\\\"\",\n \"\\\"You should have separate files for each of the two businesses. The business that transfers money out should \\\"\\\"write check\\\"\\\" in its QB file. The business that receives money should \\\"\\\"make deposit\\\"\\\" in its QB file. (In QB you \\\"\\\"write check\\\"\\\" even when you make the payment by some other means like ACH.) Neither business should have the bank accounts of the other explicitly represented. On each side, you will also need to classify the payment as having originated from / gone to some other account - To know what's correct there, we'd need to know why your transferring the money in the first place and how you otherwise have your books established. I think that's probably beyond the scope of what's on-topic / feasible here. Money into your business from your personal account is probably owner's equity, unless you have something else going on. For example, on the S Corp you should be paying yourself a salary. If you overpay by accident, then you might write a check back to the company from your personal account to correct the mistake. That's not equity - It's probably a \\\"\\\"negative expense\\\"\\\" in some other account that tracks the salary payments.\\\"\",\n \"Years ago, I had a tenant who bounced a check now and then. I started going to the bank where his account was. With my ID they were agreeable to cashing the check against his account. The teller first checked his balance and only cashed when there were enough funds. One time he was $10 short. I wrote a deposit slip and added the $10 it took to clear the check. As they say, your mileage may vary, I hear some banks won't even break a large bill for a non customer.\",\n \"I am assuming this is USA. While it is a bit of a pain, you are best off to have separate accounts for your business and personal. This way, if it comes to audit, you hand the IRS statements for your business account(s) and they match your return. As a further precaution I would have the card(s) you use for business expenses look different then the ones you use for personal so you don't mess another one up.\",\n \"\\\"You don't specify which country you are in, so my answers are more from a best practice view than a legal view.. I don't intend on using it for personal use, but I mean it's just as possible. This is a dangerous proposition.. You shouldn't co-mingle business expenses with personal expenses. If there is a chance this will happen, then stop, make it so that it won't happen. The big danger is in being able to have traceability between what you are doing for the business, and what you are doing for yourself. If you are using this as a \\\"\\\"staging\\\"\\\" account for investments, etc., are those investments for yourself? Or for the business? Is tax treatment on capital gains and/or dividends the same for personal and business in your jurisdiction? If you buy a widget, is the widget an expense against business income? Or is it an out of pocket expense for personal consumption? The former reduces your taxable income, the latter does not. I don't see the benefit of a real business account because those have features specific to maybe corporations, LLC, and etc. -- nothing beneficial to a sole proprietor who has no reports/employees. The real benefit is that there is a clear delineation between business income/expenses and personal income/expenses. This account can also accept money and hold it from business transactions/sales, and possibly transfer some to the personal account if there's no need for reinvesting said amount/percentage. What you are looking for is a commonly called a current account, because it is used for current expenses. If you are moving money out of the account to your personal account, that speaks to paying yourself, which has other implications as well. The safest/cleanest way to do this is to: While this may sound like overkill, it is the only way to guarantee that income/expenses are allocated to the correct entity (i.e. you, or your business). From a Canadian standpoint:\\\"\",\n \"Quick get a Social Security Number for the child. You will need it before you file your taxes early next year. If you don't have a SSN for your child you will not be able to claim them as a dependent. If you applied for one already, many do so at the hospital, then wait for it to arrive. The next step is to open a savings account with the child's SSN. Then have your parent write the check in the child's name and deposit it into the account. If it is written in the child's name already then you don't need a new check from them. If the check is large, you may run into problems if you take a check in the name of a minor and try and deposit it into your account. The bank would have no idea that the person is related to you.\",\n \"\\\"Let me do the math. .6% * (not large) = really tiny. Since \\\"\\\"not large\\\"\\\" = \\\"\\\"small\\\"\\\" , etc. I suggest that even a small chance that you need to explain this to anyone in the future is a sign to avoid the risk. Yes, there are times that it's illegal. A real estate office may not deposit escrow funds into anything but a segregated escrow account. In your case, even if legal, it messes up 'the books' and can cost you more in grief than the 'tiny amount' saves you in cash.\\\"\",\n \"\\\"Its a classic sign of fraud. The fraud is on you. You cashed the check not given to you, and not endorsed by the person its given to, so even if the check is legit you're still in trouble. There are many variations of this scheme, but the common thing is that the \\\"\\\"innocent\\\"\\\" third party is given a check to cash, and gives its own check or cash in return. The check ends up being forged, stolen, or otherwise invalid, but the cash/check the third party gave is long gone. Usually its cash, because its untraceable. You should wait at least a couple of weeks to make sure the check doesn't bounce. You might want to contact the check owner to verify its legit, and suggest to return the money, if it is not. You might also want to consult with an attorney. Bear in mind, that it might be reported to the authorities as a money laundering scheme (which it very well might be), and you'll have some explaining to do in this case, even if the check is legit.\\\"\",\n \"\\\"Yes, kinda. Talk to local banks about a business account, and tell them you want to enable certain employees to make deposits but not withdrawals. They don't need to know you're all the same person. For instance I have a PayPal account for business. These allow you to create \\\"\\\"sub accounts\\\"\\\" for your employees with a variety of access privileges. Of course I control the master account, but I also set up a \\\"\\\"sub account\\\"\\\" for myself. That is the account I use every day.\\\"\",\n \"\\\"You can spend the money quite quickly. The problem is that if there is something wrong with the check, the bank will ask you for the money back. If the check is from a trusted source (a trusted friend, a business with good reputation etc.) that's fine. If the money is from an untrusted source, make sure that having to pay back the money doesn't get you into trouble. Since most people are honest, this is fine for a small amount, but if it's more than you can afford to pay back, don't spend it. A simple scam is that people send you checks, \\\"\\\"by mistake\\\"\\\" the check is for the wrong amount, say $910 instead of $190, and they ask you to send the difference back. So you put $910 into your account, send them $720, and six weeks later your bank asks for their $910 back. If someone pays you too much on a check and asks you to pay them the difference, you know it is a scam.\\\"\",\n \"\\\"IANAL, but. As you note, when you open a new account, they give you temporary checks that are usually blank in the upper left. I've used such checks and the bank has honored them. Therefore, I conclude that there must not be any legal requirement for anything to appear there, nor does the bank require it. Businesses are often reluctant to accept such temporary checks, for the obvious reason that anyone could go to the bank, open an account with $10, write checks for thousands of dollars, and disappear. At least if they've waited long enough to get the permanent checks in, there's some reason to believe that they plan to stick around. In any case, it's not clear what you are trying to accomplish. You want to hand-write either your business name or your personal name depending on whether the check is for personal or business purposes? I don't see what that gains. You could always use a personal check for business purposes. If you're afraid someone will say, \\\"\\\"Hey, that doesn't look very professional, what kind of fly-by-night company is this that uses personal checks?\\\"\\\", surely a hand-written company name would look even less professional. Why not just open a business account and have your personal checks printed with your personal name and your business checks with your business name? I don't know where you live, but I have a business account on which I pay zero fees. The only cost is getting checks printed. There's the small hassle of having to make one trip to the bank to open the account. Well, the biggest hassle I have is that the bank won't let me transfer money between my personal and business accounts over the Internet, so I have to either go to the bank to move money back and forth, or I have to write a check from one account to the other and deposit through an ATM.\\\"\",\n \"\\\"Depending on where you are, you may be able to get away with filing a \\\"\\\"Doing Business As\\\"\\\" document with your local government, and then having the bank call the county seat to verify this. There is generally a fee for processing/recording/filing the DBA form, of course. But it's useful for more purposes than just this one. (I still need to file a DBA for my hobby work-for-pay, for exactly this reason.)\\\"\",\n \"While you can print that on the check, it isn't considered legally binding. If you are concerned about a check not being deposited in a timely manner, consider purchasing a cashier's check instead. This doesn't solve the problem per se, but it transfers responsibility of tracking that check from you to the bank.\",\n \"I'm going to give the checkmark to Joe, but I wanted to convey my personal experience. I bank with TD in New Jersey and was informed by the teller that I simply needed to endorse the check myself and indicate Parent of Minor. I cannot attest if other banks will accept this, but it at least works for TD and my situation in particular.\",\n \"Deposit it into your Brazilian bank account. They'll charge you collection fee (shouldn't be high, its a cashier's check equivalent), and the currency exchange rate may not be the best ever, but that's the price to pay for the service. Another option would be to cash the check at check cashing places, but that would most likely require you being in the US (I don't know if any check-cashing store in Brazil would cash a US check).\",\n \"I actually had to go to the bank today and so I decided to ask. The answer I was given is that a check is a legal document (a promise to pay). In order to get your money from the bank, you need to sign the check over to them. By endorsing the check you are attesting to the fact that you have transferred said document to them and they can draw on that account.\",\n \"It would be better to use a bank account and have the refund deposited directly to it. But you said you never had a bank account, so that may be a problem. Another option is to have the refund check mailed to you, and you deposit it in your local bank, converting to your home currency (or not, depending on local laws). Generally, for another person to cash a check made out to you - you need to endorse it first. Physically, on the back of the check. That means you have to see the check. Specifically with tax refund checks there's much more scrutiny since there's a lot of fraud going on with regards to tax refunds. Thus, I doubt a bank would allow a third party cash a check made out to you, without you actually being present there.\",\n \"\\\"No functional difference. Only impression/convenience. \\\"\\\"Business checks\\\"\\\" are checks in larger format (8\\\"\\\" instead of the regular 5\\\"\\\" checks), they can be from your personal account just as well. I didn't have any problem using the small \\\"\\\"individual\\\"\\\"-standard checks for my company (I actually did get them for free from Wells Fargo, but that was a gesture, not by policy).\\\"\",\n \"If you don't have a bank account then open one and use the check as your opening deposit. You'll need to obtain a Social Security card as well (you didn't indicate you have one or not, so I'll assume you don't), but they're free and quick to apply for. I assume you're from Washington state, so there should be no problem with you opening an account in Washington, no matter where the check is from. Because of the amount of the check, the bank will probably only let yo have a part of the amount for a few days until it clears, but federal banking rules require quick clearance of out-of-state checks (I think it's 48 hours now), so you'd have access to at least half of the money right away and the rest in a few days.\",\n \"\\\"See \\\"\\\"Structuring transactions to evade reporting requirement prohibited.\\\"\\\" You absolutely run the risk of the accusation of structuring. One can move money via check, direct transfer, etc, all day long, from account to account, and not have a reporting issue. But, cash deposits have a reporting requirement (by the bank) if $10K or over. Very simple, you deposit $5000 today, and $5000 tomorrow. That's structuring, and illegal. Let me offer a pre-emptive \\\"\\\"I don't know what frequency of $10000/X deposits triggers this rule. But, like the Supreme Court's, \\\"\\\"We have trouble defining porn, but we know it when we see it. And we're happy to have these cases brought to us,\\\"\\\" structuring is similarly not 100% definable, else one would shift a bit right.\\\"\\\" You did not ask, but your friend runs the risk of gift tax issues, as he's not filing the forms to acknowledge once he's over $14,000.\\\"\",\n \"It seems that you're complicating things quite a bit. Why would you not create a business entity, open one or more bank accounts for it, and then have the money wired into those accounts? If you plan on being a company then set up the appropriate structure for it. In the U.S., you can form an S-corporation or an LLC and choose pass-through taxation so that all you pay is income tax on what you receive from the business as personal income. The business itself would not have tax liability in such a case. Co-mingling your personal banking with that of your business could create real tax headaches for you if you aren't careful, so it's not worth the trouble or risk.\",\n \"What you are describing is perfectly legal, and is well under the threshold to attract the attention of the IRS ($10K+). The money is not income, because it is repayment for goods provided or a loan made to your friends. I do this myself oftentimes to take advantage of the rewards on my credit cards. With cash to cover expenses coming in immediately from friends/family, there is virtually no risk. If you are concerned and want to protect against questions in the future about the source of the money, you ought to start keeping records of dates, times, locations, amounts, and the names of people involved when the charges are made. Then track the dates when the cash is deposited into your bank account. That way you can demonstrate the cash flow (Charge -> Repayment -> Deposit) to anyone who needs to know.\",\n \"I've been a landlord and also a tenant. I have been able to deposit money in an account, where I have the account number, and/or a deposit slip. In a foreign bank you can deposit by a machine if in the bank or someone is there for you and knows the account number. With regards to cashing a check in another country, it is up to the bank and the time is at least 14 to 21 business days, with a fee is added. As of a winning check, since its in your name, if you are in another country sign the check, for deposit only with a deposit slip and send it to your out of country bank by FedEx - you will have a tracking number, where as regular mail it might get there in 3 months. I hope by now you came to your solution.\",\n \"The easiest options appear to be to open an account with one of the large multinational banks like Citi. They have options such as opening two separate checking accounts, one in each currency, and Citi in particular has an international account that appears to make mutli-currency personal banking easier. All of the options have minimum balance requirements or fees for conversion, but if you need quick access this seems to be the best bet. Even if this is a one-time event and you don't need the account, a bank like Citi may be able to help you cash the check and get access to the funds quicker than a national or local bank. http://www.citibank.com/ipb-global/homepage/newsite/content/english/multi_cap_bank_depo.htm Alternatively if you know anyone with a US bank account you can deposit it with them and take the cash withdrawal from their account, assuming they agree, the check isn't too large, etc.\",\n \"\\\"I would contact the security/fraud departments at your bank and see if you can get in contact (via your bank) with the bank that the check is drawn on. By my reading of your question, it sounds like the person you are dealing with fraudulently endorsed a third party check, which you subsequently endorsed for deposit. Explain this situation to your bank. As far as the other person goes, tell her \\\"\\\"I'm in contact with the frauds department at my bank, as the validity of the check is in question, and I'm not giving you a cent until the matter is resolved.\\\"\\\" Depositing a bad check is a misdemeanor in most jurisdictions, so it's essential to bring this to the attention of the bank and authorities asap.\\\"\",\n \"The person writing the check has already signed and endorsed it. The depositer's signature is not to confirm the check's validity, but to demonstrate that the check was depisited to the correct Fred Smith's account, and permit charges to be brought if, eg, Fred Bonzo Smith tries to steal Fred Gnorph Smith's check.\",\n \"No fees: Write a check. Deposit it into the other bank.\",\n \"If it's always the same person, you could open a joint account. Then fees are avoided altogether. How fast the funds are available depends on what you deposit. Cash is immediate.\",\n \"That's a sensible plan. No there's no reason for the IRS to see this arrangement as suspicious, particularly because the deposits will be from paychecks; you have a record of where all the money came from. Conversely, multiple cash deposits might be considered suspicious. It can only affect your credit if you have credit lines associated with the account (like an overdraft line of credit). Interest earned could increase your tax liability by a tiny amount, but in the current interest rate environment, that's not much of a worry.\",\n \"As long as someone is willing to take it, you can write it! I personally wrote a check for a new car. The dealership didn't bat an eye.\",\n \"You should be careful about mingling your personal money and that of the business, even if it is a sole prop right now. It is a good habit to keep separate business and personal bank/credit accounts just so that when you change to an LLC, it is simpler for you to separate what belongs to the company and what is yours personally. What you're doing makes it more difficult (although only marginally so) to itemize business deductions that were paid with an ostensibly personal credit account. The better habit to get into now is keeping that distinct separation between personal and business. That being said, there's nothing illegal in what you're doing, but it would make an accountant cringe, that's for sure. (chuckle) Hope this helps. Good luck!\",\n \"The fee you were charged to get the money order is gone. You agreed to that fee when you purchased the Money order. It is now a check that you can use how ever you wish. If you have already added a name to the pay to line it can be changed but different agencies have different rules for what they will accept. Take the money order to your bank explain the situation and tell them you want to put the money in your account, or cash it.\",\n \"\\\"There's nothing you can do. If he has indeed deposited the check, it would appear on your account fairly quickly - I've never seen it taking more than 2-3 business days. However, a check is a debt instrument, and you cannot close the account until it clears, or until the \\\"\\\"unclaimed property\\\"\\\" laws of your state kick in. If he claims that he deposited the check, ask it in writing and have your bank (or the bank where it was deposited) investigate why it takes so long to clear. If he's not willing to give it to you in writing - he's likely not deposited it. Whatever the reason may be, even just to cause you nuisance. Lesson learned. Next time - cashier's check with a signed receipt. Re closing the LLC: if you're the only two partners - you can just withdraw yourself from the LLC, take out your share, and drop it on him leaving him the only partner. Check with your local attorney for details.\\\"\",\n \"Once you've made a good-faith effort to straighten the situation out you've done all you can do. Cash the check.\",\n \"You can receive all the Money in your Bank. By Problem if you mean whether it will raise any alarms at the Bank. Most likely yes, such kind of activity would trigger AML. Bank would flag this off to regulators and questions would be asked. If you are doing a Legitimate business, its not an issue. Maintain a proper record of the transaction and pay your taxes. As funds are large 80 K a month, it makes sense to seek to advice of a Laywer and CA to help you keep thing in order.\",\n \"\\\"It is not allowed to pay refunds to anyone other than the taxpayer. This is due to various tax return fraud schemes that were running around. Banks are required to enforce this. If the direct deposit is denied, a check will be issued. In her name, obviously. What she does with it when she gets it is her business - but I believe that tax refund checks may not be just \\\"\\\"endorsed\\\"\\\", the bank will likely want to see her when you deposit it to your account, even if it is endorsed. For the same reason.\\\"\",\n \"\\\"No, you cannot do that. You can't just debit someone because \\\"\\\"he said so\\\"\\\". You'll need a document in writing, that would show the routing number, account number, the amount to withdraw and who is allowed to withdraw it. This document must be signed by the account owner and dated. Usually, these documents are called \\\"\\\"checks\\\"\\\". But legally speaking, in most countries you can write this on any piece of paper and it would be valid. But better use a standard check. Once you have a check - you can cash/deposit it in any bank, that part is true.\\\"\",\n \"They sure can. They are two different legal entities, so why not? You can even write a check to yourself, and then deposit it back into your own account. (Not very useful, but you can). The tax implications are a very different question, as this might constitute taking money out of the company. Edit: In some countries, when the business hires someone to work for them, it is forbidden by law to do that, unless he/she is explicitly allowed to do it in his contract. The business owner himself however, can always 'allow' himself to do that.\",\n \"The legal department at the Bank left me a message telling me that the bank check was paid & the recipient got the funds. Call up the bank and find out who the recipient was. Generally it can only be cashed by the person whose name is on it - the original business partner to whom it was intended. It is unlikely to be cashed by the attorney, unless he misrepresented the facts to the bank and got the funds. My question is how could he have cashed it without the original bank check? The other possibility is your mom lost this check, went to the bank and requested them to cancel this and reissue a fresh banker's check and give it to the business partner - in which case the check you had was worthless. You would need to work with the bank and ask them for details. However without the details of the original bank check that you found, it would be difficult for the bank to help you.\",\n \"I agree with Joe, having the money deposited to the US bank account may land you in trouble. Technically, a US business paying a foreigner must withhold 30% of the payment, unless a tax treaty says otherwise. The US business should do that based on your W8-BEN/W8-ECI form that you should have given to the business before being paid. I'm guessing, that by paying to your US bank account, you (and your American counterpart) are trying to avoid this withholding. That may cause trouble for both of you. I would suggest you talking to a professional (EA/CPA licensed in the State where the business is located) and having the situation resolved ASAP. You may not be liable for the US taxes at all, but because of incorrectly reporting the income/expense - you and the US business may end up paying way more than the $0 you otherwise would have, in penalties.\",\n \"The simplest method is just to write a check from one account and deposit it in the other. If you are the owner of both accounts, you should be able to electronically deposit the check using their phone apps. Depending on the amount you are transfering, it may take a few days for the check to clear.\",\n \"\\\"In general, a lack of endorsement (meaning nothing written by the receiver on the back of the check) is equivalent to it being endorsed \\\"\\\"as deposit only\\\"\\\" to a bank that the depositor has an account with. (See Uniform Commercial Code §4-205.) That is, the bank that receives a deposit without any endorsement promises to the banks that process the check along the line all the way back to your bank, that they properly deposited the money into the account of the entity that the check was made out to. With checks being processed with more and more automation, it's getting fairly common for there to be little writing needed on the check itself, as the digital copy gets submitted to the banking system for clearing. If you're concerned about there being some sort of fraud, that perhaps the entity that you're sending money to isn't the ones that should be getting it, or that they're not actually getting the money, or something like that, that's really an entirely different concern. I would expect that if you were saying that you paid something, and the payee said that you hadn't, that you would dispute the transaction with your bank. They should be able to follow the electronic trail to where the money went, but I suspect they only do so as part of an investigation (and possibly only in an investigation that involved law enforcement of some type). If you're just curious about what bank account number your deposit went into, then it just looks like you're the one trying to commit some sort of fraud (even if you're just being curious), and they don't have much incentive to try to help you out there.\\\"\",\n \"You don't have much choice other than to open an account in your business name, then do a money transfer, as @DJClayworth says. You will not without providing your name and street address and possibly other information that you may consider to be of a private nature. This is due to laws about fraud, money laundering and consumer protection. I'm not saying that's what you have in mind! But without accountability of the sort provided by names and street addresses, banks would be facilitating crimes of many sorts, which is why regulatory agencies enforce disclosure requirements.\",\n \"\\\"It's possible to cash cheques by post. When I did this, it involved filling out a \\\"\\\"paying-in slip\\\"\\\" (I had a book of these provided by the bank) and posting the cheque together with the slip to an address provided by the bank. You could also bring the paying-in slip and the cheque to a branch and deposit them there, and it wasn't necessary that you were the account holder, just that the details on the slip matched the account you were paying into. I Googled \\\"\\\"paying-in slip\\\"\\\" and found the instructions for HSBC as an example: Paying-In Slips. It explicitly mentions that you don't need to be the account holder to do this, and moreover there are even blank slips in the branch, which you just need to fill in with the correct account details. I think the procedure is much the same for other banks, but presumably you could check the relevant bank's website for specific guidance.\\\"\",\n \"Why do they have to endorse every check every time they want to deposit it? They told you why. They said it was because it was made out to one person and there were others on the account that could withdraw money from the acct., so endorsing it acknowledged that the payee still wanted to deposit the money, knowing others could take the $ out The reason they insist on it may have something to do with their responsibility in case of elder abuse. They are worried that you may be using your parents' money without their knowledge, and if it ends up being true and they didn't enforce the requirement - they may also be liable. I have a joint account with my spouse, and they do not let us deposit checks written to both of us unless we both endorse. This is similar, and stems from the same concern. So here's the unusual situation In case of a death of a joint account holder - the whole account is frozen until the estate is executed. You cannot deposit a check of a deceased person to such an account.\",\n \"Not illegal. With respect to littleadv response, the printing of a check isn't illegal. I can order checks from cheap check printers, and they have no relationship to any bank, so long as they have my routing number and checking account number, they print. Years ago (25+) I wrote my account details on a shirt in protest to owing the IRS money, and my bank cashed it. They charged a penalty of some nominal amount, $20 or so for 'non-standard check format' or something like that. But, in fact, stupid young person rants aside, you may write a check out by hand on a piece of paper and it should clear. The missing factor is the magnetic ink. But, I often see a regular check with a strip taped to the bottom when the mag strip fails, proving that bad ink will not prevent a check from clearing. So long as the person trying to send you the funds isn't going to dispute the transaction (and the check is made out to you, so I suppose they couldn't even do that) this process should be simple. I see little to no risk so long as the image isn't intercepted along the way.\",\n \"This will probably require some explanation from you on the source of the money and the reasons for the transaction. Cash transactions over $10k will be reported by the bank (in this case) on a CTR report to FinCEN. Keep in mind, mere breaking the transaction into multiple smaller ones in order to avoid the CTR is on its own a criminal offense. Just deposit what you want to deposit, and report what's needed to be reported. Note that if you're a US tax resident - these foreign bank accounts must have been reported already to FinCEN via FBAR, if not - you should expect a very nasty audit with the IRS.\",\n \"Contractors regularly deposit checks like this; if the income is legitimate don't worry. Report it to the IRS as income whether or not the customer issues you a 1099. With deposits like this you should be making quarterly payments to the IRS for your projected income.\",\n \"\\\"Open a personal account to link SQUARE with, open a savings account with same bank. Register as \\\"\\\"PERSONAL USE\\\"\\\", make as many transactions you want for whatever you want $5.00 to $1,000.00 or more, you get paid, square collects a fee. Money is in your \\\"\\\"personal account\\\"\\\" in 24 hrs, transfer it to your savings acct. 2 years now no issue. I've done the EIN, vendors license, registering business crap, if you work for yourself for private citizens it's none of anyone else's concern.\\\"\",\n \"Banks in the US have to report deposits of more than $10,000, so they'll contact you to complete form 8300 or something. It should not be a problem, though, if you specify that it's someone else's money, not your income.\",\n \"As long as your bank does not have any limits on the number of transactions per month you should be fine. The danger would be theft while you had the money before depositing into the new account. I would expect that your new credit union could do a wire transfer for you. It might cost you a few dollars but it would be safer and probably faster.\",\n \"\\\"Generally, ACH transfers are not considered direct deposits. However, you can pay for this service to various providers, and they will do the transfer so that it would be marked as a direct deposit. For example, Wells Fargo allows doing it using their \\\"\\\"DirectPay\\\"\\\" system. I happen to have a WF business account (free with conditions) where this service is available, but there are plenty of providers. It does cost money (for WF - $10 monthly fee + $0.50 for a transfer to non-WF account), but it may be worth it for you if the benefit is large enough.\\\"\",\n \"\\\"There is no \\\"\\\"reason why this cannot be done\\\"\\\", but you can tell your friend that these actions are officially shady in the eyes of the US government. Any bank transactions with a value of $10,000 or more are automatically reported to the government as a way to prevent money laundering, tax evasion, and other criminal shenanigans. \\\"\\\"Structuring\\\"\\\" bank deposits to avoid this monetary limit is a crime in and of itself. https://en.wikipedia.org/wiki/Currency_transaction_report\\\"\",\n \"It all depends on the trust level you have in them handling it correctly. If they never deposit it, it doesn't matter what happens to the check, they could frame it and hang it on the wall. The risk is that someone someday deposits it (incorrectly double-charging you), and you need to do what think is appropriate to avoid this risk. If your trust in them is too small, only sending it back to you makes sure that you physically control the check.\",\n \"This varies by jurisdiction somewhat but speaking as a Canadian, a small business owner, and accountant (unregistered but some courses and accounting for multiple businesses) this is the answer if you were in Canada. In Canada the cheque cashing limit is 6 months. Therefor any bank will refuse to cash this cheque. It would be totally morally and legally acceptable to ask for a replacement cheque from your employer. In Canada they would generally have no problem issuing a replacement; in other jurisdictions with differing time limits they might want to cancel the original cheque first.\",\n \"\\\"If you forgot to put the name on the \\\"\\\"pay to the order of\\\"\\\" line then anybody who gets their hands on the check can add their name to the check and deposit it at their bank into their account. If it goes to the correct person they will have an easy time making sure that the check is made out correctly. They don't have to worry about that picky teller who doesn't know what to do with a check made out to Billy Smith and a drivers license for Xavier William Smith. On the other hand... a criminal will also be able to make sure it is processed exactly the way they want it. If I made it out to a small business or a person I would let them know. You might not have a choice but to wait and see what happens if it was sent to a large business, the payment processing center could be a long way from where you will be calling.\\\"\",\n \"You friend would only be able to deposit this in NRO account. You may have to explain the source of money. If you declare it as gift, then you would need to pay gift tax. What you are doing is converting USD to INR outside the normal banking network and this maybe in volition of FEMA [Foreign Exchange Management Act].\",\n \"\\\"If the cheque is crossed (as almost all are these days), it can only be paid into an account in the name of the person it was written out to: it cannot be paid into another's account, nor can it be \\\"\\\"cashed\\\"\\\"1 – see the rules on \\\"\\\"Crossed\\\"\\\" cheques. Note: that while the recipient of the cheque cannot (legally) alter this state of afairs, the writer of a cheque that was printed pre-crossed can – at least technically – cancel the crossing (see above link). Probably the best the OP can do is pay in the cheque on the friend's behalf (as described in Ben Millwood's answer) and then either lend the friend some money until they are mobile and can get some cash to repay the OP (or have the friend write one of their own cheques which the OP can pay into their bank account). 1 As mentioned in the last section of the rules on crossed cheques, the only exception is that designated \\\"\\\"Cheque cashing shops\\\"\\\" have special arrangements to deposit cheques which they have cashed (after deducting a fee). However, they would (should?) require proof of identity (of the original payee) and so are unlikely to be of any help (and probably not worth the cost for £35). Having said that, I've never used one, so have no idea how strict they are in practice.\\\"\",\n \"Of course not. You had another job for which you earned money. What does the corporation have to do with it? Corporation is a separate entity from your person, and since it was in no way involved in the transaction - there's no justification to funnel money through it. Doing so may pierce the corporate veil and expose you to liability which you created the corporation to shield yourself from. Not to mention the tax evasion, which is the reason you are asking the question to begin with....\",\n \"You probably can't deposit the check directly, but there are mechanisms in place to get your money through other means. In the US, all states and territories have an unclaimed property registry. Before you contact the company that wrote the check, you should check that registry in your state. You will have to provide proof that you are the intended recipient, having the original check in your possession should make that considerably easier.\",\n \"As I replied to someone else who said that: I'm often having to send stuff with the check. Paperwork, a bill etc. While that would work to a person who knows me, it's usually not going to work with a business or government who needs to know why I'm sending this check.\",\n \"You can move money in and out of the business at will, just keep track of every transaction. Ideally you'd use an accounting software like QuickBooks or similar. Create a Capital Contributions account and every time you put money into the business checking account record it as a Capital Contribution. Likewise, if you take money out of the business, it comes from your capital accounts. (You can create a separate Capital Distributions account in your accounting software, or just use a single account for contributions and distributions). Money coming in and out of those capital accounts is not taxable because you will pay taxes based on net earnings regardless of whether or not you have distributed any profits. So there's no need to make a loan to the company, which would have tax consequences. To reimburse yourself for purchases already made, submit an expense report to the company. If the company is unfunded right now, you can make a capital contribution to cover current expenses, submit the expense report, and wait until you have some profits before paying out the expense report or making any distributions. Welcome to entrepreneurship.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["You should have a separate business account. Mixing business and personal funds is a bad practice. Shop around, you should be able to find a bank that will let you open a free checking account, especially if you are going to have minimal activity (e.g. less than 20 of checks per month) and perhaps maintain a small balance (e.g. $100 or $500).","When a business asks me to make out a cheque to a person rather than the business name, I take that as a red flag. Frankly it usually means that the person doesn't want the money going through their business account for some reason - probably tax evasion. I'm not saying you are doing that, but it is a frequent issue. If the company makes the cheque out to a person they may run the risk of being party to fraud. Worse still they only have your word for it that you actually own the company, and aren't ripping off your employer by pocketing their payment. Even worse, when the company is audited and finds that cheque, the person who wrote it will have to justify and document why they made it out to you or risk being charged with embezzlement. It's very much in their interests to make the cheque out to the company they did business with. Given that, you should really have an account in the name of your business. It's going to make your life much simpler in the long run.","\"If you sign the check \"\"For Deposit Only\"\", the bank will put it in your account. You may need to set up a \"\"payable name\"\" on the account matching your DBA alias. However, having counted offerings for a church on several occasions, I know that banks simply have no choice but to be lax about the \"\"Pay to the Order Of\"\" line on checks. Say the church's \"\"legal name\"\" for which the operating funds account was opened is \"\"Saint Barnabas Episcopal Church of Red Bluff\"\". You'll get offering checks made out to \"\"Saint Barnabas\"\", \"\"Saint B's\"\", \"\"Episcopal Church of Red Bluff\"\", \"\"Red Bluff Episcopal\"\", \"\"Youth Group Fund\"\", \"\"Pastor Frank\"\", etc. The bank will take em all; just gotta stamp em with the endorsement for the church. Sometimes the money will be \"\"earmarked\"\" based on the payable line; any attempt to pay the pastor directly will go into his \"\"discretionary fund\"\", and anything payable to a specific subgroup of the church will go into their asset account line, but really all the cash goes directly to the same bank account anyway. For-profit operations are similar; an apartment complex may get checks payable to the apartment name, the management company name, even the landlord. I expect that your freelance work will be no different.\"","\"Depending on where you are, you may be able to get away with filing a \"\"Doing Business As\"\" document with your local government, and then having the bank call the county seat to verify this. There is generally a fee for processing/recording/filing the DBA form, of course. But it's useful for more purposes than just this one. (I still need to file a DBA for my hobby work-for-pay, for exactly this reason.)\"","\"I have checked with Bank of America, and they say the ONLY way to cash (or deposit, or otherwise get access to the funds represented by a check made out to my business) is to open a business account. They tell me this is a Federal regulation, and every bank will say the same thing. To do this, I need a state-issued \"\"dba\"\" certificate (from the county clerk's office) as well as an Employer ID Number (EIN) issued by the IRS. AND their CHEAPEST business banking account costs $15 / month. I think I can go to the bank that the check is drawn upon, and they will cash it, assuming I have documentation showing that I am the sole proprietor. But I'm not sure.... What a racket!!\"","If you're a sole proprietor there's no reason to have a separate business account, as long as you keep adequate records, as you are one and the same for tax purposes. My husband and I already have 5 accounts and a mortgage with one bank. I don't see the need to open up yet another account. As a contracted accountant, I don't need to write business checks, and my expenses are minimal. As long as I have an present my assumed business name certificate and ID, there's no reason for a bank not to deposit into my personal account."],"string":"[\n \"You should have a separate business account. Mixing business and personal funds is a bad practice. Shop around, you should be able to find a bank that will let you open a free checking account, especially if you are going to have minimal activity (e.g. less than 20 of checks per month) and perhaps maintain a small balance (e.g. $100 or $500).\",\n \"When a business asks me to make out a cheque to a person rather than the business name, I take that as a red flag. Frankly it usually means that the person doesn't want the money going through their business account for some reason - probably tax evasion. I'm not saying you are doing that, but it is a frequent issue. If the company makes the cheque out to a person they may run the risk of being party to fraud. Worse still they only have your word for it that you actually own the company, and aren't ripping off your employer by pocketing their payment. Even worse, when the company is audited and finds that cheque, the person who wrote it will have to justify and document why they made it out to you or risk being charged with embezzlement. It's very much in their interests to make the cheque out to the company they did business with. Given that, you should really have an account in the name of your business. It's going to make your life much simpler in the long run.\",\n \"\\\"If you sign the check \\\"\\\"For Deposit Only\\\"\\\", the bank will put it in your account. You may need to set up a \\\"\\\"payable name\\\"\\\" on the account matching your DBA alias. However, having counted offerings for a church on several occasions, I know that banks simply have no choice but to be lax about the \\\"\\\"Pay to the Order Of\\\"\\\" line on checks. Say the church's \\\"\\\"legal name\\\"\\\" for which the operating funds account was opened is \\\"\\\"Saint Barnabas Episcopal Church of Red Bluff\\\"\\\". You'll get offering checks made out to \\\"\\\"Saint Barnabas\\\"\\\", \\\"\\\"Saint B's\\\"\\\", \\\"\\\"Episcopal Church of Red Bluff\\\"\\\", \\\"\\\"Red Bluff Episcopal\\\"\\\", \\\"\\\"Youth Group Fund\\\"\\\", \\\"\\\"Pastor Frank\\\"\\\", etc. The bank will take em all; just gotta stamp em with the endorsement for the church. Sometimes the money will be \\\"\\\"earmarked\\\"\\\" based on the payable line; any attempt to pay the pastor directly will go into his \\\"\\\"discretionary fund\\\"\\\", and anything payable to a specific subgroup of the church will go into their asset account line, but really all the cash goes directly to the same bank account anyway. For-profit operations are similar; an apartment complex may get checks payable to the apartment name, the management company name, even the landlord. I expect that your freelance work will be no different.\\\"\",\n \"\\\"Depending on where you are, you may be able to get away with filing a \\\"\\\"Doing Business As\\\"\\\" document with your local government, and then having the bank call the county seat to verify this. There is generally a fee for processing/recording/filing the DBA form, of course. But it's useful for more purposes than just this one. (I still need to file a DBA for my hobby work-for-pay, for exactly this reason.)\\\"\",\n \"\\\"I have checked with Bank of America, and they say the ONLY way to cash (or deposit, or otherwise get access to the funds represented by a check made out to my business) is to open a business account. They tell me this is a Federal regulation, and every bank will say the same thing. To do this, I need a state-issued \\\"\\\"dba\\\"\\\" certificate (from the county clerk's office) as well as an Employer ID Number (EIN) issued by the IRS. AND their CHEAPEST business banking account costs $15 / month. I think I can go to the bank that the check is drawn upon, and they will cash it, assuming I have documentation showing that I am the sole proprietor. But I'm not sure.... What a racket!!\\\"\",\n \"If you're a sole proprietor there's no reason to have a separate business account, as long as you keep adequate records, as you are one and the same for tax purposes. My husband and I already have 5 accounts and a mortgage with one bank. I don't see the need to open up yet another account. As a contracted accountant, I don't need to write business checks, and my expenses are minimal. As long as I have an present my assumed business name certificate and ID, there's no reason for a bank not to deposit into my personal account.\"\n]","isConversational":false}}},{"rowIdx":295,"cells":{"_id":{"kind":"string","value":"4179"},"query":{"kind":"string","value":"Why could the serious financial woes of some EU member states lead to the end of the Euro?"},"gt_ids":{"kind":"list like","value":["278196"],"string":"[\n \"278196\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["278196","518406","179822","319729","443828","148194","240848","133580","546589","514620","133966","110746","446402","540553","143823","475804","310456","468297","559885","535947","467825","371672","65899","449934","514058","398455","394585","125011","309358","285420","28976","22704","598030","10399","14687","9649","353780","63171","417170","536866","589950","124624","367809","122683","218045","393499","80943","538582","94448","304007","57923","5179","393994","273077","293945","283526","136073","144987","400046","146878","314240","538328","583903","392806","147799","354159","266447","515714","145299","231521","312045","110628","334071","189811","245308","133511","540516","163557","472879","497220","594157","329062","112309","59110","348995","156297","586865","209131","369035","384694","392887","345823","273387","530998","129133","172443","451734","14035","115848","74054"],"string":"[\n \"278196\",\n \"518406\",\n \"179822\",\n \"319729\",\n \"443828\",\n \"148194\",\n \"240848\",\n \"133580\",\n \"546589\",\n \"514620\",\n \"133966\",\n \"110746\",\n \"446402\",\n \"540553\",\n \"143823\",\n \"475804\",\n \"310456\",\n \"468297\",\n \"559885\",\n \"535947\",\n \"467825\",\n \"371672\",\n \"65899\",\n \"449934\",\n \"514058\",\n \"398455\",\n \"394585\",\n \"125011\",\n \"309358\",\n \"285420\",\n \"28976\",\n \"22704\",\n \"598030\",\n \"10399\",\n \"14687\",\n \"9649\",\n \"353780\",\n \"63171\",\n \"417170\",\n \"536866\",\n \"589950\",\n \"124624\",\n \"367809\",\n \"122683\",\n \"218045\",\n \"393499\",\n \"80943\",\n \"538582\",\n \"94448\",\n \"304007\",\n \"57923\",\n \"5179\",\n \"393994\",\n \"273077\",\n \"293945\",\n \"283526\",\n \"136073\",\n \"144987\",\n \"400046\",\n \"146878\",\n \"314240\",\n \"538328\",\n \"583903\",\n \"392806\",\n \"147799\",\n \"354159\",\n \"266447\",\n \"515714\",\n \"145299\",\n \"231521\",\n \"312045\",\n \"110628\",\n \"334071\",\n \"189811\",\n \"245308\",\n \"133511\",\n \"540516\",\n \"163557\",\n \"472879\",\n \"497220\",\n \"594157\",\n \"329062\",\n \"112309\",\n \"59110\",\n \"348995\",\n \"156297\",\n \"586865\",\n \"209131\",\n \"369035\",\n \"384694\",\n \"392887\",\n \"345823\",\n \"273387\",\n \"530998\",\n \"129133\",\n \"172443\",\n \"451734\",\n \"14035\",\n \"115848\",\n \"74054\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["The Euro is a common currency between various countries in Europe. This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU. Such a system has many advantages, but it also means that individual countries cannot deal with their unique situations as easily. For instance, if the US were a part of the EU, then the Fed couldn't issue $600B the way they are to bolster the economy. The danger to the Euro is that countries will withdraw their participation in order to micromanage their economies more effectively. If a major country withdraws its participation, it could start a domino effect where many countries withdraw so that they too can manage their economies more effectively. As more countries withdraw, a shared currency becomes less and less appealing.","Each country would have to go back to its own currency, or the rich countries would just kick the poor ones out of the EU. It would be bad for the poor countries, and the global economy would suffer, but it really wouldn't be a big deal.","To be more technical the Eurozone. UK is in the EU, but it's currency is fine. I hope you're not getting downvoted for the technicality. Greece can't print money, it makes default more likely and that's a result of the Euro. That's the core of the problem. Europe wanted a shared currency without a shared budgetary process, this was going to happen eventually.","These rumors are here just to help dollar stay alive. Euro have problems, but they are rather solvable, unlike dollar situation. Even if something wrong would happen - countries would return to their national currencies, mainly Germany & France are important here. This does not means that EuroUnion would be destroyed - some countries live in EU without Euro and they are just fine.","US or EU states are sovereigns which cannot go bankrupt. US states have defaulted in the 1840's, but in most of those cases creditors were eventually repaid in full. (I'm not 100% sure, but I believe that Indiana was an exception with regard to costs incurred building a canal system) The best modern example of a true near-default was New York City in the late 1970's. Although New York City isn't a state, the size and scope of its finances is greater than many US states. What happened then in a nutshell: Basically, a default of a major state or a city like NYC where creditors took major losses would rock the financial markets and make it difficult for all states to obtain both short and long term financing at reasonable rates. That's why these entities get bailed out -- if Greece or California really collapse, it will likely create a domino effect that will have wide reaching effects.","\"The result would be catastrophic. The almost-reserve currency would collapse which would produce a medium sized depression, perhaps same with with 2008-now, or even larger, since don't forget, that one was produced from a housing bubble existing in only a part of the american economy; imagine what would happen if almost the full size of the economy (Europe) would collapse, even if Europe isn't as much \"\"connected\"\". But reality here is, there's no chance to that. The real reason you hear those rumors is that America (along with minor partners like the British Sterling) want to bring down the Euro for medium-term benefit. e.g. Several economists get on Bloomberg announcing they are short selling the Euro. Irony is, all this is helping the Euro since selling and short-selling and selling and short-selling helps massively its liquidity. It's like several nay sayers actually making a politician famous with their spite.\"","\"Why will they find financing when they leave the Euro? Why would their currencies not simply hyperinflate due to excessive issuance in an attempt to devalue? Which is worse for unemployment, austerity or hyperinflation? >they'd be expelled by Germany This is a union correct? Why do you assume Germany holds all the cards? I've read that Gonzalo Lira essay and have read Mish about everyday since 2009, yet still do not think it is so obvious that the Euro will collapse. I gained quite a bit of skepticism from Barry Eichengreen's paper on the [Breakup of the Euro Area.](http://www.nber.org/papers/c11654.pdf?new_window=1) What I see right now is that so far the ECB has only acted in such a way as to prevent outright deflation and meet its 2% inflation target, but not to continuously outright fund the profligate governments. They let the bond markets force those governments into contraction or into default whereas the fed, with its dual mandate, will always buy the US bonds and eventually will inflate the currency as opposed to having a sovereign default. So I think we will see the ECB continue to print as much is needed to meet its mandate but at the same time there will be defaults, bank nationalizations and failures, and a continued lack of growth in the Euro area until eventually the austerity measures bring revenue and spending in line at which point the countries under heavy debt would be stupid not to default because they can self finance. Whereas in the US we are so dependent on deficit financing that as foreigners move further away from holding treasuries we become more susceptible to bond vigilantes taking the reigns which will force the feds hand into outright monetization. Then I think we will see our own government exacerbate inflation by bidding on the same goods that those dollars which no longer are going into treasuries are bidding on. Then I think we'll finally see bad inflation in the US. Of course as long as there is hoards of money fleeing Europe for the US \"\"safe haven,\"\" the lack of foreign treasury investment is pretty moot. *spelling\"","Is it possible that the result could be a reduced-size Eurozone, with Germany, France, Austria, BeNeLux and Finland remaining in, while others go back to their former currencies or form a Southern European (and Irish) common currency?","Icelandish and Irish Economies began to fail in 2008, Ireland was bailed out by the IMF and Britain, Iceland by the Germany and the IMF. Greek economy has essentially failed, and is at risk of being kicked out of the Euro currency by the Eurozone members. Spanish and Italian economies are faltering. Worst case scenario, everybody can't pay back money and keep accumulating debt, which would lead to a complete collapse of the European economy, resulting in a global economic meltdown. Germany currently are in control of al lot of countries debts (especially Ireland) which means that they will become the main players in decisions regarding the proliferation/faltering of the european economy in the future.","Yea, but that coin would be worth shit ( They'll inflate their way out of debt) and there won't be anyone wanting to buy their bonds for a long time so they'll probably print more money. Also, everybody's savings will be gone. Going out of the Euro will put them in a worse financial climate than staying in and do austerity.","If one of the EURO countries goes bankrupt, then it will destablise the entire financial industry. IE there would be many financial institutions [Banks, Credit Union, Pension Funds, Insurance Funds, Corporates] that are holding EURO Investments in that country will loose their money and this will have a cascading impact ... similar and much bigger than US Sub-prime crisis of 2008. So if your money is in EURO and you are staying in EURO countires, the inflation will mean your money is of less value ... If you are holding USD and staying in EURO and country goes bankrupt then chances are that it will loose value with USD and hence you can convert them to EURO and spend more EUROs to buy the same items ...","It depends on what actions the European Central Bank (ECB) takes. If it prints Euros to bail out the country then your Euros will decline in value. Same thing with a US state going bankrupt. If the FED prints dollars to bailout a state it will set a precedent that other states can spend carelessly and the FED will be there to bail them out by printing money. If you own bonds issued by the bankrupting state then you could lose some of your money if the country is not bailed out.","\"Most of those countries had debt that was well beyond prudent levels (~70% of GDP) before the crisis, levels such that any crisis would put them over the safe limit and into trouble. The only exception was Spain whose debt levels were still marginally dangerous. Greece was off the charts, which is why they left off the graph for Greece. Second problem. On top of the high or marginal levels of government debt, the governments implicitly or explicitly guaranteed the banks, without limiting in any effective way their levels of leverage and risk (inb4 Basel II - a lot of paper that made no difference). Protip: if someone guarantees your debt, they should be able to oversee your level of risk, but the governments didn't. As a result these banks, and their CEOs in particular, have a bet that goes \"\"heads I win, tails I win (and you the taxpayer lose)\"\". If the loans are paid off the CEOs rake in millions. If the loans go bad the government bails them out and the CEOs and other top executives - you guessed it - rake in millions. Of course when faced with these incentives the banks will lend too much. This is not free market capitalism, it is crony capitalism. **Bailouts of private companies are not part of unfettered free market capitalism.** The third problem is that the same governments cannot print money like the US can because the Euro is not owned by the individual governments. The answer to excessive levels of government debt is for governments not to borrow too much and not to take on excessive unfunded liabilities such as pensions. This probably needs to be enforced by a constitutional amendment, so it can't be easily overruled. The answer to governments getting dragged into bailing out insolvent banks and then going under themselves, is to allow the banks to go under and to guarantee only small deposits. Let shareholders, bond holders and large (>$500k) lenders to the banks to lose their money. Second, hold bank executives and shareholders liable for the bank's debts. Eg executive salaries and other remuneration need to be clawed back up to a 5 year window. Shareholders should be liable (as they used to be) for debts up to an additional 100% of the par value of the shares. I can assure you this would concentrate minds wonderfully - as it did in the old days when Wall St investment banks were partnerships with each partner liable for all the debts of the firm. Another alternative would be for governments to enforce limits on financial risk, but unfortunately they do not have the courage to do this, nor the morality to resist \"\"campaign contributions\"\" / bribes to look the other way. If these steps were taken the issue of the Euro currency would not be a problem. However printing money (which requires having your own currency) is a solution if it comes to that although it comes at the expense of people who have saved and invested prudently. Printing money (keeping interest rates excessively low for years on end) subsidizes borrowers - the ones who created the problem - at the expense of savers. Clearly this creates terribly perverse incentives the next time around. Anyone who thinks this problem is a result of unfettered free market capitalism is not paying attention.\"","\"This question is different because you are asking for actual advice vs. a more academic, \"\"what if\"\" scenario. The answer that I'll give will be different, and similar to another recent question on a similar vein. Basically, if you're living in a European country that's effectively in default and in need of a bailout, the range of things that can happen is difficult to predict... the fate of countries like Ireland and Greece, whatever the scenario, will be economic and social upheaval. But, this isn't the end of the world either... it's happened before and will happen again. As an individual, you need to start investing defensively in a manner appropriate for your level of wealth. Things to think about: I'd suggest reading \"\"A Free Nation Deep in Debt: The Financial Roots of Democracy\"\"\"","So the Euro was doomed from the start because there was no provisions of kicking out and/or halting countries from excessive borrowing? I think the Euro is stronger in the long run because no single country can put inflationary pressure on the Euro due to irresponsible borrowing by that single state (e.g. United States). In the end of the day, they have to work their way out of debt with real economic growth thusly making it an attractive currency for the long term.","If they default and try to stay in the Euro, they will be shut out of any chance of financing but they will be obliged to conduct business in a currency that they cannot afford. Their businesses will close, unemployment rise until they have no option to stay in the Euro. Instead of that, they will reissue the Peseta, Lira, Drachma, etc. and then devalue. That will allow their real estate, tourism and manufacturing to be very competitive. If they could stay in the Euro after default they would starve, but I don't think they could stay, even if they wanted to because they'd be expelled by Germany. Here is [Gonzalo Lira's suggestion as to how Spain should have already left the Euro](http://gonzalolira.blogspot.com/2012/04/will-there-be-corralito-in-spain.html)","You don't understand government financing at all. Gov'ts earn revenue, aka, taxes. They also spend money. The different between the money they spend and they money they earn is the deficit. If you run a deficit for a long period of time, you incur a very large national debt. Now, you can finance (aka, pay for) a deficit by borrowing money. This means you can sell bonds, and instead of pay off the debt each year, you just pay the interest. If your spending balloons out of control, your the likely hood of you paying your debt decreases. If you are very unlikely to payback your debt, people won't buy any more of your bonds, and you no longer have the income (from borrowing) to pay off your interest from other debt you owe, or what ever other obligations you own (think mortgage payments, or teachers salaries, etc). Here's were Europe and USA differ: European nations can't just print money. They can issue more debt, but they can't just create more euros. IF you can print money, you can pay off your debt with money you literally created out of thin air (at the expense of your people, this is called inflation). But this is a form of cheating, eventually people won't trust you, and won't buy your debt either. So where do the banks come in? if the government is SOUND and the banks are NOT, the government can backstop the banks. This is what the US and UK did. Greece, Spain, Ireland all had to back stop their banks also. However, Greece, Spain, and Irelany ( and Italy, and Portugal) also have 1) A lot of debt 2) Structurally high deficits 3) Extremely high borrowing costs (high interest rates...because people don't trust them...because...) 4) Weak underlying economies The fourth point gets you in real trouble. if you have high entitlements, lots of poeple out of work, who the hell is paying taxes and what are they going to? You have no revenue! Remember, a govt works just like a household. It is easy for a good household to support one member, but it is difficult for a member to support an irresponsible household.","Maybe the EU really ISN'T really that important, and the financial problems that have resulted from European integration are evidence that state sovereignty and self-determination are what's important... But hey, what do I know, I'm not a rich banker/bureaucrat who profited off the whole imposed mess at the expense of the ordinary working people.","No. Empirically no. The issue at hand has little to do with market confidence. This loss of confidence is the effect of the problem. It's cause is the result of a wholly inadequate fiscal transfer mechanism that is incapable of addressing demand shocks. While there are relevant political and ideological parameters worthy of analysis, they render themselves moot because of the structural constraints of monetary union. My two cents.","Krugman (Nobel prize in Economy) has just said: Greek euro exit, very possibly next month. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany. 3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals. 3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing. 4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or: 4b. End of the euro. And we’re talking about months, not years, for this to play out. http://krugman.blogs.nytimes.com/2012/05/13/eurodammerung-2/","\"These have the potential to become \"\"end-of-the-world\"\" scenarios, so I'll keep this very clear. If you start to feel that any particular investment may suddenly become worthless then it is wise to liquidate that asset and transfer your wealth somewhere else. If your wealth happens to be invested in cash then transferring that wealth into something else is still valid. Digging a hole in the ground isn't useful and running for the border probably won't be necessary. Consider countries that have suffered actual currency collapse and debt default. Take Zimbabwe, for example. Even as inflation went into the millions of percent, the Zimbabwe stock exchange soared as investors were prepared to spend ever-more of their devaluing currency to buy stable stocks in a small number of locally listed companies. Even if the Euro were to suffer a critical fall, European companies would probably be ok. If you didn't panic and dig caches in the back garden over the fall of dotcom, there is no need to panic over the decline of certain currencies. Just diversify your risk and buy non-cash (or euro) assets. Update: A few ideas re diversification: The problem for Greece isn't really a euro problem; it is local. Local property, local companies ... these can be affected by default because no-one believes in the entirety of the Greek economy, not just the currency it happens to be using - so diversification really means buying things that are outside Greece.\"","The Euro will collapse because Spain, Italy, Portugal and Greece will have to default on their debt. In order to keep up with current payments they have to take emergency loans at the same time that their economies are in recession and demands on social programs are increasing. There is simply no way that they can cut enough spending and raise enough revenue to balance their budgets. That is not opinion, it is arithmetic. If they cannot pay their loans they will either voluntarily leave the Euro, or they will be forced out. Next comes France who also has a large and growing budget deficit and a large public debt. It is unsustainable. That which is unsustainable will end. The last reason that the Euro will fail and that it will be soon is Germany. Up to now, all the bailouts of Ireland, Portugal, Italy, Greece and Spain have come predominantly from Germany. In order to float the Eurobonds that some idiots think might save Europe, the German people have to authorize their government to participate and thereby take on another mountain of debt. The German people will not vote for that authorization. Is that enough reasons? Because there are more. Lots more. Read [Mike Shedlock](http://globaleconomicanalysis.blogspot.com)","Its highly unlikely to 'collapse', perhaps there will be managed defaults, yes, but there is no way they will let it collapse as a global depression would follow. If the euro collapses it will also bring down most of the global economy including the likes of China and the US (not to mention the Germans) and they are not going to let that happen. http://www.ft.com/cms/s/0/6cf8ce18-2042-11e1-9878-00144feabdc0.html#axzz1y0lc0hy1 P.s. I am surprised we have not seen more suggestions of buying guns, land and building a commune.","the problem now is A LOT of people dont have confidence in the euro, and they are taking their money out of it , and confidence is the only thing that backs the euro, or any fiat money. It's gonna get worst before it gets better unfortunately...","\"There's an ideological/psychological aspect of this too apart from the practical problems. Eurozone leaders keep saying the mantra: conversion to the euro is \"\"irreversible\"\". There are analogies of this in recent history, it reminds me of the soviet leaders and their belief that communism is where history ends. They genuinely thought that once a communist system is built up in a country, it would stay forever. They believed in the superiority of their system, among other things this lead to the isolation of the Soviet Union from the West and the start of the Cold War. Then, in 1956 they were proven wrong with the Hungarian revolution and while they tried to \"\"clean up\"\" the situation as fast as they could and forget about it, their downhill inevitably started. Back to the present, you can easily see the importance of keeping Greece in the EZ. If Greece exits, the illusion of the irreversibility of the Euro is gone, and it would start to fall apart.\"","**OFC there is more to it than meets the eye!** Its a nice breakdown though. In my opinion, there are just 2 ways out: One is to merge the whole European Union into one Nation, much like the **United** States of America. (*United States of Europe*, ehehehe) But i guesss Germany, France and UK are not very interested in feeding everyone else even more. **OR** Split. The thing is, the ones with the most power are not interested in one of these solutions. And now to come to your question, YES Recession is coming (isnt it alrdy here?) Greetings from Austria!","\"There will not be enough money to fill the holes that are caused by banks' easy money policies combined with the trillions in derivative \"\"hedges\"\" that the banks have off-balance sheet. The idea is that the chain reaction collapse of the European banking system can be avoided by plugging the holes in the dam in Spain, Italy, Greece, Portugal and Ireland. But it is a crazy idea. Next comes France, and then what? At some point there is not enough money to plug the holes and the entire facade collapses anyways. Adults would dismantle the Eurozone now and let each country see to itself. Let the banks collapse. Capital (in the form of dollars, gold, etc) will reappear and means will evolve rapidly to connect capital with people who need loans for business. Consumer loans are going the way of the dodo bird.\"","**Economic and Monetary Union of the European Union: Monetary policy inflexibility** Since membership of the eurozone establishes a single monetary policy for the respective states, they can no longer use an isolated monetary policy, e. g. to increase their competitiveness at the cost of other eurozone members by printing money and devalue, or to print money to finance excessive government deficits or pay interest on unsustainable high government debt levels. As a consequence, if member states do not manage their economy in a way that they can show a fiscal discipline (as they were obliged by the Maastricht treaty), they will sooner or later risk a sovereign debt crisis in their country without the possibility to print money as an easy way out. *** ^[ [^PM](https://www.reddit.com/message/compose?to=kittens_from_space) ^| [^Exclude ^me](https://reddit.com/message/compose?to=WikiTextBot&message=Excludeme&subject=Excludeme) ^| [^Exclude ^from ^subreddit](https://np.reddit.com/r/economy/about/banned) ^| [^FAQ ^/ ^Information](https://np.reddit.com/r/WikiTextBot/wiki/index) ^] ^Downvote ^to ^remove ^| ^v0.23","\"The biggest risk you have when a country defaults on its currency is a major devaluation of the currency. Since the EURO is a fiat currency, like almost all developed nations, its \"\"promise\"\" comes from the expectation that its union and system will endure. The EURO is a basket of countries and as such could probably handle bailing out countries or possibly letting some default on their sovereign debt without killing the EURO itself. A similar reality happens in the United States with some level of regularity with state and municipal debt being considered riskier than Federal debt (it isn't uncommon for cities to default). The biggest reason the EURO will probably lose a LOT of value initially is if any nation defaults there isn't a track record as to how the EU member body will respond. Will some countries attempt to break out of the EU? If the member countries fracture then the EURO collapses rendering any and all EURO notes useless. It is that political stability that underlies the value of the EURO. If you are seriously concerned about the risk of a falling EURO and its long term stability then you'd do best buying a hedge currency or devising a basket of hedge currencies to diversify risk. Many will recommend you buy Gold or other precious metals, but I think the idea is silly at best. It is not only hard to buy precious metals at a \"\"fair\"\" value it is even harder to sell them at a fair value. Whatever currency you hold needs to be able to be used in transactions with ease. Doesn't do you any good having $20K in gold coins and no one willing to buy them (as the seller at the store will usually want currency and not gold coins). If you want to go the easy route you can follow the same line of reasoning Central Banks do. Buy USD and hold it. It is probably the world's safest currency to hold over a long period of time. Current US policy is inflationary so that won't help you gain value, but that depends on how the EU responds to a sovereign debt crisis; if one matures.\"","But Greece is in the EU - therefore the one-armed drug addict has the means to get money from his relatives. Because most of the relatives have an alcohol problem (Spain, Portugal, Italy, France) they turn to their hard-working but slightly naive neighbours (Austria,Germany,Netherlands) for money. They believe that they´ll have to pay for just one last dose of crack cocaine and then the Greeks will kick the habit.",">but is in no shape to do so due to their massive debt. Actually it's because they don't have their own printing press for the Euro. They need to drop out of the Euro, devalue their own currency and take control of their own monetary policy and economy.","> The European economy was not utterly doomed before the Euro, therefore the fall of the Euro does not doom their economy. I'm not sure how that's related at all. Just because at some random point in time, the European economy was doing OK, doesn't mean that it will definitely be ok again in the future after a jarring multi-national currency shift. There are tons of other factors in play. First of all, who's going to accept drachma again? What is it worth? What about pesata and lira? These currencies haven't been used in over a decade. Who is going to value them? Who is going to accept them? What happens when the Greeks default? When their pension checks start bouncing? This is what Germany is fearing. Who is going to buy their products when there is a major currency crisis going on?","In theory, anything can happen, and the world could end tomorrow. However, with a reasonably sane financial plan you should be able to ride this out. If the government cannot or won't immediately pay its debt in full, the most immediate consequence is that people are going to be unwilling to lend any more money in future, except at very high rates to reflect the high risk of future default. Presumably the government has got into this state by running a deficit (spending more than they collect in tax) and that is going to have to come to an abrupt end. That means: higher taxes, public service retrenchments and restrictions of service, perhaps cuts to social benefits, etc. Countries that get into this state typically also have banks that have lent too much money to risky customers. So you should also expect to see some banks get into trouble, which may mean customers who have money on deposit will have trouble getting it back. In many cases governments will guarantee deposits, but perhaps only up to a particular ceiling like $100k. It would be very possible to lose everything if you have speculative investments geared by substantial loans. If you have zero or moderate debt, your net wealth may decrease substantially (50%?) but there should be little prospect of it going to zero. It is possible governments will simply confiscate your property, but I think in a first-world EU country this is fairly unlikely to happen to bank accounts, houses, shares, etc. Typically, a default has led to a fall in the value of the country's currency. In the eurozone that is more complex because the same currency is used by countries that are doing fairly well, and because there is also turbulence in other major currency regions (JPY, USD and GBP). In some ways this makes the adjustment harder, because debts can't be inflated down. All of this obviously causes a lot of economic turbulence so you can expect house prices to fall, share prices to gyrate, unemployment to rise. If you can afford it and come stomach the risk, it may turn out to be a good time to buy assets for the long term. If you're reasonably young the largest impact on you won't be losing your current savings, but rather the impact on your future job prospects from this adjustment period. You never know, but I don't think the Weimar Republic wheelbarrows-of-banknotes situation is likely to recur; people are at least a bit smarter now and there is an inflation-targeting independent central bank. I think gold can have some room in a portfolio, but now is not the time to make a sudden drastic move into it. Most middle class people cannot afford to have enough gold to support them for the rest of their life, though they may have enough for a rainy day or to act as a balancing component. So what I would do to cope with this is: be well diversified, be sufficiently conservatively positioned that I would sleep at night, and beyond that just ride it out and try not to worry too much.","Where are they going to get money from? Their bonds are worthless because they have no viable way of ever paying back debt so why would anyone lend money to them. You, and Keynes think that you can fuel debt with more debt, but all this does is build a massive debt bubble that has to pop at some point. This is exactly what these nations did for years and now are beginning to realize that they can no longer issue debt.","\"But do you know about a US state risking to go default now or in the past? Ultimately, a US state could go into default. However, I doubt that such a scenario would be allowed to transpire. This seems to happen to California with some regularity. That is, risking default. What would happen is not quite well known: \"\"There is no provision for a state to go bankrupt,\"\" Kyser said. \"\"I don't think anyone really knows what will happen or even if the state will go into receivership if it does default. I can tell you this, officials are looking at all the (current) laws.\"\" (source) I believe that the answer to your question is that it could happen, but likely would not be allowed to occur. The nature of the EU and US are quite different. The individual states forming the US are not separate nations. For better or for worse, the US is a stronger federation than the EU. (Something that is lamented at times when the Feds mess with the purview of the locals.)\"","The Euro is currently at 1.24. It's been lower than that before. Why do you think there is still so much money behind it? I'm not trying to push back, but do you know something that the market doesn't in terms of a collapse? Also, if you are so positive, are you heavily shorting the euro? I by no means am convinced that the euro was a good idea. But I am convinced that they will do whatever they can to keep it alive.","The EU's situation is nothing like the United States. The core problem there is a monetary union without a fiscal union. All the member countries were bound to a currency they had no control over, despite the health and resources of their economies.","See the problem is it's very hard to see how they can leave or ask to leave. There's very little on this in the treaties. They can't be kicked out under any treaty to the best of my knowledge. The only way I can see them getting kicked out is that they are cut off from Target 2, forced to print money/introduce capital controls etc, that breaks the laws of loads of treaties and they then get kicked out of not just the Euro but also the EU. It's all so incredibly messy.","\"The risk is that greece defaults on it's debts and the rest of the eurozone chose to punish it by kicking it out of the Eurozone and cutting off it's banks from ECB funds. Since the greek government and banks are already in pretty dire straits this would leave greece with little choice but to forciblly convert deposits in those banks to a \"\"new drachma\"\". The exchange rate used for the forced conversions would almost certainly be unfavorable compared to market rates soon after the conversion. There would likely be capital controls to prevent people pulling their money out in the runup to the forced conversion. While I guess they could theoretically perform the forced conversion only on Euro deposits this seems politically unlikely to me.\"","of course the value will be non zero however it would be very small, as all the countries would not leave at once... if its a piig holding the bag it would fall precipitously, if its a AAA (non france) it would go to 1.5 Its very path dependent on whom leaves when","\"The Euro is not the reason for the debt crisis. It is only preventing those countries affected from using the easy way out. The fault is entirely that of those countries. They were given billions and billions in structural aid, to put the \"\"convergence criteria\"\" into reality. Instead they chose bubble economies. And no, this is not the same all around Europe. I don't see France or Germany having a giant property bubble.\"","It's a failed state. The belief that people are going to hunker down in austerity and pay off national debt was always silly. Sucks for the bond holders, but all these people who bet against sovereign debt defaults have bet wrong.","Assuming that's true, and giving you that EU countries are more interdependent than most, you're still massively overstating the effect of Greece's problems on the rest of the union. Yeah, it's a problem. Yeah, they'll all pay a bit for it. Still, the economy is nowhere near collapse because of it.","It seems possible if the Euro is partially/entirely unwound that policies could be enacted to prohibit exactly this behavior, otherwise what will stop outflow to the stronger countries on a massive scale? (Thus amplifying the resulting decade-long clusterfuck) We've never had this situation in Europe before, and already for Greece and Spain there are suggestions to instigate withdrawal controls. It doesn't seem far fetched to imagine retroactive controls placed on private deposits in newly-foreign-currency banks. If I were concerned about the Euro's collapse I'd be more inclined to move assets out of the eurozone entirely","\"What EU wanted to force Cyprus to do is to break the insurance contract the government has with the bank depositors. The parliament rightfully refused, and it didn't pass. In the EU, and Cyprus as part of it, all bank deposits are insured up to 100,000EUR by the government. This is similar to the US FDIC insurance. Thus, requiring the \"\"small\"\" (up to 100K) depositors to participate in the bank reorganization means that the government breaks its word to people, and effectively defaults. That is exactly what the Cyprus government wanted to avoid, the default, so I can't understand why the idea even came up. Depositors of more than 100k are not guaranteed against bank failures, and indeed - in Cyprus these depositors will get \"\"haircuts\"\". But before them, first come shareholders and bondholders who would be completely wiped out. Thus, first and foremost, those who failed (the bank owners) will be the first to pay the price. However, governments can default. This happened in many places, for example in Russia in the 90's, in Argentina in 2000's (and in fact numerous times during the last century), the US in the 1930's, and many other examples - you can see a list in Wikipedia. When government defaults on its debts, it will not pay some or all of them, and its currency may also be devaluated. For example, in Russia in 1998 the currency lost 70% of its value against the USD within months, and much of the cash at hands of the public became worthless overnight. In the US in 1933 the President issued an executive order forbidding private citizens keeping gold and silver bullions and coins, which resulted in dollar devaluation by about 30% and investors in precious metals losing large amounts of money. The executive order requiring surrender of the Treasury gold certificates is in fact the government's failure to pay on these obligations. While the US or Russia control their own currency, European countries don't and cannot devaluate the currency as they wish in order to ease their debts. Thus in Euro-zone the devaluation solutions taken by Russia and the US are not possible. Cyprus cannot devaluate its currency, and even if it could - its external debt would not likely to be denominated in it (actually, Russian debt isn't denominated in Rubles, that's why they forced restructuring of their own debt, but devaluating the currency helped raising the money from the citizens similarly to the US seizing the gold in 1930's). Thus, in case of Cyprus or other Euro-zone countries, direct taxes is the only way to raise money from the citizens. So if you're in a country that controls its own currency (such as the US, Russia, Argentina, etc) and especially if the debt is denominated in that currency (mainly the US) - you should be worried more of inflation than taxes. But if you're in the Euro-zone and your country is in troubles (which is almost any country in the zone) - you can expect taxes. How to avoid that? Deal with your elected officials and have them fix your economy, but know that you can't just \"\"erase\"\" the debt through inflation as the Americans can (and will), someone will have to pay.\"","Oh, you mean converting your money to that of a country whose public debt is [103% of GDP, instead of the 108% of your own?](http://en.wikipedia.org/wiki/List_of_countries_by_public_debt) That seems hardly an advancement, even more so considering that the public debt of the Eurozone as a whole is 82.5% of GDP. Greece is just 2% of the European economy, its default would not mean the collapse of the Euro.","\"> Just because at some random point in time, the European economy was doing OK, doesn't mean that it will definitely be ok I'm not claiming it will be \"\"definitely be ok\"\". definitely ok != utterly doomed. > What happens when the Greeks default? If they were paying in drachma, they wouldn't default. They'd print more drachma and inflation would occur. That's how currency imbalances adjust. Germany wants it both ways. They want a stable Europe-wide currency but they don't want a Europe-wide economy, they want their economy isolated from the problems in the rest of Europe. Germany should leave the Euro.\"","Andrew Lilico has a likely scenario for when Greece defaults on its sovereign debt: What happens when Greece defaults. Here are a few things: Every bank in Greece will instantly go insolvent. The Greek government will nationalise every bank in Greece. The Greek government will forbid withdrawals from Greek banks. To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law. Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting) The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting 0n 50 per cent or more of all Greek euro-denominated debts. As Megan McArdle says, there's more at the link, all depressing. I think you're focusing too much on Greece leaving the euro and not enough on why Greece would leave the euro. Greece would leave the euro precisely so that it could pay back its debt in a new currency worth less than valuable euros. The new currency will devalue, since that's the point of leaving. Along the way the government forces its citizens to take the new currency. The money they have in Greek banks will be converted to the new currency: The citizens don't have a choice to keep their euros.","Banks cannot survive without the government. Once people lose faith in the governement, the banking system will fail. The banking system failing is a symptom of the issue, not a cause. Backstopping the banks protects the general populace, and prevents runs which will actually destroy the banking system. The burden shifts from the banks to the government. But a gaurantee is not an actual payment. The banks still operate as normal without any cash from the government, but with the knowledge that, if they ARE over extended, the government will take on their debt. the government gaurantee lowers the rates that the banks pay to raise debt to continue to operate. So let's say PIIGS fully bail out their banking system, paying off all debt, that's worse case. Where does the money come from? Revenues, aka taxes. If the gov't takes on the bank debt and has positve revenue, no problem, a little less hand outs, but the country as a whole benefits from having a functioning banking system. If revenues are poor or negative, however, it's just adding to the deficit. Gov't can print money, don't forget. But if revenues are poor and there's no hope to see them improve...Boom, all hell breaks loose, and you get Europe.","\"The danger to your savings depends on how much sovereign debt your bank is holding. If the government defaults then the bank - if it is holding a lot of sovereign debt - could be short funds and not able to meet its obligations. I believe default is the best option for the Euro long term but it will be painful in the short term. Yes, historically governments have shut down banks to prevent people from withdrawing their money in times of crisis. See Argentina circa 2001 or US during Great Depression. The government prevented people from withdrawing their money and people could do nothing while their money rapidly lost value. (See the emergency banking act where Title I, Section 4 authorizes the US president:\"\"To make it illegal for a bank to do business during a national emergency (per section 2) without the approval of the President.\"\" FDR declared a banking holiday four days before the act was approved by Congress. This documentary on the crisis in Argentina follows a woman as she tries to withdraw her savings from her bank but the government has prevented her from withdrawing her money.) If the printing press is chosen to avoid default then this will allow banks and governments to meet their obligations. This, however, comes at the cost of a seriously debased euro (i.e. higher prices). The euro could then soon become a hot potato as everyone tries to get rid of them before the ECB prints more. The US dollar could meet the same fate. What can you do to avert these risks? Yes, you could exchange into another currency. Unfortunately the printing presses of most of the major central banks today are in overdrive. This may preserve your savings temporarily. I would purchase some gold or silver coins and keep them in your possession. This isolates you from the banking system and gold and silver have value anywhere you go. The coins are also portable in case things really start to get interesting. Attempt to purchase the coins with cash so there is no record of the purchase. This may not be possible.\"","It's not that simple. The problem is that Greece is not in control if it's own finances. Neither are any of the other countries. The Eurozone doesn't have the power to do things like raise taxes or sell government bonds, and the individual governments don't have the power to float the currency. The Eurozone is going to unwind over the a decade. Greece will leave, but there are another 4-5 countries that should leave the Euro for the same reasons as Greece. Spain seems likely to be the next up, with Italy not far behind. The Euro was never designed to break apart. We really have no idea what the shockwaves of a country leaving the currency will look like.","I've been short the Euro for several months now against the USD (could be various others as well). I got in at 1.42, sold on a bounce up to 1.36, bought back at 1.38 and now will probably ride it out lower. Regardless of whether or not the Eurozone breaks up, I see it breaking through the 1.30 mark in the near-term. After that, I'm not sure how low it goes, but there is certainly potential for it to head towards 1/1. In order to reduce the burden, the ECB needs to devalue the currency. Although Germany really doesn't want this due to their anti-inflationary ideology, if Italy comes crashing down, so does France. When France goes, Germany goes into a deep recession if not a depression. They have to devalue some. As for a collapse, I have no idea. It probably depends on how many (if any) countries retain the currency and who they are.","It's slightly more complicated than that. Usually a country that was in Greece's situation would be able to use inflation to devalue their currency which would have the effect of lowering the value of the government's debts and also of making Greek prices more competitive in the international market. Or they could use quantitative easing to inject cheap cash into the economy to help stimulate it. Because Greece is on the Euro, however, they have no control over their own currency and their options are highly limited. Additionally, when you join the EU, especially the Eurozone, that's supposed to come with additional internal responsibilities, but it's also supposed to come with additional external ones as well. Greece has a responsibility to get its shit together, but the whole point is that more financially stable countries have a responsibility to help them. Right now that means Germany; they're the ones with the greatest control over the Euro and they're shying away from their duties. If the rest of Europe didn't want to risk ending up in this position they shouldn't have let Greece into the Eurozone.","I haven't been following this crisis at all, so I know nothing about this, but I understand why the value of the Euro would shoot up as a result of Greece/Italy/Portugal leaving. But why would the Germans not want this? Is it because Germany is a leading exporter and it would increase the costs of exports from the country? Or could you expand on that for me? thanks",">The European economy was not utterly doomed before the Euro, therefore the fall of the Euro does not doom their economy. UTTERLY DOOMED and DOOMED are two entirely different things. The former is a quasi-permanent state of affairs (decades upon decades) the latter a temporary one (albeit possibly several years).","\">So far, politicians in Europe have held 19 high-level emergency meetings in an attempt to solve this crisis. >All of their efforts have failed. >Right now, this is the situation in Europe.... >-Most EU governments are drowning in toxic levels of debt This mess has been caused by the idea of allowing some people to live at the expense of others. All of it - from the millions of cushy, make-work government \"\"jobs\"\", to the rest of the welfare state, has been caused by the political left.\"","If the Euro went bust then it would be the 12th government currency to go belly up in Europe (according to this website). Europe holds the record for most failed currencies. It also holds the record for the worst hyperinflation in history - Yugoslavia 1993. I'm not sure what would happen if the Euro failed. It depends on how it fails. If it fails quickly (which most do) then there will be bank runs, bank holidays, capital controls, massive price increases, price controls, and just general confusion as people race to get rid of their Euros. Black markets for everything will pop up if the price controls remain in place. Some countries may switch to a foreign currency (i.e. the US dollar if it is still around) until they can get their own currency in circulation.","\"to answer the question in the title of your post... + convince your fellow Euro nations to accept austerity, + convince them to elect responsible governments, + demand transparency from your leaders, and... + make sure this never ever happens again. Alternatively, build a time machine and go back in time to either... + immigrate to another part of the world, + sabotage the corruption of the PIGS nations, + prevent the formation of a shared currency, or finally, + do something to ensure Germany didn't lose WWII, as letting them be in charge of everybody's money would appear to be a sound financial decision. That is how you negate the impact of the Euro collapsing. Now, on to the details of your question... I believe your initial assessment is correct. If one accountable nation were responsible for the solvency of its currency, it could be trusted indefinitely. As is the case with the Euro, as no one country is directly responsible for it, the less responsible governments are in a race to exploit it as much as possible. Remember, \"\"Spain no es Zimbabwe!\"\" I think Euro zone nations will be lucky if all that comes of this is the fall of the Euro. Wars between nations have been fought over less significant developments than what Greece, Italy and Spain have done to the financial stability of their Euro zone counterparts. Foreign gold trusts, possession of physical precious metals and precious metal ETFs (GLD is one stock ticker of such a fund, although I would look to a similar fund issued by a company with better physical gold audits) can hedge your currency risk. Check with local laws regarding physical possession of gold. In the USA when we left the gold standard for our currency, the government confiscated all privately owned precious metals and raided customer bank security boxes. Assess your own risk of that sort of thing happening.\"","You forgot the biggest thing: Japan still controls its own currency and Greece does not. If you don't control your currency, you have much more limited options when it comes to borrowing money. It is why US states can't borrow a lot of money, they all have to share the US dollar which no one state controls. So states are used to making cutbacks in hard times, but the Eurozone nations have not adopted this mindset. Greece isn't in trouble because it borrowed too much, it's in trouble because it borrowed so much *and has to share the Euro*. Greece can't inflate its currency, so if they can't make a payment they default, no one wants to lend to a place that might default. If Greece had its own currency still there would be no currency crisis in Europe, just some inflation.","[Monetary Policy Inflexibility](https://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Union#Monetary_policy_inflexibility) >Since membership of the eurozone establishes a single monetary policy for the respective states... without the possibility to print money as an easy way out. Italy's options are privatization, austerity, and shifting the burden on to the taxpayer.","Rescuing the private banks has made very little difference. None of the countries in real trouble have large banking sectors. The majority of the problems has stemmed from the totally ridiculous public spending. Greece has a hilarious history of over spending. For example, their civil servants used to be paid for 14 months of the year. They also have comedy tax collection. According to there tax office there is only 324 swimming pools in the entire place..... a quick count on satellite reveals 1000s. Some data is here: http://www.nytimes.com/2010/05/02/world/europe/02evasion.html?pagewanted=all&_r=0 In reality many nations werent ready for the euro in the first place. But to be clear, blaming the banks is like blaming a snowball for the sinking of the titanic. The numbers aren't even in the same league.","Weren't these fuckers just given 120 billion euros? At this point they should probably stop fueling this shit and just let them burn. European tax payers aren't the only ones dealing with this. The American Federal Reserve is lending money to the banks and the ECB to help with this. I don't want to pay for ailing banks in my own goddamn country, let alone those on the other side of the world in a country I may never visit.","\"On contrary of what Mike Scott suggested, I think in case of EURO DOOM it's a lot safer if your savings were changed into another currency in advance. Beware that bringing your money into an EURO CORE country (like Finland, Austria, Germany, Nethereland) it's useful if you think those banks are safer, but totally useless to avoid the conversion of your saving from Euro into your national currency. In case of EURO CRASH, only the Central Bank will decide what happens to ALL the Euro deposited wherever, single banks, even if they are Deutsche Bank or BNP or ING, can not decide what to do on their own. ECB (European Central Bank) might decide to convert EURO into local currencies based on the account's owner nationality. Therefor if you are Greek and you moved your saving in a German bank, the ECB might decide that your Euro are converted into New Dracma even if they sit in a German bank account. The funniest thing is that if you ask to a Finland bank: \"\"In case of Euro crash, would you convert my Euro into New Dracma?\"\", they sure would answer \"\"No, we can't!\"\", which is true, they can not because it's only the ECB (Europe Central Bank) the one that decides how an ordered Euro crash has to be manged, and the ECB might decide as I explained you above. Other Central Banks (Swiss, FED, etc.) would only follow the decisions of the ECB. Moreover in case of EURO DOOM, it's highly probable that the Euro currency looses a tremendous value compared to other currencies, the loss would be huge in case the Euro Crash happens in a disordered way (i.e. a strong country like Germany and their banks decides to get out and they start printing their own money w/o listening to the ECB anymore). So even if your saving are in Euro in Germany they would loose so much value (compared to other currencies) that you will regreat forever not to have converted them into another currency when you had the time to do it. Couple of advises: 1) If you want to change you savings into another currency you don't need to bring them into another bank/country (like US), you could simply buy US Shares/Bonds at your local bank. Shares/Bonds of a US company/US gov will always be worth their value in dollars no matter in what new pathetic currency your account will be converted. 2) But is there a drawback in converting my saving into another currency (i.e. buying dollars in the form of US treasury bonds)? Unfortunately yes, the drawback is that in case this Euro drama comes finally to an happy ending and Germans decide to open their wallets for the nth time to save the currency, the Euro might suddenly increase its value compared to other currencies, therefor if you changed your saving into another currency you might loose money (i.e. US dollars looses value against the Euro).\"","One important answer is still missing: governments may not be able to do print money because of international agreements. This is in fact a very important reason: it applies to the entire Eurozone. (I admit that many Eurozone countries also not allowed to borrow as much as they do now, but somehow that's considered a far lesser sin).","I'm worried that it's, as so many observers or commentators seem to be doing with these crises, pre-empting events. I do wish news reporters would stick to reporting the news, rather than panicking people by putting forward their view that something is going to happen, such as Greece exiting the euro and adopting a new currency. As with these things, expectations are key, and this is by no means helping.","If any Euro countries leave the Euro, they will have to impose capital flow restrictions - it's a given, to avoid a complete implosion of the entire system. The idea of retroactive controls is very interesting - this may be one of the first times in a currency collapse that such a system would be feasible (i.e., both the country being fled from and the countries being fled to are under common control). No doubt they would try such a thing if they thought they could get away with it.","I disagree. The question is leading, it presumes that backstopping the banks was a cause, not an effect, of poor government funding, which is absolutely insane. A country cannot be brought down by the financial sector, it's just not possible, not even where the country doesn't have monetary authority.","I vehemently disagree with this. Greek crisis is completely different form Spanish, Irish or Portuguese crisis. Greece has a balance of payments + fiscal crisis, due to a government which has not been balancing its budgets for decades (ever?). Greece cannot spend its way out of this crisis because this isn't a demand led crisis.","I was thinking down the road about what may happen as some countries pile on debt and others are more responsible. I've spent a lot of time oversea and talented people in the capital cities are really mobile these days. Right now there's a small brain drain to the benefit of Switzerland which has some really innovative people moving there. What if a large country like Germany were to do on a larger scale? Educated workforce, innovative and if you overlook a really ugly period, a great history of innovation. It seems they could bring in a lot of people from Japan and (increasingly) the US as they head slowly toward debt of 200% of GDP. Why would talented people who are highly mobile want to stay in a country where the debt will take 30 years to repay mostly on the back of the talented high earning people?","My 0,02€ - I probably live in the same country as you. Stop worrying. The Euro zone has a 100.000€ guaranty deposit. So if any bank should fail, that's the amount you'll receive back. This applies to all bank accounts and deposits. Not to any investments. You should not have more than 100.000€ in any bank. So, lucky you, if you have more than that money, divide between a number of banks. As for the Euro, there might be an inflation, but at this moment the USA and China are in a currency battle that 'benefits' the Euro. Meaning you should not invest in dollars or yuan at this time. Look for undervalued currency to invest in as they should rise against the Euro.","\">more foreign capital would flow in More capital flowing in to a country that defaults on its payments? Hah, that's a good one! Brazil defaulted in the 1980s, the result was a lost decade of high unemployment and hyperinflation reaching upwards of 80% **per month**. Same with Argentina, only their hyperinflation was above 200% per month. There's nothing positive coming from breaking up with the world's monetary system, any positive results that you get could be obtained with much less suffering by doing whatever austerity measures you need in order to honor your debts. I'm Brazilian and had to go through that situation just as I was starting to work. Ironically, the labour party is now in power here and Brazil is now a net creditor internationally. AFTER the \"\"evil capitalists\"\" took power and privatized the state corporations the situation started to improve, and the labour party finally managed to be elected and now are reaping the fruits of all that they fought so hard against. I remember their slogans in the 1989 election campaign: \"\"the external debt is immoral and unpayable\"\", \"\"no to privatization\"\".\"","> Europe is a temporary problem. Lol.. The better question for this thread is how is the European economy not utterly doomed? I see no way at all of the Euro surviving. Greece has already technically defaulted by saying it's not going to pay back all of it's debt. They will officially default when Germany stops bailing them out. Spain is in the exact same situation, just about a year behind. They haven't technically defaulted yet, but they will. They're receiving bailout after bailout and the Greece situation only makes their interest rates worse. Italy is just barely behind Spain, the Greek default followed by the Spanish defualt will send Italian interest rates through the roof dooming them to the same fate. This will eventually effect the US, but our borrowing rates are held artificially low due to the Fed just printing up more fake money and letting the US borrow as much as it wants. If you don't see this scheme crumbling and collapsing, I'm just curious what you actually think *will* happen?","The best scenario I've heard is by Tyler Cowen: Basically, the Greek Government runs out of Euros. So they print up IOUs to issue to their workers, pensioners, etc promising payment of Euros at some future date. The first day, some wag holds up the IOUs says 'hey, look at these drachmas'. By the seventh day, the IOUs are trading at a discount - there's an exchange rate between the IOUS and Euros, and you in essence have a Drachma currency. What that does in terms of converting external debts, bank accounts, and etc from Drachmas into Euros I'm not sure about. Obviously this isn't the best way to go about getting out of the Euro, but it's the best 'muddle through' option and given how Europe in general has been dealing with this problem it's highly probable this is the method they'll take.",">The EU focus on fiscal deficit is completely mistaken. They are the result of the crisis, not the cause. The fiscal deficit was *increased* by the crisis, but there would not have been a crisis at all if nobody had been running up debts either. It's possible to shift private deficits to public (as happens if people borrow more money than they are taking in, default on loans, cause a bank to run out of money, and the government decides to transfer the bank's losses to its taxpaying public). However, it's still ultimately driven by running a deficit until an unsustainable amount of debt is public, via one mechanism or other.","Loans and bailouts to Spain is sending a distinct message to the sixteen other nations of the eurozone and one that could severely impact all of them. The survival of the euro is very much close to an exit. Register Today for all the exciting news and discussion groups we have to offer! @ http://www.igoldpost.com/register-today/","The reason they have this massive debt is largely (not entirely) because they have been employing Keynes' policies and spending more than they had for so many years as it is. Austerity is not the solution. However, reckless spending is not the solution either. A lot of people arguing for keynesian policies (not a bad idea in most recessions) don't grasp that investors have a limited amount of money to invest and aren't going to place it in a country that has as bad of a debt problem as you pointed out. So many people keep arguing these struggling countries need to spend more. While that would help expand their economies, it is not feasible. Where do you guys going to think the money is going to come from? If investors don't want to provide then they have to print more money, which creates the risk of hyperinflation. Spending could help a little maybe if it was a realistic thing to do. Right now any Keynesian solutions are a fairy tale. Countries like Greece need to do what they can with the resources available to them instead of spending like a bunch of millionaire playboys on crystal meth. Look at the U.S. We have spent trillions and our GDP is still growing at only slightly more than half the rate it has from 1947-2012. If people expect massive government spending to be a fix to these problems, then we are a clear case that it isn't. I acknowledge we could be a lot worse and possibly still be seeing a contraction without the spending, but it clearly isn't fixing our problems and sooner or later we won't be able to take on more debt to fix it. We need real solutions to generate real growth instead of dicking around like this. Other western countries need to do the same. edit:Also what we are doing right now would not be considered keynesian solutions. Keynes would advocate spending money to fix the problems, not just dumping money into the economy. That is something I would agree with. But since our politicians can't grasp that I don't want them in control of the purse strings anymore.","For now we can pay off our debt in United States dollars. If we lose our reserve currency status, we would have to pay it off with a different currency. If we continued printing money we would be debasing our currency against the new reserve currency, which would mean that after we took on too much debt we wouldn't really be able to pay our creditors back after exchanging our devalued currency for the new one on the international markets. We are lucky enough not to have to worry about this now. But I think OP was referring to all countries in these situations. Other countries don't have the luxury of just printing out massive amounts of money to pay off their debts. That is why I am saying that America has a very disillusioned view of reality when it comes to deficit spending. We wouldn't have that any more if the UN followed through with its suggestion to create a global reserve currency or reverted back to the gold standard (I don't think the second option is nearly as realistic but we never know).","\"Yet another \"\"If X, then EUROFAIL!!\"\" It's really fucking tedious even without the screamingly, mind-numbingly wrong \"\"logic\"\" of this one. If you're lending money to Germany at 0% and still expect to make a profit, it's because the Euro *will be HIGHER* than your currency at the end of the loan period. This one doesn't look like stupidity so much as a really ham-fisted manipulation attempt to engineer a short-term euro drop for a nicer buy-in.\"","Most national banks are required by the regulations of their host countries to hold significant reserves in the form of government debt. A default would likely wipe out their capital and your common stock would become worthless. The common stock only has positive value today because of the option value based on the possibility the host country will evade a default.","\"The short answer is that you will not be able to go back to whichever discussion you were having and say \"\"the Euro crisis was caused by bailing out private banks,\"\" if that is indeed what you were ultimately searching for here.\"","There's no need to move it to a different currency, but if your bank is in Portugal, Ireland, Italy, Spain or Greece, you might consider moving it to a different Eurozone country. Finland, Austria, Germany or the Netherlands seem safest at present. There's a small risk of a forcible Eurozone exit followed by redenomination of bank deposits into a new currency that will immediately collapse.","Are you trying to get someone to do your homework for you? This question has been answered repeatedly in the negative by everyone who actually studies the economy. Read Mundell-Flemming model, and learn this stuff. You can see why currency regimes like the Euro make sense from a theoretical stand point, but where flexible exchange rates are a welcome release valve for pressures. You obviously have never studied economics. Hyper inflation doesn't happen becuase of floating exhange rates. Hyperinflation happens when people lose faith in the governing body, regardless of who that is. You think political regimes won't change just because there is one currency? No, they will still spent 1.05 for every dollar they bring in taxes. Hyperinflation is not a problem of floating exchange rates, it doesn't follow from any causal relationship.","As others said, Greece cannot set.monetary policy because that is the job of the ECB. If you meant fiscal policy, then you are right: their high levels of debt plus their default this year make it so that they cannot unilaterally borrow more money to run a deficit as the private market will not lend to them. This makes them dependent on a bailout.","Those government workers in Greece were just mooching off a corrupt system that was enabled by the blind pursuit of yield and the moral hazard of bailout expectations. They were way overpaid to do nothing but collect bribes and drink coffee all day. Good riddance. Greece is a poor agricultural country with some tourism and some shipping, and needs to go back to living within its means. Nobody is going to starve, and high unemployment was always the norm there until a few years ago - I lived there before the Euro, and they managed just fine despite high interest rates and inflation. Japan has had lost decades because its banks, like those in the west now, are practicing extend and pretend, so there hasn't been a proper flush of the system. The PIIGS should just flat out default and get it over with, rather than slowly default while giving up sovereignty. Even Germany would be better off if the PIIGS defaulted, since it is German taxpayers and savers who are going to pay for these bailouts. Let the banks fail, meaning let their equityholders and bondholders take losses - the depositors will be fine. The resulting lower asset prices will tempt risk capital back into the system, and life will go on. Bailouts just throw good money after bad and prop up corrupt banks and politicians. EDIT: Let me clarify about depositors making out fine. The banks' equityholders and bondholders take losses before depositors, who are insured anyway. In most cases, in Europe as in the US, the write-downs are not large enough to eat through this cushion before threatening depositors. Creditors were rewarded with higher interest for lending to these irresponsible banks, so they should take the hit rather than get made whole at taxpayer and saver (inflation) expense.","do you really want another overblown economic crisis that lets billions starve? Throwing money at the problem to temper it is the only solution. What needs to happen while that is being done is aggressive reform and belt tightening - and that's not happening fast enough which may then lead us into a larger full blown crisis. i.e. you may just get your wish.","\"Do you have the felling this is going to get much much worse before it gets better? I mean, Greece is going through with austerity measures and will be cutting gov't spending and raising taxes again. They will be cutting over 150,000 gov't workers, pensions cut, etc. How are they ever going to grow? If Spain and Italy follow in this practice, I see another \"\"loss decade\"\" just like Japan went through. If not a total EU collapse.\"","\"I was being sarcastic. What I was trying to say was that this is a horseshit \"\"kick the can down the road\"\" maneuver that will only make things worse in the long run. Spain is fucked, Italy is next. Greece is leaving the Euro, and soon there will be capital controls all across Europe. It'll be hell.\"","The answer is far more simple. The purchasers of periphery debt have been banks in the periphery. Since these countries don't have a central bank, their private banks were swallowing the national debt since nobody else wanted to touch it. When the market value of that debt plummets, the banks have massive holes they need to fill on their balance sheets to fulfill capital requirements and solvency. Therefore, the banks themselves need to be injected with liquidity. Now you can see why its a reiterative problem.","The free market will determine exchange rates. But only sort of. If anyone leaves the euro expect and immediate mother-of-all-bank-runs. Then the new currency will begin to trade both officially and unofficially and eventually a market clearing price will be set. Whether that lands on an officially pegged rate or at a discount to that rate is a total crapshoot and not even worth trying to predict.","\"No one's worrying about \"\"GFC II.\"\" A Greek default/exit would hurt banks, but not that much more than is already priced into the market. The capital most big banks have raised would be sufficient to deal with Greece contingency. The real damage would be to GDP figures.\"","I suppose they still could risk hyperinflation? Anyways, if they got their own currency that would probably be positive for their exports. Still, what are they going to export? Buying any raw materials would be super expensive with their devalued currency. What is your thought about their exporting with devalued currency?","\"Debt can be denominated either in a currency the country controls or a currency the country doesn't control. If the debt is denominated in a currency the country controls then they have the option of \"\"printing their way out of it\"\". That option doesn't come for free, it will devalue their currency on the global market and hurt savers in their country but it is an option. If the debt is denominated in a currency the country does not control then they don't have that option. As I understand it the US debt is in the first category. It's denominated in US dollars so the US government could if they so wished print their way out of it. On the other hand greece's debt is denominated in euros putting them at the mercy of european bankers.\"","\">If we lose our reserve currency status, we would have to pay it off with a different currency. No, a debt that comes into being as dollar-denominated remains dollar-denominated. Reserve currency status doesn't change this. The advantage of having the reserve currency is that other countries have a strong motive to accumulate dollars. Because of this we can pay for our imports in dollars. If we no longer had the reserve currency we would lose the ability to run a persistent trade deficit without borrowing foreign currency to do so. To some extent this would self-correct. If foreigners no longer desired to hoard dollars, the flow of dollars back in to the US would bring down the trade deficit. Going forward, we'd have to \"\"live within our means\"\" with respect to foreign trade, funding imports with exports. Domestically every country that has its own currency, not just the US, can use that currency to fully fund its own domestic productive capacity. Printing money doesn't make a poor country rich but it does allow any country to fully realize its own potential. >Other countries don't have the luxury of just printing out massive amounts of money to pay off their debts. This is only true when a country borrows in a currency it doesn't issue. When a country spends in its own currency its policy space is constrained by inflation. To the extent any country uses, pegs to or borrows in someone else's currency that policy space is narrowed by the need to first borrow or earn that currency. >if the UN followed through with its suggestion to create a global reserve currency or reverted back to the gold standard The euro shows us where that road leads. Countries that give up monetary authority give up sovereignty and when they find themselves in a situation where the monetary policy they no longer control is at odds with their needs, their economies get torn apart. That's why one country, one currency is good policy. Stability and maximum policy space is achieved when fiscal authority, political legitimacy and monetary authority are consolidated at the same level. It's a three-legged stool that becomes a fragile balancing act when one leg is taken away. Also, there's a whole side discussion to be had on what the alternatives are to the dollar as a reserve currency. The dollar is in that position for a reason.\"","''just how much of the troubled southern EU nations' debt is due to the rescuing of private banks? thanks'' My answer rambled onto related topics. In short, not much. While the actual sums involved in bank bailouts are considerable, relative to sovereign debts run up by having structural/trade deficits for ~10 years, they aren't the problem in Europe at the moment...but they ARE the tip of an Iceberg that could sink parts of the EU and leave the rest struggling to stay above water. An interesting question to ponder, with deceptively simple answers, is: If the % of sovereign debt resulting from bank bailouts is so small, why does the media and general public throw a fit every time a major EU bank gets into trouble? People are worried about losing their savings that they have with that bank. Its a visceral fear that is easy to personally relate to. But scratch below the surface and there is a whole buffet of terror for you to feast on. Assuming leverage of ~26* on assets held by banks and that true liabilities aren't completely opaque to average Joe retail investor, the collapse of the right bank could fire the starting gun on a vicious recession, trigger bailouts of other institutions exposed to the original and all sorts of nasty events. These bank assets include the mess created by rehypothecation, securitization of shitty credit/assets and CDS, commercial paper that relies on never having to be realized as a loss and interference in the money markets and currencys by states. Its damn hard to work out what assets and liabilities a bank has these days, let alone what any debt they have taken on is worth. Euro Crisis Best Crisis. *Pulled from memory, I'm not sure if this is accurate for Europe.","> there is no way they will let it collapse Do you think they would have let it get to the point of imminent collapse, if they could do anything about it? Why do you think they will have any more power over the next stage in this debacle?","\"Except the government in this case has decided to limit itself to Euros, a currency it does not control and therefore one it can \"\"run out of\"\", making deficit spending a risky proposal indeed. The correct approach is of course to never join such a regime in the first place, and then deficit spend as needed to keep your labor force highly employed.\"","\"i hate to say it, and i will probably be downvoted to oblivion, but i don't think you can do anything. i'm not an expert, so i might be wrong, but if greece (or any euro country, for that matters) decides to exit the euro, the currency will be dead within the week. that, from what i've read in various newspapers, will be an incredibly bad news for the european economy. which *will* collapse in a very short period of time. then the collapse would propagate (more or less slowly, more or less significantly) to other economies, especially china and US, possibly middle east, too. at that point, you (well, we) have a major economic cataclysm. would it really matter if you had a tiny bit more money than your neighbour, if production stops, goods don't move that much anymore, and your country is generally in such a deep shit that the potato famine will look like a day in eurodisney? i agree with what other people are saying: they will not allow the euro to fall. \"\"they\"\" sounds like hidden conspiracies, but even if european leaders have taught us that we can expect the worse from them (2 world wars in the last centuries are just the quicker reminder of their stupidity), there's the americans, the chineses, and so on. i think the worst thing you, or anyone else in europe, can do is panicking and moving their money around. if the exchange rate with the euro is not fixed (and nothing is) you still have a chance to lose a significant amount of money in the short-medium run, in a worst case scenario. chill. relax. if you're really desperate and think that things *will* go bad, try turning a hobby into another job, especially if you can do it online and can bring you a steady income eventually. **TL; DR: if the world economy collapse, you will still lose money. live happy. chill.**\"","\"For political reasons, almost all governments (including the US) spend more money than they get from taxes etc. There are a number of things a government can do to cover the difference: Most governments opt for selling bonds. The \"\"National Debt\"\" of a country can be thought of as being the sum of all the \"\"Bonds\"\" that are still paying interest, and that the Government hasn't Redeemed. It can all go horribly wrong. If the Government gets into a situation where it cannot pay the interest, or it cannot Redeem the Bonds it has promised to, then it may have to break its promise (\"\"Default\"\" on its payments). This makes the owners of the Bonds unhappy and means potential buyers of future Bond sales are less likely to want to buy the Governments new Bonds - effectively meaning the Government has to promise to pay more interest in the future. Recent examples of this include Argentina; and may include Greece soon. The US is in the fortunate position that not many people believe it will Default. Therefore the new Bonds it sells (which it does on a regular basis) are still in demand, even though its interest payments, and promises to Redeem Bonds are huge.\"",">The interesting thing for me - In Ireland's case they need to have a refurendum. I wonder if they will accept this? It's not clear cut whether we need a referendum. It's a common misconception that all Treaty changes require a referendum in Ireland. Not so. In Crotty v An Taoiseach it was accepted by the Supreme Court that joining the EEC (as it then was) involved getting on board a moving train and that even the assignment of new competences to Europe would not necessarily necessitate a referendum. Any change in the fundamental scope of the Union would however require a referendum. In that case the introduction of a Common Foreign and Security Policy and qualified majority voting was a change in scope and referendum was necessary. In this case, it's hard to tell. The EU already has some competence in this area - its possible to levy fines etc for breaches of the stability and growth pact already. I couldn't predict how the Supreme Court would characterise giving the Court of Justice oversight in this area. They will feel presssure from many corners in this case as well - holding in favour of a referendum might be seen as threatening economic disaster, while holding against would undermine democratic legitimacy. If there is a referendum, I predict it will go down like a lead balloon. Forcing the Lisbon Treaty on the electorate twice gave rise to enough resentment - botching the recovery and being seen to enforce austerity on the country made it worse. I imagine support for the EU is at an all time low in this country.","ok fuck it then, you'd rather discuss how to pass the CFA five times a week? enjoy! by the way - if you're going to be so condescending with your information - at least be correct when doing so. Ireland and Greece have both taken on debt to support failing banks - whether or not they did before the crisis, and whether or not it is only a small % of total deficit, is irrelevant to his question. this is the entire reason direct recapitalizing has been implemented with ESF - to prevent further deterioration of country balance sheets"],"string":"[\n \"The Euro is a common currency between various countries in Europe. This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU. Such a system has many advantages, but it also means that individual countries cannot deal with their unique situations as easily. For instance, if the US were a part of the EU, then the Fed couldn't issue $600B the way they are to bolster the economy. The danger to the Euro is that countries will withdraw their participation in order to micromanage their economies more effectively. If a major country withdraws its participation, it could start a domino effect where many countries withdraw so that they too can manage their economies more effectively. As more countries withdraw, a shared currency becomes less and less appealing.\",\n \"Each country would have to go back to its own currency, or the rich countries would just kick the poor ones out of the EU. It would be bad for the poor countries, and the global economy would suffer, but it really wouldn't be a big deal.\",\n \"To be more technical the Eurozone. UK is in the EU, but it's currency is fine. I hope you're not getting downvoted for the technicality. Greece can't print money, it makes default more likely and that's a result of the Euro. That's the core of the problem. Europe wanted a shared currency without a shared budgetary process, this was going to happen eventually.\",\n \"These rumors are here just to help dollar stay alive. Euro have problems, but they are rather solvable, unlike dollar situation. Even if something wrong would happen - countries would return to their national currencies, mainly Germany & France are important here. This does not means that EuroUnion would be destroyed - some countries live in EU without Euro and they are just fine.\",\n \"US or EU states are sovereigns which cannot go bankrupt. US states have defaulted in the 1840's, but in most of those cases creditors were eventually repaid in full. (I'm not 100% sure, but I believe that Indiana was an exception with regard to costs incurred building a canal system) The best modern example of a true near-default was New York City in the late 1970's. Although New York City isn't a state, the size and scope of its finances is greater than many US states. What happened then in a nutshell: Basically, a default of a major state or a city like NYC where creditors took major losses would rock the financial markets and make it difficult for all states to obtain both short and long term financing at reasonable rates. That's why these entities get bailed out -- if Greece or California really collapse, it will likely create a domino effect that will have wide reaching effects.\",\n \"\\\"The result would be catastrophic. The almost-reserve currency would collapse which would produce a medium sized depression, perhaps same with with 2008-now, or even larger, since don't forget, that one was produced from a housing bubble existing in only a part of the american economy; imagine what would happen if almost the full size of the economy (Europe) would collapse, even if Europe isn't as much \\\"\\\"connected\\\"\\\". But reality here is, there's no chance to that. The real reason you hear those rumors is that America (along with minor partners like the British Sterling) want to bring down the Euro for medium-term benefit. e.g. Several economists get on Bloomberg announcing they are short selling the Euro. Irony is, all this is helping the Euro since selling and short-selling and selling and short-selling helps massively its liquidity. It's like several nay sayers actually making a politician famous with their spite.\\\"\",\n \"\\\"Why will they find financing when they leave the Euro? Why would their currencies not simply hyperinflate due to excessive issuance in an attempt to devalue? Which is worse for unemployment, austerity or hyperinflation? >they'd be expelled by Germany This is a union correct? Why do you assume Germany holds all the cards? I've read that Gonzalo Lira essay and have read Mish about everyday since 2009, yet still do not think it is so obvious that the Euro will collapse. I gained quite a bit of skepticism from Barry Eichengreen's paper on the [Breakup of the Euro Area.](http://www.nber.org/papers/c11654.pdf?new_window=1) What I see right now is that so far the ECB has only acted in such a way as to prevent outright deflation and meet its 2% inflation target, but not to continuously outright fund the profligate governments. They let the bond markets force those governments into contraction or into default whereas the fed, with its dual mandate, will always buy the US bonds and eventually will inflate the currency as opposed to having a sovereign default. So I think we will see the ECB continue to print as much is needed to meet its mandate but at the same time there will be defaults, bank nationalizations and failures, and a continued lack of growth in the Euro area until eventually the austerity measures bring revenue and spending in line at which point the countries under heavy debt would be stupid not to default because they can self finance. Whereas in the US we are so dependent on deficit financing that as foreigners move further away from holding treasuries we become more susceptible to bond vigilantes taking the reigns which will force the feds hand into outright monetization. Then I think we will see our own government exacerbate inflation by bidding on the same goods that those dollars which no longer are going into treasuries are bidding on. Then I think we'll finally see bad inflation in the US. Of course as long as there is hoards of money fleeing Europe for the US \\\"\\\"safe haven,\\\"\\\" the lack of foreign treasury investment is pretty moot. *spelling\\\"\",\n \"Is it possible that the result could be a reduced-size Eurozone, with Germany, France, Austria, BeNeLux and Finland remaining in, while others go back to their former currencies or form a Southern European (and Irish) common currency?\",\n \"Icelandish and Irish Economies began to fail in 2008, Ireland was bailed out by the IMF and Britain, Iceland by the Germany and the IMF. Greek economy has essentially failed, and is at risk of being kicked out of the Euro currency by the Eurozone members. Spanish and Italian economies are faltering. Worst case scenario, everybody can't pay back money and keep accumulating debt, which would lead to a complete collapse of the European economy, resulting in a global economic meltdown. Germany currently are in control of al lot of countries debts (especially Ireland) which means that they will become the main players in decisions regarding the proliferation/faltering of the european economy in the future.\",\n \"Yea, but that coin would be worth shit ( They'll inflate their way out of debt) and there won't be anyone wanting to buy their bonds for a long time so they'll probably print more money. Also, everybody's savings will be gone. Going out of the Euro will put them in a worse financial climate than staying in and do austerity.\",\n \"If one of the EURO countries goes bankrupt, then it will destablise the entire financial industry. IE there would be many financial institutions [Banks, Credit Union, Pension Funds, Insurance Funds, Corporates] that are holding EURO Investments in that country will loose their money and this will have a cascading impact ... similar and much bigger than US Sub-prime crisis of 2008. So if your money is in EURO and you are staying in EURO countires, the inflation will mean your money is of less value ... If you are holding USD and staying in EURO and country goes bankrupt then chances are that it will loose value with USD and hence you can convert them to EURO and spend more EUROs to buy the same items ...\",\n \"It depends on what actions the European Central Bank (ECB) takes. If it prints Euros to bail out the country then your Euros will decline in value. Same thing with a US state going bankrupt. If the FED prints dollars to bailout a state it will set a precedent that other states can spend carelessly and the FED will be there to bail them out by printing money. If you own bonds issued by the bankrupting state then you could lose some of your money if the country is not bailed out.\",\n \"\\\"Most of those countries had debt that was well beyond prudent levels (~70% of GDP) before the crisis, levels such that any crisis would put them over the safe limit and into trouble. The only exception was Spain whose debt levels were still marginally dangerous. Greece was off the charts, which is why they left off the graph for Greece. Second problem. On top of the high or marginal levels of government debt, the governments implicitly or explicitly guaranteed the banks, without limiting in any effective way their levels of leverage and risk (inb4 Basel II - a lot of paper that made no difference). Protip: if someone guarantees your debt, they should be able to oversee your level of risk, but the governments didn't. As a result these banks, and their CEOs in particular, have a bet that goes \\\"\\\"heads I win, tails I win (and you the taxpayer lose)\\\"\\\". If the loans are paid off the CEOs rake in millions. If the loans go bad the government bails them out and the CEOs and other top executives - you guessed it - rake in millions. Of course when faced with these incentives the banks will lend too much. This is not free market capitalism, it is crony capitalism. **Bailouts of private companies are not part of unfettered free market capitalism.** The third problem is that the same governments cannot print money like the US can because the Euro is not owned by the individual governments. The answer to excessive levels of government debt is for governments not to borrow too much and not to take on excessive unfunded liabilities such as pensions. This probably needs to be enforced by a constitutional amendment, so it can't be easily overruled. The answer to governments getting dragged into bailing out insolvent banks and then going under themselves, is to allow the banks to go under and to guarantee only small deposits. Let shareholders, bond holders and large (>$500k) lenders to the banks to lose their money. Second, hold bank executives and shareholders liable for the bank's debts. Eg executive salaries and other remuneration need to be clawed back up to a 5 year window. Shareholders should be liable (as they used to be) for debts up to an additional 100% of the par value of the shares. I can assure you this would concentrate minds wonderfully - as it did in the old days when Wall St investment banks were partnerships with each partner liable for all the debts of the firm. Another alternative would be for governments to enforce limits on financial risk, but unfortunately they do not have the courage to do this, nor the morality to resist \\\"\\\"campaign contributions\\\"\\\" / bribes to look the other way. If these steps were taken the issue of the Euro currency would not be a problem. However printing money (which requires having your own currency) is a solution if it comes to that although it comes at the expense of people who have saved and invested prudently. Printing money (keeping interest rates excessively low for years on end) subsidizes borrowers - the ones who created the problem - at the expense of savers. Clearly this creates terribly perverse incentives the next time around. Anyone who thinks this problem is a result of unfettered free market capitalism is not paying attention.\\\"\",\n \"\\\"This question is different because you are asking for actual advice vs. a more academic, \\\"\\\"what if\\\"\\\" scenario. The answer that I'll give will be different, and similar to another recent question on a similar vein. Basically, if you're living in a European country that's effectively in default and in need of a bailout, the range of things that can happen is difficult to predict... the fate of countries like Ireland and Greece, whatever the scenario, will be economic and social upheaval. But, this isn't the end of the world either... it's happened before and will happen again. As an individual, you need to start investing defensively in a manner appropriate for your level of wealth. Things to think about: I'd suggest reading \\\"\\\"A Free Nation Deep in Debt: The Financial Roots of Democracy\\\"\\\"\\\"\",\n \"So the Euro was doomed from the start because there was no provisions of kicking out and/or halting countries from excessive borrowing? I think the Euro is stronger in the long run because no single country can put inflationary pressure on the Euro due to irresponsible borrowing by that single state (e.g. United States). In the end of the day, they have to work their way out of debt with real economic growth thusly making it an attractive currency for the long term.\",\n \"If they default and try to stay in the Euro, they will be shut out of any chance of financing but they will be obliged to conduct business in a currency that they cannot afford. Their businesses will close, unemployment rise until they have no option to stay in the Euro. Instead of that, they will reissue the Peseta, Lira, Drachma, etc. and then devalue. That will allow their real estate, tourism and manufacturing to be very competitive. If they could stay in the Euro after default they would starve, but I don't think they could stay, even if they wanted to because they'd be expelled by Germany. Here is [Gonzalo Lira's suggestion as to how Spain should have already left the Euro](http://gonzalolira.blogspot.com/2012/04/will-there-be-corralito-in-spain.html)\",\n \"You don't understand government financing at all. Gov'ts earn revenue, aka, taxes. They also spend money. The different between the money they spend and they money they earn is the deficit. If you run a deficit for a long period of time, you incur a very large national debt. Now, you can finance (aka, pay for) a deficit by borrowing money. This means you can sell bonds, and instead of pay off the debt each year, you just pay the interest. If your spending balloons out of control, your the likely hood of you paying your debt decreases. If you are very unlikely to payback your debt, people won't buy any more of your bonds, and you no longer have the income (from borrowing) to pay off your interest from other debt you owe, or what ever other obligations you own (think mortgage payments, or teachers salaries, etc). Here's were Europe and USA differ: European nations can't just print money. They can issue more debt, but they can't just create more euros. IF you can print money, you can pay off your debt with money you literally created out of thin air (at the expense of your people, this is called inflation). But this is a form of cheating, eventually people won't trust you, and won't buy your debt either. So where do the banks come in? if the government is SOUND and the banks are NOT, the government can backstop the banks. This is what the US and UK did. Greece, Spain, Ireland all had to back stop their banks also. However, Greece, Spain, and Irelany ( and Italy, and Portugal) also have 1) A lot of debt 2) Structurally high deficits 3) Extremely high borrowing costs (high interest rates...because people don't trust them...because...) 4) Weak underlying economies The fourth point gets you in real trouble. if you have high entitlements, lots of poeple out of work, who the hell is paying taxes and what are they going to? You have no revenue! Remember, a govt works just like a household. It is easy for a good household to support one member, but it is difficult for a member to support an irresponsible household.\",\n \"Maybe the EU really ISN'T really that important, and the financial problems that have resulted from European integration are evidence that state sovereignty and self-determination are what's important... But hey, what do I know, I'm not a rich banker/bureaucrat who profited off the whole imposed mess at the expense of the ordinary working people.\",\n \"No. Empirically no. The issue at hand has little to do with market confidence. This loss of confidence is the effect of the problem. It's cause is the result of a wholly inadequate fiscal transfer mechanism that is incapable of addressing demand shocks. While there are relevant political and ideological parameters worthy of analysis, they render themselves moot because of the structural constraints of monetary union. My two cents.\",\n \"Krugman (Nobel prize in Economy) has just said: Greek euro exit, very possibly next month. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany. 3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals. 3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing. 4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or: 4b. End of the euro. And we’re talking about months, not years, for this to play out. http://krugman.blogs.nytimes.com/2012/05/13/eurodammerung-2/\",\n \"\\\"These have the potential to become \\\"\\\"end-of-the-world\\\"\\\" scenarios, so I'll keep this very clear. If you start to feel that any particular investment may suddenly become worthless then it is wise to liquidate that asset and transfer your wealth somewhere else. If your wealth happens to be invested in cash then transferring that wealth into something else is still valid. Digging a hole in the ground isn't useful and running for the border probably won't be necessary. Consider countries that have suffered actual currency collapse and debt default. Take Zimbabwe, for example. Even as inflation went into the millions of percent, the Zimbabwe stock exchange soared as investors were prepared to spend ever-more of their devaluing currency to buy stable stocks in a small number of locally listed companies. Even if the Euro were to suffer a critical fall, European companies would probably be ok. If you didn't panic and dig caches in the back garden over the fall of dotcom, there is no need to panic over the decline of certain currencies. Just diversify your risk and buy non-cash (or euro) assets. Update: A few ideas re diversification: The problem for Greece isn't really a euro problem; it is local. Local property, local companies ... these can be affected by default because no-one believes in the entirety of the Greek economy, not just the currency it happens to be using - so diversification really means buying things that are outside Greece.\\\"\",\n \"The Euro will collapse because Spain, Italy, Portugal and Greece will have to default on their debt. In order to keep up with current payments they have to take emergency loans at the same time that their economies are in recession and demands on social programs are increasing. There is simply no way that they can cut enough spending and raise enough revenue to balance their budgets. That is not opinion, it is arithmetic. If they cannot pay their loans they will either voluntarily leave the Euro, or they will be forced out. Next comes France who also has a large and growing budget deficit and a large public debt. It is unsustainable. That which is unsustainable will end. The last reason that the Euro will fail and that it will be soon is Germany. Up to now, all the bailouts of Ireland, Portugal, Italy, Greece and Spain have come predominantly from Germany. In order to float the Eurobonds that some idiots think might save Europe, the German people have to authorize their government to participate and thereby take on another mountain of debt. The German people will not vote for that authorization. Is that enough reasons? Because there are more. Lots more. Read [Mike Shedlock](http://globaleconomicanalysis.blogspot.com)\",\n \"Its highly unlikely to 'collapse', perhaps there will be managed defaults, yes, but there is no way they will let it collapse as a global depression would follow. If the euro collapses it will also bring down most of the global economy including the likes of China and the US (not to mention the Germans) and they are not going to let that happen. http://www.ft.com/cms/s/0/6cf8ce18-2042-11e1-9878-00144feabdc0.html#axzz1y0lc0hy1 P.s. I am surprised we have not seen more suggestions of buying guns, land and building a commune.\",\n \"the problem now is A LOT of people dont have confidence in the euro, and they are taking their money out of it , and confidence is the only thing that backs the euro, or any fiat money. It's gonna get worst before it gets better unfortunately...\",\n \"\\\"There's an ideological/psychological aspect of this too apart from the practical problems. Eurozone leaders keep saying the mantra: conversion to the euro is \\\"\\\"irreversible\\\"\\\". There are analogies of this in recent history, it reminds me of the soviet leaders and their belief that communism is where history ends. They genuinely thought that once a communist system is built up in a country, it would stay forever. They believed in the superiority of their system, among other things this lead to the isolation of the Soviet Union from the West and the start of the Cold War. Then, in 1956 they were proven wrong with the Hungarian revolution and while they tried to \\\"\\\"clean up\\\"\\\" the situation as fast as they could and forget about it, their downhill inevitably started. Back to the present, you can easily see the importance of keeping Greece in the EZ. If Greece exits, the illusion of the irreversibility of the Euro is gone, and it would start to fall apart.\\\"\",\n \"**OFC there is more to it than meets the eye!** Its a nice breakdown though. In my opinion, there are just 2 ways out: One is to merge the whole European Union into one Nation, much like the **United** States of America. (*United States of Europe*, ehehehe) But i guesss Germany, France and UK are not very interested in feeding everyone else even more. **OR** Split. The thing is, the ones with the most power are not interested in one of these solutions. And now to come to your question, YES Recession is coming (isnt it alrdy here?) Greetings from Austria!\",\n \"\\\"There will not be enough money to fill the holes that are caused by banks' easy money policies combined with the trillions in derivative \\\"\\\"hedges\\\"\\\" that the banks have off-balance sheet. The idea is that the chain reaction collapse of the European banking system can be avoided by plugging the holes in the dam in Spain, Italy, Greece, Portugal and Ireland. But it is a crazy idea. Next comes France, and then what? At some point there is not enough money to plug the holes and the entire facade collapses anyways. Adults would dismantle the Eurozone now and let each country see to itself. Let the banks collapse. Capital (in the form of dollars, gold, etc) will reappear and means will evolve rapidly to connect capital with people who need loans for business. Consumer loans are going the way of the dodo bird.\\\"\",\n \"**Economic and Monetary Union of the European Union: Monetary policy inflexibility** Since membership of the eurozone establishes a single monetary policy for the respective states, they can no longer use an isolated monetary policy, e. g. to increase their competitiveness at the cost of other eurozone members by printing money and devalue, or to print money to finance excessive government deficits or pay interest on unsustainable high government debt levels. As a consequence, if member states do not manage their economy in a way that they can show a fiscal discipline (as they were obliged by the Maastricht treaty), they will sooner or later risk a sovereign debt crisis in their country without the possibility to print money as an easy way out. *** ^[ [^PM](https://www.reddit.com/message/compose?to=kittens_from_space) ^| [^Exclude ^me](https://reddit.com/message/compose?to=WikiTextBot&message=Excludeme&subject=Excludeme) ^| [^Exclude ^from ^subreddit](https://np.reddit.com/r/economy/about/banned) ^| [^FAQ ^/ ^Information](https://np.reddit.com/r/WikiTextBot/wiki/index) ^] ^Downvote ^to ^remove ^| ^v0.23\",\n \"\\\"The biggest risk you have when a country defaults on its currency is a major devaluation of the currency. Since the EURO is a fiat currency, like almost all developed nations, its \\\"\\\"promise\\\"\\\" comes from the expectation that its union and system will endure. The EURO is a basket of countries and as such could probably handle bailing out countries or possibly letting some default on their sovereign debt without killing the EURO itself. A similar reality happens in the United States with some level of regularity with state and municipal debt being considered riskier than Federal debt (it isn't uncommon for cities to default). The biggest reason the EURO will probably lose a LOT of value initially is if any nation defaults there isn't a track record as to how the EU member body will respond. Will some countries attempt to break out of the EU? If the member countries fracture then the EURO collapses rendering any and all EURO notes useless. It is that political stability that underlies the value of the EURO. If you are seriously concerned about the risk of a falling EURO and its long term stability then you'd do best buying a hedge currency or devising a basket of hedge currencies to diversify risk. Many will recommend you buy Gold or other precious metals, but I think the idea is silly at best. It is not only hard to buy precious metals at a \\\"\\\"fair\\\"\\\" value it is even harder to sell them at a fair value. Whatever currency you hold needs to be able to be used in transactions with ease. Doesn't do you any good having $20K in gold coins and no one willing to buy them (as the seller at the store will usually want currency and not gold coins). If you want to go the easy route you can follow the same line of reasoning Central Banks do. Buy USD and hold it. It is probably the world's safest currency to hold over a long period of time. Current US policy is inflationary so that won't help you gain value, but that depends on how the EU responds to a sovereign debt crisis; if one matures.\\\"\",\n \"But Greece is in the EU - therefore the one-armed drug addict has the means to get money from his relatives. Because most of the relatives have an alcohol problem (Spain, Portugal, Italy, France) they turn to their hard-working but slightly naive neighbours (Austria,Germany,Netherlands) for money. They believe that they´ll have to pay for just one last dose of crack cocaine and then the Greeks will kick the habit.\",\n \">but is in no shape to do so due to their massive debt. Actually it's because they don't have their own printing press for the Euro. They need to drop out of the Euro, devalue their own currency and take control of their own monetary policy and economy.\",\n \"> The European economy was not utterly doomed before the Euro, therefore the fall of the Euro does not doom their economy. I'm not sure how that's related at all. Just because at some random point in time, the European economy was doing OK, doesn't mean that it will definitely be ok again in the future after a jarring multi-national currency shift. There are tons of other factors in play. First of all, who's going to accept drachma again? What is it worth? What about pesata and lira? These currencies haven't been used in over a decade. Who is going to value them? Who is going to accept them? What happens when the Greeks default? When their pension checks start bouncing? This is what Germany is fearing. Who is going to buy their products when there is a major currency crisis going on?\",\n \"In theory, anything can happen, and the world could end tomorrow. However, with a reasonably sane financial plan you should be able to ride this out. If the government cannot or won't immediately pay its debt in full, the most immediate consequence is that people are going to be unwilling to lend any more money in future, except at very high rates to reflect the high risk of future default. Presumably the government has got into this state by running a deficit (spending more than they collect in tax) and that is going to have to come to an abrupt end. That means: higher taxes, public service retrenchments and restrictions of service, perhaps cuts to social benefits, etc. Countries that get into this state typically also have banks that have lent too much money to risky customers. So you should also expect to see some banks get into trouble, which may mean customers who have money on deposit will have trouble getting it back. In many cases governments will guarantee deposits, but perhaps only up to a particular ceiling like $100k. It would be very possible to lose everything if you have speculative investments geared by substantial loans. If you have zero or moderate debt, your net wealth may decrease substantially (50%?) but there should be little prospect of it going to zero. It is possible governments will simply confiscate your property, but I think in a first-world EU country this is fairly unlikely to happen to bank accounts, houses, shares, etc. Typically, a default has led to a fall in the value of the country's currency. In the eurozone that is more complex because the same currency is used by countries that are doing fairly well, and because there is also turbulence in other major currency regions (JPY, USD and GBP). In some ways this makes the adjustment harder, because debts can't be inflated down. All of this obviously causes a lot of economic turbulence so you can expect house prices to fall, share prices to gyrate, unemployment to rise. If you can afford it and come stomach the risk, it may turn out to be a good time to buy assets for the long term. If you're reasonably young the largest impact on you won't be losing your current savings, but rather the impact on your future job prospects from this adjustment period. You never know, but I don't think the Weimar Republic wheelbarrows-of-banknotes situation is likely to recur; people are at least a bit smarter now and there is an inflation-targeting independent central bank. I think gold can have some room in a portfolio, but now is not the time to make a sudden drastic move into it. Most middle class people cannot afford to have enough gold to support them for the rest of their life, though they may have enough for a rainy day or to act as a balancing component. So what I would do to cope with this is: be well diversified, be sufficiently conservatively positioned that I would sleep at night, and beyond that just ride it out and try not to worry too much.\",\n \"Where are they going to get money from? Their bonds are worthless because they have no viable way of ever paying back debt so why would anyone lend money to them. You, and Keynes think that you can fuel debt with more debt, but all this does is build a massive debt bubble that has to pop at some point. This is exactly what these nations did for years and now are beginning to realize that they can no longer issue debt.\",\n \"\\\"But do you know about a US state risking to go default now or in the past? Ultimately, a US state could go into default. However, I doubt that such a scenario would be allowed to transpire. This seems to happen to California with some regularity. That is, risking default. What would happen is not quite well known: \\\"\\\"There is no provision for a state to go bankrupt,\\\"\\\" Kyser said. \\\"\\\"I don't think anyone really knows what will happen or even if the state will go into receivership if it does default. I can tell you this, officials are looking at all the (current) laws.\\\"\\\" (source) I believe that the answer to your question is that it could happen, but likely would not be allowed to occur. The nature of the EU and US are quite different. The individual states forming the US are not separate nations. For better or for worse, the US is a stronger federation than the EU. (Something that is lamented at times when the Feds mess with the purview of the locals.)\\\"\",\n \"The Euro is currently at 1.24. It's been lower than that before. Why do you think there is still so much money behind it? I'm not trying to push back, but do you know something that the market doesn't in terms of a collapse? Also, if you are so positive, are you heavily shorting the euro? I by no means am convinced that the euro was a good idea. But I am convinced that they will do whatever they can to keep it alive.\",\n \"The EU's situation is nothing like the United States. The core problem there is a monetary union without a fiscal union. All the member countries were bound to a currency they had no control over, despite the health and resources of their economies.\",\n \"See the problem is it's very hard to see how they can leave or ask to leave. There's very little on this in the treaties. They can't be kicked out under any treaty to the best of my knowledge. The only way I can see them getting kicked out is that they are cut off from Target 2, forced to print money/introduce capital controls etc, that breaks the laws of loads of treaties and they then get kicked out of not just the Euro but also the EU. It's all so incredibly messy.\",\n \"\\\"The risk is that greece defaults on it's debts and the rest of the eurozone chose to punish it by kicking it out of the Eurozone and cutting off it's banks from ECB funds. Since the greek government and banks are already in pretty dire straits this would leave greece with little choice but to forciblly convert deposits in those banks to a \\\"\\\"new drachma\\\"\\\". The exchange rate used for the forced conversions would almost certainly be unfavorable compared to market rates soon after the conversion. There would likely be capital controls to prevent people pulling their money out in the runup to the forced conversion. While I guess they could theoretically perform the forced conversion only on Euro deposits this seems politically unlikely to me.\\\"\",\n \"of course the value will be non zero however it would be very small, as all the countries would not leave at once... if its a piig holding the bag it would fall precipitously, if its a AAA (non france) it would go to 1.5 Its very path dependent on whom leaves when\",\n \"\\\"The Euro is not the reason for the debt crisis. It is only preventing those countries affected from using the easy way out. The fault is entirely that of those countries. They were given billions and billions in structural aid, to put the \\\"\\\"convergence criteria\\\"\\\" into reality. Instead they chose bubble economies. And no, this is not the same all around Europe. I don't see France or Germany having a giant property bubble.\\\"\",\n \"It's a failed state. The belief that people are going to hunker down in austerity and pay off national debt was always silly. Sucks for the bond holders, but all these people who bet against sovereign debt defaults have bet wrong.\",\n \"Assuming that's true, and giving you that EU countries are more interdependent than most, you're still massively overstating the effect of Greece's problems on the rest of the union. Yeah, it's a problem. Yeah, they'll all pay a bit for it. Still, the economy is nowhere near collapse because of it.\",\n \"It seems possible if the Euro is partially/entirely unwound that policies could be enacted to prohibit exactly this behavior, otherwise what will stop outflow to the stronger countries on a massive scale? (Thus amplifying the resulting decade-long clusterfuck) We've never had this situation in Europe before, and already for Greece and Spain there are suggestions to instigate withdrawal controls. It doesn't seem far fetched to imagine retroactive controls placed on private deposits in newly-foreign-currency banks. If I were concerned about the Euro's collapse I'd be more inclined to move assets out of the eurozone entirely\",\n \"\\\"What EU wanted to force Cyprus to do is to break the insurance contract the government has with the bank depositors. The parliament rightfully refused, and it didn't pass. In the EU, and Cyprus as part of it, all bank deposits are insured up to 100,000EUR by the government. This is similar to the US FDIC insurance. Thus, requiring the \\\"\\\"small\\\"\\\" (up to 100K) depositors to participate in the bank reorganization means that the government breaks its word to people, and effectively defaults. That is exactly what the Cyprus government wanted to avoid, the default, so I can't understand why the idea even came up. Depositors of more than 100k are not guaranteed against bank failures, and indeed - in Cyprus these depositors will get \\\"\\\"haircuts\\\"\\\". But before them, first come shareholders and bondholders who would be completely wiped out. Thus, first and foremost, those who failed (the bank owners) will be the first to pay the price. However, governments can default. This happened in many places, for example in Russia in the 90's, in Argentina in 2000's (and in fact numerous times during the last century), the US in the 1930's, and many other examples - you can see a list in Wikipedia. When government defaults on its debts, it will not pay some or all of them, and its currency may also be devaluated. For example, in Russia in 1998 the currency lost 70% of its value against the USD within months, and much of the cash at hands of the public became worthless overnight. In the US in 1933 the President issued an executive order forbidding private citizens keeping gold and silver bullions and coins, which resulted in dollar devaluation by about 30% and investors in precious metals losing large amounts of money. The executive order requiring surrender of the Treasury gold certificates is in fact the government's failure to pay on these obligations. While the US or Russia control their own currency, European countries don't and cannot devaluate the currency as they wish in order to ease their debts. Thus in Euro-zone the devaluation solutions taken by Russia and the US are not possible. Cyprus cannot devaluate its currency, and even if it could - its external debt would not likely to be denominated in it (actually, Russian debt isn't denominated in Rubles, that's why they forced restructuring of their own debt, but devaluating the currency helped raising the money from the citizens similarly to the US seizing the gold in 1930's). Thus, in case of Cyprus or other Euro-zone countries, direct taxes is the only way to raise money from the citizens. So if you're in a country that controls its own currency (such as the US, Russia, Argentina, etc) and especially if the debt is denominated in that currency (mainly the US) - you should be worried more of inflation than taxes. But if you're in the Euro-zone and your country is in troubles (which is almost any country in the zone) - you can expect taxes. How to avoid that? Deal with your elected officials and have them fix your economy, but know that you can't just \\\"\\\"erase\\\"\\\" the debt through inflation as the Americans can (and will), someone will have to pay.\\\"\",\n \"Oh, you mean converting your money to that of a country whose public debt is [103% of GDP, instead of the 108% of your own?](http://en.wikipedia.org/wiki/List_of_countries_by_public_debt) That seems hardly an advancement, even more so considering that the public debt of the Eurozone as a whole is 82.5% of GDP. Greece is just 2% of the European economy, its default would not mean the collapse of the Euro.\",\n \"\\\"> Just because at some random point in time, the European economy was doing OK, doesn't mean that it will definitely be ok I'm not claiming it will be \\\"\\\"definitely be ok\\\"\\\". definitely ok != utterly doomed. > What happens when the Greeks default? If they were paying in drachma, they wouldn't default. They'd print more drachma and inflation would occur. That's how currency imbalances adjust. Germany wants it both ways. They want a stable Europe-wide currency but they don't want a Europe-wide economy, they want their economy isolated from the problems in the rest of Europe. Germany should leave the Euro.\\\"\",\n \"Andrew Lilico has a likely scenario for when Greece defaults on its sovereign debt: What happens when Greece defaults. Here are a few things: Every bank in Greece will instantly go insolvent. The Greek government will nationalise every bank in Greece. The Greek government will forbid withdrawals from Greek banks. To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law. Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting) The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting 0n 50 per cent or more of all Greek euro-denominated debts. As Megan McArdle says, there's more at the link, all depressing. I think you're focusing too much on Greece leaving the euro and not enough on why Greece would leave the euro. Greece would leave the euro precisely so that it could pay back its debt in a new currency worth less than valuable euros. The new currency will devalue, since that's the point of leaving. Along the way the government forces its citizens to take the new currency. The money they have in Greek banks will be converted to the new currency: The citizens don't have a choice to keep their euros.\",\n \"Banks cannot survive without the government. Once people lose faith in the governement, the banking system will fail. The banking system failing is a symptom of the issue, not a cause. Backstopping the banks protects the general populace, and prevents runs which will actually destroy the banking system. The burden shifts from the banks to the government. But a gaurantee is not an actual payment. The banks still operate as normal without any cash from the government, but with the knowledge that, if they ARE over extended, the government will take on their debt. the government gaurantee lowers the rates that the banks pay to raise debt to continue to operate. So let's say PIIGS fully bail out their banking system, paying off all debt, that's worse case. Where does the money come from? Revenues, aka taxes. If the gov't takes on the bank debt and has positve revenue, no problem, a little less hand outs, but the country as a whole benefits from having a functioning banking system. If revenues are poor or negative, however, it's just adding to the deficit. Gov't can print money, don't forget. But if revenues are poor and there's no hope to see them improve...Boom, all hell breaks loose, and you get Europe.\",\n \"\\\"The danger to your savings depends on how much sovereign debt your bank is holding. If the government defaults then the bank - if it is holding a lot of sovereign debt - could be short funds and not able to meet its obligations. I believe default is the best option for the Euro long term but it will be painful in the short term. Yes, historically governments have shut down banks to prevent people from withdrawing their money in times of crisis. See Argentina circa 2001 or US during Great Depression. The government prevented people from withdrawing their money and people could do nothing while their money rapidly lost value. (See the emergency banking act where Title I, Section 4 authorizes the US president:\\\"\\\"To make it illegal for a bank to do business during a national emergency (per section 2) without the approval of the President.\\\"\\\" FDR declared a banking holiday four days before the act was approved by Congress. This documentary on the crisis in Argentina follows a woman as she tries to withdraw her savings from her bank but the government has prevented her from withdrawing her money.) If the printing press is chosen to avoid default then this will allow banks and governments to meet their obligations. This, however, comes at the cost of a seriously debased euro (i.e. higher prices). The euro could then soon become a hot potato as everyone tries to get rid of them before the ECB prints more. The US dollar could meet the same fate. What can you do to avert these risks? Yes, you could exchange into another currency. Unfortunately the printing presses of most of the major central banks today are in overdrive. This may preserve your savings temporarily. I would purchase some gold or silver coins and keep them in your possession. This isolates you from the banking system and gold and silver have value anywhere you go. The coins are also portable in case things really start to get interesting. Attempt to purchase the coins with cash so there is no record of the purchase. This may not be possible.\\\"\",\n \"It's not that simple. The problem is that Greece is not in control if it's own finances. Neither are any of the other countries. The Eurozone doesn't have the power to do things like raise taxes or sell government bonds, and the individual governments don't have the power to float the currency. The Eurozone is going to unwind over the a decade. Greece will leave, but there are another 4-5 countries that should leave the Euro for the same reasons as Greece. Spain seems likely to be the next up, with Italy not far behind. The Euro was never designed to break apart. We really have no idea what the shockwaves of a country leaving the currency will look like.\",\n \"I've been short the Euro for several months now against the USD (could be various others as well). I got in at 1.42, sold on a bounce up to 1.36, bought back at 1.38 and now will probably ride it out lower. Regardless of whether or not the Eurozone breaks up, I see it breaking through the 1.30 mark in the near-term. After that, I'm not sure how low it goes, but there is certainly potential for it to head towards 1/1. In order to reduce the burden, the ECB needs to devalue the currency. Although Germany really doesn't want this due to their anti-inflationary ideology, if Italy comes crashing down, so does France. When France goes, Germany goes into a deep recession if not a depression. They have to devalue some. As for a collapse, I have no idea. It probably depends on how many (if any) countries retain the currency and who they are.\",\n \"It's slightly more complicated than that. Usually a country that was in Greece's situation would be able to use inflation to devalue their currency which would have the effect of lowering the value of the government's debts and also of making Greek prices more competitive in the international market. Or they could use quantitative easing to inject cheap cash into the economy to help stimulate it. Because Greece is on the Euro, however, they have no control over their own currency and their options are highly limited. Additionally, when you join the EU, especially the Eurozone, that's supposed to come with additional internal responsibilities, but it's also supposed to come with additional external ones as well. Greece has a responsibility to get its shit together, but the whole point is that more financially stable countries have a responsibility to help them. Right now that means Germany; they're the ones with the greatest control over the Euro and they're shying away from their duties. If the rest of Europe didn't want to risk ending up in this position they shouldn't have let Greece into the Eurozone.\",\n \"I haven't been following this crisis at all, so I know nothing about this, but I understand why the value of the Euro would shoot up as a result of Greece/Italy/Portugal leaving. But why would the Germans not want this? Is it because Germany is a leading exporter and it would increase the costs of exports from the country? Or could you expand on that for me? thanks\",\n \">The European economy was not utterly doomed before the Euro, therefore the fall of the Euro does not doom their economy. UTTERLY DOOMED and DOOMED are two entirely different things. The former is a quasi-permanent state of affairs (decades upon decades) the latter a temporary one (albeit possibly several years).\",\n \"\\\">So far, politicians in Europe have held 19 high-level emergency meetings in an attempt to solve this crisis. >All of their efforts have failed. >Right now, this is the situation in Europe.... >-Most EU governments are drowning in toxic levels of debt This mess has been caused by the idea of allowing some people to live at the expense of others. All of it - from the millions of cushy, make-work government \\\"\\\"jobs\\\"\\\", to the rest of the welfare state, has been caused by the political left.\\\"\",\n \"If the Euro went bust then it would be the 12th government currency to go belly up in Europe (according to this website). Europe holds the record for most failed currencies. It also holds the record for the worst hyperinflation in history - Yugoslavia 1993. I'm not sure what would happen if the Euro failed. It depends on how it fails. If it fails quickly (which most do) then there will be bank runs, bank holidays, capital controls, massive price increases, price controls, and just general confusion as people race to get rid of their Euros. Black markets for everything will pop up if the price controls remain in place. Some countries may switch to a foreign currency (i.e. the US dollar if it is still around) until they can get their own currency in circulation.\",\n \"\\\"to answer the question in the title of your post... + convince your fellow Euro nations to accept austerity, + convince them to elect responsible governments, + demand transparency from your leaders, and... + make sure this never ever happens again. Alternatively, build a time machine and go back in time to either... + immigrate to another part of the world, + sabotage the corruption of the PIGS nations, + prevent the formation of a shared currency, or finally, + do something to ensure Germany didn't lose WWII, as letting them be in charge of everybody's money would appear to be a sound financial decision. That is how you negate the impact of the Euro collapsing. Now, on to the details of your question... I believe your initial assessment is correct. If one accountable nation were responsible for the solvency of its currency, it could be trusted indefinitely. As is the case with the Euro, as no one country is directly responsible for it, the less responsible governments are in a race to exploit it as much as possible. Remember, \\\"\\\"Spain no es Zimbabwe!\\\"\\\" I think Euro zone nations will be lucky if all that comes of this is the fall of the Euro. Wars between nations have been fought over less significant developments than what Greece, Italy and Spain have done to the financial stability of their Euro zone counterparts. Foreign gold trusts, possession of physical precious metals and precious metal ETFs (GLD is one stock ticker of such a fund, although I would look to a similar fund issued by a company with better physical gold audits) can hedge your currency risk. Check with local laws regarding physical possession of gold. In the USA when we left the gold standard for our currency, the government confiscated all privately owned precious metals and raided customer bank security boxes. Assess your own risk of that sort of thing happening.\\\"\",\n \"You forgot the biggest thing: Japan still controls its own currency and Greece does not. If you don't control your currency, you have much more limited options when it comes to borrowing money. It is why US states can't borrow a lot of money, they all have to share the US dollar which no one state controls. So states are used to making cutbacks in hard times, but the Eurozone nations have not adopted this mindset. Greece isn't in trouble because it borrowed too much, it's in trouble because it borrowed so much *and has to share the Euro*. Greece can't inflate its currency, so if they can't make a payment they default, no one wants to lend to a place that might default. If Greece had its own currency still there would be no currency crisis in Europe, just some inflation.\",\n \"[Monetary Policy Inflexibility](https://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Union#Monetary_policy_inflexibility) >Since membership of the eurozone establishes a single monetary policy for the respective states... without the possibility to print money as an easy way out. Italy's options are privatization, austerity, and shifting the burden on to the taxpayer.\",\n \"Rescuing the private banks has made very little difference. None of the countries in real trouble have large banking sectors. The majority of the problems has stemmed from the totally ridiculous public spending. Greece has a hilarious history of over spending. For example, their civil servants used to be paid for 14 months of the year. They also have comedy tax collection. According to there tax office there is only 324 swimming pools in the entire place..... a quick count on satellite reveals 1000s. Some data is here: http://www.nytimes.com/2010/05/02/world/europe/02evasion.html?pagewanted=all&_r=0 In reality many nations werent ready for the euro in the first place. But to be clear, blaming the banks is like blaming a snowball for the sinking of the titanic. The numbers aren't even in the same league.\",\n \"Weren't these fuckers just given 120 billion euros? At this point they should probably stop fueling this shit and just let them burn. European tax payers aren't the only ones dealing with this. The American Federal Reserve is lending money to the banks and the ECB to help with this. I don't want to pay for ailing banks in my own goddamn country, let alone those on the other side of the world in a country I may never visit.\",\n \"\\\"On contrary of what Mike Scott suggested, I think in case of EURO DOOM it's a lot safer if your savings were changed into another currency in advance. Beware that bringing your money into an EURO CORE country (like Finland, Austria, Germany, Nethereland) it's useful if you think those banks are safer, but totally useless to avoid the conversion of your saving from Euro into your national currency. In case of EURO CRASH, only the Central Bank will decide what happens to ALL the Euro deposited wherever, single banks, even if they are Deutsche Bank or BNP or ING, can not decide what to do on their own. ECB (European Central Bank) might decide to convert EURO into local currencies based on the account's owner nationality. Therefor if you are Greek and you moved your saving in a German bank, the ECB might decide that your Euro are converted into New Dracma even if they sit in a German bank account. The funniest thing is that if you ask to a Finland bank: \\\"\\\"In case of Euro crash, would you convert my Euro into New Dracma?\\\"\\\", they sure would answer \\\"\\\"No, we can't!\\\"\\\", which is true, they can not because it's only the ECB (Europe Central Bank) the one that decides how an ordered Euro crash has to be manged, and the ECB might decide as I explained you above. Other Central Banks (Swiss, FED, etc.) would only follow the decisions of the ECB. Moreover in case of EURO DOOM, it's highly probable that the Euro currency looses a tremendous value compared to other currencies, the loss would be huge in case the Euro Crash happens in a disordered way (i.e. a strong country like Germany and their banks decides to get out and they start printing their own money w/o listening to the ECB anymore). So even if your saving are in Euro in Germany they would loose so much value (compared to other currencies) that you will regreat forever not to have converted them into another currency when you had the time to do it. Couple of advises: 1) If you want to change you savings into another currency you don't need to bring them into another bank/country (like US), you could simply buy US Shares/Bonds at your local bank. Shares/Bonds of a US company/US gov will always be worth their value in dollars no matter in what new pathetic currency your account will be converted. 2) But is there a drawback in converting my saving into another currency (i.e. buying dollars in the form of US treasury bonds)? Unfortunately yes, the drawback is that in case this Euro drama comes finally to an happy ending and Germans decide to open their wallets for the nth time to save the currency, the Euro might suddenly increase its value compared to other currencies, therefor if you changed your saving into another currency you might loose money (i.e. US dollars looses value against the Euro).\\\"\",\n \"One important answer is still missing: governments may not be able to do print money because of international agreements. This is in fact a very important reason: it applies to the entire Eurozone. (I admit that many Eurozone countries also not allowed to borrow as much as they do now, but somehow that's considered a far lesser sin).\",\n \"I'm worried that it's, as so many observers or commentators seem to be doing with these crises, pre-empting events. I do wish news reporters would stick to reporting the news, rather than panicking people by putting forward their view that something is going to happen, such as Greece exiting the euro and adopting a new currency. As with these things, expectations are key, and this is by no means helping.\",\n \"If any Euro countries leave the Euro, they will have to impose capital flow restrictions - it's a given, to avoid a complete implosion of the entire system. The idea of retroactive controls is very interesting - this may be one of the first times in a currency collapse that such a system would be feasible (i.e., both the country being fled from and the countries being fled to are under common control). No doubt they would try such a thing if they thought they could get away with it.\",\n \"I disagree. The question is leading, it presumes that backstopping the banks was a cause, not an effect, of poor government funding, which is absolutely insane. A country cannot be brought down by the financial sector, it's just not possible, not even where the country doesn't have monetary authority.\",\n \"I vehemently disagree with this. Greek crisis is completely different form Spanish, Irish or Portuguese crisis. Greece has a balance of payments + fiscal crisis, due to a government which has not been balancing its budgets for decades (ever?). Greece cannot spend its way out of this crisis because this isn't a demand led crisis.\",\n \"I was thinking down the road about what may happen as some countries pile on debt and others are more responsible. I've spent a lot of time oversea and talented people in the capital cities are really mobile these days. Right now there's a small brain drain to the benefit of Switzerland which has some really innovative people moving there. What if a large country like Germany were to do on a larger scale? Educated workforce, innovative and if you overlook a really ugly period, a great history of innovation. It seems they could bring in a lot of people from Japan and (increasingly) the US as they head slowly toward debt of 200% of GDP. Why would talented people who are highly mobile want to stay in a country where the debt will take 30 years to repay mostly on the back of the talented high earning people?\",\n \"My 0,02€ - I probably live in the same country as you. Stop worrying. The Euro zone has a 100.000€ guaranty deposit. So if any bank should fail, that's the amount you'll receive back. This applies to all bank accounts and deposits. Not to any investments. You should not have more than 100.000€ in any bank. So, lucky you, if you have more than that money, divide between a number of banks. As for the Euro, there might be an inflation, but at this moment the USA and China are in a currency battle that 'benefits' the Euro. Meaning you should not invest in dollars or yuan at this time. Look for undervalued currency to invest in as they should rise against the Euro.\",\n \"\\\">more foreign capital would flow in More capital flowing in to a country that defaults on its payments? Hah, that's a good one! Brazil defaulted in the 1980s, the result was a lost decade of high unemployment and hyperinflation reaching upwards of 80% **per month**. Same with Argentina, only their hyperinflation was above 200% per month. There's nothing positive coming from breaking up with the world's monetary system, any positive results that you get could be obtained with much less suffering by doing whatever austerity measures you need in order to honor your debts. I'm Brazilian and had to go through that situation just as I was starting to work. Ironically, the labour party is now in power here and Brazil is now a net creditor internationally. AFTER the \\\"\\\"evil capitalists\\\"\\\" took power and privatized the state corporations the situation started to improve, and the labour party finally managed to be elected and now are reaping the fruits of all that they fought so hard against. I remember their slogans in the 1989 election campaign: \\\"\\\"the external debt is immoral and unpayable\\\"\\\", \\\"\\\"no to privatization\\\"\\\".\\\"\",\n \"> Europe is a temporary problem. Lol.. The better question for this thread is how is the European economy not utterly doomed? I see no way at all of the Euro surviving. Greece has already technically defaulted by saying it's not going to pay back all of it's debt. They will officially default when Germany stops bailing them out. Spain is in the exact same situation, just about a year behind. They haven't technically defaulted yet, but they will. They're receiving bailout after bailout and the Greece situation only makes their interest rates worse. Italy is just barely behind Spain, the Greek default followed by the Spanish defualt will send Italian interest rates through the roof dooming them to the same fate. This will eventually effect the US, but our borrowing rates are held artificially low due to the Fed just printing up more fake money and letting the US borrow as much as it wants. If you don't see this scheme crumbling and collapsing, I'm just curious what you actually think *will* happen?\",\n \"The best scenario I've heard is by Tyler Cowen: Basically, the Greek Government runs out of Euros. So they print up IOUs to issue to their workers, pensioners, etc promising payment of Euros at some future date. The first day, some wag holds up the IOUs says 'hey, look at these drachmas'. By the seventh day, the IOUs are trading at a discount - there's an exchange rate between the IOUS and Euros, and you in essence have a Drachma currency. What that does in terms of converting external debts, bank accounts, and etc from Drachmas into Euros I'm not sure about. Obviously this isn't the best way to go about getting out of the Euro, but it's the best 'muddle through' option and given how Europe in general has been dealing with this problem it's highly probable this is the method they'll take.\",\n \">The EU focus on fiscal deficit is completely mistaken. They are the result of the crisis, not the cause. The fiscal deficit was *increased* by the crisis, but there would not have been a crisis at all if nobody had been running up debts either. It's possible to shift private deficits to public (as happens if people borrow more money than they are taking in, default on loans, cause a bank to run out of money, and the government decides to transfer the bank's losses to its taxpaying public). However, it's still ultimately driven by running a deficit until an unsustainable amount of debt is public, via one mechanism or other.\",\n \"Loans and bailouts to Spain is sending a distinct message to the sixteen other nations of the eurozone and one that could severely impact all of them. The survival of the euro is very much close to an exit. Register Today for all the exciting news and discussion groups we have to offer! @ http://www.igoldpost.com/register-today/\",\n \"The reason they have this massive debt is largely (not entirely) because they have been employing Keynes' policies and spending more than they had for so many years as it is. Austerity is not the solution. However, reckless spending is not the solution either. A lot of people arguing for keynesian policies (not a bad idea in most recessions) don't grasp that investors have a limited amount of money to invest and aren't going to place it in a country that has as bad of a debt problem as you pointed out. So many people keep arguing these struggling countries need to spend more. While that would help expand their economies, it is not feasible. Where do you guys going to think the money is going to come from? If investors don't want to provide then they have to print more money, which creates the risk of hyperinflation. Spending could help a little maybe if it was a realistic thing to do. Right now any Keynesian solutions are a fairy tale. Countries like Greece need to do what they can with the resources available to them instead of spending like a bunch of millionaire playboys on crystal meth. Look at the U.S. We have spent trillions and our GDP is still growing at only slightly more than half the rate it has from 1947-2012. If people expect massive government spending to be a fix to these problems, then we are a clear case that it isn't. I acknowledge we could be a lot worse and possibly still be seeing a contraction without the spending, but it clearly isn't fixing our problems and sooner or later we won't be able to take on more debt to fix it. We need real solutions to generate real growth instead of dicking around like this. Other western countries need to do the same. edit:Also what we are doing right now would not be considered keynesian solutions. Keynes would advocate spending money to fix the problems, not just dumping money into the economy. That is something I would agree with. But since our politicians can't grasp that I don't want them in control of the purse strings anymore.\",\n \"For now we can pay off our debt in United States dollars. If we lose our reserve currency status, we would have to pay it off with a different currency. If we continued printing money we would be debasing our currency against the new reserve currency, which would mean that after we took on too much debt we wouldn't really be able to pay our creditors back after exchanging our devalued currency for the new one on the international markets. We are lucky enough not to have to worry about this now. But I think OP was referring to all countries in these situations. Other countries don't have the luxury of just printing out massive amounts of money to pay off their debts. That is why I am saying that America has a very disillusioned view of reality when it comes to deficit spending. We wouldn't have that any more if the UN followed through with its suggestion to create a global reserve currency or reverted back to the gold standard (I don't think the second option is nearly as realistic but we never know).\",\n \"\\\"Yet another \\\"\\\"If X, then EUROFAIL!!\\\"\\\" It's really fucking tedious even without the screamingly, mind-numbingly wrong \\\"\\\"logic\\\"\\\" of this one. If you're lending money to Germany at 0% and still expect to make a profit, it's because the Euro *will be HIGHER* than your currency at the end of the loan period. This one doesn't look like stupidity so much as a really ham-fisted manipulation attempt to engineer a short-term euro drop for a nicer buy-in.\\\"\",\n \"Most national banks are required by the regulations of their host countries to hold significant reserves in the form of government debt. A default would likely wipe out their capital and your common stock would become worthless. The common stock only has positive value today because of the option value based on the possibility the host country will evade a default.\",\n \"\\\"The short answer is that you will not be able to go back to whichever discussion you were having and say \\\"\\\"the Euro crisis was caused by bailing out private banks,\\\"\\\" if that is indeed what you were ultimately searching for here.\\\"\",\n \"There's no need to move it to a different currency, but if your bank is in Portugal, Ireland, Italy, Spain or Greece, you might consider moving it to a different Eurozone country. Finland, Austria, Germany or the Netherlands seem safest at present. There's a small risk of a forcible Eurozone exit followed by redenomination of bank deposits into a new currency that will immediately collapse.\",\n \"Are you trying to get someone to do your homework for you? This question has been answered repeatedly in the negative by everyone who actually studies the economy. Read Mundell-Flemming model, and learn this stuff. You can see why currency regimes like the Euro make sense from a theoretical stand point, but where flexible exchange rates are a welcome release valve for pressures. You obviously have never studied economics. Hyper inflation doesn't happen becuase of floating exhange rates. Hyperinflation happens when people lose faith in the governing body, regardless of who that is. You think political regimes won't change just because there is one currency? No, they will still spent 1.05 for every dollar they bring in taxes. Hyperinflation is not a problem of floating exchange rates, it doesn't follow from any causal relationship.\",\n \"As others said, Greece cannot set.monetary policy because that is the job of the ECB. If you meant fiscal policy, then you are right: their high levels of debt plus their default this year make it so that they cannot unilaterally borrow more money to run a deficit as the private market will not lend to them. This makes them dependent on a bailout.\",\n \"Those government workers in Greece were just mooching off a corrupt system that was enabled by the blind pursuit of yield and the moral hazard of bailout expectations. They were way overpaid to do nothing but collect bribes and drink coffee all day. Good riddance. Greece is a poor agricultural country with some tourism and some shipping, and needs to go back to living within its means. Nobody is going to starve, and high unemployment was always the norm there until a few years ago - I lived there before the Euro, and they managed just fine despite high interest rates and inflation. Japan has had lost decades because its banks, like those in the west now, are practicing extend and pretend, so there hasn't been a proper flush of the system. The PIIGS should just flat out default and get it over with, rather than slowly default while giving up sovereignty. Even Germany would be better off if the PIIGS defaulted, since it is German taxpayers and savers who are going to pay for these bailouts. Let the banks fail, meaning let their equityholders and bondholders take losses - the depositors will be fine. The resulting lower asset prices will tempt risk capital back into the system, and life will go on. Bailouts just throw good money after bad and prop up corrupt banks and politicians. EDIT: Let me clarify about depositors making out fine. The banks' equityholders and bondholders take losses before depositors, who are insured anyway. In most cases, in Europe as in the US, the write-downs are not large enough to eat through this cushion before threatening depositors. Creditors were rewarded with higher interest for lending to these irresponsible banks, so they should take the hit rather than get made whole at taxpayer and saver (inflation) expense.\",\n \"do you really want another overblown economic crisis that lets billions starve? Throwing money at the problem to temper it is the only solution. What needs to happen while that is being done is aggressive reform and belt tightening - and that's not happening fast enough which may then lead us into a larger full blown crisis. i.e. you may just get your wish.\",\n \"\\\"Do you have the felling this is going to get much much worse before it gets better? I mean, Greece is going through with austerity measures and will be cutting gov't spending and raising taxes again. They will be cutting over 150,000 gov't workers, pensions cut, etc. How are they ever going to grow? If Spain and Italy follow in this practice, I see another \\\"\\\"loss decade\\\"\\\" just like Japan went through. If not a total EU collapse.\\\"\",\n \"\\\"I was being sarcastic. What I was trying to say was that this is a horseshit \\\"\\\"kick the can down the road\\\"\\\" maneuver that will only make things worse in the long run. Spain is fucked, Italy is next. Greece is leaving the Euro, and soon there will be capital controls all across Europe. It'll be hell.\\\"\",\n \"The answer is far more simple. The purchasers of periphery debt have been banks in the periphery. Since these countries don't have a central bank, their private banks were swallowing the national debt since nobody else wanted to touch it. When the market value of that debt plummets, the banks have massive holes they need to fill on their balance sheets to fulfill capital requirements and solvency. Therefore, the banks themselves need to be injected with liquidity. Now you can see why its a reiterative problem.\",\n \"The free market will determine exchange rates. But only sort of. If anyone leaves the euro expect and immediate mother-of-all-bank-runs. Then the new currency will begin to trade both officially and unofficially and eventually a market clearing price will be set. Whether that lands on an officially pegged rate or at a discount to that rate is a total crapshoot and not even worth trying to predict.\",\n \"\\\"No one's worrying about \\\"\\\"GFC II.\\\"\\\" A Greek default/exit would hurt banks, but not that much more than is already priced into the market. The capital most big banks have raised would be sufficient to deal with Greece contingency. The real damage would be to GDP figures.\\\"\",\n \"I suppose they still could risk hyperinflation? Anyways, if they got their own currency that would probably be positive for their exports. Still, what are they going to export? Buying any raw materials would be super expensive with their devalued currency. What is your thought about their exporting with devalued currency?\",\n \"\\\"Debt can be denominated either in a currency the country controls or a currency the country doesn't control. If the debt is denominated in a currency the country controls then they have the option of \\\"\\\"printing their way out of it\\\"\\\". That option doesn't come for free, it will devalue their currency on the global market and hurt savers in their country but it is an option. If the debt is denominated in a currency the country does not control then they don't have that option. As I understand it the US debt is in the first category. It's denominated in US dollars so the US government could if they so wished print their way out of it. On the other hand greece's debt is denominated in euros putting them at the mercy of european bankers.\\\"\",\n \"\\\">If we lose our reserve currency status, we would have to pay it off with a different currency. No, a debt that comes into being as dollar-denominated remains dollar-denominated. Reserve currency status doesn't change this. The advantage of having the reserve currency is that other countries have a strong motive to accumulate dollars. Because of this we can pay for our imports in dollars. If we no longer had the reserve currency we would lose the ability to run a persistent trade deficit without borrowing foreign currency to do so. To some extent this would self-correct. If foreigners no longer desired to hoard dollars, the flow of dollars back in to the US would bring down the trade deficit. Going forward, we'd have to \\\"\\\"live within our means\\\"\\\" with respect to foreign trade, funding imports with exports. Domestically every country that has its own currency, not just the US, can use that currency to fully fund its own domestic productive capacity. Printing money doesn't make a poor country rich but it does allow any country to fully realize its own potential. >Other countries don't have the luxury of just printing out massive amounts of money to pay off their debts. This is only true when a country borrows in a currency it doesn't issue. When a country spends in its own currency its policy space is constrained by inflation. To the extent any country uses, pegs to or borrows in someone else's currency that policy space is narrowed by the need to first borrow or earn that currency. >if the UN followed through with its suggestion to create a global reserve currency or reverted back to the gold standard The euro shows us where that road leads. Countries that give up monetary authority give up sovereignty and when they find themselves in a situation where the monetary policy they no longer control is at odds with their needs, their economies get torn apart. That's why one country, one currency is good policy. Stability and maximum policy space is achieved when fiscal authority, political legitimacy and monetary authority are consolidated at the same level. It's a three-legged stool that becomes a fragile balancing act when one leg is taken away. Also, there's a whole side discussion to be had on what the alternatives are to the dollar as a reserve currency. The dollar is in that position for a reason.\\\"\",\n \"''just how much of the troubled southern EU nations' debt is due to the rescuing of private banks? thanks'' My answer rambled onto related topics. In short, not much. While the actual sums involved in bank bailouts are considerable, relative to sovereign debts run up by having structural/trade deficits for ~10 years, they aren't the problem in Europe at the moment...but they ARE the tip of an Iceberg that could sink parts of the EU and leave the rest struggling to stay above water. An interesting question to ponder, with deceptively simple answers, is: If the % of sovereign debt resulting from bank bailouts is so small, why does the media and general public throw a fit every time a major EU bank gets into trouble? People are worried about losing their savings that they have with that bank. Its a visceral fear that is easy to personally relate to. But scratch below the surface and there is a whole buffet of terror for you to feast on. Assuming leverage of ~26* on assets held by banks and that true liabilities aren't completely opaque to average Joe retail investor, the collapse of the right bank could fire the starting gun on a vicious recession, trigger bailouts of other institutions exposed to the original and all sorts of nasty events. These bank assets include the mess created by rehypothecation, securitization of shitty credit/assets and CDS, commercial paper that relies on never having to be realized as a loss and interference in the money markets and currencys by states. Its damn hard to work out what assets and liabilities a bank has these days, let alone what any debt they have taken on is worth. Euro Crisis Best Crisis. *Pulled from memory, I'm not sure if this is accurate for Europe.\",\n \"> there is no way they will let it collapse Do you think they would have let it get to the point of imminent collapse, if they could do anything about it? Why do you think they will have any more power over the next stage in this debacle?\",\n \"\\\"Except the government in this case has decided to limit itself to Euros, a currency it does not control and therefore one it can \\\"\\\"run out of\\\"\\\", making deficit spending a risky proposal indeed. The correct approach is of course to never join such a regime in the first place, and then deficit spend as needed to keep your labor force highly employed.\\\"\",\n \"\\\"i hate to say it, and i will probably be downvoted to oblivion, but i don't think you can do anything. i'm not an expert, so i might be wrong, but if greece (or any euro country, for that matters) decides to exit the euro, the currency will be dead within the week. that, from what i've read in various newspapers, will be an incredibly bad news for the european economy. which *will* collapse in a very short period of time. then the collapse would propagate (more or less slowly, more or less significantly) to other economies, especially china and US, possibly middle east, too. at that point, you (well, we) have a major economic cataclysm. would it really matter if you had a tiny bit more money than your neighbour, if production stops, goods don't move that much anymore, and your country is generally in such a deep shit that the potato famine will look like a day in eurodisney? i agree with what other people are saying: they will not allow the euro to fall. \\\"\\\"they\\\"\\\" sounds like hidden conspiracies, but even if european leaders have taught us that we can expect the worse from them (2 world wars in the last centuries are just the quicker reminder of their stupidity), there's the americans, the chineses, and so on. i think the worst thing you, or anyone else in europe, can do is panicking and moving their money around. if the exchange rate with the euro is not fixed (and nothing is) you still have a chance to lose a significant amount of money in the short-medium run, in a worst case scenario. chill. relax. if you're really desperate and think that things *will* go bad, try turning a hobby into another job, especially if you can do it online and can bring you a steady income eventually. **TL; DR: if the world economy collapse, you will still lose money. live happy. chill.**\\\"\",\n \"\\\"For political reasons, almost all governments (including the US) spend more money than they get from taxes etc. There are a number of things a government can do to cover the difference: Most governments opt for selling bonds. The \\\"\\\"National Debt\\\"\\\" of a country can be thought of as being the sum of all the \\\"\\\"Bonds\\\"\\\" that are still paying interest, and that the Government hasn't Redeemed. It can all go horribly wrong. If the Government gets into a situation where it cannot pay the interest, or it cannot Redeem the Bonds it has promised to, then it may have to break its promise (\\\"\\\"Default\\\"\\\" on its payments). This makes the owners of the Bonds unhappy and means potential buyers of future Bond sales are less likely to want to buy the Governments new Bonds - effectively meaning the Government has to promise to pay more interest in the future. Recent examples of this include Argentina; and may include Greece soon. The US is in the fortunate position that not many people believe it will Default. Therefore the new Bonds it sells (which it does on a regular basis) are still in demand, even though its interest payments, and promises to Redeem Bonds are huge.\\\"\",\n \">The interesting thing for me - In Ireland's case they need to have a refurendum. I wonder if they will accept this? It's not clear cut whether we need a referendum. It's a common misconception that all Treaty changes require a referendum in Ireland. Not so. In Crotty v An Taoiseach it was accepted by the Supreme Court that joining the EEC (as it then was) involved getting on board a moving train and that even the assignment of new competences to Europe would not necessarily necessitate a referendum. Any change in the fundamental scope of the Union would however require a referendum. In that case the introduction of a Common Foreign and Security Policy and qualified majority voting was a change in scope and referendum was necessary. In this case, it's hard to tell. The EU already has some competence in this area - its possible to levy fines etc for breaches of the stability and growth pact already. I couldn't predict how the Supreme Court would characterise giving the Court of Justice oversight in this area. They will feel presssure from many corners in this case as well - holding in favour of a referendum might be seen as threatening economic disaster, while holding against would undermine democratic legitimacy. If there is a referendum, I predict it will go down like a lead balloon. Forcing the Lisbon Treaty on the electorate twice gave rise to enough resentment - botching the recovery and being seen to enforce austerity on the country made it worse. I imagine support for the EU is at an all time low in this country.\",\n \"ok fuck it then, you'd rather discuss how to pass the CFA five times a week? enjoy! by the way - if you're going to be so condescending with your information - at least be correct when doing so. Ireland and Greece have both taken on debt to support failing banks - whether or not they did before the crisis, and whether or not it is only a small % of total deficit, is irrelevant to his question. this is the entire reason direct recapitalizing has been implemented with ESF - to prevent further deterioration of country balance sheets\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["The Euro is a common currency between various countries in Europe. This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU. Such a system has many advantages, but it also means that individual countries cannot deal with their unique situations as easily. For instance, if the US were a part of the EU, then the Fed couldn't issue $600B the way they are to bolster the economy. The danger to the Euro is that countries will withdraw their participation in order to micromanage their economies more effectively. If a major country withdraws its participation, it could start a domino effect where many countries withdraw so that they too can manage their economies more effectively. As more countries withdraw, a shared currency becomes less and less appealing."],"string":"[\n \"The Euro is a common currency between various countries in Europe. This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU. Such a system has many advantages, but it also means that individual countries cannot deal with their unique situations as easily. For instance, if the US were a part of the EU, then the Fed couldn't issue $600B the way they are to bolster the economy. The danger to the Euro is that countries will withdraw their participation in order to micromanage their economies more effectively. If a major country withdraws its participation, it could start a domino effect where many countries withdraw so that they too can manage their economies more effectively. As more countries withdraw, a shared currency becomes less and less appealing.\"\n]","isConversational":false}}},{"rowIdx":296,"cells":{"_id":{"kind":"string","value":"3888"},"query":{"kind":"string","value":"Why I can't view my debit card pre-authorized amounts?"},"gt_ids":{"kind":"list like","value":["307083","319213","239632"],"string":"[\n \"307083\",\n \"319213\",\n \"239632\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["208169","448086","181757","283889","91804","307083","323213","9830","313441","75735","385237","597933","384892","598419","276733","316652","261161","519328","458374","209718","168283","240328","319213","486617","306684","443609","236289","380595","382347","109164","5334","514155","434320","444640","151639","50347","75538","186671","385746","122493","359039","13800","234632","294077","285638","593547","178290","152689","165995","456147","288657","490955","517006","585890","262524","185403","185434","481665","423505","405848","219990","266493","181697","450371","428689","282934","568636","303713","432077","146909","278667","207992","233040","181538","278666","132636","175448","440527","376353","64547","224801","281977","516608","372282","479105","86532","244133","366578","210855","159783","329957","595633","328253","273944","239632","265640","361917","39772","44113","264932"],"string":"[\n \"208169\",\n \"448086\",\n \"181757\",\n \"283889\",\n \"91804\",\n \"307083\",\n \"323213\",\n \"9830\",\n \"313441\",\n \"75735\",\n \"385237\",\n \"597933\",\n \"384892\",\n \"598419\",\n \"276733\",\n \"316652\",\n \"261161\",\n \"519328\",\n \"458374\",\n \"209718\",\n \"168283\",\n \"240328\",\n \"319213\",\n \"486617\",\n \"306684\",\n \"443609\",\n \"236289\",\n \"380595\",\n \"382347\",\n \"109164\",\n \"5334\",\n \"514155\",\n \"434320\",\n \"444640\",\n \"151639\",\n \"50347\",\n \"75538\",\n \"186671\",\n \"385746\",\n \"122493\",\n \"359039\",\n \"13800\",\n \"234632\",\n \"294077\",\n \"285638\",\n \"593547\",\n \"178290\",\n \"152689\",\n \"165995\",\n \"456147\",\n \"288657\",\n \"490955\",\n \"517006\",\n \"585890\",\n \"262524\",\n \"185403\",\n \"185434\",\n \"481665\",\n \"423505\",\n \"405848\",\n \"219990\",\n \"266493\",\n \"181697\",\n \"450371\",\n \"428689\",\n \"282934\",\n \"568636\",\n \"303713\",\n \"432077\",\n \"146909\",\n \"278667\",\n \"207992\",\n \"233040\",\n \"181538\",\n \"278666\",\n \"132636\",\n \"175448\",\n \"440527\",\n \"376353\",\n \"64547\",\n \"224801\",\n \"281977\",\n \"516608\",\n \"372282\",\n \"479105\",\n \"86532\",\n \"244133\",\n \"366578\",\n \"210855\",\n \"159783\",\n \"329957\",\n \"595633\",\n \"328253\",\n \"273944\",\n \"239632\",\n \"265640\",\n \"361917\",\n \"39772\",\n \"44113\",\n \"264932\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["It's not so much a credit card, but a financial institution's online platform that either provides this functionality or not. The following Canadian financial institutions show an itemized list of pre-authorized transactions (not an exhaustive list): The following institutions show a total value of pre-authorized transactions: Most other institutions show the available credit (e.g. Chase Financial used by Amazon Rewards), which give an indication of how much you have to spend. By subtracting the current balance and the available balance from the total credit limit, you can get an indication of the total amount of pre-authorized transactions. Example: $1000 - $500 - $400 = $100 is the amount of pre-authorized transactions. From TD's EasyWeb demo (http://tdeasywebdemo.com/v2/#/en/PFS/accounts/activity/chq), it appears that they don't include pre-authorized transactions in the Available Credit. You can verify for yourself by logging in to online banking after you make a purchase and comparing the Available Credit to [Credit Limit - Current Balance]. If it is equal, then they don't include, if it is different (most likely for the value of the transaction), then they do.","\"PC MasterCard recently added this as a new feature to their online system. It lets you see \"\"Pending Authorizations\"\" for your card when you log in. Their email said: Along with your purchases, you'll see a list of every transaction that's been approved, but not yet applied to your balance. You'll be able to identify these with the word “Pending” in the date column. Here's a link with more information: http://pcfinancial.ca/pendingauthorization/\"","The way that credit card transactions happen are: In your example, the card is authorized for the charge but the transaction never actually moves on to the next step. However, your available credit should drop by whatever the authorized amount is and this will not disappear until it naturally goes away when the transaction does not move onto the next step.","\"From my days in e-commerce they break down like this? The company doesn't know a debit from a credit card. Got the Visa logo, then it is a Visa through the company's payment gateway. The gateway talks to the bank and that is where the particulars for money is figured out. When I programmed gateway interfaces, I had the option to \"\"authorize\"\" or check for funds (which didn't reserve anything, just verified funds existed), run for batch (which put a hold on the funds and collected them at the end of the night) or just take the money. Most places did a verify during the early checkout stages and then did a batch at the end of the night. The nightly batch allows a merchant to cancel a transaction without getting charged a fee. The \"\"authorize\"\" doesn't mean the money is tied up, although that might be your banks policy. Furthermore, an authorize can only last for so many days. This also explains why most of your banks don't report your transactions to you the day of. There is a bunch more activity on your card than the transactions that complete.\"","Is there a debit card accessing this account? When you spend money on a debit card for certain item, including, but not limited to gas, restaurant, hotel, a bit extra is held in reserve. For example, a $100 restaurant charge might hold $125, to allow for a tip. (You're a generous tipper, right?) The actual sales slips my take days to reconcile. It's for this reason that I've remarked how credit cards have their place. Using debit cards requires that one have more in their account than they need to spend, especially when taking a trip including hotel costs.","\"The simplest answer to why you can't see it in your online statement is a design/business decision that was made, most probably originally to make online statements differ as little as possible from old fashioned monthly printed statements; the old printed statements never showed holds either. Some banks and card services actually do show these transactions online, but in my experience these are the rare exceptions - though with business/commercial accounts I saw this more, but it was still rare. This is also partly due to banks fearing lots of annoying phone calls from customers and problems with merchants, as people react to \"\"hey, renting that car didn't cost $500!\"\" and don't realize that the hold is often higher than the transaction amount and will be justified in a few days (or weeks...), etc - so please don't dispute the charges just yet. Behind the scenes, I've had bankers explain it to me thusly (the practice has bitten me before and it bothered me a lot, so I've talked to quite a few bankers about this): There are two kinds of holds: \"\"soft holds\"\" and \"\"hard holds\"\". In a soft hold, a merchant basically asks the bank, \"\"Hey, is there at least $75 in this account?\"\" The bank responds, and then has it's own individually set policy per account type as to how to treat that hold. Sometimes they reserve no money whatsoever - you are free to spend that money right out and rack up NSF fees to your heart's content. Yet some policies are to treat this identically to a hard hold and keep the money locked down until released. The hard hold is treated very much like an actual expenditure transaction, in that the money is locked and shown as no longer available to you. This varies by bank - some banks use an \"\"Account Balance\"\" and an \"\"Available Balance\"\", and some have done away with these dual terms and leave it up to you to determine what your balance is and what's \"\"available\"\" (or you have to call them). The key difference in the hard hold and a real expenditure is, technically, the money is still in your bank account; your bank has merely \"\"reserved\"\" it, earmarking it for a specific purchase (and gently promising the merchant they can have their money later), but the biggest difference is there is a time-limit. If a merchant does not process a completion to the transaction to claim the money, your bank will lift the hold after a period of time (I've seen 7-30 days as typical in the US, again varying by institution) returning your money to your balance that is available for purchasing and withdrawal. In every case, any vaguely decent banking institution allows you to call them, speak to some bank employee, and they can look up your account and inform you about the different sort of holds that are on your account that are not pending/completed purchase transactions. From a strictly cynical (perhaps rightly jaded) point of view, yes this is also used as a method to extort absurdly high fees especially from customers who keep a low balance in their account. I have had more than one bank charge NSF fees based on available balances that were due to holds made by gas pumps, for instance, even though my actual \"\"money in my account\"\" never went below $0 (the holds were for amounts larger than the actual transaction). And yes, the banks usually would waive those fees if you bothered to get someone on the phone or in person and made yourself a nuisance to the right person for long enough, but they made you work for it. But I digress.... The reality is that there are lots of back and forth and middle-men in transactions like this, and most banks try to hide as much of this from you the client as possible, partly because its a huge confusing hassle and its part of why you are paying a bank to handle this nonsense for you to start with. And, as with all institutions, rules and policies become easily adjusted to maximize revenues, and if you don't keep sizable liquid minimum balances (100% of the time, all year long) they target you for fees. To avoid this without having fat wads of extra cash in those accounts, is use an entirely disconnected credit card for reservations ONLY - especially when you are traveling and will be making rentals and booking hotels. Just tell them you wish to pay with a different card when you are done, and most merchants can do this without hassle. Since it's a credit card with monthly billing you can often end up with no balance, no waiting around for a month for payments to clear, and no bank fees! It isn't 100%, but now I never - if I can possibly avoid it - use my debit/bank card to \"\"reserve\"\" or \"\"rent\"\" anything, ever.\"","That's how my power company does it. You authorize them to direct debit recurring monthly. If they screw up and withdraw $1000, you're out until it gets fixed. But it varies from company to company. Not everyone's situation is like your online banking.","The answer to your question is very simple: The preauth and the shipment of the goods have no connection within the credit card system. It is possible to process a payment that does not cancel a preauthorization. This is needed for the case where you place two orders and the one you placed second ships first. A preauth can remain active for some time unless it is captured or cancelled. So in your case a preauth was placed and remained active. That you were shipped and billed for some goods had no effect on the preauth because one side or the other failed to attach them.","\"There are, in fact, two balances kept for your account by most banks that have to comply with common convenience banking laws. The first is your actual balance; it is simply the sum total of all deposits and withdrawals that have cleared the account; that is, both your bank and the bank from which the deposit came or to which the payment will go have exchanged necessary proof of authorization from the payor, and have confirmed with each other that the money has actually been debited from the account of the payor, transferred between the banks and credited to the account of the payee. The second balance is the \"\"available balance\"\". This is the actual balance, plus any amount that the bank is \"\"floating\"\" you while a deposit clears, minus any amount that the bank has received notice of that you may have just authorized, but for which either full proof of authorization or the definite amount (or both) have not been confirmed. This is what's happening here. Your bank received notice that you intended to pay the train company $X. They put an \"\"authorization hold\"\" on that $X, deducting it from your available balance but not your actual balance. The bank then, for whatever reason, declined to process the actual transaction (insufficient funds, suspicion of theft/fraud), but kept the hold in place in case the transaction was re-attempted. Holds for debit purchases usually expire between 1 and 5 days after being placed if the hold is not subsequently \"\"settled\"\" by the merchant providing definite proof of amount and authorization before that time. The expiration time mainly depends on the policy of the bank holding your account. Holds can remain in place as long as thirty days for certain accounts or types of payment, again depending on bank policy. In certain circumstances, the bank can remove a hold on request. But it is the bank, and not the merchant, that you must contact to remove a hold or even inquire about one.\"","I called Bank of America today about the same problem on my account. The service representative said that part of money is available to me and I can use the money.","It will depend on credit they are offering you during the period being covered. A gas station locks up what they expect is the maximum transaction for most people. When the prices of gas spikes some people have the pump turn off before the tank is filled, therefore they need to use a 2nd card to complete the purchase. Before you arrive at a hotel they lockup the cost of one night in the hotel, that way they still sell the room for one night if you never show. While you are there they lockup the cost of what you could owe them. This would include the cost of the room, and average room service or bar service. For a car rental, it would be based on the risk they perceive. They don't want to try and collect against a card you gave them when you reserved the car, or when you picked up the car, only to find that you have gone over the limit. Some online systems will let you see what is pending against your card. Others could provide that information to you over the phone.","\"As for PC Mastercard like stated by @nullability, VISA Desjardins list the \"\"Pending Authorizations\"\" almost instantly (the time it's take to get back home) in AccesD (Their Web portal for managing accounts).\"","\"The \"\"hold\"\" is just placeholder that prevents you from overspending until the transaction is settled. The merchant isn't \"\"holding\"\" your money, your bank or card provider is protecting itself from you overdrawing. In general, it takes 1-3 days for a credit transaction to settle. With a credit card, this usually isn't an issue, unless you have a very low credit line or other unusual things going on. With pre-paid and debit cards, it is an issue, since your spending power is contingent upon you having an available balance. I'm a contrarian on this topic, but I don't see any compelling reason to use debit or stored value cards, other than preventing yourself from overspending. I've answered a few other questions in detail in this area, if you're interested.\"","Context clues hun. I was talking about if you go to Chilis and swipe your card for $20 and leave a $5 tip the processing amount the bank takes into account when telling you your available balance is much more likely to be $23 than $25. So the bank knows I went to Chilis the second I swipe my card, but doesnt know the exact amount. I was saying a lot of people dont understand that. They see they spent X at Chilis (processing) and assume it to be fact. I don't understand why you're having such a difficult time with this concept. Also comparing swiping a debit card as credit to writing a check (in terms of when they show up on your account) is a terrible comparison. When a check goes through the accurate balance is taken out all at once a few days later, but when you swipe a debit card as credit a tentative balance is taken out immediately and adjusted to the actual balance when it settles. And calling me ignorant because I don't need the help writing down where my money is at or goes is pretty ironic.","I don't use pre-authorized automatic payment methods because there is no control, and it is impossible to get it back. Once you have authorized a firm to withdraw funds from your account, there is no realistic way to revoke that control, save closing down your bank account entirely and moving to another institution. I once had automatic payments set up for my apartment rent, and then one month they withdrew twice on one day, overdrawing my account; it was very difficult to dispute the charge and get it back. The bank was little help as I had authorized them to withdraw funds; it didn't make any difference that they had done it twice, because I had given them permission to withdraw that amount. The property management company was large and difficult to contact, and at first denied any wrongdoing. tl;dr version: it's more pain than it's worth, and I will never do it again.","I stopped using pre-authorized payments for things like telephone etc., because it made it more possible/likely for a fraudulent charge to sneak by. But if there is an occasion for choosing pre-authorized payments (like charities, and places of exact fixed price) I use my credit card because then I also get points. Furthermore, I reason (perhaps wrongly) that if there is intermediary step between actual money (bank account) and the source of the bill then it gives me better chance of catching irregularities and hence a little safer. I am sure other members here will laugh my naivety, but there you have it.","\"This question is likely to be closed as a product recommendation request. But if you are willing to change the question a bit, perhaps to \"\"How do I avoid having my debit card declined when I know I have good funds\"\" it becomes a reasonable general question. And my answer follows. I can tell you the same thing happens to those of us with credit cards. It can happen when your buying pattern changes. Suddenly buying a lot of merchandise, especially away from home. Nothing like having your card declined while with relatives you visit or while on vacation. I'd talk to the bank and ask for advice how to avoid this. I've called my card issuer to tell them I'll in X city for these dates, to expect charges from there. That seems to work well.\"","\"I don't think the reason is \"\"to verify that it is truly me\"\". It should be possible for someone else (friend, relative...) to make a payment on your behalf, using their own card. It is common that \"\"gift cards\"\" are not per-authorized for \"\"Card Not Present\"\" (CNP) use like on the internet, or over the phone. In many cases, you can register your card, online or by speaking to a representative over the phone. After that, you should be able to use it to pay your phone company. Also, depending on where you got the card, you may be able to go to a teller at the issuing bank, and withdraw cash (or get a check), possibly without a fee.\"","In addition to @mhoran_psprep answer, and inspired by @wayne's comment. If the bank won't let you block automatic transfers between accounts, drop the bank like a hot potato They've utterly failed basic account security principles, and shouldn't be trusted with anyone's money. It's not the bank's money, and you're the only one that can authorize any kind of transfer out. I limit possible losses through debit and credit cards very simply. I keep only a small amount on each (~$500), and manually transfer more on an as needed basis. Because there is no automatic transfers to these cards, I can't lose everything in the checking account, even temporarily.","Given you mention a check clearing, in addition to debit card holds as JoeTaxpayer notes, you may also have funds that are on hold for that reason. While the bank may have stated it would be a one day hold, some banks may mean business days (Monday-Friday), and so it will become available on Monday. This is because checks are not always instantly withdrawn from the other account (although this is becoming much more common post-electronic check reform), so the bank wants to make sure it actually is getting the money from the check; after all, if the check you deposited bounces, the bank doesn't want to end up footing the bill. The bank allows you some portion up front, largely as a customer service; the amount varies from bank to bank, but it's generally a small amount they don't mind risking. $200 is a pretty good amount, actually; back when I was just out of college and frequently spending the last $50 in my account, the pre-clearance amount was usually $50. If the bank does this to you regularly and you feel that it is unfair in how long it holds checks, you might consider shopping around; different banks have different hold policies, or might allow you a larger amount up front. In particular, online banks tend to have more favorable terms this way.","a typical debit card is subject to several limits:","The RDFI (Receiving Depository Institution) is the place where you keep your money and where the Debit is going to be made. Unfortunately the Debit did not go through for some kind of regulatory reason that I don't understand. You could ask them why people are not allowed to make ACH Debits there or you can try to pay through a different bank.","No money is stolen. They don't show you the hold for whatever reason (not so good a bank?), but the money is still yours. You just cannot use it, but it is still on your account. These holds usually go away after a week. In certain cases (like a security deposit) it may take up to 30 days. You can request from the merchant to cancel the hold if it is no longer necessary. They'll have to be proactive on that, and some merchants wouldn't want the hassle. It is however a known issue. When I was working in the banking industry, we would routinely receive these hold cancellation requests from merchants (hotels and car rentals).","There's the fear that one might forget the debit is coming and still bounce the payment. Personally, I agree with Dheer's list, I don't want to give someone unlimited access to my account. I make good use of electronic payments where I initiate the payment. For the credit card I use regularly, I have a $250 monthly payment set to go automatically. If I forget to make a payment or lose the bill, at least the minimum is covered. The monthly charges are enough that when I actually pay the bill in full upon receipt, it just goes in toward current charges. Bills like gas/electric/phone are different every month, so an auto-debit is actually more trouble than how I handle.","Hence why I pay bill by bill and don't authorize automatic withdrawals. Are you telling me your online banking and/or utility company don't allow you to make non automatic payments online? If so I guess thats the answer to OP's question...","\"In short you have to wait till the hold expires. If its one week, its great. Few years back it was one Month. It is advisable you use a Credit Card for these type of transactions. With Credit Cards you are not out of funds like in Debit Cards. Plus the reversals are as much as I know automatic. In case of Debit Cards, the Holds are not automatically released on cancelled transactions but released only after expiry. Where as in Credit Cards, the holds are released immediately on cancelled transactions. \"\"Does the hold reserve it for them or for the original transaction?\"\" Yes hold is for that specific transaction from that specific merchant. i.e. if you try and book the same item from the same merchant, you will not be able to as you have money blocked. Although the merchant sends an unblock message when cancelling, on Debit cards these messages are not supported in India\"","Without the details of a specific bank it's hard to give a definitive answer, but here are some potential valid reasons I can think of: And most importantly","Open a dispute for the preauth. It is effectively a double charge, since you have already paid for the item. You can provide evidence of the other transaction. This forces them to go through some hassle and waste some time on the issue.","\"Well, it took some effort to get an explanation from my bank. Turns out that some supermarkets use direct debit as a method of transferring money for purchases payed by so-called \"\"EC\"\" cards here. I was told that for some reason, a supermarket decided to reverse one of such transactions.\"","\"Step 1. Log onto chase.com Step 2. Click on the account in question Step 3. Add \"\"Outstanding balance\"\" to \"\"Pending charges\"\" Step 4. Pay said total amount With all the energy you spent trying to find out if they're doing something illegal, you could've resolved the original issue yourself and be done with it.\"","Sign up for alerts. Everytime you use your card, you'll get an alert. That way if there is an unauthorized transaction, you'll know right away. The alerts can also tell you what amount was charged - since this happens right away, the last last cc transaction is fresh in your memory and any overcharges can be easily detected. Has saved me more times than I can remember!","\"You should probably call the travel agency and complain. Not that they will care, but if by any chance they do - they can ask PayPal to remove the block. This is what is called \"\"authorization pending\"\". Usually, a credit card transaction has two stages: The merchant requests its payment processor to authorize the transaction. The processor will contact the card issuer with the transaction details and will get the authorization code which will be passed to the merchant. At that stage the transaction enters the \"\"pending\"\" stage on your account. The merchant submits the transaction and gets the money from its payment processor, who forwards the transaction to the card issuer and gets the money from there. The card issuer charges the card owner. The transaction should have the same authorization code received in step #1, and by matching it to the pending transaction, the card issuer removes the pending transaction, and posts the actual transaction. However, if the transaction in step #2 doesn't include the code from step #1, the match doesn't occur and you see the situation you have now: both the actual transaction and the pending are active. In this case the merchant should contact its merchant processor and request the revocation of the authorization code. The processor will then forward the request to the card issuer, who will then remove the pending transaction. As you can see - multiple parties have to actually care for that to happen, and many times they don't, because they don't have to. As to the period - it's up to the card issuer (PayPal in your case), but 1 month is a very long time. Usually it's about a week or two, unless it's a hotel/car rental. In any case - once it expires, it will go away on its own and if you don't mind for the amounts to be blocked until then - just let it expire. The fact that you used a debit card for this transaction is irrelevant. Unless it was a pin transaction, debit card transactions are processed as credit card transactions by processors. For pin transactions, there process is different and you shouldn't see doubles. If it was a pin transaction - contact PayPal and check with them what's going on. Generally, PayPal is not to be used as a \"\"bank account\"\", it is merely a payment processor, and it is advised to remove the money from there as soon as possible.\"","The mode of payment mentioned by your bank is called the ACH(Automatic Clearing House) which means that anyone(Trusted payment gateway owners like banks themselves) can process payments. There can be a fraud declared against any payment that you have made and you can get every single penny back. This amount can not be withdrawn in cash at all. However for your situation I would suggest that you ask your bank to block any transactions above the amount of a specific sum, this way they will require your authorization to finalize the payment. You should feel safe after this. Also no one can access any other account apart from the one whose details you are giving out so do not worry about this guy(or anyone else for that matter) to be able to access your other accounts. Hope this helps. (I have experience in payment gateways so I do understand these procedures.) Cheers!!","It is barely possible that this is Citi's fault, but it sounds more like it is on the Costco end. The way that this is supposed to work is that they preauthorize your card for the necessary amount. That reserves the payment, removing the money from your credit line. On delivery, they are supposed to capture the preauthorization. That causes the money to transfer to them. Until that point, they've reserved your payment but not actually received it. If you cancel, then they don't have to pay processing fees. The capture should allow for a larger sale so as to provide for tips, upsells, and unanticipated taxes and fees. In this case, instead of capturing the preauthorization, they seem to have simply generated a new transaction. Citi could be doing something wrong and processing the capture incorrectly. Or Costco could be doing a purchase when they should be doing a capture. From outside, we can't really say. The thirty days would seem to be how long Costco can schedule in advance. So the preauthorization can last that long for them. Costco should also have the ability to cancel a preauthorization. However, they may not know how to trigger that. With smaller merchants, they usually have an interface where they can view preauthorizations and capture or cancel them. Costco may have those messages sent automatically from their system. Note that a common use for this pattern is with things like gasoline or delivery purchases. If this has been Citi/Costco both times, I'd try ordering a pizza or some other delivery food and see if they do it correctly. If it was Citi both times and a different merchant the other time, then it's probably a Citi problem rather than a merchant problem.","\"AIUI this is not terribly abnormal. There are authorisations (sometimes reffered to as \"\"pending charges\"\" or \"\"holds\"\") and actual charges. An authorisation reserves money but doesn't actually take it. Normally what happens when you pay by card is that the merchant gets an authorisation immediately. Then some time later the authorisation is converted into an actual charge when the merchant takes the money. Sometimes merchants are slow in taking the actual charge, either deliberately (some merchants won't charge your card until they actually supply the goods to reduce the chance of having to process a refund) or because of administrative snarlups somewhere. When this happens the authorisation can time out before the actual charge is taken. So you get the pattern you see, first the authorisation appears then it times out and dissapears and finally the actual charge shows up.\"","\"Yes, there is a slight reason to worry as the debit card contains 1) Account Number 2) of course a the Debit Card number 3) CSV code at the back of every debit card and mostly these three parameters are being followed to verify the authenticity of the cardholder, but there are some other parameters like \"\"password of your debit card\"\" and even address in some cases. So stay chill the manager will not be able to make any online payment using the credential of your debit card without password and other details...\"","Yes, it is possible, and many companies do it for legitimate reasons. For example renewing subscriptions or one-click ordering. The only way to completely stop it would be to cancel the card. More realistically, check your bill whenever it arrives, and report any unauthorized transactions to the card issuer.","This depends on the practise and applications available with the Beneficiary Bank. For a corporate customer, the details are show. For Retail customers they are generally not shown.","That all makes sense, but all of those things are the responsibility of the cardholder. If you want to pay off your balance, anything quoted would obviously not include any transaction yet to post. The problem is a creditor refusing to give the balance AND refusing to take a payment for an amount over the previous statement balance. This is essentially forcing the customer to pay more interest after they declare their intent to pay the full amount. Good points, but I don't believe those were factors in this case.","Just use a credit card like AMEX Blue that categorizes your purchases, and reconcile at the end of the month. There is no good reason to use a debit card.","If your debit card has no fraud protection then you need to find a different bank, many debit cards include it. Even with fraud protection, I don't like to keep excess money in the checking account, so I have checking and savings accounts with an online bank. I can transfer money from savings to checking instantly, 6 times per month, which allows me to keep only what is needed in the checking account. Many online banks have a better overdraft policy as well, where you simply pay a small amount of interest on the over-drawn amount, rather than a set ~$35 overdraft fee, or a $20 fee for them to automatically transfer money from your savings account. I've heard of, but not made use of threshold-based fraud alerts or two-factor approval, which you can set up so that any purchase in excess of $N triggers the need for additional approval via your phone.","POS stands for Point of Sale (like a specific store location) which indicates that the purchase occurred by using your debit card, but it can also be the on-line transaction done via 3-D Secure. Checking with bank, they said that Kirchstrasse transaction could be related to direct marketing subscription service ordered on-line. Investigating further what I've found these kind of transactions are performed by 2BuySafe company registered at Kirchstrasse in Liechtenstein with went through the MultiCards on-line cashier which can be used for paying different variety of services (e.g. in this case it was polish on-line storage service called Chomikuj). These kind of transactions can be tracked by checking the e-mail (e.g. in gmail by the following query: after:2014/09/02 before:2014/09/02 Order). Remember, that if you still don't recognise your transaction, you should call your bank. I have found also some other people concerns about that kind of transactions who ask: Is 2BuySafe.com and www.multicards.com some sort of Scam? Provided answer says: MultiCards Internet Billing is a provider of online credit card and debit card processing and payment solutions to many retailers worldwide. MultiCards was one of the pioneer companies offering this type of service since 1995 and is a PCI / DSS certified Internet Payment Service Provider (IPSP) providing service to hundreds of retail websites worldwide MultiCards is a registered Internet Payment Service Provider and has implemented various fraud protection tools including, but not limited to, MultiCards Fraud Score Tool and 'Verified by Visa' and 'MasterCard SecureCode' to protect card holder's card details. 2BuySafe.com Is also Secured and Verified By GeoTrust The certificate should be trusted by all major web browsers (all the correct intermediate certificates are installed). The certificate was issued by GeoTrust. Entering Incorrect information can lead to a card being rejected as @ TOS 2BuySafe.com is hosted on the Multicards Server site","Short answer: No. Some of those 'automatic' payments you've agreed to (presumably by signing a PAD form) are initiated in batch by the company whom you're buying from (phone company, cable company etc). So no, the bank has no indication from one day to the next what is coming through. And the request goes from say, your cable company to THEIR merchant bank to YOUR bank. Typically you have a monthly bill date which is fixed, and they should have terms established when it is due. If a payment comes back NSF they can retry once - but only for the same amount and I believe it is 14 days from the initial payment attempt. It makes it predictable, and you'd figure banks would clue in and start to predict for you when things may come out - but strictly speaking your bank doesn't know when or how much.","\"This is not a normal occurrence, and you have every right to be annoyed, but the technical way it usually happens goes like this: What can happen is when the merchant incorrectly completes the transaction without referencing the pre-authorization transaction. The bank effectively doesn't \"\"know\"\" this is the same transaction, so they process it the same way they process any other purchase, and it has no effect on the pre-authorization and related held/pending transaction. As far as the bank knows, you purchased a second set of blinds in the store for $200 and are still waiting on the first order to come in, they have no idea the store screwed up. The reason this is possible is the purpose of the pre-auth in the first place is that it is a contractual agreement between the bank (credit card) and the merchant that the funds are available, will be available except under rare special circumstances, and thus they can go ahead and process the order. This lets the merchant be secure in the knowledge that they can collect their payment, but you aren't paying interest or monthly payments on something you haven't even gotten yet! This system works reasonably well for everyone - right up until someone screws up and fails to properly release a hold, makes a second transaction instead of properly referencing the first one, or the bank screws up their system and fails to correctly match referenced pre-authorization codes to purchases. The problem is that this should not be a normal occurrence, and the people you are speaking with to try to sort out the issue often do not have the authority or knowledge necessary to properly fix the issue, or its such a hassle for them that they hope you just go away and time fixes the issue on its own. The only sure-fire solution to this is: make sure you have so much extra credit line that this doesn't effect you and you can safely let it time out on its own, or stop doing business with this combination of merchant/payment that creates the problem. Back when my credit limits were being pushed, I would never pay at gas pumps because their hold polices were so weird and unpredictable, and I would only pre-pay inside or with cash to avoid the holds.\"","I doubt it's legal, but for next time, just go onto the website and your balance will be right there front-and-center... no need to deal with some ill-informed cranky lady in a call center half-way across the world.","The Bank have risk. In goods, thrre are two profiles, essentially it can be convenient and hence the usage, pay off monthly or spending future earnings today for luxury. The way cash advance is seen, emergency, ran out of cash in foreign/remote location... Debit cards not working etc. One generally needs small amount of cash. The other segment is loss of income. Essentially I have run out of cash and I need to borrow. This is additional risk and hence is limited or curtailed.","Sounds questionable to me. If there is no way around this I would suggest opening a new account with only the minimum balance necessary and sending them the debit card associated with that account. If anything goes wrong then the amount of damage they can do will be limited. I would definitely be looking for other options though. Maybe they can just mail you a check or something?","This is normal for credit cards. As long as you make the credit card company's cutoff time, they will make the funds available on your credit card rather than make you wait for them to actually get the funds from your bank. The amount of time this takes actually can vary significantly from bank to bank. You do want to make sure funds are available in your bank account for them to withdraw when they do take them though. If not, the payment would get returned and can set red flags on your credit card account that take a while to drop off.","If it is one of those debit cards you use just like a credit card without a PIN, I'd cancel it regardless of whatever you are trying to do with your finances. They just seem too dangerous to me. Unlike a credit card, if someone makes fraudulent purchases on a debit card the money is gone from your bank account until you resolve the issue with the issue. With a credit card, the BANK is out the money until it gets worked out. My brother once had his credit card number (not the card) stolen and the criminals emptied his bank account. Eventually the bank put the money back after an investigation, but it had two really nasty side effects: 1) Dozens of checks bounced. The bank refunded the bounced check fees, but not all of the stores would. 2) He had no money in his account until it was resolved. Luckily in his case they resolved it in a few days, but he was already making preparations to borrow money to pay his rent/bills.","It is the people who you bought the ticket from. Blocking is frequently done by hotels, gas stations, or rental car companies. Also, for anything where the credit card might be used to cover any damages or charges you might incur later as part of the transaction. In essence, they are reserving part of your credit limit, ostensibly to cover charges they reasonably expect you might incur. For example, when you start pumping gas using a credit card they may block out $100 to make sure you don't pump a full tank and your credit card is declined because you ran over your limit at $3. In general, the blocks clear fairly quickly after you settle up with the company on your final bill. You can also ask the company to clear the block, but I don't think they are required to by law in any specific time period. It may be up to their (and your) agreement with the credit card company. Normally it isn't an issue and you don't even notice this going on behind the scenes, but if you keep your credit card near its limit, or use a debit card it can lead to nasty surprises (e.g. they can make you overdraw your account). One more reason not to use debit cards. More information is available here on the Federal Trade Commission's website.","I paid with my Visa credit card. Generally on credit cards, the holds / authorizations are valid for a month on single transactions. So if you haven't been charged on your card, it seems that there was some technical error with the online market place. They were not able to trace this. Is there an expiration date on these kind of online purchases? Should I expect the money to be withdrawn at any time? There are 2 different aspects, one is do you still owe them money and can they ask you; It would be yes, I don't know the timelines. This would depend on establishing a contract etc. They can contact you for unpaid invoice. Can they again charge the credit card automatically ... generally No.","\"Executive summary: It sounds like the merchant just did an authorization then cancelled that authorization when you cancelled the order, so there was never an actual charge so you'll never see an actual refund and there's no money to \"\"claim\"\". More detail: From your second paragraph, it sounds like they just did an authorization but never posted the transaction. A credit card authorization is basically the merchant asking your credit card company \"\"Does sandi have enough credit to pay this amount and if so please reserve that amount for a bit.\"\" The authorization will decrease the total credit you have available on the card, but it's not actually a charge, so if your billing cycle ends, it won't show up on your statement. Depending on which company issued your credit card, you may be able to see the authorization online, usually labelled something like \"\"Pending transactions\"\". Even if your credit card company doesn't show pending transactions, you'll see a decrease in your available credit, however you shouldn't see an increase in your balance. The next step, and the only way the original merchant gets paid, is for the merchant to actually post a transaction to your card. Then it becomes a real charge that will show up on your next credit card statement and you'll be expected to pay it (unless you dispute the charge, but that's a different issue). If the charge is for the same amount as the authorization, the authorization will go away (it's now been converted to an actual charge). If the amounts are different, or the merchant never posts a transaction, the authorization will be removed by your credit card company automatically after a certain amount of time. So it sounds like you placed the order, the merchant did an authorization to make sure you could pay for it and to reserve the money, but then you cancelled the order before the merchant could post the transaction, so you were never really charged for it. The merchant then cancelled the authorization (going by the start of your third paragraph). So there was never an actual transaction posted, you were never charged, and you never really owed any money. Your available credit went down for a bit, but now should be restored to what it was before you placed the order. You'll never see an actual refund reflected on your credit card statement because there was no actual transaction.\"","I would guess that this is due to the card issuer, not Paypal. Credit card transactions are tagged with a code describing the type of purchase, and some issuers disallow certain types (such as gambling).","You are in luck, I have an ANZ credit card as well. I have just checked my paper statement with online, and was able to find a matching online statement in less than a minute. You simply click on your credit card account from the list of accounts. Under Date Range it will have the Current incomplete statement period. You simply click on the down arrow and select the last complete date range ending sometime in late April (depending on your credit card cycle). You then press on View next to the drop down box. This should provide you with a list of purchases and payment/credits for that period, followed by a line with your Credit Limit, Available Funds and Closing Balance. The line below that then shows your Due Date, and Overdue/Overlimit, the Minimum Payment and Amount Due Now If you are after paying only the minimum amount then you pay this amount by the due date (you will be charged interest if you only pay this amount). If, on the otherhand, you wish to avoid paying any interest then you need to pay the full Closing Balance before the due date. You should also be able to get electronic statements sent to your email address.","Try to get a second card in your business' name, with a separate card number (like you would get one for a spouse). They may or may not allow that free (you wouldn't want to pay a second fee), and it might be only possible with the second card bearing the same number, which makes it useless. But it is worth a try.","Believe it or not, this is done as a service to you. The reason for this has to do with a fundamental difference between a credit card account and a checking account. With a credit card account, there is no money in the account; every charge is borrowed money. When you get to your credit limit, your credit transactions will start getting declined, but if the bank does for some reason let one get approved, it's not a big deal for anyone; it just means that you owe a little more than your credit limit. Note that (almost) every credit card transaction today is an electronic transaction. A checking account, however, has real money in it. When it is gone, it is gone. When a balance inquiry is done, the bank has no way of knowing how many checks you've written that have not been cashed yet. It is a customer's responsibility to know exactly how much money is available to spend. If you write more checks than you have money for in your account, technically you have committed a crime. Unfortunately, there are too many people now that are not taking the responsibility of calculating their own checking account balance seriously, and bad checks are written all the time. When a bank allows these transactions to be paid even though you don't have enough money in your account, they are preventing a crime from being committed by you. The fee is a finance charge for loaning you the money, but it is also there to encourage you not to spend more than you have. Even if you use a debit card, it is still tied to a checking account, and the bank doesn't know if you have written enough checks to overdraw your account or not. It is still your responsibility to keep track of your own available balance. Every time this happens to you, thank the bank as you pay this fee, and then commit to keeping your own running balance and always knowing how much you have left in your account.","We have a pre-paid mastercard. This will only allow the spending up to the amount already paid into the card account. Visa Electron is a bank account linked debit card that will not allow the account to go overdrawn but this card type is getting quite rare.","Imagine the following scenario: You have a credit limit of $1000 and you want to by a tablet from a store. It costs $600. You then walk next door and buy a TV for $600. You would expect that you would go over your limit and the second transaction will be rejected. As long as that hold is in place, you don't have access to those blocked funds. That makes sure that you can't promise to pay more than you have funds on the card. Holds can get in the way if you are close to your credit limit. People run into this problem if they reserve a hotel room, rent a car, or purchase gasoline. The hold is set at a specific level to make sure you have enough funds for the typical transaction. This distance between vendors is not relevant. The bank is blocking funds based on a request from a vendor. They have to block the funds because you might use the multiple times in the same store. It is possible that the card company might release the hold based on the request by the vendor, but they generally don't. If this is a debit card linked to a bank account, the bank can have access to the overdraft system or a linked savings account. If is is a credit card they can decide to to increase your credit limit, and offer you what is essentially a loan. Plus they can hit you with fees. But if the card is a prepaid debit card or gift card they don't want to allow you to go beyond your limit. If this is a card that you plan on recharging, you could put extra funds on the card to allow both the old hold and the new hold to co-exist.","I'm sure it depends on the company, but I routinely run balances greater than 0 on my credit card. The reason is simple: I already budgeted to spend the money, I know I'm going to spend the money, and it's easier to put the extra money on the card at the beginning of my budget period rather than waiting until I spend the money and get a bill. There are 2 relevant numbers: First is the balance on your bill. It can show a positive or negative value, as people have talked about. The balance on my card tends to update fairly infrequently. The second is the available credit. When I overpay on my card, the available credit does not show more than the available debt. The latter value, however, updates for me immediately -- I can see within minutes any transaction on my credit card based on the credit available. One important caveat: Refunds don't always immediately process. You may have to wait days or weeks until that money shows up in your account. Spending the money before it appears in your account will cause your card to behave exactly as if you don't have the money.","I do know that a blank check has all the information they need for the electronic transfer. They probably add it as a customer service to streamline future payments. Though I don't think automatically adding it makes good business sense. It is possible that the form used to submit the check included a line to added the account to the list of authorized accounts. He might have been lucky he didn't set up a recurring payment. I would check the website to see if there is a tool to remove the account info from the list of payment options. There has to be a way to edit the list so that if you change banks you can update the information, yet not keep the old accounts on the list. Talk to customer service if the website doesn't have a way of removing the account. Tell them that you have to edit the account information. And give them your info. If they balk at the change tell them that they could be committing fraud if the money is pulled from an unauthorized account.","CC always (applies only if you pay your balance in full). First you rack up points on your card, second if there is an unauthorized pull a Cc will help you a bank may or may not. As a general advice don't hand out your banking information like a credit card number. Now paying bills through the bank is a different matter. This advice applies to companies that would like to pull money from bank accounts. Never do that if Cc is an alternative.","As a merchant I can tell you that the only thing the bank gets from me. Is the total amount and a category for my business. No detail, not ever.","If this is a pre-authorized automatic billing, and if you have signed any contract with the merchant, cancelling may not block any future charges from the merchant. Happens with gyms, magazines, memberships quite often. There is a time period after the cancellation this will occur, then it'll be completely dead.","When you swipe your credit card, the terminal at the store makes a request of your bank, and your bank has only a few seconds to accept or reject the transaction. Once the transaction is accepted by your bank, it appears in the Pending transactions. At the end of the business day, the store submits all of the final transactions for the day to their bank in a batch, and the banks all trade transactions in a batch, and money is sent between banks. This is the process that takes a couple of days, and after this happens, you see the transaction move from your Pending transactions into the regular transactions area. Most of the time, the pending transaction and the final transaction are the same. However, there are cases where it is different. A couple of examples: With a credit account, the fact that the final amount is not known for a few days is no big deal: after all, you don't have any money in the account, and if you end up spending more than you have, the bank will happily let you take your time coming up with the money (at a steep cost, of course). With a debit card tied to your checking account, the transaction is handled the same way, as far is the store is concerned. However, your bank is not going to run the risk of you overdrawing your checking account. They also are not going to run the risk of you withdrawing money from your account that is needed to cover pending transactions. So they usually treat these pending transactions as final transactions, deducting the pending transaction from your account balance immediately. When the final transaction comes through, they adjust the transaction, and your balance goes up or down accordingly. This is one of the big drawbacks to using a debit card, in my opinion. If a bad pending transaction comes through, you are out this money until it gets straightened out.","Is my understanding okay ? If so, it seems to me that this system is rather error prone. By that I mean I could easily forget to make a wire some day and be charged interests while I actually have more than enough money on the check account to pay the debt. Which is where the credit card company can add fees so you pay more and they make more money. Don't forget that in the credit case, you are borrowing money rather than using your own. Another thing that bothers me is that the credit card apparently has a rather low credit limit. If I wanted to buy something that costs $2500 but only have a credit limit of $1500, can I make a preemptive wire from my check account to the VISA account to avoid facing the limit ? If so, what is the point for the customer of having two accounts (and two cards for that matter...) ? If you were the credit card company, do you believe people should be given large limits first? There are prepaid credit cards where you could put a dollar amount on and it would reject if the balance gets low enough. Iridium Prepaid MasterCard would be an example here that I received one last year as I was involved in the floods in my area and needed access to government assistance which was given this way. Part of the point of building up a credit history is that this is part of how one can get the credit limits increased on cards so that one can have a higher limit after demonstrating that they will pay it back and otherwise the system could be abused. There may be a risk that if you prepay onto a credit card and then want to take back the money that there may be fees involved in the transaction. Generally, with credit cards the company makes money on the fees involved for transactions which may come from merchants or yourself as a cash advance on a credit card will be charged interest right away while if you buy merchandise in a store there may not be the interest charged right away.","\"As stated in the other answer, debit card payments even contactless ones, do not debit instantly or anywhere near instantly. They can take several days or even longer. However, the fact that the payment was approved would indicate that the contactless device used by the retailer managed to connect to your bank account and could see there were sufficient funds. At this time the payment should also have \"\"reserved\"\" the funds so it will be \"\"pending\"\" as such. Your online banking may not show all types of pending transactions, it may only show Direct Debits for example, if you ring the bank I expect they will be able to see this payment and advise accordingly, out of interest who do you bank with? If you can see your \"\"available\"\" funds you should find that includes this payment having been \"\"reserved\"\" ie you can't use that money, but if it's a small amount you may struggle to spot it. Again, this will vary by bank and how their internet banking system has been implemented. I would expect this payment to debit your account the working day after you made it, or at worst the day after that. In theory with \"\"faster payment\"\" technology it could happened within 2 hours but not all banks implemented that system in the same way so delays can and do occur. If the retailer/merchant banks with the same bank you do, in theory the transaction could be instantaneous, again depending on the bank. Short answer short, the transaction is fine, it won't be void, you just need to wait, probably a day or two. This link has more info, especially useful if you bank with NatWest (as I say the technology is likely to vary by bank to some extent). Your own bank should have their own version of this. http://personal.natwest.com/personal/current-accounts/your-visa-debit-card/contactless.html\"","As far as I can see, this is an issue of the bank's policy rather than some legal regulation. That means that you'll need to work it out with the bank. To give you a couple of ideas to work with when you talk with them, maybe something from this list will work: Good luck!","Three reasons I prefer not to use direct debit:","The post that you linked to saying that a pre-paid credit card is really a debit card is kind of right and kind of wrong. From your point of view, to get a $1000 pre-paid credit card, you need to hand over $1000. So nobody is giving any credit to you. You can only spend money that you actually own, like a debit card. For the merchant accepting your card, it is exactly like a credit card. He doesn't know what deals you had to make to get the card. The merchant just knows that up to some amount, he will receive money. So in that sense it is a credit card and will be accepted like a credit card.","I would expect so--the block from spending funds probably does not put a block in place for receiving funds. But ask your bank. Expect a 50% chance that they give you the wrong answer. (Some banks are better than others, but on average this is how often I have found bank employees to be incorrect about anything nonstandard). It may help to ask the bank how often it happens and who actually sorts out problems with blocked cards--and then talk to that person. Then you should only expect a 25% chance that they are wrong.","There are different ways of credit card purchase authorizations. if some choose less secure method it's their problem. Merchants are charged back if a stolen card is used.","With a check, there are limits on cashing the stale check, but that is set by the banks involved. With a debit card transaction, it will be up the the debit card company and your bank. Imagine a situation where a person finds an old check and tries to cash it at their bank. If the bank considers the check stale, they might reject it, or put a longer hold on the check. When the check writers bank gets the transaction, they will also decide what to do. If they reject it, the first bank will reverse the transaction. You can't count on a 90 day, or 180 day limit; most banks will ask you to put a stop payment on an old check that you don't want cashed. This is especially important step if you write a replacement check. Because there is no check number to put a stop payment on, in fact the temporary hold will fall off after a few days. There doesn't appear to be a way to stop an old transaction. Be careful if you do contact the restaurant, you could end up double paying for the meal if they swipe your card again. Your best option may be just to keep the transaction as pending.","I just had this happen to me with Chase and speaking with my executive support contact, they will not return the funds unless you request them back. Which I find appalling and just one more reason that I don't like working with Chase!","You probably don't need to call the bank. Today is Sunday, so three days ago was probably Friday (or Thursday depending on how you count the days). Banks normally don't post transactions on weekends - and transactions that do happen on the weekend sometimes don't get posted until Tuesday. I would give it till Tuesday and then call them if you still don't see it show up on your account.","Whether or not you have money in your account will not necessarily stop them withdrawing the money, and it certainly won't stop them attempting to withdraw the money. There are two possible scenarios when they attempt to withdraw the money (as they surely will): I think you are just lucky they haven't attempted the withdrawal yet. Put the necessary money into your account now if you possibly can, and consider this a slightly expensive lesson learned about following the Ts and Cs when cancelling services.","Debit cards are the dumbest development ever. I now have a piece of plastic that allows any yahoo to cause me to bounce my mortgage. Great. Throw away the debit card. Use a credit card and exercise some self control. Take out a sufficient amount of cash to cover your weekly incidental expenses under $50. If you want something that costs more than $50, wait a week and use the credit card. You'll find that using cash at places like the convenience store or gas station will cause you to not spend $3 for a slim jim, lotto ticket, donut or other dumb and unnecessary item.","\"Why would you consider it null and void? It might be that something went wrong and the business \"\"lost\"\" the transaction one way or another. It might be something else. It might never appear. It might appear. In one of the questions a while ago someone posted a link of a story where an account was overdrawn because of a forgotten debit card charge that resurfaced months later. Can't find the link right now, but it can definitely happen.\"","When using a debit card there are two limits that may be imposed on the use: the current balance and the maximum daily limit. If the banking institution limits your daily usage that may mean that on a particular day you may not be able to make a large purchase, even though you have money in the bank. Otherwise as long as you have funds in the account linked to the debit card you can make the transaction. The catch is that as soon as the transaction is sent to the bank one of two things happens: the money is immediately deducted from the account; or a hold equal to the the amount of the transaction is placed on the account. A hold is generally used when the transaction is done in two parts: the pre-scan at a restaurant, or gas station. The hold reduces the amount of available funds in the account. A hold or an immediate deduction limits the size of future transactions. To be able to make larger transactions you need to transfer more money into the account. There is no debit card transaction that you can do to artificially allow a larger transaction, unless the bank is not placing a hold or doing an immediate deduction. Because a debit card is linked to a bank account, some accounts have overdraft protection. This protection comes in two forms: they either transfer your money from another account, or they make a loan. Either way there can be costs involved.","One possibility is to ask RBC to lend you some money (or more specifically, to lend you some more money): an overdraft, a personal loan, or whatever. To discuss this you should to talk to your personal banker (not a teller), probably by appointment: to explain why you want it, and how and when you expect repay it. You might (I don't know) say that you want the loan (or some of the loan) to pay off the Visa, and/or for the travel. If you've only just arrived in Canada, however, then I don't see why they should want to lend it to you (i.e. why they should think you're a good credit risk). Is there anyone else (e.g. an immigration sponsor or parent or employer) who might co-sign (a.k.a. guarantee) the loan? I have never had this issue before with any other credit cards but I got an RBC Visa in Canada In some countries (not Canada) a Visa behaves more like a debit card, i.e. you can only spend money you have in the account.","A federal or state regulator has ordered that the RDFI cannot participate in the ACH network, or the RDFI's participation has been limited in some capacity. You need to contact the RDFI for more details...ask for their ACH operations group. The RDFI is the institution receiving the ACH transaction. It could be either the debit side or credit side. It is not the institution originating the ACH transaction, which is the ODFI. The entire RDFI institution might be restricted for an extremely poor audit, or rampant suspect money laundering or terrorist funding. Specific accounts at the RDFI might be limited for a variety of reasons, including freezing the account for suspicious activity (money laundering or terrorist funding), court order for impending legal proceedings, IRS levies for nonpayment of taxes, or perhaps child support delinquency. I am making an educated guess on the reasons.","They hold most of time rental value for example if you rent car for 5 days and decline insurance offered at counter - they will ideally hold 5days x rental value per day + insurance x 5 days most of them round of this figure. if the card is issued from overseas like asia they hold extra $ 500 for collection issues. hope this helps you to plan - this is general thumb rule.","There are two separate cases here that people are not separating. Any card will allow you to pay an amount not exceeding the actually posted charges. Some cards will allow you to pay more than this, some will not. My parents have deliberately overpaid as a means of having a higher credit limit, I've been denied (different card) when trying to do the same thing and the website wouldn't even allow me to pay temporary charges that hadn't yet become real. (A human operator would allow paying those, though.)","This sounds more like a behavioral than a debit card issue to me TBH. Did you put the money you're putting away into a separate savings account that you (mentally) labelled 'for investment'? That's pretty much what I do (and I have a couple of savings accounts for exactly that reason) and even though I know I've got $x in the savings accounts, the debit card I carry only lets me spend money from my main bank account. By the time I've transferred the money, the urge to spend has usually gone away, even though it often only takes seconds to make the transfer.","\"> I was saying a lot of people dont understand that. They see they spent X at Chilis (processing) and assume it to be fact. I don't understand why you're having such a difficult time with this concept. And the solution -- keeping an ACCURATE and independent checkbook register (rather than relying on an \"\"online balance\"\") is still the same. >Also comparing swiping a debit card as credit to writing a check (in terms of when they show up on your account) is a terrible comparison. Nope. It's the same thing. You're still talking about a discrepancy between what has been processed, versus what you have ACTUALLY spent. >And calling me ignorant because I don't need the help writing down where my money is at or goes is pretty ironic. Well, if you're having problems with overdrafts (as you claimed you had) then rather obviously you DO need help (or at least you need to own up to where the problem lies -- your faulty \"\"memory\"\" of what you spent).\"","Something is missing from your scenario. If you don't know what it is, start by going to http://annualcreditreport.com and get your free credit report. Review it, and figure out if you have outstanding balances or judgements that you're unaware of. You should be using your card every month and pay it on time.","If the debit card is associated with the account, there is nowhere else it could go. The chance is nil that there is another account with that 16-digit number. So either it goes there, or the transfer fails and it is right back where it came from, though this could take some days. If you don't want to risk a wait, talk to your bank now.","I've used PayPal for my business for a long time. Sometimes PayPal doesn't trust credit cards. Debit or direct bank transfer are reliable. There is also a charge for using a credit card but I don't think that is the reason. You may be trying to purchase a high value item. That would be a possible reason why PayPal allowed you to use credit cards in the past, but will not allow you to do so now, for these particular transactions.","Of course not, this is confidential information in the same way that I cannot phone up your bank and ask to see a list of the transactions that you have made. Any bank has to be extremely careful about protecting the private transactions of it's customers and would be subject to heavy fines if it revealed this information without the customer's consent.","A large biller is registered and can initiate an ACH Debit to your account based on the Account Number and the Routing number. He assumes responsibility and completes the due diligence of obtaining a written mandate / permission / authorization from you. There are other legal process where by you get a Power of Attorney that would allow you to transact on behalf of someone. The key point you seem to be missing is that one can ONLY transact from ones account either by walking into the Bank / ATM, or by writing a check. There are other options as well to transact.","AIUI credit cards report three main things. The potential problem with your strategy is that by pre loading you never actually get a bill and so your provider may not report your payments. Better to wait until the bill comes and then pay it in full. That ensures that your use of the card is properly reported.","I did just what you suggest. The card company honored the charge, they told me the temporary number was solely for the purpose of assigning a number to one vendor/business. So even though I set a low limit, the number was still active and the card company paid the request. Small price to pay, but it didn't go as I wished. For this purpose, I've used Visa/Mastercard gift cards. They are often on sale for face value and no additional fees.","Typically, a direct debit is set up by the company who will be receiving the money, not by you or your bank. So you need to contact your credit card company, and ask them to set up the direct debit.","I think part of the reason people overdraft is because the online banking app/website doesn't show a true indication of your account balance. I've had mine (at Bank of America) adjust to $30 less than it told me I had when I checked due to processing payments being altered.","I found the answer to what you're looking for in the PayPal Help Center. Refer specifically to the question PayPal - How much do you charge to my card when confirming my debit or credit card?. Quote: We take the extra step to confirm your card so that we can verify that the card is valid and that you are the card owner. To confirm your card, we’ll charge $1.95 to it. After the card is confirmed, we’ll refund the amount to your PayPal balance. Here are amounts for cards in other countries: If we can’t determine or don’t support your card’s currency, we charge $1.95 USD to the card. (Refer directly to PayPal for potentially more up-to-date information.)","The hard hold is the bank holding your money for no reason but to make money of your. Like the hotel took deposit for my over night and they released the time checked out in there system but it never showed on my account . I had to call the bank why the numbers are not adding up to my current balance. It's illegal practice by banks to hold your money until your realize you didn't spent that much and that musing amount is not even showing on your account. When it happen they will release after 30 days or you can call the bank right away soon as you done your business so you can use the money right away not the bank","\"I can't speak for every credit card, but I know two of mine don't have overage fees. The transaction either goes through, or gets denied. Check your card agreement and look for the fee section. One other thing to consider, sometimes when you make an online payment to a credit card, you will notice that the \"\"Available Balance\"\" number on the account will increase right away even if the payment is not reflected on your \"\"Current Balance\"\". If this is the case, and you are positive that your payment will be successfully posted to the account, I say go for it.\"","As it is international debits, this will take a while. BofA is right, You have to dispute this with Card Issuer, i.e. HDFC. The worst case for me was around 1 month. Keep chasing and sending out reminders every 3-4 days.","I've called both BofA and Amex Customer Support, and they couldn't help. That's because you cannot. Debit card is tied to your checking account, so you can do a cash advance from your AMEX and deposit it to your BOA checking account. It will then be available to use with your debit card.","Are you sure the payment has actually posted and isn't sitting in a pre-auth status? If it is, it'll fall off in a few days and they're probably telling the truth. If not, and it has fully posted to your account, I agree with the others. It's very appropriate to initiate a chargeback. You can provide documentation showing they confirmed a cancellation, further, you can show proof that they had no intent of charging you. Good luck!","\"I linked my bank account (by making a transfer from bank account to Paypal) without linking a card. This should not give Paypal any rights to do anything with my bank account - transfer that I made to link it was exactly the same as any other outgoing transfer from my bank account. On attempting to pay more that resides in my Paypal balance I get To pay for this purchase right now, link a debit or credit card to your PayPal account. message. Paypal is not mentioning it but one may also transfer money to Paypal account form bank to solve this problem. Note, that one may give allow Paypal to access bank account - maybe linking a card will allow this? Paypal encourages linking card but without any description of consequences so I never checked this. It is also possible that Paypal gained access to your bank balance in other way - for example in Poland it just asked for logins and passwords to bank accounts (yes, using \"\"Add money instantly using Trustly\"\" in Poland really requires sharing full login credentials to bank account - what among other things breaks typical bank contract) source for \"\"Paypal attempts phishing\"\": https://niebezpiecznik.pl/post/uwaga-uzytkownicy-paypala-nie-korzystajcie-z-najnowszej-funkcji-tego-serwisu/\""],"string":"[\n \"It's not so much a credit card, but a financial institution's online platform that either provides this functionality or not. The following Canadian financial institutions show an itemized list of pre-authorized transactions (not an exhaustive list): The following institutions show a total value of pre-authorized transactions: Most other institutions show the available credit (e.g. Chase Financial used by Amazon Rewards), which give an indication of how much you have to spend. By subtracting the current balance and the available balance from the total credit limit, you can get an indication of the total amount of pre-authorized transactions. Example: $1000 - $500 - $400 = $100 is the amount of pre-authorized transactions. From TD's EasyWeb demo (http://tdeasywebdemo.com/v2/#/en/PFS/accounts/activity/chq), it appears that they don't include pre-authorized transactions in the Available Credit. You can verify for yourself by logging in to online banking after you make a purchase and comparing the Available Credit to [Credit Limit - Current Balance]. If it is equal, then they don't include, if it is different (most likely for the value of the transaction), then they do.\",\n \"\\\"PC MasterCard recently added this as a new feature to their online system. It lets you see \\\"\\\"Pending Authorizations\\\"\\\" for your card when you log in. Their email said: Along with your purchases, you'll see a list of every transaction that's been approved, but not yet applied to your balance. You'll be able to identify these with the word “Pending” in the date column. Here's a link with more information: http://pcfinancial.ca/pendingauthorization/\\\"\",\n \"The way that credit card transactions happen are: In your example, the card is authorized for the charge but the transaction never actually moves on to the next step. However, your available credit should drop by whatever the authorized amount is and this will not disappear until it naturally goes away when the transaction does not move onto the next step.\",\n \"\\\"From my days in e-commerce they break down like this? The company doesn't know a debit from a credit card. Got the Visa logo, then it is a Visa through the company's payment gateway. The gateway talks to the bank and that is where the particulars for money is figured out. When I programmed gateway interfaces, I had the option to \\\"\\\"authorize\\\"\\\" or check for funds (which didn't reserve anything, just verified funds existed), run for batch (which put a hold on the funds and collected them at the end of the night) or just take the money. Most places did a verify during the early checkout stages and then did a batch at the end of the night. The nightly batch allows a merchant to cancel a transaction without getting charged a fee. The \\\"\\\"authorize\\\"\\\" doesn't mean the money is tied up, although that might be your banks policy. Furthermore, an authorize can only last for so many days. This also explains why most of your banks don't report your transactions to you the day of. There is a bunch more activity on your card than the transactions that complete.\\\"\",\n \"Is there a debit card accessing this account? When you spend money on a debit card for certain item, including, but not limited to gas, restaurant, hotel, a bit extra is held in reserve. For example, a $100 restaurant charge might hold $125, to allow for a tip. (You're a generous tipper, right?) The actual sales slips my take days to reconcile. It's for this reason that I've remarked how credit cards have their place. Using debit cards requires that one have more in their account than they need to spend, especially when taking a trip including hotel costs.\",\n \"\\\"The simplest answer to why you can't see it in your online statement is a design/business decision that was made, most probably originally to make online statements differ as little as possible from old fashioned monthly printed statements; the old printed statements never showed holds either. Some banks and card services actually do show these transactions online, but in my experience these are the rare exceptions - though with business/commercial accounts I saw this more, but it was still rare. This is also partly due to banks fearing lots of annoying phone calls from customers and problems with merchants, as people react to \\\"\\\"hey, renting that car didn't cost $500!\\\"\\\" and don't realize that the hold is often higher than the transaction amount and will be justified in a few days (or weeks...), etc - so please don't dispute the charges just yet. Behind the scenes, I've had bankers explain it to me thusly (the practice has bitten me before and it bothered me a lot, so I've talked to quite a few bankers about this): There are two kinds of holds: \\\"\\\"soft holds\\\"\\\" and \\\"\\\"hard holds\\\"\\\". In a soft hold, a merchant basically asks the bank, \\\"\\\"Hey, is there at least $75 in this account?\\\"\\\" The bank responds, and then has it's own individually set policy per account type as to how to treat that hold. Sometimes they reserve no money whatsoever - you are free to spend that money right out and rack up NSF fees to your heart's content. Yet some policies are to treat this identically to a hard hold and keep the money locked down until released. The hard hold is treated very much like an actual expenditure transaction, in that the money is locked and shown as no longer available to you. This varies by bank - some banks use an \\\"\\\"Account Balance\\\"\\\" and an \\\"\\\"Available Balance\\\"\\\", and some have done away with these dual terms and leave it up to you to determine what your balance is and what's \\\"\\\"available\\\"\\\" (or you have to call them). The key difference in the hard hold and a real expenditure is, technically, the money is still in your bank account; your bank has merely \\\"\\\"reserved\\\"\\\" it, earmarking it for a specific purchase (and gently promising the merchant they can have their money later), but the biggest difference is there is a time-limit. If a merchant does not process a completion to the transaction to claim the money, your bank will lift the hold after a period of time (I've seen 7-30 days as typical in the US, again varying by institution) returning your money to your balance that is available for purchasing and withdrawal. In every case, any vaguely decent banking institution allows you to call them, speak to some bank employee, and they can look up your account and inform you about the different sort of holds that are on your account that are not pending/completed purchase transactions. From a strictly cynical (perhaps rightly jaded) point of view, yes this is also used as a method to extort absurdly high fees especially from customers who keep a low balance in their account. I have had more than one bank charge NSF fees based on available balances that were due to holds made by gas pumps, for instance, even though my actual \\\"\\\"money in my account\\\"\\\" never went below $0 (the holds were for amounts larger than the actual transaction). And yes, the banks usually would waive those fees if you bothered to get someone on the phone or in person and made yourself a nuisance to the right person for long enough, but they made you work for it. But I digress.... The reality is that there are lots of back and forth and middle-men in transactions like this, and most banks try to hide as much of this from you the client as possible, partly because its a huge confusing hassle and its part of why you are paying a bank to handle this nonsense for you to start with. And, as with all institutions, rules and policies become easily adjusted to maximize revenues, and if you don't keep sizable liquid minimum balances (100% of the time, all year long) they target you for fees. To avoid this without having fat wads of extra cash in those accounts, is use an entirely disconnected credit card for reservations ONLY - especially when you are traveling and will be making rentals and booking hotels. Just tell them you wish to pay with a different card when you are done, and most merchants can do this without hassle. Since it's a credit card with monthly billing you can often end up with no balance, no waiting around for a month for payments to clear, and no bank fees! It isn't 100%, but now I never - if I can possibly avoid it - use my debit/bank card to \\\"\\\"reserve\\\"\\\" or \\\"\\\"rent\\\"\\\" anything, ever.\\\"\",\n \"That's how my power company does it. You authorize them to direct debit recurring monthly. If they screw up and withdraw $1000, you're out until it gets fixed. But it varies from company to company. Not everyone's situation is like your online banking.\",\n \"The answer to your question is very simple: The preauth and the shipment of the goods have no connection within the credit card system. It is possible to process a payment that does not cancel a preauthorization. This is needed for the case where you place two orders and the one you placed second ships first. A preauth can remain active for some time unless it is captured or cancelled. So in your case a preauth was placed and remained active. That you were shipped and billed for some goods had no effect on the preauth because one side or the other failed to attach them.\",\n \"\\\"There are, in fact, two balances kept for your account by most banks that have to comply with common convenience banking laws. The first is your actual balance; it is simply the sum total of all deposits and withdrawals that have cleared the account; that is, both your bank and the bank from which the deposit came or to which the payment will go have exchanged necessary proof of authorization from the payor, and have confirmed with each other that the money has actually been debited from the account of the payor, transferred between the banks and credited to the account of the payee. The second balance is the \\\"\\\"available balance\\\"\\\". This is the actual balance, plus any amount that the bank is \\\"\\\"floating\\\"\\\" you while a deposit clears, minus any amount that the bank has received notice of that you may have just authorized, but for which either full proof of authorization or the definite amount (or both) have not been confirmed. This is what's happening here. Your bank received notice that you intended to pay the train company $X. They put an \\\"\\\"authorization hold\\\"\\\" on that $X, deducting it from your available balance but not your actual balance. The bank then, for whatever reason, declined to process the actual transaction (insufficient funds, suspicion of theft/fraud), but kept the hold in place in case the transaction was re-attempted. Holds for debit purchases usually expire between 1 and 5 days after being placed if the hold is not subsequently \\\"\\\"settled\\\"\\\" by the merchant providing definite proof of amount and authorization before that time. The expiration time mainly depends on the policy of the bank holding your account. Holds can remain in place as long as thirty days for certain accounts or types of payment, again depending on bank policy. In certain circumstances, the bank can remove a hold on request. But it is the bank, and not the merchant, that you must contact to remove a hold or even inquire about one.\\\"\",\n \"I called Bank of America today about the same problem on my account. The service representative said that part of money is available to me and I can use the money.\",\n \"It will depend on credit they are offering you during the period being covered. A gas station locks up what they expect is the maximum transaction for most people. When the prices of gas spikes some people have the pump turn off before the tank is filled, therefore they need to use a 2nd card to complete the purchase. Before you arrive at a hotel they lockup the cost of one night in the hotel, that way they still sell the room for one night if you never show. While you are there they lockup the cost of what you could owe them. This would include the cost of the room, and average room service or bar service. For a car rental, it would be based on the risk they perceive. They don't want to try and collect against a card you gave them when you reserved the car, or when you picked up the car, only to find that you have gone over the limit. Some online systems will let you see what is pending against your card. Others could provide that information to you over the phone.\",\n \"\\\"As for PC Mastercard like stated by @nullability, VISA Desjardins list the \\\"\\\"Pending Authorizations\\\"\\\" almost instantly (the time it's take to get back home) in AccesD (Their Web portal for managing accounts).\\\"\",\n \"\\\"The \\\"\\\"hold\\\"\\\" is just placeholder that prevents you from overspending until the transaction is settled. The merchant isn't \\\"\\\"holding\\\"\\\" your money, your bank or card provider is protecting itself from you overdrawing. In general, it takes 1-3 days for a credit transaction to settle. With a credit card, this usually isn't an issue, unless you have a very low credit line or other unusual things going on. With pre-paid and debit cards, it is an issue, since your spending power is contingent upon you having an available balance. I'm a contrarian on this topic, but I don't see any compelling reason to use debit or stored value cards, other than preventing yourself from overspending. I've answered a few other questions in detail in this area, if you're interested.\\\"\",\n \"Context clues hun. I was talking about if you go to Chilis and swipe your card for $20 and leave a $5 tip the processing amount the bank takes into account when telling you your available balance is much more likely to be $23 than $25. So the bank knows I went to Chilis the second I swipe my card, but doesnt know the exact amount. I was saying a lot of people dont understand that. They see they spent X at Chilis (processing) and assume it to be fact. I don't understand why you're having such a difficult time with this concept. Also comparing swiping a debit card as credit to writing a check (in terms of when they show up on your account) is a terrible comparison. When a check goes through the accurate balance is taken out all at once a few days later, but when you swipe a debit card as credit a tentative balance is taken out immediately and adjusted to the actual balance when it settles. And calling me ignorant because I don't need the help writing down where my money is at or goes is pretty ironic.\",\n \"I don't use pre-authorized automatic payment methods because there is no control, and it is impossible to get it back. Once you have authorized a firm to withdraw funds from your account, there is no realistic way to revoke that control, save closing down your bank account entirely and moving to another institution. I once had automatic payments set up for my apartment rent, and then one month they withdrew twice on one day, overdrawing my account; it was very difficult to dispute the charge and get it back. The bank was little help as I had authorized them to withdraw funds; it didn't make any difference that they had done it twice, because I had given them permission to withdraw that amount. The property management company was large and difficult to contact, and at first denied any wrongdoing. tl;dr version: it's more pain than it's worth, and I will never do it again.\",\n \"I stopped using pre-authorized payments for things like telephone etc., because it made it more possible/likely for a fraudulent charge to sneak by. But if there is an occasion for choosing pre-authorized payments (like charities, and places of exact fixed price) I use my credit card because then I also get points. Furthermore, I reason (perhaps wrongly) that if there is intermediary step between actual money (bank account) and the source of the bill then it gives me better chance of catching irregularities and hence a little safer. I am sure other members here will laugh my naivety, but there you have it.\",\n \"\\\"This question is likely to be closed as a product recommendation request. But if you are willing to change the question a bit, perhaps to \\\"\\\"How do I avoid having my debit card declined when I know I have good funds\\\"\\\" it becomes a reasonable general question. And my answer follows. I can tell you the same thing happens to those of us with credit cards. It can happen when your buying pattern changes. Suddenly buying a lot of merchandise, especially away from home. Nothing like having your card declined while with relatives you visit or while on vacation. I'd talk to the bank and ask for advice how to avoid this. I've called my card issuer to tell them I'll in X city for these dates, to expect charges from there. That seems to work well.\\\"\",\n \"\\\"I don't think the reason is \\\"\\\"to verify that it is truly me\\\"\\\". It should be possible for someone else (friend, relative...) to make a payment on your behalf, using their own card. It is common that \\\"\\\"gift cards\\\"\\\" are not per-authorized for \\\"\\\"Card Not Present\\\"\\\" (CNP) use like on the internet, or over the phone. In many cases, you can register your card, online or by speaking to a representative over the phone. After that, you should be able to use it to pay your phone company. Also, depending on where you got the card, you may be able to go to a teller at the issuing bank, and withdraw cash (or get a check), possibly without a fee.\\\"\",\n \"In addition to @mhoran_psprep answer, and inspired by @wayne's comment. If the bank won't let you block automatic transfers between accounts, drop the bank like a hot potato They've utterly failed basic account security principles, and shouldn't be trusted with anyone's money. It's not the bank's money, and you're the only one that can authorize any kind of transfer out. I limit possible losses through debit and credit cards very simply. I keep only a small amount on each (~$500), and manually transfer more on an as needed basis. Because there is no automatic transfers to these cards, I can't lose everything in the checking account, even temporarily.\",\n \"Given you mention a check clearing, in addition to debit card holds as JoeTaxpayer notes, you may also have funds that are on hold for that reason. While the bank may have stated it would be a one day hold, some banks may mean business days (Monday-Friday), and so it will become available on Monday. This is because checks are not always instantly withdrawn from the other account (although this is becoming much more common post-electronic check reform), so the bank wants to make sure it actually is getting the money from the check; after all, if the check you deposited bounces, the bank doesn't want to end up footing the bill. The bank allows you some portion up front, largely as a customer service; the amount varies from bank to bank, but it's generally a small amount they don't mind risking. $200 is a pretty good amount, actually; back when I was just out of college and frequently spending the last $50 in my account, the pre-clearance amount was usually $50. If the bank does this to you regularly and you feel that it is unfair in how long it holds checks, you might consider shopping around; different banks have different hold policies, or might allow you a larger amount up front. In particular, online banks tend to have more favorable terms this way.\",\n \"a typical debit card is subject to several limits:\",\n \"The RDFI (Receiving Depository Institution) is the place where you keep your money and where the Debit is going to be made. Unfortunately the Debit did not go through for some kind of regulatory reason that I don't understand. You could ask them why people are not allowed to make ACH Debits there or you can try to pay through a different bank.\",\n \"No money is stolen. They don't show you the hold for whatever reason (not so good a bank?), but the money is still yours. You just cannot use it, but it is still on your account. These holds usually go away after a week. In certain cases (like a security deposit) it may take up to 30 days. You can request from the merchant to cancel the hold if it is no longer necessary. They'll have to be proactive on that, and some merchants wouldn't want the hassle. It is however a known issue. When I was working in the banking industry, we would routinely receive these hold cancellation requests from merchants (hotels and car rentals).\",\n \"There's the fear that one might forget the debit is coming and still bounce the payment. Personally, I agree with Dheer's list, I don't want to give someone unlimited access to my account. I make good use of electronic payments where I initiate the payment. For the credit card I use regularly, I have a $250 monthly payment set to go automatically. If I forget to make a payment or lose the bill, at least the minimum is covered. The monthly charges are enough that when I actually pay the bill in full upon receipt, it just goes in toward current charges. Bills like gas/electric/phone are different every month, so an auto-debit is actually more trouble than how I handle.\",\n \"Hence why I pay bill by bill and don't authorize automatic withdrawals. Are you telling me your online banking and/or utility company don't allow you to make non automatic payments online? If so I guess thats the answer to OP's question...\",\n \"\\\"In short you have to wait till the hold expires. If its one week, its great. Few years back it was one Month. It is advisable you use a Credit Card for these type of transactions. With Credit Cards you are not out of funds like in Debit Cards. Plus the reversals are as much as I know automatic. In case of Debit Cards, the Holds are not automatically released on cancelled transactions but released only after expiry. Where as in Credit Cards, the holds are released immediately on cancelled transactions. \\\"\\\"Does the hold reserve it for them or for the original transaction?\\\"\\\" Yes hold is for that specific transaction from that specific merchant. i.e. if you try and book the same item from the same merchant, you will not be able to as you have money blocked. Although the merchant sends an unblock message when cancelling, on Debit cards these messages are not supported in India\\\"\",\n \"Without the details of a specific bank it's hard to give a definitive answer, but here are some potential valid reasons I can think of: And most importantly\",\n \"Open a dispute for the preauth. It is effectively a double charge, since you have already paid for the item. You can provide evidence of the other transaction. This forces them to go through some hassle and waste some time on the issue.\",\n \"\\\"Well, it took some effort to get an explanation from my bank. Turns out that some supermarkets use direct debit as a method of transferring money for purchases payed by so-called \\\"\\\"EC\\\"\\\" cards here. I was told that for some reason, a supermarket decided to reverse one of such transactions.\\\"\",\n \"\\\"Step 1. Log onto chase.com Step 2. Click on the account in question Step 3. Add \\\"\\\"Outstanding balance\\\"\\\" to \\\"\\\"Pending charges\\\"\\\" Step 4. Pay said total amount With all the energy you spent trying to find out if they're doing something illegal, you could've resolved the original issue yourself and be done with it.\\\"\",\n \"Sign up for alerts. Everytime you use your card, you'll get an alert. That way if there is an unauthorized transaction, you'll know right away. The alerts can also tell you what amount was charged - since this happens right away, the last last cc transaction is fresh in your memory and any overcharges can be easily detected. Has saved me more times than I can remember!\",\n \"\\\"You should probably call the travel agency and complain. Not that they will care, but if by any chance they do - they can ask PayPal to remove the block. This is what is called \\\"\\\"authorization pending\\\"\\\". Usually, a credit card transaction has two stages: The merchant requests its payment processor to authorize the transaction. The processor will contact the card issuer with the transaction details and will get the authorization code which will be passed to the merchant. At that stage the transaction enters the \\\"\\\"pending\\\"\\\" stage on your account. The merchant submits the transaction and gets the money from its payment processor, who forwards the transaction to the card issuer and gets the money from there. The card issuer charges the card owner. The transaction should have the same authorization code received in step #1, and by matching it to the pending transaction, the card issuer removes the pending transaction, and posts the actual transaction. However, if the transaction in step #2 doesn't include the code from step #1, the match doesn't occur and you see the situation you have now: both the actual transaction and the pending are active. In this case the merchant should contact its merchant processor and request the revocation of the authorization code. The processor will then forward the request to the card issuer, who will then remove the pending transaction. As you can see - multiple parties have to actually care for that to happen, and many times they don't, because they don't have to. As to the period - it's up to the card issuer (PayPal in your case), but 1 month is a very long time. Usually it's about a week or two, unless it's a hotel/car rental. In any case - once it expires, it will go away on its own and if you don't mind for the amounts to be blocked until then - just let it expire. The fact that you used a debit card for this transaction is irrelevant. Unless it was a pin transaction, debit card transactions are processed as credit card transactions by processors. For pin transactions, there process is different and you shouldn't see doubles. If it was a pin transaction - contact PayPal and check with them what's going on. Generally, PayPal is not to be used as a \\\"\\\"bank account\\\"\\\", it is merely a payment processor, and it is advised to remove the money from there as soon as possible.\\\"\",\n \"The mode of payment mentioned by your bank is called the ACH(Automatic Clearing House) which means that anyone(Trusted payment gateway owners like banks themselves) can process payments. There can be a fraud declared against any payment that you have made and you can get every single penny back. This amount can not be withdrawn in cash at all. However for your situation I would suggest that you ask your bank to block any transactions above the amount of a specific sum, this way they will require your authorization to finalize the payment. You should feel safe after this. Also no one can access any other account apart from the one whose details you are giving out so do not worry about this guy(or anyone else for that matter) to be able to access your other accounts. Hope this helps. (I have experience in payment gateways so I do understand these procedures.) Cheers!!\",\n \"It is barely possible that this is Citi's fault, but it sounds more like it is on the Costco end. The way that this is supposed to work is that they preauthorize your card for the necessary amount. That reserves the payment, removing the money from your credit line. On delivery, they are supposed to capture the preauthorization. That causes the money to transfer to them. Until that point, they've reserved your payment but not actually received it. If you cancel, then they don't have to pay processing fees. The capture should allow for a larger sale so as to provide for tips, upsells, and unanticipated taxes and fees. In this case, instead of capturing the preauthorization, they seem to have simply generated a new transaction. Citi could be doing something wrong and processing the capture incorrectly. Or Costco could be doing a purchase when they should be doing a capture. From outside, we can't really say. The thirty days would seem to be how long Costco can schedule in advance. So the preauthorization can last that long for them. Costco should also have the ability to cancel a preauthorization. However, they may not know how to trigger that. With smaller merchants, they usually have an interface where they can view preauthorizations and capture or cancel them. Costco may have those messages sent automatically from their system. Note that a common use for this pattern is with things like gasoline or delivery purchases. If this has been Citi/Costco both times, I'd try ordering a pizza or some other delivery food and see if they do it correctly. If it was Citi both times and a different merchant the other time, then it's probably a Citi problem rather than a merchant problem.\",\n \"\\\"AIUI this is not terribly abnormal. There are authorisations (sometimes reffered to as \\\"\\\"pending charges\\\"\\\" or \\\"\\\"holds\\\"\\\") and actual charges. An authorisation reserves money but doesn't actually take it. Normally what happens when you pay by card is that the merchant gets an authorisation immediately. Then some time later the authorisation is converted into an actual charge when the merchant takes the money. Sometimes merchants are slow in taking the actual charge, either deliberately (some merchants won't charge your card until they actually supply the goods to reduce the chance of having to process a refund) or because of administrative snarlups somewhere. When this happens the authorisation can time out before the actual charge is taken. So you get the pattern you see, first the authorisation appears then it times out and dissapears and finally the actual charge shows up.\\\"\",\n \"\\\"Yes, there is a slight reason to worry as the debit card contains 1) Account Number 2) of course a the Debit Card number 3) CSV code at the back of every debit card and mostly these three parameters are being followed to verify the authenticity of the cardholder, but there are some other parameters like \\\"\\\"password of your debit card\\\"\\\" and even address in some cases. So stay chill the manager will not be able to make any online payment using the credential of your debit card without password and other details...\\\"\",\n \"Yes, it is possible, and many companies do it for legitimate reasons. For example renewing subscriptions or one-click ordering. The only way to completely stop it would be to cancel the card. More realistically, check your bill whenever it arrives, and report any unauthorized transactions to the card issuer.\",\n \"This depends on the practise and applications available with the Beneficiary Bank. For a corporate customer, the details are show. For Retail customers they are generally not shown.\",\n \"That all makes sense, but all of those things are the responsibility of the cardholder. If you want to pay off your balance, anything quoted would obviously not include any transaction yet to post. The problem is a creditor refusing to give the balance AND refusing to take a payment for an amount over the previous statement balance. This is essentially forcing the customer to pay more interest after they declare their intent to pay the full amount. Good points, but I don't believe those were factors in this case.\",\n \"Just use a credit card like AMEX Blue that categorizes your purchases, and reconcile at the end of the month. There is no good reason to use a debit card.\",\n \"If your debit card has no fraud protection then you need to find a different bank, many debit cards include it. Even with fraud protection, I don't like to keep excess money in the checking account, so I have checking and savings accounts with an online bank. I can transfer money from savings to checking instantly, 6 times per month, which allows me to keep only what is needed in the checking account. Many online banks have a better overdraft policy as well, where you simply pay a small amount of interest on the over-drawn amount, rather than a set ~$35 overdraft fee, or a $20 fee for them to automatically transfer money from your savings account. I've heard of, but not made use of threshold-based fraud alerts or two-factor approval, which you can set up so that any purchase in excess of $N triggers the need for additional approval via your phone.\",\n \"POS stands for Point of Sale (like a specific store location) which indicates that the purchase occurred by using your debit card, but it can also be the on-line transaction done via 3-D Secure. Checking with bank, they said that Kirchstrasse transaction could be related to direct marketing subscription service ordered on-line. Investigating further what I've found these kind of transactions are performed by 2BuySafe company registered at Kirchstrasse in Liechtenstein with went through the MultiCards on-line cashier which can be used for paying different variety of services (e.g. in this case it was polish on-line storage service called Chomikuj). These kind of transactions can be tracked by checking the e-mail (e.g. in gmail by the following query: after:2014/09/02 before:2014/09/02 Order). Remember, that if you still don't recognise your transaction, you should call your bank. I have found also some other people concerns about that kind of transactions who ask: Is 2BuySafe.com and www.multicards.com some sort of Scam? Provided answer says: MultiCards Internet Billing is a provider of online credit card and debit card processing and payment solutions to many retailers worldwide. MultiCards was one of the pioneer companies offering this type of service since 1995 and is a PCI / DSS certified Internet Payment Service Provider (IPSP) providing service to hundreds of retail websites worldwide MultiCards is a registered Internet Payment Service Provider and has implemented various fraud protection tools including, but not limited to, MultiCards Fraud Score Tool and 'Verified by Visa' and 'MasterCard SecureCode' to protect card holder's card details. 2BuySafe.com Is also Secured and Verified By GeoTrust The certificate should be trusted by all major web browsers (all the correct intermediate certificates are installed). The certificate was issued by GeoTrust. Entering Incorrect information can lead to a card being rejected as @ TOS 2BuySafe.com is hosted on the Multicards Server site\",\n \"Short answer: No. Some of those 'automatic' payments you've agreed to (presumably by signing a PAD form) are initiated in batch by the company whom you're buying from (phone company, cable company etc). So no, the bank has no indication from one day to the next what is coming through. And the request goes from say, your cable company to THEIR merchant bank to YOUR bank. Typically you have a monthly bill date which is fixed, and they should have terms established when it is due. If a payment comes back NSF they can retry once - but only for the same amount and I believe it is 14 days from the initial payment attempt. It makes it predictable, and you'd figure banks would clue in and start to predict for you when things may come out - but strictly speaking your bank doesn't know when or how much.\",\n \"\\\"This is not a normal occurrence, and you have every right to be annoyed, but the technical way it usually happens goes like this: What can happen is when the merchant incorrectly completes the transaction without referencing the pre-authorization transaction. The bank effectively doesn't \\\"\\\"know\\\"\\\" this is the same transaction, so they process it the same way they process any other purchase, and it has no effect on the pre-authorization and related held/pending transaction. As far as the bank knows, you purchased a second set of blinds in the store for $200 and are still waiting on the first order to come in, they have no idea the store screwed up. The reason this is possible is the purpose of the pre-auth in the first place is that it is a contractual agreement between the bank (credit card) and the merchant that the funds are available, will be available except under rare special circumstances, and thus they can go ahead and process the order. This lets the merchant be secure in the knowledge that they can collect their payment, but you aren't paying interest or monthly payments on something you haven't even gotten yet! This system works reasonably well for everyone - right up until someone screws up and fails to properly release a hold, makes a second transaction instead of properly referencing the first one, or the bank screws up their system and fails to correctly match referenced pre-authorization codes to purchases. The problem is that this should not be a normal occurrence, and the people you are speaking with to try to sort out the issue often do not have the authority or knowledge necessary to properly fix the issue, or its such a hassle for them that they hope you just go away and time fixes the issue on its own. The only sure-fire solution to this is: make sure you have so much extra credit line that this doesn't effect you and you can safely let it time out on its own, or stop doing business with this combination of merchant/payment that creates the problem. Back when my credit limits were being pushed, I would never pay at gas pumps because their hold polices were so weird and unpredictable, and I would only pre-pay inside or with cash to avoid the holds.\\\"\",\n \"I doubt it's legal, but for next time, just go onto the website and your balance will be right there front-and-center... no need to deal with some ill-informed cranky lady in a call center half-way across the world.\",\n \"The Bank have risk. In goods, thrre are two profiles, essentially it can be convenient and hence the usage, pay off monthly or spending future earnings today for luxury. The way cash advance is seen, emergency, ran out of cash in foreign/remote location... Debit cards not working etc. One generally needs small amount of cash. The other segment is loss of income. Essentially I have run out of cash and I need to borrow. This is additional risk and hence is limited or curtailed.\",\n \"Sounds questionable to me. If there is no way around this I would suggest opening a new account with only the minimum balance necessary and sending them the debit card associated with that account. If anything goes wrong then the amount of damage they can do will be limited. I would definitely be looking for other options though. Maybe they can just mail you a check or something?\",\n \"This is normal for credit cards. As long as you make the credit card company's cutoff time, they will make the funds available on your credit card rather than make you wait for them to actually get the funds from your bank. The amount of time this takes actually can vary significantly from bank to bank. You do want to make sure funds are available in your bank account for them to withdraw when they do take them though. If not, the payment would get returned and can set red flags on your credit card account that take a while to drop off.\",\n \"If it is one of those debit cards you use just like a credit card without a PIN, I'd cancel it regardless of whatever you are trying to do with your finances. They just seem too dangerous to me. Unlike a credit card, if someone makes fraudulent purchases on a debit card the money is gone from your bank account until you resolve the issue with the issue. With a credit card, the BANK is out the money until it gets worked out. My brother once had his credit card number (not the card) stolen and the criminals emptied his bank account. Eventually the bank put the money back after an investigation, but it had two really nasty side effects: 1) Dozens of checks bounced. The bank refunded the bounced check fees, but not all of the stores would. 2) He had no money in his account until it was resolved. Luckily in his case they resolved it in a few days, but he was already making preparations to borrow money to pay his rent/bills.\",\n \"It is the people who you bought the ticket from. Blocking is frequently done by hotels, gas stations, or rental car companies. Also, for anything where the credit card might be used to cover any damages or charges you might incur later as part of the transaction. In essence, they are reserving part of your credit limit, ostensibly to cover charges they reasonably expect you might incur. For example, when you start pumping gas using a credit card they may block out $100 to make sure you don't pump a full tank and your credit card is declined because you ran over your limit at $3. In general, the blocks clear fairly quickly after you settle up with the company on your final bill. You can also ask the company to clear the block, but I don't think they are required to by law in any specific time period. It may be up to their (and your) agreement with the credit card company. Normally it isn't an issue and you don't even notice this going on behind the scenes, but if you keep your credit card near its limit, or use a debit card it can lead to nasty surprises (e.g. they can make you overdraw your account). One more reason not to use debit cards. More information is available here on the Federal Trade Commission's website.\",\n \"I paid with my Visa credit card. Generally on credit cards, the holds / authorizations are valid for a month on single transactions. So if you haven't been charged on your card, it seems that there was some technical error with the online market place. They were not able to trace this. Is there an expiration date on these kind of online purchases? Should I expect the money to be withdrawn at any time? There are 2 different aspects, one is do you still owe them money and can they ask you; It would be yes, I don't know the timelines. This would depend on establishing a contract etc. They can contact you for unpaid invoice. Can they again charge the credit card automatically ... generally No.\",\n \"\\\"Executive summary: It sounds like the merchant just did an authorization then cancelled that authorization when you cancelled the order, so there was never an actual charge so you'll never see an actual refund and there's no money to \\\"\\\"claim\\\"\\\". More detail: From your second paragraph, it sounds like they just did an authorization but never posted the transaction. A credit card authorization is basically the merchant asking your credit card company \\\"\\\"Does sandi have enough credit to pay this amount and if so please reserve that amount for a bit.\\\"\\\" The authorization will decrease the total credit you have available on the card, but it's not actually a charge, so if your billing cycle ends, it won't show up on your statement. Depending on which company issued your credit card, you may be able to see the authorization online, usually labelled something like \\\"\\\"Pending transactions\\\"\\\". Even if your credit card company doesn't show pending transactions, you'll see a decrease in your available credit, however you shouldn't see an increase in your balance. The next step, and the only way the original merchant gets paid, is for the merchant to actually post a transaction to your card. Then it becomes a real charge that will show up on your next credit card statement and you'll be expected to pay it (unless you dispute the charge, but that's a different issue). If the charge is for the same amount as the authorization, the authorization will go away (it's now been converted to an actual charge). If the amounts are different, or the merchant never posts a transaction, the authorization will be removed by your credit card company automatically after a certain amount of time. So it sounds like you placed the order, the merchant did an authorization to make sure you could pay for it and to reserve the money, but then you cancelled the order before the merchant could post the transaction, so you were never really charged for it. The merchant then cancelled the authorization (going by the start of your third paragraph). So there was never an actual transaction posted, you were never charged, and you never really owed any money. Your available credit went down for a bit, but now should be restored to what it was before you placed the order. You'll never see an actual refund reflected on your credit card statement because there was no actual transaction.\\\"\",\n \"I would guess that this is due to the card issuer, not Paypal. Credit card transactions are tagged with a code describing the type of purchase, and some issuers disallow certain types (such as gambling).\",\n \"You are in luck, I have an ANZ credit card as well. I have just checked my paper statement with online, and was able to find a matching online statement in less than a minute. You simply click on your credit card account from the list of accounts. Under Date Range it will have the Current incomplete statement period. You simply click on the down arrow and select the last complete date range ending sometime in late April (depending on your credit card cycle). You then press on View next to the drop down box. This should provide you with a list of purchases and payment/credits for that period, followed by a line with your Credit Limit, Available Funds and Closing Balance. The line below that then shows your Due Date, and Overdue/Overlimit, the Minimum Payment and Amount Due Now If you are after paying only the minimum amount then you pay this amount by the due date (you will be charged interest if you only pay this amount). If, on the otherhand, you wish to avoid paying any interest then you need to pay the full Closing Balance before the due date. You should also be able to get electronic statements sent to your email address.\",\n \"Try to get a second card in your business' name, with a separate card number (like you would get one for a spouse). They may or may not allow that free (you wouldn't want to pay a second fee), and it might be only possible with the second card bearing the same number, which makes it useless. But it is worth a try.\",\n \"Believe it or not, this is done as a service to you. The reason for this has to do with a fundamental difference between a credit card account and a checking account. With a credit card account, there is no money in the account; every charge is borrowed money. When you get to your credit limit, your credit transactions will start getting declined, but if the bank does for some reason let one get approved, it's not a big deal for anyone; it just means that you owe a little more than your credit limit. Note that (almost) every credit card transaction today is an electronic transaction. A checking account, however, has real money in it. When it is gone, it is gone. When a balance inquiry is done, the bank has no way of knowing how many checks you've written that have not been cashed yet. It is a customer's responsibility to know exactly how much money is available to spend. If you write more checks than you have money for in your account, technically you have committed a crime. Unfortunately, there are too many people now that are not taking the responsibility of calculating their own checking account balance seriously, and bad checks are written all the time. When a bank allows these transactions to be paid even though you don't have enough money in your account, they are preventing a crime from being committed by you. The fee is a finance charge for loaning you the money, but it is also there to encourage you not to spend more than you have. Even if you use a debit card, it is still tied to a checking account, and the bank doesn't know if you have written enough checks to overdraw your account or not. It is still your responsibility to keep track of your own available balance. Every time this happens to you, thank the bank as you pay this fee, and then commit to keeping your own running balance and always knowing how much you have left in your account.\",\n \"We have a pre-paid mastercard. This will only allow the spending up to the amount already paid into the card account. Visa Electron is a bank account linked debit card that will not allow the account to go overdrawn but this card type is getting quite rare.\",\n \"Imagine the following scenario: You have a credit limit of $1000 and you want to by a tablet from a store. It costs $600. You then walk next door and buy a TV for $600. You would expect that you would go over your limit and the second transaction will be rejected. As long as that hold is in place, you don't have access to those blocked funds. That makes sure that you can't promise to pay more than you have funds on the card. Holds can get in the way if you are close to your credit limit. People run into this problem if they reserve a hotel room, rent a car, or purchase gasoline. The hold is set at a specific level to make sure you have enough funds for the typical transaction. This distance between vendors is not relevant. The bank is blocking funds based on a request from a vendor. They have to block the funds because you might use the multiple times in the same store. It is possible that the card company might release the hold based on the request by the vendor, but they generally don't. If this is a debit card linked to a bank account, the bank can have access to the overdraft system or a linked savings account. If is is a credit card they can decide to to increase your credit limit, and offer you what is essentially a loan. Plus they can hit you with fees. But if the card is a prepaid debit card or gift card they don't want to allow you to go beyond your limit. If this is a card that you plan on recharging, you could put extra funds on the card to allow both the old hold and the new hold to co-exist.\",\n \"I'm sure it depends on the company, but I routinely run balances greater than 0 on my credit card. The reason is simple: I already budgeted to spend the money, I know I'm going to spend the money, and it's easier to put the extra money on the card at the beginning of my budget period rather than waiting until I spend the money and get a bill. There are 2 relevant numbers: First is the balance on your bill. It can show a positive or negative value, as people have talked about. The balance on my card tends to update fairly infrequently. The second is the available credit. When I overpay on my card, the available credit does not show more than the available debt. The latter value, however, updates for me immediately -- I can see within minutes any transaction on my credit card based on the credit available. One important caveat: Refunds don't always immediately process. You may have to wait days or weeks until that money shows up in your account. Spending the money before it appears in your account will cause your card to behave exactly as if you don't have the money.\",\n \"I do know that a blank check has all the information they need for the electronic transfer. They probably add it as a customer service to streamline future payments. Though I don't think automatically adding it makes good business sense. It is possible that the form used to submit the check included a line to added the account to the list of authorized accounts. He might have been lucky he didn't set up a recurring payment. I would check the website to see if there is a tool to remove the account info from the list of payment options. There has to be a way to edit the list so that if you change banks you can update the information, yet not keep the old accounts on the list. Talk to customer service if the website doesn't have a way of removing the account. Tell them that you have to edit the account information. And give them your info. If they balk at the change tell them that they could be committing fraud if the money is pulled from an unauthorized account.\",\n \"CC always (applies only if you pay your balance in full). First you rack up points on your card, second if there is an unauthorized pull a Cc will help you a bank may or may not. As a general advice don't hand out your banking information like a credit card number. Now paying bills through the bank is a different matter. This advice applies to companies that would like to pull money from bank accounts. Never do that if Cc is an alternative.\",\n \"As a merchant I can tell you that the only thing the bank gets from me. Is the total amount and a category for my business. No detail, not ever.\",\n \"If this is a pre-authorized automatic billing, and if you have signed any contract with the merchant, cancelling may not block any future charges from the merchant. Happens with gyms, magazines, memberships quite often. There is a time period after the cancellation this will occur, then it'll be completely dead.\",\n \"When you swipe your credit card, the terminal at the store makes a request of your bank, and your bank has only a few seconds to accept or reject the transaction. Once the transaction is accepted by your bank, it appears in the Pending transactions. At the end of the business day, the store submits all of the final transactions for the day to their bank in a batch, and the banks all trade transactions in a batch, and money is sent between banks. This is the process that takes a couple of days, and after this happens, you see the transaction move from your Pending transactions into the regular transactions area. Most of the time, the pending transaction and the final transaction are the same. However, there are cases where it is different. A couple of examples: With a credit account, the fact that the final amount is not known for a few days is no big deal: after all, you don't have any money in the account, and if you end up spending more than you have, the bank will happily let you take your time coming up with the money (at a steep cost, of course). With a debit card tied to your checking account, the transaction is handled the same way, as far is the store is concerned. However, your bank is not going to run the risk of you overdrawing your checking account. They also are not going to run the risk of you withdrawing money from your account that is needed to cover pending transactions. So they usually treat these pending transactions as final transactions, deducting the pending transaction from your account balance immediately. When the final transaction comes through, they adjust the transaction, and your balance goes up or down accordingly. This is one of the big drawbacks to using a debit card, in my opinion. If a bad pending transaction comes through, you are out this money until it gets straightened out.\",\n \"Is my understanding okay ? If so, it seems to me that this system is rather error prone. By that I mean I could easily forget to make a wire some day and be charged interests while I actually have more than enough money on the check account to pay the debt. Which is where the credit card company can add fees so you pay more and they make more money. Don't forget that in the credit case, you are borrowing money rather than using your own. Another thing that bothers me is that the credit card apparently has a rather low credit limit. If I wanted to buy something that costs $2500 but only have a credit limit of $1500, can I make a preemptive wire from my check account to the VISA account to avoid facing the limit ? If so, what is the point for the customer of having two accounts (and two cards for that matter...) ? If you were the credit card company, do you believe people should be given large limits first? There are prepaid credit cards where you could put a dollar amount on and it would reject if the balance gets low enough. Iridium Prepaid MasterCard would be an example here that I received one last year as I was involved in the floods in my area and needed access to government assistance which was given this way. Part of the point of building up a credit history is that this is part of how one can get the credit limits increased on cards so that one can have a higher limit after demonstrating that they will pay it back and otherwise the system could be abused. There may be a risk that if you prepay onto a credit card and then want to take back the money that there may be fees involved in the transaction. Generally, with credit cards the company makes money on the fees involved for transactions which may come from merchants or yourself as a cash advance on a credit card will be charged interest right away while if you buy merchandise in a store there may not be the interest charged right away.\",\n \"\\\"As stated in the other answer, debit card payments even contactless ones, do not debit instantly or anywhere near instantly. They can take several days or even longer. However, the fact that the payment was approved would indicate that the contactless device used by the retailer managed to connect to your bank account and could see there were sufficient funds. At this time the payment should also have \\\"\\\"reserved\\\"\\\" the funds so it will be \\\"\\\"pending\\\"\\\" as such. Your online banking may not show all types of pending transactions, it may only show Direct Debits for example, if you ring the bank I expect they will be able to see this payment and advise accordingly, out of interest who do you bank with? If you can see your \\\"\\\"available\\\"\\\" funds you should find that includes this payment having been \\\"\\\"reserved\\\"\\\" ie you can't use that money, but if it's a small amount you may struggle to spot it. Again, this will vary by bank and how their internet banking system has been implemented. I would expect this payment to debit your account the working day after you made it, or at worst the day after that. In theory with \\\"\\\"faster payment\\\"\\\" technology it could happened within 2 hours but not all banks implemented that system in the same way so delays can and do occur. If the retailer/merchant banks with the same bank you do, in theory the transaction could be instantaneous, again depending on the bank. Short answer short, the transaction is fine, it won't be void, you just need to wait, probably a day or two. This link has more info, especially useful if you bank with NatWest (as I say the technology is likely to vary by bank to some extent). Your own bank should have their own version of this. http://personal.natwest.com/personal/current-accounts/your-visa-debit-card/contactless.html\\\"\",\n \"As far as I can see, this is an issue of the bank's policy rather than some legal regulation. That means that you'll need to work it out with the bank. To give you a couple of ideas to work with when you talk with them, maybe something from this list will work: Good luck!\",\n \"Three reasons I prefer not to use direct debit:\",\n \"The post that you linked to saying that a pre-paid credit card is really a debit card is kind of right and kind of wrong. From your point of view, to get a $1000 pre-paid credit card, you need to hand over $1000. So nobody is giving any credit to you. You can only spend money that you actually own, like a debit card. For the merchant accepting your card, it is exactly like a credit card. He doesn't know what deals you had to make to get the card. The merchant just knows that up to some amount, he will receive money. So in that sense it is a credit card and will be accepted like a credit card.\",\n \"I would expect so--the block from spending funds probably does not put a block in place for receiving funds. But ask your bank. Expect a 50% chance that they give you the wrong answer. (Some banks are better than others, but on average this is how often I have found bank employees to be incorrect about anything nonstandard). It may help to ask the bank how often it happens and who actually sorts out problems with blocked cards--and then talk to that person. Then you should only expect a 25% chance that they are wrong.\",\n \"There are different ways of credit card purchase authorizations. if some choose less secure method it's their problem. Merchants are charged back if a stolen card is used.\",\n \"With a check, there are limits on cashing the stale check, but that is set by the banks involved. With a debit card transaction, it will be up the the debit card company and your bank. Imagine a situation where a person finds an old check and tries to cash it at their bank. If the bank considers the check stale, they might reject it, or put a longer hold on the check. When the check writers bank gets the transaction, they will also decide what to do. If they reject it, the first bank will reverse the transaction. You can't count on a 90 day, or 180 day limit; most banks will ask you to put a stop payment on an old check that you don't want cashed. This is especially important step if you write a replacement check. Because there is no check number to put a stop payment on, in fact the temporary hold will fall off after a few days. There doesn't appear to be a way to stop an old transaction. Be careful if you do contact the restaurant, you could end up double paying for the meal if they swipe your card again. Your best option may be just to keep the transaction as pending.\",\n \"I just had this happen to me with Chase and speaking with my executive support contact, they will not return the funds unless you request them back. Which I find appalling and just one more reason that I don't like working with Chase!\",\n \"You probably don't need to call the bank. Today is Sunday, so three days ago was probably Friday (or Thursday depending on how you count the days). Banks normally don't post transactions on weekends - and transactions that do happen on the weekend sometimes don't get posted until Tuesday. I would give it till Tuesday and then call them if you still don't see it show up on your account.\",\n \"Whether or not you have money in your account will not necessarily stop them withdrawing the money, and it certainly won't stop them attempting to withdraw the money. There are two possible scenarios when they attempt to withdraw the money (as they surely will): I think you are just lucky they haven't attempted the withdrawal yet. Put the necessary money into your account now if you possibly can, and consider this a slightly expensive lesson learned about following the Ts and Cs when cancelling services.\",\n \"Debit cards are the dumbest development ever. I now have a piece of plastic that allows any yahoo to cause me to bounce my mortgage. Great. Throw away the debit card. Use a credit card and exercise some self control. Take out a sufficient amount of cash to cover your weekly incidental expenses under $50. If you want something that costs more than $50, wait a week and use the credit card. You'll find that using cash at places like the convenience store or gas station will cause you to not spend $3 for a slim jim, lotto ticket, donut or other dumb and unnecessary item.\",\n \"\\\"Why would you consider it null and void? It might be that something went wrong and the business \\\"\\\"lost\\\"\\\" the transaction one way or another. It might be something else. It might never appear. It might appear. In one of the questions a while ago someone posted a link of a story where an account was overdrawn because of a forgotten debit card charge that resurfaced months later. Can't find the link right now, but it can definitely happen.\\\"\",\n \"When using a debit card there are two limits that may be imposed on the use: the current balance and the maximum daily limit. If the banking institution limits your daily usage that may mean that on a particular day you may not be able to make a large purchase, even though you have money in the bank. Otherwise as long as you have funds in the account linked to the debit card you can make the transaction. The catch is that as soon as the transaction is sent to the bank one of two things happens: the money is immediately deducted from the account; or a hold equal to the the amount of the transaction is placed on the account. A hold is generally used when the transaction is done in two parts: the pre-scan at a restaurant, or gas station. The hold reduces the amount of available funds in the account. A hold or an immediate deduction limits the size of future transactions. To be able to make larger transactions you need to transfer more money into the account. There is no debit card transaction that you can do to artificially allow a larger transaction, unless the bank is not placing a hold or doing an immediate deduction. Because a debit card is linked to a bank account, some accounts have overdraft protection. This protection comes in two forms: they either transfer your money from another account, or they make a loan. Either way there can be costs involved.\",\n \"One possibility is to ask RBC to lend you some money (or more specifically, to lend you some more money): an overdraft, a personal loan, or whatever. To discuss this you should to talk to your personal banker (not a teller), probably by appointment: to explain why you want it, and how and when you expect repay it. You might (I don't know) say that you want the loan (or some of the loan) to pay off the Visa, and/or for the travel. If you've only just arrived in Canada, however, then I don't see why they should want to lend it to you (i.e. why they should think you're a good credit risk). Is there anyone else (e.g. an immigration sponsor or parent or employer) who might co-sign (a.k.a. guarantee) the loan? I have never had this issue before with any other credit cards but I got an RBC Visa in Canada In some countries (not Canada) a Visa behaves more like a debit card, i.e. you can only spend money you have in the account.\",\n \"A federal or state regulator has ordered that the RDFI cannot participate in the ACH network, or the RDFI's participation has been limited in some capacity. You need to contact the RDFI for more details...ask for their ACH operations group. The RDFI is the institution receiving the ACH transaction. It could be either the debit side or credit side. It is not the institution originating the ACH transaction, which is the ODFI. The entire RDFI institution might be restricted for an extremely poor audit, or rampant suspect money laundering or terrorist funding. Specific accounts at the RDFI might be limited for a variety of reasons, including freezing the account for suspicious activity (money laundering or terrorist funding), court order for impending legal proceedings, IRS levies for nonpayment of taxes, or perhaps child support delinquency. I am making an educated guess on the reasons.\",\n \"They hold most of time rental value for example if you rent car for 5 days and decline insurance offered at counter - they will ideally hold 5days x rental value per day + insurance x 5 days most of them round of this figure. if the card is issued from overseas like asia they hold extra $ 500 for collection issues. hope this helps you to plan - this is general thumb rule.\",\n \"There are two separate cases here that people are not separating. Any card will allow you to pay an amount not exceeding the actually posted charges. Some cards will allow you to pay more than this, some will not. My parents have deliberately overpaid as a means of having a higher credit limit, I've been denied (different card) when trying to do the same thing and the website wouldn't even allow me to pay temporary charges that hadn't yet become real. (A human operator would allow paying those, though.)\",\n \"This sounds more like a behavioral than a debit card issue to me TBH. Did you put the money you're putting away into a separate savings account that you (mentally) labelled 'for investment'? That's pretty much what I do (and I have a couple of savings accounts for exactly that reason) and even though I know I've got $x in the savings accounts, the debit card I carry only lets me spend money from my main bank account. By the time I've transferred the money, the urge to spend has usually gone away, even though it often only takes seconds to make the transfer.\",\n \"\\\"> I was saying a lot of people dont understand that. They see they spent X at Chilis (processing) and assume it to be fact. I don't understand why you're having such a difficult time with this concept. And the solution -- keeping an ACCURATE and independent checkbook register (rather than relying on an \\\"\\\"online balance\\\"\\\") is still the same. >Also comparing swiping a debit card as credit to writing a check (in terms of when they show up on your account) is a terrible comparison. Nope. It's the same thing. You're still talking about a discrepancy between what has been processed, versus what you have ACTUALLY spent. >And calling me ignorant because I don't need the help writing down where my money is at or goes is pretty ironic. Well, if you're having problems with overdrafts (as you claimed you had) then rather obviously you DO need help (or at least you need to own up to where the problem lies -- your faulty \\\"\\\"memory\\\"\\\" of what you spent).\\\"\",\n \"Something is missing from your scenario. If you don't know what it is, start by going to http://annualcreditreport.com and get your free credit report. Review it, and figure out if you have outstanding balances or judgements that you're unaware of. You should be using your card every month and pay it on time.\",\n \"If the debit card is associated with the account, there is nowhere else it could go. The chance is nil that there is another account with that 16-digit number. So either it goes there, or the transfer fails and it is right back where it came from, though this could take some days. If you don't want to risk a wait, talk to your bank now.\",\n \"I've used PayPal for my business for a long time. Sometimes PayPal doesn't trust credit cards. Debit or direct bank transfer are reliable. There is also a charge for using a credit card but I don't think that is the reason. You may be trying to purchase a high value item. That would be a possible reason why PayPal allowed you to use credit cards in the past, but will not allow you to do so now, for these particular transactions.\",\n \"Of course not, this is confidential information in the same way that I cannot phone up your bank and ask to see a list of the transactions that you have made. Any bank has to be extremely careful about protecting the private transactions of it's customers and would be subject to heavy fines if it revealed this information without the customer's consent.\",\n \"A large biller is registered and can initiate an ACH Debit to your account based on the Account Number and the Routing number. He assumes responsibility and completes the due diligence of obtaining a written mandate / permission / authorization from you. There are other legal process where by you get a Power of Attorney that would allow you to transact on behalf of someone. The key point you seem to be missing is that one can ONLY transact from ones account either by walking into the Bank / ATM, or by writing a check. There are other options as well to transact.\",\n \"AIUI credit cards report three main things. The potential problem with your strategy is that by pre loading you never actually get a bill and so your provider may not report your payments. Better to wait until the bill comes and then pay it in full. That ensures that your use of the card is properly reported.\",\n \"I did just what you suggest. The card company honored the charge, they told me the temporary number was solely for the purpose of assigning a number to one vendor/business. So even though I set a low limit, the number was still active and the card company paid the request. Small price to pay, but it didn't go as I wished. For this purpose, I've used Visa/Mastercard gift cards. They are often on sale for face value and no additional fees.\",\n \"Typically, a direct debit is set up by the company who will be receiving the money, not by you or your bank. So you need to contact your credit card company, and ask them to set up the direct debit.\",\n \"I think part of the reason people overdraft is because the online banking app/website doesn't show a true indication of your account balance. I've had mine (at Bank of America) adjust to $30 less than it told me I had when I checked due to processing payments being altered.\",\n \"I found the answer to what you're looking for in the PayPal Help Center. Refer specifically to the question PayPal - How much do you charge to my card when confirming my debit or credit card?. Quote: We take the extra step to confirm your card so that we can verify that the card is valid and that you are the card owner. To confirm your card, we’ll charge $1.95 to it. After the card is confirmed, we’ll refund the amount to your PayPal balance. Here are amounts for cards in other countries: If we can’t determine or don’t support your card’s currency, we charge $1.95 USD to the card. (Refer directly to PayPal for potentially more up-to-date information.)\",\n \"The hard hold is the bank holding your money for no reason but to make money of your. Like the hotel took deposit for my over night and they released the time checked out in there system but it never showed on my account . I had to call the bank why the numbers are not adding up to my current balance. It's illegal practice by banks to hold your money until your realize you didn't spent that much and that musing amount is not even showing on your account. When it happen they will release after 30 days or you can call the bank right away soon as you done your business so you can use the money right away not the bank\",\n \"\\\"I can't speak for every credit card, but I know two of mine don't have overage fees. The transaction either goes through, or gets denied. Check your card agreement and look for the fee section. One other thing to consider, sometimes when you make an online payment to a credit card, you will notice that the \\\"\\\"Available Balance\\\"\\\" number on the account will increase right away even if the payment is not reflected on your \\\"\\\"Current Balance\\\"\\\". If this is the case, and you are positive that your payment will be successfully posted to the account, I say go for it.\\\"\",\n \"As it is international debits, this will take a while. BofA is right, You have to dispute this with Card Issuer, i.e. HDFC. The worst case for me was around 1 month. Keep chasing and sending out reminders every 3-4 days.\",\n \"I've called both BofA and Amex Customer Support, and they couldn't help. That's because you cannot. Debit card is tied to your checking account, so you can do a cash advance from your AMEX and deposit it to your BOA checking account. It will then be available to use with your debit card.\",\n \"Are you sure the payment has actually posted and isn't sitting in a pre-auth status? If it is, it'll fall off in a few days and they're probably telling the truth. If not, and it has fully posted to your account, I agree with the others. It's very appropriate to initiate a chargeback. You can provide documentation showing they confirmed a cancellation, further, you can show proof that they had no intent of charging you. Good luck!\",\n \"\\\"I linked my bank account (by making a transfer from bank account to Paypal) without linking a card. This should not give Paypal any rights to do anything with my bank account - transfer that I made to link it was exactly the same as any other outgoing transfer from my bank account. On attempting to pay more that resides in my Paypal balance I get To pay for this purchase right now, link a debit or credit card to your PayPal account. message. Paypal is not mentioning it but one may also transfer money to Paypal account form bank to solve this problem. Note, that one may give allow Paypal to access bank account - maybe linking a card will allow this? Paypal encourages linking card but without any description of consequences so I never checked this. It is also possible that Paypal gained access to your bank balance in other way - for example in Poland it just asked for logins and passwords to bank accounts (yes, using \\\"\\\"Add money instantly using Trustly\\\"\\\" in Poland really requires sharing full login credentials to bank account - what among other things breaks typical bank contract) source for \\\"\\\"Paypal attempts phishing\\\"\\\": https://niebezpiecznik.pl/post/uwaga-uzytkownicy-paypala-nie-korzystajcie-z-najnowszej-funkcji-tego-serwisu/\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"The simplest answer to why you can't see it in your online statement is a design/business decision that was made, most probably originally to make online statements differ as little as possible from old fashioned monthly printed statements; the old printed statements never showed holds either. Some banks and card services actually do show these transactions online, but in my experience these are the rare exceptions - though with business/commercial accounts I saw this more, but it was still rare. This is also partly due to banks fearing lots of annoying phone calls from customers and problems with merchants, as people react to \"\"hey, renting that car didn't cost $500!\"\" and don't realize that the hold is often higher than the transaction amount and will be justified in a few days (or weeks...), etc - so please don't dispute the charges just yet. Behind the scenes, I've had bankers explain it to me thusly (the practice has bitten me before and it bothered me a lot, so I've talked to quite a few bankers about this): There are two kinds of holds: \"\"soft holds\"\" and \"\"hard holds\"\". In a soft hold, a merchant basically asks the bank, \"\"Hey, is there at least $75 in this account?\"\" The bank responds, and then has it's own individually set policy per account type as to how to treat that hold. Sometimes they reserve no money whatsoever - you are free to spend that money right out and rack up NSF fees to your heart's content. Yet some policies are to treat this identically to a hard hold and keep the money locked down until released. The hard hold is treated very much like an actual expenditure transaction, in that the money is locked and shown as no longer available to you. This varies by bank - some banks use an \"\"Account Balance\"\" and an \"\"Available Balance\"\", and some have done away with these dual terms and leave it up to you to determine what your balance is and what's \"\"available\"\" (or you have to call them). The key difference in the hard hold and a real expenditure is, technically, the money is still in your bank account; your bank has merely \"\"reserved\"\" it, earmarking it for a specific purchase (and gently promising the merchant they can have their money later), but the biggest difference is there is a time-limit. If a merchant does not process a completion to the transaction to claim the money, your bank will lift the hold after a period of time (I've seen 7-30 days as typical in the US, again varying by institution) returning your money to your balance that is available for purchasing and withdrawal. In every case, any vaguely decent banking institution allows you to call them, speak to some bank employee, and they can look up your account and inform you about the different sort of holds that are on your account that are not pending/completed purchase transactions. From a strictly cynical (perhaps rightly jaded) point of view, yes this is also used as a method to extort absurdly high fees especially from customers who keep a low balance in their account. I have had more than one bank charge NSF fees based on available balances that were due to holds made by gas pumps, for instance, even though my actual \"\"money in my account\"\" never went below $0 (the holds were for amounts larger than the actual transaction). And yes, the banks usually would waive those fees if you bothered to get someone on the phone or in person and made yourself a nuisance to the right person for long enough, but they made you work for it. But I digress.... The reality is that there are lots of back and forth and middle-men in transactions like this, and most banks try to hide as much of this from you the client as possible, partly because its a huge confusing hassle and its part of why you are paying a bank to handle this nonsense for you to start with. And, as with all institutions, rules and policies become easily adjusted to maximize revenues, and if you don't keep sizable liquid minimum balances (100% of the time, all year long) they target you for fees. To avoid this without having fat wads of extra cash in those accounts, is use an entirely disconnected credit card for reservations ONLY - especially when you are traveling and will be making rentals and booking hotels. Just tell them you wish to pay with a different card when you are done, and most merchants can do this without hassle. Since it's a credit card with monthly billing you can often end up with no balance, no waiting around for a month for payments to clear, and no bank fees! It isn't 100%, but now I never - if I can possibly avoid it - use my debit/bank card to \"\"reserve\"\" or \"\"rent\"\" anything, ever.\"","No money is stolen. They don't show you the hold for whatever reason (not so good a bank?), but the money is still yours. You just cannot use it, but it is still on your account. These holds usually go away after a week. In certain cases (like a security deposit) it may take up to 30 days. You can request from the merchant to cancel the hold if it is no longer necessary. They'll have to be proactive on that, and some merchants wouldn't want the hassle. It is however a known issue. When I was working in the banking industry, we would routinely receive these hold cancellation requests from merchants (hotels and car rentals).","The hard hold is the bank holding your money for no reason but to make money of your. Like the hotel took deposit for my over night and they released the time checked out in there system but it never showed on my account . I had to call the bank why the numbers are not adding up to my current balance. It's illegal practice by banks to hold your money until your realize you didn't spent that much and that musing amount is not even showing on your account. When it happen they will release after 30 days or you can call the bank right away soon as you done your business so you can use the money right away not the bank"],"string":"[\n \"\\\"The simplest answer to why you can't see it in your online statement is a design/business decision that was made, most probably originally to make online statements differ as little as possible from old fashioned monthly printed statements; the old printed statements never showed holds either. Some banks and card services actually do show these transactions online, but in my experience these are the rare exceptions - though with business/commercial accounts I saw this more, but it was still rare. This is also partly due to banks fearing lots of annoying phone calls from customers and problems with merchants, as people react to \\\"\\\"hey, renting that car didn't cost $500!\\\"\\\" and don't realize that the hold is often higher than the transaction amount and will be justified in a few days (or weeks...), etc - so please don't dispute the charges just yet. Behind the scenes, I've had bankers explain it to me thusly (the practice has bitten me before and it bothered me a lot, so I've talked to quite a few bankers about this): There are two kinds of holds: \\\"\\\"soft holds\\\"\\\" and \\\"\\\"hard holds\\\"\\\". In a soft hold, a merchant basically asks the bank, \\\"\\\"Hey, is there at least $75 in this account?\\\"\\\" The bank responds, and then has it's own individually set policy per account type as to how to treat that hold. Sometimes they reserve no money whatsoever - you are free to spend that money right out and rack up NSF fees to your heart's content. Yet some policies are to treat this identically to a hard hold and keep the money locked down until released. The hard hold is treated very much like an actual expenditure transaction, in that the money is locked and shown as no longer available to you. This varies by bank - some banks use an \\\"\\\"Account Balance\\\"\\\" and an \\\"\\\"Available Balance\\\"\\\", and some have done away with these dual terms and leave it up to you to determine what your balance is and what's \\\"\\\"available\\\"\\\" (or you have to call them). The key difference in the hard hold and a real expenditure is, technically, the money is still in your bank account; your bank has merely \\\"\\\"reserved\\\"\\\" it, earmarking it for a specific purchase (and gently promising the merchant they can have their money later), but the biggest difference is there is a time-limit. If a merchant does not process a completion to the transaction to claim the money, your bank will lift the hold after a period of time (I've seen 7-30 days as typical in the US, again varying by institution) returning your money to your balance that is available for purchasing and withdrawal. In every case, any vaguely decent banking institution allows you to call them, speak to some bank employee, and they can look up your account and inform you about the different sort of holds that are on your account that are not pending/completed purchase transactions. From a strictly cynical (perhaps rightly jaded) point of view, yes this is also used as a method to extort absurdly high fees especially from customers who keep a low balance in their account. I have had more than one bank charge NSF fees based on available balances that were due to holds made by gas pumps, for instance, even though my actual \\\"\\\"money in my account\\\"\\\" never went below $0 (the holds were for amounts larger than the actual transaction). And yes, the banks usually would waive those fees if you bothered to get someone on the phone or in person and made yourself a nuisance to the right person for long enough, but they made you work for it. But I digress.... The reality is that there are lots of back and forth and middle-men in transactions like this, and most banks try to hide as much of this from you the client as possible, partly because its a huge confusing hassle and its part of why you are paying a bank to handle this nonsense for you to start with. And, as with all institutions, rules and policies become easily adjusted to maximize revenues, and if you don't keep sizable liquid minimum balances (100% of the time, all year long) they target you for fees. To avoid this without having fat wads of extra cash in those accounts, is use an entirely disconnected credit card for reservations ONLY - especially when you are traveling and will be making rentals and booking hotels. Just tell them you wish to pay with a different card when you are done, and most merchants can do this without hassle. Since it's a credit card with monthly billing you can often end up with no balance, no waiting around for a month for payments to clear, and no bank fees! It isn't 100%, but now I never - if I can possibly avoid it - use my debit/bank card to \\\"\\\"reserve\\\"\\\" or \\\"\\\"rent\\\"\\\" anything, ever.\\\"\",\n \"No money is stolen. They don't show you the hold for whatever reason (not so good a bank?), but the money is still yours. You just cannot use it, but it is still on your account. These holds usually go away after a week. In certain cases (like a security deposit) it may take up to 30 days. You can request from the merchant to cancel the hold if it is no longer necessary. They'll have to be proactive on that, and some merchants wouldn't want the hassle. It is however a known issue. When I was working in the banking industry, we would routinely receive these hold cancellation requests from merchants (hotels and car rentals).\",\n \"The hard hold is the bank holding your money for no reason but to make money of your. Like the hotel took deposit for my over night and they released the time checked out in there system but it never showed on my account . I had to call the bank why the numbers are not adding up to my current balance. It's illegal practice by banks to hold your money until your realize you didn't spent that much and that musing amount is not even showing on your account. When it happen they will release after 30 days or you can call the bank right away soon as you done your business so you can use the money right away not the bank\"\n]","isConversational":false}}},{"rowIdx":297,"cells":{"_id":{"kind":"string","value":"2395"},"query":{"kind":"string","value":"Freelance site with lowest commission fees?"},"gt_ids":{"kind":"list like","value":["179066"],"string":"[\n \"179066\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["179066","280679","165503","545324","57320","148250","151758","253881","296725","294517","97094","103120","294645","569993","396792","593101","129607","242551","158091","115584","446622","246986","480984","192910","489285","313039","250038","234747","155699","14765","47044","139802","451207","286320","31936","374375","587711","301477","186621","195336","361383","277513","422476","38424","108671","460348","157548","501056","594182","265397","234983","186889","576384","30417","254635","535200","585050","30524","133788","539073","236931","256881","532672","71293","589692","296718","29009","311202","17071","165645","552747","512267","355930","210437","274987","407844","257311","475906","194090","469972","282811","452544","286935","201561","417769","262721","176489","421924","599336","362923","481091","517410","270038","59670","432417","117634","115815","49930","553540","278430"],"string":"[\n \"179066\",\n \"280679\",\n \"165503\",\n \"545324\",\n \"57320\",\n \"148250\",\n \"151758\",\n \"253881\",\n \"296725\",\n \"294517\",\n \"97094\",\n \"103120\",\n \"294645\",\n \"569993\",\n \"396792\",\n \"593101\",\n \"129607\",\n \"242551\",\n \"158091\",\n \"115584\",\n \"446622\",\n \"246986\",\n \"480984\",\n \"192910\",\n \"489285\",\n \"313039\",\n \"250038\",\n \"234747\",\n \"155699\",\n \"14765\",\n \"47044\",\n \"139802\",\n \"451207\",\n \"286320\",\n \"31936\",\n \"374375\",\n \"587711\",\n \"301477\",\n \"186621\",\n \"195336\",\n \"361383\",\n \"277513\",\n \"422476\",\n \"38424\",\n \"108671\",\n \"460348\",\n \"157548\",\n \"501056\",\n \"594182\",\n \"265397\",\n \"234983\",\n \"186889\",\n \"576384\",\n \"30417\",\n \"254635\",\n \"535200\",\n \"585050\",\n \"30524\",\n \"133788\",\n \"539073\",\n \"236931\",\n \"256881\",\n \"532672\",\n \"71293\",\n \"589692\",\n \"296718\",\n \"29009\",\n \"311202\",\n \"17071\",\n \"165645\",\n \"552747\",\n \"512267\",\n \"355930\",\n \"210437\",\n \"274987\",\n \"407844\",\n \"257311\",\n \"475906\",\n \"194090\",\n \"469972\",\n \"282811\",\n \"452544\",\n \"286935\",\n \"201561\",\n \"417769\",\n \"262721\",\n \"176489\",\n \"421924\",\n \"599336\",\n \"362923\",\n \"481091\",\n \"517410\",\n \"270038\",\n \"59670\",\n \"432417\",\n \"117634\",\n \"115815\",\n \"49930\",\n \"553540\",\n \"278430\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Your own site/business. I’m in freelancing and internet business for 15 years, 20 years IT experience. Currently i use freelance websites for cheap Asian employees, very seldom for EU/USA employees, and if only if local competition is heavily out-pricing qualified staff. Till I went \"\"limited\"\" i.e., founded a limited corporation I was jobbing as freelancer and sole proprietor, both with limited success due to the strong Asian competition i myself currently hire. The point where freelancing got \"\"not sustainable\"\" as primary income was 2006 for me, don’t want to get into detail but every freelancer who was active back then knows what I mean, it was like whole India got internet. If you have absolutely no references, do it for the references a limited time and see the fee you pay as service for you to get references, then start your own web identity, either as freelancer or as corporation. Make sure you take your very satisfied customers with you. Every \"\"very satisfied\"\" customer in your contact list means 10 new customers which mean 2 new customers which mean 0.2 new customers and so on. Honestly, this info is solely based on experience of this niche fro ma European citizen perspective, if you’re based anywhere else the situation might be totally different.\"","\"Paypal has an account called \"\"micropayments\"\" for those who have a lot of transaction under $10 with \"\"better\"\" commission structure, 5%+5c per transaction (rather than 2.9% + 30c with regular merchant accounts)\"","Just keep in mind that on Upwork, you basically have to be the cheapest person to get most of the gigs. It's great to get your feet wet, but I would strongly encourage you to use it to build a portfolio up and then start reaching out to people in your network to see if anyone needs your services.","Been a freelance motion graphic artist for 18 years and I've never touched any of those sites. It's idiots and amateurs looking for cheap, shitty labor. I don't feel like competing against people in 3rd world countries so I get all my jobs the old fashioned way.","One company owns majority of popular freelancing websites (elance included) Aside from the race to the bottom pricing happening for projects; customer is always right. Lots of stories of even a pip from a client freezing accounts -- not even just a project, your whole account with any ongoing projects. Everything gone. Thousands lost. Not worth it. No recourse.","Elance, UpWork, Fivver Who would've thought taking skilled labor and watering down the price to mere pennies would be bad for everybody involved? That's why, even though I operate just like a freelancer, I incorporated. Legally, I'm a sole proprietor, not a freelancer...aside the few tax differences, it just saves me a ton of headaches.","\"PayPal offers a service called \"\"PayPal Business Payments\"\". Instead of charging a percentage, they charge a flat fee. For US-to-US payments, the fee is fifty cents per transaction. For Canada-to-Canada payments, the fee is five dollars per transaction. You need to use a third-party invoicing service and choose the \"\"PayPal Business Payments\"\" option. FreshBooks or Zoho Invoice might work.\"","you *can* get the guys in india for pennies on the dollar, but then you get what you pay for. I was told on upwork that I didn't get picked because I was too expensive, but then he went on to say that their proposals are usually garbage and wanted to pay me a little to look them over and make sure they weren't full of shit. Upwork should be called UpOffShoring. wtf?","That all depends on you. The cheaper places are certainly going to cost less, but when it comes to comparing value that is a subjective decision that only you can make. Maybe the more expensive one has an easier to user website, friendlier customer service, or something else you value enough to pay more for trades.","Have you looked at OptionsHouse? They charge $2.95 per trade and are one of the lowest when it comes to fees. Bare bones interface, but fast execution.","I'm a freelance programmer, reverse-engineer, and network engineer. I do quarterly 1099 filings using a cheap local accounting firm. I did them on my own at first; not that hard.. You deduct from sum the percentage for that earning-tier issued by the IRS.. $500.00 for writing algorithms on a timer? Yikes.. I did topcoder once but it didn't pay much then it was only good for portfolio.. No way I would race to do algorithms for third-world-rate capital..","Your best bet is to use a payment processor that charges ONLY a fixed monthly fee and not a fee per transaction.","That's exactly what happened to me except on Fiverr. I had months of activity and hundreds of 5-star reviews. I had real clients. Repeat buyers. Real business relationships. Then one day they deleted both of my accounts (I had one for buying and one for selling). Apparently, buried somewhere in their terms of service, users aren't allowed to have more than one account. I didn't even try to hide it- my usernames were nerdi and nerdi2. They even made me wait months and submit I.D. just to be able to log in and withdrawal my earnings. So much for that.","\"Are you in the US? One thing you can do is prepay taxes at a rate of a 1.8% fee. Much lower than paypal. I would do this on what is \"\"left over\"\". Here are somethings that I would tend to do in your case: Those are some of the things I would be looking at. Do you care to share the details of your offer?\"","\"Paypal linked with my bank account. 1.Can I use my Saving bank account to receive payments from my clients? Or is it necessary to open a current account? Yes you can get funds into your savings account. However it is advisable to keep a seperate account as it would help with your IT Returns. 2.I will be paying a certain % as commission on every sales to a couple of sales guys (who are not my employees but only working on commission). Can I show this as an expense in my IT returns? As you are earning as freelancer, you are eligible for certain deductions like Phone calls, Laptop, other hardware, payments to partners. It is important that you maintain a book of records. An accountant for a small fee of Rs 5 K should be able to help you. In the Returns you have to show Net income after all these deductions, there is no place to enter expenses. 3.Since I will be receiving all the payments in Euros so am I falling under a category of \"\"Exporter of services\"\"? The work you are doing can be Free Lancing. 4.Do I need an Import Export Code (IEC) for smoothly running this small business? You can run this without one as Free lancing. IEC would be when you grow big and are looking for various benefits under tax and pay different taxes and are incorporated as a company.\"","Several things to consider: I don't see why your friend should pay any tax. It's not his income at all. And I am not sure where your income should be taxed in this scenario. Is he declaring it as his income somehow? The bank won't do it for him, the transfer as such should be transparent. On the other hand, money transiting on his account could in principle look suspicious, although €300 is unlikely to raise alarm. What I do know is that if you do pay taxes, 20% is not particularly high as such. There are four brackets of income tax (and tax-like contributions to the pension system) in the Netherlands, between 36.55% and 52%. Rates for personal taxes in the Netherlands are simply way higher than what you might be used to in Eastern Europe or what has been mentioned in comments. In fact, if anything, 20% seems too low. I am at a loss guessing what it could correspond to, you could ask your friend how he came to that number. There various tax discounts (kortingen) and deductions (aftreken) that apply to freelance work (and some that apply to all incomes). €3000 yearly is quite low and would probably not be taxed at all if you were recently registered as freelance (zzp'er) in the Netherlands and had no other sources of income. But on the other hand, if your money is treated as being part of your friend's income, these wouldn't apply, as he is probably already benefiting from them. There are special rules for copyright fees. Not sure this is necessarily 100% kosher but I have met people who got paid that way for articles they wrote in trade publications.","In addition to paypal, Amazon also offers a payment processing service that has micropayment pricing: For Transactions < $10:","I think something you might want to look at is a service called Dwolla. They charge $0.25 per transaction, and are free for transactions under $10.","Since you are not starting with a lot of cash the commissions may eat into your account. So go with somebody that has no inactivity fee and low/free commission. I think there are number of sites and the ING sharebuilder.com comes to mind. Scottrade also one of the cheaper ones that i used.","\"Putting them on line 10 is best suited for your situation. According to Quickbooks: Commissions and Fees (Line 10) Commissions/fees paid to nonemployees to generate revenue (e.g. agent fees). It seems like this website you are using falls under the term \"\"nonemployees\"\".\"","The fees for the services are displayed on the PayPal website at https://www.paypal.com/cgi-bin/webscr?cmd=_display-fees-outside Is there anything else you were looking for.","My recollection is that most traditional reader systems charge like 5%. For squareup there were two different pricing schemes 1. 2.75% per swipe. 2. 0% per swipe but a $275 permonth charge. When I did the math the flat fee only made sense if you're doing over $2500ish per month in business. These fees seem pretty minimal to me.","Why wouldn't one of the existing crowdsourcing systems meet your needs? Yes, they charge a commission, but they have already addressed the issues you raise and specifically they provide the third-party accounting you want.","This very informative link gives a clear and comprehensive comparison (pros and cons) of various popular brokers: https://www.nerdwallet.com/blog/investing/best-online-brokers-for-stock-trading/ (Best Online Brokers for Stock Trading 2016) There are indeed some significant cons for the super-low commission fee. Just for a quick example, the Interactive Broker requires a minimum of 10k account balance, as well as the frequent trading activity even on monthly basis (or the minimum $10 commission would be charged).","I think either one would allow for lower pricing tiers as a merchant. I am at 2.5 on my main account. $0 to $3,000 2.9% + $0.30 $3.20 fee on a $100 sale $3,000+ to $10,000 2.5% + $0.30 $2.80 fee on a $100 sale $10,000+ 2.2% + $0.30 $2.50 fee on a $100 sale $100,000+ Call 1-888-818-3928","Use some form of escrow agent: Some freelancer sites provide payment escrow services (e.g. E-Lance). In this system the client puts money in escrow for the project in advance and then when they accept the project it forwards the payment to the provider. Progress Payments Arrange a progress payment approach with the client where they pay at certain milestones rather than a single payment at the end of the project. Ideally you would have them pre-pay for each milestone before you start work on it. However, you could ask for payment after each milestone, which might be easier to sell to your client. It does leave some risk, but minimizes that risk somewhat.","My go-to response whenever anyone asks me this is the Monevator table of platform fees. It looks a little complicated at first, but scroll past the table for a couple of paragraphs of useful info to help narrow down your search. The general tone of the page is geared more towards investors in index funds, but the fees on share-dealing are right there in the table too. There are also special notes if there are discounts for frequent traders and that sort of thing, so not too much passive-investor elitism on show!","Lower fees are always better, everything else equal. A lower fee makes your transaction overall a better deal, all else equal. Other transactions costs (like the SEC fee on sales) are mostly the same across brokers and there is unlikely to be any difference in execution quality either. When comparing brokers be sure to consider the other issues: To me, most of these are minor issues. For that reason, I'd say let transaction cost be your guide. I hear a lot of talk about the quality of the interface. If you just want to buy or sell a stock, they are all pretty easy. Some brokers have better tools for monitoring the market or looking at technical indicators, if you are into that.","\"A hundred different Indian sweatshops low bidding everyone. I would be surprised if any of those projects are ever successful or under budget, but the amateur clients don't seem to care, they just want \"\"the next Facebook\"\" built for $100.\"","Transferwise is a new peer-to-peer service that's setup to lower fees for international money transfers: https://transferwise.com","In general the other party will expect you to keep your promises. If you promise to do something for a fixed amount of money, you take on a risk and it is no longer their problem if you work slower than you planned. In principle it could even be the case that you take on a project and fail, after which the company may not have to pay at all. So regardless of how things should be written in your books (For example a theoretical pay above minimum wage but a loss for your private company): An important thing to note is that if you are worried about ending up below minimum wage, you are definitely asking a fee that is too low. You should keep in mind that your fee should include a fair compensation for the expected work, and a fair compensation for the risk that you have taken on.","For people who frequently submit payments via PayPal, you may want to try and negotiate with them to use Paypal mass payments. Although the mass payment program is designed to send small amounts to many people, you can process payment batches of 1 transaction. In the CA mass payment fees (paid by sender) are 2% capped at 1.25 CAD To CA and US. International payments are 2% capped at 24.00 CAD. No fees for receiver. A business PayPal account is required to enable mass payments. When I mention this to customers, many are unaware Paypal's mass payment program exists! https://merchant.paypal.com/ca/cgi-bin/?cmd=_render-content&content_ID=merchant/mass_pay","What about web-hosting fees? Cost of Internet service? Cost of computer equipment to do the work? Amortized cost of development? Time for support calls/email? Phone service used for sales? Advertising/marketing expenses? Look hard--I bet there are some costs.","I have sold a few items on ebay. The biggest issue I have with ebay is all of the fees. I am not sure how much has changed recently, but when I was selling stuff it felt like ebay and paypal took a large chunk of the money. I could be wrong, but it seemed like they were getting around 35% or more of my 'profits'. Of course, you then have the shipping fees on top of that, which will run a few bucks on common items. For items that sell for around $20 on ebay, I felt like I was ending up with about $5 in my pocket. I have used Amazon to sell used books, though I haven't done that for about a year or so. They had no fees for listing items, and the item remains listed for about 90 days. If it sells, they process the payment and can deposit it into your bank account or provide an Amazon gift certificate. I forget Amazon's fees, but I remember that it didn't seem to be as frustrating as the ebay/paypal price structure.","If you want the cheapest online broker in Australia, you can't go past CMC Markets, they charge $9.90 upto a $10,000 trade and 0.1% above that. There is no ongoing fees unless you choose to have dynamic data (stock prices get updated automatically as they change). However, the dynamic data fee does get waived if you have about 10 or more trades per month. You don't really need the dynamic data unless you are a regular trader anyway. They also provide some good research tools and some basic charting. Your funds with them are kept segragated in a Bankwest Account, so are resonably safe. They don't provide the best interest on funds kept in the account, so it is best to just deposit the funds when you are looking to buy, and move your funds elswhere (earning higher interest) when selling. Hopes this helps, regards Victor. Update They have now increased their basic brokerage to a minimum of $11 per trade unless you are a frequent trader.","\"If you are not worried about timing the market and want to buy primarily \"\"blue chip\"\" stocks to hold for a while, consider using Loyal3. They don't charge any commission. The downside is that trades are executed at the end of the day and there's only about 60 companies currently available (but there are some really good ones currently available).\"","I've been using xetrade for quite awhile, also used nzforex (associated with ozforex / canadian forex, probably ukforex as well) -- xetrade has slightly better rates than I've gotten at nzforex, so I've been using them primarily. That said, I am in the process of opening an account at CurrencyFair, because it appears that I'll be able to exchange money at better rates there. (XETrade charges me 1.5% off the rate you see at xe.com -- which is the FX conversion fee I believe -- there are no fees other than the spread charged). I think the reason CurrencyFair may be able to do better is because the exchange is based on the peer-to-peer trade, so you could theoretically get a deal better than xe.com. I'll update my answer here after I've been using CurrencyFair for awhile, and let you know. They theoretically guarantee no worse than 0.5% though (+ $4.00 / withdrawal) -- so I think it'll save me quite a bit of money.","If you want higher returns you may have to take on more risk. From lowest returns (and usually lower risk) to higher returns (and usually higher risk), Bank savings accounts, term deposits, on-line savings accounts, offset accounts (if you have a mortgage), fixed interest eg. Bonds, property and stock markets. If you want potentially higher returns then you can go for derivatives like options or CFDs, FX or Futures. These usually have higher risks again but as with any investments some risks can be partly managed. Also, CMC Markets charges $11 commission up to $10,000 trade. This is actually quite a low fee - based on your $7,000, $22 for in and out of a position would be less than 0.32% (of course you might want to buy into more than one company - so your brokerage would be slightly higher). Still this is way lower than full service brokerage which could be $100 or more in and then again out again. What ever you decide to do, get yourself educated first.","\"I wouldn't trust \"\"about.com\"\"; they're based on grabbing content from other places and are entirely unreliable. You can use the money transfer on PayPal, or transfer through a bank. I wouldn't give my bank account details to complete strangers, though. But that's me, with my distrust of the human kind.\"","0.13% is a pretty low fee. PTTRX expenses are 0.45%, VINIX expenses are 0.04%. So based on your allocation, you end up with at least 0.08%. While lower than 0.13%, don't know if it is worth the trouble (and potentially fees) of monthly re-balancing.","Consider trying a broker that offers free trading. Robinhood is one such broker.","A fully automated website that literally does the selling for you. Receive money daily paid directly to you PayPal account! 100% commissions from one incredible package... for just $6.99! No Web Hosting Or Domain Fees!! For all the details, visit website at: http://victor699.beep.com/","Every brokerage is different, on all of their websites they have an actual list of fees. There are tons of different charges you may encounter.","Depending on how tech savvy your client is you could potentially use bitcoin. There is some take of indian regulators stopping bitcoin exchanges, meaning it might be hard to get your money out in your local country but the lack of fees to transfer and not getting killed on the exchange rate every time has a huge impact, especially if your individual transaction sizes are not huge.","Fidelity, Charles Schwab, TDA, and just about every make online brokerage gives you massive amounts of free trades each year and when you sign up. Pretty much the same as 100+ free trades /yr over a 10 year period. Also, you get commission-free trade for the most popular ETFs, which is much more important. Lastly, if you care about free trades, you're probably investing poorly. Non-professionals shouldn't be making that many non-ETF trades in a year. Professional traders wouldn't blink over a tiny $5-10 commission fee.","The website likely has no differentiation. I am hoping, however, the service does. I'm not looking to break down a fledgling business plan, I am just looking for information on how and where to build or buy a website that performs thusly: Company creates account and posts the service they can provide, Consumer applies for said service, I deal with some required middle-man work which is at the cost of the consumer.","Dwolla looks to be a great option. But it requires users to have an account there (Free to sign up). And there rates are absolutely amazing. Free for transactions under $10 $0.25 to receive money on transactions over $10","Trading is NOT zero-sum game, it is negative sum actually. In fact all people's money is getting swept by commissions and fees. If you don't have The Plan (which includes minimizing commission losses), you win some (not a lot), then you get big positions, then market crashes, then all your money is gone. You will start noticing that commissions are real, only when you get market crash. Prey that you get heavy losses (-10% of portfolio) before some (giant) market crash. Getting good lesson by small price is better then high price (-30..50%). Piece of advice. There is small exchanges that do NOT charge you for operations, taking only market spread ($0.01) as commission. They do so because they do not have big population and they trade mostly by using automatic market-makers (which means there is no way to buy 10% of Apple there).","Have you considered doing some small freelance programming jobs? One site I like for this type of thing is eLance.com, but I am sure there are others. Heck, you are soon going to be up all night anyway, why not earn some cash during those hours the rest of us foolishly waste on sleep?","\"Get some professional accounting help. You're going to have to pay for everything out of the fee you charge: taxes, retirement, health care, etc. You'll be required to pay quarterly. I don't think you should base your fee on what \"\"this\"\" company will pay as a full-time employee, but what you can expect in your area. They're saving a lot of money not going through an established employment firm and essentially, making you create your own. There are costs to setting up and maintaining a company. They have less risk hiring you because there are no unemployment consequences for letting you go. Once you're hired, they'll probably put you on salary, so you can forget about making more money if you work over 40 hrs. IMHO - there have to be better jobs in your area than this one.\"","The lowest cost way to trade on an exchange is to trade directly on the exchange. I can't speak to the LSE, but in the US, there is a mandated firewall between the individual and the exchange, the broker; therefore, in the US, one would have to start a business and become a broker. If that process is too costly, the broker or trade platform that permits individuals to trade with the lowest commissions is the next lowest.","Fiverr and Mechanical Turk comes to my mind. You won't break the bank, but will give you a nice distraction and earn you some cash for your time. And you can do this at your own schedule.","I am a freelancer based in Europe and I want to tell you: - if you are a freelancer, then you INVOICE your Swizzerland based client The word salary is improper. - So your client will DEDUCE the invoice from its taxes, and NOT pay income tax on top of that invoice. Because invoice = expense. So, ONLY YOU pay income tax in India. Your client pays no tax at all, not in India, not in Swizzerland. As you are a freelancer and not employee, the company has no obligation to pay employer taxes for you. A company has financial benefits from working with a freelancer.","Zero. Zero is reasonable. That's what Schwab offers with a low minimum to open the IRA. The fact is, you'll have expenses for the investments, whether a commission on stock purchase or ongoing expense of a fund or ETF. But, in my opinion, .25% is criminal. An S&P fund or ETF will have a sub-.10% expense. To spend .25% before any other fees are added is just wrong.","The website http://currencyfair.com/ provides a service which gives you both a decent exchange rate (about 1% off from mid-market rate) and a moderately low fee for the transfer: 4 USD for outgoing ACH in the US, 10 USD for same-day US wire. For the reverse (sending money from the US to EU) the fees are: 3 EUR for an ACH, 8 EUR for a same-day EUR wire. It has been online for quite a while, so I assume its legit, but I'd do a transfer for a smaller sum first, to see if there are any problems, and then a second transfer for the whole sum.","eBay is the worst of the worst. I used it way back when it was fair to buyers and sellers. These days, scammers can can get free stuff at your expense and then eBay will punish you on top of getting scammed.",">keep the profit margin the most minimal as possible to gain customers over time That's not the right way to go. The running for the lowest price is endless and no one is going to win. What you have to do is establish your brand and charge a fair price for something that add value on people's life. If they think it's worth they will buy it. That's the best way to grow your ecommerce. Shopify + Dropshipping is the easiest way to go. First what you need to do is find what you want to sell. Then name your store and create a good logo for it. Remember, you need to focus on establish your brand. Going for the lowest price not going to take you anywhere. They will just buy from you because it's cheap and sometimes not even that. You are selling the service not only the product. You can't charge too much but charge the lowest price is not good either. 1- $300 I think it's too much. I would charge you half of that if you were my client. It's easy but time consuming to set up a Shopify store (depending on how many items you would be selling). You need to be aware to banners, logo and social media at very beginning too. So it's not only the store itself. 2- If you are going for Shopify you don't need servers, vps... The Shopify will be your hosting. What you need would be mostly pay designer (logo, banners), apps (Upsell, hurrify, shipping...), domain and maybe someone to write your product description. About how much would you get back it depends completely of what you are about to sell and how is the market for it. I work with digital marketing and wanted to test my entrepreneurship skills with e-commerce plus my marketing knowledge last week. Ended up making over $5,500 on the first 5 days selling in Brazil. Proof (http://imgur.com/a/zDmot) But if you don't have any knowledge about it don't expect too much at very beginning. You probably won't sell anything or almost nothing on your first month based on some friends experiences. 3- That's true. I spend around $500-$600 to get more than $5,500 in sales in 5 days. They are mostly from Facebook Ads. Never tried any independent website and I don't think that's worth for a new E-commerce in my opinion. But again, if you don't have marketing knowledge you will spend a lot of money to make it worth for you. Here, I highly recommend you to hire someone to do it for you or teach you. That's sometimes an expensive service but better than what you would spend trying to learn/doing by yourself Let me know if I can help you with your website or anything else. I have the knowledge but sometimes I don't know how to express myself. Hope I helped you.","Your cost of platform is built into your commission rates...SC is free if I sign up to a broker that charges more commissions. Right now I am with IB as my broker. With the cost of my charting, if I were to make 10 round turns per month, I would pay $4.50 per side commission on FOREX, $3.25 per side on EQUITIES. Still a better deal than ToS.","1: Low fees means: a Total Expense Ratio of less than 0,5%. One detail you may also want to pay attention to whether the fund reinvests returns (Thesaurierender Fonds) which is basically good for investing, but if it's also a foreign-based fund then taxes get complicated, see http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/","This is pretty shameless branded content by Forbes for UpWork. “Brand Voice” should be called what it is, paid advertising. I bet an agency has placed the post here too. Anyone else noticing this or am I just being cynical?","Discount brokers come and go. They tend to come with ridiculously cheap prices, and they go when they fail to gain traction, or raise their prices, at which point they can be undercut by a new player. Some brokers are nicer to people with more money, while others cater to small traders on simple low commissions. No matter which broker you choose, you aren't liable to make much money doing frequent trades with a small account. You either risk most of your money on every trade, or several small trades get sapped by commissions. It is understandable that you want to pay less given the disadvantages of a small account. Just2Trade, USAA, Sogotrade, etc. have each been reasonable options in the < $4 a trade range. Many websites will give you a list of the top discount brokers of the year. As with any heavy discounter/deal that is too good to be true, find reputable referrals from people who use the service, and complaints from customers who have been burned.","They're not negotiating trade rates for you, you set the trade rates in your order. What they might have is a slightly slower system, delivering your orders a second later than the competition would. If that's critical to you then you should look at that, otherwise look at their fees, customer support and research aids because that's where the broker value is.","Magazines like SmartMoney often have an annual issue that reviews brokers. One broker may have a wider variety of no-fee mutual funds, and if that's your priority, then the stock commissions may be a moot issue for you. In general, you can't go wrong with a Fidelity or Schwab, and to choose investments within the accounts with an eye toward low expenses.","Thanks, at the moment I don't plan to do alot of trading just need to sell a few shares at the moment and might sell some more more at another point, but other than that I don't plan on touching the stock and just plan on letting it re-invest itself. Since I don't plan on doing alot of selling I don't know how much I need to worry about fee's as long as they aren't too steep.","There is nothing called best; Depending on the amounts there are several options and each will cost some money. If your business is still small customers are individuals try PayPal it will be easy for everyone. The other options are accepting Credit Card, you would need to set-up card gateway on your website etc Simple wire transfer, it will cost more both for your customers and to you.","You mean sites like prosper.com? I see that they are growing but is this really substainable when the novely wears off? Also I find the low volatility claim interesting since I thought low vol portfolios would be a hard sell. How have you experienced this?","I'm just a sole trader who doesn't have much money which is why I'm looking at budget stuff. It's not like I'm a big business just being really tight. I need advice on this, not to get down-voted. I need one that is cheap or free but I would prefer that I can upload my own files and I would like to connect my own domain to it.","Indiabulls. Low brokerage (If you bargain) I'm user of it and I'm getting 25paisa for delivery and 5 paisa for intraday. All transactions can be done online. Also they provide an stand alone application PowerIndiabulls, which is too good and appraised by many users as best in the industry. Not sure about it, but I think Powerindiabulls application is the answer for this. Please have a look at their website for more details.","I have recently started using Transferwise to transfer money between the U.K. and The Netherlands. Transferwise has lower fees than other companies. They use a pseudo-peer-to-peer money transfer system. When person A transfers £ to €, and person B transfers € to £, they effectively cancel these two agains teach other, which significantly lowers exchange fees for both A and B. I am not affiliated with Transferwise other than as a customer.","Yes, you've summarized it well. You may be able to depreciate your computer, expense some software licenses and may be home office if you qualify, but at this scale of earning - it will probably not cover for the loss of the money you need to pay for the additional SE tax (the employer part of the FICA taxes for W2 employees) and benefits (subsidized health insurance, bonuses you get from your employer, insurances, etc). Don't forget the additional expense of business licenses, liability insurances etc. While relatively small amounts and deductible - still money out of your pocket. That said... Good luck earning $96K on ODesk.","Income Tax would only be levied on the 10% commission that you earn and not on the total amount kept in the Escrow Account.","It is best to take advise from / appoint a professional CA. Will I have to pay GST? No GST is applicable. Exports outside of India do not have GST. Do I have to collect TDS when I send money to the PUBLISHERS ? No But another guy said, I have to pay 18% tax when receiving and sending payments, apart from that I have to collect 30.9% TDS when sending payment to the PUBLISHERS(outside India). There is only income tax applicable on profits. So whatever you get from Advertisers less of payments to publishers less of your expenses is your profit. Since you are doing this as individual, you will have to declare this as income from other sources and pay income tax as appropriate. Note there are restrictions on sending payments outside of India plus there are exchange rate fluctuations. It is best you open an Foreign Currency Resident [or Domestic] Account. This will enable you payout someone without much issues. Else you will have to follow FEMA and LRS schemes of RBI.","To be fair, part of the $5 goes to Paypal whether you sign up with them or not. I bought the special and certainly have no regrets. But I do hope Louie uses a competitor of theirs like WePay next time.",">Content Writer >Content writing is a quick job nowadays. There are some excellent marketplaces for writers. You can get a job as a writer there. I will give a short list here. >People always look for a writer, who has website or blog. I often look for writers for my niche sites. I love to change writer and deal with new peoples. I hire writers from Social Media and several marketplaces. >If you think, you’re right in English and you can write proper blog content then you can start writing right now. >First of all, make a blog for your own. Make 5-10 excellent blog content there as your sample writing. You don't need to be right in English. Many contributes do not have great English skills but can deliver great concepts.","I personally like Schwab. Great service, low fees, wide variety of fund are available at no fee. TD Ameritrade is good too.","I would prefer to see you register in your home state, and then focus on making money, rather than spending time looking to game the system to save a few bucks. People worry way too much about these trivial fees when they should be focused on making their business successful. Get registered, get insurance, and then pour it on and start making money. Make $650 your target for a week's income - you can do it! Next year's goal should be spending $50 a month on a payroll service because you're SO BUSY you can't take the extra time to pay your own social security taxes.","If you are using paypal to sell items online, you need a Premier (or better) account rather than personal. Paypal states: Our fees are the same for Personal, Premier, and Business accounts. [...] If you use your PayPal account to request money from someone, you'll be charged a fee when you receive the payment.","Surprised nobody has mentioned Freshbooks yet. It's lightweight, easy to use, and free for low-end use (scaling up price-wise as you scale up).","You can find a lot of information at the HRMC website at http://hmrc.gov.uk. If you don't want to work as an employee, you can register as self-employed (basically a one-man band), which is quite simple, you can start your own company, which is more work but can have tax advantages, or you can find umbrella companies which will officially employ you while in reality you are a freelancer and only do your billing through them. Umbrella companies can be anywhere from totally legal to extremely dodgy. If they promise you that you pay only five percent tax on your income through ingenious tricks, that's only until the tax office finds out and they will make you pay. Between self-employed and your own company, the big difference is whether you are actually working independently or not. If you work like an employee (take someone else's orders) and claim you are a company, the tax office doesn't like that. And if you pay very little taxes, they don't like that either. So self-employed is the safer choice but you will pay more taxes, close to what a normal employee would pay. Obviously you will have to pay tax on your income and NHS insurance. Obviously you are required to tell the government (actually HMRC) about your income. Not doing so would be tax evasion and get you into deep trouble when you are caught. I don't think you have to tell them the source of your income, but not telling them might look very suspicious and might get your accounts checked carefully. And unless you design a website for the mafia, why wouldn't you tell them? The bill payer will try to deduct your bill from their profits anyway, so it's no secret. Most important to remember: When you send out a bill and receive payment, you'll have to pay tax on it. When self employed, as a rule of thumb put one third away into a savings account for your tax bill. Don't spend it all or you will find yourself in deep trouble when your taxes need paying. Plus put some more away for times when you can't find work.","\"It's a tough thing to do. You should look for a salaried position. Your freelance skills will be much better received, if you've worked for a couple of companies doing programming full time. Nothing beats working at it all day long for a few years. If you're set on being freelance, write some utility that will be popular, and submit it to Freshmeat.net. Now that's asking a lot. Those on the Web looking for programmers will most likely want you to work for 'sweat equity'. That is, a share in the company for you labour. In other words \"\"FREE\"\". I've done my share of those, and if you're just getting into this, you should steer away from them. You may hit the jackpot, but you won't sleep for the next few years ;-)\"","With a paypal micropayment he pays 61k (6.1%) (5% of sale price + .05 cents per transaction) With a regular paypal he pays 95k (9.5%) (2.9% of sale price + .30 cents per transaction) In case anybody was wondering what the poster is talking about. Either way he got hosed by using PayPal. Note: I'm working off 220,000 units sold at 1 million dollars (which I know aren't the exact figures).","PayPal does charge a premium, both for sending and receiving. Here's how you find their rates:","If you’re concerned about transferring USD, I can’t really help you there. But if you’re looking to transfer wealth, I believe that’s where something like Bitcoin could help you. In fact a small or nonexistent processing fee is one of Bitcoin’s biggest strengths as a currency. Off the top of my head, I believe BitPay has services that would suit your needs. And if you’re worried about the volatility of Bitcoin, you can always convert it straight to USD just so you can avoid service fees!","You could use Bitcoin. Bitcoin is THE fee-killer. I haven't used US and China exchanges, but you can connect your US bank account to Coinbase, buy bitcoins, transfer to BTCChina, and sell for CNY. There are many other options to convert from and to Bitcoins, but Coinbase seems to be most practical and most widely used in the US and BTCChina is the largest and probably most trusted exchange in China. You can also use LocalBitocoins for both buying and selling, but people on LocalBitcoins typically charge larger fees than exchanges, though this may vary. Please read a bit about Bitcoin before using it, and be aware of the risks. It's still very new (but revolutionary and very easy and fast to move internationally). Try with a small amount first to check it out. Your electronic wallet can be stolen, and you're exposed to certain risks of exchanges shutting down or government/banks stepping over their boundaries. One nice thing is that you probably won't be affected by volatility as you won't be holding bitcoins for long. Also be aware that the Chinese don't like capital leaving China and there is a possibility that China government will introduce further regulations on exchanges (though they have stated that buying, selling and owning bitcoins is legal). You're doing the opposite, importing money into China, but you'll probably feel it in one way or the other. P.S. Approximate fast fee calculation: Coinbase has 1% transaction fee + $0.15 bank fee. Bitcoin transfer is free or in some cases with minimal 0.0001 BTC fee (a bit less than $0.01 currently). BTCChina has 0.3% trading fee and 0.5% CNY withdrawal fee. As you can see, the main fees are exchange fees, but still less than 3% and if you find a good exchange combination with low fees you're golden, or might even make money on transaction if BTC price rises. Also check this Reddit thread - there are alternative China exchanges with lower fees. P.P.S. Found this blog post, maybe a bit outdated, but probably with better calculation than mine as it takes into account exchange prices.","How do I directly get my Freelancing amount in my Axis bank account? Do I need to inform my Bank before receiving any such payment? Yes you can get it directly into your Axis Bank Account. You would need to inform your client your Bank Account Number, Bank Name and Address and Swift BIC or IFSC Code [Axis Bank website or Branch can tell you]. You can receive credits in Euro's. Upon receipt Axis Bank will automatically convert this into Rupees using standard rate. Your Bank [Axis] may also charge some Bank fees for the wire transfer. How do I pay tax for this extra income in India? You would need to treat this as income and add it to total income including salary and calculate tax accordingly. You can pay taxes online using Income Tax India website. You can also approach a CA who would do the tax computation, paying taxes and filing returns for as little as Rs 1000 - 2000/- Edit: IBAN is International Bank Account Number. Explain to you client that India does not subscribe to IBAN. Its right now only used by Europe and Australia. Give you normal Bank Account Number. Please call up your Bank / walk into your Branch to get the SWIFT BIC. It will be something like this http://www.theswiftcodes.com/india/page/3/","Square prices are hard to beat for a small operation. I've looked around when I was considering starting up a business, and they're definitely one of the cheapest. Paypal are the second best, but I do not trust Paypal in general. However, looking locally may provide you some more options. If you walk in to one of the local banks, you may be able to get offers for merchant accounts with better rate, depending on your relationships with that bank. You can also check out Costco merchant services, they seem to be quite competitive with the rates, but there may be other costs (they will probably charge more for equipment).","(For people looking at this question many years later...) Schwab and Fidelity offer a wide selection of commission-free ETFs. You need an initial purchase amount, though, of (when last I checked at Schwab) $1,000.","You can use the ITR 1 and declare the income from freelancing as income from other sources. As part of freelancing, certain expenses can be deducted provided they are directly related to work and have proper records. Please consult a CA who can advice you on how to do this. The Actual income shown should be less of the expenses.","Generally for tax questions you should talk to a tax adviser. Don't consider anything I write here as a tax advice, and the answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Does IRS like one payment method over other or they simply don't care as long as she can show the receipts? They don't care as long as she withholds the taxes (30%, unless specific arrangements are made for otherwise). She should withhold 30% of the payment and send it to the IRS. The recipient should claim refund, if the actual tax liability is lower. It's only consulting work at the moment, so most of the communication is done over phone. Should they start engaging in written communication to keep records of the work done? Yes, if she wants it to be a business expense. Is it okay to pay in one go to save money-transferring fees? Can she pay in advance? Again, she can do whatever she wants, but if she wants to account for it on her tax returns she should do it the same way she would pay any other vendor in her business. She cannot use different accounting methods for different vendors. Basically, she has not outsourced work in previous years, and she wants to avoid any red flags. Then she should start by calling on her tax adviser, and not an anonymous Internet forum.","PayPal charges a 2.5% currency conversion fee to exchange funds from one currency to another. That means, the receiver would receive $ 9.75. Read More","They're developing a way for homeowners to buy and sell their property online without the use of a realtor therefore saving themselves the user thousands of dollars on commission charges. They educate the user as well as provide the forms needed for free. If a service is needed, like an escrow company or appraisal, they suggest a few.","From PayPal's website: PayPal offers discounted transaction rates for 501(c)(3) charities for most products, and consistently low rates for all other nonprofits. No extra fees for setup, statements, withdrawals or cancellation. 2.2% + $0.30 per transaction and no monthly fee for charities. There is a reduced rate if the donations total more than $100,000 (which they would for Wikipedia), but PayPal doesn't publish those rates. You have to call and ask about them. One forum I read indicates the rate drops to 1.9% + $0.30 per transaction.","I would never, ever recommend that to a startup business like what's being discussed here. You're talking about a larger, regional business that's doing at least $200,000 a year in revenue, if not significantly more, for a $15,000 site to be effective. Or an e-commerce store. But, yeah. Your price is right for that sort of thing.","\"Lifecycle funds might be a suitable fit for you. Lifecycle funds (aka \"\"target date funds\"\") are a mutual fund that invests your money in other mutual funds based on how much time is left until you need the money-- they follow a \"\"glide-path\"\" of reducing stock holdings in favor of bonds over time to reduce volatility of your final return as you near retirement. The ones I've looked at don't charge a fee of their own for this, but they do direct your portfolio to actively managed funds. That said, the ones I've seen have an \"\"acquired\"\" expense ratio of less than what you're proposing you'd pay a professional. FWIW, my current plan is to invest in a binary portfolio of cheap mutual funds that track S&P500 and AGG and rebalance regularly. This is easy enough that I don't see the point of adding in a 1 percent commission.\"","Use buxfer.com. It's available in India and most of the features are free.","Sure, with some general rules of thumb: what is the minimum portfolio balance to avoid paying too much for transaction fees? Well, the fee doesn't change with portfolio balance or order size, so I don't know what you're trying to do here. The way to have less transaction fees is to have less transactions. That means no day-trading, no option rolling, etc. A Buy-and-hold strategy (with free dividend reinvestment if available) will minimize transaction fees.","\"Free, huh? From their Commission and Fee Schedule: So if you literally bought two shares, then the SEC added one penny in fees and FINRA added one penny as a \"\"Trading Activity Fee\"\" Note that there are several other fees on their schedule that may not apply to you. If you had bought 100 shares instead, your total fees would have still been only 2 cents, but you would have lost $4 on the trade. So the fees are minuscule when you start doing larger orders. However, That should not discourage you from experimenting and learning. I'd rather pay 2 cents in fees on a 4 cent loss than 2 cents in fees on a $400 loss. Just chalk it up to the cost of experience.\"","I'm going to assume that you want to be invested all the time and each trade consists in selling a security and buying another one (similar to your example). How much commissions you are willing to pay depends on several factors, but one way to think about it is as follows. You have a position in stock A and you want to switch to stock B because you think it will perform better. If you think there's a good chance (>50%) that B will outperform A by more than x% then you can happily pay up to x/2% commissions and still make money over a long time horizon. If you like formulae, one way to express it is: Where: Example: if you tend to be right 51% of the time (hit rate), and gain 110% more than you lose on average (win loss ratio), you can see that your expected profit is: 5.1% - commissions, so you could pay 2.5% commissions on entering and closing the position and still make money*. Unfortunately, common sense, statistics and numerous studies tell us a sad truth: on average, people have a hit rate of 50% and a win/loss ratio of 100%. Which means that their expected profit per trade is 0% - commission. Based on that crude observation - unless you can prove to yourself that you are better than average - you should aim at reducing commissions paid to your broker as much as possible through: * 51% and 110% are not random numbers, they correspond to the results of the top 15% (professional) managers in a research paper using a sample of 215 funds managing $150bn.","I work from home. However I am starting my own agency (http://localgrowthdigital.com) in United States. It's specialized in E-commerce and small business. The website is not ready yet though. I am moving to Arizona and will open my office there probably. Yes, I got over $5.500 IN SALES only working online. Net profit was around 35-40% of that.","I am the vendor and I pay the 2 to 3%, not the customer. And I will pay it with a smile on my face. It's either that or deal with cash or other payment methods that are a) difficult/expensive or b) not possible because I am an online merchant. I would *like* the fees to be lower but right now pretty much every other method is either difficult, expensive or both. They know what they are doing. EDIT: Merchants like debit cards. They have the cheapest interchange rate. Reward cards are the most expensive - where do you think your 1% cash back comes from? :)"],"string":"[\n \"\\\"Your own site/business. I’m in freelancing and internet business for 15 years, 20 years IT experience. Currently i use freelance websites for cheap Asian employees, very seldom for EU/USA employees, and if only if local competition is heavily out-pricing qualified staff. Till I went \\\"\\\"limited\\\"\\\" i.e., founded a limited corporation I was jobbing as freelancer and sole proprietor, both with limited success due to the strong Asian competition i myself currently hire. The point where freelancing got \\\"\\\"not sustainable\\\"\\\" as primary income was 2006 for me, don’t want to get into detail but every freelancer who was active back then knows what I mean, it was like whole India got internet. If you have absolutely no references, do it for the references a limited time and see the fee you pay as service for you to get references, then start your own web identity, either as freelancer or as corporation. Make sure you take your very satisfied customers with you. Every \\\"\\\"very satisfied\\\"\\\" customer in your contact list means 10 new customers which mean 2 new customers which mean 0.2 new customers and so on. Honestly, this info is solely based on experience of this niche fro ma European citizen perspective, if you’re based anywhere else the situation might be totally different.\\\"\",\n \"\\\"Paypal has an account called \\\"\\\"micropayments\\\"\\\" for those who have a lot of transaction under $10 with \\\"\\\"better\\\"\\\" commission structure, 5%+5c per transaction (rather than 2.9% + 30c with regular merchant accounts)\\\"\",\n \"Just keep in mind that on Upwork, you basically have to be the cheapest person to get most of the gigs. It's great to get your feet wet, but I would strongly encourage you to use it to build a portfolio up and then start reaching out to people in your network to see if anyone needs your services.\",\n \"Been a freelance motion graphic artist for 18 years and I've never touched any of those sites. It's idiots and amateurs looking for cheap, shitty labor. I don't feel like competing against people in 3rd world countries so I get all my jobs the old fashioned way.\",\n \"One company owns majority of popular freelancing websites (elance included) Aside from the race to the bottom pricing happening for projects; customer is always right. Lots of stories of even a pip from a client freezing accounts -- not even just a project, your whole account with any ongoing projects. Everything gone. Thousands lost. Not worth it. No recourse.\",\n \"Elance, UpWork, Fivver Who would've thought taking skilled labor and watering down the price to mere pennies would be bad for everybody involved? That's why, even though I operate just like a freelancer, I incorporated. Legally, I'm a sole proprietor, not a freelancer...aside the few tax differences, it just saves me a ton of headaches.\",\n \"\\\"PayPal offers a service called \\\"\\\"PayPal Business Payments\\\"\\\". Instead of charging a percentage, they charge a flat fee. For US-to-US payments, the fee is fifty cents per transaction. For Canada-to-Canada payments, the fee is five dollars per transaction. You need to use a third-party invoicing service and choose the \\\"\\\"PayPal Business Payments\\\"\\\" option. FreshBooks or Zoho Invoice might work.\\\"\",\n \"you *can* get the guys in india for pennies on the dollar, but then you get what you pay for. I was told on upwork that I didn't get picked because I was too expensive, but then he went on to say that their proposals are usually garbage and wanted to pay me a little to look them over and make sure they weren't full of shit. Upwork should be called UpOffShoring. wtf?\",\n \"That all depends on you. The cheaper places are certainly going to cost less, but when it comes to comparing value that is a subjective decision that only you can make. Maybe the more expensive one has an easier to user website, friendlier customer service, or something else you value enough to pay more for trades.\",\n \"Have you looked at OptionsHouse? They charge $2.95 per trade and are one of the lowest when it comes to fees. Bare bones interface, but fast execution.\",\n \"I'm a freelance programmer, reverse-engineer, and network engineer. I do quarterly 1099 filings using a cheap local accounting firm. I did them on my own at first; not that hard.. You deduct from sum the percentage for that earning-tier issued by the IRS.. $500.00 for writing algorithms on a timer? Yikes.. I did topcoder once but it didn't pay much then it was only good for portfolio.. No way I would race to do algorithms for third-world-rate capital..\",\n \"Your best bet is to use a payment processor that charges ONLY a fixed monthly fee and not a fee per transaction.\",\n \"That's exactly what happened to me except on Fiverr. I had months of activity and hundreds of 5-star reviews. I had real clients. Repeat buyers. Real business relationships. Then one day they deleted both of my accounts (I had one for buying and one for selling). Apparently, buried somewhere in their terms of service, users aren't allowed to have more than one account. I didn't even try to hide it- my usernames were nerdi and nerdi2. They even made me wait months and submit I.D. just to be able to log in and withdrawal my earnings. So much for that.\",\n \"\\\"Are you in the US? One thing you can do is prepay taxes at a rate of a 1.8% fee. Much lower than paypal. I would do this on what is \\\"\\\"left over\\\"\\\". Here are somethings that I would tend to do in your case: Those are some of the things I would be looking at. Do you care to share the details of your offer?\\\"\",\n \"\\\"Paypal linked with my bank account. 1.Can I use my Saving bank account to receive payments from my clients? Or is it necessary to open a current account? Yes you can get funds into your savings account. However it is advisable to keep a seperate account as it would help with your IT Returns. 2.I will be paying a certain % as commission on every sales to a couple of sales guys (who are not my employees but only working on commission). Can I show this as an expense in my IT returns? As you are earning as freelancer, you are eligible for certain deductions like Phone calls, Laptop, other hardware, payments to partners. It is important that you maintain a book of records. An accountant for a small fee of Rs 5 K should be able to help you. In the Returns you have to show Net income after all these deductions, there is no place to enter expenses. 3.Since I will be receiving all the payments in Euros so am I falling under a category of \\\"\\\"Exporter of services\\\"\\\"? The work you are doing can be Free Lancing. 4.Do I need an Import Export Code (IEC) for smoothly running this small business? You can run this without one as Free lancing. IEC would be when you grow big and are looking for various benefits under tax and pay different taxes and are incorporated as a company.\\\"\",\n \"Several things to consider: I don't see why your friend should pay any tax. It's not his income at all. And I am not sure where your income should be taxed in this scenario. Is he declaring it as his income somehow? The bank won't do it for him, the transfer as such should be transparent. On the other hand, money transiting on his account could in principle look suspicious, although €300 is unlikely to raise alarm. What I do know is that if you do pay taxes, 20% is not particularly high as such. There are four brackets of income tax (and tax-like contributions to the pension system) in the Netherlands, between 36.55% and 52%. Rates for personal taxes in the Netherlands are simply way higher than what you might be used to in Eastern Europe or what has been mentioned in comments. In fact, if anything, 20% seems too low. I am at a loss guessing what it could correspond to, you could ask your friend how he came to that number. There various tax discounts (kortingen) and deductions (aftreken) that apply to freelance work (and some that apply to all incomes). €3000 yearly is quite low and would probably not be taxed at all if you were recently registered as freelance (zzp'er) in the Netherlands and had no other sources of income. But on the other hand, if your money is treated as being part of your friend's income, these wouldn't apply, as he is probably already benefiting from them. There are special rules for copyright fees. Not sure this is necessarily 100% kosher but I have met people who got paid that way for articles they wrote in trade publications.\",\n \"In addition to paypal, Amazon also offers a payment processing service that has micropayment pricing: For Transactions < $10:\",\n \"I think something you might want to look at is a service called Dwolla. They charge $0.25 per transaction, and are free for transactions under $10.\",\n \"Since you are not starting with a lot of cash the commissions may eat into your account. So go with somebody that has no inactivity fee and low/free commission. I think there are number of sites and the ING sharebuilder.com comes to mind. Scottrade also one of the cheaper ones that i used.\",\n \"\\\"Putting them on line 10 is best suited for your situation. According to Quickbooks: Commissions and Fees (Line 10) Commissions/fees paid to nonemployees to generate revenue (e.g. agent fees). It seems like this website you are using falls under the term \\\"\\\"nonemployees\\\"\\\".\\\"\",\n \"The fees for the services are displayed on the PayPal website at https://www.paypal.com/cgi-bin/webscr?cmd=_display-fees-outside Is there anything else you were looking for.\",\n \"My recollection is that most traditional reader systems charge like 5%. For squareup there were two different pricing schemes 1. 2.75% per swipe. 2. 0% per swipe but a $275 permonth charge. When I did the math the flat fee only made sense if you're doing over $2500ish per month in business. These fees seem pretty minimal to me.\",\n \"Why wouldn't one of the existing crowdsourcing systems meet your needs? Yes, they charge a commission, but they have already addressed the issues you raise and specifically they provide the third-party accounting you want.\",\n \"This very informative link gives a clear and comprehensive comparison (pros and cons) of various popular brokers: https://www.nerdwallet.com/blog/investing/best-online-brokers-for-stock-trading/ (Best Online Brokers for Stock Trading 2016) There are indeed some significant cons for the super-low commission fee. Just for a quick example, the Interactive Broker requires a minimum of 10k account balance, as well as the frequent trading activity even on monthly basis (or the minimum $10 commission would be charged).\",\n \"I think either one would allow for lower pricing tiers as a merchant. I am at 2.5 on my main account. $0 to $3,000 2.9% + $0.30 $3.20 fee on a $100 sale $3,000+ to $10,000 2.5% + $0.30 $2.80 fee on a $100 sale $10,000+ 2.2% + $0.30 $2.50 fee on a $100 sale $100,000+ Call 1-888-818-3928\",\n \"Use some form of escrow agent: Some freelancer sites provide payment escrow services (e.g. E-Lance). In this system the client puts money in escrow for the project in advance and then when they accept the project it forwards the payment to the provider. Progress Payments Arrange a progress payment approach with the client where they pay at certain milestones rather than a single payment at the end of the project. Ideally you would have them pre-pay for each milestone before you start work on it. However, you could ask for payment after each milestone, which might be easier to sell to your client. It does leave some risk, but minimizes that risk somewhat.\",\n \"My go-to response whenever anyone asks me this is the Monevator table of platform fees. It looks a little complicated at first, but scroll past the table for a couple of paragraphs of useful info to help narrow down your search. The general tone of the page is geared more towards investors in index funds, but the fees on share-dealing are right there in the table too. There are also special notes if there are discounts for frequent traders and that sort of thing, so not too much passive-investor elitism on show!\",\n \"Lower fees are always better, everything else equal. A lower fee makes your transaction overall a better deal, all else equal. Other transactions costs (like the SEC fee on sales) are mostly the same across brokers and there is unlikely to be any difference in execution quality either. When comparing brokers be sure to consider the other issues: To me, most of these are minor issues. For that reason, I'd say let transaction cost be your guide. I hear a lot of talk about the quality of the interface. If you just want to buy or sell a stock, they are all pretty easy. Some brokers have better tools for monitoring the market or looking at technical indicators, if you are into that.\",\n \"\\\"A hundred different Indian sweatshops low bidding everyone. I would be surprised if any of those projects are ever successful or under budget, but the amateur clients don't seem to care, they just want \\\"\\\"the next Facebook\\\"\\\" built for $100.\\\"\",\n \"Transferwise is a new peer-to-peer service that's setup to lower fees for international money transfers: https://transferwise.com\",\n \"In general the other party will expect you to keep your promises. If you promise to do something for a fixed amount of money, you take on a risk and it is no longer their problem if you work slower than you planned. In principle it could even be the case that you take on a project and fail, after which the company may not have to pay at all. So regardless of how things should be written in your books (For example a theoretical pay above minimum wage but a loss for your private company): An important thing to note is that if you are worried about ending up below minimum wage, you are definitely asking a fee that is too low. You should keep in mind that your fee should include a fair compensation for the expected work, and a fair compensation for the risk that you have taken on.\",\n \"For people who frequently submit payments via PayPal, you may want to try and negotiate with them to use Paypal mass payments. Although the mass payment program is designed to send small amounts to many people, you can process payment batches of 1 transaction. In the CA mass payment fees (paid by sender) are 2% capped at 1.25 CAD To CA and US. International payments are 2% capped at 24.00 CAD. No fees for receiver. A business PayPal account is required to enable mass payments. When I mention this to customers, many are unaware Paypal's mass payment program exists! https://merchant.paypal.com/ca/cgi-bin/?cmd=_render-content&content_ID=merchant/mass_pay\",\n \"What about web-hosting fees? Cost of Internet service? Cost of computer equipment to do the work? Amortized cost of development? Time for support calls/email? Phone service used for sales? Advertising/marketing expenses? Look hard--I bet there are some costs.\",\n \"I have sold a few items on ebay. The biggest issue I have with ebay is all of the fees. I am not sure how much has changed recently, but when I was selling stuff it felt like ebay and paypal took a large chunk of the money. I could be wrong, but it seemed like they were getting around 35% or more of my 'profits'. Of course, you then have the shipping fees on top of that, which will run a few bucks on common items. For items that sell for around $20 on ebay, I felt like I was ending up with about $5 in my pocket. I have used Amazon to sell used books, though I haven't done that for about a year or so. They had no fees for listing items, and the item remains listed for about 90 days. If it sells, they process the payment and can deposit it into your bank account or provide an Amazon gift certificate. I forget Amazon's fees, but I remember that it didn't seem to be as frustrating as the ebay/paypal price structure.\",\n \"If you want the cheapest online broker in Australia, you can't go past CMC Markets, they charge $9.90 upto a $10,000 trade and 0.1% above that. There is no ongoing fees unless you choose to have dynamic data (stock prices get updated automatically as they change). However, the dynamic data fee does get waived if you have about 10 or more trades per month. You don't really need the dynamic data unless you are a regular trader anyway. They also provide some good research tools and some basic charting. Your funds with them are kept segragated in a Bankwest Account, so are resonably safe. They don't provide the best interest on funds kept in the account, so it is best to just deposit the funds when you are looking to buy, and move your funds elswhere (earning higher interest) when selling. Hopes this helps, regards Victor. Update They have now increased their basic brokerage to a minimum of $11 per trade unless you are a frequent trader.\",\n \"\\\"If you are not worried about timing the market and want to buy primarily \\\"\\\"blue chip\\\"\\\" stocks to hold for a while, consider using Loyal3. They don't charge any commission. The downside is that trades are executed at the end of the day and there's only about 60 companies currently available (but there are some really good ones currently available).\\\"\",\n \"I've been using xetrade for quite awhile, also used nzforex (associated with ozforex / canadian forex, probably ukforex as well) -- xetrade has slightly better rates than I've gotten at nzforex, so I've been using them primarily. That said, I am in the process of opening an account at CurrencyFair, because it appears that I'll be able to exchange money at better rates there. (XETrade charges me 1.5% off the rate you see at xe.com -- which is the FX conversion fee I believe -- there are no fees other than the spread charged). I think the reason CurrencyFair may be able to do better is because the exchange is based on the peer-to-peer trade, so you could theoretically get a deal better than xe.com. I'll update my answer here after I've been using CurrencyFair for awhile, and let you know. They theoretically guarantee no worse than 0.5% though (+ $4.00 / withdrawal) -- so I think it'll save me quite a bit of money.\",\n \"If you want higher returns you may have to take on more risk. From lowest returns (and usually lower risk) to higher returns (and usually higher risk), Bank savings accounts, term deposits, on-line savings accounts, offset accounts (if you have a mortgage), fixed interest eg. Bonds, property and stock markets. If you want potentially higher returns then you can go for derivatives like options or CFDs, FX or Futures. These usually have higher risks again but as with any investments some risks can be partly managed. Also, CMC Markets charges $11 commission up to $10,000 trade. This is actually quite a low fee - based on your $7,000, $22 for in and out of a position would be less than 0.32% (of course you might want to buy into more than one company - so your brokerage would be slightly higher). Still this is way lower than full service brokerage which could be $100 or more in and then again out again. What ever you decide to do, get yourself educated first.\",\n \"\\\"I wouldn't trust \\\"\\\"about.com\\\"\\\"; they're based on grabbing content from other places and are entirely unreliable. You can use the money transfer on PayPal, or transfer through a bank. I wouldn't give my bank account details to complete strangers, though. But that's me, with my distrust of the human kind.\\\"\",\n \"0.13% is a pretty low fee. PTTRX expenses are 0.45%, VINIX expenses are 0.04%. So based on your allocation, you end up with at least 0.08%. While lower than 0.13%, don't know if it is worth the trouble (and potentially fees) of monthly re-balancing.\",\n \"Consider trying a broker that offers free trading. Robinhood is one such broker.\",\n \"A fully automated website that literally does the selling for you. Receive money daily paid directly to you PayPal account! 100% commissions from one incredible package... for just $6.99! No Web Hosting Or Domain Fees!! For all the details, visit website at: http://victor699.beep.com/\",\n \"Every brokerage is different, on all of their websites they have an actual list of fees. There are tons of different charges you may encounter.\",\n \"Depending on how tech savvy your client is you could potentially use bitcoin. There is some take of indian regulators stopping bitcoin exchanges, meaning it might be hard to get your money out in your local country but the lack of fees to transfer and not getting killed on the exchange rate every time has a huge impact, especially if your individual transaction sizes are not huge.\",\n \"Fidelity, Charles Schwab, TDA, and just about every make online brokerage gives you massive amounts of free trades each year and when you sign up. Pretty much the same as 100+ free trades /yr over a 10 year period. Also, you get commission-free trade for the most popular ETFs, which is much more important. Lastly, if you care about free trades, you're probably investing poorly. Non-professionals shouldn't be making that many non-ETF trades in a year. Professional traders wouldn't blink over a tiny $5-10 commission fee.\",\n \"The website likely has no differentiation. I am hoping, however, the service does. I'm not looking to break down a fledgling business plan, I am just looking for information on how and where to build or buy a website that performs thusly: Company creates account and posts the service they can provide, Consumer applies for said service, I deal with some required middle-man work which is at the cost of the consumer.\",\n \"Dwolla looks to be a great option. But it requires users to have an account there (Free to sign up). And there rates are absolutely amazing. Free for transactions under $10 $0.25 to receive money on transactions over $10\",\n \"Trading is NOT zero-sum game, it is negative sum actually. In fact all people's money is getting swept by commissions and fees. If you don't have The Plan (which includes minimizing commission losses), you win some (not a lot), then you get big positions, then market crashes, then all your money is gone. You will start noticing that commissions are real, only when you get market crash. Prey that you get heavy losses (-10% of portfolio) before some (giant) market crash. Getting good lesson by small price is better then high price (-30..50%). Piece of advice. There is small exchanges that do NOT charge you for operations, taking only market spread ($0.01) as commission. They do so because they do not have big population and they trade mostly by using automatic market-makers (which means there is no way to buy 10% of Apple there).\",\n \"Have you considered doing some small freelance programming jobs? One site I like for this type of thing is eLance.com, but I am sure there are others. Heck, you are soon going to be up all night anyway, why not earn some cash during those hours the rest of us foolishly waste on sleep?\",\n \"\\\"Get some professional accounting help. You're going to have to pay for everything out of the fee you charge: taxes, retirement, health care, etc. You'll be required to pay quarterly. I don't think you should base your fee on what \\\"\\\"this\\\"\\\" company will pay as a full-time employee, but what you can expect in your area. They're saving a lot of money not going through an established employment firm and essentially, making you create your own. There are costs to setting up and maintaining a company. They have less risk hiring you because there are no unemployment consequences for letting you go. Once you're hired, they'll probably put you on salary, so you can forget about making more money if you work over 40 hrs. IMHO - there have to be better jobs in your area than this one.\\\"\",\n \"The lowest cost way to trade on an exchange is to trade directly on the exchange. I can't speak to the LSE, but in the US, there is a mandated firewall between the individual and the exchange, the broker; therefore, in the US, one would have to start a business and become a broker. If that process is too costly, the broker or trade platform that permits individuals to trade with the lowest commissions is the next lowest.\",\n \"Fiverr and Mechanical Turk comes to my mind. You won't break the bank, but will give you a nice distraction and earn you some cash for your time. And you can do this at your own schedule.\",\n \"I am a freelancer based in Europe and I want to tell you: - if you are a freelancer, then you INVOICE your Swizzerland based client The word salary is improper. - So your client will DEDUCE the invoice from its taxes, and NOT pay income tax on top of that invoice. Because invoice = expense. So, ONLY YOU pay income tax in India. Your client pays no tax at all, not in India, not in Swizzerland. As you are a freelancer and not employee, the company has no obligation to pay employer taxes for you. A company has financial benefits from working with a freelancer.\",\n \"Zero. Zero is reasonable. That's what Schwab offers with a low minimum to open the IRA. The fact is, you'll have expenses for the investments, whether a commission on stock purchase or ongoing expense of a fund or ETF. But, in my opinion, .25% is criminal. An S&P fund or ETF will have a sub-.10% expense. To spend .25% before any other fees are added is just wrong.\",\n \"The website http://currencyfair.com/ provides a service which gives you both a decent exchange rate (about 1% off from mid-market rate) and a moderately low fee for the transfer: 4 USD for outgoing ACH in the US, 10 USD for same-day US wire. For the reverse (sending money from the US to EU) the fees are: 3 EUR for an ACH, 8 EUR for a same-day EUR wire. It has been online for quite a while, so I assume its legit, but I'd do a transfer for a smaller sum first, to see if there are any problems, and then a second transfer for the whole sum.\",\n \"eBay is the worst of the worst. I used it way back when it was fair to buyers and sellers. These days, scammers can can get free stuff at your expense and then eBay will punish you on top of getting scammed.\",\n \">keep the profit margin the most minimal as possible to gain customers over time That's not the right way to go. The running for the lowest price is endless and no one is going to win. What you have to do is establish your brand and charge a fair price for something that add value on people's life. If they think it's worth they will buy it. That's the best way to grow your ecommerce. Shopify + Dropshipping is the easiest way to go. First what you need to do is find what you want to sell. Then name your store and create a good logo for it. Remember, you need to focus on establish your brand. Going for the lowest price not going to take you anywhere. They will just buy from you because it's cheap and sometimes not even that. You are selling the service not only the product. You can't charge too much but charge the lowest price is not good either. 1- $300 I think it's too much. I would charge you half of that if you were my client. It's easy but time consuming to set up a Shopify store (depending on how many items you would be selling). You need to be aware to banners, logo and social media at very beginning too. So it's not only the store itself. 2- If you are going for Shopify you don't need servers, vps... The Shopify will be your hosting. What you need would be mostly pay designer (logo, banners), apps (Upsell, hurrify, shipping...), domain and maybe someone to write your product description. About how much would you get back it depends completely of what you are about to sell and how is the market for it. I work with digital marketing and wanted to test my entrepreneurship skills with e-commerce plus my marketing knowledge last week. Ended up making over $5,500 on the first 5 days selling in Brazil. Proof (http://imgur.com/a/zDmot) But if you don't have any knowledge about it don't expect too much at very beginning. You probably won't sell anything or almost nothing on your first month based on some friends experiences. 3- That's true. I spend around $500-$600 to get more than $5,500 in sales in 5 days. They are mostly from Facebook Ads. Never tried any independent website and I don't think that's worth for a new E-commerce in my opinion. But again, if you don't have marketing knowledge you will spend a lot of money to make it worth for you. Here, I highly recommend you to hire someone to do it for you or teach you. That's sometimes an expensive service but better than what you would spend trying to learn/doing by yourself Let me know if I can help you with your website or anything else. I have the knowledge but sometimes I don't know how to express myself. Hope I helped you.\",\n \"Your cost of platform is built into your commission rates...SC is free if I sign up to a broker that charges more commissions. Right now I am with IB as my broker. With the cost of my charting, if I were to make 10 round turns per month, I would pay $4.50 per side commission on FOREX, $3.25 per side on EQUITIES. Still a better deal than ToS.\",\n \"1: Low fees means: a Total Expense Ratio of less than 0,5%. One detail you may also want to pay attention to whether the fund reinvests returns (Thesaurierender Fonds) which is basically good for investing, but if it's also a foreign-based fund then taxes get complicated, see http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/\",\n \"This is pretty shameless branded content by Forbes for UpWork. “Brand Voice” should be called what it is, paid advertising. I bet an agency has placed the post here too. Anyone else noticing this or am I just being cynical?\",\n \"Discount brokers come and go. They tend to come with ridiculously cheap prices, and they go when they fail to gain traction, or raise their prices, at which point they can be undercut by a new player. Some brokers are nicer to people with more money, while others cater to small traders on simple low commissions. No matter which broker you choose, you aren't liable to make much money doing frequent trades with a small account. You either risk most of your money on every trade, or several small trades get sapped by commissions. It is understandable that you want to pay less given the disadvantages of a small account. Just2Trade, USAA, Sogotrade, etc. have each been reasonable options in the < $4 a trade range. Many websites will give you a list of the top discount brokers of the year. As with any heavy discounter/deal that is too good to be true, find reputable referrals from people who use the service, and complaints from customers who have been burned.\",\n \"They're not negotiating trade rates for you, you set the trade rates in your order. What they might have is a slightly slower system, delivering your orders a second later than the competition would. If that's critical to you then you should look at that, otherwise look at their fees, customer support and research aids because that's where the broker value is.\",\n \"Magazines like SmartMoney often have an annual issue that reviews brokers. One broker may have a wider variety of no-fee mutual funds, and if that's your priority, then the stock commissions may be a moot issue for you. In general, you can't go wrong with a Fidelity or Schwab, and to choose investments within the accounts with an eye toward low expenses.\",\n \"Thanks, at the moment I don't plan to do alot of trading just need to sell a few shares at the moment and might sell some more more at another point, but other than that I don't plan on touching the stock and just plan on letting it re-invest itself. Since I don't plan on doing alot of selling I don't know how much I need to worry about fee's as long as they aren't too steep.\",\n \"There is nothing called best; Depending on the amounts there are several options and each will cost some money. If your business is still small customers are individuals try PayPal it will be easy for everyone. The other options are accepting Credit Card, you would need to set-up card gateway on your website etc Simple wire transfer, it will cost more both for your customers and to you.\",\n \"You mean sites like prosper.com? I see that they are growing but is this really substainable when the novely wears off? Also I find the low volatility claim interesting since I thought low vol portfolios would be a hard sell. How have you experienced this?\",\n \"I'm just a sole trader who doesn't have much money which is why I'm looking at budget stuff. It's not like I'm a big business just being really tight. I need advice on this, not to get down-voted. I need one that is cheap or free but I would prefer that I can upload my own files and I would like to connect my own domain to it.\",\n \"Indiabulls. Low brokerage (If you bargain) I'm user of it and I'm getting 25paisa for delivery and 5 paisa for intraday. All transactions can be done online. Also they provide an stand alone application PowerIndiabulls, which is too good and appraised by many users as best in the industry. Not sure about it, but I think Powerindiabulls application is the answer for this. Please have a look at their website for more details.\",\n \"I have recently started using Transferwise to transfer money between the U.K. and The Netherlands. Transferwise has lower fees than other companies. They use a pseudo-peer-to-peer money transfer system. When person A transfers £ to €, and person B transfers € to £, they effectively cancel these two agains teach other, which significantly lowers exchange fees for both A and B. I am not affiliated with Transferwise other than as a customer.\",\n \"Yes, you've summarized it well. You may be able to depreciate your computer, expense some software licenses and may be home office if you qualify, but at this scale of earning - it will probably not cover for the loss of the money you need to pay for the additional SE tax (the employer part of the FICA taxes for W2 employees) and benefits (subsidized health insurance, bonuses you get from your employer, insurances, etc). Don't forget the additional expense of business licenses, liability insurances etc. While relatively small amounts and deductible - still money out of your pocket. That said... Good luck earning $96K on ODesk.\",\n \"Income Tax would only be levied on the 10% commission that you earn and not on the total amount kept in the Escrow Account.\",\n \"It is best to take advise from / appoint a professional CA. Will I have to pay GST? No GST is applicable. Exports outside of India do not have GST. Do I have to collect TDS when I send money to the PUBLISHERS ? No But another guy said, I have to pay 18% tax when receiving and sending payments, apart from that I have to collect 30.9% TDS when sending payment to the PUBLISHERS(outside India). There is only income tax applicable on profits. So whatever you get from Advertisers less of payments to publishers less of your expenses is your profit. Since you are doing this as individual, you will have to declare this as income from other sources and pay income tax as appropriate. Note there are restrictions on sending payments outside of India plus there are exchange rate fluctuations. It is best you open an Foreign Currency Resident [or Domestic] Account. This will enable you payout someone without much issues. Else you will have to follow FEMA and LRS schemes of RBI.\",\n \"To be fair, part of the $5 goes to Paypal whether you sign up with them or not. I bought the special and certainly have no regrets. But I do hope Louie uses a competitor of theirs like WePay next time.\",\n \">Content Writer >Content writing is a quick job nowadays. There are some excellent marketplaces for writers. You can get a job as a writer there. I will give a short list here. >People always look for a writer, who has website or blog. I often look for writers for my niche sites. I love to change writer and deal with new peoples. I hire writers from Social Media and several marketplaces. >If you think, you’re right in English and you can write proper blog content then you can start writing right now. >First of all, make a blog for your own. Make 5-10 excellent blog content there as your sample writing. You don't need to be right in English. Many contributes do not have great English skills but can deliver great concepts.\",\n \"I personally like Schwab. Great service, low fees, wide variety of fund are available at no fee. TD Ameritrade is good too.\",\n \"I would prefer to see you register in your home state, and then focus on making money, rather than spending time looking to game the system to save a few bucks. People worry way too much about these trivial fees when they should be focused on making their business successful. Get registered, get insurance, and then pour it on and start making money. Make $650 your target for a week's income - you can do it! Next year's goal should be spending $50 a month on a payroll service because you're SO BUSY you can't take the extra time to pay your own social security taxes.\",\n \"If you are using paypal to sell items online, you need a Premier (or better) account rather than personal. Paypal states: Our fees are the same for Personal, Premier, and Business accounts. [...] If you use your PayPal account to request money from someone, you'll be charged a fee when you receive the payment.\",\n \"Surprised nobody has mentioned Freshbooks yet. It's lightweight, easy to use, and free for low-end use (scaling up price-wise as you scale up).\",\n \"You can find a lot of information at the HRMC website at http://hmrc.gov.uk. If you don't want to work as an employee, you can register as self-employed (basically a one-man band), which is quite simple, you can start your own company, which is more work but can have tax advantages, or you can find umbrella companies which will officially employ you while in reality you are a freelancer and only do your billing through them. Umbrella companies can be anywhere from totally legal to extremely dodgy. If they promise you that you pay only five percent tax on your income through ingenious tricks, that's only until the tax office finds out and they will make you pay. Between self-employed and your own company, the big difference is whether you are actually working independently or not. If you work like an employee (take someone else's orders) and claim you are a company, the tax office doesn't like that. And if you pay very little taxes, they don't like that either. So self-employed is the safer choice but you will pay more taxes, close to what a normal employee would pay. Obviously you will have to pay tax on your income and NHS insurance. Obviously you are required to tell the government (actually HMRC) about your income. Not doing so would be tax evasion and get you into deep trouble when you are caught. I don't think you have to tell them the source of your income, but not telling them might look very suspicious and might get your accounts checked carefully. And unless you design a website for the mafia, why wouldn't you tell them? The bill payer will try to deduct your bill from their profits anyway, so it's no secret. Most important to remember: When you send out a bill and receive payment, you'll have to pay tax on it. When self employed, as a rule of thumb put one third away into a savings account for your tax bill. Don't spend it all or you will find yourself in deep trouble when your taxes need paying. Plus put some more away for times when you can't find work.\",\n \"\\\"It's a tough thing to do. You should look for a salaried position. Your freelance skills will be much better received, if you've worked for a couple of companies doing programming full time. Nothing beats working at it all day long for a few years. If you're set on being freelance, write some utility that will be popular, and submit it to Freshmeat.net. Now that's asking a lot. Those on the Web looking for programmers will most likely want you to work for 'sweat equity'. That is, a share in the company for you labour. In other words \\\"\\\"FREE\\\"\\\". I've done my share of those, and if you're just getting into this, you should steer away from them. You may hit the jackpot, but you won't sleep for the next few years ;-)\\\"\",\n \"With a paypal micropayment he pays 61k (6.1%) (5% of sale price + .05 cents per transaction) With a regular paypal he pays 95k (9.5%) (2.9% of sale price + .30 cents per transaction) In case anybody was wondering what the poster is talking about. Either way he got hosed by using PayPal. Note: I'm working off 220,000 units sold at 1 million dollars (which I know aren't the exact figures).\",\n \"PayPal does charge a premium, both for sending and receiving. Here's how you find their rates:\",\n \"If you’re concerned about transferring USD, I can’t really help you there. But if you’re looking to transfer wealth, I believe that’s where something like Bitcoin could help you. In fact a small or nonexistent processing fee is one of Bitcoin’s biggest strengths as a currency. Off the top of my head, I believe BitPay has services that would suit your needs. And if you’re worried about the volatility of Bitcoin, you can always convert it straight to USD just so you can avoid service fees!\",\n \"You could use Bitcoin. Bitcoin is THE fee-killer. I haven't used US and China exchanges, but you can connect your US bank account to Coinbase, buy bitcoins, transfer to BTCChina, and sell for CNY. There are many other options to convert from and to Bitcoins, but Coinbase seems to be most practical and most widely used in the US and BTCChina is the largest and probably most trusted exchange in China. You can also use LocalBitocoins for both buying and selling, but people on LocalBitcoins typically charge larger fees than exchanges, though this may vary. Please read a bit about Bitcoin before using it, and be aware of the risks. It's still very new (but revolutionary and very easy and fast to move internationally). Try with a small amount first to check it out. Your electronic wallet can be stolen, and you're exposed to certain risks of exchanges shutting down or government/banks stepping over their boundaries. One nice thing is that you probably won't be affected by volatility as you won't be holding bitcoins for long. Also be aware that the Chinese don't like capital leaving China and there is a possibility that China government will introduce further regulations on exchanges (though they have stated that buying, selling and owning bitcoins is legal). You're doing the opposite, importing money into China, but you'll probably feel it in one way or the other. P.S. Approximate fast fee calculation: Coinbase has 1% transaction fee + $0.15 bank fee. Bitcoin transfer is free or in some cases with minimal 0.0001 BTC fee (a bit less than $0.01 currently). BTCChina has 0.3% trading fee and 0.5% CNY withdrawal fee. As you can see, the main fees are exchange fees, but still less than 3% and if you find a good exchange combination with low fees you're golden, or might even make money on transaction if BTC price rises. Also check this Reddit thread - there are alternative China exchanges with lower fees. P.P.S. Found this blog post, maybe a bit outdated, but probably with better calculation than mine as it takes into account exchange prices.\",\n \"How do I directly get my Freelancing amount in my Axis bank account? Do I need to inform my Bank before receiving any such payment? Yes you can get it directly into your Axis Bank Account. You would need to inform your client your Bank Account Number, Bank Name and Address and Swift BIC or IFSC Code [Axis Bank website or Branch can tell you]. You can receive credits in Euro's. Upon receipt Axis Bank will automatically convert this into Rupees using standard rate. Your Bank [Axis] may also charge some Bank fees for the wire transfer. How do I pay tax for this extra income in India? You would need to treat this as income and add it to total income including salary and calculate tax accordingly. You can pay taxes online using Income Tax India website. You can also approach a CA who would do the tax computation, paying taxes and filing returns for as little as Rs 1000 - 2000/- Edit: IBAN is International Bank Account Number. Explain to you client that India does not subscribe to IBAN. Its right now only used by Europe and Australia. Give you normal Bank Account Number. Please call up your Bank / walk into your Branch to get the SWIFT BIC. It will be something like this http://www.theswiftcodes.com/india/page/3/\",\n \"Square prices are hard to beat for a small operation. I've looked around when I was considering starting up a business, and they're definitely one of the cheapest. Paypal are the second best, but I do not trust Paypal in general. However, looking locally may provide you some more options. If you walk in to one of the local banks, you may be able to get offers for merchant accounts with better rate, depending on your relationships with that bank. You can also check out Costco merchant services, they seem to be quite competitive with the rates, but there may be other costs (they will probably charge more for equipment).\",\n \"(For people looking at this question many years later...) Schwab and Fidelity offer a wide selection of commission-free ETFs. You need an initial purchase amount, though, of (when last I checked at Schwab) $1,000.\",\n \"You can use the ITR 1 and declare the income from freelancing as income from other sources. As part of freelancing, certain expenses can be deducted provided they are directly related to work and have proper records. Please consult a CA who can advice you on how to do this. The Actual income shown should be less of the expenses.\",\n \"Generally for tax questions you should talk to a tax adviser. Don't consider anything I write here as a tax advice, and the answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Does IRS like one payment method over other or they simply don't care as long as she can show the receipts? They don't care as long as she withholds the taxes (30%, unless specific arrangements are made for otherwise). She should withhold 30% of the payment and send it to the IRS. The recipient should claim refund, if the actual tax liability is lower. It's only consulting work at the moment, so most of the communication is done over phone. Should they start engaging in written communication to keep records of the work done? Yes, if she wants it to be a business expense. Is it okay to pay in one go to save money-transferring fees? Can she pay in advance? Again, she can do whatever she wants, but if she wants to account for it on her tax returns she should do it the same way she would pay any other vendor in her business. She cannot use different accounting methods for different vendors. Basically, she has not outsourced work in previous years, and she wants to avoid any red flags. Then she should start by calling on her tax adviser, and not an anonymous Internet forum.\",\n \"PayPal charges a 2.5% currency conversion fee to exchange funds from one currency to another. That means, the receiver would receive $ 9.75. Read More\",\n \"They're developing a way for homeowners to buy and sell their property online without the use of a realtor therefore saving themselves the user thousands of dollars on commission charges. They educate the user as well as provide the forms needed for free. If a service is needed, like an escrow company or appraisal, they suggest a few.\",\n \"From PayPal's website: PayPal offers discounted transaction rates for 501(c)(3) charities for most products, and consistently low rates for all other nonprofits. No extra fees for setup, statements, withdrawals or cancellation. 2.2% + $0.30 per transaction and no monthly fee for charities. There is a reduced rate if the donations total more than $100,000 (which they would for Wikipedia), but PayPal doesn't publish those rates. You have to call and ask about them. One forum I read indicates the rate drops to 1.9% + $0.30 per transaction.\",\n \"I would never, ever recommend that to a startup business like what's being discussed here. You're talking about a larger, regional business that's doing at least $200,000 a year in revenue, if not significantly more, for a $15,000 site to be effective. Or an e-commerce store. But, yeah. Your price is right for that sort of thing.\",\n \"\\\"Lifecycle funds might be a suitable fit for you. Lifecycle funds (aka \\\"\\\"target date funds\\\"\\\") are a mutual fund that invests your money in other mutual funds based on how much time is left until you need the money-- they follow a \\\"\\\"glide-path\\\"\\\" of reducing stock holdings in favor of bonds over time to reduce volatility of your final return as you near retirement. The ones I've looked at don't charge a fee of their own for this, but they do direct your portfolio to actively managed funds. That said, the ones I've seen have an \\\"\\\"acquired\\\"\\\" expense ratio of less than what you're proposing you'd pay a professional. FWIW, my current plan is to invest in a binary portfolio of cheap mutual funds that track S&P500 and AGG and rebalance regularly. This is easy enough that I don't see the point of adding in a 1 percent commission.\\\"\",\n \"Use buxfer.com. It's available in India and most of the features are free.\",\n \"Sure, with some general rules of thumb: what is the minimum portfolio balance to avoid paying too much for transaction fees? Well, the fee doesn't change with portfolio balance or order size, so I don't know what you're trying to do here. The way to have less transaction fees is to have less transactions. That means no day-trading, no option rolling, etc. A Buy-and-hold strategy (with free dividend reinvestment if available) will minimize transaction fees.\",\n \"\\\"Free, huh? From their Commission and Fee Schedule: So if you literally bought two shares, then the SEC added one penny in fees and FINRA added one penny as a \\\"\\\"Trading Activity Fee\\\"\\\" Note that there are several other fees on their schedule that may not apply to you. If you had bought 100 shares instead, your total fees would have still been only 2 cents, but you would have lost $4 on the trade. So the fees are minuscule when you start doing larger orders. However, That should not discourage you from experimenting and learning. I'd rather pay 2 cents in fees on a 4 cent loss than 2 cents in fees on a $400 loss. Just chalk it up to the cost of experience.\\\"\",\n \"I'm going to assume that you want to be invested all the time and each trade consists in selling a security and buying another one (similar to your example). How much commissions you are willing to pay depends on several factors, but one way to think about it is as follows. You have a position in stock A and you want to switch to stock B because you think it will perform better. If you think there's a good chance (>50%) that B will outperform A by more than x% then you can happily pay up to x/2% commissions and still make money over a long time horizon. If you like formulae, one way to express it is: Where: Example: if you tend to be right 51% of the time (hit rate), and gain 110% more than you lose on average (win loss ratio), you can see that your expected profit is: 5.1% - commissions, so you could pay 2.5% commissions on entering and closing the position and still make money*. Unfortunately, common sense, statistics and numerous studies tell us a sad truth: on average, people have a hit rate of 50% and a win/loss ratio of 100%. Which means that their expected profit per trade is 0% - commission. Based on that crude observation - unless you can prove to yourself that you are better than average - you should aim at reducing commissions paid to your broker as much as possible through: * 51% and 110% are not random numbers, they correspond to the results of the top 15% (professional) managers in a research paper using a sample of 215 funds managing $150bn.\",\n \"I work from home. However I am starting my own agency (http://localgrowthdigital.com) in United States. It's specialized in E-commerce and small business. The website is not ready yet though. I am moving to Arizona and will open my office there probably. Yes, I got over $5.500 IN SALES only working online. Net profit was around 35-40% of that.\",\n \"I am the vendor and I pay the 2 to 3%, not the customer. And I will pay it with a smile on my face. It's either that or deal with cash or other payment methods that are a) difficult/expensive or b) not possible because I am an online merchant. I would *like* the fees to be lower but right now pretty much every other method is either difficult, expensive or both. They know what they are doing. EDIT: Merchants like debit cards. They have the cheapest interchange rate. Reward cards are the most expensive - where do you think your 1% cash back comes from? :)\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Your own site/business. I’m in freelancing and internet business for 15 years, 20 years IT experience. Currently i use freelance websites for cheap Asian employees, very seldom for EU/USA employees, and if only if local competition is heavily out-pricing qualified staff. Till I went \"\"limited\"\" i.e., founded a limited corporation I was jobbing as freelancer and sole proprietor, both with limited success due to the strong Asian competition i myself currently hire. The point where freelancing got \"\"not sustainable\"\" as primary income was 2006 for me, don’t want to get into detail but every freelancer who was active back then knows what I mean, it was like whole India got internet. If you have absolutely no references, do it for the references a limited time and see the fee you pay as service for you to get references, then start your own web identity, either as freelancer or as corporation. Make sure you take your very satisfied customers with you. Every \"\"very satisfied\"\" customer in your contact list means 10 new customers which mean 2 new customers which mean 0.2 new customers and so on. Honestly, this info is solely based on experience of this niche fro ma European citizen perspective, if you’re based anywhere else the situation might be totally different.\""],"string":"[\n \"\\\"Your own site/business. I’m in freelancing and internet business for 15 years, 20 years IT experience. Currently i use freelance websites for cheap Asian employees, very seldom for EU/USA employees, and if only if local competition is heavily out-pricing qualified staff. Till I went \\\"\\\"limited\\\"\\\" i.e., founded a limited corporation I was jobbing as freelancer and sole proprietor, both with limited success due to the strong Asian competition i myself currently hire. The point where freelancing got \\\"\\\"not sustainable\\\"\\\" as primary income was 2006 for me, don’t want to get into detail but every freelancer who was active back then knows what I mean, it was like whole India got internet. If you have absolutely no references, do it for the references a limited time and see the fee you pay as service for you to get references, then start your own web identity, either as freelancer or as corporation. Make sure you take your very satisfied customers with you. Every \\\"\\\"very satisfied\\\"\\\" customer in your contact list means 10 new customers which mean 2 new customers which mean 0.2 new customers and so on. Honestly, this info is solely based on experience of this niche fro ma European citizen perspective, if you’re based anywhere else the situation might be totally different.\\\"\"\n]","isConversational":false}}},{"rowIdx":298,"cells":{"_id":{"kind":"string","value":"9979"},"query":{"kind":"string","value":"What is the best way to invest in gold as a hedge against inflation without having to hold physical gold?"},"gt_ids":{"kind":"list like","value":["538237","35633","337243","35369"],"string":"[\n \"538237\",\n \"35633\",\n \"337243\",\n \"35369\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["35369","13885","538237","165659","10578","89311","326858","556936","483734","516148","351362","337243","369563","327271","35633","97081","48691","466176","172814","274859","427890","259440","184557","443094","302869","174302","399751","96351","212157","570173","69395","399952","181574","174002","190772","551811","315286","339169","357493","234889","546027","239459","584633","282501","426771","475539","111451","372457","233635","272547","129352","51585","332924","156672","385702","135113","257881","182389","235322","480598","240628","487817","444946","470759","280356","265766","326599","163359","27037","367207","595349","477939","220795","84238","280204","573404","324697","346389","17652","253711","122679","306571","554213","565782","415616","559027","362102","403977","544092","534080","76907","525193","531005","281234","340815","421268","194279","388613","460839","371390"],"string":"[\n \"35369\",\n \"13885\",\n \"538237\",\n \"165659\",\n \"10578\",\n \"89311\",\n \"326858\",\n \"556936\",\n \"483734\",\n \"516148\",\n \"351362\",\n \"337243\",\n \"369563\",\n \"327271\",\n \"35633\",\n \"97081\",\n \"48691\",\n \"466176\",\n \"172814\",\n \"274859\",\n \"427890\",\n \"259440\",\n \"184557\",\n \"443094\",\n \"302869\",\n \"174302\",\n \"399751\",\n \"96351\",\n \"212157\",\n \"570173\",\n \"69395\",\n \"399952\",\n \"181574\",\n \"174002\",\n \"190772\",\n \"551811\",\n \"315286\",\n \"339169\",\n \"357493\",\n \"234889\",\n \"546027\",\n \"239459\",\n \"584633\",\n \"282501\",\n \"426771\",\n \"475539\",\n \"111451\",\n \"372457\",\n \"233635\",\n \"272547\",\n \"129352\",\n \"51585\",\n \"332924\",\n \"156672\",\n \"385702\",\n \"135113\",\n \"257881\",\n \"182389\",\n \"235322\",\n \"480598\",\n \"240628\",\n \"487817\",\n \"444946\",\n \"470759\",\n \"280356\",\n \"265766\",\n \"326599\",\n \"163359\",\n \"27037\",\n \"367207\",\n \"595349\",\n \"477939\",\n \"220795\",\n \"84238\",\n \"280204\",\n \"573404\",\n \"324697\",\n \"346389\",\n \"17652\",\n \"253711\",\n \"122679\",\n \"306571\",\n \"554213\",\n \"565782\",\n \"415616\",\n \"559027\",\n \"362102\",\n \"403977\",\n \"544092\",\n \"534080\",\n \"76907\",\n \"525193\",\n \"531005\",\n \"281234\",\n \"340815\",\n \"421268\",\n \"194279\",\n \"388613\",\n \"460839\",\n \"371390\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Investing in gold without having physical gold is not really a hedge against inflation. GLD is really more for speculation, not protection against serious inflation. If there is any kind of inflation worth really protecting yourself against then one thing you will notice at its onset is a divergence in the price of physical and GLD; with GLD offering very little protection if any against inflation. Ultimately holders of GLD will demand physical metal and the physical price will rise and the paper price will fall. I would advise you to study physical gold before you purchase GLD for that reason. EDIT: Just adding this to my answer - I don't know why I didn't put it in before, and I hasten to add that I'm not an expert though a little investigation will show you that this is at least one option for owning gold. If you think of having the physical gold yourself at one end of the spectrum and buying GLD at the other; so that you don't need to take physical delivery, there is another scenario which I understand is in between (and sorry I don't actually know what it's referred to as) but it's where you buy the physical gold but instead of taking delivery the bars are stored for you in a vault - these bars are numbered and you actually own what you have paid for and theoretically you could go and visit your gold and actually remove it because it's your gold - as opposed to having paper GLD which in my understanding is a \"\"right to take physical delivery\"\" of gold - and this is slightly different - of course unlike GLD you actually have to pay a storage fee and of course unlike having the physical gold buried in your garden or something you are not entirely secure against say a robbery of the vault, and you are also depending on the company not to sell the same bar to more than one person - but that's the only think that their reputation is built on, and a company like that would live or die by the reputation - ( and of course you might lose the proverbial gold buried in the garden either, so nothing's 100% secure anyway really )\"","You could buy shares of an Exchange-Traded Fund (ETF) based on the price of gold, like GLD, IAU, or SGOL. You can invest in this fund through almost any brokerage firm, e.g. Fidelity, Etrade, Scotttrade, TD Ameritrade, Charles Schwab, ShareBuilder, etc. Keep in mind that you'll still have to pay a commission and fees when purchasing an ETF, but it will almost certainly be less than paying the markup or storage fees of buying the physical commodity directly. An ETF trades exactly like a stock, on an exchange, with a ticker symbol as noted above. The commission will apply the same as any stock trade, and the price will reflect some fraction of an ounce of gold, for the GLD, it started as .1oz, but fees have been applied over the years, so it's a bit less. You could also invest in PHYS, which is a closed-end mutual fund that allows investors to trade their shares for 400-ounce gold bars. However, because the fund is closed-end, it may trade at a significant premium or discount compared to the actual price of gold for supply and demand reasons. Also, keep in mind that investing in gold will never be the same as depositing your money in the bank. In the United States, money stored in a bank is FDIC-insured up to $250,000, and there are several banks or financial institutions that deposit money in multiple banks to double or triple the effective insurance limit (Fidelity has an account like this, for example). If you invest in gold and the price plunges, you're left with the fair market value of that gold, not your original deposit. Yes, you're hoping the price of your gold investment will increase to at least match inflation, but you're hoping, i.e. speculating, which isn't the same as depositing your money in an insured bank account. If you want to speculate and invest in something with the hope of outpacing inflation, you're likely better off investing in a low-cost index fund of inflation-protected securities (or the S&P500, over the long term) rather than gold. Just to be clear, I'm using the laymen's definition of a speculator, which is someone who engages in risky financial transactions in an attempt to profit from short or medium term fluctuations This is similar to the definition used in some markets, e.g. futures, but in many cases, economists and places like the CFTC define speculators as anyone who doesn't have a position in the underlying security. For example, a farmer selling corn futures is a hedger, while the trading firm purchasing the contracts is a speculator. The trading firm doesn't necessarily have to be actively trading the contract in the short-run; they merely have no position in the underlying commodity.","\"GLD, IAU, and SGOL are three different ETF's that you can invest in if you want to invest in gold without physically owning gold. Purchasing an ETF is just like purchasing a stock, so you're fine on that front. Another alternative is to buy shares of companies that mine gold. An example of a single company is Randgold Resources (GOLD), and an ETF of mining companies is GDX. There are also some more complex alternatives like Exchange traded notes and futures contracts, but I wouldn't classify those for the \"\"regular person.\"\" Hope it helps!\"","ETF's are great products for investing in GOLD. Depending on where you are there are also leveraged products such as CFD's (Contracts For Difference) which may be more suitable for your budget. I would stick with the big CFD providers as they offer very liquid products with tight spreads. Some CFD providers are MarketMakers whilst others provide DMA products. Futures contracts are great leveraged products but can be very volatile and like any leveraged product (such as some ETF's and most CFD's), you must be aware of the risks involved in controlling such a large position for such a small outlay. There also ETN's (Exchange Traded Notes) which are debt products issued by banks (or an underwriter), but these are subject to fees when the note matures. You will also find pooled (unallocated to physical bullion) certificates sold through many gold institutions although you will often pay a small premium for their services (some are very attractive, others have a markup worse than the example of your gold coin). (Note from JoeT - CFDs are not authorized for trading in the US)","Gold is a risky and volatile investment. If you want an investment that's inflation-proof, you should buy index-linked government bonds in the currency that you plan to be spending the money in, assuming that government controls its own currency and has a good credit rating.","You can buy real gold, or you can buy shares of a gold ETF, or invest in gold futures contracts. There's a number of ways, but the goal is to be exposed to the price fluctuations of gold. I actually have a bank account through www.goldmoney.com. It works just like PayPal or a bank account. You send money and buy gold and then they send you a debit card linked to that account. When you swipe it, you're spending your gold. They also cater to business customers as well..you can send invoices to get paid, do payroll, and everything in between.","\"There are gold index funds. I'm not sure what you mean by \"\"real gold\"\". If you mean you want to buy physical gold, you don't need to. The gold index funds will track the price of gold and will keep you from filling your basement up with gold bars. Gold index funds will buy gold and then issue shares for the gold they hold. You can then buy and sell these just like you would buy and sell any share. GLD and IAU are the ticker symbols of some of these funds. I think it is also worth pointing out that historically gold has a been a poor investment.\"","\"Over on Quantitative Finance Stack Exchange, I asked and answered a more technical and broader version of this question, Should the average investor hold commodities as part of a broadly diversified portfolio? In short, I believe the answer to your question is that gold is neither an investment nor a hedge against inflation. Although many studies claim that commodities (such as gold) do offer some diversification benefit, the most credible academic study I have seen to date, Should Investors Include Commodities in Their Portfolios After All? New Evidence, shows that a mean-variance investor would not want to allocate any of their portfolio to commodities (this would include gold, presumably). Nevertheless, many asset managers, such as PIMCO, offer funds that are marketed as \"\"real return\"\" or \"\"inflation-managed\"\" and include commodities (including gold) in their portfolios. PIMCO has also commissioned some research, Strategic Asset Allocation and Commodities, claiming that holding some commodities offers both diversification and inflation hedging benefits.\"","Gold since the ancient time ( at least when it was founded) has kept its value. for example the french franc currency was considered valuable in the years 1400~ but in 1641 lost its value. However who owned Gold back then still got value. The advantage of having gold is you can convert it to cash easily in the world. it hedges against inflation: it is value rise when inflation happend. Gold has no income,no earnings. its not like a stock or a bond. its an alternative way to store value the Disadvantages of investing in Gold Gold doesnt return income , needs physical storage and insurance, Capital gains tax rates are higher on most gold investments. the best way to invest gold when there is inflation is expected. source","\"I was able to find a fairly decent index that trades very close to 1/10th the actual price of gold by the ounce. The difference may be accounted to the indexes operating cost, as it is very low, about 0.1%. The index is the ETFS Gold Trust index (SGOL). By using the SGOL index, along with a Standard Brokerage investment account, I was able to set up an investment that appropriately tracked my gold \"\"shares\"\" as 10x their weight in ounces, the share cost as 1/10th the value of a gold ounce at the time of purchase, and the original cost at time of purchase as the cost basis. There tends to be a 0.1% loss every time I enter a transaction, I'm assuming due to the index value difference against the actual spot value of the price of gold for any day, probably due to their operating costs. This solution should work pretty well, as this particular index closely follows the gold price, and should reflect an investment in gold over a long term very well. It is not 100% accurate, but it is accurate enough that you don't lose 2-3% every time you enter a new transaction, which would skew long-term results with regular purchases by a fair amount.\"","In 2008, 10 year treasuries were up 20.1%, to gold's 4.96%. Respectfully, if I were certain if a market drop, I'd just short the market, easily done by shorting SPY or other index ETFs. If you wish to buy gold, the easiest and least expensive way is to buy an ETF, GLD to be specific. It trades like a stock, for what that's worth. There are those who would suggest this is not like buying gold, it's just 'paper'. I believe otherwise. It's a non leveraged, fully backed ETF. I try not to question other's political or religious beliefs or as it pertains to this ETF, their conspiracy theories.","\"Definitely look at CEF. They have tax advantages over GLD and SLV, and have been around for 50 years, and are a Canadian company. They hold their gold in 5 distributed vaults. Apparently tax advantage comes because with GLD, if you supposedly approach them with enough money, you can take out a \"\"bar of gold\"\". Just one problem (well, perhaps more): a bar of gold is an enormous sum of money (and as such not very liquid), and apparently gold bars have special certifications and tracking, which one would mess up if one took it to there personal collection, costing additional sums to re-certify. many, many articles on the web claiming that the gold GLD has is highly leveraged, is held by someone else, and tons of other things that makes GLD seem semi-dubious. I've used CEF for years, talked to them quite a few times; to me, and short of having it my possession, they seem the best /safest / easiest alternative, and are highly liquid/low spread betwen bid and ask. The do also have a pure gold \"\"stock\"\" and a pure silver \"\"stock\"\", but these often trade at higher premiums. CEF's premium varies between -2% and +4%. I.e. sometimes it trades at a premium to the gold and silver it holds, sometimes at a discount. Note that CEF generally shoots to have a 50/50 ratio of gold / silver holdings in their possession/vaults, but this ratio has increased to be heavier gold weighted than silver, as silver has not performed quite as well lately. You can go to their web-site and see exactly what they have, e.g. their NAV page: http://www.centralfund.com/Nav%20Form.htm\"","If you want to speculate on gold price you should always buy an ETF/ETC (Exchange Traded Commodity). The reasons are simple: Easy to buy and sell (one mouse click) Cheap to buy and sell (small bank commission), compared to buy real gold (always 6 to 12% comission to the local shop when you buy and when you sell), see this one it's one cheap gold buy/sell shop I found on the internet But if you sometimes feel unsecure that you might one day loose everything due to a major economy collapse event (like an armageddon), or not to have enough money in bad periods or during retirment, and it makes you feel better to know you buried 999 Gold Sovereign in your house backyard (along with a rifle as suggested in comments), then just buy them and live an happy life (as long as you hide your gold in good ways and write a good treasury map).","\"I do not know anything about retail investing in India, since I am in the US. However, there are a couple of general things to keep in mind about gold that should be largely independent of country. First, gold is not an investment. Aside from a few industrial uses, it has no productive value. It is, at best, a hedge against inflation, since many people feel more comfortable with what they consider \"\"real\"\" money that is not subject to what seems to be arbitrary creation by central banks. Second, buying tiny amounts of gold as coin or bullion from a retail dealer will always involve a fairly significant spread from the commodity spot price. The spot price only applies to large transactions. Retail dealers have costs of doing business that necessitate these fees in order for them to make a profit. You must also consider the costs of storing your gold in a way that mitigates the risk of theft. (The comment by NL7 is on this point. It appeared while I was typing this answer.) You might find this Planet Money piece instructive on the process, costs, and risks of buying gold bullion (in the US). If you feel that you must own gold as an inflation hedge, and it is possible for residents of India, you would be best off with some kind of gold fund that tracks the price of bullion.\"","Since GLD is priced as 1/10 oz of gold, I'd call it the preferred way to buy if that's your desire. I believe gold is entering classic bubble territory. Caveat emptor. A comment brought me back to this question. My answer still applies, the ETF the best way to buy gold at the lowest transaction cost. The day I posted and expressed my 'bubble' concern, gold was $1746. Today, nearly 5 years later, it's $1350, a drop of 23%, plus an additional 2% of accumulated expenses. Note, GLD has a .4% annual expense. On the other hand, the S&P is up 80% from that time. In other words, $10K invested that day would be worth less than $7,700 had it been invested in gold, and $18,000 in stock. It would take a market crash, gold soaring or some combination of the two for gold to have been the right choice then. No one can predict short term movement of either the market or metals, my answer here wasn't prescient, just lucky.","Here's a start at a high level: I have a few friends who have made a killing on GLD, and write options to make money off of the investment without incurring the capital gains penalties for selling. That's a little out of my comfort zone though.","\"And you have hit the nail on the head of holding gold as an alternative to liquid currency. There is simply no way to reliably buy and sell physical gold at the spot price unless you have millions of dollars. Exhibit A) The stock symbol GLD is an ETF backed by gold. Its shares are redeemable for gold if you have more than 100,000 shares then you can be assisted by an \"\"Authorized Participant\"\". Read the fund's details. Less than 100,000 shares? no physical gold for you. With GLD's share price being $155.55 this would mean you need to have over 15 million dollars, and be financially solvent enough to be willing to exchange the liquidity of shares and dollars for illiquid gold, that you wouldn't be able to sell at a fair price in smaller denominations. The ETF trades at a different price than the gold spot market, so you technically are dealing with a spread here too. Exhibit B) The futures market. Accepting delivery of a gold futures contract also requires that you get 1000 units of the underlying asset. This means 1000 gold bars which are currently $1,610.70 each. This means you would need $1,610,700 that you would be comfortable with exchanging for gold bars, which: In contrast, securitized gold (gold in an ETF, for instance) can be hedged very easily, and one can sell covered calls to negate transaction fees, hedge, and collect dividends from the fund. quickly recuperating any \"\"spread tax\"\" that you encounter from opening the position. Also, leverage: no bank would grant you a loan to buy 4 to 20 times more gold than you can actually afford, but in the stock market 4 - 20 times your account value on margin is possible and in the futures market 20 times is pretty normal (\"\"initial margin and maintenance margin\"\"), effectively bringing your access to the spot market for physical gold more so within reach. caveat emptor.\"","I don't know answers that would be specific to Canada but one of the main ETF funds that tracks gold prices is GLD (SPDR Gold Trust) another is IAU (iShares Gold Trust). Also, there are several ETF's that combine different precious metals together and can be traded. You can find a fairly decent list here on the Stock Encylopedia site.","\"I'm really surprised more people didn't recommend UGA or USO specifically. These have been mentioned in the past on a myriad of sites as ways to hedge against rising prices. I'm sure they would work quite well as an investment opportunity. They are ETF's that invest in nearby futures and constantly roll the position to the next delivery date. This creates a higher than usual expense ratio, I believe, but it could still be a good investment. However, be forewarned that they make you a \"\"partner\"\" by buying the stock so it can mildly complicate your tax return.\"","Owning physical gold (assuming coins): Owning gold through a fund:","\"The difficulty with investing in mining and gold company stocks is that they are subject to the same market forces as any other stocks, although they may whether those forces better in a crisis than other stocks do because they are related to gold, which has always been a \"\"flight to safety\"\" move for investors. Some investors buy physical gold, although you don't have to take actual delivery of the metal itself. You can leave it with the broker-dealer you buy it from, much the way you don't have your broker send you stock certificates. That way, if you leave the gold with the broker-dealer (someone reputable, of course, like APMEX or Monex) then you can sell it quickly if you choose, just like when you want to sell a stock. If you take delivery of a security (share certificate) or commodity (gold, oil, etc.) then before you can sell it, you have to return it to broker, which takes time. The decision has much to do with your investing objectives and willingness to absorb risk. The reason people choose mutual funds is because their money gets spread around a basket of stocks, so if one company in the fund takes a hit it doesn't wipe out their entire investment. If you buy gold, you run the risk (low, in my opinion) of seeing big losses if, for some reason, gold prices plummet. You're \"\"all in\"\" on one thing, which can be risky. It's a judgment call on your part, but that's my two cents' worth.\"","\"Overall, since gold has value in any currency (and is sort of the ultimate reserve currency), why would anyone want to currency hedge it? Because gold is (mostly) priced in USD. You currency hedge it to avoid currency risk and be exposed to only the price risk of Gold in USD. Hedging it doesn't mean \"\"less speculative\"\". It just means you won't take currency risk. EDIT: Responding to OP's questions in comment what happens if the USD drops in value versus other major currencies? Do you think that the gold price in USD would not be affected by this drop in dollar value? Use the ETF $GLD as a proxy of gold price in USD, the correlation between weekly returns of $GLD and US dollar index (measured by major world currencies) since the ETF's inception is around -47%. What this says is that gold may or may not be affected by USD movement. It's certainly not a one-way movement. There are times where both USD and gold rise and fall simultaneously. Isn't a drop in dollar value fundamentally currency risk? Per Investopedia, currency risk arises from the change in price of one currency in relation to another. In this context, it's referring to the EUR/USD movement. The bottom line is that, if gold price in dollar goes up 2%, this ETF gives the European investor a way to bring home that 2% (or as close to that as possible).\"","Make a portfolio with gold and put options for gold. If the price rises again, sell a part of your gold and use it to buy new put options. If the price goes down, then use your put options to sell gold at a favorable price.","\"In addition to the possibility of buying gold ETFs or tradable certificates, there are also firms specializing in providing \"\"bank accounts\"\" of sorts which are denominated in units of weight of precious metal. While these usually charge some fees, they do meet your criteria of being able to buy and sell precious metals without needing to store them yourself; also, these fees are likely lower than similar storage arranged by yourself. Depending on the specifics, they may also make buying small amounts practical (buying small amounts of physical precious metals usually comes with a large mark-up over the spot price, sometimes to the tune of a 50% or so immediate loss if you buy and then immediately sell). Do note that, as pointed out by John Bensin, buying gold gets you an amount of metal, the local currency value of which will vary over time, sometimes wildly, so it is not the same thing as depositing the original amount of money in a bank account. Since 2006, the price of an ounce (about 31.1 grams) of gold has gone from under $500 US to over $1800 US to under $1100 US. Few other investment classes are anywhere near this volatile. If you are interested in this type of service, you might want to check out BitGold (not the same thing at all as Bitcoin) or GoldMoney. (I am not affiliated with either.) Make sure to do your research thoroughly as these may or may not be covered by the same regulations as regular banks, particularly if you choose a company based outside of or a storage location outside of your own country.\"","If you don't need 100% accuracy then GLD and SLV will work fine. Over the long-term these converge quite nicely with the price of the metal.","Huh? I don't see how this effects inflation in practice.... (only in theory) Basically, I sell short end bonds and buy longer end bonds pocketing the difference in yield and increasing my duration. GLD and mining are hedges against inflation, markets are stupidly short term looking and care only about current expectations, if the current macro situation deteoriates we see prices fall.","\"Gold is not an investment. Gold is a form of money. It and silver have been used as money much longer than paper. Paper money is a relatively recent invention (less than 350 years old) with a horrible track record of preserving wealth. When I exchange my paper US dollars for gold I'm exchanging one form of money for another. US dollars, or US Federal Reserve Notes to be more precise, can be printed ad nauseam by one bank that is totally private and is never audited. Keeping all of your savings in US dollars is ignoring history, it is believing the US Federal Reserve has your best interest in mind, it is hoping that somehow things will be different this time, it is believing that the US dollar will somehow magically be the first fiat currency to last a person's lifetime. TIPS may seem like a good hedge against inflation. However, the government offering TIPS is also the same government that is calculating the inflation rate used to adjust TIPS. What a great deal. If you do some research you discover that the method for calculating the consumer price index is always \"\"modified\"\" since it is always found to over estimate inflation. It is never found to under estimate inflation. Imagine that. Here is a chart showing the inflation rate as if it were calculated the same way as it was calculated in 1980. Buying any government debt is also a way to guarantee you or your children will be taxed in the future since the government will have to obtain the money from someone to pay back bonds. It's like voting for future taxes.\"","\"Over time, gold has mainly a hedge against inflation, based on its scarcity value. That is, unless finds some \"\"killer app\"\" for it that would also make it a good investment. The \"\"usual\"\" ones, metallurgical, electronic, medicine, dental, don't really do the trick. It should be noted that gold performs its inflation hedge function over a long period of time, say $50-$100 years. Over shorter periods of time, it will spike for other reasons. The latest classic example was in 1979-80, and the main reason, in my opinion, was the Iranian hostage crisis (inflation was secondary.) This was a POLITICAL risk situation, but one that was not unwarranted. An attack on 52 U.S. hostages (diplomats, no less), was potenially an attack on the U.S. dollar. But gold got so pricey that it lost its \"\"inflation hedge\"\" function for some two decades (until about 2000). Inflation has not been a notable factor in 2011. But Mideastern political risk has been. Witness Egypt, Libya, and potentially Syria and other countries. Put another way, gold is less of an investment that a \"\"hedge.\"\" And not just against inflation.\"","Without getting into whether you should invest in Gold or Not ... 1.Where do I go and make this purchase. I would like to get the best possible price. If you are talking about Physical Gold then Banks, Leading Jewelry store in your city. Other options are buying Gold Mutual Fund or ETF from leading fund houses. 2.How do I assure myself of quality. Is there some certificate of quality/purity? This is mostly on trust. Generally Banks and leading Jewelry stores will not sell of inferior purity. There are certain branded stores that give you certificate of authenticity 3.When I do choose to sell this commodity, when and where will I get the best cost? If you are talking about selling physical gold, Jewelry store is the only place. Banks do not buy back the gold they sold you. Jewelry stores will buy back any gold, however note there is a buy price and sell price. So if you buy 10 g and sell it back immediately you will not get the same price. If you have purchased Mutual Funds / ETF you can sell in the market.","If your broker lets you, you could just short GLD shares. The borrow cost is de minimis (it looks like it's basically zero at the moment), and there's no real upfront cost aside from the margin you'd have to post against the position. Don't forget to set a stop, though. You can also look at buying lower-strike puts (the lower the strike, the cheaper the cost). Don't go selling calls - that's probably outside your risk profile.","\"Your plan already answers your own question in the best possible way: If you want to be able to make the most possible profit from a large downward move in a stock (in this case, a stock that tracks gold), with a limited, defined risk if there is an upward move, the optimal strategy is to buy a put option. There are a few Exchange Traded Funds (ETFs) that track the price of gold. think of them as stocks that behave like gold, essentially. Two good examples that have options are GLD and IAU. (When you talk about gold, you'll hear a lot about futures. Forget them, for now. They do the same essential thing for your purposes, but introduce more complexity than you need.) The way to profit from a downward move without protection against an upward move is by shorting the stock. Shorting stock is like the opposite of buying it. You make the amount of money the stock goes down by, or lose the amount it goes up by. But, since stocks can go up by an infinite amount, your possible loss is unlimited. If you want to profit on a large downward move without an unlimited loss if you're wrong and it goes up, you need something that makes money as the stock drops, but can only lose so much if it goes up. (If you want to be guaranteed to lose nothing, your best investment option is buying US Treasuries, and you're technically still exposed to the risk that US defaults on its debt, although if you're a US resident, you'll likely have bigger problems than your portfolio in that situation.) Buying a put option has the exact asymmetrical exposure you want. You pay a limited premium to buy it, and at expiration you essentially make the full amount that the stock has declined below the strike price, less what you paid for the option. That last part is important - because you pay a premium for the option, if it's down just a little, you might still lose some or all of what you paid for it, which is what you give up in exchange for it limiting your maximum loss. But wait, you might say. When I buy an option, I can lose all of my money, cant I? Yes, you can. Here's the key to understanding the way options limit risk as compared to the corresponding way to get \"\"normal\"\" exposure through getting long, or in your case, short, the stock: If you use the number of options that represent the number of shares you would have bought, you will have much, much less total money at risk. If you spend the same \"\"bag 'o cash\"\" on options as you would have spent on stock, you will have exposure to way more shares, and have the same amount of money at risk as if you bought the stock, but will be much more likely to lose it. The first way limits the total money at risk for a similar level of exposure; the second way gets you exposure to a much larger amount of the stock for the same money, increasing your risk. So the best answer to your described need is already in the question: Buy a put. I'd probably look at GLD to buy it on, simply because it's generally a little more liquid than IAU. And if you're new to options, consider the following: \"\"Paper trade\"\" first. Either just keep track of fake buys and sells on a spreadsheet, or use one of the many online services where you can track investments - they don't know or care if they're real or not. Check out www.888options.com. They are an excellent learning resource that isn't trying to sell you anything - their only reason to exist is to promote options education. If you do put on a trade, don't forget that the most frustrating pitfall with buying options is this: You can be basically right, and still lose some or all of what you invest. This happens two ways, so think about them both before you trade: If the stock goes in the direction you think, but not enough to make back your premium, you can still lose. So you need to make sure you know how far down the stock has to be to make back your premium. At expiration, it's simple: You need it to be below the strike price by more than what you paid for the option. With options, timing is everything. If the stock goes down a ton, or even to zero - free gold! - but only after your option expires, you were essentially right, but lose all your money. So, while you don't want to buy an option that's longer than you need, since the premium is higher, if you're not sure if an expiration is long enough out, it isn't - you need the next one. EDIT to address update: (I'm not sure \"\"not long enough\"\" was the problem here, but...) If the question is just how to ensure there is a limited, defined amount you can lose (even if you want the possible loss to be much less than you can potentially make, the put strategy described already does that - if the stock you use is at $100, and you buy a put with a 100 strike for $5, you can make up to $95. (This occurs if the stock goes to zero, meaning you could buy it for nothing, and sell it for $100, netting $95 after the $5 you paid). But you can only lose $5. So the put strategy covers you. If the goal is to have no real risk of loss, there's no way to have any real gain above what's sometimes called the \"\"risk-free-rate\"\". For simplicity's sake, think of that as what you'd get from US treasuries, as mentioned above. If the goal is to make money whether the stock (or gold) goes either up or down, that's possible, but note that you still have (a fairly high) risk of loss, which occurs if it fails to move either up or down by enough. That strategy, in its most common form, is called a straddle, which basically means you buy a call and a put with the same strike price. Using the same $100 example, you could buy the 100-strike calls for $5, and the 100-strike puts for $5. Now you've spent $10 total, and you make money if the stock is up or down by more than $10 at expiration (over 110, or under 90). But if it's between 90 and 100, you lose money, as one of your options will be worthless, and the other is worth less than the $10 total you paid for them both.\"","You'll still lose a little bit if you buy a put option at the current price. No such thing as free hedging. Let's say you have 100 shares of IAU that you bought for exactly $12.50 per share. This is $1,250. Now let's say you bought a put option with a strike price of $13 that expires in April 2011. The current price for this option is $1.10 per share, or $110. You can sell your IAU for $1,300 any time before the expiration date, but this leaves $60 in time value. The price of the options will always have a time component that is a premium on the difference between the current price and the strike price. (Oh, forgot to add in commissions to this.)","Depends what kind of expenses you intend to use this money for. If you plan to buy housing in the future (eg you're saving a deposit), then you need to ensure that the value doesn't deteriorate relative to the value of the housing you are likely to buy - so you could buy a Residential REIT, or buy some investment property. If you expect to use this money for food, then you should buy suitable assets (eg Wheat futures, etc). Link the current asset to the future expense, and you will be fine. If you buy Gold, then you are making a bet that Gold will retain its value compared to the thing you want to purchase in future. It doesn't matter what the price of Gold does in $US.","Gold is a commodity. It has a tracked price and can be bought and sold as such. In its physical form it represents something real of signifigant value that can be traded for currency or barted. A single pound of gold is worth about 27000 dollars. It is very valuable and it is easily transported as opposed to a car which loses value while you transport it. There are other metals that also hold value (Platinum, Silver, Copper, etc) as well as other commodities. Platinum has a higher Value to weight ratio than gold but there is less of a global quantity and the demand is not as high. A gold mine is an investement where you hope to take out more in gold than it cost to get it out. Just like any other business. High gold prices simply lower your break even point. TIPS protects you from inflation but does not protect you from devaluation. It also only pays the inflation rate recoginized by the Treasury. There are experts who believe that the fed has understated inflation. If these are correct then TIPS is not protecting its investors from inflation as promised. You can also think of treasury bonds as an investment in your government. Your return will be effectively determined by how they run their business of governing. If you believe that the government is doing the right things to help promote the economy then investing in their bonds will help them to be able to continue to do so. And if consumers buy the bonds then the treasury does not have to buy any more of its own.","I think most financial planners or advisors would allocate zero to a gold-only fund. That's probably the mainstream view. Metals investments have a lot of issues, more elaboration here: What would be the signs of a bubble in silver? Also consider that metals (and commodities, despite a recent drop) are on a big run-up and lots of random people are saying they're the thing to get in on. Usually this is a sign that you might want to wait a bit or at least buy gradually. The more mainstream way to go might be a commodities fund or all-asset fund. Some funds you could look at (just examples, not recommendations) might include several PIMCO funds including their commodity real return and all-asset; Hussman Strategic Total Return; diversified commodities index ETFs; stuff like that has a lot of the theoretical benefits of gold but isn't as dependent on gold specifically. Another idea for you might be international bonds (or stocks), if you feel US currency in particular is at risk. Oh, and REITs often come up as an inflation-resistant asset class. I personally use diversified funds rather than gold specifically, fwiw, mostly for the same reason I'd buy a fund instead of individual stocks. 10%-ish is probably about right to put into this kind of stuff, depending on your overall portfolio and goals. Pure commodities should probably be less than funds with some bonds, stocks, or REITs, because in principle commodities only track inflation over time, they don't make money. The only way you make money on them is rebalancing out of them some when there's a run up and back in when they're down. So a portfolio with mostly commodities would suck long term. Some people feel gold's virtue is tangibility rather than being a piece of paper, in an apocalypse-ish scenario, but if making that argument I think you need physical gold in your basement, not an ETF. Plus I'd argue for guns, ammo, and food over gold in that scenario. :-)","gold is incredibly volatile, I tried spreadbetting on it. During the month of its highest gain, month beginning to month end, I was betting it would go up - and I still managed to lose money. It went down so much, that my stop loss margin would kick in. Don't do things with gold in the short term its a very small and liquid market. My advice with gold, actually buy some physical gold as insurance.","Advantages of Gold IRA (regardless of where you're holding it): Disadvantages of Gold IRA: Instead, you can invest in trust funds like SLV (The ETF for silver) or GLD in your regular brokerage IRA. These funds negotiate their prices of storage, are relatively liquid, and shield you from the dangers of owning physical metal while providing opportunity to invest in it at market prices.","It depends on what your goals are, your age, how much debt you have, etc. Assuming -- and we all know what happens when you assume -- that your financial life is otherwise in order, the 5% to 10% range you're talking about isn't overinvesting. You won't have a lot of company; most people don't own any. One comment on this part: I have some gold (GLD), but not much ... Gold and GLD are not the same thing at all. Owning shares of the SPDR Gold Trust is not the same thing as owning gold coins or bars. You're achieving different ends by owning GLD shares as opposed to the physical yellow metal. GLD will follow the spot price of gold pretty closely, but it isn't the same thing as physical ownership.","\"This article fails to explain that paper gold doesn't \"\"necessarily\"\" guarantee the owner to physical gold. An index fund tracking the price of gold per ounce guarantees the owner the market value of gold at the termination of the contract. This keeps markets liquid, and allows investors to diversify into precious metals without the inconvenience of storage and delivery fees. As long as we are using currency that can be exchanged for gold this shouldn't pose a problem. If we move to a post currency world of barter and trade, you're better invested in weapons and ammunition.\"","if you bought gold in late '79, it would have taken 30 years to break even. Of all this time it was two brief periods the returns were great, but long term, not so much. Look at the ETF GLD if you wish to buy gold, and avoid most of the buy/sell spread issues. Edit - I suggest looking at Compound Annual Growth Rate and decide whether long term gold actually makes sense for you as an investor. It's sold with the same enthusiasm as snake oil was in the 1800's, and the suggestion that it's a storehouse of value seems nonsensical to me.","With gold at US$1300 or so, a gram is about $40. For your purposes, you have the choice between the GLD ETF, which represents a bit less than 1/10oz gold equivalent per share, or the physical metal itself. Either choice has a cost: the commission on the buy plus, eventually, the sale of the gold. There may be ongoing fees as well (fund fees, storage, etc.) GLD trades like a stock and you can enter limit orders or any other type of order the broker accepts.","As you have already good on your retirement kitty. Assuming you have a sufficient cash for difficult situations, explore the options of investing in Shares and Mutual Funds. As you are new to Stock Market, begin slowly by investing into Mutual Funds and ETF for precious metals. This will help you understand and give you confidence on markets and returns. Real estate is a good option, the down side being the hassle of getting rental and the illiquid nature of the investment.","It seems that you're interested in an asset which you can hold that would go up when the gold price went down. It seems like a good place to start would be an index fund, which invests in the general stock market. When the gold market falls, this would mainly affect gold mining companies. These do not make up a sizable portion of any index fund, which is invested broadly in the market. Unfortunately, in order to act on this, you would also have to believe that the stock market was a good investment. To test this theory, I looked at an ETF index fund which tracks the S&P 500, and compared it to an ETF which invests in gold. I found that the daily price movements of the stock market were positively correlated with the price of gold. This result was statistically significant. The weekly price movements of the stock market were also correlated with the price of gold. This result was also statistically significant. When the holding period was stretched to one month, there was still a positive relationship between the stock market's price moves and the price of gold. This result was not statistically significant. When the holding period was stretched to one year, there was a negative relationship between the price changes in the stock market and the price of gold. This result was not statistically significant, either.","I assume you've looked into gold as an asset class (which is considered to be a good diversifier in your portfolio at about 5% of investments) because there are a lot of opinions around about that. But in terms of physical vs paper gold investment, my experience has been that they'll absolutely kill you on fees if you're not careful. I had a broker try and charge me $80/oz. They do it in the margins though, so they'll just sell at say $1,350 but buy at $1,200. Just make sure you either know the market price when you walk in and stick to your guns or lock in a price ahead of time.","The problem I have with gold is that it's only worth what someone will pay you for it. To a degree that's true with any equity, but with a company there are other capital resources etc that provide a base value for the company, and generally a business model that generates income. Gold just sits there. it doesn't make products, it doesn't perform services, you can't eat it, and the main people making money off of it are the folks charging a not insubstantial commission to sell it to you, or buy it back. Sure it's used in small quantities for things like plating electrical contacts, dental work, shielding etc. But Industrial uses account for only 10% of consumption. Mostly it's just hoarded, either in the form of Jewelry (50%) or 'investment' (bullion/coins) 40%. Its value derives largely from rarity and other than the last few years, there's no track record of steady growth over time like the stock market or real-estate. Just look at what gold prices did between 10 to 30 years ago, I'm not sure it came anywhere near close to keeping pace with inflation during that time. If you look at the chart, you see a steady price until the US went off the gold standard in 1971, and rules regarding ownership and trading of gold were relaxed. There was a brief run up for a few years after that as the market 'found its level' as it were, and you really need to look from about 74 forward (which it experienced its first 'test' and demonstration of a 'supporting' price around 400/oz inflation adjusted. Then the price fluctuated largely between 800 to 400 per ounce (adjusted for inflation) for the next 30 years. (Other than a brief sympathetic 'Silver Tuesday' spike due to the Hunt Brothers manipulation of silver prices in 1980.) Not sure if there is any causality, but it is interesting to note that the recent 'runup' in price starts in 2000 at almost the same time the last country (the Swiss) went off the 'gold standard' and gold was no longer tied to any currency (or vise versa) If you bought in '75 as a hedge against inflation, you were DOWN, as much as 50% during much of the next 33 years. If you managed to buy at a 'low' the couple of times that gold was going down and found support around 400/oz (adjusted) then you were on average up slightly as much as a little over 50% (throwing out silver Tuesday) but then from about '98 through '05 had barely broken even. I personally view 'investments' in gold at this time as a speculation. Look at the history below, and ask yourself if buying today would more likely end up as buying in 1972 or 1975? (or gods forbid, 1980) Would you be taking advantage of a buying opportunity, or piling onto a bubble and end up buying at the high? Note from Joe - The article Demand and Supply adds to the discussion, and supports Chuck's answer.","\"Nobody can give you a definitive answer. To those who suggest it's expensive at these prices, [I'd point to this chart](http://treo.typepad.com/.a/6a0120a6002285970c014e8c39f2c3970d-850wi) showing the price of gold versus the global money supply over the past decade or so. It's not conclusive, but it's evidence that gold tracks the money supply relatively well. There might be a bit of risk premium baked in that it would shed in a stable economy, but that premium is unknowable. It's also (imo) probably worth the protection it provides. In an inflationary scenario (Euro devaluation) gold will hold its buying power very well. It also fares well in a deflationary environment, just not quite as well as holding physical currency. Note that in such an environment, bank defaults are a big danger: that 50k might only be safe under your mattress (rather than in a fractionally reserved bank account). If you're buying gold, certificates aren't exactly a bad option, although there still exists the counterparty risk of the agent storing your gold, as well as political risk of the nation where it's being held. Buying physical bullion ameliorates these risks, but then you face the problem of protecting it. Safe deposit boxes, a home safe, or burying it in your backyard are all possible options. The merits of each, I'll leave as an exerice to the reader. Foreign currency might be a little bit better than the Euro, but as we've seen in the past year or so, the Swiss Franc has been devalued to match the Euro in the proverbial \"\"race to the bottom\"\". It's probably not much better than another fiat currency. I don't know anything about Norway. Edit: Depending on your time horizon, my personal opinion would be to put no less than 5-10% of your savings in a hard store of value (e.g. gold, silver, platinum). Depending on your risk appetite, you could probably stand to put a lot more into it, especially given the Eurozone turmoil. Of course, as with anything else, your mileage may vary, past performance does not guarantee future results, this is not investment advice, seek professional medical help if you experience an erection lasting longer than four hours.\"","Currency hedge means that you are somewhat protected from movements in currency as your investment is in gold not currency. So this then becomes less speculative and concentrates more on your intended investment. EDIT The purpose of the GBSE ETF is aimed for investors living in Europe wanting to invest in USD Gold and not be effected by movements in the EUR/USD. The GBSE ETF aims to hedge against the effects of the currency movements in the EUR/USD and more closely track the USD Gold price. The 3 charts below demonstrate this over the past 5 years. So as is demonstrated the performance of the GBSE ETF closely matches the performance of the USD Gold price rather than the EUR Gold price, meaning someone in Europe can invest in the fund and get the appropriate similar performance as investing directly into the USD Gold without being affected by currency exchange when changing back to EUR. This is by no way speculative as the OP suggests but is in fact serving the purpose as per the ETF details.","Just buy a FTSE-100 tracker. It's cheap and easy, and will hedge you pretty well, as the FTSE-100 is dominated by big mining and oil companies who do most of their business in currencies other than sterling.","\"As proposed: Buy 100 oz of gold at $1240 spot = -$124,000 Sell 1 Aug 2014 Future for $1256 = $125,600 Profit $1,600 Alternative Risk-Free Investment: 1 year CD @ 1% would earn $1240 on $124,000 investment. Rate from ads on www.bankrate.com \"\"Real\"\" Profit All you are really being paid for this trade is the difference between the profit $1,600 and the opportunity for $1240 in risk free earnings. That's only $360 or around 0.3%/year. Pitfalls of trying to do this: Many retail futures brokers are set up for speculative traders and do not want to deal with customers selling contracts against delivery, or buying for delivery. If you are a trader you have to keep margin money on deposit. This can be a T-note at some brokerages, but currently T-notes pay almost 0%. If the price of gold rises and you are short a future in gold, then you need to deposit more margin money. If gold went back up to $1500/oz, that could be $24,400. If you need to borrow this money, the interest will eat into a very slim profit margin over the risk free rate. Since you can't deliver, the trades have to be reversed. Although futures trades have cheap commissions ~$5/trade, the bid/ask spread, even at 1 grid, is not so minimal. Also there is often noisy jitter in the price. The spot market in physical gold may have a higher bid/ask spread. You might be able to eliminate some of these issues by trading as a hedger or for delivery. Good luck finding a broker to let you do this... but the issue here for gold is that you'd need to trade in depository receipts for gold that is acceptable for delivery, instead of trading physical gold. To deliver physical gold it would likely have to be tested and certified, which costs money. By the time you've researched this, you'll either discover some more costs associated with it or could have spent your time making more money elsewhere.\"","\"Ok, I think what you're really asking is \"\"how can I benefit from a collapse in the price of gold?\"\" :-) And that's easy. (The hard part's making that kind of call with money on the line...) The ETF GLD is entirely physical gold sitting in a bank vault. In New York, I believe. You could simply sell it short. Alternatively, you could buy a put option on it. Even more risky, you could sell a (naked) call option on it. i.e. you receive the option premium up front, and if it expires worthless you keep the money. Of course, if gold goes up, you're on the hook. (Don't do this.) (the \"\"Don't do this\"\" was added by Chris W. Rea. I agree that selling naked options is best avoided, but I'm not going to tell you what to do. What I should have done was make clear that your potential losses are unlimited when selling naked calls. For example, if you sold a single GLD naked call, and gold went to shoot to $1,000,000/oz, you'd be on the hook for around $10,000,000. An unrealistic example, perhaps, but one that's worth pondering to grasp the risk you'd be exposing yourself to with selling naked calls. -- Patches) Alternative ETFs that work the same, holding physical gold, are IAU and SGOL. With those the gold is stored in London and Switzerland, respectively, if I remember right. Gold peaked around $1900 and is now back down to the $1500s. So, is the run over, and it's all downhill from here? Or is it a simple retracement, gathering strength to push past $2000? I have no idea. And I make no recommendations.\"","Buy gold, real coins not paper. And do not keep it in a bank.","I agree with buying gold, as this is truly the worldwide currency and will only increase in value if the Euro fails. The only issue will be if your country confiscates all citizen's gold ( it has happened many times throughout history. As for ETFs, be careful because unless you purchase these in terms of other currencies (I am assuming you aren't), than the ETF you own is still in terms of Euros, making the whole investment worthless if you are trying to avoid Euro currency risk.","\"I recommend avoiding trading directly in commodities futures and options. If you're not prepared to learn a lot about how futures markets and trading works, it will be an experience fraught with pitfalls and lost money – and I am speaking from experience. Looking at stock-exchange listed products is a reasonable approach for an individual investor desiring added diversification for their portfolio. Still, exercise caution and know what you're buying. It's easy to access many commodity-based exchange-traded funds (ETFs) on North American stock exchanges. If you already have low-cost access to U.S. markets, consider this option – but be mindful of currency conversion costs, etc. Yet, there is also a European-based company, ETF Securities, headquartered in Jersey, Channel Islands, which offers many exchange-traded funds on European exchanges such as London and Frankfurt. ETF Securities started in 2003 by first offering a gold commodity exchange-traded fund. I also found the following: London Stock Exchange: Frequently Asked Questions about ETCs. The LSE ETC FAQ specifically mentions \"\"ETF Securities\"\" by name, and addresses questions such as how/where they are regulated, what happens to investments if \"\"ETF Securities\"\" were to go bankrupt, etc. I hope this helps, but please, do your own due diligence.\"","From Wikipedia: Investment has different meanings in finance and economics. In Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time. In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or gambling. The second part of the question can be addressed by analyzing the change in gold price vs inflation year by year over the long term. As Chuck mentioned, there are periods in which it didn't exceed inflation. More important, over any sufficiently long length of time the US stock market will outperform. Those who bought at the '87 peak aren't doing too bad, yet those who bought in the last gold bubble haven't kept up with inflation. $850 put into gold at the '80 top would inflate today to $2220 per the inflation calculator. You can find with a bit of charting some periods where gold outpaced inflation, and some where it missed. Back to the definition of investment. I think gold fits speculation far better than it does investment. I've heard the word used in ways I'd disagree with, spend what you will on the shoes, but no, they aren't an investment, I tell my wife. The treadmill purchase may improve my health, and people may use the word colloquially, but it's not an investment.","The reason that you are advised to take more risk while you are young is because the risk is often correlated to a short investment horizon. Young people have 40-50 years to let their savings grow if they get started early enough. If you need the money in 5-15 years (near the end of your earning years), there is much more risk of a dip that will not correct itself before you need the money than if you don't need the money for 25-40 years (someone whose career is on the rise). The main focus for the young should be growth. Hedging your investments with gold might be a good strategy for someone who is worried about the volatility of other investments, but I would imagine that gold will only reduce your returns compared to small-cap stocks, for example. If you are looking for more risk, you can leverage some of your money and buy call options to increase the gains with upward market moves.","\"If the \"\"crash\"\" you worry about is a dissolution of the euro, then the main thing you should concern yourself with is liquidity. For that, purchase the most highly liquid gold ETF or futures contract, whichever is more appropriate for the total amount of money involved. Any other way and you will lose a significant chunk of your assets to transaction costs. If, on the other hand, the \"\"crash\"\" you were concerned about were the total collapse of the world economy, and people around the world abandon all paper currencies and resort to barter as a method of trade, then I can see buying several small pieces being a rational strategy, although then I would also question whether you were a sane individual.\"","\"The general argument put forward by gold lovers isn't that you get the same gold per dollar (or dollars per ounce of gold), but that you get the same consumable product per ounce of gold. In other words the claim is that the inflation-adjusted price of gold is more-or-less constant. See zerohedge.com link for a chart of gold in 2010 GBP all the way from 1265. (\"\"In 2010 GBP\"\" means its an inflation adjusted chart.) As you can see there is plenty of fluctuation in there, but it just so happens that gold is worth about the same now as it was in 1265. See caseyresearch.com link for a series of anecdotes of the buying power of gold and silver going back some 3000 years. What this means to you: If you think the stock market is volatile and want to de-risk your holdings for the next 2 years, gold is just as risky If you want to invest some wealth such that it will be worth more (in real terms) when you take it out in 40 years time than today, the stock market has historically given better returns than gold If you want to put money aside, and it to not lose value, for a few hundred years, then gold might be a sensible place to store your wealth (as per comment from @Michael Kjörling) It might be possible to use gold as a partial hedge against the stock market, as the two supposedly have very low correlation\"","Start with putting money in gold coin bullion: If you are a beginner, make certain you start things with putting money in gold coin bullion . They are very simple to go with including have very minimum quantity of risk involved . After you buy gold bullion or gold coins you will get the same from any delivery company.","Best thing to do is convert your money into something that will retain value. Currency is a symbol of wealth, and can be significantly devalued with inflation. Something such as Gold or Silver might not allow you to see huge benefit, but its perhaps the safest bet (gold in particular, as silver is more volatile), as mentioned above, yes you do pay a little above spot price and receive a little below spot when and if you sell, but current projections for both gold and silver suggest that you won't lose money at least. Safe bet. Suggesting it is a bad idea at this time is just silly, and goes against the majority of advisers out there.","Bad question. Even people choosing a 401k strategy have to choose risk over reward. But looking at this simply, if you take a 10 year chart of Gold, you will not find any other stock or commodity that could have been invested in that would have provided you with the same results with as little volatility over this time period. http://www.kitco.com/LFgif/au3650nys.gif","Reddit doesn't have a ton of resources to offer you as you learn about where to invest, you want to start reading up on actual investing sites. You might start with Motley Fool, StockTwits, Seeking Alpha, Marketwatch, etc. I agree with hipster's take, if all countries are going to keep printing money and expanding their debts and craziness, gold has a bright future. Land, petroleum, commodities, and precious metals have an intrinsic worth that will still be there regardless of what currencies are doing, versus bonds which are merely promises to pay, which will be paid off in devalued money, or stocks which are just promises of future earnings. Think about spreading your risk in a few different places, one chunk here, one chunk there. Some people in the US now are big on dividend paying stocks in lieu of bonds which only pay a percent, which is negative return after inflation. Some people buy 'royalty trust' units, which throw off income from oil leases as dividends. You might want to park a portion in a different currency, but dollar funds aren't going to pay interest and Switzerland plans to keep devaluing its currency as people keep bidding the price up. I don't know if you are allowed to buy CEF, a bullion-backed fund out of Canada in your country, but that's one way to own gold & silver. But with the instability out there, you might prefer a bit of the real thing stashed in a safe place. Or if you have a bit of family land, maybe just be sure you can pay the taxes to keep it; or pursue any other way to own 'real stuff' that will still be worth something after all hell breaks loose.","Investing $100k into physical gold (bars or coins) is the most prudent option; given the state of economic turmoil worldwide. Take a look at the long term charts; they're pretty self explanatory. Gold has an upward trend for 100+ years. http://www.goldbuyguide.com/price/ A more high risk/high reward investment would be to buy $100k of physical silver. Silver has a similar track record and inherent benefits of gold. Yet, with a combination of factors that could make it even more bull than gold (ie- better liquidity, industrial demand). Beyond that, you may want to look at other commodities such as oil and agriculture. The point is, this is troubled times for worldwide economies. Times like this you want to invest in REAL things like commodities or companies that are actually producing essential materials.","\"I think you have a really good idea, kudos to it. It will be difficult to break eve, and while you stressed the fact that you are ready to part with this money, it would be interesting for you not to part with this money just for the sake of trading. You will be frustrated because you are \"\"winning\"\" and breaking even or even losing money in the process. Think about that. For somebody with limited experience the derivatives market carries a very high risk also as everything in this matters carries high or very high yield. Trading futures on margin can actually work but I think you will need a bit more money. Check the mini contracts of infinity futures and calculate the commissions. You will be paying more for a contract, yes. you will need more money for your maintenance margin, yes, but if you day-trade and you have a cheapo broker this will be substantially lower. Gold contracts pay about 10 to 1 so a mini contract of 33 ounces will pay you 33 dollars per 1 dollar move. Your commissions will be about 4/5 usd in a discount broker and you will need to pay some exchange house fees, maybe about 15% of your trade will be fees. Check the contract specs and costs. As somebody said before, they wouldn't recommend trading on margin but with an account of that side I wouldn't know anything else. Trading physical gold on margin could also be an option. Just my 2 cents.\"","A lot of people probably don't agree with him, but Warren Buffett has some great quotes on why he doesn't invest in gold: I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion dollars…you could have all the farmland in the United States, you could have about seven Exxon Mobils, and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils. And his classic quote: [Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.","\"This type of account will sell you just enough rope to hang yourself. Gold is at $1400 or so. Were you around when it first hit $800 in '79/'80? I was. No one was saying \"\"sell\"\" only forecasts of $2000. If you bought and held, you've still not broken even to inflation let alone simple market returns.\"","\"You don't need to use a real stock like GLD. You can just create a \"\"stock\"\" called something like \"\"1 oz Gold\"\" and buy and sell them as if they were shares. It won't auto-update the price like GLD, but that's not a big deal to update manually once a month or so. I prefer to have accurate data that is correct at a particular point in time to having data that is 2-3% off, or that requires entering the ounces as 10x reality. YMMV. This is very similar to how you track US Savings Bonds in Quicken (and might be described in the help under that topic.)\"","Gold's valuation is so stratospheric right now that I wonder if negative numbers (as in, you should short it) are acceptable in the short run. In the long run I'd say the answer is zero. The problem with gold is that its only major fundamental value is for making jewelry and the vast majority is just being hoarded in ways that can only be justified by the Greater Fool Theory. In the long run gold shouldn't return more than inflation because a pile of gold creates no new wealth like the capital that stocks are a claim on and doesn't allow others to create new wealth like money lent via bonds. It's also not an important and increasingly scarce resource for wealth creation in the global economy like oil and other more useful commodities are. I've halfway-thought about taking a short position in gold, though I haven't taken any position, short or long, in gold for the following reasons: Straight up short-selling of a gold ETF is too risky for me, given its potential for unlimited losses. Some other short strategy like an inverse ETF or put options is also risky, though less so, and ties up a lot of capital. While I strongly believe such an investment would be profitable, I think the things that will likely rise when the flight-to-safety is over and gold comes back to Earth (mainly stocks, especially in the more beaten-down sectors of the economy) will be equally profitable with less risk than taking one of these positions in gold.","I think what the person meant to say is that Gold is not a one stop solution. There's nothing wrong with having Gold in an otherwise diversified portfolio but you need to be aware about the potential downsides: The problem with gold is that its value nowadays depends mainly on investor confidence, or the lack of it (actual demand for gold cannot explain the rise in value gold had after the crisis). If people are afraid the world and currencies with it will go to hell, the gold price will go up. Why? Because if currencies seize to exist, Gold will still be accepted. It can replace currencies. What many people tend to forget: let's consider the extreme example and currencies really cease to exist and all hell breaks lose. What good are gold bars at the bank, or even at home, for that matter? You'll be better off with gold coins to use in barter and to pay off marauders. But that's not about investing anymore, that's survivalism.","Series I Savings Bonds would be another option that have part of their return indexed to inflation though currently they are yielding 1.64% through April 30, 2016 though some may question how well is that 3% you quote as an inflation rate. From the first link: Series I savings bonds are a low-risk savings product. While you own them they earn interest and protect you from inflation. You may purchase electronic I bonds via TreasuryDirect or paper I bonds with your IRS tax refund. As a TreasuryDirect account holder, you can purchase, manage, and redeem I bonds directly from your web browser. TIPS vs I Bonds if you want to compare these products that are rather safe in terms of avoiding a nominal loss. This would be where a portion of the funds could go, not all of them at once.","This. Why not convert the 50k euro to dollars and AUD, and invest in a basket of companies that trade on American/Australian exchanges instead. You could hold a bit of gold, but I would definitely not put everything into gold.","Diversify, diversify, diversify. Gold, USD, Swiss Franc and one thing that hasn't really been mentioned yet: equities. Yes, they may go down if the recession gets worse but at the end of the day you have a claim to a company. That's a physical asset. It's also a hedge against inflation/devaluation just like foreign currencies and precious metals. Make sure that you invest in companies that actually produce something that will always be needed though. I.e. Siemens, Novartis, Caterpillar etc. NOT the Zyngas and Facebooks of the world!","\"Don't put all your eggs in one basket and don't assume that you know more than the market does. The probability of gold prices rising again in the near future is already \"\"priced in\"\" as it were. Unless you are privy to some reliable information that no one else knows (given that you are asking here, I'm guessing not), stay away. Invest in a globally diversified low cost portfolio of primarily stocks and bonds and don't try to predict the future. Also I would kill for a 4.5% interest rate on my savings. In the USA, 1% is on the high side of what you can get right now. What is inflation like over there?\"","For long periods of time a short ETF's performance will not match the negative of the long ETF, e.g. funding costs and the fact that they 'only' match daily returns will result in a suboptimal performance. If possible use other derivatives like a put on a long gold etf (fgriglesnickerseven)","Gold ETFs are treated different than stock ETFs, as a collectable. This makes long-term investing in gold ETFs (for one year or longer) subject to a relatively large capital gains tax (maximum rate of 28%, rather than the 15% rate that is applicable to most other long-term capital gains). Read The Gold Showdown: ETFs Vs. Futures for more details.","Putting the money in a bank savings account is a reasonably safe investment. Anything other than that will come with additional risk of various kinds. (That's right; not even a bank account is completely free of risk. Neither is withdrawing cash and storing it somewhere yourself.) And I don't know which country you are from, but you will certainly have access to your country's government bonds and the likes. You may also have access to mutual funds which invest in other countries' government bonds (bond or money-market funds). The question you need to ask yourself really is twofold. One, for how long do you intend to keep the money invested? (Shorter term investing should involve lower risk.) Two, what amount of risk (specifically, price volatility) are you willing to accept? The answers to those questions will determine which asset class(es) are appropriate in your particular case. Beyond that, you need to make a personal call: which asset class(es) do you believe are likely to do better or less bad than others? Low risk usually comes at the price of a lower return. Higher return usually involves taking more risk (specifically price volatility in the investment vehicle) but more risk does not necessarily guarantee a higher return - you may also lose a large fraction of or even the entire capital amount. In extreme cases (leveraged investments) you might even lose more than the capital amount. Gold may be a component of a well-diversified portfolio but I certainly would not recommend putting all of one's money in it. (The same goes for any asset class; a portfolio composed exclusively of stocks is no more well-diversified than a portfolio composed exclusively of precious metals, or government bonds.) For some specifics about investing in precious metals, you may want to see Pros & cons of investing in gold vs. platinum?.","\"No, investing in gold is a bad idea. Gold at these prices is completely useless. There are many other precious metals that are far more useful. It seems highly unlikely you will make a large return and the downside is huge. If the world economy is stabilised gold will halve very quickly, perhaps more. A great piece of advice I have had while investing is \"\"if the shoe shine boy tells you to buy; sell\"\", i.e. when the general public think it is a good idea to invest in a certain product you have already missed the boat. You have missed the gold boat. Unfortunately most safe heavens are exhausted: chf, jpy, gold, etc. At the moment there aren't any safe places. NOK is probably your best bet but beware of intervention (see EURCHF around sep last year).\"","One of the key things to look for is trading volume. I think the price spread will be better on high volume ETFs, which means you'll be able to sell for more when the time comes. Check Google or Yahoo finance for those stats.","The only way to hedge a position is to take on a countervailing position with a higher multiplier as any counter position such as a 1:1 inverse ETF will merely cancel out the ETF it is meant to hedge yielding a negative return roughly in the amount of fees & slippage. For true risk-aversion, continually selling the shortest term available covered calls is the only free lunch. A suboptimal version, the CBOE BuyWrite Index, has outperformed its underlying with lower volatility. The second best way is to continually hedge positions with long puts, but this can become very tax-complicated since the hedged positions need to be rebalanced continually and expensive depending on option liquidity. The ideal, assuming no taxes and infinite liquidity, is to sell covered calls when implied volatility is high and buy puts when implied volatility is low.","How would gold have protected you during the 2007/8 crisis? In no way, shape or form. The ways to protect yourself at any time are: Boring, huh?","Depending on the Price of the ETF and the hedging you may well simply be guaranteed to make a small loss.","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","Gold is not really an investment at all, because it doesn't generate an income. It's only worth money because people think it's worth money (it has some industrial uses, but most gold is used as a store of value and not for industrial purposes), not because of its income stream.","See the following information: http://www.bogleheads.org/wiki/Treasury_Inflation_Protected_Security You can buy individual bonds or you can purchase many of them together as a mutual fund or ETF. These bonds are designed to keep pace with inflation. Buying individual inflation-protected US government bonds is about as safe as you can get in the investment world. The mutual fund or ETF approach exposes you to interest rate risk - the fund's value can (and sometimes does) drop. Its value can also increase if interest rates fall.","Another answer to this question occurred to me as I started learning more about historical uses for gold etc. Perhaps it's a crackpot idea, but I'm going to float it anyway to see what you folks think. Investing in Gold is an indirect investment in the Economy and GDP of the nation of India. To that extent is it only a hedge against inflation, so long as the indian economy grows at a more rapid rate than your local inflation rate. Fact, India currently consumes more than 1/3 of gold production, predominantly in the form of Jewelry. And their demand has been growing rapidly, up 69% just between 2009 and 2010 alone. I can't find too many historial consumption numbers for India, but when you look at past articles on this subject, you see phrases like 'one forth' and '20%' being used only a few years go to describe India's consumption levels. Fact, India has virtually no domestic sources of gold. India’s handful of gold mines produce about 2.5 tonnes of the metal each year, a fraction of the country’s annual consumption of about 800 tonnes. Fact. Indian Culture places high value on gold as a visible demonstration of wealth. Particularly in situations such In Indian weddings where the bride brings in gold to show her family's status and wealth and it forms part of the dowry given to bride. It is believed that a bride wearing 24k gold on their wedding to bring luck and happiness throughout the married life. Fact, the recent trends in outsourcing, Indian citizens working abroad sending money home, etc have all lead to a influx of foreign cash to the Indian economy and explosive GDP growth. See the following chart and compare the period of 2000-current with a chart showing the price of gold in other answer here. Notice how the curves parallel each other to a large degree Potentially unfounded conclusion drawn from above numbers. The rapid growth of the Indian economy, coupled with a rich cultural tradition that values gold as a symbol of wealth, along with a sudden rise in 'wealthy' people due to the economy and influx of foreign cash, has resulted in skyrocketing demand for gold from India, and this large 'consumption' demand is the most likely explanation for the sudden rise in the price of gold over the last several years. Investors then jump on the 'rising price bandwagon' as especially does anyone that can make a profit from selling gold to those seeking to get on said bandwagon. As such, as long as indian cultural tradition remains unchanged, and their economy remains strong, the resulting increasing demand for gold will sustain current and perhaps increased prices. Should there be any sudden collapse in the Indian GDP, gold will likely tumble in parallel. disclaimer: not an expert, just observations based off the data I've seen, there may be other parts to the picture of 'gold demand' that I've not considered.","Regarding investing in gold vs. stocks, I don't think I could say it better than Warren Buffett: You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?","Diversification is an important aspect of precious metals investing. Therefore I would suggest diversifying in a number of different ways:","First is storage which is a big and a detrimental headache. Security is another big headache. Investing in precious metal has always been an investment opportunity in the countries in the east i.e. India and China because of cultural reason and due to absence of investment opportunities for the less fortunate ones. It isn't the case so in the West. Secondly what is the right an opportune moment is open to question. When the worlwide economy is up and running, that is probably the time to buy i.e. people would like to put money in use rather than store. The saying goes the other way when the economy is stagnating. Then there is also the case of waiting out the bad periods to sell your gold and silver. If you do want to buy precious metals then use a service like BullionVault, rather than doing those yourself. It takes care of the 2 big headaches, I mentioned earlier.","I'd say neither. Index Funds mimic whatever index. Some stocks that are in the index are good investment opportunities, others not so much. I'm guessing the Bond Index Funds do the same. As for Gold... did you notice how much gold has risen lately? Do you think it will keep on rising like that? For which period? (Hint: if your timespan is less than 10 years, you really shouldn't invest). Investing is about buying low, and selling high. Gold is high, don't touch it. If you want to invest in funds, look at 4 or 5 star Morningstar rated funds. My advisors suggest Threadneedle (Lux) US Equities DU - LU0096364046 with a 4 star rating as the best American fund at this time. However, they are not favoring American stocks at this moment... so maybe you should stay away from the US for now. Have you looked at the BRIC (Brazil, Russia, India, China) countries?","There are two basic ways you can separate your investments from the dollar (or any other currency).","I think your question is very difficult to answer because it involves speculation. I think the best article describing why or why not to invest in gold in a recent Motley Fool Article.","One option is buying physical gold. I don't know about Irish law -- but from an economic standpoint, putting funds in foreign currencies would also be an option. You could look into buying shares in an ETF tracking foreign currency as an alternative to direct money exchange.","\"Article summation: You may have enjoyed that 30% last year and 6% first half this year, but inflation is almost at 2% and we expect inflationary hedges and non-US-dollar investments to outperform. My response: Hahaha, what? Is he even looking at his own numbers? Since when did 2% inflation \"\"trump\"\" 6, 12, or 30% growth? He can't seriously be implying that people should run to gold...\"","\"I got started by reading the following two books: You could probably get by with just the first of those two. I haven't been a big fan of the \"\"for dummies\"\" series in the past, but I found both of these were quite good, particularly for people who have little understanding of investing. I also rather like the site, Canadian Couch Potato. That has a wealth of information on passive investing using mutual funds and ETFs. It's a good next step after reading one or the other of the books above. In your specific case, you are investing for the fairly short term and your tolerance for risk seems to be quite low. Gold is a high-risk investment, and in my opinion is ill-suited to your investment goals. I'd say you are looking at a money market account (very low risk, low return) such as e.g. the TD Canadian Money Market fund (TDB164). You may also want to take a look at e.g. the TD Canadian Bond Index (TDB909) which is only slightly higher risk. However, for someone just starting out and without a whack of knowledge, I rather like pointing people at the ING Direct Streetwise Funds. They offer three options, balancing risk vs reward. You can fill in their online fund selector and it'll point you in the right direction. You can pay less by buying individual stock and bond funds through your bank (following e.g. one of the Canadian Couch Potato's model portfolios), but ING Direct makes things nice and simple, and is a good option for people who don't care to spend a lot of time on this. Note that I am not a financial adviser, and I have only a limited understanding of your needs. You may want to consult one, though you'll want to be careful when doing so to avoid just talking to a salesperson. Also, note that I am biased toward passive index investing. Other people may recommend that you invest in gold or real estate or specific stocks. I think that's a bad idea and believe I have the science to back this up, but I may be wrong.\"","\"Look at a broader diversification. Something like: For physical gold, I'd look at a mix of gold coins and bullion. Study the pricing model for coins -- you'll probably find that the spreads on small coins make them too expensive. There are a few levels of risk with storing in a vault -- the practical risk is that your government will close banks in the event of a panic, and your money will be inaccessible. You need to balance that risk with the risk to your personal security that comes with having lots of gold or cash in your home. My recommendation is to avoid wasting time on the \"\"Mad Max\"\" scenarios. If the world economy collapses into utter ruin, we're all screwed. A few gold coins won't do much for you.\"","When you buy a futures contract you are entering into an agreement to buy gold, in the future (usually a 3 month settlement date). this is not an OPTION, but a contract, so each party is taking risk, the seller that the price will rise, the buyer that the price will fall. Unlike an option which you can simply choose not to exercise if the price goes down, with futures you are obligated to follow through. (or sell the contract to someone else, or buy it back) The price you pay depends on the margin, which is related to how far away the settlement date is, but you can expect around 5% , so the minimum you could get into is 100 troy ounces, at todays price, times 5%. Since we're talking about 100 troy ounces, that means the margin required to buy the smallest sized future contract would be about the same as buying 5 ounces of gold. roughly $9K at current prices. If you are working through a broker they will generally require you to sell or buy back the contract before the settlement date as they don't want to deal with actually following through on the purchase and having to take delivery of the gold. How much do you make or lose? Lets deal with a smaller change in the price, to be a bit more realistic since we are talking typically about a settlement date that is 3 months out. And to make the math easy lets bump the price of gold to $2000/ounce. That means the price of a futures contract is going to be $10K Lets say the price goes up 10%, Well you have basically a 20:1 leverage since you only paid 5%, so you stand to gain $20,000. Sounds great right? WRONG.. because as good as the upside is, the downside is just as bad. If the price went down 10% you would be down $20000, which means you would not only have to cough up the 10K you committed but you would be expected to 'top up the margin' and throw in ANOTHER $10,000 as well. And if you can't pay that up your broker might close out your position for you. oh and if the price hasn't changed, you are mostly just out the fees and commissions you paid to buy and sell the contract. With futures contracts you can lose MORE than your original investment. NOT for the faint of heart or the casual investor. NOT for folks without large reserves who can afford to take big losses if things go against them. I'll close this answer with a quote from the site I'm linking below The large majority of people who trade futures lose their money. That's a fact. They lose even when they are right in the medium term, because futures are fatal to your wealth on an unpredicted and temporary price blip. Now consider that, especially the bit about 'price blip' and then look at the current volatility of most markets right now, and I think you can see how futures trading can be as they say 'Fatal to your Wealth' (man, I love that phrase, what a great way of putting it) This Site has a pretty decent primer on the whole thing. their view is perhaps a bit biased due to the nature of their business, but on the whole their description of how things work is pretty decent. Investopedia has a more detailed (and perhaps more objective) tutorial on the futures thing. Well worth your time if you think you want to do anything related to the futures market.","The best advice I can give you is to ignore gold right now. You really don't and can't have all the information you would need to support an argument for shorting gold. How much fiat cash have the central banks injected into the word economy? Billions? Trillions? Tens of Trillions? Maybe not much at all as the banks repay overnight? Anyway.. Without going on a full on rant why would you touch gold on a short? I can understand speculating on long position based on all the news out there but I'd hesitate to be a contraian in this market. Just find a nice little company that makes money, has a good product and a pretty little balance sheet. It will take longer to research but fuck if I'm betting on a huge drop in gold any time soon. What reasons do you have to believe gold is headed for any significant slide?","\"I find it interesting that you didn't include something like [Total Bond Market](http://stockcharts.com/freecharts/perf.html?VBMFX), or [Intermediate-Term Treasuries](http://stockcharts.com/freecharts/perf.html?VBIIX), in your graphic. If someone were to have just invested in the DJI or SP500, then they would have ignored the tenants of the Modern Portfolio Theory and not diversified adequately. I wouldn't have been able to stomach a portfolio of 100% stocks, commodities, or metals. My vote goes for: 1.) picking an asset allocation that reflects your tolerance for risk (a good starting point is \"\"age in bonds,\"\" i.e. if you're 30, then hold 30% in bonds); 2.) save as if you're not expecting annualized returns of %10 (for example) and save more; 3.) don't try to pick the next winner, instead broadly invest in the market and hold it. Maybe gold and silver are bubbles soon to burst -- I for one don't know. I don't give the \"\"notion in the investment community\"\" much weight -- as it always is, someday someone will be right, I just don't know who that someone is.\"","If you were certain you would probably do best by short selling an ETF that tracked the index for the market you think was about to tank. You'd certainly make a lot more money on that strategy than precious metals. If you were feeling super confident and want to make your money earn even more, you could also buy a bunch of put options on those same ETF funds. Obligatory Warning: Short selling and options can be extremely risky. While most investments cap your potential losses to your total investment, a short sale has no theoretical limit to the amount of money you can lose.","\"Google \"\"forex broker\"\" and find one of the thousands that allows you to trade on Gold futures. Then use one of them to short Gold... just watch your leverage. I would certainly wait before you're shorting gold. Why tie up capital in a bubble that you think will burst in the next few years. Wait for the price to increase and monitor for actual signs of the bubble bursting. Right now with the Euro possibly collapsing shorting gold probably isn't your best bet.\"","My personal gold/metals target is 5.0% of my retirement portfolio. Right now I'm underweight because of the run up in gold/metals prices. (I haven't been selling, but as I add to retirement accounts, I haven't been buying gold so it is going below the 5% mark.) I arrived at this number after reading a lot of different sample portfolio allocations, and some books. Some people recommend what I consider crazy allocations: 25-50% in gold. From what I could figure out in terms of modern portfolio theory, holding some metal reduces your overall risk because it generally has a low correlation to equity markets. The problem with gold is that it is a lousy investment. It doesn't produce any income, and only has costs (storage, insurance, commissions to buy/sell, management of ETF if that's what you're using, etc). The only thing going for it is that it can be a hedge during tough times. In this case, when you rebalance, your gold will be high, you'll sell it, and buy the stocks that are down. (In theory -- assuming you stick to disciplined rebalancing.) So for me, 5% seemed to be enough to shave off a little overall risk without wasting too much expense on a hedge. (I don't go over this, and like I said, now I'm underweighted.)"],"string":"[\n \"\\\"Investing in gold without having physical gold is not really a hedge against inflation. GLD is really more for speculation, not protection against serious inflation. If there is any kind of inflation worth really protecting yourself against then one thing you will notice at its onset is a divergence in the price of physical and GLD; with GLD offering very little protection if any against inflation. Ultimately holders of GLD will demand physical metal and the physical price will rise and the paper price will fall. I would advise you to study physical gold before you purchase GLD for that reason. EDIT: Just adding this to my answer - I don't know why I didn't put it in before, and I hasten to add that I'm not an expert though a little investigation will show you that this is at least one option for owning gold. If you think of having the physical gold yourself at one end of the spectrum and buying GLD at the other; so that you don't need to take physical delivery, there is another scenario which I understand is in between (and sorry I don't actually know what it's referred to as) but it's where you buy the physical gold but instead of taking delivery the bars are stored for you in a vault - these bars are numbered and you actually own what you have paid for and theoretically you could go and visit your gold and actually remove it because it's your gold - as opposed to having paper GLD which in my understanding is a \\\"\\\"right to take physical delivery\\\"\\\" of gold - and this is slightly different - of course unlike GLD you actually have to pay a storage fee and of course unlike having the physical gold buried in your garden or something you are not entirely secure against say a robbery of the vault, and you are also depending on the company not to sell the same bar to more than one person - but that's the only think that their reputation is built on, and a company like that would live or die by the reputation - ( and of course you might lose the proverbial gold buried in the garden either, so nothing's 100% secure anyway really )\\\"\",\n \"You could buy shares of an Exchange-Traded Fund (ETF) based on the price of gold, like GLD, IAU, or SGOL. You can invest in this fund through almost any brokerage firm, e.g. Fidelity, Etrade, Scotttrade, TD Ameritrade, Charles Schwab, ShareBuilder, etc. Keep in mind that you'll still have to pay a commission and fees when purchasing an ETF, but it will almost certainly be less than paying the markup or storage fees of buying the physical commodity directly. An ETF trades exactly like a stock, on an exchange, with a ticker symbol as noted above. The commission will apply the same as any stock trade, and the price will reflect some fraction of an ounce of gold, for the GLD, it started as .1oz, but fees have been applied over the years, so it's a bit less. You could also invest in PHYS, which is a closed-end mutual fund that allows investors to trade their shares for 400-ounce gold bars. However, because the fund is closed-end, it may trade at a significant premium or discount compared to the actual price of gold for supply and demand reasons. Also, keep in mind that investing in gold will never be the same as depositing your money in the bank. In the United States, money stored in a bank is FDIC-insured up to $250,000, and there are several banks or financial institutions that deposit money in multiple banks to double or triple the effective insurance limit (Fidelity has an account like this, for example). If you invest in gold and the price plunges, you're left with the fair market value of that gold, not your original deposit. Yes, you're hoping the price of your gold investment will increase to at least match inflation, but you're hoping, i.e. speculating, which isn't the same as depositing your money in an insured bank account. If you want to speculate and invest in something with the hope of outpacing inflation, you're likely better off investing in a low-cost index fund of inflation-protected securities (or the S&P500, over the long term) rather than gold. Just to be clear, I'm using the laymen's definition of a speculator, which is someone who engages in risky financial transactions in an attempt to profit from short or medium term fluctuations This is similar to the definition used in some markets, e.g. futures, but in many cases, economists and places like the CFTC define speculators as anyone who doesn't have a position in the underlying security. For example, a farmer selling corn futures is a hedger, while the trading firm purchasing the contracts is a speculator. The trading firm doesn't necessarily have to be actively trading the contract in the short-run; they merely have no position in the underlying commodity.\",\n \"\\\"GLD, IAU, and SGOL are three different ETF's that you can invest in if you want to invest in gold without physically owning gold. Purchasing an ETF is just like purchasing a stock, so you're fine on that front. Another alternative is to buy shares of companies that mine gold. An example of a single company is Randgold Resources (GOLD), and an ETF of mining companies is GDX. There are also some more complex alternatives like Exchange traded notes and futures contracts, but I wouldn't classify those for the \\\"\\\"regular person.\\\"\\\" Hope it helps!\\\"\",\n \"ETF's are great products for investing in GOLD. Depending on where you are there are also leveraged products such as CFD's (Contracts For Difference) which may be more suitable for your budget. I would stick with the big CFD providers as they offer very liquid products with tight spreads. Some CFD providers are MarketMakers whilst others provide DMA products. Futures contracts are great leveraged products but can be very volatile and like any leveraged product (such as some ETF's and most CFD's), you must be aware of the risks involved in controlling such a large position for such a small outlay. There also ETN's (Exchange Traded Notes) which are debt products issued by banks (or an underwriter), but these are subject to fees when the note matures. You will also find pooled (unallocated to physical bullion) certificates sold through many gold institutions although you will often pay a small premium for their services (some are very attractive, others have a markup worse than the example of your gold coin). (Note from JoeT - CFDs are not authorized for trading in the US)\",\n \"Gold is a risky and volatile investment. If you want an investment that's inflation-proof, you should buy index-linked government bonds in the currency that you plan to be spending the money in, assuming that government controls its own currency and has a good credit rating.\",\n \"You can buy real gold, or you can buy shares of a gold ETF, or invest in gold futures contracts. There's a number of ways, but the goal is to be exposed to the price fluctuations of gold. I actually have a bank account through www.goldmoney.com. It works just like PayPal or a bank account. You send money and buy gold and then they send you a debit card linked to that account. When you swipe it, you're spending your gold. They also cater to business customers as well..you can send invoices to get paid, do payroll, and everything in between.\",\n \"\\\"There are gold index funds. I'm not sure what you mean by \\\"\\\"real gold\\\"\\\". If you mean you want to buy physical gold, you don't need to. The gold index funds will track the price of gold and will keep you from filling your basement up with gold bars. Gold index funds will buy gold and then issue shares for the gold they hold. You can then buy and sell these just like you would buy and sell any share. GLD and IAU are the ticker symbols of some of these funds. I think it is also worth pointing out that historically gold has a been a poor investment.\\\"\",\n \"\\\"Over on Quantitative Finance Stack Exchange, I asked and answered a more technical and broader version of this question, Should the average investor hold commodities as part of a broadly diversified portfolio? In short, I believe the answer to your question is that gold is neither an investment nor a hedge against inflation. Although many studies claim that commodities (such as gold) do offer some diversification benefit, the most credible academic study I have seen to date, Should Investors Include Commodities in Their Portfolios After All? New Evidence, shows that a mean-variance investor would not want to allocate any of their portfolio to commodities (this would include gold, presumably). Nevertheless, many asset managers, such as PIMCO, offer funds that are marketed as \\\"\\\"real return\\\"\\\" or \\\"\\\"inflation-managed\\\"\\\" and include commodities (including gold) in their portfolios. PIMCO has also commissioned some research, Strategic Asset Allocation and Commodities, claiming that holding some commodities offers both diversification and inflation hedging benefits.\\\"\",\n \"Gold since the ancient time ( at least when it was founded) has kept its value. for example the french franc currency was considered valuable in the years 1400~ but in 1641 lost its value. However who owned Gold back then still got value. The advantage of having gold is you can convert it to cash easily in the world. it hedges against inflation: it is value rise when inflation happend. Gold has no income,no earnings. its not like a stock or a bond. its an alternative way to store value the Disadvantages of investing in Gold Gold doesnt return income , needs physical storage and insurance, Capital gains tax rates are higher on most gold investments. the best way to invest gold when there is inflation is expected. source\",\n \"\\\"I was able to find a fairly decent index that trades very close to 1/10th the actual price of gold by the ounce. The difference may be accounted to the indexes operating cost, as it is very low, about 0.1%. The index is the ETFS Gold Trust index (SGOL). By using the SGOL index, along with a Standard Brokerage investment account, I was able to set up an investment that appropriately tracked my gold \\\"\\\"shares\\\"\\\" as 10x their weight in ounces, the share cost as 1/10th the value of a gold ounce at the time of purchase, and the original cost at time of purchase as the cost basis. There tends to be a 0.1% loss every time I enter a transaction, I'm assuming due to the index value difference against the actual spot value of the price of gold for any day, probably due to their operating costs. This solution should work pretty well, as this particular index closely follows the gold price, and should reflect an investment in gold over a long term very well. It is not 100% accurate, but it is accurate enough that you don't lose 2-3% every time you enter a new transaction, which would skew long-term results with regular purchases by a fair amount.\\\"\",\n \"In 2008, 10 year treasuries were up 20.1%, to gold's 4.96%. Respectfully, if I were certain if a market drop, I'd just short the market, easily done by shorting SPY or other index ETFs. If you wish to buy gold, the easiest and least expensive way is to buy an ETF, GLD to be specific. It trades like a stock, for what that's worth. There are those who would suggest this is not like buying gold, it's just 'paper'. I believe otherwise. It's a non leveraged, fully backed ETF. I try not to question other's political or religious beliefs or as it pertains to this ETF, their conspiracy theories.\",\n \"\\\"Definitely look at CEF. They have tax advantages over GLD and SLV, and have been around for 50 years, and are a Canadian company. They hold their gold in 5 distributed vaults. Apparently tax advantage comes because with GLD, if you supposedly approach them with enough money, you can take out a \\\"\\\"bar of gold\\\"\\\". Just one problem (well, perhaps more): a bar of gold is an enormous sum of money (and as such not very liquid), and apparently gold bars have special certifications and tracking, which one would mess up if one took it to there personal collection, costing additional sums to re-certify. many, many articles on the web claiming that the gold GLD has is highly leveraged, is held by someone else, and tons of other things that makes GLD seem semi-dubious. I've used CEF for years, talked to them quite a few times; to me, and short of having it my possession, they seem the best /safest / easiest alternative, and are highly liquid/low spread betwen bid and ask. The do also have a pure gold \\\"\\\"stock\\\"\\\" and a pure silver \\\"\\\"stock\\\"\\\", but these often trade at higher premiums. CEF's premium varies between -2% and +4%. I.e. sometimes it trades at a premium to the gold and silver it holds, sometimes at a discount. Note that CEF generally shoots to have a 50/50 ratio of gold / silver holdings in their possession/vaults, but this ratio has increased to be heavier gold weighted than silver, as silver has not performed quite as well lately. You can go to their web-site and see exactly what they have, e.g. their NAV page: http://www.centralfund.com/Nav%20Form.htm\\\"\",\n \"If you want to speculate on gold price you should always buy an ETF/ETC (Exchange Traded Commodity). The reasons are simple: Easy to buy and sell (one mouse click) Cheap to buy and sell (small bank commission), compared to buy real gold (always 6 to 12% comission to the local shop when you buy and when you sell), see this one it's one cheap gold buy/sell shop I found on the internet But if you sometimes feel unsecure that you might one day loose everything due to a major economy collapse event (like an armageddon), or not to have enough money in bad periods or during retirment, and it makes you feel better to know you buried 999 Gold Sovereign in your house backyard (along with a rifle as suggested in comments), then just buy them and live an happy life (as long as you hide your gold in good ways and write a good treasury map).\",\n \"\\\"I do not know anything about retail investing in India, since I am in the US. However, there are a couple of general things to keep in mind about gold that should be largely independent of country. First, gold is not an investment. Aside from a few industrial uses, it has no productive value. It is, at best, a hedge against inflation, since many people feel more comfortable with what they consider \\\"\\\"real\\\"\\\" money that is not subject to what seems to be arbitrary creation by central banks. Second, buying tiny amounts of gold as coin or bullion from a retail dealer will always involve a fairly significant spread from the commodity spot price. The spot price only applies to large transactions. Retail dealers have costs of doing business that necessitate these fees in order for them to make a profit. You must also consider the costs of storing your gold in a way that mitigates the risk of theft. (The comment by NL7 is on this point. It appeared while I was typing this answer.) You might find this Planet Money piece instructive on the process, costs, and risks of buying gold bullion (in the US). If you feel that you must own gold as an inflation hedge, and it is possible for residents of India, you would be best off with some kind of gold fund that tracks the price of bullion.\\\"\",\n \"Since GLD is priced as 1/10 oz of gold, I'd call it the preferred way to buy if that's your desire. I believe gold is entering classic bubble territory. Caveat emptor. A comment brought me back to this question. My answer still applies, the ETF the best way to buy gold at the lowest transaction cost. The day I posted and expressed my 'bubble' concern, gold was $1746. Today, nearly 5 years later, it's $1350, a drop of 23%, plus an additional 2% of accumulated expenses. Note, GLD has a .4% annual expense. On the other hand, the S&P is up 80% from that time. In other words, $10K invested that day would be worth less than $7,700 had it been invested in gold, and $18,000 in stock. It would take a market crash, gold soaring or some combination of the two for gold to have been the right choice then. No one can predict short term movement of either the market or metals, my answer here wasn't prescient, just lucky.\",\n \"Here's a start at a high level: I have a few friends who have made a killing on GLD, and write options to make money off of the investment without incurring the capital gains penalties for selling. That's a little out of my comfort zone though.\",\n \"\\\"And you have hit the nail on the head of holding gold as an alternative to liquid currency. There is simply no way to reliably buy and sell physical gold at the spot price unless you have millions of dollars. Exhibit A) The stock symbol GLD is an ETF backed by gold. Its shares are redeemable for gold if you have more than 100,000 shares then you can be assisted by an \\\"\\\"Authorized Participant\\\"\\\". Read the fund's details. Less than 100,000 shares? no physical gold for you. With GLD's share price being $155.55 this would mean you need to have over 15 million dollars, and be financially solvent enough to be willing to exchange the liquidity of shares and dollars for illiquid gold, that you wouldn't be able to sell at a fair price in smaller denominations. The ETF trades at a different price than the gold spot market, so you technically are dealing with a spread here too. Exhibit B) The futures market. Accepting delivery of a gold futures contract also requires that you get 1000 units of the underlying asset. This means 1000 gold bars which are currently $1,610.70 each. This means you would need $1,610,700 that you would be comfortable with exchanging for gold bars, which: In contrast, securitized gold (gold in an ETF, for instance) can be hedged very easily, and one can sell covered calls to negate transaction fees, hedge, and collect dividends from the fund. quickly recuperating any \\\"\\\"spread tax\\\"\\\" that you encounter from opening the position. Also, leverage: no bank would grant you a loan to buy 4 to 20 times more gold than you can actually afford, but in the stock market 4 - 20 times your account value on margin is possible and in the futures market 20 times is pretty normal (\\\"\\\"initial margin and maintenance margin\\\"\\\"), effectively bringing your access to the spot market for physical gold more so within reach. caveat emptor.\\\"\",\n \"I don't know answers that would be specific to Canada but one of the main ETF funds that tracks gold prices is GLD (SPDR Gold Trust) another is IAU (iShares Gold Trust). Also, there are several ETF's that combine different precious metals together and can be traded. You can find a fairly decent list here on the Stock Encylopedia site.\",\n \"\\\"I'm really surprised more people didn't recommend UGA or USO specifically. These have been mentioned in the past on a myriad of sites as ways to hedge against rising prices. I'm sure they would work quite well as an investment opportunity. They are ETF's that invest in nearby futures and constantly roll the position to the next delivery date. This creates a higher than usual expense ratio, I believe, but it could still be a good investment. However, be forewarned that they make you a \\\"\\\"partner\\\"\\\" by buying the stock so it can mildly complicate your tax return.\\\"\",\n \"Owning physical gold (assuming coins): Owning gold through a fund:\",\n \"\\\"The difficulty with investing in mining and gold company stocks is that they are subject to the same market forces as any other stocks, although they may whether those forces better in a crisis than other stocks do because they are related to gold, which has always been a \\\"\\\"flight to safety\\\"\\\" move for investors. Some investors buy physical gold, although you don't have to take actual delivery of the metal itself. You can leave it with the broker-dealer you buy it from, much the way you don't have your broker send you stock certificates. That way, if you leave the gold with the broker-dealer (someone reputable, of course, like APMEX or Monex) then you can sell it quickly if you choose, just like when you want to sell a stock. If you take delivery of a security (share certificate) or commodity (gold, oil, etc.) then before you can sell it, you have to return it to broker, which takes time. The decision has much to do with your investing objectives and willingness to absorb risk. The reason people choose mutual funds is because their money gets spread around a basket of stocks, so if one company in the fund takes a hit it doesn't wipe out their entire investment. If you buy gold, you run the risk (low, in my opinion) of seeing big losses if, for some reason, gold prices plummet. You're \\\"\\\"all in\\\"\\\" on one thing, which can be risky. It's a judgment call on your part, but that's my two cents' worth.\\\"\",\n \"\\\"Overall, since gold has value in any currency (and is sort of the ultimate reserve currency), why would anyone want to currency hedge it? Because gold is (mostly) priced in USD. You currency hedge it to avoid currency risk and be exposed to only the price risk of Gold in USD. Hedging it doesn't mean \\\"\\\"less speculative\\\"\\\". It just means you won't take currency risk. EDIT: Responding to OP's questions in comment what happens if the USD drops in value versus other major currencies? Do you think that the gold price in USD would not be affected by this drop in dollar value? Use the ETF $GLD as a proxy of gold price in USD, the correlation between weekly returns of $GLD and US dollar index (measured by major world currencies) since the ETF's inception is around -47%. What this says is that gold may or may not be affected by USD movement. It's certainly not a one-way movement. There are times where both USD and gold rise and fall simultaneously. Isn't a drop in dollar value fundamentally currency risk? Per Investopedia, currency risk arises from the change in price of one currency in relation to another. In this context, it's referring to the EUR/USD movement. The bottom line is that, if gold price in dollar goes up 2%, this ETF gives the European investor a way to bring home that 2% (or as close to that as possible).\\\"\",\n \"Make a portfolio with gold and put options for gold. If the price rises again, sell a part of your gold and use it to buy new put options. If the price goes down, then use your put options to sell gold at a favorable price.\",\n \"\\\"In addition to the possibility of buying gold ETFs or tradable certificates, there are also firms specializing in providing \\\"\\\"bank accounts\\\"\\\" of sorts which are denominated in units of weight of precious metal. While these usually charge some fees, they do meet your criteria of being able to buy and sell precious metals without needing to store them yourself; also, these fees are likely lower than similar storage arranged by yourself. Depending on the specifics, they may also make buying small amounts practical (buying small amounts of physical precious metals usually comes with a large mark-up over the spot price, sometimes to the tune of a 50% or so immediate loss if you buy and then immediately sell). Do note that, as pointed out by John Bensin, buying gold gets you an amount of metal, the local currency value of which will vary over time, sometimes wildly, so it is not the same thing as depositing the original amount of money in a bank account. Since 2006, the price of an ounce (about 31.1 grams) of gold has gone from under $500 US to over $1800 US to under $1100 US. Few other investment classes are anywhere near this volatile. If you are interested in this type of service, you might want to check out BitGold (not the same thing at all as Bitcoin) or GoldMoney. (I am not affiliated with either.) Make sure to do your research thoroughly as these may or may not be covered by the same regulations as regular banks, particularly if you choose a company based outside of or a storage location outside of your own country.\\\"\",\n \"If you don't need 100% accuracy then GLD and SLV will work fine. Over the long-term these converge quite nicely with the price of the metal.\",\n \"Huh? I don't see how this effects inflation in practice.... (only in theory) Basically, I sell short end bonds and buy longer end bonds pocketing the difference in yield and increasing my duration. GLD and mining are hedges against inflation, markets are stupidly short term looking and care only about current expectations, if the current macro situation deteoriates we see prices fall.\",\n \"\\\"Gold is not an investment. Gold is a form of money. It and silver have been used as money much longer than paper. Paper money is a relatively recent invention (less than 350 years old) with a horrible track record of preserving wealth. When I exchange my paper US dollars for gold I'm exchanging one form of money for another. US dollars, or US Federal Reserve Notes to be more precise, can be printed ad nauseam by one bank that is totally private and is never audited. Keeping all of your savings in US dollars is ignoring history, it is believing the US Federal Reserve has your best interest in mind, it is hoping that somehow things will be different this time, it is believing that the US dollar will somehow magically be the first fiat currency to last a person's lifetime. TIPS may seem like a good hedge against inflation. However, the government offering TIPS is also the same government that is calculating the inflation rate used to adjust TIPS. What a great deal. If you do some research you discover that the method for calculating the consumer price index is always \\\"\\\"modified\\\"\\\" since it is always found to over estimate inflation. It is never found to under estimate inflation. Imagine that. Here is a chart showing the inflation rate as if it were calculated the same way as it was calculated in 1980. Buying any government debt is also a way to guarantee you or your children will be taxed in the future since the government will have to obtain the money from someone to pay back bonds. It's like voting for future taxes.\\\"\",\n \"\\\"Over time, gold has mainly a hedge against inflation, based on its scarcity value. That is, unless finds some \\\"\\\"killer app\\\"\\\" for it that would also make it a good investment. The \\\"\\\"usual\\\"\\\" ones, metallurgical, electronic, medicine, dental, don't really do the trick. It should be noted that gold performs its inflation hedge function over a long period of time, say $50-$100 years. Over shorter periods of time, it will spike for other reasons. The latest classic example was in 1979-80, and the main reason, in my opinion, was the Iranian hostage crisis (inflation was secondary.) This was a POLITICAL risk situation, but one that was not unwarranted. An attack on 52 U.S. hostages (diplomats, no less), was potenially an attack on the U.S. dollar. But gold got so pricey that it lost its \\\"\\\"inflation hedge\\\"\\\" function for some two decades (until about 2000). Inflation has not been a notable factor in 2011. But Mideastern political risk has been. Witness Egypt, Libya, and potentially Syria and other countries. Put another way, gold is less of an investment that a \\\"\\\"hedge.\\\"\\\" And not just against inflation.\\\"\",\n \"Without getting into whether you should invest in Gold or Not ... 1.Where do I go and make this purchase. I would like to get the best possible price. If you are talking about Physical Gold then Banks, Leading Jewelry store in your city. Other options are buying Gold Mutual Fund or ETF from leading fund houses. 2.How do I assure myself of quality. Is there some certificate of quality/purity? This is mostly on trust. Generally Banks and leading Jewelry stores will not sell of inferior purity. There are certain branded stores that give you certificate of authenticity 3.When I do choose to sell this commodity, when and where will I get the best cost? If you are talking about selling physical gold, Jewelry store is the only place. Banks do not buy back the gold they sold you. Jewelry stores will buy back any gold, however note there is a buy price and sell price. So if you buy 10 g and sell it back immediately you will not get the same price. If you have purchased Mutual Funds / ETF you can sell in the market.\",\n \"If your broker lets you, you could just short GLD shares. The borrow cost is de minimis (it looks like it's basically zero at the moment), and there's no real upfront cost aside from the margin you'd have to post against the position. Don't forget to set a stop, though. You can also look at buying lower-strike puts (the lower the strike, the cheaper the cost). Don't go selling calls - that's probably outside your risk profile.\",\n \"\\\"Your plan already answers your own question in the best possible way: If you want to be able to make the most possible profit from a large downward move in a stock (in this case, a stock that tracks gold), with a limited, defined risk if there is an upward move, the optimal strategy is to buy a put option. There are a few Exchange Traded Funds (ETFs) that track the price of gold. think of them as stocks that behave like gold, essentially. Two good examples that have options are GLD and IAU. (When you talk about gold, you'll hear a lot about futures. Forget them, for now. They do the same essential thing for your purposes, but introduce more complexity than you need.) The way to profit from a downward move without protection against an upward move is by shorting the stock. Shorting stock is like the opposite of buying it. You make the amount of money the stock goes down by, or lose the amount it goes up by. But, since stocks can go up by an infinite amount, your possible loss is unlimited. If you want to profit on a large downward move without an unlimited loss if you're wrong and it goes up, you need something that makes money as the stock drops, but can only lose so much if it goes up. (If you want to be guaranteed to lose nothing, your best investment option is buying US Treasuries, and you're technically still exposed to the risk that US defaults on its debt, although if you're a US resident, you'll likely have bigger problems than your portfolio in that situation.) Buying a put option has the exact asymmetrical exposure you want. You pay a limited premium to buy it, and at expiration you essentially make the full amount that the stock has declined below the strike price, less what you paid for the option. That last part is important - because you pay a premium for the option, if it's down just a little, you might still lose some or all of what you paid for it, which is what you give up in exchange for it limiting your maximum loss. But wait, you might say. When I buy an option, I can lose all of my money, cant I? Yes, you can. Here's the key to understanding the way options limit risk as compared to the corresponding way to get \\\"\\\"normal\\\"\\\" exposure through getting long, or in your case, short, the stock: If you use the number of options that represent the number of shares you would have bought, you will have much, much less total money at risk. If you spend the same \\\"\\\"bag 'o cash\\\"\\\" on options as you would have spent on stock, you will have exposure to way more shares, and have the same amount of money at risk as if you bought the stock, but will be much more likely to lose it. The first way limits the total money at risk for a similar level of exposure; the second way gets you exposure to a much larger amount of the stock for the same money, increasing your risk. So the best answer to your described need is already in the question: Buy a put. I'd probably look at GLD to buy it on, simply because it's generally a little more liquid than IAU. And if you're new to options, consider the following: \\\"\\\"Paper trade\\\"\\\" first. Either just keep track of fake buys and sells on a spreadsheet, or use one of the many online services where you can track investments - they don't know or care if they're real or not. Check out www.888options.com. They are an excellent learning resource that isn't trying to sell you anything - their only reason to exist is to promote options education. If you do put on a trade, don't forget that the most frustrating pitfall with buying options is this: You can be basically right, and still lose some or all of what you invest. This happens two ways, so think about them both before you trade: If the stock goes in the direction you think, but not enough to make back your premium, you can still lose. So you need to make sure you know how far down the stock has to be to make back your premium. At expiration, it's simple: You need it to be below the strike price by more than what you paid for the option. With options, timing is everything. If the stock goes down a ton, or even to zero - free gold! - but only after your option expires, you were essentially right, but lose all your money. So, while you don't want to buy an option that's longer than you need, since the premium is higher, if you're not sure if an expiration is long enough out, it isn't - you need the next one. EDIT to address update: (I'm not sure \\\"\\\"not long enough\\\"\\\" was the problem here, but...) If the question is just how to ensure there is a limited, defined amount you can lose (even if you want the possible loss to be much less than you can potentially make, the put strategy described already does that - if the stock you use is at $100, and you buy a put with a 100 strike for $5, you can make up to $95. (This occurs if the stock goes to zero, meaning you could buy it for nothing, and sell it for $100, netting $95 after the $5 you paid). But you can only lose $5. So the put strategy covers you. If the goal is to have no real risk of loss, there's no way to have any real gain above what's sometimes called the \\\"\\\"risk-free-rate\\\"\\\". For simplicity's sake, think of that as what you'd get from US treasuries, as mentioned above. If the goal is to make money whether the stock (or gold) goes either up or down, that's possible, but note that you still have (a fairly high) risk of loss, which occurs if it fails to move either up or down by enough. That strategy, in its most common form, is called a straddle, which basically means you buy a call and a put with the same strike price. Using the same $100 example, you could buy the 100-strike calls for $5, and the 100-strike puts for $5. Now you've spent $10 total, and you make money if the stock is up or down by more than $10 at expiration (over 110, or under 90). But if it's between 90 and 100, you lose money, as one of your options will be worthless, and the other is worth less than the $10 total you paid for them both.\\\"\",\n \"You'll still lose a little bit if you buy a put option at the current price. No such thing as free hedging. Let's say you have 100 shares of IAU that you bought for exactly $12.50 per share. This is $1,250. Now let's say you bought a put option with a strike price of $13 that expires in April 2011. The current price for this option is $1.10 per share, or $110. You can sell your IAU for $1,300 any time before the expiration date, but this leaves $60 in time value. The price of the options will always have a time component that is a premium on the difference between the current price and the strike price. (Oh, forgot to add in commissions to this.)\",\n \"Depends what kind of expenses you intend to use this money for. If you plan to buy housing in the future (eg you're saving a deposit), then you need to ensure that the value doesn't deteriorate relative to the value of the housing you are likely to buy - so you could buy a Residential REIT, or buy some investment property. If you expect to use this money for food, then you should buy suitable assets (eg Wheat futures, etc). Link the current asset to the future expense, and you will be fine. If you buy Gold, then you are making a bet that Gold will retain its value compared to the thing you want to purchase in future. It doesn't matter what the price of Gold does in $US.\",\n \"Gold is a commodity. It has a tracked price and can be bought and sold as such. In its physical form it represents something real of signifigant value that can be traded for currency or barted. A single pound of gold is worth about 27000 dollars. It is very valuable and it is easily transported as opposed to a car which loses value while you transport it. There are other metals that also hold value (Platinum, Silver, Copper, etc) as well as other commodities. Platinum has a higher Value to weight ratio than gold but there is less of a global quantity and the demand is not as high. A gold mine is an investement where you hope to take out more in gold than it cost to get it out. Just like any other business. High gold prices simply lower your break even point. TIPS protects you from inflation but does not protect you from devaluation. It also only pays the inflation rate recoginized by the Treasury. There are experts who believe that the fed has understated inflation. If these are correct then TIPS is not protecting its investors from inflation as promised. You can also think of treasury bonds as an investment in your government. Your return will be effectively determined by how they run their business of governing. If you believe that the government is doing the right things to help promote the economy then investing in their bonds will help them to be able to continue to do so. And if consumers buy the bonds then the treasury does not have to buy any more of its own.\",\n \"I think most financial planners or advisors would allocate zero to a gold-only fund. That's probably the mainstream view. Metals investments have a lot of issues, more elaboration here: What would be the signs of a bubble in silver? Also consider that metals (and commodities, despite a recent drop) are on a big run-up and lots of random people are saying they're the thing to get in on. Usually this is a sign that you might want to wait a bit or at least buy gradually. The more mainstream way to go might be a commodities fund or all-asset fund. Some funds you could look at (just examples, not recommendations) might include several PIMCO funds including their commodity real return and all-asset; Hussman Strategic Total Return; diversified commodities index ETFs; stuff like that has a lot of the theoretical benefits of gold but isn't as dependent on gold specifically. Another idea for you might be international bonds (or stocks), if you feel US currency in particular is at risk. Oh, and REITs often come up as an inflation-resistant asset class. I personally use diversified funds rather than gold specifically, fwiw, mostly for the same reason I'd buy a fund instead of individual stocks. 10%-ish is probably about right to put into this kind of stuff, depending on your overall portfolio and goals. Pure commodities should probably be less than funds with some bonds, stocks, or REITs, because in principle commodities only track inflation over time, they don't make money. The only way you make money on them is rebalancing out of them some when there's a run up and back in when they're down. So a portfolio with mostly commodities would suck long term. Some people feel gold's virtue is tangibility rather than being a piece of paper, in an apocalypse-ish scenario, but if making that argument I think you need physical gold in your basement, not an ETF. Plus I'd argue for guns, ammo, and food over gold in that scenario. :-)\",\n \"gold is incredibly volatile, I tried spreadbetting on it. During the month of its highest gain, month beginning to month end, I was betting it would go up - and I still managed to lose money. It went down so much, that my stop loss margin would kick in. Don't do things with gold in the short term its a very small and liquid market. My advice with gold, actually buy some physical gold as insurance.\",\n \"Advantages of Gold IRA (regardless of where you're holding it): Disadvantages of Gold IRA: Instead, you can invest in trust funds like SLV (The ETF for silver) or GLD in your regular brokerage IRA. These funds negotiate their prices of storage, are relatively liquid, and shield you from the dangers of owning physical metal while providing opportunity to invest in it at market prices.\",\n \"It depends on what your goals are, your age, how much debt you have, etc. Assuming -- and we all know what happens when you assume -- that your financial life is otherwise in order, the 5% to 10% range you're talking about isn't overinvesting. You won't have a lot of company; most people don't own any. One comment on this part: I have some gold (GLD), but not much ... Gold and GLD are not the same thing at all. Owning shares of the SPDR Gold Trust is not the same thing as owning gold coins or bars. You're achieving different ends by owning GLD shares as opposed to the physical yellow metal. GLD will follow the spot price of gold pretty closely, but it isn't the same thing as physical ownership.\",\n \"\\\"This article fails to explain that paper gold doesn't \\\"\\\"necessarily\\\"\\\" guarantee the owner to physical gold. An index fund tracking the price of gold per ounce guarantees the owner the market value of gold at the termination of the contract. This keeps markets liquid, and allows investors to diversify into precious metals without the inconvenience of storage and delivery fees. As long as we are using currency that can be exchanged for gold this shouldn't pose a problem. If we move to a post currency world of barter and trade, you're better invested in weapons and ammunition.\\\"\",\n \"if you bought gold in late '79, it would have taken 30 years to break even. Of all this time it was two brief periods the returns were great, but long term, not so much. Look at the ETF GLD if you wish to buy gold, and avoid most of the buy/sell spread issues. Edit - I suggest looking at Compound Annual Growth Rate and decide whether long term gold actually makes sense for you as an investor. It's sold with the same enthusiasm as snake oil was in the 1800's, and the suggestion that it's a storehouse of value seems nonsensical to me.\",\n \"With gold at US$1300 or so, a gram is about $40. For your purposes, you have the choice between the GLD ETF, which represents a bit less than 1/10oz gold equivalent per share, or the physical metal itself. Either choice has a cost: the commission on the buy plus, eventually, the sale of the gold. There may be ongoing fees as well (fund fees, storage, etc.) GLD trades like a stock and you can enter limit orders or any other type of order the broker accepts.\",\n \"As you have already good on your retirement kitty. Assuming you have a sufficient cash for difficult situations, explore the options of investing in Shares and Mutual Funds. As you are new to Stock Market, begin slowly by investing into Mutual Funds and ETF for precious metals. This will help you understand and give you confidence on markets and returns. Real estate is a good option, the down side being the hassle of getting rental and the illiquid nature of the investment.\",\n \"It seems that you're interested in an asset which you can hold that would go up when the gold price went down. It seems like a good place to start would be an index fund, which invests in the general stock market. When the gold market falls, this would mainly affect gold mining companies. These do not make up a sizable portion of any index fund, which is invested broadly in the market. Unfortunately, in order to act on this, you would also have to believe that the stock market was a good investment. To test this theory, I looked at an ETF index fund which tracks the S&P 500, and compared it to an ETF which invests in gold. I found that the daily price movements of the stock market were positively correlated with the price of gold. This result was statistically significant. The weekly price movements of the stock market were also correlated with the price of gold. This result was also statistically significant. When the holding period was stretched to one month, there was still a positive relationship between the stock market's price moves and the price of gold. This result was not statistically significant. When the holding period was stretched to one year, there was a negative relationship between the price changes in the stock market and the price of gold. This result was not statistically significant, either.\",\n \"I assume you've looked into gold as an asset class (which is considered to be a good diversifier in your portfolio at about 5% of investments) because there are a lot of opinions around about that. But in terms of physical vs paper gold investment, my experience has been that they'll absolutely kill you on fees if you're not careful. I had a broker try and charge me $80/oz. They do it in the margins though, so they'll just sell at say $1,350 but buy at $1,200. Just make sure you either know the market price when you walk in and stick to your guns or lock in a price ahead of time.\",\n \"The problem I have with gold is that it's only worth what someone will pay you for it. To a degree that's true with any equity, but with a company there are other capital resources etc that provide a base value for the company, and generally a business model that generates income. Gold just sits there. it doesn't make products, it doesn't perform services, you can't eat it, and the main people making money off of it are the folks charging a not insubstantial commission to sell it to you, or buy it back. Sure it's used in small quantities for things like plating electrical contacts, dental work, shielding etc. But Industrial uses account for only 10% of consumption. Mostly it's just hoarded, either in the form of Jewelry (50%) or 'investment' (bullion/coins) 40%. Its value derives largely from rarity and other than the last few years, there's no track record of steady growth over time like the stock market or real-estate. Just look at what gold prices did between 10 to 30 years ago, I'm not sure it came anywhere near close to keeping pace with inflation during that time. If you look at the chart, you see a steady price until the US went off the gold standard in 1971, and rules regarding ownership and trading of gold were relaxed. There was a brief run up for a few years after that as the market 'found its level' as it were, and you really need to look from about 74 forward (which it experienced its first 'test' and demonstration of a 'supporting' price around 400/oz inflation adjusted. Then the price fluctuated largely between 800 to 400 per ounce (adjusted for inflation) for the next 30 years. (Other than a brief sympathetic 'Silver Tuesday' spike due to the Hunt Brothers manipulation of silver prices in 1980.) Not sure if there is any causality, but it is interesting to note that the recent 'runup' in price starts in 2000 at almost the same time the last country (the Swiss) went off the 'gold standard' and gold was no longer tied to any currency (or vise versa) If you bought in '75 as a hedge against inflation, you were DOWN, as much as 50% during much of the next 33 years. If you managed to buy at a 'low' the couple of times that gold was going down and found support around 400/oz (adjusted) then you were on average up slightly as much as a little over 50% (throwing out silver Tuesday) but then from about '98 through '05 had barely broken even. I personally view 'investments' in gold at this time as a speculation. Look at the history below, and ask yourself if buying today would more likely end up as buying in 1972 or 1975? (or gods forbid, 1980) Would you be taking advantage of a buying opportunity, or piling onto a bubble and end up buying at the high? Note from Joe - The article Demand and Supply adds to the discussion, and supports Chuck's answer.\",\n \"\\\"Nobody can give you a definitive answer. To those who suggest it's expensive at these prices, [I'd point to this chart](http://treo.typepad.com/.a/6a0120a6002285970c014e8c39f2c3970d-850wi) showing the price of gold versus the global money supply over the past decade or so. It's not conclusive, but it's evidence that gold tracks the money supply relatively well. There might be a bit of risk premium baked in that it would shed in a stable economy, but that premium is unknowable. It's also (imo) probably worth the protection it provides. In an inflationary scenario (Euro devaluation) gold will hold its buying power very well. It also fares well in a deflationary environment, just not quite as well as holding physical currency. Note that in such an environment, bank defaults are a big danger: that 50k might only be safe under your mattress (rather than in a fractionally reserved bank account). If you're buying gold, certificates aren't exactly a bad option, although there still exists the counterparty risk of the agent storing your gold, as well as political risk of the nation where it's being held. Buying physical bullion ameliorates these risks, but then you face the problem of protecting it. Safe deposit boxes, a home safe, or burying it in your backyard are all possible options. The merits of each, I'll leave as an exerice to the reader. Foreign currency might be a little bit better than the Euro, but as we've seen in the past year or so, the Swiss Franc has been devalued to match the Euro in the proverbial \\\"\\\"race to the bottom\\\"\\\". It's probably not much better than another fiat currency. I don't know anything about Norway. Edit: Depending on your time horizon, my personal opinion would be to put no less than 5-10% of your savings in a hard store of value (e.g. gold, silver, platinum). Depending on your risk appetite, you could probably stand to put a lot more into it, especially given the Eurozone turmoil. Of course, as with anything else, your mileage may vary, past performance does not guarantee future results, this is not investment advice, seek professional medical help if you experience an erection lasting longer than four hours.\\\"\",\n \"Currency hedge means that you are somewhat protected from movements in currency as your investment is in gold not currency. So this then becomes less speculative and concentrates more on your intended investment. EDIT The purpose of the GBSE ETF is aimed for investors living in Europe wanting to invest in USD Gold and not be effected by movements in the EUR/USD. The GBSE ETF aims to hedge against the effects of the currency movements in the EUR/USD and more closely track the USD Gold price. The 3 charts below demonstrate this over the past 5 years. So as is demonstrated the performance of the GBSE ETF closely matches the performance of the USD Gold price rather than the EUR Gold price, meaning someone in Europe can invest in the fund and get the appropriate similar performance as investing directly into the USD Gold without being affected by currency exchange when changing back to EUR. This is by no way speculative as the OP suggests but is in fact serving the purpose as per the ETF details.\",\n \"Just buy a FTSE-100 tracker. It's cheap and easy, and will hedge you pretty well, as the FTSE-100 is dominated by big mining and oil companies who do most of their business in currencies other than sterling.\",\n \"\\\"As proposed: Buy 100 oz of gold at $1240 spot = -$124,000 Sell 1 Aug 2014 Future for $1256 = $125,600 Profit $1,600 Alternative Risk-Free Investment: 1 year CD @ 1% would earn $1240 on $124,000 investment. Rate from ads on www.bankrate.com \\\"\\\"Real\\\"\\\" Profit All you are really being paid for this trade is the difference between the profit $1,600 and the opportunity for $1240 in risk free earnings. That's only $360 or around 0.3%/year. Pitfalls of trying to do this: Many retail futures brokers are set up for speculative traders and do not want to deal with customers selling contracts against delivery, or buying for delivery. If you are a trader you have to keep margin money on deposit. This can be a T-note at some brokerages, but currently T-notes pay almost 0%. If the price of gold rises and you are short a future in gold, then you need to deposit more margin money. If gold went back up to $1500/oz, that could be $24,400. If you need to borrow this money, the interest will eat into a very slim profit margin over the risk free rate. Since you can't deliver, the trades have to be reversed. Although futures trades have cheap commissions ~$5/trade, the bid/ask spread, even at 1 grid, is not so minimal. Also there is often noisy jitter in the price. The spot market in physical gold may have a higher bid/ask spread. You might be able to eliminate some of these issues by trading as a hedger or for delivery. Good luck finding a broker to let you do this... but the issue here for gold is that you'd need to trade in depository receipts for gold that is acceptable for delivery, instead of trading physical gold. To deliver physical gold it would likely have to be tested and certified, which costs money. By the time you've researched this, you'll either discover some more costs associated with it or could have spent your time making more money elsewhere.\\\"\",\n \"\\\"Ok, I think what you're really asking is \\\"\\\"how can I benefit from a collapse in the price of gold?\\\"\\\" :-) And that's easy. (The hard part's making that kind of call with money on the line...) The ETF GLD is entirely physical gold sitting in a bank vault. In New York, I believe. You could simply sell it short. Alternatively, you could buy a put option on it. Even more risky, you could sell a (naked) call option on it. i.e. you receive the option premium up front, and if it expires worthless you keep the money. Of course, if gold goes up, you're on the hook. (Don't do this.) (the \\\"\\\"Don't do this\\\"\\\" was added by Chris W. Rea. I agree that selling naked options is best avoided, but I'm not going to tell you what to do. What I should have done was make clear that your potential losses are unlimited when selling naked calls. For example, if you sold a single GLD naked call, and gold went to shoot to $1,000,000/oz, you'd be on the hook for around $10,000,000. An unrealistic example, perhaps, but one that's worth pondering to grasp the risk you'd be exposing yourself to with selling naked calls. -- Patches) Alternative ETFs that work the same, holding physical gold, are IAU and SGOL. With those the gold is stored in London and Switzerland, respectively, if I remember right. Gold peaked around $1900 and is now back down to the $1500s. So, is the run over, and it's all downhill from here? Or is it a simple retracement, gathering strength to push past $2000? I have no idea. And I make no recommendations.\\\"\",\n \"Buy gold, real coins not paper. And do not keep it in a bank.\",\n \"I agree with buying gold, as this is truly the worldwide currency and will only increase in value if the Euro fails. The only issue will be if your country confiscates all citizen's gold ( it has happened many times throughout history. As for ETFs, be careful because unless you purchase these in terms of other currencies (I am assuming you aren't), than the ETF you own is still in terms of Euros, making the whole investment worthless if you are trying to avoid Euro currency risk.\",\n \"\\\"I recommend avoiding trading directly in commodities futures and options. If you're not prepared to learn a lot about how futures markets and trading works, it will be an experience fraught with pitfalls and lost money – and I am speaking from experience. Looking at stock-exchange listed products is a reasonable approach for an individual investor desiring added diversification for their portfolio. Still, exercise caution and know what you're buying. It's easy to access many commodity-based exchange-traded funds (ETFs) on North American stock exchanges. If you already have low-cost access to U.S. markets, consider this option – but be mindful of currency conversion costs, etc. Yet, there is also a European-based company, ETF Securities, headquartered in Jersey, Channel Islands, which offers many exchange-traded funds on European exchanges such as London and Frankfurt. ETF Securities started in 2003 by first offering a gold commodity exchange-traded fund. I also found the following: London Stock Exchange: Frequently Asked Questions about ETCs. The LSE ETC FAQ specifically mentions \\\"\\\"ETF Securities\\\"\\\" by name, and addresses questions such as how/where they are regulated, what happens to investments if \\\"\\\"ETF Securities\\\"\\\" were to go bankrupt, etc. I hope this helps, but please, do your own due diligence.\\\"\",\n \"From Wikipedia: Investment has different meanings in finance and economics. In Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time. In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or gambling. The second part of the question can be addressed by analyzing the change in gold price vs inflation year by year over the long term. As Chuck mentioned, there are periods in which it didn't exceed inflation. More important, over any sufficiently long length of time the US stock market will outperform. Those who bought at the '87 peak aren't doing too bad, yet those who bought in the last gold bubble haven't kept up with inflation. $850 put into gold at the '80 top would inflate today to $2220 per the inflation calculator. You can find with a bit of charting some periods where gold outpaced inflation, and some where it missed. Back to the definition of investment. I think gold fits speculation far better than it does investment. I've heard the word used in ways I'd disagree with, spend what you will on the shoes, but no, they aren't an investment, I tell my wife. The treadmill purchase may improve my health, and people may use the word colloquially, but it's not an investment.\",\n \"The reason that you are advised to take more risk while you are young is because the risk is often correlated to a short investment horizon. Young people have 40-50 years to let their savings grow if they get started early enough. If you need the money in 5-15 years (near the end of your earning years), there is much more risk of a dip that will not correct itself before you need the money than if you don't need the money for 25-40 years (someone whose career is on the rise). The main focus for the young should be growth. Hedging your investments with gold might be a good strategy for someone who is worried about the volatility of other investments, but I would imagine that gold will only reduce your returns compared to small-cap stocks, for example. If you are looking for more risk, you can leverage some of your money and buy call options to increase the gains with upward market moves.\",\n \"\\\"If the \\\"\\\"crash\\\"\\\" you worry about is a dissolution of the euro, then the main thing you should concern yourself with is liquidity. For that, purchase the most highly liquid gold ETF or futures contract, whichever is more appropriate for the total amount of money involved. Any other way and you will lose a significant chunk of your assets to transaction costs. If, on the other hand, the \\\"\\\"crash\\\"\\\" you were concerned about were the total collapse of the world economy, and people around the world abandon all paper currencies and resort to barter as a method of trade, then I can see buying several small pieces being a rational strategy, although then I would also question whether you were a sane individual.\\\"\",\n \"\\\"The general argument put forward by gold lovers isn't that you get the same gold per dollar (or dollars per ounce of gold), but that you get the same consumable product per ounce of gold. In other words the claim is that the inflation-adjusted price of gold is more-or-less constant. See zerohedge.com link for a chart of gold in 2010 GBP all the way from 1265. (\\\"\\\"In 2010 GBP\\\"\\\" means its an inflation adjusted chart.) As you can see there is plenty of fluctuation in there, but it just so happens that gold is worth about the same now as it was in 1265. See caseyresearch.com link for a series of anecdotes of the buying power of gold and silver going back some 3000 years. What this means to you: If you think the stock market is volatile and want to de-risk your holdings for the next 2 years, gold is just as risky If you want to invest some wealth such that it will be worth more (in real terms) when you take it out in 40 years time than today, the stock market has historically given better returns than gold If you want to put money aside, and it to not lose value, for a few hundred years, then gold might be a sensible place to store your wealth (as per comment from @Michael Kjörling) It might be possible to use gold as a partial hedge against the stock market, as the two supposedly have very low correlation\\\"\",\n \"Start with putting money in gold coin bullion: If you are a beginner, make certain you start things with putting money in gold coin bullion . They are very simple to go with including have very minimum quantity of risk involved . After you buy gold bullion or gold coins you will get the same from any delivery company.\",\n \"Best thing to do is convert your money into something that will retain value. Currency is a symbol of wealth, and can be significantly devalued with inflation. Something such as Gold or Silver might not allow you to see huge benefit, but its perhaps the safest bet (gold in particular, as silver is more volatile), as mentioned above, yes you do pay a little above spot price and receive a little below spot when and if you sell, but current projections for both gold and silver suggest that you won't lose money at least. Safe bet. Suggesting it is a bad idea at this time is just silly, and goes against the majority of advisers out there.\",\n \"Bad question. Even people choosing a 401k strategy have to choose risk over reward. But looking at this simply, if you take a 10 year chart of Gold, you will not find any other stock or commodity that could have been invested in that would have provided you with the same results with as little volatility over this time period. http://www.kitco.com/LFgif/au3650nys.gif\",\n \"Reddit doesn't have a ton of resources to offer you as you learn about where to invest, you want to start reading up on actual investing sites. You might start with Motley Fool, StockTwits, Seeking Alpha, Marketwatch, etc. I agree with hipster's take, if all countries are going to keep printing money and expanding their debts and craziness, gold has a bright future. Land, petroleum, commodities, and precious metals have an intrinsic worth that will still be there regardless of what currencies are doing, versus bonds which are merely promises to pay, which will be paid off in devalued money, or stocks which are just promises of future earnings. Think about spreading your risk in a few different places, one chunk here, one chunk there. Some people in the US now are big on dividend paying stocks in lieu of bonds which only pay a percent, which is negative return after inflation. Some people buy 'royalty trust' units, which throw off income from oil leases as dividends. You might want to park a portion in a different currency, but dollar funds aren't going to pay interest and Switzerland plans to keep devaluing its currency as people keep bidding the price up. I don't know if you are allowed to buy CEF, a bullion-backed fund out of Canada in your country, but that's one way to own gold & silver. But with the instability out there, you might prefer a bit of the real thing stashed in a safe place. Or if you have a bit of family land, maybe just be sure you can pay the taxes to keep it; or pursue any other way to own 'real stuff' that will still be worth something after all hell breaks loose.\",\n \"Investing $100k into physical gold (bars or coins) is the most prudent option; given the state of economic turmoil worldwide. Take a look at the long term charts; they're pretty self explanatory. Gold has an upward trend for 100+ years. http://www.goldbuyguide.com/price/ A more high risk/high reward investment would be to buy $100k of physical silver. Silver has a similar track record and inherent benefits of gold. Yet, with a combination of factors that could make it even more bull than gold (ie- better liquidity, industrial demand). Beyond that, you may want to look at other commodities such as oil and agriculture. The point is, this is troubled times for worldwide economies. Times like this you want to invest in REAL things like commodities or companies that are actually producing essential materials.\",\n \"\\\"I think you have a really good idea, kudos to it. It will be difficult to break eve, and while you stressed the fact that you are ready to part with this money, it would be interesting for you not to part with this money just for the sake of trading. You will be frustrated because you are \\\"\\\"winning\\\"\\\" and breaking even or even losing money in the process. Think about that. For somebody with limited experience the derivatives market carries a very high risk also as everything in this matters carries high or very high yield. Trading futures on margin can actually work but I think you will need a bit more money. Check the mini contracts of infinity futures and calculate the commissions. You will be paying more for a contract, yes. you will need more money for your maintenance margin, yes, but if you day-trade and you have a cheapo broker this will be substantially lower. Gold contracts pay about 10 to 1 so a mini contract of 33 ounces will pay you 33 dollars per 1 dollar move. Your commissions will be about 4/5 usd in a discount broker and you will need to pay some exchange house fees, maybe about 15% of your trade will be fees. Check the contract specs and costs. As somebody said before, they wouldn't recommend trading on margin but with an account of that side I wouldn't know anything else. Trading physical gold on margin could also be an option. Just my 2 cents.\\\"\",\n \"A lot of people probably don't agree with him, but Warren Buffett has some great quotes on why he doesn't invest in gold: I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion dollars…you could have all the farmland in the United States, you could have about seven Exxon Mobils, and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils. And his classic quote: [Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.\",\n \"\\\"This type of account will sell you just enough rope to hang yourself. Gold is at $1400 or so. Were you around when it first hit $800 in '79/'80? I was. No one was saying \\\"\\\"sell\\\"\\\" only forecasts of $2000. If you bought and held, you've still not broken even to inflation let alone simple market returns.\\\"\",\n \"\\\"You don't need to use a real stock like GLD. You can just create a \\\"\\\"stock\\\"\\\" called something like \\\"\\\"1 oz Gold\\\"\\\" and buy and sell them as if they were shares. It won't auto-update the price like GLD, but that's not a big deal to update manually once a month or so. I prefer to have accurate data that is correct at a particular point in time to having data that is 2-3% off, or that requires entering the ounces as 10x reality. YMMV. This is very similar to how you track US Savings Bonds in Quicken (and might be described in the help under that topic.)\\\"\",\n \"Gold's valuation is so stratospheric right now that I wonder if negative numbers (as in, you should short it) are acceptable in the short run. In the long run I'd say the answer is zero. The problem with gold is that its only major fundamental value is for making jewelry and the vast majority is just being hoarded in ways that can only be justified by the Greater Fool Theory. In the long run gold shouldn't return more than inflation because a pile of gold creates no new wealth like the capital that stocks are a claim on and doesn't allow others to create new wealth like money lent via bonds. It's also not an important and increasingly scarce resource for wealth creation in the global economy like oil and other more useful commodities are. I've halfway-thought about taking a short position in gold, though I haven't taken any position, short or long, in gold for the following reasons: Straight up short-selling of a gold ETF is too risky for me, given its potential for unlimited losses. Some other short strategy like an inverse ETF or put options is also risky, though less so, and ties up a lot of capital. While I strongly believe such an investment would be profitable, I think the things that will likely rise when the flight-to-safety is over and gold comes back to Earth (mainly stocks, especially in the more beaten-down sectors of the economy) will be equally profitable with less risk than taking one of these positions in gold.\",\n \"I think what the person meant to say is that Gold is not a one stop solution. There's nothing wrong with having Gold in an otherwise diversified portfolio but you need to be aware about the potential downsides: The problem with gold is that its value nowadays depends mainly on investor confidence, or the lack of it (actual demand for gold cannot explain the rise in value gold had after the crisis). If people are afraid the world and currencies with it will go to hell, the gold price will go up. Why? Because if currencies seize to exist, Gold will still be accepted. It can replace currencies. What many people tend to forget: let's consider the extreme example and currencies really cease to exist and all hell breaks lose. What good are gold bars at the bank, or even at home, for that matter? You'll be better off with gold coins to use in barter and to pay off marauders. But that's not about investing anymore, that's survivalism.\",\n \"Series I Savings Bonds would be another option that have part of their return indexed to inflation though currently they are yielding 1.64% through April 30, 2016 though some may question how well is that 3% you quote as an inflation rate. From the first link: Series I savings bonds are a low-risk savings product. While you own them they earn interest and protect you from inflation. You may purchase electronic I bonds via TreasuryDirect or paper I bonds with your IRS tax refund. As a TreasuryDirect account holder, you can purchase, manage, and redeem I bonds directly from your web browser. TIPS vs I Bonds if you want to compare these products that are rather safe in terms of avoiding a nominal loss. This would be where a portion of the funds could go, not all of them at once.\",\n \"This. Why not convert the 50k euro to dollars and AUD, and invest in a basket of companies that trade on American/Australian exchanges instead. You could hold a bit of gold, but I would definitely not put everything into gold.\",\n \"Diversify, diversify, diversify. Gold, USD, Swiss Franc and one thing that hasn't really been mentioned yet: equities. Yes, they may go down if the recession gets worse but at the end of the day you have a claim to a company. That's a physical asset. It's also a hedge against inflation/devaluation just like foreign currencies and precious metals. Make sure that you invest in companies that actually produce something that will always be needed though. I.e. Siemens, Novartis, Caterpillar etc. NOT the Zyngas and Facebooks of the world!\",\n \"\\\"Don't put all your eggs in one basket and don't assume that you know more than the market does. The probability of gold prices rising again in the near future is already \\\"\\\"priced in\\\"\\\" as it were. Unless you are privy to some reliable information that no one else knows (given that you are asking here, I'm guessing not), stay away. Invest in a globally diversified low cost portfolio of primarily stocks and bonds and don't try to predict the future. Also I would kill for a 4.5% interest rate on my savings. In the USA, 1% is on the high side of what you can get right now. What is inflation like over there?\\\"\",\n \"For long periods of time a short ETF's performance will not match the negative of the long ETF, e.g. funding costs and the fact that they 'only' match daily returns will result in a suboptimal performance. If possible use other derivatives like a put on a long gold etf (fgriglesnickerseven)\",\n \"Gold ETFs are treated different than stock ETFs, as a collectable. This makes long-term investing in gold ETFs (for one year or longer) subject to a relatively large capital gains tax (maximum rate of 28%, rather than the 15% rate that is applicable to most other long-term capital gains). Read The Gold Showdown: ETFs Vs. Futures for more details.\",\n \"Putting the money in a bank savings account is a reasonably safe investment. Anything other than that will come with additional risk of various kinds. (That's right; not even a bank account is completely free of risk. Neither is withdrawing cash and storing it somewhere yourself.) And I don't know which country you are from, but you will certainly have access to your country's government bonds and the likes. You may also have access to mutual funds which invest in other countries' government bonds (bond or money-market funds). The question you need to ask yourself really is twofold. One, for how long do you intend to keep the money invested? (Shorter term investing should involve lower risk.) Two, what amount of risk (specifically, price volatility) are you willing to accept? The answers to those questions will determine which asset class(es) are appropriate in your particular case. Beyond that, you need to make a personal call: which asset class(es) do you believe are likely to do better or less bad than others? Low risk usually comes at the price of a lower return. Higher return usually involves taking more risk (specifically price volatility in the investment vehicle) but more risk does not necessarily guarantee a higher return - you may also lose a large fraction of or even the entire capital amount. In extreme cases (leveraged investments) you might even lose more than the capital amount. Gold may be a component of a well-diversified portfolio but I certainly would not recommend putting all of one's money in it. (The same goes for any asset class; a portfolio composed exclusively of stocks is no more well-diversified than a portfolio composed exclusively of precious metals, or government bonds.) For some specifics about investing in precious metals, you may want to see Pros & cons of investing in gold vs. platinum?.\",\n \"\\\"No, investing in gold is a bad idea. Gold at these prices is completely useless. There are many other precious metals that are far more useful. It seems highly unlikely you will make a large return and the downside is huge. If the world economy is stabilised gold will halve very quickly, perhaps more. A great piece of advice I have had while investing is \\\"\\\"if the shoe shine boy tells you to buy; sell\\\"\\\", i.e. when the general public think it is a good idea to invest in a certain product you have already missed the boat. You have missed the gold boat. Unfortunately most safe heavens are exhausted: chf, jpy, gold, etc. At the moment there aren't any safe places. NOK is probably your best bet but beware of intervention (see EURCHF around sep last year).\\\"\",\n \"One of the key things to look for is trading volume. I think the price spread will be better on high volume ETFs, which means you'll be able to sell for more when the time comes. Check Google or Yahoo finance for those stats.\",\n \"The only way to hedge a position is to take on a countervailing position with a higher multiplier as any counter position such as a 1:1 inverse ETF will merely cancel out the ETF it is meant to hedge yielding a negative return roughly in the amount of fees & slippage. For true risk-aversion, continually selling the shortest term available covered calls is the only free lunch. A suboptimal version, the CBOE BuyWrite Index, has outperformed its underlying with lower volatility. The second best way is to continually hedge positions with long puts, but this can become very tax-complicated since the hedged positions need to be rebalanced continually and expensive depending on option liquidity. The ideal, assuming no taxes and infinite liquidity, is to sell covered calls when implied volatility is high and buy puts when implied volatility is low.\",\n \"How would gold have protected you during the 2007/8 crisis? In no way, shape or form. The ways to protect yourself at any time are: Boring, huh?\",\n \"Depending on the Price of the ETF and the hedging you may well simply be guaranteed to make a small loss.\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"Gold is not really an investment at all, because it doesn't generate an income. It's only worth money because people think it's worth money (it has some industrial uses, but most gold is used as a store of value and not for industrial purposes), not because of its income stream.\",\n \"See the following information: http://www.bogleheads.org/wiki/Treasury_Inflation_Protected_Security You can buy individual bonds or you can purchase many of them together as a mutual fund or ETF. These bonds are designed to keep pace with inflation. Buying individual inflation-protected US government bonds is about as safe as you can get in the investment world. The mutual fund or ETF approach exposes you to interest rate risk - the fund's value can (and sometimes does) drop. Its value can also increase if interest rates fall.\",\n \"Another answer to this question occurred to me as I started learning more about historical uses for gold etc. Perhaps it's a crackpot idea, but I'm going to float it anyway to see what you folks think. Investing in Gold is an indirect investment in the Economy and GDP of the nation of India. To that extent is it only a hedge against inflation, so long as the indian economy grows at a more rapid rate than your local inflation rate. Fact, India currently consumes more than 1/3 of gold production, predominantly in the form of Jewelry. And their demand has been growing rapidly, up 69% just between 2009 and 2010 alone. I can't find too many historial consumption numbers for India, but when you look at past articles on this subject, you see phrases like 'one forth' and '20%' being used only a few years go to describe India's consumption levels. Fact, India has virtually no domestic sources of gold. India’s handful of gold mines produce about 2.5 tonnes of the metal each year, a fraction of the country’s annual consumption of about 800 tonnes. Fact. Indian Culture places high value on gold as a visible demonstration of wealth. Particularly in situations such In Indian weddings where the bride brings in gold to show her family's status and wealth and it forms part of the dowry given to bride. It is believed that a bride wearing 24k gold on their wedding to bring luck and happiness throughout the married life. Fact, the recent trends in outsourcing, Indian citizens working abroad sending money home, etc have all lead to a influx of foreign cash to the Indian economy and explosive GDP growth. See the following chart and compare the period of 2000-current with a chart showing the price of gold in other answer here. Notice how the curves parallel each other to a large degree Potentially unfounded conclusion drawn from above numbers. The rapid growth of the Indian economy, coupled with a rich cultural tradition that values gold as a symbol of wealth, along with a sudden rise in 'wealthy' people due to the economy and influx of foreign cash, has resulted in skyrocketing demand for gold from India, and this large 'consumption' demand is the most likely explanation for the sudden rise in the price of gold over the last several years. Investors then jump on the 'rising price bandwagon' as especially does anyone that can make a profit from selling gold to those seeking to get on said bandwagon. As such, as long as indian cultural tradition remains unchanged, and their economy remains strong, the resulting increasing demand for gold will sustain current and perhaps increased prices. Should there be any sudden collapse in the Indian GDP, gold will likely tumble in parallel. disclaimer: not an expert, just observations based off the data I've seen, there may be other parts to the picture of 'gold demand' that I've not considered.\",\n \"Regarding investing in gold vs. stocks, I don't think I could say it better than Warren Buffett: You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?\",\n \"Diversification is an important aspect of precious metals investing. Therefore I would suggest diversifying in a number of different ways:\",\n \"First is storage which is a big and a detrimental headache. Security is another big headache. Investing in precious metal has always been an investment opportunity in the countries in the east i.e. India and China because of cultural reason and due to absence of investment opportunities for the less fortunate ones. It isn't the case so in the West. Secondly what is the right an opportune moment is open to question. When the worlwide economy is up and running, that is probably the time to buy i.e. people would like to put money in use rather than store. The saying goes the other way when the economy is stagnating. Then there is also the case of waiting out the bad periods to sell your gold and silver. If you do want to buy precious metals then use a service like BullionVault, rather than doing those yourself. It takes care of the 2 big headaches, I mentioned earlier.\",\n \"I'd say neither. Index Funds mimic whatever index. Some stocks that are in the index are good investment opportunities, others not so much. I'm guessing the Bond Index Funds do the same. As for Gold... did you notice how much gold has risen lately? Do you think it will keep on rising like that? For which period? (Hint: if your timespan is less than 10 years, you really shouldn't invest). Investing is about buying low, and selling high. Gold is high, don't touch it. If you want to invest in funds, look at 4 or 5 star Morningstar rated funds. My advisors suggest Threadneedle (Lux) US Equities DU - LU0096364046 with a 4 star rating as the best American fund at this time. However, they are not favoring American stocks at this moment... so maybe you should stay away from the US for now. Have you looked at the BRIC (Brazil, Russia, India, China) countries?\",\n \"There are two basic ways you can separate your investments from the dollar (or any other currency).\",\n \"I think your question is very difficult to answer because it involves speculation. I think the best article describing why or why not to invest in gold in a recent Motley Fool Article.\",\n \"One option is buying physical gold. I don't know about Irish law -- but from an economic standpoint, putting funds in foreign currencies would also be an option. You could look into buying shares in an ETF tracking foreign currency as an alternative to direct money exchange.\",\n \"\\\"Article summation: You may have enjoyed that 30% last year and 6% first half this year, but inflation is almost at 2% and we expect inflationary hedges and non-US-dollar investments to outperform. My response: Hahaha, what? Is he even looking at his own numbers? Since when did 2% inflation \\\"\\\"trump\\\"\\\" 6, 12, or 30% growth? He can't seriously be implying that people should run to gold...\\\"\",\n \"\\\"I got started by reading the following two books: You could probably get by with just the first of those two. I haven't been a big fan of the \\\"\\\"for dummies\\\"\\\" series in the past, but I found both of these were quite good, particularly for people who have little understanding of investing. I also rather like the site, Canadian Couch Potato. That has a wealth of information on passive investing using mutual funds and ETFs. It's a good next step after reading one or the other of the books above. In your specific case, you are investing for the fairly short term and your tolerance for risk seems to be quite low. Gold is a high-risk investment, and in my opinion is ill-suited to your investment goals. I'd say you are looking at a money market account (very low risk, low return) such as e.g. the TD Canadian Money Market fund (TDB164). You may also want to take a look at e.g. the TD Canadian Bond Index (TDB909) which is only slightly higher risk. However, for someone just starting out and without a whack of knowledge, I rather like pointing people at the ING Direct Streetwise Funds. They offer three options, balancing risk vs reward. You can fill in their online fund selector and it'll point you in the right direction. You can pay less by buying individual stock and bond funds through your bank (following e.g. one of the Canadian Couch Potato's model portfolios), but ING Direct makes things nice and simple, and is a good option for people who don't care to spend a lot of time on this. Note that I am not a financial adviser, and I have only a limited understanding of your needs. You may want to consult one, though you'll want to be careful when doing so to avoid just talking to a salesperson. Also, note that I am biased toward passive index investing. Other people may recommend that you invest in gold or real estate or specific stocks. I think that's a bad idea and believe I have the science to back this up, but I may be wrong.\\\"\",\n \"\\\"Look at a broader diversification. Something like: For physical gold, I'd look at a mix of gold coins and bullion. Study the pricing model for coins -- you'll probably find that the spreads on small coins make them too expensive. There are a few levels of risk with storing in a vault -- the practical risk is that your government will close banks in the event of a panic, and your money will be inaccessible. You need to balance that risk with the risk to your personal security that comes with having lots of gold or cash in your home. My recommendation is to avoid wasting time on the \\\"\\\"Mad Max\\\"\\\" scenarios. If the world economy collapses into utter ruin, we're all screwed. A few gold coins won't do much for you.\\\"\",\n \"When you buy a futures contract you are entering into an agreement to buy gold, in the future (usually a 3 month settlement date). this is not an OPTION, but a contract, so each party is taking risk, the seller that the price will rise, the buyer that the price will fall. Unlike an option which you can simply choose not to exercise if the price goes down, with futures you are obligated to follow through. (or sell the contract to someone else, or buy it back) The price you pay depends on the margin, which is related to how far away the settlement date is, but you can expect around 5% , so the minimum you could get into is 100 troy ounces, at todays price, times 5%. Since we're talking about 100 troy ounces, that means the margin required to buy the smallest sized future contract would be about the same as buying 5 ounces of gold. roughly $9K at current prices. If you are working through a broker they will generally require you to sell or buy back the contract before the settlement date as they don't want to deal with actually following through on the purchase and having to take delivery of the gold. How much do you make or lose? Lets deal with a smaller change in the price, to be a bit more realistic since we are talking typically about a settlement date that is 3 months out. And to make the math easy lets bump the price of gold to $2000/ounce. That means the price of a futures contract is going to be $10K Lets say the price goes up 10%, Well you have basically a 20:1 leverage since you only paid 5%, so you stand to gain $20,000. Sounds great right? WRONG.. because as good as the upside is, the downside is just as bad. If the price went down 10% you would be down $20000, which means you would not only have to cough up the 10K you committed but you would be expected to 'top up the margin' and throw in ANOTHER $10,000 as well. And if you can't pay that up your broker might close out your position for you. oh and if the price hasn't changed, you are mostly just out the fees and commissions you paid to buy and sell the contract. With futures contracts you can lose MORE than your original investment. NOT for the faint of heart or the casual investor. NOT for folks without large reserves who can afford to take big losses if things go against them. I'll close this answer with a quote from the site I'm linking below The large majority of people who trade futures lose their money. That's a fact. They lose even when they are right in the medium term, because futures are fatal to your wealth on an unpredicted and temporary price blip. Now consider that, especially the bit about 'price blip' and then look at the current volatility of most markets right now, and I think you can see how futures trading can be as they say 'Fatal to your Wealth' (man, I love that phrase, what a great way of putting it) This Site has a pretty decent primer on the whole thing. their view is perhaps a bit biased due to the nature of their business, but on the whole their description of how things work is pretty decent. Investopedia has a more detailed (and perhaps more objective) tutorial on the futures thing. Well worth your time if you think you want to do anything related to the futures market.\",\n \"The best advice I can give you is to ignore gold right now. You really don't and can't have all the information you would need to support an argument for shorting gold. How much fiat cash have the central banks injected into the word economy? Billions? Trillions? Tens of Trillions? Maybe not much at all as the banks repay overnight? Anyway.. Without going on a full on rant why would you touch gold on a short? I can understand speculating on long position based on all the news out there but I'd hesitate to be a contraian in this market. Just find a nice little company that makes money, has a good product and a pretty little balance sheet. It will take longer to research but fuck if I'm betting on a huge drop in gold any time soon. What reasons do you have to believe gold is headed for any significant slide?\",\n \"\\\"I find it interesting that you didn't include something like [Total Bond Market](http://stockcharts.com/freecharts/perf.html?VBMFX), or [Intermediate-Term Treasuries](http://stockcharts.com/freecharts/perf.html?VBIIX), in your graphic. If someone were to have just invested in the DJI or SP500, then they would have ignored the tenants of the Modern Portfolio Theory and not diversified adequately. I wouldn't have been able to stomach a portfolio of 100% stocks, commodities, or metals. My vote goes for: 1.) picking an asset allocation that reflects your tolerance for risk (a good starting point is \\\"\\\"age in bonds,\\\"\\\" i.e. if you're 30, then hold 30% in bonds); 2.) save as if you're not expecting annualized returns of %10 (for example) and save more; 3.) don't try to pick the next winner, instead broadly invest in the market and hold it. Maybe gold and silver are bubbles soon to burst -- I for one don't know. I don't give the \\\"\\\"notion in the investment community\\\"\\\" much weight -- as it always is, someday someone will be right, I just don't know who that someone is.\\\"\",\n \"If you were certain you would probably do best by short selling an ETF that tracked the index for the market you think was about to tank. You'd certainly make a lot more money on that strategy than precious metals. If you were feeling super confident and want to make your money earn even more, you could also buy a bunch of put options on those same ETF funds. Obligatory Warning: Short selling and options can be extremely risky. While most investments cap your potential losses to your total investment, a short sale has no theoretical limit to the amount of money you can lose.\",\n \"\\\"Google \\\"\\\"forex broker\\\"\\\" and find one of the thousands that allows you to trade on Gold futures. Then use one of them to short Gold... just watch your leverage. I would certainly wait before you're shorting gold. Why tie up capital in a bubble that you think will burst in the next few years. Wait for the price to increase and monitor for actual signs of the bubble bursting. Right now with the Euro possibly collapsing shorting gold probably isn't your best bet.\\\"\",\n \"My personal gold/metals target is 5.0% of my retirement portfolio. Right now I'm underweight because of the run up in gold/metals prices. (I haven't been selling, but as I add to retirement accounts, I haven't been buying gold so it is going below the 5% mark.) I arrived at this number after reading a lot of different sample portfolio allocations, and some books. Some people recommend what I consider crazy allocations: 25-50% in gold. From what I could figure out in terms of modern portfolio theory, holding some metal reduces your overall risk because it generally has a low correlation to equity markets. The problem with gold is that it is a lousy investment. It doesn't produce any income, and only has costs (storage, insurance, commissions to buy/sell, management of ETF if that's what you're using, etc). The only thing going for it is that it can be a hedge during tough times. In this case, when you rebalance, your gold will be high, you'll sell it, and buy the stocks that are down. (In theory -- assuming you stick to disciplined rebalancing.) So for me, 5% seemed to be enough to shave off a little overall risk without wasting too much expense on a hedge. (I don't go over this, and like I said, now I'm underweighted.)\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"GLD, IAU, and SGOL are three different ETF's that you can invest in if you want to invest in gold without physically owning gold. Purchasing an ETF is just like purchasing a stock, so you're fine on that front. Another alternative is to buy shares of companies that mine gold. An example of a single company is Randgold Resources (GOLD), and an ETF of mining companies is GDX. There are also some more complex alternatives like Exchange traded notes and futures contracts, but I wouldn't classify those for the \"\"regular person.\"\" Hope it helps!\"","Since GLD is priced as 1/10 oz of gold, I'd call it the preferred way to buy if that's your desire. I believe gold is entering classic bubble territory. Caveat emptor. A comment brought me back to this question. My answer still applies, the ETF the best way to buy gold at the lowest transaction cost. The day I posted and expressed my 'bubble' concern, gold was $1746. Today, nearly 5 years later, it's $1350, a drop of 23%, plus an additional 2% of accumulated expenses. Note, GLD has a .4% annual expense. On the other hand, the S&P is up 80% from that time. In other words, $10K invested that day would be worth less than $7,700 had it been invested in gold, and $18,000 in stock. It would take a market crash, gold soaring or some combination of the two for gold to have been the right choice then. No one can predict short term movement of either the market or metals, my answer here wasn't prescient, just lucky.","\"Definitely look at CEF. They have tax advantages over GLD and SLV, and have been around for 50 years, and are a Canadian company. They hold their gold in 5 distributed vaults. Apparently tax advantage comes because with GLD, if you supposedly approach them with enough money, you can take out a \"\"bar of gold\"\". Just one problem (well, perhaps more): a bar of gold is an enormous sum of money (and as such not very liquid), and apparently gold bars have special certifications and tracking, which one would mess up if one took it to there personal collection, costing additional sums to re-certify. many, many articles on the web claiming that the gold GLD has is highly leveraged, is held by someone else, and tons of other things that makes GLD seem semi-dubious. I've used CEF for years, talked to them quite a few times; to me, and short of having it my possession, they seem the best /safest / easiest alternative, and are highly liquid/low spread betwen bid and ask. The do also have a pure gold \"\"stock\"\" and a pure silver \"\"stock\"\", but these often trade at higher premiums. CEF's premium varies between -2% and +4%. I.e. sometimes it trades at a premium to the gold and silver it holds, sometimes at a discount. Note that CEF generally shoots to have a 50/50 ratio of gold / silver holdings in their possession/vaults, but this ratio has increased to be heavier gold weighted than silver, as silver has not performed quite as well lately. You can go to their web-site and see exactly what they have, e.g. their NAV page: http://www.centralfund.com/Nav%20Form.htm\"","\"Investing in gold without having physical gold is not really a hedge against inflation. GLD is really more for speculation, not protection against serious inflation. If there is any kind of inflation worth really protecting yourself against then one thing you will notice at its onset is a divergence in the price of physical and GLD; with GLD offering very little protection if any against inflation. Ultimately holders of GLD will demand physical metal and the physical price will rise and the paper price will fall. I would advise you to study physical gold before you purchase GLD for that reason. EDIT: Just adding this to my answer - I don't know why I didn't put it in before, and I hasten to add that I'm not an expert though a little investigation will show you that this is at least one option for owning gold. If you think of having the physical gold yourself at one end of the spectrum and buying GLD at the other; so that you don't need to take physical delivery, there is another scenario which I understand is in between (and sorry I don't actually know what it's referred to as) but it's where you buy the physical gold but instead of taking delivery the bars are stored for you in a vault - these bars are numbered and you actually own what you have paid for and theoretically you could go and visit your gold and actually remove it because it's your gold - as opposed to having paper GLD which in my understanding is a \"\"right to take physical delivery\"\" of gold - and this is slightly different - of course unlike GLD you actually have to pay a storage fee and of course unlike having the physical gold buried in your garden or something you are not entirely secure against say a robbery of the vault, and you are also depending on the company not to sell the same bar to more than one person - but that's the only think that their reputation is built on, and a company like that would live or die by the reputation - ( and of course you might lose the proverbial gold buried in the garden either, so nothing's 100% secure anyway really )\""],"string":"[\n \"\\\"GLD, IAU, and SGOL are three different ETF's that you can invest in if you want to invest in gold without physically owning gold. Purchasing an ETF is just like purchasing a stock, so you're fine on that front. Another alternative is to buy shares of companies that mine gold. An example of a single company is Randgold Resources (GOLD), and an ETF of mining companies is GDX. There are also some more complex alternatives like Exchange traded notes and futures contracts, but I wouldn't classify those for the \\\"\\\"regular person.\\\"\\\" Hope it helps!\\\"\",\n \"Since GLD is priced as 1/10 oz of gold, I'd call it the preferred way to buy if that's your desire. I believe gold is entering classic bubble territory. Caveat emptor. A comment brought me back to this question. My answer still applies, the ETF the best way to buy gold at the lowest transaction cost. The day I posted and expressed my 'bubble' concern, gold was $1746. Today, nearly 5 years later, it's $1350, a drop of 23%, plus an additional 2% of accumulated expenses. Note, GLD has a .4% annual expense. On the other hand, the S&P is up 80% from that time. In other words, $10K invested that day would be worth less than $7,700 had it been invested in gold, and $18,000 in stock. It would take a market crash, gold soaring or some combination of the two for gold to have been the right choice then. No one can predict short term movement of either the market or metals, my answer here wasn't prescient, just lucky.\",\n \"\\\"Definitely look at CEF. They have tax advantages over GLD and SLV, and have been around for 50 years, and are a Canadian company. They hold their gold in 5 distributed vaults. Apparently tax advantage comes because with GLD, if you supposedly approach them with enough money, you can take out a \\\"\\\"bar of gold\\\"\\\". Just one problem (well, perhaps more): a bar of gold is an enormous sum of money (and as such not very liquid), and apparently gold bars have special certifications and tracking, which one would mess up if one took it to there personal collection, costing additional sums to re-certify. many, many articles on the web claiming that the gold GLD has is highly leveraged, is held by someone else, and tons of other things that makes GLD seem semi-dubious. I've used CEF for years, talked to them quite a few times; to me, and short of having it my possession, they seem the best /safest / easiest alternative, and are highly liquid/low spread betwen bid and ask. The do also have a pure gold \\\"\\\"stock\\\"\\\" and a pure silver \\\"\\\"stock\\\"\\\", but these often trade at higher premiums. CEF's premium varies between -2% and +4%. I.e. sometimes it trades at a premium to the gold and silver it holds, sometimes at a discount. Note that CEF generally shoots to have a 50/50 ratio of gold / silver holdings in their possession/vaults, but this ratio has increased to be heavier gold weighted than silver, as silver has not performed quite as well lately. You can go to their web-site and see exactly what they have, e.g. their NAV page: http://www.centralfund.com/Nav%20Form.htm\\\"\",\n \"\\\"Investing in gold without having physical gold is not really a hedge against inflation. GLD is really more for speculation, not protection against serious inflation. If there is any kind of inflation worth really protecting yourself against then one thing you will notice at its onset is a divergence in the price of physical and GLD; with GLD offering very little protection if any against inflation. Ultimately holders of GLD will demand physical metal and the physical price will rise and the paper price will fall. I would advise you to study physical gold before you purchase GLD for that reason. EDIT: Just adding this to my answer - I don't know why I didn't put it in before, and I hasten to add that I'm not an expert though a little investigation will show you that this is at least one option for owning gold. If you think of having the physical gold yourself at one end of the spectrum and buying GLD at the other; so that you don't need to take physical delivery, there is another scenario which I understand is in between (and sorry I don't actually know what it's referred to as) but it's where you buy the physical gold but instead of taking delivery the bars are stored for you in a vault - these bars are numbered and you actually own what you have paid for and theoretically you could go and visit your gold and actually remove it because it's your gold - as opposed to having paper GLD which in my understanding is a \\\"\\\"right to take physical delivery\\\"\\\" of gold - and this is slightly different - of course unlike GLD you actually have to pay a storage fee and of course unlike having the physical gold buried in your garden or something you are not entirely secure against say a robbery of the vault, and you are also depending on the company not to sell the same bar to more than one person - but that's the only think that their reputation is built on, and a company like that would live or die by the reputation - ( and of course you might lose the proverbial gold buried in the garden either, so nothing's 100% secure anyway really )\\\"\"\n]","isConversational":false}}},{"rowIdx":299,"cells":{"_id":{"kind":"string","value":"8013"},"query":{"kind":"string","value":"Frequency of investments to maximise returns (and minimise fees)"},"gt_ids":{"kind":"list like","value":["496159","224231"],"string":"[\n \"496159\",\n \"224231\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["304398","48678","144349","254910","278607","176335","402633","24846","53100","537626","268772","446948","549364","496159","186538","49930","234039","397976","138954","384983","384893","215296","117634","582697","376967","103622","263784","363919","123880","244524","296426","404261","224231","543223","598478","81652","412965","536841","568978","34241","250530","323067","488651","548467","325426","41905","583549","233717","464381","444008","272021","255252","504032","377659","234979","410461","277","57033","201495","447567","58186","493010","100341","61593","122679","36284","253028","590218","153178","83807","242556","331492","341699","354291","82194","577832","596537","533549","469519","329466","48566","264820","272486","341481","377186","535737","25671","301477","224782","16175","124230","155242","568624","120266","227542","18532","307424","332064","575929","560497"],"string":"[\n \"304398\",\n \"48678\",\n \"144349\",\n \"254910\",\n \"278607\",\n \"176335\",\n \"402633\",\n \"24846\",\n \"53100\",\n \"537626\",\n \"268772\",\n \"446948\",\n \"549364\",\n \"496159\",\n \"186538\",\n \"49930\",\n \"234039\",\n \"397976\",\n \"138954\",\n \"384983\",\n \"384893\",\n \"215296\",\n \"117634\",\n \"582697\",\n \"376967\",\n \"103622\",\n \"263784\",\n \"363919\",\n \"123880\",\n \"244524\",\n \"296426\",\n \"404261\",\n \"224231\",\n \"543223\",\n \"598478\",\n \"81652\",\n \"412965\",\n \"536841\",\n \"568978\",\n \"34241\",\n \"250530\",\n \"323067\",\n \"488651\",\n \"548467\",\n \"325426\",\n \"41905\",\n \"583549\",\n \"233717\",\n \"464381\",\n \"444008\",\n \"272021\",\n \"255252\",\n \"504032\",\n \"377659\",\n \"234979\",\n \"410461\",\n \"277\",\n \"57033\",\n \"201495\",\n \"447567\",\n \"58186\",\n \"493010\",\n \"100341\",\n \"61593\",\n \"122679\",\n \"36284\",\n \"253028\",\n \"590218\",\n \"153178\",\n \"83807\",\n \"242556\",\n \"331492\",\n \"341699\",\n \"354291\",\n \"82194\",\n \"577832\",\n \"596537\",\n \"533549\",\n \"469519\",\n \"329466\",\n \"48566\",\n \"264820\",\n \"272486\",\n \"341481\",\n \"377186\",\n \"535737\",\n \"25671\",\n \"301477\",\n \"224782\",\n \"16175\",\n \"124230\",\n \"155242\",\n \"568624\",\n \"120266\",\n \"227542\",\n \"18532\",\n \"307424\",\n \"332064\",\n \"575929\",\n \"560497\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Determine an investment strategy and that will likely answer this for you. Different people have different approaches and you need to determine for yourself what buy and sell criteria you want to have. Again, depending on the strategy there can be a wide range here as some may trade index funds though this can backfire in some cases. In others, there can be a lot of buy and hold if one finds an index fund to hold forever which depending on the strategy is possible. Returns can vary widely as an index can be everything from buying gold stocks in Russia to investing in short-term Treasuries as there are many different indices as any given market can have an index which could be stocks, bonds, a combination of the two or something else in some cases so please consider asset allocation, types of accounts, risk tolerance and time horizon in making decisions or consider using a financial planner to assist in drawing up a plan with allocations and how frequently you want to rebalance as my suggestion here.","By not timing the market and being a passive investor, the best time to invest is the moment you have extra money (usually when wages are received). The market trends up. $10 fee on $2000 represents 0.5% transaction cost, which is borderline prohibitive. I would suggest running simulations, but I suspect that 1 month is the best because average historical monthly total return is more than 0.5%.","Depends on what you are, an investor or a speculator. An investor will look at an 'indefinite' investment period. A speculator will be after a fast buck. If you are an investor, buy your stock once as that will cost less commissions. After all, you'll sell your stock in 10, 15, 20 years.","Note, the main trade off here is the costs of holding cash rather than being invested for a few months vs trading costs from trading every month. Let's start by understanding investing every month vs every three months. First compare holding cash for two months (at ~0% for most Canadians right now) and then investing on the third month vs being invested in a single stock etf (~5% annually?). At those rates she is forgoing equity returns of around These costs and the $10 for one big trade give total costs of $16+$8+$10=$34 dollars. If you were to trade every month instead there would be no cost for not being invested and the trading costs over three months would just be 3*$10=$30. So in this case it would be better to trade monthly instead of every three months. However, I'm guessing you don't trade all $2000 into a single etf. The more etfs you trade the more trading more infrequently would be an advantage. You can redo the above calculations spliting the amount across more etfs and including the added trading costs to get a feel for what is best. You can also rotate as @Jason suggests but that can leave you unbalanced temporarily if not done carefully. A second option would be to find a discount broker that allows you to trade the etfs you are interested in for free. This is not always possible but often will be for those investing in index funds. For instance I trade every month and have no brokerage costs. Dollar cost averaging and value averaging are for people investing a single large amount instead of regular monthly amounts. Unless the initial amount is much much larger than the monthly amounts this is probably not worth considering. Edit: Hopefully the above edits will clarify that I was comparing the costs (including the forgone returns) of trading every 3 months vs trading every month.","To optimize your return on investment, you need to buy low and sell high. If you knew that one stock had hit rock bottom, and the others had not, buying the low stock would be the best. However, unless you can predict the future, you don't know if any individual stock has hit the bottom, or if it will continue to drop. If you decide to spend the same amount of money each month on stock purchases, then when the price is low, you will automatically buy more shares, and when the price is high, you will buy fewer shares. This strategy is sometimes called dollar cost averaging. It eliminates the need to predict the future to optimize your buying. All that having been said, I agree with @Powers that at the investment amount that you are talking about and the per transaction fee you listed, a monthly investment in several stocks will cause you to lose quite a bit to transaction fees. It sounds like you need a different strategy.","\"You will invest 1000£ each month and the transaction fee is 10£ per trade, so buying a bunch of stocks each month would not be wise. If you buy 5 stocks, then transaction costs will eat up 5% of your investment. So if you insist on taking this approach, you should probably only buy one or two stocks a month. It sounds like you're interested in active investing & would like a diversified portfolio, so maybe the best approach for you is Core & Satellite Portfolio Management. Start by creating a well diversified portfolio \"\"core\"\" with index funds. Once you have a solid core, make some active investment decisions with the \"\"satellite\"\" portion of the portfolio. You can dollar cost average into the core and make active bets when the opportunity arises, so you're not killed by transaction fees.\"","Securities (things you can buy on the stock market) that pay dividends usually pay every quarter (every three months), but some pay every month. (For example: PGF pays dividends each month.) IF you reinvest your dividends back into the stock then you will be compounding your return. I use the feature at Scottrade to automatically reinvest the dividend each month. Using this feature at Scottrade incurs no commission for the purchases of the stock from the dividend. (saving on commissions and fees is, likely, the most important aspect of investing). US Treasuries (usually) pay interest twice a year. There is no commission when using Treasury Direct.","\"If you are like most people, your timing is kind of awful. What I mean by most, is all. Psychologically we have strong tendencies to buy when the market is high and avoid buying when it is low. One of the easiest to implement strategies to avoid this is Dollar Cost Averaging. In most cases you are far better off making small investments regularly. Having said that, you may need to \"\"save\"\" a bit in order to make subsequent investments because of minimums. For me there is also a positive psychological effect of putting money to work sooner and more often. I find it enjoyable to purchase shares of a mutual fund or stock and the days that I do so are a bit better than the others. An added benefit to doing regular investing is to have them be automated. Many wealthy people describe this as a key to success as they can focused on the business of earning money in their chosen profession as opposed to investing money they have already earned. Additionally the author of I will Teach You to be Rich cites this as a easy, free, and key step in building wealth.\"","\"That's a lot of manual checking-in to see if everything is performing the way you \"\"want\"\". Not to insult your intelligence, but that is not your job, and doing that on a monthly basis is going to eat a lot of time. Plus, most 401(k) programs have lockout periods wherein changes can't be made without incurring additional fees (related to distributions, etc). And if you're checking that often, you are [likely] losing the benefits of investing in mutual funds to start with. If you have the stomach to handle the risk, go for the high-risk investment vehicles early in your career - you can afford a 30% drop this year if you then make 105%, 15%, or 50% back each of the next 5. If, on the other hand, you're in your mid-career, switch to more conservative management tactics.\"","If markets are efficient (which they aren't, but anyways...), the frequency of DCA investments shouldn't yield any meaningful difference in return. The one possible item to note is that if you're able to invest more frequently, you'll have more money exposed to the effects of compounding for longer, which *may* increase return. However, there are also transaction costs to consider, which may render something like *continuous* DCA-ing ineffective. That same compounding effect also negates the potential benefits of DCA altogether, making it more logical to lump sum your investments. You may be conflating DCA with simply making additional cash every week that's available for investment. If that's the case, again, lump sum as early as possible should yield the best results... (this isn't financial advice, read the sidebar disclaimers)","I'm staring at this chart and asking myself, How long a period is enough to have an average I'd be happy with regardless of the direction the market goes? 3 years? 4 years? Clearly, a lump sum investment risks a 2000 buy at 1500. Not good. Honestly, I love the question, and find it interesting, but there's likely no exact answer, just some back and forth analysis. You're investing about $40K/yr anyway. I'd suggest a 4 year timeframe is a good time to invest the new money as well. Other folk want to offer opinions? Edit - with the OP's additional info, he expects these bonuses to continue, my updated advice is to DCA quarterly if going into assets with a transaction fee or monthly if into a no-fee fund, over just a one year period.","Powers makes a good point: trading costs may eat up a significant portion of your ROI. A fee as little as 2% can consume more than 50% of your long-term ROI! A rule of thumb is keep your fees to less than 1%. One way to do that is to buy stock in companies that have a DRIP with a Share Purchase Plan (SPP). Often the SPP allows investors to purchase shares for low fees or free. Once you have the ability to purchase shares for (virtually) free, you can use InvestMete. Roughly, you send more money to the companies whose share prices are near their 52-week low, and less money to those who are near their 52-week high. Getting back to your original question...","\"As you alluded to in your question, there is not one answer that will be true for all mutual funds. In fact, I would argue the question is not specific to mutual funds but can be applied to almost anyone who must make an investment decision: a mutual fund manager, hedge fund manager, or an individual investor. Even though money going into a company 401(k) retirement savings plan is typically automatically allocated to different funds as we have specified, this is generally not the case for other investment accounts. For example, I also have a Roth IRA in which I have some money from each paycheck direct deposited and it's up to me to decide whether to leave that money in cash or to invest it somewhere else. Every time you invest more money into a mutual fund, the fund manager has the same decision to make. There are two commonly used mutual fund figures that relate to your question: turnover rate, and cash reserves. Turnover rate measures the percent of a fund's portfolio that changes every year. For example, a turnover rate of 100% indicates that a fund replaces every asset it held at the beginning of the year with something else at the end of the year – funds with turnover rates greater than 100% average a holding period for a given asset of less than one year, and funds with turnover rates less than 100% average a holding period for a given asset of more than one year. Cash reserves simply measure the amount of money funds choose to keep as cash instead of investing in other assets. Another important distinction to make is between actively managed funds and passively managed funds. Passively managed funds are often referred to as \"\"index funds\"\" and have as their goal only to match the returns of a given index or some other benchmark. Actively managed funds on the other hand try to beat the market by exploiting so-called market inefficiencies; e.g. buying undervalued assets, selling overvalued assets, \"\"timing\"\" the market, etc. To answer your question for a specific fund, I would encourage you to look at the fund's prospectus. I take as one example of a passively managed fund the Vanguard 500 Index Fund (VFINX), a mutual fund that was created to track the S&P 500. In its prospectus, the fund states that, \"\"to track its target index as closely as possible, the Fund attempts to remain fully invested in stocks\"\". Furthermore, the prospectus states that \"\"the fund's daily cash balance may be invested in one or more Vanguard CMT Funds, which are very low-cost money market funds.\"\" Therefore, we would expect both this fund's turnover rate and cash reserves to be extremely low. When we look at its portfolio composition, we see this is true – it is currently at a 4.8% turnover rate and holds 0.0% in short term reserves. Therefore, we can assume this fund is regularly purchasing shares (similar to a dollar cost averaging strategy) instead of holding on to cash and purchasing shares together at a specific time. For actively managed funds, the picture will tend to look a little different. For example, if we look at the Magellan Fund's portfolio composition, we can see it has a turnover rate of 42%, and holds around .95% in cash/short term reserves. In this case, we can safely guess that trading activity may not be as regular as a passively managed fund, as an active manager attempts to time the market. You may find mutual funds that have much higher cash reserves – perhaps 10% or even more. Granted, it is impossible to know the exact trading strategy of a mutual fund, and for good reason – if we knew for example, that a fund purchases shares every day at 2:30PM in order to realign with the S&P 500, then sellers of S&P components could up the prices at that time to exploit the mutual fund's trade strategy. Large traders are constantly trying to find ways to conceal their actual trading activity in order to avoid these exact problems. Finally, I feel obligated to note that it is important to keep in mind that trade frequency is linked to transactions costs – in general, the more frequently an investment manager (whether it be you or a mutual fund manager) executes trades, the more that manager will lose in transactions costs.\"","Okay, I think I managed to find the precise answer to this problem! It involves solving a non-linear exponential equation, but I also found a good approximate solution using the truncated Taylor series. See below for a spreadsheet you can use. Let's start by defining the growth factors per period, for money in the bank and money invested: Now, let S be the amount ready to be invested after n+1 periods; so the first of that money has earned interest for n periods. That is, The key step to solve the problem was to fix the total number of periods considered. So let's introduce a new variable: t = the total number of time periods elapsed So if money is ready to invest every n+1 periods, there will be t/(n+1) separate investments, and the future value of the investments will be: This formula is exact in the case of integer t and n, and a good approximation when t and n are not integers. Substituting S, we get the version of the formula which explicitly depends on n: Fortunately, only a couple of terms in FV depend on n, so we can find the derivative after some effort: Equating the derivative to zero, we can remove the denominator, and assuming t is greater than zero, we can divide by the constant ( 1-G t ): To simplify the equation, we can define some extra constants: Then, we can define a function f(n) and write the equation as: Note that α, β, γ, G, and R are all constant. From here there are two options: Use Newton's method or another numerical method for finding the positive root of f(n). This can be done in a number of software packages like MATLAB, Octave, etc, or by using a graphics calculator. Solve approximately using a truncated Taylor series polynomial. I will use this method here. The Taylor series of f(n), centred around n=0, is: Truncating the series to the first three terms, we get a quadratic polynomial (with constant coefficients): Using R, G, α, β and γ defined above, let c0, c1 and c2 be the coefficients of the truncated Taylor series for f(n): Then, n should be rounded to the nearest whole number. To be certain, check the values above and below n using the formula for FV. Using the example from the question: For example, I might put aside $100 every week to invest into a stock with an expected growth of 9% p.a., but brokerage fees are $10/trade. For how many weeks should I accumulate the $100 before investing, if I can put it in my high-interest bank account at 4% p.a. until then? Using Newton's method to find roots of f(n) above, we get n = 14.004. Using the closed-form approximate solution, we get n = 14.082. Checking this against the FV with t = 1680 (evenly divisible by each n + 1 tested): Therefore, you should wait for n = 14 periods, keeping that money in the bank, investing it together with the money in the next period (so you will make an investment every 14 + 1 = 15 weeks.) Here's one way to implement the above solution with a spreadsheet. StackExchange doesn't allow tables in their syntax at this time, so I'll show a screenshot of the formulae and columns you can copy and paste: Formulae: Copy and paste column A: Copy and paste column B: Results: Remember, n is the number of periods to accumulate money in the bank. So you will want to invest every n+1 weeks; in this case, every 15 weeks.","\"How often should one use dollar-cost averaging? Trivially, a dollar cost averaging (DCA) strategy must be used at least twice! More seriously, DCA is a discipline that people (typically investors with relatively small amounts of money to invest each month or each quarter) use to avoid succumbing to the temptation to \"\"time the market\"\". As mhoran_psprep points out, it is well-suited to 401k plans and the like (e.g. 403b plans for educational and non-profit institutions, 457 plans for State employees, etc), and indeed is actually the default option in such plans, since a fixed amount of money gets invested each week, or every two weeks, or every month depending on the payroll schedule. Many plans offer just a few mutual funds in which to invest, though far too many people, having little knowledge or understanding of investments, simply opt for the money-market fund or guaranteed annuity fund in their 4xx plans. In any case, all your money goes to work immediately since all mutual funds let you invest in thousandths of a share. Some 401k/403b/457 plans allow investments in stocks through a brokerage, but I think that using DCA to buy individual stocks in a retirement plan is not a good idea at all. The reasons for this are that not only must shares must be bought in whole numbers (integers) but it is generally cheaper to buy stocks in round lots of 100 (or multiples of 100) shares rather than in odd lots of, say, 37 shares. So buying stocks weekly, or biweekly or monthly in a 401k plan means paying more or having the money sit idle until enough is accumulated to buy 100 shares of a stock at which point the brokerage executes the order to buy the stock; and this is really not DCA at all. Worse yet, if you let the money accumulate but you are the one calling the shots \"\"Buy 100 shares of APPL today\"\" instead of letting the brokerage execute the order when there is enough money, you are likely to be timing the market instead of doing DCA. So, are brokerages useless in retirement fund accounts? No, they can be useful but they are not suitable for DCA strategies involving buying stocks. Stick to mutual funds for DCA. Do people use it across the board on all stock investments? As indicated above, using DCA to buy individual stocks is not the best idea, regardless of whether it is done inside a retirement plan or outside. DCA outside a retirement plan works best if you not trust yourself to stick with the strategy (\"\"Ooops, I forgot to mail the check yesterday; oh, well, I will do it next week\"\") but rather, arrange for your mutual fund company to take the money out of your checking account each week/month/quarter etc, and invest it in whatever fund(s) you have chosen. Most companies have such programs under names such as Automatic Investment Program (AIP) etc. Why not have your bank send the money to the mutual fund company instead? Well, that works too, but my bank charges me for sending the money whereas my mutual fund company does AIP for free. But YMMV. Dollar-cost averaging generally means investing a fixed amount of money on a periodic basis. An alternative strategy, if one has decided that owning 1200 shares of FlyByKnight Co is a good investment to have, is to buy round lots of 100 shares of FBKCO each month. The amount of money invested each month varies, but at the end of the year, the average cost of the 1200 shares is the average of the prices on the 12 days on which the investments were made. Of course, by the end of the year, you might not think FBKCO is worth holding any more. This technique worked best in the \"\"good old days\"\" when blue-chip stocks paid what was for all practical purposes a guaranteed dividend each year, and people bought these stocks with the intention of passing them on to their widows and children.\"","I'm going to assume that you want to be invested all the time and each trade consists in selling a security and buying another one (similar to your example). How much commissions you are willing to pay depends on several factors, but one way to think about it is as follows. You have a position in stock A and you want to switch to stock B because you think it will perform better. If you think there's a good chance (>50%) that B will outperform A by more than x% then you can happily pay up to x/2% commissions and still make money over a long time horizon. If you like formulae, one way to express it is: Where: Example: if you tend to be right 51% of the time (hit rate), and gain 110% more than you lose on average (win loss ratio), you can see that your expected profit is: 5.1% - commissions, so you could pay 2.5% commissions on entering and closing the position and still make money*. Unfortunately, common sense, statistics and numerous studies tell us a sad truth: on average, people have a hit rate of 50% and a win/loss ratio of 100%. Which means that their expected profit per trade is 0% - commission. Based on that crude observation - unless you can prove to yourself that you are better than average - you should aim at reducing commissions paid to your broker as much as possible through: * 51% and 110% are not random numbers, they correspond to the results of the top 15% (professional) managers in a research paper using a sample of 215 funds managing $150bn.","Assuming you have no new cash to add to your account as gyurisc has suggested, I wouldn't sweat the small amounts – it doesn't hurt to have a little cash sit idle, even if you want to theoretically be fully invested (the wisdom of doing that, or not, perhaps worthy of another question :-) If you try too hard to invest the small amounts frequently, you're likely to get killed on fees. My strategy (if you could call it that) is to simply let small amounts accumulate until there's enough to buy more shares without paying too much commission. For instance, I don't like fees to be more than 1% of the shares purchased, so with a $10 commission per trade, I prefer to make minimum $1000 purchases. I used to roll small amounts of cash into a no-load money market fund I could buy without commission, and then purchase shares when I hit the threshold, but even putting the cash in a money market fund isn't worth the hassle today with rates of return from money market funds being close to zero.","You are suggesting something called dollar cost averaging (or its cousin, dollar value averaging) - http://www.investopedia.com/articles/stocks/07/dcavsva.asp This is certainly a valid investment strategy, although personally, I feel that for long term investment, it is not necessary unless you plan on being an active trader. I still strongly encourage you to research these two methods and see if they would work well for your personal investment strategy and goals. As far as what sorts of investments for a taxable account, I have three general recommendations: As far as which company to use for your brokerage, I personally have accounts at Voya, TRowe Price and Fidelity. I would strongly recommend Fidelity out of those three, mostly due to customer service and quality and ease of use of their website. Vanguard is a great brokerage, but you don't have to choose them just because you plan to mostly invest in Vanguard funds. I also recommend you research how capital gains and dividend taxing works (and things like lost harvesting), so that you can structure your investments with taxes in mind. Do this ahead of time, don't wait until April of 2016 because it will be too late to save on taxes by then.","\"Plenty! Following are just a few: For things like RESP and RRSP which have an \"\"end\"\" date; as you or your children age, you should be migrating to less speculative investments and more secure ones. When children are young, for example, you might be in a \"\"growth\"\" type fund. Later on, you would likely want to switch that to an \"\"income\"\" fund, which is also more conservative and less likely to lose principal. Are you getting the best benefit from your credit cards? Is there another card with benefits that you would get more \"\"back\"\" from using? Is that fee-based Air miles card worth it? Is cash-back better for you? If you have regular investment withdrawals, can you increase them? Do you like the plan they are going in to? Similarly look over any other long-term debt repayment. Student loans, car loans, mortgage. What is coming up this year, what is \"\"ending\"\". If, for example, car payment will end, how will you earmark that money, so it just does not disappear into general funds. While you could go over things like these more often, once a year should be plenty often to keep tabs and not obsess. Good Luck!\"","\"You mentioned three concepts: (1) trading (2) diversification (3) buy and hold. Trading with any frequency is for people who want to manage their investments as a hobby or profession. You do not seem to be in that category. Diversification is a critical element of any investment strategy. No matter what you do, you should be diversified. All the way would be best (this means owning at least some of every asset out there). The usual way to do this is to own a mutual or index fund. Or several. These funds own hundreds or thousands of stocks, so that buying the fund instantly diversifies you. Buy and hold is the only reasonable approach to a portfolio for someone who is not interested in spending a lot of time managing it. There's no reason to think a buy-and-hold portfolio will underperform a typical traded portfolio, nor that the gains will come later. It's the assets in the portfolio that determine how aggressive/risky it is, not the frequency with which it is traded. This isn't really a site for specific recommendations, but I'll provide a quick idea: Buy a couple of index funds that cover the whole universe of investments. Index funds have low expenses and are the cheapest/easiest way to diversify. Buy a \"\"total stock market\"\" fund and a \"\"total bond fund\"\" in a ratio that you like. If you want, also buy an \"\"international fund.\"\" If you want specific tickers and ratios, another forum would be better(or just ask your broker or 401(k) provider). The bogleheads forum is one that I respect where people are very happy to give and debate specific recommendations. At the end of the day, responsibly managing your investment portfolio is not rocket science and shouldn't occupy a lot of time or worry. Just choose a few funds with low expenses that cover all the assets you are really interested in, put your money in them in a reasonable-ish ratio (no one knows that the best ratio is) and then forget about it.\"","The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.","If you have the money put it in, and invest the money over a few months. Always keep a modest reserve of cash to give you the flexibility to take advantage of market opportunities.","Sure, with some general rules of thumb: what is the minimum portfolio balance to avoid paying too much for transaction fees? Well, the fee doesn't change with portfolio balance or order size, so I don't know what you're trying to do here. The way to have less transaction fees is to have less transactions. That means no day-trading, no option rolling, etc. A Buy-and-hold strategy (with free dividend reinvestment if available) will minimize transaction fees.","This depends on the terms and conditions of your IRA account, and those of the investments you have chosen. In general, you are better off investing as quickly as is feasible given those terms. Money in your cash account doesn't earn much of a return, so the quicker you get money into something earning a return, the better. However, pay attention to the fees and costs associated with investing. If there is a per-transaction fee, you may want to consolidate, as it may be more efficient to do so - after all, if you contribute $500 at a shot, and it costs you $5 to make a trade, you're paying 1% off the top to make that trade if you make 11 of them, versus 0.1% to make 1, so the question is do you earn that 1% back over the course of the six months? That will depend on what you are investing in. More than likely you're going to earn more than 1% over the course of the six months, so it's probably worth investing it in pieces still in that situation, but if the transaction cost is higher, or the time differential lower, you may have a less clear-cut answer. I invest at Vanguard in their funds and have no transaction fees, so I have a more obvious answer (invest as soon as possible). You also need to consider whether you have minimums to pay attention to - maybe your investment is something you can only buy whole shares of, for example, or you might have a much higher fee if you make small transactions. In that case, you should wait until you have the minimum to make that transaction if the fee is more than the return you'll get. So the answer is - make the transactions as early as you can, subject to considering the fees you will pay for making them.","That depends whether you're betting on the market going up, or down, during the year. If you don't like to bet (and I don't), you can take advantage of dollar cost averaging by splitting it up into smaller contributions throughout the year.","If you know with 100% certainty what the market will do, then invest it all at the best time. If not, spread it out over time to avoid investing it all at the worst possible time.","I personally invest in 4 different ETFs. I have $1000 to invest every month. To save on transaction costs, I invest that sum in only one ETF each month, the one that is most underweight at the time. For example, I invest in XIC (30%), VTI (30%), VEA (30%), and VWO (10%). One month, I'll buy XIC, next month VTA, next month, VEA, then XIC again. Eventually I'll buy VWO when it's $1000 underweight. If one ETF tanks, I may buy it twice in a row to reach my target allocation, or if it shoots up, I may skip buying it for a while. My actual asset allocation never ends up looking exactly like the target, but it trends towards it. And I only pay one commission a month. If this is in a tax-sheltered account (main TFSA or RRSP), another option is to invest in no-load index mutual funds that match the ETFs each month (assuming there's no commission to buy them). Once they reach a certain amount, sell and buy the equivalent ETFs. This is not a good approach in a non-registered account because you will have to pay tax on any capital gains when selling the mutual funds.","I buy or sell a few shares whenever I have a small amount of money to transfer into out of my mutual funds. Since I'm not paying transaction fees, there is no reason not to, when that is what makes sense. If you are paying a fee for each transaction, of course it makes sense to try to wait until you have a larger amount to move so the overhead per share is lower.","The two biggest issues that impact your question I would say are diversification and fees. If you have $10,000 to invest and only invest it in two securities, then a 20% drop in one security can have you lose 10% of your initial investment which I would consider a very high risk scenario. If you have $10,000 to invest and invest it in 20 securities, then a 20% drop in one security would only cause you to lose 1% of your initial investment. So far this is looking better from a diversification point of view. But then the issue of fees comes in. If you paid $10 per trade to buy those 20 securities you already spent 2% of your initial investment in fees! Not to mention you will pay at least another $200 to get out of all those positions. No right answer - but those are the two factors I always try to balance.","Daily > Weekly > Monthly. This statement says that if you use daily returns you will get more noise than if you used weekly or monthly returns. Much of the research performed uses monthly returns, although weekly returns have been used as well. For HFT you would need to detrend the data in order to spot true turning points.","It's important to remember that upward trending things spend the vast majority of their time at all time highs - intelligent, well meaning people have been regularly saying the Dow Jones has been too expensive since about 2010, often because it was now at 'all time highs': Sitting on the sidelines can end up just as expensive (if not more so) than avoiding big drops. If you are worried about a large down swing straight after investing just drip it in over a period you feel comfortable with - no one can really answer this better than that without more info on your risk tolerance and exactly what you want to invest in. Worth noting that buying anything other than transaction free funds when split into small transactions also adds a lot more fees (~£10 entry and exit in a UK ISA for example). Split these over 12 months say, and it will cost you £240 straight out of the gate (2 fund purchases per month for 12 months @£10 each) and another £240 to exit before any holding fees from the ISA platform: that's over 1% of your capital gone just to your stockbroker employing this strategy. Both the products you mention are also quite high cost in ongoing charges, so unless you have very high convictions about the management quality, will also probably lag cheaper investment types over the long run as well due to the dire performance of virtually all higher cost, active management over time.","The fee representing the expense ratio is charged as long as you hold the investment. It is deducted daily from the fund assets, and thus reduces the price per share (NAV per share) that is calculated each day after the markets close. The investment fee is charged only when you make an investment in the fund. So, invest in the fund in one swell foop (all $5500 or $6500 for older people, all invested in a single transaction) rather than make monthly investments into the fund (hold the money in a money-market within your Roth IRA if need be). But, do check if there are back-end loads or 12b1 fees associated with the fund. The former often disappear after a few years; the latter are another permanent drain on performance. Also, please check whether reinvestment of dividends and capital gains incur the $75 transaction fee.","\"Wow, this turns out to be a much more difficult problem than I thought from first looking at it. Let's recast some of the variables to simplify the equations a bit. Let rb be the growth rate of money in your bank for one period. By \"\"growth rate\"\" I mean the amount you will have after one period. So if the interest rate is 3% per year paid monthly, then the interest for one month is 3/12 of 1% = .25%, so after one month you have 1.0025 times as much money as you started with. Similarly, let si be the growth rate of the investment. Then after you make a deposit the amount you have in the bank is pb = s. After another deposit you've collected interest on the first, so you have pb = s * rb + s. That is, the first deposit with one period's growth plus the second deposit. One more deposit and you have pb = ((s * rb) + s) * rb + s = s + s * rb + s * rb^2. Etc. So after n deposits you have pb = s + s * rb + s * rb^2 + s * rb^3 + ... + s * rb^(n-1). This simplifies to pb = s * (rb^n - 1)/(rb - 1). Similarly for the amount you would get by depositing to the investment, let's call that pi, except you must also subtract the amount of the broker fee, b. So you want to make deposits when pb>pi, or s*(ri^n-1)/(ri-1) - b > s*(rb^n-1)/(rb-1) Then just solve for n and you're done! Except ... maybe someone who's better at algebra than me could solve that for n, but I don't see how to do it. Further complicating this is that banks normally pay interest monthly, while stocks go up or down every day. If a calculation said to withdraw after 3.9 months, it might really be better to wait for 4.0 months to collect one additional month's interest. But let's see if we can approximate. If the growth rates and the number of periods are relatively small, the compounding of growth should also be relatively small. So an approximate solution would be when the difference between the interest rates, times the amount of each deposit, summed over the number of deposits, is greater than the fee. That is, say the investment pays 10% per month more than your bank account (wildly optimistic but just for example), the broker fee is $10, and the amount of each deposit is $200. Then if you delay making the investment by one month you're losing 10% of $200 = $20. This is more than the broker fee, so you should invest immediately. Okay, suppose more realistically that the investment pays 1% more per month than the bank account. Then the first month you're losing 1% of $200 = $2. The second month you have $400 in the bank, so you're losing $4, total loss for two months = $6. The third month you have $600 in the bank so you lose an additional $6, total loss = $12. Etc. So you should transfer the money to the investment about the third month. Compounding would mean that losses on transferring to the investment are a little higher than this, so you'd want to bias to transferring a little earlier. Or, you could set up a spreadsheet to do the compounding calculations month by month, and then just look down the column for when the investment total minus the bank total is greater than the broker fee. Sorry I'm not giving you a definitive answer, but maybe this helps.\"","Let's say I have $10,000, and I invest said monies in mutual fund XXXXX at $100/share, effectively giving me 100 shares. Now, let's assume at the end of the year I have a 5% return. My $10,000 is now $10,500. At what point does my investment benefit from compounded interest? Monthly? Quarter? Yearly? Does it even benefit? Daily would be my answer as your investment, unless you are selling shares or not re-investing distributions is getting the following day's change that impacts the overall return. Consider how if your fund went up 2% one day and then 2% another day from that $10,000 initial investment. The first gain brings it up to $10,200 and then the second makes it $10,402 where the extra $2 is from the compounding. The key though is that these are generally small movements that have to be multiplied together. Note also that if your fund goes up and down, you may end up down overall given how the returns compound. Consider that your $10,000 goes up 10% to $11,000 and then down 10% to result in $9,900 as the return for up x% and down x% is (1+x)(1-x)=1-x^2 which in this case is 1% as 10% of 10% is 1%. The key is how long do you keep all the money in there so that the next day is applied to that amount rather than resetting back to the initial investment.","\"I up voted JoeTaxpayer but i would like add a couple of things. Dollar Cost averaging over a 5 day period is in no way practical. If you get a 1% swing in that time that would be quite a lot. Personally I think 5 years is way to long. When markets go down they go down fast. I would suggest 1 to 2 years investing quarterly. I would hate seeing you miss out on market gains for a 5 year period on the last of your money. The whole point of Dollar Cost averaging instead of market timing is the mantra \"\"Its about time in the market not timing the market\"\" So if you have money on the sidelines for years you are missing out on your time in the market.\"","In summary, you are correct that the goal of investing is to maximize returns, while paying low management fees. Index investing has become very popular because of the low fees. There are many actively traded mutual funds out there with very high management fees of 2.5% and up that do not beat the market. This begs the question of why you are paying high management fees and not just investing in index funds. Consider maxing out your tax sheltered accounts (401(k) and ROTH IRA) to avoid even more fees on your returns. Also consider having a growth component of your portfolio which is generally filled with equity, along with a secure component for assets such as bonds. Bonds may not have the exciting returns of equity, but they help to smooth out the volatility of your portfolio, which may help to keep peace of mind when the market dips.","Although the market discussion by other answers is correct, the tax structure of many developed nations (I am familiar with Canada in particular) offers a preferred tax rate for dividend income compared to taxable gains. Consequently, if your portfolio is large enough to make transaction fees a very small percentage rate, this is a viable investment strategy. However, as the preferred tax rate for dividends typically will catch up to that for capital gains at some cut-off point, there is a natural limit on how much income can be favourably obtained in this way. If you believe your portfolio might be large enough to benefit from this investment strategy, talk to a qualified investment advisor, broker, or tax consultant for the specifics for your tax jurisdiction.","The goal of the kelly criterion strategy is to find a balance between preservation of starting capital and returns. One of extreme you could bet the entirety of your account on one trade, which would maximize your returns if you win, but leave you unable to further invest if you lose. On the other extreme, you could bet the smallest amount of capital possible over the course of several trades to increase the probability that you'll even out to 70% accuracy over time. But this method would be extremely slow. So for your case, investing 40% each time is one way to find an optimal balance between these two extremes. Use this as a rule of thumb though, because your own situation and investing goals may differ from the goal of optimal growth.","First off, I think you are on the right path not paying 3% to a broker; that sort of fee reduces the money you earn significantly in the long term. For your fund investing approach, 10 funds seems like a lot; one of the point of funds is that they are diversified, so I would expect that the 10th fund would give relatively little diversification over the other 9. I would think about targeting only 5 funds. To invest in the funds, rather than trying to invest in all funds every month, put all of the money into a single fund, and rotate the fund month to month. That reduces your transaction costs significantly.","\"It's a trade-off. The answer depends on your risk tolerance. Seeking higher rewards demands higher risk. If you want advice, I would recommend hiring an expert to design a plan which meets your needs. As a sample point, NOT necessarily right for anyone else...I'm considered an aggressive investor, and my own spread is still more conservative than many folks. I'm entirely in low-cost index funds, distributed as ... with the money tied up in a \"\"quiesced\"\" defined-contribution pension fund being treated as a low-yield bond. Some of these have beaten the indexes they're tracking, some haven't. My average yield since I started investing has been a bit over 10%/year (not including the company match on part of the 401k), which I consider Good Enough -- certainly good enough for something that requires near-zero attention from me. Past results are not a guarantee of future performance. This may be completely wrong for someone at a different point in their career and/or life and/or finances. I'm posting it only as an example, NOT a recommendation. Regarding when to rebalance: Set some threshhold at which things have drifted too far from your preferred distribution (value of a fund being 5% off its target percentage in the mix is one rule I've sometimes used), and/or pick some reasonable (usually fairly low) frequency at which you'll actively rebalance (once a year, 4x/year, whenever you change your car's oil, something like that), and/or rebalance by selecting which funds you deposit additional money into whenever you're adding to the investments. Note that that last option avoids having to take capital gains, which is generally a good thing; you want as much of your profit to be long-term as possible, and to avoid triggering the \"\"wash sales\"\" rule. Generally, you do not have to rebalance very frequently unless you are doing something that I'd consider unreasonably risky, or unless you're managing such huge sums that a tiny fraction of a percent still adds up to real money.\"","Canadian Couch Potato has an article which is somewhat related. Ask the Spud: Can You Time the Markets? The argument roughly boils down to the following: That said, I didn't follow the advice. I inherited a sum of money, more than I had dealt with before, and I did not feel I was emotionally capable of immediately dumping it into my portfolio (Canadian stocks, US stocks, world stocks, Canadian bonds, all passive indexed mutual funds), and so I decided to add the money into my portfolio over the course of a year, twice a month. The money that I had not yet invested, I put into a money market account. That worked for me because I was purchasing mutual funds with no transaction costs. If you are buying ETFs, this strategy makes less sense. In hindsight, this was not financially prudent; I'd have been financially better off to buy all the mutual funds right at the beginning. But I was satisfied with the tradeoff, knowing that I did not have hindsight and I would have been emotionally hurt had the stock market crashed. There must be research that would prove, based on past performance, the statistically optimal time frame for dollar-cost averaging. However, I strongly suppose that the time frame is rather small, and so I would advise that you either invest the money immediately, or dollar-cost average your investment over the course of the year. This answer is not an ideal answer to your question because it is lacking such a citation.","As a matter of fact, I invest small sums in stable stocks every month (in fact, much lesser than the $50 you are talking about). More than the return on investment, I gained a lot of knowledge keeping track of my stocks and this now helps me pick my stocks better. And the portfolio is doing great too. So, it is a good idea to start small and invest regularly.","It varies. Depending on your brokerage, they may charge you per transaction, so the more transactions, the higher the cost. Though this (from what I've seen), is uncommon with many index funds. In terms of how aggressive you want to be with your investment varies on your comfort with risk, timeline of investment and many other factors beyond the scope of this question. The biggest issue you may need to be aware of is if you are looking at mutual funds, they may have minimum investments. Depending on what that minimum investment is set to, you may not be able to split your $5500 into more than one fund. A lot of this comes down to the specific funds in which your are anticipating investing, as well as the service you use to do so (Fidelity, Vanguard, etc). Ultimately, diversification can be a lot safer, but there are logistics to consider. Personally, I began with a target fund (a mutual fund with adjusted risk based on the estimated year of retirement) and add additional mutual funds, stocks and ETFs as time goes on.","\"1000 (£/$/€) is also not a lot to start with. Assuming you want to buy stocks or ETFs you will be paying fees on both ends. Even with online brokerages you are looking at 7.95 (£/$/€) a trade. That of course translates to a min of .795% x 2 = 1.59% increase in value you would need just to break even already. There is a way around some of this as a lot of the brokerages do not charge fees for their ETFs or their affiliated ones. However, I would try to hold out till at least $5000 before investing in assets such as stocks. In the meantime there are many great books out there to \"\"invest in knowledge\"\".\"","\"Previously (prior to Capital One acquisition -- it's kind of like K-Mart buying Sears) Sharebuilder offered 12 automatic (i.e. pre-scheduled) stock purchases per month if you subscribed to their $12/mo \"\"Advantage\"\" plan. So, 12 trades for $1 a trade. Great deal. Except then they flattened their pricing to everyone's acclaim (that is, everyone except for the non-millionaire casual investors) and jacked it up to $4 per automatic investment. As far as I know, Sharebuilder's 12 no-fee investments for $12/mo was rather unique in the online trading world -- and now it's very sadly extinct. They do have no-fee mutual fund investing, however, for what it's worth.\"","Dollar cost averaging is beneficial if you don't have the money to make large investments but are able to add to your holding over time. If you can buy the same monetary amount at regular intervals over time, your average cost per share will be lower than the stock's average value over that time. This won't necessarily get you the best price, but it will get you, on the whole, a good price and will enable you to increase your holdings over time. If you're doing frequent trading on a highly volatile stock, you don't want to use this method. A better strategy is to buy the dips: Know the range, and place limit orders toward the bottom of the range. Then place limit orders to sell toward the high end of the range. If you do it right, you might be able to build up enough money to buy and sell increasing numbers of shares over time. But like any frequent trader, you'll have to deal with transaction fees; you'll need to be sure the fees don't eat all your profit.","Katherine from Betterment here. I wanted to address your inquiry and another comment regarding our services. I agree with JAGAnalyst - it's detrimental to your returns and potential for growth if you try to time the market. That's why Betterment offers customized asset allocation for each portfolio based on the nature of your goal, time horizon, and how much you are able to put towards your investments. We do this so regardless of what's happening in the markets, you can feel comfortable that your asset allocation plus other determining factors will get you where you need to go, without having to time your investing. We also put out quite a bit of content regarding market timing and why we think it's an unwise practice. We believe continuously depositing to your goal, especially through auto-deposits, compounding returns, tax-efficient auto-rebalancing, and reinvesting dividends are the best ways to grow your assets. Let me know if you would like additional information regarding Betterment accounts and our best practices. I am available at buck@betterment.com and am always happy to speak about Betterment's services. Katherine Buck, Betterment Community Manager","I do the same thing with my 401k (100% S&P 500). My strategy is to check it weekly. If the S&P falls by 10%-20% (based on risk tolerance, currently mine is 19%). I'll move all of it out into cash until I see 3-consecutive months of gains, then I'll get back in. I don't have a lot of time to manage my investments, and this was the simplest strategy I've come up with so far. It served me very well in the 2008 crash. I got out around 120 and returned to the S&P on 2009-06-29 around 90.","\"In many cases the expenses are not pulled out on a specific day, so this wouldn't work. On the other hand some funds do charge an annual or quarterly fee if your investment in the fund is larger than the minimum but lower than a \"\"small balance\"\" value. Many funds will reduce or eliminate this fee if you signup for electronic forms or other electronic services. Some will also eliminate the fee if the total investment in all your funds is above a certain level. For retirement funds what you suggest could be made more complex because of annual limits. Though if you were below the limits you could decide to add the extra funds to cover those expenses as the end of the year approached.\"","which is a better way to structure a SIP, This is no one way better than other. SIP as you already know offers advantages in terms of averaging costs. Given that transaction costs are same, averaging daily would be better from law of averages point of view. The only flip side to doing it daily is tracking, i.e. your Bank Statement is going to look horrible, recon as to what and how much got purchased will be horrendous. Further tracking liquidity could be an issue unless you use segregated accounts. i.e. you don't know how done you are with your investments. On monthly this is more easy, once you get salary and get investments and other mandatory payments out of way, you know what you have in the account for rest of the month. In the end I would put this more of convenience than anything else.","Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy. Let's say you have ₹15,000 to start with. Split this in to three components: Purchase all of the above at the same time. 30 days later, you will have the first FD mature. If you need this money, you use it. If you don't need it, purchase another 90-day fixed deposit. If you keep going this way, you will have a deposit mature every 30 days and can choose to use it or renew the fixed deposit. This strategy has some disadvantages to consider: As for interest rates, the length of the fixed deposit in positively related to the interest rate. If you want higher interest rates, elect for longer fixed deposit cycles.For instance, when you become more confident about your financial situation, replace the 30, 60, 90 day cycle with a 6, 12, 18 month cycle The cost of maintaining the short term deposit renewals and new purchases. If your bank does not allow such transactions through on line banking, you might spend more time than you like at a bank or on the phone with the bank You want a monthly dividend but this might not be the case with fixed deposits. It depends on your bank but I believe most Indian banks pay interest every three months","Here are my re-run figures. Not counting capital gains taxes, I calculate you need to be making 1.875% per annum or 0.155% per month on your $8,000 investment to break-even on the loan. It's interesting that the return you need to gain to break-even is less than the interest you're paying, even with commission. It happens because the investment is gaining a return on an increasing amount while the load is accruing interest on a decreasing amount. Ref. r, logarithmic return","You're completely missing the most important thing you can do: minimize fees.","It would depend on a) Ones view on Markets and b) Ones nature. If one believes that the market would be going up in the near future then it would be best to buy all at once. If one believes the market is uncertain, it would make sense to invest over a period of time. If one is a disciplined investor and can stick to plan, it would make sense to invest over a period of time as the risk is generally less. How much less is again subjective. If one is not a disciplined investor then buying now and getting done with is a good idea. As to exactly quantifying this is absolute number for future would not be possible. One can take the data from past, however it would work advantages if the prices moves up and disadvantages if the price moves down.","There is no rule of thumb (although some may suggest there is). Everybody will have different goals, investment preferences and risk tolerances. You need to figure this out by yourself by either education yourself in the type of investments you are interested in or by engaging (and paying for) a financial advisor. You should not be taking advice from others unless it is specifically geared for your goals, investment DNA and risk tolerance. The only advice I would give you is to have a plan (whether you develop it yourself or pay a financial advisor to develop one). Also, don't have all your savings sitting in cash, as long-term you will fall behind the eight ball in real returns (allowing for inflation).","\"If you want to make a profit from long term trading (whatever \"\"long term\"\" means for you), the best strategy is to let the good performers in your portfolio run, and cull the bad ones. Of course that strategy is hard to follow, unless you have the perfect foresight to know exactly how long your best performing investments will continue to outperform the market, but markets don't always follow the assumption that perfect information is available to all participants, and hence \"\"momentum\"\" has a real-world effect on prices, whether or not some theorists have chosen to ignore it. But a fixed strategy of \"\"daily rebalancing\"\" does exactly the opposite of the above - it continuously reduces the holdings of good performers and increases the holdings of bad. If this type of rebalancing is done more frequently than the constituents of benchmark index are adjusted, it is very likely to underperform the index in the long term. Other issues in a \"\"real world\"\" market are the impact of increased dealing costs on smaller parcels of securities, and the buy/sell spreads incurred in the daily rebalancing trades. If the market is up and down 1% on alternate days with no long tern trend, quite likely the fund will be repeatedly buying and selling small parcels of the same stocks to do its daily balancing.\"","My super fund and I would say many other funds give you one free switch of strategies per year. Some suggest you should change from high growth option to a more balance option once you are say about 10 to 15 years from retirement, and then change to a more capital guaranteed option a few years from retirement. This is a more passive approach and has benefits as well as disadvantages. The benefit is that there is not much work involved, you just change your investment option based on your life stage, 2 to 3 times during your lifetime. This allows you to take more risk when you are young to aim for higher returns, take a balanced approach with moderate risk and returns during the middle part of your working life, and take less risk with lower returns (above inflation) during the latter part of your working life. A possible disadvantage of this strategy is you may be in the higher risk/ higher growth option during a market correction and then change to a more balanced option just when the market starts to pick up again. So your funds will be hit with large losses whilst the market is in retreat and just when things look to be getting better you change to a more balanced portfolio and miss out on the big gains. A second more active approach would be to track the market and change investment option as the market changes. One approach which shouldn't take much time is to track the index such as the ASX200 (if you investment option is mainly invested in the Australian stock market) with a 200 day Simple Moving Average (SMA). The concept is that if the index crosses above the 200 day SMA the market is bullish and if it crosses below it is bearish. See the chart below: This strategy will work well when the market is trending up or down but not very well when the market is going sideways, as you will be changing from aggressive to balanced and back too often. Possibly a more appropriate option would be a combination of the two. Use the first passive approach to change investment option from aggressive to balanced to capital guaranteed with your life stages, however use the second active approach to time the change. For example, if you were say in your late 40s now and were looking to change from aggressive to balanced in the near future, you could wait until the ASX200 crosses below the 200 day SMA before making the change. This way you could capture the majority of the uptrend (which could go on for years) before changing from the high growth/aggressive option to the balanced option. If you where after more control over your superannuation assets another option open to you is to start a SMSF, however I would recommend having at least $300K to $400K in assets before starting a SMSF, or else the annual costs would be too high as a percentage of your total super assets.","\"The high frequency trading you reference has no adverse impact on individual investors - at least not in the \"\"going to take advantage of you\"\" way that many articles imply. If anything, high-frequency trading is generally more helpful than harmful, adding liquidity to the system, although it can cause some volatility and \"\"noise\"\" in volume and other data, and the sudden entrance or exit of this type of trading can drive some abnormal market movements. As to research and time needed for trading, most data suggests that the less you try to \"\"beat the market\"\", the better you'll do. Trade activity tends to be inversely related to returns, particularly for individuals. Your best bet is likely to learn enough about investment risks to ensure you're comfortable with them, and invest in broadly diversified asset classes, regions, and sectors, and then mostly leave them alone, or rebalance annually. You'll almost surely do a lot better that way than you will if you spend countless hours researching the \"\"right\"\" stocks to buy.\"","You will maximize your expected wealth by investing all the money you intend to invest, as soon as you have it available. Don't let the mythos of dollar cost averaging induce you to allocate more much money to a savings account than is optimal. If you want the positive expected return of the market, don't put your money in a savings account. That's especially true now, when you are certainly earning a negative real interest rate on your savings account. Dollar cost averaging and putting all your money in at the beginning would have the same expected return except that if you put all your money in earlier, it spends more time in the market, so your expected return is higher. Your volatility is also higher (because your savings account would have very low volatility) but your preference for investment tells me that you view the expected return and volatility tradeoff of the stock market as acceptable. If you need something to help you feel less stress about investing right away, think of it as dollar cost averaging on a yearly basis instead of monthly. Further, you take take comfort in knowing that you have allocated your wealth as you can instead of letting it fizzle away in real terms in a bank account.","That doesn't sound like dollar cost averaging. That sounds like a form of day trading. Dollar cost averaging is how most people add money to their 401K, or how they add money to some IRA accounts. You are proposing a form of day trading.","Your edit indicates that you may not yet be ready to get heavily involved in investing. I say this because it seems you are not very familiar with foundational finance/investing concepts. The returns that you are seeing as 'yearly' are just the reported earnings every 12 months, which all public companies must publish. Those 'returns' are not the same as the earnings of individual investors (which will be on the basis of dividends paid by the company [which are often annual, sometimes semi-annual, and sometimes quarterly], and by selling shares purchased previously. Note that over 3 months time, investing in interest-earning investments [like bank deposits] will earn you something like 0.5%. Investing in the stock market will earn you something like 2% (but with generally higher risk than investing in something earning interest). If you expect to earn significant amounts of money in only 3 months, you will not be able to without taking on extreme levels of risk [risk as high as going to a casino]. Safe investing takes time - years. In the short term, the best thing you can do to earn money is by earning more [through a better job, or a second part-time job], or spending less [budget, pay down high interest debt, and spend less than you earn]. I highly recommend you look through this site for more budgeting questions on how to get control of your finances. If you feel that doesn't apply to you, I encourage you to do a lot more research on investing before you send your money somewhere - you could be taking on more risk than you realize, if you are not properly informed.","DCA is not 10%/day over 10 days. If I read the objective correctly, I'd suggest about a 5 year plan. It's difficult to avoid the issue of market timing. And any observation I'd make about the relative valuation of the market would be opinion. By this I mean, some are saying that PE/10 which Nobel prize winner Robert Schiller made well known, if not popular, shows we are pretty high. Others are suggesting the current PE is appropriate given the near zero rate of borrowing. Your income puts long term gains at zero under current tax code. Short term are at your marginal rate. I would caution not to let the tax tail wag the investing dog. The fellow that makes too many buy/sell decisions based on his taxes is likely to lag he who followed his overall allocation goals.","According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.","Sad part is that you aren't going to make meaningful gains with small account like that unless you are putting everything into one stock and trying to squeeze out 10% gains each trade. At this point, your main focus contributing money into the account regularly. You will be able to trade more frequently as you get more money into the account.","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","From Vanguard's Best practices for portfolio rebalancing:","The investment return for a given strategy is directly proportional to the amount invested. Invest twice as much, profit (or lose) twice as much. It's a straight multiplier. However, there are some strategies which are less risky with a larger investment, and some investments which have a minimum unit of purchase that puts them out of reach of smaller investors.","Theoretically, it could be daily, but depending upon the number of companies in the index, it could be anywhere between daily or once a month or so. Apart from that, there is a periodic index review that happens once every quarter. The methodology for each index is also different, and you need to be aware of it (we had positions on literally hundreds of indices, and I knew the methodology of almost each of them). If you have say, 2 billion dollars tracking a certain index, even a miniscule change in the composition would be substantial for you. But for certain others, you may just need to buy and sell $10k worth of stocks, and we would not even bother.","Its best to dollar cost average adding say 5%-10% a quarter into the fund. That's what Clark Howard would suggest. Also make sure you do not need the money for 5 years, then you should be okay. Its tough to lose money if you keep your money there for a long period of time.","\"You should establish a strategy -- eg a specific mix of investments/funds which has the long-term tradeofv of risk, returns, and diversification you want -- and stick to that strategy, rebalancing periodically to maintain your strategic ratios betwedn those investments. Yes, that means you will somettimes sell things that have been doing well and buy others that have been doing less well -- but that's to be expected; it's exactly what happens when you \"\"buy low, sell high\"\".\"","\"If you aren't already contributing the maximum allowable amount, by all means do so. If you are already contributing the maximum, it doesn't matter that much when you make those contributions. Making fixed monthly contributions is done mostly for budgeting reasons. Most of us can't predict fund performance well enough to optimize our contributions (by which I mean, contributing more early if you think the market is going up, but waiting if you think it will go down, following the \"\"buy low\"\" strategy). As for employer matching, check with your company to see how they compute matches. They may match contributions for the year, even if those matching funds are only paid up to a maximum per paycheck. (For example, if you contribute 200% of the match for the first 6 months, then contribute nothing for the remaining 6 months, you may still receive the same matching funds per pay period as if you were contributing 100% throughout the year.)\"","I really like keshlam's answer. Your age is also a consideration. If you make your own target fund by matching the allocations of whatever Vanguard offers, I'd suggest re-balancing every year or every other year. But if you're just going to match the allocations of their target fund, you might as well just invest in the target fund itself. Most (not all, just most) target funds do not charge an additional management fee. So you just pay the fees of the underlying funds, same as if you mirrored the target fund yourself. (Check the prospectus to see if an additional fee is charged or not.) You may want to consider a more aggressive approach than the target funds. You can accomplish this by selecting a target fund later than your actual retirement age, or by picking your own allocations. The target funds become more conservative as you approach retirement age, so selecting a later target is a way of moving the risk/reward ratio. (I'm not saying target funds are necessarily the best choice, you should get professional advice, etc etc.)","If we knew for sure that euros are only going to be more expensive in the future, then the answer would be easy: Buy them all at one time, so that we are getting them at the best price. Of course, we can't assume that to be the case, they could get cheaper, so the answer gets more complicated. Focusing strictly on monetary considerations, there are two factors to examine: Using answers to this Travel Stack Exchange question as a reference, you see that the cost of currency conversion can be as low as 1%-2% if you make the transaction with a debit card, but can be as high as 15%. So, buying 1000 euros a month would cost between 20 and 150 euros. Examining a two year chart of the Euro-Canadian Dollar exchange rate gives us an idea of how much the currency fluctuates. Over the past two years, a euro has cost has much as $1.54 CAD and as little as $1.26 CAD, a 22% spread. Looking at it on a month-to month basis, we see that monthly changes have been as high as .05 to .07 (4-5%). As such, buying 1000 euros a month could cost 50 CAD more (or less) on a monthly basis due to variance in the exchange rate. If we anticipate our overhead cost of currency conversion to be more than 5%, it doesn't make sense to do multiple transactions; the costs are likely to outweigh the benefits. If we can keep them under that amount, then multiple transactions are advantageous when the euro is cheaper. The problem is somewhat analagous to that of someone who wants to make an annual investment in a mutual fund and is unsure of whether to make the purchase all at once, or to divide it over multiple purchases. One can't know for sure which way the mutual fund price is going to move over the time period Dollar cost averaging, spreading the purchase over regular intervals, is the generally accepted solution to this problem. As such, so long as we can keep the overhead cost of currency transactions low (<5%), doing transactions on a regular basis positions ourselves to take advantage of possible drops in the price of euros and reduces the risk of buying euros when they are most expensive. If we can't keep the cost low, then currency fees would be greater than potential price drops and we would be better off doing a single transaction.","There is no reason to ever do DCA. You'll notice that no asset managers would ever dream of it. You should invest your money as soon as you get it. Throughout history, this is the utility maximizing choice. The market rises on average. Why would you keep money out of it?","\"Random deposits are a bit like playing the lotery - especially if one is frequently chasing \"\"hot tips\"\". You might make it big, but the odds are vastly against you. \"\"Random\"\" deposits into various investments won't be optimal, because such \"\"random\"\" decisions will not be properly diversified and balanced. Various investments have different rates of risk and return. \"\"Random\"\" deposits will not take this into account for an individual's personal situation. In addition to needing to research individual investments as they are made, investments also need to be considered as part of a whole financial picture. A few considerations for example: Simply put, random isn't a financial strategy.\"","Your question seems to be making assumptions around “investing”, that investing is only about stock market and bonds or similar things. I would suggest that you should look much broader than that in terms of your investments. Investment Types Your should consider (and include) some or all of the following for your investments, depending on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. I love @Blackjack’s explanation of diversification into other asset classes producing a lower risk portfolio. Excellent! All the above need to be considered in this spread of risk, depending as I said earlier on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. Stock Market Investment I’ll focus most of the rest of my post on the stock markets, as that is where my main experience lies. But the comments are applicable to a greater or lesser extent to other types of investing. We then come to how engaged you want to be with your investments. Two general management styles are passive investment management versus active investment management. @Blackjack says That pretty much sums up passive management. The idea is to buy ETFs across asset classes and just leave them. The difficulty with this idea is that profitability is very dependent upon when the stocks are purchased and when they are sold. This is why active investing should be considered as a viable alternative to passive investment. I don’t have access to a very long time frame of stock market data, but I do have 30 or so years of FTSE data, so let’s say that we invest £100,000 for 10 years by buying an ETF in the FTSE100 index. I know this isn't de-risking across a number of asset classes by purchasing a number of different EFTs, but the logic still applies, if you will bear with me. Passive Investing I have chosen my example dates of best 10 years and worst 10 years as specific dates that demonstrate my point that active investing will (usually) out-perform passive investing. From a passive investing point of view, here is a graph of the FTSE with two purchase dates chosen (for maximum effect), to show the best and worst return you could receive. Note this ignores brokerage and other fees. In these time frames of data I have … These are contrived dates to illustrate the point, on how ineffective passive investing can be, depending if there is a bear/bull market and where you buy in the cycle. One obviously wouldn’t buy all their stocks in one tranche, but I’m just trying to illustrate the point. Active Investing Let’s consider now active investing. I use the following rules for selling and buying:- This is obviously a very simple technical trading system and I would not recommend using it to trade with, as it is overly simplistic and there are some flaws and inefficiencies in it. So, in my simulation, These beat the passive stock market profit for their respective dates. Summary Passive stock market investing is dependent upon the entry and exit prices on the dates the transactions are made and will trade regardless of market cycles. Active stock market trading or investing engages with the market using a set of criteria, which can change over time, but allows one’s investments to be in or out of the market at any point in time. My time frames were arbitrary, but with the logic applied (which is a very simple technical trading methodology), I would suggest that any 10 year time frame active investing would beat passive investing.","I think small sums invested regularly over long-term can do good for you, things to consider: I would go with an index fund and contribute there there regularly.","There is a basis for that if you consider the power of compounding. So, the sooner you re-invest the dividends the sooner the time will give you results (through compounding). There is also the case of the commissions, if they are paid with a percentage of the amount invested they automatically gain more from you. Just my 2cents, though the other answers are probably more complete.","Consistently beating the market by picking stocks is hard. Professional fund managers can't really do it -- and they get paid big bucks to try! You can spend a lot of time researching and picking stocks, and you may find that you do a decent job. I found that, given the amount of money I had invested, even if I beat the market by a couple of points, I could earn more money by picking up some moonlighting gigs instead of spending all that time researching stocks. And I knew the odds were against me beating the market very often. Different people will tell you that they have a sure-fire strategy that gets returns. The thing I wonder is: why are you selling the information to me rather than simply making money by executing on your strategy? If they're promising to beat the market by selling you their strategy, they've probably figured out that they're better off selling subscriptions than putting their own capital on the line. I've found that it is easier to follow an asset allocation strategy. I have a target allocation that gives me fairly broad diversification. Nearly all of it is in ETFs. I rebalance a couple times a year if something is too far off the target. I check my portfolio when I get my quarterly statements. Lastly, I have to echo JohnFx's statement about keeping some of your portfolio in cash. I was almost fully invested going into early 2001 and wished I had more cash to invest when everything tanked -- lesson learned. In early 2003 when the DJIA dropped to around 8000 and everybody I talked to was saying how they had sold off chunks of their 401k in a panic and were staying out of stocks, I was able to push some of my uninvested cash into the market and gained ~25% in about a year. I try to avoid market timing, but when there's obvious panic or euphoria I might under- or over-allocate my cash position, respectively.","If you are going to the frenzy of individual stock picking, like almost everyone initially, I suggest you to write your plan to paper. Like, I want an orthogonal set of assets and limit single investments to 10%. If with such limitations the percentage of brokerage fees rise to unbearable large, you should not invest that way in the first hand. You may find better to invest in already diversified fund, to skip stupid fees. There are screeners like in morningstar that allow you to see overlapping items in funds but in stocks it becomes trickier and much errorsome. I know you are going to the stock market frenzy, even if you are saying to want to be long-term or contrarian investor, most investors are convex, i.e. they follow their peers, despite it would better to be a concave investor (but as we know it can be hard). If the last part confused you, fire up a spreadsheet and do a balance. It is a very motivating activity, really. You will immediately notice things important to you, not just to providers such as morningstar, but alert it may take some time. And Bogleheads become to your rescue, ready spreadsheets here.","One implication is the added fees if you are investing in something with a trading cost or commission, such as your stock purchase. If you pay low costs to trade (e.g. with a discount broker) and don't switch your investments often, then costs overall should remain reasonable .. but always be aware of your costs and seek to minimize them.","\"An investment is sold when you sell that particular stock or fund. It doesn't wait until you withdraw cash from the brokerage account. Whether an investment is subject to long term or short term taxes depends on how long you held that particular stock. Sorry, you can't get around the higher short term tax by leaving the money in a brokerage account or re-investing in something else. If you are invested in a mutual fund, whether it's long or short term depends on when you buy and sell the fund. The fact that the fund managers are buying and selling behind your back doesn't affect this. (I don't know what taxes they have to pay, maybe you really are paying for it in the form of management fees or lower returns, but you don't explicitly pay the tax on these \"\"inner\"\" transactions.) Your broker should send you a tax statement every year giving the numbers that you need to fill in to the various boxes of your income tax form. You don't have to figure it out. Of course it helps to know the rules. If you've held a stock for 11 1/2 months and are planning to sell, you might want to consider waiting a couple of weeks so it becomes a long term capital gain rather than short term and thus subject to lower tax.\"","\"Essentially, your question is \"\"lump sum vs DCA\"\" and your tags reflect that. In the long run, lump sum, say a Jan 2 deposit each year, will beat DCA by about 1/2 the average annual market return. $12,000 will see a 10% return, vs, $1,000/month over the year seeing 6%. What hurts is when the market tanks in the first half of the year and you think DCA would have helped. This is a 'feeling' issue, not a math problem. But. By the time you have $100K invested, the difference of DCA vs lump sum with new money fades, as new deposits are small compared to the funds invested. By then, you need to know your target allocation and deposit to keep that allocation with new money.\"","True, but the number of investors who are successful with this strategy is negligible. You are basically just trading return for volatility. A well built portfolio will be better than trying to time the market, at least historically.","If you want to invest in the stock market, whether over a shorter period of 1 to 2 years or over a longer period of 10 or 20 years or longer you need to take some precautions and have a written investment plan with a risk management strategy incorporated in your plan. Others have said that 1 to 2 years is too short to invest in the stock market as the stock market can have a correction and fall by 50%. But it doesn't matter if you invest for 1 year or if you invest for 50 years, the stock market can still fall by 50% just before you plan to withdraw your funds. What you need to figure out is a way to get out before the market falls by 40% to 50%. A simple way to do this is to use technical indicators to warn you when a market trend is starting to change and that it is time to get out of the market. Two simple indicators you can use on a market index are the Rate of Change (ROC) indicator and the 100 week Moving Average (MA). Below is a 10 year weekly chart of the S&P500 with these two indicators charted. They show good times to get into the market and good times to get out. If you are using the 100 week MA you would buy in when the price crosses above the MA line and sell when the price crosses below the MA line. If you are using the ROC indicator you would buy in when the ROC indicator crosses above the zero line and sell when the ROC indicator crosses below the zero line. So your investment plan could be to buy an Index ETF representing the S&P500 when the ROC moves above zero and sell when it crosses below zero. You can also place a trailing stop loss of 10% to protect you in case of a sudden fall over a couple of days. You can manage your investments in as little as 10 minutes per week by checking the chart once per week and adjusting your stop loss order. If you want to progressively add to your investment each month you could check the charts and only add any new funds if both the ROC is above zero and sloping upwards. Another option for adding new funds could be if the price is above the MA and moving further away from the MA. All these rules should be incorporated into your investment plan so that you are not basing your decisions based on emotions. There are many other Technical Analysis Indicators you could also learn about to make better educated decisions about your stock market investments. However, what I have provided here is enough for anyone to test over different indexes and time frames and do their own paper trading on to gain some confidence before placing any real money on the table.","If your investment returns are the main variable you use to determine if your advisor is doing a good job you are using his or her services incorrectly Also, if you are using a good advisor, he or she needs to know how your investments are doing, not you. However, my thoughts are based on the idea that you can't go it alone. If you are not among the people concerned about the market, waiting for the market to go down 'so you can find a better buying opportunity', or making one of many other novice mistakes, I'm not speaking directly to you with my comments.","The main question is, how much money you want to make? With every transaction, you should calculate the real price as the price plus costs. For example, if you but 10 GreatCorp stock of £100 each, and the transaction cost is £20 , then the real cost of buying a single share is in fact buying price of stock + broker costs / amount bought, or £104 in this case. Now you want to make a profit so calculate your desired profit margin. You want to receive a sales price of buying price + profit margin + broker costs / amount bought. Suppose that you'd like 5%, then you'll need the price per stock of my example to increase to 100 + 5% + £40 / 10 = £109. So you it only becomes worth while if you feel confident that GreatCorp's stock will rise to that level. Read the yearly balance of that company to see if they don't have any debt, and are profitable. Look at their dividend earning history. Study the stock's candle graphs of the last ten years or so, to find out if there's no seasonal effects, and if the stock performs well overall. Get to know the company well. You should only buy GreatCorp shares after doing your homework. But what about switching to another stock of LovelyInc? Actually it doesn't matter, since it's best to separate transactions. Sell your GreatCorp's stock when it has reached the desired profit margin or if it seems it is underperforming. Cut your losses! Make the calculations for LovelyCorp's shares without reference to GreatCorp's, and decide like that if it's worth while to buy.","If you want higher returns you may have to take on more risk. From lowest returns (and usually lower risk) to higher returns (and usually higher risk), Bank savings accounts, term deposits, on-line savings accounts, offset accounts (if you have a mortgage), fixed interest eg. Bonds, property and stock markets. If you want potentially higher returns then you can go for derivatives like options or CFDs, FX or Futures. These usually have higher risks again but as with any investments some risks can be partly managed. Also, CMC Markets charges $11 commission up to $10,000 trade. This is actually quite a low fee - based on your $7,000, $22 for in and out of a position would be less than 0.32% (of course you might want to buy into more than one company - so your brokerage would be slightly higher). Still this is way lower than full service brokerage which could be $100 or more in and then again out again. What ever you decide to do, get yourself educated first.","The optimal time period is unambiguously zero seconds. Put it all in immediately. Dollar cost averaging reduces the risk that you will be buying at a bad time (no one knows whether now is a bad or great time), but brings with it reduction in expected return because you will be keeping a lot of money in cash for a long time. You are reducing your risk and your expected return by dollar cost averaging. It's not crazy to trade expected returns for lower risk. People do it all the time. However, if you have a pot of money you intend to invest and you do so over a period of time, then you are changing your risk profile over time in a way that doesn't correspond to changes in your risk preferences. This is contrary to finance theory and is not optimal. The optimal percentage of your wealth invested in risky assets is proportional to your tolerance for risk and should not change over time unless that tolerance changes. Dollar cost averaging makes sense if you are setting aside some of your income each month to invest. In that case it is simply a way of being invested for as long as possible. Having a pile of money sitting around while you invest it little by little over time is a misuse of dollar-cost averaging. Bottom line: forcing dollar cost averaging on a pile of money you intend to invest is not based in sound finance theory. If you want to invest all that money, do so now. If you are too risk averse to put it all in, then decide how much you will invest, invest that much now, and keep the rest in a savings account indefinitely. Don't change your investment allocation proportion unless your risk aversion changes. There are many people on the internet and elsewhere who preach the gospel of dollar cost averaging, but their belief in it is not based on sound principles. It's just a dogma. The language of your question implies that you may be interested in sound principles, so I have given you the real answer.","\"The best strategy for RSU's, specifically, is to sell them as they vest. Usually, vesting is not all in one day, but rather spread over a period of time, which assures that you won't sell in one extremely unfortunate day when the stock dipped. For regular investments, there are two strategies I personally would follow: Sell when you need. If you need to cash out - cash out. Rebalance - if you need to rebalance your portfolio (i.e.: not cash out, but reallocate investments or move investment from one company to another) - do it periodically on schedule. For example, every 13 months (in the US, where the long term cap. gains tax rates kick in after 1 year of holding) - rebalance. You wouldn't care about specific price drops on that day, because they also affect the new investments. Speculative strategies trying to \"\"sell high buy low\"\" usually bring to the opposite results: you end up selling low and buying high. But if you want to try and do that - you'll have to get way more technical than just \"\"dollar cost averaging\"\" or similar strategies. Most people don't have neither time nor the knowledge for that, and even those who do rarely can beat the market (and never can, in the long run).\"","A general rule of thumb is to avoid having more than 5% of your investments in any single stock, to avoid excessive risk; it's usually even more risky if you're talking company stock because an adverse event could result in an inferior stock price and you getting laid off. Under other circumstances, the ideal amount of company stock is probably 0%. But there are tax benefits to waiting, as you've noted, and if you're reasonably confident that the stock isn't likely to jerk around too much, and you have a high risk tolerance (i.e. lots of extra savings besides this), and you're comfortable shouldering the risk of losing some money, it might make sense to hold onto the stock for a year - but never any longer. The real risk to holding a lot of company stock doesn't depend on how often you buy it and sell it per se, but having period purchases every month should make it easier for you to ladder the funds, and regularly sell your old shares as you purchase new shares. You might also consider a stop-loss order on the stock at or near the price you purchased it at. If the stock is at $100, then you buy at $85, and then the stock drops to $85, there are no more outstanding tax benefits and it makes no sense to have it as part of your portfolio instead of any other speculative instrument - you probably get better diversification benefits with any other speculative instrument, so your risk-adjusted returns would be higher.","You have to look at the market conditions and make decisions based on them. Ideally, you may want to have 30% of your portfolio in bonds. But from a practical point of view, it's probably not so smart to invest in bond funds right at this moment given the interest rate market. Styles of funds tend to go into and out of style. I personally do asset allocation two ways in my 457 plan (like a 401k for government workers): In my IRA, I invest in a portfolio of 5-6 stocks. The approach you take is dependent on what you are able to put into it. I invest about 10 hours a week into investment related research. If you can't do that, you want a strategy that is simpler -- but you still need to be cognizant of market conditions.","Index funds are well-known to give the best long-term investment. Are they? Maybe not all the time! If you had invested in an index fund tracking the S&P500 at the start of 2000 you would still be behind in terms of capital appreciation when taking inflation into considerations. Your only returns in 13.5 years would have been any dividends you may have received. See the monthly chart of the S&P500 below. Diversification can be good for your overall returns, but diversification simply for diversification sake is as you said, a way of reducing your overall returns in order of smoothing out your equity curve. After looking up indexes for various countries the only one that had made decent returns over a 13.5 year period was the Indian BSE 30 index, almost 400% over 13.5 years, although it also has gone nowhere since the end of 2007 (5.5 years). See monthly chart below. So investing internationally (especially in developing countries when developed nations are stagnating) can improve your returns, but I would learn about the various international markets first before plunging straight in. Regarding investing in an Index fund vs direct investment in a select group of shares, I did a search on the US markets with the following criteria on the 3rd January 2000: If the resulting top 10 from the search were bought on 3rd January 2000 and held up until the close of the market on the 19th June 2013, the results would be as per the table below: The result, almost 250% return in 13.5 years compared to almost no return if you had invested into the whole S&P 500 Index. Note, this table lists only the top ten from the search without screening through the charts, and no risk management was applied (if risk management was applied the 4 losses of 40%+ would have been limited to a maximum of 20%, but possibly much smaller losses or even for gains, as they might have gone into positive territory before coming back down - as I have not looked at any of the charts I cannot confirm this). This is one simple example how selecting good shares can result in much better returns than investing into a whole Index, as you are not pulled down by the bad stocks.","You shouldn't. The Dow has gained 7% annually on average since October 1915(inflation-adjusted). It has also lost 73% of its inflation-adjusted value from 1966 to 1982 meaning that it would have lost you 4.5% annually for 16 years. Furthermore, past performance is not indicative of future results. If stock markets keep performing like they have for the past 100 years, you can expect there will be a point within the next 60-or-so years your stocks will be higher in value than they were when you bought them. With funds you are paying the people managing them which means you are guaranteed to have pyramiding losses that your gains will have to offset. In your case, you are betting with no fundamental knowledge that S&P will be higher than now whenever you need the money which is not even supported by the above assumption. Dollar averaging just means you will be placing many bets which will reduce your expected losses(and your expected gains) when compared to just buying $100K worth of S&P right now. Whatever you invest in, and whatever your time-frame, don't gamble. If you can't say this company(ies) will be $X more valuable than now in X months with probability > Y, then you shouldn't be investing in it. Nobody ever made money by losing money. There are also safer investments than the stock market, like treasury bonds, even if the returns are lousy.","You will be hit every time, once every buy order and once every sell order. Commissions to the broker are paid every time they do something for you. This is true regardless if it is a security in which you are already invested. It is true regardless if you make or lose money. It is just as sure as death and taxes.","Every time you buy or sell a share for some price, somebody must have thought that that was exactly the right moment to sell or buy that share at that price (and to trade with you). Every time a trade is made, both sides think they are doing the smart thing. Most of the time, one will turn out to be wrong, the other right. Nothing in your proposed method of trading explains why you would be the side that was right more often. So they'll probably even out. Or maybe there are people in the market who actually do have a slightly better than average method, and you'll be wrong somewhat more often than right. Each trade has transaction costs. If you simply hang on to your shares, that's more or less the same as evening out good trades and bad trades, but without the transaction costs.","There's a few options you may want to look into. First, I'm writing from an US point of view, I do not know if these are available in Russia. First look into DRIPS (Dividend Reinvestment Plans). These seem tailor made for your request. They are plans set up by companies that pay dividends. If you own at least one share (costing no more than say $100 often less), then these companies will take the dividends paid on these shares and automatically buy more shares as the income from the dividends pile up. This is a low cost of entry way of getting in on many high quality stocks. Stalwart stocks such as GE and many utility and real estate stocks (REITs) offer this. Check out these links: Secondly you can look at brokerages that specialize in buying smaller amount of stocks on a regular basis to simulate a DRIP, ShareBuilder will allow you to invest say $50 or $100 a month into one or more stocks. However, at smaller amounts, their commission fees can eat in to your returns. Folio investing does the same thing as Sharebuilder. It's worth looking at them both and comparing their commissions and other features","It looks like you need a lot more education on the subject. I suggest you pick up a book on investing and portfolio management to get a first idea. Dividend yields are currently way below 5% on blue chips. Unlike coupons from fixed income instruments (which, in the same risk category, pay a lot less), dividend yields are not guaranteed and neither is the invested principal amount. In either case, your calculation is far away from reality. Sure, there are investments (such as the mentioned direct investments in companies or housings in emerging economies) that can potentially earn you two digit percentage returns. Just remember: risk always goes both ways. A higher earning potential means higher loss potential. Also, a direct investment is a lot less liquid than an investment on a publicly quoted high turnover market place. If you suddenly need money, you really don't want to be pressed to sell real estate in an emerging market (keyword: bid ask spread). My advice: the money that you can set aside for the long term (10 years plus), invest it in stock ETFs, globally. Everything else should be invested in bond funds or even deposits, depending on when you will need the access. As others have pointed out, consider getting professional advice.","Deposit $3,500 each month in a brokerage account and invest that money across a handful of diversified index funds. Rebalance those investments every quarter. The hard part is coming up with $3,500 each month; this is where your budget comes in.","You're contributing 98.2% of your contributed amount (deducting 1.8%) each month and at the end of the year, deducting a flat 15 pounds. The easiest way to do this is to use a spreadsheet. But you're missing some key information. What is your expected growth rate and what is your expected inflation rate? Is this a taxable account where you deduct (for example, 35%) of the growth annually for taxes or is this a non-taxable account?"],"string":"[\n \"Determine an investment strategy and that will likely answer this for you. Different people have different approaches and you need to determine for yourself what buy and sell criteria you want to have. Again, depending on the strategy there can be a wide range here as some may trade index funds though this can backfire in some cases. In others, there can be a lot of buy and hold if one finds an index fund to hold forever which depending on the strategy is possible. Returns can vary widely as an index can be everything from buying gold stocks in Russia to investing in short-term Treasuries as there are many different indices as any given market can have an index which could be stocks, bonds, a combination of the two or something else in some cases so please consider asset allocation, types of accounts, risk tolerance and time horizon in making decisions or consider using a financial planner to assist in drawing up a plan with allocations and how frequently you want to rebalance as my suggestion here.\",\n \"By not timing the market and being a passive investor, the best time to invest is the moment you have extra money (usually when wages are received). The market trends up. $10 fee on $2000 represents 0.5% transaction cost, which is borderline prohibitive. I would suggest running simulations, but I suspect that 1 month is the best because average historical monthly total return is more than 0.5%.\",\n \"Depends on what you are, an investor or a speculator. An investor will look at an 'indefinite' investment period. A speculator will be after a fast buck. If you are an investor, buy your stock once as that will cost less commissions. After all, you'll sell your stock in 10, 15, 20 years.\",\n \"Note, the main trade off here is the costs of holding cash rather than being invested for a few months vs trading costs from trading every month. Let's start by understanding investing every month vs every three months. First compare holding cash for two months (at ~0% for most Canadians right now) and then investing on the third month vs being invested in a single stock etf (~5% annually?). At those rates she is forgoing equity returns of around These costs and the $10 for one big trade give total costs of $16+$8+$10=$34 dollars. If you were to trade every month instead there would be no cost for not being invested and the trading costs over three months would just be 3*$10=$30. So in this case it would be better to trade monthly instead of every three months. However, I'm guessing you don't trade all $2000 into a single etf. The more etfs you trade the more trading more infrequently would be an advantage. You can redo the above calculations spliting the amount across more etfs and including the added trading costs to get a feel for what is best. You can also rotate as @Jason suggests but that can leave you unbalanced temporarily if not done carefully. A second option would be to find a discount broker that allows you to trade the etfs you are interested in for free. This is not always possible but often will be for those investing in index funds. For instance I trade every month and have no brokerage costs. Dollar cost averaging and value averaging are for people investing a single large amount instead of regular monthly amounts. Unless the initial amount is much much larger than the monthly amounts this is probably not worth considering. Edit: Hopefully the above edits will clarify that I was comparing the costs (including the forgone returns) of trading every 3 months vs trading every month.\",\n \"To optimize your return on investment, you need to buy low and sell high. If you knew that one stock had hit rock bottom, and the others had not, buying the low stock would be the best. However, unless you can predict the future, you don't know if any individual stock has hit the bottom, or if it will continue to drop. If you decide to spend the same amount of money each month on stock purchases, then when the price is low, you will automatically buy more shares, and when the price is high, you will buy fewer shares. This strategy is sometimes called dollar cost averaging. It eliminates the need to predict the future to optimize your buying. All that having been said, I agree with @Powers that at the investment amount that you are talking about and the per transaction fee you listed, a monthly investment in several stocks will cause you to lose quite a bit to transaction fees. It sounds like you need a different strategy.\",\n \"\\\"You will invest 1000£ each month and the transaction fee is 10£ per trade, so buying a bunch of stocks each month would not be wise. If you buy 5 stocks, then transaction costs will eat up 5% of your investment. So if you insist on taking this approach, you should probably only buy one or two stocks a month. It sounds like you're interested in active investing & would like a diversified portfolio, so maybe the best approach for you is Core & Satellite Portfolio Management. Start by creating a well diversified portfolio \\\"\\\"core\\\"\\\" with index funds. Once you have a solid core, make some active investment decisions with the \\\"\\\"satellite\\\"\\\" portion of the portfolio. You can dollar cost average into the core and make active bets when the opportunity arises, so you're not killed by transaction fees.\\\"\",\n \"Securities (things you can buy on the stock market) that pay dividends usually pay every quarter (every three months), but some pay every month. (For example: PGF pays dividends each month.) IF you reinvest your dividends back into the stock then you will be compounding your return. I use the feature at Scottrade to automatically reinvest the dividend each month. Using this feature at Scottrade incurs no commission for the purchases of the stock from the dividend. (saving on commissions and fees is, likely, the most important aspect of investing). US Treasuries (usually) pay interest twice a year. There is no commission when using Treasury Direct.\",\n \"\\\"If you are like most people, your timing is kind of awful. What I mean by most, is all. Psychologically we have strong tendencies to buy when the market is high and avoid buying when it is low. One of the easiest to implement strategies to avoid this is Dollar Cost Averaging. In most cases you are far better off making small investments regularly. Having said that, you may need to \\\"\\\"save\\\"\\\" a bit in order to make subsequent investments because of minimums. For me there is also a positive psychological effect of putting money to work sooner and more often. I find it enjoyable to purchase shares of a mutual fund or stock and the days that I do so are a bit better than the others. An added benefit to doing regular investing is to have them be automated. Many wealthy people describe this as a key to success as they can focused on the business of earning money in their chosen profession as opposed to investing money they have already earned. Additionally the author of I will Teach You to be Rich cites this as a easy, free, and key step in building wealth.\\\"\",\n \"\\\"That's a lot of manual checking-in to see if everything is performing the way you \\\"\\\"want\\\"\\\". Not to insult your intelligence, but that is not your job, and doing that on a monthly basis is going to eat a lot of time. Plus, most 401(k) programs have lockout periods wherein changes can't be made without incurring additional fees (related to distributions, etc). And if you're checking that often, you are [likely] losing the benefits of investing in mutual funds to start with. If you have the stomach to handle the risk, go for the high-risk investment vehicles early in your career - you can afford a 30% drop this year if you then make 105%, 15%, or 50% back each of the next 5. If, on the other hand, you're in your mid-career, switch to more conservative management tactics.\\\"\",\n \"If markets are efficient (which they aren't, but anyways...), the frequency of DCA investments shouldn't yield any meaningful difference in return. The one possible item to note is that if you're able to invest more frequently, you'll have more money exposed to the effects of compounding for longer, which *may* increase return. However, there are also transaction costs to consider, which may render something like *continuous* DCA-ing ineffective. That same compounding effect also negates the potential benefits of DCA altogether, making it more logical to lump sum your investments. You may be conflating DCA with simply making additional cash every week that's available for investment. If that's the case, again, lump sum as early as possible should yield the best results... (this isn't financial advice, read the sidebar disclaimers)\",\n \"I'm staring at this chart and asking myself, How long a period is enough to have an average I'd be happy with regardless of the direction the market goes? 3 years? 4 years? Clearly, a lump sum investment risks a 2000 buy at 1500. Not good. Honestly, I love the question, and find it interesting, but there's likely no exact answer, just some back and forth analysis. You're investing about $40K/yr anyway. I'd suggest a 4 year timeframe is a good time to invest the new money as well. Other folk want to offer opinions? Edit - with the OP's additional info, he expects these bonuses to continue, my updated advice is to DCA quarterly if going into assets with a transaction fee or monthly if into a no-fee fund, over just a one year period.\",\n \"Powers makes a good point: trading costs may eat up a significant portion of your ROI. A fee as little as 2% can consume more than 50% of your long-term ROI! A rule of thumb is keep your fees to less than 1%. One way to do that is to buy stock in companies that have a DRIP with a Share Purchase Plan (SPP). Often the SPP allows investors to purchase shares for low fees or free. Once you have the ability to purchase shares for (virtually) free, you can use InvestMete. Roughly, you send more money to the companies whose share prices are near their 52-week low, and less money to those who are near their 52-week high. Getting back to your original question...\",\n \"\\\"As you alluded to in your question, there is not one answer that will be true for all mutual funds. In fact, I would argue the question is not specific to mutual funds but can be applied to almost anyone who must make an investment decision: a mutual fund manager, hedge fund manager, or an individual investor. Even though money going into a company 401(k) retirement savings plan is typically automatically allocated to different funds as we have specified, this is generally not the case for other investment accounts. For example, I also have a Roth IRA in which I have some money from each paycheck direct deposited and it's up to me to decide whether to leave that money in cash or to invest it somewhere else. Every time you invest more money into a mutual fund, the fund manager has the same decision to make. There are two commonly used mutual fund figures that relate to your question: turnover rate, and cash reserves. Turnover rate measures the percent of a fund's portfolio that changes every year. For example, a turnover rate of 100% indicates that a fund replaces every asset it held at the beginning of the year with something else at the end of the year – funds with turnover rates greater than 100% average a holding period for a given asset of less than one year, and funds with turnover rates less than 100% average a holding period for a given asset of more than one year. Cash reserves simply measure the amount of money funds choose to keep as cash instead of investing in other assets. Another important distinction to make is between actively managed funds and passively managed funds. Passively managed funds are often referred to as \\\"\\\"index funds\\\"\\\" and have as their goal only to match the returns of a given index or some other benchmark. Actively managed funds on the other hand try to beat the market by exploiting so-called market inefficiencies; e.g. buying undervalued assets, selling overvalued assets, \\\"\\\"timing\\\"\\\" the market, etc. To answer your question for a specific fund, I would encourage you to look at the fund's prospectus. I take as one example of a passively managed fund the Vanguard 500 Index Fund (VFINX), a mutual fund that was created to track the S&P 500. In its prospectus, the fund states that, \\\"\\\"to track its target index as closely as possible, the Fund attempts to remain fully invested in stocks\\\"\\\". Furthermore, the prospectus states that \\\"\\\"the fund's daily cash balance may be invested in one or more Vanguard CMT Funds, which are very low-cost money market funds.\\\"\\\" Therefore, we would expect both this fund's turnover rate and cash reserves to be extremely low. When we look at its portfolio composition, we see this is true – it is currently at a 4.8% turnover rate and holds 0.0% in short term reserves. Therefore, we can assume this fund is regularly purchasing shares (similar to a dollar cost averaging strategy) instead of holding on to cash and purchasing shares together at a specific time. For actively managed funds, the picture will tend to look a little different. For example, if we look at the Magellan Fund's portfolio composition, we can see it has a turnover rate of 42%, and holds around .95% in cash/short term reserves. In this case, we can safely guess that trading activity may not be as regular as a passively managed fund, as an active manager attempts to time the market. You may find mutual funds that have much higher cash reserves – perhaps 10% or even more. Granted, it is impossible to know the exact trading strategy of a mutual fund, and for good reason – if we knew for example, that a fund purchases shares every day at 2:30PM in order to realign with the S&P 500, then sellers of S&P components could up the prices at that time to exploit the mutual fund's trade strategy. Large traders are constantly trying to find ways to conceal their actual trading activity in order to avoid these exact problems. Finally, I feel obligated to note that it is important to keep in mind that trade frequency is linked to transactions costs – in general, the more frequently an investment manager (whether it be you or a mutual fund manager) executes trades, the more that manager will lose in transactions costs.\\\"\",\n \"Okay, I think I managed to find the precise answer to this problem! It involves solving a non-linear exponential equation, but I also found a good approximate solution using the truncated Taylor series. See below for a spreadsheet you can use. Let's start by defining the growth factors per period, for money in the bank and money invested: Now, let S be the amount ready to be invested after n+1 periods; so the first of that money has earned interest for n periods. That is, The key step to solve the problem was to fix the total number of periods considered. So let's introduce a new variable: t = the total number of time periods elapsed So if money is ready to invest every n+1 periods, there will be t/(n+1) separate investments, and the future value of the investments will be: This formula is exact in the case of integer t and n, and a good approximation when t and n are not integers. Substituting S, we get the version of the formula which explicitly depends on n: Fortunately, only a couple of terms in FV depend on n, so we can find the derivative after some effort: Equating the derivative to zero, we can remove the denominator, and assuming t is greater than zero, we can divide by the constant ( 1-G t ): To simplify the equation, we can define some extra constants: Then, we can define a function f(n) and write the equation as: Note that α, β, γ, G, and R are all constant. From here there are two options: Use Newton's method or another numerical method for finding the positive root of f(n). This can be done in a number of software packages like MATLAB, Octave, etc, or by using a graphics calculator. Solve approximately using a truncated Taylor series polynomial. I will use this method here. The Taylor series of f(n), centred around n=0, is: Truncating the series to the first three terms, we get a quadratic polynomial (with constant coefficients): Using R, G, α, β and γ defined above, let c0, c1 and c2 be the coefficients of the truncated Taylor series for f(n): Then, n should be rounded to the nearest whole number. To be certain, check the values above and below n using the formula for FV. Using the example from the question: For example, I might put aside $100 every week to invest into a stock with an expected growth of 9% p.a., but brokerage fees are $10/trade. For how many weeks should I accumulate the $100 before investing, if I can put it in my high-interest bank account at 4% p.a. until then? Using Newton's method to find roots of f(n) above, we get n = 14.004. Using the closed-form approximate solution, we get n = 14.082. Checking this against the FV with t = 1680 (evenly divisible by each n + 1 tested): Therefore, you should wait for n = 14 periods, keeping that money in the bank, investing it together with the money in the next period (so you will make an investment every 14 + 1 = 15 weeks.) Here's one way to implement the above solution with a spreadsheet. StackExchange doesn't allow tables in their syntax at this time, so I'll show a screenshot of the formulae and columns you can copy and paste: Formulae: Copy and paste column A: Copy and paste column B: Results: Remember, n is the number of periods to accumulate money in the bank. So you will want to invest every n+1 weeks; in this case, every 15 weeks.\",\n \"\\\"How often should one use dollar-cost averaging? Trivially, a dollar cost averaging (DCA) strategy must be used at least twice! More seriously, DCA is a discipline that people (typically investors with relatively small amounts of money to invest each month or each quarter) use to avoid succumbing to the temptation to \\\"\\\"time the market\\\"\\\". As mhoran_psprep points out, it is well-suited to 401k plans and the like (e.g. 403b plans for educational and non-profit institutions, 457 plans for State employees, etc), and indeed is actually the default option in such plans, since a fixed amount of money gets invested each week, or every two weeks, or every month depending on the payroll schedule. Many plans offer just a few mutual funds in which to invest, though far too many people, having little knowledge or understanding of investments, simply opt for the money-market fund or guaranteed annuity fund in their 4xx plans. In any case, all your money goes to work immediately since all mutual funds let you invest in thousandths of a share. Some 401k/403b/457 plans allow investments in stocks through a brokerage, but I think that using DCA to buy individual stocks in a retirement plan is not a good idea at all. The reasons for this are that not only must shares must be bought in whole numbers (integers) but it is generally cheaper to buy stocks in round lots of 100 (or multiples of 100) shares rather than in odd lots of, say, 37 shares. So buying stocks weekly, or biweekly or monthly in a 401k plan means paying more or having the money sit idle until enough is accumulated to buy 100 shares of a stock at which point the brokerage executes the order to buy the stock; and this is really not DCA at all. Worse yet, if you let the money accumulate but you are the one calling the shots \\\"\\\"Buy 100 shares of APPL today\\\"\\\" instead of letting the brokerage execute the order when there is enough money, you are likely to be timing the market instead of doing DCA. So, are brokerages useless in retirement fund accounts? No, they can be useful but they are not suitable for DCA strategies involving buying stocks. Stick to mutual funds for DCA. Do people use it across the board on all stock investments? As indicated above, using DCA to buy individual stocks is not the best idea, regardless of whether it is done inside a retirement plan or outside. DCA outside a retirement plan works best if you not trust yourself to stick with the strategy (\\\"\\\"Ooops, I forgot to mail the check yesterday; oh, well, I will do it next week\\\"\\\") but rather, arrange for your mutual fund company to take the money out of your checking account each week/month/quarter etc, and invest it in whatever fund(s) you have chosen. Most companies have such programs under names such as Automatic Investment Program (AIP) etc. Why not have your bank send the money to the mutual fund company instead? Well, that works too, but my bank charges me for sending the money whereas my mutual fund company does AIP for free. But YMMV. Dollar-cost averaging generally means investing a fixed amount of money on a periodic basis. An alternative strategy, if one has decided that owning 1200 shares of FlyByKnight Co is a good investment to have, is to buy round lots of 100 shares of FBKCO each month. The amount of money invested each month varies, but at the end of the year, the average cost of the 1200 shares is the average of the prices on the 12 days on which the investments were made. Of course, by the end of the year, you might not think FBKCO is worth holding any more. This technique worked best in the \\\"\\\"good old days\\\"\\\" when blue-chip stocks paid what was for all practical purposes a guaranteed dividend each year, and people bought these stocks with the intention of passing them on to their widows and children.\\\"\",\n \"I'm going to assume that you want to be invested all the time and each trade consists in selling a security and buying another one (similar to your example). How much commissions you are willing to pay depends on several factors, but one way to think about it is as follows. You have a position in stock A and you want to switch to stock B because you think it will perform better. If you think there's a good chance (>50%) that B will outperform A by more than x% then you can happily pay up to x/2% commissions and still make money over a long time horizon. If you like formulae, one way to express it is: Where: Example: if you tend to be right 51% of the time (hit rate), and gain 110% more than you lose on average (win loss ratio), you can see that your expected profit is: 5.1% - commissions, so you could pay 2.5% commissions on entering and closing the position and still make money*. Unfortunately, common sense, statistics and numerous studies tell us a sad truth: on average, people have a hit rate of 50% and a win/loss ratio of 100%. Which means that their expected profit per trade is 0% - commission. Based on that crude observation - unless you can prove to yourself that you are better than average - you should aim at reducing commissions paid to your broker as much as possible through: * 51% and 110% are not random numbers, they correspond to the results of the top 15% (professional) managers in a research paper using a sample of 215 funds managing $150bn.\",\n \"Assuming you have no new cash to add to your account as gyurisc has suggested, I wouldn't sweat the small amounts – it doesn't hurt to have a little cash sit idle, even if you want to theoretically be fully invested (the wisdom of doing that, or not, perhaps worthy of another question :-) If you try too hard to invest the small amounts frequently, you're likely to get killed on fees. My strategy (if you could call it that) is to simply let small amounts accumulate until there's enough to buy more shares without paying too much commission. For instance, I don't like fees to be more than 1% of the shares purchased, so with a $10 commission per trade, I prefer to make minimum $1000 purchases. I used to roll small amounts of cash into a no-load money market fund I could buy without commission, and then purchase shares when I hit the threshold, but even putting the cash in a money market fund isn't worth the hassle today with rates of return from money market funds being close to zero.\",\n \"You are suggesting something called dollar cost averaging (or its cousin, dollar value averaging) - http://www.investopedia.com/articles/stocks/07/dcavsva.asp This is certainly a valid investment strategy, although personally, I feel that for long term investment, it is not necessary unless you plan on being an active trader. I still strongly encourage you to research these two methods and see if they would work well for your personal investment strategy and goals. As far as what sorts of investments for a taxable account, I have three general recommendations: As far as which company to use for your brokerage, I personally have accounts at Voya, TRowe Price and Fidelity. I would strongly recommend Fidelity out of those three, mostly due to customer service and quality and ease of use of their website. Vanguard is a great brokerage, but you don't have to choose them just because you plan to mostly invest in Vanguard funds. I also recommend you research how capital gains and dividend taxing works (and things like lost harvesting), so that you can structure your investments with taxes in mind. Do this ahead of time, don't wait until April of 2016 because it will be too late to save on taxes by then.\",\n \"\\\"Plenty! Following are just a few: For things like RESP and RRSP which have an \\\"\\\"end\\\"\\\" date; as you or your children age, you should be migrating to less speculative investments and more secure ones. When children are young, for example, you might be in a \\\"\\\"growth\\\"\\\" type fund. Later on, you would likely want to switch that to an \\\"\\\"income\\\"\\\" fund, which is also more conservative and less likely to lose principal. Are you getting the best benefit from your credit cards? Is there another card with benefits that you would get more \\\"\\\"back\\\"\\\" from using? Is that fee-based Air miles card worth it? Is cash-back better for you? If you have regular investment withdrawals, can you increase them? Do you like the plan they are going in to? Similarly look over any other long-term debt repayment. Student loans, car loans, mortgage. What is coming up this year, what is \\\"\\\"ending\\\"\\\". If, for example, car payment will end, how will you earmark that money, so it just does not disappear into general funds. While you could go over things like these more often, once a year should be plenty often to keep tabs and not obsess. Good Luck!\\\"\",\n \"\\\"You mentioned three concepts: (1) trading (2) diversification (3) buy and hold. Trading with any frequency is for people who want to manage their investments as a hobby or profession. You do not seem to be in that category. Diversification is a critical element of any investment strategy. No matter what you do, you should be diversified. All the way would be best (this means owning at least some of every asset out there). The usual way to do this is to own a mutual or index fund. Or several. These funds own hundreds or thousands of stocks, so that buying the fund instantly diversifies you. Buy and hold is the only reasonable approach to a portfolio for someone who is not interested in spending a lot of time managing it. There's no reason to think a buy-and-hold portfolio will underperform a typical traded portfolio, nor that the gains will come later. It's the assets in the portfolio that determine how aggressive/risky it is, not the frequency with which it is traded. This isn't really a site for specific recommendations, but I'll provide a quick idea: Buy a couple of index funds that cover the whole universe of investments. Index funds have low expenses and are the cheapest/easiest way to diversify. Buy a \\\"\\\"total stock market\\\"\\\" fund and a \\\"\\\"total bond fund\\\"\\\" in a ratio that you like. If you want, also buy an \\\"\\\"international fund.\\\"\\\" If you want specific tickers and ratios, another forum would be better(or just ask your broker or 401(k) provider). The bogleheads forum is one that I respect where people are very happy to give and debate specific recommendations. At the end of the day, responsibly managing your investment portfolio is not rocket science and shouldn't occupy a lot of time or worry. Just choose a few funds with low expenses that cover all the assets you are really interested in, put your money in them in a reasonable-ish ratio (no one knows that the best ratio is) and then forget about it.\\\"\",\n \"The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.\",\n \"If you have the money put it in, and invest the money over a few months. Always keep a modest reserve of cash to give you the flexibility to take advantage of market opportunities.\",\n \"Sure, with some general rules of thumb: what is the minimum portfolio balance to avoid paying too much for transaction fees? Well, the fee doesn't change with portfolio balance or order size, so I don't know what you're trying to do here. The way to have less transaction fees is to have less transactions. That means no day-trading, no option rolling, etc. A Buy-and-hold strategy (with free dividend reinvestment if available) will minimize transaction fees.\",\n \"This depends on the terms and conditions of your IRA account, and those of the investments you have chosen. In general, you are better off investing as quickly as is feasible given those terms. Money in your cash account doesn't earn much of a return, so the quicker you get money into something earning a return, the better. However, pay attention to the fees and costs associated with investing. If there is a per-transaction fee, you may want to consolidate, as it may be more efficient to do so - after all, if you contribute $500 at a shot, and it costs you $5 to make a trade, you're paying 1% off the top to make that trade if you make 11 of them, versus 0.1% to make 1, so the question is do you earn that 1% back over the course of the six months? That will depend on what you are investing in. More than likely you're going to earn more than 1% over the course of the six months, so it's probably worth investing it in pieces still in that situation, but if the transaction cost is higher, or the time differential lower, you may have a less clear-cut answer. I invest at Vanguard in their funds and have no transaction fees, so I have a more obvious answer (invest as soon as possible). You also need to consider whether you have minimums to pay attention to - maybe your investment is something you can only buy whole shares of, for example, or you might have a much higher fee if you make small transactions. In that case, you should wait until you have the minimum to make that transaction if the fee is more than the return you'll get. So the answer is - make the transactions as early as you can, subject to considering the fees you will pay for making them.\",\n \"That depends whether you're betting on the market going up, or down, during the year. If you don't like to bet (and I don't), you can take advantage of dollar cost averaging by splitting it up into smaller contributions throughout the year.\",\n \"If you know with 100% certainty what the market will do, then invest it all at the best time. If not, spread it out over time to avoid investing it all at the worst possible time.\",\n \"I personally invest in 4 different ETFs. I have $1000 to invest every month. To save on transaction costs, I invest that sum in only one ETF each month, the one that is most underweight at the time. For example, I invest in XIC (30%), VTI (30%), VEA (30%), and VWO (10%). One month, I'll buy XIC, next month VTA, next month, VEA, then XIC again. Eventually I'll buy VWO when it's $1000 underweight. If one ETF tanks, I may buy it twice in a row to reach my target allocation, or if it shoots up, I may skip buying it for a while. My actual asset allocation never ends up looking exactly like the target, but it trends towards it. And I only pay one commission a month. If this is in a tax-sheltered account (main TFSA or RRSP), another option is to invest in no-load index mutual funds that match the ETFs each month (assuming there's no commission to buy them). Once they reach a certain amount, sell and buy the equivalent ETFs. This is not a good approach in a non-registered account because you will have to pay tax on any capital gains when selling the mutual funds.\",\n \"I buy or sell a few shares whenever I have a small amount of money to transfer into out of my mutual funds. Since I'm not paying transaction fees, there is no reason not to, when that is what makes sense. If you are paying a fee for each transaction, of course it makes sense to try to wait until you have a larger amount to move so the overhead per share is lower.\",\n \"The two biggest issues that impact your question I would say are diversification and fees. If you have $10,000 to invest and only invest it in two securities, then a 20% drop in one security can have you lose 10% of your initial investment which I would consider a very high risk scenario. If you have $10,000 to invest and invest it in 20 securities, then a 20% drop in one security would only cause you to lose 1% of your initial investment. So far this is looking better from a diversification point of view. But then the issue of fees comes in. If you paid $10 per trade to buy those 20 securities you already spent 2% of your initial investment in fees! Not to mention you will pay at least another $200 to get out of all those positions. No right answer - but those are the two factors I always try to balance.\",\n \"Daily > Weekly > Monthly. This statement says that if you use daily returns you will get more noise than if you used weekly or monthly returns. Much of the research performed uses monthly returns, although weekly returns have been used as well. For HFT you would need to detrend the data in order to spot true turning points.\",\n \"It's important to remember that upward trending things spend the vast majority of their time at all time highs - intelligent, well meaning people have been regularly saying the Dow Jones has been too expensive since about 2010, often because it was now at 'all time highs': Sitting on the sidelines can end up just as expensive (if not more so) than avoiding big drops. If you are worried about a large down swing straight after investing just drip it in over a period you feel comfortable with - no one can really answer this better than that without more info on your risk tolerance and exactly what you want to invest in. Worth noting that buying anything other than transaction free funds when split into small transactions also adds a lot more fees (~£10 entry and exit in a UK ISA for example). Split these over 12 months say, and it will cost you £240 straight out of the gate (2 fund purchases per month for 12 months @£10 each) and another £240 to exit before any holding fees from the ISA platform: that's over 1% of your capital gone just to your stockbroker employing this strategy. Both the products you mention are also quite high cost in ongoing charges, so unless you have very high convictions about the management quality, will also probably lag cheaper investment types over the long run as well due to the dire performance of virtually all higher cost, active management over time.\",\n \"The fee representing the expense ratio is charged as long as you hold the investment. It is deducted daily from the fund assets, and thus reduces the price per share (NAV per share) that is calculated each day after the markets close. The investment fee is charged only when you make an investment in the fund. So, invest in the fund in one swell foop (all $5500 or $6500 for older people, all invested in a single transaction) rather than make monthly investments into the fund (hold the money in a money-market within your Roth IRA if need be). But, do check if there are back-end loads or 12b1 fees associated with the fund. The former often disappear after a few years; the latter are another permanent drain on performance. Also, please check whether reinvestment of dividends and capital gains incur the $75 transaction fee.\",\n \"\\\"Wow, this turns out to be a much more difficult problem than I thought from first looking at it. Let's recast some of the variables to simplify the equations a bit. Let rb be the growth rate of money in your bank for one period. By \\\"\\\"growth rate\\\"\\\" I mean the amount you will have after one period. So if the interest rate is 3% per year paid monthly, then the interest for one month is 3/12 of 1% = .25%, so after one month you have 1.0025 times as much money as you started with. Similarly, let si be the growth rate of the investment. Then after you make a deposit the amount you have in the bank is pb = s. After another deposit you've collected interest on the first, so you have pb = s * rb + s. That is, the first deposit with one period's growth plus the second deposit. One more deposit and you have pb = ((s * rb) + s) * rb + s = s + s * rb + s * rb^2. Etc. So after n deposits you have pb = s + s * rb + s * rb^2 + s * rb^3 + ... + s * rb^(n-1). This simplifies to pb = s * (rb^n - 1)/(rb - 1). Similarly for the amount you would get by depositing to the investment, let's call that pi, except you must also subtract the amount of the broker fee, b. So you want to make deposits when pb>pi, or s*(ri^n-1)/(ri-1) - b > s*(rb^n-1)/(rb-1) Then just solve for n and you're done! Except ... maybe someone who's better at algebra than me could solve that for n, but I don't see how to do it. Further complicating this is that banks normally pay interest monthly, while stocks go up or down every day. If a calculation said to withdraw after 3.9 months, it might really be better to wait for 4.0 months to collect one additional month's interest. But let's see if we can approximate. If the growth rates and the number of periods are relatively small, the compounding of growth should also be relatively small. So an approximate solution would be when the difference between the interest rates, times the amount of each deposit, summed over the number of deposits, is greater than the fee. That is, say the investment pays 10% per month more than your bank account (wildly optimistic but just for example), the broker fee is $10, and the amount of each deposit is $200. Then if you delay making the investment by one month you're losing 10% of $200 = $20. This is more than the broker fee, so you should invest immediately. Okay, suppose more realistically that the investment pays 1% more per month than the bank account. Then the first month you're losing 1% of $200 = $2. The second month you have $400 in the bank, so you're losing $4, total loss for two months = $6. The third month you have $600 in the bank so you lose an additional $6, total loss = $12. Etc. So you should transfer the money to the investment about the third month. Compounding would mean that losses on transferring to the investment are a little higher than this, so you'd want to bias to transferring a little earlier. Or, you could set up a spreadsheet to do the compounding calculations month by month, and then just look down the column for when the investment total minus the bank total is greater than the broker fee. Sorry I'm not giving you a definitive answer, but maybe this helps.\\\"\",\n \"Let's say I have $10,000, and I invest said monies in mutual fund XXXXX at $100/share, effectively giving me 100 shares. Now, let's assume at the end of the year I have a 5% return. My $10,000 is now $10,500. At what point does my investment benefit from compounded interest? Monthly? Quarter? Yearly? Does it even benefit? Daily would be my answer as your investment, unless you are selling shares or not re-investing distributions is getting the following day's change that impacts the overall return. Consider how if your fund went up 2% one day and then 2% another day from that $10,000 initial investment. The first gain brings it up to $10,200 and then the second makes it $10,402 where the extra $2 is from the compounding. The key though is that these are generally small movements that have to be multiplied together. Note also that if your fund goes up and down, you may end up down overall given how the returns compound. Consider that your $10,000 goes up 10% to $11,000 and then down 10% to result in $9,900 as the return for up x% and down x% is (1+x)(1-x)=1-x^2 which in this case is 1% as 10% of 10% is 1%. The key is how long do you keep all the money in there so that the next day is applied to that amount rather than resetting back to the initial investment.\",\n \"\\\"I up voted JoeTaxpayer but i would like add a couple of things. Dollar Cost averaging over a 5 day period is in no way practical. If you get a 1% swing in that time that would be quite a lot. Personally I think 5 years is way to long. When markets go down they go down fast. I would suggest 1 to 2 years investing quarterly. I would hate seeing you miss out on market gains for a 5 year period on the last of your money. The whole point of Dollar Cost averaging instead of market timing is the mantra \\\"\\\"Its about time in the market not timing the market\\\"\\\" So if you have money on the sidelines for years you are missing out on your time in the market.\\\"\",\n \"In summary, you are correct that the goal of investing is to maximize returns, while paying low management fees. Index investing has become very popular because of the low fees. There are many actively traded mutual funds out there with very high management fees of 2.5% and up that do not beat the market. This begs the question of why you are paying high management fees and not just investing in index funds. Consider maxing out your tax sheltered accounts (401(k) and ROTH IRA) to avoid even more fees on your returns. Also consider having a growth component of your portfolio which is generally filled with equity, along with a secure component for assets such as bonds. Bonds may not have the exciting returns of equity, but they help to smooth out the volatility of your portfolio, which may help to keep peace of mind when the market dips.\",\n \"Although the market discussion by other answers is correct, the tax structure of many developed nations (I am familiar with Canada in particular) offers a preferred tax rate for dividend income compared to taxable gains. Consequently, if your portfolio is large enough to make transaction fees a very small percentage rate, this is a viable investment strategy. However, as the preferred tax rate for dividends typically will catch up to that for capital gains at some cut-off point, there is a natural limit on how much income can be favourably obtained in this way. If you believe your portfolio might be large enough to benefit from this investment strategy, talk to a qualified investment advisor, broker, or tax consultant for the specifics for your tax jurisdiction.\",\n \"The goal of the kelly criterion strategy is to find a balance between preservation of starting capital and returns. One of extreme you could bet the entirety of your account on one trade, which would maximize your returns if you win, but leave you unable to further invest if you lose. On the other extreme, you could bet the smallest amount of capital possible over the course of several trades to increase the probability that you'll even out to 70% accuracy over time. But this method would be extremely slow. So for your case, investing 40% each time is one way to find an optimal balance between these two extremes. Use this as a rule of thumb though, because your own situation and investing goals may differ from the goal of optimal growth.\",\n \"First off, I think you are on the right path not paying 3% to a broker; that sort of fee reduces the money you earn significantly in the long term. For your fund investing approach, 10 funds seems like a lot; one of the point of funds is that they are diversified, so I would expect that the 10th fund would give relatively little diversification over the other 9. I would think about targeting only 5 funds. To invest in the funds, rather than trying to invest in all funds every month, put all of the money into a single fund, and rotate the fund month to month. That reduces your transaction costs significantly.\",\n \"\\\"It's a trade-off. The answer depends on your risk tolerance. Seeking higher rewards demands higher risk. If you want advice, I would recommend hiring an expert to design a plan which meets your needs. As a sample point, NOT necessarily right for anyone else...I'm considered an aggressive investor, and my own spread is still more conservative than many folks. I'm entirely in low-cost index funds, distributed as ... with the money tied up in a \\\"\\\"quiesced\\\"\\\" defined-contribution pension fund being treated as a low-yield bond. Some of these have beaten the indexes they're tracking, some haven't. My average yield since I started investing has been a bit over 10%/year (not including the company match on part of the 401k), which I consider Good Enough -- certainly good enough for something that requires near-zero attention from me. Past results are not a guarantee of future performance. This may be completely wrong for someone at a different point in their career and/or life and/or finances. I'm posting it only as an example, NOT a recommendation. Regarding when to rebalance: Set some threshhold at which things have drifted too far from your preferred distribution (value of a fund being 5% off its target percentage in the mix is one rule I've sometimes used), and/or pick some reasonable (usually fairly low) frequency at which you'll actively rebalance (once a year, 4x/year, whenever you change your car's oil, something like that), and/or rebalance by selecting which funds you deposit additional money into whenever you're adding to the investments. Note that that last option avoids having to take capital gains, which is generally a good thing; you want as much of your profit to be long-term as possible, and to avoid triggering the \\\"\\\"wash sales\\\"\\\" rule. Generally, you do not have to rebalance very frequently unless you are doing something that I'd consider unreasonably risky, or unless you're managing such huge sums that a tiny fraction of a percent still adds up to real money.\\\"\",\n \"Canadian Couch Potato has an article which is somewhat related. Ask the Spud: Can You Time the Markets? The argument roughly boils down to the following: That said, I didn't follow the advice. I inherited a sum of money, more than I had dealt with before, and I did not feel I was emotionally capable of immediately dumping it into my portfolio (Canadian stocks, US stocks, world stocks, Canadian bonds, all passive indexed mutual funds), and so I decided to add the money into my portfolio over the course of a year, twice a month. The money that I had not yet invested, I put into a money market account. That worked for me because I was purchasing mutual funds with no transaction costs. If you are buying ETFs, this strategy makes less sense. In hindsight, this was not financially prudent; I'd have been financially better off to buy all the mutual funds right at the beginning. But I was satisfied with the tradeoff, knowing that I did not have hindsight and I would have been emotionally hurt had the stock market crashed. There must be research that would prove, based on past performance, the statistically optimal time frame for dollar-cost averaging. However, I strongly suppose that the time frame is rather small, and so I would advise that you either invest the money immediately, or dollar-cost average your investment over the course of the year. This answer is not an ideal answer to your question because it is lacking such a citation.\",\n \"As a matter of fact, I invest small sums in stable stocks every month (in fact, much lesser than the $50 you are talking about). More than the return on investment, I gained a lot of knowledge keeping track of my stocks and this now helps me pick my stocks better. And the portfolio is doing great too. So, it is a good idea to start small and invest regularly.\",\n \"It varies. Depending on your brokerage, they may charge you per transaction, so the more transactions, the higher the cost. Though this (from what I've seen), is uncommon with many index funds. In terms of how aggressive you want to be with your investment varies on your comfort with risk, timeline of investment and many other factors beyond the scope of this question. The biggest issue you may need to be aware of is if you are looking at mutual funds, they may have minimum investments. Depending on what that minimum investment is set to, you may not be able to split your $5500 into more than one fund. A lot of this comes down to the specific funds in which your are anticipating investing, as well as the service you use to do so (Fidelity, Vanguard, etc). Ultimately, diversification can be a lot safer, but there are logistics to consider. Personally, I began with a target fund (a mutual fund with adjusted risk based on the estimated year of retirement) and add additional mutual funds, stocks and ETFs as time goes on.\",\n \"\\\"1000 (£/$/€) is also not a lot to start with. Assuming you want to buy stocks or ETFs you will be paying fees on both ends. Even with online brokerages you are looking at 7.95 (£/$/€) a trade. That of course translates to a min of .795% x 2 = 1.59% increase in value you would need just to break even already. There is a way around some of this as a lot of the brokerages do not charge fees for their ETFs or their affiliated ones. However, I would try to hold out till at least $5000 before investing in assets such as stocks. In the meantime there are many great books out there to \\\"\\\"invest in knowledge\\\"\\\".\\\"\",\n \"\\\"Previously (prior to Capital One acquisition -- it's kind of like K-Mart buying Sears) Sharebuilder offered 12 automatic (i.e. pre-scheduled) stock purchases per month if you subscribed to their $12/mo \\\"\\\"Advantage\\\"\\\" plan. So, 12 trades for $1 a trade. Great deal. Except then they flattened their pricing to everyone's acclaim (that is, everyone except for the non-millionaire casual investors) and jacked it up to $4 per automatic investment. As far as I know, Sharebuilder's 12 no-fee investments for $12/mo was rather unique in the online trading world -- and now it's very sadly extinct. They do have no-fee mutual fund investing, however, for what it's worth.\\\"\",\n \"Dollar cost averaging is beneficial if you don't have the money to make large investments but are able to add to your holding over time. If you can buy the same monetary amount at regular intervals over time, your average cost per share will be lower than the stock's average value over that time. This won't necessarily get you the best price, but it will get you, on the whole, a good price and will enable you to increase your holdings over time. If you're doing frequent trading on a highly volatile stock, you don't want to use this method. A better strategy is to buy the dips: Know the range, and place limit orders toward the bottom of the range. Then place limit orders to sell toward the high end of the range. If you do it right, you might be able to build up enough money to buy and sell increasing numbers of shares over time. But like any frequent trader, you'll have to deal with transaction fees; you'll need to be sure the fees don't eat all your profit.\",\n \"Katherine from Betterment here. I wanted to address your inquiry and another comment regarding our services. I agree with JAGAnalyst - it's detrimental to your returns and potential for growth if you try to time the market. That's why Betterment offers customized asset allocation for each portfolio based on the nature of your goal, time horizon, and how much you are able to put towards your investments. We do this so regardless of what's happening in the markets, you can feel comfortable that your asset allocation plus other determining factors will get you where you need to go, without having to time your investing. We also put out quite a bit of content regarding market timing and why we think it's an unwise practice. We believe continuously depositing to your goal, especially through auto-deposits, compounding returns, tax-efficient auto-rebalancing, and reinvesting dividends are the best ways to grow your assets. Let me know if you would like additional information regarding Betterment accounts and our best practices. I am available at buck@betterment.com and am always happy to speak about Betterment's services. Katherine Buck, Betterment Community Manager\",\n \"I do the same thing with my 401k (100% S&P 500). My strategy is to check it weekly. If the S&P falls by 10%-20% (based on risk tolerance, currently mine is 19%). I'll move all of it out into cash until I see 3-consecutive months of gains, then I'll get back in. I don't have a lot of time to manage my investments, and this was the simplest strategy I've come up with so far. It served me very well in the 2008 crash. I got out around 120 and returned to the S&P on 2009-06-29 around 90.\",\n \"\\\"In many cases the expenses are not pulled out on a specific day, so this wouldn't work. On the other hand some funds do charge an annual or quarterly fee if your investment in the fund is larger than the minimum but lower than a \\\"\\\"small balance\\\"\\\" value. Many funds will reduce or eliminate this fee if you signup for electronic forms or other electronic services. Some will also eliminate the fee if the total investment in all your funds is above a certain level. For retirement funds what you suggest could be made more complex because of annual limits. Though if you were below the limits you could decide to add the extra funds to cover those expenses as the end of the year approached.\\\"\",\n \"which is a better way to structure a SIP, This is no one way better than other. SIP as you already know offers advantages in terms of averaging costs. Given that transaction costs are same, averaging daily would be better from law of averages point of view. The only flip side to doing it daily is tracking, i.e. your Bank Statement is going to look horrible, recon as to what and how much got purchased will be horrendous. Further tracking liquidity could be an issue unless you use segregated accounts. i.e. you don't know how done you are with your investments. On monthly this is more easy, once you get salary and get investments and other mandatory payments out of way, you know what you have in the account for rest of the month. In the end I would put this more of convenience than anything else.\",\n \"Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy. Let's say you have ₹15,000 to start with. Split this in to three components: Purchase all of the above at the same time. 30 days later, you will have the first FD mature. If you need this money, you use it. If you don't need it, purchase another 90-day fixed deposit. If you keep going this way, you will have a deposit mature every 30 days and can choose to use it or renew the fixed deposit. This strategy has some disadvantages to consider: As for interest rates, the length of the fixed deposit in positively related to the interest rate. If you want higher interest rates, elect for longer fixed deposit cycles.For instance, when you become more confident about your financial situation, replace the 30, 60, 90 day cycle with a 6, 12, 18 month cycle The cost of maintaining the short term deposit renewals and new purchases. If your bank does not allow such transactions through on line banking, you might spend more time than you like at a bank or on the phone with the bank You want a monthly dividend but this might not be the case with fixed deposits. It depends on your bank but I believe most Indian banks pay interest every three months\",\n \"Here are my re-run figures. Not counting capital gains taxes, I calculate you need to be making 1.875% per annum or 0.155% per month on your $8,000 investment to break-even on the loan. It's interesting that the return you need to gain to break-even is less than the interest you're paying, even with commission. It happens because the investment is gaining a return on an increasing amount while the load is accruing interest on a decreasing amount. Ref. r, logarithmic return\",\n \"You're completely missing the most important thing you can do: minimize fees.\",\n \"It would depend on a) Ones view on Markets and b) Ones nature. If one believes that the market would be going up in the near future then it would be best to buy all at once. If one believes the market is uncertain, it would make sense to invest over a period of time. If one is a disciplined investor and can stick to plan, it would make sense to invest over a period of time as the risk is generally less. How much less is again subjective. If one is not a disciplined investor then buying now and getting done with is a good idea. As to exactly quantifying this is absolute number for future would not be possible. One can take the data from past, however it would work advantages if the prices moves up and disadvantages if the price moves down.\",\n \"There is no rule of thumb (although some may suggest there is). Everybody will have different goals, investment preferences and risk tolerances. You need to figure this out by yourself by either education yourself in the type of investments you are interested in or by engaging (and paying for) a financial advisor. You should not be taking advice from others unless it is specifically geared for your goals, investment DNA and risk tolerance. The only advice I would give you is to have a plan (whether you develop it yourself or pay a financial advisor to develop one). Also, don't have all your savings sitting in cash, as long-term you will fall behind the eight ball in real returns (allowing for inflation).\",\n \"\\\"If you want to make a profit from long term trading (whatever \\\"\\\"long term\\\"\\\" means for you), the best strategy is to let the good performers in your portfolio run, and cull the bad ones. Of course that strategy is hard to follow, unless you have the perfect foresight to know exactly how long your best performing investments will continue to outperform the market, but markets don't always follow the assumption that perfect information is available to all participants, and hence \\\"\\\"momentum\\\"\\\" has a real-world effect on prices, whether or not some theorists have chosen to ignore it. But a fixed strategy of \\\"\\\"daily rebalancing\\\"\\\" does exactly the opposite of the above - it continuously reduces the holdings of good performers and increases the holdings of bad. If this type of rebalancing is done more frequently than the constituents of benchmark index are adjusted, it is very likely to underperform the index in the long term. Other issues in a \\\"\\\"real world\\\"\\\" market are the impact of increased dealing costs on smaller parcels of securities, and the buy/sell spreads incurred in the daily rebalancing trades. If the market is up and down 1% on alternate days with no long tern trend, quite likely the fund will be repeatedly buying and selling small parcels of the same stocks to do its daily balancing.\\\"\",\n \"My super fund and I would say many other funds give you one free switch of strategies per year. Some suggest you should change from high growth option to a more balance option once you are say about 10 to 15 years from retirement, and then change to a more capital guaranteed option a few years from retirement. This is a more passive approach and has benefits as well as disadvantages. The benefit is that there is not much work involved, you just change your investment option based on your life stage, 2 to 3 times during your lifetime. This allows you to take more risk when you are young to aim for higher returns, take a balanced approach with moderate risk and returns during the middle part of your working life, and take less risk with lower returns (above inflation) during the latter part of your working life. A possible disadvantage of this strategy is you may be in the higher risk/ higher growth option during a market correction and then change to a more balanced option just when the market starts to pick up again. So your funds will be hit with large losses whilst the market is in retreat and just when things look to be getting better you change to a more balanced portfolio and miss out on the big gains. A second more active approach would be to track the market and change investment option as the market changes. One approach which shouldn't take much time is to track the index such as the ASX200 (if you investment option is mainly invested in the Australian stock market) with a 200 day Simple Moving Average (SMA). The concept is that if the index crosses above the 200 day SMA the market is bullish and if it crosses below it is bearish. See the chart below: This strategy will work well when the market is trending up or down but not very well when the market is going sideways, as you will be changing from aggressive to balanced and back too often. Possibly a more appropriate option would be a combination of the two. Use the first passive approach to change investment option from aggressive to balanced to capital guaranteed with your life stages, however use the second active approach to time the change. For example, if you were say in your late 40s now and were looking to change from aggressive to balanced in the near future, you could wait until the ASX200 crosses below the 200 day SMA before making the change. This way you could capture the majority of the uptrend (which could go on for years) before changing from the high growth/aggressive option to the balanced option. If you where after more control over your superannuation assets another option open to you is to start a SMSF, however I would recommend having at least $300K to $400K in assets before starting a SMSF, or else the annual costs would be too high as a percentage of your total super assets.\",\n \"\\\"The high frequency trading you reference has no adverse impact on individual investors - at least not in the \\\"\\\"going to take advantage of you\\\"\\\" way that many articles imply. If anything, high-frequency trading is generally more helpful than harmful, adding liquidity to the system, although it can cause some volatility and \\\"\\\"noise\\\"\\\" in volume and other data, and the sudden entrance or exit of this type of trading can drive some abnormal market movements. As to research and time needed for trading, most data suggests that the less you try to \\\"\\\"beat the market\\\"\\\", the better you'll do. Trade activity tends to be inversely related to returns, particularly for individuals. Your best bet is likely to learn enough about investment risks to ensure you're comfortable with them, and invest in broadly diversified asset classes, regions, and sectors, and then mostly leave them alone, or rebalance annually. You'll almost surely do a lot better that way than you will if you spend countless hours researching the \\\"\\\"right\\\"\\\" stocks to buy.\\\"\",\n \"You will maximize your expected wealth by investing all the money you intend to invest, as soon as you have it available. Don't let the mythos of dollar cost averaging induce you to allocate more much money to a savings account than is optimal. If you want the positive expected return of the market, don't put your money in a savings account. That's especially true now, when you are certainly earning a negative real interest rate on your savings account. Dollar cost averaging and putting all your money in at the beginning would have the same expected return except that if you put all your money in earlier, it spends more time in the market, so your expected return is higher. Your volatility is also higher (because your savings account would have very low volatility) but your preference for investment tells me that you view the expected return and volatility tradeoff of the stock market as acceptable. If you need something to help you feel less stress about investing right away, think of it as dollar cost averaging on a yearly basis instead of monthly. Further, you take take comfort in knowing that you have allocated your wealth as you can instead of letting it fizzle away in real terms in a bank account.\",\n \"That doesn't sound like dollar cost averaging. That sounds like a form of day trading. Dollar cost averaging is how most people add money to their 401K, or how they add money to some IRA accounts. You are proposing a form of day trading.\",\n \"Your edit indicates that you may not yet be ready to get heavily involved in investing. I say this because it seems you are not very familiar with foundational finance/investing concepts. The returns that you are seeing as 'yearly' are just the reported earnings every 12 months, which all public companies must publish. Those 'returns' are not the same as the earnings of individual investors (which will be on the basis of dividends paid by the company [which are often annual, sometimes semi-annual, and sometimes quarterly], and by selling shares purchased previously. Note that over 3 months time, investing in interest-earning investments [like bank deposits] will earn you something like 0.5%. Investing in the stock market will earn you something like 2% (but with generally higher risk than investing in something earning interest). If you expect to earn significant amounts of money in only 3 months, you will not be able to without taking on extreme levels of risk [risk as high as going to a casino]. Safe investing takes time - years. In the short term, the best thing you can do to earn money is by earning more [through a better job, or a second part-time job], or spending less [budget, pay down high interest debt, and spend less than you earn]. I highly recommend you look through this site for more budgeting questions on how to get control of your finances. If you feel that doesn't apply to you, I encourage you to do a lot more research on investing before you send your money somewhere - you could be taking on more risk than you realize, if you are not properly informed.\",\n \"DCA is not 10%/day over 10 days. If I read the objective correctly, I'd suggest about a 5 year plan. It's difficult to avoid the issue of market timing. And any observation I'd make about the relative valuation of the market would be opinion. By this I mean, some are saying that PE/10 which Nobel prize winner Robert Schiller made well known, if not popular, shows we are pretty high. Others are suggesting the current PE is appropriate given the near zero rate of borrowing. Your income puts long term gains at zero under current tax code. Short term are at your marginal rate. I would caution not to let the tax tail wag the investing dog. The fellow that makes too many buy/sell decisions based on his taxes is likely to lag he who followed his overall allocation goals.\",\n \"According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.\",\n \"Sad part is that you aren't going to make meaningful gains with small account like that unless you are putting everything into one stock and trying to squeeze out 10% gains each trade. At this point, your main focus contributing money into the account regularly. You will be able to trade more frequently as you get more money into the account.\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"From Vanguard's Best practices for portfolio rebalancing:\",\n \"The investment return for a given strategy is directly proportional to the amount invested. Invest twice as much, profit (or lose) twice as much. It's a straight multiplier. However, there are some strategies which are less risky with a larger investment, and some investments which have a minimum unit of purchase that puts them out of reach of smaller investors.\",\n \"Theoretically, it could be daily, but depending upon the number of companies in the index, it could be anywhere between daily or once a month or so. Apart from that, there is a periodic index review that happens once every quarter. The methodology for each index is also different, and you need to be aware of it (we had positions on literally hundreds of indices, and I knew the methodology of almost each of them). If you have say, 2 billion dollars tracking a certain index, even a miniscule change in the composition would be substantial for you. But for certain others, you may just need to buy and sell $10k worth of stocks, and we would not even bother.\",\n \"Its best to dollar cost average adding say 5%-10% a quarter into the fund. That's what Clark Howard would suggest. Also make sure you do not need the money for 5 years, then you should be okay. Its tough to lose money if you keep your money there for a long period of time.\",\n \"\\\"You should establish a strategy -- eg a specific mix of investments/funds which has the long-term tradeofv of risk, returns, and diversification you want -- and stick to that strategy, rebalancing periodically to maintain your strategic ratios betwedn those investments. Yes, that means you will somettimes sell things that have been doing well and buy others that have been doing less well -- but that's to be expected; it's exactly what happens when you \\\"\\\"buy low, sell high\\\"\\\".\\\"\",\n \"\\\"If you aren't already contributing the maximum allowable amount, by all means do so. If you are already contributing the maximum, it doesn't matter that much when you make those contributions. Making fixed monthly contributions is done mostly for budgeting reasons. Most of us can't predict fund performance well enough to optimize our contributions (by which I mean, contributing more early if you think the market is going up, but waiting if you think it will go down, following the \\\"\\\"buy low\\\"\\\" strategy). As for employer matching, check with your company to see how they compute matches. They may match contributions for the year, even if those matching funds are only paid up to a maximum per paycheck. (For example, if you contribute 200% of the match for the first 6 months, then contribute nothing for the remaining 6 months, you may still receive the same matching funds per pay period as if you were contributing 100% throughout the year.)\\\"\",\n \"I really like keshlam's answer. Your age is also a consideration. If you make your own target fund by matching the allocations of whatever Vanguard offers, I'd suggest re-balancing every year or every other year. But if you're just going to match the allocations of their target fund, you might as well just invest in the target fund itself. Most (not all, just most) target funds do not charge an additional management fee. So you just pay the fees of the underlying funds, same as if you mirrored the target fund yourself. (Check the prospectus to see if an additional fee is charged or not.) You may want to consider a more aggressive approach than the target funds. You can accomplish this by selecting a target fund later than your actual retirement age, or by picking your own allocations. The target funds become more conservative as you approach retirement age, so selecting a later target is a way of moving the risk/reward ratio. (I'm not saying target funds are necessarily the best choice, you should get professional advice, etc etc.)\",\n \"If we knew for sure that euros are only going to be more expensive in the future, then the answer would be easy: Buy them all at one time, so that we are getting them at the best price. Of course, we can't assume that to be the case, they could get cheaper, so the answer gets more complicated. Focusing strictly on monetary considerations, there are two factors to examine: Using answers to this Travel Stack Exchange question as a reference, you see that the cost of currency conversion can be as low as 1%-2% if you make the transaction with a debit card, but can be as high as 15%. So, buying 1000 euros a month would cost between 20 and 150 euros. Examining a two year chart of the Euro-Canadian Dollar exchange rate gives us an idea of how much the currency fluctuates. Over the past two years, a euro has cost has much as $1.54 CAD and as little as $1.26 CAD, a 22% spread. Looking at it on a month-to month basis, we see that monthly changes have been as high as .05 to .07 (4-5%). As such, buying 1000 euros a month could cost 50 CAD more (or less) on a monthly basis due to variance in the exchange rate. If we anticipate our overhead cost of currency conversion to be more than 5%, it doesn't make sense to do multiple transactions; the costs are likely to outweigh the benefits. If we can keep them under that amount, then multiple transactions are advantageous when the euro is cheaper. The problem is somewhat analagous to that of someone who wants to make an annual investment in a mutual fund and is unsure of whether to make the purchase all at once, or to divide it over multiple purchases. One can't know for sure which way the mutual fund price is going to move over the time period Dollar cost averaging, spreading the purchase over regular intervals, is the generally accepted solution to this problem. As such, so long as we can keep the overhead cost of currency transactions low (<5%), doing transactions on a regular basis positions ourselves to take advantage of possible drops in the price of euros and reduces the risk of buying euros when they are most expensive. If we can't keep the cost low, then currency fees would be greater than potential price drops and we would be better off doing a single transaction.\",\n \"There is no reason to ever do DCA. You'll notice that no asset managers would ever dream of it. You should invest your money as soon as you get it. Throughout history, this is the utility maximizing choice. The market rises on average. Why would you keep money out of it?\",\n \"\\\"Random deposits are a bit like playing the lotery - especially if one is frequently chasing \\\"\\\"hot tips\\\"\\\". You might make it big, but the odds are vastly against you. \\\"\\\"Random\\\"\\\" deposits into various investments won't be optimal, because such \\\"\\\"random\\\"\\\" decisions will not be properly diversified and balanced. Various investments have different rates of risk and return. \\\"\\\"Random\\\"\\\" deposits will not take this into account for an individual's personal situation. In addition to needing to research individual investments as they are made, investments also need to be considered as part of a whole financial picture. A few considerations for example: Simply put, random isn't a financial strategy.\\\"\",\n \"Your question seems to be making assumptions around “investing”, that investing is only about stock market and bonds or similar things. I would suggest that you should look much broader than that in terms of your investments. Investment Types Your should consider (and include) some or all of the following for your investments, depending on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. I love @Blackjack’s explanation of diversification into other asset classes producing a lower risk portfolio. Excellent! All the above need to be considered in this spread of risk, depending as I said earlier on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. Stock Market Investment I’ll focus most of the rest of my post on the stock markets, as that is where my main experience lies. But the comments are applicable to a greater or lesser extent to other types of investing. We then come to how engaged you want to be with your investments. Two general management styles are passive investment management versus active investment management. @Blackjack says That pretty much sums up passive management. The idea is to buy ETFs across asset classes and just leave them. The difficulty with this idea is that profitability is very dependent upon when the stocks are purchased and when they are sold. This is why active investing should be considered as a viable alternative to passive investment. I don’t have access to a very long time frame of stock market data, but I do have 30 or so years of FTSE data, so let’s say that we invest £100,000 for 10 years by buying an ETF in the FTSE100 index. I know this isn't de-risking across a number of asset classes by purchasing a number of different EFTs, but the logic still applies, if you will bear with me. Passive Investing I have chosen my example dates of best 10 years and worst 10 years as specific dates that demonstrate my point that active investing will (usually) out-perform passive investing. From a passive investing point of view, here is a graph of the FTSE with two purchase dates chosen (for maximum effect), to show the best and worst return you could receive. Note this ignores brokerage and other fees. In these time frames of data I have … These are contrived dates to illustrate the point, on how ineffective passive investing can be, depending if there is a bear/bull market and where you buy in the cycle. One obviously wouldn’t buy all their stocks in one tranche, but I’m just trying to illustrate the point. Active Investing Let’s consider now active investing. I use the following rules for selling and buying:- This is obviously a very simple technical trading system and I would not recommend using it to trade with, as it is overly simplistic and there are some flaws and inefficiencies in it. So, in my simulation, These beat the passive stock market profit for their respective dates. Summary Passive stock market investing is dependent upon the entry and exit prices on the dates the transactions are made and will trade regardless of market cycles. Active stock market trading or investing engages with the market using a set of criteria, which can change over time, but allows one’s investments to be in or out of the market at any point in time. My time frames were arbitrary, but with the logic applied (which is a very simple technical trading methodology), I would suggest that any 10 year time frame active investing would beat passive investing.\",\n \"I think small sums invested regularly over long-term can do good for you, things to consider: I would go with an index fund and contribute there there regularly.\",\n \"There is a basis for that if you consider the power of compounding. So, the sooner you re-invest the dividends the sooner the time will give you results (through compounding). There is also the case of the commissions, if they are paid with a percentage of the amount invested they automatically gain more from you. Just my 2cents, though the other answers are probably more complete.\",\n \"Consistently beating the market by picking stocks is hard. Professional fund managers can't really do it -- and they get paid big bucks to try! You can spend a lot of time researching and picking stocks, and you may find that you do a decent job. I found that, given the amount of money I had invested, even if I beat the market by a couple of points, I could earn more money by picking up some moonlighting gigs instead of spending all that time researching stocks. And I knew the odds were against me beating the market very often. Different people will tell you that they have a sure-fire strategy that gets returns. The thing I wonder is: why are you selling the information to me rather than simply making money by executing on your strategy? If they're promising to beat the market by selling you their strategy, they've probably figured out that they're better off selling subscriptions than putting their own capital on the line. I've found that it is easier to follow an asset allocation strategy. I have a target allocation that gives me fairly broad diversification. Nearly all of it is in ETFs. I rebalance a couple times a year if something is too far off the target. I check my portfolio when I get my quarterly statements. Lastly, I have to echo JohnFx's statement about keeping some of your portfolio in cash. I was almost fully invested going into early 2001 and wished I had more cash to invest when everything tanked -- lesson learned. In early 2003 when the DJIA dropped to around 8000 and everybody I talked to was saying how they had sold off chunks of their 401k in a panic and were staying out of stocks, I was able to push some of my uninvested cash into the market and gained ~25% in about a year. I try to avoid market timing, but when there's obvious panic or euphoria I might under- or over-allocate my cash position, respectively.\",\n \"If you are going to the frenzy of individual stock picking, like almost everyone initially, I suggest you to write your plan to paper. Like, I want an orthogonal set of assets and limit single investments to 10%. If with such limitations the percentage of brokerage fees rise to unbearable large, you should not invest that way in the first hand. You may find better to invest in already diversified fund, to skip stupid fees. There are screeners like in morningstar that allow you to see overlapping items in funds but in stocks it becomes trickier and much errorsome. I know you are going to the stock market frenzy, even if you are saying to want to be long-term or contrarian investor, most investors are convex, i.e. they follow their peers, despite it would better to be a concave investor (but as we know it can be hard). If the last part confused you, fire up a spreadsheet and do a balance. It is a very motivating activity, really. You will immediately notice things important to you, not just to providers such as morningstar, but alert it may take some time. And Bogleheads become to your rescue, ready spreadsheets here.\",\n \"One implication is the added fees if you are investing in something with a trading cost or commission, such as your stock purchase. If you pay low costs to trade (e.g. with a discount broker) and don't switch your investments often, then costs overall should remain reasonable .. but always be aware of your costs and seek to minimize them.\",\n \"\\\"An investment is sold when you sell that particular stock or fund. It doesn't wait until you withdraw cash from the brokerage account. Whether an investment is subject to long term or short term taxes depends on how long you held that particular stock. Sorry, you can't get around the higher short term tax by leaving the money in a brokerage account or re-investing in something else. If you are invested in a mutual fund, whether it's long or short term depends on when you buy and sell the fund. The fact that the fund managers are buying and selling behind your back doesn't affect this. (I don't know what taxes they have to pay, maybe you really are paying for it in the form of management fees or lower returns, but you don't explicitly pay the tax on these \\\"\\\"inner\\\"\\\" transactions.) Your broker should send you a tax statement every year giving the numbers that you need to fill in to the various boxes of your income tax form. You don't have to figure it out. Of course it helps to know the rules. If you've held a stock for 11 1/2 months and are planning to sell, you might want to consider waiting a couple of weeks so it becomes a long term capital gain rather than short term and thus subject to lower tax.\\\"\",\n \"\\\"Essentially, your question is \\\"\\\"lump sum vs DCA\\\"\\\" and your tags reflect that. In the long run, lump sum, say a Jan 2 deposit each year, will beat DCA by about 1/2 the average annual market return. $12,000 will see a 10% return, vs, $1,000/month over the year seeing 6%. What hurts is when the market tanks in the first half of the year and you think DCA would have helped. This is a 'feeling' issue, not a math problem. But. By the time you have $100K invested, the difference of DCA vs lump sum with new money fades, as new deposits are small compared to the funds invested. By then, you need to know your target allocation and deposit to keep that allocation with new money.\\\"\",\n \"True, but the number of investors who are successful with this strategy is negligible. You are basically just trading return for volatility. A well built portfolio will be better than trying to time the market, at least historically.\",\n \"If you want to invest in the stock market, whether over a shorter period of 1 to 2 years or over a longer period of 10 or 20 years or longer you need to take some precautions and have a written investment plan with a risk management strategy incorporated in your plan. Others have said that 1 to 2 years is too short to invest in the stock market as the stock market can have a correction and fall by 50%. But it doesn't matter if you invest for 1 year or if you invest for 50 years, the stock market can still fall by 50% just before you plan to withdraw your funds. What you need to figure out is a way to get out before the market falls by 40% to 50%. A simple way to do this is to use technical indicators to warn you when a market trend is starting to change and that it is time to get out of the market. Two simple indicators you can use on a market index are the Rate of Change (ROC) indicator and the 100 week Moving Average (MA). Below is a 10 year weekly chart of the S&P500 with these two indicators charted. They show good times to get into the market and good times to get out. If you are using the 100 week MA you would buy in when the price crosses above the MA line and sell when the price crosses below the MA line. If you are using the ROC indicator you would buy in when the ROC indicator crosses above the zero line and sell when the ROC indicator crosses below the zero line. So your investment plan could be to buy an Index ETF representing the S&P500 when the ROC moves above zero and sell when it crosses below zero. You can also place a trailing stop loss of 10% to protect you in case of a sudden fall over a couple of days. You can manage your investments in as little as 10 minutes per week by checking the chart once per week and adjusting your stop loss order. If you want to progressively add to your investment each month you could check the charts and only add any new funds if both the ROC is above zero and sloping upwards. Another option for adding new funds could be if the price is above the MA and moving further away from the MA. All these rules should be incorporated into your investment plan so that you are not basing your decisions based on emotions. There are many other Technical Analysis Indicators you could also learn about to make better educated decisions about your stock market investments. However, what I have provided here is enough for anyone to test over different indexes and time frames and do their own paper trading on to gain some confidence before placing any real money on the table.\",\n \"If your investment returns are the main variable you use to determine if your advisor is doing a good job you are using his or her services incorrectly Also, if you are using a good advisor, he or she needs to know how your investments are doing, not you. However, my thoughts are based on the idea that you can't go it alone. If you are not among the people concerned about the market, waiting for the market to go down 'so you can find a better buying opportunity', or making one of many other novice mistakes, I'm not speaking directly to you with my comments.\",\n \"The main question is, how much money you want to make? With every transaction, you should calculate the real price as the price plus costs. For example, if you but 10 GreatCorp stock of £100 each, and the transaction cost is £20 , then the real cost of buying a single share is in fact buying price of stock + broker costs / amount bought, or £104 in this case. Now you want to make a profit so calculate your desired profit margin. You want to receive a sales price of buying price + profit margin + broker costs / amount bought. Suppose that you'd like 5%, then you'll need the price per stock of my example to increase to 100 + 5% + £40 / 10 = £109. So you it only becomes worth while if you feel confident that GreatCorp's stock will rise to that level. Read the yearly balance of that company to see if they don't have any debt, and are profitable. Look at their dividend earning history. Study the stock's candle graphs of the last ten years or so, to find out if there's no seasonal effects, and if the stock performs well overall. Get to know the company well. You should only buy GreatCorp shares after doing your homework. But what about switching to another stock of LovelyInc? Actually it doesn't matter, since it's best to separate transactions. Sell your GreatCorp's stock when it has reached the desired profit margin or if it seems it is underperforming. Cut your losses! Make the calculations for LovelyCorp's shares without reference to GreatCorp's, and decide like that if it's worth while to buy.\",\n \"If you want higher returns you may have to take on more risk. From lowest returns (and usually lower risk) to higher returns (and usually higher risk), Bank savings accounts, term deposits, on-line savings accounts, offset accounts (if you have a mortgage), fixed interest eg. Bonds, property and stock markets. If you want potentially higher returns then you can go for derivatives like options or CFDs, FX or Futures. These usually have higher risks again but as with any investments some risks can be partly managed. Also, CMC Markets charges $11 commission up to $10,000 trade. This is actually quite a low fee - based on your $7,000, $22 for in and out of a position would be less than 0.32% (of course you might want to buy into more than one company - so your brokerage would be slightly higher). Still this is way lower than full service brokerage which could be $100 or more in and then again out again. What ever you decide to do, get yourself educated first.\",\n \"The optimal time period is unambiguously zero seconds. Put it all in immediately. Dollar cost averaging reduces the risk that you will be buying at a bad time (no one knows whether now is a bad or great time), but brings with it reduction in expected return because you will be keeping a lot of money in cash for a long time. You are reducing your risk and your expected return by dollar cost averaging. It's not crazy to trade expected returns for lower risk. People do it all the time. However, if you have a pot of money you intend to invest and you do so over a period of time, then you are changing your risk profile over time in a way that doesn't correspond to changes in your risk preferences. This is contrary to finance theory and is not optimal. The optimal percentage of your wealth invested in risky assets is proportional to your tolerance for risk and should not change over time unless that tolerance changes. Dollar cost averaging makes sense if you are setting aside some of your income each month to invest. In that case it is simply a way of being invested for as long as possible. Having a pile of money sitting around while you invest it little by little over time is a misuse of dollar-cost averaging. Bottom line: forcing dollar cost averaging on a pile of money you intend to invest is not based in sound finance theory. If you want to invest all that money, do so now. If you are too risk averse to put it all in, then decide how much you will invest, invest that much now, and keep the rest in a savings account indefinitely. Don't change your investment allocation proportion unless your risk aversion changes. There are many people on the internet and elsewhere who preach the gospel of dollar cost averaging, but their belief in it is not based on sound principles. It's just a dogma. The language of your question implies that you may be interested in sound principles, so I have given you the real answer.\",\n \"\\\"The best strategy for RSU's, specifically, is to sell them as they vest. Usually, vesting is not all in one day, but rather spread over a period of time, which assures that you won't sell in one extremely unfortunate day when the stock dipped. For regular investments, there are two strategies I personally would follow: Sell when you need. If you need to cash out - cash out. Rebalance - if you need to rebalance your portfolio (i.e.: not cash out, but reallocate investments or move investment from one company to another) - do it periodically on schedule. For example, every 13 months (in the US, where the long term cap. gains tax rates kick in after 1 year of holding) - rebalance. You wouldn't care about specific price drops on that day, because they also affect the new investments. Speculative strategies trying to \\\"\\\"sell high buy low\\\"\\\" usually bring to the opposite results: you end up selling low and buying high. But if you want to try and do that - you'll have to get way more technical than just \\\"\\\"dollar cost averaging\\\"\\\" or similar strategies. Most people don't have neither time nor the knowledge for that, and even those who do rarely can beat the market (and never can, in the long run).\\\"\",\n \"A general rule of thumb is to avoid having more than 5% of your investments in any single stock, to avoid excessive risk; it's usually even more risky if you're talking company stock because an adverse event could result in an inferior stock price and you getting laid off. Under other circumstances, the ideal amount of company stock is probably 0%. But there are tax benefits to waiting, as you've noted, and if you're reasonably confident that the stock isn't likely to jerk around too much, and you have a high risk tolerance (i.e. lots of extra savings besides this), and you're comfortable shouldering the risk of losing some money, it might make sense to hold onto the stock for a year - but never any longer. The real risk to holding a lot of company stock doesn't depend on how often you buy it and sell it per se, but having period purchases every month should make it easier for you to ladder the funds, and regularly sell your old shares as you purchase new shares. You might also consider a stop-loss order on the stock at or near the price you purchased it at. If the stock is at $100, then you buy at $85, and then the stock drops to $85, there are no more outstanding tax benefits and it makes no sense to have it as part of your portfolio instead of any other speculative instrument - you probably get better diversification benefits with any other speculative instrument, so your risk-adjusted returns would be higher.\",\n \"You have to look at the market conditions and make decisions based on them. Ideally, you may want to have 30% of your portfolio in bonds. But from a practical point of view, it's probably not so smart to invest in bond funds right at this moment given the interest rate market. Styles of funds tend to go into and out of style. I personally do asset allocation two ways in my 457 plan (like a 401k for government workers): In my IRA, I invest in a portfolio of 5-6 stocks. The approach you take is dependent on what you are able to put into it. I invest about 10 hours a week into investment related research. If you can't do that, you want a strategy that is simpler -- but you still need to be cognizant of market conditions.\",\n \"Index funds are well-known to give the best long-term investment. Are they? Maybe not all the time! If you had invested in an index fund tracking the S&P500 at the start of 2000 you would still be behind in terms of capital appreciation when taking inflation into considerations. Your only returns in 13.5 years would have been any dividends you may have received. See the monthly chart of the S&P500 below. Diversification can be good for your overall returns, but diversification simply for diversification sake is as you said, a way of reducing your overall returns in order of smoothing out your equity curve. After looking up indexes for various countries the only one that had made decent returns over a 13.5 year period was the Indian BSE 30 index, almost 400% over 13.5 years, although it also has gone nowhere since the end of 2007 (5.5 years). See monthly chart below. So investing internationally (especially in developing countries when developed nations are stagnating) can improve your returns, but I would learn about the various international markets first before plunging straight in. Regarding investing in an Index fund vs direct investment in a select group of shares, I did a search on the US markets with the following criteria on the 3rd January 2000: If the resulting top 10 from the search were bought on 3rd January 2000 and held up until the close of the market on the 19th June 2013, the results would be as per the table below: The result, almost 250% return in 13.5 years compared to almost no return if you had invested into the whole S&P 500 Index. Note, this table lists only the top ten from the search without screening through the charts, and no risk management was applied (if risk management was applied the 4 losses of 40%+ would have been limited to a maximum of 20%, but possibly much smaller losses or even for gains, as they might have gone into positive territory before coming back down - as I have not looked at any of the charts I cannot confirm this). This is one simple example how selecting good shares can result in much better returns than investing into a whole Index, as you are not pulled down by the bad stocks.\",\n \"You shouldn't. The Dow has gained 7% annually on average since October 1915(inflation-adjusted). It has also lost 73% of its inflation-adjusted value from 1966 to 1982 meaning that it would have lost you 4.5% annually for 16 years. Furthermore, past performance is not indicative of future results. If stock markets keep performing like they have for the past 100 years, you can expect there will be a point within the next 60-or-so years your stocks will be higher in value than they were when you bought them. With funds you are paying the people managing them which means you are guaranteed to have pyramiding losses that your gains will have to offset. In your case, you are betting with no fundamental knowledge that S&P will be higher than now whenever you need the money which is not even supported by the above assumption. Dollar averaging just means you will be placing many bets which will reduce your expected losses(and your expected gains) when compared to just buying $100K worth of S&P right now. Whatever you invest in, and whatever your time-frame, don't gamble. If you can't say this company(ies) will be $X more valuable than now in X months with probability > Y, then you shouldn't be investing in it. Nobody ever made money by losing money. There are also safer investments than the stock market, like treasury bonds, even if the returns are lousy.\",\n \"You will be hit every time, once every buy order and once every sell order. Commissions to the broker are paid every time they do something for you. This is true regardless if it is a security in which you are already invested. It is true regardless if you make or lose money. It is just as sure as death and taxes.\",\n \"Every time you buy or sell a share for some price, somebody must have thought that that was exactly the right moment to sell or buy that share at that price (and to trade with you). Every time a trade is made, both sides think they are doing the smart thing. Most of the time, one will turn out to be wrong, the other right. Nothing in your proposed method of trading explains why you would be the side that was right more often. So they'll probably even out. Or maybe there are people in the market who actually do have a slightly better than average method, and you'll be wrong somewhat more often than right. Each trade has transaction costs. If you simply hang on to your shares, that's more or less the same as evening out good trades and bad trades, but without the transaction costs.\",\n \"There's a few options you may want to look into. First, I'm writing from an US point of view, I do not know if these are available in Russia. First look into DRIPS (Dividend Reinvestment Plans). These seem tailor made for your request. They are plans set up by companies that pay dividends. If you own at least one share (costing no more than say $100 often less), then these companies will take the dividends paid on these shares and automatically buy more shares as the income from the dividends pile up. This is a low cost of entry way of getting in on many high quality stocks. Stalwart stocks such as GE and many utility and real estate stocks (REITs) offer this. Check out these links: Secondly you can look at brokerages that specialize in buying smaller amount of stocks on a regular basis to simulate a DRIP, ShareBuilder will allow you to invest say $50 or $100 a month into one or more stocks. However, at smaller amounts, their commission fees can eat in to your returns. Folio investing does the same thing as Sharebuilder. It's worth looking at them both and comparing their commissions and other features\",\n \"It looks like you need a lot more education on the subject. I suggest you pick up a book on investing and portfolio management to get a first idea. Dividend yields are currently way below 5% on blue chips. Unlike coupons from fixed income instruments (which, in the same risk category, pay a lot less), dividend yields are not guaranteed and neither is the invested principal amount. In either case, your calculation is far away from reality. Sure, there are investments (such as the mentioned direct investments in companies or housings in emerging economies) that can potentially earn you two digit percentage returns. Just remember: risk always goes both ways. A higher earning potential means higher loss potential. Also, a direct investment is a lot less liquid than an investment on a publicly quoted high turnover market place. If you suddenly need money, you really don't want to be pressed to sell real estate in an emerging market (keyword: bid ask spread). My advice: the money that you can set aside for the long term (10 years plus), invest it in stock ETFs, globally. Everything else should be invested in bond funds or even deposits, depending on when you will need the access. As others have pointed out, consider getting professional advice.\",\n \"Deposit $3,500 each month in a brokerage account and invest that money across a handful of diversified index funds. Rebalance those investments every quarter. The hard part is coming up with $3,500 each month; this is where your budget comes in.\",\n \"You're contributing 98.2% of your contributed amount (deducting 1.8%) each month and at the end of the year, deducting a flat 15 pounds. The easiest way to do this is to use a spreadsheet. But you're missing some key information. What is your expected growth rate and what is your expected inflation rate? Is this a taxable account where you deduct (for example, 35%) of the growth annually for taxes or is this a non-taxable account?\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Okay, I think I managed to find the precise answer to this problem! It involves solving a non-linear exponential equation, but I also found a good approximate solution using the truncated Taylor series. See below for a spreadsheet you can use. Let's start by defining the growth factors per period, for money in the bank and money invested: Now, let S be the amount ready to be invested after n+1 periods; so the first of that money has earned interest for n periods. That is, The key step to solve the problem was to fix the total number of periods considered. So let's introduce a new variable: t = the total number of time periods elapsed So if money is ready to invest every n+1 periods, there will be t/(n+1) separate investments, and the future value of the investments will be: This formula is exact in the case of integer t and n, and a good approximation when t and n are not integers. Substituting S, we get the version of the formula which explicitly depends on n: Fortunately, only a couple of terms in FV depend on n, so we can find the derivative after some effort: Equating the derivative to zero, we can remove the denominator, and assuming t is greater than zero, we can divide by the constant ( 1-G t ): To simplify the equation, we can define some extra constants: Then, we can define a function f(n) and write the equation as: Note that α, β, γ, G, and R are all constant. From here there are two options: Use Newton's method or another numerical method for finding the positive root of f(n). This can be done in a number of software packages like MATLAB, Octave, etc, or by using a graphics calculator. Solve approximately using a truncated Taylor series polynomial. I will use this method here. The Taylor series of f(n), centred around n=0, is: Truncating the series to the first three terms, we get a quadratic polynomial (with constant coefficients): Using R, G, α, β and γ defined above, let c0, c1 and c2 be the coefficients of the truncated Taylor series for f(n): Then, n should be rounded to the nearest whole number. To be certain, check the values above and below n using the formula for FV. Using the example from the question: For example, I might put aside $100 every week to invest into a stock with an expected growth of 9% p.a., but brokerage fees are $10/trade. For how many weeks should I accumulate the $100 before investing, if I can put it in my high-interest bank account at 4% p.a. until then? Using Newton's method to find roots of f(n) above, we get n = 14.004. Using the closed-form approximate solution, we get n = 14.082. Checking this against the FV with t = 1680 (evenly divisible by each n + 1 tested): Therefore, you should wait for n = 14 periods, keeping that money in the bank, investing it together with the money in the next period (so you will make an investment every 14 + 1 = 15 weeks.) Here's one way to implement the above solution with a spreadsheet. StackExchange doesn't allow tables in their syntax at this time, so I'll show a screenshot of the formulae and columns you can copy and paste: Formulae: Copy and paste column A: Copy and paste column B: Results: Remember, n is the number of periods to accumulate money in the bank. So you will want to invest every n+1 weeks; in this case, every 15 weeks.","\"Wow, this turns out to be a much more difficult problem than I thought from first looking at it. Let's recast some of the variables to simplify the equations a bit. Let rb be the growth rate of money in your bank for one period. By \"\"growth rate\"\" I mean the amount you will have after one period. So if the interest rate is 3% per year paid monthly, then the interest for one month is 3/12 of 1% = .25%, so after one month you have 1.0025 times as much money as you started with. Similarly, let si be the growth rate of the investment. Then after you make a deposit the amount you have in the bank is pb = s. After another deposit you've collected interest on the first, so you have pb = s * rb + s. That is, the first deposit with one period's growth plus the second deposit. One more deposit and you have pb = ((s * rb) + s) * rb + s = s + s * rb + s * rb^2. Etc. So after n deposits you have pb = s + s * rb + s * rb^2 + s * rb^3 + ... + s * rb^(n-1). This simplifies to pb = s * (rb^n - 1)/(rb - 1). Similarly for the amount you would get by depositing to the investment, let's call that pi, except you must also subtract the amount of the broker fee, b. So you want to make deposits when pb>pi, or s*(ri^n-1)/(ri-1) - b > s*(rb^n-1)/(rb-1) Then just solve for n and you're done! Except ... maybe someone who's better at algebra than me could solve that for n, but I don't see how to do it. Further complicating this is that banks normally pay interest monthly, while stocks go up or down every day. If a calculation said to withdraw after 3.9 months, it might really be better to wait for 4.0 months to collect one additional month's interest. But let's see if we can approximate. If the growth rates and the number of periods are relatively small, the compounding of growth should also be relatively small. So an approximate solution would be when the difference between the interest rates, times the amount of each deposit, summed over the number of deposits, is greater than the fee. That is, say the investment pays 10% per month more than your bank account (wildly optimistic but just for example), the broker fee is $10, and the amount of each deposit is $200. Then if you delay making the investment by one month you're losing 10% of $200 = $20. This is more than the broker fee, so you should invest immediately. Okay, suppose more realistically that the investment pays 1% more per month than the bank account. Then the first month you're losing 1% of $200 = $2. The second month you have $400 in the bank, so you're losing $4, total loss for two months = $6. The third month you have $600 in the bank so you lose an additional $6, total loss = $12. Etc. So you should transfer the money to the investment about the third month. Compounding would mean that losses on transferring to the investment are a little higher than this, so you'd want to bias to transferring a little earlier. Or, you could set up a spreadsheet to do the compounding calculations month by month, and then just look down the column for when the investment total minus the bank total is greater than the broker fee. Sorry I'm not giving you a definitive answer, but maybe this helps.\""],"string":"[\n \"Okay, I think I managed to find the precise answer to this problem! It involves solving a non-linear exponential equation, but I also found a good approximate solution using the truncated Taylor series. See below for a spreadsheet you can use. Let's start by defining the growth factors per period, for money in the bank and money invested: Now, let S be the amount ready to be invested after n+1 periods; so the first of that money has earned interest for n periods. That is, The key step to solve the problem was to fix the total number of periods considered. So let's introduce a new variable: t = the total number of time periods elapsed So if money is ready to invest every n+1 periods, there will be t/(n+1) separate investments, and the future value of the investments will be: This formula is exact in the case of integer t and n, and a good approximation when t and n are not integers. Substituting S, we get the version of the formula which explicitly depends on n: Fortunately, only a couple of terms in FV depend on n, so we can find the derivative after some effort: Equating the derivative to zero, we can remove the denominator, and assuming t is greater than zero, we can divide by the constant ( 1-G t ): To simplify the equation, we can define some extra constants: Then, we can define a function f(n) and write the equation as: Note that α, β, γ, G, and R are all constant. From here there are two options: Use Newton's method or another numerical method for finding the positive root of f(n). This can be done in a number of software packages like MATLAB, Octave, etc, or by using a graphics calculator. Solve approximately using a truncated Taylor series polynomial. I will use this method here. The Taylor series of f(n), centred around n=0, is: Truncating the series to the first three terms, we get a quadratic polynomial (with constant coefficients): Using R, G, α, β and γ defined above, let c0, c1 and c2 be the coefficients of the truncated Taylor series for f(n): Then, n should be rounded to the nearest whole number. To be certain, check the values above and below n using the formula for FV. Using the example from the question: For example, I might put aside $100 every week to invest into a stock with an expected growth of 9% p.a., but brokerage fees are $10/trade. For how many weeks should I accumulate the $100 before investing, if I can put it in my high-interest bank account at 4% p.a. until then? Using Newton's method to find roots of f(n) above, we get n = 14.004. Using the closed-form approximate solution, we get n = 14.082. Checking this against the FV with t = 1680 (evenly divisible by each n + 1 tested): Therefore, you should wait for n = 14 periods, keeping that money in the bank, investing it together with the money in the next period (so you will make an investment every 14 + 1 = 15 weeks.) Here's one way to implement the above solution with a spreadsheet. StackExchange doesn't allow tables in their syntax at this time, so I'll show a screenshot of the formulae and columns you can copy and paste: Formulae: Copy and paste column A: Copy and paste column B: Results: Remember, n is the number of periods to accumulate money in the bank. So you will want to invest every n+1 weeks; in this case, every 15 weeks.\",\n \"\\\"Wow, this turns out to be a much more difficult problem than I thought from first looking at it. Let's recast some of the variables to simplify the equations a bit. Let rb be the growth rate of money in your bank for one period. By \\\"\\\"growth rate\\\"\\\" I mean the amount you will have after one period. So if the interest rate is 3% per year paid monthly, then the interest for one month is 3/12 of 1% = .25%, so after one month you have 1.0025 times as much money as you started with. Similarly, let si be the growth rate of the investment. Then after you make a deposit the amount you have in the bank is pb = s. After another deposit you've collected interest on the first, so you have pb = s * rb + s. That is, the first deposit with one period's growth plus the second deposit. One more deposit and you have pb = ((s * rb) + s) * rb + s = s + s * rb + s * rb^2. Etc. So after n deposits you have pb = s + s * rb + s * rb^2 + s * rb^3 + ... + s * rb^(n-1). This simplifies to pb = s * (rb^n - 1)/(rb - 1). Similarly for the amount you would get by depositing to the investment, let's call that pi, except you must also subtract the amount of the broker fee, b. So you want to make deposits when pb>pi, or s*(ri^n-1)/(ri-1) - b > s*(rb^n-1)/(rb-1) Then just solve for n and you're done! Except ... maybe someone who's better at algebra than me could solve that for n, but I don't see how to do it. Further complicating this is that banks normally pay interest monthly, while stocks go up or down every day. If a calculation said to withdraw after 3.9 months, it might really be better to wait for 4.0 months to collect one additional month's interest. But let's see if we can approximate. If the growth rates and the number of periods are relatively small, the compounding of growth should also be relatively small. So an approximate solution would be when the difference between the interest rates, times the amount of each deposit, summed over the number of deposits, is greater than the fee. That is, say the investment pays 10% per month more than your bank account (wildly optimistic but just for example), the broker fee is $10, and the amount of each deposit is $200. Then if you delay making the investment by one month you're losing 10% of $200 = $20. This is more than the broker fee, so you should invest immediately. Okay, suppose more realistically that the investment pays 1% more per month than the bank account. Then the first month you're losing 1% of $200 = $2. The second month you have $400 in the bank, so you're losing $4, total loss for two months = $6. The third month you have $600 in the bank so you lose an additional $6, total loss = $12. Etc. So you should transfer the money to the investment about the third month. Compounding would mean that losses on transferring to the investment are a little higher than this, so you'd want to bias to transferring a little earlier. Or, you could set up a spreadsheet to do the compounding calculations month by month, and then just look down the column for when the investment total minus the bank total is greater than the broker fee. Sorry I'm not giving you a definitive answer, but maybe this helps.\\\"\"\n]","isConversational":false}}}],"truncated":false,"partial":false},"paginationData":{"pageIndex":2,"numItemsPerPage":100,"numTotalItems":500,"offset":200,"length":100}},"jwt":"eyJhbGciOiJFZERTQSJ9.eyJyZWFkIjp0cnVlLCJwZXJtaXNzaW9ucyI6eyJyZXBvLmNvbnRlbnQucmVhZCI6dHJ1ZX0sImlhdCI6MTc3NjUwNjM0NSwic3ViIjoiL2RhdGFzZXRzL0NvbnRleHR1YWxBSS9maXFhMjAxOCIsImV4cCI6MTc3NjUwOTk0NSwiaXNzIjoiaHR0cHM6Ly9odWdnaW5nZmFjZS5jbyJ9.NMPuGBjVaZMCG0BMvvo-jrjWvfVwmPXtbTwPUBfewsqDLY239QUbi5PvqqIRpl3fkgAQ7SLKtOwTs7fAs02WDQ","displayUrls":true,"splitSizeSummaries":[{"config":"default","split":"test","numRows":500,"numBytesParquet":27320919}]},"discussionsStats":{"closed":0,"open":0,"total":0},"fullWidth":true,"hasGatedAccess":true,"hasFullAccess":true,"isEmbedded":false,"savedQueries":{"community":[],"user":[]}}">
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2587 | Typically how many digits are in a cheque number? | [
"89326"
] | [
1
] | [
"89326",
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... | [
"Checks are normally numbered sequentially, to keep them unique for record-keeping purposes. The check number takes as many digits as it takes, depending on how long the account has been open and thus how many checks have been written. The most recent check I looked at had a four-digit number, but as has been poin... | [
"Checks are normally numbered sequentially, to keep them unique for record-keeping purposes. The check number takes as many digits as it takes, depending on how long the account has been open and thus how many checks have been written. The most recent check I looked at had a four-digit number, but as has been poin... |
4047 | Does doing your “research”/“homework” on stocks make any sense? | [
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1,
1,
1,
1
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... | [
"\"Doing your homework means to perform what's more accurately called \"\"fundamental analysis\"\". According to proponents of fundamental analysis (FA), it is possible to accurately determine how much a stock should trade for and then buy or sell the stock based on whether it trades above or below this target pric... | [
"\"Doing your homework means to perform what's more accurately called \"\"fundamental analysis\"\". According to proponents of fundamental analysis (FA), it is possible to accurately determine how much a stock should trade for and then buy or sell the stock based on whether it trades above or below this target pric... |
3781 | What is the rough estimate of salary value for a taxpayer to pay AMT? | [
"131959",
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] | [
1,
1
] | [
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"\"Turbox Tax states the following: \"\"For 2015, the AMT exemption amounts are $53,600 for individual taxpayers, $83,400 for married taxpayers filing jointly and surviving spouses, and $41,700 for married persons filing separately. This is the amount you're allowed to deduct from your taxable income before applyi... | [
"\"Alternative Minimum Tax is based not just on your income, but moreso on the deductions you use. In short, if you have above the minimum AMT threshold of income (54k per your link), and pay a tiny amount of tax, you will pay AMT. AMT is used as an overall protection for the government to say \"\"okay, you can use... |
6875 | Where to find free Thailand stock recommendations and research? | [
"224392"
] | [
1
] | [
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"I use and recommend barchart.com. Again you have to register but it's free. Although it's a US system it has a full listing of UK stocks and ETFs under International > London. The big advantage of barchart.com is that you can do advanced technical screening with Stochastics and RS, new highs and lows, moving avera... | [
"On what basis did you do your initial allocation of funds to each stock? If you are 're-balancing' that implies returning things to their initial allocation. You can do this without any research or recommendations. If you started out with say 10 stocks and 10% of the funds allocated to each stock, then re-balan... |
4142 | Relation between inflation rates and interest rates | [
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"61346"
] | [
1,
1,
1,
1
] | [
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"269727",
"440270"... | [
"What is the relationship between inflation and interest rates? notes a relationship between inflation and interest rates that would suggest high inflation would imply higher interest rates that would mean less loans as money becomes more expensive in a sense. In contrast, in times of low inflation then rates may b... | [
"Possibly but not necessarily, though that can happen if one looks at the US interest rates in the late 1970s which did end with really high rates in the early 1980s. Generally interest rates are raised when inflation picks up as a way to bring down inflation.",
"When the inflation rate increases, this tends to p... |
2460 | What are the consequences of not respecting a notice period when leaving a job? | [
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1,
1,
1
] | [
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"It depends on your employer. They may not care to pursue matters if you don't give enough notice. They might be happy to see you go. Or they might be really sad to see you go, but not feel like they need to punish you. Or they might be really angry to see you go, and decide that they want to punish you to the full... | [
"It's provincial jurisdiction, so it can vary by province. In Manitoba, it's different when an employee quits vs. being terminated: Quiting: Being terminated: Edit: At least in Manitoba, according to the above link, an employer can't set different notice periods. Effective April 30, 2007, employers cannot have ... |
7105 | What is the difference between fixed-income duration and equity duration? | [
"72652"
] | [
1
] | [
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"A bond has a duration that can be easily calculated. It's the time weighted average of all the payments you'll receive and helpful to understand the effect a change in rates will have on that instrument. The duration of a stock, on the other hand, is a forced construct to then use in other equations to help calcu... | [
"A bond has a duration that can be easily calculated. It's the time weighted average of all the payments you'll receive and helpful to understand the effect a change in rates will have on that instrument. The duration of a stock, on the other hand, is a forced construct to then use in other equations to help calcu... |
4813 | Dealer Financing Fell Through on vehicle purchase: Scam? | [
"98356"
] | [
1
] | [
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"23949"... | [
"There's a good explanation of this type of scam at the following link; It's known as a Spot-Delivery scam. https://www.carbuyingtips.com/top-10-scams/scam1.htm Also, I read this one a while back, and immediately this post reminded me of it: http://oppositelock.kinja.com/when-the-dealership-steals-back-the-car-they... | [
"There's a good explanation of this type of scam at the following link; It's known as a Spot-Delivery scam. https://www.carbuyingtips.com/top-10-scams/scam1.htm Also, I read this one a while back, and immediately this post reminded me of it: http://oppositelock.kinja.com/when-the-dealership-steals-back-the-car-they... |
9556 | How does pre-market trading work? | [
"37040"
] | [
1
] | [
"37040",
"218670",
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... | [
"\"First of all, not all brokers allow trading during pre-market and post-market. Some brokers only allow trading during the regular hours (9:30am - 4pm ET). Second of all, while you can place orders using limit orders and market orders during regular trading hours, you can only use limit orders during pre-market ... | [
"\"First of all, not all brokers allow trading during pre-market and post-market. Some brokers only allow trading during the regular hours (9:30am - 4pm ET). Second of all, while you can place orders using limit orders and market orders during regular trading hours, you can only use limit orders during pre-market ... |
7344 | How is the Dow divisor calculated? | [
"14368",
"108403"
] | [
1,
1
] | [
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"144005",
"60098",
"288604",... | [
"Have you actually read the Wikipedia article? To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of... | [
"Have you actually read the Wikipedia article? To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of... |
9088 | Brokerage account for charity | [
"569461",
"561377"
] | [
1,
1
] | [
"453455",
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"295115",
"107215"... | [
"In the US the best way to solve the problem, IMHO, would be via a trust. Talk to a properly licensed trust/estate attorney and a tax adviser (EA/CPA licensed in your State). Using intermediary who's not a 501(c) organization may pose income tax issues to that intermediary as providing support to the needy is not a... | [
"If the charity accepts stock, you can avoid the tax on the long term cap gain when you donate it. e.g. I donate $10,000 in value of Apple. I write off $10,000 on my taxes, and benefit with a $2500 refund. If I sold it, I'd have nearly a $1500 tax bill (bought long enough ago, the basis is sub $100). Any trading a... |
4845 | What is the difference between fund and portfolio? | [
"40424",
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"41625"
] | [
1,
1,
1
] | [
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... | [
"\"A \"\"Fund\"\" is generally speaking a collection of similar financial products, which are bundled into a single investment, so that you as an individual can buy a portion of the Fund rather than buying 50 portions of various products. e.g. a \"\"Bond Fund\"\" may be a collection of various corporate bonds that ... | [
"\"A \"\"Fund\"\" is generally speaking a collection of similar financial products, which are bundled into a single investment, so that you as an individual can buy a portion of the Fund rather than buying 50 portions of various products. e.g. a \"\"Bond Fund\"\" may be a collection of various corporate bonds that ... |
5067 | LLC: Where should the funds for initial startup costs come from? | [
"547301"
] | [
1
] | [
"237760",
"71569",
"523158",
"272076",
"547301",
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"413229",
"133299",
"374443",
"73427",
"350819",
... | [
"You don't even need to formally loan the LLC any money. You pay for the setup costs out of pocket, and then once the LLC is formed, you reimburse yourself (just like with an expense report). Essentially you submit an expense report to the LLC for the startup costs, and the LLC pays out a check to you, categorized ... | [
"\"Like you said, it's important to keep your personal assets and company assets completely separate to maintain the liability protection of the LLC. I'd recommend getting the business bank account right from the beginning. My wife formed an LLC last year (also as a pass-through sole proprietorship for tax purposes... |
3503 | Is there any instance where less leverage will get you a better return on a rental property? | [
"345294",
"297764",
"63091",
"177563",
"482077",
"360621",
"89509"
] | [
1,
1,
1,
1,
1,
1,
1
] | [
"360621",
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"469125",
"111899",
"268835",
"465648",
"62955",
"129149",
"412624",
"148299",... | [
"\"QUICK ANSWER When it comes to fixed income assets, whether rental real estate or government bonds, it's unusual for highly-leveraged assets to yield less than the same asset unleveraged or lowly-leveraged. This is especially so in countries where interest costs are tax deductible. If we exclude capital losses (... | [
"There are two obvious cases in which your return is lower with a heavily leveraged investment. If a $100,000 investment of your own cash yields $1000 that's a 1% return. If you put in $50,000 of your own money and borrow $50,000 at 2%, you get a 0% return (After factoring in the interest as above.) If you buy an i... |
3615 | My previous and current employers both use Fidelity for 401(k). Does it make sense to rollover? | [
"518379",
"335991"
] | [
1,
1
] | [
"335991",
"518379",
"224434",
"291578",
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"434734",
"192627",... | [
"I would always suggest rolling over 401(k) plans to traditional IRAs when possible. Particularly, assuming there is enough money in them that you can get a fee-free account at somewhere like Fidelity or Vanguard. This is for a couple of reasons. First off, it opens up your investment choices significantly and ca... | [
"I would check to see what the fee schedule is on your previous employer's 401k. Depending on how it was setup, the quarterly/annual maintenance fee may be lower/higher than your current employer. Another reason to rollover/not-rollover is that selection of funds available is better than the other plan. And of cour... |
2330 | How can I determine if a debt consolidation offer is real or a scam? | [
"478514",
"104221"
] | [
1,
1
] | [
"478514",
"104221",
"367944",
"513980",
"145322",
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"430911",
"65605",
"391655",
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"409761",
"361698",
"501690",
"160611",
"264822",
"204735",
"349866",
"16390... | [
"\"I believe no-one who's in a legal line of business would tell you to default voluntarily on your obligations. Once you get an offer that's too good to be true, and for which you have to do something that is either illegal or very damaging to you - it is probably a scam. Also, if someone requires you to send any ... | [
"\"I believe no-one who's in a legal line of business would tell you to default voluntarily on your obligations. Once you get an offer that's too good to be true, and for which you have to do something that is either illegal or very damaging to you - it is probably a scam. Also, if someone requires you to send any ... |
9824 | Where can end-of-day data be downloaded for corporate bonds? | [
"574777"
] | [
1
] | [
"574777",
"247759",
"49111",
"381362",
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"596106",
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"526377",
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"350680",
"487074",
"516379",
"420587... | [
"Here is one from a Bloomberg partnership, it is free. To get the end of day prices, you may need some programming done. PM me if you need help with that. Getting bond quotes and general information about a bond issue is considerably more difficult than researching a stock or a mutual fund. A major reason for this ... | [
"Here is one from a Bloomberg partnership, it is free. To get the end of day prices, you may need some programming done. PM me if you need help with that. Getting bond quotes and general information about a bond issue is considerably more difficult than researching a stock or a mutual fund. A major reason for this ... |
4968 | Reasons behind a large price movement of a penny stock without any recent news releases? | [
"387022"
] | [
1
] | [
"387022",
"544506",
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"291220",
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"261640",
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"33357",
"68187",
"389562",
"358164",
"366315",... | [
"\"Yes, in my humble opinion, it can be \"\"safe\"\" to assume that — but not in the sense that your assumption is necessarily or likely correct. Rather, it can be \"\"safe\"\" in the respect that assuming the worst — even if wrong! — could save you from a likely painful and unsuccessful speculation in the highly v... | [
"\"Yes, in my humble opinion, it can be \"\"safe\"\" to assume that — but not in the sense that your assumption is necessarily or likely correct. Rather, it can be \"\"safe\"\" in the respect that assuming the worst — even if wrong! — could save you from a likely painful and unsuccessful speculation in the highly v... |
7928 | If I believe a stock is going to fall, what options do I have to invest on this? | [
"480967",
"118633",
"501504",
"499811"
] | [
1,
1,
1,
1
] | [
"480967",
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"95415",
"275768",
"421285",
"230666",... | [
"\"Aganju has mentioned put options, which are one good possibility. I would suggest considering an even easier strategy: short selling. Technically you are borrowing the stock from someone and selling it. At some point you repurchase the stock to return to the lender (\"\"covering your short\"\"). If the stock ... | [
"\"Aganju has mentioned put options, which are one good possibility. I would suggest considering an even easier strategy: short selling. Technically you are borrowing the stock from someone and selling it. At some point you repurchase the stock to return to the lender (\"\"covering your short\"\"). If the stock ... |
9771 | Is there any emprical research done on 'adding to a loser' | [
"263955",
"28740"
] | [
1,
1
] | [
"263955",
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... | [
"\"This is basically martingale, which there is a lot of research on. Basically in bets that have positive expected value such as inflation hedged assets this works better over the long term, than bets that have negative expected value such as table games at casinos. But remember, whatever your analysis is: The mar... | [
"\"This is basically martingale, which there is a lot of research on. Basically in bets that have positive expected value such as inflation hedged assets this works better over the long term, than bets that have negative expected value such as table games at casinos. But remember, whatever your analysis is: The mar... |
9391 | Should I replace bonds in a passive investment strategy | [
"136515",
"283202",
"248158",
"503637"
] | [
1,
1,
1,
1
] | [
"248158",
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"480318",
"31581",
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"155242",
"142631",
"269550",
"112369",
"549270",
"503637",
"500815",
"487616",
"545760"... | [
"No. That's the point of a passive strategy: you maintain a more or less constant mix of assets and don't try to figure out what's going to move where.",
"\"Bonds still definitely have a place in many passive portfolios. While it is true that interest rates have been unusually low, yields on reasonable passive b... | [
"\"Bonds still definitely have a place in many passive portfolios. While it is true that interest rates have been unusually low, yields on reasonable passive bond exposures are still around 2-4%. This is significantly better than both recent past inflation and expected inflation both of which are near zero. Thi... |
928 | How can I determine if a FHA loan refinance offer is from a reputable lender | [
"349866",
"11572"
] | [
1,
1
] | [
"349866",
"11572",
"456783",
"352429",
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"446137",
"320953",
"233561",
"562798",
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"367944",
"331255",
"221431",
"185217",
"254152",
"195053",
"538005",
"114428",
"3931... | [
"In my book if it comes in the mail with official looking envelopes, language and seals to try and get you to open it, the company isn't trust worthy enough for my business. I get a pile of these for my VA loan every week, I imagine FHA loans get similar junk mail. Rates are very low at the moment so it is likely t... | [
"In my book if it comes in the mail with official looking envelopes, language and seals to try and get you to open it, the company isn't trust worthy enough for my business. I get a pile of these for my VA loan every week, I imagine FHA loans get similar junk mail. Rates are very low at the moment so it is likely t... |
6715 | What does it mean if “IPOs - normally are sold with an `underwriting discount` (a built in commission)” | [
"568526",
"13732"
] | [
1,
1
] | [
"13732",
"568526",
"351055",
"209863",
"169548",
"476829",
"89533",
"5685",
"499154",
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"475700",
"491644",
"243115",
"498752",
"3495",
"25195",
"68094",
"533357",
"203139",
"... | [
"\"Also, in the next sentence, what is buyers commission? Is it referring to the share holder? Or potential share holder? And why does the buyer get commission? The buyer doesn't get a commission. The buyer pays a commission. So normally a buyer would say, \"\"I want to buy a hundred shares at $20.\"\" The brok... | [
"\"When an IPO happens, the buyers pay some price (let's say $20 per share) and the seller (the company) receives a different price ($18.60). Who paid the commission? Well, the commission caused a spread between buyer and seller. It doesn't matter who technically pays the commission because it costs both parties.... |
10183 | How are various types of income taxed differently in the USA? | [
"66858",
"314342"
] | [
1,
1
] | [
"314342",
"66858",
"60929",
"558867",
"374676",
"24462",
"76480",
"11401",
"45190",
"418951",
"477172",
"59317",
"321114",
"42521",
"295988",
"530146",
"111967",
"553253",
"112231",
"116017",
"575899",
"272028",
"175951",
"41509",
"277464",
"266898",
"57263",
"5... | [
"\"Many individual states, counties, and cities have their own income taxes, payroll taxes, sales taxes, property taxes, etc., you will need to consult your state and local government websites for information about additional taxes that apply based on your locale. Wages, Salaries, Tips, Cash bonuses and other taxab... | [
"\"Long-term capital gains, which is often the main element of investment income for investors who are not high-frequency day traders, are taxed at a single rate that is often substantially below the marginal rate they would otherwise be taxed at, particularly for wealthy individuals. There are a few rationales beh... |
1877 | As a Sole Proprietor, will “employer” Solo 401k contributions count towards gross income? | [
"178697"
] | [
1
] | [
"178697",
"336917",
"181652",
"247473",
"396968",
"191993",
"590310",
"143862",
"367556",
"290105",
"315780",
"518562",
"195637",
"367577",
"62281",
"507476",
"509772",
"410421",
"221938",
"406561",
"279538",
"369879",
"349847",
"2369",
"244412",
"505617",
"200898... | [
"\"This seems to depend on what kind of corporation you have set up. If you're set up as a sole proprietor, then the Solo 401k contributions, whether employee or employer, will be deducted from your gross income. Thus they don't reduce it. If you're set up as an S-Corp, then the employer contributions, similar to ... | [
"\"This seems to depend on what kind of corporation you have set up. If you're set up as a sole proprietor, then the Solo 401k contributions, whether employee or employer, will be deducted from your gross income. Thus they don't reduce it. If you're set up as an S-Corp, then the employer contributions, similar to ... |
4125 | Alternative means of salary for my employees | [
"344648",
"72046"
] | [
1,
1
] | [
"396255",
"551064",
"428079",
"571362",
"313186",
"465196",
"166166",
"490630",
"177528",
"543085",
"522768",
"99233",
"207144",
"107564",
"462255",
"65795",
"98629",
"499189",
"528727",
"290325",
"599684",
"18792",
"312765",
"127347",
"482638",
"24323",
"272117",... | [
"Interesting. What is your view of this idea: institute a bonus program which allocates to each employee scrip proportionate to the number of dependents (plus 1 for themselves, of course); this scrip would be valid for one year and to earn it one needs meet some basic work requirements and can be used to purchase w... | [
"You can't Your problem is that no one will value you new currency call it bytecoin. People will ask why is the bytecoin worth anything and you don't have an answer. You employees will have worthless currency and be effectively making under minimum wage. Its the same as if you printed Charles dollars with your... |
8934 | Dividend yield for multiple years? | [
"244334",
"116675"
] | [
1,
1
] | [
"244334",
"116675",
"221477",
"144775",
"374330",
"341192",
"368848",
"189142",
"239137",
"408610",
"102138",
"60098",
"437465",
"561850",
"38586",
"420097",
"276860",
"49312",
"223477",
"404840",
"389077",
"245117",
"95278",
"378427",
"575237",
"532616",
"145096"... | [
"I've recently discovered that Morningstar provides 5yr avgs of a few numbers, including dividend yield, for free. For example, see the right-hand column in the 'Current Valuation' section, 5th row down for the 5yr avg dividend yield for PG: http://financials.morningstar.com/valuation/price-ratio.html?t=PG®ion=... | [
"I've recently discovered that Morningstar provides 5yr avgs of a few numbers, including dividend yield, for free. For example, see the right-hand column in the 'Current Valuation' section, 5th row down for the 5yr avg dividend yield for PG: http://financials.morningstar.com/valuation/price-ratio.html?t=PG®ion=... |
2964 | Unmarried Couple Splitting up with Joint Ownership of Home | [
"302409",
"95116"
] | [
1,
1
] | [
"349607",
"214071",
"181608",
"95116",
"465950",
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"53840",
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"361547",
"62576",
"573199",
"75235",
"59116",
"89872",
... | [
"I cannot emphasize enough how important it is, when you buy a house with someone you are not married to, to make a legal agreement on how the money should be divided when you sell. I know it's too late for you, but I write this for anyone else reading this answer. From a legal point of view, if you made no agreeme... | [
"\"Despite the unmarried status, you need to see a lawyer. Essentially you have a business with this person owning a home as the asset, and a mortgage for which you are responsible for. A lawyer needs to examine any paperwork you have and with knowledge of your particular jurisdiction's laws can advise you on the... |
7880 | Are there index tracking funds that avoid the “buy high - sell low” problem? | [
"272790",
"85319"
] | [
1,
1
] | [
"81458",
"384893",
"272790",
"551590",
"206744",
"71545",
"65587",
"241202",
"9465",
"18303",
"17923",
"231863",
"298350",
"501153",
"227748",
"70194",
"452122",
"296426",
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"242835",
"7208",
"116865",
"237450",
"148721",
"322070",
"503725",
"438582",
"3... | [
"\"Usually, the amswer to \"\"why sell it\"\" is \"\"to maintain the specific distribution balance, or to track the index, that this fund was designed to offer.\"\" A \"\"buy and hold\"\" fund could only buy when users are actively putting money into it. That limits their ability to follow those approaches. And I ... | [
"\"In a cap-weighted fund, the fund itself isn't buying or selling at all (except to support redemptions or purchases of the fund). As the value of a stock in the index goes up, then its value in the fund goes up naturally. This is the advantage of a cap-weighted fund, that it doesn't have to trade (buy and sell), ... |
8475 | Why I cannot find a “Pure Cash” option in 401k investments? | [
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"293320",
"104793",
"437427",
"444107",
"481728"
] | [
1,
1,
1,
1,
1,
1,
1
] | [
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"259072",
"445573",
"341146",
"155676",
"525426",
"513474",... | [
"This situation, wanting desperately to have access to an investment vehicle in a 401K, but it not being available reminds me of two suggestions some make regarding retirement investing: This allows you the maximum flexibility in your retirement investing. I have never, in almost 30 years of 401K investing, seen a... | [
"\"Holding pure cash is a problem for 401K companies because they would then have follow banking rules because they would be holding your cash on their balance sheets. They don't want to be in that business. Instead, they should offer at least one option as a cash equivalent - a money market fund. This way the mone... |
6644 | How to know precisely when a SWIFT is issued by a bank? | [
"175035"
] | [
1
] | [
"110198",
"346035",
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"132167",
"475527",
"350396",
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"86262",
"78297",
"298587",
"373271",
"44768",
"484129",
"314492",
"355870"... | [
"No. You can initiate SWIFT payments from Bank A, whenever Bank A is open for business. The transaction takes around 2-5 days for it to complete depending on the currency pair and countries involved. Once you initiate the payment, the Bank A sends it to SWIFT Network which in turn send it to Bank B. Whenever Bank B... | [
"I think technically the MIR includes the date of issuance but not the time, see the references here. What you have there looks like a timestamp followed by the MIR. If you look at this example from IBM they also show the input time as a separate field."
] |
2070 | Advantage of credit union or local community bank over larger nationwide banks such as BOA, Chase, etc.? | [
"136438",
"363678",
"30253"
] | [
1,
1,
1
] | [
"249839",
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"258581",
"261389",
"197087",
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"35267",
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"65659",
"182866",
"68472",
"403077",
"295750",
"366475",
"532804",
"506113",
"95715",
... | [
"My favorite part about using a local credit union is, if I have an account issue, I can just call up and talk to someone who works five minutes from my house without *ever* punching numbers into an automated answering system. Good luck doing that with Bank of America.",
"Banks, the big ones, have shareholders an... | [
"Banks, the big ones, have shareholders and the board to answer to. Credit Unions have members and the board to answer to. You become a member by joining a CU. Banks' prime objective is profit maximization, a credit union's prime objective is members' welfare. Personal experience: I didn't mind that the banks c... |
9598 | How do index funds actually work? | [
"379311"
] | [
1
] | [
"498597",
"334919",
"298350",
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"454596",
"452939",
"188497",
"47985",
"315126",
"570787",
"81458",
"322070",
"27930",
"44617",
"148721"... | [
"An index fund is just copying the definition of an index. The group that defines the index determines how to weight the different parts of the index. The index fund just makes sure they invest the same way the index creator wants. Think of a non-investment scenario. A teacher can grade tests, quizzes, homework, i... | [
"Now company A has been doing ok for couple of weeks, but then due to some factors in that company its stock has been tanking heavily and doesn't appear to have a chance to recover. In this kind of scenario, what does happen? In this scenario, if that company is included in the index being tracked, you will contin... |
5993 | Why would anyone want to pay off their debts in a way other than “highest interest” first? | [
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... | [
"\"It is true that all else being equal, you will pay a lower amount of total interest by paying down your highest interest rate debts first. However, all else is not always equal. I'm going to try to come up with some reasons why it might be better in some circumstances to pay your debts in a different order. A... | [
"\"It is true that all else being equal, you will pay a lower amount of total interest by paying down your highest interest rate debts first. However, all else is not always equal. I'm going to try to come up with some reasons why it might be better in some circumstances to pay your debts in a different order. A... |
1824 | Is there a way to open a U.S. bank account for my LLC remotely? | [
"244808"
] | [
1
] | [
"244808",
"43716",
"344928",
"239572",
"205719",
"142561",
"310103",
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"275846",
"311358",
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"545990",
"131483",
"547301",
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"251063",
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"372909",
"357938",
"298638",
"1873",
"295250",
"281045",
"431230",
"288145",
"20283"... | [
"\"Yes, it is possible. Although there may be red tape for a business account, Alliant Credit Union offers completely online signup and their representatives are reachable by email. You'll probably need to send in the LLC articles this way http://www.alliantcu.com/checking-accounts.html (as pointed out by @littlea... | [
"\"Yes, it is possible. Although there may be red tape for a business account, Alliant Credit Union offers completely online signup and their representatives are reachable by email. You'll probably need to send in the LLC articles this way http://www.alliantcu.com/checking-accounts.html (as pointed out by @littlea... |
5808 | How do you calculate return on investment for a share of stock? | [
"251824"
] | [
1
] | [
"251824",
"170652",
"573928",
"175107",
"438547",
"242849",
"204761",
"149211",
"368848",
"112342",
"478480",
"332567",
"215659",
"525094",
"542764",
"354857",
"129327",
"386309",
"521590",
"187583",
"180249",
"435096",
"476260",
"143302",
"219927",
"583913",
"885... | [
"To figure this out, you need to know the price per share then vs the price per share now. Google Finance will show you historical prices. For GOOG, the closing price on January 5, 2015 was $513.87. The price on December 31, 2015 was $758.88. Return on Investment (ROI) is calculated with this formula: ROI = (Pr... | [
"To figure this out, you need to know the price per share then vs the price per share now. Google Finance will show you historical prices. For GOOG, the closing price on January 5, 2015 was $513.87. The price on December 31, 2015 was $758.88. Return on Investment (ROI) is calculated with this formula: ROI = (Pr... |
10558 | Investment strategy for 401k when rolling over soon | [
"222485",
"483268"
] | [
1,
1
] | [
"483268",
"175252",
"122114",
"335991",
"222485",
"475748",
"550083",
"74583",
"344526",
"425703",
"192627",
"492659",
"67220",
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"105011",
"363753",
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"88550",
"357555",
"332605",
"581973",
"598440",
"449828",
"398520",
"510615",
"323934... | [
"The time horizon for your 401K/IRA is essentially the same, and it doesn't stop at the day you retire. On the day you do the rollover you will be transferring your funds into similar investments. S&P500 index to S&P 500 index; 20xx retirement date to 20xx retirement date; small cap to small cap... If your vested p... | [
"You will be rolling over the proceeds, since you can only deposit cash into an IRA. However, this should probably not affect your considerations much since the pre-rollover sale is non-taxable within the 401k and the period of roll-over itself (when the cash is uninvested) is relatively short. So, whatever investm... |
766 | Will the ex-homeowner still owe money after a foreclosure? | [
"2996",
"387218",
"550172"
] | [
1,
1,
1
] | [
"127461",
"2996",
"427110",
"482755",
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"27987",
"90579",
"125032",
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"366448",
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"391251",
"249788",
"64189",
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... | [
"I walked away from a house last year and don't regret it a single bit. I owed $545,000 and the bank sold it a month after moving out for $328,900. So technically I guess I can be on the hook to someone for the missing $216,100 for many years to come. Oh well. They can come after me if they want and I'll decla... | [
"Yes, the borrower is responsible for paying back the full amount of the loan. Foreclosure gives the bank possession of the property, which they can (and do) sell. Any shortfall is still the borrower's responsibility. But, no, the bank can't sell the property for a dollar; they have to make a reasonable effort. Usu... |
1416 | US resident with Canadian income via T4A-NR | [
"326717"
] | [
1
] | [
"259602",
"427442",
"439502",
"430728",
"284085",
"518624",
"228445",
"382295",
"86621",
"282844",
"452350",
"5762",
"353926",
"192083",
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"352266",
"102287",
"160899",
"56044",
"211147",
"237785",
"385320",
"416511",
"183477",... | [
"I can't give you a specific answer because I'm not a tax accountant, so you should seek advice from a tax professional with experience relevant to your situation. This could be a complicated situation. That being said, one place you could start is the Canada Revenue Agency's statement on investment income, which c... | [
"As per the Canada-U.S. Tax Treaty (the “Treaty”), a U.S. corporation carrying on business in Canada is only subject to taxation on income earned in Canada through a fixed place of business or permanent establishment. Therefore, if a U.S. company does not have a permanent establishment (PE) in Canada then their Can... |
5356 | Historical stock prices: Where to find free / low cost data for offline analysis? | [
"279785",
"71553",
"381362",
"312405",
"562259"
] | [
1,
1,
1,
1,
1
] | [
"279785",
"535343",
"466255",
"240086",
"546379",
"516379",
"49111",
"381362",
"167586",
"109796",
"537111",
"560108",
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"189341",
"529877",
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"487074",
"465971",
"146780",
"562259",
"71553",
"580133",
"437465",
"89591",
"405572... | [
"Go to http://finance.google.com, search for the stock you want. When you are seeing the stock information, in the top left corner there's a link that says 'Historical prices'. Click on it. then select the date range, click update (don't forget this) and 'Download to spreadsheet' (on the right, below the chart). Fo... | [
"Go to http://finance.google.com, search for the stock you want. When you are seeing the stock information, in the top left corner there's a link that says 'Historical prices'. Click on it. then select the date range, click update (don't forget this) and 'Download to spreadsheet' (on the right, below the chart). Fo... |
5503 | Tax considerations for selling a property below appraised value to family? | [
"146277",
"64279"
] | [
1,
1
] | [
"146277",
"64279",
"497530",
"57036",
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"14732",
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"259627",
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... | [
"\"Is this legal? Why not? But you might have trouble deducting losses on your taxes, especially if you sell to someone related to you in some way (which is indeed what you're doing). See the added portion below regarding dealing with \"\"related person\"\" (which a sibling is). The state of Maryland has a transfer... | [
"\"Is this legal? Why not? But you might have trouble deducting losses on your taxes, especially if you sell to someone related to you in some way (which is indeed what you're doing). See the added portion below regarding dealing with \"\"related person\"\" (which a sibling is). The state of Maryland has a transfer... |
7594 | Converting annual interbank rates into monthly rates | [
"573899"
] | [
1
] | [
"573899",
"50912",
"454072",
"197336",
"349611",
"132950",
"311866",
"18939",
"465059",
"179365",
"125100",
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"574974",
"245648",
"263949",
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"220176",
"443689",
"96697",
"109454",
"511122",
"597459",
"193053",
"23564",
"316363",
"310714",
"550642"... | [
"The formula you're looking for is Thus, from 3% p.a. you get ca. 0.247% per month. However, as you see 0.25% is a good approximation (generally, small rates give good approximation).",
"This is more a question for /r/personalfinance, but I'll answer it anyways. Just use the RATE formula in excel. =RATE(numper... | [
"The formula you're looking for is Thus, from 3% p.a. you get ca. 0.247% per month. However, as you see 0.25% is a good approximation (generally, small rates give good approximation)."
] |
1321 | Are social media accounts (e.g. YouTube, Twitter, Instagram, etc.) considered assets? | [
"216456",
"292065"
] | [
1,
1
] | [
"216456",
"292065",
"351672",
"593708",
"369884",
"531667",
"559738",
"962",
"192696",
"439231",
"39004",
"442433",
"367558",
"440893",
"50735",
"22263",
"77618",
"466430",
"234834",
"468141",
"100849",
"578725",
"358962",
"96563",
"597742",
"399198",
"90687",
"... | [
"Assets with zero value, perhaps. Unless you can prove that they have resale value. Good luck with that. In other words, not worth spending time on.",
"The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would b... | [
"Assets with zero value, perhaps. Unless you can prove that they have resale value. Good luck with that. In other words, not worth spending time on.",
"The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would b... |
9644 | If early exercise is a bad idea, why American option is more expensive than European [duplicate] | [
"194605"
] | [
1
] | [
"590453",
"353467",
"193303",
"368230",
"72789",
"529958",
"484362",
"358520",
"6771",
"345410",
"284540",
"194605",
"364575",
"278373",
"157759",
"44530",
"258975",
"135363",
"420722",
"541928",
"36453",
"271109",
"100021",
"333408",
"388362",
"247870",
"243714",... | [
"If you're into math, do this thought experiment: Consider the outcome X of a random walk process (a stock doesn't behave this way, but for understanding the question you asked, this is useful): On the first day, X=some integer X1. On each subsequent day, X goes up or down by 1 with probability 1/2. Let's think of ... | [
"There are a few situations in which it may be advantageous to exercise early. Wikipedia actually has a good explanation: Option Style, Difference in value To account for the American's higher value there must be some situations in which it is optimal to exercise the American option before the expiration date. ... |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
"140738",
"216365",
"523331",
"134931",
"356595",
"170625",
"10476",
"478242"
] | [
1,
1,
1,
1,
1,
1,
1,
1
] | [
"134931",
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"501395",
"385702",
"500986",
"142631",
"591313",
"81304",
"222076",
"484823",
"7748",... | [
"At 22yo, unless you have a terminal illness, you have many years to earn and save a lot more that you will have in your 401k right now (unless you have already been extremely lucky in the market with your 401k investments). This means that even if you lost everything in your 401k right now, it probably wouldn't hu... | [
"\"At 50 years old, and a dozen years or so from retirement, I am close to 100% in equities in my retirement accounts. Most financial planners would say this is way too risky, which sort of addresses your question. I seek high return rather than protection of principal. If I was you at 22, I would mainly look at... |
813 | Income Tax and Investments | [
"106501",
"436701"
] | [
1,
1
] | [
"417751",
"477940",
"315105",
"97842",
"66858",
"199397",
"101578",
"321114",
"60929",
"419856",
"537916",
"495864",
"548705",
"264820",
"443407",
"587120",
"314342",
"536390",
"553332",
"202645",
"507276",
"334154",
"86887",
"436701",
"558867",
"106501",
"337993"... | [
"Factors to consider: For the taxable investments:",
"Consider the individual who pays $1,000,000 in taxes. His/her income must be substantial. That is what one should aim for. Investments for the most part, do not lower ones taxes. In one of John Grisham's novels, tax shelters are being discussed. Sorry, I... | [
"The $50k is subject to the appropriate income taxes, which may include FICA taxes including the employer share if you are self employed. The after tax money can then be invested with the amount invested being the cost basis (I.e., if you invest $40k you will have a cost basis of $40k). In future years you will ha... |
2713 | Physical Checks - Mailing | [
"29372",
"388147"
] | [
1,
1
] | [
"216200",
"584170",
"284528",
"29372",
"313887",
"66251",
"165691",
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"88952",
"264271",
"272807",
"176383",
"349554",
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"324717",
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"58271",
"379732",
"381813",
"163896",
"597571",
"20791",
"45519",
"36917",
"... | [
"No you do not insure the cheque. A cheque is just standardized form that instructs a bank to transfer money. It is no more important than an ordinary letter. A cheque carries no commercial value, especially when it has a designated recipient. No mail insurance will cover the financial loss as a result of bank fra... | [
"\"Lets say you owed me $123.00 an wanted to mail me a check. I would then take the check from my mailbox an either take it to my bank, or scan it and deposit it via their electronic interface. Prior to you mailing it you would have no idea which bank I would use, or what my account number is. In fact I could have ... |
2296 | How does a bank make money on an interest free secured loan? | [
"396853",
"106424",
"400009",
"119298",
"83330",
"366594",
"279897",
"253563",
"130850"
] | [
1,
1,
1,
1,
1,
1,
1,
1,
1
] | [
"400009",
"106424",
"61235",
"119298",
"396853",
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"467778",
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"95975",
"546874",
"340329",
"175824",
"340436",
"175982",
"221113",
"516957",
"430689",
... | [
"Generally speaking, an interest-free loan will be tied to a specific purchase, and the lender will be paid something by the vendor. The only other likely scenario is an introductory offer to try to win longer-term more profitable business, such as an initial interest-free period on a credit card. Banks couldn't ma... | [
"\"A \"\"true\"\" 0% loan is a losing proposition for the bank, that's true. However when you look at actual \"\"0%\"\" loans they usually have some catches: There might also be late payment fees, prepayment penalties, and other clauses that make it a good deal on average to the bank. Individual borrowers might b... |
4823 | Close to retirement & we may move within 7 years. Should we re-finance our mortgage, or not? | [
"104726",
"362919",
"561929"
] | [
1,
1,
1
] | [
"561929",
"362919",
"434519",
"104726",
"60088",
"267348",
"108511",
"243203",
"361126",
"446646",
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"489479",
"412142",
"139559",
"384185",
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"513499",
"437630",
"58368",
"19781",
"217636",
"156301",
"569691",
"294076",
"444148",
"185107"... | [
"I would think it depends on when within the 7 years you're planning to move. If you want to move within a year or two, the closing costs for the new mortgage may postpone the break even until after your move date; that wouldn't be a financially smart decision. If your plans suggest you're going to move after the b... | [
"Think of your mortgage this way - you have a $130K 16 year mortgage, at 6.75%. At 4%, the same payment ($1109 or so) will pay off the loan in 12.4 years. So, I agree with littleadv, go for a 15yr fixed (but still make the higher payment) or 10 yr if you don't mind the required higher payment. Either way, a refina... |
5782 | Pay off credit cards in one lump sum, or spread over a few months? | [
"172084",
"379891",
"319773",
"448614",
"595455"
] | [
1,
1,
1,
1,
1
] | [
"172084",
"487621",
"319773",
"448614",
"121233",
"352363",
"288268",
"59786",
"262026",
"188676",
"76248",
"467772",
"114592",
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"329249",
"552674",
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"325185",
"495595",
"459257",
"117007",
"54027",
"529229",
"261697",
"538014",
"450372",
"417785... | [
"\"Should I allow the credit cards to be paid out of escrow in one lump sum? Or should I take the cash and pay the cards down over a few months. I have heard that it is better for your credit score to pay them down over time. Will it make much of a difference? Will the money you save by increasing your credit... | [
"\"Should I allow the credit cards to be paid out of escrow in one lump sum? Or should I take the cash and pay the cards down over a few months. I have heard that it is better for your credit score to pay them down over time. Will it make much of a difference? Will the money you save by increasing your credit... |
5085 | What is vested stock and yearly dividends? | [
"102436"
] | [
1
] | [
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"Vesting As you may know a stock option is the right to acquire a given amount of stock at a given price. Actually acquiring the stock is referred to as exercising the option. Your company is offering you options over 200,000 shares but not all of those options can be exercised immediately. Initially you will onl... | [
"Vesting As you may know a stock option is the right to acquire a given amount of stock at a given price. Actually acquiring the stock is referred to as exercising the option. Your company is offering you options over 200,000 shares but not all of those options can be exercised immediately. Initially you will onl... |
594 | Should a retail trader bother about reading SEC filings | [
"377322",
"534059"
] | [
1,
1
] | [
"377322",
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"511117",
"288926",
"579110",... | [
"\"There are many different kinds of SEC filings with different purposes. Broadly speaking, what they have in common is that they are the ways that companies publicly disclose information that they are legally required to disclose. The page that you listed gives brief descriptions of many types, but if you click ... | [
"\"There are many different kinds of SEC filings with different purposes. Broadly speaking, what they have in common is that they are the ways that companies publicly disclose information that they are legally required to disclose. The page that you listed gives brief descriptions of many types, but if you click ... |
9701 | How to bet against the London housing market? | [
"387141",
"357739"
] | [
1,
1
] | [
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"Well, Taking a short position directly in real estate is impossible because it's not a fungible asset, so the only way to do it is to trade in its derivatives - Investment Fund Stock, indexes and commodities correlated to the real estate market (for example, materials related to construction). It's hard to find... | [
"Well, Taking a short position directly in real estate is impossible because it's not a fungible asset, so the only way to do it is to trade in its derivatives - Investment Fund Stock, indexes and commodities correlated to the real estate market (for example, materials related to construction). It's hard to find... |
18 | 1 EIN doing business under multiple business names | [
"88124"
] | [
1
] | [
"88124",
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"8... | [
"You're confusing a lot of things here. Company B LLC will have it's sales run under Company A LLC, and cease operating as a separate entity These two are contradicting each other. If B LLC ceases to exist - it is not going to have it's sales run under A LLC, since there will be no sales to run for a non-existent c... | [
"You're confusing a lot of things here. Company B LLC will have it's sales run under Company A LLC, and cease operating as a separate entity These two are contradicting each other. If B LLC ceases to exist - it is not going to have it's sales run under A LLC, since there will be no sales to run for a non-existent c... |
10674 | How to sell a stock in a crashing market? | [
"99857",
"257241",
"543589",
"3095"
] | [
1,
1,
1,
1
] | [
"3095",
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"47053",
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"272091",
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"273565",
"551286",
"89460",
"211509",
"394454",
"503912",... | [
"What is essential is that company you are selling is transparent enough. Because it will provide additional liquidity to market. When I decide to sell, I drop all volume once at a time. Liquidation price will be somewhat worse then usual. But being out of position will save you nerves for future thinking where to ... | [
"\"Assuming you are referring to macro corrections and crashes (as opposed to technical crashes like the \"\"flash crash\"\") -- It is certainly possible to sell stocks during a market drop -- by definition, the market is dropping not only because there are a larger number of sellers, but more importantly because t... |
2676 | Tax question about selling a car | [
"55666"
] | [
1
] | [
"55666",
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... | [
"I don't think there's much you can do. Losses from the sale of personal-use automobiles (used for pleasure, commuting, etc) are not deductible as capital losses. See IRS Tax Topic 409, end of the first paragraph. The expenses you incurred in owning and operating the car (insurance, fuel, maintenance, service pla... | [
"I don't think there's much you can do. Losses from the sale of personal-use automobiles (used for pleasure, commuting, etc) are not deductible as capital losses. See IRS Tax Topic 409, end of the first paragraph. The expenses you incurred in owning and operating the car (insurance, fuel, maintenance, service pla... |
1284 | Tax consequences when foreign currency changes in value | [
"342411"
] | [
1
] | [
"342411",
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"... | [
"If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you ... | [
"If you buy foreign currency as an investment, then the gains are ordinary income. The gains are realized when you close the position, and whether you buy something else go back to the original form of investment is of no consequence. In case #1 you have $125 income. In case #2 you have $125 income. In case #3 you ... |
6262 | Help required on estimating SSA benefit amounts | [
"34538",
"26799",
"390877"
] | [
1,
1,
1
] | [
"390877",
"34538",
"498444",
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"107520",
"26487",
"192585",
"3047",
"311442",
"532318",
"11274",
"491028",
"5... | [
"The social security administration has a webpage to get your Social Security estimate. It replaces the yearly estimate they used to mail everybody. It shows the amount you paid for social security and medicare and what they estimate you will receive at your retirement age. They also discuss disability benefits. Ev... | [
"\"Some details in case you are interested: Being a defined benefit kind of pension plan, the formula for your Social Security benefits isn't tied directly to FICA contributions, and I'm not aware of any calculator that performs an ROI based on FICA contributions. Rather, how much you'll get in retirement is based ... |
3254 | Why do people buy US dollars on the black market? | [
"484891",
"443511",
"475756"
] | [
1,
1,
1
] | [
"443511",
"475756",
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"97059",
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"183149",
"148454",
"345725",
"351805",
"402006",
"41750... | [
"\"The main reason people buy dollars (or other currency) on the black market is because they are prevented from exchanging currency on the official government market. Venezuela for example restricts citizens to a maximum number of dollars the citizen can buy or sell per year, depending on various factors such as w... | [
"\"A falling exchange rate is an indication of falling confidence in a currency. Countries like Iran or Venezuela, with a managed exchange rate, set their exchange rates at a higher value than the market accepts. Such market expectations may be influenced by poor government management, interventions into markets (... |
7124 | How come we can find stocks with a Price-to-Book ratio less than 1? | [
"74615",
"154725",
"558617",
"526110"
] | [
1,
1,
1,
1
] | [
"526110",
"7170",
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"504243",
"184303",
"414940",
"546969",
"325669",
"583708",
"522040",
... | [
"Book value = sell all assets and liquidate company . Then it's the value of company on book. Price = the value at which it's share gets bought or sold between investors. If price to book value is less than one, it shows that an 100$ book value company is being traded at 99$ or below. At cheaper than actually theo... | [
"\"The VDE fund is an energy fund so this is a function of recent price changes in oil (and gas, coal, &c). For example. Lets say last year when oil was $100 per barrel a bunch of companies saw a good return and put $ 100 million into a bunch of leases, boreholes, pumps, &c to return $10 million per year, and the... |
8947 | Can a Roth IRA be used as a savings account? | [
"455398",
"461592"
] | [
1,
1
] | [
"241161",
"89624",
"457634",
"59899",
"136879",
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"122638",
"20485",
"25814",
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"158730",
"305855",
"211525",
"159197",
"484149",
"387338",
"461084",
"479769",
"545184",
"135079"... | [
"A Roth IRA is intended for retirement. Before age 59.5 (I think), you can only withdraw the amount you deposited without penalty. It's great you're saving in a Roth, but you shouldn't put savings in there that you will need before you reach sufficient age. And since it's long-term, you can invest in things you exp... | [
"Sounds like a bad idea. The IRA is built on the power of compounding. Removing contributions will hurt your retirement savings, and you will never be able to make that up. Instead, consider tax-free investments. State bonds, Federal bonds, municipal bonds, etc. For example, I invest in California muni bonds fund w... |
6800 | I don't live in America. How can I buy IPO stock of newly listed companies in the United States? | [
"35191"
] | [
1
] | [
"35191",
"99472",
"551809",
"478736",
"231814",
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"347560",
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"15772",
"529402",
"94477",
"34318",
... | [
"First thing to consider is that getting your hands on an IPO is very difficult unless you have some serious clout. This might help a bit in that department (http://www.sec.gov/answers/ipoelig.htm) However, assuming you accept all that risk and requirements, YES - you can buy stocks of any kind in the US even if yo... | [
"First thing to consider is that getting your hands on an IPO is very difficult unless you have some serious clout. This might help a bit in that department (http://www.sec.gov/answers/ipoelig.htm) However, assuming you accept all that risk and requirements, YES - you can buy stocks of any kind in the US even if yo... |
2383 | Should I Purchase Health Insurance Through My S-Corp | [
"17215",
"232199"
] | [
1,
1
] | [
"17215",
"232199",
"524134",
"532932",
"476085",
"41793",
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"209159",
"223712",
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"533825",
"110102",
"194955",
"457034",
"80866",
"458079",
"415745",
"98112",
"125696",... | [
"The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, ... | [
"The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, ... |
10808 | What are a few sites that make it easy to invest in high interest rate mutual funds? | [
"28291",
"487052",
"484599"
] | [
1,
1,
1
] | [
"487052",
"28291",
"427842",
"253614",
"586851",
"424131",
"484599",
"100341",
"183497",
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"556519",
"307082",
"449124",
"41577",
"346398",
"324012",
"592636",
"526346",
"117875",
... | [
"Any investment company or online brokerage makes investing in their products easy. The hard part is choosing which fund(s) will earn you 12% and up.",
"\"If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskies... | [
"\"If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskiest stuff. Think \"\"emerging markets\"\". Even funds like Vanguard Emerging Markets (ETF: VWO, mutual fund, VEIEX) or Fidelity Advisor Emerging Markets Inc... |
3791 | "When people say 'Interest rates are at all time low!"" … Which interest rate are they actually referring to?" | [
"327432",
"577201",
"212222"
] | [
1,
1,
1
] | [
"327432",
"212222",
"594667",
"570466",
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"531551",
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"332136",
"205163",
"2390",
"551234",
"491219",
"357103",
"285064",
"36602",
"417311",
... | [
"\"You are correct that it could refer to any of the types of interest rates that you've mentioned. In general, though, phrases such as \"\"rising interest rates\"\" and \"\"falling interest rates\"\" refer to the Federal Funds Rate or LIBOR. These are the interest rates at which banks in the U.S. and U.K., respect... | [
"\"You are correct that it could refer to any of the types of interest rates that you've mentioned. In general, though, phrases such as \"\"rising interest rates\"\" and \"\"falling interest rates\"\" refer to the Federal Funds Rate or LIBOR. These are the interest rates at which banks in the U.S. and U.K., respect... |
3369 | Why should one only contribute up to the employer's match in a 401(k)? | [
"371886",
"163834",
"231012",
"145716",
"411910",
"395840"
] | [
1,
1,
1,
1,
1,
1
] | [
"165305",
"330058",
"240259",
"24231",
"296405",
"97805",
"249063",
"591383",
"488673",
"115465",
"53544",
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"140330",
"1366",
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"519750",
"191447",
"379911",
"273497",
"463892",
"534837",
"242556",
"18485",
"430931",
... | [
"In addition to the prior answer, talking from experience, you get into trouble if you surpass the contribution limit and your employer continues to deposit money above the IRS maximum allowed. When that happens, you have until April to take out the excess contribution and earned interest on that chunk of money and... | [
"The matching funds are free money, so it is a very good idea to take that money off the table. Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k). (Obviously, I'm keeping things simple. Vesting schedules mean that the employer match isn't yours... |
2183 | Why are there many small banks and more banks in the U.S.? | [
"132678",
"124427",
"571625",
"498146",
"24994",
"24344"
] | [
1,
1,
1,
1,
1,
1
] | [
"132678",
"498146",
"24344",
"550924",
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"129894",
"270866",
"462218",
"491523",
"582270",
"537057",
"511563",
... | [
"\"As an addendum to PeterK's answer, once upon a time, there were many Savings and Loan Associations (S&Ls) that acted as small banks, accepting savings deposits from people and lending money for home mortgages to local residents. Some of these S&Ls were chartered Federally with deposits insured by the FSLIC (simi... | [
"\"As an addendum to PeterK's answer, once upon a time, there were many Savings and Loan Associations (S&Ls) that acted as small banks, accepting savings deposits from people and lending money for home mortgages to local residents. Some of these S&Ls were chartered Federally with deposits insured by the FSLIC (simi... |
4335 | What is the US Fair Tax? | [
"318583",
"357013",
"322246",
"484148"
] | [
1,
1,
1,
1
] | [
"318583",
"484148",
"322246",
"357013",
"421656",
"188485",
"588454",
"429037",
"468123",
"235708",
"543161",
"184705",
"453956",
"419466",
"474832",
"65284",
"9819",
"267111",
"357079",
"362173",
"434835",
"110515",
"538490",
"342618",
"329246",
"177217",
"388250... | [
"\"The fair tax is a proposal to replace the US income tax with a sales tax. Pros of Fair Tax: It's a large change to the way the United States currently does things. The \"\"Fair Tax Act of 2011\"\" is H.R.25 in the US House and S.13 in the Senate. The full text of the bill is available at the links provided. The... | [
"\"The fair tax is a proposal to replace the US income tax with a sales tax. Pros of Fair Tax: It's a large change to the way the United States currently does things. The \"\"Fair Tax Act of 2011\"\" is H.R.25 in the US House and S.13 in the Senate. The full text of the bill is available at the links provided. The... |
10152 | What does a high operating margin but a small but positive ROE imply about a company? | [
"113585"
] | [
1
] | [
"113585",
"371515",
"549181",
"516797",
"37032",
"557607",
"557350",
"106155",
"406542",
"565598",
"426343",
"266672",
"559363",
"495715",
"336601",
"544451",
"384642",
"137746",
"521792",
"444747",
"522040",
"137307",
"131335",
"14488",
"393759",
"135109",
"29585... | [
"The operating margin deals with the ability for a company to make a profit above the costs of running the company and generating sales. While ROE is how much money the company makes relative to the shareholders equity. I'd be willing to bet that if a company has a small ROE then it also has a quite large P/E (pric... | [
"The operating margin deals with the ability for a company to make a profit above the costs of running the company and generating sales. While ROE is how much money the company makes relative to the shareholders equity. I'd be willing to bet that if a company has a small ROE then it also has a quite large P/E (pric... |
2747 | What evidence do I need to declare tutoring income on my income tax? | [
"540571"
] | [
1
] | [
"540571",
"123693",
"184698",
"150271",
"527776",
"402686",
"65095",
"172457",
"174025",
"159709",
"111157",
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"11021",
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"238622",
"281803",
"421924",
"128861",
"51761",
"349424",
"172745",
"576873... | [
"I have been a private tutor on and off for about 30 years, in three countries, so I understand your concerns! I always kept records as though it was a real business - even if I only had one student I kept records of dates/times/names, and also tracked where the money went (I never spent it straight up - it always... | [
"I have been a private tutor on and off for about 30 years, in three countries, so I understand your concerns! I always kept records as though it was a real business - even if I only had one student I kept records of dates/times/names, and also tracked where the money went (I never spent it straight up - it always... |
5254 | How do I calculate the quarterly returns of a stock index? | [
"392851",
"402466"
] | [
1,
1
] | [
"402466",
"354857",
"138487",
"563169",
"573928",
"220025",
"409434",
"476260",
"392851",
"242849",
"574974",
"438547",
"531066",
"276860",
"143302",
"96697",
"238817",
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"105391",
"8003",
"591089",
"408610",
"175107",
"599651",
"72141",
"235592",
"2810",
... | [
"Here's a few demo steps, first calculating the year to date return, then calculating the Q4 quarterly return based on the cumulative returns for Q3 and Q4. It's fine to use closing price to closing price as return periods.",
"You could take these definitions from MSCI as an example of how to proceed. They cal... | [
"So for quarters So, if Q1's value was 10 and Q2's value was 25 For closing or opening prices, I would use closing prices. For instance, some used Adjusted Close or Close on Yahoo Finance (see this example of AAPL). Added Note: In your example, for your example, you'll want to take the absolute value of the denomi... |
6629 | Tax treatment of a boxed trade? | [
"444405"
] | [
1
] | [
"267067",
"247902",
"99448",
"249687",
"123287",
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"In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as a... | [
"Here's how capital gains are totaled: Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term. Net Capital Gain. If a taxpayer’s long-term gains are... |
6792 | Where to find the full book of outstanding bids/asks for a stock? | [
"485973"
] | [
1
] | [
"557770",
"48493",
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"As another answer started, this information comes straight from an exchange and generally costs a fortune . . . However things change: IEX, a new exchange, recently opened and they are offering real time bid/ask data for free. Here's the API description: https://www.iextrading.com/developer/ This data should be go... | [
"For starters, that site shows the first 5 levels on each side of the book, which is actually quite a bit of information. When traders say the top of the book, they mean just the first level. So you're already getting 8 extra levels. If you want all the details, you must subscribe to the exchange's data feeds (th... |
10122 | Why diversify stocks/investments? | [
"570787",
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] | [
1,
1,
1,
1
] | [
"502495",
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"8908... | [
"Diversification is a good method of risk management. Different types of investments do better in different situations and economic climates. Invest all your money at the wrong time in a single product and you could lose everything. You could also technically make a great deal of money, but actions such as these ar... | [
"Basically, diversifying narrows the spread of possible results, raising the center of the returns bell-curve by reducing the likelihood of extreme results at either the high or low end. It's largely a matter of basic statistics. Bet double-or-nothing on a single coin flip, and those are the only possible results... |
11054 | Short Term Capital Gains tax vs. IRA Withdrawal Tax w/o Quarterly Est. Taxes | [
"155053",
"321015"
] | [
1,
1
] | [
"155053",
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"\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed ... | [
"\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed ... |
6525 | Does it make sense to trade my GOOGL shares for GOOG and pocket the difference? | [
"181985",
"98150",
"106541"
] | [
1,
1,
1
] | [
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"38287",
"186631",
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"Too much fiddling with your portfolio if the difference is 3-4% or less (as it's become in recent months). Hands off is the better advice. As for buying shares, go for whichever is the cheapest (i.e. Goog rather than Googl) because the voting right with the latter is merely symbolic. And who attends shareholder... | [
"\"To keep it simple, let's say that A shares trade at 500 on average between April 2nd 2014 and April 1st 2015 (one year anniversary), then if C shares trade on average: The payment will be made either in cash or in shares within 90 days. The difficulties come from the fact that the formula is based on an average ... |
7295 | Selling non-dividend for dividend stocks | [
"244749"
] | [
1
] | [
"542667",
"244754",
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"481999",
"507117",
"434252",
"71292",
"21976... | [
"There are strategies based on yields. Dogs of the Dow being a specific example while Miller Howard has a few studies around dividends that may be of use if you additional material. Selling off a portion of the holding can run into problems as how could one hold 10 shares, selling a non-zero whole number every year... | [
"Is selling Vested RSU is the same as selling a regular stock? Yes. Your basis (to calculate the gain) is what you've been taxed on when the RSUs vested. Check your payslips/W2 for that period, and the employer should probably have sent you detailed information about that. I'm not a US citizen, my account is in ETr... |
4306 | How do currency markets work? What factors are behind why currencies go up or down? | [
"450694",
"221435",
"233718",
"61819"
] | [
1,
1,
1,
1
] | [
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"310016",
"93518",
"248794",... | [
"\"Q: How do currency markets work? A: The FX (foreign exchange) market works very much like the stock market where potential buying parties bid $Y of country 1's currency to buy $1 in country 2's currency. Potential selling parties sell (ask) $1 of country 2's currency for $Y of country 1's currency. Like the st... | [
"\"Q: How do currency markets work? A: The FX (foreign exchange) market works very much like the stock market where potential buying parties bid $Y of country 1's currency to buy $1 in country 2's currency. Potential selling parties sell (ask) $1 of country 2's currency for $Y of country 1's currency. Like the st... |
10482 | Rollover into bond fund to do dollar cost averaging [duplicate] | [
"549072"
] | [
1
] | [
"434466",
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"67220",
"439757",
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"\"I assume by that you mean gradually buying the same mix of funds over time. If that's the case, there is no rational reason to do this. Dollar-cost averaging is an artifact of the way most people fund their 401(k). I would not consider it a viable \"\"strategy\"\". (Neither does Wikipedia) Let's say you ha... | [
"Many would recommend lump sum investing because of the interest gains, and general upward historical trend of the market. After introducing DCA in A Random Walk Down Wall Street, Malkiel says the following: But remember, because there is a long-term uptrend in common-stock prices, this technique is not necessaril... |
1832 | Warren Buffett and Charles Munger advice for small investors? | [
"590276"
] | [
1
] | [
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"404732",
"550252"... | [
"\"Consultant, I commend you for thinking about your financial future at such an early age. Warren Buffet, arguably the most successful investor ever lived, and the best known student of Ben Graham has a very simple advice for non-professional investors: \"\"Put 10% of the cash in short-term government bonds and 9... | [
"\"Warren Buffett: 'Investing Advice For You--And My Wife' (And Other Quotes Of The Week): What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit…My advice to the trustee could not be mor... |
2423 | At what age should I start or stop saving money? | [
"81106",
"396127",
"553288",
"551954",
"529444",
"305946",
"538023"
] | [
1,
1,
1,
1,
1,
1,
1
] | [
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"319760",
"247132",
"538023",
"431203",
"47614",
"519856",
"361623",
"504940"... | [
"While there is no age limit, bear in mind that saving money makes sense only if it doesn't delay your paying off expensive debt. If you have credit cards or expensive loans you would be best placed to focus on paying them down before saving a lot. If you save and keep debt, you'll effectively lose money as the int... | [
"As AskAboutGadgets notes, there's no lower age limit. You current age (24) is a pretty good one; you'll have four decades or so for your money to grow and compound, allowing it to become a veritable fortune when you're ready to retire if you invest it fairly aggressively.",
"While there is no age limit, bear in... |
7431 | Pay off mortgage or invest in high value saving account | [
"372921"
] | [
1
] | [
"154449",
"2393",
"63883",
"251642",
"372921",
"493336",
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"477907",
"529954",
"560915",
"157414",
"100136"... | [
"In all likelihood, the best thing you can do, if these really are your only two options (ie no other debt at all), paying-down your mortgage will shorten the term of the mortgage, and mean you spend less on your house in the long run. Investing is should be a long-term activity - so yes, the likelihood is that, gi... | [
"\"Basically, the easiest way to do this is to chart out the \"\"what-ifs\"\". Applying the amortization formula (see here) using the numbers you supplied and a little guesswork, I calculated an interest rate of 3.75% (which is good) and that you've already made 17 semi-monthly payments (8 and a half months' worth)... |
2334 | How do you determine “excess cash” for Enterprise Value calculations from a balance sheet? | [
"228403",
"2304",
"150650"
] | [
1,
1,
1
] | [
"150650",
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"192515",
"527230",
"280895",
"322459",
"333360",
"446652... | [
"\"Excess Cash = Cash & Equivalents + Long-Term Investments - Current Liabilities The problem this calculation of excess cash is that \"\"long-term investments\"\" can be illiquid things like real estate. Another flaw is that it gives no credit for Current Assets, like receivables, which can be used to offset Curre... | [
"You're not missing anything. Excess cash is somewhat of a nebulous concept. To different people it means different things. The answer is that excess cash varies for each company depending on their business. For instance, some companies need very high amounts of working capital. A company may be increasing the... |
3995 | I have more than $250,000 in a US Bank account… mistake? | [
"427032",
"278734",
"297900",
"506909",
"230208"
] | [
1,
1,
1,
1,
1
] | [
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"First, what's the reason? Why do you have that much in cash at all - are you concerned about market volatility, are you planning to buy a house, do you have tens of millions of dollars and this is your slush fund? Are you a house flipper and this is part of business for you? If you need the money for short term u... | [
"First, what's the reason? Why do you have that much in cash at all - are you concerned about market volatility, are you planning to buy a house, do you have tens of millions of dollars and this is your slush fund? Are you a house flipper and this is part of business for you? If you need the money for short term u... |
6890 | Where does the money go when I buy stocks? | [
"558703",
"240196"
] | [
1,
1
] | [
"558703",
"240196",
"154976",
"471964",
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"332323",
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"413256",
"413672",
"511760",
"317365",
"39081... | [
"\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case... | [
"\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case... |
3103 | AVS Address Verification System of BOTH Credit and Debit Cards - WHERE, HOW? | [
"176596"
] | [
1
] | [
"176596",
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... | [
"\"Parts of what you want are possible, but taken as a whole, you're out of luck. First of all, there is no master database of every cardholder in the country. The only way to check if information is correct is to ask the issuing bank. The AVS system is a way to automate doing so, but it's possible to call the ba... | [
"\"Parts of what you want are possible, but taken as a whole, you're out of luck. First of all, there is no master database of every cardholder in the country. The only way to check if information is correct is to ask the issuing bank. The AVS system is a way to automate doing so, but it's possible to call the ba... |
4205 | How and why does the exchange rate of a currency change almost everyday? | [
"79777",
"134239",
"540451"
] | [
1,
1,
1
] | [
"79777",
"499875",
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... | [
"\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless ther... | [
"\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless ther... |
8247 | Tax on Stocks or ETF's | [
"42521",
"475170",
"321114",
"465313"
] | [
1,
1,
1,
1
] | [
"333425",
"195767",
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"526661",
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"580802",
"437907",
"518735",
"169240",
"244061",
"161019",
"459953",
"264820... | [
"As mentioned by Dilip, you need to provide more details. In general for transacting on stocks; Long Term: If you hold the stock for more than one year then its long term and not taxable. There is a STT [Securities Transaction Tax] that is already deducted/paid during buying and selling of a stock. Short Term: If y... | [
"\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §... |
9108 | Starting an investment portfolio with Rs 5,000/- | [
"272021",
"472585"
] | [
1,
1
] | [
"290757",
"323067",
"581712",
"65006",
"281865",
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"412785",
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"Rs 10,000 is a small but good amount to begin with. I would suggest you start by investing in some good mutual funds. Do some research, a balance mutual fund is less risky less returns compared to a equity mutual fund. The other option is directly investing in stock market, however this needs some experience and y... | [
"Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy. Let's say you have ₹15,000 to start with. Split this in to three components: Purchase all of the above at the same time. 30 days later, you will ... |
9617 | What differentiates index funds and ETFs? | [
"408524",
"364735",
"314008"
] | [
1,
1,
1
] | [
"408524",
"370244",
"106863",
"159471",
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"473658",
"172374",
"270992",
"288679",
"358997",
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"87722",
"107462",
"153660",
"298350",
"49168",
"153112",
"472663",
"312015",
"480315... | [
"Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a sma... | [
"Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a sma... |
6199 | How can all these countries owe so much money? Why & where did they borrow it from? | [
"414693",
"584273",
"239214",
"169921"
] | [
1,
1,
1,
1
] | [
"584273",
"414693",
"47163",
"520000",
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"151971",
"510305",
"329270",
"490042",
"24214",
"396145",
"286900",
"199253",... | [
"By the phrasing of your question it seems that you are under the mistaken impression that countries are borrowing money from other countries, in which case it would make sense to question how everyone can be a borrower with no one on the other side of the equation. The short answer is that the debt is owed mostly ... | [
"\"They borrowed it from the people, and typically to finance wars and military spending. For example, Wikipedia suggests that the Bank of England \"\"was set up to supply money to the King. £1.2m was raised in 12 days; half of this was used to rebuild the Navy.\"\" It's a game that everyone has to play once starte... |
10137 | F-1 student investing in foreign markets | [
"57168"
] | [
1
] | [
"78632",
"308048",
"57168",
"412226",
"255519",
"480638",
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"480749",
"102682",
"458635",
"410543",
"35191",
"506368",
"213833",
"411021"... | [
"As an F1 student, I have been investing (and occasionally buying and selling within few weeks) for several years, and I have never had problems (of course I report to IRS gains/losses every year at tax time). On the other hand, the officer in charge of foreign students at my school advised me to not run ads on a w... | [
"You cannot have off-campus employment in your first year, but investments are considered passive income no matter how much time you put into that effort. Obviously you need to stay enrolled full-time and get good enough grades to stay in good standing academically, so you should be cautious about how much time you... |
3014 | What investments are positively related to the housing market decline? | [
"341399",
"273282"
] | [
1,
1
] | [
"341399",
"273282",
"484266",
"401264",
"150632",
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"190891",
"300703",
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"481874",
"584633",
"12782",
"350332",
"209125",
"337057",
"494928",
"66219",
"407145",
"149725",
"288167",
"494438",
"598764",
"217242",
"313913",
"208081",
"60175",
"412502"... | [
"A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a dow... | [
"A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a dow... |
6787 | Would it make sense to sell a stock, then repurchase it for tax purposes? | [
"587120"
] | [
1
] | [
"38287",
"219762",
"540292",
"17184",
"23217",
"390864",
"304918",
"400730",
"376800",
"358602",
"396030",
"156092",
"161155",
"207929",
"407602",
"221715",
"571124",
"377944",
"261902",
"501214",
"522319",
"444405",
"268423",
"292762",
"514970",
"474981",
"55893"... | [
"I don't believe in letting the tax tail wag the investing dog. You have a stock you no longer wish to hold for whatever reason? Sell it. But to sell a loser, hoping it doesn't rise by the time you wish to re-buy it in 30 days is folly. This effort may gain you $50 if done right. No, it's not worth it either way."... | [
"\"What you're talking about is called \"\"tax gain harvesting,\"\" and it is considered good tax management. From The Oblivious Investor, investors in the 10% or 15% bracket pay 0% tax on long-term capital gains. For an interesting take on never paying income taxes again, check out Go Curry Cracker. You can claim ... |
89 | How can I deposit a check made out to my business into my personal account? | [
"413229",
"590102",
"268026",
"248624",
"508754",
"64556"
] | [
1,
1,
1,
1,
1,
1
] | [
"188893",
"536686",
"309023",
"521540",
"65404",
"508754",
"264075",
"197862",
"193830",
"556021",
"184697",
"316359",
"406109",
"213331",
"116030",
"261856",
"268026",
"564553",
"346537",
"466317",
"138934",
"91707",
"377521",
"590102",
"501230",
"42032",
"165397... | [
"Assuming it's your business, endorse the check as yourself and your DBA name, payable to your personal account",
"\"If your son endorses the check or better still, endorses it with \"\"for deposit only\"\" and places the account number in the endorsement, it's likely the bank will accept it for deposit. In this ... | [
"You should have a separate business account. Mixing business and personal funds is a bad practice. Shop around, you should be able to find a bank that will let you open a free checking account, especially if you are going to have minimal activity (e.g. less than 20 of checks per month) and perhaps maintain a small... |
4179 | Why could the serious financial woes of some EU member states lead to the end of the Euro? | [
"278196"
] | [
1
] | [
"278196",
"518406",
"179822",
"319729",
"443828",
"148194",
"240848",
"133580",
"546589",
"514620",
"133966",
"110746",
"446402",
"540553",
"143823",
"475804",
"310456",
"468297",
"559885",
"535947",
"467825",
"371672",
"65899",
"449934",
"514058",
"398455",
"3945... | [
"The Euro is a common currency between various countries in Europe. This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU. Such a system has many advantages, but it also means that individual countries cannot deal with their unique s... | [
"The Euro is a common currency between various countries in Europe. This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU. Such a system has many advantages, but it also means that individual countries cannot deal with their unique s... |
3888 | Why I can't view my debit card pre-authorized amounts? | [
"307083",
"319213",
"239632"
] | [
1,
1,
1
] | [
"208169",
"448086",
"181757",
"283889",
"91804",
"307083",
"323213",
"9830",
"313441",
"75735",
"385237",
"597933",
"384892",
"598419",
"276733",
"316652",
"261161",
"519328",
"458374",
"209718",
"168283",
"240328",
"319213",
"486617",
"306684",
"443609",
"236289"... | [
"It's not so much a credit card, but a financial institution's online platform that either provides this functionality or not. The following Canadian financial institutions show an itemized list of pre-authorized transactions (not an exhaustive list): The following institutions show a total value of pre-authorized... | [
"\"The simplest answer to why you can't see it in your online statement is a design/business decision that was made, most probably originally to make online statements differ as little as possible from old fashioned monthly printed statements; the old printed statements never showed holds either. Some banks and car... |
2395 | Freelance site with lowest commission fees? | [
"179066"
] | [
1
] | [
"179066",
"280679",
"165503",
"545324",
"57320",
"148250",
"151758",
"253881",
"296725",
"294517",
"97094",
"103120",
"294645",
"569993",
"396792",
"593101",
"129607",
"242551",
"158091",
"115584",
"446622",
"246986",
"480984",
"192910",
"489285",
"313039",
"25003... | [
"\"Your own site/business. I’m in freelancing and internet business for 15 years, 20 years IT experience. Currently i use freelance websites for cheap Asian employees, very seldom for EU/USA employees, and if only if local competition is heavily out-pricing qualified staff. Till I went \"\"limited\"\" i.e., founded... | [
"\"Your own site/business. I’m in freelancing and internet business for 15 years, 20 years IT experience. Currently i use freelance websites for cheap Asian employees, very seldom for EU/USA employees, and if only if local competition is heavily out-pricing qualified staff. Till I went \"\"limited\"\" i.e., founded... |
9979 | What is the best way to invest in gold as a hedge against inflation without having to hold physical gold? | [
"538237",
"35633",
"337243",
"35369"
] | [
1,
1,
1,
1
] | [
"35369",
"13885",
"538237",
"165659",
"10578",
"89311",
"326858",
"556936",
"483734",
"516148",
"351362",
"337243",
"369563",
"327271",
"35633",
"97081",
"48691",
"466176",
"172814",
"274859",
"427890",
"259440",
"184557",
"443094",
"302869",
"174302",
"399751",
... | [
"\"Investing in gold without having physical gold is not really a hedge against inflation. GLD is really more for speculation, not protection against serious inflation. If there is any kind of inflation worth really protecting yourself against then one thing you will notice at its onset is a divergence in the price... | [
"\"GLD, IAU, and SGOL are three different ETF's that you can invest in if you want to invest in gold without physically owning gold. Purchasing an ETF is just like purchasing a stock, so you're fine on that front. Another alternative is to buy shares of companies that mine gold. An example of a single company is R... |
8013 | Frequency of investments to maximise returns (and minimise fees) | [
"496159",
"224231"
] | [
1,
1
] | [
"304398",
"48678",
"144349",
"254910",
"278607",
"176335",
"402633",
"24846",
"53100",
"537626",
"268772",
"446948",
"549364",
"496159",
"186538",
"49930",
"234039",
"397976",
"138954",
"384983",
"384893",
"215296",
"117634",
"582697",
"376967",
"103622",
"263784"... | [
"Determine an investment strategy and that will likely answer this for you. Different people have different approaches and you need to determine for yourself what buy and sell criteria you want to have. Again, depending on the strategy there can be a wide range here as some may trade index funds though this can bac... | [
"Okay, I think I managed to find the precise answer to this problem! It involves solving a non-linear exponential equation, but I also found a good approximate solution using the truncated Taylor series. See below for a spreadsheet you can use. Let's start by defining the growth factors per period, for money in the... |
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